<PAGE>
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The Gabelli Global
Multimedia Trust Inc.
2,869,137 Shares
of Common Stock
Issuable Upon Exercise of Rights
to Subscribe to Such Shares
----------
PROSPECTUS
----------
----------
August 7, 1995
================================================================================
<PAGE>
497(h)(1)
33-60407
811-8476
PROSPECTUS
8,607,411 Rights for 2,869,137 Shares
The Gabelli Global Multimedia Trust Inc.
Common Stock
----------
The Gabelli Global Multimedia Trust Inc. (the "Fund") is issuing to its
stockholders of record ("Record Date Stockholders") as of the close of business
on August 11, 1995 rights ("Rights") entitling the holders thereof to subscribe
for an aggregate of 2,869,137 shares (the "Shares") of the Fund's Common Stock
(the "Offer") at the rate of one share of Common Stock for each three Rights
held and entitling such Record Date Stockholder to subscribe, subject to certain
limitations and subject to allotment, for any Shares not acquired by exercise of
primary subscription Rights. The Rights are transferable and have been admitted
for trading on the New York Stock Exchange. See "The Offer." THE SUBSCRIPTION
PRICE PER SHARE (the "Subscription Price") WILL BE $6.50.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON SEPTEMBER 12, 1995
unless extended as described herein (the "Expiration Date"). Shareholder
inquiries should be directed to the Subscription Agent, State Street Bank and
Trust Company, at (800) 336-6983 or (617) 328-5000.
The Fund is a closed-end non-diversified management investment company. Its
primary investment objective is long-term growth of capital, primarily through
investing in common stock and other securities of foreign and domestic companies
in the telecommunications, media, publishing and entertainment industries.
Income is a secondary objective of the Fund. No assurances can be given that the
Fund's objectives will be achieved. For a discussion of certain risk factors and
special considerations with respect to owning shares of the Fund, see "Risk
Factors and Special Considerations." The address of the Fund is One Corporate
Center, Rye, New York 10580 and its telephone number is (914) 921-5070.
The Fund announced the Offer prior to the commencement of trading on the
New York Stock Exchange on June 20, 1995. The net asset value per share of
Common Stock at the close of business on June 19, 1995 and August 7, 1995 was
$7.95 and $8.34, respectively, and the last reported sale price of a share of
the Fund's Common Stock on such Exchange on those dates was $7.375 and $7.75,
respectively. The Fund's Common Stock trades under the symbol "GGT" on the New
York Stock Exchange.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY SECURITIES
COMMISSION OR REGULATORY AUTHORITY IN CANADA NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY
SECURITIES COMMISSION OR REGULATORY AUTHORITY IN CANADA PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
================================================================================
Subscription Price Sales Load Proceeds to Fund (1)
-------------------------------------------------------------------------------
Per Share......... $6.50 None $6.50
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Total ............ $18,649,391 None $18,649,391
================================================================================
(1) Before deduction of expenses incurred by the Fund, estimated at $581,000.
----------
Because the Subscription Price per share is likely to be less than the net
asset value per share, the Offer is likely to result in a substantial dilution
of the aggregate net asset value of the shares owned by stockholders who do not
fully exercise their Rights. In addition, as a result of the terms of the Offer,
stockholders who do not fully exercise their Rights should expect that they
will, upon the completion of the Offer, own a smaller proportional interest in
the Fund than would otherwise be the case. Gabelli Funds, Inc., the Fund's
investment adviser, may purchase through the primary subscription and the
over-subscription privilege Shares with an aggregate Subscription Price of up to
$10 million. Mr. Mario J. Gabelli may also purchase additional Shares in such
manner. See "The Offer -- Terms of the Offer."
----------
This Prospectus sets forth concisely certain information about the Fund that
investors should know before investing and it should be read and retained
for future reference. A Statement of Additional Information dated
August 7, 1995 (the "SAI") containing additional information
about the Fund has been filed with the Securities and
Exchange Commission and is incorporated by reference
in its entirety into this Prospectus.
----------
A copy of the SAI, the table of contents of which appears on page 27 of this
Prospectus, may be obtained without charge by contacting the
Fund at (800) GABELLI ((800) 422-3554) or (914) 921-5070.
The SAI will be sent within two business days of
receipt of such request by the Fund.
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August 7, 1995
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.
Terms of the Offer
The Gabelli Global Multimedia Trust Inc. (the "Fund") is issuing to
stockholders of record ("Record Date Stockholders") as of the close of business
on August 11, 1995 (the "Record Date") rights ("Rights") to subscribe for an
aggregate of 2,869,137 shares of Common Stock (sometimes referred to herein as
the "Shares") of the Fund. Each such stockholder is being issued one Right for
each full share of Common Stock owned on the Record Date. The Rights entitle the
holder to acquire at the Subscription Price (as hereinafter defined) one Share
for each three Rights held. Rights may be exercised at any time during the
period (the "Subscription Period"), which commences on August 11, 1995 and ends
at 5:00 p.m., New York time on September 12, 1995, unless extended by the Fund
to a date not later than September 19, 1995 (the "Expiration Date"). The right
to acquire during the Subscription Period at the Subscription Price one
additional Share for each three Rights held is hereinafter referred to as the
"Primary Subscription."
In addition, any Record Date Stockholder who fully exercises all Rights
initially issued to him (other than those Rights which cannot be exercised
because they represent the right to acquire less than one Share) is entitled to
subscribe for Shares which were not otherwise subscribed for by others on
Primary Subscription (the "Over-Subscription Privilege"). For purposes of
determining the number of Shares a Record Date Stockholder may acquire pursuant
to the Offer, broker-dealers whose shares are held of record by Cede & Co., Inc.
("Cede"), nominee for The Depository Trust Company, or by any other depository
or nominee will be deemed to be the holders of the Rights that are issued to
Cede or such other depository or nominee on their behalf. Shares acquired
pursuant to the Over-Subscription Privilege are subject to allotment, which is
more fully discussed under "The Offer--Over-Subscription Privilege."
The subscription price per share (the "Subscription Price") will be $6.50.
Rights will be evidenced by subscription certificates ("Subscription
Certificates") and may be exercised by completing a Subscription Certificate and
delivering it, together with payment, either by means of a notice of guaranteed
delivery or a check, to State Street Bank and Trust Company, Boston,
Massachusetts (the "Subscription Agent"). Rights holders will have no right to
rescind a purchase after the Subscription Agent has received payment. See "The
Offer -- Method of Exercise of Rights" and "The Offer -- Payment for Shares."
Shares issued pursuant to an exercise of Rights will be listed on the New York
Stock Exchange, Inc. (hereinafter referred to as the "New York Stock Exchange"
or the "Exchange").
The Rights are transferable until the Expiration Date and have been
admitted for trading on the Exchange. Although no assurance can be given that a
market for the Rights will develop, trading in the Rights on the Exchange will
begin three Business Days prior to the Record Date and may be conducted until
the close of trading on the last Exchange trading day prior to the Expiration
Date. The value of the Rights, if any, will be reflected by the market price.
Rights may be sold by individual holders or may be submitted to the Subscription
Agent for sale. Any Rights submitted to the Subscription Agent for sale must be
received by the Subscription Agent on or before September 11, 1995, one Business
Day (as defined below) prior to the Expiration Date, due to normal settlement
procedures. Trading of the Rights on the Exchange will be conducted on a when
issued basis until and including the date on which the Subscription Certificates
are mailed to Record Date Stockholders and thereafter will be conducted on a
regular way basis until and including the last Exchange trading day prior to the
Expiration Date. The Common Stock will begin trading ex-Rights two Business Days
prior to the Record Date. If the Subscription Agent receives Rights for sale in
a timely manner, it will use its best efforts to sell the Rights on the New York
Stock Exchange. The Subscription Agent will also attempt to sell any Rights a
Rights holder is unable to exercise because such Rights represent the right to
subscribe for less than one Share. Any commissions will be paid by the selling
Rights holders. Neither the Fund nor the Subscription Agent will be responsible
if Rights cannot be sold and neither has guaranteed any minimum sales price for
the Right. For purposes of this Prospectus, a "Business Day" shall mean any day
on which trading is conducted on the Exchange.
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2
<PAGE>
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================================================================================
Stockholders are urged to obtain a recent trading price for the
Rights on the New York Stock Exchange from their broker,
bank, financial advisor or the financial press.
================================================================================
================================================================================
Stockholders' inquiries should be directed to:
State Street Bank and Trust Company
(800) 336-6983 or (617) 328-5000
================================================================================
Important Dates to Remember
<TABLE>
<CAPTION>
Event Date
----- ----
<S> <C>
Record Date...................................................... August 11, 1995
Subscription Period.............................................. August 11, 1995 through September 12, 1995*
Expiration of the Offer.......................................... September 12, 1995*
Payment for Guarantees of Delivery Due........................... September 19, 1995*
Confirmation to Participants..................................... September 26, 1995*
</TABLE>
----------
* Unless the Offer is extended to a date not later than September 19, 1995.
Information Regarding the Fund
The Fund has been engaged in business as a closed-end non-diversified
management investment company since November 15, 1994. The Fund's primary
investment objective is long-term growth of capital, primarily through
investment in a portfolio of common stock and other securities of foreign and
domestic companies involved in the telecommunications, media, publishing and
entertainment industries. Income is a secondary objective of the Fund. No
assurance can be given that the Fund's investment objectives will be achieved.
See "Investment Objectives and Policies." The Fund's outstanding common stock,
par value $.001 per share (the "Common Stock"), is listed and traded on the
Exchange. The average weekly trading volume of the Common Stock on the Exchange
during the period from November 15, 1994 (commencement of the Fund's operations)
through December 31, 1994 was 8,141 shares. As of July 31, 1995, the net assets
of the Fund were approximately $70.9 million.
Information Regarding the Investment Adviser
Gabelli Funds, Inc. (the "Investment Adviser") has served as the investment
adviser to the Fund since its inception. The Investment Adviser also provides
certain administrative services to the Fund. Mr. Mario J. Gabelli, the Chairman
of the Board, President, Chief Executive Officer, Chief Investment Officer and
majority stockholder of the Investment Adviser, has been engaged in the business
of providing investment advisory and portfolio management services for over 15
years and is currently affiliated with investment advisers which, as of July 31,
1995, managed total assets of approximately $9.0 billion. The Fund pays the
Investment Adviser a monthly fee at the annual rate of 1.00% of the Fund's
average weekly net assets. The investment advisory fee is higher than comparable
fees paid by most other investment companies. See "Management of the Fund --
Investment Adviser." Since the Investment Adviser's fees are based on the net
assets of the Fund, the Investment Adviser will benefit from the Offer. In
addition, one Director who is an "interested person" of the Fund could benefit
indirectly from the Offer because of his interests in the Investment Adviser.
See "The Offer -- Purpose of the Offer."
Risk Factors and Special Considerations
The following summarizes certain matters that should be considered, among
others, in connection with the Offer.
Dilution................................. An immediate dilution of the
aggregate net asset value of the
shares owned by stockholders who do
not fully exercise their Rights is
likely to be experienced as a
result of the Offer because the
Subscription Price is likely to be
less than the then net asset value
per share, and the number of shares
outstanding after the Offer is
likely to increase in greater
--------------------------------------------------------------------------------
3
<PAGE>
--------------------------------------------------------------------------------
percentage than the increase in the
size of the Fund's assets. In
addition, as a result of the terms
of the Offer, stockholders who do
not fully exercise their Rights
should expect that they will, at
the completion of the Offer, own a
smaller proportional interest in
the Fund than would otherwise be
the case. Although it is not
possible to state precisely the
amount of such a decrease in value,
because it is not known at this
time what the net asset value per
share will be at the Expiration
Date, such dilution could be
substantial. For example, assuming
that all Rights are exercised and
that the Subscription Price of
$6.50 is 21.9% below the Fund's
then net asset value per share, the
Fund's net asset value per share
(before deduction of expenses
incurred in connection with the
Offer) would be reduced by
approximately $0.45 per share.
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 risk of purchasing
shares of a closed-end fund that
might trade at a discount is more
pronounced for investors who wish
to sell their shares in a
relatively short period of time
because for those investors,
realization of a gain or loss on
their investments is likely to be
more dependent upon the existence
of a premium or discount than upon
portfolio performance. Since
inception, the Fund's shares have
generally traded on the New York
Stock Exchange at a discount to net
asset value. See "Common Stock."
Repurchase and
Charter Provisions..................... The Fund's stockholders will be
free to dispose of their Shares on
the New York Stock Exchange or
other markets on which the Shares
may trade, but, as a closed-end
fund, the Fund's stockholders do
not have the right to redeem their
Shares. The Fund is authorized to
repurchase its shares on the open
market when the shares are trading
at a discount of 10% or more from
net asset value. In addition,
certain provisions of the Fund's
Articles of Incorporation and
By-Laws may be regarded as
"anti-takeover" provisions. These
provisions consist of a system in
which only one of three classes of
Directors is elected each year and
the requirement that the
affirmative vote of the holders of
662/3% 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 or generally to
authorize certain business
transactions with the 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 or the
assumption of control by a
principal stockholder. These
provisions may have the effect of
depriving stockholders of an
opportunity to sell their shares at
a premium above the prevailing
market price. See "Common Stock --
Certain Provisions of the Articles
of Incorporation and By-Laws."
Non-Diversified Status................... As a non-diversified investment
company under the Investment
Company Act of 1940, as amended
(the "1940 Act"), the Fund is not
limited in the proportion of its
assets that may be invested in
securities of a single issuer, and,
accordingly, an investment in the
Fund may, under certain
circumstances, present greater risk
to an investor than an investment
in a diversified company. See "Risk
Factors and Special
Considerations-- Non-Diversified
Status."
Industry Risks........................... The Fund invests a significant
portion of its assets in companies
in the telecommunications, media,
publishing and entertainment
industries and, as a result, the
value of the Fund's shares will be
more susceptible to factors
affecting those particular types of
companies, including government
--------------------------------------------------------------------------------
4
<PAGE>
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regulation, greater price
volatility for the overall market,
rapid obsolescence of products and
services, intense competition and
strong market reactions to
technological developments. See
"Risk Factors and Special
Considerations--Industry Risks."
Smaller Companies........................ The Fund invests in smaller
companies which may benefit from
the development of new products and
services. These smaller companies
may present greater opportunities
for capital appreciation, and may
also involve greater investment
risk than large, established
issuers. See "Risk Factors and
Special Considerations-- Smaller
Companies."
Foreign Securities....................... There is no limitation on the
amount of foreign securities in
which the Fund may invest.
Investing in securities of foreign
companies and foreign governments,
which generally are denominated in
foreign currencies, may involve
certain risk and opportunity
considerations not typically
associated with investing in
domestic companies and could cause
the Fund to be affected favorably
or unfavorably by changes in
currency exchange rates and
revaluation of currencies. See
"Risk Factors and Special
Considerations -- Foreign
Securities."
Dependence on Key Personnel.............. The Investment Adviser is dependent
upon the expertise of Mr. Mario J.
Gabelli in providing advisory
services with respect to the Fund's
investments. There is no contract
of employment between the
Investment Adviser and Mr. Gabelli.
If the Investment Adviser were to
lose the services of Mr. Gabelli,
its ability to service the Fund
could be adversely affected. There
can be no assurance that a suitable
replacement could be found for Mr.
Gabelli in the event of his death,
resignation, retirement or
inability to act on behalf of the
Investment Adviser.
--------------------------------------------------------------------------------
5
<PAGE>
FEE TABLE
The following table sets forth certain fees and expenses of the Fund.
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price)...................... 0%
Automatic Dividend Reinvestment and Cash Purchase Plan Fees*........ $0.75
Annual Expenses (as a percentage of net assets)
Management Fees..................................................... 1.0%
Other Expenses....................................................... .74%
Total Annual Expenses .............................................. 1.74%
----------
*A fee of $0.75 is charged with respect to each purchase by a participant in the
Fund's Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan (the
"Plan"). A fee of $2.50 is charged in connection with the sale of shares that
are held in book-entry form, such as shares held by a stockholder through the
Plan.
Example 1 Year 3 Years
-------- ------ -------
You would pay the following
expenses on a $1,000
investment assuming a 5%
annual return........................................ $18 $56
The purpose of the foregoing table and example is to assist Rights holders
in understanding the various costs and expenses that an investor in the Fund
bears, directly or indirectly, but should not be considered a representation of
past or future expenses or rates of return. The actual expenses of the Fund may
be greater or less than those shown. The figures provided under "Other Expenses"
are based upon estimated amounts for the current fiscal year. For more complete
descriptions of certain of the Fund's cost and expenses, see "Management of the
Fund" in the Prospectus and the SAI.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a share of Common
Stock outstanding throughout the period presented. The per share operating
performance and ratios for the period ended December 31, 1994 has been audited
by Price Waterhouse LLP, the Fund's independent accountants, as stated in their
report which is incorporated by reference into the SAI. The following
information should be read in conjunction with the Financial Statements and
Notes thereto, which are incorporated by reference into the SAI.
