<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 2000
--
SECURITIES ACT FILE NO. 333-33514
INVESTMENT COMPANY ACT FILE NO. 811-8476
================================================================================
U.S. 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. 1
[ ] POST-EFFECTIVE AMENDMENT NO.
---
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] AMENDMENT NO. 5
--------------------
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
(Exact name of registrant as specified in its charter)
----------
ONE CORPORATE CENTER
RYE, NEW YORK 10580
(Address of principal executive offices)
(914) 921-5070
(Registrant's telephone number, including area code)
----------
BRUCE N. ALPERT
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
ONE CORPORATE CENTER
RYE, NEW YORK 10580
(Name and address of agent for service)
----------
With copies to:
JON S. RAND, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
----------
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, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [X]
It is proposed that the filing will become effective when declared
effective pursuant to Section 8(c). [ ]
This amendment designates a new effective date for a previously filed
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 ___________________. [ ]
----------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
===============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE(1) FEE(2)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, par value $.001
per share ................................... 3,598,938 $ $60,065,622 $ 15,857
================================================================================================================================
</TABLE>
(1) As calculated pursuant to Rule 457(c) under the Securities Act of
1933, as amended. Based on the average of the high and low sales prices
reported on the New York Stock Exchange on March 22, 2000.
(2) 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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS 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
Notice to Canadian Residents:
These Securities Have Not Been Approved
or Disapproved By Any Securities or
Regulatory Authority in Canada.
<PAGE> 3
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
FORM N-2
CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
-------- ------- ----------------------
<S> <C> <C>
1. Outside Front Cover................................................... Front Cover Page
2. Inside Front and Outside Back Cover Page.............................. Front Cover Page
3. Fee Table and Synopsis................................................ Prospectus Summary: Fee Table
4. Financial Highlights.................................................. Financial Highlights
5. Plan of Distribution.................................................. Not Applicable
6. Selling Shareholders.................................................. Not Applicable
7. Use of Proceeds....................................................... Use of Proceeds
8. General Description of the Registrant................................. Front Cover Page; Prospectus Summary;
The Fund; Investment Objectives and
Policies; Risk Factors and Special
Considerations; Capital Stock and
Other Securities
9. Management............................................................ Management of the Fund; Portfolio
Transactions; Custodians and
Transfer, Dividend Disbursing
Agent and Registrar
10. Capital Stock, Long-Term Debt and Other Securities.................... The Offer; Capital Stock and Other
Securities; Dividends and
Distributions; Automatic Dividend
Reinvestment and Voluntary Cash
Purchase Plan; 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
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
LOCATION IN
ITEM NO. CAPTION STATEMENT OF ADDITIONAL INFORMATION
-------- ------- -----------------------------------
<S> <C> <C>
14. Cover Page........................................................ Front Cover Page
15. Table of Contents................................................. Front Cover Page
16. General Information and History................................... Not Applicable
17. Investment Objectives and Policies................................ Investment Objectives and Policies;
Investment Restrictions
18. Management........................................................ Management of the Fund
19. Control Persons and Principal Holders of Securities............... Beneficial Owners
20. Investment Advisory and Other Services............................ Management of the Fund
21. Brokerage Allocation and Other Practices.......................... Portfolio Transactions
22. Tax Status........................................................ Taxation
23. Financial Statements.............................................. 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> 5
--------------------------------------------------------------------------------
The information in this Prospectus is not complete and may be changed. A
registration statement relating to the Securities has been filed with the
Securities and Exchange Commission. We may not sell these securities until this
registration statement is effective. This Prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer, solicitation or sale is not permitted.
--------------------------------------------------------------------------------
PROSPECTUS SUBJECT TO COMPLETION DATED JUNE 2, 2000
10,796,815 RIGHTS FOR 3,598,938 SHARES
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
COMMON STOCK
--------------------------------------------------------------------------------
The Gabelli Global Multimedia Trust Inc. (the "Fund") is issuing
transferable rights ("Rights") to its shareholders. These Rights will allow you
to subscribe for new shares of common stock of the Fund. For every three Rights
that you receive, you may buy one new Fund share. You will receive one Right for
each outstanding Fund share you own on June 16, 2000 (the "Record Date"). The
number of Rights to be issued to a shareholder on the Record Date will be
rounded up to the nearest number of Rights evenly divisible by three. Also,
shareholders on the Record Date may purchase shares not acquired by other
shareholders in this Rights offering (the "Offer"), subject to limitations
discussed in this prospectus.
The Rights are transferable and will be listed for trading on the New York
Stock Exchange ("NYSE") under the symbol "GGT RT." The Fund's shares of common
stock are also listed, and the shares issued pursuant to this Offer will be
listed, on the NYSE under the symbol "GGT." On June 1, 2000, the last reported
net asset value per share of the Fund's shares was $17.88 and the last reported
sales price of a share on the NYSE was $14.4375. THE PURCHASE PRICE PER SHARE
(the "Subscription Price") WILL BE $_____. THE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK TIME, ON July 19, 2000 unless the Offer is extended as described in
this prospectus (the "Expiration Date").
The Fund is a non-diversified, closed-end management investment company.
The Fund's primary investment objective is long-term growth of capital,
primarily through investing in common stock and other securities of foreign and
domestic companies in the telecommunications, media, publishing and
entertainment industries. Income is a secondary objective of the Fund. An
investment in the Fund is not appropriate for all investors. No assurances can
be given that the Fund's objectives will be achieved. FOR A DISCUSSION OF
CERTAIN RISK FACTORS AND SPECIAL CONSIDERATIONS WITH RESPECT TO OWNING SHARES OF
THE FUND, SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS" ON PAGE 22 OF THIS
PROSPECTUS. The address of the Fund is One Corporate Center, Rye, New York 10580
and its telephone number is (914) 921-5070.
--------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIME.
<TABLE>
<CAPTION>
=======================================================================================================================
SUBSCRIPTION PRICE SALES LOAD PROCEEDS TO FUND (1)
=======================================================================================================================
<S> <C> <C> <C>
Per Share.................... $ None $
-------- -------
------------------------------------------------------------------------------------------------------------------------
Total........................ $ None $
-------- -------
=======================================================================================================================
</TABLE>
(1) Before deduction of expenses incurred by the Fund, estimated at $445,000.
--------------------------------------------------------------------------------
Shareholders who do not exercise their Rights should expect that they
will, at the completion of the Offer, own a smaller proportional interest in the
Fund than if they exercised their Rights. As a result of the Offer you may
experience an immediate dilution, which could be substantial, of the aggregate
net asset value of your shares. This is because the Subscription Price per share
and/or the net proceeds to the Fund for each new share sold are likely to be
less than the Fund's net asset value per share on the Expiration Date. The Fund
cannot state precisely the extent of this dilution at this time because the Fund
does not know what the net asset value per share will be when the Offer expires
or what proportion of the Rights will be exercised. Gabelli Funds, LLC, the
Fund's investment adviser, may purchase through the primary subscription and the
over-subscription privilege Shares with an aggregate Subscription Price of up to
$10 million. Mr. Mario J. Gabelli, who may be deemed to control the Fund's
investment adviser, may also purchase additional Shares in such manner and on
the same terms as other shareholders.
--------------------------------------------------------------------------------
This prospectus sets forth concisely certain information about the Fund
that a prospective investor should know before investing. Investors are advised
to read and retain it for future reference. A Statement of Additional
Information dated ________, 2000 (the "SAI") containing additional information
about the Fund has been filed with the SEC and is incorporated by reference in
its entirety into this prospectus. A copy of the SAI, the table of contents of
which appears on page 38 of this prospectus, may be obtained without charge by
contacting the Fund at (800) GABELLI ((800) 422-3554) or (914) 921-5070. The SAI
will be sent within two business days of receipt of a request. Shareholder
inquiries should be directed to the Subscription Agent, EquiServe, at (800)
336-6983 or (781) 575-2000.
--------------------------------------------------------------------------------
____________, 2000
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights some information that is described more fully
elsewhere in this prospectus. It may not contain all of the information that is
important to you. To understand the Offer fully, you should read the entire
document carefully, including the risk factors.
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and its existing shareholders to increase the assets
of the Fund so that the Fund may be in a better position to take advantage of
investment opportunities that may arise. The Offer seeks to reward existing
shareholders by giving them the opportunity to purchase additional shares at a
price that may be below market and/or net asset value without incurring any
commission charge. The distribution of the Rights, which themselves may have
intrinsic value, will also give nonparticipating shareholders the potential of
receiving a cash payment upon the sale of their rights which may be viewed as
partial compensation for the possible dilution of their interests in the Fund as
a result of the Offer.
The Board of Directors believes that increasing the size of the Fund may
lower the Fund's expenses as a proportion of average net assets because the
Fund's fixed costs can be spread over a larger asset base. There can be no
assurance that by increasing the size of the Fund, the Fund's expense ratio will
be lowered. The Board of Directors also believes that a larger number of
outstanding shares and a larger number of beneficial owners of shares could
increase the level of market interest in and visibility of the Fund and improve
the trading liquidity of the Fund's shares on the NYSE.
IMPORTANT TERMS OF THE OFFER
<TABLE>
<CAPTION>
<S> <C>
Total number of shares available for primary
subscription............................................ 3,598,938
Number of Rights you will receive for each out-
standing share you own on the Record Date............. One Right for every one share*
Number of shares you may purchase with your
Rights at the Subscription Price per share............ One share for every three Rights
Subscription Price...................................... $
-------------
</TABLE>
-----------------------
* The number of Rights to be issued to a shareholder on the Record Date
will be rounded up to the nearest number of Rights evenly divisible by three.
================================================================================
Shareholders' inquiries should be directed to:
EquiServe
(800) 336-6983 or (781) 575-2000
================================================================================
2
<PAGE> 7
OVER-SUBSCRIPTION PRIVILEGE
Shareholders on the Record Date who fully exercise all Rights initially
issued to them (other than those Rights which cannot be exercised because they
represent the right to acquire less than one Share) are entitled to buy those
shares which were not bought by other Rights holders. If enough shares are
available, all shareholder requests to buy shares that were not bought by other
Rights holders will be honored in full. If the requests for shares exceed the
shares available, the available shares will be allocated pro rata among those
shareholders on the Record Date who over-subscribe based on the number of Rights
originally issued to them by the Fund. Shares acquired pursuant to the
over-subscription privilege are subject to allotment, which is more fully
discussed under "The Offer--Over-Subscription Privilege."
METHOD FOR EXERCISING RIGHTS
Except as described below, subscription certificates evidencing the Rights
("Subscription Certificates") will be sent to Record Date shareholders or their
nominees. If you wish to exercise your Rights, you may do so in the following
ways:
(1) Complete and sign the Subscription Certificate. Mail it in the
envelope provided or deliver it, together with payment in full to EquiServe,
Boston, Massachusetts (the "Subscription Agent") at the address indicated on the
Subscription Certificate. Your completed and signed Subscription Certificate and
payment must be received by the Expiration Date.
(2) Contact your broker, banker or trust company, which can arrange, on
your behalf, to guarantee delivery of payment and delivery of a properly
completed and executed Subscription Certificate pursuant to a notice of
guaranteed delivery ("Notice of Guaranteed Delivery") by the close of business
on the third business day after the Expiration Date. A fee may be charged for
this service. The Notice of Guaranteed Delivery must be received by the
Expiration Date.
Rights holders will have no right to rescind a purchase after the
Subscription Agent has received payment. See "The Offer--Method of Exercise of
Rights" and "The Offer--Payment for Shares."
SALE OF RIGHTS
The Rights are transferable until the Expiration Date and have been
admitted for trading on the NYSE. Although no assurance can be given that a
market for the Rights will develop, trading in the Rights on the NYSE will begin
three Business Days prior to the Record Date and may be conducted until the
close of trading on the last NYSE trading day prior to the Expiration Date. The
value of the Rights, if any, will be reflected by the market price. Rights may
be sold by individual holders or may be submitted to the Subscription Agent for
sale. Any Rights submitted to the Subscription Agent for sale must be received
by the Subscription Agent on or before July 18, 2000, one business day prior to
the Expiration Date, due to normal settlement procedures. Trading of the Rights
on the NYSE will be conducted on a when issued basis until and including the
date on which the Subscription Certificates are mailed to Record Date
shareholders and thereafter will be conducted on a regular way basis until and
including the last NYSE trading day prior to the Expiration Date. The shares
will begin trading ex-Rights two Business Days prior to the Record Date. If the
Subscription Agent receives Rights for sale in a timely manner, it will use its
best efforts to sell the Rights on the NYSE. Any commissions will be paid by the
selling Rights holders. Neither the Fund nor the Subscription Agent will be
responsible if Rights cannot be sold and neither has guaranteed any minimum
sales price for the Rights. For purposes of this prospectus, a "Business Day"
shall mean any day on which trading is conducted on the NYSE.
================================================================================
Shareholders are urged to obtain a recent trading price for the Rights on the
New York Stock Exchange from their broker, bank, financial advisor or the
financial press.
================================================================================
OFFERING FEES AND EXPENSES
Offering expenses incurred by the Fund are estimated to be $445,000.
3
<PAGE> 8
RESTRICTIONS ON FOREIGN SHAREHOLDERS
The Fund will not mail Subscription Certificates to shareholders whose
record addresses are outside the United States and Canada or who have an APO or
FPO address. Shareholders whose addresses are outside the United States and
Canada or who have an APO or FPO address and who wish to subscribe to the Offer
either partially or in full should contact the Subscription Agent, EquiServe, by
written instruction or recorded telephone conversation no later than three
Business Days prior to the Expiration Date. If the Subscription Agent has
received no instruction by such date, the Subscription Agent will attempt to
sell all Rights and remit the net proceeds, if any, to such shareholders. If the
Rights can be sold, sales of these Rights will be deemed to have been effected
at the weighted average price received by the Subscription Agent on the day the
Rights are sold, less any applicable brokerage commissions, taxes and other
expenses.
USE OF PROCEEDS
We estimate the net proceeds of the Offer to be approximately $_________.
This figure is based on the Subscription Price per share of $___ and assumes all
shares offered are sold and that the expenses related to the Offer estimated at
approximately $445,000 are paid.
Gabelli Funds, LLC ("the Investment Adviser") anticipates that it will
take approximately six months for the Fund to invest these proceeds in
accordance with its investment objective and policies under current market
conditions. Pending investment, the proceeds will be invested in certain
short-term debt instruments.
IMPORTANT DATES TO REMEMBER
Please note that the dates in the table below may change if the Offer is
extended.
<TABLE>
<CAPTION>
EVENT DATE
----- ----
<S> <C>
Record Date........................................................ June 16, 2000
Subscription Period................................................ June 16, 2000 to July 19, 2000
Expiration of the Offer........................................... July 19, 2000*
Payment for Guarantees of Delivery Due ........................... July 24, 2000*
Confirmation to Participants....................................... August 2, 2000*
</TABLE>
------------
* Unless the Offer is extended to a date no later than August 2, 2000.
INFORMATION REGARDING THE FUND
The Fund has been engaged in business as a non-diversified, closed-end
management investment company since November 15, 1994. The Fund's primary
investment objective is long-term growth of capital. The Fund pursues this
objective primarily through investment in a portfolio of common stocks and other
securities, including convertible securities, preferred stock, options and
warrants, of foreign and domestic companies involved in the telecommunications,
media, publishing and entertainment industries, which industries we collectively
define as "multimedia." 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 is
listed and traded on the NYSE. The average weekly trading volume of the Fund's
common stock on the NYSE during the period from January 1, 1999 through December
31, 1999 was 79,149 shares. As of June 1, 2000, the net assets of the Fund
were approximately $224.4 million.
INFORMATION REGARDING THE INVESTMENT ADVISER
Gabelli Funds, LLC (together with its predecessor, Gabelli Group
Capital Partners, Inc., formerly named Gabelli Funds, Inc., the "Investment
Adviser") has served as the investment adviser to the Fund since its inception.
The Investment Adviser also provides certain administrative services to the
Fund. Mr. Mario J. Gabelli, the Chairman of the Board, President, Chief
Executive Officer, Chief Investment Officer and indirect majority shareholder
of the Investment Adviser, has been engaged in the business of providing
investment advisory and portfolio management services for over 23 years and is
currently affiliated with investment advisers which, as of June 1, 2000,
4
<PAGE> 9
managed total assets of approximately $22.6 billion. The Fund pays the
Investment Adviser a monthly fee at the annual rate of 1.00% of the Fund's
average weekly net assets. See "Management of the Fund--Investment Adviser."
Since the Investment Adviser's fees are based on the net assets of the Fund,
the Investment Adviser will benefit from the Offer. In addition, two Directors
who are "interested persons" of the Fund could benefit indirectly from the
Offer because of their interests in the Investment Adviser. See "The
Offer--Purpose of the Offer."
RISK FACTORS AND SPECIAL CONSIDERATIONS
The following summarizes some of the matters that you should consider
before investing in the Fund through the Offer.
Dilution........................ Shareholders who do not exercise their Rights
should expect that they will, at the
completion of the Offer, own a smaller
proportional interest in the Fund than if they
exercised their Rights. As a result of the
Offer you may experience an immediate
dilution, which could be substantial, of the
aggregate net asset value of your shares. This
is because the Subscription Price per share
and/or the net proceeds to the Fund for each
new share sold are likely to be less than the
Fund's net asset value per share on the
Expiration Date. The Fund cannot state
precisely the extent of this dilution at this
time because the Fund does not know what the
net asset value per share will be when the
Offer expires or what proportion of the Rights
will be exercised. For example, assuming that
all Rights are exercised and the Subscription
Price is $_____, which is ____% below the
Fund's net asset value per share of $_________
per share as of __________, 2000, the Fund's
net asset value per share (after payment of
soliciting fees and estimated offering
expenses) would be reduced by approximately
$_______ per share (or __%). See "Risk Factors
and Special Considerations--Dilution."
If you do not wish to exercise your Rights,
you should consider selling these Rights as
set forth in this prospectus. Any cash you
receive from selling your Rights should serve
as partial compensation for any possible
dilution of your interest in the Fund. The
Fund cannot give any assurance, however, that
a market for the Rights will develop or that
the Rights will have any marketable value.
Discount From Net Asset Value... Shares of closed-end funds frequently trade at
a market price that is less then the value of
the net assets attributable to those shares.
The possibility that shares of the Fund will
trade at a discount from net asset value is a
risk separate and distinct from the risk that
the Fund's net asset value will decrease. The
risk of purchasing shares of a closed-end fund
that might trade at a discount is more
pronounced for investors who wish to sell
their shares in a relatively short period of
time because, for those investors, realization
of a gain or loss on their investments is
likely to be more dependent upon the existence
of a premium or discount than upon portfolio
performance. Since inception, the Fund's
shares have generally traded on the NYSE at a
discount to net asset value. See "Capital
Stock and Other Securities."
