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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
FILE NO. 33-79994
811-8560
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 3 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 5 /X/
(Check appropriate box or boxes)
GABELLI INTERNATIONAL GROWTH FUND, INC.
(Exact Name of Registrant as Specified in Charter)
One Corporate Center, Rye, New York 10580-1434
(Address of Principal Executive Office)
Registrant's Telephone Number (800) 422-3554
Bruce N. Alpert
Gabelli Funds, Inc.
One Corporate Center, Rye, New York 10580-1434
(Name and Address of Agent for Service)
COPIES TO:
James E. McKee, Esq. Daniel Schloendorn, Esq.
Gabelli Funds, Inc. Willkie Farr & Gallagher
One Corporate Center One Citicorp Center
Rye, New York 10580-1434 153 East 53rd Street
New York, New York 10022
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b); or
/X/ on May 1, 1997 pursuant to paragraph (b); or
/ / 60 days after filing pursuant to paragraph (a); or
/ / on (date) pursuant to paragraph (a) of Rule 485.
DECLARATION PURSUANT TO RULE 24F-2
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OR AMOUNT OF SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO SECTION (c)(1) OF RULE 24f-2
UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED. THE RULE 24f-2 NOTICE FOR
THE REGISTRANT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 WAS FILED ON FEBRUARY
28, 1997.
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GABELLI INTERNATIONAL GROWTH FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
ITEM NO. PROSPECTUS HEADING
<S> <C> <C>
1. Cover Page........................................... Cover Page
2. Synopsis............................................. Table of Fees and Expenses for each of the Funds
3. Condensed Financial Information...................... General Information
4. General Description of Registrant.................... Cover Page; Investment Objective and Policies;
Additional Investment Policies and Related Risk
Factors; General Information
5. Management of the Fund............................... Management of the Fund
5(a) Management's Discussion of Performance............... Not Applicable
6. Capital Stock and Other Securities................... Management of the Fund; Dividends, Distributions
and Taxes; General Information
7. Purchase of Securities Being Offered................. Management of the Fund; Distribution Plan;
Purchase of Shares; Retirement Plans
8. Redemption or Repurchase............................. Redemption of Shares
9. Pending Legal Proceedings............................ Not applicable
PART B STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION HEADING
10. Cover Page........................................... Cover Page
11. Table of Contents.................................... Table of Contents
12. General Information and History...................... Notes to Financial Statements; See Prospectus --
"General Information"
13. Investment Objective and Policies.................... Investments; Investment Restrictions; See
Prospectus -- "Investment Objectives and Policies"
and "Additional Investment Policies and Risk Factors"
14. Management of the Fund............................... The Adviser; The Distributor; Directors and Officers;
See Prospectus -- "Management of the Fund"
15. Control Persons and Principal Holders
of Securities........................................ See Prospectus -- "Management of the Fund"
16. Investment Advisory and Other Services............... The Adviser; The Distributor; Directors and Officers;
See Prospectus -- "Management of the Fund"
17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities................... Dividends, Distributions and Taxes; Notes to
Financial Statements; See Prospectus -- "Dividends,
Distributions and Taxes" and "General Information"
19. Purchase, Redemption and Pricing of
Securities Being Offered............................. Purchase and Redemption of Shares
20. Tax Status........................................... Dividends, Distributions and Taxes; See Prospectus
-- "Dividends, Distributions and Taxes"
21. Underwriters......................................... Purchase and Redemption Information; See
Prospectus -- "Management of the Fund"
22. Condensed Financial Information...................... Investment Performance Information
23. Financial Statements................................. Report of Independent Auditors; 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.
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Gabelli International Growth Fund, Inc.
ONE CORPORATE CENTER, RYE, NEW YORK 10580-1434
TELEPHONE: 1-800-GABELLI (1-800-422-3554)
HTTP://WWW.GABELLI.COM
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PROSPECTUS
MAY 1, 1997
Gabelli International Growth Fund, Inc. (the "Fund") is a no-load, open-end,
diversified investment management company which seeks to provide long-term
capital appreciation. The Fund will seek to achieve its objective by investing
primarily in the equity securities of foreign issuers. See "Investment Objective
and Policies."
----------------------
The Fund has a distribution plan which permits it to pay up to .25% per year of
its average daily net assets for marketing and shareholder services and
expenses. Shares of the Fund may be purchased without a sales load at net asset
value. The minimum initial investment in the Fund is currently $1,000. The Fund
will increase its minimum initial investment to $10,000 when it has either
10,000 shareholders or over $100,000,000 of assets under management. See
"Purchase of Shares." For further information, contact Gabelli & Company, Inc.
at the address or telephone number shown above.
----------------------
Part B (also known as the Statement of Additional Information) ("Additional
Statement"), dated May 1, 1997, which may be revised from time to time, provides
a further discussion of certain areas in this Prospectus and other matters which
may be of interest to some investors. It has been filed with the Securities and
Exchange Commission (the "SEC") and is available for reference, along with other
materials on the SEC Internet Web Site (http://www.sec.gov) and is incorporated
herein by reference. For a free copy, write to Gabelli International Growth
Fund, Inc. at One Corporate Center, Rye, New York 10580-1434 or call 1-(800)
GABELLI (1-800-422-3554). Purchase orders and redemption requests may be
directed to the Gabelli Funds at P.O. Box 8308, Boston, Massachusetts
02266-8909.
----------------------
Shares of the Fund are not deposits or obligations of any bank, and are not
insured or guaranteed by any bank, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other agency. An investment in the Fund
involves investment risks, including the possible loss of principal.
----------------------
This Prospectus should be retained by investors for future reference.
----------------------
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF FEES AND EXPENSES FOR THE FUND(a)
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases.......................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends............................................................... None
Deferred Sales Load.............................................................................................. None
Redemption Fees (b).............................................................................................. None
Exchange Fees.................................................................................................... None
ANNUAL FUND OPERATING EXPENSES: (as a percentage of average net assets)
Management Fees.................................................................................................. 1.00%
12b-1 Expenses (c)............................................................................................... 0.25%
Other Expenses (d)............................................................................................... 1.47%
-----
Total Operating Expenses.................................................................................... 2.72%
=====
</TABLE>
<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............................................................................. $27.51 $84.43 $143.97 $305.11
</TABLE>
The information contained in the foregoing table is provided to assist you in
understanding the various direct and indirect costs and expenses that an
investor in the Fund would bear.
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<TABLE>
<S> <C>
(a) The amounts listed in this example should not be considered as representative of future expenses, and actual expenses
may be greater or less than those indicated. Moreover, while the example assumes a 5% annual return, the Fund's actual
performance will vary and may result in an actual return greater or less than 5%. The amounts shown are based on the
annualized expenses incurred during the fiscal year ended December 31, 1996.
(b) Does not include any service fee on wire redemptions that may be imposed by a shareholder's agent or predesignated
bank.
(c) Long-term shareholders may pay more than the economic equivalent of the maximum front-end sales charge permitted by the
rules of the National Association of Securities Dealers, Inc.
(d) Such expenses include custodian and transfer agency fees and other customary Fund expenses.
</TABLE>
FINANCIAL HIGHLIGHTS
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors whose unqualified report therein appears in the Statement
of Additional Information.
Selected data for a share of capital stock outstanding for the following
periods:
<TABLE>
<CAPTION>
JUNE 30, 1995
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
DECEMBER 31, 1996 THROUGH DECEMBER 31, 1995
----------------- ----------------------------
<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period........................... $ 10.98 $10.00
Net investment loss(b)......................................... (0.15) (0.03)
Net realized and unrealized gain on securities................. 2.59 1.01
------- ------
Total from investment operations............................... 2.44 0.98
------- ------
Net Asset Value, End of Period................................. $ 13.42 $10.98
======= ======
Total Return (e)............................................... 22.20% 9.80%
======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....................... $12,815 $2,096
Ratio of operating expenses to average net assets (d).......... 2.72% 2.75%(a)
Ratio of net investment loss to average net assets (d)......... (1.21)% (1.19)%(a)
Portfolio turnover rate........................................ 55% 30%
Average Commission Rate(c)..................................... $ 0.271 --
</TABLE>
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<TABLE>
<C> <S>
(a) Annualized.
(b) Based on average month-end shares outstanding.
(c) For fiscal years beginning on or after September 1, 1995, a Fund is required to disclose its average commission rate
paid per share for purchases and sales of investment securities.
(d) Before reimbursement, the ratios of expenses and net investment loss to average net assets would have been 3.62% and
(2.12%) for 1996 (annualized) and 8.10% and (6.54%) for 1995 (annualized), respectively.
(e) Total return is calculated assuming a purchase of shares at the net asset value on the first day and a sale on the last
day of each year reported and includes reinvestment of dividends and distributions.
</TABLE>
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Management's Discussion and Analysis of the Fund's performance during the year
ended December 31, 1996, is included in the Fund's Annual Report to Shareholders
dated December 31, 1996. The Fund's Annual Report to Shareholders may be
obtained upon request and without charge by writing or calling the Fund at the
address or telephone number listed on the Prospectus cover.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation. The
production of any current income is incidental to this objective. As further
described below, the Fund will seek to achieve its objective by investing
primarily in the equity securities of foreign issuers. There can be no assurance
that the Fund's investment objective will be achieved. The Fund's investment
objective is a fundamental policy which may not be changed without the approval
of a majority of the Fund's outstanding voting securities.
Under normal circumstances, the Fund will invest at least 65% of its total
assets in the equity securities of companies located in at least three countries
outside the United States which the Fund's adviser, Gabelli Funds, Inc. (the
"Adviser"), believes are likely to have rapid growth in revenues and earnings
and potential for above-average capital appreciation. The Adviser will seek
companies that have the potential to grow faster than other companies in their
respective equity markets and are priced at attractive valuation levels. Equity
securities in which the Fund may invest include common stocks, preferred stocks,
securities convertible into common stock and securities having common stock
characteristics, such as rights and warrants.
The percentage of the Fund's assets invested in particular countries or regions
will change from time to time in accordance with the judgment of the Adviser,
which may be based on, among other things, consideration of the political
stability and economic outlook of these countries or regions and prudent
allocation among countries and regions in an effort to reduce volatility in the
Fund's portfolio. The Fund expects to invest in the securities of companies
located in developed countries and, to a lesser extent, those located in
emerging markets. Investing in securities issued by companies located in
emerging markets involves not only the risks discussed below with respect to
investing in foreign securities, but also other risks, including exposure to
economic structures that are generally less diverse and mature and to political
systems that can be expected to have less stability than those of developed
countries. See "Risk Factors and Additional Investment Policies" below.
Subject to the Fund's policy of investing at least 65% of its assets in the
equity securities of foreign companies, the Fund may invest in money market
instruments. In cases of abnormal market or economic conditions, the Fund may
invest up to 100% of its assets in money market instruments for temporary
defensive purposes, although the Fund intends to stay invested in securities
satisfying its investment objective to the fullest extent practicable. Money
market instruments include obligations of the U.S. and foreign governments and
their agencies and instrumentalities, commercial paper including bank
obligations, certificates of deposit (including Eurodollar certificates of
deposit) and repurchase agreements. The Fund intends to invest only in money
market instruments that the Adviser believes to be of high quality, i.e., rated
in one of the two highest categories by Moody's Investor Service, Inc.
("Moody's") or Standard & Poor's Ratings Services ("S&P") or, if unrated,
determined to be equivalent in credit quality by the Adviser. For liquidity
purposes in meeting redemption requests or paying dividends or expenses, the
Fund may also invest its assets in such instruments.
As a diversified investment company, the Fund is subject to the following
limitations as to 75% of its total assets: (a) the Fund may not invest more than
5% of its total assets in the securities of any one issuer, except obligations
of the U.S. gov-
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3
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ernment and its agencies and instrumentalities, and (b) the Fund may not own
more than 10% of the outstanding voting securities of any one issuer.
For hedging purposes only, the Fund may enter into forward foreign currency
exchange transactions, currency swaps, futures contracts and options on futures.
The Fund may also enter into covered call and put options (listed on a U.S.
securities exchange or written in the over-the-counter market), repurchase
agreements, purchase securities on a when-issued or delayed delivery basis and
lend its portfolio securities. For more information on these and other
practices, see "Risk Factors and Additional Investment Policies" below and
"Investments" in the Additional Statement.
Mr. Caesar M.P. Bryan is primarily responsible for the day-to-day management of
the Fund. Mr. Bryan has been a Senior Vice President and Portfolio Manager with
GAMCO Investors, Inc., a wholly-owned subsidiary of the Adviser, and Portfolio
Manager of Gabelli Gold Fund, Inc. since May 1994. Mr. Bryan served as Senior
Vice President and Portfolio Manager of Lexington Management Corporation from
1986 until May 1994.
RISK FACTORS AND ADDITIONAL INVESTMENT POLICIES
GENERAL. Subject to the Fund's policy of investing at least 65% of its total
assets in securities of foreign companies, the Fund may invest in common stocks,
preferred stocks, convertible securities, depositary receipts, bonds, notes and
other debt obligations of any maturity, warrants, options and futures contracts
on securities and securities indices and securities of companies in bankruptcy
or reorganization. Such securities may be issued by domestic or foreign
corporations or other types of entities, governments or agencies or
instrumentalities of governments or supranational agencies. There is no minimum
rating or credit quality of fixed income securities in which the Fund may
invest. Although up to 25% of the Fund's assets may be invested in lower quality
debt securities, the Fund currently does not expect to invest in excess of 5% of
its assets in fixed income securities rated, at the time of investment, lower
than BBB by S&P or Baa by Moody's or unrated but determined by the Adviser to be
of equivalent quality. Securities rated BBB by S&P or Baa by Moody's, while
considered investment-grade, may have speculative characteristics, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade bonds. The Fund also does not expect to invest in excess of 5% of
its assets in securities of unseasoned issuers (companies that have operated
less than three years), which, due to their short operating history, may have
less information available and may not be as liquid as other securities. The
Fund may also utilize other investment strategies such as short selling, buying
or selling when-issued securities, entering into forward commitments and
engaging in various hedging strategies such as the use of futures and options
and foreign currency transactions, including currency swaps.
Common stocks represent the residual ownership interest in an issuer and are
entitled to the income and increase in the value of the assets and business of
the entity after all of its obligations and preferred stock are satisfied.
Common stocks fluctuate in price in response to many factors, including
historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. Preferred stock has a preference over common stock in liquidation
(and generally dividends as well) but is subordinated to the liabilities of the
issuer in all respects. As a general rule the market value of preferred stock
with a fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk, while the market price of convertible
preferred stock generally also reflects some element of conversion value. Bonds,
debentures, notes and money market
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4
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instruments such as commercial paper and bankers acceptances represent
obligations of the issuer. Debt securities that are convertible into or
exchangeable for common or preferred stock are liabilities of the issuer but are
generally subordinated to more senior elements of the issuer's balance sheet.
Although such securities also generally reflect an element of conversion value,
their market value also varies with the interest rates and perceived risk.
Depositary receipts and shares are utilized to make investing in a particular
security (usually foreign) more convenient for investors.
FOREIGN SECURITIES. Investments in foreign securities involve certain risks not
ordinarily associated with investments in securities of domestic issuers,
including fluctuations in foreign exchange rates future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. In addition, with respect to certain
countries, there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability or diplomatic developments which could
adversely affect investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and accounting, auditing and financial reporting standards
and requirements may not be comparable. Securities of many foreign companies are
less liquid and their prices more volatile than securities of comparable U.S.
companies. Transaction costs of investing in non-U.S. securities markets are
generally higher than markets in the U.S. There is generally less government
supervision and regulation of exchanges, brokers and issuers than there is in
the U.S. The Fund might have greater difficulty taking appropriate legal action
in non-U.S. courts. Depositary receipts that are not sponsored by the issuer may
be less liquid, and there may be less readily available information about the
issuer.
Dividend and interest income from non-U.S. securities will generally be subject
to withholding taxes by the country in which the issuer is located and may not
be recoverable by the Fund or the investor.
Such investments in securities of foreign issuers are frequently denominated in
foreign currencies and because the Fund may temporarily hold uninvested reserves
in bank deposits in foreign currencies, the value of the Fund's assets as
measured in U.S. dollars may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies.
The Adviser will attempt to manage these risks so that such strategies and
investments benefit the Fund, but no assurance can be given that they will be
successfully managed.
DERIVATIVE TRANSACTIONS. As stated below, the Fund may invest in options and
warrants, forward foreign currency exchange contracts, currency swaps, futures
contracts and options on futures. Derivative transactions have certain risks,
including imperfect market correlations, dependence on the credit of the
counterparty, possible inability to enter into offsetting transactions and
market fluctuations, that can result in the Fund being in a worse position than
if the transaction had not occurred. The loss from the Fund's investing in
futures and other derivative transactions is potentially unlimited.
