<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1997
SECURITIES ACT FILE NO. 333-25487
INVESTMENT COMPANY ACT FILE NO. 811-8476
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
------------------------
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 2
[ ] POST-EFFECTIVE AMENDMENT NO.
AND/OR
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 AMENDMENT NO. 3
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
ONE CORPORATE CENTER
RYE, NEW YORK 10580-1434
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 422-3554
BRUCE N. ALPERT
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
ONE CORPORATE CENTER
RYE, NEW YORK 10580-1434
(914) 921-5100
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
RICHARD T. PRINS, ESQ. JAMES E. MCKEE, ESQ. GARY S. SCHPERO, ESQ.
SKADDEN, ARPS, SLATE, THE GABELLI GLOBAL SIMPSON THACHER & BARTLETT
MEAGHER & FLOM LLP MULTIMEDIA TRUST INC. 425 LEXINGTON AVENUE
919 THIRD AVENUE ONE CORPORATE CENTER NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10022 RYE, NEW YORK 10580-1434 (212) 455-2000
(212) 735-3000 (914) 921-5100
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, as amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate
box)
[ ] When declared effective pursuant to section 8(c).
If appropriate, check the following box:
[ ] This [post-effective] amendment designates a new effective date for a
previously filed [post-effective amendment] [registration statement].
[ ] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
============================================================================================================
PROPOSED
MAXIMUM
PROPOSED AGGREGATE
AMOUNT BEING MAXIMUM OFFERING OFFERING AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED REGISTERED PRICE PER SHARE PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Cumulative Preferred Stock.......... 1,250,000 Shares $25 $31,250,000 $9,470(2)
============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $9,091 previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
CROSS-REFERENCE SHEET
PURSUANT TO RULE 481(a)
<TABLE>
<CAPTION>
N-2 ITEM NUMBER LOCATION IN PART A (CAPTION)
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<C> <S> <C>
PART A
1. Outside Front Cover....................... Outside Front Cover Page
2. Inside Front and Outside Back Cover
Page.................................... Outside Front Cover Page; Inside Front Cover
Page
3. Fee Table and Synopsis.................... Not Applicable
4. Financial Highlights...................... Financial Highlights
5. Plan of Distribution...................... Outside Front Cover Page; Prospectus Summary;
Underwriting
6. Selling Shareholders...................... Not Applicable
7. Use of Proceeds........................... Use of Proceeds; Investment Objectives and
Policies
8. General Description of the Registrant..... Outside Front Cover Page; Prospectus Summary;
The Fund; Investment Objectives and Policies;
Other Investments; Special Investment Methods;
Risk Factors & Special Considerations;
Description of Cumulative Preferred Stock
9. Management................................ Outside Prospectus Summary; Management of the
Fund; Custodian, Transfer Agent and
Dividend-Disbursing Agent
10. Capital Stock, Long-Term Debt, and Other
Securities.............................. Outside Front Cover Page; Prospectus Summary;
Capitalization; Investment Objectives and
Policies; Description of Cumulative Preferred
Stock; Description of Capital Stock and Other
Securities; Taxation
11. Defaults and Arrears on Senior
Securities.............................. Not Applicable
12. Legal Proceedings......................... Not Applicable
13. Table of Contents of the Statement of
Additional Information.................. Table of Contents of the Statement of Additional
Information
PART B LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
------------------------------------------------
Outside Front Cover Page
14. Cover Page................................
Outside Front Cover Page
15. Table of Contents.........................
The Fund
16. General Information and History...........
Investment Objectives and Policies; Investment
17. Investment Objectives and Policies........ Restrictions
Management of the Fund
18. Management................................
19. Control Persons and Principal Holders of Management of the Fund; Beneficial Owner
Securities..............................
The Adviser
20. Investment Advisory and Other Services....
21. Brokerage Allocation and Other Portfolio Transactions
Practices...............................
Taxation
22. Tax Status................................
Financial Statements
23. Financial Statements......................
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 29, 1997
PROSPECTUS
1,250,000 SHARES
THE GABELLI GLOBAL
MULTIMEDIA TRUST INC.
% CUMULATIVE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25 PER SHARE)
[GABELLI GLOBAL LOGO]
------------------------
The % Cumulative Preferred Stock, liquidation preference $25 per share
(the "Cumulative Preferred Stock"), to be issued by The Gabelli Global
Multimedia Trust Inc. (the "Fund") will be senior securities of the Fund. Prior
to this offering, there has been no public market for the Cumulative Preferred
Stock. The Fund is a closed-end non-diversified management investment company.
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. Gabelli Funds, Inc. is the Fund's investment adviser.
Dividends on the Cumulative Preferred Stock offered hereby, at the annual
rate of % of the liquidation preference of $25 per share, are cumulative
from the Date of Original Issue thereof and are payable semi-annually on June 26
and December 26 in each year, commencing on December 26, 1997.
During the Fund's last two fiscal years, distributions paid by the Fund on
its Common Stock have consisted of Ordinary Income Dividends (as defined below)
and Capital Gain Dividends (as defined below), and under current market
conditions it is expected that dividends paid on the Cumulative Preferred Stock
similarly will consist of Ordinary Income Dividends and Capital Gain Dividends.
No assurance can be given, however, as to what percentage, if any, of the
dividends paid on the Cumulative Preferred Stock will be Capital Gain Dividends.
It is a condition to its issuance that the Cumulative Preferred Stock be
rated 'aaa' by Moody's Investors Service, Inc. ("Moody's"). In connection with
the receipt of such rating, the composition of the Fund's portfolio must reflect
guidelines established by Moody's and the Fund will be required to maintain a
minimum discounted asset coverage with respect to the Cumulative Preferred
Stock. See "Description of Cumulative Preferred Stock -- Rating Agency
Guidelines."
The Cumulative Preferred Stock is subject to mandatory redemption in whole
or in part by the Fund for cash at a price equal to $25 per share plus
accumulated but unpaid dividends (whether or not earned or declared) (the
"Redemption Price") if the Fund fails to maintain either of the minimum asset
coverages required by Moody's and the Investment Company Act of 1940, as
amended. Commencing June 1, 2002 and thereafter, the Fund at its option may
redeem the Cumulative Preferred Stock in whole or in part for cash at a price
equal to the Redemption Price. Prior to June 1, 2002, the Cumulative Preferred
Stock will be redeemable, at the option of the Fund, for cash at a price equal
to the Redemption Price, only to the extent necessary for the Fund to continue
to qualify for tax treatment as a regulated investment company. See "Description
of Cumulative Preferred Stock -- Redemption."
(Continued on next page)
APPLICATION HAS BEEN MADE TO LIST THE CUMULATIVE PREFERRED STOCK ON THE NEW YORK
STOCK EXCHANGE (THE "NYSE"). TRADING OF THE CUMULATIVE PREFERRED STOCK ON THE
NYSE IS EXPECTED TO COMMENCE WITHIN 30 DAYS OF THE DATE OF THIS PROSPECTUS. SEE
"UNDERWRITING."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS
PUBLIC(1) OR COMMISSIONS(2) TO FUND(3)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------------------------------------------
Total(3) $ $ $
=======================================================================================================
</TABLE>
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) The Fund and the Adviser have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended.
(3) Before deducting offering expenses payable by the Fund, estimated at
$429,625.
------------------------
The shares of Cumulative Preferred Stock are being offered by the
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that delivery of the
shares of Cumulative Preferred Stock will be made in book-entry form through the
facilities of The Depository Trust Company on or about June , 1997.
------------------------
SMITH BARNEY INC. GABELLI & COMPANY, INC.
May , 1997
<PAGE> 4
This Prospectus sets forth certain information about the Fund an investor
should know before investing and should be retained for future reference.
A Statement of Additional Information dated May , 1997 (the "SAI") has
been filed with the Securities and Exchange Commission and is incorporated by
reference in this Prospectus. The table of contents of the SAI appears on page
36 of this Prospectus. A copy of the SAI may be obtained without charge by
writing to the Fund at its address at One Corporate Center, Rye, New York
10580-1434 or calling the Fund toll-free at (800) 422-3554.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CUMULATIVE
PREFERRED STOCK OF THE FUND, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE
COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to the
more detailed information included elsewhere in this Prospectus and the SAI.
Capitalized terms not defined in this Summary are defined in the Glossary that
appears at the end of this Prospectus.
The Fund................... The Fund has been engaged in business as a
closed-end non-diversified management investment
company since November 15, 1994.
Investment Objectives...... 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
NYSE. As of March 31, 1997, the net assets of the
Fund were approximately $91 million.
Special Characteristics
and 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 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."
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."
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."
The market price for the Cumulative Preferred Stock
will be influenced by changes in interest rates,
the perceived credit quality of the Cumulative
Preferred Stock and other factors. As indicated
above, the Cumulative Preferred Stock is subject
to redemption under specified circumstances.
Subject to such circumstances, the Cumulative
Preferred Stock is perpetual. The credit rating
on the Cumulative Preferred Stock could be
reduced or withdrawn while an investor holds
shares, and the credit rating does not eliminate
or mitigate the risks of investing in the
Cumulative Preferred Stock. A reduction or
withdrawal of the credit rating would likely have
an adverse effect on the market value of the
Cumulative Preferred Stock. The Cumulative
3
<PAGE> 6
Preferred Stock is not an obligation of the Fund.
Although unlikely, precipitous declines in the
value of the Fund's assets could result in the
Fund having insufficient assets to redeem all of
the Cumulative Preferred Stock for the full
Redemption Price.
The Fund may also purchase or sell options, engage
in transactions in financial futures and options
thereon, engage in short sales of securities it
owns or has the right to acquire, enter into
repurchase agreements and forward foreign
currency exchange contracts, lend its portfolio
securities to securities broker-dealers or
financial institutions and borrow money for
short-term credits from banks as may be necessary
for temporary or emergency purposes. These
techniques may involve special risks. See
"Special Investment Methods."
The Offering............... The Fund is offering 1,250,000 shares of %
Cumulative Preferred Stock, par value $.001 per
share, liquidation preference $25 per share (the
"Cumulative Preferred Stock"), at a purchase
price of $25 per share (the "Offering").
Dividends.................. Dividends on the Cumulative Preferred Stock, at the
annual rate of % of the liquidation preference,
are cumulative from the Date of Original Issue
and are payable, when, as and if declared by the
Board of Directors of the Fund, out of funds
legally available therefor, semi-annually on June
26 and December 26 in each year, commencing
December 26, 1997. The Fund may from time to
time, at its option, pay dividends on the
Cumulative Preferred Stock on a quarterly basis
at the annual rate of %. See "Description of
Cumulative Preferred Stock -- Dividends."
Potential Tax Benefit to
Certain Investors........ The Fund intends to allocate net capital gain (the
excess of its net long-term capital gain over its
net short-term capital loss) income, as well as
other types of income, proportionately among
holders of shares of Common Stock and shares of
Cumulative Preferred Stock in accordance with the
current position of the Internal Revenue Service
(the "IRS"). During the Fund's last two fiscal
years, distributions paid by the Fund have
consisted of dividends paid out of the Fund's net
investment income which includes net short-term
capital gain ("Ordinary Income Dividends") and
dividends paid out of the Fund's net capital gain
("Capital Gain Dividends") and it is expected
that under current market conditions dividends
paid on the Cumulative Preferred Stock will
likewise consist of both Ordinary Income
Dividends and Capital Gain Dividends.
Accordingly, certain investors in the Cumulative
Preferred Stock may realize a tax benefit to the
extent that dividends paid by the Fund on those
shares are Capital Gain Dividends since such
dividends are taxed at long-term capital gain
rates. See "-- Ordinary Income Equivalent Yield
Tables." Subject to statutory limitations,
investors may also be entitled to offset the
portion of a Cumulative Preferred Stock dividend
which is a Capital Gain Dividend with capital
losses incurred by such investors. See
"Taxation." No assurance can be given, however,
as to what percentage, if any, of
4
<PAGE> 7
the dividends paid on the Cumulative Preferred
Stock will be Capital Gain Dividends. To the
extent that dividends on the shares of Cumulative
Preferred Stock are not Capital Gain Dividends,
they will be Ordinary Income Dividends and will
be taxed at ordinary rates or treated as a return
of capital.
Rating..................... It is a condition to issuance that the Cumulative
Preferred Stock be issued with a rating of 'aaa'
from Moody's. The Articles Supplementary creating
and fixing the rights and preferences of the
Cumulative Preferred Stock (the "Articles
Supplementary") contain certain provisions which
reflect guidelines established by Moody's (the
"Rating Agency Guidelines") in order to obtain
such rating on the Cumulative Preferred Stock on
the Date of Original Issue. See "Description of
Cumulative Preferred Stock -- Rating Agency
Guidelines."
Asset Coverage............. In order to maintain the 'aaa' rating on the
Cumulative Preferred Stock, the Fund will be
required to maintain Adjusted Assets greater than
or equal to the Basic Maintenance Amount in
accordance with discount factors and guidelines
established by Moody's. In addition, the Fund
will be required to maintain as of the last
Business Day of each March, June, September and
December of each year, an asset coverage of at
least 200% (or such higher or lower percentage as
may be required at the time under the 1940 Act)
with respect to all outstanding senior securities
of the Fund which are stock, including the
Cumulative Preferred Stock. See "Description of
Cumulative Preferred Stock -- Asset Maintenance."
Voting Rights.............. At all times, holders of shares of Cumulative
Preferred Stock or any other Preferred Stock,
voting as a single class, will be entitled to
elect two members of the Fund's Board of
Directors, and holders of Cumulative Preferred
Stock, any other Preferred Stock and Common
Stock, voting as a single class, will elect the
remaining directors. However, upon a failure by
the Fund to pay dividends on the Cumulative
Preferred Stock or any other Preferred Stock in
an amount equal to two full years' dividends,
holders of Cumulative Preferred Stock and any
other Preferred Stock of the Fund, voting as a
single class, will have the right to elect the
smallest number of directors that would
constitute a majority of the directors until all
cumulative dividends have been paid or provided
for. Holders of Cumulative Preferred Stock and
any other Preferred Stock will vote separately as
a class on certain other matters, as required
under the Articles Supplementary, the 1940 Act
and Maryland law. Except as otherwise indicated
in this Prospectus and as otherwise required by
applicable law, holders of Cumulative Preferred
Stock will be entitled to one vote per share on
each matter submitted to a vote of shareholders
and will vote together with holders of shares of
Common Stock and any other Preferred Stock as a
single class. See "Description of Cumulative
Preferred Stock -- Voting Rights."
Mandatory Redemption....... The Cumulative Preferred Stock is subject to
mandatory redemption in whole or in part by the
Fund in the event that the Fund fails to maintain
Adjusted Assets equal to or greater than the
Basic Maintenance Amount or fails to maintain
Asset Coverage and does not cure such failure by
the applicable cure date. Any such redemption
will be made for cash at a price equal to $25 per
share plus accumulated and
5
<PAGE> 8
unpaid dividends (whether or not earned or
declared) to the redemption date (the "Redemption
Price"). The Fund may, but is not required to,
redeem a sufficient number of shares of
Cumulative Preferred Stock so that Adjusted
Assets of the remaining outstanding shares of
Cumulative Preferred Stock and any other
Preferred Stock after redemption is as high as
110% of the Basic Maintenance Amount and the
asset coverage, as defined in the 1940 Act, of
the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock is
as high as 220%. See "Description of Cumulative
Preferred Stock -- Redemption -- Mandatory
Redemption."
Optional Redemption........ Commencing June 1, 2002 and thereafter, the Fund at
its option may redeem the Cumulative Preferred
Stock, in whole or in part, for cash at a price
per share equal to the Redemption Price. Prior to
June 1, 2002, the Cumulative Preferred Stock will
be redeemable at the option of the Fund at the
Redemption Price only to the extent necessary for
the Fund to continue to qualify for tax treatment
as a regulated investment company. See
"Description of Cumulative Preferred
Stock -- Redemption -- Optional Redemption."
Liquidation Preference..... The liquidation preference of each share of
Cumulative Preferred Stock is $25 plus an amount
equal to accumulated and unpaid dividends
(whether or not earned or declared) to the date
of distribution. See "Description of Cumulative
Preferred Stock -- Liquidation Rights."
Use of Proceeds............ The Fund will use the net proceeds from the
Offering to purchase additional portfolio
securities in accordance with its investment
objectives and policies. See "Use of Proceeds."
Listing.................... Prior to the Offering, there has been no public
market for the Cumulative Preferred Stock.
Application has been made to list the shares of
Cumulative Preferred Stock on the NYSE. However,
during an initial period which is not expected to
exceed 30 days after the date of this Prospectus,
the Cumulative Preferred Stock will not be listed
on any securities exchange. During such period,
the Underwriters intend to make a market in the
Cumulative Preferred Stock; however, they have no
obligation to do so. Consequently, an investment
in the Cumulative Preferred Stock may be illiquid
during such period.
Federal Income Tax
Considerations........... The Fund has qualified, and intends to remain
qualified, for Federal income tax purposes, as a
regulated investment company. Qualification
requires, among other things, compliance by the
Fund with certain distribution requirements.
Statutory limitations on distributions on the
Common Stock if the Fund fails to satisfy the
1940 Act's asset coverage requirements could
jeopardize the Fund's ability to meet the
distribution requirements. The Fund presently
intends, however, to purchase or redeem the
Cumulative Preferred Stock to the extent
necessary in order to maintain compliance with
such asset coverage requirements. See "Taxation"
for a more complete discussion of these and other
Federal income tax considerations.
Management and Fees........ Gabelli Funds, Inc. serves as the Fund's investment
adviser (the "Adviser") and is compensated for
its services and its related expenses at an
annual rate of 1.00% of the Fund's average daily
net assets. This fee is higher than that paid by
most mutual funds. The Adviser is
6
<PAGE> 9
responsible for administration of the Fund and
currently utilizes and pays the fees of a third
party administrator. Notwithstanding the
foregoing, the Adviser will waive the portion of
its investment advisory fee attributable to an
amount of assets of the Fund equal to the
aggregate stated value of the Cumulative
Preferred Stock for any calendar year in which
the total return of the Fund, including
distributions and the advisory fee subject to
potential waiver, allocable to the Common Stock
is less than the stated dividend rate of the
Cumulative Preferred Stock.
Repurchase of
Common Stock, and
Anti-takeover
Provisions............... The Fund is authorized, subject to maintaining
required asset coverage on the Cumulative
Preferred Stock, to repurchase its Common Stock
on the open market when the shares are trading at
a discount of 10% or more (or such other
percentage as its Board of Directors may
determine from time to time) from their net asset
value. In addition, certain provisions of the
Fund's Articles of Incorporation (the "Charter")
and By-Laws may be regarded as "anti-takeover"
provisions. Pursuant to these provisions, only
one of three classes of directors is elected each
year, and the affirmative vote of the holders of
66 2/3% of the outstanding shares of each class
of stock of the Fund and a majority (as defined
in the 1940 Act) of the shares of Preferred Stock
is necessary to authorize the conversion of the
Fund from a closed-end to an open-end investment
company and an affirmative vote of 66 2/3% of
each class of its outstanding voting shares of
the Fund may be necessary to authorize certain
business transactions with any beneficial owner
of more than 5% of the outstanding shares of the
Fund. The overall effect of these provisions is
to render more difficult the accomplishment of a
merger with, or the assumption of control by, a
principal shareholder. These provisions may have
the effect of depriving Fund shareholders of an
opportunity to sell their shares at a premium to
the prevailing market price. See "Certain
Provisions of the Charter and By-Laws."
Custodian, Transfer and
Dividend-Disbursing Agent
and Registrar............ State Street Bank and Trust Company serves as the
Fund's custodian and, with respect to the
Cumulative Preferred Stock, as transfer and
dividend disbursing agent and registrar and as
agent to provide notice of redemption and certain
voting rights. See "Custodian, Transfer and
Dividend-Disbursing Agent and Registrar."
7
<PAGE> 10
ORDINARY INCOME EQUIVALENT YIELD TABLES
Over the Fund's last two fiscal years, distributions paid by the Fund on
its Common Stock have consisted, on average, of 42% Capital Gain Dividends which
are taxed at long-term capital gain rates, and 58% Ordinary Income Dividends
which are taxed at ordinary income rates.(1) Cumulative Preferred Stock
investors who are in a Federal marginal income tax bracket higher than the
current 28.0% maximum Federal tax rate on long-term capital gain would realize a
tax advantage on their investment to the extent that distributions by the Fund
to its shareholders continue to be partially composed of the more favorably
taxed Capital Gain Dividends.
The following table shows examples of the pure ordinary income equivalent
yield that would be generated by the indicated dividend rates on the Cumulative
Preferred Stock, assuming distributions consisting of four different proportions
of Capital Gain Dividends and Ordinary Income Dividends for an investor in the
39.6% Federal marginal tax bracket and assuming no change in the current maximum
Federal long-term capital gain tax rate of 28.0%.
<TABLE>
<CAPTION>
PERCENTAGE OF CUMULATIVE PREFERRED A CUMULATIVE PREFERRED STOCK
STOCK DIVIDENDS COMPOSED OF* DIVIDEND RATE OF
- ---------------------------------------- ---------------------------------
7.50% 7.75% 8.00%
CAPITAL GAIN ORDINARY INCOME IS EQUIVALENT TO A ORDINARY
DIVIDEND DIVIDEND INCOME YIELD OF
- ---------------- --------------- ---------------------------------
<S> <C> <C> <C> <C>
25% 75% 7.86% 8.12% 8.38%
35% 65% 8.00% 8.27% 8.54%
45% 55% 8.15% 8.42% 8.69%
55% 45% 8.29% 8.57% 8.85%
65% 35% 8.44% 8.72% 9.00%
75% 25% 8.58% 8.87% 9.15%
</TABLE>
- ---------------
(1)
<TABLE>
<CAPTION>
PERCENTAGE COMPOSITION OF COMMON STOCK DISTRIBUTION
-----------------------------------------------------------
CAPITAL ORDINARY
YEAR GAIN DIVIDEND INCOME DIVIDEND
---------------------- ------------- ---------------
<S> <C> <C>
1995.................. 7% 93%
1996.................. 76% 24%
</TABLE>
* A number of factors could affect the composition of the Fund's distributions
to holders of the Cumulative Preferred Stock. Such factors include (i) active
management of the Fund's assets may result in varying proportions of Capital
Gain Dividends, Ordinary Income Dividends and/or return of capital in Fund
distributions; and (ii) the continued effectiveness of an IRS revenue ruling
requiring the proportionate allocation of Capital Gain Dividends among
distributions to holders of various classes of capital stock.
As illustrated in the table below, the yield advantage of the lower Federal
long-term capital gain tax rate would be diminished for investors in tax
brackets below the 39.6% rate assumed in the table above, and there would be no
effect on the yield for an investor in a Federal marginal income tax bracket of
28.0% or lower. Assuming Cumulative Preferred Stock dividends composed of 40%
Capital Gain Dividends and 60% Ordinary
8
<PAGE> 11
Income Dividends, the following table shows the ordinary income equivalent
yields that would be generated at the indicated dividend rates for taxpayers in
the indicated tax brackets.
<TABLE>
<CAPTION>
A CUMULATIVE PREFERRED STOCK
DIVIDEND RATE OF
-----------------------------------
7.50% 7.75% 8.00%
IS EQUIVALENT TO AN ORDINARY INCOME
1996 FEDERAL TAX BRACKET(1) YIELD OF
------------------------------------------ -----------------------------------
<S> <C> <C> <C>
39.6%..................................... 8.08% 8.35% 8.61%
36.0%..................................... 7.88% 8.14% 8.40%
31.0%..................................... 7.63% 7.88% 8.14%
28.0%..................................... 7.50% 7.75% 8.00%
</TABLE>
- ---------------
(1) Annual taxable income levels corresponding to the 1996 Federal marginal tax
brackets are as follows:
<TABLE>
<S> <C>
39.6%...... over $263,750 for both single and joint returns
36.0%...... $121,301-$263,750 for single returns, $147,701-$263,750 for
joint returns
31.0%...... $58,151-$121,300 for single returns, $96,901-$147,700 for joint
returns
28.0%...... $24,001-$58,150 for single returns, $40,101-$96,900 for joint
returns
</TABLE>
An investor's marginal tax rate may exceed the rates shown in the above
table due to various factors. Income also may be subject to certain state, local
and foreign taxes. For investors who pay alternative minimum tax, equivalent
yields may be lower than those shown above. The tax rates shown above do not
apply to corporate taxpayers.
------------------------
The tax characteristics of the Fund are described more fully under
"Taxation." Consult your tax adviser for further details.
The charts above are for illustrative purposes only and cannot be taken as
an indication of an anticipated dividend rate on the Cumulative Preferred Stock
or of the composition of future distributions by the Fund.
9
<PAGE> 12
FINANCIAL HIGHLIGHTS
The selected data set forth below is for shares of Common Stock outstanding
for the periods presented. The financial information was derived from and should
be read in conjunction with the Financial Statements of the Fund incorporated by
reference into this Prospectus and the SAI. The financial information for the
period ended December 31, 1994 and each of the two years ended December 31, 1996
has been audited by Price Waterhouse LLP, independent accountants, whose
unqualified report on such financial statements is incorporated by reference
into this Prospectus and the SAI.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994*
------- ------- -------
<S> <C> <C> <C>
OPERATING PERFORMANCE:
Net Asset Value, Beginning of Period........................ $ 7.81 $ 7.51 $ 7.50
------- ------- -------
Net investment income....................................... 0.01 0.08 0.03
Net realized and unrealized gains on securities............. 0.63 0.98 0.03
------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS......................... 0.64 1.06 0.06
------- ------- -------
Increase/(decrease) in net asset value from Multimedia Trust
share transactions....................................... 0.02 (0.46) --
Offering expenses charged to capital surplus................ -- (0.05) --
------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income........................ (0.01) (0.08) (0.03)
Distributions from net realized gain on investments......... (0.36) (0.17) --
Distributions in excess of net investment income and/or
net realized gains....................................... (0.00)(a) (0.00)(a) (0.01)
Distributions from paid-in capital.......................... -- -- (0.01)
------- ------- -------
TOTAL DISTRIBUTIONS...................................... (0.37) (0.25) (0.05)
------- ------- -------
Net Asset Value, End of Period.............................. $ 8.100 $ 7.810 $ 7.510
======= ======= =======
Market Value, End of Period................................. $ 6.875 $ 6.750 $ 7.375
======= ======= =======
Total Net Asset Value Return**.............................. 9.40% 14.10% 0.80%
Total Investment Return***.................................. 7.40% 0.40% (7.90)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, end of period (in thousands).................... $91,462 $89,580 $64,606
Ratio of Operating Expenses to Average Net Assets........... 1.87% 2.04% 1.74%+
Ratio of Net Investment Income to Average Net Assets........ 0.13% 1.24% 3.15%+
Portfolio Turnover Rate..................................... 32.10% 86.00% 0.00%
Average Commission Rate Paid(b)............................. $0.0367 -- --
</TABLE>
- ---------------
* The Fund commenced operations on November 15, 1994.
** Based on net asset value per share, adjusted for reinvestment of all
distributions and 1995 rights offering.
*** Based on market value per share, adjusted for reinvestment of all
distributions and 1995 rights offering.
+ Annualized.
(a) Amount represents less than $0.005 per share.
(b) Average commission rate (per share of security) as required by amended SEC
disclosure requirements effective for fiscal years beginning after September
1, 1995.
10
<PAGE> 13
USE OF PROCEEDS
The net proceeds of the offering are estimated at $29,836,000, after
deduction of the underwriting discounts and estimated offering expenses payable
by the Fund. The Fund's investment adviser expects to invest such proceeds in
accordance with the Fund's investment objectives and policies within six months
after the completion of the offering, depending on market conditions for the
types of securities in which the Fund principally invests. Pending such
investment, the proceeds will be held in high quality short-term debt securities
and instruments.
CAPITALIZATION
The following table sets forth the capitalization of the Fund as of
December 31, 1996, and as adjusted to give effect to the Offering.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED(a)
----------- --------------
<S> <C> <C>
Shareholders' equity:
Preferred Stock, $.001 par value:
Authorized 0 shares; as adjusted 2,000,000 shares
authorized; issued and outstanding 0 shares; as adjusted,
1,250,000 shares of % Cumulative Preferred Stock
issued and outstanding..................................... $ 0 $ 31,250,000
Common Stock, $.001 par value:
Authorized 200,000,000 shares; as adjusted 198,000,000
authorized; issued and outstanding 11,296,548 shares....... 11,297 11,297
Additional paid-in capital.................................. 81,230,031 79,816,031
Distributions in excess of net realized gain on
investments................................................ (53,535) (53,535)
Undistributed net investment income......................... 2,653 2,653
Net unrealized appreciation of investments.................. 10,271,498 10,271,498
Net assets............................................. 91,461,944 121,297,944
Net assets applicable to outstanding Common Stock...... $91,461,944 $ 90,047,944
========== ===========
</TABLE>
- ---------------
(a) After deducting underwriting discounts and estimated costs of the Offering
of $1,414,000.
11
<PAGE> 14
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 NYSE 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 shareholders 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 entertaining 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.
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 (i) 67%
of the shares of the Fund's voting securities represented at a meeting at which
more than 50% of the outstanding shares of the Fund's voting securities are
represented, whether in person or by proxy, or (ii) more than 50% of the
outstanding shares of the Fund's voting securities. 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 telephone,
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
12
<PAGE> 15
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 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 Adviser expects
that a substantial portion of the Fund's portfolio 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 Adviser normally will consider
the following factors, among others: (1) the 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 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 Adviser defines as the value informed purchasers are willing to
pay to acquire assets with similar characteristics. The Adviser also normally
evaluates the issuers' free cash flow and long-term earnings trends. Finally,
the 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. See "Risk Factors and Special Considerations -- Foreign
Securities."
Corporate Reorganizations. 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 may invest without
limit in securities of companies for which a tender or exchange offer has been
made or announced and in securities of companies for which a merger,
consolidation, liquidation or similar reorganization proposal has been announced
if, in the judgment of the Adviser, there is a reasonable prospect of capital
13
<PAGE> 16
appreciation significantly greater than the added portfolio turnover expenses
inherent in the short term nature of such transactions. The principal risk is
that such offers or proposals may not be consummated within the time and under
the terms contemplated at the time of the investment, in which case the Fund may
sustain a loss. For further information on such investments, see "Other
Investments" in the SAI.
Temporary Investments. Although under normal market conditions at least
65% of the Fund's total 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 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. The yield on these securities will, as a general matter, tend
to be lower than the yield on other securities to be purchased by the Fund. For
a further description of such transactions, see "Investment Objectives and
Policies -- Investment Practices -- Temporary Investments" in the SAI.
SPECIAL INVESTMENT METHODS
OPTIONS
On behalf of the Fund, the Adviser may, subject to guidelines of the Board
of Directors, purchase or sell, i.e., write, options on securities, securities
indices and foreign currencies which are listed on a national securities
exchange or in the U.S. over-the-counter ("OTC") markets as a means of achieving
additional return or of hedging the value of the Fund's portfolio. The Fund may
write covered call options on common stocks that it owns or has an immediate
right to acquire through conversion or exchange of other securities in an amount
not to exceed 25% of total assets or invest up to 10% of its total assets in the
purchase of put options on common stocks that the Fund owns or may acquire
through the conversion or exchange of other securities that it owns.
A call option is a contract that gives the holder of the option the right
to buy from the writer (seller) of the call option, in return for a premium
paid, the security underlying the option at a 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 a contract that gives the holder of the option the right to
sell to the writer (seller), in return for the premium, the underlying security
at a specified price during the term of the option. The writer of the put, who
receives the premium, has the obligation to buy the underlying security upon
exercise, at the exercise price during the option period.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. There can be no
assurance that a closing purchase transaction can be effected when the Fund so
desires.
An exchange traded option may be closed out only on an exchange which
provides a secondary market for an option of the same series. Although the Fund
will generally purchase or write only those options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option.
Investments in options may also be limited by the applicable Rating Agency
Guidelines. See "Description of Cumulative Preferred Stock -- Rating Agency
Guidelines."
FUTURES CONTRACTS AND OPTIONS THEREON
On behalf of the Fund, the Adviser may, subject to guidelines of the Board
of Directors, purchase and sell financial futures contracts and options thereon
which are traded on a commodities exchange or board of trade
14
<PAGE> 17
for certain hedging, yield enhancement and risk management purposes, in
accordance with regulations of the Commodity Futures Trading Commission
("CFTC"). These futures contracts and related options may be on debt securities,
financial indices, securities indices, U.S. Government securities and foreign
currencies. A financial futures contract is an agreement to purchase or sell an
agreed amount of securities or currencies at a set price for delivery in the
future.
Under CFTC regulations, the Adviser on behalf of the Fund may purchase and
sell futures contracts and options thereon for bona fide hedging purposes, as
defined under CFTC regulations, without regard to the percentage of the Fund's
assets committed to margin and option premiums. 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. In addition, investments in futures
contracts and related options may be limited by the applicable Rating Agency
Guidelines. See "Description of Cumulative Preferred Stock -- Rating Agency
Guidelines."
FORWARD CURRENCY EXCHANGE CONTRACTS
Subject to guidelines of the Board of Directors, the Fund may enter into
forward foreign currency exchange contracts to protect the value of its
portfolio against future changes in the level of currency exchange rates. The
Fund may enter into such contracts on a spot, i.e., cash, basis at the rate then
prevailing in the currency exchange market or on a forward basis, by entering
into a forward contract to purchase or sell currency. A forward contract on
foreign currency is an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days agreed upon by the parties
from the date of the contract at a price set on the date of the contract. The
Fund's dealings in forward contracts will be limited to hedging involving either
specific transactions or portfolio positions, and the amount the Fund may invest
in forward currency contracts is limited to the amount of its aggregate
investments in foreign currencies. The Fund will only enter into forward
currency contracts with parties which it believes to be creditworthy.
SPECIAL RISKS OF DERIVATIVE TRANSACTIONS
Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transaction costs to which the Fund
would not be subject absent the use of these strategies. If the Adviser's
prediction of movements in the direction of the securities, foreign currency and
interest rate markets are inaccurate, the consequences to the Fund may leave the
Fund in a worse position than if such strategies were not used. Risks inherent
in the use of options, foreign currency, futures contracts and options on
futures contracts, securities indices and foreign currencies include (1)
dependence on the Adviser's ability to predict correctly movements in the
direction of interest rates, securities prices and currency markets; (2)
imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities or currencies
being hedged; (3) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; (6) the possible inability of the Fund to purchase or
sell a security at a time that otherwise would be favorable for it to do so, or
the possible need for the Fund to sell a security at a disadvantageous time due
to a need for the Fund to maintain "cover" or to segregate securities in
connection with the hedging techniques; and (7) the creditworthiness of
counterparties. For a further description, see "Risk Factors and Special
Considerations -- Futures Transactions" and "Risk Factors and Special
Considerations -- Forward Currency Exchange Contracts."
