<PAGE> 1
THE GABELLI EQUITY TRUST INC.
One Corporate Center
Rye, New York 10580-1434
April 9, 1999
Dear Fellow Shareholder:
I would like to invite you to the Annual Meeting of Shareholders of The
Gabelli Equity Trust Inc. (the "Equity Trust") to be held on May 17, 1999 to
consider a proposal to distribute to shareholders, in the form of a dividend,
shares in a newly-organized non-diversified closed-end investment company, The
Gabelli Utility Fund (the "Utility Fund"). The enclosed Proxy
Statement/Prospectus describes the proposal in detail.
Through our ongoing communications with our shareholders we have learned a
great deal about them. We have found that, in general, our shareholders are
conservative, dividend sensitive investors who like current income. They
overwhelmingly favor the Equity Trust's 10% distribution policy. Knowing this,
your Board of Directors believes that the Equity Trust shareholders want an
investment vehicle that provides monthly dividends.
At the same time, we continue to be attracted to the opportunities for
long-term capital growth and income presented in the utility industry.
Consolidation and deregulation in the utility sector are presenting good values
and sound investment opportunities. To enable the Equity Trust's shareholders to
participate more directly in these opportunities, we are proposing to contribute
approximately $75 million of the Equity Trust's net assets to the Utility Fund,
which would follow a policy of concentration in utility related businesses. If
approved, each Equity Trust shareholder would receive one share of the Utility
Fund for the number of whole shares of the Equity Trust owned on the dividend
record date that will produce a total dividend of approximately $75 million. At
current net asset valuation, this would result in a dividend of one share of the
Utility Fund for each fourteen shares of the Equity Trust. The $75 million
target size was chosen by the Board to satisfy New York Stock Exchange listing
standards and to ensure the Utility Fund has sufficient assets to conduct its
investment program at a reasonable expense ratio. No commission or other sales
charge would be imposed. The Utility Fund expects to pay dividends monthly. In
addition, the broker-dealer affiliate of the Equity Trust's investment adviser
intends to allow shareholders of the Equity Trust to purchase up to 1,000
additional shares of the Utility Fund (acquired through open market purchases at
market prices) without a commission in order to round up their positions to even
round lots.
Please note that the proposed transaction will not affect the Equity
Trust's 10% distribution policy. The Equity Trust will continue to distribute
$0.27 per share in each of the first three quarters of the year with an
adjusting distribution in the fourth quarter of a sufficient amount to pay 10%
of the average net asset value.
We believe this proposal represents an attractive opportunity for
shareholders, and we urge you to give it your careful consideration.
Very truly yours,
[Mario J. Gabelli Signature]
MARIO J. GABELLI
Chairman of the Board and President
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS,
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN THE SAME AS
SOON AS POSSIBLE IN THE ENCLOSED POSTPAID ENVELOPE.
<PAGE> 2
THE GABELLI EQUITY TRUST INC.
One Corporate Center
Rye, New York 10580-1434
(914) 921-5000
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 17, 1999
------------------------
To the Shareholders of
THE GABELLI EQUITY TRUST INC.
Notice is hereby given that the Annual Meeting of Shareholders of The
Gabelli Equity Trust Inc. (the "Equity Trust") will be held at the Greenwich
Hyatt Regency, 1800 East Putnam Avenue, Greenwich, Connecticut 06870, on Monday,
May 17, 1999, at 9:00 a.m. to consider the following proposals:
1. To consider and vote upon a proposal to distribute to Equity Trust
shareholders approximately $75 million of the Equity Trust's net assets
in the form of shares of The Gabelli Utility Fund, a newly-organized
closed-end, registered investment company (PROPOSAL 1)
2. To elect three (3) Directors of the Equity Trust (PROPOSAL 2)
3. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the Equity Trust for the year ending December 31, 1999
(PROPOSAL 3)
4. To consider and vote upon such other matters as may come before said
meeting or any adjournment thereof.
These items are discussed in greater detail in the attached Proxy
Statement/Prospectus.
The close of business on March 17, 1999, has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
meeting and any adjournments thereof.
Your vote is important regardless of the size of your holdings in the
Equity Trust. Whether or not you plan to attend the meeting, we ask that you
please complete and sign the enclosed proxy card and return it promptly in the
enclosed envelope which needs no postage if mailed in the continental United
States. Instructions for the proper execution of proxies are set forth on the
inside cover.
By Order of the Directors
JAMES E. MCKEE
Secretary
April 9, 1999
This Statement is printed on recycled paper.
<PAGE> 3
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense to the Equity Trust involved in validating
your vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.
3. All Other Accounts: The capacity of the individuals signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:
<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURE
------------ ---------------
<S> <C> <C>
CORPORATE ACCOUNTS
(1) ABC Corp. ........................................ ABC Corp.
(2) ABC Corp. ........................................ John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer........................... John Doe
(4) ABC Corp., Profit Sharing Plan.................... John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust......................................... Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78.................................... Jane Doe
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust
f/b/o John B. Smith, Jr. UGMA..................... John B. Smith.
(2) John B. Smith..................................... John B. Smith, Jr., Executor
</TABLE>
<PAGE> 4
THE GABELLI EQUITY TRUST INC.
---------------------
ANNUAL MEETING OF SHAREHOLDERS
May 17, 1999
---------------------
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of The Gabelli Equity Trust
Inc. (the "Equity Trust") for use at the Annual Meeting of Shareholders of the
Equity Trust to be held on May 17, 1999, and at any adjournments thereof (the
"Meeting"). A Notice of Meeting of Shareholders and a proxy card accompany this
Proxy Statement/Prospectus.
Among the proposals to be considered at the Meeting is a proposal (Proposal
1) to distribute to Equity Trust shareholders common shares of beneficial
interest of The Gabelli Utility Fund, a newly-organized closed-end, registered
investment company (the "Utility Fund"). Under this proposal, the Equity Trust
will contribute a segment of its assets (which is anticipated to consist largely
or exclusively of cash and short-term fixed income instruments) having a value
of approximately $75 million to the Utility Fund, an investment company
organized and wholly-owned by the Equity Trust. All of the common shares of
beneficial interest of the Utility Fund (the "Utility Fund Common Stock") will
then be distributed by the Equity Trust as a dividend to the Equity Trust's
shareholders at a rate of one share of Utility Fund Common Stock for every
fourteen shares held of the Equity Trust. See "The Transaction."
Like the Equity Trust, the Utility Fund is a closed-end non-diversified
management investment company. The primary investment objective of the Utility
Fund is long-term growth of capital and income. The primary investment objective
of the Equity Trust is long-term capital appreciation, with income as a
secondary objective. Unlike the Equity Trust, which attempts to achieve its
objective by investing primarily in a portfolio of equity securities of
companies involved in a wide variety of industries, the Utility Fund will invest
primarily in common stock and other securities of foreign and domestic companies
involved to a substantial extent in providing products, services or equipment
for the generation or distribution of electricity, gas and water and the
provision of telecommunications services or infrastructure operations, such as
airports, toll roads and municipal services. No assurances can be given that the
Utility Fund's objectives will be achieved.
Application will be made to list the Utility Fund's shares on the New York
Stock Exchange. Although there is no current trading market for shares of
Utility Fund Common Stock, it is expected that "when issued" trading of such
shares will commence on the New York Stock Exchange four business days prior to
the record date set by the Board of Directors of the Equity Trust for the
distribution of the shares of the Utility Fund. If an Equity Trust shareholder
sells the shares in the Utility Fund that it receives through the dividend, the
shareholder may incur brokerage commissions and the sale may constitute a
taxable event for the shareholder.
Shares of closed-end investment companies frequently trade at a discount to
net asset value. The Equity Trust cannot predict whether the Utility Fund Common
Stock will trade at, below or above net asset value. Shareholders must bear the
risk of loss created by the possibility that its shares may trade at a discount
to net asset value.
The Equity Trust's Common Stock trades on the New York Stock Exchange under
the symbol "GAB." The Equity Trust will furnish, without charge, a copy of its
Annual Report upon request in writing or by telephone. The address of both the
Equity Trust and the Utility Fund is One Corporate Center, Rye, New York 10580
and the telephone number of both is (914) 921-5070.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS SETS FORTH CONCISELY CERTAIN INFORMATION
ABOUT THE UTILITY FUND AND THE EQUITY TRUST THAT SHAREHOLDERS SHOULD KNOW BEFORE
GIVING A PROXY AND IT SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
APRIL 9, 1999
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL VOTING INFORMATION.................................. 3
PROXY STATEMENT/PROSPECTUS SUMMARY.......................... 5
TABLE OF FEES AND EXPENSES.................................. 12
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES............... 13
The Transaction............................................. 14
Background............................................. 14
Description of the Transaction......................... 14
Federal Income Tax Consequences of the Transaction..... 16
Listing................................................ 17
Transaction Expenses................................... 17
Manner of Effecting the Distribution................... 17
Costs Associated with Sales of Utility Fund Common
Stock................................................. 18
Allocation of Investment Opportunities................. 18
Investment Objectives and Policies of the Utility Fund and
the Equity Trust.......................................... 19
Risk Factors................................................ 20
Investment Restrictions..................................... 24
Management of Utility Fund and the Equity Trust............. 24
Investment Advisory and Other Services...................... 28
Portfolio Transactions and Brokerage........................ 31
Determination of Net Asset Value............................ 31
Distributions; Automatic Dividend Reinvestment and Voluntary
Cash Purchase Plan........................................ 32
Taxation.................................................... 33
Principal Shareholders...................................... 35
Custodian, Transfer Agent, Dividend Disbursing Agent and
Registrar................................................. 36
Description of Common Stock of the Utility Fund and the
Equity Trust.............................................. 36
Reports to Shareholders..................................... 42
Experts..................................................... 42
Further Information......................................... 43
Financial Statements........................................ 43
Required Vote for the Transaction........................... 43
PROPOSAL 2.................................................. 43
PROPOSAL 3.................................................. 45
ADDITIONAL INFORMATION...................................... 46
SHAREHOLDER PROPOSALS....................................... 47
OTHER MATTERS TO COME BEFORE THE MEETING.................... 47
APPENDIX A.................................................. A-1
APPENDIX B.................................................. B-1
APPENDIX C.................................................. C-1
APPENDIX D.................................................. D-1
</TABLE>
2
<PAGE> 6
GENERAL VOTING INFORMATION
In addition to the solicitation of Proxies by mail, officers of the Equity
Trust, affiliates of the Equity Trust or other representatives of the Equity
Trust may also solicit proxies by telephone, telegraph or in person. In
addition, the Equity Trust has retained Georgeson and Company Inc. to assist in
the solicitation of Proxies for a fee estimated at $6,000 plus reimbursement of
expenses. The costs of solicitation and the expenses incurred in connection with
preparing the Proxy Statement/Prospectus and its enclosures will be paid by the
Equity Trust. The Equity Trust will reimburse brokerage firms and others for
their expenses in forwarding solicitation materials to the beneficial owners of
shares. The Annual Report of the Equity Trust, including audited financial
statements for the fiscal year ended December 31, 1998, was previously mailed to
all shareholders of the Equity Trust.
If the enclosed Proxy is properly executed and returned in time to be voted
at the Meeting, the shares represented thereby will be voted in accordance with
the instructions marked thereon. Unless instructions to the contrary are marked
thereon, the Proxy will be voted FOR Proposals 1, 2 and 3 and FOR any other
matters deemed appropriate. Any shareholder who has given a Proxy has the right
to revoke it at any time prior to its exercise either by attending the Meeting
and voting his or her shares in person or by submitting a letter of revocation
or a later-dated Proxy to the Equity Trust at the above address prior to the
date of the Meeting.
In the event a quorum is present at the Meeting but sufficient votes to
approve any of the proposed items are not received, the persons named as proxies
may propose one or more adjournments of such Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares present at the Meeting in person or by proxy. If a
quorum is present, the persons named as proxies will vote those proxies which
they are entitled to vote FOR such proposal in favor of such an adjournment and
will vote those proxies required to be voted for rejection of such proposal
against any such adjournment.
The close of business on March 17, 1999 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Meeting and all adjournments thereof.
Each shareholder is entitled to one vote for each full share and an
appropriate fraction of a vote for each fractional share held. On the record
date there were 106,116,347 shares of Common Stock and 5,400,000 shares of
Cumulative Preferred Stock of the Equity Trust outstanding.
To the knowledge of the management of the Equity Trust, no person owns of
record or beneficially 5% or more of the shares of the Common Stock or the
Cumulative Preferred Stock of the Equity Trust, except that as of March 17,
1999, 88,725,776 shares of Common Stock and 5,334,450 shares of Cumulative
Preferred Stock were held of record by Cede & Co., a nominee partnership of The
Depository Trust Company. The
3
<PAGE> 7
following table shows the shares held by The Depository Trust Company as nominee
for each 5% record or beneficial holder:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT
BENEFICIAL/RECORD OWNER AMOUNT OF SHARES OF CLASS
----------------------- ---------------- --------
<S> <C> <C>
TITLE OF CLASS -- COMMON STOCK
Cede & Co., as nominee for 88,725,776 83.6%
The Depository Trust Company
P.O. Box 20
Bowling Green Station
New York, NY 10004
Salomon Smith Barney Inc.(a) 19,278,763 18.2%
333 W 34th Street
New York, NY 10001
A. G. Edwards & Sons, Inc.(a) 10,739,322 10.1%
1 North Jefferson
St. Louis, MO 63103
Prudential Securities Inc.(a) 5,923,713 5.6%
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
TITLE OF CLASS -- CUMULATIVE PREFERRED STOCK
Cede & Co., as nominee for 5,334,450 98.8%
The Depository Trust Company
P.O. Box 20
Bowling Green Station
New York, NY 10004
Salomon Smith Barney Inc.(a) 1,784,960 33.1%
333 W 34th Street
New York, NY 10001
Prudential Securities Inc.(a) 555,872 10.3%
c/o ADP Proxy Services
51 Mercedes Way
Edgewood, NY 11717
Paine Webber Inc.(a) 982,580 18.2%
1000 Harbor Blvd
Weehawken, NJ 07087
National Financial Services Corp.(a) 614,692 11.4%
200 Liberty Street
New York, NY 10281
</TABLE>
(a) Shares held at The Depository Trust Company.
As of March 17, 1999, the officers and directors of the Equity Trust, as a
group, owned 1,302,548 shares of Common Stock and 5,000 shares of Cumulative
Preferred Stock of the Equity Trust, representing 1.23% of the shares of Common
Stock and 0.09% of the shares of Cumulative Preferred Stock.
This Proxy Statement/Prospectus is first being mailed to shareholders on or
about April 9, 1999.
4
<PAGE> 8
PROXY STATEMENT/PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Proxy Statement/Prospectus.
