nv2
As filed with the Securities and Exchange Commission on February 11, 2011
Securities Act File No. 333-[]
Investment Company File No. 811-08476
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
(Check Appropriate Box or Boxes)
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REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 |
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Pre-Effective Amendment No. |
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Post-Effective Amendment No. |
and/or
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REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 |
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Amendment No. 14 |
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
(Exact Name of Registrant as Specified in Charter)
One Corporate Center
Rye, New York 10580-1422
(Address of Principal Executive Offices)
Registrants Telephone Number, including Area Code: (800) 422-3554
Bruce N. Alpert
The Gabelli Global Multimedia Trust Inc.
One Corporate Center
Rye, New York 10580-1422
(914) 921-5100
(Name and Address of Agent for Service)
Copies to:
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Christopher J. Michailoff
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Michael R. Rosella, Esq. |
Gabelli Funds, LLC
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Paul, Hastings, Janofsky & Walker LLP |
One Corporate Center
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75 East 55th Street |
Rye, New York 10580-1422
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New York, New York 10022 |
(914) 921-5100
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(212) 318-6000 |
Approximate date of proposed public offering: From time to time after the effective date of this
Registration Statement.
If any securities being registered on this form will be offered on a delayed or continuous basis in
reliance on Rule 415 under the Securities Act of 1933, as amended, other than securities offered in
connection with a dividend reinvestment plan, check the following box. o
It is proposed that this filing will become effective (check appropriate box)
þ When declared effective pursuant to section 8(c).
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Proposed Maximum |
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Proposed Maximum |
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Aggregate Amount Being |
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Offering Price Per |
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Aggregate Offering |
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Amount of |
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Title of Securities Being Registered |
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Registered(1) |
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Share(1) |
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Price(1) |
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Registration Fee |
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Shares of Common
Stock, par value
$.001 per share |
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100,000 |
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$8.68 |
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$868,000 |
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$100.78 |
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Estimated solely for the purpose of calculating the registration fee
as required by Rule 457(c) under the Securities Act of 1933, as
amended, based upon the average of the high and low sales prices per
share reported on the New York Stock Exchange consolidated reporting
system of $8.68 on February 8, 2011. |
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY
TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
Notice to Canadian Residents:
These Securities Have Not Been Approved or Disapproved by Any Securities or Regulatory in Canada.
This Offering Will Not Be Made in Any Province of Canada Where It Is Not Permitted by Law.
The information in this Prospectus is not complete and may be changed. The Fund may not sell
these securities until the registration statement filed with the Securities and Exchange Commission
is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer, solicitation or sale is not permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 2011
PRELIMINARY PROSPECTUS
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
[] Shares of Common Stock
Issuable Upon Exercise of
Rights to Subscribe for Such Shares
The Gabelli Global Multimedia Trust Inc. (the Fund) is issuing transferable rights
(Rights) to its shareholders of common stock of record as of [] (the Record Date). These
Rights will allow you to subscribe for new shares of common stock of the Fund (each, a Share, and
collectively, Shares) in an aggregate amount of approximately [] Shares (the Offer). For
every [three] Rights that you receive, you may buy [one new Share] of the Fund plus, in certain
circumstances and only if you are a shareholder on the Record Date for the Offer, additional Shares
pursuant to an over-subscription privilege. The number of Rights to be issued to a shareholder on
the Record Date will be rounded up to the nearest number of Rights evenly divisible by [three].
Fractional shares will not be issued upon the exercise of the Rights. Accordingly, new Shares may
be purchased only pursuant to the exercise of Rights in integral multiples of [three].
The Rights are transferable and will be listed for trading on the New York Stock Exchange
(NYSE) under the symbol [GGT RT] during the course of the Offer. The Funds Shares are
currently listed, and the Shares issued in this Offer will also be listed, on the NYSE under the
symbol GGT. On [] (the last trading date prior to the Shares trading ex-Rights), the last
reported net asset value per Share was $[], and the last reported sales price of a Share on the
NYSE was $[]. The purchase price per Share will be $[] (the Subscription Price). The Offer
will expire at 5:00 p.m., Eastern Time, on [], unless the Offer is extended as described in this
Prospectus (the Expiration Date). Rights acquired in the secondary market may not participate in
the over-subscription privilege.
The Fund is a non-diversified, closed-end management investment company registered under the
Investment Company Act of 1940, as amended (the 1940 Act). The Funds primary investment
objective is long-term growth of capital, primarily through investment in a portfolio of common
stock and other securities of foreign and domestic companies involved in the telecommunications,
media, publishing and entertainment industries. Income is a secondary objective of the Fund.
Gabelli Funds, LLC (the Investment Adviser) serves as investment
adviser to the Fund. An investment in the Fund is not appropriate for all investors. No
assurances can be given that the Funds objectives will be achieved. The Fund has outstanding two
series of preferred stock which have resulted in a leveraged capital structure. For a discussion
of the effects and certain risks associated with the use of leverage, see Description of Capital
Stock Effects of Leverage and Risk Factors and Special Considerations Leverage Risk. The
address of the Fund is One Corporate Center, Rye, New York 10580-1422, and its telephone number is
(914) 921-5070.
Exercising your Rights and investing in the Funds Shares involves a high degree of risk and may be
considered speculative. Before exercising your Rights and investing in the Funds Shares, you
should read the discussion of the material risks of investing in the Fund in Risk Factors and
Special Considerations beginning on page [] of the Prospectus. Certain of these risks are
summarized in the Prospectus Summary Risk Factors and Special Considerations beginning on page
[] of the Prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or
disapproved these securities or determined if this Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
These securities have not been approved or disapproved by any securities regulatory authority in
Canada. This offering will not be made in any province in Canada where it is not permitted by law.
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Estimated |
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Subscription |
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Estimated |
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Price to the |
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Estimated Sales |
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Proceeds to the |
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Public |
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Load |
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Fund(1) |
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Per Share |
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None |
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Total |
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None |
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(1) |
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Before deduction of expenses incurred by the Fund, estimated at $[]. |
Shareholders who do not exercise their Rights may, at the completion of the Offer, own a
smaller proportional interest in the Fund than if they exercised their Rights. As a result of the
Offer, you may experience dilution or accretion of the aggregate net asset value of your Shares
depending upon whether the Funds net asset value per Share is above or below the subscription
price on the Expiration Date. The Fund cannot state precisely the extent of any dilution or
accretion at this time because the Fund does not know what the net asset value per Share will be
when the Offer expires or what proportion of the Rights will be exercised. The Investment
Advisers parent company, GAMCO Investors, Inc., and its affiliates (Affiliated Parties), may
purchase Shares through the primary subscription and the over-subscription privilege. Mr. Mario J.
Gabelli, who may be deemed to control the Investment Adviser, or his affiliated entities, may also
purchase additional Shares through the primary subscription and over-subscription privilege on the
same terms as other shareholders.
Please read this Prospectus carefully before investing and retain it for future reference. It
contains important information that a prospective investor should know before investing in the
Fund.
A Statement of Additional Information (the SAI), dated [], containing additional
information about the Fund, has been filed with the Securities and Exchange Commission and is
incorporated by reference in its entirety into this Prospectus. You may request a free copy of the
Funds Annual and Semi-Annual Reports, request a free copy of the SAI, the table of contents of
which is on page [] of this Prospectus, request other information about us, and make shareholder
inquiries by calling (800) GABELLI (422-3554), or by writing to the Fund, or obtain a copy (and
other information regarding the Fund) from the Securities and Exchange Commissions website at
http://www.sec.gov. Shareholder inquiries should be directed to the Subscription Agent, [], at
[].
The date of this Prospectus is [].
TABLE OF CONTENTS
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PROSPECTUS SUMMARY
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1 |
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FEES AND EXPENSES
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12 |
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FINANCIAL HIGHLIGHTS
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14 |
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THE OFFER
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19 |
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USE OF PROCEEDS
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31 |
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INVESTMENT OBJECTIVES AND POLICIES
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RISK FACTORS AND SPECIAL CONSIDERATIONS
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HOW THE FUND MANAGES RISK
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48 |
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
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50 |
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MANAGEMENT OF THE FUND
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50 |
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NET ASSET VALUE
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54 |
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PORTFOLIO TRANSACTIONS
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56 |
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DIVIDENDS AND DISTRIBUTIONS
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56 |
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AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLANS
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TAXATION
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DESCRIPTION OF CAPITAL STOCK
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ANTI-TAKEOVER PROVISIONS OF THE FUNDS GOVERNING DOCUMENTS
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69 |
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CLOSED-END FUND STRUCTURE
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72 |
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LEGAL PROCEEDINGS
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CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
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LEGAL MATTERS
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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74 |
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ADDITIONAL INFORMATION
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74 |
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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
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75 |
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The information contained in this Prospectus speaks only as of the date of this Prospectus unless
the information specifically indicates that another date applies. No dealer, salesperson or other
person has been authorized to give any information or to make any representations other than those
contained in this Prospectus in connection with the offer contained herein and, if given or made,
such information or representations must not be relied upon as having been authorized by the Fund.
PROSPECTUS SUMMARY
This summary highlights some information that is described more fully elsewhere in this
Prospectus. It may not contain all of the information that is important to you. To understand the
Offer fully, you should read the entire document carefully, including the risk factors which can be
found on page [], under the heading Risk Factors and Special Considerations.
The Fund
The Gabelli Global Multimedia Trust Inc. is a non-diversified, closed-end management
investment company organized as a Maryland corporation on May 31, 1994. Throughout this
Prospectus, we refer to The Gabelli Global Multimedia Trust Inc. as the Fund, or as we.
The Funds outstanding shares of common stock, par value $0.001 per share, are listed on the
New York Stock Exchange (the NYSE) under the symbol GGT. As of [December 31, 2010], the net
assets of the Fund attributable to its common stock were $[9.19]. As of [December 31, 2010], the
Fund had outstanding [13,575,668] shares of common stock; [791,014] shares of 6.00% Series B
Cumulative Preferred Stock, liquidation preference $25 per share (the Series B Preferred); and
[600] shares of Series C Auction Rate Preferred Stock, liquidation preference $25,000 per share
(the Series C Auction Rate Preferred). The Fund completed its redemption of its 7.92% Tax
Advantaged Cumulative Preferred Stock (the Series A Preferred) on April 2, 2003. The Series B
Preferred and Series C Auction Rate Preferred have the same seniority with respect to distributions
and liquidation preference.
Purpose of the Offer
The Board of Directors of the Fund (the Board) has determined that it would be in the best
interest of the Fund and its existing shareholders to increase the assets of the Fund so that the
Fund may be in a better position to take advantage of investment opportunities that may arise
without having to reduce existing Fund holdings. The Offer seeks to reward existing shareholders
by giving them the opportunity to purchase additional Shares at a price that may be below market
and/or net asset value without incurring any commission or charge. The distribution of the Rights,
which themselves may have intrinsic value, will also give non-participating shareholders the
potential of receiving a cash payment upon the sale of their Rights, which may be viewed as partial
compensation for the possible dilution of their interests in the Fund as a result of the Offer.
The Board believes that increasing the size of the Fund may result in certain economies of
scale which may lower the Funds expenses as a proportion of average net assets because the Funds
fixed costs can be spread over a larger asset base. There can be no assurance that by
increasing the size of the Fund, the Funds expense ratio will be lowered. The Board also believes
that a larger number of outstanding Shares and a larger number of beneficial owners of Shares could
increase the level of market interest in and visibility of the Fund, and improve the trading
liquidity of the Funds shares on the NYSE.
Important Terms of the Offer
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Total number of Shares available for primary subscription
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[] |
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Number of Rights you will receive for each outstanding
Share you own on the Record Date
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[One Right for
every one Share*] |
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Number of Shares you may purchase with your Rights at
the Subscription Price per Share
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One Share for every
[three Rights**] |
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Subscription Price
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$[] |
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[The number of Rights to be issued to a shareholder on the Record Date will be rounded up to
the nearest number of Rights evenly divisible by three.] |
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Holders of Rights on the Record Date may be able to acquire additional Shares pursuant to the
over-subscription privilege, if offered, in certain circumstances (as described below). |
Shareholder inquiries should be directed to:
[]
or Gabelli Funds
(800) GABELLI (422-3554)
Over-Subscription Privilege
Shareholders on the Record Date (Record Date Shareholders) who fully exercise all Rights
initially issued to them are entitled to buy those Fund Shares referred to as primary
over-subscription shares, that were not purchased by other Rights holders. If enough primary
over-subscription shares are available, all such requests will be honored in full. If the requests
for primary over-subscription shares exceed the primary over-subscription shares available, the
available primary over-subscription shares will be allocated pro rata among those fully exercising
Record Date Shareholders who over-subscribe based on the number of Rights originally issued to them
by the Fund. Shares acquired pursuant to the over-subscription privilege are subject to allotment,
which is more fully discussed under The Offer Over-Subscription Privilege. Rights acquired in
the secondary market may not participate in the over-subscription privilege.
In addition, in the event that the Funds per Share net asset value on the Expiration Date is
equal to or less than the Subscription Price, the Fund, in its sole discretion, may determine to
issue additional Shares in an amount of up to [20%] of the Shares issued pursuant to the primary
subscription, referred to as secondary over-subscription shares. Should the Fund determine to
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issue some or all of the secondary over-subscription shares, they will be allocated only among
Record Date Shareholders who submitted over-subscription requests. Secondary over-subscription
shares will be allocated pro rata among those fully exercising Record Date Shareholders who
over-subscribe based on the number of Rights originally issued to them by the Fund.
Method for Exercising Rights
Except as described below, subscription certificates evidencing the Rights (Subscription
Certificates) will be sent to Record Date Shareholders or their nominees. If you wish to exercise
your Rights, you may do so in the following ways:
(1) Complete and sign the Subscription Certificate. Mail it in the envelope provided or
deliver it, together with payment in full to [] (the Subscription Agent) at the address
indicated on the Subscription Certificate. Your completed and signed Subscription Certificate and
payment must be received by the Expiration Date.
(2) Contact your broker, banker or trust company, which can arrange on your behalf to deliver
your payment and guarantee delivery of a properly completed and executed Subscription Certificate
by the close of business on the third business day after the Expiration Date pursuant to a notice
of guaranteed delivery. A fee may be charged for this service by your broker, bank or trust
company. Your payment and the notice of guaranteed delivery must be received by the Expiration
Date.
Rights holders will have no right to rescind a purchase after the Subscription Agent has
received payment either by means of a notice of guaranteed delivery or a check. See The Offer
Method of Exercise of Rights and The Offer Payment for Shares.
Sale of Rights
The Rights are transferable until the Expiration Date and have been admitted for trading on
the NYSE. Although no assurance can be given that a market for the Rights will develop, trading in
the Rights on the NYSE will begin three Business Days prior to the Record Date and may be conducted
until the close of trading on the last NYSE trading day prior to the Expiration Date. The value of
the Rights, if any, will be reflected by the market price. Rights may be sold by individual
holders or may be submitted to the Subscription Agent for sale. Any Rights submitted to the
Subscription Agent for sale must be received by the Subscription Agent on or before [], one
Business Day prior to the Expiration Date, due to normal settlement procedures. Rights that are
sold will not confer any right to acquire any Shares in the primary or secondary over-subscription,
and any Record Date Shareholder who sells any Rights will not be eligible to participate in the
primary or secondary over-subscription. Trading of the Rights on the NYSE will be conducted on a
when-issued basis until and including the date on which the Subscription Certificates are mailed to
Record Date shareholders and thereafter, will be conducted on a regular way basis until and
including the last NYSE trading day prior to the Expiration Date. The Shares will begin trading
ex-Rights two Business Days prior to the Record Date. If the Subscription Agent receives Rights
for sale in a timely manner, it will use its best efforts to sell the Rights on the NYSE. The
Subscription Agent will also attempt to sell any Rights attributable
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to shareholders whose record addresses are outside the United States and Canada or who have an Army
Post Office (APO) or Fleet Post Office (FPO) address as described below under Restrictions on
Foreign Shareholders and under The Offer Foreign Restrictions in the Prospectus. Any
commissions will be paid by the selling Rights holders. Neither the Fund nor the Subscription
Agent will be responsible if Rights cannot be sold and neither has guaranteed any minimum sales
price for the Rights. If the Rights can be sold, sales of these Rights will be deemed to have been
effected at the weighted average price received by the Subscription Agent on the day such Rights
are sold, less any applicable brokerage commissions, taxes and other expenses. For purposes of
this Prospectus, a Business Day shall mean any day on which trading is conducted on the NYSE.
Shareholders are urged to obtain a recent trading price for the Rights on the NYSE from their
broker, bank, financial advisor or the financial press.
Banks, broker-dealers and trust companies that hold Shares for the accounts of others are
advised to notify those persons that purchase rights in the secondary market that such rights will
not participate in the over-subscription privilege.
Offering Fees and Expenses
Offering expenses incurred by the Fund are estimated to be $[].
Restrictions on Foreign Shareholders
Subscription Certificates will only be mailed to shareholders whose record addresses are
within the United States and Canada (other than an APO or FPO address). Shareholders whose
addresses are outside the United States and Canada or who have an APO or FPO address and who wish
to subscribe to the Offer either in part or in full should contact the Subscription Agent, by
written instruction or recorded telephone conversation no later than three Business Days prior to
the Expiration Date. The Fund will determine whether the offering may be made to any such
shareholder. This offering will not be made in any jurisdiction where it would be unlawful to do
so. If the Subscription Agent has received no instruction by the third Business Day prior to the
Expiration Date or the Fund has determined that the offering may not be made to a particular
shareholder, the Subscription Agent will attempt to sell all of such shareholders Rights and remit
the net proceeds, if any, to such shareholder. If the Rights can be sold, sales of these Rights
will be deemed to have been effected at the weighted average price received by the Subscription
Agent on the day the Rights are sold, less any applicable brokerage commissions, taxes and other
expenses.
Use of Proceeds
The Fund estimates the net proceeds of the Offer to be approximately $[]. This figure is
based on the Subscription Price per Share of $[] and assumes all new Shares offered are sold and
that the expenses related to the Offer estimated at approximately $[] are paid.
The Investment Adviser anticipates that investment of the proceeds will be made in accordance
with the Funds investment objectives and policies as appropriate investment
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opportunities are identified, which is expected to be substantially completed in approximately
three months; however, the identification of appropriate investment opportunities pursuant to the
Investment Advisers investment style or changes in market conditions may cause the investment
period to extend as long as six months. Pending such investment, the proceeds will be held in high
quality short-term debt securities and instruments.
Important Dates to Remember
Please note that the dates in the table below may change if the Offer is extended.
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Record Date
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Subscription Period
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[] through []** |
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Expiration of the Offer*
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[]** |
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Payment for Guarantees of Delivery Due*
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[]** |
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Confirmation to Participants
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[]** |
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A shareholder exercising Rights must deliver by 5:00 p.m., Eastern Time, on []
either (a) a Subscription Certificate and payment for Shares or (b) a notice of guaranteed delivery
and payment for Shares. |
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Unless the Offer is extended to a date no later than []. |
Investment Objectives and Policies
The Funds primary investment objective is long-term growth of capital, primarily through
investment in a portfolio of common stock and other securities of foreign and domestic companies
involved in the telecommunications, media, publishing and entertainment industries. Income is a
secondary objective of the Fund. Under normal market conditions, the Fund will invest at least 80%
of the value of its assets in common stock and other securities, including convertible securities,
preferred stock, options, and warrants of companies in the telecommunications, media, publishing,
and entertainment industries (the 80% Policy). A company will be considered to be in these
industries if it derives at least 50% of its revenues or earnings from, or devotes at least 50% of
its assets to, the indicated activities or multimedia-related activities. The 80% Policy may be
changed without shareholder approval. The Fund will provide shareholders with notice at least 60
days prior to the implementation of any change in the 80% Policy.
No assurance can be given that the Funds investment objectives will be achieved. See
Investment Objectives and Policies.
Management and Fees
Gabelli Funds, LLC serves as the Funds investment adviser. The Investment Advisers fee is
computed weekly and paid monthly, equal on an annual basis to 1.00% of the Funds average weekly
net assets including the liquidation value of preferred stock. The fee paid by the Fund may be
higher when leverage, in the form of preferred stock is utilized, giving the
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Investment Adviser an incentive to utilize such leverage. However, the Investment Adviser has
agreed to reduce the management fee on the incremental assets attributable to the preferred stock
during the fiscal year if the total return of the net asset value of the common shares of the Fund,
including distributions and advisory fees subject to reduction for that year, does not exceed the
stated dividend rate or corresponding swap rate of each particular series of preferred stock for
the period. In other words, if the effective cost of the leverage for any series of preferred
stock exceeds the total return (based on net asset value) on the Funds common stock, the
Investment Adviser will waive that portion of its management fee on the incremental assets
attributable to the leverage for that series of preferred stock to mitigate the negative impact of
the leverage on the common shareholders total return. This fee waiver is voluntary and will
remain in effect as long as any preferred stock in a series is outstanding. The Funds total
return on the net asset value of the common stock is monitored on a monthly basis to assess whether
the total return on the net asset value of the common stock exceeds the stated dividend rate or
corresponding swap rate of each particular series of preferred stock for the period. The test to
confirm the accrual of the management fee on the assets attributable to each particular series of
preferred stock is annual. The Fund will accrue for the management fee on these assets during the
fiscal year if it appears probable that the Fund will incur the management fee on those additional
assets. See Management of the Fund.
For the year ended December 31, 2010, the Funds total return on the net asset value of the
common stock exceeded the stated dividend rate or net swap expense of all outstanding preferred
stock. Thus, management fees were accrued on these assets.
A discussion regarding the basis for the Boards approval of the continuation of the
investment advisory contract of the Fund is available in the Funds Semi-Annual Report to
shareholders for the six months ended June 30, 2010.
Repurchase of Common Stock
The Board has authorized the Fund to repurchase up to 1,950,000 shares of its common stock on
the open market when the shares are trading at a discount of 5% or more (or such other percentage
as the Board may determine from time to time) from the net asset value of the shares. Although the
Funds Board has authorized such repurchases, the Fund is not required to repurchase its common
stock. In total through December 31, 2010, the Fund has repurchased and retired 1,497,033 Shares
in the open market at an average investment of $8.26 per Share and at an average discount of
approximately 15.33% from its net asset value. Such repurchases are subject to certain notice and
other requirements under the 1940 Act. See Repurchase of Common Stock in the SAI.
Anti-Takeover Provisions
Certain provisions of Maryland law and of the Articles of Incorporation, as amended and
supplemented, of the Fund (the Charter) and the Bylaws of the Fund, as amended from time to time
(the Bylaws and together with the Charter, the Governing Documents), may be regarded as
anti-takeover provisions. Pursuant to these provisions, only one of the three classes of
Directors is elected each year, and the affirmative vote of the holders of 66 2/3% of the Funds
outstanding shares of each class (voting separately) is required to authorize the
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conversion of the Fund from a closed-end to an open-end investment company. The overall
effect of these and other provisions is to render more difficult the accomplishment of a merger
with, or the assumption of control by, a principal stockholder. These provisions may have the
effect of depriving Fund stockholders of an opportunity to sell their stock at a premium to the
prevailing market price. See Anti-Takeover Provisions of the Funds Governing Documents.
Custodian, Transfer Agent and Dividend Disbursing Agent
State Street Bank and Trust Company (the Custodian), located at 150 Royall Street, Canton,
MA 02021, serves as the custodian of the Funds assets pursuant to a custody agreement. Under the
custody agreement, the Custodian holds the Funds assets in compliance with the 1940 Act. For its
services, the Custodian will receive a monthly fee based upon the average weekly value of the total
assets of the Fund, plus certain charges for securities transactions.
Computershare Trust Company, N.A. (Computershare), located at 250 Royall Street, Canton,
Massachusetts 02021, serves as the Funds dividend disbursing agent, as agent under the Funds
automatic dividend reinvestment and voluntary cash purchase plan (the Plan), and as transfer
agent and registrar for Shares of common stock of the Fund.
Risk Factors and Special Considerations
The following summarizes some of the matters that you should consider before investing in the
Fund through the Offer.
|
|
|
Dilution
|
|
Shareholders who do not exercise their Rights
may, at the completion of the Offer, own a
smaller proportional interest in the Fund than
if they exercised their Rights. As a result
of the Offer, you may experience dilution in
net asset value per Share if the Subscription
Price per Share is below the net asset value
per Share on the Expiration Date. If the
Subscription Price per Share is below the net
asset value per Share of the Funds Shares on
the Expiration Date, you will experience an
immediate dilution of the aggregate net asset
value of your Shares if you do not participate
in the Offer and you will experience a
reduction in the net asset value per Share of
your Shares whether or not you participate in
the Offer. The Fund cannot state precisely
the extent of this dilution (if any) if you do
not exercise your Rights because the Fund does
not know what the net asset value per Share
will be when the Offer Expires or what
proportion of the Rights will be exercised.
Assuming, for example, that all Rights are
exercised, the Subscription Price is $[] and
the |
-7-
|
|
|
|
|
Funds net asset value per Share at the
expiration of the Offer is $[], the Funds
net asset value per Share (after payment of
estimated offering expenses) would be reduced
by approximately $[][(%)] per Share. See
Risk Factors and Special Considerations
Dilution. |
|
|
|
|
|
If you do not wish to exercise your Rights,
you should consider selling them as set forth
in this Prospectus. The Fund cannot give any
assurance, however, that a market for the
Rights will develop or that the Rights will
have any marketable value. |
|
|
|
Leveraging
|
|
The Fund currently uses, and intends to
continue to use, financial leverage for
investment purposes by issuing preferred
stock. As of [December 31, 2010], the amount
of leverage represented approximately [22%] of
the Funds total assets. The Funds leveraged
capital structure creates special risks not
associated with unleveraged funds having
similar investment objectives and policies.
These include the possibility of greater loss
and the likelihood of higher volatility of the
net asset value of the Fund and the asset
coverage for preferred stock. Such volatility
may increase the likelihood of the Fund having
to sell investments in order to meet its
obligations to make distributions on the
preferred stock, or to redeem preferred stock
when it may be disadvantageous to do so.
Also, if the Fund is utilizing leverage, a
decline in net asset value could affect the
ability of the Fund to make common stock
distributions and such a failure to pay
dividends or make distributions could result
in the Fund ceasing to qualify as a regulated
investment company under the Internal Revenue
Code of 1986, as amended (the Code). See
Investment Objectives and Policies
Leveraging and Risk Factors and Special
Considerations Leverage. |
|
|
|
Market Loss
|
|
Shares of closed-end funds frequently trade at
a market price that is less then the value of
the net assets attributable to those shares.
The possibility that Shares of the Fund will
trade at a discount from net asset value or at
premiums that |
-8-
|
|
|
|
|
are unsustainable over the long
term are risks separate and distinct from the
risk that the Funds net asset value will
decrease. The risk of purchasing shares of a
closed-end fund that might trade at a discount
or unsustainable premium is more pronounced
for investors who wish to sell their shares in
a relatively short period of time because, for
those investors, realization of a gain or loss
on their investments is likely to be more
dependent upon the existence of a premium or
discount than upon portfolio performance. The
Funds Shares are not subject to redemption.
Shareholders desiring liquidity may, subject
to applicable securities laws, trade their
Shares in the Fund on the NYSE or other
markets on which such shares may trade at the
then current market value, which may differ
from the then current net asset value. See
Risk Factors and Special Considerations
Market Value and Net Asset Value. |
|
|
|
Share Repurchases
|
|
The Board has authorized the Fund to
repurchase up to 1,950,000 Shares on the open
market when the Shares are trading at a
discount of 5% or more (or such other
percentage as the Board may determine from
time to time) from the net asset value of the
Shares. Although the Funds Board has
authorized such repurchases, the Fund is not
required to repurchase its common stock. In
total through December 31, 2010, the Fund has
repurchased and retired 1,497,033 Shares in
the open market at an average investment of
$8.26 per Share and at an average discount of
approximately 15.33% from its net asset value.
Such repurchases are subject to certain
notice and other requirements under the 1940
Act. See Description of Capital Stock
Repurchase of Common Stock. |
|
|
|
Anti-Takeover Provisions
|
|
Certain provisions of Maryland law and of the
Charter and the Bylaws of the Fund, as amended
from time to time (the Bylaws and together
with the Charter, the Governing Documents),
may be regarded as anti-takeover provisions.
Pursuant to these provisions, only one of the
three classes of Directors is elected each
year, and the affirmative vote of the holders
of 66 |
-9-
|
|
|
|
|
2/3% of the Funds outstanding Shares of
each class (voting separately) is required to
authorize the conversion of the Fund from a
closed-end to an open-end investment company.
The overall effect of these provisions is to
render more difficult the accomplishment of a
merger with, or the assumption of control by,
a principal stockholder. These and other
provisions may have the effect of depriving
Fund stockholders of an opportunity to sell
their stock at a premium to the prevailing
market price. See Anti-Takeover Provisions
of the Funds Governing Documents. |
|
|
|
Non-Diversified Status
|
|
As a non-diversified, closed-end management
investment company under the 1940 Act, the
Fund may invest a greater portion of its
assets in a more limited number of issuers
than may a diversified fund, and accordingly,
an investment in the Fund may, under certain
circumstances, present greater risk to an
investor than an investment in a diversified
company. See Risk Factors and Special
ConsiderationsNon-Diversified Status. |
|
|
|
Industry Concentration Risk
|
|
The Fund invests a significant portion of its
assets in companies in the telecommunications,
media, publishing and entertainment industries
and, as a result, the value of the Funds
Shares will be more susceptible to factors
affecting those particular types of companies,
including government regulation, greater price
volatility for the overall market, rapid
obsolescence of products and services, intense
competition and strong market reactions to
technological developments. See Risk Factors
and Special Considerations Industry
Concentration Risk. |
|
|
|
Smaller Companies Risk
|
|
The Fund invests in smaller companies which
may benefit from the development of new
products and services. These smaller
companies may involve greater investment risk
than large, established issuers. See Risk
Factors and Special Considerations Smaller
Companies. |
|
|
|
Foreign Securities
|
|
There is no limitation on the amount of
foreign securities in which the Fund may
invest. |
-10-
|
|
|
|
|
Investing in securities of foreign
companies (or foreign governments), which are
generally denominated in foreign currencies,
may involve certain risks and opportunities
not typically associated with investing in
domestic companies and could cause the Fund to
be affected favorably or unfavorably by
changes in currency exchange rates and
revaluation of currencies. See Risk Factors
and Special Considerations Foreign
Securities. |
|
|
|
Dependence on Key Personnel
|
|
The Investment Adviser is dependent upon the
expertise of Mr. Mario J. Gabelli in providing
advisory services with respect to the Funds
investments. If the Investment Adviser were
to lose the services of Mr. Gabelli, its
ability to service the Fund could be adversely
affected. There can be no assurance that a
suitable replacement could be found for Mr.
Gabelli in the event of his death,
resignation, retirement or inability to act on
behalf of the Investment Adviser. See Risk
Factors and Special Considerations
Dependence on Key Personnel. |
|
|
|
Taxation
|
|
The Fund has qualified, and intends to remain
qualified, for federal income tax purposes as
a regulated investment company. Qualification
requires, among other things, compliance by
the Fund with certain distribution
requirements. The Fund is also, however,
subject to certain statutory limitations on
distributions on its Shares if the Fund fails
to satisfy the 1940 Acts asset coverage
requirements, which could jeopardize the
Funds ability to meet the regulated
investment company distribution requirements.
See Taxation for a more complete discussion. |
-11-
FEES AND EXPENSES
The following table sets forth certain fees and expenses of the Fund.
|
|
|
|
|
Shareholder Transaction Expenses |
|
|
|
|
Sales Load (as a percentage of offering price)(1)
|
|
|
|
[None] |
Offering Expenses Borne by the Fund (as a percentage of offering price)(2)
|
|
|
|
[%] |
Voluntary Cash Purchase Plan Purchase Fees(3)
|
|
|
|
$[0.75] |
Automatic Dividend Reinvestment and Cash Purchase Plan Sales Fees(3)
|
|
|
|
$[2.50] |
|
|
|
|
|
Annual Expenses (as a percentage of net assets attributable to common
shares) |
|
|
|
|
Management Fees(4)
|
|
|
|
[1.00%] |
Interest Payments on Borrowed Funds
|
|
|
|
[None] |
Dividends on preferred shares(5)
|
|
|
|
[%] |
Other Expenses(6)
|
|
|
|
[%] |
|
|
|
|
Total annual fund operating expenses and dividends on
Preferred shares
|
|
|
[%] |
|
Total Annual Expenses
|
|
|
|
[%] |
|
|
|
|
|
|
|
(1) |
|
No sales load will be charged by the Fund in connection with this Offer. However, Rights
holders that choose to exercise their Rights through broker-dealers, banks or other nominees
may incur a servicing fee charged by such broker-dealer, bank or nominee. |
|
(2) |
|
The fees and expenses of the Offer will be borne by the Fund and indirectly by all of its
common shareholders, including those who do not exercise their Rights. |
|
(3) |
|
Shareholders participating in the Funds Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plans would pay $[0.75] plus their pro rata share of brokerage commissions per
transaction to purchase Shares and $[2.50] plus their pro rata share of brokerage commissions
per transaction to sell Shares. See Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plans. |
|
(4) |
|
The Investment Adviser has voluntarily agreed to reduce the management fee on the incremental
assets attributable to the preferred stock during the fiscal year if the total return of the
net asset value of the Shares of the Fund, including distributions and advisory fees subject
to reduction for that year, does not exceed the stated dividend rate or corresponding swap
rate of each particular series of preferred stock for the period. The Funds total return on
the net asset value of the Shares is monitored on a monthly basis to assess whether the total
return on the net asset value of the Shares exceeds the stated dividend rate or corresponding
swap rate of each particular series of preferred stock for the period. The test to confirm
the accrual of the management fee on the assets attributable to each particular series of
preferred stock is annual. The Fund will accrue for the management fee on these assets during
the fiscal year if it appears probable that the Fund will incur the management fee on those
additional assets. For the year ended December 31, 2010, the Funds total return on the net
asset value of the Shares exceeded the stated dividend rate or net swap expense of all
outstanding preferred stock, and thus management fees were accrued on those assets. |
|
(5) |
|
The Dividends on preferred shares represent distributions on the preferred shares
outstanding. |
|
(6) |
|
Amounts are based on estimated amounts for the Funds current fiscal year after giving effect
to anticipated net proceeds of the Offer, assuming that all of the Rights are exercised. |
-12-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Example |
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
|
10 Years |
|
You would pay the following
expenses on a $1,000
investment, assuming a 5%
annual return: |
|
$ |
[] |
|
|
$ |
[] |
|
|
$ |
[] |
|
|
$ |
[] |
|
The foregoing fee table and example are intended to assist investors in understanding the
costs and expenses that an investor in the Fund will bear directly or indirectly.
The table above and the assumption in the example of a 5% annual return are required by
Securities and Exchange Commission (SEC) regulations applicable to all management investment
companies. THE EXAMPLE AND FEE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. THE ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR LESS THAN THOSE
SHOWN. The figures provided under Other Expenses are based upon estimated amounts for the
current fiscal year. For more complete descriptions of certain of the Funds cost and expenses,
see Management of the Fund in this Prospectus and the SAI.
-13-
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you under the Funds financial
performance. The selected data below sets forth the per share operating performance and ratios for
the periods presented. The financial information was derived from and should be read in
conjunction with the Financial Statements of the Fund and Notes thereto, which are incorporated by
reference into this Prospectus and the SAI. The financial information for the fiscal years ended
December 31, 2010, 2009, 2008, 2007, and 2006 has been audited by [], the Funds independent
registered public accounting firm, whose unqualified report on such Financial Statements is
incorporated by reference into the SAI.