Per Share Operating Performance
For a Fund Share Outstanding Throughout the Period
For the Period
11/15/94*
through 12/31/94
----------------
Operating Performance:
Net Asset Value, Beginning of Period ..................... $7.50(1)
----
Net Investment Income .................................. 0.03
Net Realized and Unrealized Gain on Securities ......... 0.03
----
Total from Investment Operations ......................... 0.06
----
Distributions to Stockholders from:
Net Investment Income .................................. (0.03)
Distributions in Excess of Net Investment Income
and Net Realized Gains ............................... (0.01)
Paid-in-Capital ........................................ (0.01)
----
(0.05)
Total Distributions
Net Asset Value, End of Period ........................... $7.51
====
Market Value, End of Period .............................. $7.375
====
Total Investment Return .................................. (7.91)%(2)
====
Net Asset Value Total Return ............................. 0.80%(3)
====
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) ................. $64,606
Ratio of Operating Expenses to Average Net Assets ........ 1.74%(4)
Ratio of Net Investment Income to Average Net Assets ..... 3.15%(4)
Portfolio Turnover Rate .................................. 0%
----------
* Commencement of operations.
(1) Represents net asset value per share on November 15, 1994.
(2) Based on market value per share at date of issuance of $8.0625, adjusted
for reinvestment of all dividends.
(3) Based on net asset value per share, adjusted for reinvestment of all
distributions.
(4) Annualized.
7
<PAGE>
THE OFFER
Terms of the Offer
The Fund is issuing to Record Date Stockholders Rights to subscribe for the
Shares. Each Record Date Stockholder is being issued one transferable Right for
each share of Common Stock owned on the Record Date. The Rights entitle the
holder to acquire at the Subscription Price one Share for each three Rights
held. No Rights will be issued for fractional shares. Rights may be exercised at
any time during the Subscription Period, which commences on August 11, 1995 and
ends at 5:00 p.m., New York time, on September 12, 1995, unless extended by the
Fund to a date not later than September 19, 1995, 5:00 p.m., New York time. See
"Expiration of the Offer."
In addition, any Record Date Stockholder who fully exercises all Rights
initially issued to him (other than those Rights which cannot be exercised
because they represent the right to acquire less than one Share) is entitled to
subscribe for Shares which were not otherwise subscribed for by others on
Primary Subscription. For purposes of determining the maximum number of Shares a
Record Date Stockholder may acquire pursuant to the Offer, broker-dealers whose
shares are held of record by Cede or by any other depository or nominee will be
deemed to be the holders of the Rights that are issued to Cede or such other
depository or nominee on their behalf. Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment, which is more fully
discussed below under "Over-Subscription Privilege."
The Investment Adviser, as a Record Date Stockholder, has advised the Fund
that its board of directors has authorized it to purchase through the Primary
Subscription and the Over-Subscription Privilege underlying Shares with an
aggregate Subscription Price of up to $10 million to the extent such Shares
become available to it in accordance with the Primary Subscription and the
allotment provisions of the Over-Subscription Privilege. In addition, Mario J.
Gabelli individually, as a Record Date Stockholder, may also purchase Shares
through the Primary Subscription and the Over-Subscription Privilege. Such
over-subscriptions by the Investment Adviser and Mr. Gabelli may
disproportionately increase their already existing ownership resulting in a
higher percentage ownership of outstanding shares of the Fund. Any Shares so
acquired by the Investment Adviser or Mr. Gabelli, as "affiliates" of the Fund
as that term is defined under the Securities Act of 1933, as amended (the
"Securities Act"), may only be sold in accordance with Rule 144 under the
Securities Act or pursuant to an effective registration statement under the
Securities Act. In general, under Rule 144, as currently in effect, an
"affiliate" of the Fund is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock or the average weekly reported trading volume of the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain restrictions on the manner of sale, to
notice requirements and to the availability of current public information about
the Fund. In addition, any profit resulting from the sale of Shares so acquired,
if such Shares are held for a period of less than six months, will be returned
to the Fund.
Rights will be evidenced by Subscription Certificates. The number of Rights
issued to each holder will be stated on the Subscription Certificates delivered
to such holder. The method by which Rights may be exercised and Shares paid for
is set forth below in "Method of Exercise of Rights" and "Payment for Shares." A
Rights holder will have no right to rescind a purchase after the Subscription
Agent has received payment. See "Payment for Shares" below. Shares issued
pursuant to an exercise of Rights will be listed on the New York Stock Exchange.
The Rights are transferable until the Expiration Date and have been
admitted for trading on the New York Stock Exchange. Assuming a market exists
for the Rights, the Rights may be purchased and sold through usual brokerage
channels and sold through the Subscription Agent. Although no assurance can be
given that a market for the Rights will develop, trading in the Rights on the
Exchange will begin three Business Days before the Record Date and may be
conducted until the close of trading on the last Exchange trading day prior to
the Expiration Date. Trading of the Rights on the Exchange will be conducted on
a when issued basis until and including the date on which the Subscription
Certificates are mailed to Record Date Stockholders and thereafter will be
conducted on a regular way basis until and including the last Exchange trading
day prior to the Expiration Date. The method by which Rights may be transferred
is set forth below in "Method of Transferring Rights." The underlying Shares
will also be admitted for trading on the New York Stock Exchange and will begin
trading Ex-Rights two Business Days prior to the Record Date. Since fractional
Shares will not be issued, Rights holders who receive, or who are left with,
8
<PAGE>
fewer than three Rights will be unable to exercise such Rights and will not be
entitled to receive any cash in lieu of such fractional Shares. However, the
Subscription Agent will automatically attempt to sell the number of Rights which
a Rights holder is unable to exercise for such reason after return of a
completed and fully exercised Subscription Certificate, and will remit the
proceeds of any such sale net of commissions to the Rights holder.
Purpose of the Offer
The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and the stockholders to increase the assets of the
Fund available for investment thereby permitting the Fund to be in a better
position to more fully take advantage of investment opportunities that may
arise. The Offer seeks to reward existing stockholders by giving them the right
to purchase additional shares at a price that may be below market and/or net
asset value without incurring any commission charge. The distribution to
stockholders of transferable Rights which themselves may have intrinsic value
will also afford non-subscribing stockholders the potential of receiving a cash
payment upon sale of such Rights, receipt of which may be viewed as compensation
for the possible dilution of their interests in the Fund.
The Fund's Investment Adviser and Furman Selz Incorporated, its
sub-administrator (the "Sub-Administrator"), will benefit from the Offer because
the Investment Adviser's fee and the Sub-Administrator's fee are based on the
average net assets of the Fund. See "Management of the Fund." It is not possible
to state precisely the amount of additional compensation the Investment Adviser
or Sub-Administrator will receive as a result of the Offer because the proceeds
of the Offer will be invested in additional portfolio securities which will
fluctuate in value. However, assuming all Rights are exercised and that the Fund
receives the maximum proceeds of the Offer, the annual compensation to be
received by the Investment Adviser and the Sub-Administrator would be increased
by approximately $186,493 and $18,649, respectively. Two of the Fund's Directors
who voted to authorize the Offer are "interested persons" of the Investment
Adviser within the meaning of the 1940 Act. One of these Directors, Mario J.
Gabelli, could benefit indirectly from the Offer because of his interest in the
Investment Adviser. The other seven Directors are not "interested persons" of
the Fund. See "Management of the Fund" in the SAI. While it was cognizant of the
possible participation of the Investment Adviser and Mr. Gabelli in the Offer as
stockholders, the Fund's Board of Directors nevertheless concluded that the
Offer was in the best interest of stockholders, since all stockholders of the
Fund are treated equally under the terms of the Offer.
The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms which may or may not be similar to the Offer. Any such future rights
offering will be made in accordance with the 1940 Act. Under the laws of
Maryland, the state in which the Fund is incorporated, the Board of Directors is
authorized to approve rights offerings without obtaining stockholder approval.
The staff of the Securities and Exchange Commission (the "Commission") has
interpreted the 1940 Act as not requiring stockholder approval of a rights
offering at a price below the then current net asset value so long as certain
conditions are met, including a good faith determination by the fund's board of
directors that such offering would result in a net benefit to existing
stockholders.
Over-Subscription Privilege
If all of the Rights initially issued are not exercised, any Shares for
which subscriptions have not been received will be offered, by means of the
Over-Subscription Privilege, to Record Date Stockholders who have exercised all
the Rights initially issued to them and who wish to acquire more than the number
of Shares for which the Rights issued to them are exercisable. Record Date
Stockholders who exercise all the Rights initially issued to them will have the
opportunity to indicate on the Subscription Certificate how many Shares they are
willing to acquire pursuant to the Over-Subscription Privilege. If sufficient
Shares remain after the Primary Subscriptions have been exercised, all
over-subscriptions will be honored in full. If sufficient Shares are not
available to honor all over-subscriptions, the available Shares will be
allocated among those who over-subscribe based on the number of Rights
originally issued to them by the Fund. The percentage of remaining Shares each
over-subscribing stockholder may acquire will be rounded down to result in
delivery of whole Shares. The allocation process may involve a series of
allocations in order to assure that the total number of Shares available for
over-subscriptions is distributed on a pro rata basis.
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The method by which Shares will be distributed and allocated pursuant to
the Over-Subscription Privilege is as follows. Shares will be available for
purchase pursuant to the Over-Subscription Privilege only to the extent that the
maximum number of Shares is not subscribed for through the exercise of the
Primary Subscription by the Expiration Date. If the Shares so available ("Excess
Shares") are not sufficient to satisfy all subscriptions pursuant to the
Over-Subscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional Shares) among those holders of Rights
exercising the Over-Subscription privilege, in proportion, not to the number of
Shares requested pursuant to the Over-Subscription Privilege, but to the number
of shares held on the Record Date; provided, however, that if such pro rata
allocation results in any holder being allocated a greater number of Excess
Shares than such holder subscribed for pursuant to the exercise of such holder's
Over-Subscription Privilege, then such holder will be allocated only such number
of Excess Shares as such holder subscribed for and the remaining Excess Shares
will be allocated among all other holders exercising Over-Subscription
Privileges. The formula to be used in allocating the Excess Shares is as
follows:
Holder's Record Date Position
-----------------------------
Total Record Date Position X Excess Shares
of All Over-Subscribers Remaining
The Fund will not offer or sell any Shares which are not subscribed for
under the Primary Subscription or the Over-Subscription Privilege.
The Subscription Price
The Subscription Price for the Shares to be issued pursuant to the Rights
will be $6.50.
The Fund announced the Offer prior to the commencement of trading on the
New York Stock Exchange on June 20, 1995. The net asset value per share of
Common Stock at the close of business on June 19, 1995 and August 7, 1995 was
$7.95 and $8.34, respectively. The last reported sale price of a share of the
Fund's Common Stock on the Exchange on those dates was $7.375 and $7.75,
respectively, representing a 7.23% and a 7.07% discount, respectively, in
relation to the net asset value per share of Common Stock at the close of
business on such dates.
Sales by Subscription Agent
Holders of Rights who do not wish to exercise any or all of their Rights
may instruct the Subscription Agent to sell any unexercised Rights. The
Subscription Certificates representing the Rights to be sold by the Subscription
Agent must be received on or before September 11, 1995. Upon the timely receipt
of appropriate instructions to sell Rights, the Subscription Agent will use its
best efforts to complete the sale and will remit the proceeds of sale, net of
commissions, to the holders. If the Rights can be sold, sales of such Rights
will be deemed to have been effected at the weighted average price received by
the Subscription Agent on the day such Rights are sold. The selling Rights
holder will pay all brokerage commissions incurred by the Subscription Agent.
Such sales may be effected by the Subscription Agent through Gabelli & Company,
Inc., a registered broker-dealer and an indirect majority-owned subsidiary of
the Investment Adviser, for up to $0.03 per Right, provided that, if the
Subscription Agent is able to negotiate a lower brokerage commission with an
independent broker, the Subscription Agent will execute these sales through the
broker. Gabelli & Company, Inc. may also act on behalf of its clients to
purchase Rights in the open market and be compensated therefor. In addition,
upon return of a completed and fully exercised Subscription Certificate, the
Subscription Agent will automatically attempt to sell any Rights a Rights holder
is unable to exercise because such Rights will represent the right to subscribe
for less than one Share. The Subscription Agent will also attempt to sell all
Rights which remain unclaimed as a result of Subscription Certificates being
returned by the postal authorities as undeliverable as of the fourth Business
Day prior to the Expiration Date. Such sales will be made net of commissions on
behalf of the nonclaiming stockholders. Proceeds from those sales will be held
by State Street Bank and Trust Company, in its capacity as the Fund's transfer
agent, for the account of such nonclaiming stockholder until such proceeds are
either claimed or escheat. There can be no assurance that the Subscription Agent
will be able to complete the sale of any such Rights and neither the Fund nor
the Subscription Agent has guaranteed any minimum sales price for the Rights.
All such Rights will be sold at the market price, if any, on the New York Stock
Exchange.
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Method of Transferring Rights
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights holder or, if the Rights holder so
instructs, to an additional transferee.
Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow at least three Business Days prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred Rights,
and to the transferor with respect to retained rights, if any, and (iii) the
Rights evidenced by such new Subscription Certificates to be exercised or sold
by the recipients thereof. Neither the Fund nor the Subscription Agent shall
have any liability to a transferee or transferor of Rights if Subscription
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid
by the Fund as described below), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Fund or the Subscription Agent.
The Fund anticipates that the Rights will be eligible for transfer through,
and that the exercise of the Primary Subscription (but not the Over-Subscription
Privilege) may be effected through, the facilities of The Depository Trust
Company ("DTC"; Rights exercised through DTC are referred to as "DTC Exercised
Rights"). The holder of a DTC Exercised Right may exercise the Over-Subscription
Privilege in respect of such DTC Exercised Right by properly executing and
delivering to the Subscription Agent, at or prior to 5:00 p.m., New York time,
on the Expiration Date, a DTC Participant Over-Subscription Form, together with
payment of the Subscription Price for the number of Shares for which the
Over-Subscription Privilege is to be exercised. Copies of the DTC Participant
Over-Subscription Form may be obtained from the Subscription Agent.
Expiration of the Offer
The Offer will expire at 5:00 p.m., New York time, on September 12, 1995,
unless extended by the Fund to a date not later than September 19, 1995, 5:00
p.m., New York time (the "Expiration Date"). Rights will expire on the
Expiration Date and thereafter may not be exercised.
Subscription Agent
The Subscription Agent is State Street Bank and Trust Company, P.O. Box
8200, Boston, Massachusetts 02266-8200. The Subscription Agent will receive from
the Fund an amount estimated to be $240,000, comprised of the fee for its
services and the reimbursement for certain expenses related to the Offer. The
Subscription Agent is also the Fund's dividend disbursing agent, transfer agent
and registrar. Inquiries by all holders of Rights should be directed to P.O. Box
8200, Boston, Massachusetts 02266-8200 (telephone (800) 336-6983 or (617)
328-5000); holders may also consult their brokers or nominees.
Method of Exercise of Rights
Rights may be exercised by filling in and signing the reverse side of the
Subscription Certificate and mailing it in the envelope provided, or otherwise
delivering the completed and signed Subscription Certificate to the Subscription
Agent, together with payment for the Shares as described below under "Payment
for Shares." Rights may also be exercised through a Rights holder's broker, who
may charge such Rights holder a servicing fee in connection with such exercise.
Fractional Shares will not be issued, and Rights holders who receive, or who are
left with, fewer than three Rights will not be able to exercise such Rights. The
Subscription Agent will automatically attempt to sell the number of Rights which
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<PAGE>
a Rights holder is unable to exercise for this reason after return of a
completed and fully exercised Subscription Certificate and will remit the
proceeds of such sale net of commissions to the Rights holder.