The Transaction............ The Board of Directors of the Equity Trust has
approved, subject to shareholder approval, the
contribution of a segment of the Equity Trust's
assets (which is anticipated to consist largely or
exclusively of cash and short-term fixed income
instruments) having a value of approximately $75
million to the Utility Fund, a newly formed
investment company organized and wholly-owned by
the Equity Trust. All of the Utility Fund Common
Stock (as hereinafter defined) will then be
distributed by the Equity Trust as a dividend to
its shareholders at a rate of one share of the
Utility Fund for every fourteen shares held of the
Equity Trust. The contribution of such Equity Trust
assets to the Utility Fund and the subsequent
distribution of the Utility Fund's shares to Equity
Trust shareholders is referred to herein as the
"Transaction." See "The Transaction."
The Gabelli Utility Fund... A newly formed investment company organized by the
Equity Trust and registered under the Investment
Company Act of 1940, as amended (the "1940 Act"),
as a non-diversified closed-end investment company.
Comparison of Investment
Objectives and Policies
of the Equity Trust and
the Utility Fund......... The primary investment objective of the Utility
Fund is long-term growth of capital and income.
Unlike the Equity Trust, which attempts to achieve
its objective by investing primarily in a portfolio
of equity securities of companies in a wide variety
of industries, the Utility Fund will concentrate
its investments in common stock and other
securities of foreign and domestic companies
involved to a substantial extent in providing
products, services or equipment for the generation
or the distribution of electricity, gas and water
and the provision of telecommunications services or
infrastructure operations, such as airports, toll
roads and municipal services. As a result of
investing in these businesses, the Utility Fund
over time may be expected to experience different
investment results than the Equity Trust. The
Equity Trust's primary investment objective is
long-term growth of capital and its secondary
investment objective is income. See "Investment
Objectives and Policies of the Utility Fund and the
Equity Trust."
The investment practices and restrictions of each
of the Utility Fund and the Equity Trust are
substantially similar except that, generally, (i)
the Utility Fund has no fundamental policy with
respect to purchasing securities of other
investment companies, (ii) the Utility Fund may
5
<PAGE> 9
borrow money, including on margin, to the extent
permitted by applicable law whereas the Equity
Trust is limited to borrowings not exceeding 10% of
its total assets to finance repurchases of its
shares and 5% for extraordinary or emergency
purposes, (iii) there is no limitation on the
amount of foreign securities in which the Utility
Fund may invest whereas the Equity Trust is limited
to investing up to 35% of its total assets in
foreign securities, (iv) the Utility Fund may
invest without limit in illiquid securities whereas
the Equity Trust may not invest more than 10% of
its total assets in illiquid securities and (v) the
Utility Fund may, whereas the Equity Trust may not,
make short sales of securities. For a more detailed
description of the differences between the
investment practices and restrictions of the
Utility Fund and the Equity Trust, see "Appendix
A -- Investment Practices" and "Appendix
B -- Investment Restrictions."
Investment Adviser to the
Utility Fund; Advisory
Fees..................... Gabelli Funds, LLC (the "Investment Adviser"), the
investment adviser for the Equity Trust, will also
serve as investment adviser to the Utility Fund.
The advisory fee structure for the Utility Fund
will be the same as that of the Equity Trust. The
investment advisory agreement between the Utility
Fund and the Investment Adviser combines investment
advisory and administrative responsibilities in one
agreement. The Utility Fund will pay the Investment
Adviser a fee computed daily and paid monthly at an
annual rate of 1.00% of the average weekly net
assets of the Utility Fund. See "Investment
Advisory and Other Services."
Listing.................... Application will be made to list the Utility Fund's
shares on the New York Stock Exchange upon notice
of issuance of such shares. Although there is no
current trading market for shares of Utility Fund
Common Stock, it is expected that "when issued"
trading of such shares will commence on the New
York Stock Exchange four business days prior to the
record date set by the Board of Directors of the
Equity Trust for the distribution of the shares of
the Utility Fund.
Federal Income Tax
Consequences of the
Transaction.............. The Transaction is not expected to increase
significantly the total amount of taxable
distributions received by the Equity Trust
shareholders for this year and is not expected to
result in the recognition of significant taxable
gain by the Equity Trust.
The distribution of Utility Fund shares and cash in
lieu of fractional shares to holders of Equity
Trust Common Stock will constitute a dividend to
each such shareholder up to its portion of the
Equity Trust's current or accumulated earnings and
profits (but not in excess of the fair market value
of Utility Fund shares and cash received by such
shareholder) and generally will be taxable to such
shareholder as a distribution of ordinary income
and/or long-term capital gains. To the
6
<PAGE> 10
extent that the fair market value of the
distributed Utility Fund shares and cash exceeds
the allocated current earnings and profits and any
accumulated earnings and profits from prior years,
the excess will first be treated as a non-taxable
return of capital, reducing the Equity Trust Common
Stock holder's tax basis in its Equity Trust
shares; thereafter, distributions in excess of the
Equity Trust Common Stock holder's basis will be
taxable as gain realized from a deemed sale of its
Equity Trust shares. Each Equity Trust Common Stock
holder will take a fair market value tax basis in
the Utility Fund shares received and will have a
new holding period beginning on the date following
the date of the distribution. In addition to the
other information necessary to file tax returns,
the Equity Trust will provide shareholders with
information as to the amount of the distribution to
be treated as a dividend.
The Utility Fund has received an opinion of counsel
to the effect that the foregoing discussion
accurately summarizes the material federal income
tax consequences of the Transaction. The foregoing
summary is subject to and qualified in its entirety
by the discussion in "The Transaction -- Federal
Income Tax Consequences of the Transaction" and
"Taxation" below.
Comparison of Distribution
Policies of the Utility
Fund and the Equity
Trust.................... The Utility Fund intends to file an exemptive
application with the Securities and Exchange
Commission requesting an order of exemption from
Section 19(b) of the 1940 Act (the "Section 19(b)
Exemptive Order") enabling it to distribute to
shareholders substantially all of its annual net
investment income monthly and capital gains
quarterly or more frequently. The Equity Trust will
continue to make quarterly dividend payments
pursuant to its 10% distribution policy. See
"Distributions; Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan."
Manner of Effecting the
Distribution............. The Equity Trust's Board of Directors is expected
to declare a distribution (the "Distribution") of
all the outstanding common shares of beneficial
interest, par value $.001 per share, of the Utility
Fund ("Utility Fund Common Stock"), payable to the
holders of record of the Equity Trust's Common
Stock, par value $.001 per share ("Equity Trust
Common Stock"), as of the close of business on a
date (the "Distribution Record Date") to be
determined, together with the payable date for the
Distribution (the "Distribution Date"), by the
Equity Trust's Board of Directors promptly
following shareholder approval of the Transaction
and receipt of an exemptive order from the
Securities and Exchange Commission.
7
<PAGE> 11
On or about the Distribution Date, the Equity Trust
will contribute a segment of its assets (which is
anticipated to consist largely or exclusively of
cash and short-term fixed income instruments)
having a value of approximately $75 million to the
Utility Fund.
The Equity Trust will effect the Distribution on
the Distribution Date by providing for the delivery
of the shares of Utility Fund Common Stock to State
Street Bank and Trust Company (the "Distribution
Agent") for distribution to holders of record of
Equity Trust Common Stock as of the close of
business on the Distribution Record Date. The
Distribution will be made on the basis of one share
of Utility Fund Common Stock for every fourteen
shares of Equity Trust Common Stock outstanding on
the Distribution Record Date. All such shares of
Utility Fund Common Stock will be fully paid and
non-assessable. Commencing on or about the
Distribution Date, certificates representing shares
of Utility Fund Common Stock will be mailed to
persons holding Equity Trust Common Stock on the
Distribution Record Date. Shareholders who have
their Equity Trust shares registered with the
transfer agent in book-entry form in their names,
will receive shares of the Utility Fund in
book-entry form.
Fractional shares of Utility Fund Common Stock will
only be issued as part of the Distribution to
holders of Equity Trust Common Stock who are
participants in the Equity Trust's Automatic
Dividend Reinvestment and Voluntary Cash Purchase
Plan (the "Equity Trust Plan"). The Distribution
Agent will aggregate the fractional shares to which
holders who are not participants in the Equity
Trust Plan would otherwise be entitled and attempt
to sell them in the open market at the then
prevailing prices on behalf of such holders, and
such holders will receive instead a cash payment in
the amount of their pro rata share of the total
sales proceeds.
In addition, holders of Equity Trust Common Stock
may purchase up to 1,000 additional shares of the
Utility Fund (acquired through open market
purchases at market prices) through Gabelli &
Company, Inc., the broker-dealer affiliate of the
Investment Adviser, without a commission in order
to round up their positions to even round lots.
No holder of Equity Trust Common Stock will be
required to pay any cash or other consideration for
the shares of Utility Fund Common Stock received in
the Distribution or to surrender or exchange shares
of Equity Trust Common Stock in order to receive
shares of Utility Fund Common Stock. The
Distribution will not affect the number of, or the
rights attaching to, outstanding shares of Equity
Trust Common Stock. See "The Transaction -- Manner
of Effecting the Distribution."
8
<PAGE> 12
Shares of Utility Fund Common Stock distributed in
connection with the Distribution will be freely
transferable except for shares received by persons
who may be deemed to be "affiliates" of the Utility
Fund under the Securities Act of 1933, as amended
(the "1933 Act"). See "The Transaction -- Manner of
Effecting the Distribution."
Risk Factors and Special
Considerations........... Repurchase and Charter Provisions. As shareholders
of a closed-end fund, the Utility Fund shareholders
do not have the right to redeem their shares.
However, the shares are freely transferable, except
for shares received by persons who may be deemed to
be "affiliates" of the Utility Fund under the 1933
Act, and shareholders desiring liquidity may,
subject to applicable securities laws, trade their
shares in the Utility Fund on the New York Stock
Exchange or other markets on which the shares may
trade at the then current market value. Like the
Equity Trust, the Utility Fund is authorized to
repurchase its shares on the open market when the
shares are trading at a discount of 10% or more (or
such other percentage as its Board of Directors
(which term includes a Board of Trustees) may
determine from time to time) from the net asset
value. In addition, certain provisions of the
Utility Fund's Declaration of Trust may be regarded
as "anti-takeover" provisions. Pursuant to these
provisions only one of the three classes of
directors (which term includes trustees) is elected
each year, and the affirmative vote of the holders
of 75% of the outstanding voting shares of the
Utility Fund is necessary to authorize amendments
to the Utility Fund's Declaration of Trust that
would be necessary to modify these provisions or to
directly or indirectly convert the Utility Fund
from a closed-end to an open-end investment
company. In addition, the affirmative vote of the
holders of 80% of the outstanding voting shares of
each class of the Utility Fund, voting as a class,
is generally required to authorize certain business
transactions with the beneficial owner of more than
5% of the outstanding shares of the Utility Fund.
In addition, if the Utility Fund issues preferred
stock, the holders of the preferred shares would
have the authority to elect two directors at all
times and would have separate class voting rights
on specified matters including conversion of the
Utility Fund to open-end status and certain
reorganizations of the Utility Fund. The overall
effect of these provisions is to render more
difficult the accomplishment of a merger with, or
the assumption of control by, a principal
shareholder, or the conversion of the Utility Fund
to open-end status. These provisions may have the
effect of depriving Utility Fund shareholders of an
opportunity to sell their shares at a premium above
the prevailing market price. See "Description of
Common Stock of the Utility Fund and the Equity
Trust -- Certain Provisions of the Governing
Documents of the Utility Fund and the Equity
Trust."
9
<PAGE> 13
Non-Diversified Status. As a non-diversified
investment company under the 1940 Act, the Utility
Fund, like the Equity Trust, is not limited in the
proportion of its assets that may be invested in
securities of a single issuer, and accordingly, an
investment in the Utility Fund may, under certain
circumstances, present greater risk to an investor
than an investment in a diversified company. See
"Investment Objectives and Policies of the Utility
Fund and the Equity Trust," "Risk Factors" and
"Taxation."
Discount to Net Asset Value. Shares of closed-end
investment companies frequently trade at a discount
from net asset value. This characteristic of shares
of a closed-end investment company is a risk
separate and distinct from the risk that the
Utility Fund's net asset value may decrease. The
Equity Trust cannot predict whether the Utility
Fund's shares will trade at, below or above net
asset value. The risk of holding shares of
closed-end investment companies that might trade at
a discount to net asset value is more pronounced
for shareholders who wish to sell their shares in a
relatively short period of time after completion of
the Distribution. For those shareholders,
realization of a gain or loss on their investment
is likely to be more dependent upon the existence
of a premium or discount than upon portfolio
performance. See "Investment and Objectives of the
Utility Fund and the Equity Trust" and "Risk
Factors."
Taxable Distribution. Each holder of Equity Trust
Common Stock will recognize taxable income as a
result of the distribution of the Utility Fund
shares and cash in lieu of fractional shares. The
Transaction is not expected to increase
significantly the total amount of taxable
distributions received by the Equity Trust
shareholders for this year, provided that the
Equity Trust, as it expects, does not contribute
securities with significant net unrealized
appreciation to the Utility Fund in exchange for
Utility Fund shares. In the event that the Equity
Trust does contribute securities with significant
net unrealized appreciation, the Transaction could
result in the recognition of significant taxable
gain by the Equity Trust and could increase the
total amount of taxable distributions received by
the Equity Trust shareholders for this year. See
"Proxy Statement/Prospectus Summary -- Federal
Income Tax Consequences of the Transaction" and
"The Transaction -- Federal Income Tax Consequences
of the Transaction."
Costs Associated with Sales of Utility Fund Common
Stock. If an Equity Trust shareholder sells the
shares in the Utility Fund that he receives, the
shareholder may incur brokerage commissions and the
sale may constitute a taxable event for the
shareholder.
Industry Risks. The Utility Fund will invest a
significant portion of its assets in companies in
the utility industry and, as a result, the value of
10
<PAGE> 14
the Utility Fund's shares will be more susceptible
to factors affecting those particular types of
companies, including governmental regulation,
deregulation, inflationary and other cost increases
in fuel and other operating expenses and high
interest costs or borrowings needed for capital
construction programs, including compliance with
environmental regulations. As a consequence of its
concentration policy, the Utility Fund's
investments may be subject to greater risk and
market fluctuation than a fund that has securities
representing a broader range of alternatives. See
"Investment Objectives and Polices of the Utility
Fund and the Equity Trust" and "Risk Factors."
Foreign Securities. There is no limitation on the
amount of foreign securities in which the Utility
Fund may invest. The Equity Trust, in contrast, may
invest up to 35% of its total assets in foreign
securities. Investing in securities of foreign
companies and foreign governments, which generally
are denominated in foreign currencies, may involve
certain risk and opportunity considerations not
typically associated with investing in domestic
companies and could cause the Utility Fund to be
affected favorably or unfavorably by changes in
currency exchange rates and revaluations of
currencies. See "Investment Objectives and Policies
of the Utility Fund and the Equity Trust" and "Risk
Factors."