Selected data for a share outstanding throughout each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Operating Performance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of
period |
|
$ |
[] |
|
|
$ |
5.40 |
|
|
$ |
14.39 |
|
|
$ |
14.09 |
|
|
$ |
11.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
[] |
|
|
|
0.05 |
|
|
|
0.14 |
|
|
|
0.10 |
|
|
|
0.29 |
|
Net realized and unrealized
gain/(loss) on investments,
swap contracts, and foreign
currency transactions |
|
|
[] |
|
|
|
2.33 |
|
|
|
(8.41 |
) |
|
|
1.15 |
|
|
|
2.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations |
|
|
[] |
|
|
|
2.38 |
|
|
|
(8.27 |
) |
|
|
1.25 |
|
|
|
3.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Preferred
Shareholders: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
[] |
|
|
|
(0.02 |
) |
|
|
(0.13 |
) |
|
|
(0.02 |
) |
|
|
(0.07 |
) |
Net realized gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.18 |
) |
|
|
(0.12 |
) |
Return of capital |
|
|
[] |
|
|
|
(0.07 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to
preferred shareholders |
|
|
[] |
|
|
|
(0.09 |
) |
|
|
(0.16 |
) |
|
|
(0.20 |
) |
|
|
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase/(Decrease) in Net
Assets Attributable to Common
Shareholders Resulting from
Operations |
|
|
[] |
|
|
|
2.29 |
|
|
|
(8.43 |
) |
|
|
1.05 |
|
|
|
2.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Common
Shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
[] |
|
|
|
|
|
|
|
|
|
|
|
(0.08 |
) |
|
|
(0.23 |
) |
Net realized gain |
|
|
[] |
|
|
|
|
|
|
|
|
|
|
|
(0.67 |
) |
|
|
(0.40 |
) |
Return of capital |
|
|
[] |
|
|
|
|
|
|
|
(0.57 |
) |
|
|
0.00 |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to common
shareholders |
|
|
[] |
|
|
|
|
|
|
|
(0.57 |
) |
|
|
(0.75 |
) |
|
|
(0.63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-14-
|
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|
Year Ended December 31, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Fund Share Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in net asset value
from repurchase of common
shares |
|
|
[] |
|
|
|
0.01 |
|
|
|
0.00 |
(f) |
|
|
0.00 |
(f) |
|
|
0.00 |
(f) |
Increase in net asset value
from repurchase of preferred
shares |
|
|
[] |
|
|
|
0.00 |
(f) |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
Offering expenses charged to
paid-in capital |
|
|
[] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fund share transactions |
|
|
[] |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.00 |
(f) |
|
|
0.00 |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value Attributable to
Common Shareholders, End of
Period |
|
$ |
[] |
|
|
$ |
7.70 |
|
|
$ |
5.40 |
|
|
$ |
14.39 |
|
|
$ |
14.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV total return |
|
|
[] |
% |
|
|
42.59 |
% |
|
|
(59.40) |
% |
|
|
8.03 |
% |
|
|
26.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value, end of period |
|
$ |
[] |
|
|
$ |
6.63 |
|
|
$ |
4.45 |
|
|
$ |
12.89 |
|
|
$ |
12.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment total return |
|
|
[] |
% |
|
|
48.99 |
% |
|
|
(62.65) |
% |
|
|
11.13 |
% |
|
|
27.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
Operating Performance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of
period |
|
$ |
12.27 |
|
|
$ |
10.56 |
|
|
$ |
7.67 |
|
|
$ |
10.52 |
|
|
$ |
12.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
|
0.16 |
|
|
|
0.04 |
|
|
|
(0.03 |
) |
|
|
(0.00 |
)(f) |
|
|
(0.02 |
) |
Net realized and unrealized
gain/(loss) on investments,
swap contracts, and foreign
currency transactions |
|
|
0.09 |
|
|
|
1.79 |
|
|
|
3.14 |
|
|
|
(2.68 |
) |
|
|
(1.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations |
|
|
0.25 |
|
|
|
1.83 |
|
|
|
3.11 |
|
|
|
(2.68 |
) |
|
|
(1.46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Preferred
Shareholders: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
(0.03 |
) |
|
|
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain |
|
|
(0.13 |
) |
|
|
(0.09 |
) |
|
|
(0.13 |
) |
|
|
(0.17 |
) |
|
|
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to
preferred shareholders |
|
|
(0.16 |
) |
|
|
(0.13 |
) |
|
|
(0.13 |
) |
|
|
(0.17 |
) |
|
|
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase/(Decrease) in Net
Assets Attributable to Common
Shareholders Resulting from
Operations |
|
|
0.09 |
|
|
|
1.70 |
|
|
|
2.98 |
|
|
|
(2.85 |
) |
|
|
(1.63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Common
Shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.00 |
)(f) |
Net realized gain |
|
|
(0.48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to common
shareholders |
|
|
(0.60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Share Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in net asset value
from repurchase of common
shares |
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.00 |
(f) |
|
|
|
|
-15-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
Increase in net asset value
from repurchase of preferred
shares |
|
|
|
|
|
|
0.00 |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
Offering expenses charged to
paid-in capital |
|
|
(0.00) |
(f) |
|
|
|
|
|
|
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fund share transactions |
|
|
0.01 |
|
|
|
0.01 |
|
|
|
(0.09 |
) |
|
|
0.00 |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value Attributable to
Common Shareholders, End of
Period |
|
$ |
11.77 |
|
|
$ |
12.27 |
|
|
$ |
10.56 |
|
|
$ |
7.67 |
|
|
$ |
10.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV total return |
|
|
1.6 |
% |
|
|
16.2 |
% |
|
|
37.7 |
% |
|
|
(27.1) |
% |
|
|
(13.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value, end of period |
|
$ |
10.15 |
|
|
$ |
10.68 |
|
|
$ |
9.07 |
|
|
$ |
6.40 |
|
|
$ |
9.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment total return |
|
|
0.7 |
% |
|
|
17.8 |
% |
|
|
41.7 |
% |
|
|
(29.0) |
% |
|
|
(12.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
FINANCIAL HIGHLIGHTS (Continued)
Selected data for a share outstanding throughout each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Ratios and Supplemental
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets including
liquidation value of
preferred shares, end of
period (in 000s) |
|
$ |
[] |
|
|
$ |
141,164 |
|
|
$ |
122,401 |
|
|
$ |
251,334 |
|
|
$ |
247,412 |
|
Net assets attributable to
common shares, end of
period (in 000s) |
|
$ |
[] |
|
|
$ |
106,386 |
|
|
$ |
75,619 |
|
|
$ |
201,506 |
|
|
$ |
197,584 |
|
Ratio of net investment
income to average net
assets attributable to
common shares before
preferred share
distributions |
|
|
[] |
% |
|
|
0.88 |
% |
|
|
1.40 |
% |
|
|
0.46 |
% |
|
|
2.17 |
% |
Ratio of operating
expenses to average net
assets attributable to
common shares before fees
waived |
|
|
[] |
% |
|
|
2.46 |
% |
|
|
1.89 |
% |
|
|
|
|
|
|
|
|
Ratio of operating
expenses to average net
assets attributable to
common shares net of
advisory fee reduction, if
any (b) |
|
|
[] |
% |
|
|
2.43 |
% |
|
|
1.54 |
% |
|
|
1.62 |
% |
|
|
1.79 |
% |
Ratio of operating
expenses to average net
assets including
liquidation value of
preferred shares before
fees waived |
|
|
[] |
% |
|
|
1.70 |
% |
|
|
1.40 |
% |
|
|
|
|
|
|
|
|
Ratio of operating
expenses to average net
assets including
liquidation value of
preferred shares net of
advisory fee reduction, if
any (b) |
|
|
[] |
% |
|
|
1.68 |
% |
|
|
1.14 |
% |
|
|
1.32 |
% |
|
|
1.39 |
% |
-16-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Portfolio turnover rate |
|
|
[] |
% |
|
|
9.6 |
% |
|
|
14.5 |
% |
|
|
14.5 |
% |
|
|
9.8 |
% |
Preferred Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.00% Series B Cumulative
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation value, end of
period (in 000s) |
|
$ |
[] |
|
|
$ |
19,778 |
|
|
$ |
24,281 |
|
|
$ |
24,828 |
|
|
$ |
24,828 |
|
Total shares outstanding
(in 000s) |
|
|
[] |
|
|
|
791 |
|
|
|
971 |
|
|
|
993 |
|
|
|
993 |
|
Liquidation preference per
share |
|
$ |
[] |
|
|
$ |
25.00 |
|
|
$ |
25.00 |
|
|
$ |
25.00 |
|
|
$ |
25.00 |
|
Average market value (c) |
|
$ |
[] |
|
|
$ |
23.53 |
|
|
$ |
22.59 |
|
|
$ |
24.14 |
|
|
$ |
24.12 |
|
Asset coverage per share |
|
$ |
[] |
|
|
$ |
101.48 |
|
|
$ |
65.41 |
|
|
$ |
126.10 |
|
|
$ |
124.13 |
|
Series C Auction Rate
Cumulative Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation value, end of
period (in 000s) |
|
$ |
[] |
|
|
$ |
15,000 |
|
|
$ |
22,500 |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
Total shares outstanding
(in 000s) |
|
|
[] |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Liquidation preference per
share |
|
$ |
[] |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
Average market value (d) |
|
$ |
[] |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
Asset coverage per share |
|
$ |
[] |
|
|
$ |
101,475 |
|
|
$ |
65,411 |
|
|
$ |
126,101 |
|
|
$ |
124,134 |
|
Asset Coverage (e) |
|
|
[] |
% |
|
|
406 |
% |
|
|
262 |
% |
|
|
504 |
% |
|
|
497 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
Ratios and Supplemental
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets including
liquidation value of
preferred shares, end of
period (in 000s) |
|
$ |
214,907 |
|
|
$ |
223,739 |
|
|
$ |
200,195 |
|
|
$ |
132,683 |
|
|
$ |
181,539 |
|
Net assets attributable to
common shares, end of
period (in 000s) |
|
$ |
165,079 |
|
|
$ |
173,912 |
|
|
$ |
150,195 |
|
|
$ |
109,533 |
|
|
$ |
150,672 |
|
Ratio of net investment
income to average net
assets attributable to
common shares before
preferred share
distributions |
|
|
1.44 |
% |
|
|
0.71 |
% |
|
|
(0.36) |
% |
|
|
(0.04) |
% |
|
|
(0.18) |
% |
Ratio of operating
expenses to average net
assets attributable to
common shares net of
advisory fee reduction, if
any (b) |
|
|
1.55 |
% |
|
|
1.87 |
% |
|
|
1.81 |
% |
|
|
1.46 |
% |
|
|
1.34 |
% |
Ratio of operating
expenses to average net
assets including
liquidation value of
preferred shares net of
advisory fee reduction, if
any (b) |
|
|
1.20 |
% |
|
|
1.41 |
% |
|
|
1.35 |
% |
|
|
1.18 |
% |
|
|
1.13 |
% |
Portfolio turnover rate |
|
|
12.4 |
% |
|
|
7.5 |
% |
|
|
10.9 |
% |
|
|
16.6 |
% |
|
|
25.4 |
% |
-17-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
Preferred Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.92% Cumulative
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation value, end of
period (in 000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,150 |
|
|
$ |
30,867 |
|
Total shares outstanding
(in 000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
926 |
|
|
|
1,235 |
|
Liquidation preference per
share |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
25.00 |
|
|
$ |
25.00 |
|
Average market value (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
25.75 |
|
|
$ |
25.50 |
|
Asset coverage per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
143.29 |
|
|
$ |
147.00 |
|
6.00% Series B Cumulative
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation value, end of
period (in 000s) |
|
$ |
24,828 |
|
|
$ |
24,828 |
|
|
$ |
25,000 |
|
|
|
|
|
|
|
|
|
Total shares outstanding
(in 000s) |
|
|
993 |
|
|
|
993 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
Liquidation preference per
share |
|
$ |
25.00 |
|
|
$ |
25.00 |
|
|
$ |
25.00 |
|
|
|
|
|
|
|
|
|
Average market value (c) |
|
$ |
25.00 |
|
|
$ |
24.84 |
|
|
$ |
25.28 |
|
|
|
|
|
|
|
|
|
Asset coverage per share |
|
$ |
107.83 |
|
|
$ |
112.26 |
|
|
$ |
100.10 |
|
|
|
|
|
|
|
|
|
Series C Auction Rate
Cumulative Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation value, end of
period (in 000s) |
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
|
|
|
|
|
|
|
Total shares outstanding
(in 000s) |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Liquidation preference per
share |
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
|
|
|
|
|
|
|
Average market value (d) |
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
$ |
25,000 |
|
|
|
|
|
|
|
|
|
Asset coverage per share |
|
$ |
107,825 |
|
|
$ |
112,257 |
|
|
$ |
100,097 |
|
|
|
|
|
|
|
|
|
Asset Coverage (e) |
|
|
431 |
% |
|
|
449 |
% |
|
|
400 |
% |
|
|
573 |
% |
|
|
588 |
% |
|
|
|
|
|
Based on net asset value per share, adjusted for reinvestment of
distributions at prices determined under the Funds dividend
reinvestment plan. |
|
|
|
Based on market value per share, adjusted for reinvestment of
distributions at prices determined under the Funds dividend
reinvestment plan. |
|
|
|
Effective in 2008, a change in accounting policy was adopted with
regard to the calculation of the portfolio turnover rate to include
cash proceeds due to mergers. Had this policy been adopted
retroactively, the portfolio turnover rate for the years ended December
31, 2007, 2006, 2005, 2004, 2003, 2002, and 2001 would have been 14.8%,
16.5%, 14.5%, 8.9%, [], [], and [], respectively. |
|
(a) |
|
Calculated based upon average common shares outstanding on the record
dates throughout the year. |
|
(b) |
|
For the years ended December 31, 2008, 2007, 2006, and 2005, the effect
of the custodian fee credits was minimal. |
|
(c) |
|
Based on weekly prices. |
|
(d) |
|
Based on weekly auction prices. Since February 2008, the weekly
auctions have failed. Holders that have submitted orders have not been
able to sell any or all of their stock in the auctions. |
|
(e) |
|
Asset coverage is calculated by combining all series of preferred stock. |
|
(f) |
|
Amount represents less than $0.005 per share. |
-18-
THE OFFER
Terms of the Offer
The Fund is issuing to Record Date Shareholders Rights to subscribe for additional Shares.
Each Record Date Shareholder is being issued one transferable Right for each Share owned on the
Record Date. The Right entitles the holder to acquire at the Subscription Price one Share for each
[three] Rights held rounded up to the nearest number of Rights evenly divisible by [three].
Fractional shares will not be issued upon the exercise of the Rights. Accordingly, Shares may be
purchased only pursuant to the exercise of Rights in integral multiples of [three]. In the case of
Shares held of record by Cede & Co. (Cede), as nominee for the Depository Trust Company (DTC),
or any other depository or nominee, the number of Rights issued to Cede or such other depository or
nominee will be adjusted to permit rounding up (to the nearest number of Rights evenly divisible by
[three]) of the Rights to be received by beneficial owners for whom it is the holder of record only
if Cede or such other depository or nominee provides to the Fund on or before the close of business
on [] a written representation to the number of Rights required for such rounding. Rights may be
exercised at any time during the period (the Subscription Period), which commences on [] and
ends at 5:00 p.m., Eastern Time, on [], unless extended by the Fund to a date not later than [],
5:00 p.m., Eastern Time. See Expiration of the Offer. The Right to acquire one additional Share
for each [three] Rights held during the Subscription Period at the Subscription Price will be
referred to in the remainder of this Prospectus as the Primary Subscription.
In addition, any Record Date Shareholder who fully exercises all Rights initially issued to
him is entitled to subscribe for Shares available for Primary Subscription (the Primary
Subscription Shares) that were not otherwise subscribed for by other Rights holders on Primary
Subscription. In the event that the Funds per Share net asset value on the Expiration Date is
equal to or less than the Subscription Price, the Fund, in its sole discretion, would also be able
to issue additional Shares in an amount of up to [20%] of the Primary Subscription Shares (the
Secondary Over-Subscription Shares) to satisfy over-subscription requests in excess of the
available Primary Subscription Shares. The entitlement to subscribe for unsubscribed Primary
Subscription Shares and any Secondary Over-Subscription Shares is available only to those Record
Date Shareholders who fully exercise all Rights initially issued to them and only on the basis of
their Record Date holdings and will be referred to in the remainder of this Prospectus as the
Over-Subscription Privilege. For purposes of determining the maximum number of Shares a Record
Date Shareholder may acquire pursuant to the Offer, broker-dealers whose Shares are held of record
by Cede, nominee for DTC, or by any other depository or nominee, will be deemed to be the holders
of the Rights that are issued to Cede or such other depository or nominee on their behalf. Shares
acquired pursuant to the Over-Subscription Privilege are subject to allotment, which is more fully
discussed below under Over-Subscription Privilege. Rights acquired in the secondary market may
not participate in the over-subscription privilege.
Officers of the Investment Adviser have advised the Fund that the Affiliated Parties, as
Record Date Shareholders, have been authorized to purchase Shares through the Primary Subscription
and the Over-Subscription Privilege to the extent Shares become available to them in accordance
with the Primary Subscription and the allotment provisions of the Over-Subscription Privilege. In
addition, Mr. Mario J. Gabelli, individually or his affiliated entities, as
-19-
a Record Date Shareholder, may also purchase Shares through the Primary Subscription and
the Over-Subscription Privilege. Such over-subscriptions by Affiliated Parties and Mr. Gabelli may
disproportionately increase their already existing ownership, resulting in a higher percentage
ownership of outstanding Shares if any Record Date Shareholder fails to fully exercise its Rights.
Any Shares acquired, whether by Primary Subscription or the Over-Subscription Privilege, by the
Affiliated Parties or Mr. Gabelli, as affiliates of the Fund as that term is defined under the
Securities Act of 1933, as amended (the Securities Act), may only be sold in accordance with Rule
144 under the Securities Act or another applicable exemption or pursuant to an effective
registration statement under the Securities Act. In general, under Rule 144, as currently in
effect, an affiliate of the Fund is entitled to sell, within any three-month period, a number of
Shares that does not exceed the greater of 1% of the then outstanding Shares or the average weekly
reported trading volume of the Shares during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain restrictions on the manner of sale, to notice
requirements and to the availability of current public information about the Fund. In addition,
any profit resulting from the sale of Shares so acquired, if the Shares are held for a period of
less than six months, will be returned to the Fund.
Rights will be evidenced by Subscription Certificates. The number of Rights issued to each
holder will be stated on the Subscription Certificate delivered to the holder. The method by which
Rights may be exercised and Shares paid for is set forth below in Method of Exercise of Rights
and Payment for Shares. A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received payment. See Payment for Shares below. Shares issued pursuant
to an exercise of Rights will be listed on the NYSE.
The Rights are transferable until the Expiration Date and will be admitted for trading on the
NYSE. Assuming a market exists for the Rights, the Rights may be purchased and sold through usual
brokerage channels and sold through the Subscription Agent. Although no assurance can be given
that a market for the Rights will develop, trading in the Rights on the NYSE will begin three
Business Days before the Record Date and may be conducted until the close of trading on the last
NYSE trading day prior to the Expiration Date due to normal settlement procedures. Rights that are
sold will not confer any right to acquire any Shares in the Over-Subscription Privilege, and any
Record Date Shareholder who sells any Rights will not be eligible to participate in the secondary
over-subscription (the Secondary Over-Subscription). Trading of the Rights on the NYSE will be
conducted on a when-issued basis until and including the date on which the Subscription
Certificates are mailed to Record Date Shareholders and thereafter, will be conducted on a regular
way basis until and including the last NYSE trading day prior to the Expiration Date. The method
by which Rights may be transferred is set forth below under Method of Transferring Rights. The
Shares will begin trading on the NYSE and will begin trading ex-Rights two Business Days prior to
the Record Date.
Nominees who hold the Funds Shares for the account of others, such as banks, broker-dealers,
or depositories for securities, should notify the respective beneficial owners of such Shares as
soon as possible to ascertain such beneficial owners intentions and to obtain instructions with
respect to the Rights. Nominees should also notify holders purchasing Rights in the secondary
market that such Rights may not participate in the Over-Subscription Privilege. If the beneficial
owner so instructs, the nominee will complete the Subscription Certificate and submit it to the
Subscription Agent with proper payment. In addition, beneficial owners of the
-20-
Shares or Rights held through such a nominee should contact the nominee and request the
nominee to effect transactions in accordance with such beneficial owners instructions.
Purpose of the Offer
The Board has determined that it would be in the best interests of the Fund and the
shareholders to increase the assets of the Fund available for investment, thereby permitting the
Fund to be in a better position to more fully take advantage of investment opportunities that may
arise without having to reduce existing Fund holdings. The Offer seeks to reward existing
shareholders by giving them the right to purchase additional Shares at a price that may be below
market and/or net asset value without incurring any commission charge. The distribution to
shareholders of transferable Rights, which themselves may have intrinsic value, will also afford
non-subscribing shareholders the potential of receiving a cash payment upon sale of such Rights,
receipt of which may be viewed as partial compensation for the possible dilution of their interests
in the Fund.
The Investment Adviser and BNY Mellon Asset Servicing, its sub-administrator (the
Sub-Administrator), will benefit from the Offer because the Investment Advisers fee and the
Sub-Administrators fee are based on the average net assets of the Fund. See Management of the
Fund. It is not possible to state precisely the amount of additional compensation the Investment
Adviser or Sub-Administrator will receive as a result of the Offer because the proceeds of the
Offer will be invested in additional portfolio securities, which will fluctuate in value. However,
assuming all Rights are exercised and that the Fund receives the maximum proceeds of the Offer, the
annual compensation to be received by the Investment Adviser and the Sub-Administrator would be
increased by approximately $[] and $[], respectively. One of the Funds Directors, Mr. Mario J.
Gabelli, who voted to authorize the Offer, is an interested person of the Investment Adviser
within the meaning of the 1940 Act. The Funds Board considered that Mr. Gabelli may benefit both
directly and indirectly from the Offer because of how he is compensated as a portfolio manager of
the Fund, and because of his interest in the Investment Adviser, respectively. See Management of
the Fund in the SAI. In determining that the Offer was in the best interest of shareholders, the
Funds Board was cognizant of this benefit as well as the possible participation of the Affiliated
Parties and Mr. Gabelli in the Offer as shareholders on the same basis as other shareholders.
In August 1995 and June 2000, the Fund issued transferable rights to shareholders entitling
the holders thereof to subscribe for an aggregate of 2,869,137 and 3,598,938, respectively, of the
Shares at the rate of one Share for each three rights held and entitling shareholders to subscribe
for any Shares not acquired by exercise of primary subscription rights. The subscription price in
the August 1995 offering was $6.50 per Share, representing a discount to the prevailing net asset
value of the Shares at the time of the offer of approximately 21.59%, and a discount from market
value of the Shares of approximately 16.13%. The subscription price in the June 2000 offering was
$13.00 per Share, representing a discount to the prevailing net asset value of the Share at the
time of the offer of approximately 30.85%, and a discount from market value of the Shares of
approximately 11.11%. Each rights offering was substantially oversubscribed, resulting in the
issuance of the maximum number of Shares being offered. The Fund raised $18,649,391 in the 1995
offering, and $46,786,194 in the 2000 offering, while subscriptions remitted to the Fund totaled
more than $44,000,000 and
-21-
$86,000,000, respectively. As a percentage of the Shares outstanding on the record date for
each offering, more than [80%] participated in the 1995 offering, and more than [80%] participated
in the 2000 offering. The foregoing information is historical, and provided for informational
purposes only. There is no guarantee or assurance that the Offer will effect similar results.
The Fund may, in the future and at its discretion, choose to make additional rights offerings
from time to time for a number of shares and on terms which may or may not be similar to the Offer.
Any such future rights offering will be made in accordance with the 1940 Act. Under the laws of
the State of Maryland, the state in which the Fund is incorporated, the Board is authorized to
approve rights offerings without obtaining shareholder approval. The staff of the SEC has
interpreted the 1940 Act as not requiring shareholder approval of a rights offering at a price
below the then current net asset value so long as certain conditions are met, including a good
faith determination by the Funds Board of Directors that such offering would result in a net
benefit to existing shareholders.
Over-Subscription Privilege
If all of the Rights initially issued are not exercised, any Primary Subscription Shares for
which subscriptions have not been received will be offered, by means of the Over-Subscription
Privilege, to Record Date Shareholders who have exercised all the Rights initially issued to them
and who wish to acquire additional Shares. Record Date Shareholders who exercise all the Rights
initially issued to them will have the opportunity to indicate on the Subscription Certificate how
many Shares they are willing to acquire pursuant to the Over-Subscription Privilege. If sufficient
Primary Subscription Shares remain after the Primary Subscriptions have been exercised, all
over-subscription requests will be honored in full. If sufficient Primary Subscription Shares are
not available to honor all subscription requests, the Shares will be allocated among those Record
Date Shareholders who over-subscribe based on the number of Rights originally issued to them by the
Fund. Rights acquired in the secondary market may not participate in the over-subscription
privilege.
In addition, the Board of Directors of the Fund has established a [Pricing Committee] which is
authorized, in the event that the Funds per Share net asset value on the Expiration Date is at or
below the Subscription Price, to direct the Fund to issue Secondary Over-Subscription Shares to
satisfy over-subscription requests in excess of the available Primary Subscription Shares in an
amount of up to [20%] of the Primary Subscription Shares. Should the [Pricing Committee] determine
to issue some or all of these Secondary Over-Subscription Shares, they will be allocated only among
Record Date Shareholders that submitted over-subscription requests. Secondary Over-Subscription
Shares will be allocated pro rata amount those fully exercising Record Date Shareholders who
over-subscribe based on the number of Rights originally issued to them by the Fund. Any Secondary
Over-Subscription Shares issued by the Fund, collectively with any Primary Subscription Shares not
subscribed for through the Primary Subscription, will be referred to in this Prospectus as the
Excess Shares.
The percentage of Excess Shares each over-subscribing Record Date Shareholder may acquire will
be rounded down to result in delivery of whole Shares; provided, however, that if a pro rata
allocation results in any holder being allocated a greater number of Excess Shares than the holder
subscribed for pursuant to the exercise of such holders Over-Subscription Privilege,
-22-
then such holder will be allocated only such number of Excess Shares as such holder subscribed
for and the remaining Excess Shares will be allocated among all other holders then entitled to
receive Excess Shares whose over-subscription requests have not been fully honored. The allocation
process may be iterative in order to assure that the total number of Excess Shares is distributed
in accordance with the method described above.
The formula to be used in allocating the Excess Shares is as follows:
|
|
|
|
|
Shareholders Record Date
Position
Total Record Date Position
of All Over-Subscribers
|
|
X
|
|
Excess Shares
Remaining |
The Fund will not offer or sell any Shares which are not subscribed for under the Primary
Subscription or the Over-Subscription Privilege.
The Subscription Price
The Subscription Price for the Shares to be issued pursuant to the Rights will be $[].
The Fund announced the Offer on [December 9, 2010]. The net asset value per Share at the
close of business on [December 8, 2010] (the last date prior to the Funds announcement of the
Offer), was $[9.19]. The last reported sale price of a Share on the NYSE on that date was $[8.34],
representing a [9.25% discount] in relation to the then current net asset value per Share and a
[premium] in relation to the Subscription Price.
Sales by Subscription Agent
Holders of Rights who are unable or do not wish to exercise any or all of their Rights may
instruct the Subscription Agent to sell any unexercised Rights. The Subscription Certificates
representing the Rights to be sold by the Subscription Agent must be received on or before [].
Upon the timely receipt of the appropriate instructions to sell Rights, the Subscription Agent will
use its best efforts to complete the sale and will remit the proceeds of sale, net of commissions,
to the holders. If the Rights can be sold, sales of the Rights will be deemed to have been
effected at the weighted average price received by the Subscription Agent on the day such Rights
are sold. The selling Rights holder will pay all brokerage commissions incurred by the
Subscription Agent. These sales may be effected by the Subscription Agent through Gabelli &
Company, Inc., a registered broker-dealer and an affiliate of the Investment Adviser, at a
commission of up to $[0.02] per Right, provided that if the Subscription Agent is able to negotiate
a lower brokerage commission with an independent broker, the Subscription Agent will execute these
sales through that independent broker. Gabelli & Company, Inc. may also act on behalf of its
clients to purchase or sell Rights in the open market and be compensated for its services. The
Subscription Agent will automatically attempt to sell any unexercised Rights that remain unclaimed
as a result of Subscription Certificates being returned by the postal authorities as undeliverable
as of the fourth Business Day prior to the Expiration Date. These sales will be made net of
commissions on behalf of the nonclaiming Rights holders. Proceeds
-23-
from those sales will be held by Computershare, in its capacity as the Funds transfer agent,
for the account of the nonclaiming Rights holder until the proceeds are either claimed or
escheated. There can be no assurance that the Subscription Agent will be able to complete the sale
of any of these Rights and neither the Fund nor the Subscription Agent has guaranteed any minimum
sales price for the Rights. All of these Rights will be sold at the market price, if any, on the
NYSE or through an unaffiliated market maker if no market exists on the NYSE.
Method of Transferring Rights
The Rights evidenced by a single Subscription Certificate may be transferred in whole by
endorsing the Subscription Certificate for transfer in accordance with the accompanying
instructions. A portion of the Rights evidenced by a single Subscription Certificate (but not
fractional Rights) may be transferred by delivering to the Subscription Agent a Subscription
Certificate properly endorsed for transfer, with instructions to register the portion of the Rights
evidenced thereby in the name of the transferee (and to issue a new Subscription Certificate to the
transferee evidencing the transferred Rights). In this event, a new Subscription Certificate
evidencing the balance of the Rights will be issued to the Rights holder or, if the Rights holder
so instructs, to an additional transferee.
Holders wishing to transfer all or a portion of their Rights (but not fractional Rights)
should allow at least three Business Days prior to the Expiration Date for (i) the transfer
instructions to be received and processed by the Subscription Agent, (ii) a new Subscription
Certificate to be issued and transmitted to the transferee or transferees with respect to
transferred Rights, and to the transferor with respect to retained rights, if any, and (iii) the
Rights evidenced by the new Subscription Certificates to be exercised or sold by the recipients
thereof. Neither the Fund nor the Subscription Agent shall have any liability to a transferee or
transferor of Rights if Subscription Certificates are not received in time for exercise or sale
prior to the Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid by the Fund as
described below), all commissions, fees and other expenses (including brokerage commissions and
transfer taxes) incurred in connection with the purchase, sale or exercise of Rights will be for
the account of the transferor of the Rights, and none of these commissions, fees or expenses will
be paid by the Fund or the Subscription Agent.
The Fund anticipates that the Rights will be eligible for transfer through, and that the
exercise of the Primary Subscription and Over-Subscription Privilege may be effected through, the
facilities of DTC.
Expiration of the Offer
The Offer will expire at 5:00 p.m., Eastern Time, on [], unless extended by the Fund to a
date not later than [], 5:00 p.m., Eastern Time (the Expiration Date). Rights will expire on
the Expiration Date and thereafter may not be exercised.
-24-
Subscription Agent
The Subscription Agent is []. The Subscription Agent will receive from the Fund an amount
estimated to be $[], comprised of the fee for its services and the reimbursement for certain
expenses related to the Offer. Inquiries by all holders of Rights should be directed to [].
Holders may also consult their brokers or nominees.
Method of Exercise of Rights
Rights may be exercised directly with the Fund by filling in and signing the reverse side of
the Subscription Certificate and mailing it in the envelope provided, or otherwise delivering the
completed and signed Subscription Certificate to the Subscription Agent, together with payment for
the Shares as described below under Payment for Shares. Rights may also be exercised through a
Rights holders broker, bank or trust company, who may charge the Rights holder a servicing fee in
connection with such exercise. Please contact your broker, bank or trust company for specific
instructions.
Completed Subscription Certificates must be received by the Subscription Agent prior to 5:00
p.m., Eastern Time, on the Expiration Date (unless payment is effected by means of a notice of
guaranteed delivery as described below under Payment for Shares). The Subscription Certificate
and payment should be delivered to [] at the following address:
|
|
|
If By Mail:
|
|
[] |
|
|
|
If By Hand:
|
|
[] |
|
|
|
If By Overnight Courier:
|
|
[] |
Payment for Shares
Holders of Rights who acquire Shares on Primary Subscription or pursuant to the
Over-Subscription Privilege may choose between the following methods of payment:
(1) A subscription will be accepted by the Subscription Agent if, prior to 5:00 p.m., Eastern
Time, on the Expiration Date, the Subscription Agent has received a notice of guaranteed delivery
by telegram or otherwise from a bank, a trust company, or a NYSE member, guaranteeing delivery of:
(i) payment of the full Subscription Price for the Shares subscribed for on the Primary
Subscription and any additional Shares subscribed for pursuant to the Over-Subscription Privilege,
and (ii) a properly completed and executed Subscription Certificate, which: (1) designates your
primary subscription and secondary over-subscription amounts, (2) provides a check (or amount in
notice of guaranteed delivery), (3) indicates whether you participate in the Funds automatic
dividend reinvestment and cash purchase plan and wish to receive a certificate, and (4) indicates
whether you want to sell or transfer your rights. The Subscription Agent will not honor a notice
of guaranteed delivery if a properly completed and executed Subscription Certificate and full
payment is not received by the Subscription Agent by the close of business on the third Business
Day after the Expiration Date. The notice of guaranteed delivery may be delivered to the
Subscription Agent in the same manner as
-25-
Subscription Certificates at the addresses set forth above, or may be transmitted to the
Subscription Agent by facsimile transmission to fax number []; telephone number to confirm receipt
[].
(2) Alternatively, a holder of Rights can send the Subscription Certificate together with
payment in the form of a check for the Shares subscribed for on Primary Subscription and additional
Shares subscribed for pursuant to the Over-Subscription Privilege to the Subscription Agent based
on the Subscription Price of $[] per Share. To be accepted, the payment, together with the
executed Subscription Certificate, must be received by the Subscription Agent at the addresses
noted above prior to 5:00 p.m., Eastern Time, on the Expiration Date. The Subscription Agent will
deposit all stock purchase checks received by it prior to the final due date into a segregated
interest-bearing account pending proration and distribution of Shares. The Subscription Agent will
not accept cash as a means of payment for Shares. EXCEPT AS OTHERWISE SET FORTH BELOW, A PAYMENT
PURSUANT TO THIS METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK
LOCATED IN THE CONTINENTAL UNITED STATES, MUST BE PAYABLE TO THE GABELLI GLOBAL MULTIMEDIA TRUST
INC., AND MUST ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. If the aggregate
Subscription Price paid by a Record Date Shareholder is insufficient to purchase the number of
Shares that the holder indicates are being subscribed for, or if a Record Date Shareholder does not
specify the number of Shares to be purchased, then the Record Date Shareholder will be deemed to
have exercised first, the Primary Subscription Rights (if not already fully exercised) and second,
the Over-Subscription Privilege to the full extent of the payment tendered. If the aggregate
Subscription Price paid by such holder is greater than the Shares he has indicated an intention to
subscribe, then the Rights holder will be deemed to have exercised first, the Primary Subscription
Rights (if not already fully subscribed) and second, the Over-Subscription Privilege to the full
extent of the excess payment tendered.
Any payment required from a holder of Rights must be received by the Subscription Agent by the
Expiration Date, or if the Rights holder has elected to make payment by means of a notice of
guaranteed delivery, on the third Business Day after the Expiration Date. Whichever of the two
methods of payment described above is used, issuance and delivery of certificates for the Shares
purchased are subject to collection of checks and actual payment pursuant to any notice of
guaranteed delivery.
Within ten Business Days following the Expiration Date (the Confirmation Date), a
confirmation will be sent by the Subscription Agent to each holder of Rights (or, if the Shares are
held by Cede or any other depository or nominee, to Cede or such other depository or nominee),
showing (i) the number of Shares acquired pursuant to the Primary Subscription, (ii) the number of
Excess Shares, if any, acquired pursuant to the Over-Subscription Privilege, (iii) the per Share
and total purchase price for the Shares and (iv) any excess to be refunded by the Fund to such
holder as a result of payment for Shares pursuant to the Over-Subscription Privilege which the
holder is not acquiring. Any payment required from a holder of Rights must be received by the
Subscription Agent on the Expiration Date, or if the Rights holder has elected to make payment by
means of a notice of guaranteed delivery, on the third Business Day after the Expiration Date. Any
excess payment to be refunded by the Fund to a holder of Rights, or to be paid to a holder of
-26-
Rights as a result of sales of Rights on his behalf by the Subscription Agent or exercises by
Record Date Shareholders of their Over-Subscription Privileges, and all interest accrued on the
holders excess payment will be mailed by the Subscription Agent to the holder within fifteen
Business Days after the Expiration Date. Interest on the excess payment will accrue through the
date that is one Business Day prior to the mail date of the reimbursement check. All payments by a
holder of Rights must be in United States dollars by money order or check drawn on a bank located
in the continental United States of America and payable to The Gabelli Global Multimedia Trust
Inc., except that holders of Rights who are residents of Canada may make payment in U.S. dollars by
money order or check drawn on a bank located in Canada.
A Rights holder will have no right to rescind a purchase after the Subscription Agent has
received payment either by means of a notice of guaranteed delivery or a check.
If a holder of Rights who acquires Shares pursuant to the Primary Subscription or the
Over-Subscription Privilege does not make payment of any amounts due, the Fund reserves the right
to take any or all of the following actions: (i) find other purchasers for such subscribed-for and
unpaid-for Shares; (ii) apply any payment actually received by it toward the purchase of the
greatest whole number of Shares which could be acquired by such holder upon exercise of the Primary
Subscription or the Over-Subscription Privilege; (iii) sell all or a portion of the Shares
purchased by the holder, in the open market, and apply the proceeds to the amounts owed; and (iv)
exercise any and all other rights or remedies to which it may be entitled, including, without
limitation, the right to set off against payments actually received by it with respect to such
subscribed Shares and to enforce the relevant guaranty of payment.
Nominees who hold Shares for the account of others, such as brokers, dealers or depositories
for securities, should notify the respective beneficial owners of the Shares as soon as possible to
ascertain such beneficial owners intentions and to obtain instructions with respect to the Rights.
If the beneficial owner so instructs, the record holder of the Rights should complete Subscription
Certificates and submit them to the Subscription Agent with the proper payment. In addition,
beneficial owners of Shares or Rights held through such a nominee should contact the nominee and
request the nominee to effect transactions in accordance with the beneficial owners instructions.
Banks, broker-dealers and trust companies that hold Shares for the accounts of others are advised
to notify those persons that purchase Rights in the secondary market that such Rights may not
participate in the Over-Subscription Privilege.
THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION CERTIFICATES SHOULD BE READ CAREFULLY AND
FOLLOWED IN DETAIL. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE FUND.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE TO
THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF THE RIGHTS HOLDERS, BUT, IF SENT BY
MAIL, IT IS RECOMMENDED THAT THE CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE
DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., EASTERN TIME, ON
THE EXPIRATION DATE. BECAUSE UNCERTIFIED
-27-
PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS OR MORE TO CLEAR, YOU ARE STRONGLY URGED
TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF A CERTIFIED OR CASHIERS CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of any exercise of
Rights will be determined by the Fund, whose determinations will be final and binding. The Fund,
in its sole discretion, may waive any defect or irregularity, or permit a defect or irregularity to
be corrected within such time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all irregularities have
been waived or cured within such time as the Fund determines in its sole discretion. Neither the
Fund nor the Subscription Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription Certificates or incur any liability
for failure to give such notification.
Delivery of Stock Certificates
Certificates representing Shares purchased pursuant to the Primary Subscription will be
delivered to subscribers as soon as practicable after the corresponding Rights have been validly
exercised and full payment for the Shares has been received and cleared. Certificates representing
Shares purchased pursuant to the Over-Subscription Privilege will be delivered to subscribers as
soon as practicable after the Expiration Date and after all allocations have been effected.
Participants in the Funds Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan (the
Plan) will be issued Rights for these Shares held in their accounts in the Plan. Participants
wishing to exercise these Rights must exercise the Rights in accordance with the procedures set
forth above in Method of Exercise of Rights and Payment for Shares. Rights will not be
exercised automatically by the Plan. Plan participants exercising their Rights will receive their
Primary and Over-Subscription Shares via an uncertificated credit to their existing account. To
request a stock certificate, participants in the Plan should check the appropriate box on the
Subscription Certificate. These Shares will remain subject to the same investment option as
previously selected by the Plan participant.
Foreign Restrictions
Subscription Certificates will be mailed only to Record Date Shareholders whose addresses are
within the United States and Canada (other than an APO or FPO address). Record Date Shareholders
whose addresses are outside the United States and Canada or who have an APO or FPO address and who
wish to subscribe to the Offer either in part or in full should contact the Subscription Agent by
written instruction or recorded telephone conversation no later than three Business Days prior to
the Expiration Date. The Fund will determine whether the Offering may be made to any such
shareholder. If the Subscription Agent has received no instruction by the third Business Day prior
to the Expiration Date or the Fund has determined that the Offering may not be made to a particular
shareholder, the Subscription Agent will attempt to sell all of such shareholders Rights and remit
the net proceeds, if any, to such shareholder. If the Rights can be sold, sales of these Rights
will be deemed to have been effected at the weighted average price received by the Subscription
Agent on the day the Rights are sold, less any applicable brokerage commissions, taxes and other
expenses.
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Under the securities laws of the Province of Quebec, investors residing in Quebec may,
subject to compliance with all applicable regulatory requirements, transfer either the Rights or
the Shares to be acquired upon the exercise of these Rights to other subscribers of the Offer, to
persons with whom they are related or to persons residing outside of Quebec in a transaction
effected on an organized market.
Under the securities laws of the Province of Ontario, investors residing in Ontario may,
subject to compliance with all applicable regulatory requirements, transfer either the Rights or
the Shares to be acquired upon the exercise of such Rights: (i) through a dealer registered in
Ontario that effects the transaction through the facilities of the NYSE; or (ii) through certain
other means as provided under and in compliance with Ontario securities laws.
Federal Income Tax Consequences
The following is a general summary of the significant federal income tax consequences of the
receipt of Rights by a Record Date Shareholder and a subsequent lapse, exercise or sale of such
Rights. The discussion also addresses the significant federal income tax consequences to a holder
that purchases Rights in a secondary-market transaction (e.g., on the NYSE). The discussion is
based upon applicable provisions of the Internal Revenue Code of 1986, as amended (the Code), the
Treasury Regulations promulgated thereunder and other authorities currently in effect, and does not
address state or local tax consequences. Moreover, the discussion assumes that the fair market
value of the Rights distributed to all of the Record Date Shareholders will, upon the date of such
distribution, be less than 15% of the total fair market value of all of the Shares on such date.
Record Date Shareholders
For federal income tax purposes, neither the receipt nor the exercise of Rights by a Record
Date Shareholder will result in taxable income to such shareholder, and no taxable loss will be
realized by a Record Date Shareholder who allows his Rights to expire without exercise. A taxable
gain or loss recognized by a Record Date Shareholder upon a sale of a Right will be a capital gain
or loss (assuming the Right is held as a capital asset at the time of sale) and will be a
short-term capital gain or loss. A Record Date Shareholders holding period for a Share acquired
upon exercise of a Right (a New Share) begins with the date of exercise of the Right. A taxable
gain or loss recognized by a Record Date Shareholder upon a sale of a New Share will be a capital
gain or loss (assuming the New Share is held as a capital asset at the time of sale) and will be a
long-term capital gain or loss if the New Share has been held at the time of sale for more than one
year.
Unless a Record Date Shareholder makes the election described in the following paragraph, his
basis for determining gain or loss upon the sale of a Right will be zero and his basis for
determining gain or loss upon the sale of a New Share will be equal to the sum of the Subscription
Price for the New Share and any servicing fee charged to the shareholder by his broker, bank or
trust company. Moreover, unless a Record Date Shareholder makes the election described in the
following paragraph, the receipt of a Right and the lapse, sale or exercise thereof will have no
effect on the federal income tax basis of those Shares that such shareholder originally owned
(Original Shares).
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A Record Date Shareholder may make an election to allocate the federal income tax basis of his
Original Shares between such Original Shares and all of the Rights that he receives pursuant to the
Offer in proportion to their respective fair market values as of the date of distribution of the
Rights. Thus, if such an election is made and the Record Date Shareholder sells or exercises his
Rights, the shareholders basis in his Original Shares will be reduced by an amount equal to the
basis allocated to the Rights. This election is irrevocable and must be made in a statement
attached to the shareholders federal income tax return for the taxable year in which the Rights
are distributed. If an electing Record Date Shareholder exercises his Rights, the basis of his New
Shares will be equal to the sum of the Subscription Price for such New Shares (as increased by any
servicing fee charged to the shareholder by his broker, bank or trust company) plus the basis
allocated to such Rights as described above. Accordingly, Record Date Shareholders should consider
the advisability of making the above-described election if they intend to exercise their Rights.
However, if an electing Record Date Shareholder does not sell or exercise his Rights, no taxable
loss will be realized as a result of the lapse of such Rights and no portion of the shareholders
basis in his Original Shares will be allocated to the unexercised Rights.
Purchasers of Rights
For federal income tax purposes, the exercise of Rights by a purchaser who acquires such
Rights on the NYSE or in another secondary-market transaction will not result in taxable income to
such purchaser, and a taxable loss will be realized by a purchaser who allows his Rights to expire
without exercise. Such taxable loss will be a short-term capital loss if the purchaser holds the
Rights as capital assets at the time of their expiration. A taxable gain or loss recognized by a
purchaser upon a sale of a Right will be a capital gain or loss (assuming the Right is held as a
capital asset at the time of sale) and will be a short-term capital gain or loss. A purchasers
basis for determining gain or loss upon the sale of a New Share acquired through the exercise of a
Right will be equal to the sum of the Subscription Price for the New Share plus the purchase price
of the Right or Rights that were exercised in order to acquire such New Share (with such
Subscription Price and purchase price each being increased by any applicable servicing fees charged
to the purchaser by his broker, bank or trust company). A purchasers holding period for a New
Share acquired upon exercise of a Right begins with the date of exercise of the Right. A taxable
gain or loss recognized by a purchaser upon a sale of a New Share will be a capital gain or loss
(assuming the New Share is held as a capital asset at the time of sale) and will be a long-term
capital gain or loss if the New Share has been held at the time of sale for more than one year.
Employee Plan Considerations
Rights holders that are employee benefit plans subject to Title I of the Employee Retirement
Income Security Act of 1974, as amended (ERISA), or individual retirement accounts (IRAs) and
other plans, accounts or arrangements that are subject to Section 4975 of the Code (each, a
Benefit Plan, and collectively, Benefit Plans), should be aware that additional contributions
of cash in order to exercise Rights may be treated as Benefit Plan contributions and, when taken
together with contributions previously made, may subject a Benefit Plan to excise taxes for excess
or nondeductible contributions. In the case of Benefit Plans qualified under Section 401(a) of the
Code, additional cash contributions could cause the
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maximum contribution limitations of Section 415 of the Code or other qualification rules to be
violated. Benefit Plans contemplating making additional cash contributions to exercise Rights
should consult with their counsel prior to making such contributions.
Benefit Plans and other tax exempt entities, including some governmental plans, should also be
aware that if they borrow in order to finance their exercise of Rights, or in order to otherwise
acquire or hold Shares, they may become subject to the tax on unrelated business taxable income
(UBTI) under Section 511 of the Code. If any portion of an IRA is used as security for a loan,
the portion so used is also treated as distributed to the IRA depositor.
ERISA contains prudence and diversification requirements and ERISA and the Code contain
prohibited transaction rules that may impact the exercise of Rights. The foregoing discussion with
respect to Benefit Plans is general in nature and is not intended to be all-inclusive. Due to the
complexity of these rules and regulations, it is particularly important for Benefit Plans that
exercise Rights to consult with their counsel regarding the potential applicability of ERISA, the
Code and any other similar laws to such investment.
USE OF PROCEEDS
The net proceeds of the Offer, assuming all Primary Subscription Shares offered hereby are
sold, are estimated to be approximately $[], after deducting expenses payable by the Fund
estimated at approximately $[]. The net proceeds of the Offer, assuming all Secondary
Over-Subscription Shares are sold in addition to all Primary Subscription Shares, are estimated to
be approximately $[], before deducting expenses payable by the Fund estimated to be $[]. The
Investment Adviser anticipates that investment of the proceeds will be made in accordance with the
Funds investment objectives and policies as appropriate investment opportunities are identified,
which is expected to be substantially completed in approximately [three months]; however, the
identification of appropriate investment opportunities pursuant to the Investment Advisers
investment style or changes in market conditions may cause the investment period to extend as long
as [six months]. Pending such investment, the proceeds will he held in [high quality short-term
debt securities and instruments].
INVESTMENT OBJECTIVES AND POLICIES
The Funds primary investment objective is to achieve long-term growth of capital by investing
primarily in the common stock and other securities of foreign and domestic companies involved in
the telecommunications, media, publishing and entertainment industries. Income is the secondary
investment objective. The investment objectives of long-term growth of capital and income are
fundamental policies of the Fund. The Funds policy of concentration in companies in the
communications industries is also a fundamental policy of the Fund. These fundamental policies and
the investment limitations described in the SAI under the caption Investment Restrictions cannot
be changed without the approval of the holders of a majority of the Funds outstanding voting
securities. Such majority votes require, in each case, the lesser of (i) 67% of the Funds
applicable shares represented at a meeting at which more than 50% of the Funds applicable shares
outstanding are represented, whether in person or by proxy, or (ii) more than 50% of the
outstanding shares of the applicable class.