Completed Subscription Certificates must be received by the Subscription
Agent prior to 5:00 p.m., New York time, on the Expiration Date (unless payment
is effected by means of a notice of guaranteed delivery as described below under
"Payment for Shares"). The Subscription Certificate and payment should be
delivered to STATE STREET BANK AND TRUST COMPANY, Attention: Corporate
Reorganization Department at the following address:
If By Mail: P.O. Box 9061
Boston, Massachusetts 02205-8686
If By Hand: 225 Franklin Street or 61 Broadway
Concourse Level Concourse Level
Boston, Massachusetts 02110 New York, New York 10006
If By Overnight Courier: c/o Boston Financial Data Services, Inc.,
Corporate Reorganization Department
Two Heritage Drive
North Quincy, Massachusetts 02171
Payment of Shares
Holders of Rights who acquire Shares on Primary Subscription or pursuant to
the Over-Subscription Privilege may choose between the following methods of
payment:
(1) A subscription will be accepted by the Subscription Agent if,
prior to 5:00 p.m., New York time, on the Expiration Date, the Subscription
Agent has received a notice of guaranteed delivery by telegram or otherwise
from a bank, a trust company, or a New York Stock Exchange member,
guaranteeing delivery of (i) payment of the full Subscription Price for the
Shares subscribed for on Primary Subscription and any additional Shares
subscribed for pursuant to the Over-Subscription Privilege and (ii) a
properly completed and executed Subscription Certificate. The Subscription
Agent will not honor a notice of guaranteed delivery if a properly
completed and executed Subscription Certificate and full payment is not
received by the Subscription Agent by the close of business on the fifth
Business Day after the Expiration Date. The notice of guaranteed delivery
may be delivered to the Subscription Agent in the same manner as
Subscription Certificates at the addresses set forth above, or may be
transmitted to the Subscription Agent by facsimile transmission (telecopy
number (617) 774-4519; telephone number to confirm receipt (617) 774-4511).
(2) Alternatively, a holder of Rights can send the Subscription
Certificate together with payment in the form of a check for the Shares
subscribed for on Primary Subscription and additional Shares subscribed for
pursuant to the Over-Subscription Privilege to the Subscription Agent based
on the Subscription Price of $6.50 per Share. To be accepted, such payment,
together with the executed Subscription Certificate, must be received by
the Subscription Agent at the addresses noted above prior to 5:00 p.m., New
York time, on the Expiration Date. The Subscription Agent will deposit all
stock purchase checks received by it prior to the final due date into a
segregated interest-bearing account pending proration and distribution of
Shares. The Subscription Agent will not accept cash as a means of payment
for Shares. EXCEPT AS OTHERWISE SET FORTH BELOW, A PAYMENT PURSUANT TO THIS
METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A
BANK LOCATED IN THE CONTINENTAL UNITED STATES, MUST BE PAYABLE TO THE
GABELLI GLOBAL MULTIMEDIA TRUST INC., AND MUST ACCOMPANY AN EXECUTED
SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. If the aggregate Subscription
Price paid by a Record Date Stockholder is insufficient to purchase the
number of shares of Common Stock that the holder indicates are being
subscribed for, or if a Record Date Stockholder does not specify the number
of shares of Common Stock to be purchased, then the Record Date Stockholder
will be deemed to have exercised first, the Primary Subscription Rights (if
not already fully exercised) and second, the Over-Subscription Privilege to
the full extent of the payment tendered. If the aggregate Subscription
Price paid by a Record Date Stockholder exceeds the amount necessary to
purchase the number of shares of Common Stock for which the Record Date
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<PAGE>
Stockholder has indicated an intention to subscribe, then the Record Date
Stockholder will be deemed to have exercised first, the Primary
Subscription Rights (if not already fully subscribed) and second, the
Over-Subscription Privilege to the full extent of the excess payment
tendered.
Within ten Business Days following the Expiration Date (the "Confirmation
Date"), a confirmation will be sent by the Subscription Agent to each holder of
Rights (or, if the Fund's shares are held by Cede or any other depository or
nominee, to Cede or such other depository or nominee), showing (i) the number of
Shares acquired pursuant to the Primary Subscription, (ii) the number of Shares,
if any, acquired pursuant to the Over-Subscription Privilege, (iii) the per
Share and total purchase price for the Shares and (iv) any excess to be refunded
by the Fund to such holder as a result of payment for Shares pursuant to the
Over-Subscription Privilege which the holder is not acquiring. Any payment
required from a holder of Rights must be received by the Subscription Agent on
the Expiration Date, or if the Rights holder has elected to make payment by
means of a notice of guaranteed delivery, on the fifth Business Day after the
Expiration Date. Any excess payment to be refunded by the Fund to a holder of
Rights, or to be paid to a holder of Rights as a result of sales of Rights on
his behalf by the Subscription Agent or exercises by Record Date Stockholders of
their Over-Subscription Privileges, and all interest accrued on such holder's
excess payment will be mailed by the Subscription Agent to such holder within
fifteen Business Days after the Expiration Date. Interest on such excess payment
will accrue through the date that is one Business Day prior to the mail date of
the reimbursement check. All payments by a holder of Rights must be in United
States dollars by money order or check drawn on a bank located in the
continental United States of America and payable to The Gabelli Global
Multimedia Trust Inc. except that holders of Rights who are residents of the
province of Ontario may make payment in U.S. dollars by money order or check
drawn on a bank located in the province of Ontario.
Whichever of the two methods described above is used, issuance and delivery
of certificates for the Shares purchased are subject to collection of checks and
actual payment pursuant to any notice of guaranteed delivery.
A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received payment either by means of a notice of
guaranteed delivery or a check.
If a holder of Rights who acquires Shares pursuant to the Primary
Subscription or the Over-Subscription Privilege does not make payment of any
amounts due, the Fund reserves the right to take any or all of the following
actions: (i) find other purchasers for such subscribed-for and unpaid-for
Shares; (ii) apply any payment actually received by it toward the purchase of
the greatest whole number of Shares which could be acquired by such holder upon
exercise of the Primary Subscription or the Over-Subscription Privilege; (iii)
sell all or a portion of the Shares purchased by the holder, in the open market,
and apply the proceeds to the amounts owed; and (iv) exercise any and all other
rights or remedies to which it may be entitled, including, without limitation,
the right to set off against payments actually received by it with respect to
such subscribed Shares and to enforce the relevant guaranty of payment.
Holders who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositaries for securities, should notify the respective
beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the record holder of such Rights
should complete Subscription Certificates and submit them to the Subscription
Agent with the proper payment. In addition, beneficial owners of Common Stock or
Rights held through such a holder should contact the holder and request the
holder to effect transactions in accordance with the beneficial owner's
instructions.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
FUND.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE
AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE
FOR PAYMENT, BY MEANS OF A CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
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<PAGE>
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. Neither the Fund nor the Subscription Agent will be
under any duty to give notification of any defect or irregularity in connection
with the submission of Subscription Certificates or incur any liability for
failure to give such notification.
Delivery of Stock Certificates
Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to subscribers as soon as practicable after the
corresponding Rights have been validly exercised and full payment for such
Shares has been received and cleared. Certificates representing Shares purchased
pursuant to the Over-Subscription Privilege will be delivered to subscribers as
soon as practicable after the Expiration Date and after all allocations have
been effected. Participants in the Fund's Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan (the "Plan") will be issued Rights for the shares
held in their accounts in the Plan. Participants wishing to exercise such Rights
must exercise such Rights in accordance with the procedures set forth above in
"Method of Exercise of Rights" and "Payment for Shares." Such Rights will not be
exercised automatically by the Plan. Plan participants exercising their Rights
will receive their Primary and Over-Subscription Shares via an uncertificated
credit to their existing account. To request a stock certificate, participants
in the Plan should check the appropriate box on the Subscription Certificate.
Such Shares will remain subject to the same investment option as previously
selected by the Plan participant.
Foreign Restrictions
Subscription Certificates will only be mailed to Record Date Stockholders
whose addresses are within the United States and the Provinces of Quebec and
Ontario, Canada (other than an APO or FPO address). Record Date Stockholders
whose addresses are outside the United States and the Provinces of Quebec and
Ontario, Canada or who have an APO or FPO address and who wish to subscribe to
the Offer either partially or in full should contact the Subscription Agent,
State Street Bank and Trust Company, by written instruction or recorded
telephone conversation no later than three Business Days prior to the Expiration
Date. If the Subscription Agent has received no instruction by such date, the
Subscription Agent will attempt to sell all Rights and remit the net proceeds,
if any, to such stockholders. If the Rights can be sold, sales of such Rights
will be deemed to have been effected at the weighted average price received by
the Subscription Agent on the day such Rights are sold, less any applicable
brokerage commissions, taxes and other expenses.
Under the securities laws of the Province of Quebec, investors residing in
Quebec may, subject to compliance with all applicable regulatory requirements,
transfer either the Rights or the Shares to be acquired upon the exercise of
such Rights to other subscribers of the Offer, to persons with whom they are
related or to persons residing outside of Quebec in a transaction effected on an
organized market.
Under the securities laws of the Province of Ontario, investors residing in
Ontario may, subject to compliance with all applicable regulatory requirements,
transfer either the Rights or the Shares to be acquired upon the exercise of
such Rights (i) through a dealer registered in Ontario that effects the
transaction through the facilities of the New York Stock Exchange or (ii)
through certain other means as provided under and in compliance with Ontario
securities laws.
Federal Income Tax Consequences
For federal income tax purposes, neither the receipt nor the exercise of
the Rights by Record Date Stockholders will result in taxable income to holders
of the Common Stock, and no loss will be realized if the Rights expire without
exercise.
With respect to Rights issued to Record Date Stockholders that are
subsequently exercised, if the fair market value of the Rights on the date of
distribution is 15 percent or a greater percentage of the fair market value of
the Common Stock, the adjusted basis in the Rights exercised is determined by
allocating the adjusted basis in the Common Stock with respect to which the
14
<PAGE>
distribution is made between such Rights and such Common Stock in proportion to
their fair market value on the date of distribution (the "General Rule"). In
these circumstances, the adjusted basis in the newly acquired Shares is the
Subscription Price plus the adjusted basis in the Rights exercised. If the fair
market value of the Rights on the date of distribution is less than 15 percent
of the fair market value of the Common Stock on that date, in the absence of an
election to apply the General Rule, the adjusted basis in the Rights exercised
is zero, and the adjusted basis in the newly acquired Common Stock is the
Subscription Price. The election should be made in the form of a statement
attached to the taxpayer's return for the year in which the Rights were received
and must be made with respect to all Rights received in this distribution. The
election, once made, is irrevocable with respect to these Rights.
With respect to Rights which are purchased, the basis in the Rights is
their cost, and the basis of the newly acquired Shares issued upon exercise of
such Rights is the Subscription Price for the newly acquired Shares plus the
basis in the Rights exercised. If any purchased Rights expire without exercise,
the Rights holder will recognize a short-term loss.
If Rights are sold, the gain or loss will be the difference between their
adjusted basis and their sale price. The gain or loss recognized upon the sale
of the Rights will be capital gain or loss if the Rights were held as a capital
asset at the time of sale and will be long-term capital gain or loss if the
Rights are deemed to have been held at the time of sale for more than one year.
The holding period for the Rights which are sold includes the holding period of
the Common Stock in respect of which the Rights were distributed.
The holding period for a Share acquired upon exercise of a Right begins
with the date of exercise. The gain or loss recognized upon a sale of that Share
will be capital gain or loss if the Share was held as a capital asset at the
time of sale and will be long-term capital gain or loss if it was held at the
time of sale for more than one year.
The foregoing is a general summary of the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code") and United States
Treasury regulations presently in effect, and does not cover state or local
taxes. The Code and such regulations are subject to change by legislative or
administrative action. Stockholders are advised to consult their own tax
advisors with respect to the particular tax consequences to them with respect to
exercise or transfer of Rights.
Employee Plan Considerations
Stockholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including
corporate savings and 401(k) plans), Keogh Plans of self-employed individuals
and Individual Retirement Accounts (collectively, "Benefit Plans") should be
aware that additional contributions of cash in order to exercise Rights would be
treated as Benefit Plan contributions and, when taken together with
contributions previously made, may subject a Benefit Plan to excise taxes for
excess or nondeductible contributions. In the case of Benefit Plans qualified
under Section 401(a) of the Code, additional cash contributions could cause the
maximum contribution limitations of Section 415 of the Code or other
qualification rules to be violated. Benefit Plans contemplating making
additional cash contributions to exercise Rights should consult with their
counsel prior to making such contributions.
Benefit Plans and other tax exempt entities, including governmental plans,
should also be aware that if they borrow in order to finance their exercise of
Rights, they may become subject to the tax on unrelated business taxable income
("UBTI") under Section 511 of the Code. If any portion of an Individual
Retirement Account ("IRA") is used as security for a loan, the portion so used
is also treated as distributed to the IRA depositor.
ERISA contains prudence and diversification requirements and ERISA and the
Code contain prohibited transaction rules that may impact the exercise of
Rights. Among the prohibited transaction exemptions issued by the Department of
Labor that may exempt a Benefit Plan's exercise of Rights are Prohibited
Transaction Exemption 84-24 (governing purchases of shares in investment
companies) and Prohibited Transaction Exemption 75-1 (covering sales of
securities).
Due to the complexity of these rules and the penalties for noncompliance,
Benefit Plans should consult with their counsel regarding the consequences of
their exercise of Rights under ERISA and the Code.
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<PAGE>
Risk Factors and Special Considerations
An immediate dilution of the aggregate net asset value of the shares owned
by stockholders who do not fully exercise their Rights is likely to be
experienced as a result of the Offer because the Subscription Price is likely to
be less than the then net asset value per share, and the number of shares
outstanding after the Offer is likely to increase in greater percentage than the
increase in the size of the Fund's assets. In addition, as a result of the terms
of the Offer, stockholders who do not fully exercise their Rights should expect
that they will, at the completion of the Offer, own a smaller proportional
interest in the Fund than would otherwise be the case. Although it is not
possible to state precisely the amount of such a decrease in value, because it
is not known at this time what the net asset value per share will be at the
Expiration Date, such dilution could be substantial. For example, assuming that
all Rights are exercised and that the Subscription Price of $6.50 is 21.9% below
the Fund's then net asset value per share, the Fund's net asset value per share
(before deduction of expenses incurred in connection with the Offer) would be
reduced by approximately $0.45 per share.
THE FUND
The Fund, incorporated in Maryland on March 31, 1994, is a non-diversified,
closed-end management investment company registered under the 1940 Act. The
Fund's Common Stock is traded on the New York Stock Exchange under the symbol
"GGT."
The Fund had no operations prior to November 15, 1994, other than the sale
of 10,000 shares of Common Stock for $100,000 to The Gabelli Equity Trust Inc.
On November 15, 1994, The Gabelli Equity Trust Inc. contributed $64,382,764 in
exchange for 8,587,702 shares of the Fund and immediately thereafter distributed
to its stockholders all the shares it held of the Fund. The Fund's investment
operations commenced on November 15, 1994.
The Fund's primary investment objective is long-term growth of capital. The
Fund seeks to achieve its objective by investing primarily in common stock and
other securities of foreign and domestic companies involved in the
telecommunications, media, publishing and entertainment industries. Income is
the secondary investment objective of the Fund. Under normal market conditions,
the Fund will invest at least 65% of its total assets in common stock and other
securities of companies in the telecommunications, media, publishing and
entertainment industries.
USE OF PROCEEDS
The net proceeds of the Offer, assuming all Shares offered hereby are sold,
are estimated to be approximately $18,068,391, after deducting expenses payable
by the Fund estimated at approximately $581,000. The Investment Adviser
anticipates that investment of such proceeds, in accordance with the Fund's
investment objectives and policies, will be invested promptly as investment
opportunities are identified, depending on market conditions and the
availability of appropriate securities, but in no event will such investment
take longer than six months. Pending such investment in accordance with the
Fund's investment objectives and policies, the proceeds will be held in
obligations of the United States Government, its agencies or instrumentalities
("U.S. Government Securities") and other short-term money market instruments.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following special considerations associated
with an exercise of Rights and an additional investment in the Fund.
Industry Risks
The Fund invests a significant portion of its assets in particular types of
companies, and, as a result, the value of the Fund's shares is more susceptible
to factors affecting those particular types of companies, including governmental
regulation, a greater price volatility than the overall market, rapid
obsolescence of products and services, intense competition and strong market
reactions to technological developments.
Various types of ownership restrictions are imposed by the Federal
Communications Commission ("FCC") on investments in mass media companies, such
as broadcasters and cable operators, as well as in common carrier companies,
such as the providers of local telephone service and cellular radio.
16
<PAGE>
For example, the FCC's broadcast multiple ownership rules, which apply to
the radio and television industries, provide that investment advisers are deemed
to have an "attributable" interest whenever the adviser has the right to
determine how more than five percent of the issued and outstanding voting stock
of a broadcast licensee may be voted. These same broadcast rules prohibit the
holding of an attributable interest, on a nationwide basis, in more than twenty
AM radio broadcast stations, twenty FM radio broadcast stations or twelve
television stations. Similar types of restrictions apply to the mass media and
common carrier industries.
The attributable interest that results from the role of the Investment
Adviser and its principals in connection with other funds, managed accounts and
companies may limit the investments of the Fund.
Pending legislation regarding the telecommunications industry proposes to
liberalize, among other things, existing national ownership limits and
cross-ownership rules.