Leveraging. As provided in the 1940 Act and
subject to certain exceptions, the Utility Fund may
issue debt or preferred stock so long as the
Utility Fund's total assets, less certain ordinary
course liabilities, exceed 300% of the amount of
the debt outstanding and exceed 200% of the sum of
the amount of preferred stock and debt outstanding
and the Equity Trust may issue debt for certain
restricted purposes up to 10% of its total assets
and preferred stock up to the 200% asset coverage
limitation. Such debt or preferred stock may be
convertible in accordance with SEC staff guidelines
which may permit each fund to obtain leverage at
attractive rates. Use of leverage may magnify the
impact on the holders of common stock of changes in
net asset value and the cost of leverage may exceed
the return on the securities acquired with the
proceeds of leverage, thereby diminishing rather
than enhancing the return to such shareholders and
generally making the fund's total return to such
shareholders more volatile. In addition, the fund
may be required to sell investments in order to
meet dividend or interest payments on the debt or
preferred stock when it may be disadvantageous to
do so. See "Risk Factors" and "Appendix
A -- Investment Practices."
11
<PAGE> 15
TABLE OF FEES AND EXPENSES
<TABLE>
<CAPTION>
EQUITY TRUST UTILITY FUND
------------ ------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------
Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan Fees................................... (1) (1)
ANNUAL OPERATING EXPENSES
- -------------------------------------------------------
(as a percentage of net assets attributable to common
shares)
Management Fees........................................ 1.00% 1.00%
Other Expenses(2)...................................... 0.15% 0.75%
---- ----
Total Annual Operating Expenses................... 1.15% 1.75%
==== ====
</TABLE>
EXAMPLE
The following examples illustrate the projected dollar amount of cumulative
expenses that would be incurred over various periods with respect to a
hypothetical investment in each of the Equity Trust and the Utility Fund. These
amounts are based upon payment by each of the Equity Trust and the Utility Fund
of expenses at levels set forth in the above table.
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
<S> <C> <C> <C> <C>
Equity Trust(3)................................ $12 $37 $63 $140
Utility Fund(3)................................ $18 $55 $95 $206
</TABLE>
The foregoing table is to assist you in understanding the various costs and
expenses that an investor in each of the Equity Trust and the Utility Fund will
bear directly or indirectly. The assumed 5% annual return is not a prediction
of, and does not represent, the projected or actual performance of the Equity
Trust Common Stock or the Utility Fund Common Stock. Actual expenses and annual
rates of return may be more or less than those assumed for purposes of the
Example.
The Utility Fund is a newly-formed entity with no operating history. As
such, expenses are estimated based on the anticipated size of the Utility Fund
as of the date of this Proxy Statement/Prospectus.
- ------------
(1) Shareholders participating in the Equity Trust's or the Utility Fund's
Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan would pay
$0.75 per transaction to purchase shares and $2.50 per transaction to sell
shares. See "Distributions; Automatic Dividend Reinvestment and Voluntary
Cash Purchase Plan."
(2) "Other expenses" are based on estimated amounts for the first full fiscal
year for the Utility Fund and actual expenses for the year ended December
31, 1998 for the Equity Trust.
(3) Amounts are exclusive of fees discussed in Note (1) above.
12
<PAGE> 16
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
The following unaudited pro forma statement of assets and liabilities of
the Equity Trust and the Utility Fund assumes that the Distribution occurred as
of December 31, 1998, that the spin-off was at a rate of one share of the
Utility Fund for every fourteen Equity Trust shares resulting in 7,579,739
shares of the Utility Fund outstanding and that the assets contributed to the
Utility Fund were valued at cost.
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
EQUITY TRUST EQUITY TRUST UTILITY FUND
- ---------------- -------------- ------------
<C> <S> <C> <C>
ASSETS
$1,341,215,869 Investments, at value(1)....................... $1,265,418,478 $75,797,391
41,454,278 Cash and other assets.......................... 41,454,278 --
-------------- -----------
-------------
$1,382,670,147 Total Assets.............................. $1,306,872,756 $75,797,391
-------------- -----------
-------------
$ 30,480,425 LIABILITIES.................................... $ 30,810,425 --
-------------- -----------
-------------
$1,352,189,722 NET ASSETS..................................... $1,276,062,331 $75,797,391
============== ===========
=============
NET ASSETS CONSIST OF:
$ 135,000,000 Cumulative Preferred Stock (7.25%, $25
liquidation value, $0.001 par value,
8,000,000 shares authorized with 5,400,000
shares issued and outstanding)............... $ 135,000,000 --
106,116 Common Stock at par value...................... 106,116 $ 7,580
720,262,347 Additional paid-in capital..................... 720,262,347 75,789,811
55,868 Accumulated net investment income.............. -- --
Distributions in excess of net investment
income....................................... (76,071,523) --
6,820,887 Accumulated net realized gain on investments,
futures contracts and foreign currency
transactions................................. 6,820,887 --
489,944,504 Net unrealized appreciation on investments,
futures contracts and foreign currency
transactions................................. 489,944,504 --
============== ===========
=============
$1,352,189,722 Total Net Assets.......................... $1,276,062,331 $75,797,391
============== ===========
=============
$11.47 NET ASSET VALUE PER COMMON SHARE............... $10.75 $10.00
============== ===========
=============
(1) $844,193,648 Cost of investments............................ $ 768,396,257 $75,797,391
</TABLE>
Set forth below is information with respect to the Utility Fund Common
Stock and the Equity Trust Common Stock following the Distribution. The
following table assumes that the Distribution will be based on the 106,116,347
shares of Equity Trust Common Stock outstanding as of December 31, 1998.
<TABLE>
<CAPTION>
AMOUNT HELD BY
COMPANY OR FOR AMOUNT
AMOUNT AUTHORIZED ITS OWN ACCOUNT OUTSTANDING
------------------ --------------- ------------------
<S> <C> <C> <C>
Utility Fund Common Stock........ unlimited 0 shares 7,579,739 shares
Equity Trust
Common Stock................... 192,000,000 shares 0 shares 106,116,347 shares
Preferred Stock 8,000,000 shares 0 shares 5,400,000 shares
</TABLE>
13
<PAGE> 17
PROPOSAL 1: TO APPROVE THE DISTRIBUTION TO EQUITY TRUST SHAREHOLDERS OF
APPROXIMATELY $75 MILLION OF THE EQUITY TRUST'S NET
ASSETS IN THE FORM OF SHARES OF THE GABELLI UTILITY FUND,
A NEWLY-ORGANIZED CLOSED-END, REGISTERED
INVESTMENT COMPANY.
At the Meeting, a proposal will be presented to approve or disapprove a
distribution to Equity Trust shareholders of approximately $75 million of the
Equity Trust's net assets in the form of shares of the Utility Fund.
THE TRANSACTION
BACKGROUND
The Equity Trust commenced operations in August 1986 as a non-diversified,
closed-end management investment company seeking long-term growth of capital
primarily through investment in a portfolio of equity securities selected by the
Investment Adviser. Income is a secondary objective of the Equity Trust. At
December 31, 1998, the Equity Trust's net assets approximated $1.35 billion. The
Equity Trust stated in its prospectus that, as a "non-diversified" investment
company, the Equity Trust could concentrate investments in individual issues to
a greater degree than a diversified investment company.
The Board of Directors of the Equity Trust has taken several steps in order
to seek to reduce any discount between the trading price of the Equity Trust's
shares and the Equity Trust's net asset value. The Board of Directors has
authorized the purchase of Equity Trust shares in the open market whenever a
discount of 10% or more exists. Additionally, the Board has adopted a "10%
distribution" policy.(1) While the Board of Directors of the Equity Trust
believes that the adoption of this policy has ameliorated the discount at which
the Equity Trust's shares trade, the Investment Adviser, in managing the Equity
Trust's assets with a view to assuring that the Equity Trust has sufficient cash
and liquidity available to be able on a consistent basis to meet its 10%
distribution policy, has diversified the Equity Trust's investments to a greater
extent than required under the 1940 Act and the Internal Revenue Code of 1986
(the "Code"). Additionally, the Investment Adviser has found that, in general,
the Equity Trust's shareholders are conservative, dividend sensitive investors
who like current income. They overwhelmingly favor the Equity Trust's 10%
distribution policy.
DESCRIPTION OF THE TRANSACTION
The Board of Directors of the Equity Trust has approved, subject to
shareholder approval, the contribution of a segment of the Equity Trust's net
assets having a value of approximately $75 million to the Utility Fund, a
newly-formed investment company organized and wholly owned by the Equity Trust.
It is anticipated that the contributed assets will consist largely or
exclusively of cash and short-term fixed income instruments. All the shares of
Utility Fund Common Stock will then be distributed by the Equity Trust as a
- ------------
(1) Pursuant to this policy, the Equity Trust makes quarterly distributions of
$0.27 per share following the first three calendar quarters of each year and an
adjusting distribution in December equal to the sum of 2.5% of the net asset
value of the Equity Trust as of the last day of each of the four preceding
calendar quarters less the aggregate distribution of $0.81 per share for the
most recent three calendar quarters.
14
<PAGE> 18
dividend to its shareholders at a rate of one share of Utility Fund Common Stock
for every fourteen shares held of Equity Trust Common Stock.
The primary investment objective of the Utility Fund is long-term growth of
capital and income. Unlike the Equity Trust, which attempts to achieve its
objective by investing primarily in a portfolio of equity securities of
companies involved in a wide variety of industries, the Utility Fund will invest
primarily in common stock and other securities of foreign and domestic companies
involved to a substantial extent in providing products, services or equipment
for the generation or distribution of electricity, gas, and water and the
provision of telecommunications services or infrastructure operations, such as
airports, toll roads and municipal services. As a result, the Utility Fund over
time may be expected to experience different investment results than the Equity
Trust. The Utility Fund will register under the 1940 Act as a non-diversified,
closed-end investment company, and the Investment Adviser will serve as
investment adviser to the Utility Fund. The advisory fee structure for the
Utility Fund will be the same as that of the Equity Trust (see "Investment
Advisory and Other Services"), and the Utility Fund's shares will be listed for
trading on the New York Stock Exchange. The Distribution Record Date and the
Distribution Date will be determined by the Board of Directors of the Equity
Trust following shareholder approval of the Transaction. The investment
restrictions, policy of concentration in utility businesses and other matters
relating to the Utility Fund's structure are described below. See "Investment
Objectives and Policies of the Utility Fund and the Equity Trust."
The Board of Directors believes that the Transaction will result in the
following benefits to Equity Trust shareholders:
1. The shareholders will receive shares of an investment company with
a different risk-return profile than the Equity Trust, thereby providing
shareholders with the following alternatives: (a) retaining their shares in
both the Equity Trust and the Utility Fund; (b) selling their shares in the
Utility Fund and retaining the Equity Trust shares; or (c) selling the
Equity Trust's shares and retaining their shares in the Utility Fund. As a
consequence, the Equity Trust's shareholders may more closely align their
investment portfolio with their desired exposure to different segments of
the market. Of course, if a shareholder sells his shares in either the
Utility Fund or the Equity Trust, the shareholder may incur brokerage
commissions and such sale may constitute a taxable event for the
shareholder.
2. Shares of the Utility Fund will be issued at a much lower
transaction cost to investors than is typically the case for a newly
organized closed-end equity fund since there will be no underwriting
discounts or commissions. Of course, the Transaction will not result in an
increase in the aggregate net assets of the Equity Trust and the Utility
Fund.
3. As a concentrated fund, the Utility Fund will afford shareholders
the opportunity to seek the capital appreciation opportunities presented by
a particular market segment. The Utility Fund's policy of concentrating in
the utility industry is a fundamental policy that can be changed only with
approval of the holders of a majority of the Utility Fund's outstanding
voting securities. Of course, as a consequence of its concentration policy,
the Utility Fund's investments may be subject to greater risk and market
fluctuation than a fund that has securities representing a broader range of
alternatives.
4. The Utility Fund will distribute to shareholders substantially all
of its net income monthly and capital gains quarterly or more frequently
pursuant to the Section 19(b) Exemptive Order. The Utility Fund intends to
adopt a fixed dividend policy, at a rate to be determined, that is similar
to the Equity Trust's 10% distribution policy. The dividend policy of the
Utility Fund may be modified from time to time by the Utility Fund's Board
of Directors (which term includes a Board of Trustees). As a regulated
15
<PAGE> 19
investment company under the Code, the Utility Fund will not be subject to
U.S. federal income tax on its investment company taxable income that it
distributes to shareholders, provided that at least 90% of its investment
company taxable income for that taxable year is distributed to its
shareholders. See "Taxation."
The Board of Directors believes that the benefits of the Transaction
outlined above outweigh the costs of the Transaction. For a description of the
costs and expenses relating to the Transaction, see "Transaction Expenses"
below.
FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION
The Equity Trust will contribute cash and securities to the Utility Fund in
exchange for shares of the Utility Fund. Such contribution should not be a
taxable event to either the Equity Trust or the Utility Fund, but the subsequent
distribution of Utility Fund shares to holders of Equity Trust Common Stock may
be a taxable event to the Equity Trust and its shareholders as noted below.
The Equity Trust does not expect that any significant amount of net
unrealized appreciation will exist in the securities transferred to the Utility
Fund. Accordingly, the Transaction is not expected to result in the recognition
of significant taxable gain by the Equity Trust and, except as noted below, is
not expected to increase significantly the total amount of taxable distributions
received by Equity Trust shareholders for this year. In addition, the Board of
Directors of the Equity Trust has considered the tax consequences of the
Transaction to its shareholders and has determined that the benefits of the
Transaction outweigh any adverse tax consequences.
The distribution of Utility Fund shares and cash in lieu of fractional
shares to holders of Equity Trust Common Stock will constitute a dividend to
each such shareholder up to its portion of the Equity Trust's current or
accumulated earnings and profits (but not in excess of the fair market value of
Utility Fund shares and cash received by such shareholder) and generally will be
taxable to such shareholder as a distribution of ordinary income and/or
long-term capital gains. The Equity Trust's current earnings and profits for
1999 (including earnings and profits, if any, from the Transaction) will be
allocated pro rata among all the Equity Trust's distributions during this year.
The Equity Trust intends to contribute to the Utility Fund assets that do not
reflect in the aggregate net unrealized appreciation so as to minimize any
increase in the Equity Trust's earnings and profits as a result of the
Transaction. To the extent that the fair market value of the distributed Utility
Fund shares and cash exceeds the allocated current earnings and profits and any
accumulated earnings and profits from prior years, the excess will first be
treated as a non-taxable return of capital, reducing the Equity Trust Common
Stock holder's tax basis in its Equity Trust shares; thereafter, any
distributions in excess of the Equity Trust Common Stock holder's tax basis will
be taxable as gain realized from a deemed sale of its Equity Trust shares. Each
shareholder will take a fair market value tax basis in the Utility Fund shares
received and will have a new holding period beginning on the date following the
date of the distribution. In addition to the other information necessary to file
tax returns, the Equity Trust will provide shareholders with information as to
the amount of the distribution to be treated as a dividend.
The Utility Fund has received an opinion of counsel to the effect that the
foregoing discussion accurately summarizes the material federal income tax
consequences of the Transaction.