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Under normal market conditions, the Fund will invest at least 80% of the value of its assets
in common stock and other securities, including convertible securities, preferred stock, options,
and warrants of companies in the telecommunications, media, publishing, and entertainment
industries. A company will be considered to be in these industries if it derives at least 50% of
its revenues or earnings from, or devotes at least 50% of its assets to, the indicated activities
or multimedia-related activities. The 80% Policy may be changed without shareholder approval. The
Fund will provide shareholders with notice at least 60 days prior to the implementation of any
change in the 80% Policy.
The telecommunications companies in which the Fund may invest are engaged in the development,
manufacture or sale of communications services or equipment throughout the world, including the
following products or services: regular telephone service; wireless communications services and
equipment, including cellular telephone, microwave and satellite communications, paging, and other
emerging wireless technologies; equipment and services for both data and voice transmission,
including computer hardware and software; electronic components and communications equipment; video
conferencing; electronic mail; local and wide area networking, and linkage of data and word
processing systems; publishing and information systems; video text and teletext; emerging
technologies combining television, telephone and computer systems; broadcasting, including
television and radio, satellite and microwave transmission and cable television.
The entertainment, media and publishing companies in which the Fund may invest are engaged in
providing the following products or services: the creation, packaging, distribution, and ownership
of entertainment programming throughout the world, including pre-recorded music, feature-length
motion pictures, made-for-TV movies, television series, documentaries, animation, game shows,
sports programming and news programs; live events such as professional sporting events or concerts,
theatrical exhibitions, television and radio broadcasting, satellite and microwave transmission,
cable television systems and programming, broadcast and cable networks, wireless cable television
and other emerging distribution technologies; home video, interactive and multimedia programming,
including home shopping and multiplayer games; publishing, including newspapers, magazines and
books, advertising agencies and niche advertising mediums such as in-store or direct mail; emerging
technologies combining television, telephone and computer systems, computer hardware and software;
and equipment used in the creation and distribution of entertainment programming such as that
required in the provision of broadcast, cable or telecommunications services.
Under normal circumstances, the Fund will invest in securities of issuers located in at least
three countries, which may include the United States. Investing in securities of foreign issuers,
which generally are denominated in foreign currencies, may involve certain risk and opportunity
considerations not typically associated with investing in domestic companies and could cause the
Fund to be affected favorably or unfavorably by changes in currency exchange rates and revaluations
of currencies. For a further discussion of the risks associated with investing in foreign
securities and a description of other risks inherent in the Funds investment objectives and
policies, see Risk Factors and Special Considerations.
The Investment Adviser believes that at the present time investment by the Fund in the
securities of companies located throughout the world presents great potential for accomplishing
-32-
the Funds investment objectives. While the Investment Adviser expects that a substantial
portion of the Funds portfolio may be invested in the securities of domestic companies, a
significant portion of the Funds portfolio may also be comprised of the securities of issuers
headquartered outside the United States.
No assurance can be given that the Funds investment objectives will be achieved.
Investment Methodology of the Fund
In selecting securities for the Fund, the Investment Adviser normally will consider the
following factors, among others:
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the Investment Advisers own evaluations of the private market value (as defined below),
cash flow, earnings per share and other fundamental aspects of the underlying assets and
business of the company; |
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the potential for capital appreciation of the securities; |
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the interest or dividend income generated by the securities; |
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the prices of the securities relative to other comparable securities; |
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whether the securities are entitled to the benefits of call protection or other protective
covenants; |
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the existence of any anti-dilution protections or guarantees of the security; and |
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the diversification of the portfolio of the Fund as to issuers. |
The Investment Advisers investment philosophy with respect to equity securities is to
identify assets that are selling in the public market at a discount to their private market value.
The Investment Adviser defines private market value as the value informed purchasers are willing to
pay to acquire assets with similar characteristics. The Investment Adviser also normally evaluates
an issuers free cash flow and long-term earnings trends. Finally, the Investment Adviser looks
for a catalyst, something indigenous to the company, its industry or country that will surface
additional value.
Certain Investment Practices
Foreign Securities. There is no limitation on the amount of foreign securities in which the
Fund may invest. Among the foreign securities in which the Fund may invest are those issued by
companies located in developing countries or emerging markets, which are countries in the initial
stages of their industrialization cycles. Investing in the equity and debt markets of developing
countries involves exposure to economic structures that are generally less diverse and less mature,
and to political systems that may have less stability, than those of developed countries. The
markets of developing countries historically have been more volatile than the markets of the more
mature economies of developed countries, but often have provided higher rates of return to
investors.
-33-
The Fund may also invest in the debt securities of foreign governments. Although such
investments are not a principal strategy of the Fund, there is no independent limit on its ability
to invest in the debt securities of foreign governments.
Corporate Reorganizations. The Fund may invest without limit in securities of companies for
which a tender or exchange offer has been made or announced and in securities of companies for
which a merger, consolidation, liquidation or similar reorganization proposal has been announced
if, in the judgment of the Investment Adviser, there is a reasonable prospect of capital
appreciation significantly greater than the added portfolio turnover expenses inherent in the short
term nature of such transactions. The principal risk is that such offers or proposals may not be
consummated within the time and under the terms contemplated at the time of the investment, in
which case, unless such offers or proposals are replaced by equivalent or increased offers or
proposals that are consummated, the Fund may sustain a loss.
Temporary Defensive Investments. Subject to the Funds investment restrictions, when a
temporary defensive period is believed by the Investment Adviser to be warranted (temporary
defensive periods), the Fund may, without limitation, hold cash or invest its assets in securities
of U.S. government sponsored instrumentalities, in repurchase agreements in respect of those
instruments, and in certain high-grade commercial paper instruments. During temporary defensive
periods, the Fund may also invest up to 10% of the market value of its total assets in money market
mutual funds that invest primarily in securities of U.S. government sponsored instrumentalities and
repurchase agreements in respect of those instruments. Obligations of certain agencies and
instrumentalities of the U.S. government, such as the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. government; others, such as those of the
Export-Import Bank of the U.S., are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. government to purchase the agencys obligations; and still
others, such as those of the Student Loan Marketing Association, are supported only by the credit
of the instrumentality. No assurance can be given that the U.S. government would provide financial
support to U.S. government sponsored instrumentalities if it is not obligated to do so by law.
During temporary defensive periods, the Fund may be less likely to achieve its secondary investment
objective of income.
Further information on the investment objectives and policies of the Fund are set forth in the
SAI.
Special Investment Methods
Options. On behalf of the Fund, the Investment Adviser may, subject to guidelines of the
Board, purchase or sell (i.e., write) options on securities, securities indices and foreign
currencies which are listed on a national securities exchange or in the U.S. over-the-counter
(OTC) markets as a means of achieving additional return or of hedging the value of the Funds
portfolio. The Fund may write covered call options on common stocks that it owns or has an
immediate right to acquire through conversion or exchange of other securities in an amount not to
exceed 25% of total assets or invest up to 10% of its total assets in the purchase of put options
on common stocks that the Fund owns or may acquire through the conversion or exchange of other
securities that it owns.
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A call option is a contract that gives the holder of the option the right to buy from the
writer (seller) of the call option, in return for a premium paid, the security underlying the
option at a specified exercise price at any time during the term of the option.
The writer of the call option has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price during the option period.
A put option is a contract that gives the holder of the option the right to sell to the writer
(seller), in return for the premium, the underlying security at a specified price during the term
of the option. The writer of the put, who receives the premium, has the obligation to buy the
underlying security upon exercise, at the exercise price during the option period.
If the Fund has written an option, it may terminate its obligation by effecting a closing
purchase transaction. This is accomplished by purchasing an option of the same series as the
option previously written. There can be no assurance that a closing purchase transaction can be
effected when the Fund so desires.
An exchange traded option may be closed out only on an exchange which provides a secondary
market for an option of the same series. Although the Fund will generally purchase or write only
those options for which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange will exist for any particular option. See Investment
Objectives and PoliciesInvestment Practices in the SAI.
Futures Contracts and Options on Futures. On behalf of the Fund, the Investment Adviser may,
subject to the Funds investment restrictions and guidelines of the Board, purchase and sell
financial futures contracts and options thereon which are traded on a commodities exchange or board
of trade for certain hedging, yield enhancement and risk management purposes. These futures
contracts and related options may be on debt securities, financial indices, securities indices,
United States government securities and foreign currencies. A financial futures contract is an
agreement to purchase or sell an agreed amount of securities or currencies at a set price for
delivery in the future.
The Investment Adviser has claimed an exclusion from the definition of the term commodity
pool operator under the Commodity Exchange Act and therefore, is not subject to the registration
requirements under the Commodity Exchange Act. Accordingly, the Funds investments in derivative
instruments are not limited by or subject to regulation under the Commodity Exchange Act or
otherwise regulated by the Commodity Futures Trading Commission. Nevertheless, the Funds
investment restrictions place certain limitations and prohibitions on its ability to purchase or
sell commodities or commodity contracts. In addition, investment in futures contracts and related
options generally will be limited by the rating agency guidelines applicable to any of the Funds
outstanding preferred stock.
Forward Currency Exchange Contracts. Subject to guidelines of the Board, the Fund may enter
into forward foreign currency exchange contracts to protect the value of its portfolio against
future changes in the level of currency exchange rates. The Fund may enter into such contracts on
a spot (i.e., cash) basis at the rate then prevailing in the currency exchange market or on a
forward basis, by entering into a forward contract to purchase or sell currency. A
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forward contract on foreign currency is an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days agreed upon by the parties from the date of
the contract at a price set on the date of the contract. The Funds dealings in forward contracts
generally will be limited to hedging involving either specific transactions or portfolio positions.
The Fund does not have an independent limitation on its investments in foreign currency futures
contracts and options on foreign currency futures contracts.
Special Risks of Derivative Transactions. Participation in the options or futures markets and
in currency exchange transactions involves investment risks and transaction costs to which the Fund
would not be subject absent the use of these strategies. If the Investment Advisers prediction of
movements in the direction of the securities, foreign currency and interest rate markets are
inaccurate, the consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of options, foreign currency, futures
contracts and options on futures contracts, securities indices and foreign currencies include:
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dependence on the Investment Advisers ability to predict correctly movements in the
direction of interest rates, securities prices and currency markets; |
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imperfect correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities or currencies being hedged; |
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the fact that skills needed to use these strategies are different from those needed to
select portfolio securities; |
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the possible absence of a liquid secondary market for any particular instrument at any
time; |
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the possible need to defer closing out certain hedged positions to avoid adverse tax
consequences; and |
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the possible inability of the Fund to purchase or sell a security at a time that otherwise
would be favorable for it to do so, or the possible need for the Fund to sell a security at a
disadvantageous time due to a need for the Fund to maintain cover or to segregate securities
in connection with the hedging techniques. |
See Risk Factors and Special ConsiderationsFutures Transactions.
Short Sales. The Fund may from time to time make short sales of securities, including short
sales against the box. 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. A short sale against
the box occurs when the Fund contemporaneously owns, or has the right to obtain at no added cost,
securities identical to those sold short.
The market value for the securities sold short of any one issuer will not exceed 5% of the
Funds total assets or 5% of such issuers voting securities. In addition, the Fund may not make
short sales or maintain a short position if it would cause more than 25% of the Funds total
-36-
assets, taken at market value, to be held as collateral for such sales. The Fund may make
short sales against the box without respect to such limitations.
The Fund may make short sales in order to hedge against market risks when it believes that the
price of a security may decline, causing a decline in the value of a security owned by the Fund or
a security convertible into, or exchangeable for, such security, or when the Fund does not want to
sell the security it owns. Such short sale transactions may be subject to special tax rules, one
of the effects of which may be to accelerate income to the Fund. Additionally, the Fund may use
short sales in conjunction with the purchase of a convertible security when it is determined that
the convertible security can be bought at a small conversion premium and has a yield advantage
relative to the underlying common stock sold short.
When the Fund makes a short sale, it will often borrow the security sold short and deliver it
to the broker-dealer through which it made the short sale as collateral for its obligation to
deliver the security upon conclusion of the sale. In connection with such short sales, the Fund
may pay a fee to borrow securities or maintain an arrangement with a broker to borrow securities,
and is often obligated to pay over any accrued interest and dividends on such borrowed securities.
In a short sale, the Fund does not immediately deliver the securities sold or receive the proceeds
from the sale. The Fund may close out a short position by purchasing and delivering an equal
amount of the securities sold short, rather than by delivering securities already held by the Fund,
because the Fund may want to continue to receive interest and dividend payments on securities in
its portfolio that are convertible into the securities sold short.
If the price of the security sold short increases between the time of the short sale and the
time that 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. The successful use of short selling may be
adversely affected by imperfect correlation between movements in the price of the security sold
short and the securities being hedged.
To the extent that the Fund engages in short sales, it will provide collateral to the
broker-dealer and (except in the case of short sales against the box) will maintain additional
asset coverage in the form of segregated or earmarked assets on the records of the Investment
Adviser or with the Funds Custodian, consisting of cash, U.S. government securities or other
liquid securities that is equal to the current market value of the securities sold short, or (in
the case of short sales against the box) will ensure that such positions are covered by
offsetting positions, until the Fund replaces the borrowed security. The Fund will engage in
short selling to the extent permitted by the federal securities laws and rules and interpretations
thereunder, subject to the percentage limitations set forth above. To the extent the Fund engages
in short selling in foreign (non-U.S.) jurisdictions, the Fund will do so to the extent permitted
by the laws and regulations of such jurisdiction.
Repurchase Agreements. The Fund may enter into repurchase agreements with banks and non-bank
dealers of U.S. government securities which are listed as reporting dealers of the Federal Reserve
Bank and which furnish collateral at least equal in value or market price to the amount of their
repurchase obligation. In a repurchase agreement, the Fund purchases a debt security from a seller
who undertakes to repurchase the security at a specified resale price on an
-37-
agreed future date. Repurchase agreements are generally for one Business Day and generally
will not have a duration of longer than one week. The SEC has taken the position that, in economic
reality, a repurchase agreement is a loan by a fund to the other party to the transaction secured
by securities transferred to the fund. The resale price generally exceeds the purchase price by an
amount which reflects an agreed upon market interest rate for the term of the repurchase agreement.
The Funds risk is primarily that, if the seller defaults, the proceeds from the disposition of
the underlying securities and other collateral for the sellers obligation may be less than the
repurchase price. If the seller becomes insolvent, the Fund might be delayed in or prevented from
selling the collateral. In the event of a default or bankruptcy by a seller, the Fund will
promptly seek to liquidate the collateral. To the extent that the proceeds from any sale of the
collateral upon a default in the obligation to repurchase are less than the repurchase price, the
Fund will experience a loss. If the financial institution that is a party to the repurchase
agreement petitions for bankruptcy or becomes subject to the United States Bankruptcy Code, the law
regarding the rights of the Fund is unsettled. As a result, under extreme circumstances, there may
be a restriction on the Funds ability to sell the collateral and the Fund could suffer a loss.
Loans of Portfolio Securities. To increase income, the Fund may lend its portfolio securities
to securities broker-dealers or financial institutions if: (i) the loan is collateralized in
accordance with applicable regulatory requirements, and (ii) no loan will cause the value of all
loaned securities to exceed 20% of the value of its total assets.
If the borrower fails to maintain the requisite amount of collateral, the loan automatically
terminates and the Fund could use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over the value of the collateral. As with any
extension of credit, there are risks of delay in recovery and in some cases even loss of rights in
collateral should the borrower of the securities fail financially. While these loans of portfolio
securities will be made in accordance with guidelines approved by the Funds Board, there can be no
assurance that borrowers will not fail financially. On termination of the loan, the borrower is
required to return the securities to the Fund, and any gain or loss in the market price during the
loan would inure to the Fund. If the counterparty to the loan petitions for bankruptcy or becomes
subject to the United States Bankruptcy Code, the law regarding the Funds rights is unsettled. As
a result, under these circumstances, there may be a restriction on the Funds ability to sell the
collateral and it would suffer a loss.
Borrowing. The Fund may borrow money in accordance with its investment restrictions, including
as a temporary measure for extraordinary or emergency purposes. It may not borrow for investment
purposes.
Leveraging. As provided in the 1940 Act, and subject to compliance with the Funds investment
limitations, the Fund may issue senior securities representing stock, such as preferred stock, so
long as immediately following such issuance of stock, its total assets exceed 200% of the amount of
such stock. The use of leverage magnifies the impact of changes in net asset value. For example,
a fund that uses 33% leverage will show a 1.5% increase or decline in net asset value for each 1%
increase or decline in the value of its total assets. In addition, if the cost of leverage exceeds
the return on the securities acquired with the proceeds of leverage, the use of leverage will
diminish, rather than enhance, the return to the Fund. The use of leverage
-38-
generally increases the volatility of returns to the Fund. The Fund currently has two series
of preferred stock outstanding: the 6.00% Series B Cumulative Preferred Stock and the Series C
Auction Rate Preferred Stock.
Further information on the investment objectives and policies of the Fund is set forth in the
SAI.
Investment Restrictions. The Fund has adopted certain investment restrictions as fundamental
policies of the Fund. Under the 1940 Act, a fundamental policy may not be changed without the vote
of a majority, as defined in the 1940 Act, of the outstanding voting securities of the Fund (voting
together as a single class). The Funds investment restrictions are more fully discussed under
Investment Restrictions in the SAI.
Portfolio Turnover. The Fund will buy and sell securities to accomplish its investment
objective. The investment policies of the Fund may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest or currency exchange rates. The portfolio
turnover may be higher than that of other investment companies.
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. 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). High portfolio turnover may also result in the realization of substantial net
short-term capital gains and any distributions resulting from such gains will be taxable at
ordinary income rates for U.S. federal income tax purposes. The Funds portfolio turnover rates
for the fiscal years ended December 31, 2010, and 2009, were [%] and [9.60%], respectively.
RISK FACTORS AND SPECIAL CONSIDERATIONS
There are a number of risks that an investor should consider in evaluation the Fund. You
should read this entire Prospectus and SAI before you decide whether to exercise your Rights. In
addition, you should consider the matters set forth below.
Principal Risks Associated with the Fund
Dilution
If you do not exercise all of your Rights, you may own a smaller proportional interest in the
Fund when the Offer is over. In addition, you will experience an immediate dilution of the
aggregate net asset value per share of your Shares if you do not participate in the Offer and will
experience a reduction in the net asset value per share whether or not you exercise your Rights, if
the Subscription Price is below the Funds net asset value per Share on the Expiration Date,
because:
|
|
the offered Shares are being sold at less than their current net asset value. |
|
|
you will indirectly bear the expenses of the Offer. |
-39-
|
|
the number of Shares outstanding after the Offer will have increased proportionately more
than the increase in the amount of the Funds net assets. |
On the other hand, if the Subscription Price is above the Funds net asset value per share on
the Expiration Date, you may experience an immediate accretion of the aggregate net asset value per
share of your Shares even if you do not exercise your Rights and an immediate increase in the net
asset value per share of your Shares whether or not you participate in the Offer, because:
|
|
the offered Shares are being sold at more than their current net asset value after
deducting the expenses of the Offer. |
|
|
the number of Shares outstanding after the Offer will have increased proportionately less
than the increase in the amount of the Funds net assets. |
Furthermore, if you do not participate in the Over-Subscription Privilege, your percentage
ownership may also be diluted. The Fund cannot state precisely the amount of any dilution because
it is not known at this time what the net asset value per share will be on the Expiration Date or
what proportion of the Rights will be exercised. The impact of the Offer on net asset value per
share is shown by the following examples, assuming a $[] Subscription Price:
Scenario 1: (assumes net asset value per share is above subscription price)(1)
|
|
|
|
NAV
|
$ |
[] |
|
Subscription Price
|
$ |
[] |
|
Reduction in NAV($)(2)
|
$ |
[] |
|
Reduction in NAV(%)
|
|
[] |
% |
Scenario 2: (assumes net asset value per share is below subscription price)(1) |
|
|
|
NAV
|
$ |
[] |
|
Subscription Price
|
$ |
[] |
|
Increase in NAV($)(2)
|
$ |
[] |
|
Increase in NAV(%)
|
|
[] |
% |
|
|
|
(1) |
|
Both examples assume the full Primary Subscription and Secondary
Over-Subscription Privilege are exercised. Actual amounts may
vary due to rounding. |
|
(2) |
|
Assumes $[] in estimated offering expenses. |
-40-
If you do not wish to exercise your Rights, you should consider selling them as set forth
in this Prospectus. Any cash you receive from selling your Rights should serve as partial
compensation for any possible dilution of your interest in the Fund. The Fund cannot give
assurance, however, that a market for the Rights will develop or that the Rights will have any
marketable value.
Leverage Risk
The Fund uses financial leverage for investment purposes by issuing preferred stock. The
amount of leverage represents approximately [22%] of the Funds Managed Assets (defined as the
aggregate net asset value of outstanding shares of common stock plus assets attributable to
outstanding shares of preferred stock, with no deduction for the liquidation preference of such
shares of preferred stock) as of [December 31, 2010]. The Funds leveraged capital structure
creates special risks not associated with unleveraged funds having similar investment objectives
and policies. These include the possibility of greater loss and the likelihood of higher
volatility of the net asset value of the Fund and the asset coverage. Such volatility may increase
the likelihood of the Funds having to sell investments in order to meet dividend payments on the
preferred stock, or to redeem preferred stock, when it may be disadvantageous to do so. Also, if
the Fund is utilizing leverage, a decline in net asset value could affect the ability of the Fund
to make common stock distribution payments, and such a failure to pay dividends or make
distributions could result in the Funds ceasing to qualify as a regulated investment company under
the Code.
Because the advisory fee paid to the Investment Adviser is calculated on the basis of the
Funds Managed Assets, rather than only on the basis of net assets attributable to the shares of
common stock, the fee may be higher when leverage is utilized, giving the Investment Adviser an
incentive to utilize leverage. However, the Investment Adviser has agreed to reduce any management
fee on the incremental assets attributable to the cumulative preferred stock during the fiscal year
if the total return of the net asset value of the outstanding shares of common stock, including
distributions and advisory fee subject to reduction for that year, does not exceed the stated
dividend rate or corresponding swap rate of each particular series of preferred stock.
Industry Concentration Risk
The Fund invests a significant portion of its assets in companies in the telecommunications,
media, publishing and entertainment industries and, as a result, the value of the Funds shares is
more susceptible to factors affecting those particular types of companies and those industries,
including governmental regulation, a greater price volatility than the overall market, rapid
obsolescence of products and services, intense competition and strong market reactions to
technological developments.
Various types of ownership restrictions are imposed by the Federal Communications Commission,
or FCC, on investment in media companies and cellular licensees. For example, the FCCs broadcast and cable multiple-ownership and cross-ownership rules, which apply to the
radio, television and cable industries, provide that investment advisers are deemed to have an
-41-
attributable interest whenever the adviser has the right to determine how five percent or more of
the issued and outstanding voting stock of a broadcast company or cable system operator may be
voted. These rules limit the number of broadcast stations both locally and nationally that a
single entity is permitted to own, operate, or control and prohibit ownership of certain
competitive communications providers in the same location. The FCC also applies limited ownership
restrictions on cellular licensees serving rural areas. An attributable interest in a cellular
company arises from the right to control 20% or more of its voting stock.
Attributable interests that may result from the role of the Investment Adviser and its
principals in connection with other funds, managed accounts and companies may limit the Funds
ability to invest in certain mass media and cellular companies. In the event that the Investment
Adviser and its affiliates may be deemed to have such an attributable interest, the Board of
Directors of the Fund may delegate, from time to time, to the Funds Proxy Voting Committee, voting
power over certain shares of securities held by the Fund in view of these ownership limitations to
ensure compliance with certain FCC regulations.
Smaller Companies
While the Fund intends to focus on the securities of established suppliers of accepted
products and services, the Fund may also invest in smaller companies which may benefit from the
development of new products and services. These smaller companies may present greater
opportunities for capital appreciation, and may also involve greater investment risk than larger,
more established companies. For example, smaller companies may have more limited product lines,
market or financial resources, and their securities may trade less frequently and in lower volume
than the securities of larger, more established companies. As a result, the prices of the
securities of such smaller companies may fluctuate to a greater degree than the prices of
securities of other issuers.
Long-Term Objective; Not a Complete Investment Program
The Fund is intended for investors seeking long-term capital growth. The Fund is not meant to
provide a vehicle for those who wish to exploit short-term swings in the stock market. An
investment in Shares of the Fund should not be considered a complete investment program. Each
shareholder should take into account the Funds investment objectives as well as the shareholders
other investments when considering an investment in the Fund.
Non-Diversified Status
The Fund is classified as a non-diversified investment company under the 1940 Act, which
means it is not limited by the 1940 Act in the proportion of its assets that may be invested in the
securities of a single issuer. As a non-diversified investment company, the Fund may invest in the
securities of individual issuers to a greater degree than a diversified investment company. As a
result, the Fund may be more vulnerable to events affecting a single issuer and therefore subject
to greater volatility than a fund that is more broadly diversified. Accordingly, an investment in
the Fund may present greater risk to an investor than an investment in a diversified company. To qualify as a regulated investment company, or RIC, for purposes
of the Code, the Fund has in the past conducted and intends to conduct its operations in a manner
-42-
that will relieve it of any liability for federal income tax to the extent its earnings are
distributed to shareholders. To so qualify as a regulated investment company, among other
requirements, the Fund will limit its investments so that, at the close of each quarter of the
taxable year:
|
|
not more than 25% of the market value of its total assets will be invested in the
securities (other than U.S. government securities or the securities of other RICs) of a single
issuer, any two or more issuers in which the fund owns 20% or more of the voting securities
and which are determined to be engaged in the same, similar or related trades or businesses or
in the securities of one or more qualified publicly traded partnerships (as defined in the
Code); and |
|
|
at least 50% of the market value of the Funds assets will be represented by cash,
securities of other regulated investment companies, U.S. government securities and other
securities, with such other securities limited in respect of any one issuer to an amount not
greater than 5% of the value of the its assets and not more than 10% of the outstanding voting
securities of such issuer. |
Market Value and Net Asset Value
The Fund is a non-diversified, closed-end management investment company. Shares of closed-end
funds are bought and sold in the securities markets and may trade at either a premium to or
discount from net asset value. Listed shares of closed-end investment companies often trade at
discounts from net asset value. This characteristic of shares of a closed-end fund is a risk
separate and distinct from the risk that its net asset value may decrease. The Fund cannot predict
whether its listed stock will trade at, below or above net asset value. As of [], the shares
traded at a discount of [%]. Shareholders desiring liquidity may, subject to applicable
securities laws, trade their Fund Shares on the NYSE or other markets on which such shares may
trade at the then-current market value, which may differ from the then-current net asset value.
Shareholders will incur brokerage or other transaction costs to sell stock.
Lower Grade Securities
The Fund may invest up to 10% of its total assets in fixed income securities rated below
investment grade by recognized statistical rating agencies or unrated securities of comparable
quality. These securities, which may be preferred stock or debt, are predominantly speculative and
involve major risk exposure to adverse conditions. Debt securities that are not rated or that are
rated lower than BBB by Standard & Poors, a Division of The McGraw-Hill Companies, Inc. (S&P)
or lower than Baa by Moodys are referred to in the financial press as junk bonds.
Generally, such lower grade securities and unrated securities of comparable quality offer a
higher current yield than is offered by higher rated securities, but also: (i) will likely have
some quality and protective characteristics that, in the judgment of the rating organizations, are
outweighed by large uncertainties or major risk exposures to adverse conditions, and (ii) are
predominantly speculative with respect to the issuers capacity to pay interest and repay principal
in accordance with the terms of the obligation. The market values of certain of these
securities also tend to be more sensitive to individual corporate developments and changes in
economic
-43-
conditions than higher quality securities. In addition, such securities generally present
a higher degree of credit risk. The risk of loss due to default by these issuers is significantly
greater because such lower grade securities and unrated securities of comparable quality generally
are unsecured and frequently are subordinated to the prior payment of senior indebtedness. In
light of these risks, the Investment Adviser, in evaluating the creditworthiness of an issue,
whether rated or unrated, will take various factors into consideration, which may include, as
applicable, the issuers operating history, financial resources and its sensitivity to economic
conditions and trends, the market support for the facility financed by the issue, the perceived
ability and integrity of the issuers management and regulatory matters.
In addition, the market value of securities in lower rated categories is more volatile than
that of higher quality securities, and the markets in which such lower rated or unrated securities
are traded are more limited than those in which higher rated securities are traded. The existence
of limited markets may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value. Moreover, the lack of a
liquid trading market may restrict the availability of securities for the Fund to purchase and may
also have the effect of limiting the ability of the Fund to sell securities at their fair value in
response to changes in the economy or the financial markets.
Lower grade securities also present risks based on payment expectations. If an issuer calls
the obligation for redemption (often a feature of fixed income securities), the Fund may have to
replace the security with a lower yielding security, resulting in a decreased return for investors.
Also, as the principal value of nonconvertible bonds and preferred stocks moves inversely with
movements in interest rates, in the event of rising interest rates, the value of the securities
held by the Fund may decline proportionately more than a portfolio consisting of higher rated
securities. Investments in zero coupon bonds may be more speculative and subject to greater
fluctuations in value due to changes in interest rates than bonds that pay regular income streams.
As part of its investment in lower grade securities, the Fund may invest in securities of
issuers in default. The Fund will make an investment in securities of issuers in default only when
the Investment Adviser believes that such issuers will honor their obligations or emerge from
bankruptcy protection under a plan pursuant to which the securities received by the Fund in
exchange for its defaulted securities will have a value in excess of the Funds investment. By
investing in securities of issuers in default, the Fund bears the risk that these issuers will not
continue to honor their obligations or emerge from bankruptcy protection or that the value of the
securities will not otherwise appreciate.
In addition to using recognized rating agencies and other sources, the Investment Adviser also
performs its own analysis of issues in seeking investments that it believes to be underrated (and
thus higher yielding) in light of the financial condition of the issuer. Its analysis of issuers
may include, among other things, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical cost, strength of management, responsiveness to business
conditions, credit standing, and current anticipated results of operations. In selecting
investments for the Fund, the Investment Adviser may also consider general business
conditions, anticipated changes in interest rates, and the outlook for specific industries.
-44-
Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced. In addition, it is possible that statistical rating agencies may change
their ratings of a particular issue to reflect subsequent events. Moreover, such ratings do not
assess the risk of a decline in market value. None of these events will require the sale of the
securities by the Fund, although the Investment Adviser will consider these events in determining
whether the Fund should continue to hold the securities.
The market for lower grade and comparable unrated securities has experienced several periods
of significantly adverse price and liquidity, particularly at or around times of economic
recessions. Past market recessions have adversely affected the value of such securities as well as
the ability of certain issuers of such securities to repay principal and pay interest thereon or to
refinance such securities. The market for those securities may react in a similar fashion in the
future.
Foreign Securities
Investments in the securities of foreign issuers involve certain considerations and risks not
ordinarily associated with investments in securities of domestic issuers. Foreign companies are
not generally subject to uniform accounting, auditing and financial standards and requirements
comparable to those applicable to U.S. companies. Foreign securities exchanges, brokers and listed
companies may be subject to less government supervision and regulation than exists in the United
States. Dividend and interest income may be subject to withholding and other foreign taxes, which
may adversely affect the net return on such investments. There may be difficulty in obtaining or
enforcing a court judgment abroad. In addition, it may be difficult to effect repatriation of
capital invested in certain countries. In addition, with respect to certain countries, there are
risks of expropriation, confiscatory taxation, political or social instability or diplomatic
developments that could affect assets of the Fund held in foreign countries.
There may be less publicly available information about a foreign company than a U.S. company.
Foreign securities markets may have substantially less volume than U.S. securities markets and some
foreign company securities are less liquid than securities of otherwise comparable U.S. companies.
A portfolio of foreign securities may also be adversely affected by fluctuations in the rates of
exchange between the currencies of different nations and by exchange control regulations. Foreign
markets also have different clearance and settlement procedures that could cause the Fund to
encounter difficulties in purchasing and selling securities on such markets and may result in the
Fund missing attractive investment opportunities or experiencing loss. In addition, a portfolio
that includes foreign securities can expect to have a higher expense ratio because of the increased
transaction costs on non-U.S. securities markets and the increased costs of maintaining the custody
of foreign securities. The Fund does not have an independent limit on the amount of its assets
that it may invest in the securities of foreign issuers.
The Fund also may purchase sponsored American Depository Receipts (ADRs) or U.S. denominated
securities of foreign issuers. ADRs are receipts issued by United States banks or trust companies
in respect of securities of foreign issuers held on deposit for use in the United
States securities markets. While ADRs may not necessarily be denominated in the same currency
as the securities into which they may be converted, many of the risks associated with foreign
securities may also apply to ADRs.
-45-
Futures Transactions
Futures and options on futures entail certain risks, including but not limited to the
following:
|
|
no assurance that futures contracts or options on futures can be offset at favorable
prices; |
|
|
possible reduction of the yield of the Fund due to the use of hedging; |
|
|
possible reduction in value of both the securities hedged and the hedging instrument; |
|
|
possible lack of liquidity due to daily limits or price fluctuations; |
|
|
imperfect correlation between the contracts and the securities being hedged; and |
|
|
losses from investing in futures transactions that are potentially unlimited and the
segregation requirements for such transactions. |
For a further description, see Investment Objectives and PoliciesInvestment Practices in
the SAI.
Forward Currency Exchange Contracts
The use of forward currency exchange contracts may involve certain risks, including the
failure of the counterparty to perform its obligations under the contract and that the use of
forward contracts may not serve as a complete hedge because of an imperfect correlation between
movements in the prices of the contracts and the prices of the currencies hedged or used for cover.
For a further description of such investments, see Investment Objectives and PoliciesInvestment
Practices in the SAI.
Dependence on Key Personnel
The Investment Adviser is dependent upon the expertise of Mr. Mario J. Gabelli in providing
advisory services with respect to the Funds investments. If the Investment Adviser were to lose
the services of Mr. Gabelli, its ability to service the Fund could be adversely affected. There
can be no assurance that a suitable replacement could be found for Mr. Gabelli in the event of his
death, resignation, retirement or inability to act on behalf of the Investment Adviser.
Market Disruption Risk
Certain events have a disruptive effect on the securities markets, such as terrorist attacks,
war and other geopolitical events. The Fund cannot predict the effects of similar events in the
future on the U.S. economy. Lower rated securities and securities of issuers with smaller market
capitalizations tend to be more volatile than higher rated securities and securities of
issuers with larger market capitalizations so that these events and any actions resulting from them
may have a greater impact on the prices and volatility of lower rated securities and securities of
issuers with
-46-
smaller market capitalizations than on higher rated securities and securities of
issuers with larger market capitalizations.
Interest Rate Transactions
The Fund has entered into two interest rate swap transactions with respect to its outstanding
Series C Auction Rate Preferred, and may enter into interest rate swap or cap transactions with
respect to all or a portion of any future series of Variable Rate Preferred Stock in order to
manage the impact on its portfolio of changes in the dividend rate of such stock. The Funds 5
year interest rate swap transaction expired on April 1, 2008, and the Funds 10 year interest rate
swap transaction expires on April 4, 2013. Through these transactions the Fund seeks to obtain the
equivalent of a fixed rate for such Variable Rate Preferred Stock that is lower than the Fund would
have to pay if it issued Fixed Rate Preferred Stock. The use of interest rate swaps and caps is a
highly specialized activity that involves certain risks to the Fund including, among others,
counterparty risk and early termination risk. See How the Fund Manages RiskInterest Rate
Transactions.
Investment Companies
The Fund may invest in the securities of other investment companies to the extent permitted by
law. To the extent the Fund invests in the common equity of investment companies, the Fund will
bear its ratable share of any such investment companys expenses, including management fees. The
Fund will also remain obligated to pay management fees to the Investment Adviser with respect to
the assets invested in the securities of other investment companies. In these circumstances
holders of the Funds common stock will be subject to duplicative investment expenses.
Counterparty Risk
The Fund will be subject to credit risk with respect to the counterparties to the derivative
contracts purchased by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform
its obligations under a derivative contract due to financial difficulties, the Fund may experience
significant delays in obtaining any recovery under the derivative contract in bankruptcy or other
reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery
in such circumstances.
Loans of Portfolio Securities
Consistent with applicable regulatory requirements and the Funds investment restrictions, the
Fund may lend its portfolio securities to securities broker-dealers or financial institutions,
provided that such loans are callable at any time by the Fund (subject to notice provisions
described in the SAI) and are at all times secured by cash or cash equivalents, which are
maintained in a segregated account pursuant to applicable regulations and that are at least equal
to the market value, determined daily, of the loaned securities. The advantage of such loans is
that the Fund continues to receive the income on the loaned securities while at the same
time earning interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations. The Fund will not lend its portfolio securities if such loans are not
permitted by the laws or regulations of any state in which its shares are qualified for sale. The
Funds
-47-
loans of portfolio securities will be collateralized in accordance with applicable
regulatory requirements.
For a further description of such loans of portfolio securities, see Investment Objectives
and PoliciesInvestment PracticesLoans of Portfolio Securities in the SAI.
Management Risk
The Fund is subject to management risk because it is an actively managed portfolio. The
Investment Adviser will apply investment techniques and risk analyses in making investment
decisions for the Fund, but there can be no guarantee that these will produce the desired results.
Anti-Takeover Provisions of the Funds Governing Documents
The Funds Governing Documents include provisions that could limit the ability of other
entities or persons to acquire control of the Fund or convert the Fund to an open-end fund. See
Anti-Takeover Provisions of the Funds Governing Documents.
Status as a Regulated Investment Company
The Fund has qualified, and intends to remain qualified, for federal income tax purposes as a
regulated investment company under Subchapter M of the Code. Qualification requires, among other
things, compliance by the Fund with certain distribution requirements. Statutory limitations on
distributions on the common stock if the Fund fails to satisfy the 1940 Acts asset coverage
requirements could jeopardize the Funds ability to meet such distribution requirements. The Fund
presently intends, however, to purchase or redeem preferred stock to the extent necessary in order
to maintain compliance with such asset coverage requirements. See Taxation for a more complete
discussion of these and other federal income tax considerations.
HOW THE FUND MANAGES RISK
Investment Restrictions
The Fund has adopted certain investment limitations designed to limit investment risk and
maintain portfolio diversification. These limitations are fundamental and may not be changed
without the approval of the holders of a majority, as defined in the 1940 Act, of the outstanding
shares of common stock and preferred stock voting together as a single class. The Fund may become
subject to guidelines that are more limiting than the investment restrictions set forth above in
order to obtain and maintain ratings from Moodys or S&P on its preferred stock. See Investment
Restrictions in the SAI for a complete list of the fundamental and non-fundamental investment
policies of the Fund.
Interest Rate Transactions
The
Fund has entered into two interest rate swap transactions with respect to its outstanding
Series C Auction Rate Preferred and may enter into interest rate swap or cap transactions in
relation to all or a portion of any future series of Variable Rate Preferred Stock in order to
manage the impact on its portfolio of changes in the dividend rate of
such stock.
-48-
The Funds 5
year interest rate swap transaction expired on April 1, 2008, and the Funds 10 year interest rate
swap transaction expires on April 4, 2013. Through these transactions, the Fund may, for example,
obtain the equivalent of a fixed rate for such Variable Rate Preferred Stock that is lower than the
Fund would have to pay if it issued Fixed Rate Preferred Stock.
The use of interest rate swaps and caps is a highly specialized activity that involves
investment techniques and risks different from those associated with ordinary portfolio security
transactions. In an interest rate swap, the Fund would agree to pay to the other party to the
interest rate swap (which is known as the counterparty) periodically a fixed rate payment in
exchange for the counterparty agreeing to pay to the Fund periodically a variable rate payment that
is intended to approximate the Funds variable rate payment obligation on its Variable Rate
Preferred Stock. In an interest rate cap, the Fund would pay a premium to the counterparty to the
interest rate cap and, to the extent that a specified variable rate index exceeds a predetermined
fixed rate, would receive from the counterparty payments of the difference based on the notional
amount of such cap. Interest rate swap and cap transactions introduce additional risk because the
Fund would remain obligated to pay preferred stock dividends or distributions when due in
accordance with the Articles Supplementary of the relevant series of the Variable Rate Preferred
Stock even if the counterparty defaulted. Depending on the general state of short-term interest
rates and the returns on the Funds portfolio securities at that point in time, such a default
could negatively affect the Funds ability to make dividend or distribution payments on the
Variable Rate Preferred Stock. In addition, at the time an interest rate swap or cap transaction
reaches its scheduled termination date, there is a risk that the Fund will not be able to obtain a
replacement transaction or that the terms of the replacement will not be as favorable as on the
expiring transaction. If this occurs, it could have a negative impact on the Funds ability to
make dividend or distribution payments on the Variable Rate Preferred Stock. To the extent there
is a decline in interest rates, the value of the interest rate swap or cap could decline, resulting
in a decline in the asset coverage for the Variable Rate Preferred Stock. A sudden and dramatic
decline in interest rates may result in a significant decline in the asset coverage. Under the
Articles Supplementary for each series of the preferred stock, if the Fund fails to maintain the
required asset coverage on the outstanding preferred stock or fails to comply with other covenants,
the Fund may be required to redeem some or all of these shares. The Fund generally may redeem any
series of Variable Rate Preferred Stock, in whole or in part, at its option at any time (usually on
a dividend or distribution payment date), other than during a non-call period. Such redemption
would likely result in the Fund seeking to terminate early all or a portion of any swap or cap
transactions. Early termination of a swap could result in a termination payment by the Fund to the
counterparty, while early termination of a cap could result in a termination payment to the Fund.
The Fund will usually enter into swaps or caps on a net basis; that is, the two payment
streams will be netted out in a cash settlement on the payment date or dates specified in the
instrument, with the Fund receiving or paying, as the case may be, only the net amount of the
two payments. The Fund intends to segregate cash or liquid securities having a value at least
equal to the value of the Funds net payment obligations under any swap transaction, marked to
market daily. The Fund will monitor any such swap with a view to ensuring that the Fund remains in
compliance with all applicable regulatory investment policy and tax requirements.
-49-
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus and the SAI contain forward-looking statements. Forward-looking statements
can be identified by the words may, will, intend, expect, estimate, continue, plan,
anticipate, and similar terms and the negative of such terms. By their nature, all
forward-looking statements involve risks and uncertainties, and actual results could differ
materially from those contemplated by the forward-looking statements. Several factors that could
materially affect the Funds actual results are the performance of the portfolio of securities the
Fund holds, the conditions in the U.S. and international financial and other markets, the price at
which the Funds Shares will trade in the public markets and other factors discussed in the Funds
periodic filings with the SEC.
Actual results could differ materially from those projected or assumed in the forward-looking
statements. The Funds future financial condition and results of operations, as well as any
forward-looking statements, are subject to change and are subject to inherent risks and
uncertainties, such as those disclosed in the Risk Factors and Special Considerations section of
this Prospectus. All forward-looking statements contained or incorporated by reference in this
prospectus are made as of the date of this Prospectus. Except for the Funds ongoing obligations
under the federal securities laws, the Fund does not intend, and it undertakes no obligation, to
update any forward-looking statement.