SECURITIES SUBJECT TO REORGANIZATION. The Fund may invest in securities for
which a tender or exchange offer has been made or announced and in securities of
companies for which a merger, consolidation, liquidation or reorganization
proposal has been announced if, in the judgment of the Adviser, there is a
reasonable prospect of capital appreciation significantly greater than the
brokerage and other transaction expenses involved. The evaluation of the
contingencies associated with such proposals requires unusually broad knowledge
and experience on the part of the Adviser, which must appraise not only the
value of the issuer and its component businesses as well as the assets or
securities to be received as a result of the contemplated
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5
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transaction but also the financial resources and business motivation of the
offeror and the dynamics and business climate when the offer or proposal is in
process. Since such investments are ordinarily short-term in nature, they will
tend to increase the turnover ratio of the Fund thereby increasing its brokerage
and other transaction expenses as well as make it more difficult for the Fund to
meet the tests for favorable tax treatment as a "Regulated Investment Company"
under the Internal Revenue Code of 1986, as amended (the "Code"). See
"Dividends, Distributions and Taxes."
INVESTMENTS IN OPTIONS, WARRANTS AND INVESTMENT COMPANIES. The Fund may invest
up to 5% of its assets in options and up to 5% of its assets in warrants to buy
securities, with no more than 2% invested in unlisted warrants. The Fund may
also invest up to 10% of its assets (5% per issuer) in securities issued by
other unaffiliated investment companies, although the Fund may not acquire more
than 3% of the voting securities of any investment company. To the extent the
Fund invests in other investment companies, the Fund's shareholders will incur
certain duplicative fees and expenses, including advisory fees.
The purchaser of an option risks a total loss of the premium paid for the option
if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unexercised but
forgoes any capital appreciation in excess of the exercise price in the case of
a call option and may be required to pay a price in excess of current market
value in the case of a put option. Options purchased and sold other than on an
exchange in private transactions also impose on the Fund the credit risk that
the counterparty will fail to honor its obligations.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may enter into forward
commitments for the purchase or sale of securities, including those offered on a
"when-issued" or "delayed delivery" basis. In such transactions, instruments are
bought or sold with payment and delivery taking place in the future in order to
secure what is considered to be an advantageous yield or price at the time of
the transaction. 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.
SHORT SALES. The Fund may make short sales of securities. A short sale is a
transaction in which a 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 5% of the value of its assets or the Fund's
aggregate short sales of a particular class of securities exceeds 5% of the
outstanding securities of that class. Short sales may only be made in securities
listed on a national securities exchange. The Fund may also make short sales
"against the box" without regard 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.
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.
Although the Fund's gain is limited to the price at which it sold the security
short, its potential loss is theoretically unlimited.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements with
respect to any securities it owns. Repurchase agreements are considered loans to
the counterparty, and will be fully collateralized at all times with liquid
securities and will only be entered into with financial institutions approved by
the Board of Directors.
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Repurchase agreements have the risk that collateral may not be able to be
disposed of at a desirable price, delays as a result of bankruptcy of the
counterparty or encumbrances of collateral or restrictions on its disposition.
The term of such agreements is usually from overnight to one week.
LOANS OF SECURITIES AND BORROWINGS. The Fund may also lend securities to
dealers or others and invest the collateral in obligations of the U.S.
government and other liquid securities. Lending of securities can result in a
failure to deliver the original security by the borrower, and similar risks with
respect to disposition of the collateral. Under its current policy, the Fund may
borrow from banks for temporary or emergency purposes or to satisfy redemption
requests in amounts not in excess of 15% of the Fund's total assets, with such
borrowing not to exceed 5% of the Fund's total assets for purposes other than
satisfying redemption requests. The Fund will not purchase securities when
borrowings exceed 5%.
FORWARD CURRENCY EXCHANGE CONTRACTS AND CURRENCY SWAPS. The Fund may enter into
forward currency exchange contracts and currency swaps to protect against the
effects of fluctuating rates of currency exchange and exchange control
regulations. Forward currency exchange contracts provide for the purchase or
sale of an amount of a specified currency at a future date. Currency swaps are
agreements to exchange cash flows based on changes in the values of the
reference currencies. Purposes for which such currency transactions may be used
include protecting against a decline in a foreign currency against the U.S.
dollar between the trade date and settlement date when the Fund purchases or
sells non-U.S. dollar-denominated securities, locking in the U.S. dollar value
of dividends and interest on securities held by the Fund and generally
protecting the U.S. dollar value of securities held by the Fund against exchange
rate fluctuation. While such forward contracts and currency swaps may limit
losses to the Fund as a result of exchange rate fluctuation, they will also
limit any gains that may otherwise have been realized. Currency transactions
include the risk that securities losses could be magnified by changes in the
value of the currency in which a security is denominated relative to the U.S.
dollar.
ILLIQUID AND RESTRICTED SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities as to which market quotations are not readily
available, including repurchase agreements with more than seven days to
maturity. Up to 5% of the Fund's net assets may be invested in the securities of
issuers which, together with any predecessor, have been in continuous operation
for less than three years. Nevertheless, 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.
Disposition of illiquid securities often takes more time than for more liquid
securities, may result in higher selling expenses and may not be able to be made
at desirable prices. See the Additional Statement for more information about
these securities and investment practices.
MANAGEMENT OF THE FUND
The Fund's Board of Directors (who, with its officers, are described in the
Additional Statement) has overall responsibility for the management of the Fund.
The Board of Directors decides upon matters of general policy and reviews the
actions of Gabelli & Company, Inc. (the "Distributor") and the Adviser. Pursuant
to an Investment Advisory Contract with the Fund, the Adviser, under the
supervision of the Fund's Board of Directors, provides a continuous invest-
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ment program for the Fund's portfolio; provides investment research and makes
and executes recommendations for the purchase and sale of securities; provides
facilities and personnel, and the exercise of all voting and other rights
appertaining thereto required for the Fund's administrative management;
supervises the performance of administrative and professional services provided
by others; and pays the compensation of the Administrator and all officers and
directors of the Fund who are its affiliates. As compensation for its services
and the related expenses borne by the Adviser, the Fund pays the Adviser a fee,
computed daily and payable monthly, on an annual basis, of 1.00% of the Fund's
average daily net assets. The Adviser is located at One Corporate Center, Rye,
New York 10580-1434.
The Adviser was formed in 1980 and as of March 31, 1997 acted as investment
adviser to the following funds with aggregate assets of $4.0 billion:
<TABLE>
<CAPTION>
NET ASSETS
3/31/97
OPEN-END FUNDS: (in millions)
- ----------------------------------------- -------------
<S> <C>
Gabelli Asset Fund $1,027.1
Gabelli Growth Fund 612.5
Gabelli Value Fund Inc. 436.8
Gabelli Small Cap Growth Fund 205.3
Gabelli Equity Income Fund 60.1
Gabelli U.S. Treasury Money Market Fund 237.8
Gabelli ABC Fund 22.7
Gabelli Global Telecommunications Fund 99.3
Gabelli Global Interactive Couch
Potato(R) Fund 29.4
Gabelli Global Convertible Securities
Fund 11.4
Gabelli Gold Fund, Inc. 16.9
Gabelli Capital Asset Fund 52.4
Gabelli International Growth Fund, Inc. 17.8
CLOSED-END FUNDS:
Gabelli Equity Trust Inc. 1,006.2
Gabelli Global Multimedia Trust Inc. 91.5
Gabelli Convertible Securities Fund, Inc. 90.1
</TABLE>
Gabelli & Company, Inc., the Distributor of each open-end fund's shares, is an
indirect majority owned subsidiary of the Adviser. GAMCO Investors, Inc.
("GAMCO"), a wholly owned subsidiary of the Adviser, acts as investment adviser
for individuals, pension trusts, profit sharing trusts and endowments. As of
March 31, 1997, GAMCO had aggregate assets in excess of $5 billion under its
management. Teton Advisers LLC, an affiliate of the Adviser, acts as investment
adviser to The Westwood Funds with assets under management in excess of $125
million as of March 31, 1997. Mr. Mario J. Gabelli may be deemed a "controlling
person" of the Adviser and the Distributor on the basis of his ownership of
stock of the Adviser.
In addition to the fee of the Adviser, the Fund is responsible for the payment
of all its other operating expenses, which include, among other things, expenses
for legal and independent auditor services, costs of printing all materials sent
to shareholders, charges of State Street Bank and Trust Company (the
"Custodian", "Transfer Agent" and "Dividend Paying Agent") and any other persons
hired by the Fund, securities registration fees, fees and expenses of
unaffiliated directors, accounting and printing costs for reports and similar
materials sent to shareholders, membership fees in trade organizations, fidelity
bond and liability coverage for the Fund's directors, officers and employees,
interest, brokerage and other trading costs, taxes, expenses of qualifying the
Fund for sale in various jurisdictions, expense of its distribution plan adopted
under Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), expenses of personnel performing shareholder servicing functions,
litigation and other extraordinary or non-recurring expenses and other expenses
properly payable by the Fund.
The Additional Statement contains further information about the Investment
Advisory Contract, including a more complete description of the advisory and
expense arrangements and administrative provisions.
Affiliates of the Adviser may, in the ordinary course of their business, acquire
for their own account or for the accounts of their advisory cli-
- --------------------------------------------------------------------------------
8
<PAGE> 11
- --------------------------------------------------------------------------------
ents, significant (and possibly controlling) positions in the securities of
companies that may also be suitable for investment by the Fund. The Adviser does
not believe that the investment activities of its affiliates will have a
material adverse effect upon the Fund in seeking to achieve its investment
objective.
The Adviser has entered into a Sub-Administration Contract with BISYS Fund
Services L.P. (the "Sub-Administrator") pursuant to which the Sub-Administrator
provides certain administrative services necessary for the Fund's operations.
These services include the preparation and distribution of materials for
meetings of the Fund's Board of Directors, compliance testing of Fund activities
and assistance in the preparation of proxy statements, reports to shareholders
and other documentation. The Adviser pays the Sub-Administrator a monthly fee at
the annual rate of .10% of the average daily net assets of the Gabelli funds
under its administration (with a minimum annual fee of $40,000 per portfolio and
subject to reduction to .075% on assets in excess of $350 million and subject to
further reduction to .06% on assets in excess of $600 million) for such
services, which, together with the services to be rendered, are subject to
negotiation between the parties. Both parties retain the right unilaterally to
terminate the arrangement on not less than 60 days' notice. The Sub-
Administrator has its office at 3435 Stelzer Road, Columbus, Ohio 43219.
DISTRIBUTION PLAN
The Board of Directors of the Fund has approved, on behalf of the Fund as being
in the best interests of the Fund and its shareholders, and the Fund's sole
shareholder has approved, a Distribution Plan which authorizes payments by the
Fund in connection with the distribution of its shares at an annual rate, as
determined from time to time by the Board of Directors, of up to .25% of the
Fund's average daily net assets. Payments may be made in subsequent years for
expenses incurred in prior years. The potential for such subsequent payments is
a contingent liability for which no amount is currently being recorded because
the Fund does not have a reasonable basis on which to conclude that the Board of
Directors will approve such payment. Interest, carrying or other financing
charges on unreimbursed amounts could also be considered a distribution expense
if the Board so determined and would in such event also potentially be subject
to carry over to a future year upon specific approval by the Board.
Payments may be made by the Fund under its Distribution Plan for the purpose of
financing any activity primarily intended to result in the sale of its shares as
determined by the Board of Directors. Such activities typically include
advertising; compensation for sales and marketing activities of the Distributor,
banks, broker-dealers and service providers; shareholder account servicing;
production and dissemination of prospectus and sales and marketing materials;
and capital or other expenses for associated equipment, rent, salaries, bonuses,
interest and other overhead. To the extent any activity is one which the Fund
may finance without its Distribution Plan, the Fund may also make payments to
finance such activity outside of the Plan and not be subject to its limitations.
The Plan has been implemented by written agreements between the Fund and/or the
Distributor and each person (including the Distributor) to which payments may be
made. Administration of the Plan is regulated by Rule 12b-1, which includes
requirements that the Board of Directors receive and review at least quarterly
reports concerning the nature and qualification of expenses for which payments
are made, that the Board of Directors approve all agreements implementing the
Plan and that the Plan may be continued from year to year only if the Board of
Directors concludes at least annually that continuation of each Plan is likely
to benefit shareholders.
The Board of Directors has implemented the Plan by having the Fund enter into an
agreement
- --------------------------------------------------------------------------------
9
<PAGE> 12
- --------------------------------------------------------------------------------
with the Distributor authorizing reimbursement of expenses (including overhead)
incurred by the Distributor and its affiliates up to the .25% rate authorized by
the Plan for distribution activities of the types listed above. To the extent
any of these payments are based on allocations by the Distributor, the Fund may
be considered to be participating in joint distribution activities with other
funds distributed by the Distributor. Any such allocations would be subject to
approval by the Fund's non-interested Directors and would be based on such
factors as the net assets of the Fund, the number of shareholder inquiries and
similar pertinent criteria.
PURCHASE OF SHARES
Shares of the Fund are currently offered without a sales load. The minimum
initial investment in the Fund is currently $1,000. The Fund will increase its
minimum initial investment to $10,000 when it has either 10,000 shareholders or
over $100,000,000 of assets under management. There is no minimum for subsequent
investments in the Fund. Investments through an Individual Retirement Account
("IRA") or other retirement plans, however, have different requirements (see
"Retirement Plans"). Shares of the Fund are sold at the net asset value per
share next determined after receipt of an order by the Fund's Distributor or
transfer agent in proper form with accompanying check or bank wire or other
payment arrangements satisfactory to the Fund. Although most shareholders elect
not to receive stock certificates, certificates for whole shares only can be
obtained on specific written request to the transfer agent.
Shares of the Fund may also be purchased through shareholder agents that are not
affiliated with the Fund or the Distributor. There is no sales or service charge
imposed by the Fund other than as described, but agents who do not receive
distribution payments or sales charges may impose a charge to the investor for
their services. Such fees may vary among agents, and such agents may impose
higher initial or subsequent investment requirements than those established by
the Fund. Services provided by broker-dealers may include allowing the investor
to establish a margin account and to borrow on the value of the Fund's shares in
that account. It is the responsibility of the shareholder's agent to establish
procedures which would assure that upon receipt of an order to purchase shares
of the Fund the order will be transmitted so that it will be received by the
Distributor before the time when the price applicable to the buy order expires.
Prospectuses, sales material and applications may be obtained from the
Distributor. The Fund and its Distributor reserve the right in their sole
discretion (1) to suspend the offering of the Fund's shares and (2) to reject
purchase orders when, in the judgment of the Fund's management, such rejection
is in the best interests of the Fund.
The net asset value per share of the Fund is determined as of the close of the
regular session of the New York Stock Exchange ("NYSE"), which is generally 4:00
p.m., eastern time, on each day that trading is conducted on the NYSE, by
dividing the value of the Fund's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued but
excluding capital stock and surplus) by the number of shares outstanding at the
time the determination is made. Foreign securities are valued as of the close of
trading on the primary exchange on which they trade. Fund securities for which
market quotations are readily available are valued at market value as determined
by the last quoted sale price prior to the valuation time on the valuation date
in the case of securities traded on securities exchanges or other markets for
which such information is available. Other readily marketable securities are
valued at the average of the latest bid and asked quotations for such securities
prior to the valuation time. Debt securities with remaining maturities of 60
days or less are valued at amortized cost, which the Board of Directors believes
represents fair value. Corporate actions by issuers of securities
- --------------------------------------------------------------------------------
10
<PAGE> 13
- --------------------------------------------------------------------------------
held by the Fund, such as the payment of dividends or distributions, are
reflected in the net asset value on the ex-dividend date therefore, except that
they will be so reflected on the date the Fund is actually advised of the
corporate action if subsequent to the ex-dividend date. All other assets are
valued at fair value as determined by or under the supervision of the Board of
Directors.
MAIL. To make an initial purchase by mail, send a completed subscription order
form with a check for the amount of the investment payable to the Fund to:
THE GABELLI FUNDS
P.O. BOX 8308
BOSTON, MA 02266-8308
Subsequent purchases do not require a completed application and can be made by
(1) mailing a check to the address noted above or (2) bank wire, as indicated
below. The exact name and number of the shareholder's account should be clearly
indicated.
Checks will be accepted if drawn in U.S. currency on a domestic bank for less
than $100,000. U.S. dollar checks drawn against a non-U.S. bank may be subject
to collection delays and will be accepted only upon actual receipt of funds by
the Transfer Agent. Bank collection fees may apply. The fund will not accept
checks made payable to a third party.