The foregoing discussion is subject to and qualified in its entirety by the
discussion in "Taxation" below.
16
<PAGE> 20
LISTING
Application will be made to list the Utility Fund's shares on the New York
Stock Exchange upon notice of issuance thereof. Although there is no current
trading market for shares of Utility Fund Common Stock, it is expected that
"when issued" trading of such shares will commence on the New York Stock
Exchange four business days prior to the Distribution Record Date.
TRANSACTION EXPENSES
The costs of organizing the Utility Fund and effecting the distribution of
the Utility Fund's shares to the Equity Trust's shareholders, including the fees
and expenses of counsel and accountants and printing, listing and registration
fees, are estimated to be approximately $330,000 and will be borne by the Equity
Trust. In addition, the Utility Fund will incur operating expenses on an ongoing
basis, including legal, auditing, transfer agency and custodian expenses that,
when aggregated with the fees payable by the Equity Trust for similar services
after the distribution, will likely exceed the fees currently payable by the
Equity Trust for those services. It is not expected that the Distribution will
have a significant effect on the annual expenses of the Equity Trust percentage
of its net assets.
MANNER OF EFFECTING THE DISTRIBUTION
If the Transaction is approved by shareholders of the Equity Trust and all
other conditions thereto are satisfied, the Equity Trust's Board of Directors is
expected to declare the Distribution of all the outstanding shares of Utility
Fund Common Stock, payable on the Distribution Date to the holders of record of
the Equity Trust Common Stock as of the close of business on the Distribution
Record Date. The Distribution Record Date and the Distribution Date will be
determined by the Board of Directors of the Equity Trust promptly following
shareholder approval of the Transaction.
The Equity Trust will effect the Distribution on the Distribution Date by
providing for the delivery of shares of Utility Fund Common Stock to the
Distribution Agent for distribution to holders of record of Equity Trust Common
Stock as of the close of business on the Distribution Record Date. The
Distribution will be made on the basis of one share of Utility Fund Common Stock
for every fourteen shares of Equity Trust Common Stock outstanding on the
Distribution Record Date. All such shares of Utility Fund Common Stock will be
fully paid and nonassessable. The holders of Utility Fund Common Stock will have
no preemptive rights to subscribe for additional shares of Utility Fund Common
Stock or other securities of the Utility Fund. See "Description of Common Stock
of the Utility Fund and the Equity Trust -- Utility Fund Common Stock."
Commencing on or about the Distribution Date, certificates representing shares
of Utility Fund Common Stock will be mailed to persons holding Utility Fund
Common Stock on the Distribution Record Date or credited in book-entry form to
accounts registered directly with the transfer agent, with a confirmation
statement mailed to shareholders.
Fractional shares of Utility Fund Common Stock will only be issued as part
of the Distribution to holders of Equity Trust Common Stock who are participants
in the Equity Trust Plan. The Distribution Agent will aggregate the fractional
shares to which holders who are not participants in the Equity Trust Plan would
otherwise be entitled and attempt to sell them in the open market at then
prevailing prices on behalf of such holders, and such holders will receive
instead a cash payment in the amount of their pro rata share of the total sales
proceeds. Thus, a person who holds a number of shares of Equity Trust Common
Stock that is not an even multiple of fourteen and who is not a participant in
the Equity Trust Plan will receive the appropriate
17
<PAGE> 21
number of shares of and a check for his or her pro rata share of the proceeds
from sales of fractional share interests. A holder of fewer than fourteen shares
of Equity Trust Common Stock who is not a participant in the Equity Trust Plan
will receive no shares of Utility Fund Common Stock in the Distribution but will
be entitled only to his or her pro rata share of the proceeds from sales of
fractional share interests. Sales of fractional shares of Utility Fund Common
Stock are expected to be made as soon as practicable after the Distribution Date
and checks representing proceeds of fractional share sales of Utility Fund
Common Stock will be mailed shortly thereafter. The Utility Fund will bear the
cost of commissions incurred in connection with such sales.
In addition, holders of Equity Trust Common Stock may purchase up to 1,000
additional shares of the Utility Fund (acquired through open market purchases at
market prices) through Gabelli & Company, Inc., the broker-dealer affiliate of
the Investment Adviser, without a commission in order to round up their
positions to even round lots.
No holder of Equity Trust Common Stock will be required to pay to the
Equity Trust any cash or other consideration for the shares of Common Stock
received in the Distribution or to surrender or exchange shares of Equity Trust
Common Stock in order to receive shares of Utility Fund Common Stock. The
Distribution will not affect the number of, nor the rights attaching to,
outstanding shares of Equity Trust Common Stock.
Shares of Utility Fund Common Stock distributed in connection with the
Distribution will be freely transferable, except for shares received by persons
who may be deemed to be "affiliates" of the Utility Fund under the 1933 Act.
Persons who may be deemed to be "affiliates" of the Utility Fund after the
Distribution generally include individuals or entities that control, are
controlled by or are under common control with the Utility Fund, and may include
certain officers and directors (which term includes trustees) of the Utility
Fund as well as principal shareholders of the Utility Fund. Persons who are
affiliates of the Utility Fund will be permitted to sell their shares of the
Utility Fund Common Stock only pursuant to an effective registration statement
under the 1933 Act or an exemption from the registration requirements of the
1933 Act, such as the exemptions afforded by Section 4(2) of the 1933 Act and
Rule 144 thereunder.
COSTS ASSOCIATED WITH SALES OF UTILITY FUND COMMON STOCK
If an Equity Trust shareholder sells the shares of Utility Fund Common
Stock that he receives in the Distribution, the shareholder may incur brokerage
commissions and the sale may constitute a taxable event for the shareholder.
ALLOCATION OF INVESTMENT OPPORTUNITIES
After the distribution of shares in the Utility Fund, the Equity Trust and
the Utility Fund and other clients of the Investment Adviser or its affiliates
may purchase or sell the same securities. The Investment Adviser follows a
policy of allocating purchases and sales of the same security among the Equity
Trust and other managed accounts in a manner deemed fair and equitable to all
accounts. See "Portfolio Transactions and Brokerage."
18
<PAGE> 22
INVESTMENT OBJECTIVES AND POLICIES OF
THE UTILITY FUND AND THE EQUITY TRUST
The primary investment objective of the Utility Fund is long-term growth of
capital and income. The primary investment objective of the Equity Trust is
long-term capital appreciation, with income as a secondary objective. Unlike the
Equity Trust, which attempts to achieve its objective by investing primarily in
a portfolio of equity securities of companies in a wide variety of industries,
the Utility Fund will invest primarily in common stock and other securities of
foreign and domestic utility companies involved to a substantial extent in
providing products, services or equipment for the generation or the distribution
of electricity, gas, and water, the provision of telecommunications services or
infrastructure operations, such as airports, toll roads and municipal services.
THE UTILITY FUND'S INVESTMENT OBJECTIVES ARE "FUNDAMENTAL" AND THEREFORE
MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE
UTILITY FUND'S OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE 1940 ACT. EXCEPT
AS EXPRESSLY STATED HEREIN, NONE OF THE UTILITY FUND'S POLICIES ARE FUNDAMENTAL
AND MAY BE MODIFIED BY THE BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL.
THE UTILITY FUND
The Utility Fund will attempt to achieve its objectives by investing, under
normal market conditions, at least 65% of its total assets in common stock and
other securities of foreign and domestic companies in the utility industry. Such
industry is generally associated with electric, gas, gas pipeline, telephone,
telecommunications, water, cable, airport, seaport, toll road, water disposal
and other municipal services companies.
It is anticipated that the Utility Fund will invest primarily in equity
securities of companies in the utility industry. However, the Utility Fund may
also invest in preferred stocks and debt securities of any quality and any
maturity of such companies when it appears that the Utility Fund will be better
able to achieve its investment objective through investments in such securities
or when the Utility Fund is temporarily in a defensive position. The remaining
35% of its assets may be invested in other securities, including stocks, debt
obligations and money market instruments, as well as certain derivative
instruments in the utility industry or other industries. Moreover, should
extraordinary conditions affecting such sectors or securities markets as a whole
warrant, the Utility Fund may temporarily be primarily invested in money market
instruments.
The companies in which the Utility Fund may invest are those that are
engaged to a substantial extent in providing products, services or equipment
anywhere in the world relating to the generation or distribution of electricity,
gas, water and the provision of telecommunications services or infrastructure
operations, such as airports, toll roads and municipal services. Although many
of these companies traditionally pay above average dividends, the Utility Fund
intends to focus on those companies whose securities have the potential to
increase in value. The Utility Fund's performance is expected to reflect
conditions affecting public utility industries. These industries are sensitive
to factors such as interest rates, local and national government regulations,
the price and availability of fuel, environmental protection or energy
conservation regulations, the level of demand for services, and the risks
associated with constructing and operating nuclear power facilities. These
factors may change rapidly. The Utility Fund emphasizes quality in selecting
utility investments, and looks for companies that have proven dividend records
and sound financial structures. Believing that the industry is under
consolidation due to changes in regulation, the Utility Fund intends to position
itself to take advantage of trends in consolidation.
19
<PAGE> 23
Under normal circumstances the Utility Fund may invest in securities of
issuers located in countries other than 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
Utility 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 Utility Fund's investment objectives and policies, see
"Investment Objectives and Policies of the Utility Fund and the Equity Trust"
and "Risk Factors."
THE EQUITY TRUST
The Equity Trust attempts to achieve its objectives by investing primarily
in a portfolio of equity securities consisting of common stock, preferred stock,
convertible or exchangeable securities and warrants and rights to purchase such
securities, selected by the Investment Adviser.
INVESTMENT METHODOLOGY OF THE EQUITY TRUST AND THE UTILITY FUND
In selecting securities for the Equity Trust or the Utility Fund, the
Investment Adviser normally will consider the following factors, among others:
(1) the Investment Adviser's own evaluations of the private market value, cash
flow, earnings per share and other fundamental aspects of the underlying assets
and business of the company; (2) the potential for capital appreciation of the
securities; (3) the interest or dividend income generated by the securities; (4)
the prices of the securities relative to other comparable securities; (5)
whether the securities are entitled to the benefits of call protection or other
protective covenants; (6) the existence of any anti-dilution protections or
guarantees of the security; and (7) the diversification of the portfolio of the
Equity Trust or the Utility Fund as to issuers. The Investment Adviser's
investment philosophy with respect to debt and equity securities seeks to
identify assets that are selling in the public market at a discount to their
private market value, which the Investment Adviser defines as the value informed
purchasers are willing to pay to acquire assets with similar characteristics.
The Investment Adviser also normally evaluates the issuers' free cash flow and
long-term earnings trends. Finally, the Investment Adviser looks for a
catalyst -- something in the company's industry or indigenous to the company or
country itself that will surface additional value.
The investment objectives of long-term growth of capital and income for the
Utility Fund and long-term growth of capital with income as a secondary
objective for the Equity Trust are fundamental policies. The Utility Fund's
policy of concentration in companies in the utility industry is also a
fundamental policy of the Utility Fund. Fundamental policies may not be changed
without the authorization of a Majority Vote (as hereinafter defined) of the
fund's shareholders.
RISK FACTORS
Industry Risks. The Utility Fund will invest a significant portion of its
assets in particular types of companies, and, as a result, the value of the
Utility Fund's shares will be more susceptible to factors affecting those
particular types of companies, including governmental regulation, inflation,
cost increases in fuel and other operating expenses and high interest costs such
as borrowings needed for capital construction programs, including compliance
with environmental regulations. The Equity Trust, on the other hand, has
historically been broadly diversified across industry groups.
20
<PAGE> 24
Various regulatory regimes impose limitations on the percentage of the
shares of a public utility held by an investment for its clients. These
limitations may unfavorably restrict the ability of the Utility Fund to make
certain investments.
In addition, deregulation of the utility industry could have a positive or
negative impact on the Utility Fund's shares. The Investment Adviser believes
that certain utility companies' fundamentals should continue to improve as the
industry undergoes deregulation. Companies may seek to strengthen their
competitive positions through mergers and takeovers. The loosening of the
regulation of government utilities should encourage convergence within the
industry Improving earnings prospects, strong cash flows, share repurchases and
takeovers from industry consolidation may tend to boost share prices. However,
certain companies may be less able to meet the challenge of deregulation as
competition increases and investments in these companies would not be likely to
perform well.
Long-Term Objective. The Equity Trust is intended for investors seeking
long-term growth of capital with income as a secondary objective and the Utility
Fund is intended for investors seeking long-term growth of capital and income.
Neither the Equity Trust nor the Utility Fund is meant to provide a vehicle for
those who wish to play short-term swings in the stock market. An investment in
shares of the Equity Trust and/or shares of the Utility Fund should not be
considered a complete investment program. Each shareholder should take into
account the shareholder's investment objectives as well as the shareholder's
other investments when considering the Transaction.
Non-Diversified Status. The Equity Trust and the Utility Fund each is
classified as a "non-diversified" investment company under the 1940 Act, which
means neither the Equity Trust nor the Utility Fund is limited by the 1940 Act
in the proportion of its assets that may be invested in the securities of a
single issuer. However, the Equity Trust has in the past conducted and the
Equity Trust and the Utility Fund each intends to conduct its operations so as
to qualify as a "regulated investment company" for purposes of the Code, which
will relieve it of any liability for federal income tax to the extent its
earnings are distributed to shareholders. See "Taxation." To so qualify, among
other requirements, the Equity Trust and the Utility Fund each will limit its
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of its total assets will be invested in the
securities of a single issuer, and (ii) at least 50% of the market value of its
assets is represented by cash, securities of other regulated investment
companies, U.S. government securities and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of its assets and not greater than 10% of the outstanding voting securities
of such issuer. The investments of the Equity Trust and the Utility Fund in U.S.
Government Securities are not subject to these limitations. Because the Equity
Trust and the Utility Fund, as non-diversified investment companies, may invest
in the securities of individual issuers to a greater degree than a diversified
investment company, an investment in the Equity Trust or the Utility Fund may,
under certain circumstances, present greater risk to an investor than an
investment in a diversified company.
Market Value and Net Asset Value. The Utility Fund is a newly organized,
non-diversified, closed-end management investment company with no previous
operating history. Shares of closed-end investment companies frequently trade at
a discount from net asset value. The characteristic of shares of a closed-end
fund is a risk separate and distinct from the risk that the Utility Fund's net
asset value may decrease. The Equity Trust cannot predict whether the Utility
Fund's shares will trade at, below or above net asset value. The risk of holding
shares of a closed-end fund that might trade at a discount is more pronounced
for shareholders who wish to sell their shares in a relatively short period of
time after the Distribution because, for those investors, realization of a gain
or loss on their investments is likely to be more dependent upon the
21
<PAGE> 25
existence of a premium or discount than upon portfolio performance. The Utility
Fund's shares are not subject to redemption. Shareholders desiring liquidity
may, subject to applicable securities laws, trade their shares in the Utility
Fund on the New York Stock Exchange 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. For information concerning the trading history of the Equity
Trust's shares, see "Description of Common Stock of the Utility Fund and the
Equity Trust -- Equity Trust Common Stock."