SHORT SALES AGAINST THE BOX
The Fund may from time to time make short sales of securities. The market
value of the securities sold short of any one issuer will not exceed 5% of the
Fund's total assets or 5% of such issuer's voting securities. The Fund may not
make short sales or maintain a short position if it would cause more than 25% of
the Fund's total assets, taken at market value, to be held as collateral for
such sales. The Fund may also make short sales
15
<PAGE> 18
"against the box" without respect to such limitations. A short sale is "against
the box" to the extent that the Fund contemporaneously owns or has the right to
obtain at no added cost securities identical to those sold short. In a short
sale, the Fund does not immediately deliver the securities sold or receive the
proceeds from the sale.
To secure its obligations to deliver the securities sold short, the Fund
will deposit in escrow in a separate account with its custodian an equal amount
to the securities sold short or securities convertible into, or exchangeable for
such securities. The Fund may close out a short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund may want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
The Fund may make a short sale in order to hedge against market risks when
it believes that the price of a security may decline, causing a decline in the
value of a security owned by the Fund or a security convertible into, or
exchangeable for, such security, or when the Fund does not want to sell the
security it owns, because, among other reasons, it wishes to defer recognition
of gain or loss for U.S. Federal income tax purposes. Additionally, the Fund may
use short sales in conjunction with the purchase of a Convertible Security when
it is determined that a Convertible Security can be bought at a small conversion
premium and has a yield advantage relative to the underlying common stock sold
short.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements involving money market
instruments with banks, registered broker-dealers and government securities
dealers approved by the Board of Directors which furnish collateral at least
equal in value or market price to the amount of their repurchase obligation. In
a repurchase agreement, the Fund purchases a debt security from a seller which
undertakes to repurchase the security at a specified resale price on an agreed
future date. Repurchase agreements are generally for one business day but may
have longer durations. The SEC has taken the position that, in economic reality,
a repurchase agreement is a loan by the Fund to the other party to the
transaction secured by securities transferred to the Fund. The resale price
generally exceeds the purchase price by an amount which reflects an agreed upon
market interest rate for the term of the repurchase agreement. The principal
risk is that, if the seller defaults, the Fund might suffer a loss to the extent
that the proceeds from the sale of the underlying securities and other
collateral held by the Fund are less than the repurchase price. In the event of
a default or bankruptcy by a seller, the Fund will promptly seek to liquidate
the collateral. The Adviser, acting under the supervision of the Fund's Board of
Directors, will monitor the creditworthiness of the counterparty to the
repurchase agreements.
If the financial institution which is a party to the repurchase agreement
petitions for bankruptcy or becomes subject to the United States Bankruptcy
Code, the law regarding the rights of the Fund is unsettled. As a result, under
these circumstances, there may be a restriction on the Fund's ability to sell
the collateral and the Fund would suffer a loss.
LOANS OF PORTFOLIO SECURITIES
To increase income, the Fund may lend its portfolio securities to
securities broker-dealers or financial institutions if (1) the loan is
collateralized in accordance with applicable regulatory requirements and (2) no
loan will cause the value of all loaned securities to exceed 20% of the value of
the Fund's total assets.
If the borrower fails to maintain the requisite amount of collateral, the
loan automatically terminates and the Fund could use the collateral to replace
the securities while holding the borrower liable for any excess of replacement
cost over the value of the collateral. As with any extension of credit, there
are risks of delay in recovery and in some cases even loss of rights in
collateral should the borrower of the securities fail financially. While these
loans of portfolio securities will be made in accordance with guidelines
approved by the Board of Directors, there can be no assurance that borrowers
will not fail financially. On termination of the loan, the borrower is required
to return the securities to the Fund, and any gain or loss in the market price
during the loan would inure to the Fund. If the contra party to the loan
petitions for bankruptcy or becomes subject to the United States Bankruptcy
Code, the law regarding the rights of the Fund is unsettled. As a result, under
these
16
<PAGE> 19
circumstances, there may be a restriction on the Fund's ability to sell the
collateral and the Fund would suffer a loss. In addition, loans of portfolio
securities are limited to 5% of the Fund's total assets by the applicable Rating
Agency Guidelines. See "Description of Cumulative Preferred Stock -- Rating
Agency Guidelines."
LEVERAGING
As provided in the 1940 Act and subject to compliance with the Fund's
investment objectives, policies and restrictions, the Fund may issue debt or
preferred stock so long as the Fund's net assets exceed 300% of the amount of
the debt outstanding and exceed 200% of the amount of preferred stock
outstanding. Such debt or preferred stock may be convertible in accordance with
SEC staff guidelines which may permit the Fund to obtain leverage at attractive
rates. Leverage entails two primary risks. The first risk is that the use of
leverage magnifies the impact on the common shareholders of changes in net asset
value. For example, a fund that uses 33% leverage will show a 1.5% increase or
decline in net asset value for each 1% increase or decline in the value of its
total assets. The second risk is that the cost of leverage will exceed the
return on the securities acquired with the proceeds of leverage, thereby
diminishing rather than enhancing the return to common shareholders. These two
risks would generally make the Fund's total return to common shareholders more
volatile. In addition, the Fund may be required to sell investments in order to
meet dividend or interest payments on the debt or preferred stock when it may be
disadvantageous to do so.
A decline in net asset value could affect the ability of the Fund to make
common stock dividend payments and such a failure to pay dividends or make
distributions could result in the Fund ceasing to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended ("the
Code"). See "Taxation". Finally, if the asset coverage for preferred stock or
debt securities declines to less than 200% or 300%, respectively (as a result of
market fluctuations or otherwise), the Fund may be required to sell a portion of
its investments to redeem the preferred stock or repay the debt when it may be
disadvantageous to do so.
Further information on the investment objectives and policies and
investment restrictions of the Fund are set forth in the SAI.
PORTFOLIO TURNOVER
The Fund buys and sells securities to accomplish its investment objective.
The investment policies of the Fund may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest or currency exchange
rates. The portfolio turnover may be higher than that of other investment
companies. While it is impossible to predict with certainty the portfolio
turnover, the Adviser expects that the annual turnover rate of the Fund will not
exceed 200%. During the years ended December 31, 1996 and 1995, the portfolio
turnover of the Fund was 32.1% and 86.0%, respectively.
Portfolio turnover generally involves some expense to the Fund, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. A high portfolio turnover
rate may make it more difficult to qualify as a regulated investment company,
since, in order for the Fund to so qualify each taxable year, less than 30% of
its gross income must be derived from the sale or other disposition of stocks or
securities held for less than three months. See "Taxation" in the SAI for a more
complete discussion of this requirement. The portfolio turnover rate is computed
by dividing the lesser of the amount of the long-term securities purchased or
securities sold by the average monthly value of securities owned during the year
(excluding securities whose maturities at acquisition were one year or less).
OTHER INVESTMENTS
The Fund is permitted to invest in illiquid securities, warrants and rights
and other investment companies and to enter into forward commitments for the
purchase or sale of securities, including on a "when issued" or "delayed
delivery" basis. See the SAI for a discussion of these investments and
techniques and the risks associated with them.
17
<PAGE> 20
INVESTMENT RESTRICTIONS
The Fund has adopted various investment restrictions as fundamental
policies requiring certification, limiting concentration in industries other
than the telecommunications, media, publishing and entertainment industries,
prohibiting investing for control purposes and limiting certain other policies
as described in greater detail in the SAI.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following special considerations associated
with investing in the Fund.
PREFERRED STOCK
There are a number of risks associated with an investment in Cumulative
Preferred Stock. The market price for the Cumulative Preferred Stock will be
influenced by changes in interest rates, the perceived credit quality of the
Cumulative Preferred Stock and other factors. The Cumulative Preferred Stock is
subject to redemption under specified circumstances. Subject to such
circumstances, the Cumulative Preferred Stock is perpetual. The credit rating on
the Cumulative Preferred Stock could be reduced or withdrawn while an investor
holds shares, and the credit rating does not eliminate or mitigate the risks of
investing in the Cumulative Preferred Stock. A reduction or withdrawal of the
credit rating would likely have an adverse effect on the market value of the
Cumulative Preferred Stock. The Cumulative Preferred Stock is not an obligation
of the Fund. Although unlikely, precipitous declines in the value of the Fund's
assets could result in the Fund having insufficient assets to redeem all of the
Cumulative Preferred Stock for the full Redemption Price.
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 both 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.
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 company may be voted. These same broadcast rules prohibit the
holding of an attributable interest in more than twenty AM and twenty FM radio
broadcast stations nationally or more than twelve television stations
nationally. Similar types of restrictions apply in the mass media and common
carrier industries.
The attributable interest that results from the role of the Adviser and its
principals in connection with other funds, managed accounts and companies may
limit the investments of the Fund in these industries.
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 more limited product lines, market 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 prices of securities of other issuers.
18
<PAGE> 21
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 shareholder should take into
account the investment objectives of the Fund as well as such shareholder's
other investments when considering an investment in the Fund.
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. 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 circumstance, present greater risk
to an investor than an investment in a diversified investment 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 Ratings
Services ("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. These securities and
securities rated BB or lower by S&P and Ba or lower by Moody's are often
referred to in the financial press as "junk bonds" and may include securities of
issuers in default. "Junk bonds" are considered by the rating agencies to be
predominantly speculative and may involve major risk exposures such as: (i)
vulnerability to economic downturns and changes in interest rates; (ii)
sensitivity to adverse economic changes and corporate developments; (iii)
redemption or call provisions which may be exercised at inopportune times; (iv)
difficulty in accurately valuing or disposing of such securities; (v)
subordination to other debt of the issuer; and (vi) junk bonds are generally
unsecured.
The Fund may invest in securities of issuers in default. The Fund will
invest in securities of issuers in default only when the 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. Securities rated BBB by S&P or
Baa by Moody's, in the opinion of the rating agencies, also have speculative
characteristics.
For a further description of lower rated securities and the risks
associated therewith, see "Investment Objectives and Policies -- Investment
Practices -- Lower Rated Securities" in the SAI.
FOREIGN SECURITIES
There is no limitation on the amount of foreign securities in which the
Fund may invest. Investments in the securities of foreign issuers involve
certain considerations and risks not ordinarily associated with investments in
securities of domestic issuers. Foreign companies are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to U.S. companies. Foreign securities exchanges, brokers and
listed companies may be subject to less government supervision and regulation
than exists in the United States. Dividend and interest income may be subject to
withholding and other foreign taxes which may adversely affect the net return on
such investments. There may be difficulty in obtaining or enforcing a court
judgment abroad. In addition, it may be difficult to effect repatriation of
capital invested in certain countries. In addition, with respect to certain
countries, there are risks of expropriation, confiscatory taxation, political or
social instability or diplomatic developments which could affect assets of the
Fund held in foreign countries. Investments in debt securities of foreign
governments involve additional risks, including that payment by the issuer with
respect to such securities may depend on
19
<PAGE> 22
economic and political conditions, cash flow, availability of foreign exchange
and other relevant conditions in the country and there may be limited legal
recourse against the issuer in the event of a default.
There may be less publicly available information about a foreign company
than a U.S. company. Foreign securities markets may have substantially less
volume than U.S. securities markets and some foreign company securities are less
liquid than securities of otherwise comparable U.S. companies. A portfolio of
foreign securities may also be adversely affected by fluctuations in the rates
of exchange between the currencies of different nations and by exchange control
regulations. Foreign markets also have different clearance and settlement
procedures which could cause the Fund to encounter difficulties in purchasing
and selling securities on such markets and may result in the Fund missing
attractive investment opportunities or experiencing loss. In addition, a
portfolio which includes foreign securities can expect to have a higher expense
ratio because of the increased transaction costs on non-U.S. securities markets
and the increased costs of maintaining the custody of foreign securities.
The Fund may purchase sponsored American Depository Receipts ("ADRs") or
U.S. denominated securities of foreign issuers which shall not be included in
this foreign securities limitation. ADRs are receipts issued by United States
banks or trust companies in respect of securities of foreign issuers held on
deposit for use in the United States securities markets. While ADRs may not
necessarily be denominated in the same currency as the securities into which
they may be converted, many of the risks associated with foreign securities may
also apply to ADRs.
FUTURES TRANSACTIONS
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 EXCHANGE 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. For a further description of such
investments, see "Investment Objectives and Policies -- Investment Practices" in
the SAI.
DEPENDENCE ON KEY PERSONNEL
The 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 Adviser and Mr. Gabelli. If the 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 Adviser.
MANAGEMENT OF THE FUND
The Fund's Board of Directors (who, with its officers, are described in the
SAI) has overall responsibility for the management of the Fund. The Board of
Directors decides upon matters of general policy and reviews the actions of the
Adviser and the Administrator (as defined below). Pursuant to an Investment
Advisory Contract with the Fund, the Adviser, under the supervision of the
Fund's Board of Directors, provides a continuous investment program for the
Fund's portfolio; provides investment research and makes and executes
20
<PAGE> 23
recommendations for the purchase and sale of securities; and provides all
facilities and personnel, including officers required for its administrative
management and pays the compensation of all officers and directors of the Fund
who are its affiliates. As compensation for its services and the related
expenses borne by the Adviser, the Fund pays the Adviser a fee, computed daily
and payable monthly, equal, on an annual basis, to 1.00% of the Fund's average
daily net assets, which is higher than that paid by most mutual funds. For the
fiscal years ended December 31, 1994, 1995 and 1996 the Fund paid a management
fee of $83,054, $742,302 and $947,427, respectively. Notwithstanding the
foregoing, the Adviser will waive the portion of its investment advisory fee
attributable to an amount of assets of the Fund equal to the aggregate stated
value of the Cumulative Preferred Stock for any calendar year in which the total
return of the Fund, including distributions and the advisory fee subject to
potential waiver, allocable to common stock is less than the stated dividend
rate of the Cumulative Preferred Stock.
The Adviser was formed in 1980 and acts as investment adviser to other
closed-end and open-end investment companies with total net assets in excess of
$4.0 billion as of May 1, 1997. GAMCO Investors, Inc. ("GAMCO"), a subsidiary of
the Adviser, acts as investment adviser for individuals, pension trusts, profit
sharing trusts and endowments. As of May 1, 1997, GAMCO had aggregate assets in
excess of $5.1 billion under its management. Mr. Mario J. Gabelli may be deemed
a "controlling person" of the Adviser on the basis of his ownership of stock of
the Adviser.
In addition to the fees of the Adviser, the Fund is responsible for the
payment of all its other expenses incurred in the operation of the Fund, which
include, among other things, expenses for legal and independent accountant's
services, stock exchange listing fees, expenses relating to the Offering of
Cumulative Preferred Stock (including rating agency fees), costs of printing
proxies, stock certificates and shareholder reports, charges of State Street
Bank and Trust Company ("State Street", the "Custodian," "Transfer Agent" or
"Dividend - Disbursing Agent"), SEC fees, fees and expenses of unaffiliated
directors, accounting and printing costs, the Fund's pro rata portion of
membership fees in trade organizations, fidelity bond coverage for the Fund's
officers and employees, interest brokerage costs, taxes, expenses of qualifying
the Fund for sale in various states, expenses of personnel performing
shareholder servicing functions, litigation and other extraordinary or
non-recurring expenses and other expenses properly payable by the Fund.
The Investment Advisory Contract contains provisions relating to the
selection of securities brokers to effect the portfolio transactions of the
Fund. Under those provisions, the Adviser may (1) direct Fund portfolio
brokerage to Gabelli & Company, Inc. or other broker-dealer affiliates of the
Adviser; and (2) pay commissions to brokers other than Gabelli & Company, Inc.
which are higher than might be charged by another qualified broker to obtain
brokerage and/or research services considered by the Adviser to be useful or
desirable for its investment management of the Fund and/or its other advisory
accounts or those of any investment adviser affiliated with it. The SAI contains
further information about the Investment Advisory Contract including a more
complete description of the advisory and expense arrangements, exculpatory and
brokerage provisions, as well as information on the brokerage practices of the
Fund.
PORTFOLIO MANAGER
Mario J. Gabelli serves as Portfolio Manager and is primarily responsible
for the day-to-day management of the Fund. Mr. Gabelli has served as the Fund's
Portfolio Manager since its inception and has served as Chairman, President and
Chief Investment Officer of the Adviser since 1980. Because of the diverse
nature of Mr. Gabelli's resonsibilities, he will devote less than all of his
time to the day-to-day management at the Fund.
NON-RESIDENT DIRECTORS
Karl Otto Pohl, a director of the Fund, resides outside the United States
and all or a significant portion of his assets are located outside the United
States. He has no authorized agent in the United States to receive service of
process. As a result, it may not be possible for investors to effect service of
process within the United States or to enforce against him in United States
courts judgments predicated upon civil liability provisions of United States
securities laws. It may also not be possible to enforce against him in foreign
courts judgments of
21
<PAGE> 24
United States courts or liabilities in original actions predicated upon civil
liability provisions of the United States securities laws.
ADMINISTRATOR
The Adviser has entered into an Administration Contract with First Data
Investor Services ("First Data" or the "Administrator") pursuant to which the
Administrator provides certain administrative services necessary for the Fund's
operations which do not include the investment advisory and portfolio management
services provided by the Adviser. For these services and the related expenses
borne by First Data, the Adviser pays a monthly fee at the annual rate of .10%
of the first $1.0 billion of the aggregate average net assets of the Fund and
other Funds advised by the Adviser and administered by First Data and .08% of
the aggregate average net assets exceeding $1.0 billion and .03% of the
aggregate average net assets in excess of $1.5 billion and .02% of the aggregate
net assets in excess of $3.0 billion (with a minimum annual fee of $30,000 per
portfolio), which, together with the services to be rendered, is subject to
negotiation between the parties. First Data has its principal office at 53 State
Street, Boston MA 02109-2873.
DIVIDEND AND DISTRIBUTION POLICY
The Fund intends to distribute its net capital gain each year but may
retain for reinvestment and pay Federal income taxes on its net capital gain, if
any. In the event the Fund's shares of Common Stock are trading at a discount to
their net asset value, the Board of Directors may consider quarterly
distributions and/or adopting a policy of distributing at least 10% per common
share of its average net asset value per year. Any such policy would be subject
to limitations on distribution and on repurchase of common stock of the Fund
while any preferred stock is outstanding. If, for any calendar year, the total
distributions by the Fund on its Common Stock and Preferred Stock exceed the sum
of its net investment income and its net capital gain, the excess will generally
be treated as a tax-free return of capital up to the amount of the shareholder's
tax basis in his shares. The amount treated as a tax-free return of capital will
reduce a shareholder's tax basis in his shares, thereby increasing his potential
gain or reducing his potential loss on the sale of his shares. Any amounts
distributed to a shareholder in excess of the basis in the shares will be
taxable to the shareholder as capital gain.
In the event the Fund distributes amounts in excess of the sum of its net
investment income and its net capital gain, such distributions will decrease the
Fund's total assets and, therefore, have the likely effect of increasing the
Fund's expense ratio. In addition, in order to make such distributions, the Fund
may have to sell a portion of its investment portfolio at a time when
independent investment judgment might not dictate such action. Such sales, if
they involve assets held for less than three months, could also adversely affect
the Fund's status as a regulated investment company (a "RIC") since, in order
for the Fund to so qualify, each taxable year, less than 30% of the Fund's gross
income must be derived from gains realized on the sale or other disposition of
stocks or securities held for less than three months.
At a special meeting of the Board of Directors on July 3, 1996, the Board
authorized the repurchase of up to 500,000 shares of the Fund's outstanding
common shares. At the February 26, 1997 meeting of the Board of Directors, the
Board voted to increase the authorized shares which may be repurchased to
750,000 shares. The Fund would typically repurchase its shares in the open
market when the shares are trading at a discount of 10% or more from the net
asset value of the shares. Through March 31, 1997, 400,000 shares were
repurchased in the open market.
See "Description of Cumulative Preferred Stock -- Dividends" for additional
information relating to dividends on the Cumulative Preferred Stock.
DESCRIPTION OF CUMULATIVE PREFERRED STOCK
The following is a brief description of the terms of the Cumulative
Preferred Stock. This description does not purport to be complete and is
qualified by reference to the Articles Supplementary, the form of which is filed
as an exhibit to the Fund's Registration Statement. Certain of the capitalized
terms used herein are defined in the Glossary that appears at the end of this
Prospectus.
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<PAGE> 25
GENERAL
Under the Articles Supplementary, the Fund will be authorized to issue up
to 1,250,000 shares of Cumulative Preferred Stock. No fractional shares of
Cumulative Preferred Stock will be issued. As of the date of this Prospectus,
there were no shares of Cumulative Preferred Stock or any other Preferred Stock
of the Fund outstanding. The Board of Directors reserves the right to issue
additional shares of Preferred Stock, including Cumulative Preferred Stock, from
time to time, subject to the restrictions in the Articles Supplementary and the
1940 Act. The shares of Cumulative Preferred Stock will, upon issuance, be fully
paid and nonassessable and will have no preemptive, exchange or conversion
rights. Any shares of Cumulative Preferred Stock repurchased or redeemed by the
Fund will be classified as authorized but unissued Preferred Stock. The Board of
Directors may by resolution classify or reclassify any authorized but unissued
Preferred Stock from time to time by setting or changing the preferences,
rights, voting powers, restrictions, limitations or terms of redemption. The
Fund will not issue any class of stock senior to the shares of Cumulative
Preferred Stock.
RATING AGENCY GUIDELINES
Moody's has established guidelines in connection with the Fund's receipt of
a rating for the Cumulative Preferred Stock on the date of original issue of
'aaa' by Moody's. Moody's, a nationally-recognized securities rating
organization, issues ratings for various securities reflecting the perceived
creditworthiness of such securities. The guidelines utilized for the Cumulative
Preferred Stock have been developed by Moody's in connection with issuances of
asset-backed and similar securities, including debt obligations and various
types of preferred stocks, generally on a case-by-case basis through discussions
with the issuers of these securities. The guidelines are designed to ensure that
assets underlying outstanding debt or preferred stock will be sufficiently
varied and will be of sufficient quality and amount to justify investment-grade
ratings. The guidelines do not have the force of law but are being adopted by
the Fund in order to satisfy current requirements necessary for Moody's to issue
the above-described rating for the Cumulative Preferred Stock, which rating is
generally relied upon by investors in purchasing such securities. The guidelines
provide a set of tests for portfolio composition and discounted asset coverage
that supplement (and in some cases are more restrictive than) the applicable
requirements of Section 18 of the 1940 Act. Moody's guidelines are included in
the Articles Supplementary and are referred to in this Prospectus as the "Rating
Agency Guidelines."
The Rating Agency Guidelines require that the Fund maintain Adjusted Assets
greater than or equal to the Basic Maintenance Amount. If the Fund fails to meet
such requirement and such failure is not cured by the applicable cure date, the
Fund will be required to redeem some or all of the Cumulative Preferred Stock.
See "Description of Cumulative Preferred Stock -- Redemption -- Mandatory
Redemption." The Rating Agency Guidelines also exclude from the Moody's Eligible
Assets and, therefore, from Adjusted Assets, certain types of securities in
which the Fund may invest and also may limit the Fund's acquisition of futures
contracts or options on futures contracts, may limit reverse repurchase
agreements, may limit the writing of options on portfolio securities and will
limit the lending of portfolio securities to 5% of the Fund's total assets. The
Adviser does not believe that compliance with the Rating Agency Guidelines will
have an adverse effect on its management of the Fund's portfolio or on the
achievement of the Fund's investment objectives. It is the Fund's present
intention to continue to comply with the Rating Agency Guidelines.
The Fund may, but is not required to, adopt any modifications to the Rating
Agency Guidelines that may hereafter be established by Moody's. Failure to adopt
such modifications, however, may result in a change in Moody's rating or a
withdrawal of a rating altogether. In addition, Moody's may, at any time, change
or withdraw such rating. However, failure to comply with the Rating Agency
Guidelines would require the Fund to redeem all or part of the Cumulative
Preferred Stock.
A preferred stock rating is an assessment of the capacity and willingness
of an issuer to pay preferred stock obligations. The rating on the Cumulative
Preferred Stock is not a recommendation to purchase, hold or sell such shares,
inasmuch as the rating does not comment as to market price or suitability for a
particular investor. Nor do Moody's requirements address the likelihood that a
holder of Cumulative Preferred Stock will be able to sell such shares. The
rating is based on current information furnished to Moody's by the Fund
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<PAGE> 26
and the Adviser and information obtained from other sources. The rating may be
changed, suspended or withdrawn as a result of changes in, or the unavailability
of, such information.
DIVIDENDS
Holders of shares of Cumulative Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Fund out of
funds legally available therefor, cumulative cash dividends, at the annual rate
of % of the liquidation preference of $25 per share, payable semi-annually on
June 26, and December 26 or if any such day is not a Business Day, the next
succeeding Business Day (the "Dividend Payment Date"), commencing on December
26, 1997, to the persons in whose names the shares of Cumulative Preferred Stock
are registered at the close of business on the fifth preceding Business Day. The
Fund may from time to time, at its option, pay dividends on the Cumulative
Preferred Stock on a quarterly basis at the annual rate of %.
Dividends on the shares of Cumulative Preferred Stock will accumulate from
the date on which such shares are originally issued (the "Date of Original
Issue").
No dividends will be declared or paid or set apart for payment on shares of
Cumulative Preferred Stock for any dividend period or part thereof unless full
cumulative dividends have been or contemporaneously are declared and paid on all
outstanding shares of Cumulative Preferred Stock through the most recent
Dividend Payment Date thereof. If full cumulative dividends are not paid on the
Cumulative Preferred Stock, all dividends on the shares of Cumulative Preferred
Stock will be paid pro rata to the holders of the shares of Cumulative Preferred
Stock. Holders of Cumulative Preferred Stock will not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends. No interest, or sum of money in lieu of interest, will be
payable in respect of any dividend payment that may be in arrears.
For so long as any shares of Cumulative Preferred Stock are outstanding,
the Fund will not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, shares of Common Stock
or other stock, if any, ranking junior to the Cumulative Preferred Stock as to
dividends or upon liquidation) in respect of the Common Stock or any other stock
of the Fund ranking junior to or on a parity with the Cumulative Preferred Stock
as to dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of its Common Stock or any other
stock of the Fund ranking junior to or on a parity with the Cumulative Preferred
Stock as to dividends or upon liquidation (except by conversion into or exchange
for stock of the Fund ranking junior to or on a parity with the Cumulative
Preferred Stock as to dividends and upon liquidation), unless, in each case, (A)
immediately after such transaction, the Fund will have Adjusted Assets greater
than or equal to the Basic Maintenance Amount and will have the required Asset
Coverage (see "-- Asset Maintenance" and "-- Redemption" below), (B) full
cumulative dividends on shares of Cumulative Preferred Stock due on or prior to
the date of the transactions have been declared and paid (or sufficient Deposit
Assets to cover such payment have been deposited with the Dividend-Disbursing
Agent) and (C) the Fund has redeemed the full number of shares of Cumulative
Preferred Stock required to be redeemed by any provision for mandatory
redemption contained in the Articles Supplementary.
ASSET MAINTENANCE
The Fund will be required to satisfy two separate asset maintenance
requirements under the terms of the Articles Supplementary. These requirements
are summarized below.
Asset Coverage. The Fund will be required under the Articles Supplementary
to maintain as of the last Business Day of each March, June, September and
December of each year, an "asset coverage" (as defined in the 1940 Act) of at
least 200% (or such higher or lower percentage as may be required at the time
under the 1940 Act) with respect to all outstanding senior securities of the
Fund which are stock, including the Cumulative Preferred Stock (the "Asset
Coverage"). If the Fund fails to maintain the Asset Coverage on such dates and
such failure is not cured within 60 days, the Fund will be required under
certain circumstances to redeem certain of the shares of Cumulative Preferred
Stock. See "-- Redemption" below.
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<PAGE> 27
If the shares of Cumulative Preferred Stock offered hereby had been issued
and sold as of March 31, 1997, the asset coverage immediately following such
issuance and sale (after giving effect to the deduction of the underwriting
discounts and estimated offering expenses for such shares of $1,414,000), would
have been computed as follows:
<TABLE>
<S> <C> <C> <C>
Value of Fund assets less liabilities
not constituting senior securities $121,381,995
= 388%
------------
Senior securities representing indebtedness plus
liquidation preference of the Cumulative
Preferred Stock $31,250,000
</TABLE>
Basic Maintenance Amount. The Fund will be required under the Articles
Supplementary to maintain, as of each Valuation Date, Adjusted Assets greater
than or equal to the Basic Maintenance Amount, which is in general the sum of
the aggregate liquidation preference of the Cumulative Preferred Stock, any
indebtedness for borrowed money and current liabilities and dividends. If the
Fund fails to meet such requirement as to any Valuation Date and such failure is
not cured within 7 days after such Valuation Date, the Fund will be required to
redeem certain of the shares of Cumulative Preferred Stock. See "-- Redemption"
below.
Any security not meeting the Rating Agency Guidelines will be excluded from
the calculation of Adjusted Assets.
The Moody's Discount Factors and guidelines for determining the market
value of the Fund's portfolio holdings have been based on criteria established
in connection with the rating of the Cumulative Preferred Stock. These factors
include, but are not limited to, the sensitivity of the market value of the
relevant asset to changes in interest rates, the liquidity and depth of the
market for the relevant asset, the historical volatility of common stock prices
in general and within particular industry groups, the credit quality of the
relevant asset (for example, the lower the rating of a corporate debt
obligation, the higher the related discount factor), the frequency with which
the relevant asset is marked to market and the amount of time the Fund may take
to cure a failure to meet the Basic Maintenance Amount test. The Moody's
Discount Factor relating to any asset of the Fund, the assets eligible for
inclusion in the calculation of Adjusted Assets and the Basic Maintenance Amount
and certain definitions and methods of calculation relating thereto may be
changed from time to time by the Board of Directors, provided that, among other
things, such changes will not impair the rating then assigned to the Cumulative
Preferred Stock by Moody's. This feature will permit the Fund to respond to
changes required or permitted by Moody's from time to time without requiring a
vote of shareholders and should enhance the ability of the Fund to earn an
incremental return for the holders of its common stock without impairing the
rating of the Cumulative Preferred Stock. The Fund is currently seeking Moody's
agreement that the discount factors applicable to a 2 week exposure period, as
identified in the SAI, would apply to the Fund's assets. Should Moody's require
a longer exposure period, discount factors applicable to a 9 week exposure
period, as identified in the SAI, or to some other as yet unidentified exposure
period, could apply to the Fund's assets. The effects of applying discount
factors for an exposure period of longer than two weeks include that the Fund's
Adjusted Assets would be lower which would increase the likelihood that the Fund
could fail the Basic Maintenance Amount test which could, in turn, result in
mandatory redemption of the Cumulative Preferred Stock and could make it more
difficult for the Fund to issue additional shares of Cumulative Preferred Stock.
On or before the fifth Business Day after each Quarterly Valuation Date,
the Fund is required to deliver to Moody's a report setting forth at least the
Fund's Adjusted Assets and the Basic Maintenance Amount as of the relevant
Valuation Date (the "Basic Maintenance Report"). Within ten Business Days after
delivery of such report to Moody's and on one other occasion chosen at random by
Fund's independent accountants, the Fund will deliver letters prepared by the
Fund's independent accountants regarding the accuracy of the calculations made
by the Fund in, and certain other matters relating to, its most recent Basic
Maintenance Report. If any such letter prepared by the Fund's independent
accountants shows that an error was made in the most recent Basic Maintenance
Report, the calculation or determination made by the Fund's independent
accountants will be conclusive and binding on the Fund.
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<PAGE> 28
REDEMPTION
Mandatory Redemption. The Fund will be required to redeem, at a redemption
price equal to $25 per share plus accumulated and unpaid dividends through the
date of redemption (whether or not earned or declared) (the "Redemption Price"),
certain of the shares of Cumulative Preferred Stock (to the extent permitted
under the 1940 Act and Maryland law) in the event that:
(i) the Fund fails to maintain the Asset Coverage and such failure is
not cured on or before 60 days following such failure (a "Cure Date"); or
(ii) the Fund fails to maintain Adjusted Assets greater than or equal
to the Basic Maintenance Amount as of any Valuation Date, and such failure
is not cured on or before the 7th day after such Valuation Date (also, a
"Cure Date").
The amount of such mandatory redemption will equal the minimum number of
outstanding shares of Cumulative Preferred Stock the redemption of which, if
such redemption had occurred immediately prior to the opening of business on a
Cure Date, would have resulted in the Asset Coverage having been satisfied or
the Fund having Adjusted Assets equal to or greater than the Basic Maintenance
Amount on such Cure Date or, if the Asset Coverage or Adjusted Assets equal to
or greater than the Basic Maintenance Amount, as the case may be, cannot be so
restored, all of the shares of Cumulative Preferred Stock, at the Redemption
Price. In the event that shares of Cumulative Preferred Stock are redeemed due
to the occurrence of (i) above, the Fund may, but is not required to, redeem a
sufficient number of shares of Cumulative Preferred Stock so that the asset
coverage (as defined in the 1940 Act) of the remaining outstanding shares of
Cumulative Preferred Stock and any other Preferred Stock remaining after
redemption is up to 220%. In the event that shares of Cumulative Preferred Stock
are redeemed due to the occurrence of (ii) above, the Fund may, but is not
required to, redeem a sufficient number of shares of Cumulative Preferred Stock
so that the Adjusted Assets of the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock remaining after redemption is up
to 110% of the Basic Maintenance Amount.
If the Fund does not have funds legally available for the redemption of, or
is otherwise unable to redeem, all the shares of Cumulative Preferred Stock to
be redeemed on any redemption date, the Fund will redeem on such redemption date
that number of shares for which it has legally available funds, or is otherwise
able, to redeem ratably from each holder whose shares are to be redeemed, and
the remainder of the shares required to be redeemed will be redeemed on the
earliest practicable date on which the Fund will have funds legally available
for the redemption of, or is otherwise able to redeem, such shares upon written
notice of redemption ("Notice of Redemption").
If fewer than all shares of Cumulative Preferred Stock are to be redeemed,
such redemption will be made pro rata from each holder of shares in accordance
with the respective number of shares held by each such holder on the record date
for such redemption. If fewer than all shares of Cumulative Preferred Stock held
by any holder are to be redeemed, the Notice of Redemption mailed to such holder
will specify the number of shares to be redeemed from such holder. Unless all
accumulated and unpaid dividends for all past dividend periods will have been or
are contemporaneously paid or declared and Deposit Assets for the payment
thereof deposited with the Dividend-Disbursing Agent, no redemptions of
Cumulative Preferred Stock may be made.
Optional Redemption. Prior to June 1, 2002, the shares of Cumulative
Preferred Stock are not subject to any optional redemption by the Fund unless
such redemption is necessary, in the judgment of the Fund, to maintain the
Fund's status as a regulated investment company ("RIC") under the Code.