5
<PAGE> 10
Repurchase and Charter
Provisions.................. You will be free to dispose of your shares on
the NYSE or other markets on which the shares
may trade, but, because the Fund is a
closed-end fund, you do not have the right to
redeem your Shares. The Fund is authorized to
repurchase its shares on the open market when
the shares are trading at a discount of 10% or
more from net asset value. In addition,
certain provisions of the Fund's Articles of
Incorporation and By-Laws may be regarded as
"anti-takeover" provisions. These provisions
consist of a system in which only one of three
classes of Directors is elected each year and
the requirement that the affirmative vote of
the holders of 66-2/3% of each class of the
outstanding shares of the Fund is necessary to
authorize the conversion of the Fund from a
closed-end to an open-end investment company
or generally to authorize certain business
transactions with the beneficial owner of more
than 5% of the outstanding shares of the Fund.
The overall effect of these provisions is to
render more difficult the accomplishment of a
merger or the assumption of control by a
principal shareholder. These provisions may
have the effect of depriving you of an
opportunity to sell your shares at a premium
above the prevailing market price. See
"Capital Stock and Other Securities--Certain
Provisions of the Articles of Incorporation
and By-Laws."
Non-Diversified Status.......... As a non-diversified investment company under
the Investment Company Act of 1940, as amended
(the "1940 Act"), the Fund is not limited in
the proportion of its assets that may be
invested in securities of a single issuer. As
a result of investing a greater proportion of
its assets in the securities of a smaller
number of issuers, the Fund may be more
vulnerable to events affecting a single issuer
and therefore subject to greater volatility
than a fund that is more broadly diversified.
Accordingly, an investment in the Fund may
present greater risk to an investor than an
investment in a diversified company. See "Risk
Factors and Special Considerations--
Non-Diversified Status."
Industry Risks.................. The Fund invests a significant portion of its
assets in companies in the telecommunications,
media, publishing and entertainment industries
and, as a result, the value of the Fund's
shares will be more susceptible to factors
affecting those particular types of companies,
including government regulation, greater price
volatility for the overall market, rapid
obsolescence of products and services, intense
competition and strong market reactions to
technological developments. See "Risk Factors
and Special Considerations--Industry Risks."
Smaller Companies............... The Fund invests in smaller companies which
may benefit from the development of new
products and services. These smaller companies
may present greater opportunities for capital
appreciation, and may also involve greater
investment risk than large, established
issuers. See "Risk Factors and Special
Considerations--Smaller Companies."
Foreign Securities.............. There is no limitation on the amount of
foreign securities in which the Fund may
invest. Investing in securities of foreign
companies and foreign governments, which
generally are denominated in foreign
currencies, may involve certain risk and
opportunity considerations not typically
associated with investing in domestic
companies and could cause the Fund to be
affected favorably or unfavorably by changes
in currency exchange rates and revaluation of
currencies. See "Risk Factors and Special
Considerations--Foreign Securities."
6
<PAGE> 11
Dependence on Key Personnel..... The Investment Adviser is dependent upon the
expertise of Mr. Mario J. Gabelli in providing
advisory services with respect to the Fund's
investments. If the Investment Adviser were to
lose the services of Mr. Gabelli, its ability
to service the Fund could be adversely
affected. There can be no assurance that a
suitable replacement could be found for Mr.
Gabelli in the event of his death,
resignation, retirement or inability to act on
behalf of the Investment Adviser.
You should carefully consider your ability to assume the foregoing risks
before making an investment in the Fund. An investment in shares of the Fund
is not appropriate for all investors.
7
<PAGE> 12
FEE TABLE
The following table sets forth certain fees and expenses of the
Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Sales Load (as a percentage of offering price).............................................. 0%
Automatic Dividend Reinvestment and Cash Purchase Plan Fees(a).............................. $0.75
ANNUAL EXPENSES (as a percentage of net assets attributable to common shares)
Management Fees............................................................................. 1.00%
Other Expenses.............................................................................. .56%
TOTAL ANNUAL EXPENSES....................................................................... 1.56%
</TABLE>
--------------
(a) A fee of $0.75 is charged with respect to each purchase by a Participant
in the Fund's Automatic Dividend Reinvestment and Voluntary Cash Purchase
Plan (the "Plan"). A fee of $2.50 is charged in connection with the sale
of shares that are held in book-entry form, such as shares held by a
shareholder through the Plan. See "Dividends and Distributions; Automatic
Dividend Reinvestment and Voluntary Cash Purchase Plan."
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment assuming a 5%
annual return(b)..................................... $16 $49 $85 $186
</TABLE>
--------------
(b) Amounts are exclusive of fees discussed in Note (a) above.
The purpose of the foregoing table and example is to assist Rights holders
in understanding the various costs and expenses that an investor in the Fund
bears, directly or indirectly, BUT SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR RATES OF RETURN. THE ACTUAL EXPENSES OF THE FUND MAY
BE GREATER OR LESS THAN THOSE SHOWN. The figures provided under "Other Expenses"
are based upon estimated amounts for the current fiscal year. For more complete
descriptions of certain of the Fund's cost and expenses, see "Management of the
Fund" in this prospectus and the SAI.
8
<PAGE> 13
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a share of Common
Stock outstanding throughout the period presented. The per share operating
performance and ratios for the period ended December 31, 1999 has been audited
by PricewaterhouseCoopers LLP, the Fund's independent accountants, as stated in
their report which is incorporated by reference into the SAI. The following
information should be read in conjunction with the Financial Statements and
Notes thereto, which are incorporated by reference into the SAI.
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 12.20 $ 9.91 $ 8.10 $ 7.81 $ 7.51
Net investment income/(loss)................................. (0.05) (0.03) 0.01 0.01 0.08
Net realized and unrealized gain in investments.............. 11.54 3.33 2.85 0.63 0.98
Total from investment operations............................. 11.49 3.30 2.86 0.64 1.06
Increase/(decrease) in net asset value from share
transactions.............................................. 0.06 0.02 0.06 0.02 (0.46)
Offering expenses charged to capital surplus................. -- -- (0.13) -- (0.05)
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income........................................ -- -- (0.01) (0.01) (0.08)
Net realized gains........................................... (3.62) (0.80) (0.84) (0.36) (0.17)
Distributions in excess of net investment income and/or
net realized gains........................................... -- -- (0.00)(a) (0.00)(a) (0.00)
DISTRIBUTIONS TO PREFERRED STOCK SHAREHOLDERS:
Net investment income........................................ -- -- (0.00)(a) -- --
Net realized gains........................................... (0.23) (0.23) (0.13) -- --
Total distributions.......................................... (3.85) (1.03) (0.98) (0.37) (0.25)
NET ASSET VALUE, END OF PERIOD.................................. $ 19.90 $ 12.20 $ 9.91 $ 8.10 $ 7.81
Market value, end of period.................................. $ 18.750 $ 10.938 $ 8.750 $6.875 $6.760
Net Asset Value Total Return+................................ 96.6% 33.0% 34.4% 9.4% 14.1%
TOTAL INVESTMENT RETURN+........................................ 106.6% 35.1% 39.6% 7.4% 0.4%
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO COMMON STOCK
SHAREHOLDERS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)......................... $246,488 $163,742 $140,416 $91,462 $89,580
Net assets attributable to common shares, end of period
(in 000's)................................................... $215,238 $132,492 $109,166 $91,462 $89,580
Ratio of net investment income/(loss) to average
net assets................................................... (0.30)% (0.32)% 0.07% 0.13% 1.24%++
Ratio of operating expenses to average net assets
attributable to common stock................................. 1.56% 2.53% 2.09% 1.87% 2.04%++
Ratio of operating expenses to average total net assets...... 1.32% 2.01% 1.77% 1.87% --
Portfolio turnover rate...................................... 43.1% 44.6% 96.1% 32.1% 86.0%
PREFERRED STOCK:
Liquidation value, end of period (in 000's).................. $31,250 $31,250 $31,250 -- --
Total shares outstanding (in 000's).......................... 1,250 1,250 1,250 -- --
Asset coverage............................................... 789% 524% 443% -- --
Liquidation preference per share............................. $25.00 $25.00 $25.00 -- --
Average market value (b)..................................... $25.13 $25.96 $25.59 -- --
-- --
</TABLE>
------------
+ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period including reinvestment of dividends.
++ Annualized.
(a) Amount represents less than $0.005 per share.
(b) Based on weekly prices.
9
<PAGE> 14
THE OFFER
TERMS OF THE OFFER
The Fund is issuing to shareholders on the Record Date ("Record Date
Shareholders") Rights to subscribe for the shares (the "Shares") of the Fund's
Common Stock ("Common Stock"). Each Record Date Shareholder is being issued one
transferable Right for each share of Common Stock owned on the Record Date. The
Rights entitle the holder to acquire at the Subscription Price one Share for
each three Rights held. The number of Rights to be issued to a Record Date
Shareholder will be rounded up to the nearest number of Rights evenly divisible
by three. Rights may be exercised at any time during the period (the
"Subscription Period"), which commences on June 16, 2000 and ends at 5:00
p.m., New York time, on July 19, 2000, unless extended by the Fund to a date
not later than August 2, 2000, 5:00 p.m., New York time. See "Expiration of
the Offer." The Right to acquire one additional Share for each three Rights held
during the Subscription Period at the Subscription Price is hereinafter referred
to as the "Primary Subscription."
In addition, any Record Date Shareholder who fully exercises all Rights
initially issued to him (other than those Rights that cannot be exercised
because they represent the right to acquire less than one Share) is entitled to
subscribe for Shares which were not otherwise subscribed for by others on
Primary Subscription (the "Over-Subscription Privilege"). For purposes of
determining the maximum number of Shares a Record Date Shareholder may acquire
pursuant to the Offer, broker-dealers whose shares are held of record by Cede &
Co., Inc. ("Cede"), nominee for The Depository Trust Company, or by any other
depository or nominee, will be deemed to be the holders of the Rights that are
issued to Cede or such other depository or nominee on their behalf. Shares
acquired pursuant to the Over-Subscription Privilege are subject to allotment,
which is more fully discussed below under "Over-Subscription Privilege."
The Investment Adviser, as a Record Date Shareholder, has advised the Fund
that its members have authorized it to purchase through the Primary Subscription
and the Over-Subscription Privilege underlying Shares with an aggregate
Subscription Price of up to $10 million to the extent the Shares become
available to it in accordance with the Primary Subscription and the allotment
provisions of the Over-Subscription Privilege. In addition, Mario J. Gabelli
individually, as a Record Date Shareholder, may also purchase Shares through the
Primary Subscription and the Over-Subscription Privilege. Such
over-subscriptions by the Investment Adviser and Mr. Gabelli may
disproportionately increase their already existing ownership resulting in a
higher percentage ownership of outstanding shares of the Fund. Any Shares so
acquired by the Investment Adviser or Mr. Gabelli, as "affiliates" of the Fund
as that term is defined under the Securities Act of 1933, as amended (the
"Securities Act"), may only be sold in accordance with Rule 144 under the
Securities Act or another applicable exemption or pursuant to an effective
registration statement under the Securities Act. In general, under Rule 144, as
currently in effect, an "affiliate" of the Fund is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly reported
trading volume of the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain restrictions on the
manner of sale, to notice requirements and to the availability of current public
information about the Fund. In addition, any profit resulting from the sale of
Shares so acquired, if the Shares are held for a period of less than six months,
will be returned to the Fund.
Rights will be evidenced by Subscription Certificates. The number of
Rights issued to each holder will be stated on the Subscription Certificates
delivered to the holder. The method by which Rights may be exercised and Shares
paid for is set forth below in "Method of Exercise of Rights" and "Payment for
Shares." A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received payment. See "Payment for Shares" below. Shares
issued pursuant to an exercise of Rights will be listed on the NYSE.
The Rights are transferable until the Expiration Date and have been
admitted for trading on the NYSE. Assuming a market exists for the Rights, the
Rights may be purchased and sold through usual brokerage channels and sold
through EquiServe, Boston, Massachusetts (the "Subscription Agent"). Although no
assurance can be given that a market for the Rights will develop, trading in the
Rights on the NYSE will begin three Business Days before the Record Date and may
be conducted until the close of trading on the last Exchange trading day prior
to the Expiration Date. Trading of the Rights on the NYSE will be conducted on a
when issued basis until and including the date on which the Subscription
Certificates are mailed to Record Date Shareholders and thereafter will be
10
<PAGE> 15
conducted on a regular way basis until and including the last Exchange
trading day prior to the Expiration Date. The method by which Rights may be
transferred is set forth below in "Method of Transferring Rights." The
underlying Shares will also be admitted for trading on the NYSE and will begin
trading Rights two Business Days (as defined below) prior to the Record Date.
For purposes of this prospectus, a "Business Day" shall mean any day on which
trading is conducted on the NYSE.
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and the shareholders to increase the assets of the
Fund available for investment thereby permitting the Fund to be in a better
position to more fully take advantage of investment opportunities that may
arise. The Offer seeks to reward existing shareholders by giving them the right
to purchase additional shares at a price that may be below market and/or net
asset value without incurring any commission charge. The distribution to
shareholders of transferable Rights, which themselves may have intrinsic value,
will also afford non-subscribing shareholders the potential of receiving a cash
payment upon sale of such Rights, receipt of which may be viewed as partial
compensation for the possible dilution of their interests in the Fund.
The Fund's Investment Adviser and PFPC, Inc., its sub-administrator (the
"Sub-Administrator"), will benefit from the Offer because the Investment
Adviser's fee and the Sub-Administrator's fee are based on the average net
assets of the Fund. See "Management of the Fund." It is not possible to state
precisely the amount of additional compensation the Investment Adviser or
Sub-Administrator will receive as a result of the Offer because the proceeds of
the Offer will be invested in additional portfolio securities which will
fluctuate in value. However, assuming all Rights are exercised and that the Fund
receives the maximum proceeds of the Offer, the annual compensation to be
received by the Investment Adviser and the Sub-Administrator would be increased
by approximately $_______ and $_______, respectively. Two of the Fund's
Directors who voted to authorize the Offer are "interested persons" of the
Investment Adviser within the meaning of the 1940 Act. Both of these Directors,
Mario J. Gabelli and Karl Otto Pohl, could benefit indirectly from the Offer
because of their interest in the Investment Adviser. The other seven Directors
are not "interested persons" of the Fund. See "Management of the Fund" in the
SAI. While it was cognizant of the possible participation of the Investment
Adviser and Mr. Gabelli in the Offer as shareholders, the Fund's Board of
Directors nevertheless concluded that the Offer was in the best interest of
shareholders, since all shareholders of the Fund are treated equally under the
terms of the Offer.
The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms which may or may not be similar to the Offer. Any such future rights
offering will be made in accordance with the 1940 Act. Under the laws of
Maryland, the state in which the Fund is incorporated, the Board of Directors is
authorized to approve rights offerings without obtaining shareholder approval.
The staff of the SEC has interpreted the 1940 Act as not requiring shareholder
approval of a rights offering at a price below the then current net asset value
so long as certain conditions are met, including a good faith determination by
the fund's board of directors that such offering would result in a net benefit
to existing shareholders.
OVER-SUBSCRIPTION PRIVILEGE
If all of the Rights initially issued are not exercised, any Shares for
which subscriptions have not been received will be offered, by means of the
Over-Subscription Privilege, to Record Date Shareholders who have exercised all
the Rights initially issued to them and who wish to acquire more than the number
of Shares for which the Rights issued to them are exercisable. Record Date
Shareholders who exercise all the Rights initially issued to them will have the
opportunity to indicate on the Subscription Certificate how many Shares they are
willing to acquire pursuant to the Over-Subscription Privilege. If sufficient
Shares remain after the Primary Subscriptions have been exercised, all
over-subscriptions will be honored in full. If sufficient Shares are not
available to honor all over-subscriptions, the available Shares will be
allocated among those who over-subscribe based on the number of Rights
originally issued to them by the Fund. The percentage of remaining Shares each
over-subscribing shareholder may acquire will be rounded down to result in
delivery of whole Shares. The allocation process may involve a series of
allocations in order to assure that the total number of Shares available for
over-subscriptions is distributed on a pro rata basis.
11
<PAGE> 16
The method by which Shares will be distributed and allocated pursuant to
the Over-Subscription Privilege is as follows. Shares will be available for
purchase pursuant to the Over-Subscription Privilege only to the extent that the
maximum number of Shares is not subscribed for through the exercise of the
Primary Subscription by the Expiration Date. If the Shares so available ("Excess
Shares") are not sufficient to satisfy all subscriptions pursuant to the
Over-Subscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional Shares) among those holders of Rights
exercising the Over-Subscription Privilege, in proportion, not to the number of
Shares requested pursuant to the Over-Subscription Privilege, but to the number
of shares held on the Record Date; provided, however, that if this pro rata
allocation results in any holder being allocated a greater number of Excess
Shares than the holder subscribed for pursuant to the exercise of such holder's
Over-Subscription Privilege, then such holder will be allocated only such number
of Excess Shares as such holder subscribed for and the remaining Excess Shares
will be allocated among all other holders exercising Over-Subscription
Privileges. The formula to be used in allocating the Excess Shares is as
follows:
Holder's Record Date Position
----------------------------- Excess Shares
Total Record Date Position X Remaining
of All Over-Subscribers
The Fund will not offer or sell any Shares which are not subscribed for
under the Primary Subscription or the Over-Subscription Privilege.
THE SUBSCRIPTION PRICE
The Subscription Price for the Shares to be issued pursuant to the Rights
will be $____.
The Fund announced the Offer on February 18, 2000. The net asset value
per share of Common Stock at the close of business on February 17, 2000 and
June 1, 2000 was $20.71 and $17.88, respectively. The last reported sale price
of a share of the Fund's Common Stock on the NYSE on those dates was $18.4375
and $14.4375, respectively, representing a 10.97% and a 19.25% discount,
respectively, in relation to the net asset value per share of Common Stock at
the close of business on these dates.