Lower Rated Securities. The Equity Trust and the Utility Fund each may
invest up to 10% of its total assets in fixed-income securities rated in the
lower rating categories of recognized statistical rating agencies, such as
securities rated "CCC" or lower by S&P or "Caa" or lower by Moody's, Inc., or
non-rated securities of comparable quality. These debt securities are
predominantly speculative and involve major risk exposure to adverse conditions
and are often referred to in the financial press as "junk bonds."
Foreign Securities. The Equity Trust may invest up to 35% of its total
assets in foreign securities. There is no limitation on the amount of foreign
securities in which the Utility Fund may invest. Investing in securities of
foreign companies and foreign governments, which generally are denominated in
foreign currencies, may involve certain risk and opportunity considerations not
typically associated with investing in domestic companies and could cause the
Equity Trust or the Utility Fund to be affected favorably or unfavorably by
changes in currency exchange rates and revaluations of currencies. In addition,
less information may be available about foreign companies and foreign
governments than about domestic companies and foreign companies and foreign
governments generally are not subject to uniform accounting, auditing and
financial reporting standards or to other regulatory practices and requirements
comparable to those applicable to domestic companies. Foreign securities and
their markets may not be as liquid as U.S. securities and their markets.
Securities of some foreign companies may involve greater market risk than
securities of U.S. companies. Investment in foreign securities may result in
higher expenses than investing in domestic securities because of the payment of
fixed brokerage commissions on foreign exchanges, which generally are higher
than commissions on U.S. exchanges, and the imposition of transfer taxes or
transaction charges associated with foreign exchanges. Investment in foreign
securities also may be subject to local economic or political risks, including
instability of some foreign governments, the possibility of currency blockage or
the imposition of withholding taxes on dividend or interest payments, and the
potential for expropriation, nationalization or confiscatory taxation and
limitations on the use or removal of funds or other assets. Both the Equity
Trust and the Utility Fund may invest in the securities of foreign issuers in
the form of American Depositary Receipts ("ADRs"), American Depositary Shares
("ADS"), Global Depositary Receipts ("GDRs"), Global Depositary Shares ("GDS"),
and other types of depositary receipts. ADRs evidence ownership of underlying
securities issued by a foreign corporation that have been deposited with a
depositary or custodian bank, typically a U.S. bank or trust company. GDRs are
receipts similar to ADRs that typically trade in countries other than the United
States. While depositary receipts may not necessarily be denominated in the same
currency as the underlying securities, the risks associated with foreign
securities also generally apply to depositary receipts.
Among the foreign securities in which the Equity Trust and the Utility Fund
may invest are those issued by companies located in developing countries, which
are countries in the initial stages of their industrialization cycles. Investing
in the equity and debt markets of developing countries involves exposure to
economic structures that are generally less diverse and less mature, and to
political systems that can be expected to have less stability, than those of
developed countries. The markets of developing countries historically have been
22
<PAGE> 26
more volatile than the markets of the more mature economies of developed
countries, but often have provided higher rates of return to investors. The
Equity Trust and the Utility Fund each may also invest in debt securities of
foreign governments.
For a further description of lower rated securities and the risks
associated therewith, see Appendix A. For a description of the ratings
categories of certain recognized statistical ratings agencies, see Appendix D.
Risks to Holders of Common Stock of Issuance of Senior Securities. A
leveraged capital structure creates certain special risks and potential benefits
not associated with unleveraged funds having similar investment objectives and
policies. Any investment income or gains from the capital represented by
preferred shares or debt which is in excess of the dividends payable thereon
will cause the total return of the common shares to be higher than would
otherwise be the case. Conversely, if the investment performance of the capital
represented by preferred shares or debt fails to cover the dividends payable
thereon, the total return of the common shares would be less or, in the case of
negative returns, would result in higher negative returns to a greater extent
than would otherwise be the case. The requirement to pay dividends on preferred
shares or debt in full before any dividends may be paid on the common shares
means that dividends on the common shares from earnings may be reduced or
eliminated.
The mandatory requirements of the 1940 Act could also pose certain risks
for the holders of Common Stock in the same circumstances. If the asset coverage
for any preferred shares or debt securities falls below the requirements of the
1940 Act, a fund would be unable to pay dividends on its common shares. Although
an inability to pay dividends on the common shares could conceivably cause a
fund to lose its special federal income tax status, which would be materially
adverse to the holders of the common shares, such inability can be avoided
through the use of mandatory redemption requirements designed to ensure that the
fund maintains the necessary asset coverage.
The class voting rights of preferred shares could make it more difficult
for a fund to take certain actions that may, in the future, be proposed by the
Board and/or the holders of Common Stock, such as a merger, exchange of
securities, liquidation or alteration of the rights of a class of the Utility
Fund's securities if such actions would be adverse to the preferred shares, or
such as changing to an open-end investment company or acting inconsistently with
its fundamental investment restrictions or other fundamental policies or seeking
to operate other than as an investment company.
The Equity Trust currently has preferred shares outstanding. Preferred
shares (additional preferred shares in the case of the Equity Trust) will be
issued only if the Board of the Utility Fund or the Equity Trust, as the case
may be, determines in light of all relevant circumstances known to the Board
that to do so would be in the best interests of the fund and its shareholders.
The circumstances that the Board will consider before issuing preferred shares,
include not only the dividend rate on the preferred shares in comparison of the
historical performance of the fund but also such matters as the terms on which
the fund can call the preferred shares, the circumstances in which the
Investment Adviser will earn additional investment advisory fees on the net
assets attributable to the preferred shares and the ability of the fund to meet
the asset coverage tests and other requirements imposed by the rating agencies
for such preferred shares.
The issuance of preferred shares convertible into shares of common stock
might also reduce net income per share of such shares and net asset value per
share of such shares if these securities are converted into common stock. Such
income dilution would occur if the fund could, from the investments made with
the proceeds of the preferred shares, earn an amount per common share issuable
upon conversion greater than the dividend required to be paid on the amount of
preferred stock convertible into one share of common stock.
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<PAGE> 27
Such net asset value dilution would occur if preferred shares were converted at
a time when the net asset value per common share was greater than the conversion
price.
Temporary Investments. During temporary defensive periods and during
inopportune periods to be fully invested the Equity Trust and the Utility Fund
each may invest in U.S. Government Securities and in money market mutual funds
not affiliated with the Investment Adviser that invest in those securities.
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 agency's 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.
Other Investments. The Equity Trust and the Utility Fund each is permitted
to invest in securities subject to reorganization, repurchase agreements,
options and futures contracts, engage in forward currency transactions and enter
into forward commitments for the purchase or sale of securities, including on a
"when issued" or "delayed delivery" basis and the Utility Fund may make short
sales of securities. See Appendix A for a discussion of these investments and
techniques and the risks associated with them.
INVESTMENT RESTRICTIONS
The Equity Trust and the Utility Fund operate under the investment
restrictions described in Appendix B. The same investment restrictions apply to
both the Equity Trust and the Utility Fund except as described in Appendix B.
The investment practices and restrictions of each of the Utility Fund and the
Equity Trust are substantially similar except that, generally, (i) the Utility
Fund has no fundamental policy with respect to purchasing securities of other
investment companies, (ii) the Utility Fund may borrow money, including on
margin, to the extent permitted by applicable law whereas the Equity Trust is
limited to borrowings not exceeding 10% of its total assets to finance
repurchases of its shares and 5% for extraordinary or emergency purposes, (iii)
there is no limitation on the amount of foreign securities in which the Utility
Fund may invest whereas the Equity Trust is limited to investing up to 35% of
its total assets in foreign securities, (iv) the Utility Fund may invest without
limit in illiquid securities whereas the Equity Trust may not invest more than
10% of its total assets in illiquid securities and (v) the Utility Fund may,
whereas the Equity Trust may not, make short sales of securities. For a more
detailed description of the differences between the investment practices and
restrictions of the Utility Fund and the Equity Trust, see "Appendix A --
Investment Practices" and "Appendix B -- Investment Restrictions."
MANAGEMENT OF UTILITY FUND AND THE EQUITY TRUST
DIRECTORS AND OFFICERS
Overall responsibility for management and supervision of each of the Equity
Trust and the Utility Fund rests with its Board of Directors. The Board of each
fund approves all significant agreements between the fund and the companies that
furnish the fund with services, including agreements with the Investment
Adviser, the
24
<PAGE> 28
fund's custodian and the fund's transfer agent. The day-to-day operations of
each of the Equity Trust and the Utility Fund are delegated to the Investment
Adviser.
With the exception of Anthony J. Colavita, Vincent D. Enright and John D.
Gabelli, who will serve as directors of the Utility Fund, the same persons who
currently serve as directors of the Equity Trust are also directors of the
Utility Fund. The names and business addresses of the directors of the Equity
Trust and of the Utility Fund are set forth in the following table, together
with their positions, their principal occupations during the past five years,
their positions with certain other organizations and companies and, in the case
of directors of the Equity Trust, the number and percentage of shares of the
Equity Trust beneficially owned, directly or indirectly, on the Record Date.
Directors who are "interested persons" of the Equity Trust and the Utility Fund,
as defined by the 1940 Act, are indicated by an asterisk. Directors who are
solely elected by the holders of the Equity Trust's Cumulative Preferred Stock
are indicated by a "+".
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE
OF EQUITY TRUST SHARES
BENEFICIALLY OWNED**
DIRECTLY OR INDIRECTLY ON
POSITION WITH THE EQUITY TRUST MARCH 17, 1999
NAME (AGE) AND AND THE UTILITY FUND AND ---------------------------
BUSINESS ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS COMMON PREFERRED
---------------- ------------------------------------------- --------- ---------
<S> <C> <C> <C>
DR. THOMAS E. BRATTER (60) Director of the Equity Trust and the Utility Fund. 10,802*** 0
One Corporate Center Director, President and Founder, The John Dewey
Rye, NY 10580-1434 Academy (residential college preparatory therapeutic
high school). (10)
BILL CALLAGHAN (54) Director of the Equity Trust and the Utility Fund. 959*** 0
One Corporate Center President of Bill Callaghan Associates Ltd., an
Rye, NY 10580-1434 executive search company. (3)(10)
+FELIX J. CHRISTIANA (73) Director of the Equity Trust and the Utility Fund. 36,415*** 1,000***
Anthony J. Colavita Retired; formerly Senior Vice President of Dollar Dry
One Corporate Center Dock Savings Bank. (1)(2)(3)(4)(5)(8)(10)(13)
Rye, NY 10580-1434
ANTHONY J. COLAVITA (62) Director of the Utility Fund and President and - -
One Corporate Center Attorney at law in the law firm of Anthony J.
Rye, NY 10580-1434 Colavita, P.C. since 1961.
(1)(2)(3)(4)(6)(7)(8)(9)(11)(12)(13)(14)
+JAMES P. CONN (61) Director of the Equity Trust and the Utility Fund. 23,251*** 4,000***
One Corporate Center Former Managing Director and Chief Investment Officer
Rye, New York 10580-1434 of Financial Security Assurance Holdings Ltd.,
1992-1998; Director of Meditrust Corporation (real
estate investment trust); Director of First Republic
Bank. (1)(2)(10)(14)
VINCENT D. ENRIGHT (55) Director of the Utility Fund. Former Senior Vice - -
One Corporate Center President and Chief Financial Officer of KeySpan
Rye, NY 10580-1434 Energy Corporation through 1998
FRANK J. FAHRENKOPF, JR. Director of the Equity Trust and the Utility Fund. 0 0
(59) President and CEO of the American Gaming Association
One Corporate Center since June 1995; Partner of Hogan & Hartson; Chairman
Rye, New York 10508-1434 of International Trade Practice Group. Co-Chairman of
the Commission on Presidential Debates; former
Chairman of the Republican National Committee.
</TABLE>
25
<PAGE> 29
<TABLE>
<CAPTION>
NUMBER AND PERCENTAGE
OF EQUITY TRUST SHARES
BENEFICIALLY OWNED**
DIRECTLY OR INDIRECTLY ON
POSITION WITH THE EQUITY TRUST MARCH 17, 1999
NAME (AGE) AND AND THE UTILITY FUND AND ---------------------------
BUSINESS ADDRESS PRINCIPAL OCCUPATION DURING PAST FIVE YEARS COMMON PREFERRED
---------------- ------------------------------------------- --------- ---------
<S> <C> <C> <C>
*MARIO J. GABELLI (56) Chairman of the Board, President and Chief Investment 1,188,018 0
One Corporate Center Officer of the Equity Trust and the Utility Fund. (1.12%)
Rye, New York 10580-1434 Chairman of the Board, Chief Executive Officer of
Gabelli Asset Management Inc. and Chief Investment
Officer of the Investment Adviser and GAMCO Investors,
Inc; Chairman of the Board and Chief Executive Officer
of Lynch corporation (diversified manufacturing and
communications services company); Director of
East/West Communications Inc.
(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)
*JOHN D. GABELLI (53) Director of the Utility Fund and Senior Vice President - -
One Corporate Center of Gabelli & Company, Inc. and Director of Gabelli
Rye, New York 10580-1434 Advisers, Inc. (1)(2)(5)(8)
*KARL OTTO POHL (69) Director of the Equity Trust and the Utility Fund. 0 0
One Corporate Center Member of the Shareholder Committee of Sal. Oppenheim
Rye, New York 10580-1434 Jr. & Cie (private investment bank); Board Member of
TrizecHahn Corporation (real estate company) and
Zurich Versicherungs-Gesellschaft (Insurance company);
Director of Gabelli Asset Management Inc. Former
President of the Deutsche Bundesbank and Chairman of
its Central Bank Council from 1980 through 1991.
(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)(13)(14)
ANTHONY R. PUSTORINO (73) Director of the Equity Trust and the Utility Fund. 9,617*** 0
One Corporate Center Certified Public Accountant, Professor of Accounting,
Rye, New York 10580-1434 Pace University, since 1965.
(1)(2)(3)(4)(5)(10)(11)(13)
*SALVATORE J. ZIZZA (53) Director of the Equity Trust and the Utility Fund; 31,102*** 0
One Corporate Center Adviser to The Gabelli Growth Fund; Chairman of The
Rye, New York 10580-1434 Bethlehem Corp.; Board Member of Hollis Eden
Pharmaceuticals; Former Executive Vice President of
FMG Group (a healthcare provider); Former President
and Chief Executive Officer of the Lehigh Group Inc.
(an electrical supply wholesaler); Former Chairman of
the Executive Committee and Director of Binnings
Building Products, Inc.; (1)(4)(10)
DIRECTORS AND OFFICERS AS A GROUP 1,302,548 5,000***
(1.23%)
</TABLE>
- ------------
* "Interested person" of the Equity Trust and the Utility Fund, as defined in
the 1940 Act. Mr. Mario Gabelli is an "interested person" of each fund as a
result of his employment as an officer of the fund and the Investment Adviser.