Commencing June 1, 2002 and thereafter, the Fund may at any time redeem shares
of Cumulative Preferred Stock in whole or in part at the Redemption Price. Such
redemptions are subject to the limitations of the 1940 Act and Maryland law.
Redemption Procedures. A Notice of Redemption will be given to the holders
of record of Cumulative Preferred Stock selected for redemption not less than 30
or more than 45 days prior to the date fixed for the redemption. Each Notice of
Redemption will state (i) the redemption date, (ii) the number of shares of
Cumulative Preferred Stock to be redeemed, (iii) the CUSIP number(s) of such
shares, (iv) the Redemption
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<PAGE> 29
Price, (v) the place or places where such shares are to be redeemed, (vi) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date and (vii) the provision of the Articles Supplementary under which the
redemption is being made. No defect in the Notice of Redemption or in the
mailing thereof will affect the validity of the redemption proceedings, except
as required by applicable law.
LIQUIDATION RIGHTS
Upon a liquidation, dissolution or winding up of the affairs of the Fund
(whether voluntary or involuntary), holders of shares of Cumulative Preferred
Stock then outstanding will be entitled to receive out of the assets of the Fund
available for distribution to shareholders, after satisfying claims of creditors
but before any distribution or payment of assets is made to holders of the
Common Stock or any other class of stock of the Fund ranking junior to the
Cumulative Preferred Stock as to liquidation payments, a liquidation
distribution in the amount of $25 per share, plus an amount equal to all unpaid
dividends accrued to and including the date fixed for such distribution or
payment (whether or not earned or declared by the Fund but excluding interest
thereon) (the "Liquidation Payment"), and such holders will be entitled to no
further participation in any distribution payment in connection with any such
liquidation, dissolution or winding up. If, upon any liquidation, dissolution or
winding up of the affairs of the Fund, whether voluntary or involuntary, the
assets of the Fund available for distribution among the holders of all
outstanding shares of Cumulative Preferred Stock and any other outstanding class
or series of Preferred Stock of the Fund ranking on a parity with the Cumulative
Preferred Stock as to payment upon liquidation, will be insufficient to permit
the payment in full to such holders of Cumulative Preferred Stock of the
Liquidation Payment and the amounts due upon liquidation with respect to such
other Preferred Stock, then such available assets will be distributed among the
holders of Cumulative Preferred Stock and such other Preferred Stock ratably in
proportion to the respective preferential amounts to which they are entitled.
Unless and until the Liquidation Payment has been paid in full to the holders of
Cumulative Preferred Stock, no dividends or distributions will be made to
holders of the Common Stock or any other stock of the Fund ranking junior to the
Cumulative Preferred Stock as to liquidation.
VOTING RIGHTS
Except as otherwise stated in this Prospectus and as otherwise required by
applicable law, holders of shares of Cumulative Preferred Stock will be entitled
to one vote per share on each matter submitted to a vote of shareholders and
will vote together with holders of shares of Common Stock and of any other
Preferred Stock then outstanding as a single class.
In connection with the election of the Fund's directors, holders of shares
of Cumulative Preferred Stock and any other Preferred Stock, voting as a single
class, will be entitled at all times to elect two of the Fund's directors, and
the remaining directors will be elected by holders of shares of Common Stock and
holders of shares of Cumulative Preferred Stock and any other Preferred Stock,
voting together as a single class. In addition, if at any time dividends on
outstanding shares of Cumulative Preferred Stock and/or any other Preferred
Stock are unpaid in an amount equal to at least two full years' dividends
thereon or if at any time holders of any shares of Preferred Stock are entitled,
together with the holders of shares of Cumulative Preferred Stock, to elect a
majority of the directors of the Fund under the 1940 Act, then the number of
directors constituting the Board of Directors automatically will be increased by
the smallest number that, when added to the two directors elected exclusively by
the holders of shares of Cumulative Preferred Stock and any other Preferred
Stock as described above, would constitute a majority of the Board of Directors
as so increased by such smallest number. Such additional directors will be
elected by the holders of Cumulative Preferred Stock and any other Preferred
Stock, voting as a separate class, at a special meeting of shareholders which
will be called and held as soon as practicable, and at all subsequent meetings
at which directors are to be elected the holders of shares of Cumulative
Preferred Stock and any other Preferred Stock, voting as a single class, will be
entitled to elect the smallest number of additional directors that, together
with the two directors which such holders in any event will be entitled to
elect, constitutes a majority of the total number of directors of the Fund as so
increased. The Charter currently limits the maximum number of directors of the
Fund to twelve. In the event that an increase in the number of directors elected
solely by the holders of shares of Cumulative Preferred Stock and any other
Preferred Stock would cause the total number of directors to exceed twelve, one
or more directors, other than the two previously elected by the holders of
shares of
27
<PAGE> 30
Cumulative Preferred Stock and Preferred Stock, voting as a separate class,
would resign so that the result would be that a majority of the Board of
Directors had been elected by the holders of the Cumulative Preferred Stock and
any other Preferred Stock, voting as a separate class. The terms of office of
the persons who are directors at the time of that election will continue. If the
Fund thereafter pays, or declares and sets apart for payment in full, all
dividends payable on all outstanding shares of Cumulative Preferred Stock and
any other Preferred Stock for all past dividend periods, the additional voting
rights of the holders of shares of Cumulative Preferred Stock and any other
Preferred Stock as described above will cease, and the terms of office of all of
the additional directors elected by the holders of shares of Cumulative
Preferred Stock and any other Preferred Stock (but not of the directors with
respect to whose election the holders of shares of Common Stock were entitled to
vote or the two directors the holders of shares of Cumulative Preferred Stock
and any other Preferred Stock have the right to elect as a separate class in any
event) will terminate automatically.
So long as shares of the Cumulative Preferred Stock are outstanding, the
Fund will not, without the affirmative vote of the holders of a majority of the
shares of Preferred Stock outstanding at the time, voting separately as one
class, amend, alter or repeal the provisions of the Charter, whether by merger,
consolidation or otherwise, so as to materially adversely affect any of the
contract rights expressly set forth in the Charter of holders of shares of the
Cumulative Preferred Stock or any other Preferred Stock. To the extent permitted
under the 1940 Act, in the event shares of more than one series of Preferred
Stock are outstanding, the Fund will not approve any of the actions set forth in
the preceding sentence which materially adversely affects the contract rights
expressly set forth in the Charter of a holder of shares of a series of
Preferred Stock differently than those of a holder of shares of any other series
of Preferred Stock without the affirmative vote of at least a majority of votes
entitled to be cast by holders of the Preferred Stock of each series materially
adversely affected and outstanding at such time (each such materially adversely
affected series voting separately as a class). The affirmative vote of a
majority of the votes entitled to be cast by holders of outstanding shares of
the Cumulative Preferred Stock and any other Preferred Stock, voting as a
separate class, will be required to approve any plan of reorganization adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the 1940 Act, including, among other things, changes in the
Fund's investment objective or changes in the investment restrictions described
as fundamental policies under "Investment Objectives and Policies" and
"Investment Restrictions" in the Prospectus and the SAI. The class vote of
holders of shares of the Cumulative Preferred Stock and any other Preferred
Stock described above in each case will be in addition to a separate vote of the
requisite percentage of shares of Common Stock and Cumulative Preferred Stock
and any other Preferred Stock, voting together as a single class, necessary to
authorize the action in question.
The foregoing voting provisions will not apply to any shares of Cumulative
Preferred Stock if, at or prior to the time when the act with respect to which
such vote otherwise would be required will be effected, such shares will have
been (i) redeemed or (ii) called for redemption and sufficient Deposit Assets
provided to the Dividend-Disbursing Agent to effect such redemption. The holders
of Cumulative Preferred Stock will have no preemptive rights or rights to
cumulative voting.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS
AND ISSUANCE OF ADDITIONAL PREFERRED STOCK
So long as any shares of Cumulative Preferred Stock are outstanding and
subject to compliance with the Fund's investment objectives, policies and
restrictions, the Fund may issue and sell one or more series of a class of
senior securities of the Fund representing indebtedness under the 1940 Act
and/or otherwise create or incur indebtedness, provided that the Fund will,
immediately after giving effect to the incurrence of such indebtedness and to
its receipt and application of the proceeds thereof, have an "asset coverage"
for all senior securities of the Fund representing indebtedness, as defined in
the 1940 Act, of at least 300% of the amount of all indebtedness of the Fund
then outstanding and no such additional indebtedness will have any preference or
priority over any other indebtedness of the Fund upon the distribution of the
assets of the Fund or in respect of the payment of interest. Any possible
liability resulting from lending and/or borrowing portfolio securities, entering
into reverse repurchase agreements, entering into futures contracts and writing
options, to the extent such transactions are made in accordance with the
investment restrictions of the Fund then in effect, will not be considered to be
indebtedness limited by the Articles Supplementary.
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<PAGE> 31
So long as any shares of Cumulative Preferred Stock are outstanding and
subject to compliance with the Fund's investment objectives, policies and
restrictions, the Fund may issue and sell shares of one of more other series of
Preferred Stock in addition to the shares of Cumulative Preferred Stock,
provided that the Fund will, immediately after giving effect to the issuance of
such additional Preferred Stock and to its receipt and application of the
proceeds thereof, have an "asset coverage" for all senior securities of the Fund
which are stock, as defined in the 1940 Act, of at least 200% of the sum of the
liquidation preference of the shares of Cumulative Preferred Stock and all other
Preferred Stock of the Fund then outstanding and all indebtedness of the Fund
constituting senior securities and no such additional Preferred Stock will have
any preference or priority over any other Preferred Stock of the Fund upon the
distribution of the assets of the Fund or in respect of the payment of
dividends.
REPURCHASE OF CUMULATIVE PREFERRED STOCK
The Fund is a closed-end investment company and, as such, holders of
Cumulative Preferred Stock do not, and will not, have the right to redeem their
shares of the Fund. The Fund, however, may repurchase shares of the Cumulative
Preferred Stock when it is deemed advisable by the Board of Directors in
compliance with the requirements of the 1940 Act and the rules and regulations
thereunder and other applicable requirements.
BOOK-ENTRY
Shares of Cumulative Preferred Stock will initially be held in the name of
Cede & Co ("Cede"), as nominee for The Depository Trust Company ("DTC"). The
Fund will treat Cede as the holder of record of the Cumulative Preferred Stock
for all purposes. In accordance with the procedures of DTC, however, purchasers
of Cumulative Preferred Stock will be deemed the beneficial owners of shares
purchased for purposes of dividends, voting and liquidation rights. Purchasers
of Cumulative Preferred Stock may obtain registered certificates by contacting
the Transfer Agent (as defined below).
DESCRIPTION OF CAPITAL STOCK AND OTHER SECURITIES
Common Stock. The Fund, which was incorporated under the laws of the State
of Maryland on March 31, 1994, is authorized to issue 198,000,000 shares of
Common Stock, par value $.001 per share. Each share has equal voting, dividend,
distribution and liquidation rights. The shares issued and outstanding are fully
paid and non-assessable. Shares of the Common Stock are not redeemable and have
no preemptive, conversion or cumulative voting rights. The Fund's shares are
listed and traded on the NYSE under the symbol "GGT."
Preferred Stock. The Fund's Board of Directors has authority to cause the
Fund to issue and sell up to 2,000,000 shares of Preferred Stock, par value
$.001 per share. The terms of such Preferred Stock would be fixed by the Board
of Directors and would materially limit and/or qualify the rights of the holders
of the Fund's Common Stock. The Board of Directors has designated 1,250,000
shares of Preferred Stock as the Cumulative Preferred Stock offered hereby. All
shares of Cumulative Preferred Stock, when issued in accordance with the terms
of the Offering, will be fully paid and nonassessable. See "Description of
Cumulative Preferred Stock."
The following table shows the number of shares of (i) capital stock
authorized, (ii) capital stock held by the Fund for its own account and (iii)
capital stock outstanding for each class of authorized securities of the Fund as
of April 1, 1997 as if the Offering had been completed by such date.
<TABLE>
<CAPTION>
AMOUNT HELD
BY FUND FOR
AMOUNT ITS OWN AMOUNT
TITLE OF CLASS AUTHORIZED ACCOUNT OUTSTANDING
------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Common Stock......................... 198,000,000 400,000 11,076,548
Preferred Stock...................... 2,000,000 0 1,250,000
</TABLE>
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<PAGE> 32
TAXATION
The following is a description of certain U.S. Federal income tax
consequences to a shareholder of acquiring, holding and disposing of Cumulative
Preferred and Common Shares of the Fund. The discussion reflects applicable tax
laws of the United States as of the date of this Prospectus, which tax laws may
be changed or subject to new interpretations by the courts or the Internal
Revenue Service retroactively or prospectively.
No attempt is made to present a detailed explanation of all U.S. Federal,
state, local and foreign tax concerns affecting the Fund and its shareholders,
and the discussions set forth here do not constitute tax advice. Investors are
urged to consult their own tax advisers to determine the tax consequences to
them of investing in the Fund.
TAXATION OF THE FUND
The Fund has qualified as and intends to continue to qualify as and elect
to be a RIC under Subchapter M of the Code. If it so qualifies, the Fund will
not be subject to U.S. Federal income tax on the portion of its net investment
income (i.e., its investment company taxable income as defined in the Code
without regard to the deduction for dividends paid) and its net capital gain
(i.e., the excess of its net realized long-term capital gain over its net
realized short-term capital loss) which it distributes to its shareholders in
each taxable year, provided that it distributes to its shareholders at least 90%
of its net investment income for such taxable year.
Qualification as a RIC requires, among other things, that the Fund: (a)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stock, securities or currencies; (b)
derive less than 30% of its gross income in each taxable year from the sale or
other disposition of any of the following held for less than three months:
stock, securities, options, futures, certain forward contracts, or foreign
currencies (or any options, futures or forward contracts on foreign currencies)
but only if such currencies are not directly related to the Fund's principal
business of investing in stock or securities (the "30% limitation"); and (c)
diversify its holdings so that, at the end of each quarter of each taxable year,
(i) at least 50% of the market value of the Fund's assets is represented by
cash, cash items, U.S. government securities, securities of other RICs and other
securities with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the value of the Fund's assets and 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 of any one issuer (other than
U.S. government securities or the securities of other RICs).
If the Fund were unable to satisfy the 90% distribution requirement or
otherwise were to fail to qualify to be taxed as a RIC in any year, it would be
subject to tax in such year on all of its taxable income, whether or not the
Fund made any distributions. To qualify again to be taxed as a RIC in a
subsequent year, the Fund would be required to distribute to Cumulative
Preferred Shareholders and Common Shareholders as a dividend paid out of the
Fund's net investment income (an "Ordinary Income Dividend"), its earnings and
profits attributable to non-RIC years reduced by an interest charge on 50% of
such earnings and profits payable by the Fund to the IRS. In addition, if the
Fund failed to qualify as a RIC for a period greater than one taxable year, then
the Fund would be required to recognize and pay tax on any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if the Fund had been liquidated) in order to
qualify as a RIC in a subsequent year. To the extent possible, the Fund intends
to make sufficient distributions to avoid application of the corporate income
tax.
Under the Code, amounts not distributed by a RIC on a timely basis in
accordance with a calendar year distribution requirement are subject to a 4%
excise tax. To avoid the tax, the Fund must distribute during each calendar
year, an amount equal to, at the minimum, the sum of (1) 98% of its ordinary
income for the calendar year, (2) 98% of its capital gain net income for the one
year period ending on October 31 of such year (unless an election is made by a
fund with a November or December year-end to use the fund's fiscal year), and
(3) all ordinary income and capital gain net income for previous years that were
not previously distributed. While the Fund intends to distribute its ordinary
income and capital gain net income in the
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<PAGE> 33
manner necessary to minimize imposition of the 4% excise tax, there can be no
assurance that sufficient amounts of the Fund's ordinary income and capital gain
net income will be distributed to avoid entirely the imposition of the tax. In
such event, the Fund will be liable for the tax only on the amount by which it
does not meet the foregoing distribution requirements.
If the Fund does not meet the asset coverage requirements of the 1940 Act
and the Articles Supplementary, the Fund will be required to suspend
distributions to the holders of the common stock until the asset coverage is
restored. See "Description of Cumulative Preferred Stock -- Dividends" and
"Description of Capital Stock and Other Securities." Such a suspension of
distributions might prevent the Fund from distributing 90% of its net investment
income, as is required in order to avoid Fund-level taxation on the Fund's
distributions, or might prevent it from distributing enough income and capital
gain to avoid completely the imposition of the excise tax. Upon any failure to
meet the asset coverage requirements of the 1940 Act or the Articles
Supplementary, the Fund may, and in certain circumstances will, be required to
partially redeem the shares of Cumulative Preferred Stock in order to restore
the requisite asset coverage and avoid the adverse consequences to the Fund and
its shareholders of failing to qualify as a RIC. If asset coverage were
restored, the Fund would again be able to pay dividends and might be able to
avoid Fund-level taxation on the Fund's undistributed income.
TAXATION OF SHAREHOLDERS
Ordinary Income Dividends (which include the Fund's net short-term capital
gain) are taxable to shareholders as ordinary income. A portion of the Fund's
Ordinary Income Dividends may qualify for the dividends received deduction
available to corporations.
At the time of a shareholder's purchase, the market price of the Fund's
Common Stock or Cumulative Preferred Stock may reflect undistributed net
investment income or net capital gain. A subsequent distribution of these
amounts by the Fund will be taxable to the shareholder even though the
distribution economically is a return of part of the shareholder's investment.
Investors should carefully consider the tax implications of acquiring shares
just prior to a distribution, as they will receive a distribution that would be
taxable to them.
Distributions made from net capital gain which are designated by the Fund
as Capital Gain Dividends are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
In general, the maximum Federal income tax rate imposed on individuals with
respect to capital gain dividends is 28%, whereas the maximum federal income tax
rate imposed on individuals with respect to ordinary income (and short-term
capital gains) is 39.6%. With respect to corporate taxpayers, long-term capital
gains currently are taxed at the same Federal income tax rates as ordinary
income and short-term capital gains.
In recent years, a number of legislative proposals concerning the tax
treatment of capital gains have been introduced in Congress. The proposals have
ranged from eliminating the preferential treatment of capital gains to
eliminating tax on capital gains. It cannot be predicted whether any of these
proposals may ultimately become law, nor can the effective date of any
legislation be anticipated. Any change in the tax treatment of capital gains,
however, would have an effect on the tax consequences of an investment in
Cumulative Preferred Stock. Shareholders may be entitled to offset their Capital
Gain Dividends with capital losses. There are a number of statutory provisions
affecting when capital losses may be offset against capital gains and limiting
the use of losses from certain investments and activities. Accordingly,
shareholders with capital losses are urged to consult their tax advisers.
Dividends are taxable to shareholders whether they are paid in cash or paid
in additional shares of stock under the Fund's plan for the automatic
reinvestment of dividends. Generally, shareholders will be taxed on dividends in
the year of receipt, however, if the Fund declares a dividend in October,
November or December to shareholders of record on a specified date in such a
month which is actually paid during the following January, the dividend will be
deemed to have been paid by the Fund (and received by the shareholders) on
December 31 of the year in which the dividend is declared. Not later than 60
days after the close of its taxable year, the Fund will provide its shareholders
with a written notice designating the amounts of any Ordinary Income Dividends
or Capital Gain Dividends. Distributions in excess of the Fund's earnings and
profits will
31
<PAGE> 34
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
The sale, redemption or other disposition of Fund shares is a taxable event
and may result in a gain or loss. Such gain or loss will generally be a capital
gain or loss if the shares are capital assets in the hands of the shareholder
and will be long-term capital gain or loss if the shares have been held for more
than one year. Any loss upon the sale or exchange of Fund shares held for six
months or less, however, will be treated as a long-term capital loss to the
extent of any Capital Gain Dividends received by the shareholder. A loss
realized on a sale or exchange of shares of the Fund will be disallowed if other
Fund shares of the same class are acquired within a 61-day period beginning 30
days before and ending 30 days after the date on which the shares are disposed.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Since the Fund may invest in foreign securities, its income from such
securities may be subject to non-U.S. taxes. If the Fund satisfies the
distribution requirements to be taxed as a RIC during a taxable year, and if 50%
of the Fund's total assets at the end of its taxable year consist of stock or
securities of foreign corporations, it may elect to "pass-through" to its
shareholders the ability to use the foreign tax deduction or credit for foreign
taxes paid with respect to qualifying taxes. If the Fund makes such an election,
a taxpayer would be required to include in income its proportionate share of the
qualifying foreign taxes paid by the Fund and would be allowed to either deduct
the amount of such taxes from its taxable income or to use such taxes as a
credit against its U.S. federal income tax liability. In general, it will be
more beneficial for a taxpayer to use its proportionate share of such taxes paid
by the Fund as a foreign tax credit. If the Fund elects to pass-through the
benefit of the deduction or credit allowed for qualifying foreign taxes it has
paid in a given year, it will send each Shareholder a written notice of the
portion of the Fund's dividends that represents income from sources within each
foreign country and the amount of such Shareholder's proportionate share of
foreign taxes paid to each foreign country.
Designation of Capital Gain Dividends to Cumulative Preferred Stock. The
IRS has taken the position in Revenue Ruling 89-81 that if a RIC has two classes
of shares, it may designate distributions made to each class in any year as
consisting of no more than such class's proportionate share of particular types
of income, such as long-term capital gain and foreign taxes paid by the RIC (if
such taxes are subject to a "pass-through" election as described above). A
class's proportionate share of a particular type of income is determined
according to the percentage of total dividends paid by the RIC during such year
that was paid to such class. Consequently, the Fund will designate distributions
made to the Common Stock and Cumulative Preferred Stock and any other Preferred
Stock series as consisting of particular types of income in accordance with the
classes' proportionate shares of such income. Because of this rule, the Fund is
required to allocate a portion of its net capital gains and foreign taxes paid
to holders of Common Stock, holders of Cumulative Preferred Stock and any other
Preferred Stock. The amount of net capital gains, other types of income and
foreign taxes paid allocable among holders of the Common Stock, the Cumulative
Preferred Stock and any other Preferred Stock will depend upon the amount of
such gains and other income realized by and taxes paid by the Fund and the total
dividends paid by the Fund on shares of Common Stock and Cumulative Preferred
Stock and any other Preferred Stock during a taxable year.
The Fund believes that under current law the manner in which the Fund
intends to allocate net capital gains, other types of income and foreign taxes
paid between shares of Common Stock and Cumulative Preferred Stock will be
respected for Federal income tax purposes. However, the Fund has not requested
and will not request direct guidance from the IRS specifically addressing
whether the Fund's method of allocation will be respected for Federal income tax
purposes, and it is possible that the IRS could disagree with the Fund and
attempt to reallocate the Fund's net capital gains, other taxable income and
foreign taxes paid.
WITHHOLDING AND OTHER TAXES
Ordinary Income Dividends (but not Capital Gain Dividends) paid to
shareholders who are nonresident aliens or foreign entities will be subject to a
30% United States withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding
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<PAGE> 35
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
United States withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on Ordinary Income Dividends, Capital Gain Dividends and
redemption payments ("backup withholding"). A shareholder, however, may
generally avoid becoming subject to this requirement by filing an appropriate
form with the payor (i.e., the financial institution or brokerage firm where the
shareholder maintains his or her account), certifying under penalties of perjury
that such shareholder's taxpayer identification number is correct and that such
shareholder has never been notified by the IRS that he or she is subject to
backup withholding, has been notified by the IRS that he or she is no longer
subject to backup withholding, or is exempt from backup withholding. Corporate
shareholders and certain other shareholders are exempt from backup withholding.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a shareholder may be credited
against such shareholder's Federal income tax liability.
Distributions may also be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Cumulative Preferred Stock.
THE FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE APPLICABLE
PROVISIONS OF THE CODE AND TREASURY REGULATIONS PRESENTLY IN EFFECT. A MORE
COMPLETE DISCUSSION OF THE TAX RULES APPLICABLE TO THE FUND CAN BE FOUND IN THE
SAI WHICH IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. FOR THE COMPLETE
PROVISIONS APPLICABLE TO BOTH SHAREHOLDERS AND THE FUND, REFERENCE SHOULD BE
MADE TO THE PERTINENT CODE SECTIONS AND THE TREASURY REGULATIONS PROMULGATED
THEREUNDER. THE CODE AND THE TREASURY REGULATIONS ARE SUBJECT TO CHANGE BY
LEGISLATIVE, JUDICIAL OR ADMINISTRATIVE ACTION, EITHER PROSPECTIVELY OR
RETROACTIVELY.
CERTAIN PROVISIONS OF THE CHARTER AND BY-LAWS
The Fund presently has provisions in its Charter 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 shareholders to amend the Governing
Documents or effectuate changes in the Fund's management. These provisions of
the Governing Documents of the Fund may be regarded as "antitakeover"
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 shareholders 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 66 2/3% of each class of its outstanding voting 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);
33
<PAGE> 36
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 "Additional 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
shareholder. The Board of Directors has determined that the foregoing voting
requirements are in the best interests of the shareholders generally.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company serves as Custodian for the Fund's cash
and securities as well as the Transfer Agent and Dividend-Disbursing Agent for
its shares. Boston EquiServe LP, an affiliate of State Street, performs the
shareholder services on behalf of State Street and is located at 150 Royall
Street, Canton, MA 02021. State Street does not assist in and is not responsible
for investment decisions involving assets of the Fund.
UNDERWRITING
Upon the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below for whom Smith
Barney Inc. and Gabelli & Company, Inc. are acting as the Representatives (the
"Representatives") has severally agreed to purchase, and the Fund has agreed to
sell to such Underwriter, the number of shares of Cumulative Preferred Stock set
forth opposite the name of such Underwriter:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc. ................................................................
Gabelli & Company, Inc. ..........................................................
---------
---------
Total................................................................... 1,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Cumulative
Preferred Stock offered hereby are subject to the approval of certain legal
matters by counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all shares of Cumulative Preferred Stock offered
hereby if any are taken.
The Underwriters propose to offer part of the shares of Cumulative
Preferred Stock offered hereby directly to the public at the public offering
price set forth on the cover page of this Prospectus and part of the shares to
certain dealers at a price which represents a concession not in excess of $
per share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
other dealers. After the initial offering of the shares of Cumulative Preferred
Stock to the public, the public offering price and such concessions may be
changed by the Underwriters. The underwriting discount of $ per share is
equal to % of the initial offering price. Investors must pay for any shares
of Cumulative Preferred Stock purchased on or before June, 1997.
The Fund and the Adviser have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the 1933 Act.
34
<PAGE> 37
The Underwriters have advised the Fund that, pursuant to Regulation M under
the 1933 Act, certain persons participating in the Offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the Cumulative Preferred Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Cumulative Preferred Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the
Cumulative Preferred Stock. A "syndicate covering transaction" is a bid for or
purchase of the Cumulative Preferred Stock on behalf of the Underwriters to
reduce a short position incurred by the Underwriters in connection with the
Offering. A "penalty bid" is an arrangement permitting the Underwriters to
reclaim the selling concession otherwise accruing to an Underwriter or selling
group member in connection with the Offering if any of the Cumulative Preferred
Stock originally sold by such Underwriter or selling group member is purchased
in a syndicate covering transaction and has therefore not been effectively
placed by such Underwriter or selling group member. The Underwriters have
advised the Company that such transactions may be effected on the NYSE otherwise
and, if commenced, may be discontinued at any time.
The Underwriters have acted in the past and may continue to act from time
to time during and subsequent to the completion of the offering of Cumulative
Preferred Stock hereunder as a broker or dealer in connection with the execution
of portfolio transactions for the Fund. See "Portfolio Transactions" in the SAI.
Prior to the Offering, there has been no public market for the Cumulative
Preferred Stock. Application has been made to list the Cumulative Preferred
Stock on the NYSE. However, during an initial period which is not expected to
exceed 30 days after the date of this Prospectus, the Cumulative Preferred Stock
will not be listed on any securities exchange. During such period, the
Underwriters intend to make a market in the Cumulative Preferred Stock; however,
they have no obligation to do so. Consequently, an investment in the Cumulative
Preferred Stock may be illiquid during such period.
Gabelli & Company, Inc. is a wholly-owned subsidiary of Gabelli Securities,
Inc., which is a majority-owned subsidiary of the Adviser which is, in turn,
owned by Mario J. Gabelli. As a result of these relationships, Mr. Gabelli, the
Fund's President and Chief Investment Officer, may be deemed to be a
"controlling person" of Gabelli & Company, Inc. For additional Information
regarding these affiliations, see "Management of the Funds." The Underwriters
and the Fund have retained Financial Products Group, Inc. to provide certain
services in connection with the Offering.
Smith Barney Inc. and Gabelli & Company, Inc. have provided investment
banking and financial advisory services to the Fund.
LEGAL MATTERS
Certain matters concerning the legality under Maryland law of the
Cumulative Preferred Stock will be passed on by Miles & Stockbridge, Baltimore,
Maryland. Certain legal matters will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, special counsel to the Fund, and by
Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York, counsel to the Underwriters. Skadden, Arps,
Slate, Meagher & Flom LLP and Simpson Thacher & Bartlett will each rely as to
matters of Maryland law on the opinion of Miles & Stockbridge.
EXPERTS
Price Waterhouse LLP, independent accountants, are the independent
accountants of the Fund. The audited financial statements of the Fund and the
information appearing under the caption "Financial Highlights" included in this
Prospectus have been audited by Price Waterhouse LLP for the periods indicated
in its report with respect thereto, and are included in reliance upon such
report and upon the authority of such firm as experts in accounting and
auditing. Price Waterhouse LLP has an office at 1177 Avenue of the Americas, New
York, New York 10036, and also performs tax and other professional services for
the Fund.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act and in accordance therewith
files reports and other information with the SEC. Reports, proxy statements and
other information filed by the Fund with the SEC pursuant to the informational
35
<PAGE> 38
requirements of such Acts can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the SEC: Northeast Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048; Pacific Regional Office, 5670 Wilshire Boulevard, 11th
Floor, Los Angeles, California 90036-3648; and Midwest Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and copies of such material can be obtained from the Public
Reference Section of the SEC, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Fund, that file
electronically with the SEC.
The Fund's Common Stock is listed on the NYSE, and reports, proxy
statements and other information concerning the Fund and filed with the SEC by
the Fund can be inspected at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005.
This Prospectus constitutes part of a Registration Statement filed by the
Fund with the SEC under the 1933 Act and the 1940 Act. This Prospectus omits
certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and related exhibits for
further information with respect to the Fund and the Cumulative Preferred Stock
offered hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the SEC. Each such statement is qualified in its
entirety by such reference. The complete Registration Statement may be obtained
from the SEC upon payment of the fee prescribed by its rules and regulations.
TABLE OF CONTENTS OF SAI
An SAI dated May , 1997 has been filed with the SEC and is incorporated
by reference in this Prospectus. An SAI may be obtained without charge by
writing to the Fund at its address at One Corporate Center, Rye, New York
10580-1434 or by calling the Fund toll-free at (800) GABELLI (422-3554). The
Table of Contents of the SAI is as follows:
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES................................................... B-2
INVESTMENT RESTRICTIONS.............................................................. B-11
MANAGEMENT OF THE FUND............................................................... B-12
THE ADVISER.......................................................................... B-17
PORTFOLIO TRANSACTIONS............................................................... B-18
TAXATION............................................................................. B-19
MOODY'S DISCOUNT FACTORS............................................................. B-23
NET ASSET VALUE...................................................................... B-26
GENERAL INFORMATION.................................................................. B-27
BENEFICIAL OWNER..................................................................... B-28
FINANCIAL STATEMENTS................................................................. B-28
</TABLE>
36
<PAGE> 39
GLOSSARY
"Adjusted Assets" means the aggregate Adjusted Value of all the Moody's
Eligible Assets.
"Adjusted Value" of each Moody's Eligible Asset shall be computed as
follows:
(i) Cash shall be valued at 100% of the face value thereof; and
(ii) all other Moody's Eligible Assets shall be valued at the
Discounted Value thereof; and
(iii) each asset that is not a Moody's Eligible Asset shall be valued
at zero.
"Articles Supplementary" means the Fund's Articles Supplementary creating
and fixing the rights of the Cumulative Preferred Stock.
"Asset Coverage" has the meaning set forth on page 24 of this Prospectus.
"Basic Maintenance Amount" means, as of any Valuation Date, the dollar
amount equal to (i) the sum of (A) the product, calculated separately for each
series of Cumulative Preferred Stock, of the number of shares of Cumulative
Preferred Stock outstanding on such Valuation Date multiplied by the liquidation
preference per share; (B) the aggregate amount of cash dividends (whether or not
earned or declared) that will have accumulated for each outstanding share of
Cumulative Preferred Stock from the most recent Dividend Payment Date to which
dividends have been paid or duly provided for (or, in the event the Basic
Maintenance Amount is calculated on a date prior to the initial Dividend Payment
Date with respect to a series of the Cumulative Preferred Stock, then from the
Date of Original Issue) through the Valuation Date plus all dividends to
accumulate on the Preferred Stock then outstanding during the 70 days following
such Valuation Date or, if less, during the number of days following such
Valuation Date that shares of Preferred Stock called for redemption are
scheduled to remain outstanding; (C) the Fund's other liabilities due and
payable as of such Valuation Date (except that dividends and other distributions
payable by the Fund by the issuance of Common Stock will not be included as a
liability) and such liabilities projected to become due and payable the Fund
during the 90 days following such Valuation Date (excluding liabilities for
investments to be purchased and for dividends and other distributions not
declared as of such Valuation Date); (D) any current liabilities of the Fund as
of such Valuation Date to the extent not reflected in any of (i)(A) through
(i)(C) (including, without limitation, and immediately upon determination, any
amounts due and payable by the Fund pursuant to reverse repurchase agreements
and any payables for assets purchased as of such Valuation Date) less (ii) the
Adjusted Value of any of the Fund's assets if such assets are either cash or
evidences of indebtedness which mature prior to or on the date of redemption or
repurchase of Preferred Stock or payment of another liability and are either
U.S. Government Obligations or evidences of indebtedness which have a rating
assigned by Moody's of at least Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at least
AAA, SP-1+ or A-1+, and are irrevocably held by the Fund's custodian bank in a
segregated account or deposited by the Fund with the Dividend - Disbursing Agent
for the payment of the amounts needed to redeem or repurchase Cumulative
Preferred Stock subject to redemption or repurchase or any of (i)(B) through
(i)(D) and provided that in the event the Fund has repurchased Cumulative
Preferred Stock at a price of less than the liquidation preference thereof and
irrevocably segregated or deposited assets as described above with its custodian
bank or the Dividend - Disbursing Agent for the payment of the repurchase price
the Fund may deduct 100% of the liquidation preference of such Cumulative
Preferred Stock to be repurchased from (i) above.
"Basic Maintenance Report" has the meaning set forth on page 25 of this
Prospectus.
"Business Day" means a day on which the New York Stock Exchange is open for
trading and that is neither a Saturday, Sunday nor any other day on which banks
in the City of New York are authorized by law to close.
