As filed with the Securities and Exchange Commission on March 31, 1995.
Registration Nos. 33-26644
811-05715
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM N-2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
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The Gabelli Convertible Securities Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
One Corporate Center, Rye, New York 10580-1434
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code (800) 422-3554
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Bruce N. Alpert
J. Hamilton Crawford, Jr., Esq.
One Corporate Center
Rye, New York 10580-1434
(914) 921-5105
(Name and Address of Agent for Service)
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Copy to:
Richard T. Prins, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
(212) 735-3000
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<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
Form N-2
Cross-Reference Sheet
N-2 Item Number Location in Part A (Caption)
--------------- ----------------------------
Part A
Item 1 Outside Front Cover .............. Not Applicable
Item 2 Inside Front and
Outside Back Cover Page ........ Not Applicable
Item 3 Fee Table and Synopsis ........... Table of Fees and Expenses
Item 4 Financial Highlights ............. Not Applicable
Item 5 Plan of Distribution ............. Not Applicable
Item 6 Selling Shareholders ............. Not Applicable
Item 7 Use of Proceeds .................. Not Applicable
Item 8 General Description of
the Registrant ................. The Fund; Investment
Objective and Policies;
Convertible Securities; Other
Investments; Derivative
Instruments; Repurchase of
Shares; Description of
Common Stock
Item 9 Management ....................... Management of the Fund;
Description of Common Stock -
Custodian, Transfer Agent and
Dividend Disbursing Agent
Item 10 Capital Stock,
Long-Term Debt, and
Other Securities ............... Distribution Arrangements;
Taxation; Description
of Common Stock
Item 11 Defaults and Arrears
on Senior Securities ........... Not Applicable
Item 12 Legal Proceedings ................ Not Applicable
Item 13 Table of Contents of
the Statement of
Additional Information ......... Table of Contents of the
Statement of Additional
Information
Location in Statement of Additional
Information (Caption)
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Part B
Item 14 Cover Page ....................... Outside Front Cover Page
Item 15 Table of Contents ................ Outside Front Cover Page
Item 16 General Information
and History .................... Not Applicable
Item 17 Investment Objective
and Policies ................... Convertible Securities; Other
Investments; Derivative
Instruments; Special
Investment Methods
Item 18 Management ....................... The Adviser; Directors
and Officers
Item 19 Control Persons and
Principal Holders of
Securities ..................... The Adviser; Directors
and Officers
Item 20 Investment Advisory
and Other Services ............. The Adviser; Directors
and Officers
Item 21 Brokerage Allocation
and Other Practices ............ Portfolio Transactions
and Brokerage
Item 22 Tax Status ....................... Dividends, Distributions
and Taxes
Item 23 Financial Statements ............. Financial Statements;
Report of Independent
Accountants
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
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The
Gabelli
Convertible
Securities
Fund,
Inc.
GABELLI FUNDS, INC.
Investment Adviser
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The Gabelli Convertible Securities Fund, Inc.
One Corporate Center
Rye, New York 10580-1434
Telephone: 1-800-GABELLI (1-800-422-3554)
================================================================================
March 31, 1995
The Gabelli Convertible Securities Fund, Inc. (the "Fund"), a Maryland
corporation, is a closed-end, diversified, management investment company, whose
investment objective is to seek a high level of total return on its assets. The
Fund seeks to achieve its investment objective through a combination of current
income and capital appreciation by investing primarily in "Convertible
Securities."
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This Registration Statement sets forth concisely the information a prospective
investor should know before investing in the Fund. A Statement of Additional
Information, dated March 31, 1995 (the "Additional Statement") containing
additional information about the Fund has been filed with the Securities and
Exchange Commission and is incorporated by reference into this Registration
Statement. For a free copy, write or call the Fund at the address or telephone
number set forth above.
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This Registration Statement should be retained
by investors for future reference.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Registration Statement.
The Fund: The Gabelli Convertible Securities Fund, Inc. is a closed-end,
diversified, management investment company. Prior to March 31, 1995, the Fund
operated as an open-end, diversified, management investment company since July
3, 1989.
Investment Objective: The Fund's investment objective is to seek a high level of
total return on its assets. The Fund will seek to achieve this objective
through a combination of current income and capital appreciation by investing
primarily in securities which are convertible into common stock or other
equity securities ("Convertible Securities"). See "Investment Objective and
Policies."
Special Characteristics and Risks: Convertible Securities are not typically
rated within the four highest categories by the rating agencies and are,
therefore, not generally investment grade. There is no minimum rating which is
acceptable for investment by the Fund; however, it is expected that not more
than 50% of the Fund's portfolio will consist of securities rated CCC or lower
by Standard & Poor's Ratings Group or Caa or lower by Moody's Investor Service
or if unrated, of comparable quality as determined by the Fund's investment
adviser. The Fund will, however, limit its investments in securities of
issuers in default to not more than 5% of its total assets. The Fund may also
invest in, among other things, unregistered Convertible Securities, securities
of issuers involved in corporate reorganizations, warrants, rights, securities
of foreign issuers and forward commitments for securities purchased on a "when
issued" or "delayed delivery" basis. See "Other Investments." The Fund may
also purchase or sell options, engage in transactions in financial futures and
options thereon, engage in short sales of securities it owns or has the right
to acquire, enter into repurchase agreements and forward foreign currency
exchange contracts, lend its portfolio securities to securities broker-dealers
or financial institutions and borrow money for short-term credits from banks
as may be necessary for the clearance of portfolio transactions and for
temporary or emergency purposes. These techniques may involvespecial risks.
See "Special Investment Methods."
Management and Fees: Gabelli Funds, Inc. serves as the Fund's investment adviser
(the "Adviser") and is compensated for its services and its related expenses
at an annual rate of 1.00% of the Fund's average daily net assets. This fee is
higher than that paid by most mutual funds. The Adviser will pay the fee of
Furman Selz Incorporated, the administrator to the Fund ("Furman Selz" or the
"Administrator"), from its investment advisory fee.
How to Purchase Shares: Shares of the Fund are listed on the New York Stock
Exchange under the symbol GCV.
Repurchase and Charter Provisions: As shareholders of a closed-end fund, Fund
shareholders do not have the right to redeem their shares. Shareholders
desiring liquidity may, subject to applicable securities laws, trade their
shares in the Fund on the New York Stock Exchange or other markets on which
the shares may trade at the then current market value. The Fund is authorized
to repurchase its shares on the open market when the shares are trading at a
discount of 10% or more (or such other percentage as its Board of Directors
may determine from time to time) from the net asset value. In addition,
certain provisions of the Fund's Articles of Amendment and Restatement (the
"Charter") and Amended and Restated By-Laws may be regarded as "anti-takeover"
provisions. Pursuant to these provisions, only one of three classes of
directors is elected each year, and the affirmative vote of the holders of 75%
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of the outstanding shares of the Fund is necessary to authorize the conversion
of the Fund from a closed-end to an open-end investment company and an
affirmative vote of 66 2/3% of the outstanding shares of the Fund may be
necessary to authorize certain business transactions with any beneficial owner
of more than 5% of the outstanding shares of the Fund. The overall effect of
these provisions is to render more difficult the accomplishment of a merger
with, or the assumption of control by, a principal shareholder. These provisions
may have the effect of depriving Fund shareholders of an opportunity to sell
their shares at a premium to the prevailing market price. See "Description of
Common Stock -- Certain Provisions of the Charter and Amended and Restated
By-Laws of the Fund."
Discount to Net Asset Value: Shares of closed-end investment companies
frequently trade at a discount from net asset value. This characteristic of
shares of a closed-end investment company is a risk separate and distinct from
the risk that the Fund's net asset value may decrease. The Board of Directors
intends to take certain steps to reduce the risk of the Fund's shares trading
at a discount including a quarterly dividend policy, a 10% payout policy
and/or a buy back of Fund shares in the market. The Fund cannot predict
whether its shares will trade at, below or above net asset value. See
"Investment Objectives and Policies -- Market Value and Net Asset Value."
Dividends and Reinvestment: Each dividend and capital gains distribution, if
any, declared by the Fund on its outstanding shares in either cash or shares
will, unless the shareholder elects to receive cash, be paid on the payment
date in additional shares of the Fund. Whenever the market price of the Fund's
shares is equal to or exceeds net asset value at the time shares are valued
for purposes of determining the number of shares equivalent to the cash
dividend or capital gains distribution, participants are issued shares valued
at the greater of (i) the net asset value as most recently determined or (ii)
95% of the then current market price of the Fund's shares. The valuation date
is the dividend or distribution payment date or, if that date is not a New
York Stock Exchange trading day, the next preceding trading day. If the net
asset value of the shares at the time of valuation exceeds the market price,
participants will receive shares from the Fund valued at market price. If the
Fund should declare a dividend or capital gains distribution payable only in
cash, the Fund's custodian will buy shares in the open market, on the New York
Stock Exchange or elsewhere, for the participants' accounts, except that State
Street Bank and Trust Company will endeavor to terminate purchases in the open
market and cause the Fund to issue shares at net asset value if, following the
commencement of such purchases, the market value of the shares exceeds net
asset value. An election to receive dividends and distributions equal to the
cash amount of such distribution in cash or shares is made at the time shares
are subscribed for and may be changed 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. However, the Fund currently intends to pay dividends and
capital gains distributions, if any, on an annual basis, except that the Board
of Directors has declared a distribution of twenty cents ($.20) per share
payable June 27, 1995 to shareholders of record on June 9, 1995. See
"Dividends, Distributions and Taxes."
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TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses (as a percentage of average net assets):
Management Fees ....................................................... 1.00%
Interest Payments on Borrowed Funds ................................... --
Other Expenses (a) .................................................... 0.40%
----
Total Operating Expenses .......................................... 1.40%
====
Example: 1 year 3 years 5 years 10 years
-------- ------ ------- ------- --------
You would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return ....... $14 $44 $77 $168
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The amounts listed in this example should not be considered as representative of
future expenses and actual expenses may be greater or less than those indicated.
Moreover, while the example assumes a 5% annual return, the Fund's actual
performance will vary and may result in an actual return greater or less than
5%.
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The foregoing table is to assist you in understanding the various direct and
indirect costs and expenses that an investor in the Fund would bear. The
expenses shown represent expenses incurred during the past year and those
anticipated for the current year; however, other expenses may vary.
----------
(a) Such expenses may include the rental cost of office space for Fund
personnel, the cost of net asset value calculations, custodian and transfer
agency fees and other customary Fund expenses.
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INVESTMENT OBJECTIVE
AND POLICIES
The Fund was incorporated in Maryland on December 19, 1988 as an open-end,
diversified, management investment company, and converted to closed-end status
after receiving shareholder approval of its Charter on February 21, 1995 and
filing of the Charter in Maryland on March 31, 1995 (the "Conversion").
The investment objective of the Fund is to seek a high level of total
return on its assets. The Fund seeks to achieve its investment objective through
a combination of current income and capital appreciation. There is no assurance
that this objective will be achieved. It is, however, a fundamental policy of
the Fund and cannot be changed without shareholder approval. The Fund will
normally invest at least 65% of its total assets (taken at current value) in
"Convertible Securities," i.e., securities (bonds, debentures, corporate notes,
preferred stocks and other similar securities) which are convertible into common
stock or other equity securities. Securities received upon conversion of a
Convertible Security will not be included in the calculation of the percentage
of Fund assets invested in Convertible Securities. These securities may be
retained in the Fund's portfolio to permit orderly disposition or to establish
long-term holding periods for Federal income tax purposes. In the unlikely event
that less than 65% of the Fund's total assets are invested in Convertible
Securities due to the exercise of conversion rights, the Fund will invest
available funds in additional Convertible Securities as soon as practicable.
The Fund may invest up to 35% of its total assets (taken at current value
and subject to any restrictions appearing elsewhere in this Registration
Statement) in any combination and quantity of the following securities: common
stock; nonconvertible preferred stock; nonconvertible corporate debt securities;
options on debt and equity securities; and money market instruments. In
selecting any of the foregoing securities for investment, the factors which will
be considered by the Adviser include the Adviser's evaluation of the underlying
value of the assets and business of the issuers of the securities, the potential
for capital appreciation, the price of the securities, the issuer's balance
sheet characteristics and the perceived skills of the issuer's management.
During periods when it is deemed necessary for temporary defensive
purposes, the Fund may invest without limit in high quality money market
instruments, including commercial paper of domestic and foreign corporations,
certificates of deposit, bankers' acceptances and other obligations of domestic
and foreign banks and obligations issued or guaranteed by the United States
Government, its instrumentalities or agencies and, subject to statutory
limitations, unaffiliated money market mutual funds. The yield on these
securities will, as a general matter, tend to be lower than the yield on other
securities to be purchased by the Fund.
Upon Conversion, shareholders who hold their shares in book entry form at
the Fund's transfer agent may request the transfer agent to sell such shares at
the current market value without incurring a commission through March 31, 1997.
A shareholder who has invested in the Fund through an individual retirement
account ("IRA") can continue to maintain such account after the Conversion. No
additional contributions to this IRA will be accepted. If a shareholder makes a
request to sell shares in this IRA or transfer such shares to an IRA of another
custodian, State Street will sell shares in the open market and deliver the sale
proceeds as instructed. Any shareholder selling shares of the Fund out of this
IRA must invest the proceeds into another IRA within 60 days or be subject to a
premature withdrawal penalty if such shareholder is under the age of fifty-nine
and one-half (59 1/2).
Market Value and Net Asset Value
The Fund is a newly converted, diversified, closed-end management
investment company. Closed-end funds are bought and sold in the securities
markets and may trade at either a premium or discount from net asset value.
Shares of closed-end investment companies frequently trade at a discount from
net asset value. This characteristic of shares of a closed-end fund is a risk
separate and distinct from the risk that the Fund's net asset value will
decrease. The Fund cannot predict whether its shares will trade at, below or
above net asset value. Shareholders desiring liquidity may, subject to
applicable securities laws, trade their shares in the Fund on the
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New York Stock Exchange or other markets on which such shares may trade at the
then current market value, which may differ from the then current net asset
value. Shareholders will incur brokerage or other transaction costs to sell
shares.
CONVERTIBLE SECURITIES
A Convertible Security is a bond, debenture, corporate note, preferred
stock or other similar security that may be converted into or exchanged for a
prescribed amount of common stock or other equity security of the same or a
different issuer within a particular period of time at a specified price or
formula. Before conversion, Convertible Securities have characteristics similar
to nonconvertible debt securities in that they ordinarily provide a stream of
income with generally higher yields than those of common stock of the same or
similar issuers. Convertible Securities are senior in rank to common stock in a
corporation's capital structure and, therefore, generally entail less risk than
the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the Convertible
Security sells above its value as a fixed income security.
The Fund believes that the characteristics of Convertible Securities make
them appropriate investments for an investment company seeking a high level of
total return on its assets. These characteristics include the potential for
capital appreciation if the value of the underlying common stock increases, the
relatively high yield received from dividend or interest payments as compared to
common stock dividends and decreased risks of decline in value, relative to the
underlying common stock due to their fixed income nature. As a result of the
conversion feature, however, the interest rate or dividend preference on a
Convertible Security is generally less than would be the case if the securities
were not convertible. During periods of rising interest rates, it is possible
that the potential for capital gain on a Convertible Security may be less than
that of a common stock equivalent if the yield on the Convertible Security is at
a level which causes it to sell at a discount.
In selecting Convertible Securities for the Fund, the following factors,
among others, will be considered by the Adviser: (1) the Adviser's own
evaluations of the basic underlying value of the assets and businesses of the
issuers of the securities; (2) the interest or dividend income generated by the
securities; (3) the potential for capital appreciation of the securities and the
underlying common stocks; (4) the prices of the securities relative to the
underlying common stocks; (5) the prices of the securities relative to other
comparable securities; (6) whether the securities are entitled to the benefits
of sinking funds or other protective conditions; (7) the existence of any
anti-dilution protections of the security; and (8) the diversification of the
Fund's portfolio as to issuers. The Fund may convert a Convertible Security
which it holds; (1) when necessary to permit orderly disposition of the
investment when a Convertible Security approaches maturity or has been called
for redemption; (2) to facilitate a sale of the position; (3) if the dividend
rate on the underlying common stock increases above the yield on the Convertible
Security; or (4) whenever the Adviser believes it is otherwise in the best
interests of the Fund.
Convertible Securities are generally not investment grade, that is, not
rated within the four highest categories by Standard & Poor's Ratings Group
("S&P") and Moody's Investor Service ("Moody's"). To the extent that such
Convertible Securities and other non-convertible debt securities, which are
acquired by the Fund consistent with the factors considered by the Adviser as
described herein, are rated lower than investment grade or are not rated, there
would be a greater risk as to the timely repayment of the principal of, and
timely payment of interest or dividends on, those securities. It is expected
that not more than 50% of the Fund's portfolio will consist of securities rated
CCC or lower by S&P or Caa
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or lower by Moody's or, if unrated, are of comparable quality as determined by
the Adviser. These securities and securities rated BB or lower by S&P or Ba or
lower by Moody's are often referred to in the financial press as "junk bonds"
and may include securities of issuers in default. "Junk bonds" are considered by
the rating agencies to be predominantly speculative and may involve major risk
exposures such as: (i) vulnerability to economic downturns and changes in
interest rates; (ii) sensitivity to adverse economic changes and corporate
developments; (iii) redemption or call provisions which may be exercised at
inopportune times; and (iv) difficulty in accurately valuing or disposing of
such securities.
The Fund's investments in securities of issuers in default will be limited
to not more than 5% of the total assets of the Fund. Further, the Fund will
invest in securities of issuers in default only when the Adviser believes that
such issuers will emerge from bankruptcy and the value of such securities will
appreciate. By investing in securities of issuers in default the Fund bears the
risk that such issuers will not emerge from bankruptcy or that the value of such
securities will not appreciate. Securities rated BBB by S&P or Baa by Moody's,
in the opinion of the rating agencies, also have speculative characteristics.
Securities need not meet a minimum rating standard in order to be acceptable for
investment by the Fund. See Appendix A -- Description of Corporate Bond Ratings.
In the absence of adequate anti-dilution provisions in a Convertible
Security, dilution in the value of the Fund's holding may occur in the event the
underlying stock is subdivided, additional securities are issued, a stock
dividend is declared, or the issuer enters into another type of corporate
transaction which increases its outstanding equity securities. Every Convertible
Security may be valued, on a theoretical basis, as if it did not have a
conversion privilege. This theoretical value is determined by the yield it
provides in comparison with the yields of other securities of comparable
character and quality which do not have a conversion privilege. This theoretical
value, which may change with prevailing interest rates, the credit rating of the
issuer and other pertinent factors, often referred to as the "investment value,"
represents the security's theoretical price support level.
"Conversion value" is the amount a Convertible Security would be worth in
market value if it were to be exchanged for the underlying equity security
pursuant to its conversion privilege. Conversion value fluctuates directly with
the price of the underlying equity security, usually common stock. If, because
of low prices for the common stock, the conversion value is substantially below
the investment value, the price of the Convertible Security is governed
principally by the factors described in the preceding paragraph. If the
conversion value rises near or above its investment value, the price of the
Convertible Security generally will rise above its investment value and, in
addition, will sell at some premium over its conversion value. This premium
represents the price investors are willing to pay for the privilege of
purchasing a fixed-income security with a possibility of capital appreciation
due to the conversion privilege. If this appreciation potential is not realized,
this premium may not be recovered. In its selection of Convertible Securities
for the Fund, the Adviser will not emphasize either investment value or
conversion value, but will consider both in light of the Fund's overall
investment objective. See "Convertible Securities" in the Additional Statement.
Illiquid Convertible Securities
The Fund has no limit on the amount of its net assets it may invest in
unregistered and otherwise illiquid Convertible Securities and other
investments. The current intention of the Adviser is not to invest in excess of
15% of the Fund's net assets
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in illiquid Convertible Securities. Shareholders will be notified if the Adviser
changes such intention. Unregistered securities are securities that cannot be
sold publicly in the United States without registration under the Securities Act
of 1933, as amended (the "1933 Act"). Unregistered securities generally can be
resold only in privately negotiated transactions with a limited number of
purchasers or in a public offering registered under the 1933 Act. Considerable
delay could be encountered in either event and, unless otherwise contractually
provided for, the Fund's proceeds upon sale may be reduced by the costs of
registration or underwriting discounts. The difficulties and delays associated
with such transactions could result in the Fund's inability to realize a
favorable price upon disposition of unregistered securities, and at times might
make disposition of such securities impossible. When unregistered Convertible
Securities are converted into common stock and the common stock is publicly
traded (as is typically the case), the common stock normally may be resold
publicly under certain volume and other restrictions beginning two years
following the acquisition of the unregistered Convertible Securities and without
any restrictions beginning three years after the acquisition of the unregistered
Convertible Securities. Securities freely salable among qualified institutional
investors under special rules adopted by the Securities and Exchange Commission
(the "SEC") may be treated as liquid if they satisfy institutional liquidity
standards established by the Board of Directors. The continued liquidity of such
securities is not as well assured as that of publicly traded securities, and
accordingly, the Board of Directors will monitor their liquidity.