SALES BY SUBSCRIPTION AGENT
Holders of Rights who do not wish to exercise any or all of their Rights
may instruct the Subscription Agent to sell any unexercised Rights. The
Subscription Certificates representing the Rights to be sold by the Subscription
Agent must be received on or before July 18, 2000. Upon the timely receipt of
appropriate instructions to sell Rights, the Subscription Agent will use its
best efforts to complete the sale and will remit the proceeds of sale, net of
commissions, to the holders. If the Rights can be sold, sales of the Rights will
be deemed to have been effected at the weighted average price received by the
Subscription Agent on the day such Rights are sold. The selling Rights holder
will pay all brokerage commissions incurred by the Subscription Agent. These
sales may be effected by the Subscription Agent through Gabelli & Company, Inc.,
a registered broker-dealer and an affiliate of the Investment Adviser, for up to
$0.03 per Right, provided that, if the Subscription Agent is able to negotiate a
lower brokerage commission with an independent broker, the Subscription Agent
will execute these sales through the broker. Gabelli & Company, Inc. may also
act on behalf of its clients to purchase or sell Rights in the open market and
be compensated therefor. The Subscription Agent will attempt to sell all Rights
that remain unclaimed as a result of Subscription Certificates being returned by
the postal authorities as undeliverable as of the fourth Business Day prior to
the Expiration Date. These sales will be made net of commissions on behalf of
the nonclaiming shareholders. Proceeds from those sales will be held by State
Street Bank and Trust Company, in its capacity as the Fund's transfer agent, for
the account of the nonclaiming shareholder until the proceeds are either claimed
or escheat. There can be no assurance that the Subscription Agent will be able
to complete the sale of any of these Rights and neither the Fund nor the
Subscription Agent has guaranteed any minimum sales price for the Rights. All of
these Rights will be sold at the market price, if any, on the NYSE.
12
<PAGE> 17
METHOD OF TRANSFERRING RIGHTS
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register the portion of the
Rights evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing the transferred Rights).
In this event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights holder or, if the Rights holder so
instructs, to an additional transferee.
Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow at least three Business Days prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred Rights,
and to the transferor with respect to retained rights, if any, and (iii) the
Rights evidenced by the new Subscription Certificates to be exercised or sold by
the recipients thereof. Neither the Fund nor the Subscription Agent shall have
any liability to a transferee or transferor of Rights if Subscription
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid
by the Fund as described below), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of these commissions, fees or expenses will
be paid by the Fund or the Subscription Agent.
The Fund anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Primary Subscription (but not the
Over-Subscription Privilege) may be effected through, the facilities of The
Depository Trust Company ("DTC"; Rights exercised through DTC are referred to as
"DTC Exercised Rights"). The holder of a DTC Exercised Right may exercise the
Over-Subscription Privilege in respect of such DTC Exercised Right by properly
executing and delivering to the Subscription Agent, at or prior to 5:00 p.m.,
New York time, on the Expiration Date, a DTC Participant Over-Subscription Form,
together with payment of the Subscription Price for the number of Shares for
which the Over-Subscription Privilege is to be exercised. Copies of the DTC
Participant Over-Subscription Form may be obtained from the Subscription Agent.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York time, on July 19, 2000,
unless extended by the Fund to a date not later than August 2, 2000, 5:00 p.m.,
New York time (the Expiration Date). Rights will expire on the Expiration Date
and thereafter may not be exercised.
SUBSCRIPTION AGENT
The Subscription Agent is EquiServe, Att: Corporate Actions, P.O. Box
9573, Boston, Massachusetts 02205-9573. The Subscription Agent will receive from
the Fund an amount estimated to be $125,000, comprised of the fee for its
services and the reimbursement for certain expenses related to the Offer.
INQUIRIES BY ALL HOLDERS OF RIGHTS SHOULD BE DIRECTED TO P.O. BOX 9573, BOSTON,
MASSACHUSETTS 02205-9573 (TELEPHONE (800) 336-6983 OR (781) 575-2000); HOLDERS
MAY ALSO CONSULT THEIR BROKERS OR NOMINEES.
METHOD OF EXERCISE OF RIGHTS
Rights may be exercised by filling in and signing the reverse side of the
Subscription Certificate and mailing it in the envelope provided, or otherwise
delivering the completed and signed Subscription Certificate to the Subscription
Agent, together with payment for the Shares as described below under "Payment
for Shares." Rights may also be exercised through a Rights holder's broker, who
may charge the Rights holder a servicing fee in connection with such exercise.
13
<PAGE> 18
Completed Subscription Certificates must be received by the Subscription
Agent prior to 5:00 p.m., New York time, on the Expiration Date (unless payment
is effected by means of a notice of guaranteed delivery as described below under
"Payment for Shares"). The Subscription Certificate and payment should be
delivered to EquiServe at the following address:
If By Mail: EquiServe
Att: Corporate Actions
P.O. Box 9573
Boston, MA 02205-9573
If By Hand: Securities Transfer and Reporting Services, Inc.
c/o EquiServe
100 Williams St. Galleria
New York, NY 10038
If By Overnight Courier: EquiServe
Att: Corporate Actions
40 Campanelli Drive
Braintree, MA 02184
PAYMENT OF SHARES
Holders of Rights who acquire Shares on Primary Subscription or pursuant
to the Over-Subscription Privilege may choose between the following methods of
payment:
(1) A subscription will be accepted by the Subscription Agent if,
prior to 5:00 p.m., New York time, on the Expiration Date, the
Subscription Agent has received a notice of guaranteed delivery by
telegram or otherwise from a bank, a trust company, or a NYSE member,
guaranteeing delivery of (i) payment of the full Subscription Price for
the Shares subscribed for on Primary Subscription and any additional
Shares subscribed for pursuant to the Over-Subscription Privilege and (ii)
a properly completed and executed Subscription Certificate. The
Subscription Agent will not honor a notice of guaranteed delivery if a
properly completed and executed Subscription Certificate and full payment
is not received by the Subscription Agent by the close of business on the
third Business Day after the Expiration Date. The notice of guaranteed
delivery may be delivered to the Subscription Agent in the same manner as
Subscription Certificates at the addresses set forth above, or may be
transmitted to the Subscription Agent by facsimile transmission (telecopy
number (781) 575-4826; telephone number to confirm receipt (781)
575-4816).
(2) Alternatively, a holder of Rights can send the Subscription
Certificate together with payment in the form of a check for the Shares
subscribed for on Primary Subscription and additional Shares subscribed
for pursuant to the Over-Subscription Privilege to the Subscription Agent
based on the Subscription Price of $______ per Share. To be accepted, the
payment, together with the executed Subscription Certificate, must be
received by the Subscription Agent at the addresses noted above prior to
5:00 p.m., New York time, on the Expiration Date. The Subscription Agent
will deposit all stock purchase checks received by it prior to the final
due date into a segregated interest-bearing account pending proration and
distribution of Shares. The Subscription Agent will not accept cash as a
means of payment for Shares. EXCEPT AS OTHERWISE SET FORTH BELOW, A
PAYMENT PURSUANT TO THIS METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY
ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE CONTINENTAL UNITED STATES,
MUST BE PAYABLE TO THE GABELLI GLOBAL MULTIMEDIA TRUST INC., AND MUST
ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. If the
aggregate Subscription Price paid by a Record Date Shareholder is
insufficient to purchase the number of shares of Common Stock that the
holder indicates are being subscribed for, or if a Record Date Shareholder
does not specify the number of shares of Common Stock to be purchased,
then the Record Date Shareholder will be deemed to have exercised first,
the Primary Subscription Rights (if not already fully exercised) and
second, the Over-Subscription Privilege to the full extent of the payment
tendered. If the aggregate Subscription Price paid by a Record Date
Shareholder is greater than the shares he has indicated an intention to
subscribe, then the
14
<PAGE> 19
Record Date Shareholder will be deemed to have exercised first, the
Primary Subscription Rights (if not already fully subscribed) and second,
the Over-Subscription Privilege to the full extent of the excess payment
tendered.
Within ten Business Days following the Expiration Date (the "Confirmation
Date"), a confirmation will be sent by the Subscription Agent to each holder of
Rights (or, if the Fund's shares are held by Cede or any other depository or
nominee, to Cede or such other depository or nominee), showing (i) the number of
Shares acquired pursuant to the Primary Subscription, (ii) the number of Shares,
if any, acquired pursuant to the Over-Subscription Privilege, (iii) the per
Share and total purchase price for the Shares and (iv) any excess to be refunded
by the Fund to such holder as a result of payment for Shares pursuant to the
Over-Subscription Privilege which the holder is not acquiring. Any payment
required from a holder of Rights must be received by the Subscription Agent on
the Expiration Date, or if the Rights holder has elected to make payment by
means of a notice of guaranteed delivery, on the third Business Day after the
Expiration Date. Any excess payment to be refunded by the Fund to a holder of
Rights, or to be paid to a holder of Rights as a result of sales of Rights on
his behalf by the Subscription Agent or exercises by Record Date Shareholders of
their Over-Subscription Privileges, and all interest accrued on the holder's
excess payment will be mailed by the Subscription Agent to the holder within
fifteen Business Days after the Expiration Date. Interest on the excess payment
will accrue through the date that is one Business Day prior to the mail date of
the reimbursement check. All payments by a holder of Rights must be in United
States dollars by money order or check drawn on a bank located in the
continental United States of America and payable to The Gabelli Global
Multimedia Trust Inc. except that holders of Rights who are residents of Canada
may make payment in U.S. dollars by money order or check drawn on a bank located
in Canada.
Whichever of the two methods described above is used, issuance and
delivery of certificates for the Shares purchased are subject to collection of
checks and actual payment pursuant to any notice of guaranteed delivery.
A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received payment either by means of a notice of
guaranteed delivery or a check.
If a holder of Rights who acquires Shares pursuant to the Primary
Subscription or the Over-Subscription Privilege does not make payment of any
amounts due, the Fund reserves the right to take any or all of the following
actions: (i) find other purchasers for such subscribed-for and unpaid-for
Shares; (ii) apply any payment actually received by it toward the purchase of
the greatest whole number of Shares which could be acquired by such holder upon
exercise of the Primary Subscription or the Over-Subscription Privilege; (iii)
sell all or a portion of the Shares purchased by the holder, in the open market,
and apply the proceeds to the amounts owed; and (iv) exercise any and all other
rights or remedies to which it may be entitled, including, without limitation,
the right to set off against payments actually received by it with respect to
such subscribed Shares and to enforce the relevant guaranty of payment.
Holders who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositaries for securities, should notify the respective
beneficial owners of the shares as soon as possible to ascertain the beneficial
owners' intentions and to obtain instructions with respect to the Rights. If the
beneficial owner so instructs, the record holder of the Rights should complete
Subscription Certificates and submit them to the Subscription Agent with the
proper payment. In addition, beneficial owners of Common Stock or Rights held
through such a holder should contact the holder and request the holder to effect
transactions in accordance with the beneficial owner's instructions.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
FUND.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT THE CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE
AT
15
<PAGE> 20
LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE
FOR PAYMENT, BY MEANS OF A CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. Neither the Fund nor the Subscription Agent will be
under any duty to give notification of any defect or irregularity in connection
with the submission of Subscription Certificates or incur any liability for
failure to give such notification.
DELIVERY OF STOCK CERTIFICATES
Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to subscribers as soon as practicable after the
corresponding Rights have been validly exercised and full payment for the Shares
has been received and cleared. Certificates representing Shares purchased
pursuant to the Over-Subscription Privilege will be delivered to subscribers as
soon as practicable after the Expiration Date and after all allocations have
been effected. Participants in the Fund's Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan (the "Plan") will be issued Rights for the shares
held in their accounts in the Plan. Participants wishing to exercise these
Rights must exercise the Rights in accordance with the procedures set forth
above in "Method of Exercise of Rights" and "Payment for Shares." These Rights
will not be exercised automatically by the Plan. Plan participants exercising
their Rights will receive their Primary and Over-Subscription Shares via an
uncertificated credit to their existing account. To request a stock certificate,
participants in the Plan should check the appropriate box on the Subscription
Certificate. These Shares will remain subject to the same investment option as
previously selected by the Plan participant.
FOREIGN RESTRICTIONS
Subscription Certificates will only be mailed to Record Date Shareholders
whose addresses are within the United States and Canada (other than an APO or
FPO address). Record Date Shareholders whose addresses are outside the United
States and Canada or who have an APO or FPO address and who wish to subscribe to
the Offer either partially or in full should contact the Subscription Agent,
EquiServe, by written instruction or recorded telephone conversation no later
than three Business Days prior to the Expiration Date. If the Subscription Agent
has received no instruction by such date, the Subscription Agent will attempt to
sell all Rights and remit the net proceeds, if any, to such shareholders. If the
Rights can be sold, sales of these Rights will be deemed to have been effected
at the weighted average price received by the Subscription Agent on the day the
Rights are sold, less any applicable brokerage commissions, taxes and other
expenses.
Under the securities laws of the Province of Quebec, investors residing in
Quebec may, subject to compliance with all applicable regulatory requirements,
transfer either the Rights or the Shares to be acquired upon the exercise of
these Rights to other subscribers of the Offer, to persons with whom they are
related or to persons residing outside of Quebec in a transaction effected on an
organized market.
Under the securities laws of the Province of Ontario, investors residing
in Ontario may, subject to compliance with all applicable regulatory
requirements, transfer either the Rights or the Shares to be acquired upon the
exercise of such Rights (i) through a dealer registered in Ontario that effects
the transaction through the facilities of the NYSE or (ii) through certain other
means as provided under and in compliance with Ontario securities laws.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the significant federal income tax
consequences of the receipt of Rights by a Record Date Shareholder and a
subsequent lapse, exercise or sale of such Rights. The discussion also addresses
the significant federal income tax consequences to a holder that purchases
Rights in a secondary-market transaction (e.g., on the NYSE). The discussion is
based upon applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Regulations promulgated thereunder and other
authorities currently in effect,
16
<PAGE> 21
and does not address state or local tax consequences. Moreover, the discussion
assumes that the fair market value of the Rights distributed to all of the
Record Date Shareholders will, upon the date of such distribution, be less than
15% of the total fair market value of all of the Fund's Common Stock on such
date.
RECORD DATE SHAREHOLDERS
For federal income tax purposes, neither the receipt nor the exercise of
Rights by a Record Date Shareholder will result in taxable income to such
shareholder, and no taxable loss will be realized by a Record Date Shareholder
who allows his Rights to expire without exercise. A taxable gain or loss
recognized by a Record Date Shareholder upon a sale of a Right will be a capital
gain or loss (assuming the Right is held as a capital asset at the time of sale)
and will be a short-term capital gain or loss. A Record Date Shareholder's
holding period for a share of Common Stock acquired upon exercise of a Right (a
"New Share") begins with the date of exercise of the Right. A taxable gain or
loss recognized by a Record Date Shareholder upon a sale of a New Share will be
a capital gain or loss (assuming the New Share is held as a capital asset at the
time of sale) and will be a long-term capital gain or loss if the New Share has
been held at the time of sale for more than one year.
Unless a Record Date Shareholder makes the election described in the
following paragraph, his basis for determining gain or loss upon the sale of a
Right will be zero and his basis for determining gain or loss upon the sale of a
New Share will be equal to the sum of the Subscription Price for the New Share
and any servicing fee charged to the shareholder by his broker, bank or trust
company. Moreover, unless a Record Date Shareholder makes the election described
in the following paragraph, the receipt of a Right and the lapse, sale or
exercise thereof will have no effect on the federal income tax basis of those
shares of Common Stock of the Fund that such shareholder originally owned
("Original Shares").
A Record Date Shareholder may make an election to allocate the federal
income tax basis of his Original Shares between such Original Shares and all of
the Rights that he receives pursuant to the Offer in proportion to their
respective fair market values as of the date of distribution of the Rights.
Thus, if such an election is made and the Record Date Shareholder sells or
exercises his Rights, the shareholder's basis in his Original Shares will be
reduced by an amount equal to the basis allocated to the Rights. This election
is irrevocable and must be made in a statement attached to the shareholder's
federal income tax return for the taxable year in which the Rights are
distributed. If an electing Record Date Shareholder exercises his Rights, the
basis of his New Shares will be equal to the sum of the Subscription Price for
such New Shares (as increased by any servicing fee charged to the shareholder by
his broker, bank or trust company) plus the basis allocated to such Rights as
described above. Accordingly, Record Date Shareholders should consider the
advisability of making the above-described election if they intend to exercise
their Rights. However, if an electing Record Date Shareholder does not sell or
exercise his Rights, no taxable loss will be realized as a result of the lapse
of such Rights and no portion of the shareholder's basis in his Original Shares
will be allocated to the unexercised Rights.
PURCHASERS OF RIGHTS
For federal income tax purposes, the exercise of Rights by a purchaser who
acquires such Rights on the NYSE or in another secondary-market transaction will
not result in taxable income to such purchaser, and a taxable loss will be
realized by a purchaser who allows his Rights to expire without exercise. Such
taxable loss will be a short-term capital loss if the purchaser holds the Rights
as capital assets at the time of their expiration. A taxable gain or loss
recognized by a purchaser upon a sale of a Right will be a capital gain or loss
(assuming the Right is held as a capital asset at the time of sale) and will be
a short-term capital gain or loss. A purchaser's basis for determining gain or
loss upon the sale of a New Share acquired through the exercise of a Right will
be equal to the sum of the Subscription Price for the New Share plus the
purchase price of the Right or Rights that were exercised in order to acquire
such New Share (with such Subscription Price and purchase price each being
increased by any applicable servicing fees charged to the purchaser by his
broker, bank or trust company). A purchaser's holding period for a New Share
acquired upon exercise of a Right begins with the date of exercise of the Right.
A taxable gain or loss recognized by a purchaser upon a sale of a New Share will
be a capital gain or loss (assuming the New Share is held as a capital asset at
the time of sale) and will be a long-term capital gain or loss if the New Share
has been held at the time of sale for more than one year.
17
<PAGE> 22
EMPLOYEE PLAN CONSIDERATIONS
Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including
corporate savings and 401(k) plans, Keogh Plans of self-employed individuals and
Individual Retirement Accounts (collectively, "Benefit Plans"), should be aware
that additional contributions of cash in order to exercise Rights would be
treated as Benefit Plan contributions and, when taken together with
contributions previously made, may subject a Benefit Plan to excise taxes for
excess or nondeductible contributions. In the case of Benefit Plans qualified
under Section 401(a) of the Code, additional cash contributions could cause the
maximum contribution limitations of Section 415 of the Code or other
qualification rules to be violated. Benefit Plans contemplating making
additional cash contributions to exercise Rights should consult with their
counsel prior to making such contributions.
Benefit Plans and other tax exempt entities, including governmental plans,
should also be aware that if they borrow in order to finance their exercise of
Rights, they may become subject to the tax on unrelated business taxable income
("UBTI") under Section 511 of the Code. If any portion of an Individual
Retirement Account ("IRA") is used as security for a loan, the portion so used
is also treated as distributed to the IRA depositor.