BANK WIRE. To initially purchase shares of the Fund using the wire system for
transmittal of money among banks, an investor should first telephone the Fund at
1-800-422-3554 to obtain a new account number. The investor should then instruct
a Federal Reserve System member bank to wire funds to:
State Street Bank and Trust Company
ABA # 011-0000-28 REF DDA # 9904-6187
Attn: Shareholder Services
Re: Gabelli International Growth Fund
A/C#
- -----------------------------------------------------------
(Registered Owner)
Account of
- -----------------------------------------------------------
225 Franklin Street, Boston, MA 02110
For initial purchases, the investor should promptly complete and mail the
subscription order form to the address shown above for mail purchases. There may
be a charge by your bank for transmitting the money by bank wire but State
Street Bank and Trust Company does not charge investors in the Fund for the
receipt of wire transfers. If you are planning to wire funds, it is suggested
that you instruct your bank early in the day so the wire transfer can be
accomplished the same day.
OVERNIGHT MAIL OR PERSONAL DELIVERY. Deliver a check made payable to the Fund
in which you wish to invest along with a completed subscription order form to:
THE GABELLI FUNDS
THE BFDS BUILDING, 6TH FLOOR
TWO HERITAGE DRIVE
NORTH QUINCY, MA 02171
TELEPHONE INVESTMENT PLAN. You may purchase additional shares of the Fund by
telephone through the Automated Clearing House (ACH) system as long as your bank
is a member of the ACH system and you have a completed, approved Investment Plan
application on file with our Transfer Agent. The funding for your purchase will
be automatically deducted from the ACH eligible account you designate on the
application. Your investment will normally be credited to your mutual fund
account on the first business day following your telephone request. Your request
must be received no later than 4:00 p.m. eastern time. There is a minimum of
$100 for each telephone investment. Any subsequent changes in banking
information must be submitted in writing and accompanied by a sample voided
check. To initiate an ACH purchase, please call 1-800-GABELLI (1-800-422-3554)
or 1-800-872-5365. Fund shares purchased through the Telephone or Automatic
Investment Plan will not be available for redemption for up to fifteen (15) days
following the purchase date.
AUTOMATIC INVESTMENT PLAN. The Fund offers an automatic monthly investment
plan, details of which can be obtained from the Distributor.
- --------------------------------------------------------------------------------
11
<PAGE> 14
- --------------------------------------------------------------------------------
There is no minimum initial investment for accounts establishing an automatic
investment plan.
OTHER INVESTORS. No minimum initial investment is required for officers,
directors or full-time employees of the Fund, other investment companies managed
by the Adviser, the Adviser, the Administrator, the Transfer Agent, the
Distributor or their affiliates, including members of the "immediate family" of
such individuals and retirement plans and trusts for their benefit. The term
"immediate family" refers to spouses, children and grandchildren (adopted or
natural), parents, grandparents, siblings, a spouse's siblings, a sibling's
spouse and a sibling's children.
REDEMPTION OF SHARES
Upon receipt by the Distributor or the Transfer Agent of a redemption request in
proper form, shares of the Fund will be redeemed at their next determined net
asset value. Redemption requests received after the time as of which the Fund's
net asset value is determined on a particular day will be redeemed at the next
determined net asset value of the Fund. Checks for redemption proceeds will
normally be mailed to the shareholder's address of record within seven days, but
will not be mailed until all checks in payment for the purchase of the shares to
be redeemed have been honored, which may take up to 15 days. Redemption requests
may be made by letter to the Transfer Agent, specifying the name of the Fund,
the dollar amount or number of shares to be redeemed and the account number. The
letter must be signed in exactly the same way the account is registered (if
there is more than one owner of the shares, all must sign) and, if any
certificates for the shares to be redeemed are outstanding, presentation of such
certificates properly endorsed is also required. Signatures on the redemption
request and/or certificates must be guaranteed by an "eligible guarantor
institution," which includes certain banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations (signature guarantees by notaries public are not acceptable).
Shareholders may also redeem the Fund's shares through shareholder agents, who
have made arrangements with the Fund permitting them to redeem shares by
telephone or facsimile transmission and who may charge shareholders a fee for
this service if they have not received any payments under the appropriate
Distribution Plan. It is the responsibility of the shareholder's agent to
establish procedures which would assure that upon receipt of a shareholder's
order to redeem shares of the Fund the order will be transmitted so that it will
be received by the Fund before the time when the price applicable to the order
expires.
Further documentation, such as copies of corporate resolutions and instruments
of authority, are normally requested from corporations, administrators,
executors, personal representatives, trustees or custodians to evidence the
authority of the person or entity making the redemption request.
The Fund may suspend the right of redemption or postpone the date of payment for
more than seven days during any period when (1) trading on the NYSE is
restricted or closed, other than customary weekend and holiday closings; (2) the
SEC has by order permitted such suspension or (3) an emergency, as defined by
rules of the SEC, exists, making disposal of portfolio investments or
determination of the value of the net assets of the Fund not reasonably
practicable.
To minimize expenses, the Fund reserves the right to redeem, upon not less than
30 days' notice, all shares of the Fund in an account (other than an IRA) which
as a result of shareholder redemption has a value below $500. However, a
shareholder will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.
TELEPHONE REDEMPTION BY CHECK. The Fund accepts telephone requests for
redemption of unissued shares, subject to a $25,000 limitation. By calling
1-800-GABELLI (1-800-422-3554) or
- --------------------------------------------------------------------------------
12
<PAGE> 15
- --------------------------------------------------------------------------------
1-800-872-5365, you may request that a check be mailed to the address of record
on the account, provided that the address has not changed within thirty (30)
days prior to your request. The check will be made payable to the person in
whose name the account is registered and will normally be mailed within seven
(7) days.
BY BANK WIRE. The Fund also accepts telephone requests for wire redemption in
excess of $1,000 (but subject to a $25,000 limitation) to a predesignated bank
either on the subscription order form or in a subsequent written authorization
with the signature guaranteed. The Fund accepts signature guaranteed written
requests for redemption by bank wire without limitation. The proceeds are
normally wired on the following business day. Your bank must be either a member
of the Federal Reserve System or have a correspondent bank which is a member.
Any change to the banking information made at a later date must be submitted in
writing with a signature guarantee. The Fund will not impose a wire service fee.
A shareholder's agent or the predesignated bank, however, may impose its own
service fee on wire transfers.
Requests for telephone redemption by check or bank wire must be received between
9:00 a.m. and 4:00 p.m. eastern time. If your telephone call is received after
this time or on a day when the NYSE is not open, the request will be entered for
the following business day. Shares are redeemed at the net asset value next
determined following your request. Fund shares purchased by check or through the
automatic purchase plan will not be available for redemption for up to fifteen
(15) days following the purchase. Shares held in certificate form must be
returned to the Transfer Agent for redemption. Telephone redemption is not
available for IRAs.
The proceeds of a telephone redemption may be directed to an account in another
mutual fund advised by the Adviser, provided the account is registered in the
redeeming shareholder's name. Such purchase will be made at the respective net
asset value plus any applicable sales charges, with credit given for any sales
charges previously paid to the Distributor.
The Fund and its transfer agent will not be liable for following telephone
instructions reasonably believed to be genuine. In this regard, the Fund and its
transfer agent require personal identification information before accepting a
telephone redemption. If the Fund or its transfer agent fails to use reasonable
procedures, the Fund might be liable for losses due to fraudulent instructions.
A shareholder may redeem shares by telephone unless he or she elects on the
subscription order form not to have such ability.
SYSTEMATIC WITHDRAWAL PLAN. The Fund offers a systematic withdrawal program for
shareholders whereby they can authorize an automatic redemption on a monthly,
quarterly or annual basis. Details can be obtained from the Distributor.
RETIREMENT PLANS
The Fund has available a form of IRA for investment which may be obtained from
the Distributor. The minimum investment required to open an IRA for investment
in shares of the Fund is $1,000 for an individual, except that both the
individual and his or her spouse may establish separate IRAs if their combined
investment is $1,250. There is no minimum for additional investment in an IRA.
Investors who are self-employed may purchase shares of the Fund through
tax-deductible contributions to retirement plans for self-employed persons,
known as Keogh or H.R. 10 plans. The Fund does not currently act as a Sponsor
for such plans. The Fund's shares may also be a suitable investment for other
types of qualified pension or salary reduction plans known as "401(k) Plans"
which give participants the right to defer portions of their compensation for
investment on a tax-deferred basis until distributions are made from the plans.
The minimum initial investment for an individual under such plans is $1,000, and
there is no minimum for additional investments.
- --------------------------------------------------------------------------------
13
<PAGE> 16
- --------------------------------------------------------------------------------
Under the Code, individuals may make wholly or partly tax deductible IRA
contributions of up to $2,000 annually, depending on whether they are active
participants in an employer-sponsored retirement plan and on their income level.
However, dividends and distributions held in the account are not taxed until
withdrawn in accordance with the provisions of the Code. An individual with a
non-working spouse may establish a separate IRA for the spouse under the same
conditions and contribute a maximum of $4,000 annually, provided that no more
than $2,000 may be contributed to the IRA of either spouse.
Investors should be aware that they may be subject to penalties or additional
tax on contributions or withdrawals from IRAs or other retirement plans which
are not permitted by the applicable provisions of the Internal Revenue Code.
Persons desiring information concerning investments through IRA accounts or
other retirement plans should write or telephone the Distributor.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each dividend and capital gains distribution, if any, declared by the Fund on
its outstanding shares will, unless the shareholder elects otherwise, be paid on
the payment date fixed by the Board of Directors in additional shares of the
Fund having an aggregate net asset value as of the ex-dividend date of such
dividend or distribution equal to the cash amount of such distribution. An
election to receive dividends and distributions may be changed by notifying the
Fund in writing at any time prior to the record date for a particular dividend
or distribution. There are no sales or other charges in connection with the
reinvestment of dividends and capital gains distributions. There is no fixed
dividend rate, and there can be no assurance that the Fund will pay any
dividends or realize any capital gains. However, the Fund currently intends to
pay dividends and capital gains distributions, if any, on an annual basis.
The Fund has qualified and intends to continue to qualify for tax treatment as a
"Regulated Investment Company" under the Code in order to be relieved of federal
income tax on that part of its net investment income and realized capital gains
which it pays out to its shareholders.
To qualify, the Fund must meet certain relatively complex tests, including the
requirement that less than 30% of its gross income (exclusive of losses) must be
derived from the sale or other disposition of securities held for less than
three months. The loss of such status by the Fund would result in the Fund being
subject to federal income tax on its taxable income and gains.
Dividends out of net investment income and distributions of realized short-term
capital gains are taxable to the recipient shareholders as ordinary income. In
the case of corporate shareholders, such distributions may be eligible for the
dividends-received deduction subject to proportionate reduction if the aggregate
qualifying dividends received by the Fund from domestic corporations in any year
are less than its "gross income" as defined by the Code. Distributions out of
long-term capital gains are taxable to the recipient as long-term capital gains.
Dividends and distributions declared by the Fund may also be subject to state
and local taxes. In addition, because the Fund may have more than 50% of its
total assets invested in securities of foreign corporations, the Fund may be
entitled to "pass-through" to shareholders the amount of foreign taxes paid by
the Fund. Prior to investing in shares of the Fund, prospective shareholders may
wish to consult their tax advisers concerning the federal, state and local tax
consequences of such investment.
GENERAL INFORMATION
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES. The Fund was organized as
a Maryland corporation on May 25, 1994. Its authorized capital stock consists of
1 billion shares of stock having a par value of one tenth of one cent ($.001)
per share. The Fund is not required, and does not intend, to hold regular annual
shareholder meetings, but may hold special meetings
- --------------------------------------------------------------------------------
14
<PAGE> 17
- --------------------------------------------------------------------------------
for consideration of proposals requiring shareholder approval, such as changing
fundamental policies or upon the written request of 10% of the Fund's shares to
replace its Directors. The Fund's Board of Directors is authorized to divide the
unissued shares into separate series of stock, each series representing a
separate, additional portfolio.
There are no conversion or preemptive rights in connection with any shares of
the Fund. All shares, when issued in accordance with the terms of the offering,
will be fully paid and nonassessable. Shares will be redeemed at net asset
value, at the option of the shareholder.
The Fund sends semi-annual and annual reports to all shareholders which include
lists of portfolio securities and the Fund's financial statements, which shall
be audited annually. Unless it is clear that a shareholder is a nominee for the
account of an unrelated person or a shareholder otherwise specifically requests
in writing, the Fund may send a single copy of semi-annual, annual and other
reports to shareholders to all accounts at the same address and all accounts of
any person at that address.
The shares of the Fund have noncumulative voting rights which means that the
holders of more than 50% of the shares can elect 100% of the Directors if the
holders choose to do so, and, in that event, the holders of the remaining shares
will not be able to elect any person or persons to the Board of Directors.
Unless specifically requested by an investor who is a shareholder of record, the
Fund does not issue certificates evidencing shares.
PORTFOLIO TURNOVER. During the fiscal years ended December 31, 1995 and
December 31, 1996, the portfolio turnover rates were 30% and 55%, respectively.
Although the Fund will generally invest for the long-term, investment securities
may be sold from time to time without regard to the length of time they have
been held.
PERFORMANCE INFORMATION. The Fund may furnish data about its investment
performance in advertisements, sales literature and reports to shareholders.
"Total return" represents the annual percentage change in value of $1,000
invested at the maximum public offering price for the one, five and ten year
periods (if applicable) and the life of the Fund through the most recent
calendar quarter, assuming reinvestment of all dividends and distributions. The
Fund may also furnish total return and yield calculations for other periods
and/or based on investments at various net asset values.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. State Street Bank and
Trust Company is the Custodian for the Fund's cash and securities as well as the
Transfer and Dividend Disbursing Agent for its shares. Boston Financial Data
Services, Inc., an affiliate of State Street Bank and Trust Company, performs
the shareholder services on behalf of State Street and is located at The BFDS
Building, Two Heritage Drive, North Quincy, Massachusetts 02171. State Street
Bank and Trust Company does not assist in and is not responsible for investment
decisions involving assets of the Fund.
INFORMATION FOR SHAREHOLDERS. All shareholder inquiries regarding
administrative procedures, including the purchase and redemption of shares,
should be directed to the Distributor, Gabelli & Company, Inc., One Corporate
Center, Rye, New York 10580-1434. For assistance, call 1-800-GABELLI
(1-800-422-3554).
Upon request, Gabelli & Company, Inc. will provide without charge, a paper copy
of this Prospectus to investors or their representatives who received this
Prospectus in an electronic format.
This Prospectus omits certain information contained in the Registration
Statement filed with the SEC. Copies of the Registration Statement, including
items omitted herein, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations. The Statement of Additional
Information included in such Registration Statement may be obtained without
charge from the Fund or its Distributor.
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15
<PAGE> 18
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Table of Fees and Expenses........... 2
Financial Highlights................. 2
Risk Factors and Additional
Investment Policies................ 4
Management of the Fund............... 8
Distribution Plan.................... 9
Purchase of Shares................... 10
Redemption of Shares................. 12
Retirement Plans..................... 13
Dividends, Distributions and Taxes... 14
General Information.................. 15
</TABLE>
- ------------------------------------------------------
No dealer, salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus, the
Statement of Additional Information and in the Fund's official sales literature,
and if given or made, such information and representation may not be relied upon
as authorized by the Fund, its Investment Adviser, Distributor or any affiliate
thereof.
- ------------------------------------------------------
Gabelli
International
Growth
Fund,
Inc.
PROSPECTUS
MAY 1, 1997
GABELLI FUNDS, INC.
INVESTMENT ADVISER
GABELLI & COMPANY, INC.
DISTRIBUTOR
- --------------------------------------------------------------------------------
<PAGE> 19
- --------------------------------------------------------------------------------
Gabelli International Growth Fund, Inc.
ONE CORPORATE CENTER, RYE, NEW YORK 10580-1434
TELEPHONE: 1-800-GABELLI (1-800-422-3554)
HTTP://WWW.GABELLI.COM
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
This Statement of Additional Information ("Additional Statement") relates to
Gabelli International Growth Fund, Inc., a Maryland corporation (the "Fund"),
and is not a prospectus and is only authorized for distribution when preceded or
accompanied by the Fund's prospectus dated May 1, 1997, as supplemented from
time to time (the "Prospectus"). This Statement of Additional Information
contains information in addition to that set forth in the Prospectus into which
this document is incorporated by reference and should be read in conjunction
with the Prospectus. Additional copies of this document may be obtained without
charge by writing or telephoning the Fund at the address and telephone number
set forth above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investments........................................................ B- 2
The Adviser........................................................ B-10
The Distributor.................................................... B-12
Directors and Officers............................................. B-13
Investment Restrictions............................................ B-15
Portfolio Transactions and Brokerage............................... B-16
Purchase and Redemption of Shares.................................. B-17
Dividends, Distributions and Taxes................................. B-18
Investment Performance Information................................. B-20
Counsel and Independent Auditors................................... B-22
Shares of Beneficial Interest...................................... B-22
Appendix -- Description of Ratings................................. B-23
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THE FOLLOWING INFORMATION SUPPLEMENTS THAT IN THE PROSPECTUS.