Messrs. John and Mario Gabelli are registered representatives of a broker-dealer
that is controlled by the parent company of the Investment Adviser. Mr. Pohl is
a director of the parent company of the Investment Adviser. Mr. Zizza may be an
"interested person" as a result of his previous association with Binnings
Building Products, Inc., an entity which was controlled by GLI, Inc., an
affiliate of the parent company of the Investment Adviser.
** For this purpose "beneficial ownership" is defined under Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"). The
information as to beneficial ownership is based upon information furnished to
the Equity Trust by the Directors.
*** Less than 1%.
(1) Trustee of The Gabelli Asset Fund.
(2) Trustee of The Gabelli Growth Fund.
(3) Director of The Gabelli Value Fund Inc.
(4) Director of The Gabelli Convertible Securities Fund, Inc.
(5) Director of Gabelli Equity Series Funds, Inc.
(6) Trustee of The Gabelli Money Market Funds.
(7) Director of Gabelli Investor Funds, Inc.
(8) Director of Gabelli Global Series Funds, Inc.
(9) Director of Gabelli Gold Fund, Inc.
(10) Director of The Gabelli Global Multimedia Trust Inc.
(11) Director of Gabelli Capital Series Funds, Inc.
(12) Director of Gabelli International Growth Fund, Inc.
(13) Director of the Treasurer's Fund, Inc.
(14) Trustee of the Gabelli Westwood Funds
26
<PAGE> 30
Bruce N. Alpert, Vice President and Treasurer of the Equity Trust and the
Utility Fund, Marc S. Diagonale, Vice President of the Equity Trust and James E.
McKee, Secretary of the Equity Trust and the Utility Fund, are the only
executive officers of the Equity Trust and the Utility Fund not included in the
listing of directors above. Mr. Alpert is 47 years old and has served as an
officer of the Equity Trust since August, 1988 and as an officer of the Utility
Fund since its inception in February, 1999. He currently serves as Vice
President and Chief Operating Officer of the Investment Adviser, as an officer
of each registered investment company managed by the Investment Adviser, and as
an officer and a director of Gabelli Advisers, Inc. Mr. Diagonale is 32 years
old and served as a client services representative for Gabelli Company, Inc.
from March, 1993 until he became Assistant Vice President of the Equity Trust in
May, 1994. He was appointed Vice President of the Equity Trust on February,
1995. Mr. McKee is 36 years old and has served as Secretary of the Equity Trust
since August, 1995 and as Secretary of the Utility Fund since February, 1999. He
has served as Vice President, General Counsel and Secretary of the Investment
Adviser since 1995 and as Vice President and General Counsel of GAMCO Investors,
Inc. since 1993. Mr. McKee also serves as Secretary for each registered
investment company managed by the Investment Adviser and Gabelli Advisers, Inc.
The business address of each of these officers is One Corporate Center, Rye, New
York 10580-1434.
The Board of Directors of the Equity Trust and the Utility Fund are each
divided into three classes, with a class having a term of three years except as
described below. Each year the term of office of one class of directors of the
Equity Trust and one class of directors of the Utility Fund will expire.
However, to ensure that the term of a class of the Utility Fund's directors
expires each year, one class of the Utility Fund's directors will serve an
initial one-year term and three-year terms thereafter and another class of its
directors will serve an initial two-year term and three-year terms thereafter.
The terms of Messrs. Callaghan, Fahrenkopf and Zizza as directors of the Equity
Trust expire in 1999 (See Proposal 2) and as directors of the Utility Fund in
2002; the terms of Messrs. Conn, Pohl and Pustorino as directors of the Equity
Trust and of the Utility Fund expire in 2000; the terms of Messrs. Bratter,
Christiana and Mario Gabelli as directors of the Equity Trust and the Utility
Fund expire in 2001. The terms of Messrs. John Gabelli, Enright and Colavita as
directors of the Utility Fund expire in 2000, 2001 and 2002, respectively. See
"Description of Common Stock of the Utility Fund and the Equity Trust -- Certain
Provisions of the Governing Documents of the Equity Trust and the Utility Fund."
NON-RESIDENT DIRECTORS
Karl Otto Pohl, a director of the Equity Trust and of the Utility Fund,
resides outside the United States and substantially all of his assets are
located outside the United States. Mr. Pohl has not authorized an agent in the
United States to receive notice of service of process. Consequently, it may be
difficult for shareholders to effect service of process upon him within the
United States or to realize against him upon judgments of courts in the United
States predicated upon civil liability under the United States federal
securities laws. In addition, it is not certain that civil liabilities
predicated upon the U.S. federal securities laws on which a valid judgment of a
court in the United States is obtained would be enforceable in German courts.
REMUNERATION OF DIRECTORS AND OFFICERS
The Equity Trust pays each director not affiliated with the Investment
Adviser or its affiliates, a fee of $12,000 per year plus $1,500 per meeting
attended, together with the director's actual out-of-pocket expenses
27
<PAGE> 31
relating to attendance at meetings. The aggregate remuneration paid by the
Equity Trust to such directors during the fiscal year ended December 31, 1998,
amounted to $156,500. For a description of the remuneration received by each
director of the Equity Trust individually and the total remuneration received by
each such director from funds in the Gabelli complex for the fiscal year ended
December 31, 1998, see "Proposal 2 -- Compensation Table."
The Utility Fund will pay each director who is not affiliated with the
Investment Adviser or its affiliates a fee of $3,000 per year plus $500 per
meeting attended, together with each director's actual out-of-pocket expenses
relating to attendance at such meetings.
Since July 15, 1994, Marc S. Diagonale, Vice President of the Equity Trust,
has performed shareholder services on behalf of the Equity Trust. He currently
receives a salary from the Equity Trust at the annual rate of $115,000. David
Schachter will perform similar services on behalf of the Utility Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The Investment Adviser, together with other affiliated investment advisers,
has assets under management totaling $16.3 billion as of December 31, 1998.
Gabelli Funds, LLC, a New York limited liability company, with offices at One
Corporate Center, Rye, New York 10580-1434, is investment adviser (the
"Investment Adviser") to the Equity Trust and to the Utility Fund. The
Investment Adviser was organized in 1999 and is the successor to Gabelli Funds,
Inc. which was organized in 1980. As of December 31, 1998, the Investment
Adviser acted as registered investment advisers to 13 management investment
companies with aggregate net assets of $7.2 billion. GAMCO Investors, Inc., an
affiliate of the Investment Adviser, acted as investment adviser for
individuals, pension trusts, profit sharing trusts and endowments, having
aggregate assets of $7.1 billion under management as of December 31, 1998.
Gabelli Advisers, Inc. acted as investment adviser to the Gabelli Westwood Funds
with assets under management of approximately $400 million as of December 31,
1998. Gabelli Securities, Inc. acted as investment adviser to certain
alternative investment products, consisting primarily of risk arbitrage and
merchant banking limited partnerships and offshore companies, with assets under
management of approximately $146 million as of December 31, 1998. Gabelli Fixed
Income LLC, an affiliate of the Investment Adviser, acted as investment adviser
for the Treasurer's Funds and separate accounts having aggregate assets under
management of $1.5 billion. The Investment Adviser is a wholly-owned subsidiary
of Gabelli Asset Management Inc., a New York corporation, whose Class A Common
Stock is traded on the New York Stock Exchange under the symbol "GBL." Mr. Mario
J. Gabelli may be deemed a "controlling person" of the Investment Adviser on the
basis of his ownership of a majority of the stock of the Gabelli Group Capital
Partners, Inc., which owns 80% of the capital stock of Gabelli Asset Management
Inc. There is no contract of employment between the Investment Adviser and Mr.
Gabelli, although, Mr. Gabelli has entered into a three year employment
agreement with Gabelli Asset Management Inc., the parent company of the
Investment Adviser. 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.
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INVESTMENT ADVISORY AGREEMENTS
The terms of Investment Advisory Agreement between the Utility Fund and the
Investment Adviser, which becomes effective on the consummation of the
Transaction, are identical to those of the Investment Advisory Agreement between
the Equity Trust and the Investment Adviser (each such agreement, an "Advisory
Agreement").
Under the terms of each Advisory Agreement, the Investment Adviser manages
the portfolio of the fund in accordance with its stated investment objective and
policies, makes investment decisions for the fund, places orders to purchase and
sell securities on behalf of the fund and manages its other business and
affairs, all subject to the supervision and direction of the fund's Board of
Directors. In addition, under each Advisory Agreement, the Investment Adviser
oversees the administration of all aspects of the fund's business and affairs
and provides, or arranges for others to provide, at the Investment Adviser's
expense, certain enumerated services, including maintaining the fund's books and
records, preparing reports to the fund's shareholders and supervising the
calculation of the net asset value of its shares. All expenses of computing the
net asset value of the Utility Fund or the Equity Trust, 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 respective
Advisory Agreement unless the Adviser voluntarily assumes responsibility for
such expense.
Each Advisory Agreement combines investment advisory and administrative
responsibilities in one agreement. For services rendered by the Investment
Adviser on behalf of each fund under the fund's Advisory Agreement, the fund
pays the Investment Adviser a fee computed daily and paid monthly at the annual
rate of 1.00% of the average weekly net assets of the fund.
The Advisory Agreements provide 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 Equity Trust or the Utility Fund.
As part of the Advisory Agreements, the Equity Trust and the Utility Fund each
has agreed that the name "Gabelli" is the Investment Adviser's property, and
that in the event the Investment Adviser ceases to act as an investment adviser
to the fund, the fund will change its name to one not including "Gabelli."
Pursuant to its terms, each Advisory Agreement will remain in effect with
respect to the Equity Trust or the Utility Fund, as the case may be, until the
second anniversary of shareholder approval of such Agreement, and from year to
year thereafter if approved annually (i) by the fund's Board of Directors or by
the holders of a majority of its outstanding voting securities 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. Each 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 Majority Vote.
PORTFOLIO MANAGEMENT
Mario J. Gabelli, Chief Investment Officer of the Equity Trust, has managed
the Equity Trust's assets since its inception and, as Chief Investment Officer
of the Utility Fund, will be the leader of a team which will manage the Utility
Fund's assets. For a list of Mr. Gabelli's other affiliations, see "Management
of the Utility Fund and the Equity Trust -- Directors and Officers."
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ADMINISTRATOR
The Investment Adviser has entered into an Administration Contract with
First Data Investor Services Group Inc. (the "Administrator") pursuant to which
the Administrator provides certain administrative services necessary for the
Equity Trust's 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 the Administrator, the Investment
Adviser pays a prorated monthly fee at the annual rate of .10% of the first $1.0
billion of the aggregate average net assets of the Equity Trust and all other
funds advised by the Investment Adviser and administered by the Administrator,
.08% of the aggregate average net assets exceeding $1.0 billion, .03% of the
aggregate average net assets in excess of $1.5 billion and .02% of the aggregate
net assets in excess of $3.0 billion (with a minium annual fee of $30,000 per
portfolio), which, together with the services to be rendered, is subject to
negotiation between the parties. The Administrator has its principal office at
101 Federal Street, Boston MA 02110.
The Investment Adviser will enter into an Administration Agreement with the
Administrator pursuant to which the Administrator will provide certain
administrative services necessary for the Utility Fund's operations but which do
not concern the investment advisory and portfolio management services provided
by the Investment Adviser. These services include the preparation and
distribution of materials for meetings of the Utility Fund's Board of Directors,
compliance testing of the Utility Fund's activities and assistance in the
preparation of proxy statements, reports to shareholders and other
documentation. For such services and the related expenses borne by the
Administrator, the Investment Adviser will pay the Administrator a monthly fee
at the annual rate of .10% of the average daily net assets of the Utility Fund
(with a minimum annual fee of $30,000 and subject to reduction to (i) .08% of
the aggregate assets exceeding $1 billion, (ii) .03% of the aggregate assets
managed by the Investment Adviser and administered by the Administrator in
excess of $1.5 billion and (iii) .02% of such assets in excess of $3.0 billion)
which, together with the services to be rendered, is subject to negotiation
between the parties and both parties retain the right unilaterally to terminate
the arrangement on 60 days' written notice.
PAYMENT OF EXPENSES
For purposes of the calculation of the fees payable to the Investment
Adviser by the Equity Trust and the Utility Fund, respectively, average weekly
net assets of each of the Equity Trust and the Utility Fund are determined at
the end of each month on the basis of its average net assets for each week
during the month. The assets for each weekly period are determined by averaging
the net assets at the end of a week with the net assets at the end of the prior
week.
The Investment Adviser will be obligated to pay expenses associated with
providing the services contemplated by the respective Advisory Agreements
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 Equity Trust and the Utility Fund, as well
as the fees of all directors of the Equity Trust and of the Utility Fund who are
affiliated persons of the Investment Adviser. The Equity Trust and the Utility
Fund each pays all other expenses incurred in its operation including, among
other things, expenses for legal and independent accountants' services, costs of
printing proxies, stock certificates and shareholder reports, charges of the
custodian, any subcustodian and transfer and dividend paying agent, expenses in
connection with its respective Automatic Dividend Reinvestment and Voluntary
Cash Purchase Plan, Securities and Exchange Commission ("SEC") fees, fees and
expenses of unaffiliated directors, accounting and pricing costs, membership
fees in trade associations, fidelity bond coverage for its officers and
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<PAGE> 34
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 Equity Trust or the Utility Fund, as the case may be.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Equity Trust's practices and policies with respect to portfolio
transactions and brokerage are described under "Additional
Information -- Portfolio Transactions and Brokerage." The Utility Fund will
follow those same practices and policies in its operations.
PORTFOLIO TURNOVER
The Equity Trust's portfolio turnover rates for the fiscal years ended
December 31, 1998 and December 31, 1997 were 39.8% and 39.2%, respectively. It
is not expected that the annual portfolio turnover rate for the Utility Fund
will exceed 100%. Portfolio turnover rate is calculated by dividing the lesser
of an investment company's annual sales or purchases of portfolio securities by
the monthly average value of securities in its portfolio during the year,
excluding portfolio securities the maturities of which at the time of
acquisition were one year or less. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expense than a lower rate, which
expense must be borne by the Equity Trust and its shareholders or by the Utility
Fund and its shareholders, as applicable.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Equity Trust's shares is computed, and that of
the Utility Fund's shares will be computed, based on the market value of the
securities it holds and determined daily as of the close of regular trading on
the New York Stock Exchange.
Portfolio instruments of the Utility Fund which are traded in a market
subject to governmental regulation on which trades are reported
contemporaneously will be valued at the last sale price on the principal market
for such instruments as of the close of regular trading on the day the
instruments are being valued, or lacking any sales, at the average of the bid
and asked price on the principal market for such instruments on the most recent
date on which bid and asked prices are available. Other readily marketable
assets will be valued at the average of quotations provided by dealers
maintaining an active market in such instruments. Securities and other assets
for which market quotations are not readily available will be valued at fair
value as determined in good faith by or under the direction of the Board of
Directors. Short-term investments that mature in more than 60 days are valued at
the highest bid price obtained from a dealer maintaining an active market in
that security or on the basis of prices obtained from a pricing service approved
as reliable by the Board of Directors. Short-term investments that mature in 60
days or fewer are valued at amortized cost, unless the Board of Directors
determines that such valuation does not constitute fair value. The Equity Trust
uses similar but not identical valuation procedures. The Equity Trust and the
Utility Fund may employ recognized pricing services from time to time for the
purpose of pricing portfolio instruments.