ERISA contains prudence and diversification requirements and ERISA and the
Code contain prohibited transaction rules that may impact the exercise of
Rights. Among the prohibited transaction exemptions issued by the Department of
Labor that may exempt a Benefit Plan's exercise of Rights are Prohibited
Transaction Exemption 84-24 (governing purchases of shares in investment
companies) and Prohibited Transaction Exemption 75-1 (covering sales of
securities).
Due to the complexity of these rules and the penalties for noncompliance,
Benefit Plans should consult with their counsel regarding the consequences of
their exercise of Rights under ERISA and the Code.
18
<PAGE> 23
RISK FACTORS AND SPECIAL CONSIDERATIONS
An immediate dilution of the aggregate net asset value of the shares owned
by shareholders who do not fully exercise their Rights is likely to be
experienced as a result of the Offer because the Subscription Price is likely to
be less than the then net asset value per share, and the number of shares
outstanding after the Offer is likely to increase in greater percentage than the
increase in the size of the Fund's assets. In addition, as a result of the terms
of the Offer, shareholders who do not fully exercise their Rights should expect
that they will, at the completion of the Offer, own a smaller proportional
interest in the Fund than would otherwise be the case. Although it is not
possible to state precisely the amount of such a decrease in value, because it
is not known at this time what the net asset value per share will be at the
Expiration Date, this dilution could be substantial. For example, assuming that
all Rights are exercised and that the Subscription Price of $____ is ___% below
the Fund's then net asset value per share, the Fund's net asset value per share
(before deduction of expenses incurred in connection with the Offer) would be
reduced by approximately $___ per share.
THE FUND
The Fund, incorporated in Maryland on March 31, 1994, is a
non-diversified, closed-end management investment company registered under the
1940 Act. The Fund's Common Stock is traded on the 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.
USE OF PROCEEDS
The net proceeds of the Offer, assuming all Shares offered hereby are
sold, are estimated to be approximately $_______, after deducting expenses
payable by the Fund estimated at approximately $445,000. The Investment Adviser
anticipates that investment of the proceeds, in accordance with the Fund's
investment objectives and policies, will be invested promptly as investment
opportunities are identified, depending on market conditions and the
availability of appropriate securities, and is anticipated to take approximately
six months. Pending investment in accordance with the Fund's investment
objectives and policies, the proceeds will be held in obligations of the United
States Government, its agencies or instrumentalities ("U.S. Government
Securities") and other short-term money market instruments.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Fund's primary investment objective is long-term growth of capital.
The Fund pursues its objective by investing primarily in the common stock and
other securities, including convertible securities, preferred stock, options and
warrants, 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 multimedia companies is also a fundamental policy of the Fund.
These fundamental policies and the investment limitations described in the SAI
under the caption "Investment Restrictions" cannot be changed without the
approval of the holders of a "majority of the Fund's outstanding voting
securities." As used herein, a "majority of the Fund's outstanding voting
securities" means the lesser of (i) 67% of the shares of the Fund's 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 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, including convertible
securities, preferred stock, options and warrants, of companies in the
19
<PAGE> 24
telecommunications, media, publishing and entertainment industries. Such
multimedia businesses are often involved in emerging technological advances in
interactive services and products that are accessible to individuals in their
homes or offices through consumer electronics devices such as telephones,
televisions, radios and personal computers.
The telecommunications companies in which the Fund may invest are engaged
in the development, manufacture or sale of communications services or equipment
throughout the world including the following products or services: regular
telephone service; wireless communications services and equipment, including
cellular telephone, microwave and satellite communications, paging, and other
emerging wireless technologies; equipment and services for both data and voice
transmission, including computer hardware and software; electronic components
and communications equipment; video conferencing; electronic mail; local and
wide area networking, and linkage of data and word processing systems;
publishing and information systems; video text and teletext; emerging
technologies combining television, telephone and computer systems; broadcasting,
including television and radio via VHF, UHF, satellite and microwave
transmission and cable television.
The entertainment, media and publishing companies in which the Fund may
invest are engaged in providing the following products or services: the
creation, packaging, distribution, and ownership of entertainment programming
throughout the world including prerecorded music, feature-length motion
pictures, made-for-TV movies, television series, documentaries, animation, game
shows, sports programming and news programs; live events such as professional
sporting events or concerts, theatrical exhibitions; television and radio
broadcasting via VHF, UHF, satellite and microwave transmission, cable
television systems and programming, broadcast and cable networks, wireless cable
television and other emerging distribution technologies, home video, interactive
and multimedia programming including home shopping and multiplayer games;
publishing, including newspapers, magazines and books, advertising agencies and
niche advertising mediums such as in-store or direct mail, emerging technologies
combining television, telephone and computer systems, computer hardware and
software, and equipment used in the creation and distribution of entertainment
programming such as that required in the provision of broadcast, cable or
telecommunications services.
Under normal circumstances the Fund will invest in securities of issuers
located in at least three countries, which may include the United States.
Investing in securities of foreign issuers, which generally are denominated in
foreign currencies, may involve certain risk and opportunity considerations not
typically associated with investing in domestic companies and could cause the
Fund to be affected favorably or unfavorably by changes in currency exchange
rates and revaluations of currencies.
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. For a further discussion of
the risks associated with investing in foreign securities and a description of
other risks inherent in the Fund's investment objectives and policies, see "Risk
Factors and Special Considerations."
The Investment Adviser believes that at the present time investment by the
Fund in the securities of companies located throughout the world presents great
potential for accomplishing the Fund's investment objectives. While the
Investment Adviser expects that a substantial portion of assets may be invested
in the securities of domestic companies, a significant portion of the Fund's
portfolio may also be comprised of the securities of issuers headquartered
outside the United States.
INVESTMENT METHODOLOGY OF THE FUND
In selecting securities for the Fund, the Investment Adviser normally will
consider the following factors, among others: (1) the Investment Adviser's own
evaluations of the private market value, cash flow, earnings per share and other
fundamental aspects of the underlying assets and business of the company, (2)
the potential for capital
20
<PAGE> 25
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) with respect to convertible and fixed-income securities, whether
the securities are entitled to the benefits of call protection or other
protective covenants; (6) the existence of any anti-dilution protections or
guarantees of the security; and (7) the diversification of the portfolio of the
Fund as to issuers. The Investment Adviser's investment philosophy with respect
to equity securities seeks to identify securities of companies that are selling
in the public market at a discount to their private market value, which the
Investment Adviser defines as the value informed purchasers are willing to pay
to acquire a company with similar characteristics. The Investment Adviser also
normally evaluates the issuers' free cash flow and long-term earnings trends.
Finally, the Investment Adviser looks for a catalyst--something in the company's
industry or indigenous to the company or country itself that will surface
additional value.
CERTAIN OTHER INVESTMENT PRACTICES
Temporary Investments. Although under normal market conditions at least
65% of the Fund's assets will consist of common stock and other securities,
including convertible securities, preferred stock, options and warrants, of
foreign and domestic companies involved in the telecommunications, media,
publishing and entertainment industries, when a temporary defensive posture is
believed by the Investment Adviser to be warranted ("temporary defensive
periods"), the Fund may without limitation hold cash or invest its assets in
money market instruments and repurchase agreements in respect of those
instruments. The Fund may also invest up to 10% of the market value of its total
assets during temporary defensive periods in shares of money market mutual funds
that invest primarily in U.S. Government Securities and repurchase agreements in
respect of those securities. For a further description of such transactions, see
"Investment Objectives and Policies--Investment Practices" in the SAI.
Repurchase Agreements. The Fund may engage in repurchase agreement
transactions involving money market instruments with banks, registered
broker-dealers and government securities dealers approved by the Investment
Adviser under the supervision of the Board of Directors. The Fund will not enter
into repurchase agreements with the Investment Adviser or any of its affiliates.
Under the terms of a typical repurchase agreement, the Fund would acquire an
underlying debt obligation for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed price and time, thereby determining the
yield during its holding period. Thus, repurchase agreements may be seen to be
loans by the Fund collateralized by the underlying debt obligation. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the holding period. The value of the underlying securities
will be at least equal at all times to the total amount of the repurchase
obligation, including interest. The Fund bears a risk of loss in the event that
the other party to a repurchase agreement defaults on its obligations and the
Fund is delayed in or prevented from exercising its rights to dispose of the
collateral securities, including the risk of a possible decline in the value of
the underlying securities during the period in which it seeks to assert these
rights. The Investment Adviser, acting under the supervision of the Fund's Board
of Directors, reviews the creditworthiness of those banks and dealers with which
the Fund enters into repurchase agreements to evaluate these risks and monitors
on an ongoing basis the value of the securities subject to repurchase agreements
to ensure that the value is maintained at the required level.
Lower Rated Securities. The fund may invest up to 10% of its total assets
in fixed-income securities issued by U.S. and foreign corporations, governments
and agencies that are rated below investment grade by primary rating services
such as Standard & Poor's Rating Services and Moody's Investors Service. These
high-yield, higher-risk securities are commonly known as "junk bonds." These
debt securities are predominantly speculative and involve major risk exposure to
adverse conditions.
Other Investments. The Fund is permitted to invest in special situations,
options and futures contracts, engage in forward currency transactions and enter
into forward commitments for the purchase or sale of securities, including on a
"when issued" or "delayed delivery" basis, and the Fund may make short sales of
securities. See the SAI for a discussion of these investments and techniques and
the risks associated with them.
21
<PAGE> 26
RISK FACTORS AND SPECIAL CONSIDERATIONS
Please consider the matters set forth below. You should read the entire
prospectus and the statement of additional information before you decide
whether to exercise your Rights.
PRINCIPAL RISKS ASSOCIATED WITH THE FUND
DILUTION
If you do not exercise all of your Rights, when the Offer is over you will
own a smaller proportional interest in the Fund. In addition, whether or not you
exercise your Rights, the per share net asset value of your shares will be
diluted (reduced) immediately as a result of the Offer because:
- the shares offered will be sold at less than their current net
asset value
- you will indirectly bear the expenses of the Offer
- the number of shares outstanding after the Offer will have
increased proportionately more than the increase in the size of
the Fund's net assets
The Fund cannot state precisely the amount of any dilution because it is
not known at this time what the net asset value per share will be on the
Expiration Date or what proportion of the Rights will be exercised. The dilution
may be substantial and will increase if the share price declines in relation to
the net asset value as shown by the following examples:
Scenario 1: Shares trade above per share net asset value (premium)(1)
<TABLE>
<CAPTION>
<S> <C>
Share Price...........................................................................$
--------
NAV...................................................................................$
--------
Subscription Price....................................................................$
--------
Reduction in NAV($)(2)................................................................$( )
--------
Reduction in NAV(%)................................................................... ( )%
--------
Scenario 2: Shares trade below per share net asset value at the time the offer expires (discount)(1)
Share Price...........................................................................$
--------
NAV...................................................................................$
--------
Subscription Price....................................................................$
--------
Reduction in NAV($)(3)................................................................$( )
--------
Reduction in NAV(%)................................................................... ( )%
--------
------------------
</TABLE>
(1) Both examples assume full primary and over-subscription privilege
exercised. Actual amounts may vary due to rounding.
(2) Assumes $ in estimated offering expenses.
---------------
(3) Assumes $ in estimated offering expenses.
--------------
You will incur a greater dilution in net asset value per share if you do
not exercise your Rights than if you do.
If you do not wish to exercise your Rights, you should consider selling
these Rights as set forth in this prospectus. Any cash you receive from selling
your Rights should serve as partial compensation for any possible
22
<PAGE> 27
dilution of your interest in the Fund. The Fund cannot give assurance, however,
that a market for the Rights will develop or that the Rights will have any
marketable value.
INDUSTRY RISKS
The Fund invests a significant portion of its assets in the
telecommunications, media, publishing and entertainment industries. As a result,
the value of the Fund's shares is susceptible to factors affecting companies in
those particular industries, including
- governmental regulation
- greater price volatility than the overall market
- rapid obsolescence of products and services
- intense competition and strong market reactions to technological
developments
- ownership restrictions
Various types of ownership restrictions are imposed by the Federal
Communications Commission ("FCC") on investments in mass media
companies, such as broadcasters and cable operators, as well as in
common carrier companies, such as the providers of local telephone
service and cellular radio.
For example, the FCC's broadcast multiple ownership rules, which
apply to the radio and television industries, provide that
investment advisers are deemed to have an "attributable" interest
whenever the adviser has the right to determine how more than five
percent of the issued and outstanding voting stock of a broadcast
licensee may be voted. These same broadcast rules limit the holding
of attributable interests, on a nationwide basis, in AM radio
broadcast stations, FM radio broadcast stations and television
stations. Similar types of restrictions apply to the mass media and
common carrier industries.
The attributable interest that results from the role of the
Investment Adviser and its principals in connection with other
funds, managed accounts and companies may limit the investments of
the Fund.
MARKET RISK
The market value of a security may move up and down, sometimes rapidly and
unpredictably. These fluctuations, which are often referred to as "volatility,"
may cause a security to be worth less than it was worth at an earlier time.
Market risk may effect a single issuer, industry, sector of the economy or the
market as a whole. Market risk is common to most investments, including stocks
and bonds and the mutual funds that invest in them.
SMALLER COMPANIES
While not the Fund's focus, the Fund may invest in smaller companies that
may benefit from the development of new products and services. These smaller
companies may involve greater investment risk than large, established issuers,
because of the following factors, among others:
- limited product lines
- limited markets
- limited financial resources
- infrequent trading and low trading volume of smaller companies'
securities
23
<PAGE> 28
- fluctuating price of securities
NON-DIVERSIFIED STATUS
The Fund is classified as a "non-diversified" investment company under the
1940 Act, which means the Fund is not limited by the 1940 Act in the proportion
of its assets that may be invested in the securities of a single issuer.
However, the Fund has in the past conducted and intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Code, which will relieve it of any liability for federal income tax to the
extent its earnings are distributed to shareholders. To qualify as a "regulated
investment company," among other requirements, the Fund will limit its
investments so that, at the close of each quarter of the taxable year:
- not more than 25% of the market value of its total assets will be
invested in the securities of a single issuer, and
- at least 50% of the market value of the Fund's assets is
represented by cash, securities of other regulated investment
companies, U.S. Government Securities and other securities that do
not amount to more than 5% of a single issuer and not more than 10%
of a single issuer's voting securities. The investments of the Fund
in U.S. Government Securities are not subject to these limitations.
As a non-diversified investment company, the Fund may invest in the
securities of individual issuers to a greater degree than a diversified
investment company. As a result, the Fund may be more vulnerable to events
affecting a single issuer and therefore subject to greater volatility than a
fund that is more broadly diversified. Accordingly, an investment in the Fund
may present greater risk to an investor than an investment in a diversified
company.
FOREIGN SECURITIES
The risks which the Fund faces when it invests in securities of foreign
companies and foreign governments include:
- fluctuations in exchange rates between the U.S. dollar and foreign
currencies
- unavailable or deficient key information about an issuer, security
or market
- lack of uniform financial reporting standards and other regulatory
requirements
- expropriations, capital or currency controls, punitive taxes or
nationalizations
- economic policy changes, social and political instability,
military action and war
- changed circumstances in dealings between nations
- greater volatility and illiquidity of foreign securities
- costs incurred in connection with conversion between various
currencies
- higher foreign brokerage commissions
- possible extended settlement period
- revaluations of currencies
- transfer taxes or transaction charges
24
<PAGE> 29
- greater difficulty in protecting and enforcing the Fund's rights
Each of the above risks is more pronounced with respect to the Fund's
investments in securities of companies and governments in the world's emerging
(less developed) markets. For a further description of the Fund's investments in
foreign securities, see "Investment Objectives and Policies--Certain Other
Investment Practices--Foreign Securities."
MARKET VALUE AND NET ASSET VALUE
The shares of closed-end investment companies frequently trade at a
discount from net asset value. This characteristic of shares of a closed-end
fund is a risk separate and distinct from the risk that the Fund's net asset
value may decrease. Since the commencement of the Fund's operations, the Fund's
shares have generally traded in the market at a discount to net asset value. See
"Capital Stock and Other Securities." The risk of purchasing shares of a
closed-end fund that might trade at a discount is more pronounced if you wish to
sell your shares in a relatively short period of time. If you do so, realization
of a gain or loss on your investment is likely to be more dependent upon the
existence of a premium or discount than upon portfolio performance. The Fund's
shares are not subject to redemption. Investors desiring liquidity may, subject
to applicable securities laws, trade their shares in the Fund on any exchange
where such shares are then trading at current market value, which may differ
from the then current net asset value.
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. You should not consider an investment in shares of
the Fund as a complete investment program. You should take into account your
investment objectives as well as your other investments when considering whether
or not to participate in the Offer.
CERTAIN ADDITIONAL RISKS ASSOCIATED WITH THE FUND
LOWER RATED SECURITIES
High yield securities, also sometimes referred to as "junk bonds,"
generally pay a premium above the yields of U.S. Government Securities or mature
corporate issuers because they are subject to greater risks than these
securities. Hence, high yield securities usually carry a medium-grade or below
investment grade rating, which reflect their speculative character and the
following risks:
- greater volatility
- greater credit risk
- potentially greater sensitivity to general economic or industry
conditions
- potential lack of attractive resale opportunities (illiquidity)
- additional expenses to seek recovery from issuers who default
The market value of lower-rated securities may be more volatile than the
market value of higher-rated securities and generally tends to reflect the
market's perception of the creditworthiness of the issuer and short-term market
developments to a greater extent than more highly rated securities, which
reflect primarily fluctuations in general levels of interest rates.
Ratings are relative and subjective and not absolute standards of quality.
Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' analysis at the time of rating. Consequently,
the rating assigned to any particular security is not necessarily a reflection
of the issuer's current financial condition.
25
<PAGE> 30
For a further description of lower rated securities and the risks
associated therewith, see "Investment Objectives and Policies--Investment
Practices" in the SAI. For a description of the ratings categories of certain
recognized statistical ratings agencies, see Appendix A.
TEMPORARY INVESTMENTS
During temporary defensive periods the Fund may invest in U.S. Government
Securities and in money market mutual funds not affiliated with the Investment
Adviser that invest in those securities. While certain U.S. Government
Securities are supported by the "full faith and credit" of the U.S. Government,
others are supported only by the credit of the issuing instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law. For a further description of such investments, see "Investment
Objectives and Policies--Investment Practices" in the SAI.