INVESTMENTS
Subject to the Fund's policy of investing at least 65% of its assets in the
securities of foreign companies, the Fund may invest in any of the securities
described below.
EQUITY SECURITIES
Because the Fund in seeking to achieve its investment objective may invest in
the common stocks of both foreign and domestic issuers, an investment in the
Fund should be made with an understanding of the risks inherent in any
investment in common stocks including the risk that the financial condition of
the issuers of the Fund's portfolio securities may become impaired or that the
general condition of the stock market may worsen (both of which may contribute
directly to a decrease in the value of the securities and thus in the value of
the Fund's shares). Additional risks include risks associated with the right to
receive payments from the issuer which is generally inferior to the rights of
creditors of, or holders of debt obligations or preferred stock issued by, the
issuer.
Moreover, common stocks do not represent an obligation of the issuer and
therefore do not offer any assurance of income or provide the degree of
protection of debt securities. The issuance of debt securities or even preferred
stock by an issuer will create prior claims for payment of principal, interest
and dividends which could adversely affect the ability and inclination of the
issuer to declare or pay dividends on its common stock or the economic interest
of holders of common stock with respect to assets of the issuer upon liquidation
or bankruptcy. Further, unlike the debt securities which typically have a stated
principal amount payable at maturity (which value will be subject to market
fluctuations prior thereto), common stocks have neither a fixed principal amount
nor a maturity and have values which are subject to market fluctuations for as
long as the common stocks remain outstanding. Common stocks are especially
susceptible to general stock market movements and to volatile increases and
decreases in value as market confidence in and perceptions of the issuers
change. These perceptions are based on unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises. The value of the common stocks
in the Fund's portfolio thus may be expected to fluctuate.
Preferred stocks are usually entitled to rights on liquidation which are senior
to those of common stocks. For these reasons, preferred stocks generally entail
less risk than common stocks. Such securities may pay cumulative dividends.
Because the dividend rate is pre-established, and they are senior to common
stocks, such securities tend to have less possibility of capital appreciation.
Some of the securities in the Fund may be in the form of depository receipts.
Depositary receipts usually represent common stock or other equity securities of
non-U.S. issuers deposited with a custodian in a depositary. The underlying
securities are usually withdrawable at any time by surrendering the depository
receipt. Depositary receipts are usually denominated in U.S. dollars and
dividends and other payments from the issuer are converted by the custodian into
U.S. dollars before payment to receipt holders. In other respects depository
receipts for foreign securities have the same characteristics as the underlying
securities. Depositary receipts that are not sponsored by the issuer may be less
liquid and there may be less readily available public information about the
issuer.
SOVEREIGN DEBT SECURITIES
The Fund may invest in securities issued or guaranteed by any country and
denominated in any currency. The Fund expects to invest in the securities of
companies located in developed countries, and to a lesser extent, those located
in emerging markets. Developed markets include Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Luxembourg,
the Nether-
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lands, New Zealand, Norway, Spain, Sweden, Switzerland, the United Kingdom and
the United States. An emerging country is any country which is generally
considered to be an emerging or developing country by the International Bank for
Reconstruction and Development (more commonly referred to as the World Bank) and
the International Finance Corporation, as well as countries that are classified
by the United Nations or otherwise regarded by its authorities as emerging or
developing, at the time of the Fund's investment. The obligations of
governmental entities have various kinds of government support and include
obligations issued or guaranteed by governmental entities with taxing power.
These obligations may or may not be supported by the full faith and credit of a
government. Debt securities issued or guaranteed by foreign governmental
entities have credit characteristics similar to those of domestic debt
securities but include additional risks. These additional risks include those
resulting from devaluation of currencies, future adverse political and economic
developments and other foreign governmental laws.
The Fund may also purchase securities issued by quasi-governmental or
supranational agencies such as the Asian Development Bank, the International
Bank for Reconstruction and Development, the Export-Import Bank and the European
Investment Bank. The governmental members, or "stockholders," usually make
initial capital contributions to the supranational entity and in many cases are
committed to make additional capital contributions if the supranational entity
is unable to repay its borrowings. The Fund will not invest more than 25% of its
assets in the securities of such supranational entities.
The Fund may invest in securities denominated in a multi-national currency unit.
An illustration of a multi-national currency unit is the European Currency Unit
(the "ECU"), which is a "basket" consisting of specified amounts of the
currencies of the member states of the European Community, a Western European
economic cooperative organization that includes France, Germany, the
Netherlands, the United Kingdom and other countries. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. Such investments involve credit risks associated with the issuer and
currency risks associated with the currency in which the obligation is
denominated.
NONCONVERTIBLE FIXED INCOME SECURITIES
The category of fixed income securities which are not convertible or
exchangeable for common stock includes preferred stocks, bonds, debentures,
notes and money market instruments such as commercial paper and bankers
acceptances. There is no minimum credit rating for these securities in which the
Fund may invest. Accordingly, the Fund could invest in securities in default,
although the Fund will not invest more than 5% of its assets in such securities.
Up to 25% of the Fund's assets may be invested in lower-quality debt securities
although the Fund currently does not expect to invest more than 5% of its assets
in such securities. The market values of lower-quality fixed income securities
tend to be less sensitive to changes in prevailing interest rates than
higher-quality securities but more sensitive to individual corporate
developments than higher-quality securities. Such lower-quality securities also
tend to be more sensitive to economic conditions than are higher-quality
securities. Accordingly, these lower-quality securities are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher-quality
categories. Even securities rated Baa or BBB by Moody's Investors Service, Inc.
("Moody's") and Standard and Poor's Ratings Services ("S&P"), respectively,
which ratings are considered investment grade, possess some speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher-grade bonds. See "Appendix -- Description
of Ratings." There are risks involved in applying credit ratings as a method of
evaluating high yield obligations in that credit ratings evaluate the safety of
principal and interest payments, not market value risk. In addition, credit
rating agencies may
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not change credit ratings on a timely basis to reflect changes in economic or
company conditions that affect a security's market value. The Fund will rely on
the judgment, analysis and experience of its adviser, Gabelli Funds, Inc. (the
"Adviser"), in evaluating the creditworthiness of an issuer. In this evaluation,
the Adviser will take into consideration, among other things, the issuer's
financial resources and ability to cover its interest and fixed charges, factors
relating to the issuer's industry and its sensitivity to economic conditions and
trends, its operating history, the quality of the issuer's management and
regulatory matters.
The risk of loss due to default by the issuer is significantly greater for the
holders of lower quality securities because such securities are generally
unsecured and are often subordinated to other obligations of the issuer. During
an economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of lower quality securities may experience financial stress
and may not have sufficient revenues to meet their interest payment obligations.
An issuer's ability to service its debt obligations may also be adversely
affected by specific corporate developments, its inability to meet specific
projected business forecasts, or the unavailability of additional financing.
Factors adversely affecting the market value of high yield and other fixed
income securities will adversely affect the Fund's net asset value. In addition,
the Fund may incur additional expenses to the extent that it is required to seek
recovery upon a default in the payment of principal of or interest on its
portfolio holdings.
From time to time, proposals have been discussed regarding new legislation
designed to limit the use of certain high yield debt securities by issuers in
connection with leveraged buy-outs, mergers and acquisitions, or to limit the
deductibility of interest payments on such securities. Such proposals, if
enacted into law, could reduce the market for such debt securities generally,
could negatively affect the financial condition of issuers of high yield
securities by removing or reducing a source of future financing, and could
negatively affect the value of specific high yield issues and the high yield
market in general. For example, under a provision of the Internal Revenue Code
enacted in 1989, a corporate issuer may be limited from deducting all of the
original issue discount on high-yield discount obligations (i.e., certain types
of debt securities issued at a significant discount to their face amount). The
likelihood of passage of any additional legislation or the effect thereof is
uncertain.
The secondary trading market for lower-quality fixed income securities is
generally not as liquid as the secondary market for higher-quality securities
and is very thin for some securities. The relative lack of an active secondary
market may have an adverse impact on market price and the Fund's ability to
dispose of particular issues when necessary to meet liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The relative lack of an active secondary market
for certain securities may also make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing its portfolio. Market
quotations are generally available on many high yield issues only from a limited
number of dealers and may not necessarily represent firm bids of such dealers or
prices for actual sales. During such times, the responsibility of the Board of
Directors to value the securities becomes more difficult and judgment plays a
greater role in valuation because there is less reliable, objective data
available.
CONVERTIBLE SECURITIES
The Fund may invest up to 25% of its assets in convertible securities rated, at
the time of investment, less than BBB by S&P or Baa by Moody's or unrated but of
equivalent credit quality in the judgment of the Adviser, although the Fund
currently does not expect to invest in excess of 5% of its assets in such
securities.
Some of the convertible securities in the Fund's portfolio may be "Pay-in-Kind"
securities. During a designated period from original issuance, the issuer or
such a security may pay dividends or interest to
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the holder by issuing additional fully paid and nonassessable shares or units of
the same or another specified security.
SECURITIES SUBJECT TO REORGANIZATION
The Fund may invest in securities for which a tender or exchange offer has been
made or announced and in securities of companies for which a merger,
consolidation, liquidation or reorganization proposal has been announced if, in
the judgment of the Adviser, there is a reasonable prospect of capital
appreciation significantly greater than the brokerage and other transaction
expenses involved.
In general, securities which are the subject of such an offer or proposal sell
at a premium to their historic market price immediately prior to the
announcement of the offer or may also discount what the stated or appraised
value of the security would be if the contemplated transaction were approved or
consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by shareholders of the
prospective portfolio company as a result of the contemplated transaction; or
fails adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Adviser, which must appraise not only the value of the issuer and
its component businesses as well as the assets or securities to be received as a
result of the contemplated transaction but also the financial resources and
business motivation of the offeror and the dynamics and business climate when
the offer or proposal is in process. Since such investments are ordinarily
short-term in nature, they will tend to increase the turnover ratio of the Fund
thereby increasing its brokerage and other transaction expenses as well as make
it more difficult for the Fund to meet the tests for favorable tax treatment as
a "Regulated Investment Company" under the Internal Revenue Code of 1986, as
amended (the "Code") (see "Dividends, Distributions and Taxes" in the
Prospectus). The Adviser intends to select investments of the type described
which, in its view, have a reasonable prospect of capital appreciation which is
significant in relation to both risk involved and the potential of available
alternate investments as well as to monitor the effect of such investments on
the tax qualification test of the Code.
OPTIONS
The Fund may purchase or sell options on individual securities as well as on
indices of securities as a means of achieving additional return or of hedging
the value of its portfolio.
A call option is a contract that gives the holder of the option the right, in
return for a premium paid, to buy from the seller the security underlying the
option at a specified exercise price at any time during the term of the option
or, in some cases, only at the end of the term of the option. The seller of the
call option has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price. A put option is a
contract that gives the holder of the option the right in return for a premium
to sell to the seller the underlying security at a specified price. The seller
of the put option, on the other hand, has the obligation to buy the underlying
security upon exercise at the exercise price. The Fund's transactions in options
may be subject to specific segregation requirements. See "Hedging Transactions"
below.
If the Fund has sold 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 sold. There can be no assurance that a
closing purchase transaction can be effected when the Fund so desires.
The purchaser of an option risks a total loss of the premium paid for the option
if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option,
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on the other hand, will recognize the premium as income if the option expires
unrecognized but forgoes any capital appreciation in excess of the exercise
price in the case of a call option and may be required to pay a price in excess
of current market value in the case of a put option. Options purchased and sold
other than on an exchange in private transactions also impose on the Fund the
credit risk that the counterparty will fail to honor its obligations. The Fund
will not purchase options if, as a result, the aggregate cost of all outstanding
options exceeds 5% of the Fund's assets. To the extent that puts, straddles and
similar investment strategies involve instruments regulated by the Commodity
Futures Trading Commission, the Fund is limited to investments not in excess of
5% of its total assets.
WARRANTS AND RIGHTS
The Fund may invest up to 5% of its total assets in warrants or rights (other
than those acquired in units or attached to other securities) which entitle the
holder to buy equity securities at a specific price for or at the end of a
specific period of time.
INVESTMENTS IN INVESTMENT COMPANIES
The Fund may invest up to 10% of its assets (5% per issuer) in securities issued
by other unaffiliated investment companies, although the Fund may not acquire
more than 3% of the voting securities of any investment company.
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 such
transactions, instruments are bought with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous yield or
price at the time of the transaction. In some cases, a forward commitment may be
conditioned upon the occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt restructuring, i.e.,
a when, as and if issued security. When such transactions are negotiated, the
price is fixed at the time of the commitment, with payment and delivery taking
place in the future, generally a month or more after the date of the commitment.
While the Fund will only enter into a forward commitment with the intention of
actually acquiring the security, the Fund may sell the security before the
settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate with its custodian cash or liquid
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 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 liquid securities. The Fund will also be
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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, and
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.
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 5% of the value of its assets
or the Fund's aggregate short sales of a particular class of securities exceeds
5% 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.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest up to a total of 15% of its net assets in securities the
markets for which are illiquid, including repurchase agreements with more than
seven days to maturity. Within this 15% limitation, the Fund may invest up to 5%
of its net assets in the securities of unseasoned issuers. Illiquid securities
include securities the disposition of which is subject to substantial legal or
contractual restrictions. The sale of illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Unseasoned issuers are companies (including
predecessors) that have operated less than three years. The continued liquidity
of such securities is not as well assured as that of publicly traded securities,
and accordingly the Board of Directors will monitor their liquidity. The Board
will review pertinent factors such as trading activity, reliability of price
information and trading patterns of comparable securities in determining whether
to treat any such security as liquid for purposes of the foregoing 15% test. To
the extent the Board treats such securities as liquid, temporary impairments to
trading patterns of such securities may adversely affect the Fund's liquidity.
To the extent it can do so consistent with the foregoing limitations, the Fund
may invest in non-publicly traded securities, including securities that are not
registered under the Securities Act of 1933, as amended, but that can be offered
and sold to qualified institutional buyers under Rule 144A under that Act. The
Board of Directors has adopted guidelines and delegated to the Adviser, subject
to the supervision of the Board of Directors, the daily function of determining
and monitoring the liquidity of Rule 144A securities. Rule 144A securities may
become illiquid if qualified institutional buyers are not interested in
acquiring the securities.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements, which are agreements pursuant to
which securities are acquired by the Fund from a third party with the
understanding that they will be repurchased by the seller at a fixed price on an
agreed date. These agreements may be made with respect to any of the portfolio
securities in which the Fund is authorized to invest. Repurchase agreements may
be character-
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ized as loans secured by the underlying securities. The Fund may enter into
repurchase agreements with (i) member banks of the Federal Reserve System having
total assets in excess of $500 million and (ii) securities dealers, provided
that such banks or dealers meet the creditworthiness standards established by
the Fund's Board of Directors ("Qualified Institutions"). The Adviser will
monitor the continued creditworthiness of Qualified Institutions, subject to the
supervision of the Board of Directors. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. The collateral is
marked to market daily. Such agreements permit the Fund to keep all its assets
earning interest while retaining "overnight" flexibility in pursuit of
investment of a longer-term nature. The following Information supplements that
in the Prospectus.
The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Fund's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Fund may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the Fund's custodian at all
times in an amount at least equal to the repurchase price, including accrued
interest. If the seller fails to repurchase the securities, the Fund may suffer
a loss to the extent proceeds from the sale of the underlying securities are
less than the repurchase price. The Fund will not enter into repurchase
agreements of a duration of more than seven days if, taken together with all
other illiquid securities in the Fund's portfolio, more than 15% of its net
assets would be so invested.
LOANS OF PORTFOLIO SECURITIES
To increase income, the Fund may lend its portfolio securities to securities
broker-dealers or financial institutions if (1) the loan is collateralized in
accordance with applicable regulatory requirements including collateralization
continuously at no less than 100% by marking to market daily, (2) the loan is
subject to termination by the Fund at any time, (3) the Fund receives reasonable
interest or fee payments on the loan, (4) the Fund is able to exercise all
voting rights with respect to the loaned securities and (5) the loan will not
cause the value of all loaned securities to exceed 33 1/3% of the value of the
Fund's assets.
If the borrower fails to maintain the requisite amount of collateral, the loan
automatically terminates and the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over the value of the collateral. As with any extension of credit, there are
risks of delay in recovery and in some cases even loss of rights in collateral
should the borrower of the securities fail financially.