"Charter" means the Articles of Incorporation, as amended and supplemented
(including the Articles Supplementary), of the Fund on file in the State
Department of Assessments and Taxation of Maryland.
"Common Stock" means the Common Stock, par value $.001 per share, of the
Fund.
37
<PAGE> 40
"Cumulative Preferred Stock" means the % Cumulative Preferred Stock, par
value $.001 per share, of the Fund.
"Cure Date" has the meaning set forth on page 25 of this Prospectus.
"Date of Original Issue" has the meaning set forth on page 24 of this
Prospectus.
"Deposit Assets" means cash, Short-Term Money Market Instruments and U.S.
Government Obligations. Except for determining whether the Fund has Adjusted
Assets equal to or greater than the Basic Maintenance Amount, each Deposit Asset
will be deemed to have a value equal to its principal or face amount payable at
maturity plus any interest payable thereon after delivery of such Deposit Asset
but only if payable on or prior to the applicable payment date in advance of
which the relevant deposit is made.
"Discounted Value" means, with respect to a Moody's Eligible Asset, the
quotient of (A) in the case of non-convertible fixed income instruments, the
lower of the principal amount or liquidation preferences and the market value
thereof or (B) in the case of any other Moody's Eligible Assets, the market
value thereof, divided by the applicable Moody's Discount Factor.
"Dividend-Disbursing Agent" means State Street Bank and Trust Company and
its successors or any other paying agent appointed by the Fund.
"Dividend Payment Date" has the meaning set forth on page 24 of this
Prospectus.
"Fund" means The Gabelli Global Multimedia Trust Inc., a Maryland
corporation.
"Liquidation Payment" has the meaning set forth on page 26 of this
Prospectus.
"Moody's" means Moody's Investors Service, Inc.
"Moody's Discount Factor" means, with respect to a Moody's Eligible Asset
specified below, the numbers set forth in the SAI under the heading "Moody's
Discount Factors."
"Moody's Eligible Assets" means:
i. cash (including, for this purpose, receivables for investments sold to a
counterparty whose senior debt securities are rated at least Baa3 by Moody's or
a counterparty approved by Moody's and payable within five Business Days
following such Valuation Date and dividends and interest receivable within 70
days on investments);
ii. Short-Term Money Market Instruments;
iii. commercial paper that is not includible as a Short-Term Money Market
Instrument having on the Valuation Date a rating from Moody's of at least P-1
and maturing within 270 days;
iv. preferred stocks (A) which either (1) are issued by issuers whose
senior debt securities are rated at least Baa1 by Moody's or (2) are rated at
least "baa3" by Moody's (or in the event an issuer's senior debt securities or
preferred stock is not rated by Moody's, which either (1) are issued by an
issuer whose senior debt securities are rated at least A- by S&P or (2) are
rated at least A- by S&P and for this purpose have been assigned a Moody's
equivalent rating of at least "baa3"), (B) of issuers which have (or, in the
case of issuers which are special purpose corporations, whose parent companies
have) common stock listed on the NYSE, the American Stock Exchange or the NASDAQ
National Market System, (C) which have a minimum issue size (when taken together
with other of the issuer's issues of similar tenor) of $50,000,000, (D) which
have paid cash dividends consistently during the preceding three-year period
(or, in the case of new issues without a dividend history, are rated at least
"a1" by Moody's or, if not rated by Moody's, are rated at least AA- by S&P), (E)
which pay cumulative cash dividends in U.S. dollars, (F) which are not
convertible into any other class of stock and do not have warrants attached, (G)
which are not issued by issuers in the transportation industry and (H) in the
case of auction rate preferred stocks, which are rated at least "aa3" by
Moody's, or if not rated by Moody's, AAA by S&P or are otherwise approved in
writing by Moody's and have never had a failed auction; provided, however, that
for this purpose the aggregate market
38
<PAGE> 41
value of the Fund's holdings of any issue of preferred stock will not be less
than $500,000 nor more than $5,000,000;
v. common stocks (A) which are traded on the NYSE, the American Stock
Exchange or through the NASDAQ system in the over-the-counter market, (B) which,
if cash dividend paying, pay cash dividends in U.S. dollars, (C) which may be
sold without restriction by the Fund; provided, however, that (1) common stock
which, while a Moody's Eligible Asset owned by the Fund, ceases paying any
regular cash dividend will no longer be considered a Moody's Eligible Asset
after 71 days following the date of the announcement of such cessation, unless
the issuer of the common stock has senior debt securities rated at least A3 by
Moody's and (2) the aggregate market value of the Fund's holdings of the common
stock of any issuer in excess of 4% in the case of utility common stock and 6%
in the case of non-utility common stock of the number of outstanding shares
times the market value of such common stock shall not be a Moody's Eligible
Asset, and (D) which are securities denominated in any currency other than the
U.S. dollar and securities of issuers formed under the laws of jurisdictions
other than the United States, its states and the District of Columbia for which
there are dollar-denominated American Depository Receipts ("ADRs") which are
traded in the United States on exchanges or over-the-counter and are issued by
banks formed under the laws of the United States, its states or the District of
Columbia; provided, however, that the aggregate market value of the Fund's
holdings of securities denominated in currencies other than the U.S. dollar and
ADRs in excess of 6% of the aggregate market value of the outstanding shares of
common stock of such issuer or in excess of 10% of the market value of the
Moody's Eligible Assets with respect to issuers formed under the laws of any
single such non-U.S. jurisdiction shall not be a Moody's Eligible Asset;
vi. U.S. Government Obligations;
vii. corporate evidences of indebtedness (A) which are rated at least B3
(Caa subordinate) by Moody's (or, in the event the security is not rated by
Moody's, the security is rated at least BB- by S&P and which for this purpose is
assigned a Moody's equivalent rating of one full rating category lower), with
such rating confirmed on each Valuation Date, (B) which have a minimum issue
size of at least (x) $100,000,000 if rated at least Baa3 or (y) $50,000,000 if
rated B or Ba3, (C) which are U.S. dollar denominated and pay interest in cash
in U.S. dollars, (D) which are not convertible or exchangeable into equity of
the issuing corporation and have a maturity of not more than 30 years, (E) for
which, if rated below Baa3, the aggregate market value of the Fund's holdings do
not exceed 10% of the aggregate market value of any individual issue of
corporate evidences of indebtedness calculated at the time of original issuance,
(F) the cash flow from which must be controlled by an indenture trustee and (G)
which are not issued in connection with a reorganization under any bankruptcy
law;
viii. convertible corporate evidences of indebtedness (A) which are issued
by issuers whose senior debt securities are rated at least B2 by Moody's (or, in
the event an issuer's senior debt securities are not rated by Moody's, which are
issued by issuers whose senior debt securities are rated at least BB by S&P and
which for this purpose is assigned a Moody's equivalent rating of one full
rating category lower), (B) which are convertible into common stocks which are
traded on the NYSE or the American Stock Exchange or are quoted on the NASDAQ
National Market System and (C) which, if cash dividend paying, pay cash
dividends in U.S. dollars; provided, however, that once convertible corporate
evidences of indebtedness have been converted into common stock, the common
stock issued upon conversion must satisfy the criteria set forth in clause (v)
above and other relevant criteria set forth in this definition in order to be a
Moody's Eligible Asset;
provided, however, that the Fund's investments in auction rate preferred stocks
described in clause (iv) above shall be included in Moody's Eligible Assets only
to the extent that the aggregate market value of such stocks does not exceed 10%
of the aggregate market value of all of the Fund's investments meeting the
criteria set forth in clauses (i) through (vii) above less the aggregate market
value of those investments excluded from Moody's Eligible Assets pursuant to the
proviso appearing after clause (ix) below; and
(ix) no assets which are subject to any lien or irrevocably deposited by
the Fund for the payment of amounts needed to meet the obligations described in
clauses (i)(A) through (i)(D) of the definition of "Basic Maintenance Amount"
may be includible in Moody's Eligible Assets.
39
<PAGE> 42
Notwithstanding anything to the contrary in the preceding clauses (i)-(ix),
the Fund's investment in preferred stock, common stock, corporate evidences of
indebtedness and convertible corporate evidences of indebtedness shall not be
treated as Moody's Eligible Assets except to the extent they satisfy the
following diversification requirements (utilizing Moody's industry and
sub-industry categories):
ISSUER:
<TABLE>
<CAPTION>
NON-UTILITY UTILITY
MAXIMUM SINGLE MAXIMUM SINGLE
MOODY'S RATING(1)(2) ISSUER(3)(4) ISSUER(3)(4)
- ----------------------------------------------------------- --------------- ---------------
<S> <C> <C>
"aaa", Aaa................................................. 100% 100%
"aa", Aa................................................... 20% 20%
"a", A..................................................... 10% 10%
CS/CB, "Baa", Baa(5)....................................... 6% 4%
Ba......................................................... 4% 4%
B1/B2...................................................... 3% 3%
B3 (Caa subordinate)....................................... 2% 2%
</TABLE>
<TABLE>
<CAPTION>
UTILITY UTILITY
NON-UTILITY MAXIMUM MAXIMUM
MAXIMUM SINGLE SINGLE SUB- SINGLE
MOODY'S RATING(1) INDUSTRY(3) INDUSTRY(3)(6) STATE(3)
- ------------------------------------------------------ -------------- ------------ -------
<S> <C> <C> <C>
"aaa", Aaa............................................ 100% 100% 100%
"aa", Aa.............................................. 60% 60% 20%
"a", A................................................ 40% 50% 10%(7)
CS/CB, "baa", Baa(5).................................. 20% 50% 7%(7)
Ba.................................................... 12% 12% 0%
B1/B2................................................. 8% 8% 0%
B3 (Caa subordinate).................................. 5% 5% 0%
</TABLE>
- ---------------
(1) The equivalent Moody's rating must be lowered one full rating category for
preferred stocks, corporate bonds and convertible corporate bonds rated by
S&P but not by Moody's.
(2) Corporate bonds from issues ranging $50,000,000 to $100,000,000 are limited
to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for the
related Moody's rating category and each lower Moody's rating category.
(4) Issuers subject to common ownership of 25% or more are considered as one
name.
(5) CS/CB refers to common stock and convertible corporate evidences of
indebtedness, which are diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility,
evidences of indebtedness and utility convertible evidences of indebtedness,
the definition of industry refers to sub-industries (electric, water, hydro
power, gas, diversified). Investments in other sub-industries are eligible
only to the extent that the combined sum represents a percentage position of
Moody's Eligible Assets less than or equal to the percentage limits in the
diversification tables above.
(7) Such percentage will be 15% in the case of utilities regulated by
California, New York and Texas.
"1933 Act" means The Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Notice of Redemption" has the meaning set forth on page 26 of this
Prospectus.
"Preferred Stock" means the preferred stock, par value $.001 per share, of
the Fund, and includes the Cumulative Preferred Stock.
40
<PAGE> 43
"Quarterly Valuation Date" means the last Valuation Date in March, June,
September and December of each year, commencing June, 1997.
"Redemption Price" has the meaning set forth on page 25 of this Prospectus.
"SEC" means the Securities and Exchange Commission.
"Short-Term Money Market Instruments" means the following types of
instruments if, on the date of purchase or other acquisition thereof by the Fund
(or, in the case of an instrument specified by clauses (i) and (ii) below, on
the Valuation Date), the remaining terms to maturity thereof are not in excess
of 90 days:
(i) U.S. Government Obligations;
(ii) commercial paper that is rated at the time of purchase or acquisition
and the Valuation Date at least P-1 by Moody's and is issued by an issuer (or
guaranteed or supported by a person or entity other than the issuer) whose
long-term unsecured debt obligations are rated at least Aa3 by Moody's;
(iii) demand or time deposits in or certificates of deposit of or banker's
acceptances issued by (A) a depository institution or trust company incorporated
under the laws of the United States of America or any state thereof or the
District of Columbia or (B) a United States branch office or agency of a foreign
depository institution (provided that such branch office or agency is subject to
banking regulation under the laws of the United States, any state thereof or the
District of Columbia) if, in each case, the commercial paper, if any, and the
long-term unsecured debt obligations (other than such obligations the ratings of
which are based on the credit of a person or entity other than such depository
institution or trust company) of such depository institution or trust company at
the time of purchase or acquisition and the Valuation Date, have (1) credit
ratings from Moody's of at least P-1 in the case of commercial paper and (2)
credit ratings from Moody's of at least Aa3 in the case of long-term unsecured
debt obligations; provided, however, that in the case of any such investment
that matures in no more than one Business Day from the date of purchase or other
acquisition by the Fund, all of the foregoing requirements will be applicable
except that the required long-term unsecured debt credit rating of such
depository institution or trust company from Moody's will be at least A2; and
provided, further, however, that the foregoing credit rating requirements will
be deemed to be met with respect to a depository institution or trust company if
(1) such depository institution or trust company is the principal depository
institution in a holding company system, (2) the commercial paper, if any, of
such depository institution or trust company is not rated below P-1 by Moody's
and (3) the holding company will meet all of the foregoing credit rating
requirements (including the preceding proviso in the case of investments that
mature in no more than one Business Day from the date of purchase or other
acquisition by the Fund);
(iv) repurchase obligations with respect to any U.S. Government Obligation
entered into with a depository institution, trust company or securities dealer
(acting as principal) which is rated (A) at least Aa3 if the maturity is three
months or less, (B) at least A1 if the maturity is two months or less and (C) at
least A2 if the maturity is one month or less; and
(v) Eurodollar demand or time deposits in, or certificates of deposit of,
the head office or the London branch office of a depository institution or trust
company meeting the credit rating requirements of commercial paper and long-term
unsecured debt obligations specified in clause (iii) above, provided that the
interest receivable by the Fund will be payable in U.S. dollars and will not be
subject to any withholding or similar taxes.
"S&P" means Standard & Poor's Ratings Services.
"U.S. Government Obligations" means direct non-callable obligations of the
United States, provided that such direct obligations are entitled to the full
faith and credit of the United States and that any such obligations, other than
United States Treasury Bills and U.S. Treasury Securities Strips, provide for
the periodic payment of interest and the full payment of principal at maturity.
"Valuation Date" means the day of the week specified by the Board of
Directors for the weekly determination of net asset value of the Fund.
41
<PAGE> 44
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER OR THE UNDERWRITERS. 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
AFFAIRS OF THE FUND SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCE IN WHICH SUCH AN OFFER OR SOLICITATION IS
UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Financial Highlights.................. 10
Use of Proceeds....................... 11
Capitalization........................ 11
The Fund.............................. 12
Investment Objectives and Policies.... 12
Special Investment Methods............ 14
Risk Factors and Special
Considerations...................... 18
Management of the Fund................ 20
Dividend and Distribution Policy...... 22
Description of Cumulative Preferred
Stock............................... 22
Description of Capital Stock and Other
Securities.......................... 29
Taxation.............................. 29
Certain Provisions of the Charter and
By-laws............................. 33
Custodian, Transfer Agent and
Dividend-Disbursing Agent........... 33
Underwriting.......................... 34
Legal Matters......................... 35
Experts............................... 35
Additional Information................ 35
Table of Contents of SAI.............. 36
Glossary.............................. 37
</TABLE>
======================================================
======================================================
1,250,000 SHARES
(GLOBAL MULTIMEDIA TRUST INC. LOGO)
% CUMULATIVE PREFERRED STOCK
------------
PROSPECTUS
MAY , 1997
---------------
SMITH BARNEY INC.
GABELLI & COMPANY, INC.
======================================================
<PAGE> 45
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 29, 1997
THE GABELLI GLOBAL
MULTIMEDIA TRUST INC.
ONE CORPORATE CENTER
RYE, NEW YORK 10580-1434
TELEPHONE 1-800-GABELLI (1-800-422-3554)
STATEMENT OF ADDITIONAL INFORMATION
MAY , 1997
This Statement of Additional Information (the "SAI") relates to The Gabelli
Global Multimedia Trust Inc. (the "Fund"), and is not a prospectus. This SAI
contains additional and more detailed information and should be read in
conjunction with the balance of the Fund's registration statement. Additional
copies of the SAI may be obtained without charge by writing or telephoning the
Fund at the address and telephone number set forth above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES.................................................... B-2
INVESTMENT RESTRICTIONS............................................................... B-11
MANAGEMENT OF THE FUND................................................................ B-12
THE ADVISER........................................................................... B-17
PORTFOLIO TRANSACTIONS................................................................ B-18
TAXATION.............................................................................. B-19
MOODY'S DISCOUNT FACTORS.............................................................. B-23
NET ASSET VALUE....................................................................... B-26
GENERAL INFORMATION................................................................... B-27
BENEFICIAL OWNER...................................................................... B-28
FINANCIAL STATEMENTS.................................................................. B-28
</TABLE>
<PAGE> 46
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
CORPORATE REORGANIZATIONS. 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 may without limit
invest in securities of companies for which a tender or exchange offer has been
made or announced and in securities of companies for which a merger,
consolidation, liquidation or reorganization proposal has been announced if, in
the judgement of Gabelli Funds, Inc. (the "Adviser"), there is a reasonable
prospect of capital appreciation significantly greater than the brokerage and
other transaction expenses involved.
In general, securities which are the subject of such an offer or proposal
sell at a premium to their historic market price immediately prior to the
announcement of the offer or may also discount what the stated or appraised
value of the security would be if the contemplated transaction were approved or
consummated. Such investments may be advantageous when: the discount
significantly overstates the risk of the contingencies involved; the market
significantly undervalues the securities, assets or cash to be received by
shareholders of the prospective portfolio company as a result of the
contemplated transaction; or the market fails adequately to recognize the
possibility that the offer or proposal may be replaced or superseded by an offer
or proposal of greater value. The evaluation of such contingencies requires
unusually broad knowledge and experience on the part of the Adviser which must
appraise not only the value of the issuer and its component businesses as well
as the assets or securities to be received as a result of the contemplated
transaction but also the financial resources and business motivation of the
offeror and the dynamics and business climate when the offer or proposal is in
process.
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 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 Rating's
Services ("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. 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 shareholder 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 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."
B-2
<PAGE> 47
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 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
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 market 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 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
Adviser also performs its own analysis 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 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. Moreover, such ratings do not
assess the risk of a decline in market value. None of these events will require
the sale of the securities by the Fund, although the 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.
B-3
<PAGE> 48
As a result of all these factors, the net asset value of the Fund to the
extent it invests in high yield bonds, is expected to be more volatile than the
net asset value of funds which invest solely in higher rated debt securities.
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 or currency 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 or
currency 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 or currency to the writer and obligating the writer to purchase the
underlying security or currency from the holder.
A call option is "covered" if the Fund owns the underlying instrument
covered by the call or has an absolute and immediate right to acquire that
instrument without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other instrument held in its portfolio. A call option is also
covered if the Fund holds a call on the same instrument 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 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 instrument 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 able 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.
B-4
<PAGE> 49
In addition to options on securities, the Fund may also purchase and sell
call and put options on securities indices. 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
the 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 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 indices 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
Adviser is satisfied with the development, depth and liquidity of the market and
the 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
ability of the Adviser to predict correctly movements in the direction of the
stock market generally or of a particular industry. Because options on
securities indexes require settlement in cash, the 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 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 bona
fide 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 assets 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 assets 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 assets underlying the futures contracts.
B-5
<PAGE> 50
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 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.
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 contract 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).
Interest Rate Futures Contracts and Options Thereon. The Fund may purchase
or sell interest rate futures contracts to take advantage of or to protect the
Fund against fluctuations in interest rates affecting the value of debt
securities which the Fund holds or intends to acquire. For example, if interest
rates are expected to increase, the Fund might sell futures contracts on debt
securities, the values of which historically have a high degree of positive
correlation to the values of the Fund's portfolio securities. Such a sale would
have an effect similar to selling an equivalent value of the Fund's portfolio
securities. If interest rates increase, the value of the Fund's portfolio
securities will decline, but the value of the futures contracts to the Fund will
increase at approximately an equivalent rate thereby keeping the net asset value
of the Fund from declining as much as it otherwise would have. The Fund could
accomplish similar results by selling debt securities with longer maturities and
investing in debt securities with shorter maturities when interest rates are
expected to increase. However, since the futures market may be more liquid than
the cash market, the use of futures contracts as a risk management technique
allows the Fund to maintain a defensive position without having to sell its
portfolio securities.
B-6
<PAGE> 51
Similarly, the Fund may purchase interest rate futures contracts when it is
expected that interest rates may decline. The purchase of futures contracts for
this purpose constitutes a hedge against increases in the price of debt
securities (caused by declining interest rates) which the Fund intends to
acquire. Since fluctuations in the value of appropriately selected futures
contracts should approximate that of the debt securities that will be purchased,
the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make its
intended purchase of the debt securities in the cash market and currently
liquidate its futures position. To the extent the Fund enters into futures
contracts for this purpose, it will maintain in a segregated asset account with
the Fund's custodian, assets sufficient to cover the Fund's obligations with
respect to such futures contracts, which will consist of cash or other liquid
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial margin deposited by the Fund with its custodian with respect to such
futures contracts.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities. As with the purchase of futures contracts, when the
Fund is not fully invested it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates.
The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates and consequent reduction in the value
of portfolio securities.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of debt securities which the Fund
intends to purchase. If a put or call option the Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Fund's losses from options on futures it has written may to some extent be
reduced or increased by changes in the value of its portfolio securities.
Currency Futures and Options Thereon. Generally, foreign currency futures
contracts and options thereon are similar to the interest rate futures contracts
and options thereon discussed previously. By entering into currency futures and
options thereon, the Fund will seek to establish the rate at which it will be
entitled to exchange U.S. dollars for another currency at a future time. By
selling currency futures, the Fund will seek to establish the number of dollars
it will receive at delivery for a certain amount of a foreign currency. In this
way, whenever the Fund anticipates a decline in the value of a foreign currency
against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value
of some or all of the securities held in its portfolio that are denominated in
that currency. By purchasing currency futures, the Fund can establish the number
of dollars it will be required to pay for a specified amount of a foreign
currency in a future month. Thus, if the Fund intends to buy securities in the
future and expects the U.S. dollar to decline against the relevant foreign
currency during the period before the purchase is effected, the Fund can attempt
to "lock in" the price in U.S. dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for the
price of the premium and related transaction costs it must pay for the option,
to decide whether or not to buy (in the case of a call option) or to sell (in
the case of a put option) a futures contract at a specified price at any time
during the period before the option expires. If the Adviser, in purchasing an
option, has been correct in its judgment concerning the direction in which the
price of a foreign currency would move as against the U.S. dollar, the Fund may
B-7
<PAGE> 52
exercise the option and thereby take a futures position to hedge against the
risk it had correctly anticipated or close out the option position at a gain
that will offset, to some extent, currency exchange losses otherwise suffered by
the Fund. If exchange rates move in a way the Fund did not anticipate, however,
the Fund will have incurred the expense of the option without obtaining the
expected benefit; any such movement in exchange rates may also thereby reduce
rather than enhance the Fund's profits on its underlying securities
transactions.
Securities Index Futures Contracts and Options Thereon. Purchases or sales
of securities index futures contracts are used for hedging purposes to attempt
to protect the Fund's current or intended investments from broad fluctuations in
stock or bond prices. For example, the Fund may sell securities index futures
contracts in anticipation of or during a market decline to attempt to offset the
decrease in market value of the Fund's securities portfolio that might otherwise
result. If such decline occurs, the loss in value of portfolio securities may be
offset, in whole or part, by gains on the futures position. When the Fund is not
fully invested in the securities market and anticipates a significant market
advance, it may purchase securities index futures contracts in order to gain
rapid market exposure that may, in part or entirely, offset increases in the
cost of securities that the Fund intends to purchase. As such purchases are
made, the corresponding positions in securities index futures contracts will be
closed out. The Fund may write put and call options on securities index futures
contracts for hedging purposes.
LIMITATIONS ON THE PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS. Subject to the guidelines of the Board of Directors, the Fund
may engage in transactions in futures contracts and options hereon only for bona
fide hedging, yield enhancement and risk management purposes, in each case in
accordance with the rules and regulations of the CFTC, and not for speculation.
Regulations of the CFTC applicable to the Fund permit the Fund's futures
and options on futures transactions to include (i) bona fide hedging
transactions without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) non-hedging transactions, provided that the
Fund not enter into such non-hedging transactions if, immediately thereafter,
the sum of the amount of initial margin deposits on the Fund's existing futures
positions and option premiums would exceed 5% of the market value of the Fund's
liquidating value, after taking into account unrealized profits and unrealized
losses on any such transactions.
In addition, investment in future contracts and related options may be
limited by the applicable Rating Agency Guidelines.
FORWARD CURRENCY EXCHANGE CONTRACTS. The Fund may engage in currency
transactions otherwise than on futures exchanges to protect against future
changes in the level of future currency exchange rates. The Fund will conduct
such currency exchange transactions either on a spot, i.e., cash, basis at the
rate then prevailing in the currency exchange market or on a forward basis, by
entering into forward contracts to purchase or sell currency. A forward contract
on foreign currency involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days agreed upon by
the parties from the date of the contract, at a price set on the date of the
contract. The risk of shifting of a forward currency contract will be
substantially the same as a futures contract having similar terms. The Fund's
dealing in forward currency exchange will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward currency with respect to specific receivables or
payables of the Fund generally arising in connection with the purchase or sale
of its portfolio securities and accruals of interest receivable and Fund
expenses. Position hedging is the forward sale of currency with respect to
portfolio security positions denominated or quoted in that currency or in a
currency bearing a high degree of positive correlation to the value of that
currency.
The Fund may not position hedge with respect to a particular currency for
an amount greater than the aggregate market value (determined at the time of
making any sale of forward currency) of the securities held in its portfolio
denominated or quoted in, or currently convertible into, such currency. If the
Fund enters into a position hedging transaction, the Fund's custodian or
subcustodian will place cash or other liquid securities in a segregated account
of the Fund in an amount equal to the value of the Fund's total assets committed
to the consummation of the given forward contract. If the value of the
securities placed in the segregated account
B-8
<PAGE> 53
declines, additional cash or securities will be placed in the account so that
the value of the account will, at all times, equal the amount of the Fund's
commitment with respect to the forward contract.
At or before the maturity of a forward sale contract, the Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and offset its contractual obligations to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to
delivery. If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices. Should forward prices decline during the
period between the Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for the purchase of
the currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to purchase is less than the price of the currency it has
agreed to sell. Should forward prices increase, the Fund will suffer a loss to
the extent the price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell. Closing out forward purchase contracts
involves similar offsetting transactions.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward transactions in currency
exchange are usually conducted on a principal basis, no fees or commissions are
involved. The use of foreign currency contracts does not eliminate fluctuations
in the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. In addition, although forward
currency contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result if the
value of the currency increases.
If a decline in any currency is generally anticipated by the Adviser, the
Fund may not be able to contract to sell the currency at a price above the level
to which the currency is anticipated to decline.
SPECIAL RISK CONSIDERATIONS RELATING TO FUTURES AND OPTIONS THEREON. The
Fund's ability to establish and close out positions in futures contracts and
options thereon will be subject to the development and maintenance of liquid
markets. Although the Fund generally will purchase or sell only those futures
contracts and options thereon for which there appears to be a liquid market,
there is no assurance that a liquid market on an exchange will exist for any
particular futures contract or option thereon at any particular time. In the
event no liquid market exists for a particular futures contract or option
thereon in which the Fund maintains a position, it will not be possible to
effect a closing transaction in that contract or to do so at a satisfactory
price and the Fund would have to either make or take delivery under the futures
contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a
purchased option, exercise the option. In the case of a futures contract or an
option thereon which the Fund has written and which the Fund is unable to close,
the Fund would be required to maintain margin deposits on the futures contract
or option thereon and to make variation margin payments until the contract is
closed.
Successful use of futures contracts and options thereon and forward
contracts by the Fund is subject to the ability of the Adviser to predict
correctly movements in the direction of interest and foreign currency rates. If
the Adviser's expectations are not met, the Fund will be in a worse position
than if a hedging strategy had not been pursued. For example, if the Fund has
hedged against the possibility of an increase in interest rates which would
adversely affect the price of securities in its portfolio and the price of such
securities increases instead, the Fund will lose part or all of the benefit of
the increased value of its securities because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
insufficient cash to meet daily variation margin requirements, it may have to
sell securities to meet the requirements. These sales may be, but will not
necessarily be, at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it is disadvantageous to do so.
B-9
<PAGE> 54
ADDITIONAL RISKS OF FOREIGN OPTIONS, FUTURES CONTRACTS, OPTIONS ON FUTURES
CONTRACTS AND FORWARD CONTRACTS. Options, futures contracts and options thereon
and forward contracts on securities and currencies may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities. The value of such positions
also could be adversely affected by (i) other complex foreign political, legal
and economic factors, (ii) lesser availability than in the U.S. of data on which
to make trading decisions, (iii) delays in the Fund's ability to act upon
economic events occurring in the foreign markets during non-business hours in
the U.S., (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the U.S. and (v) lesser trading
volume.
Exchanges on which options, futures and options on futures are traded may
impose limits on the positions that the Fund may take in certain circumstances.
RISKS OF CURRENCY TRANSACTIONS. Currency transactions are also subject to
risks different from those of other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences
economic planning and policy, purchases and sales of currency and related
instruments can be adversely affected by government exchange controls,
limitations or restrictions on repatriation of currency, and manipulation, or
exchange restrictions imposed by governments. These forms of governmental action
can result in losses to the Fund if it is unable to deliver or receive currency
or monies in settlement of obligations and could also cause hedges it has
entered into to be rendered useless, resulting in full currency exposure as well
as incurring transaction costs.
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.
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.
B-10
<PAGE> 55
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 payment 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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to a total of
15% of its net assets in securities that are subject to restrictions on resale
and securities the markets for which are illiquid, including repurchase
agreements with more than seven days to maturity. Illiquid securities include
securities the disposition of which is subject to substantial legal or
contractual restrictions. The sale of illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Unseasoned issuers are companies (including
predecessors) that have operated less than three years. The continued liquidity
of such securities is not as well assured as that of publicly traded securities,
and accordingly the Board of Directors will monitor their liquidity. The Board
will review pertinent factors such as trading activity, reliability of price
information and trading patterns of comparable securities in determining whether
to treat any such security as liquid for purposes of the foregoing 15% test. To
the extent the Board treats such securities as liquid, temporary impairments to
trading patterns of such securities may adversely affect the Fund's liquidity.
To the extent it can do so consistent with the foregoing limitations, the
Fund may invest in non-publicly traded securities, including securities that are
not registered under the Securities Act of 1933, as amended, but that can be
offered and sold to qualified institutional buyers under Rule 144A under that
Act. The Board of Directors has adopted guidelines and delegated to the Adviser,
subject to the supervision of the Board of Directors, the daily function of
determining and monitoring the liquidity of Rule 144A securities. Rule 144A
securities may become illiquid if qualified institutional buyers are not
interested in acquiring the securities.
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.
B-11
<PAGE> 56
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 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 shareholders.
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. 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, except to the extent permitted by
applicable law.
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 shareholders.
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 Adviser, the Fund's custodian and the
Fund's transfer agent. The day-to-day operations of the Fund are delegated to
the Adviser.
B-12
<PAGE> 57
The names and business addresses of the Directors and Officers of the Fund
are set forth in the following table, together with their positions with the
Fund and their principal business occupations during the past five years and
their affiliations, if any, with the Adviser or the Administrator. Directors who
are "interested persons" of the Fund, as defined by the 1940 Act, are indicated
by an asterisk. Cumulative Preferred Stock directors are indicated by a "+".
As of April 30, 1997 the Directors and Officers of the Fund as a group
beneficially owned 200,773 shares of the Fund equaling 1.78% of the Fund's
outstanding shares.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION DURING
NAME AND BUSINESS ADDRESS THE FUND PAST FIVE YEARS; AGE
- ---------------------------------- ------------------------- -----------------------------------
<S> <C> <C>
Dr. Thomas E. Bratter............. Director Director, President and Founder,
One Corporate Center The John Dewey Academy (residential
Rye, New York 10580-1434 college preparatory therapeutic
high school). Director of one other
registered investment company
advised by the Adviser. Dr. Bratter
is 56 years old. (10)
Bill Callaghan.................... Director President of Bill Callaghan
One Corporate Center Associates Ltd., an executive
Rye, New York 10580-1434 search company. Director of two
other registered investment
companies advised by the Adviser.
Mr. Callaghan is 53 years old.
(3)(10)
Felix J. Christiana+.............. Director Retired; formerly Senior Vice
One Corporate Center President of Dollar Dry Dock
Rye, New York 10580-1434 Savings Bank. Director/ Trustee of
seven other registered investment
companies advised by the Adviser or
its affiliates. Mr. Christiana is
71 years old.(1)(2)
(3)(4)(5)(8)(10)(13)
James P. Conn+.................... Director Managing Director of Financial
One Corporate Center Security Assurance since 1992;
Rye, New York 10580-1434 Director of Santa Anita Realty
Enterprises, Inc. since 1995;
Director of Santa Anita Operating
Company since 1995; President and
Chief Executive Officer of Bay
Meadows Operating Company from 1988
through 1992. Director/ Trustee of
four other registered investment
companies advised by the Adviser.
Mr. Conn is 59 years old.
(1)(2)(10)(14)
</TABLE>
B-13
<PAGE> 58
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION DURING
NAME AND BUSINESS ADDRESS THE FUND PAST FIVE YEARS; AGE
- ---------------------------------- ------------------------- -----------------------------------
<S> <C> <C>
Mario J. Gabelli*................. Chairman of the Board, Chairman of the Board; President
One Corporate Center President and Chief In- and Chief Investment Officer of the
Rye, New York 10580-1434 vestment Officer Adviser; Chairman of the Board and
Chief Executive Officer of GAMCO
Investors, Inc.; Chairman of the
Board and Chief Executive Officer
of Lynch Corporation; Director and
Adviser of Gabelli International
Ltd.; Director/Trustee of ten other
registered investment companies
advised by the Adviser or its
affiliates. Mr. Gabelli is 54 years
old. (1)(2)(3)(4)(5)(6)(7)
(8)(9)(10)(11)(12)
Karl Otto Pohl*................... Director Partner of Sal Oppenheim Jr. & Cie
One Corporate Center (private investment bank);
Rye, New York 10580-1434 President of the Deutsche
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
twelve other registered investment
companies advised by the Adviser.
Mr. Pohl is 67 years old.(1)
(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)
(12)
Anthony R. Pustorino.............. Director Certified Public Accountant.
One Corporate Center Professor of Accounting, Pace
Rye, New York 10580-1434 University since 1965; Director,
President and shareholder of
Pustorino, Puglisi & Co., P.C.,
certified public accountants, from
1961 to 1990; Director/Trustee of
eight other registered investment
companies advised by the Adviser.