To the extent that the Fund holds temporary investments, it will not be
pursuing its investment objectives.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions with banks,
registered broker-dealers and government securities dealers approved by the
Investment Adviser under the supervision of the Board of Directors. The Fund
bears a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the Fund is delayed in or prevented from
exercising its rights to dispose of the collateral securities, including the
risk of a possible decline in the value of the underlying securities during the
period in which it seeks to assert these rights. For a further description of
these transactions, see "Investment Objectives and Policies--Certain
Practices--Repurchase Agreements."
HEDGING
If the expectations about the changes in the interest rates or evaluations
of the normal yield relationship between two securities proves to be incorrect,
the Fund's income, net asset value and potential capital gains may be decreased
or its potential capital losses may be increased. The Fund's use of hedging
strategies will result in the loss of principal under certain market conditions
and will involve certain other risks.
FUTURES TRANSACTIONS
Futures and options on futures entail certain risks, including:
- no assurance that futures contracts or options on futures can be
offset at favorable prices
- reduction of the yield of the Fund due to the use of hedging
- reduction in value of both the securities hedged and the hedging
instrument
- illiquidity due to daily limits on price fluctuations
- imperfect correlation between the contracts and the securities
being hedged
- losses from investing in futures transactions that are potentially
unlimited and the segregation requirements for such transactions
For a further description, see "Investment Objectives and
Policies--Investment Practices" in the SAI.
FORWARD CURRENCY TRANSACTIONS
The use of forward currency contracts may involve certain risks,
including:
26
<PAGE> 31
- default of the counter-party under the contract,
- incomplete 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 Investment Adviser is dependent upon the expertise of Mr. Mario J.
Gabelli in providing advisory services with respect to the Fund's investments.
If the Investment Adviser were to lose the services of Mr. Gabelli, its ability
to service the Fund could be adversely affected. There can be no assurance that
a suitable replacement could be found for Mr. Gabelli in the event of his death,
resignation, retirement or inability to act on behalf of the Investment Adviser.
27
<PAGE> 32
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The business and affairs of the Fund are managed under the direction of
the Fund's Board of Directors, and the day to day operations of the Fund are
conducted through or under the direction of the officers of the Fund. Although
the Fund is a Maryland corporation, Karl Otto Pohl, one of its Directors, is a
resident of Germany, and substantially all of his assets are located outside of
the United States. Mr. Pohl has not authorized an agent for service of process
in the United States. Consequently, it may be difficult for investors to effect
service of process upon him within the United States or to enforce, in United
States courts, judgments against him obtained in such courts predicated on the
civil liability provisions of the United States securities laws. In addition,
there is doubt as to the enforceability in German courts of liabilities
predicated solely upon the United States securities laws, whether or not such
liabilities are based upon judgments of courts in the United States. For certain
information regarding the Directors and officers of the Fund, see "Management of
the Fund" in the SAI.
INVESTMENT ADVISER
Gabelli Funds, LLC is a New York limited liability company which
also serves as an investment adviser to other closed-end investment companies
and open-end investment companies with aggregate assets in excess of $10.6
billion as of December 31, 1999. The Investment Adviser is a registered
investment adviser under the 1940 Act. Mr. Mario J. Gabelli may be deemed a
"controlling person" of the Investment Adviser on the basis of his controlling
interest in Gabelli Group Capital Partners, Inc., the parent company of Gabelli
Asset Management Inc., an NYSE-listed company which owns 100% of the Investment
Adviser. The Investment Adviser has several affiliates that provide investment
advisory services: GAMCO Investors, Inc. ("GAMCO"), an affiliate of the Adviser,
acts as investment adviser for individuals, pension trusts, profit-sharing
trusts and endowments, and had assets under management of approximately $9.4
billion under its management as of December 31, 1999; Gabelli Advisers, Inc.
acts as investment adviser to the Gabelli Westwood Funds with assets under
management of approximately $390 million as of December 31, 1999; Gabelli
Securities, Inc. acts as general partner or investment manager to certain
alternative investments products, consisting primarily of risk arbitrage and
merchant banking limited partnerships and offshore companies, with assets under
management of approximately $230 million as of December 31, 1999; and Gabelli
Fixed Income LLC acts as investment adviser for the three portfolios of The
Treasurer's Fund and separate accounts having assets under management of
approximately $1.4 billion as of December 31, 1999.
The Investment Adviser has sole investment discretion for the Fund with
respect to the Fund's portfolio under the supervision of the Fund's Board of
Directors and in accordance with the Fund's stated policies. The Investment
Adviser will select investments for the Fund and will place purchase and sale
orders on behalf of the Fund. For its services, the Investment Adviser is paid a
fee computed daily and paid monthly at an annual rate of 1.00% of the average
weekly net assets of the Fund. For additional information regarding the
Investment Adviser, see "The Adviser" in the SAI.
Canadian shareholders should note, to the extent applicable, that there
may be difficulty enforcing any legal rights against the Investment Adviser
because it is resident outside of Canada and all of its assets are situated
outside Canada.
PORTFOLIO MANAGEMENT
Mario J. Gabelli, who is Chief Investment Officer of the Investment
Adviser, has managed the Fund's assets since its inception. In addition, over
the past five years, Mr. Gabelli has served as Chairman of the Board and Chief
Executive Officer of Gabelli Asset Management Inc.; Chief Investment Officer of
GAMCO Investors, Inc.; Chairman of the Board and Chief Executive Officer of
Lynch Corporation, a diversified manufacturing company, and Lynch Interactive
Corporation, a multimedia and communications services company; and Director of
Spinnaker Industries, Inc., a manufacturing company.
SUB-ADMINISTRATOR
28
<PAGE> 33
The Investment Adviser has certain administrative responsibilities to the
Fund under its advisory agreement with the Fund. The Investment Adviser has
retained PFPC, Inc. as Sub-Administrator to provide certain administrative
services necessary for the Fund's operations but which do not concern the
investment advisory and portfolio management services provided by the Investment
Adviser. These services include the preparation and distribution of materials
for meetings of the Fund's Board of Directors, compliance testing of the Fund's
activities and assistance in the preparation of proxy statements, reports to
shareholders and other documentation. For such services and the related expenses
borne by the Sub-Administrator, the Investment Adviser pays the
Sub-Administrator a monthly fee at the annual rate of (i) 0.0275% of the average
daily net assets of the total aggregate assets managed by the Investment Adviser
and administered by the Sub-Administrator up to $10 billion; (ii) 0.0125% of
such assets from $10 billion to $15 billion and (iii) 0.01% if such assets
exceed $15 billion which, together with the services to be rendered, is subject
to negotiation between the parties. Both parties retain the right unilaterally
to terminate the arrangement on 60 days' written notice. The Sub-Administrator
has its principal office at 101 Federal Street, Boston, MA 02110.
PAYMENT OF EXPENSES
For purposes of the calculation of the fees payable to the Investment
Adviser by the Fund, average weekly net assets of the Fund are determined at the
end of each month on the basis of its average net assets for each week during
the month. The assets for each weekly period are determined by averaging the net
assets at the end of a week with the net assets at the end of the prior week.
The Investment Adviser will be obligated to pay expenses associated with
providing the services contemplated by the Advisory Agreement including
compensation of and office space for its officers and employees connected with
investment and economic research, trading and investment management and
administration of the Fund, as well as the fees of all Directors of the Fund who
are affiliated with the Investment Adviser or any of its affiliates. The Fund
pays all other expenses incurred in its operation including, among other things,
expenses for legal and independent accountants' services, costs of printing
proxies, stock certificates and shareholder reports, charges of the custodian,
any subcustodian and transfer and dividend paying agent, expenses in connection
with the Plan, SEC fees, fees and expenses of unaffiliated Directors, accounting
and pricing costs, membership fees in trade associations, fidelity bond coverage
for its officers and employees, directors' and officers' errors and omission
insurance coverage, interest, brokerage costs, taxes, stock exchange listing
fees and expenses, expenses of qualifying its shares for sale in various states,
litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by the Fund.
PORTFOLIO TRANSACTIONS
Principal transactions are not entered into with affiliates of the Fund.
However, Gabelli & Company, Inc., an affiliate of the Investment Adviser, may
execute transactions in the over-the-counter markets on an agency basis and
receive a stated commission therefrom. For a more detailed discussion of the
Fund's brokerage allocation practice, see the SAI under "Portfolio
Transactions."
DIVIDENDS AND DISTRIBUTIONS; AUTOMATIC DIVIDEND
REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
The Fund distributes substantially all of its annual net investment income
and capital gains to shareholders at year end. The dividend policy of the Fund
may be modified from time to time by the Board of Directors. As a regulated
investment company under the Code, the Fund will not be subjected to U.S.
federal income tax on its investment company taxable income that it distributes
to shareholders, provided that at least 90% of its taxable income for the
taxable year is distributed to its shareholders.
The Fund, along with other registered investment companies advised by the
Investment Adviser, has obtained an exemption from Section 19(b) of the 1940 Act
and Rule 19b-1 thereunder permitting the Fund to maintain distribution policies
("periodic pay-out policies") with respect to the Common Stock and Preferred
Stock calling for periodic (e.g., quarterly or semi-annually, but in no event
more frequently than quarterly, except that the Fund may elect to pay a dividend
pursuant to Section 855 of the Code in addition to the four quarterly payments)
distributions in an amount equal to a fixed percentage of the Fund's average net
asset value over a specified period of time or
29
<PAGE> 34
market price per share of Common Stock or a fixed percentage of the Preferred
Stock's liquidation preference at or about the time of distribution or pay-out
or a fixed dollar amount. If the total distributions required by the proposed
periodic pay-out policy exceed the Fund's net investment income and net capital
gains, the excess will be treated as a return of capital. If the Fund's net
investment income, net short-term capital gains and net long-term capital gains
for any year exceed the amount required to be distributed under the proposed
periodic pay-out policy, the Fund generally intends to pay such excess once a
year, but may, in its discretion, retain and not distribute net long-term
capital gains to the extent of such excess.
The Fund has outstanding 1,235,700 shares of 7.92% Cumulative Preferred
Stock, liquidation preference $25 per share (the "Cumulative Preferred Stock")
as of May 25, 2000, which are senior securities of the Fund. Dividends on the
Cumulative Preferred Stock accrue at an annual rate of 7.92% of the liquidation
preference per share, are cumulative from the date of original issuance thereof
and are payable quarterly on March 26, June 26, September 26 and December 26 in
each year.
Under the Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
adopted by the Fund, a shareholder whose Common Stock is registered in his own
name will have all distributions reinvested automatically by State Street Bank
and Trust Company ("State Street"), which is the agent under the Plan, unless
the shareholder elects to receive cash and has so instructed State Street either
in writing at the address set forth below or by telephone at (800) 336-6983.
Distributions with respect to shares registered in the name of a broker-dealer
or other nominee (that is, in "street name") will be reinvested by the broker or
nominee in additional shares under the Plan, unless the service is not provided
by the broker or nominee or the shareholder elects to receive distributions in
cash. Under the Plan, whenever the market price of the Common Stock is equal to
or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants in such plan are issued shares of Common Stock,
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Common Stock. If the net asset
value of the Common Stock at the time of valuation exceeds the market price of
the Common Stock, participants will receive shares from the Fund, valued at
market price. If the Fund should declare a dividend or capital gains
distribution payable only in cash, State Street will, as agent for the
participants, buy Fund shares in the open market, on the NYSE or elsewhere, for
the participants' accounts, except that State Street will endeavor to terminate
purchases in the open market and cause the Fund to issue shares at net asset
value if, following the commencement of such purchases, the market value of the
Common Stock exceeds net asset value.
Participants in the Plan have the option of making additional cash
payments to State Street, on or about the 1st and 15th of each month, for
investment in the shares as applicable. Such payments may be made in any amount
from $250 to $10,000.
There is no charge to participants for reinvesting dividends or capital
gains distributions payable in either stock or cash. State Street's fees for
handling the reinvestment of such dividends and capital gains distributions are
paid by the Fund. There are no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains distributions
payable in stock or in cash. However, each participant bears a pro rata share of
brokerage commissions incurred with respect to State Street's open market
purchases in connection with the reinvestment of dividends or capital gains
distributions.
With respect to purchases from voluntary cash payments, State Street will
charge $0.75 for each such purchase for a participant, plus a pro rata share of
the brokerage commissions. A fee of $2.50 per transaction is charged in
connection with the sale of shares that are held in book-entry form, such as
shares of Common Stock held by a shareholder through the Plan. Commissions may
also be charged on such transactions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends or
distributions.
Participants in the Plan may terminate their accounts under the Plan by
notifying State Street in writing. Upon termination, participants may request to
receive a certificate for the number of full shares then held in their Plan
account along with a check in payment for any fractional share interest they may
have. The payment for the fractional share interest will be valued at the
opening price of the Fund on the date their discontinuance is effective. In the
alternative, participants may liquidate their reinvestment shares. If a
participant wishes to liquidate his or her
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<PAGE> 35
reinvestment shares, the cost is $2.50 per transaction as well as the brokerage
commission incurred. Brokerage charges are expected to be less than the usual
brokerage charge for such transactions.
All correspondence concerning the Plan should be directed to State Street
at P.O. Box 8200, Boston, Massachusetts 02266-8200. For a further description of
the Plan, see "Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan"
in the SAI.
TAXATION
TAXATION
The Fund has qualified, and intends to continue to qualify, each year as a
"regulated investment company" under the Code. Accordingly, the Fund will not be
liable for federal income taxes to the extent its taxable net investment income
and net realized capital gain, if any, are distributed to shareholders, provided
that at least 90% of its investment company taxable income (i.e., 90% of the
Fund's taxable income minus the excess, if any, of its net realized long-term
capital gain over its net realized short-term capital loss (including any
capital loss carryovers) plus or minus certain other adjustments as specified in
section 852 of the Code) for the taxable year is distributed to shareholders.
The Fund will be subject to tax at regular corporate rates on any income or
gains that it does not distribute. Furthermore, the Fund is subject to a 4%
nondeductible federal excise tax on certain undistributed amounts of ordinary
income and capital gains. The Fund intends to make such distributions as are
necessary to avoid the application of this excise tax.
The Fund reserves the right, but does not currently intend, to retain for
reinvestment net long-term gains in excess of net short-term capital losses and
the Fund will be subject to a corporate tax (currently at a rate of 35%) on the
retained amount, if any. The Fund would designate such retained amounts as
undistributed capital gains. As a result, such amounts would be taxed to
shareholders as long-term capital gains and shareholders would be able to claim
their proportionate shares of the federal income taxes paid by the Fund on such
gains as a credit against their own federal income tax liabilities, and would be
entitled to increase the adjusted tax basis of their shares of the Fund by 65%
of their undistributed capital gains. Qualified pension and profit sharing
funds, certain trusts and other organizations or persons not subject to federal
income tax on capital gains and certain non-resident alien individuals and
foreign corporations would be entitled to a refund of their pro rata share of
such taxes paid by the Fund upon filing appropriate returns or claims for refund
with the proper tax authorities. Failure by such entities and their sponsors or
responsible fiduciaries to properly account for such refund could result in
adverse federal income tax consequences.
The Fund sends its written statements and notices to its respective
shareholders regarding the tax status of all dividends and distributions made
during each calendar year.
Dividend and capital gain distributions may also be subject to state and
local taxes. Shareholders are urged to consult their attorneys or tax advisors
regarding specific questions as to federal, state or local taxes. Non-U.S.
shareholders are urged to consult their own tax advisors concerning the
applicability of the United States withholding tax. For a more detailed
discussion of tax matters affecting the Fund and its shareholders, see
"Taxation" in the SAI.
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 198,750,000 shares of
Common Stock, par value $.001 per share. Each share of Common Stock has equal
voting, dividend, distribution and liquidation rights. The shares of Common
Stock 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 of Common Stock are listed and traded on the NYSE under
the symbol "GGT." The average weekly trading volume of the Common Stock on the
NYSE for the period from November 14, 1994 (commencement of the Fund's
operations) through December 31, 1999 was 100,903 shares. The following table
sets
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<PAGE> 36
forth for the quarters indicated the high and low closing prices on the NYSE
per share of the Common Stock and the net asset value and the premium or
discount from net asset value at which the Common Stock was trading, expressed
as a percentage of net asset value, at each of the high and low closing prices
provided.
<TABLE>
<CAPTION>
PREMIUM OR DISCOUNT
MARKET PRICE(1) NET ASSET VALUE(2) AS % OF NAV
-------------------------- -------------------------- --------------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
------------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
3/31/98............................. $10.1875 $ 8.3125 $11.64 $ 9.82 -12.48% -15.35%
6/30/98............................. $10.5625 $ 9.4375 $11.76 $11.38 -10.18% -17.07%
9/30/98............................. $10.875 $ 8.00 $12.60 $10.01 -13.69% -20.08%
12/31/98............................ $10.9375 $ 8.00 $12.20 $ 9.46 -10.35% -15.43%
3/31/99............................. $12.25 $10.50 $13.82 $12.44 -11.36% -15.59%
6/30/99............................. $15.00 $11.75 $16.79 $14.31 -10.66% -17.89%
9/30/99............................. $15.3125 $13.625 $17.74 $16.46 -13.68% -17.22%
12/31/99............................ $19.50 $14.625 $21.24 $16.64 -8.19% -12.11%
3/31/00............................. $19.4375 $16.25 $21.47 $17.92 -1.23% -20.96%
</TABLE>
--------------------
(1) As reported on the NYSE.
(2) Based on the Fund's computations.
Preferred Stock. The Fund's Board of Directors authorized the issuance of
a series of 1,250,000 shares of preferred stock, par value $.001 per share, of
the Fund designated as 7.92% Cumulative Preferred Stock, liquidation preference
$25 per share ("Cumulative Preferred Stock"). The terms of such Cumulative
Preferred Stock are fixed by the Board of Directors and may materially limit
and/or qualify the rights of the holders of the Fund's Common Stock. As of May
25, 2000, the Fund has outstanding 1,235,700 shares of Cumulative Preferred
Stock, which are senior securities of the Fund. Dividends on the Cumulative
Preferred Stock accrue at an annual rate of 7.92% of the liquidation preference
per share, are cumulative from the date of original issuance thereof and are
payable quarterly on March 26, June 26, September 26 and December 26 in each
year.
It was a condition to the issuance of the Cumulative Preferred Stock that
it 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 is required to maintain a
minimum discounted asset coverage with respect to the Cumulative Preferred
Stock. See "Moody's Discount Factors" in the SAI.
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 1940 Act. 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 may be redeemed, at the option of
the Fund, for a cash 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.
All shares of Cumulative Preferred Stock are fully paid and nonassessable.
Set forth below is information with respect to the Fund's capital stock as
of May 25, 2000.