Net asset value per share is calculated by dividing the value of the assets
held plus any cash or other assets minus all liabilities, including accrued
expenses, by the total number of shares outstanding at such time.
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DISTRIBUTIONS; AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
THE EQUITY TRUST'S 10% DISTRIBUTION POLICY
The Equity Trust's policy is to make quarterly distributions of $0.27 per
share at the end of each of the first three calendar quarters of each year. The
Equity Trust's distribution in December for each calendar year is an adjusting
distribution (equal to the sum of 2.5% of the net asset value of the Equity
Trust as of the last day of the four preceding calendar quarters less the
aggregate distributions of $0.81 per share made for the most recent three
calendar quarters) in order to meet the Equity Trust's 10% distribution policy
as well as the Code's distribution requirements. Prior to May 13, 1998, the
quarterly distribution in each of the first three quarters of each year was
$0.25 per share. The Equity Trust reserves the right, but does not currently
intend, to retain for reinvestment and pay federal income taxes on its net
capital gain, if any. If, for any calendar year, the total distributions exceed
net investment income and net realized capital gains, the excess will generally
be treated as a tax-free return of capital (up to the amount of the
shareholder's tax basis in his shares). The amount treated as a tax-free return
of capital will reduce a shareholder's adjusted basis in his shares, thereby
increasing his potential gain or reducing his potential loss on the sale of his
shares. Such excess, however, will be treated as ordinary dividend income up to
the amount of the Equity Trust's current and accumulated earnings and profits.
THE DISTRIBUTION TO SHAREHOLDERS OF UTILITY TRUST SHARES WILL NOT AFFECT
THE EQUITY TRUST'S 10% DISTRIBUTION POLICY.
In the event the Equity Trust distributes amounts in excess of its net
investment income and net realized capital gains, such distributions will
decrease the Equity Trust's total assets and, therefore, have the likely effect
of increasing the Equity Trust's expense ratio. In addition, in order to make
such distributions, the Equity Trust may have to sell a portion of its
investment portfolio at a time when independent investment judgment might not
dictate such action.
THE UTILITY FUND'S DISTRIBUTION POLICY
While the Equity Trust distributes dividends quarterly under its 10%
distribution policy, the Utility Fund will distribute to shareholders
substantially all of its net investment income monthly and capital gains
quarterly or more frequently pursuant to the Section 19(b) Exemptive Order and
any amendments thereto. The Utility Fund intends to adopt a fixed dividend
policy, at a rate to be determined, that is similar to the Equity Trust's 10%
distribution policy. The dividend policy of the Utility Fund may be modified
from time to time by the Utility Fund's Board of Directors. As a regulated
investment company under the Code, the Utility Fund will not be subjected to
U.S. federal income tax on its investment company taxable income that it
distributes to shareholders, provided that at least 90% of its investment
company taxable income for that taxable year is distributed to its shareholders.
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
Under the Equity Trust Plan and the substantially similar Automatic
Dividend Reinvestment and Voluntary Cash Purchase Plan adopted by the Utility
Fund (each, the "Plan"), a shareholder whose Common Stock is registered in his
own name will have all distributions reinvested automatically by State Street
Bank and Trust Company ("State Street"), which is agent under the Plan, unless
the shareholder elects to receive cash. Distributions with respect to shares
registered in the name of a broker-dealer or other nominee (that is,
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<PAGE> 36
in "street name") will be reinvested by the broker or nominee in additional
shares under the Plan, unless the service is not provided by the broker or
nominee or the shareholder elects to receive distributions in cash. For a
further description of the Plan, see Appendix C.
TAXATION
REGULATED INVESTMENT COMPANY TAX STATUS
The Equity Trust has elected and qualified to be treated as a regulated
investment company under the Code, and the Utility Fund intends to elect and
qualify to be treated as a regulated investment company under the Code.
Accordingly, if each of the Equity Trust and the Utility Fund continues to
qualify and distributes each year, in a timely manner, at least 90% of its
"investment company taxable income" as defined in the Code (in general, taxable
income excluding long-term capital gains), each such entity will not be subject
to federal income tax on the portion of the taxable income and gain it
distributes to its shareholders. The Equity Trust and the Utility Fund, however,
each will be subject to tax at regular corporate rates on any undistributed
ordinary income or net capital gain. In addition, if the Equity Trust and the
Utility Fund each distributes, in a timely manner, (or treats as "deemed
distributed" as described below) 98% of its net capital gain income for each one
year period ending on October 31 (or December 31, if so elected by the Equity
Trust or the Utility Fund), and distributes 98% of its investment company
taxable income for each calendar year (as well as any income not distributed in
prior years), it will not be subject to the 4% nondeductible federal excise tax
on certain undistributed income. The Equity Trust and the Utility Fund each
intends to make such distributions as are necessary to avoid the application of
this excise tax.
In order to continue to qualify as a regulated investment company for
federal income tax purposes each of the Equity Trust and the Utility Fund, among
other requirements, must (a) derive at least 90% of its gross income from
interest, dividends, payments with respect to securities loans, and gains from
the sale or other disposition of stock or securities or foreign currencies or
other income (including, but not limited to, gain from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (b) diversify its holdings so that at the end
of each quarter of its taxable year (i) at least 50% of the market value of its
assets is represented by cash, securities of other regulated investment
companies, U.S. government securities and other securities provided that such
other securities do not represent more than 5% of its total assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its assets is invested in securities (other than U.S. government
securities or securities of other regulated investment companies ) of any one
issuer or of any two or more issuers that it controls and that are determined to
be engaged in the same or similar trades or businesses or related trades or
businesses.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
For any period in which the Equity Trust or the Utility Fund qualifies as a
regulated investment company, distributions to shareholders of ordinary income
and any distributions of net short-term capital gains generally will be taxable
to shareholders as ordinary income (and not as short-term capital gains) to the
extent such distribution is out of Equity Trust's or Utility Fund's current and
accumulated earning and profits (as the case may be), whether paid in cash or
reinvested in the Equity Trust shares or the Utility Fund shares. Distributions
by either the Equity Trust or the Utility Fund of net long-term capital gains
(designated by the Equity Trust or the Utility Fund as capital gain dividends)
will be taxable to shareholders as long-term capital gains regardless of the
shareholder's holding period in its shares.
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Dividends received by a corporate shareholder from the Equity Trust or the
Utility Fund will generally qualify for the federal dividends-received deduction
for domestic corporate shareholders to the extent the dividends do not exceed
such shareholder's pro rata portion of the aggregate amount of dividends
received by the Equity Trust or the Utility Fund, as the case may be, from
qualified domestic corporations for the taxable year. Capital gain dividends
will not qualify for a dividend-received deduction. Furthermore, if securities
are held by the Equity Trust or the Utility Fund (i) for less than 46 days (90
days in the case of certain preferred stock), (ii) are "debt-financed"
(generally, acquired with borrowed funds), or (iii) are subject to certain forms
of hedges, the portion of the dividends, paid by the Equity Trust or the Utility
Fund to their respective shareholders, that corresponds to the dividends paid
with respect to such securities will not be eligible for the corporate
dividends-received deduction.
To the extent that the Equity Trust or the Utility Fund retains any net
long-term capital gains, the Equity Trust or the Utility Fund may designate such
gains as "deemed distributions" and pay a tax thereon for the benefit of their
respective shareholders. In that event, the shareholders report their share of
Equity Trust's or Utility Fund's (as the case may be) retained realized capital
gains on their individual tax returns as if it had been received, and report a
credit for the tax paid thereon by Equity Trust or Utility Fund. The amount of
the deemed distribution net of such tax is then added to the shareholder's cost
basis for his shares. Qualified pension and profit sharing funds, certain trusts
and other organizations or persons not subject to federal income tax on capital
gains and certain non-resident alien individuals and foreign corporations would
be entitled to a refund of their pro rata share of such taxes paid by the Equity
Trust or by the Utility Fund upon filing appropriate returns or claims for
refund with the proper tax authorities.
DISPOSITION OF SHARES
As a general rule, selling shareholders will recognize gain or loss on a
sale of Equity Trust shares or Utility Fund shares in an amount equal to the
difference between their adjusted tax basis in the shares and the amount
received. If the shares are held as a capital asset, the gain or loss will be
capital gain or loss. Gain or loss on a sale of Equity Trust shares or Utility
Fund shares held for more than one year will be a long-term capital gain or
loss, and gain or loss on a sale of Equity Trust shares or Utility Fund shares
held for one year or less will be a short-term capital gain or loss. If,
however, a shareholder receives a distribution taxable as long-term capital gain
with respect to shares of the Equity Trust or shares of the Utility Fund and
such shares are sold within 6 months of their acquisition, any loss on the sale
will be treated as a long-term capital loss to the extent of such prior capital
gain distributions with respect to such shares.
BACKUP WITHHOLDING
If a shareholder fails to furnish a correct taxpayer identification number,
fails to report fully dividend or interest income, or fails to certify that it
has provided a correct taxpayer identification number and is not subject to
backup withholding, then the shareholder may be subject to a 31% backup
withholding tax with respect to all taxable dividends and distributions. An
individual's taxpayer identification number is his social security number. The
31% backup withholding tax is not an additional tax and may be credited against
a taxpayer's regular federal income tax liability.
GENERAL
The Equity Trust and the Utility Fund will mail to each of their respective
shareholders, as promptly as possible after the end of each taxable year, a
notice detailing, on a per share and per distribution basis, the
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amounts includible in such shareholder's taxable income for such year as net
investment income, as net realized capital gains (if applicable), as a dividend
eligible for the corporate dividend received deduction (if applicable), as
"deemed" distributions of capital gains and as taxes paid by the Equity Trust
and the Utility Fund with respect to such distribution.
OTHER TAX CONSEQUENCES
See "The Transaction -- Federal Income Tax Consequences of the Transaction"
for a discussion of certain federal income tax consequences of the Transaction.
The federal income tax discussion set forth above concerning the federal
income tax consequences of an investment in the Equity Trust or the Utility Fund
and the Transaction is for general information only. The foregoing discussion is
based upon the Code, judicial decisions and administrative regulations, rulings
and practices, all of which are subject to change and which, if changed, may be
applied retroactively to the Equity Trust, the Utility Fund, their respective
shareholders and/or their respective assets. No rulings have been sought from
the Internal Revenue Service with respect to any of the tax matters discussed
above. Furthermore, shareholders should be aware that any tax opinions rendered
to the Equity Trust or the Utility Fund in connection with the Transaction are
not binding on the Internal Revenue Service or any court, are based on certain
assumptions and representations as to relevant factual matters and are subject
to qualifications customary in opinions of similar import. Dividend and capital
gain distributions may be subject to additional state, local and foreign taxes
depending on each shareholder's particular situation. Shareholders are urged to
consult their own tax advisors regarding the particular tax consequences to them
of an investment in the Equity Trust or the Utility Fund. Non-U.S. shareholders
are urged to consult their own tax advisors concerning the applicability of
United States withholding tax.
PRINCIPAL SHAREHOLDERS
THE EQUITY TRUST
As of March 17, 1999, the current Directors and officers of the Equity
Trust, as a group, beneficially owned 1,302,548 shares of the Equity Trust,
representing 1.23% of the Equity Trust's outstanding shares, including 667,828
shares owned individually by Mario J. Gabelli and 520,190 shares owned by the
Investment Adviser and its affiliates of which Mr. Gabelli is deemed to be a
direct or indirect beneficial owner. For other information concerning the
ownership of the Equity Trust's shares, see "General Voting Information."
THE UTILITY FUND
As of the date of this Proxy Statement/Prospectus, 10,000 shares of Utility
Fund Common Stock are outstanding, all of which are owned beneficially and of
record by the Equity Trust. These shares were issued in respect of the Equity
Trust's contribution of $100,000 of initial capital to the Utility Fund. The
Equity Trust has represented that these shares were purchased for investment
purposes only and that they will be sold only pursuant to a registration
statement under the 1933 Act or an applicable exemption therefrom.
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CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
Boston Safe Deposit and Trust Company ("Boston Safe") located at One Boston
Place, Boston, Massachusetts 02108, serves as the custodian of the Equity
Trust's assets pursuant to a custody agreement. Boston Safe is a wholly owned
subsidiary of The Boston Company, Inc., which in turn is an indirect wholly
owned subsidiary of Mellon Bank Corporation. Under the custody agreement, Boston
Safe holds the Equity Trust's assets in compliance with the 1940 Act. For its
custody services, Boston Safe receives a monthly fee based upon the average
weekly value of the total assets of the Equity Trust, plus certain charges for
securities transactions.
Boston Safe will serve as the custodian of the Utility Fund's assets
pursuant to a custody agreement. Under the custody agreement, Boston Safe will
hold the Utility Fund's assets in compliance with the 1940 Act. For its custody
services, Boston Safe will receive a monthly fee based upon the average value of
the total assets of the Utility Fund, plus certain charges for securities
transactions.
Rules adopted under the 1940 Act permit the Equity Trust and the Utility
Fund each to maintain its foreign securities in the custody of certain eligible
foreign banks and securities depositories. Pursuant to those rules, any foreign
securities in the portfolio of the Equity Trust or the Utility Fund may be held
by subcustodians approved by the directors of the Equity Trust or of the Utility
Fund, as the case may be, in accordance with the regulations of the SEC.
Selection of any such subcustodians will be made by the directors of the Equity
Trust or of the Utility Fund, as the case may be, following a consideration of a
number of factors, including but not limited to the reliability and financial
stability of the institution, the ability of the institution to perform capably
custodial services for the Equity Trust or the Utility Fund, as applicable, the
reputation of the institution in its national market, the political and economic
stability of the country or countries in which the subcustodians are located,
and risks of potential nationalization or expropriation of assets of the Equity
Trust or the Utility Fund, as applicable.
State Street serves as the Equity Trust's dividend disbursing agent, as
agent under the Equity Trust Plan and as transfer agent and registrar for shares
of the Equity Trust Common Stock. State Street also will serve as the Utility
Fund's dividend disbursing agent, as agent of the Utility Fund Plan and as
transfer agent and registrar for shares of Utility Fund Common Stock.
DESCRIPTION OF CAPITAL STOCK OF THE UTILITY FUND AND THE EQUITY TRUST
UTILITY FUND COMMON STOCK
The Utility Fund was formed as a business trust under the laws of the State
of Delaware on February 25, 1999 and is authorized to issue an unlimited number
of shares of beneficial interest, par value $.001 per share, in multiple classes
and series thereof as determined from time to time by the Board of Directors,
who also have the authority without shareholder approval to establish the
designations, powers, preferences, voting, conversion and other rights,
limitations, qualifications and terms and conditions of each such class and
series. The Board of Directors of the Utility Fund has authorized issuance of an
unlimited number of shares of common stock. Each share within a particular class
or series thereof has equal voting, dividend, distribution and liquidation
rights. When issued, the shares of Utility Fund Common Stock distributed in the
Transaction will be fully paid and non-assessable. Shares of the Utility Fund
Common Stock are not redeemable and have no preemptive, conversion or cumulative
voting rights.