Currently known risk factors that could cause actual results to differ materially from the
Funds expectations include, but are not limited to, the factors described in the Risk Factors and
Special Considerations section of this Prospectus. You are urged to review carefully that
section for a more complete discussion of the risks of an investment in the Funds Shares.
MANAGEMENT OF THE FUND
Board of Directors
The business and affairs of the Fund are managed under the direction of the Funds Board (who,
with its officers, are described in the SAI). The Board decides upon matters of general policy and
reviews the actions of the Investment Adviser, Gabelli Funds, LLC, located at One Corporate Center,
Rye, New York 10580-1422, and the Sub-Administrator (as defined below). Pursuant to an Investment
Advisory Contract with the Fund, the Investment Adviser, under the supervision of the Funds Board,
provides a continuous investment program for the Funds portfolio; provides investment research and
makes and executes recommendations for the purchase and sale of securities; and provides all
facilities and personnel, including officers required for its administrative management and pays
the compensation of all officers and Directors of the Fund who are its affiliates.
The Investment Adviser
Gabelli Funds, LLC serves as the Funds Investment Adviser pursuant to the Investment Advisory
Agreement with the Fund. The Investment Adviser is a New York limited liability company with
principal offices located at One Corporate Center, Rye, New York 10580-1422 and is registered under
the Investment Advisers Act of 1940, as amended. The Investment Adviser was organized in 1999 and
is the successor to Gabelli Fund, Inc., which was organized
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in 1980. As of September 30, 2010, the
Investment Adviser acts as a registered investment adviser to 25 management investment companies
with aggregate net assets of $16.6 billion. The Investment Adviser, together with the other
affiliated investment advisers noted below, had assets under management totaling approximately
$30.2 billion as of September 30, 2010. GAMCO Asset Management Inc. (GAMCO), an affiliate of the
Investment Adviser, acts as investment adviser for individuals, pension trusts, profit sharing
trusts and endowments, and as a sub-adviser to management investment companies having aggregate
assets of $[12.4 billion] under management as of September 30, 2010. Gabelli Securities, Inc., an
affiliate of the Investment Adviser, acts as investment adviser for investment partnerships and
entities having aggregate assets of approximately $466 million under management as of September 30,
2010. Teton Advisors, Inc., an affiliate of the Investment Adviser, acts as investment manager to
The GAMCO Westwood Funds and separately managed accounts having aggregate assets of approximately
$667 million under management as of September 30, 2010.
The Investment Adviser is a wholly-owned subsidiary of GAMCO Investors, Inc., a New York
corporation. Shares of Class A common stock of GAMCO Investors, Inc. is traded on the NYSE under
the symbol GBL. Mr. Mario J. Gabelli may be deemed a controlling person of the Investment
Adviser on the basis of his indirect ownership of a majority of GGCP, Inc. (GGCP), a private
company, which owns a majority of the capital stock of GAMCO Investors, Inc.
Payment of Expenses
The Investment Adviser is obligated to pay expenses associated with providing the services
contemplated by the Investment Advisory Agreement between the Fund and the Investment Adviser (the
Advisory Agreement) including compensation of and office space for its officers and employees
connected with investment and economic research, trading and investment management and
administration of the Fund, as well as the fees of all Directors of the Fund who are affiliated
with the Investment Adviser. The Fund pays all other expenses incurred in its operation including,
among other things, expenses for legal and independent accountants services, costs of printing
proxies, stock certificates and stockholder reports, charges of the custodian, any subcustodian and
transfer and dividend paying agent, expenses in connection with its respective automatic dividend
reinvestment and voluntary cash purchase plan, SEC fees, fees and expenses of unaffiliated
Directors, accounting and pricing costs, including costs of calculating the net asset value of the
Fund, membership fees in trade associations, fidelity bond coverage for its officers and employees,
Directors and officers errors and omission insurance coverage, interest, brokerage costs, taxes,
stock exchange listing fees and expenses, expenses of qualifying its shares for sale in various
states, litigation and other extraordinary or non-recurring expenses, and other expenses properly
payable by the Fund.
In addition to the fees of the Investment Adviser, the Fund is responsible for the payment of
all its other expenses incurred in the operation of the Fund, which include, among other things,
expenses for legal and independent accountants services, stock exchange listing fees, expenses
relating to the offering of preferred stock, rating agency fees, costs of printing proxies, stock
certificates and stockholder reports, charges of the Custodian, charges of Computershare, SEC fees,
fees and expenses of unaffiliated Directors, accounting and printing costs, the Funds pro rata
portion of membership fees in trade organizations, fidelity bond coverage for the Funds
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officers and employees, interest, brokerage costs, taxes, expenses of qualifying the Fund for sale in
various states, expenses of personnel performing stockholder servicing functions, litigation and
other extraordinary or non-recurring expenses and other expenses properly payable by the Fund.
Advisory Agreement
Under the terms of the Advisory Agreement, the Investment Adviser manages the portfolio of the
Fund in accordance with its stated investment objectives and policies, makes investment decisions
for the Fund, and places orders to purchase and sell securities on behalf of the Fund and manages
the Funds other business and affairs, all subject to the supervision and direction of its Board.
In addition, under the Advisory Agreement, the Investment Adviser oversees the administration of
all aspects of the Funds business and affairs and provides, or arranges for others to provide, at
the Investment Advisers expense, certain enumerated services, including maintaining the Funds
books and records, preparing reports to its shareholders and supervising the calculation of the net
asset value of its stock. All expenses of computing the Funds net asset value, including any
equipment or services obtained solely for the purpose of pricing shares of stock or valuing the
Funds investment portfolio, will be an expense of the Fund under the Advisory Agreement unless the
Investment Adviser voluntarily assumes responsibility for such expense. During the fiscal year
ended December 31, 2010, the Fund reimbursed the Investment Adviser $[45,000] in connection with
the cost of computing the Funds net asset value.
The Advisory Agreement combines investment advisory and administrative responsibilities in one
agreement. For services rendered by the Investment Adviser on behalf of the Fund under the
Advisory Agreement, the Fund pays the Investment Adviser a fee computed weekly and paid monthly,
equal on an annual basis to 1.00% of the Funds average weekly net assets including the liquidation
value of preferred stock. The fee paid by the Fund may be higher when leverage in the form of
preferred stock is utilized, giving the Investment Adviser an incentive to utilize such leverage.
However, the Investment Adviser has agreed to reduce the management fee on the incremental assets
attributable to the preferred stock during the fiscal year if the total return of the net asset
value of the common shares of the Fund, including distributions and advisory fees subject to
reduction for that year, does not exceed the stated dividend rate or corresponding swap rate of
each particular series of preferred stock for the period. In other words, if the effective cost of
the leverage for any series of preferred stock exceeds the total return (based on net asset value)
on the Funds common stock, the Investment Adviser will waive that portion of its management fee on
the incremental assets attributable to the leverage for that series of preferred stock to mitigate
the negative impact of the leverage on the common shareholders total return. This fee waiver is
voluntary and will remain in effect as long as any preferred stock in a series is outstanding. The
Funds total return on the net asset value of the common stock is monitored on a monthly basis to assess whether the total return
on the net asset value of the common stock exceeds the stated dividend rate or corresponding swap
rate of each particular series of preferred stock for the period. The test to confirm the accrual
of the management fee on the assets attributable to each particular series of preferred stock is
annual. The Fund will accrue for the management fee on these assets during the fiscal year if it
appears probable that the Fund will incur the management fee on those additional assets.
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The Funds total return on the net asset value of its common stock is monitored on a monthly
basis to assess whether the total return on the net asset value of its common stock exceeds the
stated dividend rate or corresponding swap rate of each particular series of outstanding preferred
stock for the period. The test to confirm the accrual of the management fee on the assets
attributable to each particular series of preferred stock is annual. The Fund will accrue for the
management fee on those assets during the fiscal year if it appears probable that the Fund will
incur the additional management fee on those assets. For the year ended December 31, 2010, the
Funds total return on the net asset value of the common stock exceeded the stated dividend rate or
corresponding swap rate of all outstanding preferred stock. Thus, management fees were accrued on
these assets.
The Advisory Agreement provides that in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties thereunder, the Investment Adviser
is not liable for any error or judgment or mistake of law or for any loss suffered by the Fund. As
part of the Advisory Agreement, the Fund has agreed that the name Gabelli is the Investment
Advisers property, and that in the event the Investment Adviser ceases to act as an investment
adviser to the Fund, the Fund will change its name to one not including Gabelli.
Pursuant to its terms, the Advisory Agreement will remain in effect with respect to the Fund
from year to year if approved annually: (i) by the Funds Board or by the holders of a majority of
the Funds outstanding voting securities and (ii) by a majority of the Directors who are not
interested persons (as defined in the 1940 Act) of any party to the Advisory Agreement, by vote
cast in person at a meeting called for the purpose of voting on such approval.
A discussion regarding the basis of the Boards approval of the Advisory Agreement is
available in the Funds Semi-Annual Report to shareholders for the six months ended June 30, 2010.
Canadian shareholders should note, to the extent applicable, that there may be difficulty
enforcing any legal rights against the Investment Adviser because it is resident outside Canada and
all of its assets are situated outside Canada.
Selection of Securities Brokers
The Advisory Agreement contains provisions relating to the selection of securities brokers to
effect the portfolio transactions of the Fund. Under those provisions, the Investment Adviser may:
(i) direct Fund portfolio brokerage to Gabelli & Company, Inc. (Gabelli & Company) or other
broker-dealer affiliates of the Investment Adviser and (ii) pay commissions to brokers other than
Gabelli & Company that are higher than might be charged by another qualified broker to obtain
brokerage and/or research services considered by the Investment Adviser to be useful or desirable for
its investment management of the Fund and/or its other advisory accounts or those of any investment adviser affiliated with it. The SAI contains further
information about the Advisory Agreement, including a more complete description of the advisory and
expense arrangements, exculpatory and brokerage provisions, as well as information on the brokerage
practices of the Fund.
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Portfolio Managers
Mario J. Gabelli is currently and has been primarily responsible for the day-to-day management
of the Fund since its inception. Mr. Gabelli has served as Chairman and Chief Executive Officer of
GAMCO Investors, Inc. and its predecessors since 1976. Mr. Gabelli is the Chief Investment Officer
Value Portfolios for the Investment Adviser and GAMCO Asset Management Inc. Mr. Gabelli serves
as portfolio manager for several funds in the Gabelli fund family and is a director of several
funds in the Gabelli fund family. Because of the diverse nature of Mr. Gabellis responsibilities,
he will devote less than all of his time to the day-to-day management of the Fund. Mr. Gabelli is
also Chief Executive Officer of GGCP, as well as Chairman of the Board of Lynch Interactive
Corporation, a multimedia and communication services company.
Lawrence J. Haverty, Jr., CFA, is the associate portfolio manager of the Fund since 2005.
Prior to 2005, Mr. Haverty was a managing director for consumer discretionary research at State
Street Research, the Boston-based subsidiary of Metropolitan Life Insurance Company.
On February 22, 2010, Christopher J. Marangi was added to the investment team of the Fund.
Mr. Marangi joined Messrs. Gabelli and Haverty in managing the Fund. Mr. Marangi joined the
Investment Adviser as a research analyst in 2003 and currently leads the digital research team
covering the global media and telecommunications industries. In addition to currently serving as
the associate portfolio manager for the Fund, Mr. Marangi also currently serves as the associate
portfolio manager of the Gabelli Value Fund and the Gabelli Asset Fund, each a registered open-end
management investment company. Prior to joining the Investment Adviser], Mr. Marangi was an
investment banking analyst at J.P. Morgan & Co., after which he was associated with Wellspring
Capital Management, a private equity firm.
The SAI provides additional information about the portfolio managers compensation, other
accounts managed by the portfolio managers and the portfolio managers ownership of securities in
the Fund.
Sub-Administrator
BNY Mellon Investment Servicing (US) Inc. (BNY Mellon), with its principal office located at
760 Moore Road, King of Prussia, Pennsylvania 19406, serves as sub-administrator for the Fund. The
Sub-Administrator provides certain administrative services necessary for the Funds operations
which do not include the investment advisory and portfolio management services provided by the
Investment Adviser. For these services and the related expenses borne by BNY Mellon, the
Investment Adviser pays a prorated monthly fee at the annual rate of 0.0275% of the first $10
billion of the aggregate average net assets of the Fund and all other funds advised by the
Investment Adviser or its affiliate Teton Advisors, Inc., and administered by BNY Mellon, 0.0125% of the
aggregate average net assets exceeding $10 billion, and 0.01% of the aggregate average net assets in excess of $15 billion.
NET ASSET VALUE
For purposes of determining the Funds net asset value per share, portfolio securities listed
or traded on a nationally recognized securities exchange or traded in the U.S. over-the-
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counter market for which market quotations are readily available are valued at the last
quoted sale price or a markets official closing price as of the close of business on the day the
securities are being valued. If there were no sales such day, the security is valued at the
average of the closing bid and asked prices or, if there were no asked prices quoted on that day,
then the security is valued at the closing bid price on that day. If no bid or asked prices are
quoted on such day, the security is valued at the most recently available price or, if the Board so
determines, by such other method as the Board shall determine in good faith to reflect its fair
market value. Portfolio securities traded on more than one national securities exchange or market
are valued according to the broadest and most representative market, as determined by the
Investment Adviser.
Portfolio securities primarily traded on a foreign market are generally valued at the
preceding closing values of such securities on the relevant market, but may be fair valued pursuant
to procedures established by the Board if market conditions change significantly after the close of
the foreign market but prior to the close of business on the day the securities are being valued.
Debt instruments with remaining maturities of 60 days or less that are not credit impaired are
valued at amortized cost, unless the Board determines such amount does not reflect the securities
fair value, in which case these securities will be fair valued as determined by the Board. Debt
instruments having a maturity greater than 60 days for which market quotations are readily
available are valued at the average of the latest bid and asked prices. If there were no asked
prices quoted on such day, the security is valued using the closing bid price. U.S. government
obligations with maturities greater than 60 days are normally valued using a model that
incorporates market observable data such as reported sales of similar securities, broker quotes,
yields, bids, offers, and reference data. Certain securities are valued principally using dealer
quotations. Futures contracts are valued at the closing settlement price of the exchange or board
of trade on which the applicable contract is traded.
Securities and assets for which market quotations are not readily available are fair valued as
determined by the Board. Fair valuation methodologies and procedures may include, but are not
limited to: analysis and review of available financial and non-financial information about the
company; comparisons to the valuation and changes in valuation of similar securities, including a
comparison of foreign securities to the equivalent U.S. dollar value ADR securities at the close of
the U.S. exchange; and evaluation of any other information that could be indicative of the value of
the security.
The Fund obtains valuation on the basis of prices provided by one or more pricing services
approved by the Board. All other investment assets, including restricted and not readily
marketable securities, are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Board.
In addition, whenever developments in one or more securities markets after the close of the
principal markets for one or more portfolio securities and before the time as of which the Fund
determines its net asset value would, if such developments had been reflected in such principal
markets, likely have had more than a minimal effect on the Funds asset value per share, the Fund
may fair value such portfolio securities based on available market information as of the time the
Fund determines its net asset value.
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PORTFOLIO TRANSACTIONS
Principal transactions are not entered into with affiliates of the Fund. However, Gabelli &
Company, Inc., an affiliate of the Investment Adviser, may execute transactions in the
over-the-counter markets on an agency basis and receive a stated commission therefrom. For a more
detailed discussion of the Funds brokerage allocation practice, see the SAI under Portfolio
Transactions.
DIVIDENDS AND DISTRIBUTIONS
The Fund may retain for reinvestment, and pay the resulting federal income taxes on, its net
capital gain, if any, although the Fund reserves the authority to distribute its net capital gain
in any year. Under the Funds current distribution policy, which may be modified at any time by
its Board of Directors, the Fund intends to pay, to holders of the Funds common stock, a minimum
annual distribution of 10% of the average net asset value of the Fund within a calendar year or an
amount sufficient to satisfy the minimum distribution requirements of the Code, whichever is
greater. The average net asset value of the Fund is based on the average net asset values as of
the last day of the four preceding calendar quarters during the year. Distributions of net
investment income generally are taxable to shareholders as ordinary income dividends. If, for any
calendar year, the total distributions exceed net investment income and net capital gain, the
excess will generally be treated as a tax-free return of capital up to the amount of a
shareholders tax basis in the stock. The amount treated as a tax-free return of capital will
reduce a shareholders tax basis in the stock, thereby increasing such shareholders potential gain
or reducing his or her potential loss on the sale of the stock. Any amounts distributed to a
shareholder in excess of the basis of the stock will be taxable to the shareholder as capital gain.
See Taxation.
In the event the Fund distributes amounts in excess of its net investment income and net
capital gain, such distributions will decrease the Funds total assets and, therefore, have the
likely effect of increasing the Funds expense ratio. In addition, in order to make distributions,
the Fund might have to sell a portion of its investment portfolio at a time when independent
investment judgment might not dictate such action.
The Fund, along with other registered investment companies advised by the Investment Adviser,
has obtained an exemption from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder permitting
the Fund to make periodic distributions of long-term capital gains provided that any distribution
policy of the Fund with respect to its common stock calls for periodic (e.g., quarterly or
semi-annually, but in no event more frequently than monthly) distributions in an amount equal to a
fixed percentage of the Funds average net asset value over a specified period of time or market
price per share of common stock at or about the time of distribution or payment of a fixed dollar
amount. The exemption also permits the Fund to make distributions with respect to its preferred
stock in accordance with such stocks terms. Common shareholders exercising Rights will not be
entitled to receive a distribution under the distribution policy of the Fund with respect to the
new Shares issued pursuant to the Offer for the record date of the periodic distribution that is
immediately prior to the issuance of such newly issued Shares.
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If the total distributions required by a periodic pay-out policy exceed the Funds net
investment income and net capital gain, the excess will be treated as a return of capital. If the
Funds net investment income (including net short-term capital gains) and net long-term capital
gains for any year exceed the amount required to be distributed under a periodic pay-out policy,
the Fund generally intends to pay such excess once a year, but may, in its discretion, retain and
not distribute net long-term capital gains to the extent of such excess. The Fund reserves the
right, but does not currently intend, to retain for reinvestment and pay the resulting U.S. federal
income taxes on the excess of its net realized long-term capital gains over its net short-term
capital losses, if any. See Automatic Dividend Reinvestment and Voluntary Cash Purchase Plans.
AUTOMATIC DIVIDEND REINVESTMENT AND
VOLUNTARY CASH PURCHASE PLANS
Enrollment in the Plan
It is the policy of the Fund to automatically reinvest dividends payable to common
shareholders. As a registered shareholder you automatically become a participant in the Funds
Automatic Dividend Reinvestment Plan (the Plan). The Plan authorizes the Fund to credit shares
of common stock to participants upon an income dividend or a capital gains distribution regardless
of whether the shares are trading at a discount or a premium to net asset value. All distributions
to shareholders whose shares are registered in their own names will be automatically reinvested
pursuant to the Plan in additional shares of the Fund. Plan participants may send their stock
certificates to Computershare Trust Company, N.A. (Computershare) to be held in their dividend
reinvestment account. Registered shareholders wishing to receive their distributions in cash must
submit this request in writing to:
The Gabelli Global Multimedia Trust Inc.
c/o Computershare
P.O. Box 43010
Providence, RI 029403010
Shareholders requesting this cash election must include the shareholders name and address as
they appear on the share certificate. Shareholders with additional questions regarding the Plan or
requesting a copy of the terms of the Plan, may contact Computershare at (800) 336-6983.
If your shares are held in the name of a broker, bank, or nominee, you should contact such
institution. If such institution is not participating in the Plan, your account will be credited
with a cash dividend. In order to participate in the Plan through such institution, it may be
necessary for you to have your shares taken out of street name and re-registered in your own
name. Once registered in your own name your distributions will be automatically reinvested.
Certain brokers participate in the Plan. Shareholders holding shares in street name at
participating institutions will have dividends automatically reinvested. Shareholders wishing a
cash dividend at such institution must contact their broker to make this change.
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The number of shares of common stock distributed to participants in the Plan in lieu of cash
dividends is determined in the following manner. Under the Plan, whenever the market price of the
Funds common stock is equal to or exceeds net asset value at the time shares are valued for
purposes of determining the number of shares equivalent to the cash dividends or capital gains
distribution, participants are issued shares of common stock valued at the greater of (i) the net
asset value as most recently determined or (ii) 95% of the then current market price of the Funds
common stock. The valuation date is the dividend or distribution payment date or, if that date is
not a NYSE trading day, the next trading day. If the net asset value of the common stock at the
time of valuation exceeds the market price of the common stock, participants will receive shares
from the Fund valued at market price. If the Fund should declare a dividend or capital gains
distribution payable only in cash, Computershare will buy shares of common stock in the open
market, or on the NYSE or elsewhere, for the participants accounts, except that Computershare will
endeavor to terminate purchases in the open market and cause the Fund to issue shares at net asset
value if, following the commencement of such purchases, the market value of the common stock
exceeds the then current net asset value.
The automatic reinvestment of dividends and capital gains distributions will not relieve
participants of any income tax which may be payable on such distributions. A participant in the
Plan will be treated for federal income tax purposes as having received, on a dividend payment
date, a dividend or distribution in an amount equal to the cash the participant could have received
instead of shares.
Voluntary Cash Purchase Plan
The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders to increase their
investment in the Fund. In order to participate in the Voluntary Cash Purchase Plan, shareholders
must have their shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making additional cash
payments to Computershare for investments in the Funds common shares at the then current market
price. Shareholders may send an amount from $250 to $10,000. Computershare will use these funds
to purchase shares in the open market on or about the 1st and 15th of each month. Computershare
will charge each shareholder who participates $0.75, plus a pro rata share of the brokerage
commissions. Brokerage charges for such purchases are expected to be less than the usual brokerage
charge for such transactions. It is suggested that any voluntary cash payments be sent to
Computershare, P.O. Box 43010, Providence, RI 029403010 such that Computershare receives such
payments approximately 10 days before the 1st and 15th of the month. Funds not received at least
five days before the investment date shall be held for investment until the next purchase date. A
payment may be withdrawn without charge if notice is received by Computershare at least 48 hours
before such payment is to be invested.
Shareholders wishing to liquidate shares held at Computershare must do so in writing or by
telephone. Please submit your request to the above mentioned address or telephone number. Include
in your request your name, address, and account number. The cost to liquidate shares is $2.50 per
transaction as well as the brokerage commission incurred. Brokerage charges are expected to be
less than the usual brokerage charge for such transactions.
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For more information regarding the Automatic Dividend Reinvestment Plan and Voluntary Cash
Purchase Plan, brochures are available by calling (914) 921-5070 or by writing directly to the
Fund.
The Fund reserves the right to amend or terminate the Plan as applied to any voluntary cash
payments made and any dividend or distribution paid subsequent to written notice of the change sent
to the members of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by Computershare on at least 90 days
written notice to participants in the Plan.
TAXATION
The following discussion is a brief summary of certain U.S. federal income tax considerations
affecting the Fund and its shareholders. This discussion reflects applicable tax laws of the
United States as of the date of this Prospectus, which tax laws may be changed or subject to new
interpretations by the courts or the Internal Revenue Service (the IRS) retroactively or
prospectively. No attempt is made to present a detailed explanation of all U.S. federal, state,
local and foreign tax concerns affecting the Fund and its shareholders (including shareholders
owning a large position in the Fund), and the discussions set forth herein do not constitute tax
advice. Investors are urged to consult their own tax advisers to determine the tax consequences to
them of investing in the Fund.
Taxation of the Fund
The Fund has elected to be treated and has qualified, and intends to continue to qualify, as a
regulated investment company under Subchapter M of the Code. Accordingly, the Fund must, among
other things, meet the following requirements regarding the source of its income and the
diversification of its assets:
(i) |
|
The Fund must derive in each taxable year at least 90% of its gross income from the following
sources, which are referred to herein as Qualifying Income: (a) dividends, interest
(including tax-exempt interest), payments with respect to certain securities loans, and gains
from the sale or other disposition of stock, securities or foreign currencies, or other income
(including but not limited to gain from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or foreign currencies; and (b)
interests in publicly traded partnerships that are treated as partnerships for U.S. federal
income tax purposes and that derive less than 90% of their gross income from the items
described in (a) above (each a Qualified Publicly Traded Partnership). |
|
(ii) |
|
The Fund must diversify its holdings so that, at the end of each quarter of each taxable year
(a) at least 50% of the market value of the Funds total assets is represented by cash and
cash items, U.S. government securities, the securities of other regulated investment companies
and other securities, with such other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the value of the Funds total assets and not more than 10% of
the outstanding voting securities of such issuer and (b) not more than 25% of the market value
of the Funds total assets is invested in the securities (other than |
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|
|
U.S. government securities and the securities of other regulated investment companies) of
(I) any one issuer, (II) any two or more issuers of which the Fund holds 20% or more of the
voting stock and that are determined to be engaged in the same business or similar or
related trades or businesses or (III) any one or more Qualified Publicly Traded
Partnerships. |
As a regulated investment company, the Fund generally will not be subject to U.S. federal
income tax on income and gains that the Fund distributes to its shareholders, provided that it
distributes each taxable year at least the sum of (i) 90% of the Funds investment company taxable
income (which includes, among other items, dividends, interest and the excess of any net short-term
capital gain over net long-term capital loss and other taxable income, other than any net long-term
capital gain, reduced by deductible expenses) determined without regard to the deduction for
dividends paid and (ii) 90% of the Funds net tax-exempt interest (the excess of its gross
tax-exempt interest over certain disallowed deductions). The Fund intends to distribute
substantially all of such income at least annually. The Fund will be subject to income tax at
regular corporation rates on any taxable income or gains that it does not distribute to its
shareholders.
The Code imposes a 4% nondeductible excise tax on the Fund to the extent the Fund does not
distribute by the end of any calendar year an amount at least equal to the sum of (i) 98% of its
ordinary income (not taking into account any capital gain or loss) for the calendar year and (ii)
98.2% of its capital gain in excess of its capital loss (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year (unless an election is made
to use the Funds fiscal year). In addition, the minimum amounts that must be distributed in any
year to avoid the excise tax will be increased or decreased to reflect any under-distribution or
over-distribution, as the case may be, from the previous year. While the Fund intends to
distribute any income and capital gain in the manner necessary to minimize imposition of the 4%
excise tax, there can be no assurance that sufficient amounts of the Funds taxable income and
capital gain will be distributed to entirely avoid the imposition of the excise tax. In that
event, the Fund will be liable for the excise tax only on the amount by which it does not meet the
foregoing distribution requirement.
If for any taxable year the Fund does not qualify as a regulated investment company, all of
its taxable income (including its net capital gain) will be subject to tax at regular corporate
rates without any deduction for distributions to shareholders.
Taxation of Shareholders
Distributions paid to you by the Fund from its net realized long-term capital gains, if any,
that the Fund reports as capital gains dividends (capital gain dividends) are taxable as
long-term capital gains, regardless of how long you have held your shares. All other dividends
paid to you by the Fund (including dividends from short-term capital gains) from its current or
accumulated earnings and profits (ordinary income dividends) are generally subject to tax as
ordinary income.
Special rules apply, however, to ordinary income dividends paid to individuals with respect to
taxable years beginning on or before December 31, 2012. If you are an individual, any
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such ordinary income dividend that you receive from the Fund generally will be eligible for
taxation at the Federal rates applicable to long-term capital gains (currently at a maximum rate of
15%) to the extent that (i) the ordinary income dividend is attributable to qualified dividend
income (i.e., generally dividends paid by U.S. corporations and certain foreign corporations)
received by the Fund, (ii) the Fund satisfies certain holding period and other requirements with
respect to the stock on which such qualified dividend income was paid and (iii) you satisfy certain
holding period and other requirements with respect to your shares. There can be no assurance as to
what portion of the Funds ordinary income dividends will constitute qualified dividend income.
Any distributions you receive that are in excess of the Funds current or accumulated earnings
and profits will be treated as a tax-free return of capital to the extent of your adjusted tax
basis in your shares, and thereafter as capital gain from the sale of shares. The amount of any
Fund distribution that is treated as a tax-free return of capital will reduce your adjusted tax
basis in your shares, thereby increasing your potential gain or reducing your potential loss on any
subsequent sale or other disposition of your shares.
Dividends and other taxable distributions are taxable to you even if they are reinvested in
additional common shares of the Fund. Dividends and other distributions paid by the Fund are
generally treated under the Code as received by you at the time the dividend or distribution is
made. If, however, the Fund pays you a dividend in January that was declared in the previous
October, November or December and you were the shareholder of record on a specified date in one of
such months, then such dividend will be treated for tax purposes as being paid by the Fund and
received by you on December 31 of the year in which the dividend was declared.
The Fund will send you information after the end of each year setting forth the amount and tax
status of any distributions paid to you by the Fund.
The sale or other disposition of shares of the Fund will generally result in capital gain or
loss to you, and will be long-term capital gain or loss if you have held such shares for more than
one year at the time of sale. Any loss upon the sale or exchange of shares held for six months or
less will be treated as long-term capital loss to the extent of any capital gain dividends received
(including amounts credited as an undistributed capital gain dividend) by you with respect to such
shares. Any loss you realize on a sale or exchange of shares will be disallowed if you acquire
other shares (whether through the automatic reinvestment of dividends or otherwise) within a 61-day
period beginning 30 days before and ending 30 days after your sale or exchange of the shares. In
such case, your tax basis in the shares acquired will be adjusted to reflect the disallowed loss.
The Fund may be required to withhold, for U.S. federal backup withholding tax purposes, a
portion of the dividends, distributions and redemption proceeds payable to shareholders who fail to
provide the Fund (or its agent) with their correct taxpayer identification number (in the case of
individuals, generally, their social security number) or to make required certifications, or who
have been notified by the IRS that they are subject to backup withholding. Certain shareholders
are exempt from backup withholding. Backup withholding is not an additional tax and any amount
withheld may be refunded or credited against your U.S. federal income tax liability, if any,
provided that you furnish the required information to the IRS.
-61-
DESCRIPTION OF CAPITAL STOCK
The following is a brief description of the terms of the Funds common stock and preferred
stock. This description does not purport to be complete and is qualified by reference to the
Funds Governing Documents. For complete terms of the common stock and preferred stock, please
refer to the actual terms of such series, which are set forth in the Governing Documents.
Common Stock
The Fund is currently authorized to issue two hundred million (200,000,000) shares, all of
which were initially classified and designated as common stock, par value $0.001 per share. The
Board has the authority to classify and reclassify any authorized but unissued shares of stock from
time to time. Of the Funds two hundred million (200,000,000) shares initially classified and
designated as common stock, [three million two hundred and fifty thousand (3,250,000)] have been
reclassified as preferred stock. Each share within a particular class or series thereof has equal
voting, dividend, distribution and liquidation rights. There are no conversion or preemptive
rights in connection with any outstanding stock of the Fund. The common stock of the Fund is not
redeemable and has no preemptive, conversion or cumulative voting rights. In addition, shares of
the Funds common stock are fully paid and non-assessable. In the event of liquidation, each share
of Fund common stock is entitled to its proportion of the Funds assets after payment of debts and
expenses and the amounts payable to holders of the Funds preferred stock ranking senior to the
shares of common stock of the Fund as described below.
The common stock of the Fund is listed on the NYSE under the symbol GGT and began trading
November 14, 1994. The average weekly trading volume of the common stock on the NYSE during the
period from January 1, 2010 through December 31, 2010 was [24,508] shares. Shares of closed-end
investment companies often trade on an exchange at prices lower than net asset value. The Funds
shares of common stock have traded in the market at both premiums to and discounts from net asset
value.
The following table sets forth for the quarters indicated the high and low closing prices on
the NYSE per share of the Funds common stock and the net asset value and the premium or discount
from net asset value at which the common stock was trading, expressed as a percentage of net asset
value, at each of the high and low closing prices provided.
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Premium (Discount) |
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Market Price |
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Net Asset Value |
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|
as % of NAV |
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Period |
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High |
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Low |
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High |
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Low |
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High |
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Low |
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Fiscal Year 2008 |
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Q1 |
|
$ |
12.64 |
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$ |
9.82 |
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$ |
14.19 |
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$ |
11.19 |
|
|
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(10.923 |
)% |
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|
(12.243 |
)% |
Q2 |
|
$ |
11.21 |
|
|
$ |
9.21 |
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|
$ |
12.87 |
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$ |
9.21 |
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(12.898 |
)% |
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(13.845 |
)% |
Q3 |
|
$ |
9.56 |
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$ |
7.25 |
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$ |
10.54 |
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$ |
8.70 |
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(9.298 |
)% |
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(16.667 |
)% |
Q4 |
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$ |
6.97 |
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$ |
3.08 |
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$ |
8.73 |
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$ |
4.14 |
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(20.160 |
)% |
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|
(25.604 |
)% |
Fiscal Year 2009 |
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Q1 |
|
$ |
4.74 |
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$ |
2.51 |
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$ |
5.83 |
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$ |
3.50 |
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(18.696 |
)% |
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(28.286 |
)% |
Q2 |
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$ |
4.76 |
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$ |
3.43 |
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$ |
6.16 |
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$ |
4.58 |
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(22.727 |
)% |
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(25.109 |
)% |
Q3 |
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$ |
6.27 |
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$ |
4.226 |
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$ |
7.42 |
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$ |
5.41 |
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(15.499 |
)% |
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(21.885 |
)% |
Q4 |
|
$ |
6.6301 |
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$ |
5.73 |
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$ |
7.74 |
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$ |
6.99 |
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(14.339 |
)% |
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(18.026 |
)% |
-62-
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Premium (Discount) |
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Market Price |
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Net Asset Value |
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as % of NAV |
|
Period |
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High |
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Low |
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High |
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Low |
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High |
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Low |
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Fiscal Year 2010 |
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Q1 |
|
$ |
7.52 |
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|
$ |
6.20 |
|
|
$ |
8.39 |
|
|
$ |
7.14 |
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|
|
(10.369 |
)% |
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|
(13.165 |
)% |
Q2 |
|
$ |
8.25 |
|
|
$ |
6.62 |
|
|
$ |
9.07 |
|
|
$ |
7.23 |
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|
(9.041 |
)% |
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|
(8.437 |
)% |
Q3 |
|
$ |
7.70 |
|
|
$ |
6.39 |
|
|
$ |
8.39 |
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$ |
7.26 |
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|
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(8.224 |
)% |
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|
(11.983 |
)% |
Q4 |
|
$ |
8.43 |
|
|
$ |
7.59 |
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|
$ |
9.28 |
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$ |
8.33 |
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|
|
(9.159 |
)% |
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|
(8.884 |
)% |
Repurchase of Common Stock
The Fund is a closed-end, non-diversified, management investment company and, as such, its
shareholders do not, and will not, have the right to redeem their stock. The Fund, however, may
repurchase its common stock from time to time as and when it deems such a repurchase advisable.
The Funds Board has determined that the repurchase of shares of common stock in the open market
may be made, from time to time, when such shares are trading at a discount of 5% (or such other
percentage as the Board may determine from time to time) or more from net asset value. Pursuant to
this authorization the Fund has repurchased and retired in the open market 1,497,033 shares through
[December 31, 2010.
Pursuant to the 1940 Act, the Fund may repurchase its stock on a securities exchange (provided
that the Fund has informed its stockholders within the preceding six months of its intention to
repurchase such stock), or as otherwise permitted in accordance with Rule 23c-1 under the 1940 Act.
Under Rule 23c-1, certain conditions must be met for such repurchases of its stock regarding,
among other things, distribution of net income for the preceding fiscal year, asset coverage with
respect to the Funds senior debt and equity securities, identity of the sellers, price paid,
brokerage commissions, prior notice to stockholders of an intention to purchase stock and
purchasing in a manner and on a basis which does not discriminate unfairly against the other
stockholders through their interest in the Fund. In addition, Rule 23c-1 requires the Fund to file
notices of such purchase with the SEC. Any repurchase of common stock by the Fund will also be
subject to Maryland corporate law, which generally requires that immediately following such
repurchase, the total assets of the Fund must be equal to or greater than the sum of the Funds
total liabilities plus the aggregate liquidation preference of its outstanding preferred stock.
When the Fund repurchases its common stock for a price below its net asset value, the net
asset value of the common stock that remains outstanding will be enhanced. This does not, however,
necessarily mean that the market price of the Funds remaining outstanding common stock will be
affected, either positively or negatively. Further, interest on any borrowings made to finance the
repurchase of common stock will reduce the net income of the Fund.
Preferred Stock
Currently, [] shares of the Funds stock have been classified by the Board as preferred
stock, par value $0.001 per share. The Funds Board may reclassify authorized and unissued shares
of the Fund, previously classified as common stock, as preferred stock prior to the completion of
any offering. The terms of each series of preferred stock may be fixed by the Board and may
materially limit and/or qualify the rights of the holders of the Funds common stock. As of
[December 31, 2010], the Fund had outstanding [791,014] shares of Series B Preferred and [600]
shares of Series C Auction Rate Preferred.
Dividends on the Series B Preferred accumulate at an annual rate of 6.00% of the liquidation
preference of $25 per share, are cumulative from the date of original issuance thereof, and are payable quarterly on March 26, June 26, September 26 and December 26 of each year.
-63-
The Funds outstanding Series B Preferred is redeemable at the liquidation preference plus
accumulated but unpaid dividends (whether or not earned or declared) at the option of the Fund.
The Series B Preferred is listed and traded on the NYSE under the symbol GGT PrB.
Dividends on the Series C Auction Rate Preferred accumulate at a variable rate, usually set at
a weekly auction. The liquidation preference of the Series C Auction Rate Preferred is $25,000 per
share. The Fund generally may redeem the outstanding Series C Auction Rate Preferred, in whole or
in part, at any time other than during a non-call period. The Series C Auction Rate Preferred is
not traded on any public exchange.
If the Fund issues any additional series of preferred stock, it will pay dividends to the
holders at either a fixed rate or a rate that will be reset frequently based on short-term interest
rates, as described in the Prospectus Supplement accompanying each preferred stock offering.
Upon a liquidation, dissolution or winding up of the affairs of the Fund (whether voluntary or
involuntary), holders of the Funds preferred stock will be entitled to receive out of the assets
of the Fund available for distribution to shareholders (after payment of claims of the Funds
creditors but before any distributions with respect to the Funds common stock or any other class
of capital stock of the Fund ranking junior to the preferred stock as to liquidation payments) an
amount per share equal to such shares liquidation preference plus any accumulated but unpaid
distributions (whether or not earned or declared, excluding interest thereon) to the date of
distribution, and such shareholders shall be entitled to no further participation in any
distribution or payment in connection with such liquidation. Each series of preferred stock ranks
on a parity with any other series of preferred stock of the Fund as to the payment of distributions
and the distribution of assets upon liquidation, and is junior to the Funds obligations with
respect to any outstanding senior securities representing debt. The preferred stock carries one
vote per share on all matters on which such shares are entitled to vote. The preferred shares are
fully paid, non-assessable and have no preemptive, exchange or conversion rights. The Board may by
resolution classify or reclassify any authorized but unissued shares of stock of the Fund from time
to time by setting or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions or terms or conditions of redemption. The Fund will
not issue any class of stock senior to the preferred stock.
The following table shows: (i) the classes of stock authorized, (ii) the number of shares
authorized in each class, and (iii) the number of shares outstanding in each class as of [December
31, 2010].
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Title Of Class |
|
Amount Authorized |
|
Amount Outstanding |
Common Stock |
|
|
196,750,000 |
|
|
|
13,575,668 |
|
|
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|
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|
Series A Preferred |
|
|
2,000,000 |
|
|
|
0 |
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|
Series B Preferred |
|
|
1,000,000 |
|
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|
791,014 |
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|
Series C Auction Rate |
|
|
1,000 |
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|
|
600 |
|
-64-
Preferred
As of [], the Fund does not hold any shares of stock for its account.
Restrictions on Dividends and Other Distributions for the Preferred Stock
So long as any preferred stock is outstanding, the Fund may not pay any dividend or
distribution (other than a dividend or distribution paid in common stock or in options, warrants or
rights to subscribe for or purchase common stock) in respect of the common stock or call for
redemption, redeem, purchase or otherwise acquire for consideration any common stock (except by
conversion into or exchange for shares of the Fund ranking junior to the preferred stock as to the
payment of dividends or distributions and the distribution of assets upon liquidation), unless:
|
|
the Fund has declared and paid (or provided to the relevant dividend paying agent) all
cumulative distributions on the Funds outstanding preferred stock due on or prior to the date
of such common stock dividend or distribution; |
|
|
|
the Fund has redeemed the full number of shares of preferred stock to be redeemed pursuant
to any mandatory redemption provision in the Funds Governing Documents; and |
|
|
|
after making the distribution, the Fund meets applicable asset coverage requirements. |
No full distribution will be declared or made on any series of preferred stock for any
dividend period, or part thereof, unless full cumulative distributions due through the most recent
dividend payment dates therefor for all outstanding series of preferred stock of the Fund ranking
on a parity with such series as to distributions have been or contemporaneously are declared and
made. If full cumulative distributions due have not been made on all outstanding preferred stock
of the Fund ranking on a parity with such series of preferred stock as to the payment of
distributions, any distributions being paid on the preferred stock will be paid as nearly pro rata
as possible in proportion to the respective amounts of distributions accumulated but unmade on each
such series of preferred stock on the relevant dividend payment date. The Funds obligation to
make distributions on the preferred stock will be subordinate to its obligations to pay interest
and principal, when due, on any senior securities representing debt.
Effects of Leverage
The holders of the Funds preferred shares are entitled to the applicable dividend rate as and
when declared. Any return earned in excess of the stated dividend rate would directly benefit
holders of shares; however, any shortfall from the stated rate would negatively affect holders of
shares. The following table is designed to assist you in understanding the effects of the existing
leverage on your investment in the Fund. The table assumes that [791,014] shares of Series B
Preferred are issued and outstanding, [600] shares of Series C Auction Rate Preferred are issued
and outstanding. The Series B Preferred have an annual dividend rate of $1.50. Dividend rates for
the Series C Preferred Shares are cumulative at a rate that may be reset every
-65-
seven days based on the results of an auction. The assumed returns appearing in the table are
hypothetical and actual returns may be greater or less than those appearing in the table.