BORROWING
The Fund may not borrow money except for (1) short-term credits from banks as
may be necessary for the clearance of portfolio transactions, and (2) borrowings
from banks for temporary or emergency purposes, including the meeting of
redemption requests, which would otherwise require the untimely disposition of
its portfolio securities. Borrowing may not, in the aggregate, exceed 15% of the
Fund's total assets after giving effect to the borrowing, and borrowing for
purposes other than meeting redemptions may not exceed 5% of the Fund's assets
after giving effect to the borrowing. The Fund will not make additional
investments when borrowings exceed 5% of assets. The Fund may mortgage, pledge
or hypothecate assets to secure such borrowings.
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HEDGING TRANSACTIONS
Futures and Forward Contracts. The Fund may enter into futures and forward
contracts only for certain bona fide hedging and risk management purposes. The
Fund may enter into futures and forward contracts for the purchase or sale of
debt securities, debt instruments, or indices of prices thereof, stock index
futures, other financial indices, and U.S. Government Securities.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities underlying the
contract at a specified price at a specified future time. A "purchase" of a
futures contract (or a "long" futures position) means the assumption of a
contractual obligation to acquire the securities underlying the contract at a
specified price at a specified future time.
Certain futures contracts are settled on a net cash payment basis rather than by
the sale and delivery of the securities underlying the futures contracts. U.S.
futures contracts have been designed by exchanges that have been designated as
"contract markets" by the Commodity Futures Trading Commission, an agency of the
U.S. Government, and must be executed through a futures commission merchant
(i.e., a brokerage firm) which is a member of the relevant contract market.
Futures contracts trade on these contract markets and the exchange's affiliated
clearing organization guarantees performance of the contracts as between the
clearing members of the exchange.
These contracts entail certain risks, including but not limited to the
following: no assurance that futures contracts transactions can be offset at
favorable prices, possible reduction of the Fund's yield 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
fluctuation, imperfect correlation between the contracts and the securities
being hedged, and potential losses in excess of the amount invested in the
futures contracts themselves.
Currency Transactions. The Fund may enter into various currency transactions,
including forward foreign currency contracts, currency swaps, foreign currency
or currency index futures contracts and put and call options on such contracts
or on currencies. A forward foreign currency contract involves an obligation to
purchase or sell a specific currency for a set price at a future date. A
currency swap is an arrangement whereby each party exchanges one currency for
another on a particular day and agrees to reverse the exchange on a later date
at a specific exchange rate. Forward foreign currency contracts and currency
swaps are established in the interbank market conducted directly between
currency traders (usually large commercial banks or other financial
institutions) on behalf of their customers. Futures contracts are similar to
forward contracts except that they are traded on an organized exchange and the
obligations thereunder may be offset by taking an equal but opposite position to
the original contract, with profit or loss determined by the relative prices
between the opening and offsetting positions. The Fund expects to enter into
these currency contracts and swaps in primarily the following circumstances: to
"lock in" the U.S. dollar equivalent price of a security the Fund is
contemplating to buy or sell that is denominated in a non-U.S. currency; or to
protect against a decline against the U.S. dollar of the currency of a
particular country to which the Fund's portfolio has exposure. The Fund
anticipates seeking to achieve the same economic result by utilizing from time
to time for such hedging a currency different from the one of the given
portfolio security as long as, in the view of the Adviser, such currency is
essentially correlated to the currency of the relevant portfolio security based
on historic and expected exchange rate patterns.
The Adviser may choose to use such instruments on behalf of the Fund depending
upon market conditions prevailing and the perceived investment needs of the
Fund. The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively broad and deep as compared to the markets for similar
instruments which are established in the interbank market. In accordance with
the current position of the staff of the Securities
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and Exchange Commission (the "SEC"), the Fund will treat swap transactions as
illiquid for purposes of the Fund's policy regarding illiquid securities.
Futures contracts, interest rate swaps, and options on securities, indices and
futures contracts and certain currency contracts sold by the Fund are generally
subject to segregation and coverage requirements with the result that, if the
Fund does not hold the security or futures contract underlying the instrument,
the Fund will be required to segregate on an ongoing basis with its custodian,
cash, U.S. government securities, or other liquid securities in an amount at
least equal to the Fund's obligations with respect to such instruments. Such
amounts fluctuate as the obligations increase or decrease. The segregation
requirement can result in the Fund maintaining securities positions it would
otherwise liquidate or segregating assets at a time when it might be
disadvantageous to do so.
The Fund expects that its investments in these currency transactions and the
futures and forward contracts described above will be less than 5% of its net
assets.
PORTFOLIO TURNOVER
The investment policies of the Fund may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest or currency exchange
rates. The portfolio turnover may be higher than that of other investment
companies. While it is impossible to predict with certainty the portfolio
turnover, the Adviser expects that the annual turnover rate of the Fund will not
exceed 75%. Portfolio turnover generally involves some expense to the Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Rapid turnover
makes it more difficult to qualify as a pass-through entity for federal tax
purposes in view of a requirement that the Fund obtain less than 30% of its
gross income in any tax year from gains on the sale of securities held less than
three months. Failure of the Fund to qualify as a pass-through entity would
result in federal taxation of the Fund at the standard corporate rate of 34% and
may adversely affect returns to shareholders. The portfolio turnover rate is
computed by dividing the lesser of the amount of the securities purchased or
securities sold by the average monthly value of securities owned during the year
(excluding securities whose maturities at acquisition were one year or less).
THE ADVISER
The Adviser is a New York corporation with principal offices located at One
Corporate Center, Rye, New York 10580-1434.
Pursuant to an Investment Advisory Contract, which was approved by the Fund's
sole shareholder on June 28, 1995, the Adviser furnishes a continuous investment
program for the Fund's portfolio, makes the day-to-day investment decisions for
the Fund, arranges the portfolio transactions for the Fund and generally manages
the Fund's investments in accordance with the stated policies of the Fund,
subject to the general supervision of the Board of Directors of the Fund.
Under the Investment Advisory Contract, the Adviser also (1) provides the Fund
with the services of persons competent to perform such supervisory,
administrative, and clerical functions as are necessary to provide efficient
administration of the Fund, including maintaining certain books and records and
overseeing the activities of the Fund's Custodian and Transfer Agent; (2)
oversees the performance of administrative and professional services provided to
the Fund by others, including the Fund's Custodian, Transfer Agent and Dividend
Disbursing Agent, as well as legal, accounting, auditing and other services
performed for the Fund; (3) provides the Fund, if requested, with adequate
office space and facilities; (4) prepares, but does not pay for, periodic
updating of the Fund's registration statement, Prospectus and Statement of
Additional Information, including the printing of such documents for the purpose
of filings with the SEC; (5) supervises the calculation of the net asset value
of shares of the Fund; (6) prepares, but does not pay for, all filings under
state "Blue Sky" laws of such states or
- --------------------------------------------------------------------------------
B-10
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countries as are designated by the Distributor, which may be required to
register or qualify, or continue the registration or qualification of, the Fund
and/or its shares under such laws; and (7) prepares notices and agendas for
meetings of the Fund's Board of Directors and minutes of such meetings in all
matters required by the Investment Company Act of 1940, as amended (the "1940
Act") to be acted upon by the Board.
The Adviser has entered into a Sub-Administration Contract with BISYS Fund
Services L.P. (the "Sub-Administrator") pursuant to which the Sub-Administrator
provides certain administrative services necessary for the Fund's operations but
which do not concern the investment advisory and portfolio management services
provided by the Adviser. For such services and the related expenses borne by the
Sub-Administrator, the Adviser pays a monthly fee at the annual rate of .10% of
the average daily net assets of the Gabelli funds under its administration (with
a minimum annual fee of $40,000 per portfolio and subject to reduction to .075%
on assets in excess of $350 million and subject to further reduction to .06% on
assets in excess of $600 million) which, together with the services to be
rendered, is subject to negotiation between the parties and both parties retain
the right unilaterally to terminate the arrangement on not less than 60 days'
notice. The Sub-Administrator's address is 3435 Stelzer Road, Columbus, Ohio
43219.
The Investment Advisory Contract provides that absent willful misfeasance, bad
faith, gross negligence or reckless disregard of its duty, the Adviser and its
employees, officers, directors and controlling persons are not liable to the
Fund or any of its investors for any act or omission by the Adviser or for any
error of judgment or for losses sustained by the Fund. However, the Contract
provides that the Fund is not waiving any rights it may have with respect to any
violation of law which cannot be waived. The Contract also provides
indemnification for the Adviser and each of these persons for any conduct for
which they are not liable to the Fund. The Investment Advisory Contract in no
way restricts the Adviser from acting as adviser to others. The Fund has agreed
by the terms of its Investment Advisory Contract that the word "Gabelli" in its
name is derived from the name of the Adviser which in turn is derived from the
name of Mario J. Gabelli; that such name is the property of the Adviser for
copyright and/or other purposes; and that, therefore, such name may freely be
used by the Adviser for other investment companies, entities or products. The
Fund has further agreed that in the event that for any reason the Adviser ceases
to be its investment adviser, it will, unless the Adviser otherwise consents in
writing, promptly take all steps necessary to change its name to one which does
not include "Gabelli."
The Investment Advisory Contract is terminable without penalty by the Fund on
not more than 60 days' written notice when authorized by the Directors of the
Fund, by the holders of a majority, as defined in the 1940 Act, of the
outstanding shares of the Fund, or by the Adviser. The Investment Advisory
Contract will automatically terminate in the event of its assignment, as defined
in the 1940 Act and rules thereunder, except to the extent otherwise provided by
order of the SEC or any rule under the 1940 Act and except to the extent the
1940 Act no longer provides for automatic termination, in which case the
approval of a majority of the disinterested directors is required for any
"assignment." The Investment Advisory Contract provides that unless terminated
it will remain in effect until June 28, 1997, and from year to year thereafter,
so long as continuance of the Investment Advisory Contract is approved annually
by the Directors, or the shareholders of the Fund and in either case, by a
majority vote of the Directors who are not parties to the Investment Advisory
Contract or "interested persons" as defined in the 1940 Act of any such person
cast in person at a meeting called specifically for the purpose of voting on the
continuance of the Investment Advisory Contract.
For the fiscal years ended December 31, 1995 and 1996, the Adviser earned fees
of $6,204 and $65,095, respectively. Notwithstanding, the Adviser waived fees
and reimbursed expenses of the Fund in the amounts of $33,368 and $59,249 for
1995 and 1996, respectively. For purposes of this expense limitation the Fund's
expenses are accrued monthly, and the monthly fee otherwise payable to the
- --------------------------------------------------------------------------------
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Adviser is postponed to the extent that the Fund's includable expenses to date
exceed the proportionate amount of such limitation to date.
THE DISTRIBUTOR
The Fund has entered into a Distribution Agreement with Gabelli & Company, Inc.
(the "Distributor"), a New York corporation which is a subsidiary of Gabelli
Funds, Inc., having principal offices located at One Corporate Center, Rye, New
York 10580-1434. The Distributor acts as agent of the Fund for the continuous
offering of its shares on a best efforts basis.
The Distribution Agreement is terminable by the Distributor or the Fund at any
time without penalty on not more than 60 nor less than 30 days' written notice,
provided that termination by the Fund must be directed or approved by the Board
of Directors of the Fund, by the vote of the holders of a majority of the
outstanding securities of the Fund, or by written consent of a majority of the
directors who are not interested persons of the Fund or the Distributor. The
Distribution Agreement will automatically terminate in the event of its
assignment, as defined in the 1940 Act. The Distribution Agreement provides
that, unless terminated, it will remain in effect until June 28, 1997 and from
year to year thereafter, so long as continuance of the Distribution Agreement is
approved annually by the Fund's Board of Directors or by a majority of the
outstanding voting securities of the Fund, and in either case, also by a
majority of the Directors who are not interested persons of the Fund or the
Distributor.
During the fiscal year ended December 31, 1996, the Distributor paid
distribution expenses under the Distribution Plan of $108,600. Of this amount
$28,600 was spent on printing, postage and stationery, $30,000 on overhead
support expenses and $50,000 on salaries of personnel of the Distributor.
Pursuant to the Distribution Plan, the Fund paid the Distributor $16,300, or
.25% of its average net assets.
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DIRECTORS AND OFFICERS
The Directors and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Adviser or the Administrator, are shown below. Directors deemed to be
"interested persons" of the Fund for purposes of the 1940 Act are indicated by
an asterisk.
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND AND PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS;
ADDRESS AFFILIATIONS WITH THE ADVISER OR ADMINISTRATOR
- --------------------------------- ----------------------------------------------------------
<S> <C>
Mario J. Gabelli *............... Chairman, President, Chief Executive Officer and a
Chairman of the Board Director of Gabelli Funds, Inc., the Adviser and the
One Corporate Center indirect parent of Gabelli & Company, Inc., the
Rye, New York 10580 Distributor; Chief Investment Officer of GAMCO Investors,
Age: 54 Inc.; President and Chairman of The Gabelli Equity Trust
Inc. and Gabelli Global Multimedia Trust Inc.; Director of
Gabelli Investor Funds, Inc., Gabelli Equity Series Funds,
Inc., The Gabelli Convertible Securities Fund, Inc.,
Gabelli Global Series Funds, Inc., The Gabelli Capital
Series Funds, Inc., The Gabelli Value Fund Inc. and The
Treasurer's Fund, Inc.; Trustee of The Gabelli Asset Fund,
The Gabelli Growth Fund, The Gabelli Money Market Funds;
Chairman and Director of Gabelli Gold Fund, Inc. and Lynch
Corporation; Director and Adviser of Gabelli International
Ltd.
Caesar M.P. Bryan*............... Senior Vice President of GAMCO Investors, Inc., a
President wholly-owned subsidiary of the Adviser, since May 1994 and
One Corporate Center President of Gabelli Gold Fund, Inc. Formerly Senior Vice
Rye, New York 10580 President and Portfolio Manager of Lexington Management
Age: 42 Corporation (until May 1994).
Anthony J. Colavita.............. President and Attorney at Law in the law firm of Anthony
Director J. Colavita, P.C.; Director of Gabelli Capital Series
575 White Plains Road Funds, Inc., Gabelli Equity Series Funds, Inc., Gabelli
Eastchester, New York 10709 Global Series Funds, Inc., Gabelli Gold Fund, Inc.,
Age: 62 Gabelli Investor Funds, Inc., The Gabelli Value Fund Inc.
and The Gabelli Convertible Securities Fund, Inc.; Trustee
of The Gabelli Asset Fund, The Gabelli Money Market Funds,
The Gabelli Growth Fund and The Westwood Funds.
Karl Otto Pohl*.................. Partner of Sal Oppenheim Jr. & Cie. (private investment
Director bank); Former President of the Deutsche Bundesbank
One Corporate Center (Germany's Central Bank) and Chairman of its Central Bank
Rye, New York 10580 Council (1980-1991); Currently board member of IBM World
Age: 67 Trade Europe/Middle East/Africa Corp.; Bertlesmann AG;
Zurich Versicherungs-Gesellshaft (insurance); the
International Advisory Board of General Electric Company;
the International Council for JP Morgan & Co.; the Board
of Supervisory Directors of ROBECo/o Group; and the
Supervisory Board of Royal Dutch (petroleum company);
Advisory Director of Unilever N.V. and Unilever
Deutschland; German Governor, International Monetary Fund
(1980-1991); Board Member, Bank for International
Settlements (1980-1991); Director/Trustee of all Funds
managed by the Adviser and The Treasurer's Fund, Inc.
</TABLE>
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B-13
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<TABLE>
<CAPTION>
NAME, POSITION WITH FUND AND PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS;
ADDRESS AFFILIATIONS WITH THE ADVISER OR ADMINISTRATOR
- --------------------------------- ----------------------------------------------------------
<S> <C>
Werner Roeder, M.D............... Director of Surgery, Lawrence Hospital and practicing
Director private physician. Director, The Gabelli Capital Series
One Corporate Center Funds, Inc., Gabelli Gold Fund, Inc., Gabelli Investor
Rye, New York 10580 Funds, Inc. and Gabelli Global Series Funds, Inc.; Trustee
Age: 56 of The Westwood Funds.
Anthonie C. van Ekris............ Managing Director, Balmac International. Director of
Director Stahal Hardmayer A.Z. (through present). Trustee of The
LeColumbia Gabelli Asset Fund, The Gabelli Growth Fund and The
11 Blvd. Princess Grace Gabelli Money Market Funds. Director, Gabelli Capital
Monaco, MC 98000 Series Funds, Inc., Gabelli Equity Series Funds, Inc.,
Age: 63 Gabelli Gold Fund, Inc., Gabelli Convertible Securities
Fund, Inc. and Gabelli Global Series Funds, Inc.
Bruce N. Alpert.................. Vice President and Chief Operating Officer of the
Vice President and Treasurer investment advisory division of the Adviser; President and
One Corporate Center Treasurer of The Gabelli Asset Fund and The Gabelli Growth
Rye, New York 10580 Fund; Vice President and Treasurer of Gabelli Capital
Age: 45 Series Funds, Inc., Gabelli Equity Series Funds, Inc., The
Gabelli Equity Trust Inc., The Gabelli Money Market Funds,
The Gabelli Value Fund Inc., Gabelli Investor Funds, Inc.,
Gabelli Global Series Funds, Inc. and The Gabelli
Convertible Securities Fund, Inc.; Vice President of The
Westwood Funds since November 1994. Manager of Teton
Advisers LLC.