OTHER INVESTMENTS
The Fund will normally invest at least 65% of its total assets (taken at
current value) in Convertible Securities and up to 35% of the remaining assets
in non-convertible securities and the investments described below. However, to
the extent that any investments described below are Convertible Securities, they
will be included when determining the Fund's holdings of Convertible Securities.
Corporate Reorganizations
The Fund may invest without limit in securities of companies for which a
tender or exchange offer has been made or announced and in securities of
companies for which a merger, consolidation, liquidation or similar
reorganization proposal has been announced if, in the judgment of the Adviser,
there is a reasonable prospect of capital appreciation significantly greater
than the added portfolio turnover expenses inherent in the short term nature of
such transactions. The principal risk is that such offers or proposals may not
be consummated within the time and under the terms contemplated at the time of
the investment, in which case, unless such offers or proposals are replaced by
equivalent or increased offers or proposals which are consummated, the Fund may
sustain a loss. For further information on such investments, see "Other
Investments" in the Additional Statement.
Warrants and Rights
The Fund may invest without limit in warrants or 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 a specific period of time but will
do so only if such equity securities are deemed appropriate by the Adviser for
inclusion in the Fund's portfolio.
Other Investment Companies
The Fund may invest up to 5% of its total assets in no more than 3% of the
securities of any one investment company including small business investment
companies and may invest up to 10% of its total assets in the securities of
other investment companies in the aggregate. The purchase of securities in
investment companies will result indirectly in the payment of duplicative
management fees by the Fund. The Fund
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will not purchase the securities of affiliated investment companies.
Foreign Securities
The Fund may invest up to 25% of its total assets in securities of foreign
issuers which are generally denominated in foreign currencies. Investments in
the securities of foreign issuers involve certain considerations and risks not
ordinarily associated with investments in securities of domestic issuers.
Foreign companies are not generally subject to uniform accounting, auditing and
financial standards and requirements comparable to those applicable to U.S.
companies. Foreign securities exchanges, brokers and listed companies may be
subject to less government supervision and regulation than exists in the United
States. Dividend and interest income may be subject to withholding and other
foreign taxes which may adversely affect the net return on such investments.
There may be difficulty in obtaining or enforcing a court judgment abroad. In
addition, it may be difficult to effect repatriation of capital invested in
certain countries. In addition, with respect to certain countries, there are
risks of expropriation, confiscatory taxation, political or social instability
or diplomatic developments which could affect assets of the Fund held in foreign
countries.
There may be less publicly available information about a foreign company
than a U.S. company. Foreign securities markets may have substantially less
volume than U.S. securities markets and some foreign company securities are less
liquid than securities of otherwise comparable U.S. companies. A portfolio of
foreign securities may also be adversely affected by fluctuations in the rates
of exchange between the currencies of different nations and by exchange control
regulations. Foreign markets also have different clearance and settlement
procedures which could cause the Fund to encounter difficulties in purchasing
and selling securities on such markets and may result in the Fund missing
attractive investment opportunities or experiencing loss. In addition, a
portfolio which includes foreign securities can expect to have a higher expense
ratio because of the increased transaction costs on non-U.S. securities markets
and the increased costs of maintaining the custody of foreign securities.
The Fund may purchase sponsored American Depository Receipts ("ADRs") or
U.S. denominated securities of foreign issuers which shall not be included in
this foreign securities limitation. ADRs are receipts issued by United States
banks or trust companies in respect of securities of foreign issuers held on
deposit for use in the United States securities markets. While ADRs may not
necessarily be denominated in the same currency as the securities into which
they may be converted, many of the risks associated with foreign securities may
also apply to ADRs.
When Issued, Delayed Delivery Securities and Forward Commitments
The Fund may enter into forward commitments for the purchase of securities.
Such transactions may include purchases on a "when issued" or "delayed delivery"
basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring, i.e., a when, as and if issued
security. When such transactions are negotiated, the price is fixed at the time
of the commitment, with payment and delivery taking place in the future,
generally a month or more after the date of the commitment. While the Fund will
only enter into a forward commitment with the intention of actually acquiring
the security, the Fund may sell the security before the settlement date if it is
deemed advisable.
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will maintain a segregated
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account of cash or liquid high-grade debt securities with the Fund's custodian
in an aggregate amount at least equal to the amount of its forward commitments
as long as the obligation to purchase continues. See "Other Investments -- When
Issued, Delayed Delivery Securities and Forward Commitments" in the
Additional Statement.
Risk Factors and Special Considerations
There are a number of issues that an investor should consider in evaluating
the Fund. The Fund may invest in securities of companies that are involved or
may become involved in extraordinary transactions, including corporate
reorganizations. See "Other Investments -- Corporate Reorganizations." Certain
affiliates of the Adviser in the ordinary course of their business may acquire
for their own account from time to time securities (including controlling
positions) in companies that may also be suitable investments for the Fund.
However, under certain circumstances the Fund may be precluded by Section 17(d)
of the 1940 Act and Rule 17d-1 thereunder (which regulate joint transactions
between an investment company and its affiliates) from investing in those
securities absent exemptive relief from the SEC. However, while the securities
in which the Fund may invest might therefore be limited to some extent, 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 objective. Many companies in the past several years have adopted
so-called "poison pill" and other defensive measures that may have the effect of
limiting the amount of securities in any one issuer that may be acquired by the
Adviser and its affiliates for the account of the Fund and other investment
management clients, discouraging or hindering non-negotiated offers for a
company or possibly preventing the completion of any such offer. Moreover, the
Fund may invest in lower rated securities, including securities of issuers that
are in default. These securities carry a higher risk of failure to pay principal
and interest when due and the market to sell such securities may be limited. See
"Convertible Securities." The Adviser relies to a considerable extent on the
expertise of Mario J. Gabelli, and there is no assurance that a suitable
replacement could be found for him in the event of his death, disability or
resignation. See "Management of the Fund."
DERIVATIVE INSTRUMENTS
Options On behalf of the Fund, the Adviser may, subject to guidelines of
the Board of Directors, purchase or sell (i.e., write) options on securities,
securities indices and foreign currencies which are listed on a national
securities exchange or in the U.S. over-the-counter ("OTC") markets as a means
of achieving additional return or of hedging the value of the Fund's portfolio.
The Fund may write covered call options on common stocks that it owns or has an
immediate right to acquire through conversion or exchange of other securities in
an amount not to exceed 25% of total assets or invest up to 10% of its total
assets in the purchase of put options on common stocks that the Fund owns or may
acquire through the conversion or exchange of other securities that it owns. The
Fund may not write covered call options in an amount exceeding 25% of the value
of its total assets.The Fund's investment in OTC options is limited to 5% of its
total assets.
A call option is a contract that gives the holder of the option the right
to buy from the writer (seller) of the call option, in return for a premium
paid, the security underlying the option at a speciified exercise price at any
time during the term of the option.
The writer of the call option has the obligation upon exercise of the
option to deliver the underlying security upon payment of the exercise price
during the option period. A put option is a contract that gives the holder of
the option the right to sell to the writer (seller), in return for the premium,
the underlying security at a specified price during the
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term of the option. The writer of the put, who receives the premium, has the
obligation to buy the underlying security upon exercise, at the exercise price
during the option period.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. There can be no
assurance that a closing purchase transaction can be effected when the Fund so
desires.
An exchange traded option may be closed out only on an exchange which
provides a secondary market for an option of the same series. Although the Fund
will generally purchase or write only those options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option.
The Fund will not purchase options if, as a result, the aggregate cost of
all outstanding options exceeds 10% of the Fund's total assets. See "Special
Investment Methods--Options" in the Additional Statement.
Futures Contracts and Options Thereon
On behalf of the Fund, the Adviser may, subject to guidelines of the Board
of Directors, purchase and sell financial futures contracts and options thereon
which are traded on a commodities exchange or board of trade for certain
hedging, yield enhancement and risk management purposes, in accordance with
regulations of the Commodity Futures Trading Commission ("CFTC"). These futures
contracts and related options may be on debt securities, financial indices,
securities indices, U.S. Government securities and foreign currencies. A
financial futures contract is an agreement to purchase or sell an agreed amount
of securities or currencies at a set price for delivery in the future.
Under the CFTC regulations, the Adviser on behalf of the Fund (i) may
purchase and sell futures contracts and options thereon for bona fide hedging
purposes, as defined under CFTC regulations, without regard to the percentage of
the Fund's assets committed to margin and option premiums, and (ii) may enter
into non-hedging transactions, provided that, immediately thereafter, the sum of
the amount of the initial margin deposits on the Fund's existing futures
positions and option premiums does not exceed 5% of the market value of the
Fund's total assets.
Forward Currency Exchange Contracts
Subject to guidelines of the Board of Directors, the Fund may enter into
forward foreign currency exchange contracts to protect the value of its
portfolio against future changes in the level of currency exchange rates. The
Fund may enter into such contracts on a spot, i.e., cash, basis at the rate then
prevailing in the currency exchange market or on a forward basis, by entering
into a forward contract to purchase or sell currency. A forward contract on
foreign currency is an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days agreed upon by the parties
from the date of the contract at a price set on the date of the contract. The
Fund's dealings in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions.
Special Risks of Derivative Transactions
Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transaction costs to which the Fund
would not be subject absent the use of these strategies. If the Adviser's
prediction of movements in the direction of the securities, foreign currency and
interest rate markets are inaccurate, the consequences to the Fund may leave the
Fund in a worse position than if such strategies were not used. Risks inherent
in the use of options, foreign currency, futures contracts and options on
futures contracts, securities indices and foreign currencies include (1)
dependence on the Adviser's ability to predict correctly movements in the
direction of interest rates, securities
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prices and currency markets; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices of
the securities or currencies being hedged; (3) the fact that skills needed to
use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the possible
inability of the Fund to purchase or sell a security at a time that otherwise
would be favorable for it to do so, or the possible need for the Fund to sell a
security at a disadvantageous time due to a need for the Fund to maintain
"cover" or to segregate securities in connection with the hedging techniques.
Short Sales Against the Box
The Fund may from time to time make short sales of securities it owns or
has the right to acquire through conversion or exchange of other securities it
owns. A short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain at no added cost securities
identical to those sold short. In a short sale, the Fund does not immediately
deliver the securities sold or receive the proceeds from the sale. The Fund may
not make short sales or maintain a short position if it would cause more than
25% of the Fund's total assets, taken at market value, to be held as collateral
for such sales.
To secure its obligations to deliver the securities sold short, the Fund
will deposit in escrow in a separate account with its custodian an equal amount
to the securities sold short or securities convertible into, or exchangeable
for, such securities. The Fund may close out a short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund may want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
The Fund may make a short sale in order to hedge against market risks when
it believes that the price of a security may decline, causing a decline in the
value of a security owned by the Fund or a security convertible into, or
exchangeable for, such security, or when the Fund does not want to sell the
security it owns, because, among other reasons, it wishes to defer recognition
of gain or loss for U.S. Federal income tax purposes. Additionally, the Fund may
use short sales in conjunction with the purchase of a Convertible Security when
it is determined that a Convertible Security can be bought at a small conversion
premium and has a yield advantage relative to the underlying common stock sold
short.
Repurchase Agreements
The Fund may enter into repurchase agreements with primary government
securities dealers recognized by the Federal Reserve Bank of New York and member
banks of the Federal Reserve System 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. Repurchase agreements are generally for one business day but may
have a duration of up to a week. The SEC has taken the position that, in
economic reality, a repurchase agreement is a loan by the Fund to the other
party to the transaction secured by securities transferred to the Fund. 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
principal risk is that, if the seller defaults, the Fund might suffer a loss to
the extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund are less than the repurchase price. In the
event of a default or bankruptcy by a seller, the Fund will promptly seek to
liquidate the collateral. The Board of Directors will monitor the
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creditworthiness of the contra party to the repurchase agreements.
If the financial institution which is a party to the repurchase agreement
petitions for bankruptcy or becomes subject to the United States Bankruptcy
Code, the law regarding the rights of the Fund is unsettled. As a result, under
extreme circumstances, there may be a restriction on the Fund's ability to sell
the collateral and the Fund would suffer a loss.
Except for repurchase agreements for a period of a week or less in respect
of obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, the Fund may not enter into repurchase agreements which would
cause more than 5% of the value of its total assets to be so invested. The term
of each of the Fund's repurchase agreements will always be less than one year
and the Fund will not enter into repurchase agreements of a duration of more
than seven days if, taken together with all other illiquid securities in the
Fund's portfolio, more than 10% of its total assets would be so invested.
Loans of Portfolio Securities
To increase income, the Fund may lend its portfolio securities to
securities broker-dealers or financial institutions if (1) the loan is
collateralized in accordance with applicable regulatory requirements and (2) no
loan will cause the value of all loaned securities to exceed 33% of the value of
the Fund's total assets.
If the borrower fails to maintain the requisite amount of collateral, the
loan automatically terminates and the Fund could use the collateral to replace
the securities while holding the borrower liable for any excess of replacement
cost over the value of the collateral. As with any extention of credit, there
are risks of delay in recovery and in some cases even loss of rights in
collateral should the borrower of the securities fail financially. While these
loans of portfolio securities will be made in accordance with guidelines
approved by the Board of Directors, there can be no assurance that borrowers
will not fail financially. On termination of the loan, the borrower is required
to return the securities to the Fund, and any gain or loss in the market price
during the loan would inure to the Fund. If the contra party to the loan
petitions for bankruptcy or becomes subject to the United States Bankruptcy
Code, the law regarding the rights of the Fund is unsettled. As a result, under
extreme circumstances, there may be a restriction on the Fund's ability to sell
the collateral and the Fund would suffer a loss. See "Special Investment
Methods--Loans of Portfolio Securities" in the Additional Statement.
Borrowing
The Fund may, but does not currently intend to, issue debt or preferred
stock so long as the Fund's net assets exceed 300% of the amount of the debt
outstanding and exceed 200% of the amount of preferred stock outstanding. Such
debt or preferred stock may be convertible in accordance with SEC staff
guidelines which may permit the Fund to obtain leverage at attractive rates.
Leverage entails two primary risks. The first risk is that the use of leverage
magnifies the impact on the common shareholders of changes in net asset value.
For example, a fund that use 33% leverage will show a 1.5% increase or decline
in net asset value for each 1% increase or decline in the value of its total
assets. The second risk is that the cost of leverage will exceed the return on
the securities acquired with the proceeds of leverage, thereby diminishing
rather than enhancing the return to common shareholders. These two risks would
generally make the Fund's total return to common shareholders more volatile.
A decline in net asset value could affect the ability of the Fund to make
common stock dividend payments and such a failure to pay dividends or make
distributions could result in the Fund ceasing to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). See "Dividends, Distributions and Taxes." Finally, if the asset
coverage for preferred stock or debt securities
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declines to less than 200% or 300%, respectively (as a result of market
fluctuations or otherwise), the Fund may be required to sell a portion of its
investments when it may be disadvantagous to do so.
Further information on the investment objective and policies of the Fund
are set forth in the Additional Statement.
Portfolio Turnover
The Fund will buy and sell securities to accomplish its investment
objective. The investment policies of the Fund may lead to frequent changes in
investments, particularly in periods of rapidly fluctuating interest or currency
exchange rates. The portfolio turnover may be higher than that of other
investment companies. While it is impossible to predict with certainty the
portfolio turnover, the Adviser expects that the annual turnover rate of the
Fund will not exceed 300%. During the years ended December 31, 1994 and 1993,
the portfolio turnover of the Fund was 67.09% and 45.47%, respectively.
Portfolio turnover generally involves some expense to the Fund, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. A high portfolio turnover
rate may make it more difficult to qualify as a regulated investment company,
since, in order for the Fund to so qualify each taxable year less than 30% of
its gross income must be derived from the sale or other disposition of stocks or
securities held for less than three months. The portfolio turnover rate is
computed by dividing the lesser of the amount of the securities purchased or
securities sold by the average monthly value of securities owned during the year
(excluding securities whose maturities at acquisition were one year or less).
MANAGEMENT OF THE FUND
The Corporation's Board of Directors (who, with its officers, are described
in the Additional Statement) has overall responsibility for the management of
the Fund. The Board of Directors decides upon matters of general policy and
reviews the actions of the Adviser and the Administrator. Pursuant to an
Investment Advisory Contract with the Fund, the Adviser, under the supervision
of the Fund's Board of Directors, provides a continuous investment program for
the Fund's portfolio; provides investment research and makes and executes
recommendations for the purchase and sale of securities; provides all facilities
and personnel, including officers required for its administrative management and
pays the compensation of all officers and directors of the Fund who are its
affiliates. As compensation for its services and the related expenses borne by
the Adviser, the Fund pays the Adviser a fee, computed daily and payable
monthly, equal, on an annual basis, to 1.00% of the Fund's average daily net
assets, which is higher than that paid by most mutual funds. For the fiscal year
ended December 31, 1994 the Fund paid a management fee of 1.00% of the Fund's
average net assets.
The Adviser was formed in 1980 and acts as investment adviser to other
closed-end and open-end investment companies with total net assets in excess of
$3.5 billion as of January 1, 1995. GAMCO Investors, Inc. ("GAMCO"), a
subsidiary of Gabelli Funds, Inc., acts as investment adviser for individuals,
pension trusts, profit sharing trusts and endowments. As of January 1, 1995,
GAMCO had aggregate assets in excess of $4.3 billion under its management. Mr.
Mario J. Gabelli may be deemed a "controlling person" of the Adviser on the
basis of his ownership of stock of Gabelli Funds, Inc.
In addition to the fees of the Adviser, the Fund is responsible for the
payment of all its other expenses incurred in the operation of the Fund, which
include, among other things, expenses for legal and independent accountant's
services, stock exchange listing fees, costs of printing proxies, stock
certificates, and shareholder reports, charges of State Street Bank and Trust
Company ("State Street," the "Custodian," "Transfer Agent" or "Dividend
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Disbursing Agent"), SEC fees, fees and expenses of unaffiliated directors,
accounting and printing costs, the Fund's pro rata portion of membership fees in
trade organizations, fidelity bond coverage for the Fund's officers and
employees, interest, brokerage costs, taxes, expenses of qualifying the Fund for
sale in various states, expenses of personnel performing shareholder servicing
functions, litigation and other extraordinary or non-recurring expenses and
other expenses properly payable by the Fund.
The Investment Advisory Contract contains provisions relating to the
selection of securities brokers to effect the portfolio transactions of the
Fund. Under those provisions, the Adviser may (1) direct Fund portfolio
brokerage to Gabelli & Company, Inc. or other broker-dealer affiliates of the
Adviser; and (2) pay commissions to brokers other than Gabelli & Company, Inc.
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 its other advisory
accounts or those of any investment adviser affiliated with it. The Additional
Statement contains further information about the Investment Advisory Contract
including a more complete description of the advisory and expense arrangements,
exculpatory and brokerage provisions, as well as information on the brokerage
practices of the Fund.
Non-Resident Directors
Karl Otto Pohl and Anthonie C. van Ekris, directors of the Fund, reside
outside the United States and all or a significant portion of their assets are
located outside the United States. They have no authorized agent in the United
States to receive service of process. As a result, it may not be possible for
investors to effect service of process within the United States or to enforce
against them in United States courts judgments predicated upon civil liability
provisions of United States securities laws.
Administrator
The Adviser has entered into an Administration Contract with Furman Selz
pursuant to which the Administrator provides certain administrative services
necessary for the Fund's operations which do not include the investment advisory
and portfolio management services provided by the Adviser. For these services
and the related expenses borne by Furman Selz, the Adviser pays a monthly fee
atthe annual rate of .10% of the first $350 million of the aggregate average net
assets of the Fund and other Funds advised by Gabelli Funds, Inc. and
administered by Furman Selz and .075% of the aggregate average net assets
exceeding $350 million and .06% of the aggregate average net assets in excess of
$600 million (with a minimum annual fee of $40,000 per portfolio), which,
together with the services to be rendered, is subject to negotiation between the
parties and both parties retain the right unilaterally to terminate the
arrangement on not less than 60 days' notice.
Furman Selz has its principal office at 237 Park Avenue, New York, New York
10017. Furman Selz is primarily an institutional brokerage firm with membership
on the New York, American, Boston, Philadelphia, Midwest and Pacific Stock
Exchanges.
DISTRIBUTION ARRANGEMENTS
The Fund's Distribution Policy
The Fund may retain for reinvestment and pay Federal income taxes on its
net capital gain, if any, although the Fund reserves the authority to distribute
its net capital gain in any year. In the event the Fund's shares are trading at
a discount to their net asset value, the Board of Directors would consider
quarterly distributions and/or adopting a policy of distributing at least 10%
per share of its average net asset value per year. If, for any calendar year,
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the total distributions exceed net investment income and net capital gain, the
excess will generally be treated as a tax-free return of capital up to the
amount of the shareholder's tax basis in his shares. The amount treated as a
tax-free return of capital will reduce a shareholder's tax basis in his shares,
thereby increasing his potential gain or reducing his potential loss on the sale
of his shares. Any amounts distributed to a shareholder in excess of the basis
in the shares will be taxable to the shareholder as capital gain.