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<PAGE> 37
<TABLE>
<CAPTION>
AMOUNT HELD BY FUND FOR
CLASS OF STOCK AMOUNT AUTHORIZED ITS OWN ACCOUNT AMOUNT OUTSTANDING
--------------------------- -------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C>
Common Stock 198,750,000 shares N/A* 10,796,185 shares
Preferred Stock 1,250,000 shares N/A* 1,235,700 shares
</TABLE>
--------------------------
* The Fund repurchased 679,733 shares of Common Stock and 14,300 shares of
Preferred Stock through May 25, 2000. Pursuant to Section 2-310(a)(2) of the
Maryland General Corporation Law, such shares are deemed to be authorized but
unissued shares.
EFFECTS OF LEVERAGE
The only obligation that the Fund has to the Preferred Shareholders is to
pay the stated dividend rate of 7.92%. Any return earned in excess of the stated
dividend rate, which is less than the Fund's average annual return, would
directly benefit Common Shareholders; however, any shortfall from the stated
rate would impact the Common Shareholders in the opposite fashion. The following
table is designed to assist you in understanding the effects of leverage on your
investment in the Fund. The figures appearing in the table are hypothetical and
actual returns may be greater or less than those appearing in the table.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assumed return on
portfolio
(net of expenses) -10% -5% 0% 5% 10%
------------------------------------------------------------------------------------------------------------------
Corresponding
return to common -12.57% -6.85% -1.13% 4.58% 10.30%
stockholder
------------------------------------------------------------------------------------------------------------------
</TABLE>
The following factors associated with leveraging could increase the
investment risk and volatility of the price of the Fund's shares: (1) leveraging
exaggerates any increase or decrease in the value of the Fund's shares; (2) the
costs of borrowing may exceed the income from the portfolio securities purchased
with the borrowed money; (3) a decline in net asset value results if the
investment performance of the additional securities purchased fails to cover
their cost to the Fund (including any interest paid on the money borrowed or
dividend requirements of preferred stock) to the Fund; (4) a decline in net
asset value could affect the ability of the Fund to make common stock dividend
payments; (5) a failure to pay dividends or make distributions could result in
the Fund's ceasing to qualify as a regulated investment company under the
Internal Revenue Code; and (6) if the asset coverage for preferred stock or debt
securities declines to less than two hundred percent or three hundred percent,
respectively (as a result of market fluctuations or otherwise), the Fund may be
required to sell a portion of its investments when it may be disadvantageous to
do so.
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
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<PAGE> 38
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
Articles of Incorporation 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 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.
Except as otherwise provided in the immediately preceding sentence, 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 Articles of Incorporation,
as amended and supplemented (including the Articles Supplementary) of the Fund
(the "Articles of Incorporation"), whether by merger, consolidation or
otherwise, so as to materially adversely affect any of the contract rights
expressly set forth in the Articles of Incorporation 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 Articles of Incorporation 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). Unless a
higher percentage is provided for under the Articles of Incorporation, 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, open-ending the Fund and 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.
34
<PAGE> 39
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.
REPURCHASE OF SHARES
The Fund is a closed-end, management investment company and as such its
shareholders do not, and will not, have the right to redeem its shares. The
Fund, however, may repurchase its shares from time to time as and when it deems
such a repurchase advisable. Such repurchases may be made when the Fund's shares
are trading at a discount of 10% or more (or such other percentage as the Board
of Directors of the Fund may determine from time to time) from the net asset
value of the shares. Pursuant to the 1940 Act, the Fund may repurchase its
shares on a securities exchange (provided that the Fund has informed its
shareholders within the preceding six months of its intention to repurchase such
shares) or as otherwise permitted in accordance with Rule 23c-1 under the 1940
Act. Under that Rule, certain conditions must be met regarding, among other
things, distribution of net income for the preceding fiscal year, identity of
the sellers, price paid, brokerage commissions, prior notice to shareholders of
an intention to purchase shares and purchasing in a manner and on a basis which
does not discriminate unfairly against the other shareholders through their
interest in the Fund.
The Fund may incur debt, in an amount not exceeding 10% of its total
assets, to finance share repurchase transactions. See "Investment Restrictions"
in the SAI. Any gain in the value of the investments of the Fund during the term
of the borrowing that exceeds the interest paid on the amount borrowed would
cause the net asset value of its shares to increase more rapidly than in the
absence of borrowing. Conversely, any decline in the value of the investments of
the Fund would cause the net asset value of its shares to decrease more rapidly
than in the absence of borrowing. Borrowing money thus creates an opportunity
for greater capital gain but at the same time increases exposure to capital
risk.
When the Fund repurchases its shares for a price below their net asset
value, the net asset value of those shares that remain outstanding will be
enhanced, but this does not necessarily mean that the market price of those
outstanding shares will be affected, either positively or negatively. Further,
interest on borrowings to finance share repurchase transactions will reduce the
net income of the Fund.
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
shares. On February 26, 1997, the Board voted to increase the authorized shares
which may be repurchased to 750,000 and on May 13, 1998, the Board increased the
authorized shares which may be repurchased by another 250,000 shares to
1,000,000 shares. In total, through May 25, 2000, 679,733 shares were
repurchased in the open market.
The Fund does not currently have an established tender offer program or
established schedule for considering tender offers. No assurance can be given
that the Board of Directors of the Fund will decide to undertake any such tender
offers in the future, or, if undertaken, that they will reduce any market
discount.
Although the Fund's shares have at times traded in the market above net
asset value, since the commencement of the Fund's operations, the Fund's shares
have generally traded in the market at a discount to net asset value.
For the net asset value per share and the reported sales price of a share
of the Fund's Common Stock on the NYSE as of a recent date, see "The
Offer--Subscription Price."
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS
The Fund presently has provisions in its Articles of Incorporation and
By-Laws (together, in each case, its "Governing Documents") which could have the
effect of limiting, in each case, (i) the ability of other entities or persons
to acquire control of the Fund, (ii) the Fund's freedom to engage in certain
transactions, or (iii) the ability of the Fund's Directors or shareholders to
amend the Governing Documents or effectuate changes in the Fund's
35
<PAGE> 40
management. These provisions of the Governing Documents of the Fund may be
regarded as "anti-takeover" provisions. The Board of Directors of the Fund is
divided into three classes, each having a term of no more than three years.
Each year the term of one class of Directors will expire. Accordingly, only
those Directors in one class may be changed in any one year, and it would
require two years to change a majority of the Board of Directors. Such system
of electing Directors may have the effect of maintaining the continuity of
management and, thus, make it more difficult for the 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, but only with cause and 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 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
(v) sale, lease or exchange to the Fund, in exchange for securities
of the Fund, of any assets of any entity or person (except
assets having an aggregate fair market value of less than
$1,000,000);
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares of
the Fund. However, such vote would not be required when, under certain
conditions, the Board of Directors approves the transaction. Reference is made
to the Governing Documents of the Fund, on file with the SEC; for the full text
of these provisions, see "Further Information."
The provisions of the Governing Documents described above could have the
effect of depriving the owners of shares in the Fund of opportunities to sell
their shares at a premium over prevailing market prices, by discouraging a third
party from seeking to obtain control of the Fund in a tender offer or similar
transaction. The overall effect of these provisions is to render more difficult
the accomplishment of a merger or the assumption of control by a principal
shareholder. The Board of Directors has determined that the foregoing voting
requirements, which are generally greater than the minimum requirements under
Maryland law and the 1940 Act, are in the best interests of the shareholders
generally.
CUSTODIAN AND TRANSFER, DIVIDEND DISBURSING AGENT AND REGISTRAR
State Street, located at 225 Franklin Street, Boston, Massachusetts 02110,
serves as the custodian of the Fund's assets pursuant to a custody agreement.
Under the custody agreement, State Street holds the Fund's assets in compliance
with the 1940 Act. For its custody services, State Street will receive a monthly
fee based upon the average weekly value of the total assets of the Fund, plus
certain charges for securities transactions.
State Street also serves as the Fund's dividend disbursing agent, as agent
under the Fund's Plan and as transfer agent and registrar for shares of the
Fund.
LEGAL MATTERS
With respect to matters of United States law, the validity of the shares
offered hereby will be passed on for the Fund by Willkie Farr & Gallagher, New
York, New York. Willkie Farr & Gallagher also serves as counsel to the
Investment Adviser. Counsel for the Fund will rely, as to matters of Maryland
law, on Venable, Baetjer and Howard, LLP, Baltimore, Maryland.
EXPERTS
The financial statements of the Fund as of December 31, 1999 have been
incorporated by reference into the SAI in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that
36
<PAGE> 41
firm as experts in accounting and auditing. PricewaterhouseCoopers LLP is
located at 1177 Avenue of the Americas, New York, New York 10036.
FURTHER INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy statements
and other information with the SEC. Such reports, proxy statements and other
information filed by the Fund can be inspected and copied at public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549; Seven World Trade Center, 13th Floor, New York, New York 10048; and 500
West Madison Street, Chicago, Illinois 60661. The Fund's Common Stock is listed
on the NYSE. Reports, proxy statements and other information concerning the Fund
can be inspected and copied at the Library of the NYSE at 20 Broad Street, New
York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form N-2
(together with the SAI and all the exhibits and the appendix thereto, the
"Registration Statement") filed by the Fund with the SEC under the Securities
Act and the 1940 Act. This Prospectus and the SAI do not contain all of the
information set forth in the Registration Statement. Reference is hereby made to
the Registration Statement and related exhibits for further information with
respect to the Fund and the Shares offered hereby. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the SEC.
37
<PAGE> 42
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
PAGE
Investment Objectives and Policies................................... 2
Investment Restrictions.............................................. 11
Management of the Fund............................................... 12
The Adviser.......................................................... 17
Portfolio Transactions............................................... 18
Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan..... 20
Taxation............................................................. 21
Moody's Discount Factors............................................. 25
Net Asset Value...................................................... 28
General Information.................................................. 29
Beneficial Owners.................................................... 29
Financial Statements................................................. 29
38
<PAGE> 43
APPENDIX A
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa Securities.
A Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment some time in the future.
Baa Bonds that are rated Baa are considered as medium-grade obligations
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present. but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small. Moody's applies numerical modifiers (1,
2, and 3) with respect to the bonds rated "Aa" through "B." The
modifier 1 indicates that the company ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
Caa Bonds that are rated Caa are of poor standing. These issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca Bonds that are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds that are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
A-1
<PAGE> 44
STANDARD & POOR'S RATINGS GROUP
AAA This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay
principal.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A Principal and interest payments on bonds in this category are
regarded as safe. Debt rated A has a strong capacity to pay interest
and repay principal although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB This is the lowest investment grade. Debt rated BBB has an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Speculative Grade
Debt rated BB, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation, and C the highest
degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Debt rated
C1 is reserved for income bonds on which no interest is being paid
and debt rated D is in payment default.
In July 1994, S&P initiated an "r" symbol to its ratings. The "r"
symbol is attached to derivatives, hybrids and certain other
obligations that S&P believes may experience high variability in
expected returns due to noncredit risks created by the terms of the
obligations.
"AA" to "CCC" may be modified by the addition of a plus or minus sign to show
relative standing within the major categories.
"NR" indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
A-2
<PAGE> 45
<TABLE>
<S> <C>
======================================================== ========================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE FUND OR THE FUND'S INVESTMENT ADVISERS. THIS THE GABELLI GLOBAL
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR MULTIMEDIA TRUST INC.
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY SHARES OF 3,598,938 SHARES
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH OF COMMON STOCK
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER ISSUABLE UPON EXERCISE OF RIGHTS
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE TO SUBSCRIBE TO SUCH SHARES
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
FACTS AS SET FORTH IN THE PROSPECTUS OR IN THE
AFFAIRS OF THE FUND SINCE THE DATE HEREOF.
-------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY.................................... 2
FEE TABLE............................................. 8
FINANCIAL HIGHLIGHTS.................................. 9
THE OFFER.............................................10
THE FUND..............................................19
USE OF PROCEEDS.......................................19
INVESTMENT OBJECTIVES AND POLICIES....................19
RISK FACTORS AND SPECIAL CONSIDERATIONS...............22 --------------
MANAGEMENT OF THE FUND................................28 PROSPECTUS
PORTFOLIO TRANSACTIONS................................29 --------------
DIVIDENDS AND DISTRIBUTIONS; AUTOMATIC
DIVIDEND REINVESTMENT AND VOLUNTARY
CASH PURCHASE PLAN....................................29
TAXATION..............................................31
CAPITAL STOCK AND OTHER SECURITIES....................31
CUSTODIAN AND TRANSFER, DIVIDEND
DISBURSING AGENT AND REGISTRAR........................36
LEGAL MATTERS.........................................36
EXPERTS...............................................36
FURTHER INFORMATION...................................37
TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION................................38 ----------------------
Appendix A...........................................A-1 _________, 2000
======================================================== ========================================================
</TABLE>
<PAGE> 46
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 any
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information does not constitute a
prospectus.
SUBJECT TO COMPLETION DATED June 2, 2000
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
________, 2000
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.
The prospectus dated ___________, 2000 (the "Prospectus") and this SAI
omit certain of the information contained in the registration statement filed
with the Securities and Exchange Commission, Washington, D.C. The registration
statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed, or inspected at the Securities and Exchange
Commission's office at no charge.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THE PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES...................................................2
INVESTMENT RESTRICTIONS.............................................................11
MANAGEMENT OF THE FUND..............................................................12
THE ADVISER.........................................................................17
PORTFOLIO TRANSACTIONS..............................................................18
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH AND PURCHASE PLAN................20
TAXATION............................................................................21
MOODY'S DISCOUNT FACTORS............................................................25
NET ASSET VALUE.....................................................................28
GENERAL INFORMATION.................................................................29
BENEFICIAL OWNERS...................................................................29
FINANCIAL STATEMENTS................................................................29
</TABLE>
<PAGE> 47
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,
including convertible securities, preferred stock, options and warrants, of
companies in the telecommunications, media, publishing and entertainment
industries, which industries are collectively referred to as "multimedia." See
"Investment Objectives and Policies" in the Prospectus.
INVESTMENT PRACTICES
SPECIAL SITUATIONS. Subject to the Fund's policy of investing at least
65% of its total assets in companies involved in the telecommunications, media,
publishing and entertainment industries, the Fund from time to time may, as a
non-principal investment strategy, invest in companies that are determined by
Gabelli Funds, LLC (the "Adviser") to possess "special situation"
characteristics. In general, a special situation company is a company whose
securities are expected to increase in value solely by reason of a development
particularly or uniquely applicable to the company. Developments that may create
special situations include, among others, a liquidation, reorganization,
recapitalization or merger, material litigation, technological breakthrough or
new management or management policies. The principal risk associated with
investments in special situation companies is that the anticipated development
thought to create the special situation may not occur and the investment
therefore may not appreciate in value or may decline in value.
TEMPORARY INVESTMENTS. Although under normal market conditions at least
65% of the Fund's assets will consist of common stock and other securities,
including convertible securities, preferred stock, options and warrants, of
foreign and domestic companies involved in the telecommunications, media,
publishing and entertainment industries, when a temporary defensive posture is
believed by the Investment Adviser to be warranted ("temporary defensive
periods"), the Fund may hold without limitation cash or invest its assets in
money market instruments and repurchase agreements in respect of those
instruments. The money market instruments in which the Fund may invest are
obligations of the United States government, its agencies or instrumentalities
("U.S. Government Securities"); commercial paper rated A-1 or higher by Standard
& Poor's Corporation ("S&P") or Prime-1 by Moody's Investors Service, Inc.
("Moody's"); and certificates of deposit and bankers' acceptances issued by
domestic branches of U.S. banks that are members of the Federal Deposit
Insurance Corporation. For a description of such ratings, see Appendix A to the
Prospectus. The Fund may also invest up to 10% of the market value of its total
assets during temporary defensive periods in shares of money market mutual funds
that invest primarily in U.S. Government Securities and repurchase agreements in
respect of those securities. Money market mutual funds are investment companies
and the investments by the Fund in those companies are subject to certain other
limitations. See "Investment Restrictions." As a 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
Investment Advisers with respect to assets so invested.
LOWER RATED SECURITIES. The Fund may invest up to 10% of its total
assets in fixed-income securities rated in the lower rating categories of
recognized statistical rating agencies, such as securities rated "CCC" or lower
by S&P or "Caa" or lower by Moody's, or non-rated securities of comparable
quality. These debt securities are predominantly speculative and involve major
risk exposure to adverse conditions and are often referred to in the financial
press as "junk bonds."
Generally, such lower rated securities and unrated securities of
comparable quality offer a higher current yield than is offered by higher rated
securities, but also (i) will likely have some quality and protective
characteristics that, in the judgment of the rating organizations, are
outweighed by large uncertainties or major risk exposures to adverse conditions
and (ii) are predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
The market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher quality bonds. In addition, such lower rated securities and comparable
unrated securities generally present a higher degree of credit risk. The risk of
loss due to default by these issuers is significantly greater because
2
<PAGE> 48
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.
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
3
<PAGE> 49
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.
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
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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.
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.
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,
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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.
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.
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<PAGE> 52
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
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.
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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.
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 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
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<PAGE> 54
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.
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 may 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
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<PAGE> 55
high-grade debt securities in an aggregate amount at least equal to the amount
of its outstanding forward commitments.
SHORT SALES. The Fund may make short sales of securities. A short sale
is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. The market
value of the securities sold short of any one issuer will not exceed either 5%
of the Fund's total assets or 5% of such issuer's voting securities. The Fund
will not make a short sale, if, after giving effect to such sale, the market
value of all securities sold short exceeds 25% of the value of its assets or the
Fund's aggregate short sales of a particular class of securities exceeds 25% of
the outstanding securities of that class. The Fund may also make short sales
"against the box" without respect to such limitations. In this type of short
sale, at the time of the sale, the Fund owns, or has the immediate and
unconditional right to acquire at no additional cost, the identical security.
The Fund expects to make short sales both to obtain capital gains from
anticipated declines in securities and as a form of hedging to offset potential
declines in long positions in the same or similar securities. The short sale of
a security is considered a speculative investment technique.
When the Fund makes a short sale, it must borrow the security sold short
and deliver it to the broker-dealer through which it made the short sale in
order to satisfy its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured
by collateral deposited with the broker-dealer, usually cash, U.S. Government
Securities or other highly liquid debt securities. The Fund will also be
required to deposit similar collateral with its custodian to the extent, if any,
necessary so that the value of both collateral deposits in the aggregate is at
all times equal to the greater of the price at which the security is sold short
or 100% of the current market value of the security sold short. Depending on
arrangements made with the broker-dealer from which it borrowed the security
regarding 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.