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|
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|
|
|
|
|
|
|
|
Assumed return on portfolio (net of expenses) |
|
|
(10.00 |
)% |
|
|
(5.00 |
)% |
|
|
0.00 |
% |
|
|
5.00 |
% |
|
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corresponding return to Common Stockholder |
|
|
[] |
% |
|
|
[] |
% |
|
|
[] |
% |
|
|
[] |
% |
|
|
[] |
% |
The following factors associated with leveraging could increase the investment risk and
volatility of the price of the Shares of common stock:
|
|
leveraging exaggerates any increase or decrease in the net asset value of the Shares of
common stock; |
|
|
|
the dividend requirements on the Funds preferred shares may exceed the income from the
portfolio securities purchased with the proceeds from the issuance of preferred shares; |
|
|
|
a decline in net asset value results if the investment performance of the additional
securities purchased fails to cover their cost to the Fund (including any dividend
requirements of preferred shares); |
|
|
|
a decline in net asset value could affect the ability of the Fund to make dividend payments
on Shares of common stock; |
|
|
|
a failure to pay dividends or make distributions on its Shares of common stock could result
in the Funds ceasing to qualify as a regulated investment company under the Code; and |
|
|
|
if the asset coverage for the Funds preferred shares declines to less than 200% (as a
result of market fluctuations or otherwise), the Fund may be required to sell a portion of its
investments when it may be disadvantageous to do so. |
Pursuant to Section 18 of the 1940 Act, it is unlawful for the Fund, as a registered
closed-end investment company, to issue any class of senior security, or to sell any senior
security that it issues, unless it can satisfy certain asset coverage ratios. The asset coverage
ratio with respect to a senior security representing indebtedness means the ratio of the value of
the Funds total assets (less all liabilities and indebtedness not represented by senior
securities) to the aggregate amount of the Funds senior securities representing indebtedness. The
asset coverage ratio with respect to a senior security representing stock means the ratio of the
value of the Funds total assets (less all liabilities and indebtedness not represented by senior
securities) to the aggregate amount of the Funds senior securities representing indebtedness plus
the aggregate liquidation preference of the Funds outstanding preferred shares.
If, as is the case with the Fund, a registered investment companys senior securities are
equity securities, such securities must have an asset coverage of at least 200% immediately
following its issuance. If a registered investment companys senior securities represent
indebtedness, such indebtedness must have an asset coverage of at least 300% immediately after
their issuance. Subject to certain exceptions, during any period following issuance that the Fund
-66-
fails to satisfy these asset coverage ratios, it will, among other things, be prohibited from
declaring any dividend or declaring any other distribution in respect of its common stock except a
dividend payable in Shares of common stock issued by the Fund. A registered investment company
may, to the extent permitted by the 1940 Act, segregate assets or cover transactions in order to
avoid the creation of a class of senior security.
Voting Rights
Except as otherwise stated in this Prospectus, specified in the Funds Charter or resolved by
the Board or as otherwise required by applicable law, holders of preferred stock shall be entitled
to one vote per share held on each matter submitted to a vote of the shareholders of the Fund and
will vote together with holders of common stock and of any other preferred stock then outstanding
as a single class.
In connection with the election of the Funds Directors, holders of the outstanding shares of
preferred stock, voting together as a single class, will be entitled at all times to elect two of
the Funds Directors, and the remaining Directors will be elected by holders of common stock and
holders of preferred stock, voting together as a single class. In addition, if: (i) at any time
dividends and distributions on outstanding shares of preferred stock are unpaid in an amount equal
to at least two full years dividends and distributions thereon and sufficient cash or specified
securities have not been deposited with the applicable paying agent for the payment of such
accumulated dividends and distributions, or (ii) at any time holders of any other series of
preferred stock are entitled to elect a majority of the Directors of the Fund under the 1940 Act,
or the applicable Articles Supplementary creating such shares, then the number of Directors
constituting the Board automatically will be increased by the smallest number that, when added to
the two Directors elected exclusively by the holders of preferred stock as described above, would
then constitute a simple majority of the Board as so increased by such smallest number. Such
additional Directors will be elected by the holders of the outstanding shares of preferred stock,
voting together as a single class, at a special meeting of shareholders which will be called as
soon as practicable and will be held not less than 10 nor more than 20 days after the mailing date
of the meeting notice. If the Fund fails to send such meeting notice or to call such a special
meeting, the meeting may be called by any preferred shareholder on like notice. The terms of
office of the persons who are Directors at the time of that election will continue. If the Fund
thereafter pays, or declares and sets apart for payment in full, all dividends and distributions
payable on all outstanding shares of preferred stock for all past dividend periods, or the holders
of other series of preferred stock are no longer entitled to elect such additional Directors, the
additional voting rights of the holders of the preferred stock as described above will cease, and
the terms of office of all of the additional Directors elected by the holders of the preferred
stock (but not of the Directors with respect to whose election the holders of common stock were
entitled to vote or the two Directors the holders of preferred stock have the right to elect as a
separate class in any event) will terminate at the earliest time permitted by law.
So long as shares of preferred stock are outstanding, the Fund will not, without the
affirmative vote of the holders of a majority (as defined in the 1940 Act) of the shares of
preferred stock outstanding at the time, voting separately as one class, amend, alter or repeal the
provisions of the Funds Charter whether by merger, consolidation or otherwise, so as to materially
adversely affect any of the rights, preferences or powers expressly set forth in the
-67-
Charter with respect to such shares of preferred stock, unless the Fund obtains written
confirmation from the rating agency then rating the preferred stock that such amendment, alteration
or repeal would not impair the rating then assigned by such rating agency to the preferred stock,
in which case the vote or consent of the holders of the preferred stock is not required. Also, to
the extent permitted under the 1940 Act, in the event shares of more than one series of preferred
stock are outstanding, the Fund will not approve any of the actions set forth in the preceding
sentence which materially adversely affect the rights, preferences or powers expressly set forth in
the Charter with respect to such shares of a series of preferred stock differently than those of a
holder of shares of any other series of preferred stock without the affirmative vote of the holders
of at least a majority of the shares of preferred stock of each series materially adversely
affected and outstanding at such time (each such materially adversely affected series voting
separately as a class to the extent its rights are affected differently). For purposes of this
paragraph, no matter shall be deemed to adversely affect any right, preference or power unless such
matter (i) adversely alters or abolishes any preferential right of such series; (ii) creates,
adversely alters or abolishes any right in respect of redemption of such series; or (iii) creates
or adversely alters (other than to abolish) any restriction on transfer applicable to such series.
Unless a higher percentage is provided under the Charter or Maryland law, the affirmative vote
of a majority of the votes entitled to be cast by holders of outstanding shares of the preferred
stock, voting as a separate class, will be required to approve any plan of reorganization adversely
affecting the preferred stock. The affirmative vote of the holders of 66 2/3% of the outstanding
voting shares of the Fund, and the vote of a majority (as defined in the 1940 Act) of the holders
of preferred shares, voting as a single class, is required to authorize the conversion of the Fund
from a closed-end to an open-end investment company. Further, unless a higher percentage is
provided for under the Charter, the affirmative vote of a majority (as defined in the 1940 Act) of
the votes entitled to be cast by holders of outstanding shares of the Funds preferred stock,
voting together as a single class, will be required to approve any action requiring a vote of
security holders under Section 13(a) of the 1940 Act (other than a conversion of the Fund from a
closed-end to an open-end investment company), including, among other things, changes in the Funds
investment objectives or changes in the investment restrictions described as fundamental policies
under Investment Objectives and Policies in this Prospectus and the SAI, How the Fund Manages
RiskInvestment Restrictions in this Prospectus and Investment Restrictions in the SAI.
For purposes of this paragraph, except as otherwise required under the 1940 Act, the vote of
the holders of a majority of the outstanding shares of preferred stock means, in accordance with
Section 2(a)(42) of the 1940 Act, the vote, at the annual or a special meeting of the shareholders
of the Fund duly called (i) of 66 2/3% or more of the shares of preferred stock present at such
meeting, if the holders of more than 50% of the outstanding shares of preferred stock are present
or represented by proxy, or (ii) more than 50% of the outstanding shares of preferred stock,
whichever is less. The class vote of holders of preferred stock described above in each case will
be in addition to a separate vote of the requisite percentage of common stock, and any other
preferred stock, voting together as a single class, that may be necessary to authorize the action
in question.
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The calculation of the elements and definitions of certain terms of the rating agency
guidelines may be modified by action of the Board without further action by the shareholders if the
Board determines that such modification is necessary to prevent a reduction in rating of the shares
of preferred stock by Moodys and/or S&P (or such other rating agency then rating the preferred
stock at the request of the Fund), as the case may be, or is in the best interest of the holders of
common stock and is not adverse to the holders of preferred stock in view of advice to the Fund by
the relevant rating agencies that such modification would not adversely affect its then-current
rating of the preferred stock.
The foregoing voting provisions will not apply to any series of preferred stock if, at or
prior to the time when the act with respect to which such vote otherwise would be required will be
effected, such stock will have been redeemed or called for redemption and sufficient cash or cash
equivalents provided to the applicable paying agent to effect such redemption. The holders of
preferred stock will have no preemptive rights or rights to cumulative voting.
ANTI-TAKEOVER PROVISIONS OF THE FUNDS GOVERNING DOCUMENTS
The Fund presently has provisions in its Governing Documents that could have the effect of
limiting:
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the ability of other entities or persons to acquire control of the Funds Board; |
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the Funds freedom to engage in certain transactions; or |
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the ability of the Funds Directors or stockholders to amend the Governing Documents or
effectuate changes in the Funds management. |
These provisions of the Governing Documents of the Fund may be regarded as anti-takeover
provisions. The Board is divided into three classes, each having a term of three years. Each year
the term of one class of Directors will expire. Accordingly, only those Directors in one class may
be changed in any one year, and it would require two years to change a majority of the Board. The
affirmative vote of a majority of the shares present at a meeting of stockholders duly called and
at which a quorum is present is required to elect a Director. A classified Board may have the
effect of maintaining the continuity of management and, thus, make it more difficult for the
stockholders of the Fund to change the majority of Directors. See Management of the Fund in the
SAI. A Director of the Fund may be removed only for cause by a vote of a majority of the votes
entitled to be cast for the election of Directors of the Fund. In addition, the affirmative vote
of the holders of 66 2/3% of the outstanding voting shares of the Fund, and the vote of a majority
(as defined in the 1940 Act) of the holders of preferred shares, voting as a single class, is
required to authorize the conversion of the Fund from a closed-end to an open-end investment
company, or generally to authorize any of the following transactions:
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merger or consolidation of the Fund with or into any other corporation; |
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issuance of any securities of the Fund to any person or entity for cash;
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sale, lease or exchange of all or any substantial part of the assets of the Fund to any
entity or person (except assets having an aggregate fair market value of less than
$1,000,000); or |
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sale, lease or exchange to the Fund, in exchange for securities of the Fund, of any assets
of any entity or person (except assets having an aggregate fair market value of less than
$1,000,000); |
if such corporation, person or entity is directly, or indirectly through affiliates, the
beneficial owner of more than 5% of the outstanding shares of the Fund. However, such vote would
not be required when, under certain circumstances, the Board approves the transaction or when each
class of voting securities of the corporation or entity that is the other party to any of the
above-listed transactions is (directly or indirectly) majority owned by the Fund.
The Funds Bylaws provide that the affirmative vote of two-thirds of the entire Board of
Directors shall be required to approve or declare advisable:
(1) Any amendment to the Charter to make the Funds common stock a redeemable security or to
convert the Fund, whether by merger or otherwise, from a closed-end company to an open-end
company (as defined in the 1940 Act);
(2) The liquidation or dissolution of the Fund and any amendment to the Charter to effect any
such liquidation or dissolution; or
(3) Any merger, consolidation, share exchange or sale or exchange of all or substantially all
of the assets of the Fund that Maryland law requires be approved by the stockholders of the Fund.
Further, unless a higher percentage is provided for under the Charter, the affirmative vote of
a majority (as defined in the 1940 Act) of the votes entitled to be cast by holders of outstanding
shares of the Funds preferred stock, voting as a separate class, will be required to approve any
plan of reorganization adversely affecting such stock or any action requiring a vote of security
holders under Section 13(a) of the 1940 Act, including, among other things, open-ending the Fund
and changing the Funds investment objectives or changing the investment restrictions described as
fundamental policies under Investment Restrictions in the SAI.
Maryland corporations that are subject to the Securities Exchange Act of 1934 (the 1934 Act)
and have at least three outside directors, such as the Fund, may by board resolution elect to
become subject to certain corporate governance provisions set forth in the Maryland General
Corporation Law, even if such provisions are inconsistent with the corporations charter and
bylaws. Accordingly, notwithstanding its Governing Documents, under Maryland law, the Funds Board
may elect by resolution to, among other things:
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require that special meetings of stockholders be called only at the request of stockholders
entitled to cast at least a majority of the votes entitled to be cast at such meeting; |
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provide that the number of Directors shall be fixed only the Board;
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provide that Directors are subject to removal only by the vote of the stockholders entitled
to cast two-thirds of the votes entitled to be cast generally in the election of Directors;
and |
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vest in the Board the sole power to fill any vacancies on the Board, with any Director so
elected to serve for the balance of the unexpired term rather than only until the next annual
meeting of stockholders. |
The Governing Documents of the Fund presently: (i) require holders of not less than a majority
of the votes entitled to be cast to call a special meeting of stockholders; and (ii) provide that
the Board shall fix the number of Fund Directors. On November 22, 2010, in accordance with
Maryland law, the Funds Board elected by resolution and approved Articles Supplementary to vest in
the Board the sole power to fill any vacancies on the Board, with any Director so elected to serve
for the full term of the directorship in which the vacancy occurred and until his or her successor
is duly elected and qualifies.
Under the Maryland General Corporation Law, if the directors have been divided into classes,
unless the charter provides otherwise (which the Charter does not), a director may be removed only
for cause by the affirmative vote of a majority of all the votes entitled to be cast generally for
the election of directors. The Board could elect in the future to be subject to the provision of
Maryland law that would increase the vote required to remove a Director to two-thirds of all the
votes entitled to be cast.
The Funds Bylaws provide that, with respect to an annual meeting of stockholders, nominations
or persons for election to the Board of Directors and the proposal of business to be considered by
stockholders may be made only (1) by or at the direction of the Board of Directors or (2) by a
stockholder who is entitled to vote at the meeting and who has complied with the advance notice
procedures of the Bylaws. With respect to special meetings of stockholders, only the business
specified in the Funds notice of the meeting may be brought before the meeting. Nominations of
persons for election to the Board of Directors at a special meeting may be made only (1) by or at
the direction of the Board of Directors or (2) provided that a special meeting has been called for
the purpose of electing directors, by a stockholder who is entitled to vote at the meeting and who
has complied with the advance notice provisions of the Bylaws.
The Funds Bylaws provide that special meetings of stockholders may be called by the Board of
Directors and certain of the Funds officers. Additionally, the Funds Bylaws provide that,
subject to the satisfaction of certain procedural and informational requirements by the
stockholders requesting the meeting, a special meeting of stockholders will be called by the
secretary of the Fund upon the written request of stockholders entitled to cast not less than a
majority of all the votes entitled to be cast at such meeting.
The provisions of the Governing Documents and Maryland law described above could have the
effect of depriving the owners of stock in the Fund of opportunities to sell their shares at a
premium over prevailing market prices by discouraging a third party from seeking to obtain control
of the Fund in a tender offer or similar transaction. The overall effect of these provisions is to
render more difficult the accomplishment of a merger or the assumption of control by a principal
stockholder.
-71-
The Governing Documents of the Fund are on file with the SEC.
CLOSED-END FUND STRUCTURE
The Fund is a non-diversified, closed-end management investment company (commonly referred to
as a closed-end fund). Closed-end funds differ from open-end funds (which are generally referred
to as mutual funds) in that closed-end funds generally list their shares for trading on a stock
exchange and do not redeem their shares at the request of the shareholder. This means that if you
wish to sell your shares of a closed-end fund you must trade them on the market like any other
stock at the prevailing market price at that time. In a mutual fund, if the shareholder wishes to
sell shares of the Fund, the mutual fund will redeem or buy back the shares at net asset value.
Also, mutual funds generally offer new shares on a continuous basis to new investors, and
closed-end funds generally do not. The continuous inflows and outflows of assets in a mutual fund
can make it difficult to manage the Funds investments. By comparison, closed-end funds are
generally able to stay more fully invested in securities that are consistent with their investment
objective, to have greater flexibility to make certain types of investments and to use certain
investment strategies such as financial leverage and investments in illiquid securities.
Shares of closed-end funds often trade at a discount to their net asset value. Because of
this possibility and the recognition that any such discount may not be in the interest of
shareholders, the Funds Board might consider from time to time engaging in open-market
repurchases, tender offers for shares or other programs intended to reduce a discount. In
accordance with determinations made by the Board, the Fund may repurchase its common stock from
time to time when it deems such a repurchase advisable. The Funds Board has determined that the
repurchase of the Funds shares of common stock in the open market may be made, from time to time,
when such shares are trading at a discount of 5% (or such other percentage as the Board may
determine from time to time) or more from net asset value. No guarantee or assurance can be made
that any of these actions will be undertaken. Nor is there any guarantee or assurance that such
actions, if undertaken, would result in the shares trading at a price equal or close to net asset
value per share. The Board might also consider converting the Fund to an open-end mutual fund,
which would also require a supermajority vote of the shareholders of the Fund and a separate vote
of any outstanding preferred shares. We cannot assure you that the Funds common shares will not
trade at a discount.
LEGAL PROCEEDINGS
[On April 24, 2008, the Investment Adviser entered into a settlement with the SEC to resolve
an inquiry regarding prior frequent trading activity in shares of the GAMCO Global Growth Fund (the
Global Growth Fund) by one investor who was banned from the Global Growth Fund in August 2002.
In an administrative order that was entered in connection with the settlement, the SEC found that
the Investment Adviser had willfully violated Section 206(2) of the Investment Advisers Act of
1940, Section 17(d) of the 1940 Act and Rule 17d-1 thereunder, and had willfully aided and abetted
and caused violations of Section 12(d)(1)(B)(i) of the 1940 Act. Under the terms of the
settlement, the Investment Adviser, while neither admitting nor denying the SECs findings and
allegations, paid $16 million (which included a $5 million civil monetary penalty), approximately $12.8 million of which is in the process of being paid to
-72-
shareholders of the Global Growth Fund in accordance with a plan developed by an independent
distribution consultant and approved by the independent directors of the Global Growth Fund and
acceptable to the staff of the SEC, and agreed to cease and desist from future violations of the
above referenced federal securities laws. The SECs order also noted the cooperation that the
Investment Adviser gave the staff of the SEC. The settlement will not have a material adverse
impact on the Investment Adviser or its ability to fulfill its obligations under the Investment
Advisory Agreement. On the same day, the SEC filed a civil action against the Executive Vice
President and Chief Operating Officer of the Investment Adviser, alleging violations of certain
federal securities laws arising from the same matter. The officer is also an officer of the Fund,
the Global Growth Fund, and other funds in the Gabelli/GAMCO fund complex. The officer denied the
allegations and is continuing in his positions with the Investment Adviser and the funds. The
court dismissed certain claims, finding that the SEC was not entitled to pursue various remedies
against the officer while leaving one remedy in the event the SEC were able to prove violations of
law. The court, in response to a motion by the SEC, subsequently dismissed the remaining remedy
without prejudice against the officer, which would allow the SEC to appeal the courts rulings. On
October 29, 2010, the SEC filed its appeal with the U.S. Court of Appeals for the Second Circuit
regarding the lower courts orders. The Investment Adviser currently expects that any resolution
of the action against the officer will not have a material adverse impact on the Investment Adviser
or its ability to fulfill its obligations under the Investment Advisory Agreement.]
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, located at 150 Royall Street, Canton, MA 02021, serves as
the custodian of the Funds assets pursuant to a custody agreement. Under the custody agreement,
the Custodian holds the Funds assets in compliance with the 1940 Act. For its services, the
Custodian receives a monthly fee based upon the average weekly value of the total assets of the
Fund, plus certain charges for securities transactions.
Computershare Trust Company, N.A., located at 250 Royall Street, Canton, Massachusetts 02021,
serves as the Funds dividend disbursing agent, as agent under the Funds automatic dividend
reinvestment and voluntary cash purchase plan and as transfer agent and registrar for Shares of
common stock of the Fund.
Computershare Trust Company, N.A. also serves as the transfer agent, registrar, dividend
paying agent and redemption agent with respect to the Series B Preferred.
The Bank of New York, located at 5 Penn Plaza, 13th Floor, New York, NY 10001, serves as the
Funds auction agent, transfer agent, registrar, dividend paying agent and redemption agent with
respect to the Series C Auction Rate Preferred.
LEGAL MATTERS
Certain legal matters will be passed on by Paul, Hastings, Janofsky & Walker LLP, 75 East 55th
Street, New York, New York 10022 in connection with the Offer.
-73-
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
[] serves as the Independent Registered Public Accounting Firm of the Fund and audits the
financial statements of the Fund. [] is located at [].
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the 1934 Act and the 1940 Act and in
accordance therewith files, or will file, reports and other information with the SEC. Reports,
proxy statements and other information filed by the Fund with the SEC pursuant to the informational
requirements of the 1934 Act and the 1940 Act can be inspected and copied at the public reference
facilities maintained by the SEC, 100 F Street, N.E., Washington, DC 20549. The SEC maintains a
web site at http://www.sec.gov containing reports, proxy and information statements and other
information regarding registrants, including the Fund, that file electronically with the SEC.
The Funds Shares of common stock are listed on the NYSE. Reports, proxy statements and other
information concerning the Fund and filed with the SEC by the Fund will be available for inspection
at the NYSE, 20 Broad Street, New York, New York, 10005.
This Prospectus constitutes part of a Registration Statement filed by the Fund with the SEC
under the 1933 Act and the 1940 Act. This Prospectus omits certain of the information contained in
the Registration Statement, and reference is hereby made to the Registration Statement and related
exhibits for further information with respect to the Fund and the shares offered hereby. Any
statements contained herein concerning the provisions of any document are not necessarily complete,
and, in each instance, reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the SEC. Each such statement is qualified in its
entirety by such reference.
-74-
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
An SAI dated as of [], has been filed with the SEC and is incorporated by reference in this
Prospectus. An SAI may be obtained without charge by writing to the Fund at its address at One
Corporate Center, Rye, New York 10580-1422 or by calling the Fund toll-free at (800) GABELLI
(422-3554). The Table of Contents of the SAI is as follows:
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THE FUND |
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2 |
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INVESTMENT OBJECTIVES AND POLICIES |
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2 |
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INVESTMENT RESTRICTIONS |
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16 |
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MANAGEMENT OF THE FUND |
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17 |
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BENEFICIAL OWNERS |
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30 |
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INVESTMENT ADVISER |
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31 |
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CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT |
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34 |
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
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34 |
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PORTFOLIO MANAGEMENT |
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34 |
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PORTFOLIO TRANSACTIONS |
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39 |
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TAXATION |
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40 |
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No dealer, salesperson or other person has been authorized to give any information or to make any
representations not contained in this Prospectus. If given or made, such information or
representation must not be relief upon as having been authorized by the Fund or the Funds
Investment Adviser. This Prospectus does not constitute an offer to sell or the solicitation of an
offer to buy any security other than the Shares of common stock offered by this Prospectus, nor
does it constitute an offer to sell or the solicitation of an offer to buy Shares of common stock
by anyone in any jurisdiction in which such offer or solicitation would be unlawful.
-75-
THE GABELLI GLOBAL
MULTIMEDIA TRUST INC.
[] SHARES
OF COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 2011
The information in this Statement of Additional Information is not complete and may be changed. We
may not sell these securities until the registration statement filed with the Securities and
Exchange Commission is effective. This Statement of Additional Information is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any state where the
offer is not permitted.
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
One Corporate Center
Rye, New York 10580-1434
STATEMENT OF ADDITIONAL INFORMATION
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 2011
The Gabelli Global Multimedia Trust Inc. (the Fund) is a non-diversified, closed-end
management investment company registered under the Investment Company Act of 1940, as amended (the
1940 Act). The Funds primary investment objective is long-term growth of capital, primarily
through investment in a portfolio of common stock and other securities of foreign and domestic
companies involved in the telecommunications, media, publishing and entertainment industries.
Income is a secondary objective of the Fund. The Fund commenced investment operations on November
15, 1994. Gabelli Funds, LLC (the Investment Adviser) serves as investment adviser to the Fund.
This Statement of Additional Information (the SAI) does not constitute a prospectus, but
should be read in conjunction with the Funds Prospectus relating thereto dated [], and as it may
be supplemented. This SAI does not include all information that a prospective investor should
consider before investing in the Funds shares, and investors should obtain and read the Funds
prospectus prior to purchasing such shares. A copy of the Funds registration statement, including
the Prospectus and any supplement, may be obtained from the Securities and Exchange Commission (the
SEC) upon payment of the fee prescribed, or inspected at the SECs office or via its website
(www.sec.gov) at no charge.
TABLE
OF CONTENTS
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THE FUND |
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2 |
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INVESTMENT OBJECTIVES AND POLICIES |
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INVESTMENT RESTRICTIONS |
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16 |
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MANAGEMENT OF THE FUND |
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BENEFICIAL OWNERS |
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30 |
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INVESTMENT ADVISER |
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CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT |
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
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PORTFOLIO MANAGEMENT |
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PORTFOLIO TRANSACTIONS |
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TAXATION |
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40 |
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The Prospectus and this SAI omit certain information contained in the registration statement
filed with the SEC, Washington D.C. The registration statement may be obtained from the SEC upon
payment of the fee prescribed, or inspected at the SECs office at no charge.
THE FUND
The Fund was incorporated in Maryland on May 31, 1994 and is a non-diversified, closed-end
management investment company registered under the 1940 Act. The common stock of the Fund is
listed and traded on the New York Stock Exchange (the NYSE) under the symbol GGT. The Funds
6.00% Series B Cumulative Preferred Stock (the Series B Preferred) is listed and traded on the
NYSE under the symbol GGT PrB.
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Funds primary investment objective is long-term growth of capital. Income is a secondary
objective. Under normal market conditions, the Fund will invest at least 80% of the value of its
assets in common stock and other securities, including convertible securities, preferred stock,
options, and warrants of companies in the telecommunications, media, publishing, and entertainment
industries. See Investment Objectives and Policies in the Prospectus.
The economic crisis that began to unfold in 2007 continues to manifest itself in nearly all
areas of the U.S. economy and has caused dramatic volatility in the financial markets, as well as a
significant decrease in the value of many financial institutions, including, in general, a decrease
in the value of stocks and bonds. The U.S. government has taken a number of measures to attempt to
restore stability to the financial markets and to promote economic recovery. The measures have
included various programs to stimulate economic activity, to reform regulatory oversight, to
advance various social goals and to provide relief to businesses and individuals suffering from the
effects of the economic crisis. There is no guarantee that any of these programs or other efforts
will be successful.
Investment Practices
Special Situations. Subject to the Funds policy of investing at least 80% of the value of its
assets in companies involved in the telecommunications, media, publishing and entertainment
industries, the Fund from time to time may, as a non-principal investment strategy, invest in
companies that are determined by the Investment Adviser to possess special situation
characteristics. In general, a special situation company is a company whose securities are
expected to increase in value solely by reason of a development particularly or uniquely applicable
to the company. Developments that may create special situations include, among others, a
liquidation, reorganization, recapitalization or merger, material litigation, technological
breakthrough or new management or management policies. The principal risk associated with
investments in special situation companies is that the anticipated development thought to create
the special situation may not occur and the investment therefore may not appreciate in value or may
decline in value.
-2-
Temporary Defensive Investments. Subject to the Funds investment restrictions, when a
temporary defensive period is believed by the Investment Adviser to be warranted (temporary
defensive periods), the Fund may, without limitation, hold cash or invest its assets in securities
of United States government sponsored instrumentalities, in repurchase agreements in respect of
those instruments, and in certain high-grade commercial paper instruments. During temporary
defensive periods, the Fund may also invest up to 10% of the market value of its total assets in
money market mutual funds that invest primarily in securities of United States government sponsored
instrumentalities and repurchase agreements in respect of those instruments. Obligations of
certain agencies and instrumentalities of the United States government, such as the Government
National Mortgage Association, are supported by the full faith and credit of the United States
government; others, such as those of the Export-Import Bank of the United States, are supported by
the right of the issuer to borrow from the United States Treasury; others, such as those of the
Federal National Mortgage Association, are supported by the discretionary authority of the United
States government to purchase the agencys obligations; and still others, such as those of the
Student Loan Marketing Association, are supported only by the credit of the instrumentality. No
assurance can be given that the United States government would provide financial support to United
States government sponsored instrumentalities if it is not obligated to do so by law. During
temporary defensive periods, the Fund may be less likely to achieve its secondary investment
objective of income.
Lower Rated Securities. The Fund may invest up to 10% of its total assets in fixed-income
securities rated in the lower rating categories of recognized statistical rating agencies, such as
securities rated CCC or lower by S&P or Caa or lower by Moodys, or non-rated securities of
comparable quality. These debt securities are predominantly speculative and involve major risk
exposure to adverse conditions and are often referred to in the financial press as junk bonds.
Generally, such lower rated securities and unrated securities of comparable quality offer a
higher current yield than is offered by higher rated securities, but also (i) will likely have some
quality and protective characteristics that, in the judgment of the rating organizations, are
outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuers capacity to pay interest and repay principal
in accordance with the terms of the obligation. The market values of certain of these securities
also tend to be more sensitive to individual corporate developments and changes in economic
conditions than higher quality bonds. In addition, such lower rated securities and comparable
unrated securities generally present a higher degree of credit risk. The risk of loss due to
default by these issuers is significantly greater because such lower rated securities and unrated
securities of comparable quality generally are unsecured and frequently are subordinated to the
prior payment of senior indebtedness. In light of these risks, the Investment Adviser, in
evaluating the creditworthiness of an issue, whether rated or unrated, will take various factors
into consideration, which may include, as applicable, the issuers operating history, financial
resources and its sensitivity to economic conditions and trends, the market support for the
facility financed by the issue, the perceived ability and integrity of the issuers management and
regulatory matters.
In addition, the market value of securities in lower rated categories is more volatile than
that of higher quality securities, and the markets in which such lower rated or unrated securities
-3-
are traded are more limited than those in which higher rated securities are traded. The
existence of limited markets may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing its portfolio and calculating its net asset value. Moreover,
the lack of a liquid trading market may restrict the availability of securities for the Fund to
purchase and may also have the effect of limiting the ability of the Fund to sell securities at
their fair market value to respond to changes in the economy or the financial markets.
Lower rated debt obligations also present risks based on payment expectations. If an issuer
calls the obligation for redemption (often a feature of fixed income securities), the Fund may have
to replace the security with a lower yielding security, resulting in a decreased return for
investors. Also, as the principal value of bonds moves inversely with movements in interest rates,
in the event of rising interest rates the value of the securities held by the Fund may decline
proportionately more than a portfolio consisting of higher rated securities. Investments in zero
coupon bonds may be more speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently.
The Fund may invest in securities of issuers in default. The Fund will invest in securities
of issuers in default only when the Investment Adviser believes that such issuers will honor their
obligations or emerge from bankruptcy protection and the value of these securities will appreciate.
By investing in securities of issuers in default, the Fund bears the risk that these issuers will
not continue to honor their obligations or emerge from bankruptcy protection or that the value of
the securities will not appreciate.
In addition to using recognized rating agencies and other sources, the Investment Adviser also
performs its own analysis in seeking investments that it believes to be underrated (and thus
higher-yielding) in light of the financial condition of the issuer. Its analysis of issuers may
include, among other things, current and anticipated cash flow and borrowing requirements, value of
assets in relation to historical cost, strength of management, responsiveness to business
conditions, credit standing and current anticipated results of operations. In selecting
investments for the Fund, the Investment Adviser may also consider general business conditions,
anticipated changes in interest rates and the outlook for specific industries.
Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced. In addition, it is possible that statistical rating agencies might not
change their ratings of a particular issue or reflect subsequent events on a timely basis.
Moreover, such ratings do not assess the risk of a decline in market value. None of these events
will require the sale of the securities by the Fund, although the Investment Adviser will consider
these events in determining whether the Fund should continue to hold the securities.
The market for certain lower rated and comparable unrated securities has in the past
experienced a major economic recession. The recession adversely affected the value of such
securities as well as the ability of certain issuers of such securities to repay principal and pay
interest thereon. The market for those securities could react in a similar fashion in the event of
any future economic recession.
Options. The Fund may, subject to guidelines of the Board of Directors (the Board), purchase
or sell (i.e., write) options on securities, securities indices and foreign currencies which
-4-
are listed on a national securities exchange or in the United States over-the-counter (OTC)
markets as a means of achieving additional return or of hedging the value of the Funds portfolio.
A call option is a contract that gives the holder of the option the right to buy from the
writer (seller) of the call option, in return for a premium paid, the security or currency
underlying the option at a specified exercise price at any time during the term of the option. The
writer of the call option has the obligation, upon exercise of the option, to deliver the
underlying security or currency upon payment of the exercise price during the option period.
A put option is the reverse of a call option, giving the holder the right, in return for a
premium, to sell the underlying security or currency to the writer, at a specified price, and
obligating the writer to purchase the underlying security or currency from the holder at that
price. The writer of the put, who receives the premium, has the obligation to buy the underlying
security or currency upon exercise, at the exercise price during the option period.
If the Fund has written an option, it may terminate its obligation by effecting a closing
purchase transaction. This is accomplished by purchasing an option of the same series as the
option previously written. There can be no assurance that a closing purchase transaction can be
effected when the Fund so desires.
An exchange-traded option may be closed out only on an exchange that provides a secondary
market for an option of the same series. Although the Fund will generally purchase or write only
those options for which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange will exist for any particular option.
A call option is covered if the Fund owns the underlying instrument covered by the call or
has an absolute and immediate right to acquire that instrument without additional cash
consideration upon conversion or exchange of another instrument held in its portfolio (or for
additional cash consideration held in a segregated account by its custodian). A call option is
also covered if the Fund holds a call on the same instrument as the call written where the exercise
price of the call held is (i) equal to or less than the exercise price of the call written or (ii)
greater than the exercise price of the call written if the difference is maintained by the Fund in
cash, direct obligations of the United States or by its agencies or instrumentalities that are
entitled to the full faith and credit of the United States and that, other than United States
Treasury Bills, provide for the periodic payment of interest and the full payment of principal at
maturity or call for redemption or other high-grade short-term obligations in a segregated account
with its custodian. A put option is covered if the Fund maintains cash or other high grade
short-term obligations with a value equal to the exercise price in a segregated account with its
custodian, or else holds a put on the same instrument as the put written where the exercise price
of the put held is equal to or greater than the exercise price of the put written. If the Fund has
written an option, it may terminate its obligation by effecting a closing purchase transaction.
This is accomplished by purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the holder of an option it may liquidate
its position by effecting a closing sale transaction. This is accomplished by selling an option of
the same series as the option previously purchased. There can be no assurance that either a
closing purchase or sale transaction can be effected when the Fund so desires.
-5-
The Fund will realize a profit from a closing transaction if the price of the transaction is
less than the premium received from writing the option or is more than the premium paid to purchase
the option; the Fund will realize a loss from a closing transaction if the price of the transaction
is more than the premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in the price of the
underlying security, any loss resulting from the repurchase of a call option may also be wholly or
partially offset by unrealized appreciation of the underlying security. Other principal factors
affecting the market value of a put or call option include supply and demand, interest rates, the
current market price and price volatility of the underlying security and the time remaining until
the expiration date. Gains and losses on investments in options depend, in part, on the ability of
the Investment Adviser to predict correctly the effect of these factors. The use of options cannot
serve as a complete hedge since the price movement of securities underlying the options will not
necessarily follow the price movements of the portfolio securities subject to the hedge.
An option position may be closed out only on an exchange that provides a secondary market for
an option of the same series or in a private transaction. Although the Fund will generally
purchase or write only those options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange will exist for any particular
option. In such event, it might not be possible to effect closing transactions in particular
options, so the Fund would have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of call options and upon the subsequent disposition
of underlying securities for the exercise of put options. If the Fund, as a covered call option
writer, is unable to effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or until the Fund delivers the
underlying security upon exercise or otherwise covers the position.
In addition to options on securities, the Fund may also purchase and sell call and put options
on securities indices. A stock index reflects in a single number the market value of many
different stocks.
Relative values are assigned to the stocks included in an index and the index fluctuates with
changes in the market values of the stocks. The options give the holder the right to receive a
cash settlement during the term of the option based on the difference between the exercise price
and the value of the index. By writing a put or call option on a securities index, the Fund is
obligated, in return for the premium received, to make delivery of this amount. The Fund may
offset its position in the stock index options prior to expiration by entering into a closing
transaction on an exchange, or it may let the option expire unexercised.
Use of options on securities indices entails the risk that trading in the options may be
interrupted if trading in certain securities included in the index is interrupted. The Fund will
not purchase these options unless the Investment Adviser is satisfied with the development, depth
and liquidity of the market and the Investment Adviser believes the options can be closed out.
Price movements in the portfolio of the Fund may not correlate precisely with the movements in
the level of an index and, therefore, the use of options on indices cannot serve as a complete
hedge and will depend, in part, on the ability of the Investment Adviser to predict
-6-
correctly movements in the direction of the stock market generally or of a particular
industry. Because options on securities indices require settlement in cash, the Fund may be forced
to liquidate portfolio securities to meet settlement obligations.
The Fund may also buy or sell put and call options on foreign currencies. A put option on a
foreign currency gives the purchaser of the option the right to sell a foreign currency at the
exercise price until the option expires. A call option on a foreign currency gives the purchaser
of the option the right to purchase the currency at the exercise price until the option expires.
Currency options traded on U.S. or other exchanges may be subject to position limits which may
limit the ability of the Fund to reduce foreign currency risk using such options. Over-the-counter
options differ from exchange-traded options in that they are two-party contracts with price and
other terms negotiated between buyer and seller and generally do not have as much market liquidity
as exchange-traded options. Over-the-counter options are considered illiquid securities.
Although the Investment Adviser will attempt to take appropriate measures to minimize the
risks relating to the Funds writing of put and call options, there can be no assurance that the
Fund will succeed in any option writing program it undertakes.
Futures Contracts and Options on Futures. A sale of a futures contract (or a short futures
position) means the assumption of a contractual obligation to deliver the assets underlying the
contract at a specified price at a specified future time. A purchase of a futures contract (or a
long futures position) means the assumption of a contractual obligation to acquire the assets
underlying the contract at a specified price at a specified future time. Certain futures
contracts, including stock and bond index futures, are settled on a net cash payment basis rather
than by the sale and delivery of the assets underlying the futures contracts. No consideration
will be paid or received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker an amount of cash or cash equivalents equal to
approximately 1% to 10% of the contract amount (this amount is subject to change by the exchange or
board of trade on which the contract is traded and brokers or members of such board of trade may
charge a higher amount). This amount is known as initial margin and is in the nature of a
performance bond or good faith deposit on the contract. Subsequent payments, known as variation
margin, to and from the broker will be made daily as the price of the index or security underlying
the futures contracts fluctuates. At any time prior to the expiration of a futures contract, the
Fund may close the position by taking an opposite position, which will operate to terminate its
existing position in the contract.
An option on a futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a futures contract at a specified exercise price at any time prior to the
expiration of the option. Upon exercise of an option, the delivery of the futures positions by the
writer of the option to the holder of the option will be accompanied by delivery of the accumulated
balance in the writers futures margin account attributable to that contract, which represents the
amount by which the market price of the futures contract exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on futures contracts is limited to the premium
paid for the option (plus transaction costs). Because the value of the option purchased is fixed
at the point of sale, there are no daily cash payments by the purchaser to reflect changes
-7-
in the value of the underlying contract; however, the value of the option does change daily
and that change would be reflected in the net assets of the Fund.
Futures and options on futures entail certain risks, including but not limited to the
following: no assurance that futures contracts or options on futures can be offset at favorable
prices, possible reduction of the yield of the Fund due to the use of hedging, possible reduction
in value of both the securities hedged and the hedging instrument, possible lack of liquidity due
to daily limits on price fluctuations, imperfect correlation between the contracts and the
securities being hedged, losses from investing in futures transactions that are potentially
unlimited and the segregation requirements described below.
In the event the Fund sells a put option or enters into long futures contracts, under current
interpretations of the 1940 Act, an amount of cash, obligations of the U.S. government and its
agencies and instrumentalities or other liquid securities equal to the market value of the contract
must be deposited and maintained in a segregated account with the custodian of the Fund to
collateralize the positions, thereby ensuring that the use of the contract is unleveraged. For
short positions in futures contracts and sales of call options, the Fund may establish a segregated
account (not with a futures commission merchant or broker) with cash or liquid securities that,
when added to amounts deposited with a futures commission merchant or a broker as margin, equal the
market value of the instruments or currency underlying the futures contract or call option or the
market price at which the short positions were established.
Interest Rate Futures Contracts and Options Thereon. The Fund may purchase or sell interest
rate futures contracts to take advantage of, or to protect the Fund against fluctuations in
interest rates affecting the value of debt securities which the Fund holds or intends to acquire.
For example, if interest rates are expected to increase, the Fund might sell futures contracts on
debt securities the values of which historically have a high degree of positive correlation to the
values of the Funds portfolio securities. Such a sale would have an effect similar to selling an
equivalent value of the Funds portfolio securities. If interest rates increase, the value of the
Funds portfolio securities will decline, but the value of the futures contracts to the Fund will
increase at approximately an equivalent rate, thereby keeping the net asset value of the Fund from
declining as much as it otherwise would have. The Fund could accomplish similar results by selling
debt securities with longer maturities and investing in debt securities with shorter maturities
when interest rates are expected to increase. However, since the futures market may be more liquid
than the cash market, the use of futures contracts as a risk management technique allows the Fund
to maintain a defensive position without having to sell its portfolio securities.
Similarly, the Fund may purchase interest rate futures contracts when it is expected that
interest rates may decline. The purchase of futures contracts for this purpose constitutes a hedge
against increases in the price of debt securities (caused by declining interest rates) which the
Fund intends to acquire. Since fluctuations in the value of appropriately selected futures
contracts should approximate that of the debt securities that will be purchased, the Fund can take
advantage of the anticipated rise in the cost of the debt securities without actually buying them.
Subsequently, the Fund can make its intended purchase of the debt securities in the cash market and
concurrently liquidate its futures position. To the extent the Fund enters into futures contracts
for this purpose, it will maintain, in a segregated asset account with the Funds custodian, assets
sufficient to cover the Funds obligations with respect to such futures contracts,
-8-
which will consist of cash or other liquid securities from its portfolio in an amount equal to
the difference between the fluctuating market value of such futures contracts and the aggregate
value of the initial margin deposited by the Fund with its custodian with respect to such futures
contracts.
The purchase of a call option on a futures contract is similar in some respects to the
purchase of a call option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or the price of the
underlying debt securities, it may or may not be less risky than ownership of the futures contract
or underlying debt securities. As with the purchase of futures contracts, when the Fund is not
fully invested it may purchase a call option on a futures contract to hedge against a market
advance due to declining interest rates.