James E. McKee................... Vice President and General Counsel of the Adviser;
Secretary Secretary of all Funds managed by the Adviser; Secretary
One Corporate Center of The Westwood Funds. Vice President and General Counsel
Rye, New York 10580 of GAMCO Investors, Inc. since 1993. Formerly Branch Chief
Age: 33 with the U.S. SEC in New York 1992 through 1993. Staff
attorney with the SEC in New York from 1989 through 1992.
</TABLE>
The Fund pays each Director who is not an employee of the Adviser or an
affiliated company an annual fee of $1,000 and $250 for each meeting of the
Board of Directors attended by the Director, and reimburses Directors for
certain travel and other out-of-pocket expenses incurred by them in connection
with attending such meetings. Directors and officers of the Fund who are
employed by the Adviser or an affiliated company receive no compensation or
expense reimbursement from the Fund.
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The following table sets forth certain information regarding the compensation of
the Fund's directors and officers. Except as disclosed below, no executive
officer or person affiliated with the Fund received compensation from the Fund
for the calendar year ended December 31, 1996 in excess of $60,000.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM THE FUND
NAME OF PERSON COMPENSATION AND FUND COMPLEX
POSITION FROM THE FUND PAID TO DIRECTORS*
- ----------------------------------------------------------- ------------- ------------------
<S> <C> <C>
Mario J. Gabelli........................................... 0 0
Chairman of the Board
Anthony J. Colavita........................................ $2,000 $70,000(14)
Director
Karl Otto Pohl............................................. $1,750 $77,750(16)
Director
Werner J. Roeder, M.D...................................... $2,000 $14,500(7)
Director
Anthonie C. van Ekris...................................... $2,000 $49,000(12)
Director
</TABLE>
- ---------------
* Represents the total compensation paid to such persons during the calendar
year ended December 31, 1996 (and, with respect to the Fund, estimated to be
paid during a full calendar year). The parenthetical number represents the
number of investment companies (including the Fund) from which such person
receives compensation that are considered part of the same fund complex as the
Fund, because, among other things, they have a common investment adviser.
INVESTMENT RESTRICTIONS
The Fund's investment objective and the following investment restrictions are
fundamental and cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities (defined in the Act as the
lesser of (a) more than 50% of the outstanding shares or (b) 67% or more of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented). All other investment policies or practices are considered by
the Fund not to be fundamental and accordingly may be changed without
stockholder approval. If a percentage restriction on investment or use of assets
set forth below is adhered to at the time a transaction is effected, later
changes in percentage resulting from changing market values or total assets of
the Fund will not be considered a deviation from policy. The Fund may not:
(1) invest in more than 25% of the value of its total assets in any
particular industry (this restriction does not apply to obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities);
(2) issue senior securities, except that the Fund may borrow money from
a bank, including on margin if margin securities are owned, in an
amount up to 33 1/3% of its total assets (including the amount of
such enumerated senior securities issued but excluding any
liabilities and indebtedness not constituting senior securities) and
except that the Fund may borrow up to an additional 5% of its total
assets for temporary purposes; or pledge its assets other than to
secure such issuances or in connection with hedging transactions,
short sales, when-issued and forward commitment transactions and
similar investment strategies;
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(3) make loans of money or property to any person, except through loans
of portfolio securities, the purchase of fixed income securities or
the acquisition of securities subject to repurchase agreements;
(4) underwrite the securities of other issuers, except to the extent
that in connection with the disposition of portfolio securities or
the sale of its own shares the Fund may be deemed to be an
underwriter;
(5) invest for the purpose of exercising control over management of any
company;
(6) purchase real estate or interests therein, including limited
partnerships that invest primarily in real estate equity interests,
other than publicly traded real estate investment trusts and
publicly traded master limited partnership interests; or
(7) purchase or sell commodities or commodity contracts except for
certain bona fide hedging, yield enhancement and risk management
purposes or invest in any oil, gas or mineral leases.
In addition, as a diversified investment company, the Fund is subject to the
following limitations as to 75% of its total assets: (a) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government and its agencies and instrumentalities, and
(b) the Fund may not own more than 10% of the outstanding voting securities of
any one issuer.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is authorized on behalf of the Fund to employ brokers to effect the
purchase or sale of portfolio securities with the objective of obtaining prompt,
efficient and reliable execution and clearance of such transactions at the most
favorable price obtainable ("best execution") at reasonable expense.
Transactions in securities other than those for which a securities exchange is
the principal market are generally done through a principal market maker.
However, such transactions may be effected through a brokerage firm and a
commission paid whenever it appears that a broker can obtain a more favorable
overall price. In general, there may be no stated commission in the case of
securities traded on the over-the-counter markets, but the prices of those
securities may include undisclosed commissions or markups. Options transaction
will usually be effected through a broker and a commission will be charged. The
Fund also expects that securities will be purchased at times in underwritten
offerings where the price includes a fixed amount of compensation generally
referred to as the underwriter's concession or discount.
The Adviser currently serves as Adviser to a number of investment company
clients and may in the future act as adviser to others. Affiliates of the
Adviser act as investment adviser to numerous private accounts. It is the
practice of the Adviser and its affiliates to cause purchase and sale
transactions to be allocated among the Fund and others whose assets they manage
in such manner as it deems equitable. In making such allocations among the Fund
and other client accounts, the main factors considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities and options
for its portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient execution of transactions. In seeking to
implement the Fund's policies, the Adviser effects transactions with those
brokers and dealers who the Adviser believes provide the most favorable prices
and are capable of providing efficient executions. If the Adviser believes such
price and execution are obtainable from more than one broker or dealer, it may
give consideration to placing portfolio transactions with those brokers
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and dealers who also furnish research and other services to the Fund or the
Adviser of the type described in Section 28(e) of the Securities Exchange Act of
1934. In doing so, the Fund may also pay higher commission rates than the lowest
available when the Adviser believes it is reasonable to do so in light of the
value of the brokerage and research services provided by the broker effecting
the transaction. Such services may include, but are not limited to, any one or
more of the following: information as to the availability of securities for
purchase or sale; statistical or factual information or opinions pertaining to
investment; wire services; and appraisals or evaluations of portfolio
securities.
The Adviser may also place orders for the purchase or sale of portfolio
securities with Gabelli & Company, Inc. ("Gabelli"), a broker-dealer member of
the National Association of Securities Dealers, Inc. and an affiliate of the
Adviser, when it appears that, as an introducing broker or otherwise, Gabelli
can obtain a price and execution which is at least as favorable as that
obtainable by other qualified brokers. The Adviser may also consider sales of
shares of the Fund and any other registered investment companies managed by the
Adviser and its affiliates by brokers and dealers other than the Distributor as
a factor in its selection of brokers and dealers to execute portfolio
transactions for the Fund.
The following table sets forth certain information regarding the brokerage
commissions paid and the brokerage commissions paid to Gabelli affiliates for
the period from July 6, 1995 (commencement of operations) through December 31,
1995, and the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
TOTAL BROKERAGE BROKERAGE COMMISSIONS
PERIOD COMMISSIONS PAID PAID TO GABELLI AFFILIATES
--------------------------------------------- ---------------- --------------------------
<S> <C> <C>
1995......................................... $ 10,161 $ 0
1996......................................... $ 76,850 $ 25
</TABLE>
As required by Rule 17e-1 under the 1940 Act, the Board of Directors of the Fund
has adopted "Procedures" which provide that the commissions paid to Gabelli on
stock exchange transactions may not exceed that which would have been charged by
another qualified broker or member firm able to effect the same or a comparable
transaction at an equally favorable price. Rule 17e-1 and the Procedures contain
requirements that the Board, including independent Directors, conduct periodic
compliance reviews of such brokerage allocations and review such schedule at
least annually for its continuing compliance with the foregoing standard. The
Adviser and Gabelli are also required to furnish reports and maintain records in
connection with such reviews.
To obtain the best execution of portfolio trades on the New York Stock Exchange
("NYSE"), Gabelli controls and monitors the execution of such transactions on
the floor of the NYSE through independent "floor brokers" or through the
Designated Order Turnaround ("DOT") System of the NYSE. Such transactions are
then cleared, confirmed to the Fund for the account of Gabelli, and settled
directly with the Custodian of the Fund by a clearing house member firm which
remits the commission less its clearing charges to Gabelli. Gabelli may also
effect portfolio transactions on behalf of the Fund in the same manner and
pursuant to the same arrangements on other national securities exchanges which
adopt direct access rules similar to those of the NYSE.
PURCHASE AND REDEMPTION OF SHARES
Cancellation of purchase orders for shares of the Fund (as, for example, when
checks submitted to purchase shares are returned unpaid) cause a loss to be
incurred when the net asset value of the Fund's shares on the date of
cancellation is less than on the original date of purchase. The investor is
responsible for such loss, and the Fund may redeem shares from any account
registered in that shareholder's name, or by seeking other redress. If the Fund
is unable to recover any loss to itself, it is the position of the SEC that the
Distributor will be immediately obligated to make the Fund whole.
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To minimize expenses, the Fund reserves the right to redeem, upon not less than
30 days' notice, all shares of the Fund in an account (other than an Individual
Retirement Account ("IRA")) which as a result of shareholder redemption has a
value below $500 and has reserved the ability to raise this amount to up to
$10,000. However, a shareholder will be allowed to make additional investments
prior to the date fixed for redemption to avoid liquidation of the account.
DIVIDENDS, DISTRIBUTIONS AND TAXES
GENERAL
The Fund will determine either to distribute or to retain all or part of any net
long-term capital gains in any year for reinvestment. 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 that it will 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 the 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 the credit exceeds such liability,
and (3) will increase its basis in its shares of the Fund by an amount equal to
65% of the amount of undistributed capital gains included in such shareholder's
gross income.
Under the Code, amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To avoid the tax, the Fund must distribute during each calendar year, an
amount equal to, at the minimum, the sum of (1) 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) 98%
of its capital gains in excess of its capital losses for the twelve-month period
ending on October 31 of the calendar year (unless an election is made by the
Fund with a November or December year-end to use the Fund's fiscal year), and
(3) all ordinary income and net capital gains for previous years that were not
previously distributed. A distribution will be treated as paid during the
calendar year if it is paid during the calendar year or declared by the Fund in
October, November or December of the year, payable to shareholders of record on
a date during such month and paid by the Fund during January of the following
year. Any such distributions paid during January of the following year will be
deemed to be received on December 31 of the year the distributions are declared,
rather than when the distributions are received.
Gains or losses on the sales of securities by the Fund will be long-term capital
gains or losses if the securities have been held by the Fund for more than
twelve months. Gains or losses on the sale of securities held for twelve months
or less will be short-term capital gains or losses.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. If so qualified, the Fund
will not be subject to federal income tax on its net investment income and net
short-term capital gains, if any, realized during any fiscal year in which it
distributes such income and capital gains to its shareholders.
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.
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the
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- --------------------------------------------------------------------------------
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 a part of a straddle. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences of
hedging transactions to the Fund are not entirely clear.
The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections accelerate
the recognition of gains or losses from the affected straddle positions. Because
application of the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, and require the capitalization of interest expense,
the amount which must be distributed to shareholders, and which will be taxed to
shareholders as ordinary income or long-term capital gain, may be increased or
decreased substantially as compared to a fund that did not engage in such
hedging transactions.
The 30% limitation and the diversification requirements applicable to the Fund's
assets may limit the extent to which the Fund will be able to engage in
transactions in options, futures contracts and options on futures contracts.
DISTRIBUTIONS
Distributions of investment company taxable income (which includes taxable
interest income and the excess of net short-term capital gains over long-term
capital losses) are taxable to a U.S. shareholder as ordinary income, whether
paid in cash or shares. Dividends paid by the Fund will qualify for the 70%
deduction for dividends received by corporations to the extent the Fund's income
consists of qualified dividends received from U.S. corporations. Distributions
of net capital gains (which consists of the excess of long-term capital gains
over net short-term capital losses), if any, are taxable as long-term capital
gains, whether paid in cash or in shares, and are not eligible for the dividends
received deduction. Shareholders receiving distributions in the form of newly
issued shares will have a basis in such shares of the Fund equal to the fair
market value of such shares on the distribution date. If the net asset value of
shares is reduced below a shareholder's cost as a result of a distribution by
the Fund, such distribution will be taxable even though it represents a return
of invested capital. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which will nevertheless be taxable to
them.
SALES OF SHARES
Upon a sale or exchange of his or her 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 a long-term 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, including
replacement through reinvestment of dividends and capital gains distributions in
the Fund, within a period of 61 days beginning 30 days before and ending 30 days
after the shares are disposed of. In such 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 the Fund's shares held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
- --------------------------------------------------------------------------------
B-19
<PAGE> 38
- --------------------------------------------------------------------------------
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax at the rate of 31% of
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 a shareholder's federal income
tax liability.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is impossible to determine the rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known. Because the Fund may have more than 50% of its total assets invested in
securities of foreign corporations, the Fund may be entitled to "pass-through"
to shareholders the amount of foreign taxes paid by the Fund. Shareholders are
urged to consult their attorneys or tax advisers regarding specific questions as
to federal, state or local taxes.
CREATION OF ADDITIONAL SERIES
The Fund reserves the right to create and issue a number of series shares, in
which case the shares of each series would participate equally in the earnings,
dividends, and assets of the particular series and would vote separately to
approve management agreements or changes in investment policies, but shares of
all series would vote together in the election or selection of Directors,
principal underwriters and auditors and on any proposed material amendment to
the Fund's Certificate of Incorporation.
Upon liquidation of the Fund or any series, shareholders of the affected series
would be entitled to share pro rata in the net assets of their respective series
available for distribution to such shareholder.
INVESTMENT PERFORMANCE INFORMATION
The Fund may furnish data about its investment performance in advertisements,
sales literature and reports to shareholders. "Total return" represents the
annual percentage change in value of $1,000 invested at the maximum public
offering price for the one-year period and the life of the Fund through the most
recent calendar quarter, assuming reinvestment of all dividends and
distributions. The Fund may also furnish total return calculations for these and
other periods, based on investments at various sales charge levels or net asset
value. Any performance data which is based on the Fund's net asset value per
share would be reduced if a sales charge were taken into account.
Quotations of yield will be based on the investment income per share earned
during a particular 30-day period, less expenses accrued during the period ("net
investment income") and will be computed by dividing net investment income by
the maximum offering price per share on the last day of the period, according to
the following formula:
a - b
-------
YIELD = 2[(cd + 1)(6) - 1]
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of any reimbursements), c = the average daily number of
shares outstanding during the period that were entitled to receive dividends,
and d = the maximum offering price share on the last day of the period.
For the 30 day period ended December 31, 1996 the Fund's yield was (1.38)%.
- --------------------------------------------------------------------------------
B-20
<PAGE> 39
- --------------------------------------------------------------------------------
Quotations of total return will reflect only the performance of a hypothetical
investment in the Fund during the particular time period shown. The Fund's total
return and current yield may vary from time to time depending on market
conditions, the compositions of its portfolio and operating expenses. These
factors and possible differences in the methods used in calculating yield should
be considered when comparing the Fund's current yield to yields published for
other investment companies and other investment vehicles. Total return and yield
should also be considered relative to changes in the value of the Fund's shares
and the risks associated with the Fund's investment objectives and policies. At
any time in the future, total returns and yield may be higher or lower than past
total returns and yields and there can be no assurance that any historical
return or yield will continue.
From time to time evaluations of performance are made by independent sources
that may be used in advertisements concerning the Fund. These sources include:
Lipper Analytical Services, CDA/Weisenberger Investment Company Service,
Barron's, Business Week, Changing Times, Financial World, Forbes, Fortune,
Money, Personal Investor, Sylvia Porter's Personal Finance, Bank Rate Monitor,
Morningstar and The Wall Street Journal.
In connection with communicating its yield or total return to current or
prospective shareholders, the Fund may also compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexes which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.
Quotations of the Fund's total return will represent the average annual
compounded rate of return of a hypothetical investment in the Fund over periods
of 1, 5, and 10 years (up to the life of the Fund), and are calculated pursuant
to the following formula:
P(I+T)(n) = ERV
where P = a hypothetical initial payment of $1,000, T = the average annual total
return, n = the number of years, and ERV = the redeemable value at the end of
the period of a $1,000 payment made at the beginning of the period. All total
return figures will reflect the deduction of Fund expenses (net of certain
expenses reimbursed by the Adviser) on an annual basis, and will assume that all
dividends and distributions are reinvested and will deduct the maximum sales
charge, if any is imposed.