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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.
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 may 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%
11
<PAGE> 57
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.
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 March 6, 2000 the Directors and Officers of the Fund as a group
beneficially owned 391,783 shares of the Fund equaling 3.62% 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, The John Dewey Academy
One Corporate Center (residential college preparatory therapeutic high
Rye, New York 10580-1434 school). Dr. Bratter is 60 years old. (6) (7) (16)
Felix J. Christiana+.................. Director Retired; formerly Senior Vice President of Dollar Dry Dock
One Corporate Center Savings Bank. Mr. Christiana is 74 years old. (l) (4) (5)
Rye, New York 10580-1434 (6) (7) (8) (10) (13) (16) (17) (19)
James P. Conn+........................ Director Former Managing Director and Chief Investment Officer of
One Corporate Center Financial Security Assurance Holdings Ltd. (1992-1998);
Rye, New York 10580-1434 Director of Meditrust Corporation (real estate investment
trust) and First Republic Bank. Mr. Conn is 62 years old.
(1) (6) (7) (10) (16) (18)
</TABLE>
12
<PAGE> 58
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION DURING
NAME AND BUSINESS ADDRESS THE FUND PAST FIVE YEARS; AGE
------------------------- ------------- ----------------------------------------------------------
<S> <C> <C>
Frank J. Fahrenkopf, Jr............... Director President and Chief Executive Officer of the American
One Corporate Center Gaming Association since June 1995; Partner of Hogan and
Rye, New York 10580-1434 Hartson (law firm); Chairman of International Trade
Practice Group; Co-Chairman of the Commission on
Presidential Debates; Former Chairman of the Republican
National Committee. Mr. Fahrenkopf is 60 years old. (6)
(7) (16)
Mario J. Gabelli*..................... Chairman of the Board, Chairman of the Board and Chief Executive Officer of
One Corporate Center President and Chief Gabelli Asset Management Inc. and Chief Investment Officer
Rye, New York 10580-1434 Investment Officer of the Adviser and GAMCO Investors, Inc. Chairman of the
Board of Lynch Corporation (diversified manufacturing
company) and Chairman of the Board and Chief
Executive Officer of Lynch Interactive Corporation
(a multimedia and services company); Director of
Spinnaker Industries, Inc. (manufacturing company). Mr.
Gabelli is 57 years old. (1) (2) (3) (4) (5) (6) (7) (8)
(9) (10) (11) (12) (13) (14) (15) (16) (17)
Karl Otto Pohl*....................... Director Member of the Shareholder Committee of Sal Oppenheim Jr. &
One Corporate Center Cie (private investment bank); Director of Gabelli Asset
Rye, New York 10580-1434 Management Inc. (investment management), Zurich Allied
(insurance company), and TrizecHahn Corp. (real estate
company); Former President of the Deutsche Bundesbank and
Chairman of its Central Bank Council from 1980 through
1991. Mr. Pohl is 70 years old. (1) (2) (3) (4) (5) (6)
(7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18)
(19)
Anthony R. Pustorino.................. Director Certified Public Accountant. Professor of Accounting,
One Corporate Center Pace University, since 1965. Director. Mr. Pustorino is
Rye, New York 10580-1434 74 years old. (1) (3) (4) (5) (6) (7) (10) (13) (16) (17)
(19)
Werner J. Roeder...................... Director Medical Director, Lawrence Hospital and practicing private
One Corporate Center physician. Mr. Roeder is 58 years old. (2) (3) (7) (8)
Rye, New York 10580-1434 (9) (11) (12) (13) (15) (18) (19)
</TABLE>
13
<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 Chairman of The Bethlehem Corp.; Board Member of Hollis
One Corporate Center Eden Pharmaceuticals; Former Executive Vice President of
Rye, New York 10580-1434 FMG Group (a healthcare provider); Former President and
Chief Executive Officer of the Lehigh Group Inc. (an
electrical supply wholesaler); Former Chairman of the
Executive Committee and Director of Binnings Buildings
Products, Inc. until 1997; Adviser to The Gabelli Growth
Fund. Mr. Zizza is 54 years old. (1) (4) (6) (7) (16)
Bruce N. Alpert....................... Vice President and Officer of the Trust since its inception. Executive Vice
One Corporate Center Treasurer President and Chief Operating Officer of the Adviser;
Rye, New York 10580-1434 Director and President of Gabelli Advisers, Inc.; Vice
President of the Treasurer's Fund, Inc. and Vice President
of The Gabelli Westwood Funds; Officer of all registered
investment companies advised by the Adviser. Mr. Alpert
is 48 years old.
James E. McKee........................ Secretary Secretary of the Trust since August 1995; Vice President,
One Corporate Center General Counsel and Secretary of Gabelli Asset Management
Rye, New York 10580-1434 Inc. since 1999 and GAMCO Investors, Inc. since 1993;
Secretary of all registered investment companies advised
by the Adviser and Gabelli Advisers, Inc. Mr. McKee is 37
years old.
Peter W. Latartara.................... Vice President Vice President of the Trust since 1998. Assistant Vice
One Corporate Center President of the Trust since May 1997 and officer of The
Rye, New York 10580-1434 Gabelli Convertible Securities Fund, Inc. Formerly,
Assistant Vice President of Gabelli & Company, Inc. since
1996. Prior to 1996, Mr. Latartara was with the
government relations firm of Black, Manafort, Stone and
Kelly in Washington, D.C. Mr. Latartara is 32 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 is a Director of
the parent company of the Adviser.
(1) Trustee of The Gabelli Asset Fund
(2) Trustee of The Gabelli Blue Chip Value Fund
(3) Director of Gabelli Capital Series Fund, Inc.
(4) Director of The Gabelli Convertible Securities Fund, Inc.
(5) Director of Gabelli Equity Series Funds, Inc.
14
<PAGE> 60
(6) Director of The Gabelli Equity Trust Inc.
(7) Director of The Gabelli Global Multimedia Trust Inc.
(8) Director of Gabelli Global Series Funds, Inc.
(9) Director of Gabelli Gold Fund, Inc.
(10) Trustee of The Gabelli Growth Fund
(11) Director of Gabelli International Growth Fund, Inc.
(12) Director of The Gabelli Investor Funds, Inc.
(13) Trustee of The Gabelli Mathers Fund
(14) Trustee of The Gabelli Money Market Funds
(15) Trustee of The Gabelli Utilities Fund
(16) Trustee of The Gabelli Utility Trust
(17) Director of The Gabelli Value Fund Inc.
(18) Trustee of The Gabelli Westwood Funds
(19) Director of The Treasurer's Fund, Inc.
15
<PAGE> 61
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.
The Fund and the Adviser have adopted a code of ethics (the "Code of
Ethics") under Rule 17J-1 of the 1940 Act. The Code of Ethics permits personnel,
subject to the Code of Ethics and its restrictive provisions, to invest in
securities, including securities that may be purchased or held by the Fund.
REMUNERATION OF DIRECTORS AND OFFICERS
The Fund pays each Director who is not affiliated with the Investment
Adviser or its affiliates a fee of $6,000 per year plus $500 per Directors'
meeting attended and $500 per committee meeting attended in person if held on a
day other than a regularly scheduled Directors' meeting, together with each
Director's actual out-of-pocket expenses relating to attendance at such
meetings. The aggregate remuneration accrued by the Fund during the year ended
December 31, 1999 amounted to $52,776.
The following table shows certain compensation information for the
Directors of the Fund for the year ended December 31, 1999. 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.
<TABLE>
<CAPTION>
AGGREGATE TOTAL
COMPENSATION COMPENSATION FROM
FROM FUND FUND AND FUND
NAME OF DIRECTOR OR OFFICER (FISCAL YEAR) COMPLEX PAID*
--------------------------- ---------------- -----------------
<S> <C> <C>
Mario J. Gabelli....................... $ 0 $ 0(17)
Dr. Thomas E. Bratter.................. $ 10,500 $ 33,750(3)
Felix J. Christiana.................... $ 7,500 $ 99,250(11)
James P. Conn.......................... $ 11,000 $ 53,625(6)
Frank J. Fahrenkopf, Jr................ $ 3,217 $ 26,577(3)
Peter W. Latartara..................... $ 62,500 $ 125,000(2)
Karl Otto Pohl......................... $ 325 $ 7,042(19)
Anthony R. Pustorino................... $ 8,000 $ 107,250(11)
Werner J. Roeder....................... $ 1,234 $ 34,859(11)
Salvatore J. Zizza..................... $ 11,000 $ 58,750(5)+
</TABLE>
---------------
* Represents the total compensation paid to such persons during the calendar
year ended December 31, 1999 by portfolios of investment companies (including
the Fund) from which such person receives compensation that are considered
part of the same fund complex as the Fund because they have common or
affiliated investment advisers. The parenthetical number represents the
number of such investment companies from which such person received
compensation.
+ Includes compensation received from serving as an adviser of The Gabelli
Growth Fund during 1999.
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
16
<PAGE> 62
omission committed in bad faith which is material to the cause of action or,
with respect to any criminal proceeding, if the person had reasonable cause to
believe that the act or omission was unlawful. In addition, indemnification may
not be provided in respect of any proceeding in which the person had been
adjudged to be liable to the Fund.
THE ADVISER
The Adviser is a New York limited liability company which also serves as
an investment adviser to other closed-end investment companies and open-end
investment companies with aggregate assets in excess of $10.6 billion as of
December 31, 1999. The Adviser is a registered investment adviser under the 1940
Act. Mr. Mario J. Gabelli may be deemed a "controlling person" of the Adviser on
the basis of his controlling interest in Gabelli Group Capital Partners, Inc.,
the parent company of Gabelli Asset Management Inc., a New York Stock Exchange
("NYSE")-listed company which owns 100% of the Investment Adviser. The Adviser
has several affiliates that provide investment advisory services: GAMCO
Investors, Inc. ("GAMCO") acts as investment adviser for individuals, pension
trusts, profit-sharing trusts and endowments, and had assets under management of
approximately $9.4 billion under its management as of December 31, 1999; Gabelli
Advisers, Inc. acts as to the Gabelli Westwood Funds with assets under
management of approximately $390 million as of December 31, 1999; Gabelli
Securities, Inc. acts as general partner or investment manager to certain
alternative investments products, consisting primarily of risk arbitrage and
merchant banking limited partnerships and offshore companies, with assets under
management of approximately $230 million as of December 31, 1999; and Gabelli
Fixed Income LLC acts as investment adviser for the three portfolios of The
Treasurer's Fund and separate accounts having assets under management of
approximately $1.4 billion as of December 31, 1999.
Affiliates of the Adviser may, in the ordinary course of their business,
acquire for their own account or for the accounts of their advisory clients,
significant (and possibly controlling) positions in the securities of companies
that may also be suitable for investment by the Fund. The securities in which
the Fund might invest may thereby be limited to some extent. For instance, many
companies in the past several years have adopted so-called "poison pill" or
other defensive measures designed to discourage or prevent the completion of
non-negotiated offers for control of the company. Such defensive measures may
have the effect of limiting the shares of the company which might otherwise be
acquired by the Fund if the affiliates of the Adviser or their Advisory accounts
have or acquire a significant position in the same securities. However, the
Adviser does not believe that the investment activities of its affiliates will
have a material adverse effect upon the Fund in seeking to achieve its
investment objectives. Securities purchased or sold pursuant to contemporaneous
orders entered on behalf of the investment company accounts of the Adviser or
the advisory accounts managed by its affiliates for their unaffiliated clients
are allocated pursuant to principles believed to be fair and not disadvantageous
to any such accounts. In addition, all such orders are generally accorded
priority of execution over orders entered on behalf of accounts in which the
Adviser or its affiliates have a substantial pecuniary interest. The Adviser may
on occasion give advice or take action with respect to other clients that differ
from the actions taken with respect to the Fund. The Fund may invest in the
securities of companies which are investment management clients of GAMCO. In
addition, portfolio companies or their officers or directors may be minority
shareholders of the Adviser or its affiliates.
Pursuant to an 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,
are considered to be an expense of the Fund under its Advisory Agreement.
The Advisory Agreement combines investment advisory and administrative
responsibilities in one agreement. The Adviser has in turn retained PFPC, Inc.,
101 Federal Street, Boston, MA 02110, to act as sub-administrator to the Fund.
See "Management of the Fund -- Sub-Administrator" in the Prospectus.
17
<PAGE> 63
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 initially approved by the Board of Directors
at a meeting held on April 6, 1994 and was approved most recently by the Board
of Directors on May 17, 2000. 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, 1997, December 31, 1998 and
December 31, 1999, the Adviser was paid $1,203,809, $1,519,278 and $2,073,889,
respectively, for advisory and administrative services rendered to the Fund.
FOREIGN CUSTODIAL ARRANGEMENTS
Rules adopted under the 1940 Act permit the Fund to maintain its foreign
securities in the custody of certain eligible foreign banks and securities
depositories. Pursuant to those rules, any foreign securities in the portfolio
of the Fund may be held by subcustodians approved by the Directors of the Fund
in accordance with the regulations of the Commission.
Selection of any such subcustodians will be made by the Directors of the
Fund following a consideration of a number of factors, including but not limited
to the reliability and financial stability of the institution, the ability of
the institution to perform capably custodial services for the Fund, the
reputation of the institution in its national market, the political and economic
stability of the country or countries in which the subcustodians are located,
and risks of potential nationalization or expropriation of assets of the Fund.
In addition, the 1940 Act requires that certain foreign subcustodians, among
other things, have 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
18
<PAGE> 64
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, 1997, December 31, 1998 and
December 31, 1999, the Fund paid a total of $174,208, $138,256, $135,583,
respectively, in brokerage commissions, of which Gabelli & Company received
$48,118, $57,841 and $83,090, respectively. The amount received by Gabelli &
Company, Inc. from the Fund in respect of brokerage commissions for the fiscal
year ended December 31, 1999 represented 61.3% of the aggregate dollar amount
of brokerage commissions paid by the Fund for such period. In addition, for the
fiscal year ended December 31, 1999, the Fund paid brokerage commissions to
Gabelli & Company, Inc. with respect to 56.4% 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
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, 1998 and December 31, 1999 was 44.6% and 43.1%, 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. 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.
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
Under the Fund's Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan (the "Plan"), a shareholder whose shares of the Fund's common
stock, par value $.001 per share (the "Common Stock") is registered in his own
name will have all distributions reinvested automatically by State Street, which
is agent under
19
<PAGE> 65
the Plan, unless the shareholder elects to receive cash. Distributions with
respect to shares registered in the name of a broker-dealer or other nominee
(that is, in "street name") will be reinvested by the broker or nominee in
additional shares under the Plan, unless the service is not provided by the
broker or nominee or the shareholder elects to receive distributions in cash.
Investors who own Common Stock registered in street name should consult their
broker-dealers for details regarding reinvestment. All distributions to
investors who do not participate in the Plan will be paid by check mailed
directly to the record holder by State Street as dividend disbursing agent.
Under the Plan, whenever the market price of the Common Stock is equal
to or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants in the Plan are issued shares of Common Stock,
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Common Stock. The valuation
date is the dividend or distribution payment date or, if that date is not a NYSE
trading day, the next preceding trading day. If the net asset value of the
Common Stock at the time of valuation exceeds the market price of the Common
Stock, participants will receive shares from the Fund, valued at market price.
If the Fund should declare a dividend or capital gains distribution payable only
in cash, State Street will buy the Common Stock for such Plan in the open
market, on the NYSE or elsewhere, for the participants' accounts, except that
State Street will endeavor to terminate purchases in the open market and cause
the Fund to issue shares at net asset value if, following the commencement of
such purchases, the market value of the Common Stock exceeds net asset value.
The automatic reinvestment of dividends and capital gains distributions
will not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Voluntary Cash Purchase Plan is another vehicle for shareholders of
the Fund to increase their investment in the Fund. In order to participate in
the Voluntary Cash Purchase Plan, shareholders must have their shares registered
in their own name and participate in the Dividend Reinvestment Plan.
Participants in the Voluntary Cash Purchase Plan have the option of
making additional cash payments to State Street Bank for investments in the
Fund's shares at the then current market price. Shareholders may send an amount
from $250 to $10,000. State Street Bank will use these funds to purchase shares
in the open market on or about the 1st and 15th of each month. State Street will
charge each shareholder who participates $0.75, plus a pro rata share of the
brokerage commissions. Brokerage charges for such purchases are expected to be
less than the usual brokerage charge for such transactions. It is suggested that
any voluntary cash payments be sent to State Street Bank such that State Street
receives such payments approximately 10 days before the investment date. Funds
not received at least five days before the investment date shall be held for
investment until the next purchase date. A payment may be withdrawn without
charge if notice is received by State Street at least 48 hours before such
payment is to be invested.
State Street maintains all shareholder accounts in the Plan and
furnishes written confirmations of all transactions in the account, including
information needed by shareholders for personal and tax records. Shares in the
account of each Plan participant will be held by State Street in noncertificated
form in the name of the participant. A Plan participant may send its share
certificates to State Street so that the shares represented by such certificates
will be held by State Street in the participant's shareholder account under the
Plan.
In the case of shareholders such as banks, brokers or nominees, which
hold shares for others who are the beneficial owners, State Street will
administer the Plan on the basis of the number of shares certified from time to
time by the shareholder as representing the total amount registered in the
shareholder's name and held for the account of beneficial owners who participate
in the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the Plan members at
least 90 days before the record date for such dividend or distribution. The Plan
also may be amended or terminated by State Street on at
20
<PAGE> 66
least 90 days' written notice to the Plan participants. All correspondence
concerning the Plan should be directed to State Street at P.O. Box 8200, Boston,
Massachusetts 02266-8200.
TAXATION
The following discussion is a brief summary of certain United States
federal income tax considerations affecting the Fund and its shareholders. No
attempt is made to present a detailed explanation of all 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 intends to continue to qualify as a regulated investment
company (a "RIC") under Subchapter M of the Code. If it so qualifies, the Fund
will not be subject to federal income tax on the portion of its net investment
income (i.e., income other than its net realized long-term and short-term
capital gains and on its net realized long-term and short-term capital gains, if
any, which it distributes to its shareholders in each taxable year, provided
that an amount equal to at least 90% of the sum of its investment company
taxable income (i.e., 90% of its taxable income minus the excess, if any, of its
net realized long-term capital gains over its net realized short-term capital
losses (including any capital loss carryovers), plus or minus certain other
adjustments as specified in the Code) and any net tax-exempt income for the
taxable year is distributed to its shareholders, but will be subject to tax at
regular corporate rates on any taxable income or gains that it does not
distribute.