In the event the Fund distributes amounts in excess of its net investment
income and net capital gain, such distributions will decrease the Fund's total
assets and, therefore, have the likely effect of increasing the Fund's expense
ratio. In addition, in order to make such distributions, the Fund may have to
sell a portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. Such sales, if they involve assets held
for less than three months, could also adversely affect the Fund's status as a
regulated investment company since, in order for the Fund to so qualify, each
taxable year, less than 30% of the Fund's gross income must be derived from
gains realized on the sale or other disposition of stocks or securities held for
less than three months.
Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
Under the Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
adopted by the Fund (the "Plan"), a shareholder whose shares are registered in
his own name will have all distributions reinvested automatically by State
Street as agent under the Plan, unless the shareholder elects to receive cash.
Distributions with respect to shares registered in the name of a broker-dealer
or other nominee (that is, in "street name") will be reinvested by the broker or
nominee in additional shares under the Plan, unless the service is not provided
by the broker or nominee or the shareholder elects to receive distributions in
cash. Investors who own shares registered in street name should consult their
broker-dealers for details regarding reinvestment. All distributions to
investors who do not participate in the Plan will be paid by check mailed
directly to the record holder by State Street as dividend disbursing agent.
Under the Plan, whenever the market price of the Fund's shares is equal to
or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants are issued shares valued at the greater of (i)
the net asset value as most recently determined or (ii) 95% of the then current
market price of the Fund's shares. The valuation date is the dividend or
distribution payment date or, if that date is not a New York Stock Exchange
trading day, the next preceding trading day (the "Valuation Date"). If the net
asset value of the shares at the time of valuation exceeds the market price,
participants will receive shares from the Fund valued at market price. If the
Fund should declare a dividend or capital gains distribution payable only in
cash, State Street will buy shares in the open market, on the New York Stock
Exchange or elsewhere, for the participants' accounts, except that State Street
will endeavor to terminate purchases in the open market and cause the Fund to
issue shares at net asset value if, following the commencement of such
purchases, the market value of the shares exceeds net asset value.
Participants in the Plan have the option of making additional cash payments
to State Street, semi-annually, for investment in the Fund's shares. Such
payments may be made in any amount from $250 to $3,000. State Street will use
all funds received from participants to purchase Fund shares in the open market
on or about February 15 and August 15 of each year. Any voluntary
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cash payments received more than 30 days prior to these dates will be returned
by State Street, and interest will not be paid on any uninvested cash payments.
To avoid unnecessary cash accumulations, and also to allow ample time for
receipt and processing by State Street, it is suggested that participants send
voluntary cash payments to State Street in a manner that ensures that State
Street will receive these payments approximately 10 days before February 15 or
August 15, as the case may be. A participant may without charge withdraw a
voluntary cash payment by written notice, if the notice is received by State
Street at least 48 hours before such payment is to be invested.
State Street maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by State Street in non-certificated form in
the name of the participant, and each shareholder's proxy will include those
shares purchased pursuant to the Plan.
In the case of shareholders such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, State Street will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who participate in the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions payable in either stock or cash. State Street's fees for
handling the reinvestment of such dividends and capital gains distributions are
paid by the Fund. There are no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains distributions
payable in stock or in cash. However, each participant bears a pro rata share of
brokerage commissions incurred with respect to State Street's open market
purchases in connection with the reinvestment of dividends or capital gains
distributions.
With respect to purchases from voluntary cash payments, State Street will
charge $0.75 for each such purchase for a participant, plus a pro rata share of
the brokerage commissions. Brokerage charges for purchasing small amounts of
stock for individual accounts through the Plan are expected to be less than the
usual brokerage charges for such transactions, as State Street will be
purchasing shares for all participants in blocks and prorating the lower
commission thus attainable.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends or
distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the members of the Plan
at least 90 days before the record date for such dividend or distribution. The
Plan also may be amended or terminated by State Street on at least 90 days'
written notice to participants in the Plan. All correspondence concerning the
Plan should be directed to State Street Bank and Trust Company at P.O. Box 8200,
Boston, MA 02266-8200.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each dividend and capital gains distribution declared by the Fund on its
outstanding shares will, at the election of each shareholder, be paid on the
payment date fixed by the Board of Directors in additional shares of the Fund
valued for purposes of determining the number of shares equivalent to the cash
dividend or capital gains distribution, at the greater of (i) the net asset
value as most recently determined or (ii) 95% of the then current market price
of the Fund's shares, if the market price of the Fund's shares is equal to or
exceeds net asset value or current market price if it is less than net asset
value on the Valuation Date. An election to
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receive dividends and distributions equal to the cash amount of such
distribution in cash or shares is made at the time shares are subscribed for and
may be changed by notifying the Fund in writing at any time prior to the record
date for a particular dividend or distribution. A shareholder with shares
registered directly with the Fund is automatically included in the Plan unless
such shareholder opts out in writing. 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. However, the Fund currently
intends to pay dividends and capital gains distributions, if any, on an annual
basis.
The Fund has qualified and intends to continue to qualify as a "Regulated
Investment Company" under Subchapter M of the Code. If the Fund qualifies as a
Regulated Investment Company and complies with certain distribution
requirements, the Fund will not be subject to Federal income tax on the portion
of its net investment income and net capital gain that it distributes to its
shareholders.
To qualify, the Fund must meet certain relatively complex tests, including
a requirement that less than 30% of its gross income from capital gains
(exclusive of losses) and investment income may be derived from the sale or
other disposition of securities held for less than three months. The Fund's
maximum portfolio turnover rate of 300% may result in the Fund being unable to
maintain its status in any given year as a Regulated Investment Company. The
loss of such status would result in the Fund being subject to Federal income tax
on its taxable income and gains without regard to dividends paid to
shareholders.
Dividends out of net investment income and distributions of net realized
short-term capital gains are taxable to the recipient shareholders as ordinary
income whether paid in cash or shares. In the case of corporate shareholders,
such distributions are eligible for the 70% dividends received deduction, to the
extent attributable to qualified dividends received by the Fund from U.S.
corporations and designated as such in the Fund's written notice to
shareholders. Distributions out of net capital gain, of which shareholders will
be notified, are taxable to the recipient as long-term capital gains whether
paid in cash or shares.
The Fund will be required to back-up withhold an amount equal to 31% of a
shareholder's dividend or capital gain distribution unless such shareholder
furnishes the Fund with his taxpayer identification number (a social security
number in the case of an individual) and certifies that the number is correct
and that he has not been notified by the Internal Revenue Service that he is
subject to back-up withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code applicable to a shareholder's investment in the Fund. Dividends and
distributions declared by the Fund may also be subject to state and local taxes.
Prior to investing in shares of the Fund, prospective shareholders are urged to
consult their tax advisers concerning the Federal, state and local tax
consequences of such investment.
REPURCHASE OF SHARES
The Fund is a closed-end, management investment company and as such its
shareholders do not have the right to redeem their shares. The Fund, however,
may repurchase its shares from time to time as and when it deems such a
repurchase advisable. Such repurchases may be made when the Fund's shares are
trading at a discount of 10% or more (or such other percentage as the Board of
Directors of the Fund may determine from time to time) from the net asset value
of the shares. Pursuant to the 1940 Act, the Fund may repurchase its shares on a
securities exchange (provided that the Fund has informed its shareholders within
the preceding six months
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of its intention to repurchase such shares) or as otherwise permitted in
accordance with Rule 23c-1 under the 1940 Act. Under that Rule, certain
conditions must be met regarding, among other things, distribution of net income
for the preceding fiscal year, identity of the seller, price paid, brokerage
commissions, prior notice to shareholders of an intention to purchase shares and
purchasing in a manner and on a basis which does not discriminate unfairly
against the other shareholders through their interest in the Fund.
Shares repurchased by the Fund will constitute authorized and unissued
shares of the Fund available for reissuance. The Fund may incur debt. See
"Derivative Instruments."
When the Fund repurchases its shares for a price below their net asset
value, the net asset value of those shares that remain outstanding will be
enhanced, but this does not necessarily mean that the market price of those
outstanding shares will be affected, either positively or negatively. Further,
interest on borrowings to finance share repurchase transactions will reduce the
net income of the Fund.
The Fund does not currently have an established tender offer program or
established schedule for considering tender offers. No assurance can be given
that the Board of Directors of the Fund will decide to undertake any such tender
offers in the future, or, if undertaken, that they will reduce any market
discount.
DESCRIPTION OF COMMON STOCK
On February 21, 1995, shareholders approved the Charter changing the status
of the Fund to a closed-end fund. The Charter was filed on March 31, 1995, the
date of the Fund's conversion from a closed-end to an open-end investment
company. The authorized capital stock consists of one billion shares of stock
having a par value of one tenth of one cent ($.001) per share, one hundred
million of which have been initially classified as Fund shares. Shares of the
Fund are listed on the New York Stock Exchange under the symbol GCV and began
trading March 31, 1995. All shares of common stock have equal dividend,
liquidation and voting rights and each fractional share has those rights in
proportion to the percentage that the fractional share represents of a whole
share.
There are no conversion or preemptive rights in connection with any
outstanding shares of the Fund. All shares, when issued in accordance with the
terms of the offering, will be fully paid and nonassessable.
The Fund's Board of Directors can reclassify unissued shares as preferred
stock with such terms and conditions as determined by the Board of Directors.
The Fund sends semi-annual and annual reports to all of its shareholders
which include a list of portfolio securities and the Fund's financial statements
which shall be audited annually. Unless it is clear that a shareholder holds as
nominee for the account of an unrelated person or a shareholder otherwise
specifically requests in writing, the Fund may send a single copy of
semi-annual, annual and other reports to shareholders to all accounts at the
same address and all accounts of any person at that address.
The shares of the Fund have noncumulative voting rights which means that
the holders of more than 50% of the shares can elect 100% of the Directors if
the holders choose to do so, and, in that event, the holders of the remaining
shares will not be able to elect any person or persons to the Board of
Directors. Unless specifically requested by an investor who is a shareholder of
record, the Fund does not issue certificates evidencing Fund shares.
Certain Provisions of the Charter and
Amended and Restated By-Laws of the Fund
The Fund presently has provisions in its Charter and Amended and Restated
By-Laws (together, its "Governing Documents") which
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could have the effect of limiting (i) the ability of other entities or persons
to acquire control of the Fund, (ii) the Fund's freedom to engage in certain
transactions, or (iii) the ability of the Fund's directors or shareholders to
amend the Governing Documents or effectuate changes in the Fund's management.
These provisions of the Governing Documents of the Fund may be regarded as
"anti-takeover" provisions. The Board of Directors of the Fund are divided into
three classes, each having a term of three years (except, to ensure that the
term of a class of the Fund's directors expires each year, one class of the
Fund's directors will serve an initial one-year term and three-year terms
thereafter) and another class of its directors will serve an initial two-year
term and three-year terms thereafter). Each year the term of one class of
directors will expire. Accordingly, only those directors in one class may be
changed in any one year, and it would require two years to change a majority of
the Board of Directors. Such system of electing directors may have the effect of
maintaining the continuity of management and, thus, make it more difficult for
the shareholders of the Fund to change the majority of directors. See
"Management of the Fund." A director of the Fund may be removed with or without
cause by a vote of a majority of the votes entitled to be cast for the election
of directors of the Fund. In addition, the affirmative vote of the holders of
75% of the outstanding shares of the Fund is required to authorize its
conversion from a closed-end to an open-end investment company, or to amend
certain provisions of the Charter involving conversion to an open-end fund. The
affirmative vote of 66 2/3% of the Fund's outstanding shares is required
generally to authorize any of the following transactions:
(i) merger or consolidation of the Fund with or into any other
corporation;
(ii) issuance of any securities of the Fund to any person or entity
for cash;
(iii) sale, lease or exchange of all or any substantial part of the
assets of the Fund to any entity or person (except assets having an
aggregate fair market value of less than $1,000,000); or
(iv) sale, lease or exchange to the Fund, in exchange for securities
of the Fund, of any assets of any entity or person (except assets having an
aggregate fair market value of less than $1,000,000);
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares of
the Fund. However, such vote would not be required when, under certain
conditions, the Board of Directors approves the transaction. Reference is made
to the Governing Documents of the Fund, on file with the SEC, for the full text
of these provisions.
The provisions of the Governing Documents described above could have the
effect of depriving the owners of shares in the Fund of opportunities to sell
their shares at a premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Fund in a tender offer or similar
transaction. The overall effect of these provisions is to render more difficult
the accomplishment of a merger or the assumption of control by a principal
shareholder.
Custodian, Transfer Agent and
Dividend Disbursing Agent
State Street Bank and Trust Company is the Custodian for the Fund's cash
and securities as well as the Transfer and Dividend Disbursing Agent for its
shares. BFDS, an affiliate of State Street Bank and Trust Company, performs the
shareholder services on behalf of State Street and is located at The BFDS
Building, Two Heritage Drive, North Quincy, MA 02171. State Street Bank and
Trust Company does not assist in and is not responsible for investment decisions
involving assets of the Fund.
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APPENDIX A
DESCRIPTION OF
CORPORATE BOND RATINGS
MOODY'S INVESTOR SERVICE
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or 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 risk appear somewhat greater 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 the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
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 repsect to principal or
interest.
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
a 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.
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 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 judgement 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, Ba 1 and B 1.
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STANDARD & POOR'S RATINGS GROUP
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's.
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.
Bonds rated A have a very 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 the 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
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.
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TABLE OF CONTENTS
Page
----
Summary ......................................................... 2
Table of Fees and Expenses ...................................... 4
Investment Objective and Policies ............................... 5
Convertible Securities .......................................... 6
Other Investments ............................................... 8
Derivative Instruments .......................................... 10
Management of the Fund .......................................... 14
Distribution Arrangements ....................................... 16
Dividends, Distributions and Taxes .............................. 18
Repurchase of Shares ............................................ 18
Description of Common Stock ..................................... 19
Appendix A ...................................................... 21
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THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
One Corporate Center
Rye, New York 10580-1434
Telephone 1-800-GABELLI (1-800-422-3554)
STATEMENT OF ADDITIONAL INFORMATION
March 31, 1995
This Statement of Additional Information (the "Additional Statement") relates to
The Gabelli Convertible Securities Fund, Inc. (the "Fund"), and is not a
prospectus. This Additional Statement contains additional and more detailed
information and should be read in conjunction with the balance of the Fund's
registration statement ("Part A"), additional copies of which may be obtained
without charge by writing or telephoning the Fund at the address and telephone
number set forth above.
TABLE OF CONTENTS
Page
----
Convertible Securities .......................... B-2
Other Investments ............................... B-2
Derivative Instruments .......................... B-5
The Adviser ..................................... B-15
Directors and Officers .......................... B-17
Investment Restrictions ......................... B-20
Portfolio Transactions and Brokerage ............ B-21
Determination of Net Asset Value ................ B-22
Dividends, Distributions and Taxes .............. B-23
General Information ............................. B-25
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CONVERTIBLE SECURITIES
A Convertible Security entitles the holder to exchange such security for a
fixed number of shares of common stock or other equity security, usually of the
same company, at fixed prices within a specified period of time. A Convertible
Security entitles the holder to receive the fixed income of a bond or the
dividend preference of a preferred stock until the holder elects to exercise the
conversion privilege.
A Convertible Security's position in a company's capital structure depends
upon its particular provisions. In the case of subordinated convertible
debentures, the holder's claims on assets and earnings are subordinated to the
claims of others and are senior to the claims of common shareholders.
To the degree that the price of a Convertible Security rises above its
investment value because of a rise in price of the underlying common stock, it
is influenced more by price fluctuations of the underlying common stock and less
by its investment value. The price of a Convertible Security that is supported
principally by its conversion value will rise along with any increase in the
price of the common stock, and such price generally will decline along with any
decline in the price of the common stock except that the security will receive
additional support as its price approaches investment value. A Convertible
Security purchased or held at a time when its price is influenced by its
conversion value will produce a lower yield than nonconvertible senior
securities with comparable investment values. Convertible Securities may be
purchased by the Fund at varying price levels above their investment values
and/or their conversion values in keeping with the Fund's investment objective.
Many Convertible Securities in which the Fund will invest have call
provisions entitling the issuer to redeem the security at a specified time and
at a specified price. This is one of the features of a Convertible Security
which affects valuation. Calls may vary from absolute calls to provisional
calls. Convertible Securities with superior call protection usually trade at a
higher premium. If long-term interest rates decline, the interest rates of new
Convertible Securities will also decline. Therefore, in a falling interest rate
environment companies may be expected to call Convertible Securities with high
coupons and the Fund would have to invest the proceeds from such called issues
in securities with lower coupons. Thus, Convertible Securities with superior
call protection will permit the Fund to maintain a higher yield than issues
without call protection.
OTHER INVESTMENTS
The Fund may without limit invest in securities of companies for which a
tender or exchange offer has been made or announced and in securities of
companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced if, in the judgement of Gabelli Funds, Inc. (the
"Adviser"), there is a reasonable prospect of capital appreciation significantly
greater than the brokerage and other transaction expenses involved.
In general, securities which are the subject of such an offer or proposal
sell at a premium to their historic market price immediately prior to the
announcement of the offer or may also discount what the stated or appraised
value of the security would be if the contemplated transaction were approved or
consummated. Such investments may be advantageous when: the discount
significantly overstates the risk of the contingencies involved; 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
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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 and the dynamics and
business climate when the offer or proposal is in process.
In making the investments, the Fund will not violate any of its investment
restrictions (see below, "Investment Restrictions") including the requirement
that, (a) as to 75% of its total assets, it will not invest more than 5% of its
total assets in the securities of any one issuer and (b) it will not invest more
than 25% of its total assets in any one industry. 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 as
well as make it more difficult for the Fund to meet the tests for favorable tax
treatment as a "Regulated Investment Company" under the Internal Revenue Code of
1986, as amended (the "Code") (see "Dividends, Distributions and Taxes" in Part
A). 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 risk involved and the potential of available
alternate investments as well as to monitor the effect of such investments on
the tax qualification tests of the Code.
Unregistered Convertible Securities and Other Illiquid Investments
As set forth in Part A, the Fund may invest without limitation in
unregistered Convertible Securities and other illiquid investments, including
repurchase agreements having a maturity of longer than seven days.
The staff of the Securities and Exchange Commission (the "SEC") has taken
the position that purchased over-the-counter ("OTC") options and the assets used
as "cover" for written OTC options are illiquid. The assets used as cover for
OTC options written by the Fund will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure will be considered illiquid only to the extent that the maximum
repurchase price under the option formula exceeds the intrinsic value of the
option.
When Issued and Delayed Delivery Securities and Forward Commitments
As discussed in Part A, the Fund may purchase securities on a "when, as and
if issued" basis under which the issuance of the security depends upon the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. The commitment for the purchase of any
such security will not be recognized in the portfolio of the Fund until the
Adviser determines that issuance of the security is probable. At such time, the
Fund will record the transaction and, in determining its net asset value, will
reflect the value of the security daily. At such time, the Fund will also
establish a segregated account with its custodian bank in which it will maintain
cash or liquid high-grade debt securities at least equal in value to the amount
of its commitments. The Adviser does not believe that the net asset value of the
Fund will be adversely affected by its purchase of securities on this basis.
Foreign Securities
Subject to the limitations described in Part A, the Fund may invest in
foreign securities which involve certain risks not associated with domestic
investments.
Among other risks, foreign markets have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
failed to keep pace with the volume of securities
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transactions, making it difficult to conduct such transactions. Delays in
settlements could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the Fund
due to subsequent declines in the value of such portfolio security or, if the
Fund has entered into a contract to sell the security, could result in possible
liability to the purchaser.
Risk Factors -- High Yield/High Risk Securities
Subject to the limitations described in Part A, the Fund may invest in high
yielding, lower rated bonds, commonly called "junk bonds." Bonds that are rated
"Baa" or lower by Moody's Investors Service ("Moody's") or "BBB" or lower by
Standard & Poor's Ratings Group ("S&P"), or unrated bonds of comparable quality,
are generally considered to be high yield bonds. These high yield bonds are
subject to greater risks than lower yielding, higher rated debt securities.
Lower rated securities are subject to risk factors such as: (a)
vulnerability to economic downturns and changes in interest rates; (b)
sensitivity to adverse economic changes and corporate developments; (c)
redemption or call provisions which may be exercised at inopportune times; (d)
difficulty in accurately valuing or disposing of such securities; (e) federal
legislation which could affect the market for such securities; and (f) special
adverse tax consequences associated with investments in certain high yield, high
risk bonds structured as zero coupon or pay-in-kind securities.