Smaller Companies
While the Fund intends to focus on the securities of established suppliers
of accepted products and services, the Fund may invest in smaller companies
which may benefit from the development of new products and services. These
smaller companies may present greater opportunities for capital appreciation,
and may also involve greater investment risk than large, established issuers.
For example, smaller companies may have limited product lines, markets or
financial resources, and their securities may trade less frequently and in lower
volume than the securities of larger, more established companies. As a result,
the prices of the securities of such smaller companies may fluctuate to a
greater degree than the price of securities of other issuers.
Long-Term Objective
The Fund is intended for investors seeking long-term capital growth. The
Fund is not meant to provide a vehicle for those who wish to play short-term
swings in the stock market. An investment in shares of the Fund should not be
considered a complete investment program. Each stockholder should take into
account the stockholder's investment objectives as well as the stockholder's
other investments when considering whether or not to participate in the Offer.
Non-Diversified Status
The Fund is classified as a "non-diversified" investment company under the
1940 Act, which means the Fund is not limited by the 1940 Act in the proportion
of its assets that may be invested in the securities of a single issuer.
However, the Fund has in the past conducted and intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Code, which will relieve it of any liability for federal income tax to the
extent its earnings are distributed to stockholders. See "Taxation." To so
qualify, among other requirements, the Fund will limit its investments so that,
at the close of each quarter of the taxable year, (i) not more than 25% of the
market value of its total assets will be invested in the securities of a single
issuer, and (ii) at least 50% of the market value of its assets is represented
by cash, securities of other regulated investment companies, U.S. Government
Securities and other securities, with such other securities limited, in respect
of any one issuer, to an amount not greater than 5% of its assets and not
greater than 10% of the outstanding voting securities of such issuer. The
investments of the Fund in U.S. Government Securities are not subject to these
limitations. Because the Fund, as a non-diversified investment company, may
invest in the securities of individual issuers to a greater degree than a
diversified investment company, an investment in the Fund may, under certain
circumstances, present greater risk to an investor than an investment in a
diversified company.
Lower Rated Securities
The Fund may invest up to 10% of its total assets in fixed-income
securities rated in the lower rating categories of recognized statistical rating
agencies, such as securities rated "CCC" or lower by Standard & Poor's
Corporation or "Caa" or lower by Moody's Investors Service, Inc., or non-rated
securities of comparable quality. These debt securities are predominantly
speculative and involve major risk exposure to adverse conditions and are often
referred to in the financial press as "junk bonds."
17
<PAGE>
The Fund may invest in securities of issuers in default. The Fund will
invest in securities of issuers in default only when the Investment Adviser
believes that such issuers will honor their obligations or emerge from
bankruptcy protection and the value of these securities will appreciate. By
investing in securities of issuers in default, the Fund bears the risk that
these issuers will not continue to honor their obligations or emerge from
bankruptcy protection or that the value of these securities will not appreciate.
For a further description of lower rated securities and the risks
associated therewith, see "Investment Objectives and Policies -- Investment
Practices" in the SAI. For a description of the ratings categories of certain
recognized statistical ratings agencies, see Appendix A.
Temporary Investments
During temporary defensive periods the Fund may invest in U.S. Government
Securities and in money market mutual funds not affiliated with the Investment
Adviser that invest in those securities. Certain U.S. Government Securities,
such as the Government National Mortgage Association, are supported by the "full
faith and credit" of the U.S. Government; others, such as those of the
Export-Import Bank of the U.S., are supported by the right of the issuer to
borrow from the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others: such as those
of the Student Loan Marketing Association, are supported only by the credit of
the issuing instrumentality. No assurance can be given that the U.S. Government
would provide financial support to U.S. Government-sponsored instrumentalities
if it is not obligated to do so by law. For a further description of such
investments, see "Investment Objectives and Policies -- Investment Practices" in
the SAI.
Repurchase Agreements
The Fund may engage in repurchase agreement transactions with banks,
registered broker-dealers and government securities dealers approved by the
Board of Directors. The Fund bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its obligations and the Fund is
delayed in or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period in which it seeks to assert these
rights. For a further description of such transactions, see "Investment
Objectives and Policies -- Certain Practices -- Repurchase Agreements."
Foreign Securities
There is no limitation on the amount of foreign securities in which the
Fund may invest. Investing in securities of foreign companies and foreign
governments, which generally are denominated in foreign currencies, may involve
certain risk and opportunity considerations not typically associated with
investing in domestic companies and could cause the Fund to be affected
favorably or unfavorably by changes in currency exchange rates, revaluations of
currencies and the restrictions on, and costs associated with, the exchange of
currencies. In addition, less information may be available about foreign
companies and foreign governments than about domestic companies, and foreign
companies and foreign governments generally are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
practices and requirements comparable to those applicable to domestic companies.
Foreign securities and their markets may not be as liquid as U.S. securities and
their markets. Securities of some foreign companies may involve greater market
risk than securities of U.S. companies. Investment in foreign securities may
result in higher expenses than investing in domestic securities because of the
payment of fixed brokerage commissions on foreign exchanges, which generally are
higher than commissions on U.S. exchanges, and the imposition of transfer taxes
or transaction charges associated with foreign exchanges. Investment in foreign
securities may also be subject to local economic or political risks, including
instability of some foreign governments, the possibility of currency blockage or
the imposition of withholding taxes on dividend or interest payments, and the
potential for expropriation, nationalization or confiscatory taxation and
limitations on the use or removal of funds or other assets. There may also be
greater difficulty in respect of the Fund's ability to protect and enforce its
rights in certain foreign countries. For a further description of the Fund's
investments in foreign securities, see "Investment Objectives and Policies --
Certain Practices -- Foreign Securities."
18
<PAGE>
Futures Transactions
The Fund may enter into certain futures contracts or options on futures
contracts. Futures and options on futures entail certain risks, including but
not limited to the following: no assurance that futures contracts or options on
futures can be offset at favorable prices, possible reduction of the yield of
the Fund due to the use of hedging, possible reduction in value of both the
securities hedged and the hedging instrument, possible lack of liquidity due to
daily limits on price fluctuations, imperfect correlation between the contracts
and the securities being hedged, losses from investing in futures transactions
that are potentially unlimited and the segregation requirements for such
transactions. For a further description, see "Investment Objectives and Policies
-- Investment Practices" in the SAI.
Forward Currency Transactions
The Fund may for hedging purposes enter into forward currency contracts.
The use of forward currency contracts may involve certain risks, including the
failure of the counter party to perform its obligations under the contract, and
that such use may not serve as a complete hedge because of an imperfect
correlation between movements in the prices of the contracts and the prices of
the currencies hedged or used for cover. The Fund will only enter into forward
currency contracts with parties which it believes to be creditworthy
institutions. For a further description of such investments, see "Investment
Objectives and Policies -- Investment Practices" in the SAI.
Market Value and 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 risk of purchasing shares of a closed-end fund that might trade at
a discount is more pronounced for investors who wish to sell their shares in a
relatively short period of time because for those investors, realization of a
gain or loss on their investments is likely to be more dependent upon the
existence of a premium or discount than upon portfolio performance. Although the
Fund's shares have at times traded in the market above net asset value, since
the commencement of the Fund's operations the Fund's shares have generally
traded in the market at a discount to net asset value. The Fund's shares are not
subject to redemption. Investors desiring liquidity may, subject to applicable
securities laws, trade their shares in the Fund on any exchange where such
shares are then trading at current market value, which may differ from the then
current net asset value. For information concerning the trading history of the
Fund's shares, see "Common Stock."
Dependence on Key Personnel
The Investment Adviser is dependent upon the expertise of Mr. Mario J.
Gabelli in providing advisory services with respect to the Fund's investments.
There is no contract of employment between the Investment Adviser and Mr.
Gabelli. If the Investment Adviser were to lose the services of Mr. Gabelli, its
ability to service the Fund could be adversely affected. There can be no
assurance that a suitable replacement could be found for Mr. Gabelli in the
event of his death, resignation, retirement or inability to act on behalf of the
Investment Adviser.
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Fund's primary investment objective is long-term growth of capital by
investing primarily in the common stock and other securities of foreign and
domestic companies involved in the telecommunications, media, publishing and
entertainment industries. Income is the secondary investment objective. The
investment objectives of long-term growth of capital and income are fundamental
policies of the Fund. The Fund's policy of concentration in companies in the
communications industries is also a fundamental policy of the Fund. These
fundamental policies and the investment limitations described in the SAI under
the caption "Investment Restrictions" cannot be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities. As used
herein, a "majority of the Fund's outstanding voting securities" means the
lesser of (i) 67% of the shares of the Fund's Common Stock represented at a
19
<PAGE>
meeting at which more than 50% of the outstanding shares of the Fund's Common
Stock are represented, whether in person or by proxy, or (ii) more than 50% of
the outstanding shares of Common Stock. No assurance can be given that the
Fund's investment objectives will be achieved.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in common stock and other securities of companies in the
telecommunications, media, publishing and entertainment industries. Such
multimedia businesses are often involved in emerging technological advances in
interactive services and products that are accessible to individuals in their
homes or offices through consumer electronics devices such as telephones,
televisions, radios and personal computers.
The telecommunications companies in which the Fund may invest are engaged
in the development, manufacture or sale of communications services or equipment
throughout the world including the following products or services: regular
telephone service; wireless communications services and equipment, including
cellular telephone, microwave and satellite communications, paging, and other
emerging wireless technologies; equipment and services for both data and voice
transmission, including computer hardware and software; electronic components
and communications equipment; video conferencing; electronic mail; local and
wide area networking, and linkage of data and word processing systems;
publishing and information systems; video text and teletext; emerging
technologies combining television, telephone and computer systems; broadcasting,
including television and radio via VHF, UHF, satellite and microwave
transmission and cable television.
The entertainment, media and publishing companies in which the Fund may
invest are engaged in providing the following products or services: the
creation, packaging, distribution, and ownership of entertainment programming
throughout the world including prerecorded music, feature-length motion
pictures, made-for-TV movies, television series, documentaries, animation, game
shows, sports programming and news programs; live events such as professional
sporting events or concerts, theatrical exhibitions, television and radio
broadcasting via VHF, UHF, satellite and microwave transmission, cable
television systems and programming broadcast and cable networks, wireless cable
television and other emerging distribution technologies, home video, interactive
and multimedia programming including home shopping and multiplayer games;
publishing, including newspapers, magazines and books, advertising agencies and
niche advertising mediums such as in-store or direct mail, emerging technologies
combining television, telephone and computer systems, computer hardware and
software, and equipment used in the creation and distribution of entertainment
programming such as that required in the provision of broadcast, cable or
telecommunications services.
Under normal circumstances the Fund will invest in securities of issuers
located in at least three countries, which may include the United States.
Investing in securities of foreign issuers, which generally are denominated in
foreign currencies, may involve certain risk and opportunity considerations not
typically associated with investing in domestic companies and could cause the
Fund to be affected favorably or unfavorably by changes in currency exchange
rates and revaluations of currencies. For a further discussion of the risks
associated with investing in foreign securities and a description of other risks
inherent in the Fund's investment objectives and policies, see "Risk Factors and
Special Considerations."
The Investment Adviser believes that at the present time investment by the
Fund in the securities of companies located throughout the world presents great
potential for accomplishing the Fund's investment objectives. While the
Investment Adviser expects that a substantial portion of assets may be invested
in the securities of domestic companies, a significant portion of the Fund's
portfolio may also be comprised of the securities of issuers headquartered
outside the United States.
Investment Methodology of the Fund
In selecting securities for the Fund, the Investment Adviser normally will
consider the following factors, among others: (1) the Investment Adviser's own
evaluations of the private market value, cash flow, earnings per share and other
fundamental aspects of the underlying assets and business of the company; (2)
the potential for capital appreciation of the securities; (3) the interest or
dividend income generated by the securities; (4) the prices of the securities
relative to other comparable securities; (5) whether the securities are entitled
to the benefits of call protection or other protective covenants; (6) the
existence of any anti-dilution protections or guarantees of the security; and
(7) the diversification of the portfolio of the Fund as to issuers. The
Investment Adviser's investment philosophy with respect to equity securities
seeks to identify assets that are selling in the public market at a discount to
their private market value, which the Investment Adviser defines as the value
informed purchasers are willing to pay to acquire assets with similar
20
<PAGE>
characteristics. The Investment Adviser also normally evaluates the issuers'
free cash flow and long-term earnings trends. Finally, the Investment Adviser
looks for a catalyst -- something in the company's industry or indigenous to the
company or country itself that will surface additional value.
Certain Practices
Foreign Securities. There is no limitation on the amount of foreign
securities in which the Fund may invest. Among the foreign securities in which
the Fund may invest are those issued by companies located in developing
countries, which are countries in the initial stages of their industrialization
cycles. Investing in the equity and debt markets of developing countries
involves exposure to economic structures that are generally less diverse and
less mature, and to political systems that can be expected to have less
stability, than those of developed countries. The markets of developing
countries historically have been more volatile than the markets of the more
mature economies of developed countries, but often have provided higher rates of
return to investors. The Fund may also invest in debt securities of foreign
governments.
Temporary Investments. Although under normal market conditions at least 65%
of the Fund's assets will consist of common stock and other securities of
foreign and domestic companies involved in the telecommunications, media,
publishing and entertainment industries, when a temporary defensive posture is
believed by the Investment Adviser to be warranted ("temporary defensive
periods"), the Fund may without limitation hold cash or invest its assets in
money market instruments and repurchase agreements in respect of those
instruments. The Fund may also invest up to 10% of the market value of its total
assets during temporary defensive periods in shares of money market mutual funds
that invest primarily in U.S. Government Securities and repurchase agreements in
respect of those securities. For a further description of such transactions, see
"Investment Objectives and Policies -- Investment Practices" in the SAI.
Repurchase Agreements. The Fund may engage in repurchase agreement
transactions involving money market instruments with banks, registered
broker-dealers and government securities dealers approved by the Board of
Directors. The Fund will not enter into repurchase agreements with the
Investment Adviser or any of its affiliates. Under the terms of a typical
repurchase agreement, the Fund would acquire an underlying debt obligation for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed price and time, thereby determining the yield during its holding
period. Thus, repurchase agreements may be seen to be loans by the Fund
collateralized by the underlying debt obligation. This arrangement results in a
fixed rate of return that is not subject to market fluctuations during the
holding period. The value of the underlying securities will be at least equal at
all times to the total amount of the repurchase obligation, including interest.
The Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Fund is delayed in or prevented
from exercising its rights to dispose of the collateral securities, including
the risk of a possible decline in the value of the underlying securities during
the period in which it seeks to assert these rights. The Investment Adviser,
acting under the supervision of the Fund's Board of Directors, reviews the
creditworthiness of those banks and dealers with which the Fund enters into
repurchase agreements to evaluate these risks and monitors on an ongoing basis
the value of the securities subject to repurchase agreements to ensure that the
value is maintained at the required level.
Other Investments. The Fund is permitted to invest in special situations,
options and futures contracts, engage in forward currency transactions and enter
into forward commitments for the purchase or sale of securities, including on a
"when issued" or "delayed delivery" basis, and the Fund may make short sales of
securities. See the SAI for a discussion of these investments and techniques and
the risks associated with them.
21
<PAGE>
MANAGEMENT OF THE FUND
Directors and Officers
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Directors, and the day to day operations of the Fund are
conducted through or under the direction of the officers of the Fund. Although
the Fund is a Maryland corporation, Karl Otto Pohl, one of its Directors, is a
resident of Germany, and substantially all of his assets are located outside of
the United States. Mr. Pohl has not authorized an agent for service of process
in the United States. Consequently, it may be difficult for investors to effect
service of process upon him within the United States or to enforce, in United
States courts, judgments against him obtained in such courts predicated on the
civil liability provisions of the United States securities laws. In addition,
there is doubt as to the enforceability in German courts of liabilities
predicated solely upon the United States securities laws, whether or not such
liabilities are based upon judgments of courts in the United States. For certain
information regarding the Directors and officers of the Fund, see "Management of
the Fund" in the SAI.
Investment Adviser
Gabelli Funds, Inc., a New York corporation, with offices at One Corporate
Center, Rye, New York 10580-1434, is investment adviser to the Fund. The
Investment Adviser was organized in 1980 and as of July 31, 1995, is a
registered investment adviser to fourteen management companies with aggregate
net assets of $4.0 billion. GAMCO Investors, Inc., a wholly owned subsidiary of
the Investment Adviser, acts as investment adviser for individuals, pension
trusts, profit sharing trusts and endowments, having aggregate assets in excess
of $4.90 billion under its management as of July 31, 1995. Mr. Mario J. Gabelli
may be deemed a "controlling person" of the Investment Adviser and each of its
subsidiaries on the basis of his ownership of stock of the Investment Adviser.