Mr. Pustorino is 71 years
old.(1)(2)(3)(4)(5)(10) (11)(12)
</TABLE>
B-14
<PAGE> 59
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION DURING
NAME AND BUSINESS ADDRESS THE FUND PAST FIVE YEARS; AGE
- ---------------------------------- ------------------------- -----------------------------------
<S> <C> <C>
Salvatore J. Zizza*............... Director President and Chief Executive
The Lehigh Group, Inc. Officer of The Lehigh Group, Inc.
810 Seventh Avenue, 27th Floor (an electrical supply wholesaler);
New York, New York 10019 Chairman of the Executive Committee
and Director of Binnings Buildings
Products, Inc.; Director/Trustee of
three other registered investment
companies advised by the Adviser.
Mr. Zizza is 49 years old.
(1)(4)(10)
Bruce N. Alpert................... Vice President and Vice President and Chief Financial
One Corporate Center Treasurer and Administrative Officer of the
Rye, New York 10580-1434 investment advisory division of the
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
Adviser. Mr. Alpert is 45 years
old.
James E. McKee.................... Secretary Vice President and General Counsel
One Corporate Center of the Adviser; General Counsel of
Rye, New York 10580-1434 Gamco Investors, Inc.; Secretary of
all Funds advised by the Adviser
and Teton Advisers LLC; Branch
Chief U.S. Securities and Exchange
Commission - Northeast Regional
Office, 1992-1993; Staff Attorney,
U.S. Securities and Exchange
Commission -- Northeast Regional
Office, 1989-1992. Mr. McKee is 34
years old.
</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 Adviser. Mr. Gabelli is also a registered
representative of an affiliated broker-dealer. Mr. Pohl receives fees from
the 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.
Mr. Zizza may be an "interested person" as a result of his association with
Binnings Building Products, Inc., an entity controlled by GLI, Inc., an
affiliate of the Adviser.
(1) Trustee of The Gabelli Asset Fund
(2) Trustee of The Gabelli Growth Fund
(3) Director of The Gabelli Value Fund Inc.
(4) Director of The Gabelli Convertible Securities Fund, Inc.
(5) Director of Gabelli Equity Series Funds, Inc.
(6) Trustee of The Gabelli Money Market Funds
(7) Director of Gabelli Investor Funds, Inc.
(8) Director of Gabelli Global Series Funds, Inc.
(9) Director of Gabelli Gold Fund, Inc.
(10) Director of The Gabelli Equity Trust Inc.
(11) Director of Gabelli Capital Series Funds
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<PAGE> 60
(12) Director of Gabelli International Growth Fund, Inc.
(13) Trustee of The Treasurer's Fund, Inc.
(14) Trustee of the Westwood Funds
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 "Certain Provisions of the Charter and
By-Laws" 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 accrued by the Fund during the year ended December 31,
1996 amounted to $37,354 (includes a prorated payment to Paul R. Ades, who
served as a director from January 1996 to May 1996).
The following table shows certain compensation information for the
Directors of the Fund for the year ended December 31, 1996. None of the Fund's
executive officers and Directors who are also officers or directors of the
Adviser received any compensation from the Fund for such period. No executive
officer or person affiliated with the Fund received compensation from the Fund
in excess of $60,000.
<TABLE>
<CAPTION>
AGGREGATE TOTAL
COMPENSATION COMPENSATION FROM
FROM FUND FUND AND FUND
(FISCAL COMPLEX PAID TO
NAME OF DIRECTOR YEAR) DIRECTORS*
- -------------------------------------------------------------- ------------ -----------------
<S> <C> <C>
Mario J. Gabelli.............................................. $ 0 $ 0
Dr. Thomas E. Bratter......................................... $5,000 $20,500(2)
Bill Callaghan................................................ $5,000 $34,500(3)
Felix J. Christiana........................................... $5,000 $74,000(11)
James P. Conn................................................. $5,000 $36,500(5)
Karl Otto Pohl................................................ $4,500 $77,750(16)
Anthony R. Pustorino.......................................... $5,000 $84,500(9)
Salvatore J. Zizza............................................ $5,000 $42,500(5)
</TABLE>
- ---------------
* Represents the total compensation paid to such persons during the calendar
year ended December 31, 1996 by investment companies (including the Fund) from
which such person receives compensation that are considered part of the same
fund complex as the Fund because they have common or affiliated investment
advisers. The parenthetical number represents the number of such investment
companies from which such person received compensation.
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.
In addition, the Articles of Incorporation of the Fund provide that the Fund's
Directors and officers will not be liable to shareholders 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
B-16
<PAGE> 61
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.
THE ADVISER
The Adviser is a New York corporation with principal offices located at One
Corporate Center, Rye, New York 10580-1434. The Adviser also serves as adviser
to other closed-end and open-end investment companies with net assets in excess
of $4.0 billion as of May 1, 1997.
Pursuant to an Advisory Agreement (the "Advisory Agreement"), the 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 Adviser's
expense, certain enumerated services, including maintaining the Fund's books and
records, preparing reports to the Fund's shareholders and supervising the
calculation of the net asset value of its shares. All expenses of computing the
net asset value of the Fund, 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. 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 Adviser has in turn retained First Data
Investor Services, 53 State Street, Boston, MA 02109-2873, to act as
sub-administrator to the Fund. See "Management of the Fund -- Administrator" in
the Prospectus.
For services rendered by the Adviser on behalf of the Fund under the
Advisory Agreement, the Fund pays the 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. Notwithstanding the foregoing,
the Adviser will waive the portion of its investment advisory fee attributable
to an amount of assets of the Fund equal to the aggregate stated value of the
Cumulative Preferred Stock for any calendar year in which the total return of
the Fund, including distributions and the advisory fee subject to potential
waiver, allocable to common stock is less than the stated dividend rate of the
Cumulative Preferred Stock.
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 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 Adviser's property, and that in
the event the Adviser ceases to act as an investment adviser to the Fund, the
Fund will change its name to one not including the word "Gabelli."
The Advisory Agreement was approved by the Board of Directors on at a
meeting held on April 6, 1994 and was approved most recently by the Board of
Directors on May 14, 1997. The Advisory Agreement is terminable without penalty
by the Fund on not more than sixty days' written notice when authorized by the
Board of Directors of the Fund, by the holders of a majority of the outstanding
voting securities of the Fund, as defined in the 1940 Act, or by the Adviser.
The Advisory Agreement will automatically terminate in the event of its
assignment, as defined in the 1940 Act. The Advisory Agreement provides that,
unless terminated, it will remain in effect so long as continuance of the
Advisory Agreement is approved annually by the Board of Directors of the Fund,
or the shareholders of the Fund and in either case, by a majority vote of the
Directors who are not parties to the Advisory Contract or "interested persons"
as defined in the 1940 Act of any such person cast in person at a meeting called
specifically for the purpose of voting on the continuance of the Advisory
Agreement.
For each of the years ended December 31, 1994, December 31, 1995 and
December 31, 1996, the Adviser was paid $83,054, $742,302 and $947,427,
respectively, for advisory and administrative services rendered to the Fund.
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<PAGE> 62
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 shareholders' 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 certain debt securities and 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 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 the 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.
For the fiscal years ended December 31, 1994, December 31, 1995 and
December 31, 1996, the Fund paid a total of $17,027, $109,262, $64,107,
respectively, in brokerage commissions, of which Gabelli & Company received
$2,595, $13,690 and $17,578, respectively, and of which Keeley Investment Corp.,
an affiliate of Gabelli & Company, received $0, $0 and $75, respectively. The
amount received by Gabelli & Company, Inc. and Keeley Investment Corp. from the
Fund in respect of brokerage commissions for the fiscal year ended December 31,
1996 represented 27.4% and 0.12%, respectively, of the aggregate dollar amount
of brokerage commissions paid by the Fund for such period. In addition, for the
fiscal year ended December 31, 1996, the Fund paid brokerage commissions to
Gabelli & Company, Inc. and Keeley Investment Corp. with respect to 28.3% and
0.12%, respectively, of the aggregate dollar amount of transactions by the Fund.
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
B-18
<PAGE> 63
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 fiscal years ended December 31,
1995 and December 31, 1996 was 86.0% and 32.1%, respectively. 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 shareholders.
TAXATION
The following discussion is a brief summary of certain additional tax
considerations affecting the Fund and its shareholders. No attempt is made to
present a detailed explanation of all U.S. Federal, state, local and foreign tax
concerns, and the discussions set forth here and in the Prospectus do not
constitute tax advice. Investors are urged to consult their own tax advisers
with any specific questions relating to federal, state, local and foreign taxes.
The discussion reflects applicable tax laws of the United States as of the date
of this SAI, which tax laws may be changed or subject to new interpretations by
the courts or the Internal Revenue Service retroactively or prospectively.
GENERAL
The Fund has qualified as and intends to continue to qualify as and elect
to be a regulated investment company (a "RIC") under Subchapter M of the Code.
If it so qualifies, the Fund will not be subject to U.S. Federal income tax on
the portion of its net investment income (i.e., its investment company taxable
income as defined in the Code) and its net capital gain (i.e., the excess of its
net realized long-term capital gains over its net realized short-term capital
losses) which it distributes to its shareholders in each taxable year., provided
that it distributes to its shareholders at least 90% of its net investment
income for such taxable year.
Qualification as a RIC requires, among other things, that the Fund: (a)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock or securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stock, securities or currencies; (b)
derive less than 30% of its gross income in each taxable year from the sale or
other disposition of any of the following held for less than three months:
stock, securities, options, futures, certain forward contracts, or foreign
currencies (or any options, futures or forward contracts on foreign currencies)
but only if such currencies are not directly related to the Fund's principal
business of investing in stock or securities (the "30% limitation"); and (c)
diversify its holdings so that, at the end of each quarter of each taxable year,
(i) at least 50% of the market value of the Fund's assets is represented by
cash, cash items, U.S. government securities, securities of other RICs and other
securities with such other securities limited, in respect of any one
B-19
<PAGE> 64
issuer, to an amount not greater than 5% of the value of the Fund's assets and
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 of any one issuer
(other than U.S. government securities or the securities of other RICs).
TAXATION OF THE FUND
If the Fund were unable to satisfy the 90% distribution requirement or
otherwise were to fail to qualify to be taxed as a RIC in any year, it would be
subject to tax in such year on all of its taxable income, whether or not the
Fund made any distributions. To qualify again to be taxed as a RIC in a
subsequent year, the Fund would be required to distribute to Cumulative
Preferred Shareholders and Common Shareholders as an net investment income
dividend, its earnings and profits attributable to non-RIC years reduced by an
interest charge on 50% of such earnings and profits payable by the Fund to the
IRS. In addition, if the Fund failed to qualify as a RIC for a period greater
than one taxable year, then the Fund would be required to recognize and pay tax
on any net built-in gains (the excess of aggregate gains, including items of
income, over aggregate losses that would have been realized if the Fund had been
liquidated) in order to qualify as a RIC in a subsequent year.
Under the Code, amounts not distributed by a RIC on a timely basis in
accordance with a calendar year distribution requirement are subject to a 4%
excise tax. To avoid the tax, the Fund must distribute during each calendar
year, an amount equal to, at the minimum, the sum of (1) 98% of its net
investment income for the calendar year, (2) 98% of its capital gain net income
for the one year period ending on October 31 of such year (unless an election is
made by a fund with a November or December year-end to use the fund's fiscal
year), and (3) all ordinary income and capital gain net income for previous
years that were not previously distributed. A distribution will be treated as
paid during the calendar year if it is paid during the calendar year or declared
by the Fund in October, November or December of the year, payable to
shareholders of record on a date during such month and paid by the Fund during
January of the following year. Any such distributions paid during January of the
following year will be deemed to be received on December 31 of the year the
distributions are declared, rather than when the distributions are received.
While the Fund intends to distribute its ordinary income and capital gain net
income in the manner necessary to minimize imposition of the 4% excise tax,
there can be no assurance that sufficient amounts of the Fund's ordinary income
and capital gain net income will be distributed to avoid entirely the imposition
of the tax. In such event, the Fund will be liable for the tax only on the
amount by which it does not meet the foregoing distribution requirements.
Gain or loss on the sales of securities by the Fund will be long-term
capital gain or loss if the securities have been held by the Fund for more than
twelve months. Gain or loss on the sale of securities held for twelve months or
less will be short-term capital gain or loss.
Foreign currency gain or loss on non-U.S. dollar denominated bonds and
other similar debt instruments and on any non-U.S. dollar denominated futures
contracts, options and forward contracts that are not section 1256 contracts (as
defined below) generally will be treated as net investment income and loss.
If the Fund invests in stock of a passive foreign investment company
("PFIC"), the Fund may be subject to Federal income tax on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The amount so
allocated to any taxable year of the Fund prior to the taxable year in which the
excess distribution or disposition occurs would be taxed to the Fund at the
highest marginal income tax rate in effect for the year to which it was
allocated, and the tax would be further increased by an interest charge. The
amount allocated to the taxable year of the distribution or disposition would be
included in the Fund's net investment income and, accordingly, would not be
taxable to the Fund to the extent distributed by the Fund as Ordinary Income
Dividend to shareholders.
If the Fund invests in stock of a PFIC, the Fund may be able to elect to be
a "qualified electing fund," in lieu of being taxable in the manner described in
the above paragraph and to include annually in income its pro rata share of the
ordinary earnings and net capital gain (whether or not distributed) of the PFIC.
In order to make this election, the Fund would be required to obtain annual
information from the PFICs in which it invests, which may be difficult to
obtain. Alternatively, under proposed regulations not currently in effect, the
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<PAGE> 65
Fund may be able to elect to mark to market its PFIC stock, resulting in the
stock being treated as sold at fair market value on the last business day of
each taxable year. Any resulting gain would be reported as net investment
income, and any resulting loss would not be recognized.
The Fund may invest in securities purchased at a discount and may therefore
cause the Fund to accrue income before amounts due under the obligation are
paid. The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield securities"). A portion of the interest payments on such
high yield securities may be treated as dividends for Federal income tax
purposes.
As a result of investing in stock of PFICs or securities purchased at a
discount or any other investment that produces income that is not matched by a
corresponding cash distribution to the Fund, the Fund could be required to
include in current income, income it has not yet received. Any such income would
be treated as income earned by the Fund and therefore would be subject to the
distribution requirements of the Code. This might prevent the Fund from
distributing 90% of its net investment income, as is required in order to avoid
Fund-level taxation on the Fund's distributions, or might prevent it from
distributing enough ordinary income and capital gain net income to avoid
completely the imposition of the excise tax. To avoid this result, the Fund may
be required to borrow money or dispose of other securities to be able to make
distributions to its investors. The extent to which the Fund may liquidate
securities at a gain may be limited by the 30% limitation (discussed above).
If the Fund does not meet the asset coverage requirements of the 1940 Act
and the Articles Supplementary, the Fund will be required to suspend
distributions to the holders of the common stock until the asset coverage is
restored. See "Description of Cumulative Preferred Stock -- Dividends" and
"Description of Capital Stock and Other Securities." Such a suspension of
distributions might prevent the Fund from distributing 90% of its net investment
income, as is required in order to avoid Fund-level taxation on the Fund's
distributions, or might prevent it from distributing enough income and capital
gain to avoid completely imposition of the excise tax. Upon any failure to meet
the asset coverage requirements of the 1940 Act or the Articles Supplementary,
the Fund may, and in certain circumstances will, be required to partially redeem
the shares of Cumulative Preferred Stock in order to restore the requisite asset
coverage and avoid the adverse consequences to the Fund and its shareholders of
failing to qualify as a RIC. If asset coverage were restored, the Fund would
again be able to pay dividends and might be able to avoid Fund-level taxation on
the Fund's undistributed income.
HEDGING TRANSACTIONS
Certain options, futures contracts and options on futures contracts are
"section 1256 contracts". Any gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
("60/40"). Also, section 1256 contracts held by the Fund at the end of each
taxable year are "marked-to-the-market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as 60/40 gain or loss.
Hedging transactions undertaken by the Fund may result in "straddles" for
U.S. Federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Fund. In addition, losses realized by the Fund
on positions that are part of a straddle may be deferred under the straddle
rules, rather than being taken into account in calculating the taxable income
for the taxable year in which such losses are realized. Further, the Fund may be
required to capitalize, rather than deduct currently, any interest expense on
indebtedness incurred or continued to purchase or carry any positions that are
part of a straddle.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
accelerate the recognition of gain or loss from the affected straddle positions.
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<PAGE> 66
Because application of the straddle rules may affect the character and
timing of the Fund's gains, losses and deductions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
The 30% limitation (discussed above) may limit the Fund's ability to engage
in transactions in options, spreads, straddles, hedging transactions, forward or
futures contracts and options on any of these positions because these
transactions (1) are often consummated in less than three months, (2) may
require the sale of portfolio securities held less than three months, and (3)
may reduce the holding periods of certain securities within the Fund.
FOREIGN TAXES
Since the Fund may invest in foreign securities, its income from such
securities may be subject to non-U.S. taxes. If the Fund satisfies the
distribution requirements to be taxed as a RIC during a taxable year, and if 50%
of the Fund's total assets at the end of its taxable year consist of stock or
securities of foreign corporations, it may elect to "pass-through" to its
shareholders the ability to use the foreign tax deduction or credit for foreign
taxes paid with respect to qualifying taxes. If the Fund makes such an election,
a taxpayer would be required to include in income its proportionate share of the
qualifying foreign taxes paid by the Fund and would be allowed to either deduct
the amount of such taxes from its taxable income or to use such taxes as a
credit against its U.S. federal income tax liability. In general, it will be
more beneficial for a taxpayer to use its proportionate share of such taxes paid
by the Fund as a foreign tax credit. If the Fund elects to pass-through the
benefit of the deduction or credit allowed for qualifying foreign taxes it has
paid in a given year, it will send each Shareholder a written notice of the
portion of the Fund's dividends that represents income from sources within each
foreign country and the amount of such Shareholder's proportionate share of
foreign taxes paid to each foreign country.
TAXATION OF SHAREHOLDERS
The Fund will determine either to distribute or to retain for reinvestment
all or part of its net capital gain. If any such gains are retained, the Fund
will be subject to a tax of 35% of such amount. In that event, the Fund expects
to designate the retained amount as undistributed capital gains in a notice to
its shareholders, each of whom (1) will be required to include in income for tax
purposes as long-term capital gains its share of such undistributed amount, (2)
will be entitled to credit its proportionate share of the tax paid by the Fund
against its Federal income tax liability and to claim refunds to the extent that
the credit exceeds such liability, and (3) will increase its basis in its shares
of the Fund by an amount equal to 65% of the amount of undistributed capital
gains included in such shareholder's gross income.
Distributions of Ordinary Income Dividends are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Ordinary Income
Dividends paid by the Fund may qualify for the dividends received deduction
available to corporations, but only to the extent that the Fund's income
consists of qualified dividends received from U.S. corporations. The amount of
any dividend distribution eligible for the dividends received deduction will be
designated by the Fund in a written notice to shareholders within 60 days of the
close of the taxable year. Distributions of net capital gains designated as
capital gain dividends ("Capital Gain Dividends"), if any, are taxable as
long-term capital gains, whether paid in cash or in shares, regardless of how
long the shareholder has held the Fund's shares, and are not eligible for the
dividends received deduction.
Shareholders receiving distributions in the form of newly issued shares
will have a basis in such shares of the Fund equal to the fair market value of
such shares on the distribution date. If the net asset value of shares is
reduced below a shareholder's cost as a result of a distribution by the Fund,
such distribution will be taxable even though it represents a return of invested
capital. The price of shares purchased at any time may reflect the amount of a
forthcoming distribution. Those purchasing shares just prior to a distribution
will receive a distribution which will be taxable to them, even though it
represents in part a return of invested capital.
Upon a sale or exchange of shares, a shareholder will realize a taxable
gain or loss depending upon his or her basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares have been held for
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<PAGE> 67
more than one year. Any loss realized on a sale or exchange will be disallowed
to the extent the shares disposed of are replaced within a 61-day period
beginning 30 days before and ending 30 days after the day that the shares are
disposed of. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any Capital Gain Dividends received by
the shareholder with respect to such shares.
Ordinary Income Dividends and Capital Gains Dividends also may be subject
to state and local taxes. Shareholders are urged to consult their own tax
advisers regarding specific questions about the U.S. Federal, state, local or
foreign tax consequences to them of investing in the Fund.
BACKUP WITHHOLDING
The Fund may be required to withhold Federal income tax at a rate of 31% on
all taxable distributions payable to shareholders who fail to provide the Fund
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's Federal
income tax liability.
THE FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE APPLICABLE
PROVISIONS OF THE CODE AND TREASURY REGULATIONS PRESENTLY IN EFFECT. FOR THE
COMPLETE PROVISIONS, REFERENCE SHOULD BE MADE TO THE PERTINENT CODE SECTIONS AND
THE TREASURY REGULATIONS PROMULGATED THEREUNDER. THE CODE AND THE TREASURY
REGULATIONS ARE SUBJECT TO CHANGE BY LEGISLATIVE, JUDICIAL OR ADMINISTRATIVE
ACTION, EITHER PROSPECTIVELY OR RETROACTIVELY.
MOODY'S DISCOUNT FACTORS
The following table identifies the Moody's Discount Factors used to
discount particular Moody's Eligible Assets, as defined in the Prospectus, for a
range of exposure periods.
<TABLE>
<CAPTION>
MOODY'S MOODY'S
DISCOUNT FACTOR: DISCOUNT FACTOR:
(9 WEEK (2 WEEK
TYPE OF MOODY'S ELIGIBLE ASSET: EXPOSURE PERIOD) EXPOSURE PERIOD)
- ------------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
Short Term Money Market Instruments (other than U.S.
Government Obligations set forth below) and other
commercial paper:
Demand or time deposits, certificates of deposit and
bankers' acceptances includible in the Rating Agency
Short Term Money Market Instruments.................... 1.00 1.00
Commercial paper rated P-1 by the Rating Agency maturing
in 30 days or less..................................... 1.00 1.00
Commercial paper rated P-1 by the Rating Agency maturing
in more than 30 days but in 270 days or less........... 1.15 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days or
less................................................... 1.25 1.25
Repurchase obligations includible in the Rating Agency
Short Term Money Market Instruments if term is less
than 30 days and counterparty is rated at least A2..... 1.00 1.00
Other repurchase obligations.............................. * *
-----------------
* Discount Factors applicable to underlying assets.
</TABLE>
B-23
<PAGE> 68
<TABLE>
<CAPTION>
MOODY'S MOODY'S
DISCOUNT FACTOR: DISCOUNT FACTOR:
(9 WEEK (2 WEEK
TYPE OF MOODY'S ELIGIBLE ASSET: EXPOSURE PERIOD) EXPOSURE PERIOD)
- ------------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
stocks.............................3.003.00Preferred stocks:
Auction rate preferred stocks............................. 3.50 3.50
Other preferred stocks issued by issuers in the financial
and industrial industries.............................. 2.35 1.62
Other preferred stocks issued by issuers in the utilities
industry............................................... 1.60 1.40
U.S. Government Obligations (other than U.S. Treasury
Securities Strips set forth below) with remaining terms to
maturity of:
1 year or less......................................... 1.08 1.04
2 years or less........................................ 1.15 1.09
3 years or less........................................ 1.20 1.12
4 years or less........................................ 1.26 1.15
5 years or less........................................ 1.31 1.18
7 years of less........................................ 1.40 1.21
10 years or less....................................... 1.48 1.24
15 years or less....................................... 1.54 1.25
20 years or less....................................... 1.61 1.26
30 years or less....................................... 1.63 1.26
U.S. Treasury Securities Strips with remaining terms to
maturity of:
1 year or less......................................... 1.08 1.04
2 years or less........................................ 1.16 1.10
3 years or less........................................ 1.23 1.14
4 years or less........................................ 1.30 1.18
5 years or less........................................ 1.37 1.21
7 years or less........................................ 1.51 1.27
10 years or less....................................... 1.69 1.34
15 years or less....................................... 1.99 1.45
20 years or less....................................... 2.28 1.54
30 years or less....................................... 2.56 1.66
Corporate evidences of indebtedness:
Corporate evidences of indebtedness rated Aaa with
remaining terms to maturity of:
1 year or less......................................... 1.14 1.10
2 years or less........................................ 1.21 1.13
3 years or less........................................ 1.26 1.18
4 years or less........................................ 1.32 1.21
5 years or less........................................ 1.38 1.23
7 years or less........................................ 1.47 1.27
10 years or less....................................... 1.55 1.30
15 years or less....................................... 1.62 1.31
20 years or less....................................... 1.69 1.32
30 years or less....................................... 1.71 1.33
</TABLE>
B-24
<PAGE> 69
<TABLE>
<CAPTION>
MOODY'S MOODY'S
DISCOUNT FACTOR: DISCOUNT FACTOR:
(9 WEEK (2 WEEK
TYPE OF MOODY'S ELIGIBLE ASSET: EXPOSURE PERIOD) EXPOSURE PERIOD)
- ------------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
Corporate evidences of indebtedness rated Aa with
remaining terms to maturity of:
1 year or less......................................... 1.19 1.15
2 years of less........................................ 1.26 1.20
3 years or less........................................ 1.32 1.23
4 years or less........................................ 1.38 1.27
5 years or less........................................ 1.44 1.29
7 years or less........................................ 1.54 1.33
10 years or less....................................... 1.63 1.36
15 years or less....................................... 1.69 1.37
20 years or less....................................... 1.77 1.38
30 years or less....................................... 1.79 1.39
Corporate evidences of indebtedness rated A with remaining
terms to maturity of:
1 year or less......................................... 1.24 1.20
2 years or less........................................ 1.32 1.26
3 years or less........................................ 1.38 1.29
4 years or less........................................ 1.45 1.33
5 years or less........................................ 1.51 1.35
7 years or less........................................ 1.61 1.39
10 years or less....................................... 1.70 1.42
15 years or less....................................... 1.77 1.43
20 years or less....................................... 1.85 1.45
30 years or less....................................... 1.87 1.45
Corporate evidences of indebtedness rated at least Baa
with remaining terms of maturity of:
1 year or less......................................... 1.30 1.25
2 years or less........................................ 1.38 1.31
3 years or less........................................ 1.44 1.35
4 years or less........................................ 1.51 1.38
5 years or less........................................ 1.57 1.41
7 years or less........................................ 1.63 1.45
10 years or less....................................... 1.77 1.48
15 years or less....................................... 1.85 1.50
20 years or less....................................... 1.94 1.51
30 years or less....................................... 1.95 1.52
</TABLE>
B-25
<PAGE> 70
<TABLE>
<CAPTION>
MOODY'S MOODY'S
DISCOUNT FACTOR: DISCOUNT FACTOR:
(9 WEEK (2 WEEK
TYPE OF MOODY'S ELIGIBLE ASSET: EXPOSURE PERIOD) EXPOSURE PERIOD)
- ------------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
Corporate evidences of indebtedness rated at least Ba with
remaining terms of maturity of:
1 year or less......................................... 1.41 1.36
2 years or less........................................ 1.49 1.42
3 years or less........................................ 1.56 1.46
4 years or less........................................ 1.63 1.50
5 years or less........................................ 1.70 1.53
7 years or less........................................ 1.82 1.57
10 years or less....................................... 1.92 1.61
15 years or less....................................... 2.00 1.62
20 years or less....................................... 2.10 1.64
30 years or less....................................... 2.11 1.64
Corporate evidences of indebtedness rated at least B1 and
B2 with remaining terms of maturity of:
1 year or less......................................... 1.51 1.46
2 years or less........................................ 1.61 1.53
3 years or less........................................ 1.63 1.57
4 years or less........................................ 1.76 1.61
5 years or less........................................ 1.84 1.65
7 years or less........................................ 1.96 1.70
10 years or less....................................... 2.07 1.73
15 years or less....................................... 2.16 1.75
20 years or less....................................... 2.26 1.76
30 years or less....................................... 2.28 1.77
Convertible corporate evidences of indebtedness with
senior debt securities rated Aa issued by the following
type of issuers:
Utility................................................ 1.80 1.28
Industrial............................................. 2.97 1.75
Financial.............................................. 2.92 1.53
Transportation......................................... 4.27 2.13
Convertible corporate evidences of indebtedness with
senior debt securities rated A issued by the following
type of issuers:
Utility................................................ 1.85 1.33
Industrial............................................. 3.02 1.80
Financial.............................................. 2.97 1.58
Transportation......................................... 4.32 2.18
</TABLE>
B-26
<PAGE> 71
<TABLE>
<CAPTION>
MOODY'S MOODY'S
DISCOUNT FACTOR: DISCOUNT FACTOR:
(9 WEEK (2 WEEK
TYPE OF MOODY'S ELIGIBLE ASSET: EXPOSURE PERIOD) EXPOSURE PERIOD)
- ------------------------------------------------------------ ---------------- ----------------
<S> <C> <C>
issuers:Utility........................................ 2.01 1.48
Industrial............................................. 3.18 1.95
Financial.............................................. 3.13 1.73
Transportation......................................... 4.48 2.33
Convertible corporate bonds with senior debt securities
rated Ba issued by the following type of issuers:
Utility................................................ 2.02 1.49
Industrial............................................. 3.19 1.96
Financial.............................................. 3.14 1.74
Transportation......................................... 4.49 2.34
Convertible corporate bonds with senior debt securities
rated B1 or B2 issued by the following type of issuers:
Utility................................................ 2.12 1.59
Industrial............................................. 3.29 2.06
Financial.............................................. 3.24 1.84
Transportation......................................... 4.59 2.44
</TABLE>
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
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, and less the liquidation value of any preferred stock
outstanding by the total number of shares outstanding at such time.
B-27
<PAGE> 72
GENERAL INFORMATION
BOOK-ENTRY-ONLY ISSUANCE
The Depository Trust Company ("DTC") will act as securities depository for
the shares of cumulative preferred stock offered pursuant to the Prospectus (the
"Securities"). The information in this section concerning DTC and DTC's
book-entry system is based upon information obtained from DTC. The Securities
offered hereby initially will be issued only as fully-registered securities
registered in the name of Cede & Co. (as nominee for DTC). One or more
fully-registered global Security certificates initially will be issued,
representing in the aggregate the total number of Securities, and deposited with
DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilities the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants").
Purchases of Securities within the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of a security
("Beneficial Owner") is in turn to be recorded on the Direct or Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Securities. Transfers of ownership
interests in Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Securities,
except as provided herein.
DTC has no knowledge of the actual Beneficial Owners of the Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Payments on the Securities will be made to DTC. DTC's practice is to credit
Direct Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such Participant and not
of DTC or the Fund, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of dividends to DTC is the
responsibility of the Fund, disbursement of such payments to Direct Participants
is the responsibility of DTC, and disbursement of such payments to the
Beneficial Owners is the responsibility of Direct and indirect Participants.
Furthermore each Beneficial Owner must rely on the procedures of DTC to exercise
any rights under the Securities.
Beneficial Owners may obtain certificates representing the Securities by
contacting State Street Bank and Trust Company, which acts as transfer agent for
the Fund's shares.
B-28
<PAGE> 73
DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the Fund.
Under such circumstances, in the event that a successor securities depository is
not obtained, certificates representing the Securities will be printed and
delivered.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New
York 10022 is counsel to the Fund.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, has been selected as independent accountants for the Fund.
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. As of April 30, 1997, the Directors and Officers of the Fund as a group
beneficially owned approximately 1.78% of the outstanding shares of the Fund's
Common Stock.
FINANCIAL STATEMENTS
The audited financial statements included in the Annual Report to the
Fund's Shareholders for the fiscal year ended December 31, 1996, together with
the report of Price Waterhouse LLP thereon, are incorporated herein by reference
from the Fund's Annual Report to Shareholders filed with the Securities and
Exchange Commission on March 18, 1997. All other portions of the Annual Report
to Shareholders are not incorporated herein by reference and are not part of the
Registration Statement. A copy of the Annual Report to Shareholders may be
obtained without charge by writing to the Fund at its address at One Corporate
Center, Rye, New York 10580-1434 or by calling the Fund toll-free at 800-GABELLI
(422-3554).
B-29
<PAGE> 74
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<C> <C> <S>
(1) Financial Statements(1)
(2) (a) (1) Articles of Incorporation(2)
(2) Articles Supplementary(5)
(b) Amended and Restated By-Laws(3)
(c) Not Applicable
(d) Specimen Stock Certificate(4)
(e) Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan(2)
(f) Not Applicable
(g) Investment Advisory Agreement(2)
(h) (1) Form of Underwriting Agreement(6)
(2) Form of Master Agreement Among Underwriters(6)
(i) Not Applicable
(j) Custodian Agreement(3)
(k) Not Applicable
(l) Opinion and Consent of Counsel(6)
(m) Not Applicable
(n) Consent of Price Waterhouse LLP(5)
(o) Not Applicable
(p) Not Applicable
(q) Not Applicable
(r) Financial Data Schedule(4)
</TABLE>
- ---------------
(1) Incorporated by reference from Registrant's Annual Report for the year ended
December 31, 1996, File No. 811-8476, as filed with the Securities and
Exchange Commission on March 18, 1997.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form N-2, File Nos. 33-60407 and 811-8476, as filed with the Securities and
Exchange Commission on June 20, 1995.
(3) Incorporated by reference from Amendment No. 1 to the Registrant's
Registration Statement on Form N-2, File Nos. 33-60407 and 811-8476, as
filed with the Securities and Exchange Commission on August 7, 1995.
(4) Incorporated by reference from the Registrant's Registration Statement on
Form N-2, File Nos. 333-25487 and 811-8476, as filed with the Securities and
Exchange Commission on April 18, 1997.
(5)Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-2, File Nos. 333-25487 and
811-8476, as filed with the Securities and Exchange Commission on May 23,
1997.
(6) Filed herein.
ITEM 25. MARKETING ARRANGEMENTS
See Exhibit 2(h) to this Registration Statement.
C-1
<PAGE> 75
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
SEC Registration fees............................................. $ 9,470
New York Stock Exchange listing fee............................... 18,438
Rating Agency fee................................................. 20,000
Printing and engraving expenses................................... 100,000
Auditing fees and expenses........................................ 50,000
Legal fees and expenses........................................... 100,000
Blue Sky fees and expenses........................................ 20,000
Consulting fees................................................... 100,000
Miscellaneous..................................................... 11,718
--------
Total................................................... $429,625
========
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Insofar as the following have substantially identical boards of directors
or trustees they may be deemed with Registrant to be under common control: The
Gabelli Asset Fund, The Gabelli Growth Fund and The Westwood Funds, each a
Massachusetts Business Trust, The Gabelli Money Market Funds, The Gabelli Equity
Trust Inc., The Gabelli Value Fund Inc., The Gabelli Investor Fund, Inc.,
Gabelli Capital Series Funds, Inc., The Gabelli Global Series Funds, Inc., The
Gabelli Convertible Securities Fund, Inc., Gabelli International Growth Fund,
Inc., Gabelli Gold Fund Inc. and Gabelli Equity Series Funds, Inc., each a
Maryland corporation.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES AS OF APRIL 30, 1997
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
----------------------------------------------- --------------
<S> <C>
Capital Stock, par value $.001 per share....... 14,014
</TABLE>
ITEM 29. INDEMNIFICATION
Under the Fund's Articles of Incorporation and Amended and Restated
By-Laws, the directors and officers of the Company and Fund will be indemnified
to the fullest extent allowed and in the manner provided by Maryland law and
applicable provisions of the Investment Company Act of 1940, as amended,
including advancing of expenses incurred in connection therewith.