High Yield bonds, like other bonds, may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund would have to replace the security with a lower yielding
security, resulting in lower return for investors. Conversely, a high yield
bond's value will decrease in a rising interest rate market.
There is a thinly traded market for high yield bonds, and recent market
quotations may not be available for some of these bonds. Market quotations are
generally available only from a limited number of dealers and may not represent
firm bids from such dealers or prices for actual sales. As a result, the Fund
may have difficulty valuing the high yield bonds in its portfolio accurately and
disposing of these bonds at the time or price desired.
Ratings assigned by Moody's and S&P to high yield bonds, like other bonds,
attempt to evaluate the safety of principal and interest payments on those
bonds. However, such ratings do not assess the risk of a decline in the market
value of those bonds. In addition, ratings may fail to reflect recent events in
a timely manner and are subject to change. If a rating with respect to a
portfolio security is changed, the Adviser will determine whether the security
will be retained based upon the factors the Adviser considers in acquiring or
holding other securities in the portfolio. Investment in high yield bonds may
make achievement of the Fund's objective more dependent on the Adviser's own
credit analysis than is the case for higher rated bonds.
Market prices for high yield bonds tend to be more sensitive than those for
higher rated securities due to many of the factors described above, including
the creditworthiness of the issuer, redemption or call provisions, the
liquidity of the secondary trading market and changes in credit ratings, as well
as interest rate movements and general economic conditions. In addition, yields
on such bonds will fluctuate over time. An economic downturn could severely
disrupt the market for high yield bonds. In addition, recent legislation
impacting high yield bonds may have a materially adverse effect on the market
for such
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bonds. For example, federally insured savings and loan associations have been
required to divest their investments in high yield bonds.
The risk of default in payment of principal and interest on high yield
bonds is significantly greater than with higher rated debt securities because
high yield bonds are generally unsecured and are often subordinated to other
obligations of the issuer, and because the issuers of high yield bonds usually
have high levels of indebtedness and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates. Upon a default,
bondholders may incur additional expenses in seeking recovery.
As a result of all these factors, the net asset value of the Fund to the
extent it invests in high yield bonds, is expected to be more volatile than the
net asset value of funds which invest solely in higher rated debt securities.
This volatility may result in an increased number of redemptions from time to
time. High levels of redemptions in turn may cause the Fund to sell its
portfolio securities at inopportune times and decrease the asset base upon which
expenses can be spread.
DERIVATIVE INSTRUMENTS
Options
The Fund may, from time to time, subject to guidelines of the Board of
Directors and the limitations set forth in the Registration Statement, purchase
or sell (i.e., write) options on securities, securities indices and foreign
currencies which are listed on a national securities exchange or in the OTC
market, as a means of achieving additional return or of hedging the value of the
Fund's portfolio.
A call option is a contract that gives the holder of the option the right
to buy from the writer of the call option, in return for a premium, the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option has the obligation, upon exercise
of the option, to deliver the underlying security upon payment of the exercise
price during the option period.
A call option is "covered" if the Fund owns the underlying security covered
by the call or has an absolute and immediate right to acquire that security
without additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Fund
holds a call on the same security as the call written where the exercise price
of the call held is (1) equal to or less than the exercise price of the call
written or (2) greater than the exercise price of the call written if the
difference is maintained by the Fund in cash, U.S. Government securities or
other high grade short-term obligations in a segregated account with its
custodian. A put option is "covered" if the Fund maintains cash or other high
grade short-term obligations with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same security
as the put written where the exercise price of the put held is equal to or
greater than the exercise price of the put written. The Adviser, on behalf of
the Fund, has no present intention to engage in uncovered option transactions.
If the Fund has written an option, it may terminate its obligation by effecting
a closing purchase transaction. This is accomplished by purchasing an option of
the same series as the option previously written. However, once the Fund has
been assigned an exercise notice, the Fund will be unable to effect a closing
purchase transaction. Similarly, if the Fund is the holder of an option it may
liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. There can be no assurance that either a closing purchase or sale
transaction can be effected when the Fund so desires.
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The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in the
price of the underlying security, any loss resulting from the repurchase of a
call option may also be wholly or partially offset by unrealized appreciation of
the underlying security. Other principal factors affecting the market value of a
put or a call option include supply and demand, interest rates, the current
market price and price volatility of the underlying security and the time
remaining until the expiration date.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option. In such event it might not be
possible to effect closing transactions in particular options, so that the Fund
would have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities for the exercise of put options.
If the Fund, as a covered call option writer, is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or otherwise covers the position.
The Fund intends to qualify as a "regulated investment company" under the
Code. One requirement for such qualification is that less than 30% of the Fund's
gross income must be derived from the gains from the sale or other disposition
of securities held for less than three months. Therefore, the Fund may be
limited in its ability to engage in options transactions.
Options on Securities Indices.
The Fund may purchase and sell securities index options. One effect of such
transactions is to hedge all or part of the Fund's securities holdings against a
general decline in the securities market or a segment of the securities market.
Options on securities indices are similar to options on stock except that,
rather than the right to take or make delivery of stock at a specified price, an
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the securities
index upon which the option is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option.
The Fund's successful use of options on indices depends upon its ability to
predict the direction of the market and is subject to various additional risks.
The correlation between movements in the index and the price of the securities
being hedged against is imperfect and the risk from imperfect correlation
increases as the composition of the Fund diverges from the composition of the
relevant index. Accordingly, a decrease in the value of the securities being
hedged against may not be wholly offset by a gain on the exercise or sale of a
securities index put option held by the Fund.
Options on Foreign Currencies.
Instead of purchasing or selling futures (as described below), the Fund may
attempt to accomplish similar objectives by purchasing put or call options on
currencies or by writing put options or call options on currencies either on
exchanges or in OTC markets. A put option gives the Fund the right to sell a
currency at the exercise price until the option expires. A call option gives the
Fund the right to purchase a currency at the exercise price until the option
expires. Both options serve to insure against
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adverse currency price movements in the underlying portfolio assets designated
in a given currency. The Fund's use of options on currencies will be subject to
the same limitations as its use of options on securities, described above and in
Part A. Currency options may be subject to position limits which may limit the
ability of the Fund to fully hedge its positions by purchasing the options.
As in the case of interest rate futures contracts and options thereon,
described below, the Fund may hedge against the risk of a decrease or increase
in the U.S. dollar value of a foreign currency denominated debt security which
the Fund owns or intends to acquire by purchasing or selling options contracts,
futures contracts or options thereon with respect to a foreign currency other
than the foreign currency in which such debt security is denominated, where the
values of such different currencies (vis-a-vis the U.S. dollar) historically
have a high degree of positive correlation.
Futures Contracts
The Fund will enter into futures contracts only for certain hedging, yield
enhancement and risk management purposes. The Fund may enter into futures
contracts for the purchase or sale of debt securities, financial indices, and
U.S. Government securities (collectively, "interest rate futures contracts"). It
may also enter into futures contracts for the purchase or sale of foreign
currencies in which securities held or to be acquired by the Fund are
denominated, or the value of which have a high degree of positive correlation to
the value of such currencies as to constitute an appropriate vehicle for
hedging. The Fund may enter into such futures contracts both on U.S. and foreign
exchanges. In addition, the Fund may enter into futures contracts on stock and
bond indices (collectively, "securities indices").
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities underlying the
contract at a specified price at a specified future time. A "purchase" of a
futures contract (or a "long" futures position) means the assumption of a
contractual obligation to acquire the securities underlying the contract at a
specified price at a specified future time. Certain futures contracts are
settled on a net cash payment basis rather than by the sale and delivery of the
securities underlying the futures contracts. U.S. futures contracts have been
designed by exchanges that have been designated as "contract markets" by the
Commodity Futures Trading Commission (the "CFTC"), an agency of the U.S.
Government, and must be executed through a futures commission merchant (i.e., a
brokerage firm) which is a member of the relevant contract market. Futures
contracts trade on these contract markets and the exchange's affiliated clearing
organization guarantees performance of the contracts as between the clearing
members of the exchange.
At the time a futures contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment (initial margin). It is expected that
the initial margin on U.S. exchanges will vary from one-half of 1% to 4% of the
face value of the contract. Under certain circumstances, however, such as during
periods of high volatility, the Fund may be required by an exchange to increase
the level of its initial margin payment. Thereafter, the futures contract is
valued daily and the payment in cash of "variation margin" may be required, a
process known as "mark-to-the-market." Each day the Fund is required to provide
or is entitled to receive variation margin in an amount equal to any change in
the value of the contract since the preceding day.
Although futures contracts by their terms may call for the actual delivery
or acquisition of underlying assets, in most cases the contractual obligation is
extinguished by offset before the expiration of the contract. The offsetting of
a contractual obligation is accomplished by buying (to offset an earlier sale)
or selling (to offset an earlier purchase) an identical futures contract calling
for delivery in the same month. Such a transaction cancels the obligation to
make or take delivery of the underlying commodity. When
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the Fund purchases or sells futures contracts, the Fund will incur brokerage
fees and related transactions costs.
In addition, futures contracts entail risks. The ordinary spreads between
values in the cash and futures markets, due to differences in the characters of
those markets, are subject to distortions. First, all participants in the
futures market are subject to initial and variation margin requirements. Rather
than meeting additional variation margin requirements, investors may close
futures contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing price distortions. Third, from the point of view of speculators, the
margin deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Increased participation by speculators in
the futures market may cause temporary price distortions. Thus, a correct
forecast of interest rate trends by the investment adviser may still not result
in a successful transaction.
If the Fund seeks to hedge against a decline in the value of its portfolio
securities and sells futures contracts on other securities which historically
have had a high degree of positive correlation to the value of the portfolio
securities, the value of its portfolio securities might decline more rapidly
than the value of a poorly correlated futures contract rises. In that case, the
hedge will be less effective than if the correlation had been greater. In a
similar but more extreme situation, the value of the futures position might in
fact decline while the value of the portfolio securities holds steady or rises.
This would result in a loss that would not have occurred but for the attempt to
hedge.
Options on Futures Contracts.
The Fund will also enter into options on futures contracts for certain bona
fide hedging, yield enhancement and risk management purposes. The Fund may
purchase put and call options and write put and call options on futures
contracts that are traded on U.S. and foreign exchanges. The Adviser, on behalf
of the Fund, has no present intention to engage in uncovered option
transactions. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume a short futures
position (if the option is a call) or a long futures position (if the option is
a put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance
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in the writer's futures margin account which represents the amount by which the
market price of the futures contract at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise of the option on the
futures contract.
The Fund will be considered "covered" with respect to a call option it
writes on a futures contract if the Fund owns the securities or currency which
is deliverable under the futures contract or an option to purchase that futures
contract having a strike price equal to or less than the strike price of the
"covered" option and having an expiration date not earlier than the expiration
date of the "covered" option, or if it segregates and maintains with its
custodian for the term of the option, cash, U.S. Government securities or other
liquid high-grade debt obligations equal to the fluctuating value of the
optionedfutures. The Fund will be considered "covered" with respect to a put
option it writes on a futures contract if it owns an option to sell that futures
contract having a strike price equal to or greater than the strike price of the
"covered" option and having an expiration date not earlier than the expiration
date of the "covered" option, or if it segregates and maintains with its
custodian for the term of the option, cash, U.S. Government securities or other
liquid high-grade debt obligations at all times equal in value to the exercise
price of the put (less any initial margin deposited by the Fund with its
custodian with respect to such put option). There is no limitation on the amount
of the Fund's assets which can be placed in the segregated account.
Writing a put option on a futures contract serves as a partial hedge
against an increase in the value of debt securities the Fund intends to acquire.
If the futures price at expiration of the option is above the exercise price,
the Fund will retain the full amount of the option premium which provides a
partial hedge against any increase that may have occurred in the price of the
debt securities the Fund intends to acquire. If the market price of the
underlying futures contract is below the exercise price when the option is
exercised, the Fund will incur a loss, which may be wholly or partially offset
by the decrease in the value of the securities the Fund intends to acquire.
Writing a call option on a futures contract serves as a partial hedge
against a decrease in the value of the Fund's portfolio securities. If the
market price of the underlying futures contract at expiration of a written call
option is below the exercise price, the Fund will retain the full amount of the
option premium, thereby partially hedging against any decline that may have
occurred in the Fund's holding of debt securities. If the futures price when the
option is exercised is above the exercise price, however, the Fund will incur a
loss, which may be wholly or partially offset by the increase in the value of
the securities in the Fund's portfolio which were being hedged.
The Fund will purchase put options on futures contracts to hedge its
portfolio against the risk of a decline in the value of the debt securities it
owns as a result of rising interest rates or fluctuating currency exchange
rates. The Fund will also purchase call options on futures contracts as a hedge
against an increase in the value of securities the Fund intends to acquire as a
result of declining interest rates or fluctuating currency exchange rates.
Interest Rate Futures Contracts and Options Thereon.
The Fund will purchase or sell interest rate futures contracts to take
advantage of or to protect the Fund against fluctuations in interest rates
affecting the value of debt securities which the Fund holds or intends to
acquire. For example, if interest rates are expected to increase, the Fund might
sell futures contracts on debt securities, the values of which historically have
a high degree of positive correlation to the values of the Fund's portfolio
securities. Such a sale would have an effect similar to selling an equivalent
value of the Fund's portfolio securities. If interest rates increase, the value
of the Fund's portfolio securities will decline, but the value of the futures
contracts to the Fund will increase at approximately
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an equivalent rate thereby keeping the net asset value of the Fund from
declining as much as it otherwise would have. The Fund could accomplish similar
results by selling debt securities with longer maturities and investing in debt
securities with shorter maturities when interest rates are expected to increase.
However, since the futures market may be more liquid than the cash market, the
use of futures contracts as a risk management technique allows the Fund to
maintain a defensive position without having to sell its portfolio securities.
Similarly, the Fund may purchase interest rate futures contracts when it is
expected that interest rates may decline. The purchase of futures contracts for
this purpose constitutes a hedge against increases in the price of debt
securities (caused by declining interest rates) which the Fund intends to
acquire. Since fluctuations in the value of appropriately selected futures
contracts should approximate that of the debt securities that will be purchased,
the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make the
intended purchase of the debt securities in the cash market and currently
liquidate its futures position. To the extent the Fund enters into futures
contracts for this purpose, it will maintain in a segregated asset account with
the Fund's custodian, assets sufficient to cover the Fund's obligations with
respect to such futures contracts, which will consist of cash, U.S. Government
securities or other liquid high-grade debt obligations from its portfolio in an
amount equal to the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial margin deposited by the
Fund with its custodian with respect to such futures contracts.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities. As with the purchase of futures contracts, when the
Fund is not fully invested it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates.
The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates and consequent reduction in the value
of portfolio securities.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of debt securities which the Fund
intends to purchase. If a put or call option the Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Fund's losses from options on futures it has written may to some extent be
reduced or increased by changes in the value of its portfolio securities.
Currency Futures and Options Thereon.
Generally, foreign currency futures contracts and options thereon are
similar to the interest rate
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futures contracts and options thereon discussed previously. By entering into
currency futures andoptions thereon on U.S. and foreign exchanges, the Fund will
seek to establish the rate at which it will be entitled to exchange U.S. dollars
for another currency at a future time. By selling currency futures, the Fund
will seek to establish the number of dollars it will receive at delivery for a
certain amount of a foreign currency. In this way, whenever the Fund anticipates
a decline in the value of a foreign currency against the U.S. dollar, the Fund
can attempt to "lock in" the U.S. dollar value of some or all of the securities
held in its portfolio that are denominated in that currency. By purchasing
currency futures, the Fund can establish the number of dollars it will be
required to pay for a specified amount of a foreign currency in a future month.
Thus, if the Fund intends to buy securities in the future and expects the U.S.
dollar to decline against the relevant foreign currency during the period before
the purchase is effected, the Fund can attempt to "lock in" the price in U.S.
dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for the
price of the premium and related transaction costs it must pay for the option,
to decide whether or not to buy (in the case of a call option) or to sell (in
the case of a put option) a futures contract at a specified price at any time
during the period before the option expires. If the Adviser, in purchasing an
option, has been correct in its judgment concerning the direction in which the
price of a foreign currency would move as against the U.S. dollar, the Fund may
exercise the option and thereby take a futures position to hedge against the
risk it had correctly anticipated or close out the option position at a gain
that will offset, to some extent, currency exchange losses otherwise suffered by
the Fund. If exchange rates move in a way the Fund did not anticipate, however,
the Fund will have incurred the expense of the option without obtaining the
expected benefit; any such movement in exchange rates may also thereby reduce
rather than enhance the Fund's profits on its underlying securities
transactions.
Securities Index Futures Contracts and Options Thereon.
Purchases or sales of securities index futures contracts are used for
hedging purposes to attempt to protect a Fund's current or intended investments
from broad fluctuations in stock or bond prices. For example, a Fund may sell
securities index futures contracts in anticipation of or during a market decline
to attempt to offset the decrease in market value of the Fund's securities
portfolio that might otherwise result. If such decline occurs, the loss in value
of portfolio securities may be offset, in whole or part, by gains on the futures
position. When a Fund is not fully invested in the securities market and
anticipates a significant market advance, it may purchase securities index
futures contracts in order to gain rapid market exposure that may, in part or
entirely, offset increases in the cost of securities that the Fund intends to
purchase. As such purchases are made, the corresponding positions in securities
index futures contracts will be closed out. The Fund may write put and call
options on securities index futures contracts for hedging purposes.
Limitations on the Purchase and Sale of Futures Contracts and Options on Futures
Contracts
Subject to the guidelines of the Board of Directors, the Fund may engage in
transactions in futures contracts and options hereon only for bona fide hedging,
yield enhancement and risk management purposes, in each case in accordance with
the rules and regulations of the CFTC, and not for speculation.
Regulations of the CFTC applicable to the Fund permit the Fund's futures
and options on futures transactions to include (i) bona fide hedging
transactions without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) non-hedging transactions, provided that the
Fund not enter into such non-hedging transactions if, immediately thereafter,
the sum of the amount of
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initial margin deposits on the Fund's existing futures positions and option
premiums would exceed 5% of the market value of the Fund's liquidating value
after taking into account unrealized profits and unrealized losses on any such
transactions.
Forward Currency Exchange Contracts
The Fund may engage in currency transactions otherwise than on futures
exchanges to protect against future changes in the level of future currency
exchange rates. The Fund will conduct such currency exchange transactions either
on a spot, i.e., cash, basis at the rate then prevailing in the currency
exchange market or on a forward basis, by entering into forward contracts to
purchase or sell currency. A forward contract on foreign currency involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days agreed upon by the parties from the date of the
contract, at a price set on the date of the contract. The risk of shifting of a
forward currency contract will be substantially the same as a futures contract
having similar terms. The Fund's dealing in forward currency exchange will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction edging is the purchase or sale of forward currency with
respect to specific receivables or payables of the Fund generally arising in
connection with the purchase or sale of its portfolio securities and accruals of
interest receivable and Fund expenses. Position hedging is the forward sale of
currency with respect to portfolio security positions denominated or quoted in
that currency or in a currency bearing a high degree of positive correlation to
the value of that currency.
The Fund may not position hedge with respect to a particular currency for
an amount greater than the aggregate market value (determined at the time of
making any sale of forward currency) of the securities held in its portfolio
denominated or quoted in, or currently convertible into, such currency. If
the Fund enters into a position hedging transaction, the Fund's custodian or
subcustodian will place cash or U.S. Government securities or other high-grade
debt obligations in a segregated account of the Fund in an amount equal to the
value of the Fund's total assets committed to the consummation of the given
forward contract. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account so
that the value of the account will, at all times, equal the amount of the Fund's
commitment with respect to the forward contract.
At or before the maturity of a forward sale contract, the Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and offset its contractual obligations to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to
delivery. If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward contract prices. Should forward prices decline during
the period between the Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for the purchase of
the currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to purchase is less than the price of the currency it has
agreed to sell. Should forward prices increase, the Fund will suffer a loss to
the extent the price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell. Closing out forward purchase contracts
involves similar offsetting transactions.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward transactions in currency
exchange are usually conducted on a principal basis, no fees or commissions
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are involved. The use of foreign currency contracts does not eliminate
fluctuations in the underlying prices of the securities, but it does establish a
rate of exchange that can be achieved in the future. In addition, although
forward currency contracts limit the risk of loss due to a decline in the value
of the hedged currency, they also limit any potential gain that might result if
the value of the currency increases.
If a decline in any currency is generally anticipated by the Adviser, the
Fund may not be able to contract to sell the currency at a price above the level
to which the currency is anticipated to decline.
Additional Risks of Options, Futures Contracts, Options on Futures Contracts and
Forward Contracts
Options, futures contracts, and options thereon and forward contracts on
securities and currencies may be traded on foreign exchanges. Such transactions
may not be regulated as effectively as similar transactions in the U.S., may not
involve a clearing mechanism and related guarantees, and are subject to the risk
of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by (i)
other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in the
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S. and (v) lesser trading volume.