The Investment Adviser has sole investment discretion for the Fund with
respect to the Fund's portfolio under the supervision of the Fund's Board of
Directors and in accordance with the Fund's stated policies. The Investment
Adviser will select investments for the Fund and will place purchase and sale
orders on behalf of the Fund. For its services, the Investment Adviser is paid a
fee computed daily and paid monthly at an annual rate of 1.00% of the average
weekly net assets of the Fund. For additional information regarding the
Investment Adviser, see "Management of the Fund -- Investment Advisory and
Administrative Arrangements" in the SAI.
Portfolio Management
Mario J. Gabelli, who is Chairman of the Board, Chief Executive Officer and
Chief Investment Officer of the Investment Adviser, has managed the Fund's
assets since its inception. For a more detailed description of Mr. Gabelli's
business experience during the past five years, see "Management of the Fund --
Directors and Officers" in the SAI.
Sub-Administrator
The Investment Adviser has certain administrative responsibilities to the
Fund under its advisory agreement with the Fund. The Investment Adviser has
retained Furman Selz Incorporated as Sub-Administrator to provide certain
administrative services necessary for the Fund's operations but which do not
concern the investment advisory and portfolio management services provided by
the Investment Adviser. These services include the preparation and distribution
of materials for meetings of the Fund's Board of Directors, compliance testing
of the Fund's activities and assistance in the preparation of proxy statements,
reports to stockholders and other documentation. For such services and the
related expenses borne by the Sub-Administrator, the Investment Adviser pays the
Sub-Administrator a monthly fee at the annual rate of .10% of the average daily
net assets of the Fund (with a minimum annual fee of $40,000 and subject to
reduction to (i) .075% if the total aggregate assets managed by the Investment
Adviser and administered by the Sub-Administrator exceed $350 million and (ii)
.06% if such assets exceed $600 million) which, together with the services to be
rendered, is subject to negotiation between the parties. Both parties retain the
right unilaterally to terminate the arrangement on 60 days' written notice. The
Sub-Administrator has its principal office at 230 Park Avenue, New York, New
York 10169.
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<PAGE>
Payment of Expenses
For purposes of the calculation of the fees payable to the Investment
Adviser by the Fund, average weekly net assets of the Fund are determined at the
end of each month on the basis of its average net assets for each week during
the month. The assets for each weekly period are determined by averaging the net
assets at the end of a week with the net assets at the end of the prior week.
The Investment Adviser will be obligated to pay expenses associated with
providing the services contemplated by the Advisory Agreement including
compensation of and office space for its officers and employees connected with
investment and economic research, trading and investment management and
administration of the Fund, as well as the fees of all Directors of the Fund who
are affiliated with the Investment Adviser or any of its affiliates. The Fund
pays all other expenses incurred in its operation including, among other things,
expenses for legal and independent accountants' services, costs of printing
proxies, stock certificates and shareholder reports, charges of the custodian,
any subcustodian and transfer and dividend paying agent, expenses in connection
with the Plan, Commission fees, fees and expenses of unaffiliated Directors,
accounting and pricing costs, membership fees in trade associations, fidelity
bond coverage for its officers and employees, Directors' and officers' errors
and omission insurance coverage, interest, brokerage costs, taxes, stock
exchange listing fees and expenses, expenses of qualifying its shares for sale
in various states, litigation and other extraordinary or non-recurring expenses,
and other expenses properly payable by the Fund.
PORTFOLIO TRANSACTIONS
Principal transactions are not entered into with affiliates of the Fund.
However, Gabelli & Company, Inc., an affiliate of the Investment Adviser, may
execute transactions in the over-the-counter markets on an agency basis and
receive a stated commission therefrom. For a more detailed discussion of the
Fund's brokerage allocation practice, see the SAI under "Portfolio
Transactions."
DIVIDENDS AND DISTRIBUTIONS; AUTOMATIC DIVIDEND
REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
The Fund distributes substantially all of its annual net investment income
and capital gains to stockholders at year end. The dividend policy of the Fund
may be modified from time to time by the Board of Directors. As a regulated
investment company under the Code, the Fund will not be subjected to U.S.
federal income tax on its investment company taxable income that it distributes
to stockholders, provided that at least 90% of its taxable income for the
taxable year is distributed to its stockholders.
Under the Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
adopted by the Fund, a stockholder whose Common Stock is registered in his own
name will have all distributions reinvested automatically by State Street Bank
and Trust Company ("State Street"), which is agent under the Plan, unless the
stockholder elects to receive cash and has so instructed State Street either in
writing at the address set forth below or by telephone at (800) 336-6983.
Distributions with respect to shares registered in the name of a broker-dealer
or other nominee (that is, in "street name") will be reinvested by the broker or
nominee in additional shares under the Plan, unless the service is not provided
by the broker or nominee or the stockholder elects to receive distributions in
cash. Under the Plan, whenever the market price of the Common Stock is equal to
or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants in such plan are issued shares of Common Stock,
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Common Stock. If the net asset
value of the Common Stock at the time of valuation exceeds the market price of
the Common Stock, 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, as agent for the
participants, buy Fund 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 Common Stock 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 shares as applicable. Such
payments may be made in any amount from $250 to $3,000.
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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. A fee of $2.50 is charged in connection with the sale
of shares that are held in book-entry form, such as shares of Common Stock held
by a stockholder through the Plan. Commissions may also be charged on such
transactions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends or
distributions.
All correspondence concerning the Plan should be directed to State Street
at P.O. Box 8200, Boston, Massachusetts 02266-8200. For a further description of
the Plan, see "Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan"
in the SAI.
TAXATION
Taxation
The Fund has qualified, and intends to continue to qualify, each year as a
"regulated investment company" under the Code. Accordingly, the Fund will not be
liable for federal income taxes to the extent its taxable net investment income
and net realized capital gain, if any, are distributed to stockholders, provided
that at least 90% of its investment company taxable income (i.e., 90% of the
taxable income minus the excess, if any, of its net realized long-term capital
gain over its net realized short-term capital loss (including any capital loss
carryovers) plus or minus certain other adjustments as specified in section 852
of the Code) for the taxable year is distributed to stockholders. The Fund will
be subject to tax at regular corporate rates on any income or gains that it does
not distribute. Furthermore, the Fund is subject to a 4% nondeductible federal
excise tax on certain undistributed amounts of ordinary income and capital
gains. The Fund intends to make such distributions as are necessary to avoid the
application of this excise tax.
The Fund reserves the right, but does not currently intend, to retain for
reinvestment net long-term gains in excess of net short-term capital losses and
the Fund will be subject to a corporate tax (currently at a rate of 35%) on the
retained amount, if any. The Fund would designate such retained amounts as
undistributed capital gains. As a result, such amounts would be taxed to
stockholders as long-term capital gains and stockholders would be able to claim
their proportionate shares of the federal income taxes paid by the Fund on such
gains as a credit against their own federal income tax liabilities, and would be
entitled to increase the adjusted tax basis of their shares of the Fund by 65%
of their undistributed capital gains and their tax credit. Qualified pension and
profit sharing funds, certain trusts and other organizations or persons not
subject to federal income tax on capital gains and certain non-resident alien
individuals and foreign corporations would be entitled to a refund of their pro
rata share of such taxes paid by the Fund upon filing appropriate returns or
claims for refund with the proper tax authorities. Failure by such entities and
their sponsors or responsible fiduciaries to properly account for such refund
could result in adverse federal income tax consequences.
The Fund sends its written statements and notices to its respective
stockholders regarding the tax status of all dividends and distributions made
during each calendar year.
Dividend and capital gain distributions may also be subject to state and
local taxes. Stockholders are urged to consult their attorneys or tax advisors
regarding specific questions as to federal, state or local taxes. Non-U.S.
stockholders are urged to consult their own tax advisors concerning the
applicability of the United States withholding tax. For a more detailed
discussion of tax matters affecting the Fund and its stockholders, see
"Taxation" in the SAI.
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COMMON STOCK
The Fund, which was incorporated under the laws of the State of Maryland on
March 31, 1994, is authorized to issue 200,000,000 shares of Common Stock, par
value $.001 per share. Each share has equal voting, dividend, distribution and
liquidation rights. The shares outstanding are fully paid and non-assessable.
Shares of the Common Stock are not redeemable and have no preemptive, conversion
or cumulative voting rights.
Set forth below is information with respect to the Fund Common Stock as of
August 1, 1995.
Amount Held by Fund for
Amount Authorized Its Own Account Amount Outstanding
----------------- ----------------------- ------------------
200,000,000 shares 0 shares 8,607,411 shares
The Fund's shares are listed and traded on the New York Stock Exchange
under the symbol "GGT." The average weekly trading volume of the Common Stock on
the New York Stock Exchange for the period from November 15, 1994 (commencement
of the Fund's operations) through December 31, 1994 was 8,141 shares. The
following table sets forth for the quarters indicated the high and low closing
prices on the New York Stock Exchange per share of the Common Stock and the net
asset value and the premium or discount from net asset value at which the Common
Stock was trading, expressed as a percentage of net asset value, at each of the
high and low closing prices provided.
<TABLE>
<CAPTION>
Premium or Discount
Market Price(1) Net Asset Value(2) As % of NAV
---------------- --------------- ----------------
Quarter Ended High Low High Low High Low
------------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
12/31/94* ........................... $8.125 $ 7.00 $7.50 $7.48 8.33% -6.54%
03/31/95 ............................ $8.125 $6.875 $7.50 $7.68 8.33% -10.37%
06/30/95 ............................ $7.625 $ 7.00 $7.95 $7.89 -4.09% -11.28%
09/30/95** .......................... $7.875 $7.375 $8.24 $8.11 -4.43% -9.06%
</TABLE>
----------
(1) As reported on the New York Stock Exchange.
(2) Based on the Fund's computations.
* The Fund commenced operations on November 15, 1994.
** Through August 1, 1995.
Repurchase of Shares
The Fund is a closed-end, management investment company and as such its
stockholders do not, and will not, have the right to redeem its 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
stockholders within the preceding six months 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 stockholders of
an intention to purchase shares and purchasing in a manner and on a basis which
does not discriminate unfairly against the other stockholders through their
interest in the Fund.
The Fund may incur debt, in an amount not exceeding 10% of its total
assets, to finance share repurchase transactions. See "Investment Restrictions"
in the SAI. Any gain in the value of the investments of the Fund during the term
of the borrowing that exceeds the interest paid on the amount borrowed would
cause the net asset value of its shares to increase more rapidly than in the
absence of borrowing. Conversely, any decline in the value of the investments of
the Fund would cause the net asset value of its shares to decrease more rapidly
than in the absence of borrowing. Borrowing money thus creates an opportunity
for greater capital gain but at the same time increases exposure to capital
risk.
25
<PAGE>
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.
Although the Fund's shares have at times traded in the market above net
asset value, since the commencement of the Fund's operations, the Fund's shares
have generally traded in the market at a discount to net asset value.
For the net asset value per share and the reported sales price of a share
of the Fund's Common Stock on the New York Stock Exchange as of a recent date,
see "The Offer -- Subscription Price."
Certain Provisions of the Articles of Incorporation and By-laws
The Fund presently has provisions in its Articles of Incorporation and
By-Laws (together, in each case, its "Governing Documents") which could have the
effect of limiting, in each case, (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 stockholders to
amend the Governing Documents or effectuate changes in the Fund's management.
These provisions of the Governing Documents of the Fund may be regarded as
"anti-takeover" provisions. The Board of Directors of the Fund is divided into
three classes, each having a term of no more than three years. Each year the
term of one class of Directors will expire. Accordingly, only those Directors in
one class may be changed in any one year, and it would require two years to
change a majority of the Board of Directors. Such system of electing Directors
may have the effect of maintaining the continuity of management and, thus, make
it more difficult for the stockholders of the Fund to change the majority of
Directors. See "Management of the Fund" in the SAI. 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 662/3% of its outstanding shares is required
to authorize the conversion of the Fund from a closed-end to an open-end
investment company or 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 Commission; for the
full text of these provisions, see "Further Information."
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
stockholder. The Board of Directors has determined that the foregoing voting
requirements, which are generally greater than the minimum requirements under
Maryland law and the 1940 Act, are in the best interests of the stockholders
generally.
26
<PAGE>
CUSTODIAN AND TRANSFER, DIVIDEND DISBURSING AGENT AND REGISTRAR
State Street, located at 225 Franklin Street, Boston, Massachusetts 02110,
serves as the custodian of the Fund's assets pursuant to a custody agreement.
Under the custody agreement, State Street holds the Fund's assets in compliance
with the 1940 Act. For its custody services, State Street will receive a monthly
fee based upon the average weekly value of the total assets of the Fund, plus
certain charges for securities transactions.
State Street also serves as the Fund's dividend disbursing agent, as agent
under the Fund's Plan and as transfer agent and registrar for shares of the
Fund.
LEGAL MATTERS
With respect to matters of United States law, the validity of the shares
offered hereby will be passed on for the Fund by Willkie Farr & Gallagher, New
York, New York. Willkie Farr & Gallagher also serves as counsel to the
Investment Adviser. Counsel for the Fund will rely, as to matters of Maryland
law, on Venable, Baetjer and Howard, LLP, Baltimore, Maryland.
EXPERTS
The financial statements of the Fund as of December 31, 1994 have been
incorporated by reference into the SAI in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of that firm as
experts in accounting and auditing. Price Waterhouse LLP is located at 1177
Avenue of the Americas, New York, New York 10036.
FURTHER INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information filed by the Fund can be inspected and copied at public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New York, New York
10048; and 500 West Madison Street, Chicago, Illinois 60661. The Fund's Common
Stock is listed on the New York Stock Exchange. Reports, proxy statements and
other information concerning the Fund can be inspected and copied at the Library
of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form N-2
(together with the SAI and all the exhibits and the appendix thereto, the
"Registration Statement") filed by the Fund with the Commission under the
Securities Act and the 1940 Act. This Prospectus and the SAI do not contain all
of the information set forth in the Registration Statement. Reference is hereby
made to the Registration Statement and related exhibits for further information
with respect to the Fund and the Shares offered hereby. Statements contained
herein concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission.
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
Page
----
Investment Objectives and Policies ................................. 2
Investment Restrictions ............................................ 7
Management of the Fund ............................................. 8
Portfolio Transactions ............................................. 12
Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan ... 13
Taxation ........................................................... 14
Net Asset Value .................................................... 16
Beneficial Owner ................................................... 17
Financial Statements ............................................... 17
27
<PAGE>
APPENDIX A
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk
appear somewhat larger than in Aaa Securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa Bonds that are rated Baa are considered as medium-grade obligations
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small. Moody's applies numerical modifiers (1, 2, and 3) with
respect to the bonds rated "Aa" through "B." The modifier 1 indicates
that the company ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the company ranks in the lower end of its
generic rating category.
Caa Bonds that are rated Caa are of poor standing. These issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds that are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds that are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
STANDARD & POOR'S RATINGS GROUP
AAA This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay
principal.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A Principal and interest payments on bonds in this category are regarded
as safe. Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
A-1
<PAGE>
BBB This is the lowest investment grade. Debt rated BBB has an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for debt in this category than in
higher rated categories.
Speculative Grade
Debt rated BB, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation, and C the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major exposures to adverse conditions. Debt rated C1 is reserved for
income bonds on which no interest is being paid and debt rated D is in
payment default.
In July 1994, S&P initiated an "r" symbol to its ratings. The "r"
symbol is attached to derivatives, hybrids and certain other
obligations that S&P believes may experience high variability in
expected returns due to non-credit risks created by the terms of the
obligations.
"AA" to "CCC" may be modified by the addition of a plus or minus sign to show
relative standing within the major categories.
"NR" indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
A-2
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus. If
given or made, such information or representation must not be relied upon as
having been authorized by the Fund or the Fund's investment advisers. This
Prospectus does not constitute an offer to sell or the solicitation of an offer
to buy any security other than the shares of Common Stock offered by this
Prospectus, nor does it constitute an offer to sell or the solicitation of an
offer to buy shares of Common Stock by anyone in any jurisdiction in which such
offer or solicitation would be unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create an
implication that there has been no change in the facts as set forth in the
Prospectus or in the affairs of the Fund since the date hereof.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary ....................................................... 2
Fee Table ................................................................ 6
Financial Highlights ..................................................... 7
The Offer ................................................................ 8
The Fund ................................................................. 16
Use of Proceeds .......................................................... 16
Risk Factors and Special Considerations .................................. 16
Investment Objectives and Policies ....................................... 19
Management of the Fund ................................................... 22
Portfolio Transactions ................................................... 23
Dividends and Distributions;
Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan ........................................... 23
Taxation ................................................................. 24
Common Stock ............................................................. 25
Custodian and Transfer,
Dividend Disbursing Agent and Registrar ................................ 27
Legal Matters ............................................................ 27
Experts .................................................................. 27
Further Information ...................................................... 27
Table of Contents of Statement of
Additional Information ................................................. 27
Appendix A ............................................................... A-1
================================================================================
<PAGE>
497(h)(1)
33-60407
811-8476
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
----------
STATEMENT OF ADDITIONAL INFORMATION
The Gabelli Global Multimedia Trust Inc. (the "Fund") is a
non-diversified, closed-end management investment company that seeks long-term
growth of capital by investing primarily in common stock and other securities of
foreign and domestic companies involved in the telecommunications, media,
publishing and entertainment industries. Income is a secondary investment
objective. It is the policy of the Fund, under normal market conditions, to
invest at least 65% of its total assets in common stock and other securities of
companies in the telecommunications, media, publishing and entertainment
industries.