For the year ended December 31, 1996, the Fund's total return was 22.20%. The
average annual total return since June 30, 1995 is 21.50%.
COUNSEL AND INDEPENDENT AUDITORS
Willkie Farr & Gallagher, 153 East 53rd Street, New York, New York 10022, serves
as counsel for the Fund.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has been
appointed independent auditors for the Fund.
- --------------------------------------------------------------------------------
B-21
<PAGE> 40
- --------------------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST
As of April 2, 1997, the Officers and Directors of the Fund as a group owned
8.8% of the outstanding shares. As of April 2, 1997, the following persons were
5% or greater shareholders of the Funds:
<TABLE>
<CAPTION>
PERCENTAGE OF
FUND/SHAREHOLDER SHARES OUTSTANDING
------------------------------------------ ------------------
<S> <C>
Gabelli Funds, Inc. 5.98%
Charles Schwab & Co. Inc. 9.11%
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
APPENDIX TO STATEMENT OF ADDITIONAL INFORMATION
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND
RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Aa: Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which made the long term risks appear
somewhat larger than in Aaa securities. A: Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future. Baa: Bonds which are rated Baa are considered
as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Ba: Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. B: Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Caa: Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Ca: Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. C: Bonds which are rated C
are the lowest rated class of bonds and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security 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 issue ranks in the lower end of its generic rating
category.
- --------------------------------------------------------------------------------
B-22
<PAGE> 41
- --------------------------------------------------------------------------------
DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("S&P'S") CORPORATE DEBT
RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P's. Capacity to pay
interest and repay principal is extremely strong. AA: Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degrees. A: Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories. BBB: Debt rated BBB is regarded as having adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
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 for debt in higher rated categories. BB, B, CCC,
CC, C: Debt rated BB, B, CCC, CC and C is 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 risk exposures to adverse conditions. CI: The rating CI
is reserved for income bonds on which no interest is being paid. D: Debt rated D
is in payment default. The D rating category is used when interest payments or
principal payments are not made on the date due even if the applicable grace
period has not expired, unless S&P's believes that such payments will be made
during such grace period. The D rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized. Plus (+) or Minus
(-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
r: The "r" symbol is attached to derivative, hybrid and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks created by the terms of the
obligation.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
aaa: An issue which is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks. aa: An issue which
is rated aa is considered a high-grade preferred stock. This rating indicates
that there is reasonable assurance that earnings and asset protection will
remain relatively well maintained in the foreseeable future. a: An issue which
is rated a is considered to be an upper medium grade preferred stock. While
risks are judged to be somewhat greater than in the aaa and aa classifications,
earnings and asset protection are, nevertheless, expected to be maintained at
adequate levels. baa: An issue which is rated baa is considered to be medium
grade, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time. ba: An issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class. b: An
issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small. caa: An issue which is rated
caa is likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payment. ca: An issue which is
rated ca is speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payment. c: This is the lowest
rated class of preferred or preference stock. Issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the
- --------------------------------------------------------------------------------
B-23
<PAGE> 42
- --------------------------------------------------------------------------------
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
DESCRIPTION OF S&P'S PREFERRED STOCK RATINGS
AAA: This is the highest rating that may be assigned by S&P's to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations. AA: A preferred stock issue rated AA also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
AAA. A: An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effect of changes in circumstances and economic conditions. BBB: An issue rated
BBB is regarded as backed by an adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make payments for a preferred stock in this category than
for issues in the A category. BB, B, CCC: Preferred stock rated BB, B, and CCC
are regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. BB indicates the lowest
degree of speculation and CCC the highest degree of speculation. While such
issues will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CC: The rating CC is reserved for a preferred stock in arrears on dividends or
sinking fund payments but that is currently paying. C: A preferred stock rated C
is a non-paying issue. D: A preferred stock rated D is a non-paying issue with
the issuer in default on debt instruments.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the period ended December 31, 1996,
including the Report of Ernst & Young LLP, independent auditors, are included
herein.
- --------------------------------------------------------------------------------
B-24
<PAGE> 43
PART C
OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
<S> <C> <C> <C>
(A) Financial Statements:
(i) Financial Statements included in Part A, the Prospectus:
(a) Financial Highlights for the period from June
30, 1995 (commencement of operations) through
December 31, 1995 and the year ended December
31, 1996.
(ii) Financial Statements included in Part B, the Statement of Additional Information:
(a) Report of Independent Auditors.****
(b) Statement of Assets and Liabilities, December 31, 1996.****
(c) Portfolio of Investments, December 31, 1996.****
(d) Statement of Operations for the year ended December 31, 1996.****
(e) Statement of Changes in Net Assets for the period from June 30, 1995
(commencement of operations) through December 31, 1995 and the year
ended December 31, 1996.****
(f) Financial Highlights for the period from June
30, 1995 (commencement of operations) through
December 31, 1995 and the year ended December
31, 1996.****
(g) Notes to the Financial Statements****
</TABLE>
(B) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<S> <C> <C>
1 Articles of Incorporation of Registrant*
2 By-Laws of Registrant*
3 Not applicable
4 Specimen copies of certificates for shares issued by Registrant*
5 Form of Investment Advisory Agreement**
6 Form of Distribution Agreement**
7 Not applicable
8 Form of Custodian Contract**
9(a) Form of Transfer Agency and Service Agreement**
9(b) Sub-Administration Agreement
10 Opinion and consent of Willkie Farr & Gallagher***
10(b) Consent of Willkie Farr & Gallagher
11 Consent of Independent Auditors
12 Not applicable
13 Subscription Agreement***
14 Not applicable
15 Distribution Plan under Rule 12b-1**
16 Schedule of Performance Computation
17 Financial Data Schedule
24(a) Power of Attorney**
(b) Power of Attorney***
</TABLE>
- ------------
* Previously filed as an exhibit to Registration Statement No. 33-79994
filed on June 9, 1994
** Previously filed as an exhibit to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-79994 filed on September 30, 1994.
*** Previously filed as an exhibit to Pre-Effective Amendment No. 2 to
Registration Statement No. 33-79994 filed on June 28, 1995.
**** Previously filed with the Fund's Annual Report for the year ended
December 31, 1996.
<PAGE> 44
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
(1) (2)
Title of Class No. of Record Holders as of April 2, 1997.
<S> <C>
Common Stock Par Value $.001 per share 1,750
</TABLE>
Item 27. Indemnification
Under Article VIII of the registrant's Articles of Incorporation
and Article V, Section 1 of the registrant's By-Laws, any past or present
director or officer of registrant is indemnified to the fullest extent permitted
by law against liability and all expenses reasonably incurred by him in
connection with any action, suit or proceeding to which he may be a party or
otherwise involved by reason of his being or having been a director or officer
of registrant. These provisions do not authorize indemnification when it is
determined, in the manner specified in the Articles of Incorporation and
By-Laws, that such director or officer would otherwise be liable to registrant
or its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties. In addition, the Articles of
Incorporation provide that to the fullest extent permitted by Maryland General
Corporation Law, as amended from time to time, no director or officer of the
Fund shall be personally liable to the Fund or its stockholders for money
damages, except to the extent such exemption from liability or limitation
thereof is not permitted by the Investment Company Act of 1940, as amended from
time to time. Under Article V, Section 2, of the registrant's By-Laws, expenses
may be paid by registrant in advance of the final disposition of any action,
suit or proceeding upon receipt of an undertaking by such director or officer to
repay such expenses to registrant in the event that it is ultimately determined
that indemnification of the advanced expenses is not authorized under the
By-Laws.
Insofar as indemnification for liability arising under the
Securities Act of 1933 (the "1933 Act") may be permitted to directors, officers
and controlling persons of registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant 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, registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Gabelli Funds, Inc. is the investment adviser of the registrant
(the "Adviser"). For a list of officers and directors of the Adviser, together
with information as to any other business, profession, vocation or employment of
a substantial nature engaged in by the Adviser or such officers and directors
during the past two years, reference is made to Form ADV filed by it under the
Investment Advisers Act of 1940.
Item 29. Principal Underwriters
(a) Gabelli & Company, Inc. is registrant's proposed principal
underwriter.
(b) For information with respect to each director and officer of
Gabelli & Company, Inc., reference is made to Form BD filed
by Gabelli & Company, Inc. under the Securities Exchange Act
of 1934.
(c) Inapplicable.
Item 30. Location of Accounts and Records
All such accounts, books and other documents are maintained at the
offices of: Gabelli Funds, Inc., One Corporate Center, Rye, New York 10580-1434;
State Street Bank and Trust Company, 1776
<PAGE> 45
Heritage Drive, North Quincy, Massachusetts 02171; and BISYS Fund Services L.P.,
3435 Stelzer Road, Columbus, Ohio 43219.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of
shareholders to remove and elect directors at the request of
shareholders entitled to cast 10% or more of the votes
entitled to be cast at the meeting.
(b) Registrant hereby undertakes to assist in shareholder
communications pursuant to Section 16(c) of the Investment
Company Act of 1940.
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement and pursuant to Rule 485(b) under the Securities Act of
1993 and has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Rye and State of New York on the 28th day of April, 1997.
GABELLI INTERNATIONAL GROWTH FUND, INC.
By: /s/ Bruce N. Alpert
--------------------------------
Bruce N. Alpert
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
*
- ---------------------------------
Mario J. Gabelli Chairman of the Board April 28, 1997
/s/ Caesar M.P. Bryan
- ---------------------------------
Caesar M.P. Bryan President April 28, 1997
/s/ Bruce N. Alpert
- ---------------------------------
Bruce N. Alpert Vice President, Treasurer
and Chief Financial Officer April 28, 1997
*
- ---------------------------------
Anthony J. Colavita Director April 28, 1997
*
- ---------------------------------
Karl Otto Pohl Director April 28, 1997
*
- ---------------------------------
Werner J. Roeder Director April 28, 1997
*
- ---------------------------------
Anthonie C. van Ekris Director April 28, 1997
*By: /s/ Bruce N. Alpert
---------------------------
Bruce N. Alpert
Attorney-in-fact
</TABLE>
<PAGE> 47
EXHIBIT INDEX
Exhibit No. Description of Exhibits
----------- -----------------------
1 Articles of Incorporation of Registrant*
2 By-Laws of Registrant*
3 Not applicable
4 Specimen copies of certificates for shares issued by
Registrant**
5 Form of Investment Advisory Agreement**
6 Form of Distribution Agreement**
7 Not applicable
8 Form of Custodian Contract**
9 Form of Transfer Agency and Service Agreement*
9(b) Sub-Administration Agreement
10(a) Opinion and consent of Willkie Farr & Gallagher***
10(b) Consent of Wilkie Farr & Gallagher
11 Consent of Independent Auditors
12 Not applicable
13 Subscription Agreement***
14 Not applicable
15 Distribution Plan under Rule 12b-1**
16 Schedule for Computation of Performance Quotations --
to be filed by Post Effective Amendment.
17 Financial Data Schedule
24(a) Power of Attorney**
24(b) Power of Attorney***
- ---------------
* Previously filed as an exhibit to Registration Statement No. 33-79994
filed on June 9, 1994.
** Previously filed as an exhibit to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-79994 filed on September 30, 1994.
*** Previously filed as an exhibit to Pre-Effective Amendment No. 2 to
Registration Statement No. 33-79994 filed on June 28, 1995.
<PAGE> 1
Exhibit 9B
SUB-ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of October, 1996, by and
between GABELLI FUNDS, INC. (the "Administrator"), and BISYS FUND SERVICES
LIMITED PARTNERSHIP, d/b/a BISYS FUND SERVICES ("BISYS").
WHEREAS, the Administrator is the investment adviser for the registered
investment companies (hereinafter referred to individually as a "Company" and
collectively as the "Companies") set forth in Schedule B attached hereto and is
responsible for the provision of administrative services to such Companies and
each of the Portfolios (hereinafter referred to individually as a "Portfolio"
and collectively as the "Portfolios") of such Companies;
WHEREAS, each Company is a management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator desires to retain BISYS to assist it in
performing administrative services with respect to each Portfolio and BISYS is
willing to perform such services on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Administrator and BISYS hereby agree as follows:
ARTICLE 1. Retention of BISYS; Conversion to the Services. The
Administrator hereby engages BISYS to furnish each Portfolio with the
administrative services as set forth in Article 2 below (collectively, the
"Services"), and in connection therewith, the Administrator agrees to cause
each Portfolio to convert to BISYS' data processing systems and software (the
"BISYS System") as necessary in order to receive the Services. The
Administrator shall cooperate with BISYS to provide BISYS with all necessary
information and assistance required to successfully convert to the BISYS
System. BISYS shall provide the Administrator with a schedule relating to such
conversion and the parties agree that the conversion may progress in stages.
The data upon which all Services shall have been converted to the BISYS System
shall be referred to herein as the "Conversion Date." The parties hereby agree
that the Conversion Date shall be no later than January 1, 1997. BISYS hereby
accepts such engagement and agrees to perform the Services commencing, with
respect to each individual Service, on the date that the conversion of such
Service to the BISYS System has been completed. BISYS shall determine in
accordance with its normal acceptance procedures when the applicable Service
has been successfully converted.
BISYS shall, for all purposes herein, be deemed to be an independent
contractor and, unless otherwise expressly provided or authorized, shall have
no authority to act for or represent the Administrator or the Companies in any
way.
<PAGE> 2
ARTICLE 2. Administrative Services. BISYS shall perform or supervise
the performance by others of administrative services in connection with the
operations of the Portfolios, and, on behalf of the Companies, will investigate,
assist in the selection of and conduct relations with custodians, depositories,
accountants, legal counsel, underwriters, brokers and dealers, corporate
fiduciaries, insurers, banks and persons in any other capacity deemed to be
necessary or desirable for the Portfolios' operations. BISYS shall provide the
Directors/Trustees (hereafter, the "Directors") of the Companies with such
reports regarding investment performance as they may reasonably request but
shall have no responsibility for supervising the performance by any investment
adviser or sub-adviser of its responsibilities.
BISYS shall provide the Companies with regulatory reporting, all
necessary office space, equipment, personnel, compensation and facilities
(including facilities for meetings of shareholders ("Shareholders") and
Directors of the Companies) for handling the affairs of the Portfolios and such
other services as BISYS and the Administrator shall, from time to time,
determine to be necessary to perform BISYS' obligations under this Agreement.
In addition, at the request of the Boards of Directors, BISYS shall make
reports to the Companies' Directors concerning the performance of its
obligations hereunder.
Without limiting the generality of the foregoing, BISYS shall:
(a) calculate contractual Company expenses and provide necessary
instructions for all disbursements for the Companies, and as
appropriate compute each Company's yields, total return, expense
ratios, portfolio turnover rate, average commission rate and, if
required, portfolio average dollar-weighted maturity;
(b) assist Company counsel with the preparation of prospectuses,
statements of additional information, registration statements
and proxy materials;
(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities
law) as may be necessary or desirable to register each Company's
Shares with state securities authorities, monitor the sale of
Company Shares for compliance with state securities laws, and
file with the appropriate state securities authorities the
registration statements and reports for each Company and each
Company's Shares and all amendments thereto, as may be necessary
or convenient to register and keep effective each Company and
its Shares with state securities authorities to enable each
Company to make a continuous offering of its Shares;
(d) develop and prepare, with the assistance of the Administrator,
communications to Shareholders, including the annual report to
Shareholders, coordinate the mailing of prospectuses, notices,
proxy statements, proxies and other reports to Shareholders, and
supervise and facilitate the proxy solicitation process for all
shareholder meetings, including the tabulation of shareholder
votes;
2
<PAGE> 3
(e) administer contracts on behalf of each Company with, among
others, each Company's investment adviser, distributor,
custodian, transfer agent and fund accountant;
(f) supervise the Companies' transfer agent with respect to the
payment of dividends and other distributions to Shareholders;
(g) calculate performance date of the Portfolios for dissemination
to information services covering the investment company
industry;
(h) prepare or cause to be prepared at its expense the filing of
each Company's tax returns;
(i) examine and review the operations and performance of the various
organizations providing services to the Companies or any
Portfolio, including, without limitation, the investment
adviser, distributor, custodian, fund accountant, transfer
agent, outside legal counsel and independent public accountants,
and, at the request of a Company's Board of Directors, report to
the Board on the performance of such organizations;
(j) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and printing
of each Company's quarterly, semi-annual and annual reports to
Shareholders;
(k) assist with the design, development, and operation of the
Portfolios, including new classes, investment objectives,
policies and structure;
(l) provide individuals reasonably acceptable to each Company's
Board of Directors to serve as officers of the Company, who will
be responsible for the management of certain of the Company's
affairs as determined by the Company's Board of Directors;
(m) advise each Company and its Board of Directors on matters
concerning the Company and its affairs;
(n) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for each
Company in accordance with the requirements of Rules 17g-1 and
17d-1(7) under the 1940 Act as such bonds and policies are
approved by the Company's Board of Directors;
(o) monitor and advise each Company and its Portfolios on their
regulated investment company status under the Internal Revenue
Code of 1986, as amended;
3
<PAGE> 4
(p) perform all administrative services and functions of each
Company and each Portfolio to the extent administrative services
and functions are not provided to the Company or such Portfolio
pursuant to the Company's or such Portfolio's administration
agreement, investment advisory agreement, distribution
agreement, custodian agreement, transfer agent agreement and
fund accounting agreement;
(q) furnish advice and recommendation with respect to other aspects
of the business and affairs of the Portfolios as the
Administrator and BISYS shall determine desirable;
(r) prepare and file with the SEC the semi-annual report for each
Company on Form N-SAR and all required notices pursuant to
Rule 24f-2;
(s) assist each Company with respect to SEC examinations, including
the furnishing of documents and information, as appropriate,
and responding to SEC examination letters; and
(t) assist each Company in preparing for Board meetings by (i)
coordinating board book production and distribution,
(ii) preparing Board agendas, (iii) preparing the BISYS
section of Board materials, (iv) preparing special Board
meeting materials, including but not limited to, materials
relating to annual contract approvals and 12b-1 plan approvals,
as agreed upon by the parties, and (v) such other Board
meeting functions that are agreed upon by the parties.