Exchanges on which options, futures and options on futures are traded may
impose limits on the positions that the Fund may take in certain circumstances.
Special Risk Considerations Relating to Futures and Options Thereon
The Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the development
and maintenance of liquid markets. Although the Fund generally will purchase or
sell only those futures contracts and options thereon for which there appears to
be a liquid market, there is no assurance that a liquid market on an exchange
will exist for any particular futures contract or option thereon at any
particular time. In the event no liquid market exists for a particular futures
contract or option thereon in which the Fund maintains a position, it will not
be possible to effect a closing transaction in that contract or to do so at a
satisfactory price and the Fund would have to either make or take delivery under
the futures contract or, in the case of a written option, wait to sell the
underlying securities until the option expires or is exercised or, in the case
of a purchased option, exercise the option. In the case of a futures contract or
an option on a futures contract which the Fund has written and which the Fund is
unable to close, the Fund would be required to maintain margin deposits on the
futures contract or option and to make variation margin payments until the
contract is closed.
Successful use of futures contracts and options thereon and forward
contracts by the Fund is subject to the ability of the Adviser to predict
correctly movements in the direction of interest and foreign currency rates. If
the Adviser's expectations are not met, the Fund would be in a worse position
than if a hedging strategy had not been pursued. For example, if the Fund has
hedged against the possibility of an increase in interest rates which would
adversely affect the price of securities in its portfolio and the price of such
securities increases instead, the Fund will lose part or all of the benefit of
the increased value of its securities because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
insufficient cash to meet daily variation margin requirements, it may have to
sell securities to meet the requirements. These sales may be, but will not
necessarily be, at increased
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prices which reflect the rising market. The Fund may have to sell securities at
a time when it is disadvantageous to do so.
Repurchase Agreements
The Fund may engage in repurchase agreements as set forth in the
Prospectus. A repurchase agreement is an instrument under which the purchaser
(i.e., the Fund) acquires a debt security and the seller agrees, at the time of
the sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. This
results in a fixed rate of return insulated from market fluctuations during such
period. The underlying securities are ordinarily U.S. Treasury or other
government obligations or high quality money market instruments. The Fund will
require that the value of such underlying securities, together with any other
collateral held by the Fund, always equals or exceeds the amount of the
repurchase obligations of the contra party. The Fund's risk is primarily that,
if the seller defaults, the proceeds from the disposition of the underlying
securities and other collateral for the seller's obligation are less than the
repurchase price. If the seller becomes insolvent, the Fund might be delayed in
or prevented from selling the collateral. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will experience a loss.
If the financial institution which is a party to the repurchase agreement
petitions for bankruptcy or becomes subject to the United States Bankruptcy
Code, the law regarding the rights of the Fund are unsettled. As a result, under
extreme circumstances, there may be a restriction on the Fund's ability to sell
the collateral and the Fund would suffer a loss.
Loans of Portfolio Securities
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to securities broker-dealers or financial institutions,
provided that such loans are callable at any time by the Fund (subject to notice
provisions described below), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least the market value, determined daily,
of the loaned securities. The advantage of such loans is that the Fund continues
to receive the income on the loaned securities while at the same time earns
interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations. The Fund will not lend its portfolio securities if such
loans are not permitted by the laws or regulations of any state in which its
shares are qualified for sale and will not lend more than 33% of the value of
its total assets.
A loan may generally be terminated by the borrower on one business day's
notice, or by the Fund on five business days' notice. If the borrower fails to
deliver the loaned securities within five days after receipt of notice, the Fund
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Fund's management to be creditworthy and when the income
which can be earned from such loans justifies the attendant risks. The Board of
Directors will oversee the creditworthiness of the contracting parties on an
ongoing basis. Upon termination of the loan, the borrower is required to return
the securities to the Fund. Any gain or loss in the market price during the loan
period would inure to the Fund. The risks associated with loans of portfolio
securities are substantially similar to those associated
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with repurchase agreements. Thus, if the contra party to the loan petitions for
bankruptcy or becomes subject to the United States Bankruptcy Code, the law
regarding the rights of the Fund is unsettled. As a result, under extreme
circumstances, there may be a restriction on the Fund's ability to sell the
collateral and the Fund would suffer a loss. When voting or consent rights which
accompany loaned securities pass to the borrower, the Fund will follow the
policy of calling the loaned securities, to be delivered within one day after
notice, to permit the exercise of such rights if the matters involved would have
a material effect on the Fund's investment in such loaned securities. The Fund
will pay reasonable finder's, administrative and custodial fees in connection
with a loan of its securities.
THE ADVISER
The Adviser is a New York corporation with principal offices located at One
Corporate Center, Rye, New York 10580-1434. The Adviser also serves as adviser
to other closed-end and open end investment companies with net assets in excess
of $3.5 billion as of January 31, 1995.
Pursuant to an Investment Advisory 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 for 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
Directors of the Fund.
Under the Investment Advisory Contract, the Adviser also (1) provides the
Fund with the services of persons competent to perform such supervisory,
administrative, and clerical functions as are necessary to provide efficient
administration of the Fund, including maintaining certain books and records; (2)
oversees the performance of administrative and professional services provided to
the Fund by others, including the Fund's Custodian, Transfer Agent and Dividend
Disbursing Agent, as well as legal, accounting, auditing and other services
performed for the Fund; (3) provides the Fund, if requested, with adequate
office space and facilities; (4) prepares, but does not pay for, periodic
updating of the Fund's Registration Statement, Prospectus and Additional
Statement, including the printing of such documents for the purpose of filings
with the SEC; (5) supervises the calculation of the net asset value of shares of
the Fund; (6) prepares, but does not pay for, all filings under state "Blue Sky"
laws of such states or countries, 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 (7) prepares notices and agendas for meetings of the Fund's
Board of Directors and minutes of such meetings in all matters required by the
Investment Company Act of 1940 (the "1940 Act") to be acted upon by the Board.
The Adviser has entered into an Administration Contract with Furman Selz
Incorporated ("Furman Selz" or the "Administrator"), 237 Park Avenue, New York,
New York 10017, pursuant to which the Administrator provides certain
administrative services necessary for the Fund's operations but which do not
concern the investment advisory and portfolio management services provided by
the Adviser. For such services and the related expenses borne by Furman Selz,
the Adviser pays a monthly fee of .10% of the first $350 million of the
aggregate average net assets of the Fund and other funds administered by Furman
Selz and advised by Gabelli Funds, Inc., .075% of the aggregate average net
assets exceeding $350 million up to $600 million, and .06% in excess of $600
million (minimum annual fee of $40,000 per portfolio) which, together with the
services to be rendered, is subject to negotiation between the parties and both
parties retain the right unilaterally to terminate the arrangement on not less
than sixty days' notice.
The Investment Advisory Contract provides that absent willful misfeasance,
bad faith, gross negligence
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or reckless disregard of its duty, the Adviser is 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. The Investment Advisory Contract
in no way restricts the Adviser from acting as adviser to others. The Fund has
agreed by the terms of the Investment Advisory 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."
The Investment Advisory Contract was approved by the Board of Directors on
June 3, 1989 and by the Fund's shareholders at a meeting held on May 14, 1990
and was approved most recently by the Board of Directors on May 9, 1994. The
Investment Advisory Contract is terminable without penalty by the Fund on not
more than sixty days' written notice when authorized by the Board of Directors
of the Fund, by the holders of a majority, as defined in the 1940 Act, of the
outstanding shares of the Fund, or by the Adviser. The Investment Advisory
Contract will automatically terminate in the event of its assignment, as defined
in the 1940 Act. The Investment Advisory Contract provides that, unless
terminated, it will remain in effect so long as continuance of the Investment
Advisory Contract is approved annually by the Board of Directors of the Fund, or
the shareholders of the Fund and in either case, by a majority vote of the
Directors who are not parties to the Investment Advisory Contract or "interested
persons" as defined in the 1940 Act of any such person cast in person at a
meeting called specifically for the purpose of voting on the continuance of the
Investment Advisory Contract. For the fiscal years ended December 31, 1994,
December 31, 1993 and December 31, 1992, the Adviser received fees of
$1,177,574, $1,014,395 and $889,389 respectively.
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DIRECTORS AND OFFICERS
The Directors and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Adviser or the Administrator, are shown below. Directors deemed to be
"interested persons" of the Fund for purposes of the 1940 Act are indicated by
an asterisk.
Principal Occupations During Last Five Years;
Name, Position with Fund Affiliations with the Adviser
and Address or Administrator.
------------------------ ---------------------------------------------
Mario J. Gabelli* Chairman, President, Chief Executive Officer
President, Director and and a Director of Gabelli Funds, Inc.;
One Corporate Center Inc., Chairman, Chief Executive Officer, Chief
Rye, New York 10580 Investment Officer and Director of GAMCO
Investors, Inc.; President and Chairman of
The Gabelli Equity Trust, Inc.; President,
Chief Chief Investment Officer Investment
Officer and Director of Gabelli Equity Series
Funds, Inc., The Gabelli Value Fund, Inc.,
Gabelli Global Series Funds, and Gabelli
Investor Funds, Inc., and Trustee of The
Gabelli Asset Fund, The Gabelli Growth Fund
and The Gabelli Money Market Funds; Chairman
and Director of Lynch Corporation; Director
and Adviser of Gabelli International Ltd.
Anthony J. Colavita President and Attorney at law in the law firm
Director of Anthony J. Colavita, P.C.; Director of The
575 White Plains Rd. Gabelli Value Fund, Inc., Gabelli Global
Eastchester, New York 10709 Series Funds, Inc., Gabelli Investor Funds,
Inc. and Gabelli Equity Series Funds, Inc.;
Trustee of The Gabelli Asset Fund and The
Gabelli Growth Fund, The Gabelli Money Market
Funds since 1992 and the Westwood Funds.
E. Val Cerutti Chief Executive Officer of Cerutti
Director Consultants, Inc.; Former President and Chief
227 McLain Street Operating Officer of Stella D'oro Biscuit
Mount Kisco, New York 10549 Company (through 1992); Adviser, Iona College
School of Business; Director of Lynch
Corporation.
Felix J. Christiana Formerly Senior Vice President of Dollar Dry
Director Dock Savings Bank; Director, The Gabelli
45 Pondfield Parkway Equity Trust Inc., Gabelli Global Series
Mt. Vernon, New York 10552 Funds, Inc., The Gabelli Value Fund, Inc.,
Gabelli Investor Funds, Inc., Gabelli Equity
Series Funds, Inc., The Treasurer's Fund,
Inc.; Trustee, The Gabelli Growth Fund and
The Gabelli Asset Fund.
Anthonie C. van Ekris Managing Director of BALMAC International,
Director Inc.; Formerly Chairman and Chief Executive
11 Avenue Princess Grace Officer of Balfour MacLaine Corporation and
Monaco, MC 98000 Kay Corporation (through 1990); Director of
Stahel Hardmeyer A.Z., Gabelli Equity Series
Funds, Inc. and Gabelli Global Series Funds,
Inc.; Trustee of The Gabelli Asset Fund, The
Gabelli Growth Fund and The Gabelli Money
Market Funds.
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Principal Occupations During Last Five Years;
Name, Position with Fund Affiliations with the Adviser
and Address or Administrator.
------------------------ ---------------------------------------------
Dugald A. Fletcher* President, Fletcher & Company, Inc.; Director
Director (since 1989) and Chairman (since February of
28 Shelter Lane 1991) of Binnings Building Products, Inc.;
Locust Valley, New York 11560 Trustee, The Gabelli Growth Fund; Member of
Advisory Board of Gabelli & Rosenthal Limited
Partners.
Karl Otto Pohl* Partner of Sal Oppenheim Jr. & Cie. (private
Director investment bank); Former President of the
c/o Gabelli Funds, Inc. Deutsche Bundesbank (Germany's Central Bank)
One Corporate Center and Chairman of its Central Bank Council
Rye, New York 10580 (1980-1991); Currently board member of Zurich
Versicherungs-Gesellschaft (insurance); the
International Council for JP Morgan & Co.;
the Board of Supervisory Directors of
ROBECo/o Group; and the Supervisory Board of
Royal Dutch (petroleum company); Advisory
Director of Unilever N.V. and Unilever
Deutschland; Director/Trustee of all Funds
managed by the Adviser.
Anthony R. Pustorino, CPA Professor of Accounting, Pace University
Director since 1965; Director, President and
121 Arleigh Road shareholder of Pustorino, Puglisi & Co.,
Douglaston, New York 11363 P.C., certified public accountants from 1961
to 1990; Director, The Gabelli Equity Trust
Inc., The Gabelli Value Fund Inc., Gabelli
Equity Series Funds, Inc., The Treasurer's
Fund, Inc.; Trustee, The Gabelli Growth Fund,
The Gabelli Asset Fund and The Gabelli Global
Multimedia Trust Inc.
Salvatore J. Zizza President and Chief Executive Officer of The
Director Lehigh Group, Inc.; Director of The Gabelli
810 Seventh Avenue Equity Trust Inc. and Debe Computer Systems
New York, New York 10019 Corp.; Trustee, The Gabelli Asset Fund and
The Gabelli Growth Fund.
Bruce N. Alpert Vice President, Treasurer and Chief Financial
Vice President and and Administrative Officer of the investment
Treasurer advisory division of the Adviser; Treasurer
One Corporate Center of The Gabelli Equity Trust, Inc.; Vice
Rye, New York 10580 President and Treasurer of Gabelli Equity
Series Funds, Inc.; Gabelli Global Series
Funds, Inc.; The Gabelli Money Market Funds,
The Gabelli Value Fund Inc. and Gabelli
Investor Funds, Inc.; President and Treasurer
of The Gabelli Asset Fund, The Gabelli Growth
Fund; Manager of Teton Advisers LLC and Vice
President of the Westwood Funds.
J. Hamilton Crawford, Jr. Senior Vice President and General Counsel of
Secretary the investment advisory division of Gabelli
One Corporate Center Funds, Inc.; Secretary of all Funds advised
Rye, New York 10580 by Gabelli Funds, Inc. since 1992 and Teton
Advisers LLC. Attorney in private practice,
1990-1992. Executive Vice President and
General Counsel of Prudential Mutual Fund
Management, Inc., 1988-1990.
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B-18
<PAGE>
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The Fund pays each Director who is not an employee of the Adviser or an
affiliated company an annual fee of $3,000 and $500 for each meeting of the
Board of Directors attended by the Director, and reimburses Directors for
certain travel and other out-of-pocket expenses incurred by them in connection
with attending such meetings. Directors and officers of the Fund who are
employed by the Adviser or an affiliated company receive no compensation or
expense reimbursement from the Fund. Mr. Pohl receives fees from the Adviser but
has no obligation to provide any services to the Adviser. Although this
relationship does not appear to require designation of Mr. Pohl as an interested
person, the Fund is currently making such designation in order to avoid the
possibility that Mr. Pohl's independence would be questioned.
Karl Otto Pohl and Anthonie C. van Ekris, Directors of the Fund, reside
outside the United States and all or a significant portion of their assets are
located outside the United States. They have no authorized agent in the United
States to receive service of process. As a result, it may not be possible for
investors to effect service of process within the United States or to enforce
against them in United States courts judgments predicated upon civil liability
provisions of United States securities laws.
The following table sets forth certain information regarding the
compensation of the Fund's Directors and Officers. Except as disclosed below, no
Executive Officer or person affiliated with the Fund received compensation from
the Fund for the calendar year ended December 31, 1994 in excess of $60,000.
COMPENSATION TABLE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensa- Pension or Retirement Estimated Annual Ben- Total Compensation
Position tion from Registrant Benefits Accrued as efits Upon Retirement from Registrant and
(fiscal year) Part of Fund Expenses Fund Complex Paid to
Directors*
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mario J. Gabelli $ 0 N/A N/A $ 0
President, Director and
Chief Investment Officer
Anthony J. Colavita 5,000 N/A N/A 62,000 (10)
Director
E. Val Cerutti 5,000 N/A N/A 5,500 (2)
Director
Felix Christiana 5,000 N/A N/A 64,500 (9)
Director
Dugald Fletcher 5,000 N/A N/A 13,000 (2)
Director
Anthony R. Pustorino 5,000 N/A N/A 69,000 (8)
Director
Anthonie C. van Ekris 5,000 N/A N/A 40,000 (8)
Director
Karl Otto Pohl 4,500 N/A N/A 64,750 (12)
Director
Salvatore Zizza 5,000 N/A N/A 35,000 (5)
Director
</TABLE>
----------
* Represents the total compensation paid to such persons during the
calendar year ending December 31, 1994 (and, with respect to the Fund, estimated
to be paid during a full calendar year). The parenthetical number represents the
number of investment companies (including the Fund) from which such person
receives compensation that are considered part of the same fund complex as the
Fund, because, among other things, they have a common investment adviser.
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B-19
<PAGE>
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INVESTMENT RESTRICTIONS
The investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the 1940 Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the 1940 Act. Such a
majority is defined as the lesser of (1) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (2) more than 50% of the outstanding
shares of the Fund.
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. Purchase or otherwise acquire real estate or interests therein,
although the Fund may purchase securities of issuers which engage in
real estate operations and securities secured by real estate or
interests therein.
3. Purchase or otherwise acquire or sell commodities or commodity
contracts except that the Fund may purchase or sell financial futures
contracts and relation options thereon.
4. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs, except that the
Fund may invest in the securities of companies which operate, invest
in, or sponsor such programs.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition
of assets, except that the Fund reserves the right to invest up to 5%
of its total assets in not more than 3% of the securities of any one
investment company including small business investment companies or
invest up to 10% of its total assets in the securities of investment
companies, nor make any such investments other than through purchases
in the open market where to the best information of the Fund no
commission or profit to a sponsor or dealer (other than the customary
broker's commission) results from such purchase.
6. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings. For the purpose of this restriction,
collateral arrangements with respect to the writing of options or
entering into financial futures transactions or forward contracts, or
when issued or delayed delivery securities are not deemed to be
pledges of assets and such arrangements are not deemed to be the
issuance of a senior security as set forth in restriction (7).
7. Issue senior securities except to the extent permitted by applicable
law.
8. Make loans of money or securities, except: (a) that the Fund may
engage in repurchase agreements as set forth in the Prospectus and (b)
the Fund may lend its portfolio securities consistent with applicable
regulatory requirements and as set forth in the Prospectus.
9. Make short sales of securities or maintain a short position, unless at
all times when a short position is open, it either owns an equal
amount of such securities or owns securities which, without payment of
any further consideration, are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the
securities sold short.
10. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.
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B-20
<PAGE>
--------------------------------------------------------------------------------
11. Invest for the purpose of exercising control or management of any
other issuer.
12. Invest more than 25% of the value of its total assets in any one
industry.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Investment Advisory 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. Transactions in securities
other than those for which a securities exchange is the principal market are
generally done with a brokerage firm and a commission is paid whenever it
appears that the broker can obtain a more favorable overall price. In general,
there may be no stated commission in the case of securities traded on the
over-the-counter markets, but the prices of those securities may include
undisclosed commissions or markups. Options transactions will usually be
effected through a broker and a commission will be charged. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation generally referred to as
the underwriter's concession or discount.
The Adviser currently serves as adviser to a number of investment company
clients and may in the future act as adviser to others. It is the practice of
the Adviser to cause purchase and sale transactions to be allocated among the
Fund and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, the main
factors considered are the respective investment objectives, the relative size
of portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of the Fund and
other client accounts.
The policy of the Fund regarding purchases and sales of securities and
options for its portfolio is that primary consideration will be given to
obtaining the most favorable prices and efficient execution of transactions. In
seeking to implement the Fund's policies, the Adviser effects transactions with
those brokers and dealers who the Adviser believes provide the most favorable
prices and are capable of providing efficient executions. If the Adviser
believes such price and execution are obtainable from more than one broker or
dealer, it may give consideration to placing portfolio transactions with those
brokers and dealers who also furnish research and other services to the Fund or
the Adviser of the type described in Section 28(e) of the Securities Exchange
Act of 1934. In doing so, the Fund may also pay higher commission rates than the
lowest available when the Adviser believes it is reasonable to do so in light of
the value of the brokerage and research services provided by the broker
effecting the transaction. Such services may include, but are not limited to,
any one or more of the following: information as to the available ability of
securities for purchase or sale; statistical or factual information or opinions
pertaining to investment; wire services; and appraisals or evaluations of
portfolio securities.
The Adviser may also place orders for the purchase or sale of portfolio
securities with Gabelli and Company, Inc. ("Gabelli"), a broker-dealer member of
the National Association of Securities Dealers, Inc. and an affiliate of the
Adviser, when it appears that, as an introducing broker or otherwise, Gabelli
can obtain a price and execution which is at least as favorable as that
obtainable by other qualified brokers.