The purchase of a put option on a futures contract is similar to the purchase of protective
put options on portfolio securities. The Fund will purchase a put option on a futures contract to
hedge its portfolio against the risk of rising interest rates and consequent reduction in the value
of portfolio securities.
The writing of a call option on a futures contract constitutes a partial hedge against
declining prices of the securities that are deliverable upon exercise of the futures contract. If
the futures price at expiration of the option is below the exercise price, the Fund will retain the
full amount of the option premium, which provides a partial hedge against any decline that may have
occurred in the its portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the securities that are deliverable upon
exercise of the futures contract. If the futures price at expiration of the option is higher than
the exercise price, the Fund will retain the full amount of the option premium, which provides a
partial hedge against any increase in the price of debt securities that it intends to purchase. If
a put or call option the Fund has written is exercised, the Fund will incur a loss which will be
reduced by the amount of the premium it received. Depending on the degree of correlation between
changes in the value of its portfolio securities and changes in the value of its futures positions,
the Funds losses from options on futures it has written may to some extent be reduced or increased
by changes in the value of its portfolio securities.
Currency Futures and Options Thereon. Generally, foreign currency futures contracts and
options thereon are similar to the interest rate futures contracts and options thereon discussed
previously. By entering into currency futures and options thereon, the Fund will seek to establish
the rate at which it will be entitled to exchange U.S. dollars for another currency at a future
time. By selling currency futures, the Fund will seek to establish the number of dollars it will
receive at delivery for a certain amount of a foreign currency. In this way, whenever the Fund
anticipates a decline in the value of a foreign currency against the U.S. dollar, the Fund can
attempt to lock in the U.S. dollar value of some or all of the securities held in its portfolio
that are denominated in that currency. By purchasing currency futures, the Fund can establish the
number of dollars it will be required to pay for a specified amount of a foreign currency in a
future month. Thus, if the Fund intends to buy securities in the future and expects the U.S.
dollar to decline against the relevant foreign currency during the period before the purchase is
effected, the Fund can attempt to lock in the price in U.S. dollars of the securities it intends to
acquire.
-9-
The purchase of options on currency futures will allow the Fund, for the price of the premium
and related transaction costs it must pay for the option, to decide whether or not to buy (in the
case of a call option) or to sell (in the case of a put option) a futures contract at a specified
price at any time during the period before the option expires. If the Investment Adviser, in
purchasing an option, has been correct in its judgment concerning the direction in which the price
of a foreign currency would move as against the U.S. dollar, the Fund may exercise the option and
thereby take a futures position to hedge against the risk it had correctly anticipated or close out
the option position at a gain that will offset, to some extent, currency exchange losses otherwise
suffered by the Fund. If exchange rates move in a way the Fund did not anticipate, however, the
Fund will have incurred the expense of the option without obtaining the expected benefit; any such
movement in exchange rates may also thereby reduce, rather than enhance, the Funds profits on its
underlying securities transactions.
Securities Index Futures Contracts and Options Thereon. Purchases or sales of securities index
futures contracts are used for hedging purposes to attempt to protect the Funds current or
intended investments from broad fluctuations in stock or bond prices. For example, the Fund may
sell securities index futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of the its securities portfolio that might otherwise result.
If such decline occurs, the loss in value of portfolio securities may be offset, in whole or part,
by gains on the futures position. When the Fund is not fully invested in the securities market and
anticipates a significant market advance, it may purchase securities index futures contracts in
order to gain rapid market exposure that may, in part or entirely, offset increases in the cost of
securities that it intends to purchase. As such purchases are made, the corresponding positions in
securities index futures contracts will be closed out. The Fund may write put and call options on
securities index futures contracts for hedging purposes.
Limitations on the Purchase and Sale of Futures Contracts and Options on Futures Contracts.
The Investment Adviser has claimed an exclusion from the definition of the term commodity pool
operator under the Commodity Exchange Act and therefore is not subject to registration under the
Commodity Exchange Act. Accordingly, the Funds investments in derivative instruments described in
the Prospectus and this SAI are not limited by or subject to regulation under the Commodity
Exchange Act or otherwise regulated by the Commodity Futures Trading Commission. Nevertheless, the
Funds investment restrictions place certain limitations and prohibitions on the Funds ability to
purchase or sell commodities or commodity contracts. See Investment Restrictions. Under these
restrictions, the Fund may not enter into futures contracts or options on futures contracts unless
(i) the aggregate initial margins and premiums do not exceed 5% of the fair market value of the
Funds total assets and (ii) the aggregate market value of the Funds outstanding futures contracts
and the market value of the currencies and futures contracts subject to outstanding options written
by the Fund, as the case may be, do not exceed 50% of the market value of the Funds total assets.
In addition, investment in futures contracts and related options generally will be limited by the
rating agency guidelines applicable to any of the Funds preferred stock.
Forward Currency Exchange Contracts. The Fund may engage in currency transactions other than
on futures exchanges to protect against future changes in the level of future currency exchange
rates. The Fund will conduct such currency exchange transactions either on a spot (i.e., cash)
basis at the rate then prevailing in the currency exchange market or on a forward
-10-
basis, by entering into forward contracts to purchase or sell currency. A forward contract on
foreign currency involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days agreed upon by the parties from the date of the contract, at
a price set on the date of the contract. Dealing in forward currency exchange will be limited to
hedging involving either specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward currency with respect to specific receivables or payables of the Fund
generally arising in connection with the purchase or sale of its portfolio securities and accruals
of interest receivable and Fund expenses. Position hedging is the forward sale of currency with
respect to portfolio security positions denominated or quoted in that currency or in a currency
bearing a high degree of positive correlation to the value of that currency.
The Fund may not position hedge with respect to a particular currency for an amount greater
than the aggregate market value (determined at the time of making any sale of forward currency) of
the securities held in its portfolio denominated or quoted in, or currently convertible into, such
currency. If the Fund enters into a position hedging transaction, the Funds custodian or
subcustodian will place cash or other liquid securities in a segregated account of the Fund in an
amount equal to the value of the Funds total assets committed to the consummation of the given
forward contract. If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the value of the account will,
at all times, equal the amount of the Funds commitment with respect to the forward contract.
At or before the maturity of a forward sale contract, the Fund may either sell a portfolio
security and make delivery of the currency, or retain the security and offset its contractual
obligations to deliver the currency by purchasing a second contract pursuant to which the Fund will
obtain, on the same maturity date, the same amount of the currency which it is obligated to
deliver. If the Fund retains the portfolio security and engages in an offsetting transaction, the
Fund, at the time of execution of the offsetting transaction, will incur a gain or a loss to the
extent that movement has occurred in forward contract prices. Should forward prices decline during
the period between the Funds entering into a forward contract for the sale of a currency and the
date it enters into an offsetting contract for the purchase of the currency, the Fund will realize
a gain to the extent the price of the currency it has agreed to purchase is less than the price of
the currency it has agreed to sell. Should forward prices increase, the Fund will suffer a loss to
the extent the price of the currency it has agreed to purchase exceeds the price of the currency it
has agreed to sell. Closing out forward purchase contracts involves similar offsetting
transactions.
The cost to the Fund of engaging in currency transactions varies with factors such as the
currency involved, the length of the contract period and the market conditions then prevailing.
Because forward transactions in currency exchange are usually conducted on a principal basis, no
fees or commissions are involved. The use of foreign currency contracts does not eliminate
fluctuations in the underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. In addition, although forward currency contracts limit the
risk of loss due to a decline in the value of the hedged currency, they also limit any potential
gain that might result if the value of the currency increases.
-11-
If a decline in any currency is generally anticipated by the Investment Adviser, the Fund may
not be able to contract to sell the currency at a price above the level to which the currency is
anticipated to decline.
Special Risk Considerations Relating to Futures and Options Thereon. The ability to establish
and close out positions in futures contracts and options thereon will be subject to the development
and maintenance of liquid markets. Although the Fund generally will purchase or sell only those
futures contracts and options thereon for which there appears to be a liquid market, there is no
assurance that a liquid market on an exchange will exist for any particular futures contract or
option thereon at any particular time.
In the event no liquid market exists for a particular futures contract or option thereon in
which the Fund maintains a position, it will not be possible to effect a closing transaction in
that contract or to do so at a satisfactory price and the Fund would have to either make or take
delivery under the futures contract or, in the case of a written option, wait to sell the
underlying securities until the option expires or is exercised or, in the case of a purchased
option, exercise the option. In the case of a futures contract or an option thereon which the Fund
has written and which the Fund is unable to close, the Fund would be required to maintain margin
deposits on the futures contract or option thereon and to make variation margin payments until the
contract is closed.
Successful use of futures contracts and options thereon and forward contracts by the Fund is
subject to the ability of the Investment Adviser to predict correctly movements in the direction of
interest and foreign currency rates. If the Investment Advisers expectations are not met, the
Fund will be in a worse position than if a hedging strategy had not been pursued. For example, if
the Fund has hedged against the possibility of an increase in interest rates that would adversely
affect the price of securities in its portfolio and the price of such securities increases instead,
the Fund will lose part or all of the benefit of the increased value of its securities because it
will have offsetting losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash to meet daily variation margin requirements, it may have to sell securities
to meet the requirements. These sales may be, but will not necessarily be, at increased prices
which reflect the rising market. The Fund may have to sell securities at a time when it is
disadvantageous to do so.
Additional Risks of Foreign Options, Futures Contracts, Options on Futures Contracts and
Forward Contracts. Options, futures contracts and options thereon and forward contracts on
securities and currencies may be traded on foreign exchanges. Such transactions may not be
regulated as effectively as similar transactions in the U.S., may not involve a clearing mechanism
and related guarantees, and are subject to the risk of governmental actions affecting trading in,
or the prices of, foreign securities. The value of such positions also could be adversely affected
by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than
in the U.S. of data on which to make trading decisions, (iii) delays in the Funds ability to act
upon economic events occurring in the foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and margin requirements
than in the U.S. and (v) lesser trading volume.
-12-
Exchanges on which options, futures and options on futures are traded may impose limits on the
positions that the Fund may take in certain circumstances.
Risks of Currency Transactions. Currency transactions are also subject to risks different from
those of other portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and sales of currency
and related instruments can be adversely affected by government exchange controls, limitations or
restrictions on repatriation of currency, and manipulation, or exchange restrictions imposed by
governments. These forms of governmental action can result in losses to the Fund if it is unable
to deliver or receive currency or monies in settlement of obligations and could also cause hedges
it has entered into to be rendered useless, resulting in full currency exposure as well as
incurring transaction costs.
Repurchase Agreements. The Fund may engage in repurchase agreements as set forth in the
Prospectus. A repurchase agreement is an instrument under which the purchaser, i.e., the Fund,
acquires a debt security and the seller agrees, at the time of the sale, to repurchase the
obligation at a mutually agreed upon time and price, thereby determining the yield during the
purchasers holding period. This results in a fixed rate of return insulated from market
fluctuations during such period. The underlying securities are ordinarily U.S. Treasury or other
government obligations or high quality money market instruments. The Fund will require that the
value of such underlying securities, together with any other collateral held by the Fund, always
equals or exceeds the amount of the repurchase obligations of the counter party. The Funds risk
is primarily that, if the seller defaults, the proceeds from the disposition of the underlying
securities and other collateral for the sellers obligation are less than the repurchase price. If
the seller becomes insolvent, the Fund might be delayed in or prevented from selling the
collateral. In the event of a default or bankruptcy by a seller, the Fund will promptly seek to
liquidate the collateral. To the extent that the proceeds from any sale of such collateral upon a
default in the obligation to repurchase are less than the repurchase price, the Fund will
experience a loss.
If the financial institution which is a party to the repurchase agreement petitions for
bankruptcy or becomes subject to the United States Bankruptcy Code, the law regarding the rights of
the Fund is unsettled. As a result, under extreme circumstances, there may be a restriction on the
Funds ability to sell the collateral and the Fund would suffer a loss.
Loans of Portfolio Securities. Consistent with applicable regulatory requirements and the
Funds investment restrictions, the Fund may lend its portfolio securities to securities
broker-dealers or financial institutions, provided that such loans are callable at any time by the
Fund (subject to notice provisions described below), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable regulations and
that are at least equal to the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund continues to receive the income on the loaned securities
while at the same time earns interest on the cash amounts deposited as collateral, which will be
invested in short-term obligations. The Fund will not lend its portfolio securities if such loans
are not permitted by the laws or regulations of any state in which its stock is qualified for sale.
The Funds loans of portfolio securities will be collateralized in accordance with applicable
regulatory requirements and no loan will cause the value of all loaned securities to exceed 20%
-13-
of the value of the Funds total assets. The Funds ability to lend portfolio securities will
be limited by the rating agency guidelines applicable to any of the Funds outstanding preferred
stock.
A loan may generally be terminated by the borrower on one business day notice, or by the Fund
on five business days notice. If the borrower fails to deliver the loaned securities within five
days after receipt of notice, the Fund could use the collateral to replace the securities while
holding the borrower liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. However, these loans of
portfolio securities will only be made to firms deemed by the Funds management to be creditworthy
and when the income which can be earned from such loans justifies the attendant risks. The Board
will oversee the creditworthiness of the contracting parties on an ongoing basis. Upon termination
of the loan, the borrower is required to return the securities to the Fund. Any gain or loss in
the market price during the loan period would inure to the Fund. The risks associated with loans
of portfolio securities are substantially similar to those associated with repurchase agreements.
Thus, if the counter party to the loan petitions for bankruptcy or becomes subject to the United
States Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a result, under
extreme circumstances, there may be a restriction on the Funds ability to sell the collateral and
the Fund would suffer a loss. When voting or consent rights which accompany loaned securities pass
to the borrower, the Fund will follow the policy of calling the loaned securities, to be delivered
within one day after notice, to permit the exercise of such rights if the matters involved would
have a material effect on the Funds investment in such loaned securities. The Fund will pay
reasonable finders, administrative and custodial fees in connection with a loan of its securities.
When Issued, Delayed Delivery Securities and Forward Commitments. The Fund may enter into
forward commitments for the purchase or sale of securities, including on a when issued or
delayed delivery basis, in excess of customary settlement periods for the type of security
involved. In some cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate reorganization or debt
restructuring, i.e., a when, as and if issued security. When such transactions are negotiated, the
price is fixed at the time of the commitment, with payment and delivery taking place in the future,
generally a month or more after the date of the commitment. While it will only enter into a
forward commitment with the intention of actually acquiring the security, the Fund may sell the
security before the settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market fluctuation, and no
interest (or dividends) accrues to the Fund prior to the settlement date. The Fund will segregate
with its custodian cash or liquid 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, including short sales against the
box. 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. A short sale against the box
occurs when, 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.
-14-
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.
Short sales against the box may be subject to special tax rules, one of the effects of which may
be to accelerate income to the Fund.
For short sales, the market value of the securities sold short of any one issuer will not
exceed either 5% of the Funds total assets or 5% of such issuers voting securities. The Fund
will not make a short sale, if, after giving effect to such sale, the market value of all
securities sold short exceeds 25% of the value of its assets or the Funds aggregate short sales of
a particular class of securities exceeds 25% of the outstanding securities of that class. The Fund
may make short sales against the box without respect to such limitations.
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 may close out a short position by purchasing and delivering an equal amount of securities
sold short, rather than by delivering securities already held by the Fund, because the Fund may
want to continue to receive interest and dividend payments on securities in its portfolio that are
convertible into the securities sold short.
To the extent that the Fund engages in short sales, it will provide collateral to the
broker-dealer and (except in the case of short sales against the box) will maintain additional
asset coverage in the form of segregated or earmarked assets on the records of the Investment
Adviser or with the Funds Custodian, consisting of cash, U.S. government securities or other
liquid securities that is equal to the current market value of the securities sold short, or (in
the case of short sales against the box) will ensure that such positions are covered by
offsetting positions, until the Fund replaces the borrowed security. Depending on arrangements
made with the broker-dealer from which it borrowed the security regarding payment over of any
payments received by the Fund on such security, the Fund may not receive any payments (including
interest) on its collateral deposited with such broker-dealer. If the price of the security sold
short increases between the time of the short sale and the time the Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Any gain will be decreased, any loss increased, by the transaction costs described
above. Although the Funds gain is limited to the price at which it sold the security short, its
potential loss is theoretically unlimited.
Restricted and Illiquid Securities. The Fund may invest up to a total of 15% of its net assets
in securities that are subject to restrictions on resale and securities the markets for which are
illiquid, including repurchase agreements with more than seven days to maturity. Illiquid
securities include securities the disposition of which is subject to substantial legal or
contractual restrictions. The sale of illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts and other selling expenses than does the sale of
securities eligible for trading on national securities exchanges or in the over-the-counter
markets. Restricted securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Unseasoned issuers are companies (including predecessors) that
have
-15-
operated less than three years. The continued liquidity of such securities may not be as well
assured as that of publicly traded securities, and accordingly the Board 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 Funds liquidity.
In accordance with pronouncements of the SEC, the Fund may invest in restricted securities
that can be traded among qualified institutional buyers under Rule 144A under the Securities Act of
1933, as amended (the Securities Act), without registration and may treat them as liquid for
purposes of the foregoing 15% test if such securities are found to be liquid. The Board has
adopted guidelines and delegated to the Investment Adviser, subject to the supervision of the
Board, the function of determining and monitoring the liquidity of particular Rule 144A securities.
INVESTMENT RESTRICTIONS
The Fund operates under the following restrictions that constitute fundamental policies that
cannot be changed without the affirmative vote of the holders of a majority of the outstanding
voting securities of the Fund (as defined in the 1940 Act). Such a majority is defined as the
lesser of (i) 67% or more of the shares present at a meeting of stockholders, if the holders of 50%
of the outstanding shares of the Fund are present or represented by proxy or (ii) more than 50% of
the outstanding shares of the Fund. All percentage limitations set forth below apply immediately
after a purchase or initial investment and any subsequent change in any applicable percentage
resulting from market fluctuations does not require elimination of any security from the portfolio.
The Fund may not:
1. Invest 25% or more of its total assets, taken at market value at the time of each
investment, in the securities of issuers in any particular industry other than the
telecommunications, media, publishing and entertainment industries. This restriction does not
apply to investments in U.S. government securities.
2. Purchase securities of other investment companies, except in connection with a merger,
consolidation, acquisition or reorganization, if more than 10% of the market value of the total
assets of the Fund would be invested in securities of other investment companies, more than 5% of
the market value of the total assets of the Fund would be invested in the securities of any one
investment company or the Fund would own more than 3% of any other investment companys securities;
provided, however, this restriction will not apply to securities of any investment company
organized by the Fund that are to be distributed pro rata as a dividend to its shareholders.
3. Purchase or sell commodities or commodity contracts except that the Fund may purchase or
sell futures contracts and related options thereon if immediately thereafter (i) no more than 5% of
its total assets are invested in margins and premiums and (ii) the aggregate market value of its
outstanding futures contracts and market value of the currencies and futures contracts subject to
outstanding options written by the Fund do not exceed 50% of the market
-16-
value of its total assets. The Fund may not purchase or sell real estate, provided that the
Fund may invest in securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
4. Purchase any securities on margin, except that the Fund may obtain such short-term credit
as may be necessary for the clearance of purchases and sales of portfolio securities.
5. Make loans of money, except by the purchase of a portion of publicly distributed debt
obligations in which the Fund may invest, and repurchase agreements with respect to those
obligations, consistent with its investment objectives and policies. The Fund reserves the
authority to make loans of its portfolio securities to financial intermediaries in an aggregate
amount not exceeding 20% of its total assets. Any such loans will only be made upon approval of,
and subject to any conditions imposed by, the Board. Because these loans would at all times be
fully collateralized, the risk of loss in the event of default of the borrower should be slight.
6. Borrow money, except that the Fund may borrow from banks and other financial institutions
on an unsecured basis, in an amount not exceeding 10% of its total assets, to finance the
repurchase of its shares. The Fund also may borrow money on a secured basis from banks as a
temporary measure for extraordinary or emergency purposes. Temporary borrowings may not exceed 5%
of the value of the total assets of the Fund at the time the loan is made. The Fund may pledge up
to 10% of the lesser of the cost or value of its total assets to secure temporary borrowings. The
Fund will not borrow for investment purposes. Immediately after any borrowing, the Fund will
maintain asset coverage of not less than 300% with respect to all borrowings. While the borrowing
of the Fund exceeds 5% of its respective total assets, the Fund will make no further purchases of
securities, although this limitation will not apply to repurchase transactions as described above.
7. Underwrite securities of other issuers except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933, as amended, in selling portfolio securities;
provided, however, this restriction will not apply to securities of any investment company
organized by the Fund that are to be distributed pro rata as a dividend to its shareholders.
8. Invest more than 15% of its total assets in illiquid securities, such as repurchase
agreements with maturities in excess of seven days, or securities that at the time of purchase have
legal or contractual restrictions on resale.
9. Issue senior securities, except to the extent permitted by applicable law.
With respect to (1) above, the Fund invests 25% or more of its total assets in the securities
of issuers in the telecommunications, media, publishing and entertainment industries.
MANAGEMENT OF THE FUND
Directors and Officers
The business and affairs of the Fund are managed under the direction of its Board, and the
day-to-day operations are conducted through or under the direction of its officers.
-17-
The Board approves all significant agreements between the Fund and the companies that
furnish the Fund with services, including agreements with the Investment Adviser, State Street Bank
and Trust Company, 150 Royall Street, Canton, MA 02021, the Funds custodian (the Custodian) and
Computershare Trust Company, N.A. (Computershare), located at 250 Royall Street, Canton,
Massachusetts 02021, which serves as the Funds dividend disbursing agent, as agent under the
Funds automatic dividend reinvestment and voluntary cash purchase plan and as transfer agent and
registrar with respect to the common stock of the Fund. The day-to-day operations of the Fund are
delegated to the Investment Adviser.
The names and business addresses of the Directors and principal officers of the Fund are set
forth in the following table, together with their positions and their principal occupations during
the past five years and, in the case of the Directors, their positions with certain other
organizations and companies. Directors who are interested persons of the Fund, as defined by the
1940 Act, are listed under the caption Interested Director.
|
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Number of |
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|
Term of |
|
Principal |
|
|
|
Portfolios in |
Name, Position with the |
|
Office and |
|
Occupation(s) |
|
Other Directorships |
|
Fund Complex |
Fund and Age |
|
Length of |
|
During Past Five |
|
Held by Director |
|
Overseen by |
Address1 |
|
Time Served2 |
|
Years |
|
During Past Five Years |
|
Director3 |
INTERESTED DIRECTOR4: |
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Mario J. Gabelli
Chairman and
Chief Investment Officer
Age: 68
|
|
Since 1994*
|
|
Chairman and Chief
Executive Officer
of GAMCO Investors,
Inc. and Chief
Investment
OfficerValue
Portfolios of
Gabelli Funds, LLC
and GAMCO Asset
Management Inc.;
Director/Trustee or
Chief Investment
Officer of other
registered
investment
companies in the
Gabelli/GAMCO Funds
complex; Chairman
and Chief Executive
Officer of GGCP,
Inc.
|
|
Director of Morgan
Group Holdings,
Inc. (holding
company); Chairman
of the Board and
Chief Executive
Officer of LICT
Corporation
(multimedia and
communication
services company);
Director of CIBL,
Inc. (broadcasting
and wireless
communications).
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26 |
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INDEPENDENT DIRECTORS5: |
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Anthony J. Colavita6
Director
Age: 75
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Since 2001*
|
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President of the
law firm of Anthony
J. Colavita, P.C.
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35 |
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James P. Conn6
Director Age: 72
|
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Since 1994*
|
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Former Managing
Director and Chief
Investment Officer of Financial
Security Assurance
Holdings Ltd.
(insurance holding
company)
(1992-1998)
|
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Director of First
Republic Bank
(banking) through January 2008 and
LaQuinta Corp.
(hotels) through
January 2006. |
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18 |
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-18-
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Number of |
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Term of |
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Principal |
|
|
|
Portfolios in |
Name, Position with the |
|
Office and |
|
Occupation(s) |
|
Other Directorships |
|
Fund Complex |
Fund and Age |
|
Length of |
|
During Past Five |
|
Held by Director |
|
Overseen by |
Address1 |
|
Time Served2 |
|
Years |
|
During Past Five Years |
|
Director3 |
Gregory R. Dube
Director
Age: 56
|
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Since 2010*
|
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Managing Member and
Chairman of
Roseheart
Associates
|
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[]
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1 |
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Frank J. Fahrenkopf, Jr.
Director
Age: 71
|
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Since 1999***
|
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President and Chief
Executive Officer
of the American
Gaming Association;
Co-Chairman of the
Commission on
Presidential
Debates; Former
Chairman of the
Republican National
Committee
(1983-1989)
|
|
Director of First
Republic Bank
(banking) until
September 2007.
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6 |
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Anthony R. Pustorino
Director
Age: 85
|
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Since 1994**
|
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Certified Public
Accountant;
Professor Emeritus,
Pace University
|
|
Director of The LGL
Group, Inc.
(diversified
manufacturing).
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13 |
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Werner J. Roeder
Director
Age: 70
|
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Since 1999***
|
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Medical Director of
Lawrence Hospital
and practicing
private physician
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22 |
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Salvatore J. Zizza
Director
Age: 65
|
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Since 1994***
|
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Chairman of Zizza &
Co., Ltd.
(consulting)
|
|
Director of Harbor
BioSciences, Inc.
(biotechnology);
Director of
Trans-Lux
Corporation
(business
services); Chief
Executive Officer
of General
Employment
Enterprises, Inc.
(staffing); Bion
Environmental
Technologies
(technology)
(2005-2008);
Director of Earl
Scheib Inc.
(automotive
painting) through
April 2009.
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|
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28 |
|
-19-
Officers7
|
|
|
|
|
Name, Position with the Fund, |
|
|
|
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Age, and Business |
|
Length of time Served |
|
Principal Occupation(s) During Past Five Years |
Bruce N. Alpert
President
Age: 59
|
|
Since 2003
|
|
Executive Vice President (since 1999) and
Chief Operating Officer (since 1988) of
Gabelli Funds, LLC; Director of Teton
Advisors, Inc. since 1988, Chairman of Teton
Advisors, Inc. from July 2008 through 2010
and President of Teton Advisors, Inc. from
1998 through 2008; Senior Vice President of
GAMCO Investors, Inc. since 2008; Officer of
all of the registered investment companies in
the Gabelli/GAMCO Fund complex since 1988. |
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Carter W. Austin
Ombudsman
Age: 44
|
|
Since March 2010
|
|
Ombudsman of the Fund since 2010; Vice
President of other registered closed-end
investment companies in the Gabelli/GAMCO
Fund Complex; Vice President of Gabelli
Funds, LLC since 1996. |
|
|
|
|
|
Peter D. Goldstein
Chief Compliance Officer
Age: 57
|
|
Since 2004
Since March 2010
|
|
Director of Regulatory Affairs for GAMCO
Investors, Inc. since 2004; Chief Compliance
Officer of all of the registered investment
companies in the Gabelli/GAMCO Funds Complex. |
|
|
|
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|
Laurissa M. Martire
Vice President
Age: 34
|
|
Since 2004
|
|
Vice President of the Fund since 2004; Vice
President or Ombudsman of other registered
investment companies in the Gabelli/GAMCO
Fund Complex; Assistant Vice President of
GAMCO Investors, Inc. since 2003. |
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|
|
|
|
Agnes Mullady
Treasurer and Secretary
Age: 52
|
|
Since 2006
|
|
President and Chief Operating Officer of the
Open-End Fund Division of Gabelli Funds, LLC
since September 2010; Senior Vice President
of GAMCO Investors, Inc. since 2009; Vice
President of Gabelli Funds, LLC since 2007;
Officer of all of the registered investment
companies in the Gabelli/GAMCO Fund Complex. |
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|
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(1) |
|
Address: One Corporate Center, Rye, NY 10580-1422. |
|
(2) |
|
The Funds Board is divided into three classes, each class having a
term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve
for a three-year term. |
|
(3) |
|
The Fund Complex or the Gabelli/GAMCO Fund Complex includes all
the registered funds that are considered part of the same fund complex
as the Fund because they have common or affiliated investment
advisers. |
|
(4) |
|
Interested person of the Fund as defined in the 1940 Act. Mr.
Gabelli is considered to be an interested person of the Fund because
of his affiliation with the Funds Investment Adviser and Gabelli &
Company, Inc., which executes portfolio transactions for the Fund, and
as a controlling shareholder because of the level of his ownership of
shares of common stock of the Fund. |
-20-
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|
|
(5) |
|
Directors who are not considered to be interested persons of the
Fund, as defined in the 1940 Act, are considered to be Independent
Directors. |
|
(6) |
|
As a Director, elected solely by holders of the Funds Preferred Stock. |
|
(7) |
|
Each officer will hold office for an indefinite term until the date he
or she resigns or retires or until his or her successor is elected and
qualified. |
|
* |
|
Term continues until the Funds 2013 Annual Meeting of Shareholders
and until his successor is duly elected and qualifies. |
|
** |
|
Term continues until the Funds 2012 Annual Meeting of Shareholders
and until his successor is duly elected and qualifies. |
|
*** |
|
Term continues until the Funds 2011 Annual Meeting of Shareholders
and until his successor is duly elected and qualifies. |
Leadership Structure and Oversight Responsibilities
Overall responsibility for general oversight of the Fund rests with the Board. The Board has
appointed Mr. Conn as the lead Independent Director. The lead Independent Director presides over
executive sessions of the Directors and also serves between meetings of the Board as a liaison with
service providers, officers, counsel and other Directors on a wide variety of matters including
scheduling agenda items for Board meetings. Designation as such does not impose on the lead
independent Director any obligations or standards greater than or different from other Directors.
The Board has established a Nominating Committee and an Audit Committee to assist the Board in the
oversight of the management and affairs of the Fund. The Board also has an ad hoc Proxy Voting
Committee that exercises beneficial ownership responsibilities on behalf of the Fund in selected
situations. From time to time the Board establishes additional committees or informal working
groups, such as pricing committees related to securities offerings by the Fund, to deal with
specific matters or assigns one of its members to participate with Directors or directors of other
funds in the Gabelli/GAMCO Fund Complex on special committees or working groups that deal with
complex-wide matters, such as the multi-fund ad hoc Compensation Committee relating to compensation
of the Chief Compliance Officer for all the funds in the Fund Complex and a separate multi-fund
Compensation Committee relating to certain officers of the closed-end funds in the Fund Complex.
All of the Funds Directors other than Mr. Gabelli are Independent Directors, and the Board
believes they are able to provide effective oversight of the Funds service providers. In addition
to providing feedback and direction during Board meetings, the Directors meet regularly in
executive session and chair all committees of the Board.
The Funds operations entail a variety of risks including investment, administration,
valuation and a range of compliance matters. Although the Investment Adviser, the
sub-administrator and the officers of the Fund are responsible for managing these risks on a
day-to-day basis within the framework of their established risk management functions, the Board
also addresses risk management of the Fund through its meetings and those of the committees and
-21-
working groups. In particular, as part of its oversight, the Board reviews with the
Investment Adviser at Board meetings the levels and types of risks, including options risk, being
undertaken by the Fund, and the Audit Committee discusses the Funds risk management and controls
with the independent registered public accounting firm engage by the Fund. the Board reviews
valuation policies and procedures and the valuations of specific illiquid securities. The Board
also receives periodic reports from the Funds Chief Compliance Officer regarding compliance
matters relating to the Fund and its major service providers, including results of the
implementation and testing of the Funds and such providers compliance programs. The Boards
oversight function is facilitated by management reporting processes that are designed to provide
visibility to the Board about the identification, assessment and management of critical risks and
controls and policies and procedures use to mitigate those risks. The Board reviews its role in
supervising the Funds risk management from time to time and may make changes in its discretion at
any time.
The Board has determined that its leadership structure is appropriate for the Fund because it
enables the Board to exercise informed and independent judgment over matters under its purview,
allocates responsibility among committees in a manner that fosters effective oversight and allows
the Board to devote appropriate resources to specific issues in a flexible manner as they arise.
The Board periodically reviews its leadership structure as well as its overall structure,
composition and functioning and may make changes in its discretion at any time.
Standing Committees of the Board of Directors
Audit Committee. The role of the Funds Audit Committee is to assist the Board of Directors in
its oversight of (i) the quality and integrity of the Funds financial statement reporting process
and the independent audit and review thereof; (ii) the Funds accounting and financial reporting
policies and practices, its internal controls, and, as appropriate, the internal controls of
certain of its service providers; (iii) the Funds compliance with legal and regulatory
requirements; and (iv) the independent registered public accounting firms qualifications,
independence, and performance. The Audit Committee also is required to prepare an audit committee
report pursuant to the rules of the SEC for inclusion in the Funds annual proxy statement. The
Audit Committee operates pursuant to the Audit Committee Charter (the Audit Charter) that was
most recently reviewed and approved by the Board of Directors on [February 24, 2010].
Pursuant to the Audit Charter, the Audit Committee is responsible for conferring with the
Funds independent registered public accounting firm, reviewing annual financial statements,
approving the selection of the Funds independent registered public accounting firm, and overseeing
the Funds internal controls. The Audit Charter also contains provisions relating to the
pre-approval by the Audit Committee of audit and non-audit services to be provided to the
Investment Adviser and certain of its affiliates by the Funds independent registered public
accounting firm. The Audit Committee advises the full Board with respect to accounting, auditing,
and financial matters affecting the Fund. As set forth in the Audit Charter, management is
responsible for maintaining appropriate systems for accounting and internal control, and the Funds
independent registered public accounting firm is responsible for planning and carrying out proper
audits and reviews. The independent registered public accounting firm is ultimately accountable to
the Board of Directors and to the Audit Committee, as
-22-
representatives of shareholders. The independent registered public accounting firm for the
Fund reports directly to the Audit Committee.
In performing its oversight function, at a meeting held on [February 23, 2010], the Audit
Committee reviewed and discussed with management of the Fund and the Funds independent registered
public accounting firm the audited financial statements of the Fund as of and for the fiscal year
ended [December 31, 2009], and discussed the audit of such financial statements with the
independent registered public accounting firm.
In addition, the Audit Committee discussed with the independent registered public accounting
firm the accounting principles applied by the Fund and such other matters brought to the attention
of the Audit Committee by the independent registered public accounting firm as required by
Statement of Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1 AU
Section 380), as adopted by the Public Company Accounting Oversight Board (United States) in Rule
3200T. The Audit Committee also received from the independent registered public accounting firm
the written disclosures and statements required by the SECs independence rules, delineating
relationships between the independent registered public accounting firm and the Fund, and discussed
the impact that any such relationship might have on the objectivity and independence of the
independent registered public accounting firm.
As set forth above, and as more fully set forth in the Audit Charter, the Audit Committee has
significant duties and powers in its oversight role with respect to the Funds financial reporting
procedures, internal control systems, and the independent audit process.
The Audit Committee is composed of three of the Funds Independent Directors, namely Messrs.
Pustorino (Chairman), Roeder and Zizza. Each member of the Audit Committee has been determined by
the Board of Directors to be financially literate. The Audit Committee met [twice] during the
fiscal year ended [December 31, 2010].
Nominating Committee. The Board of Directors has a Nominating Committee composed of three
Independent Directors, names Messrs. Colavita (Chairman), Roeder and Zizza. The Nominating
Committee met once during the fiscal year ended December 31, 2009. The Nominating Committee is
responsible for identifying and recommending qualified candidates to the Board in the event that a
position is vacated or created. The Nominating Committee will consider recommendations by
shareholders if a vacancy were to exist. In considering candidates submitted by shareholders, the
Nominating Committee will take into consideration the needs of the Board, the qualifications of the
candidate, and the interests of shareholders. The Nominating Committee may also take into
consideration the number of shares held by the recommending shareholder and the length of time that
such shares have been held. To recommend a candidate for consideration by the Nominating
Committee, a shareholder must submit the recommendation in writing and must include the following
information: (i) the name of the shareholder and evidence of the shareholders ownership of shares
of the Fund, including the number of shares owned and the length of time of ownership; (ii) the
name of the candidate, the candidates resume or a listing of his or her qualifications to be a
Director of the Fund, and the persons consent to be named as a Director if selected by the
Nominating Committee and nominated by the Board of Directors; and (iii) if requested by the
Nominating Committee, a complete and signed directors questionnaire.
-23-
The shareholder recommendation and information described above must be sent to the Funds
Secretary, c/o Gabelli Funds, LLC at One Corporate Center, Rye, NY 10580-1422, and must be received
by the Secretary no earlier than 150 days and no later than 120 days before the first anniversary
of the date of the proxy statement for the prior years annual meeting.
The Nominating Committee believes that the minimum qualifications for serving as a Director of
the Fund are that the individual demonstrate, by significant accomplishment in his or her first, an
ability to make a meaningful contribution to the Board of Directors oversight of the business and
affairs of the Fund and have an impeccable record and reputation for honest and ethical conduct in
both his or her professional and personal activities. In addition, the Nominating Committee
examines a candidates specific experiences and skills, time availability in light of other
commitments, potential conflicts of interest, and independence from management of the Fund.
The Nominating Committee considers the overall composition of the Board, bearing in mind the
benefits that may be derived from having members who have a variety of experiences, qualifications,
attributes or skills useful in overseeing a publicly-traded, highly-regulated entity such as the
Fund. The Funds governing documents state that a nominee fro Director shall be at least 21 years
of age and not older than such age, if any, as the Directors may determine and shall not be under
legal disability. The Directors have not determined a maximum age. The Nominating Committee does
not have a formal policy regarding the consideration of diversity in identifying director
candidates.
The Fund does not have a standing compensation committee. For a discussion of experiences,
qualifications, attributes or skills supporting the appropriateness of each Directors service on
the Funds Board, see the biographical information of the Directors below in the section entitled
Qualification of Board of Directors.
Qualification of Board of Directors
The Board believes that each Directors experience, qualifications, attributes or skills on an
individual basis and in combination with those of other Directors lead to the conclusion that each
Director should serve in such capacity. Among the attributes or skills common to all Directors are
their ability to review critically and to evaluate, question and discuss information provided to
them, to interact effectively with the other Directors, the Adviser, the sub-administrator, other
service providers, counsel and the Funds independent registered public accounting firm, and to
exercise effective and independent business judgment in the performance of their duties as
Directors. Each Directors ability to perform his duties effectively has been attained in large
part through the Directors business, consulting or public service positions and through experience
from service as a member of the Board and one or more of the other funds in the Gabelli/GAMCO Fund
Complex, public companies, or non-profit entities or other organizations as set forth above and
below. Each Directors ability to perform his duties effectively also has been enhanced by his
education, professional training and other life experiences.
Anthony J. Colavita, Esq. Mr. Colavita is a practicing attorney with over 49 years of
experience, including the area of business law. He is the Chair of the Funds Nominating
-24-
Committee and is a member of the Funds Proxy Voting Committee. Mr. Colavita also serves on
comparable or other board committees with respect to other funds in the Fund Complex on whose
boards he sits. Mr. Colavita also serves as a Trustee of a charitable remainder uni-trust. He
formerly served as a Commissioner of the New York State Thruway Authority and as a Commissioner of
the New York State Bridge Authority. He served for ten years as the elected Supervisor of the Town
of Eastchester, New York, responsible for ten annual municipal budgets of approximately eight
million dollars per year. Mr. Colavita formerly served as special counsel to the New York State
Assembly for five years and as a Senior Attorney with the New York State Insurance Department. He
was also formerly Chairman of the Westchester County Republican Party and the New York State
Republican Party. Mr. Colavita received his Bachelor of Arts from Fairfield University and his
Juris Doctor from Fordham University School of Law. Mr. Colavitas education, professional
training and experience, and other life experiences, including but not limited to his more than 49
years of experience as an attorney, service on the boards of other funds within the Fund Complex,
public service background in state and local government, including several senior legal and other
managerial positions, make him highly qualified to serve as a Director of the Fund.
James P. Conn. Mr. Conn, the lead independent Director of the Fund, is a member of the Funds
Proxy Voting Committee and also serves on comparable or other board committees with respect to
other funds in the Fund Complex on whose boards he sits. He was a senior business executive of an
insurance holding company for much of his career, including service as Chief Investment Officer,
and has been a director of several public companies in banking and other industries, for some of
which he was lead Director and/or Chair of various committees. Mr. Conn received his Bachelor of
Science in Business Administration from Santa Clara University. Mr. Conns education, professional
training and experience, and other life experiences, including but not limited to his experience as
a senior business executive in the banking industry, experience as a Chief Investment Officer, and
service on the boards of other funds and committees within the Fund Complex, make him highly
qualified to serve as a Director of the Fund.
Gregory R. Dube. Mr. Dube is the founder of Roseheart Associates, a private company that
invests in securities and real estate, and has served as managing member and Chairman since its
inception in 1997. From 1998 to 2002, Mr. Dube was at Alliance Capital, where he served as the
head of the Global High Yield Group from 1999 to 2002. Before joining Alliance Capital, Mr. Dube
was a partner at Donaldson, Lufkin & Jenrette, responsible for the Tax-Exempt Capital Markets
Division. Mr. Dube has an extensive background in the credit securities markets, including
experience with trading and selling credit instruments, including corporate, high-yield, private
placement, mortgage, Euro and distressed debt and derivatives. Mr. Dube currently serves on the
Advisory Committee of New England Realty Associates Limited Partnership, a partnership engaged in
the business of acquiring, developing, holding for investment, operating and selling real estate.
Mr. Dube received his A.B.
from Harvard College and was a Rhodes Scholar Nominee.
Frank J. Fahrenkopf, Jr. Mr. Fahrenkopf is the President and Chief Executive Officer of the
American Gaming Association (AGA), the trade group for the gaming industry. He serves
-25-
on board committees with respect to other funds in the Fund Complex on whose boards he sits.
He presently is Co-Chairman of the Commission on Presidential Debates, which is responsible for the
widely-viewed Presidential debates during the quadrennial election cycle. Additionally, he serves
as a board member of the International Republican Institute (IRI), which he founded in 1984. He
served for many years as Chairman of the Pacific Democrat Union and Vice Chairman of the
International Democrat Union, a worldwide association of political parties from the United States,
Great Britain, France, Germany, Canada, Japan, Australia and 20 other nations. Prior to becoming
the AGAs first chief executive in 1995, Mr. Fahrenkopf was a partner in the law firm of Hogan &
Hartson, where he chaired the International Trade Practice Group and specialized in regulatory,
legislative, and corporate matters for multinational, foreign and domestic clients. He also served
as Chairman of the Republican National Committee for six years during Ronald Reagans presidency.