This Statement of Additional Information ("SAI") is not a prospectus, but
should be read in conjunction with the Prospectus for the Fund dated August 7,
1995 (the "Prospectus"). This SAI does not include all information that a
prospective investor should consider before purchasing shares of the Fund, and
investors should obtain and read the Prospectus prior to purchasing shares. A
copy of the Prospectus may be obtained without charge, by calling the Fund at
(800) GABELLI ((800)-422-3554) or (914) 921-5070. This SAI incorporates by
reference the entire Prospectus.
----------
TABLE OF CONTENTS
Page
----
Investment Objectives and Policies ....................................... 2
Investment Restrictions .................................................. 7
Management of the Fund ................................................... 8
Portfolio Transactions ................................................... 12
Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan ......... 13
Taxation ................................................................. 14
Net Asset Value .......................................................... 16
Beneficial Owner ......................................................... 17
Financial Statements ..................................................... 17
----------
The Prospectus and this SAI omit certain of the information contained in
the registration statement filed with the Securities and Exchange Commission,
Washington, D.C. The registration statement may be obtained from the Securities
and Exchange Commission upon payment of the fee prescribed, or inspected at the
Securities and Exchange Commission's office at no charge.
----------
This Statement of Additional Information is dated August 7, 1995.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Fund's primary investment objective is long-term growth of capital.
Income is a secondary objective. Under normal market conditions, the Fund will
invest at least 65% of its total assets in common stock and other securities of
companies in the telecommunications, media, publishing and entertainment
industries. See "Investment Objectives and Policies" in the Prospectus.
Investment Practices
Special Situations. Subject to the Fund's policy of investing at least 65%
of its total assets in companies involved in the telecommunications, media,
publishing and entertainment industries, the Fund from time to time may invest
in companies that are determined by Gabelli Funds, Inc. (the "Investment
Adviser") to possess "special situation" characteristics. In general, a special
situation company is a company whose securities are expected to increase in
value solely by reason of a development particularly or uniquely applicable to
the company. Developments that may create special situations include, among
others, a liquidation, reorganization, recapitalization or merger, material
litigation, technological breakthrough or new management or management policies.
The principal risk associated with investments in special situation companies is
that the anticipated development thought to create the special situation may not
occur and the investment therefore may not appreciate in value or may decline in
value.
Temporary Investments. Although under normal market conditions at least
65% of the Fund's assets will consist of common stock and other securities of
foreign and domestic companies involved in the telecommunications, media,
publishing and entertainment industries, when a temporary defensive posture is
believed by the Investment Adviser to be warranted ("temporary defensive
periods"), the Fund may hold without limitation cash or invest its assets in
money market instruments and repurchase agreements in respect of those
instruments. The money market instruments in which the Fund may invest are
obligations of the United States Government, its agencies or instrumentalities
("U.S. Government Securities"); commercial paper rated A-1 or higher by Standard
& Poor's Corporation ("S&P") or Prime-1 by Moody's Investors Service, Inc.
("Moody's"); and certificates of deposit and bankers' acceptances issued by
domestic branches of U.S. banks that are members of the Federal Deposit
Insurance Corporation. For a description of such ratings, see Appendix A to the
Prospectus. The Fund may also invest up to 10% of the market value of its total
assets during temporary defensive periods in shares of money market mutual funds
that invest primarily in U.S. Government Securities and repurchase agreements in
respect of those securities. Money market mutual funds are investment companies
and the investments by the Fund in those companies are subject to certain other
limitations. See "Investment Restrictions." As a stockholder in a mutual fund,
the Fund will bear its ratable share of the fund's expenses, including
management fees, and will remain subject to payment of the fees to the
Investment Adviser with respect to assets so invested.
Lower Rated Securities. The Fund may invest up to 10% of its total assets
in fixed-income securities rated in the lower rating categories of recognized
statistical rating agencies, such as securities rated "CCC" or lower by S&P or
"Caa" or lower by Moody's, or non-rated securities of comparable quality. These
debt securities are predominantly speculative and involve major risk exposure to
adverse conditions and are often referred to in the financial press as "junk
bonds."
Generally, such lower rated securities and unrated securities of
comparable quality offer a higher current yield than is offered by higher rated
securities, but also (i) will likely have some quality and protective
characteristics that, in the judgment of the rating organizations, are
outweighed by large uncertainties or major risk exposures to adverse conditions
and (ii) are predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
The market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher quality bonds. In addition, such lower rated securities and comparable
unrated securities generally present a higher degree of credit risk. The risk of
loss due to default by these issuers is significantly greater because such lower
rated securities and unrated securities of comparable quality generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. In light of these risks, the Investment Adviser, in evaluating the
creditworthiness of an issue, whether rated or unrated, will take various
factors into consideration, which may include, as applicable, the issuer's
financial resources, its sensitivity to economic conditions and trends, the
2
<PAGE>
operating history of and the community support for the facility financed by the
issue, the ability of the issuer's management and regulatory matters.
In addition, the market value of securities in lower rated categories is
more volatile than that of higher quality securities, and the markets in which
such lower rated or unrated securities are traded are more limited than those in
which higher rated securities are traded. The existence of limited markets may
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value. Moreover,
the lack of a liquid trading market may restrict the availability of securities
for the Fund to purchase and may also have the effect of limiting the ability of
the Fund to sell securities at their fair value to respond to changes in the
economy or the financial markets.
Lower rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption (often a typical
feature of fixed income securities), the Fund may have to replace the security
with a lower yielding security, resulting in a decreased return for investors.
Also, as the principal value of bonds moves inversely with movements in interest
rates, in the event of rising interest rates the value of the securities held by
the Fund may decline proportionately more than a portfolio consisting of higher
rated securities. Investments in zero coupon bonds may be more speculative and
subject to greater fluctuations in value due to changes in interest rates than
bonds that pay interest currently.
The Fund may invest in securities of issuers in default. The Fund will
invest in securities of issuers in default only when the Investment Adviser
believes that such issuers will honor their obligations or emerge from
bankruptcy protection and the value of these securities will appreciate. By
investing in securities of issuers in default, the Fund bears the risk that
these issuers will not continue to honor their obligations or emerge from
bankruptcy protection or that the value of the securities will not appreciate.
In addition to using recognized rating agencies and other sources, the
Investment Adviser also performs its own analysis of issues in seeking
investments that it believes to be underrated (and thus higher-yielding) in
light of the financial condition of the issuer. Its analysis of issuers may
include, among other things, current and anticipated cash flow and borrowing
requirements, value of assets in relation to historical cost, strength of
management, responsiveness to business conditions, credit standing and current
anticipated results of operations. In selecting investments for the Fund, the
Investment Adviser may also consider general business conditions, anticipated
changes in interest rates and the outlook for specific industries.
Subsequent to its purchase by the Fund, an issue of securities may cease
to be rated or its rating may be reduced. In addition, it is possible that
statistical rating agencies might not change their ratings of a particular issue
or reflect subsequent events on a timely basis. None of these events will
require the sale of the securities by the Fund, although the Investment Adviser
will consider these events in determining whether the Fund should continue to
hold the securities.
The market for certain lower rated and comparable unrated securities has
in the past experienced a major economic recession. The recession adversely
affected the value of such securities as well as the ability of certain issuers
of such securities to repay principal and pay interest thereon. The market for
those securities could react in a similar fashion in the event of any future
economic recession.
Options. A call option is a contract that, in return for a premium, gives
the holder of the option the right to buy from the writer of the call option the
security underlying the option at a specified exercise price at any time during
the term of the option. The writer of the call option has the obligation, upon
exercise of the option, to deliver the underlying security upon payment of the
exercise price during the option period. A put option is the reverse of a call
option, giving the holder the right to sell the security to the writer and
obligating the writer to purchase the underlying security from the holder.
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
held with its custodian. A put option is "covered" if the Fund maintains cash or
3
<PAGE>
other high grade short-term obligations with a value equal to the exercise price
in a segregated account held 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.
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 it 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 a closing purchase or sale transaction
can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in the
price of the underlying security, any loss resulting from the repurchase of a
call option may also be wholly or partially offset by unrealized appreciation of
the underlying security. Other principal factors affecting the market value of a
put or a call option include supply and demand, interest rates, the current
market price and price volatility of the underlying security and the time
remaining until the expiration date. Gains and losses on investments in options
depend, in part, on the ability of the Investment Adviser to predict correctly
the effect of these factors. The use of options cannot serve as a complete hedge
since the price movement of securities underlying the options will not
necessarily follow the price movements of the portfolio securities subject to
the hedge.
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.
In addition to options on securities, the Fund may also purchase and sell
call and put options on securities indexes. A stock index reflects in a single
number the market value of many different stocks. Relative values are assigned
to the stocks included in an index and the index fluctuates with changes in the
market values of the stocks. The options give the holder the right to receive a
cash settlement during the term of the option based on the difference between
the exercise price and the value of the index. By writing a put or call option
on a securities index, the Fund is obligated, in return for the premium
received, to make delivery of this amount. The Fund may offset its position in
stock index options prior to expiration by entering into a closing transaction
on an exchange or it may let the option expire unexercised.
The Fund also may buy or sell put and call options on foreign currencies.
A put option on a foreign currency gives the purchaser of the option the right
to sell a foreign currency at the exercise price until the option expires. A
call option on a foreign currency gives the purchaser of the option the right to
purchase the currency at the exercise price until the option expires. Currency
options traded on U.S. or other exchanges may be subject to position limits
which may limit the ability of the Fund to reduce foreign currency risk using
such options. Over-the-counter options differ from exchange-traded options in
that they are two-party contracts with price and other terms negotiated between
buyer and seller and generally do not have as much market liquidity as
exchange-traded options. Over-the-counter options are illiquid securities.
Use of options on securities indexes entails the risk that trading in the
options may be interrupted if trading in certain securities included in the
index is interrupted. The Fund will not purchase these options unless the
Investment Adviser is satisfied with the development, depth and liquidity of the
market and the Investment Adviser believes the options can be closed out.
Price movements in the portfolio of the Fund may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indexes cannot serve as a complete hedge and will depend, in part, on the
4
<PAGE>
ability of the Investment Adviser to predict correctly movements in the
direction of the stock market generally or of a particular industry. Because
options on securities indices require settlement in cash, the Investment Adviser
may be forced to liquidate portfolio securities to meet settlement obligations.
The Fund has qualified, and intends to continue to qualify, as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). One requirement for such qualification is that the Fund
must derive less than 30% of its gross income from 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.
Although the Investment Adviser will attempt to take appropriate measures
to minimize the risks relating to the Fund's writing of put and call options,
there can be no assurance that the Fund will succeed in any option-writing
program it undertakes.
Futures Contracts and Options on Futures. The Fund will not enter into
futures contracts or options on futures contracts unless (i) the aggregate
initial margins and premiums do not exceed 5% of the fair market value of its
assets and (ii) the aggregate market value of its outstanding futures contracts
and the market value of the currencies and futures contracts subject to
outstanding options written by the Fund, as the case may be, do not exceed 50%
of the market value of its total assets. It is anticipated that these
investments, if any, will be made by the Fund solely for the purpose of hedging
against changes in the value of its portfolio securities and in the value of
securities it intends to purchase. Such investments will only be made if they
are economically appropriate to the reduction of risks involved in the
management of the Fund. In this regard, the Fund may enter into futures
contracts or options on futures for the purchase or sale of securities indices
or other financial instruments including but not limited to U.S. Government
Securities.
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 "purchaser" 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 future time. Certain futures contracts, including stock and bond index
futures, are settled on a net cash payment basis rather than by the sale and
delivery of the securities underlying the futures contracts.
No consideration will be paid or received by the Fund upon the purchase or
sale of a futures contract. Initially, the Fund will be required to deposit with
the broker an amount of cash or cash equivalents equal to approximately 1% to
10% of the contract amount (this amount is subject to change by the exchange or
board of trade on which the contract is traded and brokers or members of such
board of trade may charge a higher amount). This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on the
contract. Subsequent payments, known as "variation margin," to and from the
broker will be made daily as the price of the index or security underlying the
futures contract fluctuates. At any time prior to the expiration of a futures
contract, the Fund may elect to close the position by taking an opposite
position, which will operate to terminate its existing position in the contract.
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 at a specified
exercise price at any time prior to the expiration of the option. Upon exercise
of an option, the delivery of the futures position by the writer of the option
to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account attributable to that contract,
which represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The potential loss related
to the purchase of an option on futures contracts is limited to the premium paid
for the option (plus transaction costs). Because the value of the option
purchased is fixed at the point of sale, there are no daily cash payments by the
purchaser to reflect changes in the value of the underlying contract; however,
the value of the option does change daily and that change would be reflected in
the net assets of the Fund.
Futures and options on futures entail certain risks, including but not
limited to the following: no assurance that futures contracts or options on
futures can be offset at favorable prices, possible reduction of the yield of
the Fund due to the use of hedging, possible reduction in value of both the
securities hedged and the hedging instrument, possible lack of liquidity due to
daily limits on price fluctuations, imperfect correlation between the contracts
and the securities being hedged, losses from investing in futures transactions
that are potentially unlimited and the segregation requirements described below.
5
<PAGE>
In the event the Fund sells a put option or enters into long futures
contracts, under current interpretations of the Investment Company Act of 1940,
as amended (the "1940 Act"), an amount of cash, U.S. Government Securities or
other high grade debt securities equal to the market value of the contract must
be deposited and maintained in a segregated account with the custodian of the
Fund to collateralize the positions, thereby ensuring that the use of the
contract is unleveraged. For short positions in futures contracts and sales of
call options, the Fund may establish a segregated account (not with a futures
commission merchant or broker) with cash, U.S. Government Securities or other
high grade debt securities that, when added to amounts deposited with a futures
commission merchant or a broker as margin, equal the market value of the
instruments or currency underlying the futures contracts or call options,
respectively (but are not less than the stock price of the call option or the
market price at which the short positions were established).
Forward Currency Transactions. The Fund may hold currencies to meet
settlement requirements for foreign securities and may engage in currency
exchange transactions to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which its securities are or may be denominated.
Forward currency contracts are agreements to exchange one currency for another
at a future date. The date (which may be any agreed-upon fixed number of days in
the future), the amount of currency to be exchanged and the price at which the
exchange takes place will be negotiated and fixed for the term of the contract
at the time that the Fund enters into the contract. Forward currency contracts
(1) are traded in a market conducted directly between currency traders
(typically, commercial banks or other financial institutions) and their
customers, (2) generally have no deposit requirements and (3) are typically
consummated without payment of any commissions. The Fund, however, may enter
into forward currency contracts requiring deposits or involving the payment of
commissions. To assure that its forward currency contracts are not used to
achieve investment leverage, the Fund will segregate liquid assets consisting of
cash, U.S. Government Securities or other liquid high grade debt obligations
with its custodian, or a designated sub-custodian, in an amount at all times
equal to or exceeding its commitment with respect to the contracts.
The dealings of the Fund in forward foreign exchange is limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of one forward foreign currency for another
currency with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities or its
payment of dividends and distributions. Position hedging is the purchase or sale
of one forward foreign currency for another currency with respect to portfolio
security positions denominated or quoted in the foreign currency to offset the
effect of an anticipated substantial appreciation or depreciation, respectively,
in the value of the currency relative to the U.S. dollar. In this situation, the
Fund also may, for example, enter into a forward contract to sell or purchase a
different foreign currency for a fixed U.S. dollar amount where it is believed
that the U.S. dollar value of the currency to be sold or bought pursuant to the
forward contract will fall or rise, as the case may be, whenever there is a
decline or increase, respectively, in the U.S. dollar value of the currency in
which its portfolio securities are denominated (this practice being referred to
as a "cross-hedge").
In hedging a specific transaction, the Fund may enter into a forward
contract with respect to either the currency in which the transaction is
denominated or another currency deemed appropriate by the Investment Adviser.
The amount the Fund may invest in forward currency contracts is limited to the
amount of its aggregate investments in foreign currencies.