Indemnification shall not be provided however to any officer or director against
any liability to the Registrant or its security-holders to which he or she would
otherwise be subject by reasons of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to the directors and officers, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable. If a claim for indemnification against such liabilities
under the Securities Act of 1933 (other than for expenses incurred in a
successful defense) is asserted against the Company by the directors or officers
in connection with the Shares, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in such Act and will be governed by the
final adjudication of such issue.
C-2
<PAGE> 76
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and partners of Gabelli Funds, Inc.,
reference is made to the Adviser's current Form ADV filed under the Investment
Advisers Act of 1940, incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Registrant are maintained in part at the
office of the Advisor at One Corporate Center, Rye, New York 10580-1434, in part
at the offices of the Custodian, State Street Bank & Trust Company, with offices
at 1776 Heritage Drive, North Quincy, MA 02171, at the offices of the Fund's
Administrator, First Data Investor Services, One Exchange Place, Boston, MA
02109, and in part at the offices of Boston EquiServe, 150 Royall Street, Mail
Stop 45-02-62, Canton, MA 02021.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
1. Registrant undertakes to suspend the offering of shares until the
prospectus is amended, if subsequent to the effective date of this registration
statement, its net asset value declines more than ten percent from its net asset
value, as of the effective date of the registration statement or its net asset
value increases to an amount greater than its net proceeds as stated in the
prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. Registrant undertakes that, for the purpose of determining any liability
under the Securities Act, the information omitted from the form of prospectus
filed as part of the Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
497(h) will be deemed to be a part of the Registration Statement as of the time
it was declared effective.
Registrant undertakes that, for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus will be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
will be deemed to be the initial bona fide offering thereof.
6. Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information
constituting Part B of this Registration Statement.
C-3
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and Investment
Company Act of 1940, the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Rye, State of New York, on the 29th day of May,
1997.
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
By: /s/ BRUCE N. ALPERT
---------------------------------------
Bruce N. Alpert
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---------------------------------------- ------------------------------------------ --------
<C> <S> <C>
/s/ MARIO J. GABELLI Chairman of the Board and President 5/29/97
- ----------------------------------------
Mario J. Gabelli
/s/ DR. THOMAS E. BRATTER Director 5/29/97
- ----------------------------------------
Dr. Thomas E. Bratter
/s/ BILL CALLAGHAN Director 5/29/97
- ----------------------------------------
Bill Callaghan
/s/ FELIX J. CHRISTIANA Director 5/29/97
- ----------------------------------------
Felix J. Christiana
/s/ JAMES P. CONN Director 5/29/97
- ----------------------------------------
James P. Conn
/s/ KARL OTTO POHL Director 5/29/97
- ----------------------------------------
Karl Otto Pohl
/s/ ANTHONY R. PUSTORINO Director 5/29/97
- ----------------------------------------
Anthony R. Pustorino
/s/ SALVATORE J. ZIZZA Director 5/29/97
- ----------------------------------------
Salvatore J. Zizza
</TABLE>
C-4
<PAGE> 78
SCHEDULE OF EXHIBITS TO FORM N-2
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ---------- ------------------------------------------------------------------------- ------
<S> <C> <C>
Exhibit A (1) Articles of Incorporation*...........................................
(2) Articles Supplementary...............................................
Exhibit B Amended and Restated By-Laws*............................................
Exhibit C Not Applicable...........................................................
Exhibit D Specimen Stock Certificate*..............................................
Exhibit E Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan*........
Exhibit F Not Applicable...........................................................
Exhibit G Investment Advisory Agreement*...........................................
Exhibit H (1) Form of Underwriting Agreement.......................................
(2) Form of Master Agreement Among Underwriters..........................
Exhibit I Not Applicable...........................................................
Exhibit J Custodian Agreement*.....................................................
Exhibit K Not Applicable...........................................................
Exhibit L Opinion and Consent of Counsel...........................................
Exhibit M Not Applicable...........................................................
Exhibit N Consent of Price Waterhouse LLP*.........................................
Exhibit O Not Applicable...........................................................
Exhibit P Not Applicable...........................................................
Exhibit Q Not Applicable...........................................................
Exhibit R Financial Data Schedule*.................................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
1,200,000 Shares
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
__% Cumulative Preferred Stock
Liquidation Preference $25 Per Share
UNDERWRITING AGREEMENT
May __, 1997
SMITH BARNEY INC.
GABELLI & COMPANY, INC.
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
The Gabelli Global Multimedia Trust Inc., a Maryland
corporation (the "Fund"), proposes, upon the terms and conditions set forth
herein, to issue and sell an aggregate of 1,200,000 shares (the "Shares") of
its __% cumulative preferred stock, liquidation preference $25 per share, $.001
par value per share (the "Cumulative Preferred Stock"), to the several
Underwriters named in Schedule I hereto. The Cumulative Preferred Stock will
be authorized by, and subject to the terms and conditions of, the Articles
Supplementary to be adopted in connection with the issuance of the Cumulative
Preferred Stock (the "Articles Supplementary").
The Fund and its investment adviser, Gabelli Funds, Inc., a
New York corporation (the "Adviser"), wish to confirm as follows their
agreement with you (the "Representatives") and the other several Underwriters
on whose behalf you are acting, in connection with the several purchases of the
Shares by the Underwriters.
The Fund has entered into an investment advisory agreement
dated October 3, 1994 with the Adviser, a custodian agreement dated October 3,
1994 with State Street Bank and Trust Company, a Massachusetts corporation, and
a registrar, transfer agency and service agreement dated October 3, 1994 with
State Street Bank and Trust Company. Such agreements are hereinafter referred
to as the "Investment Advisory Agreement", the "Custodian Agreement" and the
"Transfer Agency Agreement", respectively. Collectively, the Investment
Advisory Agreement, the Custodian Agreement and the Transfer Agency Agreement
are hereinafter referred to as the "Fund Agreements". This Underwriting
Agreement is hereinafter referred to as the "Agreement".
<PAGE> 2
2
1. Registration Statement and Prospectus. The Fund has
prepared in conformity with the provisions of the Securities Act of 1933, as
amended (the "1933 Act"), the Investment Company Act of 1940, as amended (the
"1940 Act") and the rules and regulations of the Securities and Exchange
Commission (the "Commission") promulgated under the 1933 Act (the "1933 Act
Rules and Regulations") and the 1940 Act (the "1940 Act Rules and Regulations"
and, together with the 1933 Act Rules and Regulations, the "Rules and
Regulations") a registration statement on Form N-2 (File Nos. 333-25487 and
811-8476) under the 1933 Act and the 1940 Act (the "registration statement"),
including a prospectus relating to the Shares, and has filed the registration
statement and prospectus in accordance with the 1933 Act and 1940 Act. The
Fund also has filed a notification of registration of the Fund as an investment
company under the 1940 Act on Form N-8A (the "1940 Act Notification"). The
term "Registration Statement" as used in this Agreement means the registration
statement (including all financial schedules and exhibits), as amended at the
time it becomes effective under the 1933 Act or, if the registration statement
became effective under the 1933 Act prior to the execution of this Agreement,
as amended or supplemented at the time it became effective, prior to the
execution of this Agreement. If it is contemplated, at the time this Agreement
is executed, that a post-effective amendment to the registration statement will
be filed under the 1933 Act and must be declared effective before the offering
of the Shares may commence, the term "Registration Statement" as used in this
Agreement means the registration statement as amended by said post-effective
amendment. If the Fund has filed an abbreviated registration statement to
register an additional amount of Shares pursuant to Rule 462(b) under the 1933
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall include such Rule 462 Registrations
Statement. The term "Prospectus" as used in this Agreement means the
prospectus and statement of additional information in the forms included in the
Registration Statement or, if the prospectus and statement of additional
information included in the Registration Statement omit information in reliance
on Rule 430A under the 1933 Act Rules and Regulations and such information is
included in a prospectus and statement of additional information filed with the
Commission pursuant to Rule 497(h) under the 1933 Act, the term "Prospectus" as
used in this Agreement means the prospectus and statement of additional
information in the forms included in the Registration Statement as supplemented
by the addition of the information contained in the prospectus filed with the
Commission pursuant to Rule 497(h). The term "Prepricing Prospectus" as used
in this Agreement means the prospectus and statement of additional information
subject to completion in the forms included in the registration statement at
the time of filing of amendment No. 1 to the registration statement with the
Commission on May 23, 1997 and as such prospectus and statement of additional
information shall have been amended from time to time prior to the date of the
Prospectus, together with any other prospectus and statement of
<PAGE> 3
3
additional information relating to the Fund other than the Prospectus, approved
in writing by or directly or indirectly prepared by the Fund or the Adviser; it
being understood that the definition of Prepricing Prospectus above shall not
include any Prepricing Prospectus prepared by any Underwriter unless approved
in writing by the Fund or Adviser. The terms "Registration Statement",
"Prospectus" and "Prepricing Prospectus" shall also include any financial
statements incorporated by reference therein.
The Fund has furnished the Representatives with copies of such
registration statement, each amendment to such registration statement filed
with the Commission and each Prepricing Prospectus.
2. Agreements to Sell and Purchase. The Fund hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Fund and the Adviser herein contained and subject to all the
terms and conditions set forth herein, each Underwriter agrees, severally and
not jointly, to purchase from the Fund, at a purchase price of $_______ per
Share, the number of Shares set forth opposite the name of such Underwriter in
Schedule I hereto (or such number of Shares increased as set forth in Section
11 hereof).
3. Terms of Public Offering. The Fund and the Adviser have
been advised by you that the Underwriters propose to make a public offering of
their respective portions of the Shares as soon after the Registration
Statement and this Agreement have become effective as in your judgment is
advisable and initially to offer the Shares upon the terms set forth in the
Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to
the Underwriters of and payment for the Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on May __, 1997 (the "Closing Date"). The place of closing for
the Shares and the Closing Date may be varied by agreement between you and the
Fund.
Certificates for the Shares shall be registered in such names
and in such denominations as you shall request prior to 9:30 A.M., New York
City time, on the second business day preceding the Closing Date. Such
certificates shall be made available to you in New York City for inspection and
packaging not later than 9:30 A.M., New York City time, on the business day
next preceding the Closing Date. The certificates evidencing the Shares shall
be delivered to you on the Closing Date against payment of the purchase price
therefor in immediately available funds.
<PAGE> 4
4
5. Agreements of the Fund and the Adviser. The Fund and the
Adviser, jointly and severally, agree with the several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective under the 1933 Act before the offering of the
Shares may commence, the Fund will endeavor to cause the Registration Statement
or such post-effective amendment to become effective under the 1933 Act as soon
as possible and will advise you promptly and, if requested by you, will confirm
such advice in writing when the Registration Statement or such post-effective
amendment has become effective.
(b) The Fund will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request made by the
Commission for amendment of or a supplement to the Registration Statement, any
Prepricing Prospectus or the Prospectus (or any amendment or supplement to any
of the foregoing) or for additional information, (ii) of the issuance by the
Commission, the National Association of Securities Dealers, Inc. (the "NASD"),
any state securities commission, any national securities exchange, any
arbitrator, any court or any other governmental, regulatory, self-regulatory or
administrative agency or any official of any order suspending the effectiveness
of the Registration Statement, prohibiting or suspending the use of the
Prospectus, any Prepricing Prospectus or any sales material (as hereinafter
defined), of any notice pursuant to Section 8(e) of the 1940 Act, of the
suspension of qualification of the Shares for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purposes, (iii)
of receipt by the Fund, the Adviser, any affiliate of the Fund or the Adviser
or any representative or attorney of the Fund or the Adviser of any other
material communication from the Commission, the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court or any
other governmental, regulatory, self-regulatory or administrative agency or any
official relating to the Fund (if such communication relating to the Fund is
received by such person within three years after the date of this Agreement),
the Registration Statement, the 1940 Act Notification, the Prospectus, any
Prepricing Prospectus, any sales material (as hereinafter defined) (or any
amendment or supplement to any of the foregoing), this Agreement or any of the
Fund Agreements and (iv) within the period of time referred to in paragraph (f)
below, of any material adverse change in the condition (financial or other),
business, prospects, properties, net assets or results of operations of the
Fund or the Adviser or of the happening of any event which makes any statement
of a material fact made in the Registration Statement, the Prospectus or any
sales material (as herein defined) (or any amendment or supplement to any of
the foregoing) untrue or which requires the making of any additions to or
changes in the Registration Statement, the Prospectus, any
<PAGE> 5
5
Prepricing Prospectus or any sales materials (as herein defined) (or any
amendment or supplement to any of the foregoing) in order to state a material
fact required by the 1933 Act, the 1940 Act or the Rules and Regulations to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading or of the
necessity to amend or supplement the Registration Statement, the Prospectus,
any Prepricing Prospectus or any sales material (as herein defined) (or any
amendment or supplement to any of the foregoing) to comply with the 1933 Act,
the 1940 Act, the Rules and Regulations or any other law or order of any court
or regulatory body. If at any time the Commission, the NASD, any state
securities commission, any national securities exchange, any arbitrator, any
court or any other governmental, regulatory, self-regulatory or administrative
agency or any official shall issue any order suspending the effectiveness of
the Registration Statement, prohibiting or suspending the use of the Prospectus
or any sales material (as hereinafter defined) (or any amendment or supplement
to any of the foregoing) or suspending the qualification of the Shares for
offering or sale in any jurisdiction, the Fund will make every reasonable
effort to obtain the withdrawal of such order at the earliest possible time.
(c) The Fund will furnish to you, without charge, three
signed copies of the registration statement and the 1940 Act Notification as
originally filed with the Commission and of each amendment thereto, including
financial statements and all exhibits thereto, and will also furnish to you,
without charge, such number of conformed copies of the registration statement
as originally filed and of each amendment thereto, but without exhibits, as you
may request.
(d) The Fund will not (i) (A) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus,
or any sales material (as hereinafter defined) of which you shall not
previously have been advised or to which you shall object after being so
advised or (ii) so long as, in the opinion of counsel for the Underwriters, a
Prospectus is required by the 1933 Act to be delivered in connection with sales
by any Underwriter or dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"),
without delivering a copy of such information, documents or reports to you, as
Representatives of the Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement,
the Fund has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Fund consents
to the use, in accordance with the provisions of the 1933 Act and with the
state securities or blue sky laws of the jurisdictions in which the Shares are
offered by the several Underwriters and by dealers,
<PAGE> 6
6
prior to the date of the Prospectus, of each Prepricing Prospectus so furnished
by the Fund.
(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such period as in
the opinion of counsel for the Underwriters a prospectus is required by the
1933 Act to be delivered in connection with sales by any Underwriter or dealer,
the Fund will expeditiously deliver to each Underwriter and each dealer,
without charge, as many copies of the Prospectus (and of any amendment or
supplement thereto) as you may request. The Fund consents to the use of the
Prospectus (and of any amendment or supplement thereto) in accordance with the
provisions of the 1933 Act and with the state securities or blue sky laws of
the jurisdictions in which the Shares are offered by the several Underwriters
and by all dealers to whom Shares may be sold, both in connection with the
offering and sale of the Shares and for such period of time thereafter as the
Prospectus is required by the 1933 Act to be delivered in connection with sales
by any Underwriter or dealer. If during such period of time any event shall
occur that in the judgment of the Fund or in the opinion of counsel for the
Underwriters is required to be set forth in the Registration Statement or the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Registration Statement or the Prospectus to comply with the 1933 Act,
the 1940 Act, the Rules and Regulations or any other federal law, rule or
regulation, or any state securities or blue sky disclosure laws, rules or
regulations, the Fund will forthwith prepare and, subject to the provisions of
paragraph (d) above, promptly file with the Commission an appropriate
supplement or amendment thereto, and will expeditiously furnish to the
Underwriters and dealers, without charge, a reasonable number of copies
thereof. In the event that the Fund and you, as Representatives of the several
Underwriters, agree that the Registration Statement or the Prospectus should be
amended or supplemented, the Fund, if requested by you, will promptly issue a
press release announcing or disclosing the matters to be covered by the
proposed amendment or supplement.
(g) The Fund will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
state securities or blue sky laws of such jurisdictions as you may designate
and will file such consents to service of process or other documents necessary
or appropriate in order to effect such registration or qualification; provided,
that in no event shall the Fund be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other than those arising out
<PAGE> 7
7
of the offering or sale of the Shares, in any jurisdiction where it is not now
so subject.
(h) The Fund will make generally available to its security
holders an earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as
practicable after the end of such period, which earnings statement shall
satisfy the provisions of Section 11(a) of the Act and Rule 158 of the 1933 Act
Rules and Regulations.
(i) During the period of five years hereafter, the Fund will
furnish to you (i) as soon as available, a copy of each report of the Fund
mailed to stockholders or filed with the Commission or furnished to the New
York Stock Exchange (the "NYSE") other than reports on Form N-SAR, and (ii)
from time to time such other information concerning the Fund as you may
request.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 11 hereof or by notice given by you terminating
this Agreement pursuant to Section 11 or Section 12 hereof) or if this
Agreement shall be terminated by the Underwriters because of any failure or
refusal on the part of the Fund or the Adviser to comply with the terms or
fulfill any of the conditions of this Agreement required to be complied with or
fulfilled by them, the Fund or, in the case of a failure or refusal by the
Adviser, the Adviser, agrees to reimburse the Representatives for all
out-of-pocket expenses (including fees and expenses of (i) counsel for the
Underwriters and (ii) Financial Products Group, Inc.) incurred by you in
connection herewith.
(k) The Fund will apply the net proceeds from the sale of the
Shares substantially in accordance with the description set forth in the
Prospectus and in such a manner as to comply with the investment objectives,
policies and restrictions of the Fund as described in the Prospectus.
(l) The Fund will timely file the requisite copies of the
Prospectus with the Commission pursuant to Rule 497(c) or Rule 497(h) of the
1933 Act Rules and Regulations, whichever is applicable or, if applicable, will
timely file the certification permitted by Rule 497(j) of the 1933 Act Rules
and Regulations and will advise you of the time and manner of such filing.
(m) Except as provided in this Agreement, the Fund will not
sell, contract to sell, or otherwise dispose of any senior securities of the
Fund, or grant any options or warrants to purchase senior securities of the
Fund, for a period of 180 days after the date of the Prospectus, without the
prior written consent of Smith Barney Inc.
<PAGE> 8
8
(n) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, neither the Fund nor the Adviser has taken, nor will
it take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of any securities issued by the Fund to facilitate the sale or resale
of the Shares; it being understood that the Underwriters include certain
affiliates of the Adviser and that stabilization or other activity by the
Representatives on behalf of the Underwriters shall not be deemed to be
violative of this representation.
(o) The Fund will use its best efforts to have the Shares
listed, subject to notice of issuance, on the NYSE.
(p) The Fund will use its best efforts to cause the
Cumulative Preferred Stock, prior to the Closing Date, to be assigned a rating
of 'aaa' by Moody's Investor Services, Inc. (the "Rating Agency").
(q) The Fund and the Adviser will use their best efforts to
perform all of the agreements required of them and discharge all conditions to
closing as set forth in this Agreement.
6. Representations and Warranties of the Fund and the
Adviser. The Fund and the Adviser, jointly and severally, represent and
warrant to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 497 of the 1933 Act Rules and
Regulations, complied when so filed in all material respects with the
provisions of the 1933 Act, the 1940 Act and the Rules and Regulations. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The registration statement in the form in which it became
or becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 497 of the 1933
Act Rules and Regulations and the 1940 Act Notification when originally filed
with the Commission and any amendment or supplement thereto when filed with the
Commission, complied or will comply in all material respects with the
provisions of the 1933 Act, the 1940 Act and the Rules and Regulations and did
not or will not at any such times contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except that this
representation and warranty does not apply to statements in or omissions from
the registration statement or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to the Fund
in
<PAGE> 9
9
writing by or on behalf of any Underwriter through you expressly for use
therein.
(c) All the outstanding shares of Common Stock of the Fund
have been duly authorized and validly issued, are fully paid and nonassessable
and are free of any preemptive or similar rights; the Shares have been duly
authorized and, when issued and delivered to the Underwriters against payment
therefor in accordance with the terms hereof, will be validly issued, fully
paid and nonassessable and free of any preemptive or similar rights and will
conform to the description thereof in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them); and the capital
stock of the Fund conforms to the description thereof in the Registration
Statement and the Prospectus (and any amendment or supplement to either of
them).
(d) The Fund is a corporation duly organized and validly
existing in good standing under the laws of the State of Maryland with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them), and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify does not have a material adverse effect on
the condition (financial or other), business, prospects, properties, net assets
or results of operations of the Fund; and the Fund has no subsidiaries.
(e) There are no legal or governmental proceedings pending
or, to the knowledge of the Fund, threatened, against the Fund, or to which the
Fund or any of its properties is subject, that are required to be described in
the Registration Statement or the Prospectus (and any amendment or supplement
to either of them) but are not described as required, and there are no
agreements, contracts, indentures, leases or other instruments that are
required to be described in the Registration Statement or the Prospectus (and
any amendment or supplement to either of them) or to be filed as an exhibit to
the Registration Statement that are not described or filed as required by the
1933 Act, the 1940 Act or the Rules and Regulations.
(f) The Fund is not in violation of its articles of
incorporation or by-laws, or other organizational documents, or of any law,
ordinance, administrative or governmental rule or regulation applicable to the
Fund or of any decree of the Commission, the NASD, any state securities
commission, any national securities exchange, any arbitrator, any court or
governmental agency, body or official having jurisdiction over the Fund, or in
default in any material respect in the performance of any obligation, agreement
or condition contained
<PAGE> 10
10
in any bond, debenture, note or any other evidence of indebtedness or in any
material agreement, indenture, lease or other instrument to which the Fund is a
party or by which it or any of its properties may be bound.
(g) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement or any of the Fund
Agreements by the Fund, nor the consummation by the Fund of the transactions
contemplated hereby or thereby (A) requires any consent, approval,
authorization or other order of or registration or filing with, the Commission,
the NASD, any state securities commission, any national securities exchange,
any arbitrator, any court, regulatory body, administrative agency or other
governmental body, agency or official (except such as may have been obtained
prior to the date hereof and such as may be required for compliance with the
state securities or blue sky laws of various jurisdictions which have been or
will be effected in accordance with this Agreement) or conflicts or will
conflict with or constitutes or will constitute a breach of, or a default
under, the articles of incorporation, including the Articles Supplementary, or
by-laws, or other organizational documents, of the Fund or (B) conflicts or
will conflict with or constitutes or will constitute a breach of, or a default
under, any agreement, indenture, lease or other instrument to which the Fund is
a party or by which it or any of its properties may be bound, or violates or
will violate any statute, law, regulation or filing or judgment, injunction,
order or decree applicable to the Fund or any of its properties, or will result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Fund pursuant to the terms of any agreement or
instrument to which it is a party or by which it may be bound or to which any
of its property or assets is subject. The Fund is not subject to any order of
any court or of any arbitrator, governmental authority or administrative
agency.
(h) The accountants, Price Waterhouse LLP, who have certified
or shall certify the financial statements included in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them)
are independent public accountants as required by the 1933 Act, the 1940 Act
and the Rules and Regulations.
(i) The financial statements, together with related schedules
and notes, included or incorporated by reference in the Registration Statement
and the Prospectus (and any amendment or supplement to either of them), present
fairly the financial position, results of operations and changes in financial
position of the Fund on the basis stated or incorporated by reference in the
Registration Statement at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data included
<PAGE> 11
11
in the Registration Statement and the Prospectus (and any amendment or
supplement to either of them) are accurately presented and prepared on a basis
consistent with such financial statements and the books and records of the
Fund.
(j) The execution and delivery of, and the performance by the
Fund of its obligations under, this Agreement and the Fund Agreements have been
duly and validly authorized by the Fund, and this Agreement and the Fund
Agreements have been duly executed and delivered by the Fund and constitute the
valid and legally binding agreements of the Fund, enforceable against the Fund
in accordance with their terms, except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws.
(k) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to
the respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of
them), the Fund has not incurred any liability or obligation, direct or
contingent, or entered into any transaction, not in the ordinary course of
business, that is material to the Fund, and there has not been any change in
the capital stock, or material increase in the short-term debt or long-term
debt, of the Fund, or any material adverse change, or any development involving
or which may reasonably be expected to involve, a prospective material adverse
change, in the condition (financial or other), business, prospects, properties,
net assets or results of operations of the Fund, whether or not arising in the
ordinary course of business, it being understood that a change of up to 15% of
the aggregate market value of the Fund's assets shall not cause this
representation to be untrue.
(l) The Fund has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted by
the 1933 Act, the 1940 Act or the Rules and Regulations.
(m) The Fund has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus (and any amendment or supplement thereto), subject
to such qualifications as may be set forth in the Prospectus; the Fund has
fulfilled and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of
time would allow, revocation or termination thereof or results in any other
material impairment of the rights of the Fund under any such permit, subject in
each case to such qualification as may be set forth in the Prospectus (and any
<PAGE> 12
12
amendment or supplement thereto); and, except as described in the Prospectus
(and any amendment or supplement thereto), none of such permits contains any
restriction that is materially burdensome to the Fund.
(n) The Fund maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization and
with the applicable requirements of the 1940 Act, the 1940 Act Rules and
Regulations and the Internal Revenue Code of 1986, as amended (the "Code");
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets and to maintain compliance with the books
and records requirements under the 1940 Act and the 1940 Act Rules and
Regulations; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(o) To the Fund's knowledge, neither the Fund nor any
employee or agent of the Fund has made any payment of funds of the Fund or
received or retained any funds in violation of any law, rule or regulation,
which payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectus.
(p) The Fund has filed all tax returns required to be filed,
which returns are complete and correct, and the Fund is not in default in the
payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto.
(q) No holder of any security of the Fund has any right to
require registration of shares of common stock, Cumulative Preferred Stock or
any other security of the Fund because of the filing of the registration
statement or consummation of the transactions contemplated by this Agreement.
(r) The Fund, subject to the registration statement having
been declared effective and the filing of the Prospectus under Rule 497 under
the Rules and Regulations, has taken all required action under the 1933 Act,
the 1940 Act and the Rules and Regulations to make the public offering and
consummate the sale of the Shares as contemplated by this Agreement.
(s) The conduct by the Fund of its business (as described
in the Prospectus) does not require it to be the owner, possessor or licensee
of any patents, patent licenses, trademarks, service marks or trade names which
it does not own, possess or license.
<PAGE> 13
13
(t) The Fund is registered under the 1940 Act as a closed-end
non-diversified management investment company and the 1940 Act Notification has
been duly filed with the Commission and, at the time of filing thereof and any
amendment or supplement thereto, conformed in all material respects with all
applicable provisions of the 1940 Act and the Rules and Regulations. The Fund
is, and at all times through the completion of the transactions contemplated
hereby, will be, in compliance in all material respects with the terms and
conditions of the 1933 Act and the 1940 Act. No person is serving or acting as
an officer, director or investment adviser of the Fund except in accordance
with the provisions of the 1940 Act and the 1940 Act Rules and Regulations and
the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the
rules and regulations of the Commission promulgated under the Advisers Act (the
"Advisers Act Rules and Regulations").
(u) Except as stated in this Agreement and in the Prospectus
(and any amendment or supplement thereto), the Fund has not taken, nor will it
take, directly or indirectly, any action designed to or which might reasonably
be expected to cause or result in stabilization or manipulation of the price of
any securities issued by the Fund to facilitate the sale or resale of the
Shares, and the Fund is not aware of any such action taken or to be taken by
any affiliates of the Fund.
(v) The Fund has filed in a timely manner each document or
report required to be filed by it pursuant to the 1934 Act and the rules and
regulations of Commission promulgated thereunder (the "1934 Act Rules and
Regulations"); each such document or report at the time it was filed conformed
to the requirements of the 1934 Act and the 1934 Act Rules and Regulations; and
none of such documents or reports contained an untrue statement of any material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(w) All advertising, sales literature or other promotional
material (including "prospectus wrappers," "broker kits," "road show slides"
and "road show scripts") authorized in writing by or prepared by the Fund or
the Adviser for use in connection with the offering and sale of the Shares
(collectively, "sales material") complied and comply in all material respects
with the applicable requirements of the 1933 Act, the 1940 Act, the Rules and
Regulations and the rules and interpretations of the NASD and no such sales
material contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(x) Each of the Fund Agreements and the Fund's and the
Adviser's obligations under this Agreement and each of the Fund Agreements
comply in all material respects with all applicable
<PAGE> 14
14
provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers
Act the Advisers Act Rules and Regulations.
(y) The Shares have been, or prior to the Closing Date will
be, assigned a rating of 'aaa' by the Rating Agency.
(z) At all times since its inception, as required by
Subchapter M of the Code, the Fund has complied with the requirements to
qualify as a regulated investment company under the Code.
(ab) Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement to either of them), no director
of the Fund is an "interested person" (as defined in the 1940 Act) of the Fund
or an "affiliated person" (as defined in the 1940 Act) of any Underwriter.
7. Representations and Warranties of the Adviser. The
Adviser represents and warrants to each Underwriter as follows:
(a) The Adviser is a corporation duly organized and validly
existing in good standing under the laws of the State of New York, with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them), and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or to qualify does not have a material adverse effect on
the condition (financial or other), business, prospects, properties, net assets
or results of operations of the Adviser and its subsidiaries, taken as a whole,
or on the ability of the Adviser to perform its obligations under this
Agreement and the Investment Advisory Agreement.
(b) The Adviser is duly registered with the Commission as an
investment adviser under the Advisers Act and is not prohibited by the Advisers
Act, the Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules
and Regulations from acting under the Investment Advisory Agreement for the
Fund as contemplated by the Prospectus (or any amendment or supplement
thereto). There does not exist any proceeding or any facts or circumstances
the existence of which could lead to any proceeding which might adversely
affect the registration of the Adviser with the Commission.
(c) There are no legal or governmental proceedings pending
or, to the knowledge of the Adviser, threatened against the Adviser, or to
which the Adviser or any of its properties is subject, that are required to be
described in the Registration Statement or the Prospectus (or any amendment or
supplement to either of them) but are not described as required or that may
<PAGE> 15
15
reasonably be expected to involve a prospective material adverse change, in the
condition (financial or other), business, prospects, properties, net assets or
results of operations of the Adviser and its subsidiaries, taken as a whole, or
on the ability of the Adviser to perform its obligations under this Agreement
and the Investment Advisory Agreement.
(d) Neither the execution, delivery or performance of this
Agreement or the Investment Advisory Agreement by the Adviser, nor the
consummation by the Adviser of the transactions contemplated hereby or thereby
(A) requires the Adviser to obtain any consent, approval, authorization or
other order of or registration or filing with, the Commission, the NASD, any
state securities commission, any national securities exchange, any arbitrator,
any court, regulatory body, administrative agency or other governmental body,
agency or official or conflicts or will conflict with or constitutes or will
constitute a breach of or a default under, the certificate of incorporation or
by-laws, or other organizational documents, of the Adviser or (B) conflicts or
will conflict with or constitutes or will constitute a breach of or a default
under, any agreement, indenture, lease or other instrument to which the Adviser
is a party or by which it or any of its properties may be bound, or violates or
will violate any statute, law, regulation or filing or judgment, injunction,
order or decree applicable to the Adviser or any of its properties or will
result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Adviser pursuant to the terms of any agreement or
instrument to which it is a party or by which it may be bound or to which any
of the property or assets of the Adviser is subject. The Adviser is not
subject to any order of any court or of any arbitrator, governmental authority
or administrative agency.
(e) The execution and delivery of, and the performance by the
Adviser of its obligations under, this Agreement and the Investment Advisory
Agreement have been duly and validly authorized by the Adviser, and this
Agreement and the Investment Advisory Agreement have been duly executed and
delivered by the Adviser and each constitutes the valid and legally binding
agreement of the Adviser, enforceable against the Adviser in accordance with
its terms except as rights to indemnity and contribution hereunder may be
limited by federal or state securities laws.
(f) The Adviser has the financial resources available to it
necessary for the performance of its services and obligations as contemplated
in the Prospectus (or any amendment or supplement thereto) and under this
Agreement and the Investment Advisory Agreement.
(g) The description of the Adviser in the Registration
Statement and the Prospectus (and any amendment or supplement thereto) complied
and comply in all material respects with the provisions the 1933 Act, the 1940
Act, the Advisers Act, the
<PAGE> 16
16
Rules and Regulations and the Advisers Act Rules and Regulations and did not
and will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(h) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to
the respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of
them), the Adviser has not incurred any liability or obligation, direct or
contingent, or entered into any transaction, not in the ordinary course of
business, that is material to the Adviser and its subsidiaries, taken as a
whole, and that is required to be disclosed in the Registration Statement or in
the Prospectus and there has not been any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties, net assets or results of operations of the
Adviser and its subsidiaries, taken as a whole, whether or not arising in the
ordinary course of business, or which, in each case, could have a material
adverse effect on the ability of the Adviser to perform its obligations under
this Agreement and the Investment Advisory Agreement.
(i) The Adviser has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties and to conduct its business in the manner
described in the Prospectus (and any amendment thereto); the Adviser has
fulfilled and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of
time would allow, revocation or termination thereof or results in any other
material impairment of the rights of the Adviser under any such permit; and,
except as described in the Prospectus (and any amendment or supplement
thereto), none of such permits contains any restriction that is materially
burdensome to the Adviser.
(j) Except as stated in this Agreement and in the Prospectus
(and in any amendment or supplement thereto), the Adviser has not taken, nor
will it take, directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in, stabilization or manipulation of
the price of any securities issued by the Fund to facilitate the sale or resale
of the Shares, and the Adviser is not aware of any such action taken or to be
taken by any affiliates of the Adviser; it being understood that the
Underwriters include certain affiliates of the Adviser and that stabilization
or other activity by the Representatives on behalf of the Underwriters shall
not be deemed to be violative of this representation.
<PAGE> 17
17
(k) Mario J. Gabelli is the validly appointed Chairman,
President, Chief Executive Officer and Director of the Adviser and the
portfolio manager of the Fund; Mr. Gabelli has not given notice nor made known
an intention to give notice of termination of his employment and the Adviser
knows of no reason why Mr. Gabelli should be unable to serve as portfolio
manager to the Fund.