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B-21
<PAGE>
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As required by Rule 17e-1 under the Act, the Board of Directors has adopted
"Procedures" which provide that the commissions paid to Gabelli on stock
exchange transactions may not exceed that which would have been charged by
another qualified broker or member firm able to affect the same or a comparable
transaction an at equally favorable price. Rule 17e-1 and the Procedures contain
requirements that the Board, including its Independent Directors, conduct
periodic compliance reviews of such brokerage allocations and review such
schedule at least annually for its continuing compliance with the foregoing
standard. The Adviser and Gabelli are also required to furnish reports and
maintain records in connection with such reviews. For the fiscal years ended
December 31, 1992, December 31, 1993 and December 31, 1994 the Fund paid a total
of $41,539, $33,750 and $53,877, respectively, in brokerage commissions, of
which Gabelli and its affiliates received $2,465, $4,763 and $9,631,
respectively.
To obtain the best execution of portfolio trades on the New York Stock
Exchange ("Exchange"), Gabelli controls and monitors the execution of such
transactions on the floor of the Exchange through independent "floor brokers" or
through the Designated Order Turnaround ("DOT") System of the Exchange. Such
transactions are then cleared, confirmed to the Fund for the account of Gabelli,
and settled directly with the Custodian of the Fund by a clearing house member
firm which remits the commission less its clearing charges to Gabelli.
Pursuant to an agreement with the Fund, Gabelli pays all charges incurred
for such services and reports at least quarterly to the Board the amount of such
expenses and commissions; and the net compensation realized by Gabelli for its
brokerage services is subject to the approval of the Board and the Independent
Directors of the Fund who must approve the continuation of the arrangement at
least annually. Commissions paid by the Fund pursuant to the arrangement may not
exceed the commission level specified by the Procedures described above. Gabelli
may also effect Fund portfolio transactions in the same manner and pursuant to
the same arrangements on other national securities exchanges which adopt direct
access rules similar to those of the Exchange.
DETERMINATION OF NET ASSET VALUE
Net asset value will normally be calculated daily (a) no less frequently
than weekly, (b) on the last business day of each month and (c) at any other
times determined by the Fund's Board of Directors. Net asset value is calculated
by dividing the value of the Fund's net assets (the value of its assets less its
liabilities) by the total number of shares of Common Stock outstanding. All
securities for which market quotations are readily available, which include the
options and futures in which the Fund may invest, are valued at the last sales
price on the primary exchange on which they are traded prior to the time of
determination, or, if no sales price is available at that time, at the closing
price quoted for the securities (but if bid and asked quotations are available,
at the mean between the last current bid and asked prices, rather than the
quoted closing price). Securities that are traded in the unregulated market are
valued, if bid and asked quotations are available, at the current bid price. If
bid and asked quotations are not available, then such securities are valued as
determined pursuant to procedures established in good faith by the Board of
Directors of the Fund.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are varied at amortized cost, unless the Directors
determine such does not reflect the securities' fair value, in which case these
securities will be valued at their fair value as determined by the Directors.
Other short-term debt securities will be valued on a marked-to-market basis
until such time as they reach a maturity of sixty days, whereupon they will be
valued at amortized value unless the Directors determine such does not reflect
the securities' fair value, in which case these securities will be valued at
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B-22
<PAGE>
-------------------------------------------------------------------------------
their fair value as determined by the Directors. Options are valued at the last
sale price on the exchange on which they are listed, unless no sales of such
options have taken place that day, in which case they will be valued at the mean
between their closing bid and asked prices.
DIVIDENDS, DISTRIBUTIONS AND TAXES
General
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. If it so qualifies, the Fund
will not be subject to Federal income tax on its net investment income and net
short-term capital gain, if any, realized during any fiscal year to the extent
that it distributes such income and capital gains to its shareholders.
The Fund will determine either to distribute or to retain for
reinvestmentall or part of its net long-term capital gain. If any such gains are
retained, the Fund will be subject to a tax of 35% of such amount. In that
event, the Fund expects to designate the retained amount as undistributed
capital gains in a notice to its shareholders, each of whom (1) will be required
to include in income for tax purposes as long-term capital gains its share of
such undistributed amount, (2) will be entitled to credit its proportionate
share of the tax paid by the Fund against its Federal income tax liability and
to claim refunds to the extent that the credit exceeds such liability, and (3)
will increase its basis in its shares of the Fund by an amount equal to 65% of
the amount of undistributed capital gains included in such shareholder's gross
income.
Under the Code, amounts not distributed by a regulated investment company
on a timely basis in accordance with a calendar year distribution requirement
are subject to a 4% excise tax. To avoid the tax, the Fund must distribute
during each calendar year, an amount equal to, at the minimum, the sum of (1)
98% of its ordinary income (not taking into account any capital gains or losses)
for the calendar year, (2) 98% of its capital gains in excess of its capital
losses for the twelve-month period ending on October 31 of the calendar year
(unless an election is made by a fund with a November or December year-end to
use the fund's fiscal year), and (3) all ordinary income and net capital gain
for previous years that were not previously distributed. A distribution will be
treated as paid during the calendar year if it is paid during the calendar year
or declared by the Fund in October, November or December of the year, payable to
shareholders of record on a date during such month and paid by the Fund during
January of the following year. Any such distributions paid during January of the
following year will be deemed to be received on December 31 of the year the
distributions are declared, rather than when the distributions are received.
Gains or losses on the sales of securities by the Fund will be long-term
capital gains or losses if the securities have been held by the Fund for more
than twelve months. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses.
Foreign currency gains or losses on non-U.S. dollar denominated bonds and
other similar debt instruments and on any non-U.S. dollar denominated futures
contracts, options and forward contracts that are not section 1256 contracts (as
defined below) generally will be treated as ordinary income and loss.
Hedging Transactions
Certain options, futures contracts and options on futures contracts are
"section 1256 contracts". Any gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
("60/40"). Also, section 1256 contracts held by the Fund at the end of each
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B- 23
<PAGE>
--------------------------------------------------------------------------------
taxable year are "marked-to-the-market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as 60/40 gain or loss.
Hedging transactions undertaken by the Fund may result in "straddles" for
U.S. Federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Fund. In addition, losses realized by the Fund
on positions that are part of a straddle may be deferred under the straddle
rules, rather than being taken into account in calculating the taxable income
for the taxable year in which such losses are realized.
Further, the Fund may be required to capitalize, rather than deduct
currently, any interest expense on indebtedness incurred or continued to
purchase or carry any positions that are part of a straddle. Because only a few
regulations implementing the straddle rules have been promulgated, the tax
consequences of hedging transactions to the Fund are not entirely clear.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
accelerate the recognition of gains or losses from the affected straddle
positions.
Because application of the straddle rules may affect the character and
timing of the Fund's gains, losses and deductions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
The requirements of the Code applicable to regulated investment companies
may limit the extent to which the Fund will be able to engage in transactions in
options, futures contracts and options on futures contracts.
Distributions
Distributions of investment company taxable income (which includes taxable
interest income, dividends and the excess of net short-term capital gains over
long-term capital losses) are taxable to a U.S. shareholder as ordinary income,
whether paid in cash or shares. Dividends paid by the Fund will qualify for the
70% deduction for dividends received by corporations to the extent that the
Fund's income consists of qualified dividends received from U.S. corporations.
Distributions of net capital gains (which consist of the excess of long-term
capital gains over net short-term capital losses), if any, are taxable as long-
term capital gains, whether paid in cash or in shares, regardless of how long
the shareholder has held the Fund's shares, and are not eligible for the
dividends received deduction. Shareholders receiving distributions in the form
of newly issued shares will have a basis in such shares of the Fund equal to the
fair market value of such shares on the distribution date. If the net asset
value of shares is reduced below a shareholder's cost as a result of a
distribution by the Fund, such distribution will be taxable even though it
represents a return of invested capital. The price of shares purchased at any
time may reflect the amount of a forthcoming distribution. Those purchasing
shares just prior to a distribution will receive a distribution which will be
taxable to them, even though it represents in part a return of invested capital.
Sales of Shares
Upon a sale or exchange of shares, a shareholder will realize a taxable
gain or loss depending upon his or her basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares have been held for more
than one year. Any loss realized on a sale or exchange will be disallowed to the
extent the shares isposed of are replaced within a 61 day period eginning 30
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B-24
<PAGE>
--------------------------------------------------------------------------------
days before and ending 30 days after the day that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of net capital gain
received by the shareholder with respect to such shares.
Backup Withholding
The Fund may be required to withhold Federal income tax at a rate of 31% on
all taxable distributions payable to shareholders who fail to provide the Fund
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's Federal
income tax liability.
Foreign Withholding Taxes
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of the Fund's assets to be invested in various
countries is not known. Because the Fund will not have more than 50% of its
total assets invested in securities of foreign governments or corporations, the
Fund will not be entitled to "pass-through" to shareholders the amount of
foreign taxes paid by the Fund.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and the Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Dividends and capital gains distributions also may be subject to state and
local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state or local taxes.
GENERAL INFORMATION
Counsel and Independent Accountants
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York
10022 is counsel to the Fund.
Price Waterhouse, 1177 Avenue of the Americas, New York, New York 10036,
has been selected as independent accountants for the Fund.
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B-25
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements (1)
(2) (a) Articles of Amendment and Restatement (3)
(b) Amended and Restated By-Laws (3)
(c) Not Applicable
(d) Specimen Stock Certificate (3)
(e) Automatic Dividend Reinvestment
and Voluntary Cash Purchase Plan (3)
(f) Not Applicable
(g) Investment Advisory Agreement (2)
(h) Not Applicable
(i) Not Applicable
(j) Custodian Agreement (2)
(k) Not Applicable
(l) Opinion and Consent of Counsel (2)
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable
(p) Not Applicable
(q) Not Applicable
(r) Not Applicable
(1) Incorporated by reference from the Registrant's Annual Report for
the year ended December 31, 1994, as filed with the Securities and
Exchange Commission on March 10, 1995.
(2) Incorporated by reference from the Registrant's Registration
Statement on Form N-1A, File Nos. 33-26644 and 811-05715, as filed
with the Securities and Exchange Commission on January 17, 1989.
(3) Filed herein.
Item 25. Marketing Arrangements
None.
Item 26. Other Expenses of Issuance and Distribution
Not Applicable.
Item 27. Persons Controlled by or Under Common Control with Registrant
Insofar as the following have substantially identical boards of
directors or trustees they may be deemed with Registrant to be
under common control: The Gabelli Asset Fund, The Gabelli Equity
Trust Inc., The Gabelli Growth Fund, The Gabelli Value Fund, The
Gabelli ABC Fund, The Gabelli Global Series Fund, The Gabelli Money
Market Funds, The Gabelli Multimedia Trust, Inc., The Gabelli Gold
Fund and The Gabelli Equity Series Funds, Inc.
Item 28. Number of Holders of Securities as of March 28, 1995
Title of Class Number of Record Holders
-------------- ------------------------
Capital Stock, par value
$.001 per share 8,646
Item 29. Indemnification
Under the Fund's Articles of Amendment and Restatement and Amended and Restated
By-Laws, the directors and officers of the Company and the Fund will be
indemnified to the fullest extent allowed and in the manner provided by Maryland
law and applicable provisions of the Investment Company Act of 1940, including
advancing of expenses incurred in connection therewith. Indemnification shall
not be provided however to any officer or director against any liability to the
Registrant or its security-holders to which he or she would otherwise be subject
<PAGE>
by reasons of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Insofar as indemnification for liabilities under the Securities Act of 1933 may
be permitted to the directors and officers, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
If a claim for indemnification against such liabilities under the Securities Act
of 1933 (other than for expenses incurred in a successful defense) is asserted
against the Company by the directors or officers in connection with the Shares,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in such Act and will be governed by the final adjudication of such
issue.
Item 30. Business and other Connections of Investment Advisor
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and partners of Gabelli Funds, Inc.,
reference is made to the Adviser's current Form ADV filed under the Investment
Advisers Act of 1940, incorporated herein by reference.
Item 31. Location of Accounts and Records
The accounts and records of the Registrant are maintained in part at the office
of the Advisor at One Corporate Center Rye, New York 10580-1434, in part at the
offices of the Custodian, State Street Bank and Trust Company, with offices at
1776 Heritage Drive, North Quincy, MA 02171, at offices of the Fund's
Administrator, Furman Selz Incorporated, 237 Park Avenue, New York, NY 10017,
and in part at the offices of Boston Financial Data Services Inc., BFDS
Building, 4th Floor, 2 Heritage Drive, Quincy, MA 02171.
Item 32. Management Services
Except as described above in Item 9, the Registrant is not a party to any
management service related contract.
Item 33. Undertakings
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused thisamendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on this 31st day of March, 1995.
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
By /s/ Bruce N. Alpert
---------------------
Bruce N. Alpert
Vice President and Treasurer
<PAGE>
SCHEDULE OF EXHIBITS TO FORM N-2
Exhibit Page
Number Exhibit Number
------- ------- ------
Exhibit A Articles of Amendment and Restatement ...........
Exhibit B Amended and Restated By-Laws ....................
Exhibit C Not Applicable ..................................
Exhibit D Specimen Stock Certificate ......................
Exhibit E Automatic Dividend Reinvestment
and Voluntary Cash Purchase Plan ................
Exhibit F Not Applicable ..................................
Exhibit G Investment Advisory Agreement* ..................
Exhibit H Not Applicable ..................................
Exhibit I Not Applicable ..................................
Exhibit J Custodian Agreement* ............................
Exhibit K Not Applicable ..................................
Exhibit L Opinion and Consent of Counsel* .................
Exhibit M Not Applicable ..................................
Exhibit N Not Applicable ..................................
Exhibit O Not Applicable ..................................
Exhibit P Not Applicable ..................................
Exhibit Q Not Applicable ..................................
Exhibit R Not Applicable ..................................
----------
* Previously filed.
Exhibit A
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
THE GABELLI SERIES FUNDS, INC.
* * * * *
The Gabelli Series Funds, Inc., a Maryland corporation (the
"Corporation"), certifies that:
FIRST: The Corporation desires to amend and restate its
charter as currently in effect and as hereinafter amended;
SECOND: The following are all of the provisions of the charter
of the Corporation currently in effect and as amended hereby:
ARTICLE I
THE UNDERSIGNED, Bruce N. Alpert and J. Hamilton Crawford,
Jr., certify that they are the Vice President and Treasurer, and Secretary,
respectively, of The Gabelli Series Funds, Inc., a corporation organized and
existing under and by virtue of the Maryland General Corporation Law.
ARTICLE II
NAME
The name of the corporation (the "Corporation") hereafter
shall be "The Gabelli Convertible Securities Fund, Inc."
ARTICLE III
PURPOSES AND POWERS
The purposes for which the Corporation is formed are to act as
an investment company under the United States Investment Company Act of 1940, as
heretofore or hereafter amended (the "1940 Act"), and to exercise and enjoy all
of the general powers, rights and privileges granted to, or conferred upon,
corporations by the Maryland General Corporation Law now or hereafter in force.
<PAGE>
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust Incorporated,
First Maryland Building, 32 South Street, Baltimore, Maryland 21202. The name of
the resident agent of the Corporation in the State of Maryland is The
Corporation Trust Incorporated, a corporation of the State of Maryland, and the
post office address of the resident agent is First Maryland Building, 32 South
Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock of all classes
which the Corporation shall have authority to issue is One Billion
(1,000,000,000) shares, each of which shall have a par value of ($.001), and all
of which shall have an aggregate par value of One Million Dollars ($1,000,000).
(2) (a) The Board of Directors of the Corporation is
authorized to classify or to reclassify, from time to time, any unissued shares
of stock of the Corporation, whether now or hereafter authorized, by setting,
changing or eliminating the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, or terms and
conditions of or rights to require redemption of the stock.
(b) Without limiting the generality of the foregoing, the
dividends and distributions or other payments with respect to the stock of the
Corporation, and with respect to each class that hereafter may be created, shall
be in such amount as may be declared from time to time by the Board of
Directors, and such dividends and distributions may vary from class to class to
such extent and for such purposes as the Board of Directors may deem
appropriate, including, but not limited to, the purpose of complying with
requirements of regulatory or legislative authorities.
(c) Until such time as the Board of Directors shall
provide otherwise pursuant to the authority granted in this section (2) of
Article V, all of the authorized shares of the Capital Stock of the Corporation
are designated as Common Stock. Shares of the Common Stock and the holders
thereof, and shares of any class and the holders thereof, shall be subject to
the following provisions, provided, however, that if no shares of any class
other than Common Stock are outstanding, the shares of the Common Stock and the
holders thereof shall nevertheless be subject to the following provisions except
2
<PAGE>
to the extent that such provisions are by their terms applicable only when
shares of two or more classes are outstanding.
(3) The net asset value of each share of the Corporation's
capital stock issued, sold or purchased at net asset value shall be the current
net asset value per share as determined in accordance with procedures adopted
from time to time by the Board of Directors which comply with the 1940 Act.
(4) Shares of each class of stock shall be entitled to such
dividends or distributions, in stock or in cash or both, as may be declared from
time to time by the Board of Directors, acting in its sole discretion, with
respect to such class.
(5) In the event of the liquidation or dissolution of the
Corporation, the holders of the Common Stock of the Corporation's stock shall be
entitled to receive all the assets of the Corporation not attributable to other
classes of stock through any preference. The assets so distributable to the
stockholders shall be distributed among such stockholders in proportion to the
number of shares of that class held by them and recorded on the books of the
Corporation.
(6) Unless otherwise now or hereafter expressly provided in
the Charter of the Corporation, including, without limitation, in any Articles
Supplementary creating any additional class of capital stock, on each matter
submitted to a vote of stockholders, each holder of a share of capital stock of
the Corporation shall be entitled to one vote for each share standing in such
holder's name on the books of the Corporation, irrespective of the class
thereof, and all shares of all classes of capital stock shall vote together as a
single class; provided, however, that as to any matter with respect to which a
separate vote of any class or series is required by the 1940 Act or any rules,
regulations or orders issued thereunder, or the Maryland General Corporation
Law, such requirement as to a separate vote by that class or series shall apply
in lieu of a vote of all classes voting together as a single class as described
above.
(7) The Corporation shall be entitled to purchase shares of
its capital stock, to the extent that the Corporation may lawfully effect such
purchase under the laws of the State of Maryland, upon such terms and conditions
and for such consideration as the Board of Directors shall deem advisable.
(8) All shares purchased by the Corporation shall constitute
authorized but unissued shares and the number of the authorized shares of stock
of the Corporation shall not be reduced by the number of any shares purchased by
it. Unless and until their classification is changed in accordance with section
(2) of this Article V, all shares of capital stock so purchased shall continue
3
<PAGE>
to belong to the same class to which they belong at the time of their purchase.
(9) The Corporation may issue shares of stock in fractional
denominations to the same extent as its whole shares, and shares in fractional
denominations shall be shares of capital stock having proportionately to the
respective fractions represented thereby all the rights of whole shares of the
same class, including without limitation, the right to vote, the right to
receive dividends and distributions, and the right to participate upon
liquidation of the Corporation, but excluding the right to receive a stock
certificate representing fractional shares.
(10) All persons who shall acquire capital stock or other
securities of the Corporation shall acquire the same subject to the provisions
of the Charter of the Corporation, as now or hereafter constituted, and the
By-Laws of the Corporation, as each may be amended from time to time.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
(1) The number of directors of the Corporation shall be two
(2), which number may be increased or thereafter decreased pursuant to the
By-Laws of the Corporation, but shall never be less than the minimum number
permitted by the General Laws of the State of Maryland now or hereafter in
force. The names of the directors who shall serve until the first annual meeting
of stockholders and until their successors are duly elected and qualify are:
Mario J. Gabelli and Thomas J. LaBarbera.
(2) The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares of capital
stock, whether now or hereafter authorized, for such consideration as the Board
of Directors may deem advisable, subject to such limitations as may be now or
hereafter set forth in the Charter of the Corporation or in the By-Laws of the
Corporation or in the Maryland General Corporation Law or the 1940 Act.
(3) Each person who at any time is or was a director or
officer of the Corporation shall be indemnified by the Corporation to the
fullest extent permitted by the Maryland General Corporation Law as it may be
amended or interpreted from time to time, including the advancing of expenses,
subject to any limitations imposed by the 1940 Act and the Rules and Regulations
promulgated thereunder. Furthermore, to the fullest extent permitted by Maryland
law, as it may be amended or interpreted from time to time, subject to the
limitations imposed by the 1940 Act and the Rules and Regulations promulgated
4
<PAGE>
thereunder, no director or officer of the Corporation shall be personally liable
to the Corporation or its stockholders. No amendment of the Charter of the
Corporation or repeal of any of its provisions shall limit or eliminate any of
the benefits provided to any person who at any time is or was a director or
officer of the Corporation under this Section in respect of any act or omission
that occurred prior to such amendment or repeal.