The use of forward currency contracts may involve certain risks, including
the failure of the counterparty to perform its obligations under the contract,
and that such use may not serve as a complete hedge because of an imperfect
correlation between movements in the prices of the contracts and the prices of
the currencies hedged or used for cover. The Fund will only enter into forward
currency contracts with parties which it believes to be creditworthy
institutions.
When Issued, Delayed Delivery Securities and Forward Commitments. The Fund
may enter into forward commitments for the purchase or sale of securities,
including on a "when issued" or "delayed delivery" basis, in excess of customary
settlement periods for the type of security involved. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such as
approval and consummation of a merger, corporate reorganization or debt
restructuring, i.e., a when, as and if issued security. When such transactions
are negotiated, the price is fixed at the time of the commitment, with payment
and delivery taking place in the future, generally a month or more after the
date of the commitment. While it 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.
6
<PAGE>
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate with its custodian cash or liquid
high-grade debt securities in an aggregate amount at least equal to the amount
of its outstanding forward commitments.
Short Sales. The Fund may make short sales of securities. A short sale is
a transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. The market value of the
securities sold short of any one issuer will not exceed either 5% of the Fund's
total assets or 5% of such issuer's voting securities. The Fund will not make a
short sale, if, after giving effect to such sale, the market value of all
securities sold short exceeds 25% of the value of its assets or the Fund's
aggregate short sales of a particular class of securities exceeds 25% of the
outstanding securities of that class. The Fund may also make short sales
"against the box" without respect to such limitations. In this type of short
sale, at the time of the sale, the Fund owns, or has the immediate and
unconditional right to acquire at no additional cost, the identical security.
The Fund expects to make short sales both to obtain capital gains from
anticipated declines in securities and as a form of hedging to offset potential
declines in long positions in the same or similar securities. The short sale of
a security is considered a speculative investment technique.
When the Fund makes a short sale, it must borrow the security sold short
and deliver it to the broker-dealer through which it made the short sale in
order to satisfy its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. Government
Securities or other highly liquid debt securities. The Fund will also be
required to deposit similar collateral with its custodian to the extent, if any,
necessary so that the value of both collateral deposits in the aggregate is at
all times equal to the greater of the price at which the security is sold short
or 100% of the current market value of the security sold short. Depending on
arrangements made with the broker-dealer from which it borrowed the security
regarding the paying over of any payments received by the Fund on such security,
the Fund may not receive any payments (including interest) on its collateral
deposited with such broker-dealer. If the price of the security sold short
increases between the time of the short sale and the time the Fund replaces the
borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Any gain will be decreased, any
loss increased, by the transaction costs described above. Although the Fund's
gain is limited to the price at which it sold the security short, its potential
loss is theoretically unlimited.
To secure its obligations to deliver the securities sold short, the Fund
will deposit in escrow in a separate account with its custodian, State Street
Bank and Trust Company ("State Street"), an amount at least equal to the
securities sold short or securities convertible into, or exchangeable for, the
securities. The Fund may close out a short position by purchasing and delivering
an equal amount of 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.
INVESTMENT RESTRICTIONS
The Fund operates under the following restrictions that constitute
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act). All percentage limitations set forth below apply
immediately after a purchase or initial investment and any subsequent change in
any applicable percentage resulting from market fluctuations does not require
elimination of any security from the portfolio. The Fund may not:
1. Invest 25% or more of its total assets, taken at market value at
the time of each investment, in the securities of issuers in any particular
industry other than the telecommunications, media, publishing and
entertainment industries. This restriction does not apply to investments in
U.S. Government Securities.
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, if
more than 10% of the market value of the total assets of the Fund would be
invested in securities of other investment companies, more than 5% of the
market value of the total assets of the Fund would be invested in the
securities of any one investment company or the Fund would own more than
7
<PAGE>
3% of any other investment company's securities; provided, however, this
restriction shall not apply to securities of any investment company
organized by the Fund that are to be distributed pro rata as a dividend to
its stockholders.
3. Purchase or sell commodities or commodity contracts except that
the Fund may purchase or sell futures contracts and related options
thereon if immediately thereafter (i) no more than 5% of its total assets
are invested in margins and premiums and (ii) the aggregate market value
of its outstanding futures contracts and market value of the currencies
and futures contracts subject to outstanding options written by the Fund
do not exceed 50% of the market value of its total assets. The Fund may
not purchase or sell real estate, provided that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
4. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities.
5. Make loans of money, except by the purchase of a portion of
publicly distributed debt obligations in which the Fund may invest, and
repurchase agreements with respect to those obligations, consistent with
its investment objectives and policies. The Fund reserves the authority to
make loans of its portfolio securities to financial intermediaries in an
aggregate amount not exceeding 20% of its total assets. Any such loans
will only be made upon approval of, and subject to any conditions imposed
by, the Board of Directors of the Fund. Because these loans would at all
times be fully collateralized, the risk of loss in the event of default of
the borrower should be slight.
6. Borrow money, except that the Fund may borrow from banks and other
financial institutions on an unsecured basis, in an amount not exceeding
10% of its total assets, to finance the repurchase of its shares. See
"Common Stock -- Repurchase of Shares" in the Prospectus. The Fund also
may borrow money on a secured basis from banks as a temporary measure for
extraordinary or emergency purposes. Temporary borrowings may not exceed
5% of the value of the total assets of the Fund at the time the loan is
made. The Fund may pledge up to 10% of the lesser of the cost or value of
its total assets to secure temporary borrowings. The Fund will not borrow
for investment purposes. Immediately after any borrowing, the Fund will
maintain asset coverage of not less than 300% with respect to all
borrowings. While the borrowing of the Fund exceeds 5% of its respective
total assets, the Fund will make no further purchases of securities,
although this limitation will not apply to repurchase transactions as
described above.
7. Issue senior securities, as defined in the 1940 Act, or mortgage,
pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities it owns or holds except as may be necessary
in connection with borrowings mentioned in (6) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of the total
assets of the Fund taken at the lesser of cost or market value and except
that collateral arrangements with respect to the writing of options or any
other hedging activity shall not be deemed a pledge of assets or the
issuance of a senior security.
8. Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933, as amended,
in selling portfolio securities; provided, however, this restriction shall
not apply to securities of any investment company organized by the Fund
that are to be distributed pro rata as a dividend to its stockholders.
9. Invest more than 15% of its total assets in illiquid securities,
such as repurchase agreements with maturities in excess of seven days, or
securities that at the time of purchase have legal or contractual
restrictions on resale.
MANAGEMENT OF THE FUND
Directors and Officers
Overall responsibility for management and supervision of the Fund rests
with its Board of Directors. The Board of Directors approves all significant
agreements between the Fund and the companies that furnish the Fund with
services, including agreements with the Investment Adviser, the Fund's custodian
and the Fund's transfer agent. The day-to-day operations of the Fund are
delegated to the Investment Adviser.
8
<PAGE>
The names and business addresses of the Directors and principal officers
of the Fund are set forth in the following table, together with their positions
and their principal occupations during the past five years and, in the case of
the Directors, their positions with certain other organizations and companies.
Directors who are "interested persons" of the Fund, as defined by the 1940 Act,
are indicated by an asterisk.
<TABLE>
<CAPTION>
Position with Principal Occupation During
Name and Business Address (Age) the Fund Past Five Years
------------------------------- ------------- ----------------------------
<S> <C> <C>
Paul R. Ades (54) Director Partner in the law firm of Murov and Ades.
South Wellwood Avenue Director of one other registered investment
P.O. Box 504 company advised by the Investment Adviser.
Lindenhurst, New York 11757
Dr. Thomas E. Bratter (55) Director Director, President and Founder, The John
The John Dewey Academy Dewey Academy (residential college preparatory
Searles Castle therapeutic high school). Director of one other
Main Street registered investment company advised by the
Great Barrington, Investment Adviser.
Massachusetts 01230
Bill Callaghan (51) Director President of Bill Callaghan Associates Ltd., an
225 West 39th Street executive search company. Director of two other
New York, New York 10018 registered investment companies advised by the
Investment Adviser.
Felix J. Christiana (70) Director Retired; formerly Senior Vice President of
45 Pondfield Parkway Dollar Dry Dock Savings Bank. Director/
Mt. Vernon, New York 10552 Trustee of seven other registered investment
companies advised by the Investment Adviser.
James P. Conn (57) Director Managing Director of Financial Security
One Corporate Center Assurance since 1992; President and Chief
Rye, New York 10580-1434 Executive Officer of Bay Meadows Operating
Company from 1988 through 1992. Director/
Trustee of three other registered investment
companies advised by the Investment Adviser.
*Mario J. Gabelli (52) Chairman of the Chairman of the Board, Chief Executive Officer
One Corporate Center Board, President and Chief Investment Officer of the Investment
Rye, New York 10580-1434 and Chief Adviser; Chairman of the Board and Chief
Investment Officer Executive Officer of GAMCO Investors Inc.;
Chairman of the Board and Director of Lynch
Corporation; Director and Adviser of Gabelli
International Ltd. Director/Trustee of ten other
registered investment companies advised by the
Investment Adviser.
*Karl Otto Pohl (65) Director Partner of Sal. Oppenheim Jr. & Cie (private
One Corporate Center investment bank); President of the Deutsche
Rye, New York 10580-1434 Bundesbank and Chairman of its Central Bank
Council from 1980 through 1991; Currently
Board Member of Zurich Versicherungs-
Gesellschaft (Insurance); the International
Council for JP Morgan & Co.; Supervisory
Board Member of Royal Dutch; ROBECo/o
Group; and Advisory Director of Unilever N.V.
and Unilever Deutschland; German Governor of
The International Monetary Fund (1980-1991);
Board Member, Bank for International
Settlements (1980-1991); and Chairman of the
European Economic Community Central Bank
Governors (1990-1991). Director/Trustee of all
other registered investment companies advised
by the Investment Adviser.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation During
Name and Business Address (Age) the Fund Past Five Years
------------------------------- ------------- ----------------------------
<S> <C> <C>
Anthony R. Pustorino (69) Director Certified Public Accountant. Professor of
121 Arleigh Road Accounting, Pace University, since 1965.
Douglaston, New York 11363 Director, President and stockholder of Pustorino,
Puglisi & Co., P.C., certified public accountants,
from 1961 to 1990. Director/Trustee of six other
registered investment companies advised by the
Investment Adviser.
Salvatore J. Zizza (49) Director President and Chief Executive Officer of The
The Lehigh Group, Inc. Lehigh Group, Inc. (an electrical supply
810 Seventh Avenue, 27th Floor wholesaler). Director/Trustee of four other
New York, New York 10019 registered investment companies advised by the
Investment Adviser.
Bruce N. Alpert (43) Vice President and Vice President and Chief Financial and Administrative
One Corporate Center Treasurer Officer of the investment advisory
Rye, New York 10580-1434 division of the Investment Adviser since
June 1988; Chief Operating Officer, Vice
President and Treasurer of The Gabelli Value
Fund Inc. since September 1989; President and
Treasurer of The Gabelli Asset Fund and The
Gabelli Growth Fund; Vice President and
Treasurer of all other registered investment
companies advised by the Investment Adviser.
J. Hamilton Crawford, Jr. (65) Secretary Senior Vice President and General Counsel of
One Corporate Center the investment advisory division of the
Rye, New York 10580-1434 Investment Adviser; Secretary of the registered
investment companies advised by the Investment
Adviser. Attorney in private practice from
1990-1992; Executive Vice President and
General Counsel of Prudential Mutual Fund
Management, Inc. from 1988-1990.
Marc Diagonale (28) Vice President Client services representative of Gabelli &
One Corporate Center Company, Inc. since March 1993; masters of
Rye, New York 10580-1434 business administration student at New York
University from September 1990 to May 1992;
Vice President of The Gabelli Equity Trust Inc.
</TABLE>
----------
* "Interested person" of the Fund, as defined in the 1940 Act. Mr. Gabelli
is an "interested person" of the Fund as a result of his employment as an
officer of the Fund and the Investment Adviser. Mr. Gabelli is also a registered
representative of an affiliated broker-dealer. Mr. Pohl receives fees from the
Investment Adviser but has no obligation to provide any services to it. 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.
The Board of Directors of the Fund are divided into three classes, with a
class having a term of no more than three years. Each year the term of office of
one class of directors expires. See "Common Stock -- Certain Provisions of the
Articles of Incorporation and By-Laws of the Fund" in the Prospectus.
Remuneration of Directors and Officers
The Fund pays each Director who is not affiliated with the Investment
Adviser or its affiliates a fee of $3,000 per year plus $500 per Directors'
meeting attended, together with each Director's actual out-of-pocket expenses
relating to attendance at such meetings. In addition, if net assets of the Fund
equal or exceed $500 million, each such non-interested Director will receive a
fee of $500 per committee meeting attended and a fee of $500 per annum if the
Director serves as chair of a committee of the Fund's Board of Directors. The
aggregate remuneration paid by the Fund to such Directors during the period from
10
<PAGE>
November 15, 1994 (commencement of the Fund's operations) though December 31,
1994 amounted to $2,043.
Mr. Marc Diagonale, Vice President of the Fund, has performed stockholder
services on behalf of the Fund since it commenced operations. Mr. Diagonale also
performs similar services for The Gabelli Equity Trust Inc. His salary of
$90,000 per annum is borne by both funds, of which $10,000 is paid by the Fund.
The following table shows certain compensation information for the
Directors of the Fund for the current year ending December 31, 1995. None of the
Fund's executive officers and Directors who are also officers or directors of
the Investment Adviser will receive any compensation from the Fund for such
period.
<TABLE>
<CAPTION>
Total Estimated
Compensation From
Estimated Aggregate Pension or Retirement Estimated Annual Fund and Fund
Compensation from Benefits Accrued as Benefits Upon Complex Paid to
Name of Director Fund* Part of Fund Expenses Retirement Directors*+
------------------------------ ------------------ -------------------- --------------- ------------------
<S> <C> <C> <C> <C>
Paul R. Ades ................ $5,000 0 0 $19,000
Dr. Thomas E. Bratter ....... $5,000 0 0 $19,000
Bill Callaghan .............. $5,000 0 0 $33,000
Felix J. Christiana ......... $5,000 0 0 $73,500
James P. Conn ............... $5,000 0 0 $35,000
Karl Otto Pohl .............. $4,500 0 0 $72,250
Anthony R. Pustorino ........ $5,000 0 0 $80,750
Salvatore J. Zizza .......... $5,000 0 0 $40,000
</TABLE>
----------
* Includes future payments estimated to be paid to the Directors during 1995.
+ See "Principal Occupation During Past Five Years" in previous table for the
number of Boards of other registered investment companies advised by the
Investment Adviser on which such Director serves.
Limitation of Officers' and Directors' Liability
The By-Laws of the Fund provide that the Fund will indemnify its Directors
and officers and may indemnify its employees or agents against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Fund, to the fullest extent permitted by law
except that such indemnity shall not protect any such person against any
liability to the Fund or its stockholders to which such person 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. In
addition, the Articles of Incorporation of the Fund provide that the Fund's
Directors and officers will not be liable to stockholders for money damages,
except in limited instances. However, nothing in the Articles of Incorporation
or the By-Laws protects or indemnifies a Director, officer, employee or agent of
the Fund against any liability to which such person would otherwise be subject
in the event of such person's active or deliberate dishonesty which is material
to the cause of action or to the extent that the person received an improper
benefit or profit in money, property or services to the extent of such money,
property or services. In addition, indemnification is not permitted for any act
or omission committed in bad faith which is material to the cause of action or,
with respect to any criminal proceeding, if the person had reasonable cause to
believe that the act or omission was unlawful. In addition, indemnification may
not be provided in respect of any proceeding in which the person had been
adjudged to be liable to the Fund.
Investment Advisory and Administrative Arrangements
Gabelli Funds, Inc. acts as the Fund's investment adviser pursuant to an
advisory agreement with the Fund (the "Advisory Agreement"). Under the terms of
the Advisory Agreement, the Investment Adviser manages the portfolio of the Fund
in accordance with its stated investment objectives and policies, makes
investment decisions for the Fund, places orders to purchase and sell securities
on behalf of the Fund and manages its other business and affairs, all subject to
the supervision and direction of the Fund's Board of Directors. In addition,
under the Advisory Agreement, the Investment Adviser oversees the administration
of all aspects of the Fund's business and affairs and provides, or arranges for
others to provide, at the Investment Adviser's expense, certain enumerated
services, including maintaining the Fund's books and records, preparing reports
to the Fund's stockholders and supervising the calculation of the net asset
value of its shares. All expenses of computing the net asset value of the Fund,
11
<PAGE>
including any equipment or services obtained solely for the purpose of pricing
shares or valuing its investment portfolio, will be an expense of the Fund under
its Advisory Agreement. Notwithstanding the foregoing sentence, the Investment
Adviser does not currently intend for the Fund to incur such expenses and,
accordingly, until October 3, 1996 (a period of two years from the date of the
Advisory Agreement), the Investment Adviser will assume any expenses of
computing the Fund's net asset value payable under its Advisory Agreement. The
expenses of computing the net asset value of the Fund are anticipated to be
approximately $50,000 per year.