8. Indemnification and Contribution. (a) The Fund and the
Adviser, jointly and severally, agree to indemnify and hold harmless each of
you and each other Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act from and against any and all losses, claims, damages, liabilities
and expenses, joint and several (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact contained in any Prepricing Prospectus or in the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or expenses arise out of or are based upon any
untrue statement or omission or alleged untrue statement or omission which has
been made therein or omitted therefrom in reliance upon and in conformity with
the information relating to such Underwriter furnished in writing to the Fund
by or on behalf of any Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or expense
arising from the sale of the Shares by such Underwriter to any person if a copy
of the Prospectus shall not have been delivered or sent to such person within
the time required by the 1933 Act and the 1933 Act Rules and Regulations, and
the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Prepricing Prospectus was
corrected in the Prospectus, provided that the Fund has delivered the
Prospectus to the several Underwriters in requisite quantity on a timely basis
to permit such delivery or sending. The foregoing indemnity agreement shall be
in addition to any liability which the Fund or the Adviser may otherwise have.
(b) If any action, suit or proceeding shall be brought
against any Underwriter or any person controlling any Underwriter in respect of
which indemnity may be sought against the Fund or the Adviser, such Underwriter
or such controlling person shall promptly notify the Fund or the Adviser, and
the Fund or the Adviser shall assume the defense thereof, including the
employment of counsel and payment of all fees and expenses. Such Underwriter
or any such controlling person shall have the right
<PAGE> 18
18
to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Underwriter or such controlling person unless
(i) the Fund or the Adviser has agreed in writing to pay such fees and
expenses, (ii) the Fund and the Adviser have failed to assume the defense and
employ counsel, or (iii) the named parties to any such action, suit or
proceeding (including any impleaded parties) include both such Underwriter or
such controlling person and the Fund or the Adviser and such Underwriter or
such controlling person shall have been advised by its counsel that
representation of such indemnified party and the Fund or the Adviser by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the Fund and the Adviser shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the Fund and the Adviser
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The Fund and the Adviser shall not be liable
for any settlement of any such action, suit or proceeding effected without its
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
Fund and the Adviser agree to indemnify and hold harmless any Underwriter, to
the extent provided in the preceding paragraph, and any such controlling person
from and against any loss, claim, damage, liability or expense by reason of
such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Fund and the Adviser, their directors, any
officers who sign the Registration Statement, and any person who controls the
Fund or the Adviser within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act, to the same extent as the foregoing indemnity from the Fund
and the Adviser to each Underwriter, but only with respect to information
relating to such Underwriter furnished in writing by or on behalf of such
Underwriter through you expressly for use in the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto. If any action, suit or proceeding shall be brought against the Fund
or the Adviser, any of their directors, any such officer, or any such
controlling person based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or
<PAGE> 19
19
supplement thereto, and in respect of which indemnity may be sought against any
Underwriter pursuant to this paragraph (c), such Underwriter shall have the
rights and duties given to the Fund and the Adviser by paragraph (b) above
(except that if the Fund or the Adviser shall have assumed the defense thereof
such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the Fund
and the Adviser, their directors, any such officer, and any such controlling
person shall have the rights and duties given to the Underwriters by paragraph
(b) above. The foregoing indemnity agreement shall be in addition to any
liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Fund and the Adviser on the one hand (treated jointly for this purpose as
one person) and the Underwriters on the other hand from the offering of the
Shares, or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Fund and the Adviser on the one hand (treated jointly for this purpose
as one person) and the Underwriters on the other in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Fund and the Adviser on
the one hand (treated jointly for this purpose as one person) and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by
the Fund bear to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault of the Fund and the Adviser on the one hand
(treated jointly for this purpose as one person) and the Underwriters on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Fund and the Adviser on the one hand (treated jointly for this purpose as
one person) or by the Underwriters on the other hand and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
<PAGE> 20
20
(e) The Fund, the Adviser and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 8 were
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to
this Section 8 are several in proportion to the respective numbers of Shares
set forth opposite their names in Schedule I hereto (or such numbers of Shares
increased as set forth in Section 11 hereof) and not joint.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Fund and the Adviser set forth in this
Agreement shall remain operative and in full force and effect, regardless of
(i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Fund, the Adviser, their directors or
officers, or any person controlling the Fund or the Adviser, (ii) acceptance of
any Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter or any person controlling any
Underwriter, or to the Fund, the Adviser, their directors or officers, or any
person
<PAGE> 21
21
controlling the Fund or the Adviser, shall be entitled to the benefits of the
indemnity, contribution, and reimbursement agreements contained in this Section
8.
9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Shares hereunder are subject to
the following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may
commence, the registration statement or such post-effective amendment shall
have become effective not later than 5:30 P.M., New York City time, on the date
hereof, or at such later date and time as shall be consented to in writing by
you, and all filings, if any, required by Rules 497 and 430A under the 1933 Act
and the 1933 Act Rules and Regulations shall have been timely made; no stop
order suspending the effectiveness of the Registration Statement or order
pursuant to Section 8(e) of the 1940 Act shall have been issued and no
proceeding for those purposes shall have been instituted or, to the knowledge
of the Fund, the Adviser or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
registration statement or the prospectus or otherwise) shall have been complied
with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change (other than a change of up to 15% of the
aggregate market value of the Fund's assets) or any development involving a
prospective change, in or affecting the condition (financial or other),
business, prospects, properties, net assets, or results of operations of the
Fund or the Adviser and its subsidiaries, taken as a whole, not contemplated by
the Prospectus, which in your opinion, as Representatives of the several
Underwriters, would materially, adversely affect the market for the Shares, or
(ii) any event or development relating to or involving the Fund or the Adviser
or any officer or director of the Fund or the Adviser which makes any statement
made in the Prospectus untrue or which, in the opinion of the Fund and its
counsel or the Underwriters and their counsel, requires the making of any
addition to or change in the Prospectus in order to state a material fact
required by the 1933 Act, the 1940 Act or the Rules and Regulations or any
other law to be stated therein or necessary in order to make the statements
therein not misleading, if amending or supplementing the Prospectus to reflect
such event or development would, in your opinion, as Representatives of the
several Underwriters, materially adversely affect the market for the Shares.
(c) The Fund shall have furnished to you, a report showing
compliance with the asset coverage requirements of the 1940 Act, a Certificate
of Basic Maintenance Amount (as defined in the Prospectus) and a letter from
Price Waterhouse LLP
<PAGE> 22
22
regarding certain matters set forth in such report and certificate and
confirming that, after giving effect to the offering of Cumulative Preferred
Stock, the Fund will be in compliance with the asset coverage requirements of
the 1940 Act and the Rating Agency, each dated the Closing Date and in form and
substance satisfactory to you.
(d) You shall have received on the Closing Date, an opinion
of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Fund, dated the
Closing Date and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) The Fund is duly registered and qualified
to conduct its business and is in good standing in the State of New York (which
is the only jurisdiction identified by management of the Fund to such counsel
in which the Fund owns property, has operations or conducts business);
(ii) The authorized and outstanding capital
stock of the Fund is as set forth under the caption "Capitalization" in the
Prospectus; and the authorized capital stock of the Fund (including the
Cumulative Preferred Stock) conforms in all material respects as to legal
matters to the description thereof contained in the Prospectus under the
captions "Description of Capital Stock and Other Securities" and "Description
of Cumulative Preferred Stock";
(iii) The Registration Statement and all
post-effective amendments, if any, have become effective under the 1933 Act
and, to the best knowledge of such counsel after reasonable inquiry, no stop
order suspending the effectiveness of the Registration Statement or order
pursuant to Section 8(e) of the 1940 Act has been issued and no proceedings for
that purpose are pending before or contemplated by the Commission; and any
required filing of the Prospectus pursuant to Rule 497 has been made in
accordance with Rule 497;
(iv) Each of this Agreement and the Fund
Agreements has been duly executed and delivered and is a valid, legal and
binding agreement of the Fund, enforceable against the Fund in accordance with
its terms, except to the extent that (A) enforcement hereof and thereof may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally, or (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity) and (B)
enforcement of rights to indemnity and contribution hereunder and thereunder
may be limited by Federal or state securities laws or principles of public
policy;
(v) The Fund is not in violation of any
contract included as an exhibit to the Registration Statement (each, a
"Material Fund Agreement");
<PAGE> 23
23
(vi) Neither the offer, sale or delivery of the
Shares, the execution, delivery or performance of this Agreement and the Fund
Agreements by the Fund, compliance by the Fund with the provisions hereof or
thereof nor consummation by the Fund of the transactions contemplated hereby or
thereby conflicts or will conflict with or constitutes or will constitute a
breach of, or a default under, any Material Fund Agreement, or will result in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Fund under any Material Fund Agreement, nor will any such
action result in any violation of (a) any provision of the New York Business
Corporation Law and those laws, rules and regulations of the State of New York
and the United States of America that, in the experience of such counsel, are
normally applicable to entities such as the Fund and transactions of the type
contemplated by this Agreement, but without having made any special
investigation concerning any other laws, rules or regulations (collectively,
"Applicable Fund Laws"); provided, that the term "Applicable Fund Laws" does
not include (1) the rules and regulations of the NASD, (2) any federal or state
securities or blue sky laws, (3) any antifraud laws or (4) any law, rule or
regulation that may have become applicable to the Fund as a result of the
Underwriters' involvement with the transactions contemplated hereby or because
of any facts specifically pertaining to the Underwriters, or (b) any judgment,
order or decree of any New York or federal executive, legislative, judicial,
administrative or regulatory body under Applicable Fund Laws and the NYSE
(each, a "Governmental Fund Authority") identified in an officer's certificate;
(vii) No consent, approval, license,
authorization, order or validation of, or filing, recording or registration
with, any Governmental Fund Authority pursuant to Applicable Fund Laws (each, a
"Governmental Fund Approval") is required for the valid issuance and sale of
the Shares to the Underwriters or the execution, delivery and performance by
the Fund of this Agreement and the Fund Agreements or the consummation of the
transactions contemplated hereby and thereby except such Governmental Fund
Approvals as have been obtained;
(viii) The 1940 Act Notification, the Registration
Statement, the Prospectus and the Fund's Registration Statement on Form 8-A
under the 1934 Act and any supplements or amendments thereto (except for the
financial statements and the notes thereto and the schedules and other
financial and statistical data included therein, as to which such counsel need
not express any opinion) comply as to form in all material respects with the
requirements of the 1933 Act, the 1940 Act, the Rules and Regulations, the 1934
Act and the rules and regulations promulgated thereunder;
(ix) To the actual knowledge of such counsel
after reasonable inquiry, other than as described or contemplated in the
Registration Statement or Prospectus (or any supplement
<PAGE> 24
24
thereto), (A) there are no legal or governmental proceedings in the State of
New York or, to the actual knowledge of such counsel, any other state, pending
or threatened against the Fund, or to which the Fund or any of its properties
is subject, which are required to be described in the Registration Statement or
Prospectus (or any amendment or supplement to either of them) and (B) there are
no agreements, contracts, indentures, leases or other instruments that are
required to be described in the Registration Statement or the Prospectus (or
any amendment or supplement to either of them) or to be filed as an exhibit to
the Registration Statement that are not described or filed as required, as the
case may be;
(x) The statements in the Registration
Statement, Prospectus and statement of additional information under the caption
"Taxation", insofar as they refer to statements of law or legal conclusions,
are accurate and present fairly the information required to be shown;
(xi) The Fund's registration statement on Form
8-A under the 1934 Act is effective;
(xii) Each of the Fund Agreements and the Fund's
and the Adviser's obligations under each of this Agreement and the Fund
Agreements comply as to form in all material respects with all applicable
provisions of the 1933 Act, the 1940 Act, the Advisers Act, the Rules and
Regulations and the Advisers Act Rules and Regulations;
(xiii) The Fund is duly registered with the
Commission under the 1940 Act as a closed-end non-diversified management
investment company; and the provisions of the Fund's articles of incorporation,
including the Articles Supplementary, and by-laws, and the investment policies
and restrictions described in the Registration Statement and the Prospectus
under the captions "The Fund", "Investment Objectives and Policies", " Special
Investment Methods", "Risk Factors and Special Considerations" and "Investment
Restrictions" (in the Prospectus and the statement of additional information)
comply in all material respects with the requirements of the 1940 Act, and all
action has been taken by the Fund as is required of the Fund by the 1933 Act
and the 1940 Act and the Rules and Regulations in connection with the issuance
and sale of the Shares to make the public offering and consummate the sale of
the Shares as contemplated by this Agreement;
(xiv) The Fund has full corporate power and
authority, and all necessary governmental authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental
regulatory officials and bodies required under Applicable Fund Law (except
where the failure so to have any such authorizations, approvals, orders,
licenses, certificates, franchises or permits, individually or in the
aggregate, would not have a material adverse effect on the business,
properties, operations or financial condition of the Fund), to own its
<PAGE> 25
25
properties and to conduct business as now being conducted, as described in the
Prospectus;
(xv) Except as described in the Prospectus,
there is no holder of any security of the Fund or any other person who has the
right, contractual or otherwise pursuant to any Material Fund Agreement, to
cause the Fund to sell or otherwise issue to them, or to permit them to
underwrite the sale of, the Shares or the right to have any securities of the
Fund included in the registration statement or the right, as a result of the
filing of the registration statement, to require registration under the 1933
Act of any securities of the Fund;
(xvi) If the Fund operates as described in the
Prospectus, the Fund will qualify as a regulated investment company under the
Code; and
(xvii) Such counsel shall also state that they
have participated in conferences with officers and employees of the Fund,
representatives of the independent accountants for the Fund, Maryland counsel
to the Fund, the Underwriters and counsel for the Underwriters at which the
contents of the Registration Statement and the Prospectus and related matters
were discussed and, although they are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus except to the limited
extent otherwise covered by paragraphs (ii), (ix), (x) and (xiii), and have
made no independent check or verification thereof, on the basis of the
foregoing, no facts have come to their attention that would have led them to
believe that the Registration Statement or any amendment or supplement thereto,
at the time it became effective, contained an untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements contained therein not misleading or that the
Prospectus or any amendment or supplement thereto, as of its issue date and as
of the Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact required to be stated therein
or necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading, except that they
express no belief with respect to the financial statements, schedules and other
financial information and statistical data included therein or excluded
therefrom or the exhibits to the Registration Statement.
(e) You shall have received on the Closing Date, an opinion
of Miles & Stockbridge, Maryland counsel for the Fund, dated the Closing Date
and addressed to you, as Representatives of the several Underwriters, to the
effect that:
(i) The Fund is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Maryland with full corporate power to own, lease and operate
<PAGE> 26
26
its properties and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement to either of
them);
(ii) The authorized capital stock of the Fund is
as set forth under the caption "Capitalization" in the Prospectus; and the
authorized capital stock of the Fund conforms in all material respects as to
legal matters to the description thereof contained in the Prospectus under the
caption "Description of Capital Stock and Other Securities";
(iii) The Shares have been duly authorized and,
when issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable. The issuance of the Shares will not be subject to preemptive or
other similar rights entitling any person to purchase or acquire any of the
Shares upon the issuance thereof by the Fund which arise by operation of the
laws of the State of Maryland or under the articles of incorporation or by-laws
of the Fund;
(iv) The Shares conform in all material respects
to the description thereof contained in the Prospectus under the caption
"Description of Cumulative Preferred Stock";
(v) The form of certificates for the Shares
conforms to the requirements of the Maryland General Corporation Law;
(vi) The Fund has the requisite corporate power
and authority to enter into and execute and deliver this Agreement and to
issue, sell and deliver the Shares to the Underwriters as provided for herein;
(vii) This Agreement has been duly authorized by
the Fund. Neither the offer, sale or delivery of the Shares, the execution,
delivery or performance of this Agreement by the Fund, compliance by the Fund
with the provisions hereof nor consummation by the Fund of the transactions
contemplated hereby conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the articles of incorporation,
including the Articles Supplementary, or by-laws of the Fund;
(viii) The Fund has full corporate power and, to
the knowledge of such counsel, all governmental authorizations, approvals,
orders, licenses, certificates, franchises and permits necessary or required
under the laws of the State of Maryland for the Fund to own its properties and
to conduct its business as it now is being conducted as described in the
Prospectus (except in cases where the failure so to have any such
authorizations, approvals, orders, licenses, certificates, franchises or
permits, individually or in the aggregate, would not have a material adverse
effect on the business, properties, operations or financial conditions of the
Fund); and
<PAGE> 27
27
(ix) No consent, approval, authorization or
other order of, or registration or filing with, any securities commission,
court, regulatory body, administrative agency or other governmental body,
agency, or official of the State of Maryland is required on the part of the
Fund for the valid issuance and sale of the Shares to the Underwriters as
contemplated by this Agreement, the execution and delivery by the Fund of this
Agreement and the performance by the Fund of its obligations hereunder or the
consummation of the transactions contemplated hereby by the Fund, except those
as may be required under the securities or blue sky laws of the State of
Maryland; it being understood that such counsel do not express any opinion as
to any such consent, approval, authorization or other order of, or registration
or filing, which may be required as a result of the involvement of any other
parties to this Agreement.
(f) You shall have received on the Closing Date an opinion of
James E. McKee, general counsel for the Fund, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, to the effect
that:
(i) The Fund is not in violation of its
articles of incorporation, including the Articles Supplementary, or by-laws
and, to the actual knowledge of such counsel after reasonable inquiry, is not
in default in the performance of any material obligation, agreement or
condition in any bond, debenture, note or other evidence of indebtedness,
except as may be disclosed in the Prospectus; and
(ii) To the actual knowledge of such counsel
after reasonable inquiry, the Fund is not in violation of (A) any provision of
the New York Business Corporation Law and those laws, rules and regulations of
the State of New York and the United States of America that, in the experience
of such counsel, are normally applicable to entities such as the Fund and
transactions of the type contemplated by this Agreement, but without having
made any special investigation concerning any other laws, rules or regulations;
provided, that such laws, rules and regulations do not include (1) the rules
and regulations of the NASD, (2) any federal or state securities or blue sky
laws other than the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder, (3) any antifraud laws under the 1933 Act applicable to
the Prospectus and the Registration Statement or (4) any law, rule or
regulation that may have become applicable to the Fund as a result of the
Underwriters' involvement with the transactions contemplated by this Agreement
or because of any facts specifically pertaining to the Underwriters or (B) any
order, judgment or decree of any New York or federal executive, legislative,
judicial, administrative or regulatory body under the laws, rules and
regulations referred to in clause (A) of this paragraph and the NYSE.
(g) You shall have received on the Closing Date an opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, special
<PAGE> 28
28
counsel for the Adviser, dated the Closing Date and addressed to you, as
Representatives of the several Underwriters, to the effect that:
(i) The Adviser is a corporation duly
incorporated and validly existing in good standing under the laws of the State
of New York with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement to either of
them), and is duly registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature of its properties
or the conduct of its business requires such registration or qualification,
except where the failure to so register or qualify does not have a material
adverse effect on the condition (financial or other), business, prospects,
properties, net assets or results of operations of the Adviser and its
subsidiaries, taken as a whole, or on the ability of the Adviser to perform its
obligations under this Agreement and the Investment Advisory Agreement; it
being understood that the opinion with respect to good standing is based solely
upon such counsel's review of a certificate of the Secretary of State and a
telephonic confirmation;
(ii) The Adviser is duly registered with the
Commission as an investment adviser under the Advisers Act and is not
prohibited by the Advisers Act, the Advisers Act Rules and Regulations, the
1940 Act or the 1940 Act Rules and Regulations from acting under the Investment
Advisory Agreement for the Fund as contemplated by the Prospectus (or any
amendment or supplement thereto);
(iii) The Adviser has corporate power and
authority to enter into this Agreement and the Investment Advisory Agreement,
and this Agreement and the Investment Advisory Agreement have been duly
authorized, executed and delivered by the Adviser and each is a valid, legal
and binding agreement of the Adviser, enforceable against the Adviser in
accordance with its terms except to the extent that enforcement hereof and
thereof may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity);
(iv) Neither the execution, delivery or
performance of this Agreement or the Investment Advisory Agreement by the
Adviser, compliance by the Adviser with the provisions hereof or thereof nor
consummation by the Adviser of the transactions contemplated hereby or thereby
conflicts or will conflict with, or constitutes or will constitute a breach of
or default under, the certificate of incorporation or by-laws, or other
organizational documents, of the Adviser or any agreement, indenture, lease or
other instrument to which the Adviser is a
<PAGE> 29
29
party which has been identified to such counsel by the Adviser as material or
as one which could have an effect on the types of transactions contemplated by
this Agreement (each, an "Material Adviser Agreement"), or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Adviser under any Material Adviser Agreement, nor will any such
action result in any violation of any provision of the New York Business
Corporation Law and those laws, rules and regulations of the State of New York
and the United States of America that, in the experience of such counsel, are
normally applicable to entities such as the Adviser and transactions of the
type contemplated by this Agreement, but without having made any special
investigation concerning any other laws, rules or regulations (collectively,
"Applicable Adviser Laws"); provided, that the term "Applicable Adviser Laws"
does not include (1) the rules and regulations of the NASD, (2) any federal or
state securities or blue sky laws, (3) any antifraud laws or (4) any law, rule
or regulation that may have become applicable to the Adviser as a result of the
Underwriters' involvement with the transactions contemplated hereby or because
of any facts specifically pertaining to the Underwriters.
(v) No consent, approval, license,
authorization or validation of, or filing, recording or registration with, any
New York or federal executive, legislative, judicial, administrative or
regulatory body under Applicable Adviser Laws (each, a "Governmental Adviser
Approval") is required on the part of the Adviser for the execution, delivery
and performance by it of this Agreement and the Investment Advisory Agreement
to which it is a party or the consummation by it of the transactions
contemplated hereby and thereby except such Governmental Adviser Approvals as
have been obtained;
(vi) To the actual knowledge of such counsel
after reasonable inquiry, there are no legal or governmental proceedings
pending or threatened against the Adviser or to which the Adviser or any of its
properties is subject, which are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement to either of them)
but are not described as required or which could reasonably be expected to
adversely affect the ability of the Adviser to perform its obligations under
this Agreement or the Investment Advisory Agreement;
(vii) The obligations of the Adviser under this
Agreement and the Investment Advisory Agreement comply in all material respects
with all applicable provisions of the 1940 Act, the 1940 Act Rules and
Regulations, the Advisers Act and the Advisers Act Rules and Regulations.
(viii) The Adviser has full corporate power and
authority, and all necessary governmental authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental
regulatory officials and bodies
<PAGE> 30
30
required under Applicable Adviser Law (except where the failure so to have any
such authorizations, approvals, orders, licenses, certificates, franchises or
permits, individually or in the aggregate, would not have a material adverse
effect on the business, properties, operations or financial condition of the
Adviser and its subsidiaries), to own its properties and to conduct business as
now being conducted, as described in the Prospectus, and to perform its
obligations under the Investment Advisory Agreement; and
(ix) Such counsel shall also state that they
have participated in conferences with officers and employees of the Adviser and
the Fund, representatives of the independent accountants for the Adviser and
the Fund and the Underwriters and counsel for the Underwriters at which the
contents of the Registration Statement and the Prospectus and related matters
were discussed and, although they are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus and have made no
independent check or verification thereof, on the basis of the foregoing, no
facts have come to their attention that would have led them to believe that the
Registration Statement or any amendment or supplement thereto, at the time it
became effective, contained an untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements contained therein not misleading or that the Prospectus or any
amendment or supplement thereto, as of its issue date and as of the Closing
Date, contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances under
which they were made, not misleading, except that they express no belief with
respect to the financial statements, schedules and other financial information
and statistical data included therein or excluded therefrom or the exhibits to
the Registration Statement.
(h) You shall have received on the Closing Date an opinion of
Simpson Thacher & Bartlett, counsel for the Underwriters, dated the Closing
Date and addressed to you, as Representatives of the several Underwriters, with
respect to such matters as the Underwriters may reasonably request.
(i) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Price Waterhouse LLP, independent certified public
accountants, substantially in the forms heretofore approved by you.
(j) (i) No order suspending the effectiveness of the
registration statement or the Registration Statement or prohibiting or
suspending the use of the Prospectus (or any amendment or supplement thereto)
or any Prepricing Prospectus or
<PAGE> 31
31
any sales material shall have been issued and no proceedings for such purpose
or for the purpose of commencing an enforcement action against the Fund, the
Adviser or, with respect to the transactions contemplated by the Prospectus (or
any amendment or supplement thereto) and this Agreement, any Underwriter, may
be pending before or, to the knowledge of the Fund, the Adviser or any
Underwriter or in the reasonable view of counsel to the Underwriters, shall be
threatened or contemplated by the Commission at or prior to the Closing Date
and that any request for additional information on the part of the Commission
(to be included in the Registration Statement, the Prospectus or otherwise) be
complied with to the satisfaction of the Representatives; (ii) there shall not
have been any change in the capital stock of the Fund nor any material increase
in the short-term or long-term debt of the Fund (other than in the ordinary
course of business) from that set forth or contemplated in the Registration
Statement or the Prospectus (or any amendment or Supplement thereto); (iii)
there shall not have been, subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), except as may otherwise be stated in the
Registration Statement and Prospectus (or any amendment or supplement thereto),
any material adverse change in the condition (financial or other), business,
prospects, properties, net assets or results of operations of the Fund or the
Adviser; (iv) the Fund shall not have any liabilities or obligations, direct or
contingent (whether or not in the ordinary course of business), that are
material to the Fund, other than those reflected in the Registration Statement
or the Prospectus (or any amendment or supplement to either of them) and other
than liabilities for payment for securities in accordance with the Fund's
investment objective and policies; and (v) all the representations and
warranties of the Fund and the Adviser contained in this Agreement shall be
true and correct on and as of the date hereof and on and as of the Closing Date
as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of each of the Fund and the Adviser (or such
other officers as are acceptable to you), to the effect set forth in this
Section 9(j) and in Section 9(k) hereof.
(k) That neither the Fund nor the Adviser shall have failed
at or prior to the Closing Date to have performed or complied with any of its
agreements herein contained and required to be performed or complied with by it
hereunder at or prior to the Closing Date.
(l) The Fund shall have delivered and you shall have received
evidence satisfactory to you that the shares of Cumulative Preferred Stock are
rated at least 'aaa' by the Rating Agency as of the Closing Date, and there
shall not have been given any notice of any intended or potential downgrading,
or of
<PAGE> 32
32
any review for a potential downgrading, in the rating accorded to the shares of
Cumulative Preferred Stock by the Rating Agency.
(m) The Shares shall have been listed or approved for listing
upon notice of issuance on the NYSE.
(n) The Fund and the Adviser shall have furnished or caused
to be furnished to you such further certificates and documents as you shall
have requested.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are satisfactory
in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Fund
or the Adviser and delivered to you, as Representatives of the Underwriters, or
to counsel for the Underwriters, shall be deemed a representation and warranty
by the Fund or the Adviser to each Underwriter as to the statements made
therein.
10. Expenses. The Fund agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the 1940 Act
Notification, the Prospectus and each amendment or supplement to any of them
(including, without limitation, the filing fees prescribed by the 1933 Act, the
1940 Act and the Rules and Regulations); (ii) the printing (or reproduction)
and delivery (including postage, air freight charges and charges for counting
and packaging) of such copies of the Registration Statement, each Prepricing
Prospectus, the Prospectus, any sales material and all amendments or
supplements to any of them as may be reasonably requested for use in connection
with the offering and sale of the Shares; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares, including
any stamp taxes in connection with the original issuance and sale of the
Shares; (iv) the printing (or reproduction) and delivery of this Agreement, any
dealer agreements, the preliminary and supplemental blue sky memoranda and all
other agreements or documents printed (or reproduced) and delivered in
connection with the offering of the Shares; (v) the registration of the Shares
under the Exchange Act and the listing of the Shares on the New York Stock
Exchange; (vi) the registration or qualification of the Shares for offer and
sale under the state securities or blue sky laws of the several states as
provided in Section 5(g) hereof (including the reasonable fees, expenses and
disbursements of counsel for the Underwriters relating to the preparation,
printing or reproduction, and delivery of the preliminary and supplemental blue
sky memoranda and such registration and qualification); (vii) fees paid to the
Rating Agency; (viii) the transportation and other expenses
<PAGE> 33
33
incurred by or on behalf of Fund representatives in connection with
presentations to prospective purchasers of the Shares; and (ix) the fees and
expenses of the Fund's accountants and the fees and expenses of counsel
(including local and special counsel) for the Fund and of the transfer agent.
Except as provided in this Section 10, the Underwriters agree
to pay their own costs and expenses of the underwriting, including the fees and
expenses of (i) their counsel and (ii) Financial Products Group, Inc.
11. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto;
or (ii) if, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time
as this Agreement shall have become effective, it may be terminated by the
Fund, by notifying you, or by you, as Representatives of the several
Underwriters, by notifying the Fund.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate number of Shares which the Underwriters
are obligated to purchase on the Closing Date, each non-defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Shares set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Shares set forth opposite the names of all non-defaulting Underwriters or in
such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney Inc., to purchase the
Shares which such defaulting Underwriter or Underwriters are obligated, but
fail or refuse, to purchase. If any one or more of the Underwriters shall fail
or refuse to purchase Shares which it or they are obligated to purchase on the
Closing Date and the aggregate number of Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Shares which
the Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Fund for the purchase of such Shares by one or more
non-defaulting Underwriters or other party or parties approved by you and the
Fund are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or
the Fund. In any such case which does not result in termination of this
Agreement, either you or the Fund shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the
<PAGE> 34
34
Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any such
default of any such Underwriter under this Agreement. The term "Underwriter"
as used in this Agreement includes, for all purposes of this Agreement, any
party not listed in Schedule I hereto who, with your approval and the approval
of the Fund, purchases Shares which a defaulting Underwriter is obligated, but
fails or refuses, to purchase.
Any notice under this Section 11 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
12. Termination of Agreement. This Agreement shall be
subject to termination in your absolute discretion, without liability on the
part of any Underwriter to the Fund or the Adviser, by notice to the Fund or
the Adviser, if prior to the Closing Date (i) trading in securities generally
on the New York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York shall have been
declared by either federal or state authorities, or (iii) there shall have
occurred any outbreak or escalation of hostilities or other international or
domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States
is such as to make it, in your judgment, impracticable or inadvisable to
commence or continue the offering of the Shares at the offering price to the
public set forth on the cover page of the Prospectus or to enforce contracts
for the resale of the Shares by the Underwriters. Notice of such termination
may be given to the Fund by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
13. Information Furnished by the Underwriters. The
statements set forth in the last paragraph on the cover page, the stabilization
legend on the inside cover page, and the statements in the first, third and
fifth paragraphs under the caption "Underwriting" in any Prepricing Prospectus
and in the Prospectus, constitute the only information furnished by or on
behalf of the Underwriters through you as such information is referred to in
Sections 6(b) and 8 hereof.
14. Miscellaneous. Except as otherwise provided in Sections
5, 11 and 12 hereof, notice given pursuant to any provision of this Agreement
shall be in writing and shall be delivered (i) if to the Fund or the Adviser,
at the office of the Fund at One Corporate Center, Rye, New York 10580-1434,
Attention: Bruce N. Alpert; or (ii) if to you, as Representatives of the
several Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New
York, New York 10013, Attention: Adviser, Investment Banking Division.
<PAGE> 35
35
This Agreement has been and is made solely for the benefit of
the several Underwriters, the Fund, the Adviser, their directors and officers,
and the other controlling persons referred to in Section 8 hereof and their
respective successors and assigns, to the extent provided herein, and no other
person shall acquire or have any right under or by virtue of this Agreement.
Neither the term "successor" nor the term "successors and assigns" as used in
this Agreement shall include a purchaser from any Underwriter of any of the
Shares in his status as such purchaser.
15. Applicable Law; Counterparts. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York applicable to contracts made and to be performed within the State of New
York.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts,
this Agreement shall not become effective unless at least one counterpart
hereof shall have been executed and delivered on behalf of each party hereto.
<PAGE> 36
Please confirm that the foregoing correctly sets forth the
agreement between the Fund and the several Underwriters.
Very truly yours,
THE GABELLI GLOBAL
MULTIMEDIA TRUST INC.
By
-----------------------------
GABELLI FUNDS, INC.
By
-----------------------------
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
GABELLI & COMPANY, INC.
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By
---------------------------
Managing Director
<PAGE> 37
SCHEDULE I
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ----------
<S> <C>
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . .
Gabelli & Company, Inc. . . . . . . . . . . . . . . . . . . .
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000
===========
</TABLE>
<PAGE> 1
EXHIBIT (h)(2)
MASTER AGREEMENT AMONG UNDERWRITERS
July 18, 1985
Smith Barney Inc.
388 Greenwich Street
New York, New York
Dear Sirs:
We understand that from time to time you may act as
Representative or as one of the Representatives of several underwriters of
offerings of various issuers. This Agreement shall apply to any offering of
securities handled by your Corporate Syndicate Department in which we elect to
act as an underwriter after receipt of an invitation from your Corporate
Syndicate Department which shall identify issuer, contain information regarding
certain terms of the securities to be offered and specify the amount of our
proposed participation and the names of the other Representatives, if any, and
that our participation as an underwriter in the offering shall be subject to the
provisions of this Agreement. Your invitation will include instructions for our
acceptance of such invitation. At or prior to the time of an offering, you will
advise us, to the extent applicable, as to the expected offering date, the
expected closing date, the initial public offering price, the interest or
dividend rate (or the method by which such rate is to be determined), the
conversion price, the underwriting discount, the management fee, the selling
concession and the reallowance, except that if the public offering price of the
securities is to be determined by a formula based upon the market price of
certain securities (such procedure being hereinafter referred to as "Formula
Pricing"), you shall specify the maximum underwriting discount, management fee
and selling concession. Such information may be conveyed by you in one or more
communications (such communications received by us with respect to the offering
are hereinafter collectively referred to as the "Invitation"). If the
Underwriting Agreement (as hereinafter defined) provides for the granting of an
option to
<PAGE> 2
purchase additional securities to cover over-allotments, you will notify us, in
the Invitation, of such option.
This Agreement, as amended or supplemented by the Invitation,
shall become effective with respect to our participation in an offering of
securities if your Corporation Syndicate Department receives our oral or written
acceptance and does not subsequently receive a written communication revoking
our acceptance prior to the time and date specified in the Invitation (our
unrevoked acceptance after expiration of such time and date being hereinafter
referred to as our "Acceptance"). Our Acceptance will constitute our
confirmation that, except as otherwise stated in such Acceptance, each statement
included in the Master Underwriters' Questionnaire set forth as Exhibit A hereto
(or otherwise furnished to us) is correct. The issuer of the securities in any
offering of securities made pursuant to this Agreement is hereinafter referred
to as the "Issuer." If the Underwriting Agreement does not provide for an
over-allotment option, the securities to be purchased are hereinafter to as the
"Securities," if the Underwriting Agreement provides for an over-allotment
option, the securities the Underwriters (as hereinafter defined) are initially
obligated to purchase pursuant to the Underwriting Agreement are hereinafter
called the "Firm Securities" and any additional securities which may be
purchased upon exercise of the over-allotment option are hereinafter called the
"Additional Securities," with the Firm Securities and all or any part of the
Additional Securities being hereinafter collectively referred to as the
"Securities." Any underwriters of Securities under this Agreement, including the
Representatives (as hereinafter defined), are hereinafter collectively referred
to as the "Underwriters." All references herein to "you" or to this
"Representatives" shall mean Smith Barney, Harris Upham & Co. Incorporated and
the other firms, if any, which are named as Representatives in the Invitation.