(4) The Board of Directors of the Corporation shall have the
exclusive authority to make, alter or repeal from time to time any of the
By-Laws of the Corporation except any particular By-Law which is specified as
not subject to alteration or repeal by the Board of Directors, subject to the
requirements of the 1940 Act and the Rules and Regulations promulgated
thereunder.
(5) The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. At the first annual meeting of stockholders,
Class I directors shall be elected for an initial term of one year, Class II
directors for an initial term of two years and Class III directors for an
initial term of three years. Upon the expiration of the initial term of each
class, each succeeding class of directors shall be elected for a three-year
term. A director elected at an annual meeting shall hold office until the annual
meeting for the year in which his term expires and until his successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. If the number of directors
is changed, any increase or decrease shall be apportioned among the classes, as
of the annual meeting of stockholders next succeeding any such change, so as to
maintain a number of directors in each class as nearly equal as possible. In no
case shall a decrease in the number of directors shorten the term of any
incumbent director.
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
No stockholder of the Corporation shall by reason of his
holding shares of capital stock have any preemptive or preferential right to
purchase or subscribe to any shares of capital stock of the Corporation, now or
hereafter authorized, or any notes, debentures, bonds or other securities
convertible into shares of capital stock, now or hereafter to be authorized,
whether or not the issuance of any such shares of capital stock, or notes,
debentures, bonds or other securities would adversely affect the dividend or
voting rights of such stockholder; and the Board of Directors may issue shares
of any class of capital stock of the Corporation, or any notes, debentures,
5
<PAGE>
bonds, or other securities convertible into shares of any class of capital stock
of the Corporation, either, whole or in part, to the existing stockholders.
ARTICLE VIII
CERTAIN VOTES OF STOCKHOLDERS
(1) Except as otherwise now or hereafter provided in the
Charter of the Corporation and notwithstanding any provision of the Maryland
General Corporation Law (other than Sections 3-601 through 3-603 of the Maryland
General Corporation Law or any successors thereto) requiring approval by the
stockholders (or any class of stockholders) of any action by the affirmative
vote of a greater proportion than a majority of the votes entitled to be cast on
the matter, any such action may be taken or authorized upon the concurrence of a
majority of the number of votes entitled to be cast thereon (or a majority of
the votes entitled to be cast thereon as a separate class).
(2) Notwithstanding the terms of Section 3-603(e)(1)(iv) of
the Maryland General Corporation Law (or any successor thereto) and the
provisions of Section (1) of this Article VIII, the Corporation hereby expressly
elects to be subject to the provisions of Section 3-602 of the Maryland General
Corporation Law. The amendment, alteration, modification, or repeal of this
section (2) of Article VIII shall require the vote specified in Section 3-602 of
the Maryland General Corporation Law.
ARTICLE IX
DETERMINATION BINDING
Any determination made in good faith, so far as accounting
matters are involved, in accordance with accepted accounting practice by or
pursuant to the authority of the direction of the Board of Directors, as to the
amount of assets, obligations or liabilities of the Corporation, as to the
amount of net income of the Corporation from dividends and interest for any
period or amounts at any time legally available for the payment of dividends, as
to the amount of any reserves or charges set up and the propriety thereof, as to
the time of or purpose for creating reserves or as to the use, alteration or
cancellation of any reserves or charges (whether or not any obligation or
liability for which such reserves or charges shall have been created, shall have
been paid or discharged or shall be then or thereafter required to be paid or
discharged), as to the value of any security or other instrument or asset owned
by the Corporation or as to any matters relating to the issuance, sale,
redemption or other acquisition or disposition of securities or shares of
capital stock of the Corporation, and any reasonable determination made in good
faith by the Board of Directors shall be final and conclusive, and shall be
binding upon the Corporation and all holders of its capital stock, past, present
6
<PAGE>
and future, and shares of capital stock of the Corporation are issued and sold
on the condition and understanding, evidenced by the purchase of shares of
capital stock or acceptance of share certificates or other evidence thereof,
that any and all such determinations shall be binding as aforesaid. No provision
of the Charter of the Corporation shall be effective to (a) require a waiver of
compliance with any provision of the Securities Act of 1933, as amended, or the
1940 Act, or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder or (b) protect or purport to protect any director
or officer of the Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE X
PRIVATE PROPERTY OF STOCKHOLDERS
The private property of stockholders shall not be subject to
the payment of corporate debts to any extent whatsoever.
ARTICLE XI
UNLIMITED TERM OF EXISTENCE
The Corporation shall have an unlimited period of existence.
ARTICLE XII
CONVERSION TO OPEN-END COMPANY
Notwithstanding any other provisions of the Charter of the
Corporation or By-Laws of the Corporation, a favorable vote of a majority of the
total number of directors of the Corporation established in accordance with the
provisions of section (1) of Article VI hereof and the By-Laws of the
Corporation and the favorable vote of the holders of at least seventy-five
percent (75%) of the shares of capital stock of the Corporation entitled to be
voted on the matter shall be required to approve, adopt or authorize an
amendment to the Charter of the Corporation that makes the Common Stock or any
other class of capital stock a "redeemable security" as that term is defined in
the 1940 Act.
The Corporation shall notify the holders of all capital
securities of the approval, in accordance with the preceding paragraph of this
Article XII, of the approval of any amendment to the Charter of the Corporation
that makes the Common Stock or any other class of capital stock a "redeemable
7
<PAGE>
security" (as that term is defined in the 1940 Act) no later than thirty (30)
days prior to the date of filing of such amendment with the Department of
Assessments and Taxation (or any successor agency) of the State of Maryland;
such amendment may not be so filed, however, until the later of (a) ninety (90)
days following the date of approval of such amendment by the holders of capital
securities in accordance with the preceding paragraph of this Article XII and
(b) the next January 1 or July 1, whichever is sooner, following the date of
such approval by holders of capital securities.
ARTICLE XIII
AMENDMENT
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in the Charter of the Corporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation. Notwithstanding any
other provisions contained herein or in the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, these
Articles or Amendment and Restatement or the Amended and Restated By-Laws of the
Corporation), the amendment or repeal of Section (10) of Article V, Section (1),
Section (3), or Section (4) of Article VI, Section (1) of Article VIII, Article
X, Article XI, Article XII or this Article XIII of these Articles of Amendment
and Restatement shall require the affirmative vote of the holders of at least
seventy-five percent (75%) of the shares then entitled to be voted on the
matter.
THIRD: This amendment to and restatement of the Charter of the
Corporation as hereinabove set forth was advised by the Board of Directors and
approved by the stockholders of the Corporation.
FOURTH: The current address of the principal office of the
Corporation is as set forth in Article IV of the foregoing amendment and
restatement of the Charter.
FIFTH: The name and address of the Corporation's current
resident agent is as set forth in Article IV of the foregoing amendment and
restatement of the Charter.
SIXTH: The number of directors of the Corporation shall
currently be nine (9), which number may be increased or decreased by or pursuant
to the By-Laws of the Corporation but shall never be less than the minimum
number permitted by the Maryland General Corporation Law now or hereafter in
force. The names of the persons who shall act as directors until the initial
annual meeting and until their successors are duly elected and qualify are:
Mario J. Gabelli, Anthony J. Colavita, Anthonie C. van Ekris, Karl Otto Pohl,
8
<PAGE>
Dugald A. Fletcher, E. Val Cerutti, Felix J. Christiana, Anthony R. Pustorino
and Salvatore J. Zizza.
SEVENTH: The undersigned Vice President acknowledges these
Articles of Amendment and Restatement to be the corporate act of the Corporation
as to all matters of fact required to be verified under oath, the undersigned
Vice President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
EIGHTH: In accordance with Section 2-610.1 of Maryland General
Corporation Law, these Articles of Amendment and Restatement shall become
effective on March 31, 1995, at 9:00 a.m.
9
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby execute the
foregoing Articles of Amendment and Restatement and acknowledge the same to be
their acts and further acknowledge that, to the best of their knowledge, the
matters and facts set forth herein are true in all material respects under the
penalties of perjury.
Dated the 30th day of March, 1995.
/s/Bruce N. Alpert
----------------------------
Bruce N. Alpert,
Vice President and
Treasurer
/s/J. Hamilton Crawford, Jr.
----------------------------
J. Hamilton Crawford, Jr.,
Secretary
10
Exhibit B
AMENDED AND RESTATED
BY-LAWS
OF
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
ARTICLE I.
STOCKHOLDERS
SECTION 1.1. Annual Meeting. An annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as may properly be brought before the meeting
shall be held in May of each year.
SECTION 1.2. Special Meeting. At any time in the interval
between annual meetings, a special meeting of the stockholders may be called by
the Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of the
Corporation) with or without a meeting.
SECTION 1.3. Place of Meetings. Meetings of stockholders shall
be held at such place in the United States as is set from time to time by the
Board of Directors.
SECTION 1.4. Notice of Meetings; Waiver of Notice. Not less
than ten nor more than 90 days before each stockholders' meeting, the Secretary
shall give written notice of the meeting to each stockholder entitled to vote at
the meeting and each other stockholder entitled to notice of the meeting. The
notice shall state the time and place of the meeting and, if the meeting is a
special meeting or notice of the purpose is required by statute, the purpose of
the meeting. Notice is given to a stockholder when it is personally delivered to
him, left at his residence or usual place of business, or mailed to him at his
address as it appears on the records of the Corporation. Notwithstanding the
foregoing provisions, each person who is entitled to notice waives notice if he
before or after the meeting signs a waiver of the notice which is filed with the
records of stockholders' meetings, or is present at the meeting in person or by
proxy.
SECTION 1.5. Quorum; Voting. Unless statute or the Articles of
Amendment and Restatement (the "Charter") provides otherwise, at a meeting of
stockholders the presence in person or by proxy of stockholders entitled to cast
a majority of all the votes entitled to be cast at the meeting constitutes a
quorum, and a majority of all the votes cast at a meeting at which
<PAGE>
a quorum is present is sufficient to approve any matter which properly comes
before the meeting, except that a plurality of all the votes cast at a meeting
at which a quorum is present is sufficient to elect a director.
SECTION 1.6. Adjournments. Whether or not a quorum is present,
a meeting of stockholders convened on the date for which it was called may be
adjourned from time to time by the stockholders present in person or by proxy by
a majority vote. Any business which might have been transacted at the meeting as
originally notified may be deferred and transacted at any such adjourned meeting
at which a quorum shall be present. No further notice of an adjourned meeting
other than by announcement shall be necessary if held on a date not more than
120 days after the original record date.
SECTION 1.7. General Right to Vote; Proxies. Unless the
Charter provides for a greater or lesser number of votes per share or limits or
denies voting rights, each outstanding share of stock, regardless of class, is
entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In all elections for directors, each share of stock may be voted
for as many individuals as there are directors to be elected and for whose
election the share is entitled to be voted. A stockholder may vote the stock he
owns of record either in person or by written proxy signed by the stockholder or
by his duly authorized attorney in fact. Unless a proxy provides otherwise, it
is not valid more than 11 months after its date.
SECTION 1.8. List of Stockholders. At each meeting of
stockholders, a full, true and complete list of all stockholders entitled to
vote at such meeting, showing the number and class of shares held by each and
certified by the transfer agent for such class or by the Secretary, shall be
furnished by the Secretary.
SECTION 1.9. Conduct of Voting. At all meeting of
stockholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies and the acceptance or rejection of votes
shall be decided, by the chairman of the meeting. If demanded by stockholders,
present in person or by proxy, entitled to cast 10% in number of votes entitled
to be cast, or if ordered by the chairman, the vote upon any election or
question shall be taken by ballot and, upon like demand or order, the voting
shall be conducted by two inspectors, in which event the proxies and ballots
shall be received, and all questions touching the qualification of voters and
the validity of proxies and the acceptance or rejection of votes shall be
decided, by such inspectors. Unless so demanded or ordered, no vote need be by
ballot and voting need not be conducted by inspectors. The stockholders at any
meeting may choose an inspector or inspectors to act at such meeting, and in
default of such election the chairman of the meeting may appoint an inspector or
inspectors. No candidate for election as a director at a meeting shall serve as
an inspector thereat.
2
<PAGE>
SECTION 1.10. Informal Action by Stockholders. Except as
otherwise provided by statute or the Charter, any action required or permitted
to be taken at a meeting of stockholders may be taken without a meeting if there
is filed with the records of stockholders meetings a unanimous written consent
which sets forth the action and is signed by each stockholder entitled to vote
on the matter and a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote at it.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.1. Function of Directors. The business and affairs
of the Corporation shall be managed under the direction of its Board of
Directors. All powers of the Corporation may be exercised by or under authority
of the Board of Directors, except as conferred on or reserved to the
stockholders by statute or by the Charter or By-Laws.
SECTION 2.2. Number of Directors. The Corporation shall have
at least three directors; provided that, if there is no stock outstanding, the
number of Directors may be less than three but no less than one, and, if there
is stock outstanding and so long as there are less than three stockholders, the
number of Directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in the
Charter until changed as herein provided. A majority of the entire Board of
Directors may alter the number of directors set by the Charter to not exceeding
25 nor less than the minimum number then permitted herein, but the action may
not affect the tenure of office of any director.
SECTION 2.3. Election and Tenure of Directors. At each annual
meeting, the stockholders shall elect directors to hold office until the
expiration of the term of his class or until the annual election of directors
next succeeding his election and until his successor shall have been elected and
shall have qualified, or until his death, or until he shall have resigned, or
have been removed as hereinafter provided in these Amended and Restated By-Laws,
or as otherwise provided by statute or the Charter.
SECTION 2.4. Removal of Director. Unless statute or the
Charter provides otherwise, the stockholders may remove any director, with or
without cause, by the affirmative vote of a majority of all the votes entitled
to be cast for the election of directors.
SECTION 2.5. Vacancy on Board. The stockholders may elect a
successor to fill a vacancy on the Board of Directors which results from the
removal of a director. A director elected by the stockholders to fill a vacancy
which results from the removal of a director serves for the balance of the term
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of the removed director. A majority of the remaining directors, whether or not
sufficient to constitute a quorum, may fill a vacancy on the Board of Directors
which results from any cause except an increase in the number of directors and a
majority of the entire Board of Directors may fill a vacancy which results from
an increase in the number of directors. A director elected by the Board of
Directors to fill a vacancy serves until the next annual meeting of stockholders
and until his successor is elected and qualifies.
SECTION 2.6. Regular Meetings. After each meeting of
stockholders at which directors shall have been elected, the Board of Directors
shall meet as soon as practicable for the purpose of organization and the
transaction of other business; and in the event that no other time is designated
by the stockholders, the Board of Directors shall meet one hour after the time
for such stockholders meeting or immediately following the close of such meeting
whichever is later, on the day of such meeting. Such first regular meeting shall
be held at any place as may be designated by the stockholders, or in default of
such designation at the place designated by the Board of Directors for such
first regular meeting, or in default of such designation at the place of the
holding of the immediately preceding meeting of stockholders. No notice of
such first meeting shall be necessary if held as hereinabove provided. Any other
regular meeting of the Board of Directors shall be held on such date and at any
place as may be designated from time to time by the Board of Directors.
SECTION 2.7. Special Meetings. Special meetings of the Board
of Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or
in writing with or without a meeting. A special meeting of the Board of
Directors shall be held on such date and at any place as may be designated from
time to time by the Board of Directors. In the absence of designation such
meeting shall be held at such place as may be designated in the call.
SECTION 2.8. Notice of Meeting. Except as provided in Section
2.6, the Secretary shall give notice to each director of each regular and
special meeting of the Board of Directors. The notice shall state the time and
place of the meeting. Notice is given to a director when it is delivered
personally to him, left at his residence or usual place of business, or sent by
telegraph or telephone, at least 24 hours before the time of the meeting or,
in the alternative by mail to his address as it shall appear on the records of
the Corporation, at least 72 hours before the time of the meeting. Unless the
Amended and Restated By-Laws or a resolution of the Board of Directors provides
otherwise, the notice need not state the business to be transacted at or the
purposes of any regular or special meeting of the Board of Directors. No
notice of any meeting of the Board of Directors need be given to any director
who attends, or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives such
notice. Any meeting of the Board of Directors, regular or special, may adjourn
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from time to time to reconvene at the same or some other place, and no notice
need be given of any such adjourned meeting other than by announcement.
SECTION 2.9. Action by Directors. Unless statute or the
Charter or the Amended and Restated By-Laws requires a greater proportion, the
action of a majority of the directors present at a meeting at which a quorum is
present is action of the Board of Directors. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business. In the
absence of a quorum, the directors present by majority vote and without notice
other than by announcement may adjourn the meeting from time to time until a
quorum shall attend. At any such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally notified. Any action required or permitted to be taken
at a meeting of the Board of Directors may be taken without a meeting, if a
unanimous written consent which sets forth the action is signed by each member
of the Board and filed with the minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone. Members of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Participation in a meeting by
these means constitutes presence in person at a meeting.
SECTION 2.11. Compensation. No director shall receive any
stated salary or fees from the Corporation for services as such if such director
is, other than by reason of being a director, an interested person (as that term
is defined by the Investment Company Act of 1940, as amended (the "1940 Act"))
of the Corporation or of its investment adviser or principal underwriter. Except
as provided in the preceding sentence, directors shall be entitled to receive
such compensation from the Corporation for their services as may from time to
time be voted by the Board of Directors.
ARTICLE III.
COMMITTEES
SECTION 3.1. Committees. The Board of Directors may appoint
from among its members an Executive Committee and other committees composed of
two or more directors and delegate to these committees any of the powers of the
Board of Directors, except the power to declare dividends or other distributions
on stock, elect directors, issue stock other than as provided in the next
sentence, recommend to the stockholders any action which requires stockholder
approval, amend the By-Laws, or approve any merger or share exchange which does
not require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in accordance
with a general formula or method specified by the Board by resolution or by
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adoption of a stock option or other plan, may fix the terms of stock subject to
classification or reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
SECTION 3.2. Committee Procedure. Each committee may fix rules
of procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if a unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. The members of a committee may conduct any meeting
thereof by conference telephone in accordance with the provisions of Section
2.10.
SECTION 3.3. Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
Charter and the Amended and Restated By-Laws, any two or more available members
of the then incumbent Executive Committee shall constitute a quorum of that
Committee for the full conduct and management of the affairs and business of the
Corporation in accordance with the provisions of Section 3.1. In the event of
the unavailability, at such time, of a minimum of two members of the then
incumbent Executive Committee, the available directors shall elect an Executive
Committee consisting of any two members of the Board of Directors, whether or
not they be officers of the Corporation, which two members shall constitute the
Executive Committee for the full conduct and management of the affairs of the
Corporation in accordance with the foregoing provisions of this Section. This
Section shall be subject to implementation by resolution of the Board of
Directors passed from time to time for that purpose, and any provisions of the
Amended and Restated By-Laws (other than this Section) and any resolutions which
are contrary to the provisions of this Section or to the provisions of any such
implementing resolutions shall be suspended until it shall be determined by any
interim Executive Committee acting under this Section that it shall be to the
advantage of the Corporation to resume the conduct and management of its affairs
and business under all the other provisions of the Amended and Restated By-Laws.
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ARTICLE IV.
OFFICERS
SECTION 4.1. Executive and Other Officers. The Corporation
shall have a President, a Secretary, and a Treasurer, who shall be the executive
officers of the Corporation. It may also have a Chairman of the Board, the
Chairman of the Board shall be an executive officer if he is designated as the
chief executive officer of the Corporation. The Board of Directors may designate
who shall serve as chief executive officer, having general supervision of the
business and affairs of the Corporation, or as chief operating officer, having
supervision of the operations of the Corporation; in the absence of designation
the President shall serve as chief executive officer and chief operating
officer. It may also have one or more Vice-Presidents, assistant officers, and
subordinate officers as may be established by the Board of Directors. A person
may hold more than one office in the Corporation but may not serve concurrently
as both President and Vice-President of the Corporation. The Chairman of the
Board shall be a director; the other officers may be directors.
SECTION 4.2. Chairman of the Board. The Chairman of the Board,
if one be elected, shall preside at all meetings of the Board of Directors and
of the stockholders at which he shall be present; and, in general, he shall
perform all such duties as are from time to time assigned to him by the Board of
Directors.
SECTION 4.3. President. The President, in the absence of the
Chairman of the Board, shall preside at all meetings of the Board of Directors
and of the stockholders at which he shall be present; he may sign and execute,
in the name of the Corporation, all authorized deeds, mortgages, bonds,
contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer or
agent of the Corporation; and, in general, he shall perform all duties usually
performed by a president of a corporation and such other duties as are from time
to time assigned to him by the Board of Directors or the chief executive officer
of the Corporation.
SECTION 4.4. Vice-Presidents. The Vice-President or
Vice-Presidents, at the request of the chief executive officer or the President,
or in the President's absence or during his inability to act, shall perform the
duties and exercise the functions of the President, and when so acting shall
have the powers of the President. If there be more than one Vice-President, the
Board of Directors may determine which one or more of the Vice-Presidents shall
perform any of such duties or exercise any of such functions, or if such
determination is not made by the Board of Directors, the chief executive
officer, or the President may make such determination; otherwise any of the
Vice-Presidents may perform any of such duties or exercise any of such
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functions. The Vice-President or Vice-Presidents shall have such other powers
and perform such other duties, and have such additional descriptive designations
in their titles (if any), as are from time to time assigned to them by the Board
of Directors, the chief executive officer, or the President.