BISYS shall perform such other services for each Company that are
mutually agreed upon by the parties from time to time. Such services may
include performing internal audit examinations; mailing the annual reports of
the Portfolios; preparing an annual list of Shareholders; and mailing notices
of Shareholders' meetings, proxies and proxy statements, for all of which the
Administrator will pay or cause to be paid BISYS' reasonable out-of-pocket
expenses.
ARTICLE 3. Allocation of Charges and Expenses.
(A) BISYS. BISYS shall furnish at its own expense the executive,
supervisory and clerical personnel necessary to perform its obligations under
this Agreement. BISYS shall also provide the items which it is obligated to
provide under this Agreement, and shall pay all compensation, if any, of
officers of each Company as well as all Directors of each Company who are
affiliated persons of BISYS or any affiliated company of BISYS; provided,
however, that unless otherwise specifically provided, BISYS shall not be
obligated to pay the compensation of any employee of a Company retained by the
Directors of such Company to perform services on behalf of the Company.
(B) The Administrator. The Administrator hereby represents that
each Company has undertaken to pay or cause to be paid all other expenses of
the Company not otherwise allocated herein, including, without limitation,
organization costs, taxes, expenses for legal and auditing
4
<PAGE> 5
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of
custodial services, the cost of initial and ongoing registration of the Shares
under Federal and state securities laws, fees and out-of-pocket expenses of
Directors who are not affiliated persons of the Administrator or the Investment
Adviser to the Company or any affiliated corporation of the Administrator or
the Investment Adviser, insurance, interest, brokerage costs, litigation and
other extraordinary or nonrecurring expenses, and all fees and charges of
investment advisers to the Company.
ARTICLE 4. Compensation of BISYS.
(A) Sub-Administration Fee. Commencing on the Conversion Date, for the
services rendered, the facilities furnished and the expenses assumed by BISYS
pursuant to this Agreement, the Administrator shall pay to BISYS compensation
at an annual rate specified in Schedule A attached hereto. Such compensation
shall be calculated and accrued daily, and paid to BISYS monthly.
If the Conversion Date occurs subsequent to the first day of a
month or termination of this Agreement occurs before the last day of a month,
BISYS' compensation for that part of the month in which this Agreement is in
effect shall be prorated in a manner consistent with the calculation of the
fees as set forth above. Payment of BISYS' compensation for the preceding month
shall be made promptly.
(B) Survival of Compensation Rights. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
ARTICLE 5. Limitation of Liability of BISYS. The duties of BISYS shall
be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against BISYS hereunder. BISYS shall not be
liable for any error of judgment or mistake of law or for any loss arising out
of any act or omission in carrying out its duties hereunder, except a loss
resulting from willful misfeasance, bad faith or negligence in the performance
of its duties, or by reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions of applicable
law which cannot be waived or modified hereby. (As used in this Article 5, the
term "BISYS" shall include partners, officers, employees and other agents of
BISYS as well as BISYS itself.)
So long as BISYS acts in good faith and with due diligence and without
negligence, the Administrator assumes full responsibility and shall indemnify
BISYS and hold it harmless from and against any and all actions, suits and
claims, whether groundless or otherwise, and from and against any and all
losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation
expenses) arising directly or indirectly out of BISYS' actions taken or
nonactions with respect to the performance of services hereunder.
5
<PAGE> 6
The indemnity and defense provisions set forth herein shall indefinitely
survive the termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Administrator may be asked to indemnify or
hold BISYS harmless, the Administrator shall be fully and promptly advised of
all pertinent facts concerning the situation in question, and it is further
understood that BISYS will use all reasonable care to identify and notify the
Administrator promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Administrator, but failure to do so in good faith shall not affect the
rights hereunder.
The Administrator shall be entitled to participate at its own expense
or, if it so elects, to assume the defense of any suit brought to enforce any
claims subject to this indemnity provision. If the Administrator elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Administrator and satisfactory to BISYS, whose approval shall not
be unreasonably withheld. In the event that the Administrator elects to assume
the defense of any suit and retain counsel, BISYS shall bear the fees and
expenses of any additional counsel retained by it. If the Administrator does
not elect to assume the defense of a suit, it will reimburse BISYS for the
reasonable fees and expenses of any counsel retained by BISYS.
BISYS may apply to the Administrator at any time for instructions and
may consult counsel for the Administrator or its own counsel and with
accountants and other experts with respect to any matter arising in connection
with BISYS' duties, and BISYS shall not be liable or accountable for any
action taken or omitted by it in good faith in accordance with such instruction
or with the opinion of such counsel, accountants or other experts.
Also, BISYS shall be protected in acting upon any document which it
reasonably believes to be genuine and to have been signed or presented by the
proper person or persons. BISYS will not be held to have notice of any change of
authority of any officers, employees or agents of the Administrator until
receipt of written notice thereof from the Administrator.
ARTICLE 6. Activities of BISYS. The services of BISYS rendered
hereunder are not to be deemed to be exclusive. BISYS is free to render such
services to others and to have other businesses and interests. It is understood
that directors, officers, employees and Shareholders are or may be or become
interested in BISYS, as officers, employees or otherwise and that partners,
officers and employees of BISYS and its counsel are or may be or become
similarly interested in the Companies, and that BISYS may be or become
interested in the Companies as a Shareholder or otherwise.
ARTICLE 7. Duration of this Agreement. The Term of this Agreement shall
be as specified in Schedule A hereto.
6
<PAGE> 7
ARTICLE 8. Assignment. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
BISYS may, with the prior consent of the Administrator, at its expense,
subcontract with any entity or person concerning the provision of the services
contemplated hereunder. BISYS shall not, however, be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that BISYS shall be responsible, to the extent provided in
Article 5 hereof, for all acts of such subcontractor as if such acts were its
own. This Agreement shall be binding upon, and shall inure to the benefit of,
the parties hereto and their respective successors and permitted assigns.
ARTICLE 9. Amendments. This Agreement may be amended if such amendment is
specifically approved in writing by the parties hereto.
ARTICLE 10. Certain Records. BISYS shall maintain customary records in
connection with its duties as specified in this Agreement. Any records
required to be maintained and preserved pursuant to Rules 31a-1 and 31a-2
under the 1940 Act which are prepared or maintained by BISYS on behalf of each
Company shall be prepared and maintained at the expense of BISYS, but shall be
the property of each Company and will be made available to or surrendered
promptly to each Company on request.
In case of any request or demand for the inspection of such records by
another party, BISYS shall notify the Administrator and follow the
Administrator's instructions as to permitting or refusing such inspection;
provided that BISYS may exhibit such records to any person in any case where it
is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Administrator or the appropriate Company has agreed to indemnify BISYS against
such liability.
ARTICLE 11. Definitions of Certain Terms. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 12. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the following address: if to BISYS, to it at 3435 Stelzer Road,
Columbus, Ohio 43219; if to the Administrator, to it at One Corporate Center,
Rye, New York 10580-1434, or at such other address as such party may from time
to time specify in writing to the other party pursuant to this Section.
ARTICLE 13. Confidential Information. Each party acknowledges that it may
acquire knowledge and information relating to the other party and its
affiliates or the Companies including, but not limited to, information
pertaining to business plans, employees, customers and/or suppliers, and that
all such knowledge and information acquired or developed is and shall be
confidential and proprietary information (all such confidential and proprietary
information is herein collectively
7
<PAGE> 8
referred to as the "Confidential Information"). Each party agrees to hold the
Confidential Information in strict confidence, to refrain from directly or
indirectly disclosing it to others or using it in any way except for purposes of
performing services hereunder, and to prevent any unauthorized person access to
it either before or after termination of this Agreement, without the prior
written consent of the other party. Both parties further agree to take all
action reasonable and necessary to protect the confidentiality of the
Confidential Information. The parties shall use their best efforts to have their
directors, officers, employees and agents agree to the terms of this Section.
The obligations of the parties contained in this section shall survive
termination of this Agreement. Neither party's confidentiality obligations under
this provision shall apply to such information that (i) was in the public domain
or available to a third party without restrictions at or prior to the time such
information was made known to such party, (ii) had been independently known to
such party at the time of disclosure from persons who were not subject to
similar confidentiality obligations, or (iii) is required to be disclosed by law
(except that each party will use best efforts to give the other party written
notice prior to any such disclosure).
ARTICLE 14. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Ohio and the applicable provisions of the 1940
Act. To the extent that the applicable laws of the State of Ohio, or any of the
provisions herein, conflict with the applicable provisions of the 1940 Act, the
latter shall control.
ARTICLE 15. Multiple Originals. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
GABELLI FUNDS, INC.
By: [Signature]
-----------------------------------
Title: VP & CFO Gabelli Funds Division
--------------------------------
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS Fund Services, Inc.
----------------------------------
General Partner
By: [Signature]
-----------------------------------
Title: Executive Vice President
--------------------------------
8
<PAGE> 9
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AS OF OCTOBER 1, 1996
BETWEEN GABELLI FUNDS, INC.
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
Portfolios: This Agreement shall apply to all Portfolios, either now or
hereafter created of the Companies set forth below. The current
Portfolios of such Companies are also set forth below.
GABELLI CONVERTIBLE SECURITIES FUND, INC.
Gabelli Convertible Securities Fund
GABELLI EQUITY SERIES FUNDS, INC.
Gabelli Small Cap Fund
Gabelli Equity Income Fund
GABELLI GLOBAL SERIES FUNDS, INC.
Gabelli Global Telecommunications Fund
Gabelli Global Convertible Securities Fund
Gabelli Global Interactive Couch Potato Fund
Gabelli Global Entertainment & Media Fund
Gabelli Global Growth Fund
GABELLI GOLD FUND, INC.
Gabelli Gold Fund
GABELLI INTERNATIONAL GROWTH FUND, INC.
Gabelli International Growth Fund
GABELLI INVESTOR FUNDS, INC.
Gabelli ABC Fund
Fees: Pursuant to Article 4, in consideration of services rendered and
expenses assumed pursuant to this Agreement, the Administrator will
pay BISYS on the first business day of each month, or at such
time(s) as BISYS shall request and the parties hereto shall agree,
a fee based upon the assets of all registered management investment
companies for which BISYS serves as Subadministrator that are
advised by Gabelli Funds, Inc. or its affiliates
("BISYS-administered Investment Companies"). Such fee shall be
computed daily at the annual rate of:
A-1
<PAGE> 10
Ten one-hundredths of one percent (.10%) of the
BISYS-administered Investment Companies' average daily net
assets up to $350 million.
Seven and one-half one-hundredths of one percent (.075%) of the
BISYS-administered Investment Companies' average daily net
assets in excess of $350 million up to $600 million.
Six one-hundredths of one percent (.06%) of the
BISYS-administered Investment Companies' average daily net
assets in excess of $600 million.
The fees set forth above shall be subject to a minimum annual fee
amount of $40,000 for each Portfolio. Such minimum annual fee
amount shall be payable to BISYS on the first business day of each
month or at such other time(s) as the parties may agree upon.
The fee for the period from the day of the month upon which the
Conversion Date occurs until the end of that month shall be
prorated according to the proportion which such period bears to the
full monthly period. Upon any termination of this Agreement before
the end of any month, the fee for such part of a month shall be
prorated according to the proportion which such period bears to the
full monthly period and shall be payable upon the date of
termination of this Agreement.
For purposes of determining the fees payable to BISYS, the value of
the net assets of a particular Portfolio shall be computed in the
manner described in each Company's Articles of Incorporation or in
the Prospectus or Statement of Additional Information respecting
that Portfolio as from time to time is in effect for the
computation of the value of such net assets in connection with the
determination of the liquidating value of the shares of such
Portfolio.
The parties hereby confirm that the fees payable hereunder shall be
applied to each Portfolio as a whole, and not to separate classes
of shares within the Portfolios.
Term: The initial term of this Agreement (the "Initial Term") shall be
for a period commencing on the date this Agreement is executed by
both parties and ending on the date that is one year after the
Conversion Date. This Agreement shall be renewed automatically for
successive periods of one year after the Initial Term, unless
written notice of nonrenewal is provided by either party not less
than 90 days prior to the end of the Initial Term or 90 days
advance written notice of termination is provided by either party
at any time following the Initial Term. In the event of any breach
of this Agreement by either party, the non-breaching party shall
notify the breaching party in writing of such breach and upon
receipt of such notice, the breaching party shall
A-2
<PAGE> 11
have 45 days to remedy the breach. In the event any material breach is
not remedied within such time period, the nonbreaching party may
immediately terminate this Agreement.
Notwithstanding the foregoing, after such termination for so long as
BISYS, with the written consent of the Administrator, in fact continues
to perform any one or more of the services contemplated by this
Agreement or any schedule or exhibit hereto, the provisions of this
Agreement, including without limitation the provisions dealing with
indemnification, shall continue in full force and effect. Compensation
due BISYS and unpaid by the Administrator upon such termination shall be
immediately due and payable upon and notwithstanding such termination.
BISYS shall be entitled to collect from the Administrator, in addition
to the compensation described in this Schedule A, all costs reasonably
incurred in connection with the Administrator's activities in effecting
such termination, including without limitation, the delivery to each
Company and/or its designees of the Company's property, records,
instruments and documents, or any copies thereof. To the extent that
BISYS may retain in its possession copies of any Company documents or
records subsequent to such termination which copies had not been
requested by or on behalf of a Company in connection with the
termination process described above, BISYS will provide such Company
with reasonable access to such copies; provided, however, that, in
exchange therefor, the Company shall reimburse BISYS for all costs
reasonably incurred in connection therewith.
If, during the Initial Term, as defined above, for any reason other than
a breach of this Agreement, BISYS is replaced as sub-administrator, then
the Administrator shall make a one-time cash payment, as liquidated
damages, to BISYS equal to the balance due BISYS for the remainder of
the Initial Term of this Agreement, assuming for purposes of calculation
of the payment that the asset level of each Company on the date BISYS is
replaced, or a third party is added, will remain constant for the
balance of such term.
A-3
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Counsel and Independent Auditors" and to the use of our report
dated February 20, 1997 in this Registration Statement (Form N-1A No. 33-79994)
of Gabelli International Growth Fund, Inc.
/s/ ERNST & YOUNG LLP
-------------------------
ERNST & YOUNG LLP
New York, New York
April 24, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> GABELLI INTERNATIONAL GROWTH FUND, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 11,156
<INVESTMENTS-AT-VALUE> 12,600
<RECEIVABLES> 212
<ASSETS-OTHER> 704
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,516
<PAYABLE-FOR-SECURITIES> 606
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 95
<TOTAL-LIABILITIES> 701
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,317
<SHARES-COMMON-STOCK> 955
<SHARES-COMMON-PRIOR> 191
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 54
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,444
<NET-ASSETS> 12,815
<DIVIDEND-INCOME> 71
<INTEREST-INCOME> 27
<OTHER-INCOME> 0
<EXPENSES-NET> 236
<NET-INVESTMENT-INCOME> (79)
<REALIZED-GAINS-CURRENT> 54
<APPREC-INCREASE-CURRENT> 1,335
<NET-CHANGE-FROM-OPS> 1,310
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,181
<NUMBER-OF-SHARES-REDEEMED> 417
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,719
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 65
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 236
<AVERAGE-NET-ASSETS> 12,097
<PER-SHARE-NAV-BEGIN> 10.98
<PER-SHARE-NII> (0.15)
<PER-SHARE-GAIN-APPREC> 2.59
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.42
<EXPENSE-RATIO> .027
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