He is the former Chairman and remains a member of the Finance Committee of the Culinary Institute
of America. He additionally had over 20 years experience as a member of the board of directors of
a bank and still serves as a member of the Advisory Board of the bank. Mr. Fahrenkopf received his
Bachelor of Arts from the University of Nevada, Reno and his Juris Doctor from Boalt Hall School of
Law, U.C. Berkeley. Mr. Fahrenkopfs education, professional training and experience, and other
life experiences, including but not limited to his experience as an executive officer of various
national and international political and industry committees, partnership in a law firm, his over
20 years of experience as a board member of a bank, and service on the boards of other funds and
committees within the Fund Complex, make him highly qualified to serve as a Director of the Fund.
Mario J. Gabelli. Mr. Gabelli is Chairman of the Board of Directors and Chief Investment
Officer of the Fund. He also currently serves as Chairman of the boards of other funds in the Fund
Complex. Mr. Gabelli is presently Chairman and Chief Executive Officer of GAMCO Investors, Inc.
(GAMCO), a NYSE-listed investment advisory firm. In addition, he is Chief Executive Officer of
GAMCO Asset Management Inc., an affiliate of the Investment Adviser. He is also the Chief
Investment Officer of Value Portfolios of Gabelli Funds, LLC, and GAMCO Asset Management, Inc.,
which are each asset management subsidiaries of GAMCO. In addition, Mr. Gabelli is Chief Executive
Officer and a director and the controlling shareholder of GGCP, Inc., an investment holding company
that holds a majority interest in GAMCO. Mr. Gabelli also sits on the boards of other publicly
traded companies and private firms, and various charitable foundations and educational
institutions, including as a Trustee of Boston College and as a member of the Board of Overseers of
Columbia University School of Business. Mr. Gabelli received his Bachelors degree from Fordham
University and his Masters of Business Administration from Columbia University School of Business.
Mr. Gabellis education, professional training and experience, and other life experiences,
including, but not limited to, his experience on the boards of many publicly traded companies and
private firms, and various charitable foundations and educational institutions, his service as
Chairman of other funds within the Fund Complex, and his position as Chief Investment Officer of
various funds, make him highly qualified to serve as a Director of the Fund.
Anthony R. Pustorino. Mr. Pustorino is a Certified Public Accountant and a Professor Emeritus
of Pace University and has over 40 years of experience in public accounting. Mr. Pustorino is the
Chair of the Funds Audit Committee and has been designated the Funds Audit Committee Financial
Expert. He is also the Chair of the Funds Proxy Voting Committee. Mr.
-26-
Pustorino also serves on comparable or other board committees with respect to other funds in
the Fund Complex on whose boards he sits. Mr. Pustorino is also Chair of the Audit Committee and a
Director of LGL Group, Inc., a diversified manufacturing company. He was previously the President
and Shareholder of an accounting firm and a Professor of accounting, at both Fordham University and
Pace University. He also served as Chairman of the Board of Directors of the New York State Board
for Public Accountancy and of the Certified Public Accountants (CPA) Examination Review Board of
the National Association of State Board of Accountancy. He was a Member of the Executive Committee
and a Vice President of the New York State Society of CPAs, and was a Member of the Council of the
American Institute of CPAs. Mr. Pustorino is the recipient of numerous professional and teaching
awards. He received a Bachelor of Science in Business from Fordham University and a Masters in
Business Administration from New York University. Mr. Pustorinos education, professional training
and experience, and other life experiences, including but not limited to his over 40 years of
experience in public accounting, during which he has served as a principal of an accounting firm,
professor of accounting, and held executive committee positions with state and national accounting
agencies, and service on the boards of other funds and committees within the Fund Complex, make him
highly qualified to serve as a Director of the Fund.
Werner J. Roeder. Dr. Roeder is Vice President of Medical Affairs/Medical Director of Lawrence
Hospital Center in Bronxville, New York. He has been a practicing surgeon for over 45 years. As
Vice President of Medical Affairs at Lawrence Hospital, he is actively involved in quality,
personnel, and financial matters concerning the hospitals $140 million budget. He is a member of
the Funds Audit Committee and the Funds Nominating Committee and a member of both multi-fund ad
hoc Compensation Committees. Dr. Roeder also serves on comparable or other board committees with
respect to other funds in the Fund Complex on whose boards he sits. Dr. Roeder is board certified
as a surgeon by The American Board of Surgery and presently serves in a consulting capacity to
Empire Blue Cross/Blue Shield. He obtained his Doctor in Medicine from New York Medical College.
Dr. Roeders education, professional training and experience, and other life experiences, including
but not limited to his over 45 years of experience as a practicing surgeon, service as an officer
of a hospital, consulting services to a national agency and service on the boards of other funds
and committees within the Fund Complex, make him highly qualified to serve as a Director of the
Fund.
Salvatore J. Zizza. Mr. Zizza is the Chairman of a consulting firm. He is a member of the
Funds Audit Committee and the Funds Nominating Committee and a member of both multi-fund ad hoc
Compensation Committees. Mr. Zizza also serves on comparable or other board committees, including
as lead independent director, with respect to other funds in the Fund Complex on whose boards he
sits. Besides serving on the boards of many funds within the Fund Complex, he is currently a
Director of two other public companies and has previously served on the boards of several other
public companies. He also previously served as the Chief Executive of a large construction company
which was a NYSE-listed company. Mr. Zizza received his Bachelor of Arts and his Master of
Business Administration in Finance from St. Johns University, which also has awarded him an
Honorary Doctorate in Commercial Sciences. Mr. Zizzas education, professional training and
experience, and other life experience, including but not limited to his service as director and
executive officer of other public companies and his service on the boards of other funds and
committees within the Fund Complex, make him highly qualified to serve as a Director of the Fund.
-27-
Beneficial Ownership of Shares Held in the Fund and the Fund Complex for Each Director
Set forth in the table below is the dollar range of equity securities in the Fund beneficially
owned by each Director and the aggregate dollar range of equity securities in the Fund complex
beneficially owned by each Director.
|
|
|
|
|
|
|
|
|
Aggregate Dollar Range of Equity |
|
|
|
|
Securities in all Registered Investment |
|
|
Dollar Range of Equity |
|
Companies in the Gabelli Fund |
Name of Director |
|
Securities in the Fund(1) |
|
Complex(1)(2) |
Interested Director |
|
|
|
|
Mario J. Gabelli
|
|
E
|
|
E |
|
|
|
|
|
Independent Directors |
|
|
|
|
Anthony J. Colavita
|
|
C
|
|
E |
James P. Conn
|
|
E
|
|
E |
Gregory R. Dube**
|
|
none
|
|
none |
Frank J. Fahrenkopf, Jr.
|
|
A
|
|
B |
Anthony R. Pustorino
|
|
C
|
|
E |
Werner J. Roeder
|
|
A
|
|
E |
Salvatore J. Zizza
|
|
C
|
|
E |
|
|
|
* |
|
Key to Dollar Ranges: |
|
A. |
|
None |
|
B. |
|
$1 $10,000 |
|
C. |
|
$10,001 $50,000 |
|
D. |
|
$50,001 $100,000 |
|
E. |
|
over $100,000 |
|
|
|
All shares were valued as of December 31, 2010. |
|
** |
|
Mr. Dube was elected to the Board of Directors at the Funds Annual
Meeting of Shareholders (the Meeting) held on June 23, 2010. The
certified results of the Meeting were issued by the inspector of
elections on July 1, 2010. |
|
(1) |
|
This information has been furnished by each Director as of December
31, 2010. Beneficial Ownership is determined in accordance with
Rule 16a-1(a)(2) of the Securities Exchange Act of 1934, as amended
(the 1934 Act). |
|
(2) |
|
The term Family of Investment Companies includes two or more,
registered funds that share the same investment adviser or principal
underwriter and hold themselves out to investors as related companies
for purposes of investment and investor services. Currently the
registered funds that comprise the Fund Complex are identical to
those that comprise the Family of Investment Companies. |
Remuneration of Directors and Officers
The Fund pays each Director who is not affiliated with the Investment Adviser or its
affiliates a fee of $6,000 per year plus $500 per Board meeting attended, including standing
Committee meetings, together with the Directors actual out-of-pocket expenses relating to his
attendance at such meetings. In addition, the lead Independent Director receives an annual fee of
$1,000, the Audit Committee Chairman receives an annual fee of $3,000 and the Nominating Committee
Chairman receives an annual fee of $2,000. A Director may receive a single meeting
-28-
fee, allocated among the participating funds, for participation in certain meetings on
behalf of multiple funds. The aggregate remuneration (not including out-of-pocket expenses) paid
by the Fund to such Directors during the fiscal year ended December 31, 2010 amounted to $105,409.
During the fiscal year ended December 31, 2010, the Directors of the Fund met fifteen times, eleven
of which were special meetings of Directors. Each Director then serving in such capacity attended
at least 75% of the meetings of Directors and of any Committee of which he is a member.
The following table sets forth certain information regarding the compensation of the Directors
by the Fund and executive officers, if any, who were compensated by the Fund rather than the
Investment Adviser, for the fiscal year ended December 31, 2010.
Compensation Table for the Fiscal Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Compensation |
|
|
|
|
|
|
|
From the Fund and |
|
|
|
Aggregate Compensation |
|
|
Fund Complex |
|
Name of Person and Position |
|
From the Fund |
|
|
Paid to Directors* |
|
Interested Director: |
|
|
|
|
|
|
|
|
Mario J. Gabelli |
|
$ |
0 |
|
|
$ |
0 |
(26) |
Director and
Chief Investment Officer |
|
|
|
|
|
|
|
|
Independent Directors: |
|
|
|
|
|
|
|
|
Thomas E. Bratter1 |
|
$ |
8,750 |
|
|
$ |
43,500 |
[] |
Director |
|
|
|
|
|
|
|
|
Anthony J. Colavita |
|
$ |
16,111 |
|
|
$ |
254,500 |
(35) |
Director |
|
|
|
|
|
|
|
|
James P. Conn |
|
$ |
15,875 |
|
|
$ |
144,500 |
(18) |
Director |
|
|
|
|
|
|
|
|
Gregory R. Dube2 |
|
$ |
4,000 |
|
|
$ |
4,000 |
(1) |
Director |
|
|
|
|
|
|
|
|
Frank J. Fahrenkopf, Jr. |
|
$ |
14,600 |
|
|
$ |
73,500 |
(6) |
Director |
|
|
|
|
|
|
|
|
Anthony R. Pustorino |
|
$ |
17,462 |
|
|
$ |
164,500 |
(13) |
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Werner J. Roeder |
|
$ |
13,000 |
|
|
$ |
120,500 |
(22) |
Director |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salvatore J. Zizza |
|
$ |
15,611 |
|
|
$ |
212,000 |
(28) |
Director |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Mr. Bratter served on the Board of Directors until June 23, 2010. |
|
2 |
|
Mr. Dube was elected to the Board of Directors on June 23, 2010. |
|
* |
|
Represents the total compensation paid to such persons during the fiscal year ended December 31, 2010
by investment companies (including the Fund) or portfolios thereof from which such person receives
compensation that are considered part of the same fund complex as the Fund because they have common or
affiliated investment advisers. The number in parentheses represents the number of such investment
companies and portfolios. |
-29-
Code of Ethics
The Fund and the Investment Adviser have adopted a code of ethics (the Code of Ethics) under
Rule 17j-1 under the 1940 Act. The Code of Ethics permits personnel, subject to the Code of Ethics
and its restrictive provisions, to invest in securities, including securities that may be purchased
or held by the Fund. The Code of Ethics can be reviewed and copied at the SECs Public Reference
Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained
by calling the SEC at 1-202-551-8090. The Code of Ethics is also available on the EDGAR Database
on the SECs website at http://www.sec.gov. Copies of the Code of Ethics may be obtained, after
paying a duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov, or by writing the SECs Public Reference Section, Washington, D.C. 20549-0102.
Proxy Voting Policies and Procedures
The Fund has adopted the proxy voting policies and procedures of the Investment Adviser and
has directed the Investment Adviser to vote all proxies relating to the Funds voting securities in
accordance with such procedures. A copy of the Funds proxy voting policies and procedures is
attached as Appendix A.
Information regarding how the Fund voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available without charge, upon request, by calling
(800) 422-3554 or on the SECs website at http://www.sec.gov.
BENEFICIAL OWNERS
The following table sets forth the beneficial ownership by each person (including any group)
known to the Fund to be deemed the beneficial owner of more than 5% of the outstanding shares of
common stock of the Fund as of []:
|
|
|
|
|
Name and Address |
|
Amount of Shares and |
|
Percent of |
of Beneficial Owner |
|
Nature of Ownership |
|
Class |
[]
|
|
[]
|
|
[%] |
[As of [ ], there were no persons known to the Fund to be beneficial owners of more than 5%
of the Funds outstanding shares of preferred stock.]
[As of [ ], the Directors and Officers of the Fund as a group beneficially owned
approximately 4% of the outstanding shares of the Funds common stock and less than 1% of the
outstanding shares of the Funds Series B Preferred.]
-30-
INVESTMENT ADVISER
Investment Management
Gabelli Fund, LLC serves as the Funds Investment Adviser pursuant to the Investment Advisory
Agreement with the Fund. The Investment Adviser is a New York limited liability company with
principal offices located at One Corporate Center, Rye, New York 10580-1422 and is registered under
the Investment Advisers Act of 1940, as amended. The Investment Adviser was organized in 1999 and
is the successor to Gabelli Fund, Inc., which was organized in 1980. As of September 30, 2010, the
Investment Adviser acts as a registered investment adviser to 25 management investment companies
with aggregate net assets of $16.6 billion. The Investment Adviser, together with the other
affiliated investment advisers noted below, had assets under management totaling approximately
$30.2 billion as of September 30, 2010. GAMCO Asset Management Inc. (GAMCO), an affiliate of the
Investment Adviser, acts as investment adviser for individuals, pension trusts, profit sharing
trusts and endowments, and as a sub-adviser to management investment companies having aggregate
assets of $[12.4 billion] under management as of September 30, 2010. Gabelli Securities, Inc., an
affiliate of the Investment Adviser, acts as investment adviser for investment partnerships and
entities having aggregate assets of approximately $466 million under management as of September 30,
2010. Teton Advisors, Inc., an affiliate of the Investment Adviser, acts as investment manager to
The GAMCO Westwood Funds and separately managed accounts having aggregate assets of approximately
$667 million under management as of September 30, 2010.
The Investment Adviser is a wholly-owned subsidiary of GAMCO Investors, Inc., a New York
corporation. Shares of Class A common stock of GAMCO Investors, Inc. are traded on the NYSE under
the symbol GBL. Mr. Mario J. Gabelli may be deemed a controlling person of the Investment
Adviser on the basis of his indirect ownership of a majority of GGCP, Inc. (GGCP), a private
company, which owns a majority of the capital stock of GAMCO Investors, Inc.
Advisory Agreement
Affiliates of the Investment Adviser may, in the ordinary course of their business, acquire
for their own account or for the accounts of their advisory clients, significant (and possibly
controlling) positions in the securities of companies that may also be suitable for investment by
the Fund. The securities in which the Fund might invest may thereby be limited to some extent.
For instance, many companies in the past several years have adopted so-called poison pill or
other defensive measures designed to discourage or prevent the completion of non-negotiated offers
for control of the company. Such defensive measures may have the effect of limiting the shares of
the company that might otherwise be acquired by the Fund if the affiliates of the Investment
Adviser or their advisory accounts have or acquire a significant position in the same securities.
However, the Investment Adviser does not believe that the investment activities of its affiliates
will have a material adverse effect upon each the Fund in seeking to achieve its investment
objectives. Securities purchased or sold pursuant to contemporaneous orders entered on behalf of
the investment company accounts of the Investment Adviser or the advisory accounts managed by its
affiliates for their unaffiliated clients are allocated pursuant to principles believed to be fair
and not disadvantageous to any such accounts. In addition, all such
-31-
orders are accorded priority of execution over orders entered on behalf of accounts in which
the Investment Adviser or its affiliates have a substantial pecuniary interest. The Fund may on
occasion give advice or take action with respect to other clients that differs from the actions
taken with respect to the Fund. The Fund may invest in the securities of companies that are
investment management clients of GAMCO Asset Management Inc. In addition, portfolio companies or
their officers or directors may be minority shareholders of the Investment Adviser or its
affiliates.
Under the terms of the Advisory Agreement, the Investment Adviser manages the portfolio of the
Fund in accordance with its stated investment objectives and policies, makes investment decisions
for the Fund, places orders to purchase and sell securities on behalf of the Fund and manages its
other business and affairs, all subject to the supervision and direction of the Funds Board. In
addition, under the Advisory Agreement, the Investment Adviser oversees the administration of all
aspects of the Funds business and affairs and provides, or arranges for others to provide, at the
Investment Advisers expense, certain enumerated services, including maintaining the Funds books
and records, preparing reports to the Funds shareholders and supervising the calculation of the
net asset value of its shares. All expenses of computing the net asset value of the Fund,
including any equipment or services obtained solely for the purpose of pricing shares or valuing
its investment portfolio, will be an expense of the Fund under its Advisory Agreement unless the
Investment Adviser voluntarily assumes responsibility for such expense. During fiscal year [2010],
the Fund paid or accrued $[45,000] to the Investment Adviser in connection with the cost of
computing the Funds net asset value.
The Advisory Agreement combines investment advisory and administrative responsibilities in one
agreement. For services rendered by the Investment Adviser on behalf of the Fund under the
Advisory Agreement, the Fund pays the Investment Adviser a fee computed weekly and paid monthly,
equal on an annual basis to 1.00% of the Funds average weekly net assets including the liquidation
value of preferred stock. The fee paid by the Fund may be higher when leverage in the form of
preferred stock is utilized, giving the Investment Adviser an incentive to utilize such leverage.
However, the Investment Adviser has agreed to reduce the management fee on the incremental assets
attributable to the preferred stock during the fiscal year if the total return of the net asset
value of the common shares of the Fund, including distributions and advisory fees subject to
reduction for that year, does not exceed the stated dividend rate or corresponding swap rate of
each particular series of preferred stock for the period. In other words, if the effective cost of
the leverage for any series of preferred stock exceeds the total return (based on net asset value)
on the Funds common stock, the Investment Adviser will waive that portion of its management fee on
the incremental assets attributable to the leverage for that series of preferred stock to mitigate
the negative impact of the leverage on the common shareholders total return. This fee waiver is
voluntary and will remain in effect as long as any preferred stock in a series is outstanding. The
Funds total return on the net asset value of the common stock is monitored on a monthly basis to
assess whether the total return on the net asset value of the common stock exceeds the stated
dividend rate or corresponding swap rate of each particular series of preferred stock for the
period. The test to confirm the accrual of the management fee on the assets attributable to each
particular series of preferred stock is annual. The Fund will accrue for the management fee on
these assets during the fiscal year if it appears probable that the Fund will incur the management
fee on those additional assets.
-32-
For the fiscal years ended December 31, 2010, 2009 and 2008, the Fund paid for advisory and
administrative services rendered to the Fund, and the Investment Adviser waived fees and/or
reimbursed expenses of the Fund under the Advisory Agreement as follows:
December 31, 2010
|
|
|
|
|
Fees Paid |
|
|
|
|
(after waivers) |
|
Waivers |
|
Reimbursements |
$[]
|
|
$[]
|
|
|
December 31, 2009
|
|
|
|
|
Fees Paid |
|
|
|
|
(after waivers) |
|
Waivers |
|
Reimbursements |
$[]
|
|
$[]
|
|
|
December 31, 2008
|
|
|
|
|
Fees Paid |
|
|
|
|
(after waivers) |
|
Waivers |
|
Reimbursements |
$[]
|
|
$[]
|
|
|
The Advisory Agreement provides that in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard for its obligations and duties thereunder, the Investment Adviser
is not liable for any error or judgment or mistake of law or for any loss suffered by the Fund. As
part of the Advisory Agreement, the Fund has agreed that the name Gabelli is the Investment
Advisers property, and that in the event the Investment Adviser ceases to act as an investment
adviser to the Fund, the Fund will change its name to one not including Gabelli.
Pursuant to its terms, the Advisory Agreement will remain in effect with respect to the Fund
from year to year if approved annually (i) by the Funds Board or by the holders of a majority of
the Funds outstanding voting securities and (ii) by a majority of the Directors who are not
interested persons (as defined in the 1940 Act) of any party to the Advisory Agreement, by vote
cast in person at a meeting called for the purpose of voting on such approval. The Advisory
Agreement was initially approved by the Board at a meeting held on April 6, 1994 and was approved
most recently by the Board on May 19, 2010. The Advisory Agreement terminates automatically on its
assignment and may be terminated without penalty on 60 days written notice at the option of either
party thereto or by a vote of a majority (as defined in the 1940 Act) of the Funds outstanding
shares.
A discussion regarding the basis of the Boards approval of the Advisory Agreement is
available in the Funds Semi-Annual Report to shareholders for the six months ended June 30, 2010.
-33-
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company (the Custodian), located at 150 Royall Street, Canton,
MA 02021, serves as the custodian of the Funds assets pursuant to a custody agreement. Under the
custody agreement, the Custodian holds the Funds assets in compliance with the 1940 Act. For its
services, the Custodian receives a monthly fee based upon the average weekly value of the total
assets of the Fund, plus certain charges for securities transactions.
Computershare Trust Company, N.A., located at 250 Royall Street, Canton, Massachusetts 02021,
serves as the Funds dividend disbursing agent, as agent under the Funds automatic dividend
reinvestment and voluntary cash purchase plan and as transfer agent and registrar for Shares of
common stock of the Fund.
Computershare Trust Company, N.A. also serves as the transfer agent, registrar, dividend
paying agent and redemption agent with respect to the Series B Preferred.
The Bank of New York, located at 5 Penn Plaza, 13th Floor, New York, NY 10001, serves as the
Funds auction agent, transfer agent, registrar, dividend paying agent and redemption agent with
respect to the Series C Auction Rate Preferred.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
[] serves as the Independent Registered Public Accounting Firm of the Fund and audits the
financial statements of the Fund. [] is located at [].
PORTFOLIO MANAGEMENT
Other Accounts Managed
The information below lists other accounts for which each portfolio manager was primarily
responsible for the day-to-day management during the year ended December 31, 2010, for Messrs.
Gabelli, Haverty and Marangi.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed with |
|
Total Assets with |
Name of |
|
|
|
Total of Accounts |
|
|
|
|
|
Advisory Fee Based |
|
Advisory Fee Based |
Portfolio Managers |
|
Type of Accounts |
|
Managed |
|
Total Assets |
|
on Performance |
|
on Performance |
Mario J. Gabelli |
|
Registered
Investment
Companies: |
|
|
26 |
|
|
$ |
17.0 |
B |
|
|
6 |
|
|
$ |
4.1 |
B |
|
|
Other Pooled
Investment
Vehicles: |
|
|
16 |
|
|
$ |
478.4 |
M |
|
|
14 |
|
|
$ |
470.6 |
M |
|
|
Other Accounts: |
|
|
1,702 |
|
|
$ |
14.4 |
B |
|
|
9 |
|
|
$ |
1.9 |
B |
Lawrence J. Haverty,Jr. |
|
Registered Investment
Companies: |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Other Pooled
Investment
Vehicles: |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Other Accounts: |
|
|
5 |
|
|
$ |
5.8 |
M |
|
|
0 |
|
|
$ |
0 |
|
Christopher J. Marangi |
|
Registered
Investment
Companies: |
|
|
2 |
|
|
$ |
3.3 |
B |
|
|
0 |
|
|
$ |
0 |
|
|
|
Other Pooled
Investment Vehicles: |
|
|
0 |
|
|
$ |
0 |
|
|
|
0 |
|
|
$ |
0 |
|
|
|
Other Accounts: |
|
|
3 |
|
|
$ |
698.7 |
K |
|
|
0 |
|
|
$ |
0 |
|
-34-
Potential Conflicts of Interest
Actual or apparent conflicts of interest may arise when the portfolio managers also have
day-to-day management responsibilities with respect to one or more other accounts. These potential
conflicts include:
Allocation of Limited Time and Attention. Because the portfolio managers may manage more than
one account, they may not be able to formulate as complete a strategy or identify equally
attractive investment opportunities for each of those accounts as if they were to devote
substantially more attention to the management of only one account.
Allocation of Limited Investment Opportunities. If the portfolio managers identify an
investment opportunity that may be suitable for multiple accounts, the Fund may not be able to take
full advantage of that opportunity because the opportunity may need to be allocated among these
accounts or other accounts managed primarily by other portfolio managers of the Investment Adviser
and its affiliates.
Pursuit of Differing Strategies. At times, the portfolio managers may determine that an
investment opportunity may be appropriate for only some of the accounts for which they exercise
investment responsibility, or may decide that certain of these accounts should take differing
positions with respect to a particular security. In these cases, the portfolio managers may
execute differing or opposite transactions for one or more accounts which may affect the market
price of the security or the execution of the transactions, or both, to the detriment of one or
more other accounts.
Selection of Broker/Dealers. A portfolio manager may be able to select or influence the
selection of the brokers and dealers that are used to execute securities transactions for the Fund
or accounts that they supervise. In addition to providing execution of trades, some brokers and
dealers provide portfolio managers with brokerage and research services which may result in the
payment of higher brokerage fees than might otherwise be available. These services may be more
beneficial to certain funds or accounts of the Adviser and its affiliates than to others. Although
the payment of brokerage commissions is subject to the requirement that the Investment Adviser
determine in good faith that the commissions are reasonable in relation to the value of the
brokerage and research services provided to the Fund, a portfolio managers decision as to the
selection of brokers and dealers could yield disproportionate costs and benefits among the Fund or
other accounts that the Investment Adviser and its affiliates manage. In addition, with respect to
certain types of accounts (such as pooled investment vehicles and other accounts managed for
organizations and individuals) the Investment Adviser may be limited by the client concerning the
selection of brokers or may be instructed to direct trades to particular brokers. In these cases,
the Investment Adviser or its affiliates may place separate, non-simultaneous transactions in the
same security for the Fund and another account that may
-35-
temporarily affect the market price of the security or the execution of the transaction, or
both, to the detriment of the Fund or the other accounts.
Variation in Compensation. A conflict of interest may arise where the financial or other
benefits available to a portfolio manager differ among the accounts that they manage. If the
structure of the Investment Advisers management fee or the portfolio managers compensation
differs among accounts (such as where certain accounts pay higher management fees or
performance-based management fees), the portfolio managers may be motivated to favor certain
accounts over others. The portfolio managers also may be motivated to favor accounts in which they
have investment interests or in which the Investment Adviser or its affiliates have investment
interests. Similarly, the desire to maintain assets under management or to enhance a portfolio
managers performance record or to derive other rewards, financial or otherwise, could influence
the portfolio managers in affording preferential treatment to those accounts that could most
significantly benefit the portfolio managers.
The Investment Adviser and the Fund have adopted compliance policies and procedures that are
designed to address the various conflicts of interest that may arise for the Investment Adviser and
its staff members. However, there is no guarantee that such policies and procedures will be able
to detect and address every situation in which an actual or potential conflict may arise.
Portfolio Manager Compensation
Mr. Gabelli receives incentive-based variable compensation based on a percentage of net
revenues received by the Investment Adviser for managing the Fund. Net revenues are determined by
deducting from gross investment management fees the firms expenses (other than Mr. Gabellis
compensation) allocable to the Fund. Five closed-end registered investment companies (including
the Fund) managed by Mr. Gabelli have arrangements whereby the Investment Adviser will only receive
its investment advisory fee attributable to the liquidation value of outstanding preferred stock
(and Mr. Gabelli would only receive his percentage of such advisory fee) if certain performance
levels are met. Additionally, he receives similar incentive based variable compensation for
managing other accounts within the firm and its affiliates. This method of compensation is based
on the premise that superior long-term performance in managing a portfolio should be rewarded with
higher compensation as a result of growth of assets through appreciation and net investment
activity. The level of compensation is not determined with specific reference to the performance
of any account against any specific benchmark. One of the other registered investment companies
managed by Mr. Gabelli has a performance (fulcrum) fee arrangement for which his compensation is
adjusted up or down based on the performance of the investment company relative to an index. Mr.
Gabelli manages other accounts with performance fees. Compensation for managing these accounts has
two components. One component is based on a percentage of net revenues to the investment adviser
for managing the account. The second component is based on absolute performance of the account,
with respect to which a percentage of such performance fee is paid to Mr. Gabelli. As an executive
officer of the Investment Advisers parent company, GBL, Mr. Gabelli also receives ten percent
(10%) of the net operating profits of the parent company. He receives no base salary, no annual
bonus, and no stock options.
-36-
The compensation of the other portfolio managers for the Fund is reviewed annually and
structured to enable the Investment Adviser to attract and retain highly qualified professionals in
a competitive environment. The portfolio managers receive a compensation package that includes a
minimum draw or base salary, equity-based incentive compensation via awards of stock options or
restricted stock awards, and incentive-based variable compensation based on a percentage of net
revenue received by the Investment Adviser for managing a fund to the extent that the amount
exceeds a minimum level of compensation. Net revenues are determined by deducting from gross
investment management fees certain of the firms expenses (other than the respective portfolio
managers compensation) allocable to the respective fund (the incentive-based variable compensation
for managing other accounts is also based on a percentage of net revenues to the Investment Adviser
for managing the account). This method of compensation is based on the premise that superior
long-term performance in managing a portfolio should be rewarded with higher compensation as a
result of growth of assets through appreciation and net investment activity. The level of
equity-based incentive and incentive-based variable compensation is based on an evaluation by the
Investment Advisers parent, GBL, of quantitative and qualitative performance evaluation criteria.
This evaluation takes into account, in a broad sense, the performance of the accounts managed by
the portfolio manager, but the level of compensation is not determined with specific reference to
the performance of any account against any specific benchmark. Generally, greater consideration is
given to the performance of larger accounts and to longer term performance over smaller accounts
and short-term performance.
Ownership of Shares in the Fund
As reported to the Fund, the information in the following table reflects beneficial ownership
by the portfolio managers of Shares as of December 31, 2010:
|
|
|
Name of Portfolio Manager |
|
Dollar Range of Equity Securities in the Fund*(1) |
Mario J. Gabelli
|
|
G |
Lawrence J. Haverty
|
|
E |
Christopher J. Marangi
|
|
A |
|
|
|
* |
|
Key to Dollar Ranges |
|
A. |
|
None |
|
B. |
|
$1 $10,000 |
|
C. |
|
$10,001 $50,000 |
|
D. |
|
$50,001 $100,000 |
|
E. |
|
$100,001 $500,000 |
|
F. |
|
$500,001 $1,000,000 |
|
G. |
|
over $1,000,000 |
|
(1) |
|
Beneficial Ownership is determined in accordance with Rule
16a-1(a)(2) promulgated under the 1934 Act. |
Portfolio Holdings Information
Employees of the Investment Adviser and its affiliates will often have access to information
concerning the portfolio holdings of the Fund. The Fund and the Investment Adviser have adopted
policies and procedures that require all employees to safeguard proprietary
-37-
information of the Fund, which includes information relating to the Funds portfolio holdings
as well as portfolio trading activity of the Investment Adviser with respect to the Fund
(collectively, Portfolio Holdings Information). In addition, the Fund and the Investment Adviser
have adopted policies and procedures providing that Portfolio Holdings Information may not be
disclosed except to the extent that it is (a) made available to the general public by posting on
the Funds website or filed as a part of a required filing on Form N-Q or N-CSR or (b) provided to
a third party for legitimate business purposes or regulatory purposes, that has agreed to keep such
data confidential under forms approved by the Investment Advisers legal department or outside
counsel, as described below. The Investment Adviser will examine each situation under (b) with a
view to determine that release of the information is in the best interest of the Fund and its
shareholders and, if a potential conflict between the Investment Advisers interests and the Funds
interests arises, to have such conflict resolved by the Chief Compliance Officer or the independent
Board. These policies further provide that no officer of the Fund or employee of the Investment
Adviser shall communicate with the media about the Fund without obtaining the advance consent of
the Chief Executive Officer, Chief Operating Officer, or General Counsel of the Investment Adviser.
Under the foregoing policies, the Fund currently may disclose Portfolio Holdings Information
in the circumstances outlined below. Disclosure generally may be either on a monthly or quarterly
basis with no time lag in some cases and with a time lag of up to 60 days in other cases (with the
exception of proxy voting services which require a regular download of data):
(1) |
|
To regulatory authorities in response to requests for such information
and with the approval of the Chief Compliance Officer of the Fund; |
|
(2) |
|
To mutual fund rating and statistical agencies and to persons
performing similar functions where there is a legitimate business
purpose for such disclosure and such entity has agreed to keep such
data confidential at least until it has been made public by the
Investment Adviser; |
|
(3) |
|
To service providers of the Fund, as necessary for the performance of
their services to the Fund and to the Board; the Funds anticipated
service providers are its administrator, transfer agent, custodian,
independent registered public accounting firm, and legal counsel; |
|
(4) |
|
To firms providing proxy voting and other proxy services, provided
such entity has agreed to keep such data confidential until at least
it has been made public by the Investment Adviser; |
|
(5) |
|
To certain broker dealers, investment advisers, and other financial
intermediaries for purposes of their performing due diligence on the
Fund and not for dissemination of this information to their clients or
use of this information to conduct trading for their clients.
Disclosure of Portfolio Holdings Information in these circumstances
requires the broker, dealer, investment adviser, or financial
intermediary to agree to keep such information confidential and is
further subject to prior approval of the Chief Compliance Officer of
the Fund and to reporting to the Board at the next quarterly meeting;
and |
-38-
(6) |
|
To consultants for purposes of performing analysis of the Fund, which
analysis (but not the Portfolio Holdings Information) may be used by
the consultant with its clients or disseminated to the public,
provided that such entity shall have agreed to keep such information
confidential until at least it has been made public by the Investment
Adviser. |
Disclosures made pursuant to a confidentiality agreement are subject to periodic confirmation
by the Chief Compliance Officer of the Fund that the recipient has utilized such information solely
in accordance with the terms of the agreement. Neither the Fund nor the Investment Adviser, nor
any of the Investment Advisers affiliates will accept on behalf of itself, its affiliates, or the
Fund any compensation or other consideration in connection with the disclosure of portfolio
holdings of the Fund. The Board will review such arrangements annually with the Funds Chief
Compliance Officer.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board, the Investment Adviser is responsible for
placing purchase and sale orders and the allocation of brokerage on behalf of the Fund.
Transactions in equity securities are in most cases effected on U.S. stock exchanges and involve
the payment of negotiated brokerage commissions. In general, there may be no stated commission in
the case of securities traded in over-the-counter markets, but the prices of those securities may
include undisclosed commissions or mark-ups. Principal transactions are not entered into with
affiliates of the Fund. However, Gabelli & Company may execute transactions in the
over-the-counter markets on an agency basis and receive a stated commission therefrom. To the
extent consistent with applicable provisions of the 1940 Act and the rules and exemptions adopted
by the SEC thereunder, as well as other regulatory requirements, the Funds Board has determined
that portfolio transactions may be executed through Gabelli & Company and its broker-dealer
affiliates if, in the judgment of the Investment Adviser, the use of those broker-dealers is likely
to result in price and execution at least as favorable as those of other qualified broker-dealers,
and if, in particular transactions, the affiliated broker-dealers charge the Fund a rate consistent
with that charged to comparable unaffiliated customers in similar transactions. The Fund has no
obligations to deal with any broker or group of brokers in executing transactions in portfolio
securities. In executing transactions, the Investment Adviser seeks to obtain the best price and
execution for the Fund, taking into account such factors as price, size of order, difficulty of
execution and operational facilities of the firm involved and the firms risk in positioning a
block of securities. While the Investment Adviser generally seeks reasonably competitive
commission rates, the Fund does not necessarily pay the lowest commission available.
Subject to obtaining the best price and execution, brokers who provide supplemental research,
market and statistical information, or other services (e.g., wire services) to the Investment
Adviser or its affiliates may receive orders for transactions by the Fund. The term research,
market and statistical information includes advice as to the value of securities, and advisability
of investing in, purchasing or selling securities, and the availability of securities or purchasers
or sellers of securities, and furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance of accounts.
Information so received will be in addition to and not in lieu of the services required
-39-
to be performed by the Investment Adviser under the Advisory Agreement and the expenses of the
Investment Adviser will not necessarily be reduced as a result of the receipt of such supplemental
information. Such information may be useful to the Investment Adviser and its affiliates in
providing services to clients other than the Fund, and not all such information is used by the
Investment Adviser in connection with the Fund. Conversely, such information provided to the
Investment Adviser and its affiliates by brokers and dealers through whom other clients of the
Investment Adviser and its affiliates effect securities transactions may be useful to the
Investment Adviser in providing services to the Fund.
Although investment decisions for the Fund are made independently from those of the other
accounts managed by the Investment Adviser and its affiliates, investments of the kind made by the
Fund may also be made for those other accounts. When the same securities are purchased for or sold
by the Fund and any of such other accounts, it is the policy of the Investment Adviser and its
affiliates to allocate such purchases and sales in a manner deemed fair and equitable over time to
all of the accounts, including the Fund.
For the fiscal years ended December 31, 2008, December 31, 2009 and December 31, 2010, the
Fund paid a total of $[116,669], $[49,813] and $[47,477], respectively, in brokerage commissions,
of which Gabelli & Company and its affiliates received, $[61,722], $[29,661] and $[28,929],
respectively. The amount received by Gabelli & Company and its affiliates from the Fund in respect
of brokerage commissions for the fiscal year ended December 31, 2010 represented approximately
[60.93%] of the aggregate dollar amount of brokerage commissions paid by the Fund for such period
and approximately [36.26%] of the aggregate dollar amount of transactions by the Fund for such
period.
TAXATION
The following discussion is a brief summary of certain U.S. federal income tax considerations
affecting the Fund and its shareholders. This discussion reflects applicable tax laws of the
United States as of the date of this SAI, which tax laws may be changed or subject to new
interpretations by the courts or the Internal Revenue Service (the IRS) retroactively or
prospectively. No attempt is made to present a detailed explanation of all U.S. federal, state,
local and foreign tax concerns affecting the Fund and its shareholders (including shareholders
owning a large position in the Fund), and the discussions set forth herein do not constitute tax
advice. Investors are urged to consult their own tax advisers to determine the tax consequences to
them of investing in the Fund.
Taxation of the Fund
The Fund has qualified and intends to continue to qualify, as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code) (a RIC).
Accordingly, the Fund will, among other things, (i) derive in each taxable year at least 90% of its
gross income from (a) dividends, interest (including tax-exempt interest), payments with respect to
certain securities loans, and gains from the sale or other disposition of stock, securities or
foreign currencies, or other income (including but not limited to gain from options, futures and
forward contracts) derived with respect to its business of investing in such stock, securities or
currencies and (b) net income derived from interests in certain publicly traded
-40-
partnerships that are treated as partnerships for U.S. federal income tax purposes and that
derive less than 90% of their gross income from the items described in (a) above (each a Qualified
Publicly Traded Partnership); and (ii) diversify its holdings so that, at the end of each quarter
of each taxable year (a) at least 50% of the value of its total assets is represented by cash and
cash items, U.S. government securities, the securities of other regulated investment companies and
other securities, with such other securities limited, in respect of any one issuer, to an amount
not greater than 5% of the value of the Funds total assets and not more than 10% of the
outstanding voting securities of such issuer and (b) not more than 25% of the value of the Funds
total assets is invested in the securities of (I) any one issuer (other than U.S. government
securities and the securities of other RICs), (II) any two or more issuers in which the Fund owns
more than 20% or more of the voting stock and that are determined to be engaged in the same
business or similar or related trades or businesses or (III) any one or more Qualified Publicly
Traded Partnerships.
The investments of the Fund in partnerships, including Qualified Publicly Traded Partnerships,
may result in the Fund being subject to state, local, or foreign income, franchise or withholding
tax liabilities.
As a RIC, the Fund generally is not or will not be, as the case may be, subject to U.S.
federal income tax on income and gains that it distributes each taxable year to shareholders, if it
distributes at least 90% of the sum of the Funds (i) investment company taxable income (which
includes, among other items, dividends, interest and the excess of any net short-term capital gain
over net long-term capital loss and other taxable income, other than any net long-term capital
gain, reduced by deductible expenses) determined without regard to the deduction for dividends paid
and (ii) its net tax-exempt interest (the excess of its gross tax-exempt interest over certain
disallowed deductions). The Fund intends to distribute at least annually substantially all of such
income.
Amounts not distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, the
Fund must distribute during each calendar year an amount at least equal to the sum of (i) 98% of
its ordinary income (not taking into account any capital gain or loss) for the calendar year, (ii)
98.2% of its capital gain in excess of its capital loss (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year (unless an election is made
to use the funds fiscal year), and (iii) certain undistributed amounts from previous years on
which a fund paid no federal income tax. While the Fund intends to distribute any income and
capital gain in the manner necessary to minimize imposition of the 4% excise tax, there can be no
assurance that sufficient amounts of the Funds taxable income and capital gain will be distributed
to avoid entirely the imposition of the tax. In that event, the Fund will be liable for the tax
only on the amount by which it does not meet the foregoing distribution requirement.
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 a 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 no later than December 31 of the year the distributions are declared, rather than when
the distributions are received.
-41-
If the Fund were unable to satisfy the 90% distribution requirement or otherwise were to fail
to qualify as a RIC in any year, it would be taxed in the same manner as an ordinary corporation
and distributions to the Funds shareholders would not be deductible by the Fund in computing its
taxable income. To qualify again to be taxed as a RIC in a subsequent year, the Fund would be
required to distribute to its shareholders its earnings and profits attributable to non-RIC years.
In addition, if the Fund failed to qualify as a RIC for a period greater than two taxable years,
then the Fund would be required to elect to recognize and pay tax on any net built-in gain (the
excess of aggregate gain, including items of income, over aggregate loss that would have been
realized if the Fund had been liquidated) or, alternatively, be subject to taxation on such
built-in gain recognized for a period of ten years, in order to qualify as a RIC in a subsequent
year.
Gain or loss on the sales of securities by the Fund will generally be long-term capital gain
or loss if the securities have been held by the Fund for more than one year. Gain or loss on the
sale of securities held for one year or less will be short-term capital gain or loss.
Foreign currency gain or loss on non-U.S. dollar-denominated securities and on any non-U.S.
dollar-denominated futures contracts, options and forward contracts that are not section 1256
contracts (as defined below) generally will be treated as ordinary income and loss.
Investments by the Fund in certain passive foreign investment companies (PFICs), as
defined in the Code, could subject the Fund to federal income tax (including interest charges) on
certain distributions or dispositions with respect to those investments which cannot be eliminated
by making distributions to shareholders. Elections may be available to the Fund to mitigate the
effect of this tax provided that the PFIC complies with certain reporting requirements, but such
elections generally accelerate the recognition of income without the receipt of cash. Dividends
paid by PFICs will not qualify for the reduced tax rates discussed below under Taxation of
Shareholders.