SECTION 4.5. Secretary. The Secretary shall keep the minutes
of the meetings of the stockholders, of the Board of Directors and of any
committees, in books provided for the purpose; he shall see that all notices are
duly given in accordance with the provisions of the Amended and Restated By-Laws
or as required by law; he shall be custodian of the records of the Corporation;
he may witness any document on behalf of the Corporation, the execution of which
is duly authorized, see that the corporate seal is affixed where such document
is required or desired to be under its seal, and, when so affixed, may attest
the same; and, in general, he shall perform all duties incident to the office of
a secretary of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors, the chief executive officer, or the
President.
SECTION 4.6. Treasurer. The Treasurer shall have charge of and
be responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he shall render to the President and to the Board of Directors,
whenever requested, an account of the financial condition of the Corporation;
and, in general, he shall perform all the duties incident to the office of a
treasurer of a corporation, and such other duties as are from time to time
assigned to him by the Board of Directors, the chief executive officer, or the
President.
SECTION 4.7. Assistant and Subordinate Officers. The assistant
and subordinate officers of the Corporation are all officers below the office of
VicePresident, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.8. Election, Tenure and Removal of Officers. The
Board of Directors shall elect the officers. The Board of Directors may from
time to time authorize any committee or officer to appoint assistant and
subordinate officers. The President serves for one year. All other officers
shall be appointed to hold their offices, respectively, during the pleasure of
the Board. The Board of Directors (or, as to any assistant or subordinate
officer, any committee or officer authorized by the Board) may remove an officer
at any time. The removal of an officer does not prejudice any of his contract
rights. The Board of Directors (or, as to any assistant or subordinate officer,
any committee or officer authorized by the Board) may fill a vacancy which
occurs in any office for the unexpired portion of the term.
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SECTION 4.9. Compensation. The Board of Directors shall have
power to fix the salaries and other compensation and remuneration, of whatever
kind, of all officers of the Corporation. It may authorize any committee or
officer, upon whom the power of appointing assistant and subordinate officers
may have been conferred, to fix the salaries, compensation and remuneration
of such assistant and subordinate officers.
ARTICLE V.
STOCK
SECTION 5.1. Certificates for Stock. Upon written request
therefor in accordance with such procedures as may be established by the Board
of Directors from time to time, each stockholder is entitled to certificates
which represent and certify the shares of stock he holds in the Corporation.
Each stock certificate shall include on its face the name of the corporation
that issues it, the name of the stockholder or other person to whom it is
issued, and the class of stock and number of shares it represents. It shall be
in such form, not inconsistent with law or with the Charter, as shall be
approved by the Board of Directors or any officer or officers designated for
such purpose by resolution of the Board of Directors. Each stock certificate
shall be signed by the Chairman of the Board, the President, or a
Vice-President, and countersigned by the Secretary, an Assistant Secretary, the
Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the
actual corporate seal or a facsimile of it or in any other form and the
signatures may be either manual or facsimile signatures. A certificate is valid
and may be issued whether or not an officer who signed it is still an officer
when it is issued.
The Board of Directors of the Corporation may authorize the
issue of some or all of the shares of any or all of its classes or series
without certificates. The authorization does not affect shares already
represented by certificates until they are surrendered to the Corporation. At
the time of issue or transfer of shares without certificates, the Corporation
shall send the stockholder a written statement of:
(1) the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of
each class which the Corporation is authorized to issue;
(2) in the event the Board of Directors clas- sifies or there are
issued any preferred on special class in series:
(i) the differences in relative rights and preferences between
the shares of each series to the extent they have been set; and
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(ii) the authority of the Board of Directors to set the relative
rights and preferences of subsequent series; and
(3) if the Corporation imposes restrictions on the transferability of
the stock, a full state- ment of the restrictions.
SECTION 5.2. Transfers. The Board of Directors shall have
power and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock; and
may appoint transfer agents and registrars thereof. The duties of transfer agent
and registrar may be combined.
SECTION 5.3. Record Date and Closing of Transfer Books. The
Board of Directors may set a record date or direct that the stock transfer books
be closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be prior to the close of business on the day the
record date is fixed and may not be more than 90 days before the date on which
the action requiring the determination will be taken; the transfer books may not
be closed for a period longer than 20 days; and, in the case of a meeting of
stockholders, the record date or the closing of the transfer books shall be at
least ten days before the date of the meeting.
SECTION 5.4. Stock Ledger. The Corporation shall maintain a
stock ledger which contains the name and address of each stockholder and the
number of shares of stock of each class which the stockholder holds. The stock
ledger may be in written form or in any other form which can be converted within
a reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, or, if none, at the principal office in the
State of Maryland or the principal executive offices of the Corporation.
SECTION 5.5. Certification of Beneficial Owners. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may certify; the purpose for which the certification
may be made; the form of certification and the information to be contained in
it; if the certification is with respect to a record date or closing of the
stock transfer books, the time after the record date or closing of the stock
transfer books within which the certification must be received by the
Corporation; and any other provisions with respect to the procedure which the
Board considers necessary or desirable. On receipt of a certification which
complies with the procedure adopted by the Board in accordance with this
Section, the person specified in the certification is, for the purpose set forth
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in the certification, the holder of record of the specified stock in place of
the stockholder who makes the certification.
SECTION 5.6. Lost Stock Certificates. The Board of Directors
of the Corporation may determine the conditions for issuing a new stock
certificate in place of one which is alleged to have been lost, stolen, or
destroyed, or the Board of Directors may delegate such power to any officer or
officers of the Corporation. In their discretion, the Board of Directors or such
officer or officers may refuse to issue such new certificate save upon the order
of some court having jurisdiction in the premises.
ARTICLE VI.
FINANCE
SECTION 6.1. Checks, Drafts, Etc. All checks, drafts and
orders for the payment of money, notes and other evidences of indebtedness,
issued in the name of the Corporation, shall, unless otherwise provided by
resolution of the Board of Directors, be signed by the President, a
Vice-President or an Assistant Vice-President and countersigned by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.
SECTION 6.2. Annual Statement of Affairs. The President shall
prepare annually a full and correct statement of the affairs of the Corporation,
to include a balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be submitted at the annual
meeting of the stockholders, if any, and, within 20 days after the meeting (or,
in the absence of an annual meeting within 120 days after the end of the fiscal
year), placed on file at the Corporation's principal office.
SECTION 6.3. Fiscal Year. The fiscal year of the Corporation
shall be the twelve calendar months period ending December 31 in each year,
unless otherwise provided by the Board of Directors.
SECTION 6.4. Dividends. If declared by the Board of Directors
at any meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
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ARTICLE VII.
SUNDRY PROVISIONS
SECTION 7.1. Books and Records. The Corporation shall keep
correct and complete books and records of its accounts and transactions and
minutes of the proceedings of its stockholders and Board of Directors and of
any executive or other committee when exercising any of the powers of the Board
of Directors. The books and records of the Corporation may be in written form or
in any other form which can be converted within a reasonable time into written
form for visual inspection. Minutes shall be recorded in written form but may be
maintained in the form of a reproduction. The original or a certified copy of
the Amended and Restated By-Laws shall be kept at the principal office of the
Corporation.
SECTION 7.2. Corporate Seal. The Board of Directors shall
provide a suitable seal, bearing the name of the Corporation, which shall be in
the charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof. If the Corporation is
required to place its corporate seal to a document, it is sufficient to meet the
requirement of any law, rule, or regulation relating to a corporate seal to
place the word "Seal" adjacent to the signature of the person authorized to
sign the document on behalf of the Corporation.
SECTION 7.3. Bonds. The Board of Directors may require any
officer, agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
SECTION 7.4. Voting Upon Shares in Other Corporations. Stock
of other corporations or associations, registered in the name of the
Corporation, may be voted by the President, a Vice-President, or a proxy
appointed by either of them. The Board of Directors, however, may by resolution
appoint some other person to vote such shares, in which case such person shall
be entitled to vote such shares upon the production of a certified copy of such
resolution.
SECTION 7.5. Mail. Any notice or other document which is
required by these Amended and Restated By-Laws to be mailed shall be deposited
in the United States mails, postage prepaid.
SECTION 7.6. Execution of Documents. A person who holds more
than one office in the Corporation may not act in more than one capacity to
execute, acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 7.7. Amendments. Subject to the special provisions of
Section 2.2, (a) any and all provisions of these Amended and Restated By-Laws
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may be altered or repealed and new by-laws may be adopted at any annual meeting
of the stockholders, or at any special meeting called for that purpose, and (b)
the Board of Directors shall have the power, at any regular or special meeting
thereof, to make and adopt new by-laws, or to amend, alter or repeal any of the
By-Laws of the Corporation.
ARTICLE VIII.
CUSTODIAN
SECTION 8.1. Employment of Custodian. All assets of the
Corporation shall be held by one or more custodian banks or trust companies
meeting the requirements of the 1940 Act, and having capital, surplus and
undivided profits of at least $2,000,000 and may be registered in the name of
the Corporation, including the designation of the particular class or series to
which such assets belong, or any such custodian, or the nominee of either of
them. The terms of any such custodian agreement shall be determined by the Board
of Directors, which terms shall be in accordance with the provisions of the 1940
Act. If so directed by vote of the holders of a majority of the outstanding
shares of a particular class or series or by vote of the Board of Directors, the
custodian of the assets belonging to such class or series shall deliver and pay
over such assets as specified in such vote.
Subject to such rules, regulations and orders as the
Securities and Exchange Commission (the "Commission") may adopt, the Corporation
may direct a custodian to deposit all or any part of the securities owned by the
Corporation in a system for the central handling of securities established by
the Federal Reserve system or by a national securities exchange or a national
securities association registered with the Commission, or otherwise in
accordance with the 1940 Act, pursuant to which system, all securities of a
particular class or issuer deposited within the system are treated as fungible
and may be transferred or pledged by bookkeeping entry without the physical
delivery of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Corporation or a custodian.
13
Exhibit E
TERMS AND CONDITIONS OF
AUTOMATIC DIVIDEND REINVESTMENT
AND
VOLUNTARY CASH PURCHASE PLAN
1. Each shareholder ("Shareholder") holding shares of common stock ("Shares") of
The Gabelli Convertible Securities Fund, Inc. (the "Fund") will automatically be
participants in the Dividend Reinvestment Plan (the "Plan"), unless the
Shareholder specifically elects to receive all dividends and capital gains in
cash paid by check mailed directly to the Shareholder by State Street Bank and
Trust Company as agent under the Plan (the "Agent"). The Agent will open an
account for each Shareholder under the Plan in the same name in which such
Shareholder's shares of Common Stock are registered.
2. Whenever the Fund declares a capital gains distribution or an income dividend
payable in Shares or cash, participating Shareholders will take the distribution
or dividend entirely in Shares and the Agent will automatically receive the
Shares, including fractions, for the Shareholder's account. The process is as
follows:
3. Whenever the market price per Share is equal to or exceeds net asset value at
the time Shares are valued for the purpose of determining the number of Shares
equivalent to the cash dividend or capital gains distribution (the "Valuation
Date"), participants will be issued Shares at the greater of (i) net asset value
or (ii) 95% of the then current market price of the Shares. The Valuation Date
is the dividend or distribution payment date or, if that date is not a New York
Stock Exchange trading day, the next trading day. If the net asset value of the
Shares on the Valuation Date exceeds the market price of the Shares at that
time, participants will receive shares from the Fund valued at market price. If
the Fund should declare a dividend or capital gains distribution payable only in
cash, the Agent will, as purchasing agent for the participants buy Shares in the
open market, on the New York Stock Exchange (the "Exchange") or elsewhere, for
the participants account after the payment date, except that the Agent will
endeavor to terminate purchases in the open market and cause the Fund to issue
the remaining Shares if, following the commencement of the purchases, the market
value of the Shares exceeds net asset value. These remaining shares will be
issued by the Fund at a price equal to the greater of (i) net asset value or
(ii) 95% of then current market price.
In a case where the Agent has terminated open market purchases and caused the
issuance of remaining Shares by the Fund, the number of shares received by the
participant in respect of the cash dividend or distribution will be based on the
weighted average of prices paid for Shares purchased in the open marker and the
price at which the Fund issues remaining Shares. To the extent that the Agent is
unable to terminate purchases in the open market before the Agent has completed
its purchases, or remaining Shares cannot be issued by the Fund because the Fund
declared a dividend or distribution payable only in cash, and the market price
exceeds the net asset value of the Shares, the average Share purchase price paid
by the Agent may exceed the net asset value of the Shares, resulting in the
acquisition of fewer Shares than if the dividend or capital gains distribution
had been paid in Shares issued by the Fund.
<PAGE>
The Agent will apply all cash received as a dividend or capital gains
distribution to purchase shares of common stock on the open market as soon as
practicable after the payment date of the dividend or capital gains
distribution, but in no event later than 45 days after that date, except when
necessary to comply with applicable provisions of the federal securities laws.
4. For all purposes of the Plan: (a) the market price of Fund Shares on a
particular date shall be the last sales price on the Exchange on that date or,
if no sale occurred on the Exchange on that date, then the mean between the
closing bid and asked quotations for the Shares on the Exchange on such date and
(b) net asset value per share on a particular date shall be as determined by or
on behalf of the Fund.
5. The open-market purchases provided for above may be made on any securities
exchange on which the Shares of the Fund are traded, in the over-the-counter
market or in negotiated transactions, and may be on such terms as to price,
delivery and otherwise as the Agent shall determine. Funds held by the Agent
uninvested will not bear interest, and it is understood that, in any event, the
Agent shall have no liability in connection with any inability to purchase
Shares within 45 days after the initial date of such purchase as herein
provided, or with the timing of any purchases effected. The Agent shall have no
responsibility as to the value of the Shares of the Fund acquired for the
Shareholder's account.
6. The Agent will hold Shares acquired pursuant to the Plan in noncertificated
form in the Agent's name or that of its nominee. At no additional cost, as a
participant in the Plan you may send to the Agent for deposit into your Plan
account those certificate shares of the Fund now in your possession. These
shares will be combined with those unissued full and fractional shares acquired
under the Plan and held by the Agent. Shortly thereafter, you will receive a
statement showing your combined holdings. The Agent will forward to the
Shareholder any proxy solicitation material and will vote any Shares so held for
the Shareholder only in accordance with the proxy returned by her or him to the
Fund. Upon the Shareholder's written request, the Agent will deliver to her or
him, without charge, a certificate or certificates for the full Shares.
7. The Agent will confirm to the Shareholder each acquisition made for her or
his account as soon as practicable but not later than 60 days alter the date
thereof. Although the Shareholder may from time to time have an individual
fractional interest (computed to four decimal places) in a Share of the Fund, no
certificates for a fractional Share will be issued. However, dividends and
distributions on fractional Shares will be credited to the Shareholder's
account. In the event of a termination of a Shareholder's account under the
Plan, the Agent will adjust for any such undivided fractional interest in cash
at the opening market value of the Shares at the time of termination.
8. Any stock dividends or split Shares distributed by the Fund on Shares held by
The Agent for the Shareholder will be credited to the Shareholder's account. In
the event that the Fund makes available to the Shareholder rights to purchase
additional Shares or other securities, the Shares held for a Shareholder under
the Plan will be added to other shares held by the Shareholder in calculating
the number of rights to be issued to such Shareholder.
<PAGE>
9. The Agent's service fee for handling capital gains distributions or income
dividends will be paid by the Fund. The Shareholder will be charged a pro rata
share of brokerage commissions on all open market purchases.
10. The Shareholder may terminate her or his account under the Plan by notifying
the Agent in writing. A termination will be effective immediately if notice is
received by the Agent not less than 10 days prior to any dividend or
distribution record date; otherwise such termination will be effective, with
respect to any subsequent dividend or distribution, on the first trading day
after a dividend paid for the record date has been credited to the Shareholder's
account. Upon any termination the Agent will cause a certificate or certificates
for the full Shares held for the Shareholder under the Plan and cash adjustment
for any fraction to be delivered to her or him. If, the Shareholder elects by
notice to the Agent in writing in advance of such termination to have the Agent
sell part or all of her or his shares and remit the proceeds to her or him, the
Agent is authorized to deduct $2.50 per transaction plus brokerage commissions
for this transaction from the proceeds.
11. Shareholders have the option of sending additional funds, semi-annually, in
any amount from $250 to $3,000, for the purchase on the open market of shares of
the common stock of the Fund for Shareholder's accounts. Voluntary payments will
be invested on or shortly after the 15th of February and August, and in no event
more than 45 days after such dates except where temporary curtailment or
suspension of purchases is necessary to comply with applicable provisions of
federal securities law. Funds received more than 30 days prior to the 15th of
February or August will be returned uninvested. Shareholders may withdraw their
entire voluntary cash payment by written notice not less that 48 hours before
such payment is to be invested.
12. Investments of voluntary cash payments and other open-market purchases
provided for above may be made on any securities exchange where the Fund's
common stock is traded, in the over-the-counter-market or in negotiated
transactions and may be on such terms as to price, delivery and otherwise as the
Agent shall determine. Funds held by the Agent uninvested will not bear
interest, and it is understood that, in any event, the Agent shall have no
liability in connection with any inability to purchase shares within 45 days
after the initial date of such purchase as herein provided, or with the timing
of any purchases effected. The Agent shall have no responsibility as to the
value of the common stock of the Fund acquired for the Shareholders' account.
For the purposes of cash investments the Agent may commingle Shareholder funds
with those of other Shareholders of the Fund for whom the Agent also acts as
Agent, and the average price (including brokerage commissions) of all shares
purchased by the Agent shall be the price per share allocable to the Shareholder
in connection therewith. The cost per transaction is $0.75.
13. The Agent may hold Shareholder's shares acquired pursuant to Shareholder
authorization, together with the shares of other Shareholders of the Fund
acquired pursuant to similar authorization, in noncertificated form in the name
of the Agent or that of the Agent's nominee. The Agent will forward to each
Shareholder any proxy solicitation material and will vote any shares held for
the Shareholder only in accordance with the proxy returned by the Shareholder to
the Fund. Upon written request, the Agent will deliver to the
<PAGE>
Shareholder, without charge, a certificate or certificates for the full shares.
14. These terms and conditions may be amended or supplemented by the Agent or
the Fund at any time or times but, except when necessary or appropriate to
comply with applicable law or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by mailing to the
Shareholder appropriate written notice at least 90 days prior to the effective
date thereof. The amendment or supplement shall be deemed to be accepted by the
Shareholder unless, prior to the effective date thereof, the Agent receives
written notice of the termination of the Shareholder account under the Plan. Any
such amendment may include an appointment by the Fund of a successor agent in
its place and stead under these terms and conditions, with full power and
authority to perform all or any of the acts to be performed by the Agent. Upon
any such appointment of an Agent for the purpose of receiving dividends and
distributions, the Fund will be authorized to pay to such successor Agent, for
Shareholders' accounts, all dividends and distributions payable on Shares held
in the Shareholder's name or under the Plan for retention or application by such
successor Agent as provided in these terms and conditions.
15. In the case of Shareholders, such as banks, brokers or nominees, which hold
Shares for others who are the beneficial owners, the Agent will administer the
Plan on the basis of the number of Shares certified from time to time by the
Shareholders as representing the total amount registered in the Shareholder's
name and held for the account of beneficial owners who are to participate in the
plan.
16. The Agent shall at all times act in good faith and agree to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this agreement and to comply with applicable law, but assumes no
responsibility and shall not be liable for loss or damage due to errors unless
the errors caused by its negligence, bad faith or willful misconduct or that of
its employees.
10-94
Exhibit D
TEMPORARY CERTIFICATE: EXCHANGEABLE FOR DEFINITIVE
ENGRAVED CERTIFICATE WHEN READY FOR DELIVERY
COMMON STOCK
PAR VALUE $.001
PER SHARE
T
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MASSACHUSETTS AND NEW YORK, NEW YORK
CUSIP 36240B 10 9
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be subject to all the provisions of the Articles of Incorporation and
By-Laws of the Corporation, each as from time to time amended, copies of which
are on file with the Transfer Agent, to all of which the holder by acceptance
hereof assents.
This Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
DATED:
COUNTERSIGNED AND REGISTERED:
STATE STREET BANK AND TRUST COMPANY
(BOSTON, MASS.) Chairman of the Board
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE Vice President & Treasurer
<PAGE>
THE GABELLI CONVERTIBLE SECURITIES FUND, INC.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT________Custodian______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right Act__________________________
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list.
For value Received,_____________________hereby sell, assign and transfer unto
NOTICE:THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation,
with full power of substitution in the premises.
Dated ________________________
_______________________________