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, securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies and
(b) diversify its holdings so that, at the end of each quarter of each of the
Fund's taxable years, (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 (other
than U.S. government securities or the securities of other RICs) of any one
issuer or any two or more issuers that the Fund controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses.
TAXATION OF THE FUND
If the Fund were unable to satisfy the 90% distribution requirement or
otherwise were to fail to qualify as a RIC in any year, it would be taxed in the
same manner as an ordinary corporation and distributions to the Fund's
shareholders would not be deductible by the Fund in computing its taxable
income. 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 net investment income dividend, its earnings and profits
attributable to non-RIC years reduced by an interest charge 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 with respect to certain of the Fund's assets
(the excess of aggregate gains, including items of income, over aggregate losses
with respect to such assets 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 at least equal to the sum of (1) 98% of its ordinary income for the
calendar year, (2) 98% of its capital gain net income (both long-term and
short-term) 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
21
<PAGE> 67
(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
one year. Gain or loss on the sale of securities held for one year 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 (a
"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 even if such income is distributed as a taxable dividend by the Fund to
its shareholders. 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 federal corporate 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 taxable dividends 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 of the PFIC, even if not distributed
to the Fund, and such amounts would be subject to the 90% and excise tax
distribution requirements described above. 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 or impossible to obtain. Alternatively, the Fund
may be able to elect to mark to market its PFIC stock, resulting in the stock
being treated as sold and repurchased at fair market value on the last business
day of each taxable year. Any resulting gain would be reported as ordinary
income, and any resulting loss would be an ordinary loss that could only be
deducted to the extent of previously recognized gains.
The Fund may invest in debt obligations purchased at a discount, with
the result that the Fund may be required to accrue income for federal income tax
purposes before amounts due under the obligation are paid. The Fund may also
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 federal income taxation, or might prevent the Fund 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 shareholders.
22
<PAGE> 68
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 federal income taxation, or
might prevent the Fund from distributing enough income and capital gain net
income 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 federal income 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-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 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 may 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.
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.
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 foreign taxes. If the Fund makes such an
election, a shareholder 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.
23
<PAGE> 69
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
of the Fund will have a basis in such shares 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 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 within the prior six months 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.
24
<PAGE> 70
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
two-week exposure period.
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET: DISCOUNT FACTOR:
------------------------------- ----------------
<S> <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 Moody's
Short Term Money Market Instruments................................................................ 1.00
Commercial paper rated P-1 by Moody's maturing in 30 days or less..................................... 1.00
Commercial paper rated P-1 by Moody's maturing in more than 30 days but in 270 days or less........... 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days or less....................................... 1.25
Repurchase obligations includible in Moody's Short Term Money Market Instruments if term is
less than 30 days and counterparty is rated at least A2............................................ 1.00
Other repurchase obligations.......................................................................... *
---------
* Discount Factors applicable to underlying assets.
Common stocks.......................................................................................... 3.00
Convertible preferred stocks........................................................................... 3.00
Preferred stocks:
Auction rate preferred stocks......................................................................... 3.50
Other preferred stocks issued by issuers in the financial and industrial industries................... 1.62
Other preferred stocks issued by issuers in the utilities industry.................................... 1.40
U.S. Government Obligations (other than U.S. Treasury Securities Strips set forth below) with
remaining terms of maturity of:
1 year or less..................................................................................... 1.04
2 years or less.................................................................................... 1.09
3 years or less.................................................................................... 1.12
4 years or less.................................................................................... 1.15
5 years or less.................................................................................... 1.18
7 years or less.................................................................................... 1.21
10 years or less................................................................................... 1.24
15 years or less................................................................................... 1.25
20 years or less................................................................................... 1.26
30 years or less................................................................................... 1.26
U.S. Treasury Securities Strips with remaining terms to maturity of:
1 year or less..................................................................................... 1.04
2 years or less.................................................................................... 1.10
3 years or less.................................................................................... 1.14
4 years or less.................................................................................... 1.18
5 years or less.................................................................................... 1.21
7 years or less.................................................................................... 1.27
10 years or less................................................................................... 1.34
15 years or less................................................................................... 1.45
</TABLE>
25
<PAGE> 71
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET: DISCOUNT FACTOR:
------------------------------- ----------------
<S> <C>
20 years or less................................................................................... 1.54
30 years or less................................................................................... 1.66
Corporate evidences of indebtedness:
Corporate evidences of indebtedness rated Aaa3 with remaining terms to maturity of:
1 year or less..................................................................................... 1.10
2 years or less.................................................................................... 1.13
3 years or less.................................................................................... 1.18
4 years or less.................................................................................... 1.21
5 years or less.................................................................................... 1.23
7 years or less.................................................................................... 1.27
10 years or less................................................................................... 1.30
15 years or less................................................................................... 1.31
20 years or less................................................................................... 1.32
30 years or less................................................................................... 1.33
Corporate evidences of indebtedness rated Aa3 with remaining terms to maturity of:
1 year or less..................................................................................... 1.15
2 years or less.................................................................................... 1.20
3 years or less.................................................................................... 1.23
4 years or less.................................................................................... 1.27
5 years or less.................................................................................... 1.29
7 years or less.................................................................................... 1.33
10 years or less................................................................................... 1.36
15 years or less................................................................................... 1.37
20 years or less................................................................................... 1.38
30 years or less................................................................................... 1.39
Corporate evidences of indebtedness rated A3 with remaining terms to maturity of:
1 year or less..................................................................................... 1.20
2 years or less.................................................................................... 1.26
3 years or less.................................................................................... 1.29
4 years or less.................................................................................... 1.33
5 years or less.................................................................................... 1.35
7 years or less.................................................................................... 1.39
10 years or less................................................................................... 1.42
15 years or less................................................................................... 1.43
20 years or less................................................................................... 1.45
30 years or less................................................................................... 1.45
Corporate evidences of indebtedness rated at least Baa3 with remaining terms of maturity of:
1 year or less..................................................................................... 1.25
2 years or less.................................................................................... 1.31
3 years or less.................................................................................... 1.35
4 years or less.................................................................................... 1.38
5 years or less.................................................................................... 1.41
</TABLE>
26
<PAGE> 72
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET: DISCOUNT FACTOR:
------------------------------- ----------------
<S> <C>
7 years or less.................................................................................... 1.45
10 years or less................................................................................... 1.48
15 years or less................................................................................... 1.50
20 years or less................................................................................... 1.51
30 years or less................................................................................... 1.52
Corporate evidences of indebtedness rated at least Ba3 with remaining terms of maturity of:
1 year or less..................................................................................... 1.36
2 years or less.................................................................................... 1.42
3 years or less.................................................................................... 1.46
4 years or less.................................................................................... 1.50
5 years or less.................................................................................... 1.53
7 years or less.................................................................................... 1.57
10 years or less................................................................................... 1.61
15 years or less................................................................................... 1.62
20 years or less................................................................................... 1.64
30 years or less................................................................................... 1.64
Corporate evidences of indebtedness rated at least B1 and B2 with remaining terms of
maturity of:
1 year or less..................................................................................... 1.46
2 years or less.................................................................................... 1.53
3 years or less.................................................................................... 1.57
4 years or less.................................................................................... 1.61
5 years or less.................................................................................... 1.65
7 years or less.................................................................................... 1.70
10 years or less................................................................................... 1.73
15 years or less................................................................................... 1.75
20 years or less................................................................................... 1.76
30 years or less................................................................................... 1.77
Convertible corporate evidences of indebtedness rated with senior debt securities rated Aa3
issued by the following type of issuers:
Utility ........................................................................................... 1.28
Industrial ........................................................................................ 1.75
Financial ......................................................................................... 1.53
Transportation .................................................................................... 2.13
Convertible corporate evidences of indebtedness rated with senior debt securities rated A3
issued by the following type of issuers:
Utility ........................................................................................... 1.33
Industrial ........................................................................................ 1.80
Financial ......................................................................................... 1.58
Transportation .................................................................................... 2.18
Convertible corporate evidences of indebtedness rated with senior debt securities rated Baa3
issued by the following type of issuers:
Utility ........................................................................................... 1.48
</TABLE>
27
<PAGE> 73
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET: DISCOUNT FACTOR:
------------------------------- ----------------
<S> <C>
Industrial ........................................................................................ 1.95
Financial ......................................................................................... 1.73
Transportation .................................................................................... 2.33
Convertible corporate bonds with senior debt securities rated Ba3 issued by
the following type of issuers:
Utility ........................................................................................... 1.49
Industrial ........................................................................................ 1.96
Financial ......................................................................................... 1.74
Transportation .................................................................................... 2.34
Convertible corporate bonds with senior debt securities rated B1 or B2 issued
by the following type of issuers:
Utility ........................................................................................... 1.59
Industrial ........................................................................................ 2.06
Financial ......................................................................................... 1.84
Transportation .................................................................................... 2.44
</TABLE>
NET ASSET VALUE
The net asset value of the Fund's common 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 NYSE 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.
28
<PAGE> 74
GENERAL INFORMATION
COUNSEL AND INDEPENDENT ACCOUNTANTS
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019,
serves as the Fund's Legal counsel.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York 10036, has been selected as independent accountants for the Fund.
BENEFICIAL OWNERS
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 March 6, 2000, the Directors and Officers of the Fund as a group
beneficially owned approximately 3.62% 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, 1999, together with
the report of PricewaterhouseCoopers LLP thereon, are incorporated herein by
reference from the Fund's Annual Report to Shareholders filed with the
Securities and Exchange Commission on March 7, 2000. 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).
29
<PAGE> 75
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
(i) -- Portfolio of Investments as of December 31,
1999(1)
(ii) -- Statement of Assets and Liabilities as of
December 31, 1999(1)
(iii) -- Statement of Operations for the year ended
December 31, 1999(1)
(iv) -- Statement of Changes in Net Assets for the years
ended December 31, 1998 and 1999(1)
(v) -- Financial highlights for a share of capital stock
outstanding throughout the periods ended
December 31, 1995, 1996, 1997, 1998 and 1999(1)
(vi) -- Notes to Financial Statements(1)
(vii) -- Report of Independent Accountants(1)
-----------------
(1) Incorporated by reference to the Fund's Annual Report for 1999, filed on
March 7, 2000 (EDGAR Accession No. 0000935069-00-000128).
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<PAGE> 76
(2) Exhibits
(a) (1) -- Articles of Incorporation(1)
(2) -- Articles Supplementary(2)
(3) -- Certificates of Correction
(b) (1) -- Amended and Restated By-Laws(3)
(2) -- Amendments to By-Laws
(c) -- Not applicable
(d) (1) -- Specimen certificate for Common Stock, par value
$.001 per share(4)
(2) -- Form of Subscription Certificate
(3) -- Form of Notice of Guaranteed Delivery
(4) -- Form of DTC Participant Oversubscription Exercise
Form
(5) -- Form of Nominee Holder Over-Subscription
Certification
(6) -- Form of Subscription, Distribution and Escrow
Agency Agreement(3)
(7) -- Form of Beneficial Owner Certification
(8) -- Form of Subscription Rights Broker Split Requests
(9) -- Form of Certificate and Request for Additional
Rights
(e) -- Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan
(f) -- Not applicable
(g) -- Investment Advisory Agreement between the Fund and
Gabelli Funds, Inc.
(h) -- Not applicable
(i) -- Not applicable
(j) (1) -- Custodial Contract between the Fund and State
Street Bank and Trust Company
(2) -- Custodial Fee Schedule between the Fund and State
Street Bank and Trust Company(3)
(k) (1) -- Registrar, Transfer Agency and Service Agreement
between the Fund and State Street Bank and Trust
Company(3)
(2) -- Transfer Agent and Registrar Services Fee
Agreement between the Fund and State Street Bank
and Trust Company
(l) (1) -- Opinion and consent of Willkie Farr & Gallagher
(2) -- Opinion and consent of Venable, Baetjer and
Howard, LLP
(m) -- Not applicable
(n) -- Consent of PricewaterhouseCoopers LLP
(o) -- Not applicable
(p) -- Purchase Agreement between the Fund and The
Gabelli Equity Trust Inc.(1)
(q) -- Not applicable
(r) -- Code of Ethics
------------------
(1) 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.
(2) Incorporated by reference from the Registrant's Registration Statement
on Form N-2, File Nos. 33-25487 and 811-8476, as filed with the
Securities and Exchange Commission on May 30, 1997.
(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 to the Registrant's Registration Statement on
Form N-2, Exhibit 2(d), File No. 811-8476, as filed with the Securities
Exchange Commission on July 8, 1994.
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<PAGE> 77
ITEM 25. MARKETING ARRANGEMENTS
Not applicable
ITEM 26. OTHER EXPENSES OF ISSUANCE
The following table sets forth the estimated expenses to be incurred in
connection with the Offer described in this Registration Statement:
<TABLE>
<CAPTION>
<S> <C>
Registration fees................................. $ 15,857
--------------
New York Stock Exchange
listing fee....................................... 44,300
--------------
Printing (other than stock
certificates)..................................... 34,000
--------------
Engraving and printing
stock certificates................................ 6,000
--------------
Fees and expenses of
qualification under state securities laws
(including fees of counsel)....................... 10,000
--------------
Auditing fees and expenses........................ 7,500
--------------
Legal fees and expenses........................... 140,000
--------------
Subscription Agent's fees
and expenses...................................... 125,000
--------------
Postage and delivery............................. 64,500
--------------
Miscellaneous..................................... 7,843
--------------
Total $ 455,000
==============
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Common Stock, par value $.001 per share: 38,587 record holders as of
May 17, 2000.
Cumulative Preferred Stock, par value $.001 per share: 1,933 record
holders as of May 17, 2000.
ITEM 29. INDEMNIFICATION
The response of this Item is incorporated by reference to the
caption "Capital Stock and Other Securities -- Limitation of Officers' and
Directors' Liability" set forth in the Prospectus.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to Directors,
officers and controlling persons of the Fund, pursuant to the
C-3
<PAGE> 78
foregoing provisions or otherwise, the Fund has been advised that in the opinion
of the Securities and Exchange Commission (the "SEC") such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Fund of expenses incurred or paid by a Director, officer
or controlling person of the Fund in the successful defense of any action, suit
or proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, the Fund 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 whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Registrant is fulfilling the requirement of this Item 30 to provide a
list of the officers and directors of its investment adviser, together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by that entity or those of its officers and
directors during the past two years, by incorporating by reference the
information contained in the Form ADV filed with the SEC pursuant to the
Investment Advisers Act of 1940 by Gabelli Funds, Inc. (SEC File No.
[801-26202]).
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580
(with respect to its services as Investment Adviser)
State Street Bank and Trust Company
Two Heritage Drive
North Quincy, Massachusetts 02171
(with respect to its services as custodian, transfer agent, dividend
disbursing agent and registrar)
PFPC, Inc.
101 Federal Street
Boston, Massachusetts 02110
(with respect to its services as Sub-Administrator)
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) Registrant undertakes to suspend offering its shares until it
amends its prospectus contained herein if (1) subsequent to the effective date
of its Registration Statement, the net asset value per share declines more than
10 percent from its net asset value per share as of the effective date of this
Registration Statement, or (2) the net asset value per share increases to an
amount greater than its net proceeds as stated in the prospectus contained
herein.
(b) Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Act;
C-4
<PAGE> 79
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
(Section 230.424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
Registration Statement; or
(iii) to include any material information with respect
to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) that, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(c) Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(d) Registrant hereby 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, a Statement of Additional Information.
C-5
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the 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 2nd
day of June, 2000.
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 by the following persons in the
capacities indicated.
SIGNATURE TITLE
--------- -----
* Chairman of the Board, President and
-------------------------- Chief Investment Officer
Mario J. Gabelli
* Director
--------------------------
Thomas E. Bratter
* Director
--------------------------
Felix J. Christiana
* Director
--------------------------
James P. Conn
* Director
--------------------------
Frank J. Fahrenkopf, Jr.
* Director
--------------------------
Karl Otto Pohl
* Director
--------------------------
Anthony R. Pustorino
* Director
--------------------------
Werner Roeder
* Director
--------------------------
Salvatore J. Zizza
/s/ Bruce N. Alpert Treasurer (Principal Financial and
-------------------------- Accounting Officer)
Bruce N. Alpert
* /s/ Bruce N. Alpert
--------------------------
Bruce N. Alpert
as Attorney-In-Fact
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<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
------ ------- ------
<S> <C> <C>
Exhibit A (1) Articles of Incorporation*...................................................
(2) Articles Supplementary*......................................................
(3) Certificates of Correction...................................................
Exhibit B (1) Amended and Restated By-Laws*................................................
(2) Amendments to By-Laws........................................................
Exhibit C Not applicable...................................................................
Exhibit D (1) Specimen Stock Certificate*..................................................
(2) Form of Subscription Certificate.............................................
(3) Form of Notice of Guaranteed Delivery........................................
(4) Form of DTC Participant Oversubscription Exercise Form.......................
(5) Form of Nominee Holder Over-Subscription Certification.......................
(6) Form of Subscription, Distribution and Escrow Agency Agreement*..............
(7) Form of Beneficial Owner Certification.......................................
(8) Form of Subscription Rights Broker Split Requests............................
(9) Form of Certificate and Request for Additional Rights........................
Exhibit E Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan.................
Exhibit F Not applicable...................................................................
Exhibit G Investment Advisory Agreement between the Fund and Gabelli Funds, Inc............
Exhibit H Not applicable...................................................................
Exhibit I Not applicable...................................................................
Exhibit J (1) Custodial Contract between the Fund and State Street Bank and Trust
Company..........................................................................
(2) Custodial Fee Schedule between the Fund and State Street Bank and Trust
Company*.........................................................................
Exhibit K (1) Registrar, Transfer Agency and Service Agreement between the Fund and State
Street Bank and Trust Company*...................................................
(2) Transfer Agent and Registrar Services Fee Agreement between the Fund and
State Street Bank and Trust Company..............................................
Exhibit L (1) Opinion and consent of Willkie Farr & Gallagher..............................
(2) Opinion and consent of Venable, Baetjer and Howard, LLP......................
Exhibit M Not applicable...................................................................
Exhibit N Consent of PricewaterhouseCoopers LLP............................................
Exhibit O Not applicable...................................................................
Exhibit P Purchase Agreement between the Fund and The Gabelli Equity Trust Inc.*...........
Exhibit Q Not applicable...................................................................
Exhibit R Code of Ethics...................................................................
</TABLE>
------------------
* Previously filed.
C-7