The Fund may invest in debt obligations purchased at a discount with the result that the Fund
may be required to accrue income for U.S. federal income tax purposes before amounts due under the
obligations are paid. The Fund may also invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated securities (high yield
securities). A portion of the interest payments on such high yield securities may be treated as
dividends for certain U.S. federal income tax purposes.
As a result of investing in stock of PFICs or securities purchased at a discount or any other
investment that produces income that is not matched by a corresponding cash distribution to the
Fund, the Fund could be required to include in current income, income it has not yet received. Any
such income would be treated as income earned by the Fund and therefore would be subject to the
distribution requirements of the Code. This might prevent the Fund from distributing 90% of its
investment company taxable income as is required in order to avoid Fund-level federal income
taxation on all of its income, or might prevent the Fund from distributing enough ordinary income
and capital gain net income to avoid completely the imposition of the excise tax. To avoid this
result, the Fund may be required to borrow money or dispose of securities to be able to make
distributions to its shareholders.
-42-
If the Fund does not meet the asset coverage requirements of the 1940 Act and the Articles
Supplementary, the Fund will be required to suspend distributions to the holders of common stock
until the asset coverage is restored. Such a suspension of distributions might prevent the Fund
from distributing 90% of its investment company taxable income as is required in order to avoid
fund-level federal income taxation on all of its income, or might prevent the fund from
distributing enough income and capital gain net income to avoid completely imposition of the excise
tax.
Certain of the Funds investment practices are subject to special and complex U.S. federal
income tax provisions that may, among other things, (i) disallow, suspend or otherwise limit the
allowance of certain losses or deductions, (ii) convert lower taxed long-term capital gains into
higher taxed short-term capital gains or ordinary income, (iii) convert ordinary loss or a
deduction into capital loss (the deductibility of which is more limited), (iv) cause a fund to
recognize income or gain without a corresponding receipt of cash, (v) adversely affect the time as
to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the
characterization of certain complex financial transactions and (vii) produce income that will not
qualify as good income for purposes of the 90% annual gross income requirement described above. The
Fund will monitor its transactions and may make certain tax elections to mitigate the effect of
these rules and prevent disqualification of the fund as a regulated investment company.
Foreign Taxes
Since the Fund may invest in foreign securities, income from such securities may be subject to
non-U.S. taxes. The Fund expects to invest less than 35% of its total assets in foreign
securities. As long as the Fund continues to invest less than 35% of its assets in foreign
securities it will not be eligible to elect to pass-through to shareholders of a fund the ability
to use the foreign tax deduction or foreign tax credit for foreign taxes paid with respect to
qualifying taxes.
Taxation of Shareholders
The Fund will determine either to distribute or to retain for reinvestment all or part of its
net capital gain. If any such gain is retained, the Fund will be subject to a tax of 35% of such
amount. In that event, the Fund expects to designate the retained amount as undistributed capital
gain in a notice to its shareholders, each of whom (i) will be required to include in income for
tax purposes as long-term capital gain its share of such undistributed amounts, (ii) will be
entitled to credit its proportionate share of the tax paid by the Fund against its federal income
tax liability and to claim refunds to the extent that the credit exceeds such liability and (iii)
will increase its basis in its shares of the Fund by an amount equal to 65% of the amount of
undistributed capital gain included in such shareholders gross income.
Distributions paid by the Fund from its investment company taxable income, which includes net
short-term capital gain, generally are taxable as ordinary income to the extent of the Funds
earnings and profits. Such distributions, if reported by the Fund, may, however, qualify (provided
holding period and other requirements are met by the Fund and its shareholders) (i) for the
dividends received deduction available to corporations, but only to the extent that the Funds
income consists of dividend income from U.S. corporations and (ii) for taxable years beginning on
or before December 31, 2012, as qualified dividend income eligible for the reduced maximum
-43-
federal tax rate to individuals of generally 15% (currently 0% for individuals in lower tax
brackets) to the extent that the Fund receives qualified dividend income. Qualified dividend income
is, in general, dividend income from taxable domestic corporations and certain qualified foreign
corporations (e.g., generally, foreign corporations incorporated in a possession of the United
States or in certain countries with a qualifying comprehensive tax treaty with the United States,
or whose shares with respect to which such dividend is paid is readily tradable on an established
securities market in the United States). A qualified foreign corporation does not include a
foreign corporation which for the taxable year of the corporation in which the dividend was paid,
or the preceding taxable year, is a PFIC. If the Fund engages in certain securities lending
transactions, the amount received by the Fund that is the equivalent of the dividends paid by the
issuer on the securities loaned will not be eligible for qualified dividend income treatment.
Distributions of net capital gain reported as capital gain distributions, if any, are taxable to
shareholders at rates applicable to long-term capital gain, whether paid in cash or in shares, and
regardless of how long the shareholder has held the Funds shares. Capital gain distributions are
not eligible for the dividends received deduction. The maximum federal tax rate on net long-term
capital gain of individuals is currently 15% (0% for individuals in lower brackets). The maximum
rate on long-term capital gain is scheduled to rise to 20% for gains realized in taxable years
beginning after December 31, 2012. Unrecaptured Section 1250 gain distributions, if any, will be
subject to a 25% tax. Distributions in excess of the Funds earnings and profits will first reduce
the adjusted tax basis of a holders shares and, after such adjusted tax basis is reduced to zero,
will constitute capital gain to such holder (assuming the shares are held as a capital asset).
Investment company taxable income (other than qualified dividend income) will currently be taxed at
a maximum rate of 35%. For corporate taxpayers, both investment company taxable income and net
capital gain are taxed at a maximum rate of 35%.
If an individual receives a dividend that is eligible for qualified dividend income treatment,
and such dividend constitutes an extraordinary dividend, any loss on the sale or exchange of
shares in respect of which the extraordinary dividend was paid, then the loss will be long-term
capital loss to the extent of such extraordinary dividend. An extraordinary dividend for this
purpose is generally a dividend (i) in an amount greater than or equal to 5% of the taxpayers tax
basis (or trading value) in a share of stock, aggregating dividends with ex-dividend dates within
an 85-day period or (ii) in an amount greater than 20% of the taxpayers tax basis (or trading
value) in a share of stock, aggregating dividends with ex-dividend dates within a 365-day period.
The IRS currently requires that a registered investment company that has two or more classes
of stock allocate to each such class proportionate amounts of each type of its income (such as
ordinary income, capital gains, dividends qualifying for the dividends received deduction (DRD)
and qualified dividend income) based upon the percentage of total dividends paid out of current or
accumulated earnings and profits to each class for the tax year. Accordingly, the Fund intends
each year to allocate capital gain dividends, dividends qualifying for the DRD and dividends that
constitute qualified dividend income, if any, between its common stock and preferred stock in
proportion to the total dividends paid out of current or accumulated earnings and profits to each
class with respect to such tax year. Distributions in excess of the Funds current and accumulated
earnings and profits, if any, however, will not be allocated proportionately among the common stock
and preferred stock. Since the Funds current and accumulated earnings and profits will first be
used to pay dividends on its preferred stock,
-44-
distributions in excess of such earnings and profits, if any, will be made disproportionately
to holders of common stock.
Shareholders may be entitled to offset their capital gain distributions (but not distributions
eligible for qualified dividend income treatment) with capital loss. There are a number of
statutory provisions affecting when capital loss may be offset against capital gain, and limiting
the use of loss from certain investments and activities. Accordingly, shareholders with capital
loss are urged to consult their tax advisers.
The price of stock purchased at any time may reflect the amount of a forthcoming distribution.
Those purchasing stock just prior to a distribution will receive a distribution which will be
taxable to them even though it represents in part a return of invested capital.
Certain types of income received by the Fund from real estate investment trusts (REITs),
real estate mortgage investment conduits (REMICs), taxable mortgage pools or other investments
may cause the Fund to designate some or all of its distributions as excess inclusion income. To
Fund shareholders such excess inclusion income may (1) constitute taxable income, as unrelated
business taxable income (UBTI) for those shareholders who would otherwise be tax-exempt such as
individual retirement accounts, 401(k) accounts, Keogh plans, pension plans and certain charitable
entities; (2) not be offset by other taxable deductions for tax purposes; (3) not be eligible for
reduced U.S. withholding for non-U.S. shareholders even from tax treaty countries; and (4) cause
the Fund to be subject to tax if certain disqualified organizations as defined by the Code are
fund shareholders.
Upon a sale, exchange, redemption or other disposition of stock, a shareholder will generally
realize a taxable gain or loss equal to the difference between the amount of cash and the fair
market value of other property received and the shareholders adjusted tax basis in the stock.
Such gain or loss will be treated as 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 by substantially identical shares within a 61-day period
beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such
a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six
months or less will be treated for tax purposes as a long-term capital loss to the extent of any
capital gain distributions received by the shareholder (or amounts credited to the shareholder as
an undistributed capital gain) with respect to such shares.
Ordinary income distributions and capital gain distributions also may be subject to state and
local taxes. Shareholders are urged to consult their own tax advisers regarding specific questions
about federal (including the application of the alternative minimum tax rules), state, local or
foreign tax consequences to them of investing in the Fund.
Shareholders will receive, if appropriate, various written notices after the close of each of
the Funds taxable years regarding the U.S. federal income tax status of certain dividends,
distributions and deemed distributions that were paid (or that are treated as having been paid) by
the Fund to its shareholders during the preceding taxable year.
-45-
If a shareholder recognizes a loss with respect to the Funds shares of $2 million or more for
an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must
file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities
are in many cases exempted from this reporting requirement, but under current guidance,
shareholders of a regulated investment company are not exempted. The fact that a loss is
reportable under these regulations does not affect the legal determination of whether the
taxpayers treatment of the loss is proper. Shareholders should consult their tax advisors to
determine the applicability of these regulations in light of their individual circumstances.
Dividends paid or distributions made by the Fund to shareholders who are non-resident aliens
or foreign entities (foreign investors) are generally subject to withholding tax at a 30% rate or
a reduced rate specified by an applicable income tax treaty to the extent derived from investment
income and short-term capital gains. In order to obtain a reduced rate of withholding, a foreign
investor will be required to provide an IRS Form W-8BEN certifying its entitlement to benefits
under a treaty. The withholding tax does not apply to regular dividends paid or distributions made
to a foreign investor who provides a Form W-8ECI, certifying that the dividends or distributions
are effectively connected with the foreign investors conduct of a trade or business within the
United States. Instead, the effectively connected dividends or distributions will be subject to
regular U.S. income tax as if the foreign investor were a U.S. shareholder. A non-U.S. corporation
receiving effectively connected dividends or distributions may also be subject to additional
branch profits tax imposed at a rate of 30% (or lower treaty rate). A foreign investor who fails
to provide an IRS Form W-8BEN or other applicable form may be subject to backup withholding at the
appropriate rate.
In general, United States federal withholding tax will not apply to any gain or income
realized by a foreign investor in respect of any distributions of net long-term capital gains over
net short-term capital losses, exempt-interest dividends, or upon the sale or other disposition of
shares of the Fund.
Backup Withholding
The Fund may be required to withhold U.S. federal income tax on all taxable distributions and
redemption proceeds payable to non-corporate 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 IRS that they are subject to backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be refunded or credited against such shareholders U.S.
federal income tax liability, if any, provided that the required information is furnished to the
IRS.
The foregoing is a general and abbreviated summary of the applicable provisions of the Code
and Treasury regulations presently in effect. For the complete provisions, reference should be
made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code
and the Treasury regulations are subject to change by legislative, judicial or administrative
action, either prospectively or retroactively. Persons considering an investment in shares of the
Fund should consult their own tax advisers regarding the purchase, ownership and disposition of
shares of the Fund.
-46-
Financial Statements
The audited financial statements included in the annual report to the Funds shareholders for
the year ended [December 31, 2010], together with the report of [] are incorporated herein by
reference to the Funds annual report. All other portions of the annual report are not
incorporated herein by reference and are not part of the registration statement.
-47-
APPENDIX A
GAMCO INVESTORS, INC. AND AFFILIATES
THE VOTING OF PROXIES ON BEHALF OF CLIENTS
Rules 204(4)-2 and 204-2 under the Investment Advisers Act of 1940 and Rule 30b1-4 under the
Investment Company Act of 1940 require investment advisers to adopt written policies and procedures
governing the voting of proxies on behalf of their clients.
These procedures will be used by GAMCO Asset Management Inc., Gabelli Funds, LLC, Gabelli
Securities, Inc., and Teton Advisors, Inc. (collectively, the Advisers) to determine how to vote
proxies relating to portfolio securities held by their clients, including the procedures that the
Advisers use when a vote presents a conflict between the interests of the shareholders of an
investment company managed by one of the Advisers, on the one hand, and those of the Advisers; the
principal underwriter; or any affiliated person of the investment company, the Advisers, or the
principal underwriter. These procedures will not apply where the Advisers do not have voting
discretion or where the Advisers have agreed to with a client to vote the clients proxies in
accordance with specific guidelines or procedures supplied by the client (to the extent permitted
by ERISA).
I. Proxy Voting Committee
The Proxy Voting Committee was originally formed in April 1989 for the purpose of formulating
guidelines and reviewing proxy statements within the parameters set by the substantive proxy voting
guidelines originally published in 1988 and updated periodically, a copy of which are appended as
Exhibit A. The Committee will include representatives of Research, Administration, Legal, and the
Advisers. Additional or replacement members of the Committee will be nominated by the Chairman and
voted upon by the entire Committee.
Meetings are held as needed basis to form views on the manner in which the Advisers should vote
proxies on behalf of their clients.
In general, the Director of Proxy Voting Services, using the Proxy Guidelines, recommendations of
Institutional Shareholder Corporate Governance Service (ISS), other third-party services and the
analysts of Gabelli & Company, Inc., will determine how to vote on each issue. For
non-controversial matters, the Director of Proxy Voting Services may vote the proxy if the vote is
(1) consistent with the recommendations of the issuers Board of Directors and not contrary to the
Proxy Guidelines; (2) consistent with the recommendations of the issuers Board of Directors and is
a non-controversial issue not covered by the Proxy Guidelines; or (3) the vote is contrary to the
recommendations of the Board of Directors but is consistent with the Proxy Guidelines. In those
instances, the Director of Proxy Voting Services or the Chairman of the Committee may sign and date
the proxy statement indicating how each issue will be voted.
A-1
All matters identified by the Chairman of the Committee, the Director of Proxy Voting Services or
the Legal Department as controversial, taking into account the recommendations of ISS or other
third party services and the analysts of Gabelli & Company, Inc., will be presented to the Proxy
Voting Committee. If the Chairman of the Committee, the Director of Proxy Voting Services or the
Legal Department has identified the matter as one that (1) is controversial; (2) would benefit from
deliberation by the Proxy Voting Committee; or (3) may give rise to a conflict of interest between
the Advisers and their clients, the Chairman of the Committee will initially determine what vote to
recommend that the Advisers should cast and the matter will go before the Committee.
A. Conflicts of Interest.
The Advisers have implemented these proxy voting procedures in order to prevent conflicts of
interest from influencing their proxy voting decisions. By following the Proxy Guidelines, as well
as the recommendations of ISS, other third-party services and the analysts of Gabelli & Company,
the Advisers are able to avoid, wherever possible, the influence of potential conflicts of
interest. Nevertheless, circumstances may arise in which one or more of the Advisers are faced with
a conflict of interest or the appearance of a conflict of interest in connection with its vote. In
general, a conflict of interest may arise when an Adviser knowingly does business with an issuer,
and may appear to have a material conflict between its own interests and the interests of the
shareholders of an investment company managed by one of the Advisers regarding how the proxy is to
be voted. A conflict also may exist when an Adviser has actual knowledge of a material business
arrangement between an issuer and an affiliate of the Adviser.
In practical terms, a conflict of interest may arise, for example, when a proxy is voted for a
company that is a client of one of the Advisers, such as GAMCO Asset Management Inc. A conflict
also may arise when a client of one of the Advisers has made a shareholder proposal in a proxy to
be voted upon by one or more of the Advisers. The Director of Proxy Voting Services, together with
the Legal Department, will scrutinize all proxies for these or other situations that may give rise
to a conflict of interest with respect to the voting of proxies.
B. Operation of Proxy Voting Committee
For matters submitted to the Committee, each member of the Committee will receive, prior to the
meeting, a copy of the proxy statement, any relevant third party research, a summary of any views
provided by the Chief Investment Officer and any recommendations by Gabelli & Company, Inc.
analysts. The Chief Investment Officer or the Gabelli & Company, Inc. analysts may be invited to
present their viewpoints. If the Director of Proxy Voting Services or the Legal Department believe
that the matter before the committee is one with respect to which a conflict of interest may exist
between the Advisers and their clients, counsel will provide an opinion to the Committee concerning
the conflict. If the matter is one in which the interests of the clients of one or more of Advisers
may diverge, counsel will so advise and the Committee may make different recommendations as to
different clients. For any matters where the recommendation may trigger appraisal rights, counsel
will provide an opinion concerning the likely risks and merits of such an appraisal action.
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Each matter submitted to the Committee will be determined by the vote of a majority of the members
present at the meeting. Should the vote concerning one or more recommendations be tied in a vote of
the Committee, the Chairman of the Committee will cast the deciding vote. The Committee will notify
the proxy department of its decisions and the proxies will be voted accordingly.
Although the Proxy Guidelines express the normal preferences for the voting of any shares not
covered by a contrary investment guideline provided by the client, the Committee is not bound by
the preferences set forth in the Proxy Guidelines and will review each matter on its own merits.
Written minutes of all Proxy Voting Committee meetings will be maintained. The Advisers subscribe
to ISS, which supplies current information on companies, matters being voted on, regulations,
trends in proxy voting and information on corporate governance issues.
If the vote cast either by the analyst or as a result of the deliberations of the Proxy Voting
Committee runs contrary to the recommendation of the Board of Directors of the issuer, the matter
will be referred to legal counsel to determine whether an amendment to the most recently filed
Schedule 13D is appropriate.
II. Social Issues and Other Client Guidelines
If a client has provided special instructions relating to the voting of proxies, they should be
noted in the clients account file and forwarded to the proxy department. This is the
responsibility of the investment professional or sales assistant for the client. In accordance with
Department of Labor guidelines, the Advisers policy is to vote on behalf of ERISA accounts in the
best interest of the plan participants with regard to social issues that carry an economic impact.
Where an account is not governed by ERISA, the Advisers will vote shares held on behalf of the
client in a manner consistent with any individual investment/voting guidelines provided by the
client. Otherwise the Advisers will abstain with respect to those shares.
III. Client Retention of Voting Rights
If a client chooses to retain the right to vote proxies or if there is any change in voting
authority, the following should be notified by the investment professional or sales assistant for
the client.
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Operations |
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Proxy Department |
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Investment professional assigned to the account |
In the event that the Board of Directors (or a Committee thereof) of one or more of the investment
companies managed by one of the Advisers has retained direct voting control over
A-3
any security, the Proxy Voting Department will provide each Board Member (or Committee member) with
a copy of the proxy statement together with any other relevant information including
recommendations of ISS or other third-party services.
IV. Proxies of Certain Non-U.S. Issuers
Proxy voting in certain countries requires share-blocking. Shareholders wishing to vote their
proxies must deposit their shares shortly before the date of the meeting with a designated
depository. During the period in which the shares are held with a depository, shares that will be
voted at the meeting cannot be sold until the meeting had taken place and the shares are returned
to the clients custodian. Absent a compelling reason to the contrary, the Advisers believe that
the benefit to the client of exercising the vote is outweighed by the cost of voting and therefore,
the Advisers will not typically vote the securities of non-U.S. issuers that require
share-blocking.
In addition, voting proxies of issuers in non-US markets may also give rise to a number of
administrative issues to prevent the Advisers from voting such proxies. For example, the Advisers
may receive the notices for shareholder meetings without adequate time to consider the proposals in
the proxy or after the cut-off date for voting. Other markets require the Advisers to provide local
agents with power of attorney prior to implementing their respective voting instructions on the
proxy. Although it is the Advisers policies to vote the proxies for its clients for which they
have proxy voting authority, in the case of issuers in non-US markets, we vote client proxies on a
best efforts basis.
V. Voting Records
The Proxy Voting Department will retain a record of matters voted upon by the Advisers for their
clients. The Advisers will supply information on how they voted a clients proxy upon request from
the client.
The complete voting records for each registered investment company (the Fund) that is managed by
the Advisers will be filed on Form N-PX for the twelve months ended June 30th, no later than August
31st of each year. A description of the Funds proxy voting policies, procedures, and how the Fund
voted proxies relating to portfolio securities is available without charge, upon request, by (i)
calling 800-GABELLI (800-422-3554); (ii) writing to Gabelli Funds, LLC at One Corporate Center,
Rye, NY 10580-1422; or (iii) visiting the SECs website at www.sec.gov. Question should we
post the proxy voting records for the funds on the website.
The Advisers proxy voting records will be retained in compliance with Rule 204-2 under the
Investment Advisers Act.
VI. Voting Procedures
1. Custodian banks, outside brokerage firms and clearing firms are responsible for forwarding
proxies directly to the Advisers.
A-4
Proxies are received in one of two forms:
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Shareholder Vote Instruction Forms (VIFs) Issued by Broadridge
Financial Solutions, Inc. (Broadridge). Broadridge is an outside
service contracted by the various institutions to issue proxy
materials. |
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Proxy cards which may be voted directly. |
2. Upon receipt of the proxy, the number of shares each form represents is logged into the proxy
system, electronically or manually, according to security.
3. Upon receipt of instructions from the proxy committee (see Administrative), the votes are cast
and recorded for each account on an individual basis.
Records have been maintained on the Proxy Edge system.
Proxy Edge records include:
Security Name and Cusip Number
Date and Type of Meeting (Annual, Special, Contest)
Client Name
Adviser or Fund Account Number
Directors Recommendation
How the Adviser voted for the client on item
4. VIFs are kept alphabetically by security. Records for the current proxy season are located in
the Proxy Voting Department office. In preparation for the upcoming season, files are transferred
to an offsite storage facility during January/February.
5. If a proxy card or VIF is received too late to be voted in the conventional matter, every
attempt is made to vote including:
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When a solicitor has been retained, the solicitor is called. At the solicitors
direction, the proxy is faxed. |
A-5
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In some circumstances VIFs can be faxed to Broadridge up until the time of the meeting. |
6. In the case of a proxy contest, records are maintained for each opposing entity.
7. Voting in Person
a) At times it may be necessary to vote the shares in person. In this case, a legal proxy is
obtained in the following manner:
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Banks and brokerage firms using the services at Broadridge: |
Broadridge is notified that we wish to vote in person. Broadridge issues individual legal proxies
and sends them back via email or overnight (or the Adviser can pay messenger charges). A lead-time
of at least two weeks prior to the meeting is needed to do this. Alternatively, the procedures
detailed below for banks not using Broadridge may be implemented.
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Banks and brokerage firms issuing proxies directly: |
The bank is called and/or faxed and a legal proxy is requested.
All legal proxies should appoint:
Representative of [Adviser name] with full power of substitution.
b) The legal proxies are given to the person attending the meeting along with the limited power of
attorney.
A-6
Appendix A
Proxy Guidelines
PROXY VOTING GUIDELINES
GENERAL POLICY STATEMENT
It is the policy of GAMCO Investors, Inc, and its affiliated advisers (collectively the Advisers)
to vote in the best economic interests of our clients. As we state in our Magna Carta of
Shareholders Rights, established in May 1988, we are neither for nor against management. We are for
shareholders.
At our first proxy committee meeting in 1989, it was decided that each proxy statement should be
evaluated on its own merits within the framework first established by our Magna Carta of
Shareholders Rights. The attached guidelines serve to enhance that broad framework.
We do not consider any issue routine. We take into consideration all of our research on the
company, its directors, and their short and long-term goals for the company. In cases where issues
that we generally do not approve of are combined with other issues, the negative aspects of the
issues will be factored into the evaluation of the overall proposals but will not necessitate a
vote in opposition to the overall proposals.
Board of Directors
We do not consider the election of the Board of Directors a routine issue. Each slate of directors
is evaluated on a case-by-case basis.
Factors taken into consideration include:
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Historical responsiveness to shareholders |
This may include such areas as:
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Paying greenmail |
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Failure to adopt shareholder resolutions receiving a majority of shareholder votes |
A-7
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Qualifications |
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Nominating committee in place |
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Number of outside directors on the board |
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Attendance at meetings |
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Overall performance |
Selection of Auditors
In general, we support the Board of Directors recommendation for auditors.
Blank Check Preferred Stock
We oppose the issuance of blank check preferred stock.
Blank check preferred stock allows the company to issue stock and establish dividends, voting
rights, etc. without further shareholder approval.
Classified Board
A classified board is one where the directors are divided into classes with overlapping terms. A
different class is elected at each annual meeting.
While a classified board promotes continuity of directors facilitating long range planning, we feel
directors should be accountable to shareholders on an annual basis. We will look at this proposal
on a case-by-case basis taking into consideration the boards historical responsiveness to the
rights of shareholders.
Where a classified board is in place we will generally not support attempts to change to an
annually elected board.
When an annually elected board is in place, we generally will not support attempts to classify the
board.
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Increase Authorized Common Stock
The request to increase the amount of outstanding shares is considered on a case-by-case basis.
Factors taken into consideration include:
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Future use of additional shares |
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Stock split |
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Stock option or other executive compensation plan |
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Finance growth of company/strengthen balance sheet |
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Aid in restructuring |
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Improve credit rating |
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Implement a poison pill or other takeover defense |
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Amount of stock currently authorized but not yet issued or reserved for stock option plans |
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Amount of additional stock to be authorized and its dilutive effect |
We will support this proposal if a detailed and verifiable plan for the use of the additional
shares is contained in the proxy statement.
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Confidential Ballot
We support the idea that a shareholders identity and vote should be treated with confidentiality.
However, we look at this issue on a case-by-case basis.
In order to promote confidentiality in the voting process, we endorse the use of independent
Inspectors of Election.
Cumulative Voting
In general, we support cumulative voting.
Cumulative voting is a process by which a shareholder may multiply the number of directors being
elected by the number of shares held on record date and cast the total number for one candidate or
allocate the voting among two or more candidates.
Where cumulative voting is in place, we will vote against any proposal to rescind this shareholder
right.
Cumulative voting may result in a minority block of stock gaining representation on the board. When
a proposal is made to institute cumulative voting, the proposal will be reviewed on a case-by-case
basis. While we feel that each board member should represent all shareholders, cumulative voting
provides minority shareholders an opportunity to have their views represented.
Director Liability and Indemnification
We support efforts to attract the best possible directors by limiting the liability and increasing
the indemnification of directors, except in the case of insider dealing.
Equal Access to the Proxy
The SECs rules provide for shareholder resolutions. However, the resolutions are limited in scope
and there is a 500 word limit on proponents written arguments. Management has no such limitations.
While we support equal access to the proxy, we would look at such variables as length of time
required to respond, percentage of ownership, etc.
Fair Price Provisions
Charter provisions requiring a bidder to pay all shareholders a fair price are intended to prevent
two-tier tender offers that may be abusive. Typically, these provisions do not apply to
board-approved transactions.
We support fair price provisions because we feel all shareholders should be entitled to receive the
same benefits.
Reviewed on a case-by-case basis.
Golden Parachutes
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Golden parachutes are severance payments to top executives who are terminated or demoted after a
takeover.
We support any proposal that would assure management of its own welfare so that they may continue
to make decisions in the best interest of the company and shareholders even if the decision results
in them losing their job. We do not, however, support excessive golden parachutes. Therefore, each
proposal will be decided on a case-by- case basis.
Note: Congress has imposed a tax on any parachute that is more than three times the executives
average annual compensation
Anti-Greenmail Proposals
We do not support greenmail. An offer extended to one shareholder should be extended to all
shareholders equally across the board.
Limit Shareholders Rights to Call Special Meetings
We support the right of shareholders to call a special meeting.
Consideration of Nonfinancial Effects of a Merger
This proposal releases the directors from only looking at the financial effects of a merger and
allows them the opportunity to consider the mergers effects on employees, the community, and
consumers.
As a fiduciary, we are obligated to vote in the best economic interests of our clients. In general,
this proposal does not allow us to do that. Therefore, we generally cannot support this proposal.
Reviewed on a case-by-case basis.
Mergers, Buyouts, Spin-Offs, Restructurings
Each of the above is considered on a case-by-case basis. According to the Department of Labor, we
are not required to vote for a proposal simply because the offering price is at a premium to the
current market price. We may take into consideration the long term interests of the shareholders.
Military Issues
Shareholder proposals regarding military production must be evaluated on a purely economic set of
criteria for our ERISA clients. As such, decisions will be made on a case-by-case basis.
In voting on this proposal for our non-ERISA clients, we will vote according to the clients
direction when applicable. Where no direction has been given, we will vote in the best economic
interests of our clients. It is not our duty to impose our social judgment on others.
Northern Ireland
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Shareholder proposals requesting the signing of the MacBride principles for the purpose of
countering the discrimination of Catholics in hiring practices must be evaluated on a purely
economic set of criteria for our ERISA clients. As such, decisions will be made on a case-by-case
basis.
In voting on this proposal for our non-ERISA clients, we will vote according to client direction
when applicable. Where no direction has been given, we will vote in the best economic interests of
our clients. It is not our duty to impose our social judgment on others.
Opt Out of State Anti-Takeover Law
This shareholder proposal requests that a company opt out of the coverage of the states takeover
statutes. Example: Delaware law requires that a buyer must acquire at least 85% of the companys
stock before the buyer can exercise control unless the board approves.
We consider this on a case-by-case basis. Our decision will be based on the following:
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State of Incorporation |
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Management history of responsiveness to shareholders |
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Other mitigating factors |
Poison Pill
In general, we do not endorse poison pills.
In certain cases where management has a history of being responsive to the needs of shareholders
and the stock is very liquid, we will reconsider this position.
Reincorporation
Generally, we support reincorporation for well-defined business reasons. We oppose reincorporation
if proposed solely for the purpose of reincorporating in a state with more stringent anti-takeover
statutes that may negatively impact the value of the stock.
Stock Incentive Plans
Director and Employee Stock incentive plans are an excellent way to attract, hold and motivate
directors and employees. However, each incentive plan must be evaluated on its own merits, taking
into consideration the following:
A-12
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Dilution of voting power or earnings per share by more than 10%. |
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Kind of stock to be awarded, to whom, when and how much. |
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Method of payment. |
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Amount of stock already authorized but not yet issued under existing stock plans. |
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The successful steps taken by management to maximize shareholder value. |
Supermajority Vote Requirements
Supermajority vote requirements in a companys charter or bylaws require a level of voting approval
in excess of a simple majority of the outstanding shares. In general, we oppose
supermajority-voting requirements.
Supermajority requirements often exceed the average level of shareholder participation. We support
proposals approvals by a simple majority of the shares voting.
Limit Shareholders Right to Act by Written Consent
Written consent allows shareholders to initiate and carry on a shareholder action without having to
wait until the next annual meeting or to call a special meeting. It permits action to be taken by
the written consent of the same percentage of the shares that would be required to effect proposed
action at a shareholder meeting.
Reviewed on a case-by-case basis.
Say on Pay and Say When on Pay
We will generally abstain from advisory votes on executive compensation (Say on Pay) and will also
abstain from votes on the frequency of voting on executive compensation (Say When on Pay). In those
instances when we believe that it is in our clients best interest, we may cast a vote for or
against executive compensation and/or the frequency of votes on executive compensation.
A-13
PART C OTHER INFORMATION
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ITEM 25. |
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FINANCIAL STATEMENTS AND EXHIBITS |
1. Financial Statements
Part A Financial Highlights.
Part B Unaudited financial statements for the period ended June 30, 2010, are incorporated by
reference herein to the Funds semi-annual report for the period ended June 30, 2010. Audited
financial statements for the period ended December 31, 2009, are incorporated by reference herein
to the Funds annual report for the period ended December 31, 2009.
2. Exhibits
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(a)(1) |
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Articles of Incorporation1 |
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(a)(2) |
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Articles Supplementary for the 7.92% Cumulative Preferred Stock2 |
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(a)(3) |
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Articles Supplementary for the 6.00% Series B Cumulative Preferred Stock3 |
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(a)(4) |
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Articles of Amendment to the Articles Supplementary Creating and Fixing the Rights of
6.00% Series B Cumulative Preferred Stock4 |
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(a)(5) |
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Articles Supplementary for the Series C Auction Rate Cumulative Preferred
Stock3 |
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(a)(6) |
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Articles of Amendment to the Articles Supplementary Creating and Fixing the Rights of
Series C Auction Rate Cumulative Preferred Stock4 |
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(a)(7) |
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Articles Supplementary for the election of Section 3-804(c) of the Maryland General
Corporation Law4 |
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(b) |
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Amended and Restated Bylaws5 |
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(c) |
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Not applicable |
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(d) |
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Specimen Stock Certificate: |
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(d)(1) |
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7.92% Cumulative Preferred Stock6 |
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(d)(2) |
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6.00% Series B Cumulative Preferred Stock3 |
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(d)(3) |
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Series C Auction Rate Cumulative Preferred Stock3 |
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(d)(4) |
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Form of Subscription Certificate7 |
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(d)(5) |
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Form of Notice of Guaranteed Delivery7 |
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(d)(6) |
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Form of DTC Participant Over-Subscription Exercise Form7 |
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(d)(7) |
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Form of Nominee Holder Over-Subscription Certification7 |
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(d)(8) |
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Form of Subscription, Distribution and Escrow Agency Agreement7 |
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(e) |
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Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan8 |
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(f) |
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Not applicable |
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(g) |
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Investment Advisory Agreement between Registrant and Gabelli Funds, LLC8 |
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(h) |
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Not applicable |
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(i) |
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Not applicable |
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(j)(1) |
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Custodian Contract between Registrant and State Street Bank and Trust
Company9 |
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(j)(2) |
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Amendment to Custodian Contract between Registrant and State Street Bank and Trust Company8 |
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(j)(3) |
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Custodian Fee Schedule between Registrant and State Street Bank and Trust Company9 |
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1 |
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Incorporated by reference from the
Registrants Registration Statement on Form N-2, File Nos. 033-60407 and
811-08476, as filed with the Securities and Exchange Commission on June 20,
1995. |
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2 |
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Incorporated by reference from Amendment No.
1 to the Registrants Registration Statement on Form N-2, File Nos. 333-25487
and 811-08476, as filed with the Securities and Exchange Commission on May 23,
1997. |
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3 |
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Incorporated by reference from the
Registrants Registration Statement on Form N-2, File Nos. 333-102755 and
811-08476, as filed with the Securities and Exchange Commission on March 21,
2003. |
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4 |
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Filed herewith. |
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5 |
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Incorporated by reference from the
Registrants Current Report on Form 8-K, File No. 811-8476, as filed with the
Securities and Exchange Commission on November 29, 2010. |
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6 |
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Incorporated by reference from the
Registrants Registration Statement on Form N-2, File Nos. 333-25487 and
811-08476, as filed with the Securities and Exchange Commission on April 18,
1997. |
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7 |
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To be filed by amendment. |
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8 |
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Incorporated by reference from the
Registrants Registration Statement on Form N-2, File Nos. 333-33514 and
811-08476, as filed with the Securities and Exchange Commission on June 2,
2000. |
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9 |
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Incorporated by reference from Amendment No.
1 to the Registrants Registration Statement on Form N-2, File Nos. 033-60407
and 811-8476, as filed with the Securities and Exchange Commission on August 7,
1995. |
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(k)(1) |
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Registrar, Transfer Agency and Service Agreement between Registrant and State Street
Bank and Trust Company9 |
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(k)(2) |
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Transfer Agent and Registrar Services Closed-End Fund Fee Agreement for Registrant8 |
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(l)(1) |
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Consent of Paul, Hastings, Janofsky and Walker LLP7 |
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(l)(2) |
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Opinion and Consent of Venable LLP7 |
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(m) |
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Not applicable |
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(n)(1) |
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Consent of Independent Registered Public Accounting Firm7 |
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(n)(2) |
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Powers of Attorney10 |
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(n)(3) |
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Powers of Attorney11 |
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(o) |
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Not applicable |
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(p) |
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Not applicable |
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(q) |
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Not applicable |
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(r) |
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Codes of Ethics of the Registrant and the Investment Adviser8 |
ITEM 26. Marketing Arrangements
Not applicable.
ITEM 27. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in connection with the
offering described in this Registration Statement:
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SEC registration fees
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$[]* |
New York Stock Exchange listing fee
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$[]* |
Printing and engraving expenses
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$[]* |
Accounting fees
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$[]* |
Legal fees
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$[]* |
Blue Sky fees
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$[]* |
Miscellaneous
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$[]* |
Total
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$[]* |
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* |
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To be furnished by amendment. |
ITEM 28. Persons Controlled by or Under Common Control with Registrant
None.
ITEM 29. Number of Holders of Securities as of December 31, 2010
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Number of Record |
Title of Class |
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Holders |
Common Stock
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13,575,668 |
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6.00% Series B Cumulative Preferred Stock
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791,014 |
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Series C Auction Rate Cumulative Preferred Stock
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600 |
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ITEM 30. Indemnification
Subject to limitations imposed by the 1940 Act, the Registrants charter limits the liability
of the Registrants directors and officers to the Registrant and its stockholders to the fullest
extent permitted by Maryland law. Under Maryland law, Maryland corporations may limit their
directors and officers liability for money damages to the corporation and its
stockholders except to the extent (i) that it is proved that a director or officer actually
received an improper benefit or profit
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10 |
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Incorporated by reference from the
Registrants Registration Statement on Form N-2, File Nos. 333-102755 and
811-08476, as filed with the Securities and Exchange Commission on March 18,
2003. |
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11 |
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Incorporated by reference from the
Registrants Registration Statement on Form N-2, File No. 811-08476, as filed
with the Securities and Exchange Commission on February 27, 2008. |
in money, property or services, in which case such director
or officer may be liable for the amount of the benefit or profit actually received or (ii) that a
judgment or other final adjudication adverse to a director or officer is entered in a proceeding
based on a finding that such directors or officers action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action adjudicated in the
proceeding.
The Registrants Bylaws require the indemnification of, and expenses to be advanced on behalf
of, directors and officers, among others, to the fullest extent permitted by Maryland law, subject
to the limitations imposed by the 1940 Act. Under Maryland law, corporations may indemnify present
and past directors and officers, or officers of another corporation that serve at the request of
the indemnifying corporation, against judgments, penalties, fines, settlements and reasonable
expenses (including attorneys fees) actually incurred in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative or investigative,
in which they are made parties by reason of being or having been directors or officers, unless it
is proved that (i) the act or omission of the director or officer was material to the matter giving
rise to the proceeding and was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) the director or officer actually received an improper personal benefit in money,
property or services or (iii) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification and then only for expenses.
Maryland law requires a corporation (unless its charter provides otherwise, which the Registrants
charter does not) to indemnify present and past directors and officers who are successful, on the
merits or otherwise, in the defense of any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, against reasonable expenses
(including attorneys fees) incurred in connection with such proceeding.
Insofar as indemnification for liability arising under the Securities Act of 1933, as amended
(Securities Act), may be permitted to directors, officers and controlling persons of Registrant
pursuant to the foregoing provisions, or otherwise, Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is against public policy as
expressed in the Securities 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 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 Securities Act and will be governed by the final adjudication of such issue.
ITEM 31. Business and Other Connections of Investment Adviser
The Investment Adviser, a limited liability company organized under the laws of the State of
New York, acts as investment adviser to the Registrant. The Registrant is fulfilling the
requirement of this Item 31 to provide a list of the officers and directors of the Investment
Adviser, together with information as to any other business, profession, vocation or employment of
a substantial nature engaged in by the Investment Adviser or those officers and directors during
the past two years, by incorporating by reference the information contained in the Form ADV of the
Investment Adviser filed with the commission pursuant to the Investment Advisers Act of 1940
(Commission File No. 801-26202).
ITEM 32. Location of Accounts and Records
The accounts and records of the Registrant are maintained in part at the office of the
Investment Adviser at One Corporate Center, Rye, New York 10580-1434, in part at the offices of the
Custodian, State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts
02171, at the offices of the Funds sub-administrator, BNY Mellon Investment Servicing (US) Inc.,
760 Moore Road, King of Prussia, Pennsylvania 19406, and in part at the offices of Computershare
Trust Company, N.A., 250 Royall Street, Canton, Massachusetts 02021.
ITEM 33. Management Services
Not applicable.
ITEM 34. Undertakings
(1) The Registrant hereby undertakes to suspend the offering of its shares until it amends its
prospectus if (a) subsequent to the effective date of this Registration Statement, the net asset
value declines more than ten percent from its net
asset value as of the effective date of the Registration Statement or (b) the net asset value
increases to an amount greater than its net proceeds as stated in the prospectus.
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5)(a) For the purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of the Registration Statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 497(h) under
the Securities Act shall be deemed to be part of the Registration Statement as of the time it was
declared effective.
(5)(b) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering thereof.
(6) The Registrant undertakes to send by first class mail or other means designed to ensure
equally prompt delivery, within two business days of receipt of a written or oral request, any
Statement of Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Rye, and State of New York, on the 11th day
of February, 2011.
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THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
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By: |
/s/ Bruce N. Alpert |
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Bruce N. Alpert |
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President |
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Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates indicated.
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SIGNATURE |
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CAPACITY |
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DATE |
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Director, Chairman and
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February 11, 2011 |
Mario J. Gabelli
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Chief Investment Officer |
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President
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February 11, 2011 |
Bruce N. Alpert |
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Treasurer and Secretary
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February 11, 2011 |
Agnes Mullady |
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Director
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February 11, 2011 |
Anthony J. Colavita |
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Director
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February 11, 2011 |
James P. Conn |
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Director
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Gregory R. Dube |
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Director
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February 11, 2011 |
Frank J. Fahrenkopf, Jr. |
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* By: |
/s/ Bruce N. Alpert |
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Bruce N. Alpert (attorney-in-fact) |
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Director
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February 11, 2011 |
Anthony R. Pustorino |
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Director
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February 11, 2011 |
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Director
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February 11, 2011 |
Salvatore J. Zizza |
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* By: |
/s/ Bruce N. Alpert |
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Bruce N. Alpert (attorney-in-fact) |
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EXHIBIT INDEX
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Exhibit |
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Caption |
(a)(4)
|
|
Articles of Amendment to the Articles Supplementary Creating and Fixing the Rights of 6.00%
Series B Cumulative Preferred Stock |
|
|
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(a)(6)
|
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Articles of Amendment to the Articles Supplementary Creating and Fixing the Rights of Series
C Auction Rate Cumulative Preferred Stock |
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|
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(a)(7)
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Articles Supplementary for the election of Section 3-804(c) of the Maryland General
Corporation Law |