The Securities to be offered may, but need not, be registered for a delayed or
continuous offering pursuant to Rule 415 under the Securities Act of 1933 (the
"1933 Act").
The following provisions of this Agreement shall apply
separately to each individual offering of Securities. This Agreement may be
supplemented or amended by you by written notice to us and, except for
supplements or amendments set forth in an Invitation relating
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to a particular offering of Securities, any such supplement or amendment to this
Agreement shall be effective with respect to any offering of Securities to which
this Agreement applies after this Agreement is so amended or supplemented.
1. UNDERWRITING AGREEMENT; AUTHORITY OF REPRESENTATIVES. We
authorize you to execute and deliver an underwriting of purchase agreement and
any amendment or supplement thereto and any associated Terms Agreement or other
similar agreement (collectively, the "Underwriting Agreement") on our behalf
with the Issuer and/or any selling securityholder with respect to the Securities
in such form as you determine. We will be bound by all terms of the Underwriting
Agreement as executed. We understand that changes may be made in those who are
to be Underwriters and in the amount of Securities to be purchased by them, but
the amount of Securities to be purchased by us in accordance with the terms of
this Agreement and the Underwriting Agreement, including the amount of
Additional Securities, if any, which we may become obligated to purchase by
reason of the exercise of any over-allotment option provided in the Underwriting
Agreement, shall not be changed without our consent.
As Representatives of the Underwriters, you are authorized to
take such action as you deem necessary or advisable to carry out this Agreement,
the Underwriting Agreement, and the purchase, sale and distribution of the
Securities, and to agree to any waiver or modification of any provision of the
Underwriting Agreement. The extent applicable, you are also authorized to
determine (i) the amount of Additional Securities, if any, to be purchased by
the Underwriters pursuant to any over-allotment option and (ii) with respect to
offerings using Formula Pricing, the initial public offering price and the price
at which the Securities are to be purchased in accordance with the Underwriting
Agreement. It is understood and agreed that Smith Barney, Harris Upham & Co.
Incorporated may act on behalf of all Representatives.
It is understood that, if so specified in the Invitation,
arrangements may be made for the sale of Securities by the Issuer pursuant to
delayed delivery contracts (hereinafter referred to as "Delayed Delivery
Contract"). References herein to delayed delivery and Delayed Delivery Contracts
apply only to offerings to
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which delayed delivery is applicable. The term "underwriting obligation," as
used in this Agreement with respect to any Underwriting, shall refer to the
amount of Securities, including any Additional Securities (plus such additional
Securities as may be required by the Underwriting Agreement in the event of a
default by one or more of the Underwriters) which such Underwriter is obligated
to purchase pursuant to the provisions of the Underwriting Agreement, without
regard to any reduction in such obligation as a result of Delayed Delivery
Contracts which may be entered into by the Issuer.
If the Securities consist in whole or in part of debt
obligations maturing serially, the serial Securities being purchased by each
Underwriter pursuant to the Underwriting Agreement will consist, subject to
adjustment as provided in the Underwriting Agreement, of serial Securities of
each maturity in a principal amount which bears the same proportion to the
aggregate principal amount of the serial Securities of such maturity to be
purchased by all the Underwriters as the principal amount of serial Securities
set forth opposite such Underwriter's name in the Underwriting Agreement bears
to the aggregate principal amount of the serial Securities to be purchased by
all the Underwriters.
2. REGISTRATION STATEMENT AND PROSPECTUS; OFFERING CIRCULAR. In
the case of an Invitation regarding an offer of Securities registered under the
1933 Act (a "Registered Offering"), you will furnish to us, to the extent made
available to you and the Issuer, copies of any registration statement or
registration statements relating to the Securities which may be filed with the
Securities and Exchange Commission) the "Commission") pursuant to the 1933 Act
and each amendment thereto (excluding exhibits but including any documents
incorporated by reference therein). Such registration statement(s) as amended,
and the prospectus(es) relating to the sale of Securities by the Issuer
constituting a part thereof, including all documents incorporated therein by
reference, as from time to time amended or supplemented by the filing of
documents pursuant to the Securities Exchange Act of 1934 (the "1934 Act"), the
1933 Act or otherwise, are referred to herein as the "Registration Statement"
and the "Prospectus," respectively, provided however, that a supplement to the
Prospectus filed with the Commission pursuant to Rule 424 under the 1933 Act
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with respect to an offering of Securities (a "Prospectus Supplement") shall be
deemed to have supplemented the Prospectus only with respect to the offering of
Securities to which it relates.
With respect to Securities for which no Registration Statement
if filed with the Commission, you will furnish to us, to the extent made
available to you by the Issuer, copies of any offering circular or other
offering materials to be used in connection with the offering of the Securities
and of each amendment thereto (the "Offering Circular").
3. PUBLIC OFFERING. The sale of the Securities shall commence
as soon as you deem advisable. We will not sell any Securities until they are
released by you for that purpose. When notified by you that the Securities are
released for sale, we will offer to the public in conformity with the terms of
offering set forth in the Prospectus or Offering Circular, such of the
Securities to be purchased by us ("our Securities") as are not reserved for our
account for sale to Selected Dealers and others pursuant to Section 5. After the
initial public offering, the public offering price and the concession and
discount therefrom may be changed by you by notice to the Underwriters, and we
agree to be bound by any such change.
If, in accordance with the terms of offering set forth in the
Prospectus or Offering Circular, the offering of the Securities is not at a
fixed price but at varying prices set by individual Underwriters based on market
prices or at negotiated prices, the provisions above relating to your right to
change the public offering price and concession and discount to dealers shall
not apply, and other references in this Section and elsewhere in this Agreement
to the public offering price or Selected Dealers' concession shall be deemed to
mean the prices and concessions determined by you from time to time in your
discretion.
If so directed in the Invitation, we will not sell any
Securities to any account over which we have discretionary authority. We will
also comply with any other restrictions which may be set forth in the
Invitation.
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The initial public advertisement with respect to the Securities
shall appear on such date, and shall include the names of such of the
Underwriters, as you may determine. Thereafter, any Underwriter may advertise at
its own expense.
4. DELAYED DELIVERY ARRANGEMENTS. We authorize you to act on
our behalf in making all arrangements for the solicitation of offers to purchase
Securities from the Issuer pursuant to Delayed Delivery Contracts, and we agree
that all such arrangements will be made only through you (directly or through
Underwriters or Selected Dealers). You may allow to Selected Dealers in respect
of such Securities a commission equal to the concession allowed to Selected
Dealers pursuant to Section 5.
The obligations of the Underwriters shall be reduced in the
aggregate by the principal amount of Securities covered by Delayed Delivery
Contracts made by the Issuer, the obligations of each Underwriter to be reduced
by the principal amount of such Securities, if any, allocated by you to such
Underwriter. Your determination of the allocation of Securities covered by
Delayed Delivery Contracts among the several Underwriters shall be final and
conclusive, and we agree to be bound by any notice delivered by you to the
Issuer setting forth the amount of the reduction in our obligation as a result
of Delayed Delivery Contracts.
Upon receiving payment from the fee for arranging Delayed
Delivery Contracts, you will credit our account with the portion of such fee
applicable to the Securities covered by Delayed Delivery Contracts allocated to
us. You will charge our account with any commission allocated to Selected
Dealers in respect of Securities covered by Delayed Delivery Contracts allocated
to us.
5. OFFERING TO SELECTED DEALERS AND OTHERS; MANAGEMENT OF
OFFERING. We authorize you, for our account, to reserve for sale and to sell to
dealers ("Selected Dealers"), among whom any of the Underwriters may be
included, such amount of our Securities as you shall determine. Reservations for
sales to Selected Dealers for our account need not be in proportion to our
under-writing obligation, but sales of Securities reserved for our account for
sale to Selected Dealers shall be made as
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nearly as practicable in the ratio which the amount of Securities reserved for
our account bears to the aggregate amount of Securities reserved for the account
of all Underwriters, as calculated from day to day. The price to Selected
Dealers initially shall be the public offering price less a concession not in
excess of the Selected Dealers concession set forth in the Invitation. Selected
Dealers shall be actually engaged in the investment banking or securities
business and shall be either members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD") or dealers with their
principal place of business located outside the United States, its territories
and its possessions and not registered under the 1934 Act who agree to make no
sales within the United States, its territories or its possessions or to persons
who are nationals thereof or residents therein. Each Selected Dealer shall agree
to comply with the provisions of Section 24 of Article III of the Rules of Fair
Practice of the NASD, and each foreign Selected Dealer who is not a member of
the NASD also shall agree to comply with the NASD's interpretation with respect
to free-riding and withholding, to comply, as though it were a member of the
NASD, with the provisions of Section 8 and 36 of Article III of such Rules of
Fair Practice, and to comply with Section 25 of Article III thereof as that
Section applies to a non-member foreign dealer.
With your consent, the Underwriters may allow, and Selected
Dealers may reallow, a discount on sales to any dealer who meets the above NASD
requirements in an amount not in excess of the amount set forth in the
Invitation. Upon your request, we will advise you of the identity of any dealer
to whom we allow such a discount and any Underwriter or Selected Dealer from
whom we receive such a discount.
We also authorize you, for our account, to reserve for sale and
to sell our Securities at the public offering price to others, including
institutions and retail purchasers. Except for such sales which are designated
by a purchaser to be for the account of a particular Underwriter, such
reservations and sales shall be made as nearly as practicable in proportion to
our underwriting obligations, unless you agree to smaller proportion at our
request.
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At or before the time the Securities are released for sale, you
shall notify us of the amount of our Securities which have not been reserved for
our account for sale to Selected Dealers and others and which is to be retained
by us for direct sale.
We will from time to time, upon your request, report to you the
amount of securities retained by us for direct sale which remains unsold and,
upon your request, deliver to you for our account, or sell to you for the
account of one or more of the Underwriters, such amount of our unsold Securities
as you may designate at the public offering price less an amount determined by
you not in excess of the concession to Selected Dealers. You may also repurchase
Securities from other Underwriters and Selected Dealers, for the account of one
or more of the Underwriters, at prices determined by you not in excess of the
public offering price less the concession to Selected Dealers.
You may from time to time deliver to any Underwriter, for
carrying purposes or for sale by such Underwriter, any of the securities then
reserved for sale to, but not purchased and paid for by, Selected Dealers or
others as above provided, but to the extent that Securities are so delivered for
sale by such Underwriter, the amount of Securities then reserved for the account
of such Underwriter shall be correspondingly reduced. Securities delivered for
carrying purposes only shall be redelivered to you upon demand.
The Underwriters and Selected Dealers may, with your consent,
purchase Securities from and sell Securities to each other at the public
offering price less a concession not in excess of the concession to Selected
Dealers.
6. REPURCHASE OF SECURITIES NOT EFFECTIVELY PLACED. In
recognition of the importance of distributing the Securities to bona fide
investors, we agree to repurchase on demand any Securities sold by us, except
through you, which are purchased by you in the open market or otherwise during a
period terminating as provided in Section 16, at a price equal to the cost of
such purchase, including accrued interest, amortization of original issue
discount or dividends, commissions and transfer and other taxes, if any, on
redelivery. The certificates
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delivered to us need not be the identical certificates delivered to you in
respect of the Securities purchased. In lieu of requiring repurchase, you may,
in your discretion, sell such Securities for our account at such prices, upon
such terms and to such persons, including any of the other Underwriters, as you
may determine, charging the amount of any loss and expense, or crediting the
amount of any net profit, resulting from such sale, to our account, or you may
charge our account with an amount determined by you not in excess of the
concession to Selected Dealers.
7. STABILIZATION AND OVER-ALLOTMENT. In order to facilitate the
distribution of the Securities, we authorize you, in your discretion, to
purchase and sell Securities, any securities into which the Securities are
convertible or for which the securities are exchangeable, and any other
securities of the Issuer or any guarantor of the Securities specified in the
Invitation, in the open market or otherwise, for long or short account, at such
prices as you may determine, and, in the arranging for sales to Selected Dealers
or others, to over-allot. You may liquidate any long position or cover any short
position incurred pursuant to this Section as such prices as you may determine.
You shall make such purchases and sales (including over-allotments) for the
accounts of the Underwriters as nearly as practicable in proportion to their
respective underwriting obligations. It is understood that, in connection with
any particular offering of Securities to which this Agreement applies, you may
have made purchases of any such securities for stabilizing purposes prior to the
time when we became one of the Underwriters, and we agree that any such
securities so purchased shall be treated as having been purchased for the
respective accounts of the Underwriters pursuant to the foregoing authorization.
At the close of business on any day our net commitment, either for long or short
account, resulting from such purchases or sales (including over-allotments)
shall not exceed 15% (or such other amount as may be specified in the
Invitation) of our underwriting obligation, except that such percentage may be
increased with the approval of a majority in interest of the Underwriters. We
will take up at cost on demand any Securities or any such other securities so
sold or over-allotted for our account, including accrued interest, amortization
of original issue discount or dividend, and we will pay to you on demand the
amount of any losses
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or expenses incurred for our account pursuant to this Section. In the event of
default by any Underwriter in respect of its obligations under this section,
each non-defaulting Underwriter shall assume its share of the obligations of
such defaulting Underwriter in the proportion that its underwriting obligation
bears to the underwriting obligations of all non-defaulting Underwriters without
relieving such defaulting Underwriter of its liability thereunder.
If you effect any stabilizing purchase pursuant to this
Section, you shall promptly notify us of the date and time of the first
stabilizing purchase and the date and time when stabilizing was terminated. You
shall prepare and maintain such records as are required to be maintained by you
as manager pursuant to Rule 17a-2 under the 1934 Act.
8. RULE 10B-6. We represent and agree that in connection with
the offering of Securities we have complied and will comply with the provisions
of Rule 10b-6 under the 1934 Act as they apply to the offering of the
Securities.
9. PAYMENT AND DELIVERY. As or before such time, on such dates
and at such places as you may specify in the Invitation, we will deliver to you
a certified or official bank check in such funds as are specified in the
Invitation, payable to the order of Smith Barney, Harris Upham & Co.
Incorporated (unless otherwise specified in the Invitation) in an amount equal
to, as you direct, either (i) the public offering price or prices plus accrued
interest, amortization of original issue discount or dividends, if any, set
forth in the Prospectus or Offering Circular less the concession to Selected
Dealers in respect of the amount of Securities to be purchased by us in
accordance with the terms of this Agreement, or (ii) the amount set forth in the
Invitation with respect to the Securities to be purchased by us. We authorize
you to make payment for our account of the purchase price for the Securities to
be purchased by us against delivery to you of such Securities (which, in the
case of Securities which are debt obligations, may be in temporary form), and
the difference between such purchase price of the securities and the amount of
our funds delivered to you therefor shall be credited to our account.
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Delivery to us of Securities retained by us for direct sale
shall be made by you as soon as practicable after your receipt of the
Securities. Upon termination of the provisions of this Agreement as provided in
Section 16, you shall deliver to us any Securities reserved for our account for
sale to Selected Dealers and others which remain unsold at that time. If, upon
termination of the provisions of this Agreement specified in Section 16 hereof,
an aggregate of not more than 10% of the Securities remains unsold, you may, in
your discretion, sell such Securities at such prices as you may determine.
If we are a member of The Depository Trust Company or any other
depository or similar facility, you are authorized to make appropriate
arrangements for payment for and/or delivery through its facilities of the
Securities to be purchased by us, or, if we are not a member, settlement may be
made through a correspondent that is a member pursuant to our timely
instructions to you.
Upon receiving payment for Securities sold for our account to
Selected Dealers and others, you shall remit to us an amount equal to the amount
paid by us to you in respect of such Securities and credit or charge our account
with the difference, if any, between such amount and the price at which such
Securities were sold.
In the event that the Underwriting Agreement for an offering
provides for the payment of a commission or other compensation to the
Underwriters, we authorize you to receive such commission or other compensation
for our account.
10. MANAGEMENT COMPENSATION. As compensation for your services in the
management of the offering, we will pay you an amount equal to the management
fee specified in the Invitation in respect of the Securities to be purchased by
us pursuant to the Underwriting Agreement, and we authorize you to charge our
account with such amount. If there is more than one Representative, such
compensation shall be divided among the Representatives in such proportion as
they may determine.
11. AUTHORITY TO BORROW. We authorize you to advance your own funds for
our account, charging current interest rates, or to arrange loans for our
account or
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the account of the Underwriters, as you may deem necessary or advisable for the
purchase, carrying, sale and distribution of the Securities. You may execute and
deliver any notes or other instruments required in connection therewith and may
hold or pledge as security therefor all or any part of the Securities which we
or such Underwriters have agreed to purchase. The obligations of the
Underwriters under loans arranged on their behalf shall be several in proportion
to their respective participations in such loans, and not joint. Any lender is
authorized to accept you instruction as to the disposition of the proceeds of
any such loans. You shall credit each Underwriter with the proceeds of any loans
made for its account.
12. BLUE SKY QUALIFICATION. You shall inform us, upon request, of the
states and other jurisdictions of the United States in which it is believed that
the Securities are qualified for sale under, or are exempt from the requirements
of, their respective securities laws, but you assume no responsibility with
respect to our right to sell Securities in any jurisdiction. You are authorized
to file with the Department of State of the State of New York a further State
Notice with respect to the Securities, if necessary.
If we propose to offer Securities outside the United States,
its territories or its possessions, we will take, at our own expense, such
action, if any, as may be necessary to comply with the laws of each foreign
jurisdiction in which we propose to offer Securities.
13. MEMBERSHIP IN NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.:
FOREIGN UNDERWRITERS: We understand that you are a member in good standing of
the NASD. We confirm that we are actually engaged in the investment banking or
securities business and are either (i) a member in good standing of the NASD or
(ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not registered under the 1934
Act who hereby agrees to make no sales within the United States, its territories
or its possessions or to persons who are nationals thereof or residents therein
(except that we may participate in sales to Selected Dealers and others under
Section 5 of this Agreement). We hereby agree to comply with Section 24 of
Article III of the Rules of fair Practice
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of the NASD, and if we are a foreign dealer and not a member of the NASD we also
hereby agree to comply with the NASD's interpretation with respect to
free-riding and withholding, to comply, as though we were a member of the NASD,
with the provisions of Sections 5 and 36 of Article III of such Rules of Fair
Practice, and to comply with Section 25 of Article III thereof as that Section
applies to a non-member foreign dealer.
14. DISTRIBUTION OF PROSPECTUSES; OFFERING CIRCULARS. We are familiar
with Securities Act of 1933 Release No. 4968 and Rule 15c2-8 under the 1934 Act,
relating to the distribution of preliminary and final prospectuses, and we
confirm that we will comply therewith, to the extent applicable, in connection
with any sales of Securities. You shall cause to be made available to us, to the
extent made available to you by the Issuer, such number of copies of the
Prospectus as we may reasonably request for purposes contemplated by the 1933
Act, the 1934 Act and the rules and regulations thereunder.
If an Invitation states that the offering is subject to the
48-hour prospectus delivery requirement set forth in Rule 15c2-8(b), our
Acceptance of the Invitation shall be deemed to constitute confirmation that we
have delivered (or we will deliver) a copy of the preliminary prospectus to all
persons to whom we expect to confirm a sale of Securities and that such delivery
was affected (or will be affected) at least 48 hours prior to the mailing of
such confirmation of sale.
Our Acceptance of an Invitation relating to an offering made
pursuant to an Offering Circular shall constitute our agreement that, if
requested by you, we will furnish a copy of any amendment to a preliminary or
final Offering Circular to each person to whom we shall have furnished a
previous preliminary of final Offering Circular. Our Acceptance shall constitute
our confirmation that we have delivered and our agreement that we will deliver
all preliminary and final Offering Circulars required for compliance with the
applicable federal and state laws and the applicable rules and regulations of
any regulatory body promulgated thereunder governing the use and distribution of
offering circulars by underwriters and, to the extent consistent with such laws,
rules and regulations, our Acceptance shall constitute our
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confirmation that we have delivered and our agreement that we will deliver all
preliminary and final Offering circulars which would be required if the
provisions of Rule 15c2-8 (or any successor provision) under the 1934 Act
applied to such offering.
15. NET CAPITAL. The incurrence by us of our obligations hereunder and
under the Underwriting Agreement in connection with the offering of the
Securities will not place us in violation of the capital requirements of Rule
15c3-1 under the 1934 Act.
16. TERMINATION. With respect to each offering of Securities to which
this Agreement applies, all limitations in this Agreement on the price at which
the Securities may be sold, the period of time referred to in Section 6, the
authority granted by the first sentence of Section 7, and the restrictions
contained in Section B shall terminate at the close of business on the 45th day
after the commencement of the offering of such Securities. You may terminate any
or all of such provisions at any time prior thereto by notice to the
Underwriters. All other provisions of this Agreement shall remain operative and
in full force and effect with respect to such offering.
17. EXPENSES AND SETTLEMENT. You may charge our account with any
transfer taxes on sales of Securities made for our account and with our
proportionate share (based upon our underwriting obligation) of all other
expenses incurred by you under this Agreement or otherwise in connection with
the purchase, carrying, sale or distribution of the Securities. With respect to
each offering of Securities to which this Agreement applies, the respective
accounts of the Underwriters shall be settled as promptly as practicable after
the termination of all the provisions of this Agreement as provided in Section
16, but you may reserve such amount as you may deem advisable for additional
expenses. Your determination of the amount to be paid to or by us shall be
conclusive. You may at any time make partial distributions of credit balances or
call for payment of debit balances. Any of our funds in your hands may beheld
with your general funds without accountability for interest. Notwithstanding any
settlement, we will remain liable for any taxes on transfers for our account and
for our proportionate share (based upon our underwriting obligation)
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of all expenses and liabilities which may be incurred by or for the accounts of
the Underwriters with respect to each offering of Securities to which this
Agreement applies.
18. INDEMNIFICATION. With respect to each offering of Securities
pursuant to this Agreement, we will indemnify and hold harmless each other
Underwriter and each person, if any, who controls each other Underwriter within
the meaning of Section 15 of the 1933 Act, to the extent that and on the terms
upon which we agree to indemnify and hold harmless the Issuer and other
specified persons as set forth in the Underwriting Agreement.
19. CLAIMS AGAINST UNDERWRITERS. With respect to each offering of
Securities to which this Agreement applies, if at any time any person other than
an Underwriter asserts a claim (including any commenced or threatened
investigation or proceeding by any government agency or body) against on or more
of the Underwriters or against you as Representative(s) of the Underwriters
arising out of an alleged untrue statement or omission in the Registration
Statement (or any amendment thereto) or in any preliminary prospectus or the
Prospectus or any amendment or supplement thereto, or in any preliminary or
final Offering Circular, or relating to any transaction contemplated by this
Agreement, we authorize you to make such investigation, to retain such counsel
for the Underwriters and to take such action in the defense of such claim as you
may deem necessary or advisable. You may settle such claim with the approval of
a majority in interest of the Underwriters. We will pay our proportionate share
(based upon our underwriting obligations of all expenses incurred by you
(including the fees and expenses of counsel for the Underwriters) in
investigating and defending against such claim and our proportionate share of
the aggregate liability incurred by all Underwriters in respect of such claim
(after deducting any contribution or indemnification obtained pursuant to the
Underwriting Agreement, or otherwise, from persons other than Underwrites),
whether such liability is the result of a judgment against one or more of the
Underwriters or the result of any settlement. Any Underwriter may retain
separate counsel at its own expense. A claim against or liability incurred by a
person who controls an Underwriter shall be deemed to have been made against or
incurred by such Underwriter. In the event of default by
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any Underwriter in respect of its obligations under this Section, the
non-defaulting Underwriters shall be obligated to pay the full amount thereof in
the proportions that their respective underwriting obligations bear to the
underwriting obligations of all non-defaulting Underwriters without relieving
such defaulting Underwriter of its liability hereunder.
20. DEFAULT BY UNDERWRITERS. Default by any Underwriter in respect of
its obligations hereunder or under the Underwriting Agreement shall not release
us from any of our obligations or in any way affect the liability of such
defaulting Underwriter to the other Underwriters for damages resulting from such
default. If one or more Underwriters default under the Underwriting Agreement,
if provided in the Underwriting Agreement you may (but shall not be obligated
to) arrange for the purchase by others, which may include yourselves or other
non-defaulting Underwriters, of all or a portion of the Securities no taken up
by the defaulting Underwriters.
In the event that such arrangements are made, the respective
underwriting obligations of the non-defaulting Underwriters and the amounts of
the Securities to be purchased by others, if any, shall be taken as the basis
for all rights and obligations hereunder, but this shall not in any way affect
the liability of any defaulting Underwriter to the other Underwriters for damage
resulting from its default, nor shall any such default relieve any other
Underwriter of any of its obligations hereunder or under the Underwriting
Agreement except as herein or therein provided. In addition, in the event of
default by one or more Underwriters in respect of their obligations under the
Underwriting Agreement to purchase the Securities agreed to be purchased by them
thereunder and, to the extent that arrangements shall not have been made by you
for any person to assume the obligations of such defaulting Underwriter or
Underwriters, we agree, if provided in the Underwriting Agreement, to assume our
proportionate share, based upon our underwriting obligation, of the obligations
of each defaulting Underwriter without relieving any such defaulting Underwriter
of its liability therefor.
21. LEGAL RESPONSIBILITY. As Representative(s) of the Underwriters, you
shall have no liability to us, except for your lack of good faith and for
obligations
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assumed by you in this Agreement and except that we do not waive any rights that
we may have under the 1933 or the 1934 Act or the rules and regulations
thereunder. No obligations not expressly assumed by you in this Agreement shall
be implied herefrom.
Nothing herein contained shall constitute the Underwriters an
association, or partners, with you, or with each other, or, except as otherwise
provided herein or in the Underwriting Agreement, render any Underwriter liable
for the obligations of any other Underwriter, and the rights, obligations and
liabilities of the Underwriters are several in accordance with their respective
underwriting obligations, and not joint.
If the Underwriters are deemed to constitute a partnership for
federal income tax purposes, we elect to be excluded from the application of
Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1954, as
amended, and agrees not to take any position inconsistent with such election,
and you, as Representative(s), are authorized, in your discretion, to execute on
behalf of the Underwriters such evidence of such election as may be required by
the Internal Revenue Service.
Unless we have promptly notified you in writing otherwise, our
name as it should appear in the Prospectus or Offering circular and our address
are set forth below.
22. NOTICES. Any notices from you shall be deemed to have been duly
given if mailed or transmitted to us at our address appearing below.
23. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York applicable to agreements made and to be performed in said
State.
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Please confirm this Agreement and deliver a copy to us.
Very truly yours,
Name of Firm:
By:__________________________
Authorized Officer or Partner
Address:
_____________________________
_____________________________
_____________________________
Confirmed as of the date first above written.
Smith Barney Inc.
By:___________________________
Managing Director
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EXHIBIT A
MASTER UNDERWRITERS' QUESTIONNAIRE
In connection with each offering of Securities pursuant to the
Smithy Barney, Harris Upham & Co. Incorporated Master Agreement Among
Underwriters, dated July 18, 1985 (the "Agreement"), each Underwriter confirms
the following information, except as indicated in such Underwriter's Acceptance
or other written communication furnished to Smith Barney, Harris Upham & Co.
Incorporated. Defined terms used herein have the same meaning as defined terms
in the Master Agreement Among Underwriters.
(a) Neither such Underwriter nor any of its directors, officers or
partners have any material (as defined in Regulation C under the 1933 Act)
relationship with the Issuer, its parent (if any), any other seller of the
Securities or any guarantor of the Securities.
(b) Except as described or to be described in the Agreement, the
Underwriting Agreement or the Invitation, such Underwriter does not know: (i) of
any discounts or commissions to be allowed or paid to dealers, including all
cash, securities, contracts, or other consideration to be received by any dealer
in connection with the sale of the Securities, or of any other discounts or
commissions to be allowed or paid to the Underwriters or of any other items that
would be deemed by the NASD to constitute underwriting compensation for purposes
of the NASD's Rules of Fair Practice, (ii) of any intention to over-allot, or
(iii) that the price of any security may be stabilized to facilitate the
offering of the Securities.
(c) No report or memorandum has been prepared for external use (i.e.,
outside such Underwriter's organization) by such Underwriter in connection with
the proposed offering of Securities and, in the case of a Registered Offering,
where the Registration Statement is on Form S-1, such Underwriter has not
prepared or had prepared for it any engineering, management or similar report or
memorandum relating to the broad aspects of the business, operations or products
of the Issuer, its parent (if any) or any guarantor of the Securities within the
past twelve months. If any such report or memorandum has been pre-
A-1
<PAGE> 20
pared, furnish to Smith Barney, Harris Upham & Co. Incorporated three copies
thereof, together with a statement as to the distribution of the report or
memorandum, identifying each class of persons to whom the report or memorandum
was distributed, the number of copies distributed to each class and the period
of distribution.
(d) If the Securities are debt securities to be issued under an
indenture to be qualified under the Trust Indenture Act of 1939, neither such
Underwriter nor any of its directors, officers or partners is an "affiliate", as
that term is defined under the Trust Indenture Act of 1939, of the Trustee for
the Securities as specified in the Invitation, or its parent (if any); neither
the Trustee nor its parent (if any) nor any of their directors or executive
officers is a director, officer, partner, employee, appointee or representative
of such Underwriter as those terms are defined in the Trust Indenture Act of
1939 or in the relevant instruction to Form T-1; neither such Underwriter nor
any of its directors, partners or executive officers, separate or as a group,
owns beneficially 1% or more of the shares of any class of voting securities of
the Trustee or of its parent (if any); and if such Underwriter is a corporation,
it does not have outstanding nor has it assumed or guaranteed any securities
issued otherwise than in its present corporate name, and neither the Trustee nor
its parent (if any) is a holder of any such securities.
(e) If the Issuer is a public utility, such Underwriter is not a
"holding company" or a "subsidiary company" or an "affiliate" of a "holding
company" or of a "public utility company", each as defined in the Public Utility
Holding Company Act of 1935.
(f) Neither such Underwriter nor any "group" (as that term is defined
in Section 13(d)(3) of the 1934 Act) of which it is a member is the beneficial
owner (determined in accordance with Rule 13d-3 under the 1934 Act) of more than
5% of any class of voting securities of the Issuer, its parent (if any), any
other seller of the Securities or any guarantor of the Securities nor does it
have any knowledge that more than 5% of any class of voting securities of the
Issuer is held or to be held subject to any voting trust or other similar
agreement.
A-2
<PAGE> 1
Opinion of Counsel
May 29, 1997
The Gabelli Multimedia Trust Inc.
One Corporate Center
Rye, New York 10580
Ladies and Gentlemen:
We have acted as special Maryland counsel to The Gabelli Multimedia
Trust Inc. (the "Fund"), in connection with the registration by the Fund of
1,200,000 shares of its __% Cumulative Preferred Stock, liquidation preference
$25 per share (the "Preferred Shares") pursuant to a Registration Statement
filed on Form N-2 with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (Registration Nos. 333-24587 and 811-8476)
(the "Registration Statement") and the proposed issuance and sale of the
Preferred Shares.
You have requested our opinion concerning certain matters involving the
law of the State of Maryland in connection with the registration of the
Preferred Shares. We have prepared this opinion letter as attorneys admitted to
practice law in the State of Maryland, and our opinion is limited to the laws
of the State of Maryland in effect as of the date hereof. We express no opinion
herein as to any matters of federal law or the laws of any other state or
jurisdiction.
In our capacity as special Maryland counsel to the Fund and for the
purpose of rendering the opinion expressed herein, we have examined originals
or copies of the following documents:
1. The Charter of the Fund as on file with the Maryland State
Department of Assessments and Taxation ("SDAT") as of May 29, 1997; and
2. Certificates of the Corporate Secretary and Treasurer of the Fund
dated as of the date of this letter, including all exhibits attached thereto
(which exhibits include, among other things, a copy of the bylaws of the Fund,
as amended and restated as of the date of this letter, and certain resolutions
adopted by the Board of Directors of the Fund); and
3. A form of the Articles Supplementary of the Fund which establish the
rights, preferences, voting powers, limitations, restrictions, qualifications
and terms and conditions of redemption of the Preferred Shares (the "Articles
Supplementary"); and
4. Such other documents, instruments and certificates as we have
determined to be reasonably necessary in order to render the opinion expressed
herein.
In rendering the opinion expressed in this letter, we have assumed
that all documents submitted to us as originals are authentic, all documents
submitted as certified or photostatic copies
<PAGE> 2
The Gabelli Multimedia Trust Inc.
May 29, 1997
Page 2
conform to the original documents, all signatures on all documents submitted to
us for examination are genuine, all natural persons who executed any of the
documents or certificates that we have reviewed or relied upon had, at the time
of such execution, legal capacity, and all public records reviewed by us are
accurate and complete.
In rendering the opinion expressed herein, we have relied as to the
factual matters contained therein on the Certificates of Corporate Secretary
and Treasurer and have made no independent investigation or inquiry as to such
matters.
Based upon the foregoing, and subject to the foregoing assumptions and
the other assumptions and qualifications set forth herein, it is our opinion
that, if the Articles Supplementary shall be duly executed and acknowledged and
filed with the SDAT in accordance with the Maryland General Corporation Law
prior to the issuance of any of the Preferred Shares and each of the Preferred
Shares shall have been issued and sold against payment and receipt of a purchase
price equal to at least its par value in accordance with the resolutions of the
Board of Directors of the Fund which authorize the issuance and sale thereof,
each of the Preferred Shares shall be legally issued, fully paid and
nonassessable.
For purposes of our opinion set forth above, we have assumed that (a)
there will be no amendment to Charter or bylaws of the Fund subsequent to the
date of this letter and prior to the issuance of any of the Preferred Shares
other than the filing of the Articles Supplementary with the SDAT, (b) the Fund
shall not engage in a merger or consolidation with any other entity subsequent
to the date of this letter and prior to the date of the issuance of any of the
Preferred Shares in which the Fund would not be the successor entity or which
would result in any change to the Charter of the Fund, and (c) no proceeding for
the dissolution or liquidation of the Fund shall be commenced by or against the
Fund or authorized by the Board of Directors of the Fund subsequent to the date
of this letter and prior to the issuance of the Preferred Shares.
We hereby consent to be named in the Registration Statement as the
attorneys who will pass upon certain matters relating to the laws of the State
of Maryland, to the reference to us under the heading "Legal Matters" in the
Amendment and to the filing of this opinion as an exhibit to the Registration
Statement. Notwithstanding the foregoing, in giving our consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulation of the Commission
thereunder.
Very truly yours,
Miles & Stockbridge,
a Professional Corporation
By /s/ John B. Frisch
-------------------------------
Principal