The Advisory Agreement combines investment advisory and administrative
responsibilities in one agreement. The Investment Adviser has in turn retained
Furman Selz Incorporated to act as sub-administrator to the Fund. See
"Management of the Fund -- Sub-Administrator" in the Prospectus.
For services rendered by the Investment Adviser on behalf of the Fund
under the Advisory Agreement, the Fund pays the Investment Adviser a fee
computed daily and paid monthly at the annual rate of 1.00% of the average
weekly net assets of the Fund. The fees payable under the Advisory Agreement are
higher than the fees payable by most registered investment companies.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties thereunder, the Investment Adviser is not liable for any
error or judgment or mistake of law or for any loss suffered by the Fund. As
part of the Advisory Agreement, the Fund has agreed that the name "Gabelli" is
the Investment Adviser's property, and that in the event the Investment Adviser
ceases to act as an investment adviser to the Fund, the Fund will change its
name to one not including the word "Gabelli."
Pursuant to its terms, the Advisory Agreement will remain in effect with
respect to the Fund until October 3, 1996, and from year to year thereafter if
approved annually (i) by the Fund's Board of Directors or by the holders of a
majority of its outstanding voting securities (as defined in the 1940 Act) and
(ii) by a majority of the Directors who are not "interested persons" (as defined
in the 1940 Act) of any party to the Advisory Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval. The Advisory
Agreement terminates automatically on its assignment and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act).
For the period from November 15, 1994 (commencement of the Fund's
operations) to December 31, 1994, the Investment Adviser was paid $83,054 for
advisory and administrative services rendered to the Fund.
Foreign Custodial Arrangements
Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities in the custody of certain eligible foreign banks and securities
depositories. Pursuant to those rules, any foreign securities in the portfolio
of the Fund may be held by subcustodians approved by the Directors of the Fund
in accordance with the regulations of the Commission.
Selection of any such subcustodians will be made by the Directors of the
Fund following a consideration of a number of factors, including but not limited
to the reliability and financial stability of the institution, the ability of
the institution to perform capably custodial services for the Fund, the
reputation of the institution in its national market, the political and economic
stability of the country or countries in which the subcustodians are located,
and risks of potential nationalization or expropriation of assets of the Fund.
In addition, the 1940 Act requires that certain foreign subcustodians, among
other things, have stockholders' equity in excess of $200 million, have no lien
on the Fund's assets and maintain adequate and accessible records.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is responsible for placing purchase and sale orders and the
allocation of brokerage on behalf of the Fund. Transactions in equity securities
are in most cases effected on U.S. stock exchanges and involve the payment of
negotiated brokerage commissions. In general, there may be no stated commission
in the case of securities traded in over-the-counter markets, but the prices of
those securities may include undisclosed commissions or mark-ups. Principal
transactions are not entered into with affiliates of the Fund. However, Gabelli
& Company, Inc. ("Gabelli & Company") may execute transactions in the
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over-the-counter markets on an agency basis and receive a stated commission
therefrom. To the extent consistent with applicable provisions of the 1940 Act
and the rules and exemptions adopted by the Commission thereunder, as well as
other regulatory requirements, the Fund's Board of Directors have determined
that portfolio transactions may be executed through Gabelli & Company and its
broker-dealer affiliates if, in the judgment of the Investment Adviser, the use
of those broker-dealers is likely to result in price and execution at least as
favorable as those of other qualified broker-dealers, and if, in particular
transactions, those broker-dealers charge the Fund a rate consistent with that
charged to comparable unaffiliated customers in similar transactions. The Fund
has no obligation to deal with any broker or group of brokers in executing
transactions in portfolio securities. In executing transactions, the Investment
Adviser seeks to obtain the best price and execution for the Fund, taking into
account such factors as price, size of order, difficulty of execution and
operational facilities of the firm involved and the firm's risk in positioning a
block of securities. While the Investment Adviser generally seeks reasonably
competitive commission rates, the Fund does not necessarily pay the lowest
commission available.
During the period from November 15, 1994 (commencement of the Fund's
operations) through December 31, 1994, the Fund paid $17,027 in brokerage
commissions. During the same period, the Fund paid to Gabelli & Company $2,595
in brokerage commissions, representing 15.2% of the total of all brokerage paid
during such period. Such commissions were paid with respect to 17.2% of the
total dollar value of all transactions involving the payment of brokerage
commissions effected during the period.
Subject to obtaining the best price and execution, brokers who provide
supplemental research, market and statistical information to the Investment
Adviser or its affiliates may receive orders for transactions by the Fund. The
term "research, market and statistical information" includes advice as to the
value of securities, and advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, and furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts. Information so received will be in addition to and not in lieu of
the services required to be performed by the Investment Adviser under the
Advisory Agreement and the expenses of the Investment Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information. Such information may be useful to the Investment Adviser and its
affiliates in providing services to clients other than the Fund, and not all
such information is used by the Investment Adviser in connection with the Fund.
Conversely, such information provided to the Investment Adviser and its
affiliates by brokers and dealers through whom other clients of the Investment
Adviser and its affiliates effect securities transactions may be useful to the
Investment Adviser in providing services to the Fund.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Investment Adviser and its
affiliates, investments of the kind made by the Fund may also be made by those
other accounts. When the same securities are purchased for or sold by the Fund
and any of such other accounts, it is the policy of the Investment Adviser and
its affiliates to allocate such purchases and sales in the manner deemed fair
and equitable to all of the accounts, including the Fund.
Portfolio Turnover
The Fund's portfolio turnover rate for the period from November 15, 1994
(commencement of the Fund's operations) through December 31, 1994 was 0%.
Portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities by the monthly average value
of securities in its portfolio during the year, excluding portfolio securities
the maturities of which at the time of acquisition were one year or less. The
ability of the Fund to enter into certain short-term transactions will be
limited by the requirement that certain gains on securities may not exceed 30%
of its annual gross income for federal income tax purposes. However, portfolio
turnover will not otherwise be a limiting factor in making investment decisions
for the Fund. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expense than a lower rate, which expense must be borne by
the Fund and its stockholders.
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
Under the Fund's Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan (the "Plan"), a stockholder whose shares of the Fund's common
stock, par value $.001 per share (the "Common Stock") is registered in his own
name will have all distributions reinvested automatically by State Street, which
is agent under the Plan, unless the stockholder elects to receive cash.
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Distributions with respect to shares registered in the name of a broker-dealer
or other nominee (that is, in "street name") will be reinvested by the broker or
nominee in additional shares under the Plan, unless the service is not provided
by the broker or nominee or the stockholder elects to receive distributions in
cash. Investors who own Common Stock registered in street name should consult
their broker-dealers for details regarding reinvestment. All distributions to
investors who do not participate in the Plan will be paid by check mailed
directly to the record holder by State Street as dividend disbursing agent.
Under the Plan, whenever the market price of the Common Stock is equal to
or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants in the Plan are issued shares of Common Stock,
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Common Stock. The valuation
date is the dividend or distribution payment date or, if that date is not a New
York Stock Exchange trading day, the next preceding trading day. If the net
asset value of the Common Stock at the time of valuation exceeds the market
price of the Common Stock, 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 the Common Stock for
such Plan 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
Common Stock 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 shares as
applicable. Such payments may be made in any amount from $250 to $3,000. State
Street will use all funds received from participants to purchase shares of the
Fund in the open market on or about February 15 and August 15 of each year. Any
voluntary 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 stockholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by stockholders for personal and tax records. Shares in the account of
each Plan participant will be held by State Street in noncertificated form in
the name of the participant. A Plan participant may send its share certificates
to State Street so that the shares represented by such certificates will be held
by State Street in the participant's stockholder account under the Plan.
In the case of stockholders 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
stockholder as representing the total amount registered in the stockholder's
name and held for the account of beneficial owners who participate in the Plan.
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 Plan members 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 the Plan participants. All correspondence concerning the Plan should
be directed to State Street at P.O. Box 8200, Boston, Massachusetts 02266-8200.
TAXATION
The following is a summary of certain material United States federal
income tax considerations regarding the purchase, ownership and disposition of
shares in the Fund. Each prospective stockholder is urged to consult his own tax
adviser with respect to the specific federal, state and local tax consequences
of investing in the Fund. The summary is based on the laws in effect on the date
of this SAI, which are subject to change.
The Fund has qualified and intends to continue to qualify and elect to be
treated as a regulated investment company for each taxable year under the Code.
To so qualify, the Fund must, among other things: (a) derive at least 90% of its
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gross income in each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stock or securities or foreign currencies, or other income (including, but not
limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
(b) derive less than 30% of its gross income in each taxable year from the sale
or other disposition of (i) stock or securities held for less than three months,
(ii) options, futures or forward contracts (other than options, futures or
forward contracts on foreign currencies) held for less than three months and
(iii) foreign currencies (or options, futures or forward contracts on such
foreign currencies) held for less than three months but only if such currencies
(or options, futures or forward contracts) are not directly related to the
Fund's principal business of investing in stock or securities (or options or
futures with respect to stock or securities); and (c) diversify its holdings so
that, at the end of each quarter of the Fund's taxable year, (i) at least 50% of
the market value of the Fund's assets is represented by cash, securities of
other regulated investment companies, U.S. Government Securities and other
securities, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the Fund's assets and not greater than 10% of
the outstanding voting securities of such issuer and (ii) not more than 25% of
the value of its assets is invested in the securities (other than U.S.
Government Securities or securities of other regulated investment companies) of
any one issuer or any two or more issuers that the Fund controls and are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. The Fund expects that all of its foreign currency gains
will be directly related to its principal business of investing in stocks and
securities.
Legislation that would repeal the 30% limitation on a regulated
investment company's ability to make short-term investments is currently being
considered by Congress.
As a regulated investment company, the Fund will not be subject to United
States federal income tax on its net investment income (i.e., income other than
its net realized long- and short-term capital gains) and its net realized long-
and short-term capital gains, if any, that it distributes to its stockholders,
provided that an amount equal to at least 90% of its investment company taxable
income (i.e., 90% of its taxable income minus the excess, if any, of its net
realized long-term capital gains over its net realized short-term capital losses
(including any capital loss carryovers), plus or minus certain other adjustments
as specified in section 852 of the Code) for the taxable year is distributed,
but will be subject to tax at regular corporate rates on any income or gains
that it does not distribute. Furthermore, the Fund will be subject to a United
States corporate income tax with respect to such distributed amounts in any year
that it fails to qualify as a regulated investment company or fails to meet this
distribution requirement. Any dividend declared by the Fund in October, November
or December of any calendar year and payable to stockholders of record on a
specified date in such a month shall be deemed to have been received by each
stockholder on December 31 of such calendar year and to have been paid by the
Fund not later than such December 31, provided that such dividend is actually
paid by the Fund during January of the following calendar year.
Dividends paid from net investment income are taxable to stockholders as
ordinary income whether or not reinvested in shares of the Fund. Distributions
by the Fund of the excess, if any, of net long-term capital gains over net
short-term capital losses will be taxable to stockholders as long-term capital
gains regardless of how long stockholders have held shares of the Fund and will
not be eligible for the dividends-received deduction for corporations. As a
general rule, gain or loss on a sale of shares held for more than one year will
be a long-term capital gain or loss, and gain or loss on a sale of shares held
for one year or less will be a short-term capital gain or loss.
If the Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are included in
the Fund's gross income not as of the date received but as of the later of (i)
the date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (ii) the date the Fund acquired such stock.
Capital Gain Distributions
If a stockholder receives a distribution taxable as long-term capital gain
with respect to shares of the Fund and such shares are sold within six months of
their acquisition, any loss on the sale will be treated as a long-term capital
loss to the extent of such prior capital gain distributions with respect to such
shares.
The Fund reserves the right, but does not currently intend, to retain for
reinvestment net long-term gains in excess of net short-term capital losses and
the Fund will be subject to a corporate tax (currently at a rate of 35%) on the
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retained amount, if any. The Fund would designate such retained amounts as
undistributed capital gains. As a result, such amounts would be taxed to
stockholders as long-term capital gains and stockholders would be able to claim
their proportionate shares of the federal income taxes paid by the Fund on such
gains as a credit against their own federal income tax liabilities, and would be
entitled to increase the adjusted tax basis of their shares of the Fund by 65%
of their undistributed capital gains and their tax credit. Qualified pension and
profit sharing funds, certain trusts and other organizations or persons not
subject to federal income tax on capital gains and certain non-resident alien
individuals and foreign corporations would be entitled to a refund of their pro
rata share of such taxes paid by the Fund upon filing appropriate returns or
claims for refund with the proper tax authorities. Failure by such entities and
their sponsors or responsible fiduciaries to properly account for such refund
could result in adverse federal income tax consequences.
Backup Withholding
If a stockholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is not
subject to backup withholding, then the stockholder may be subject to a 31%
backup withholding tax with respect to (i) any taxable dividends and
distributions and (ii) any proceeds of any redemption or exchange of portfolio
shares. An individual's taxpayer identification number is his social security
number. The 31% backup withholding tax is not an additional tax and may be
credited against a taxpayer's regular federal income tax liability.
Dividends received by corporate stockholders from the Fund will generally
qualify for the federal dividends-received deduction for domestic corporate
stockholders to the extent the dividends do not exceed the aggregate amount of
dividends received by the Fund from qualified domestic corporations. If
securities held by the Fund are considered to be "debt-financed" (generally,
acquired with borrowed funds), are held by the Fund for less than 46 days (91
days in the case of certain preferred stock), or are subject to certain forms of
hedges, the portion of the dividends paid by the Fund that corresponds to the
dividends paid with respect to the securities will not be eligible for the
corporate dividends-received deduction.
The Fund sends written statements and notices to its stockholders
regarding the tax status of all dividends and distributions made during each
calendar year.
Dividend and capital gain distributions may also be subject to state and
local taxes. Stockholders are urged to consult their attorneys or tax advisors
regarding specific questions as to federal, state or local taxes. Non-U.S.
stockholders are urged to consult their own tax advisors concerning the
applicability of the United States withholding tax.
Other Tax Consequences
In addition to the federal income tax consequences described above, which
are applicable to an investment in the Fund, there may be other federal, state
or local tax considerations applicable to the circumstances of a particular
investor. The foregoing discussion is based upon the Code, judicial decisions
and administrative regulations, rulings and practices, all of which are subject
to change and which, if changed, may be applied retroactively to the Fund, its
stockholders and/or its assets. No rulings have been sought from the Internal
Revenue Service with respect to any of the tax matters discussed above.
NET ASSET VALUE
The net asset value of the Fund's shares is computed based on the market
value of the securities it holds and determined daily as of the close of regular
trading on the New York Stock Exchange and reported in financial newspapers of
general circulation as of the last day of each week.
Portfolio securities which are traded only on stock exchanges are valued
at the last sale price as of the close of regular trading on the day the
securities are being valued, or lacking any sales, at the mean between closing
bid and asked prices. Securities traded in the over-the-counter market which are
Nasdaq National Market securities are valued at the last sale price as of the
close of regular trading on the day the securities are being valued. Other
over-the-counter securities are valued at the most recent bid prices as obtained
from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market, as
determined by the Investment Adviser. Securities traded primarily on foreign
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exchanges are valued at the closing values of such securities on their
respective exchanges as of the day the securities are being valued. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Directors of the Fund. Short-term investments that mature in 60 days or less are
valued at amortized cost, unless the Board of Directors of the Fund determines
that such valuation does not constitute fair value.
Net asset value per share is calculated by dividing the value of the
securities held plus any cash or other assets minus all liabilities, including
accrued expenses, by the total number of shares outstanding at such time.
BENEFICIAL OWNER
There are no persons known to the Fund who may be deemed beneficial owners
of 5% or more of shares of the Fund's Common Stock because they possessed or
shared voting or investment power with respect to shares of the Fund's Common
Stock. The officers and Directors of the Fund, in the aggregate, own less than
1% of the outstanding shares of the Fund's Common Stock.
FINANCIAL STATEMENTS
The Fund's Annual Report for the period from November 15, 1994
(commencement of the Fund's operations) through December 31, 1994 (the
"Report"), which either accompanies this SAI or has previously been provided to
the person to whom the Prospectus is being sent, is incorporated herein by
reference with respect to all information other than the information set forth
in the Letter to Stockholders included therein. The Fund will furnish, without
charge, a copy of its Report, upon request to the Fund at One Corporate Center,
Rye, New York 10580 or by telephone at (914) 921-5070.