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See "Pro Forma Statement of Assets and Liabilities" for certain information
with respect to the Utility Fund Common Stock following the Distribution.
EQUITY TRUST COMMON STOCK AND PREFERRED STOCK
The Equity Trust, which was incorporated under the laws of the State of
Maryland on May 20, 1986, is authorized to issue 192,000,000 shares of Common
Stock, par value $.001 per share and 8,000,000 shares of Cumulative Preferred
Stock, par value $0.001. Each share within a class has equal voting, dividend,
distribution and liquidation rights. The shares outstanding are fully paid and
non-assessable. Shares of Equity Trust Common Stock are not redeemable and have
no preemptive, conversion or cumulative voting rights. Shares of Equity Trust
Cumulative Preferred Stock have a liquidation preference of $25 per share, pay a
fixed dividend at the cumulative rate of $1.8125 per year and are redeemable by
the Equity Trust at its option at any time after June 9, 2003. Prior to June 9,
2003, the shares of the Equity Trust Cumulative Preferred Stock are redeemable
at the option of the fund but only to the extent to permit the Equity Trust to
continue to qualify for tax treatment as a regulated investment company.
Set forth below is information with respect to the Common Stock and
Cumulative Preferred Stock as of December 31, 1998.
<TABLE>
<CAPTION>
AMOUNT HELD BY EQUITY TRUST AMOUNT
AMOUNT AUTHORIZED OR FOR ITS OWN ACCOUNT OUTSTANDING
----------------- --------------------------- -----------
<S> <C> <C>
192,000,000 common shares............... 0 shares 106,116,347
8,000,000 preferred shares.............. 0 shares 5,400,000
</TABLE>
The Equity Trust Common Stock and the Cumulative Preferred Stock are listed
and traded on the New York Stock Exchange under the symbols "GAB" and "GABPr",
respectively.
The net asset value per share of a share of Equity Trust Common Stock at
the close of business on March 29, 1999 was $11.74 and the last reported sales
price of a share of Equity Trust Common Stock on the New York Stock Exchange on
such date was $11.875.
REPURCHASE OF SHARES
The Equity Trust and the Utility Fund are closed-end, management investment
companies and as such their respective shareholders do not, and will not, have
the right to redeem their shares. The Equity Trust and the Utility Fund each,
however, may repurchase its shares from time to time as and when it deems such a
repurchase advisable. Such repurchases will be made when the Equity Trust's
shares or the Utility Fund's shares, as the case may be, are trading at a
discount of 10% or more (or such other percentage as the Board of Directors of
the Equity Trust or the Utility Fund may determine from time to time) from the
net asset value of the shares. Pursuant to the 1940 Act, the Equity Trust and
the Utility Fund each may repurchase its shares on a securities exchange
(provided that the Equity Trust or the Utility Fund, as the case may be, has
informed its shareholders within the preceding six months of its intention to
repurchase such shares) or as otherwise permitted in accordance with Rule 23c-1
under the 1940 Act. Under that Rule, certain conditions must be met regarding,
among other things, distribution of net income for the preceding fiscal year,
identity of the seller, price paid, brokerage commissions, prior notice to
shareholders of an intention to purchase shares and purchasing in a manner and
on a basis which does not discriminate unfairly against the other shareholders
through their interest in the Equity Trust or the Utility Fund, as the case may
be.
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Shares repurchased by the Equity Trust or the Utility Fund will constitute
authorized and unissued shares available for reissuance. The Equity Trust and
the Utility Fund each may incur debt, in an amount not exceeding in the case of
the Equity Trust 10% of its total assets, to finance share repurchase
transactions. See "Investment Restrictions." Any gain in the value of the
investments of the Equity Trust or the Utility Fund, as the case may be, during
the term of the borrowing that exceeds the interest paid on the amount borrowed
would cause the net asset value of its shares to increase more rapidly than in
the absence of borrowing. Conversely, any decline in the value of the
investments of the Equity Trust or the Utility Fund, as the case may be, would
cause the net asset value of its shares to decrease more rapidly than in the
absence of borrowing. Borrowing money thus creates an opportunity for greater
capital gain but at the same time increases exposure to capital risk.
When the Equity Trust or the Utility Fund repurchases its shares for a
price below their net asset value, the net asset value of those shares that
remain outstanding will be enhanced, but this does not necessarily mean that the
market price of those outstanding shares will be affected, either positively or
negatively. Further, interest on borrowings to finance share repurchase
transactions will reduce the net income of the Equity Trust or the Utility Fund,
as applicable.
Neither the Equity Trust nor the Utility Fund currently has an established
tender offer program or established schedule for considering tender offers. No
assurance can be given that the Board of Directors of either the Equity Trust or
the Utility Fund will decide to undertake any such tender offers in the future,
or, if undertaken, that they will reduce any market discount.
RIGHTS OFFERINGS OF THE EQUITY TRUST
In October 1991, September 1992, July 1993 and October 1995, the Equity
Trust issued transferable rights to shareholders entitling the holders thereof
to subscribe for an aggregate of 7,882,562 shares, 9,563,615 shares, 11,654,962
shares and 14,931,381 shares respectively, of the Equity Trust Common Stock at
the rate of one share of common stock for each six rights held and entitling
shareholders to subscribe for any shares not acquired by exercise of primary
subscription rights. The subscription price in each of the offerings was $8.00
per share, representing a discount to the prevailing net asset value of the
Equity Trust Common Stock at the time of the offer of approximately 27.5% in the
1991 offering, 22.5% in the 1992 offering, 29.9% in the 1993 offering and 24.4%
in the 1995 offering and a discount from market value of approximately 22.9% on
average for each offering. Each of the rights offerings was substantially
oversubscribed, resulting in the issuance of the maximum number of shares being
offered. The Equity Trust raised $63,060,496 in the 1991 offering, $76,508,920
in the 1992 offering, $93,239,696 in the 1993 offering and $119,451,048 in the
1995 offering while subscriptions remitted to the Equity Trust totaled more than
$136,000,000, $164,000,000, $176,000,000 and $199,000,000 respectively. As a
percentage of the shares outstanding on the record dates for the offering,
holders of more than 91% of the outstanding shares participated in the 1991
offering, more than 92% participated in the 1992 offering, more than 93%
participated in the 1993 offering and more than 88% participated in the 1995
offering.
The Equity Trust and the Utility Fund each may, in the future and at its
discretion, choose to make rights offerings from time to time for a number of
shares and on terms which may or may not be similar to any of the Equity Trust's
previous offers. Any such future rights offering will be made in accordance with
the 1940 Act. Under the laws of Maryland, the state in which the Equity Trust
was incorporated, and Delaware, the state in which the Utility Fund was
organized, respectively, the Board of Directors of each fund is authorized to
approve rights offerings without obtaining shareholder approval. The staff of
the SEC has interpreted the 1940
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<PAGE> 42
Act as not requiring shareholder approval of a transferable rights offering at a
price below the then current net asset value so long as certain conditions are
met, including (i) a good faith determination by a fund's Board of Directors
that such offering would result in a net benefit to existing shareholders; (ii)
the offering fully protects shareholders' preemptive rights and does not
discriminate among shareholders (except for the possible effect of not offering
fractional rights); (iii) management uses its best efforts to ensure an adequate
trading market in the rights for use by shareholders who do not exercise such
rights; and (iv) the ratio of a transferable rights offering does not exceed one
new share for each three rights held. The Equity Trust's shareholders approved
rights offerings generally at the 1993 Annual Meeting of Shareholders.
THE MULTIMEDIA TRUST
On November 15, 1994, the Equity Trust effected a transaction substantially
similar to the Transaction by contributing $64,382,764 of its assets in exchange
for 8,587,702 shares of The Gabelli Global Multimedia Trust Inc. (the
"Multimedia Trust"), a newly formed non-diversified closed-end registered
investment company (the "Prior Transaction"). The Multimedia Trust's investment
objective is long-term growth of capital and, under normal market conditions,
the Multimedia Trust seeks to achieve its investment objective by investing at
least 65% of its total assets in common stock and other securities of foreign
and domestic companies in the telecommunications, media, publishing and
entertainment industries. The Prior Transaction has proven successful. From its
inception on November 15, 1994 through December 31, 1998, the Multimedia Trust
has had an annualized rate of return of 21.6% and an average annualized expense
ratio of 1.89% based on total assets.
CERTAIN PROVISIONS OF THE GOVERNING DOCUMENTS OF THE EQUITY TRUST AND THE
UTILITY FUND
The Equity Trust and the Utility Fund each presently has provisions in its
Articles of Incorporation or Declaration of Trust, respectively, and By-Laws
(together, in each case, its "Governing Documents") which could have the effect
of limiting, in each case, (i) the ability of other entities or persons to
acquire control of the fund, (ii) the fund's freedom to engage in certain
transactions, or (iii) the ability of the fund's directors or shareholders to
amend the Governing Documents or effectuate changes in the fund's management.
These provisions of the Governing Documents of the Equity Trust and the Utility
Fund may be regarded as "anti-takeover" provisions. The Board of Directors of
the Equity Trust and the Utility Fund are each divided into three classes, each
having a term of no more than three years (except, to ensure that the term of a
class of the Utility Fund's directors expires each year, one class of the
Utility Fund's directors will serve an initial one-year term and three-year
terms thereafter and another class of its directors will serve an initial
two-year term and three-year terms thereafter). 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 a minimum of two years to change a
majority of the Board of Directors. Further, one director in each of two of the
classes of the Equity Trust is elected solely by the holders of preferred stock
issued by the Equity Trust and cannot be removed or replaced by the holders of
the Common Stock. The same feature will apply to the Utility Fund if it issues
preferred stock. Such system of electing directors may have the effect of
maintaining the continuity of management and, thus, make it more difficult for
the shareholders of that fund to change the majority of directors. See
"Management of the Equity Trust and the Utility Fund -- Directors and Officers."
A director of either the Equity Trust or the Utility Fund may be removed with or
without cause by a vote of, in the case of the Equity Trust, a majority, and, in
the case of the Utility Fund, 66 2/3% of the votes entitled to be cast for the
election of such director. In addition, the affirmative vote of the holders of
66 2/3% of the outstanding voting shares of the Equity Trust and the separate
vote of a majority (as used in the 1940 Act) of its outstanding preferred stock
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<PAGE> 43
are required to authorize its conversion from a closed-end to an open-end
investment company. With respect to the Utility Fund, this voting requirement
also applies to mergers into or a sale of all or substantially all of its assets
to an open-end fund (or other closed-end fund that does not have minority
shareholder protections against conversion to open-end status) and is 75% of its
outstanding voting shares and, if the Utility Fund issues preferred stock, the
same separate class vote of the preferred stock as is required for the Equity
Trust. In addition, the 66 2/3% vote (80% in the case of the Utility Fund) of
the holders of the outstanding voting securities of each class of the fund,
voting as a class is generally required in order to authorize any of the
following transactions:
(i) merger or consolidation of the fund with or into any other
corporation;
(ii) issuance of any securities of the fund to any person or entity
for cash;
(iii) sale, lease or exchange of all or any substantial part of the
assets of the fund to any entity or person (except assets having an
aggregate fair market value of less than $1,000,000); or
(iv) sale, lease or exchange to the fund, in exchange for securities
of the fund, of any assets of any entity or person (except assets having an
aggregate fair market value of less than $1,000,000);
(v) in the case of the Utility Fund, the purchase of the fund's Common
Stock by the fund from any other person or entity;
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 Equity Trust or the Utility Fund, as the case may be. However, such vote
would not be required when, under certain conditions, the Board of Directors
approves the transaction. Reference is made to the Governing Documents of the
Equity Trust and the Utility Fund, on file with the SEC, for the full text of
these provisions. See "Further Information."
The provisions of the Governing Documents described above could have the
effect of depriving the owners of shares in either 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 either the Equity Trust or the Utility
Fund in a tender offer or similar transaction. The overall effect of these
provisions is to render more difficult the accomplishment of a merger or the
assumption of control by a principal shareholder.
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY
The Governing Documents of each of the Equity Trust and the Utility Fund
provide that the fund will indemnify its directors and officers and may
indemnify its employees or agents against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
positions with the fund, to the fullest extent permitted by law. However,
nothing in the Governing Documents of either the Equity Trust or the Utility
Fund protects or indemnifies a director, officer, employee or agent of such fund
against any liability to which such person would otherwise be subject in the
event of such person's willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her position.
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<PAGE> 44
1940 ACT RESTRICTIONS ON ISSUANCE OF SENIOR SECURITIES
The 1940 Act permits registered closed-end investment companies such as the
Equity Trust and the Utility Fund to issue senior securities under certain
circumstances as summarized below.
In the first instance, such issuance must be consistent with the
fundamental investment restrictions and any other fundamental restrictions of
the investment company. Moreover, if such class of senior securities represents
an indebtedness ("debt securities"), then the following requirements must be
met:
(a) such debt securities must have an asset coverage (meaning the
ratio which the value of the total assets of the investment company, less
all liabilities and indebtedness not represented by senior securities,
bears to the aggregate amount of debt securities) of at least 300%
immediately after issuance or sale of such debt securities:
(b) provision must be made to prohibit the declaration of any dividend
(other than a stock dividend) or the declaration of any other distribution
upon any class of the capital stock of the investment company, or the
purchase of any such capital stock by the company, unless, after giving
effect to such action, such debt securities have an asset coverage of at
least 300% (200% in the case of dividends on any preferred stock); and
(c) provision must be made either that:
(i) if on the last business day of each of twelve consecutive
calendar months such debt securities have an asset coverage of less than
100%, the holders of such securities voting as a class will be entitled
to elect at least a majority of the members of the board of directors of
the investment company, until such debt securities have an asset
coverage of at least 100% on the last business day of three consecutive
calendar months, or
(ii) if on the last business day of each of twenty-four consecutive
calendar months such debt securities have an asset coverage of less than
100%, an event of default shall be deemed to have occurred.
If the senior securities are preferred stock ("preferred shares"), then the
following requirements must be met:
(a) such shares must have an asset coverage (meaning the ratio which
the value of the total assets of the investment company, less all
liabilities and indebtedness not represented by senior securities, bears to
the aggregate amount of debt securities of such company plus the
involuntary liquidation preference of the preferred shares of such company)
of at least 200% immediately after such issuance or sale;
(b) provision must be made to prohibit the declaration of any dividend
(other than a dividend payable in common shares) or the declaration of any
other distribution upon the common shares of the company, or the purchase
of any such common shares, unless, after giving effect to such action, such
preferred shares has an asset coverage of at least 200%;
(c) provision must be made to entitle the holders of such preferred
shares, voting as a class, to elect at least two directors at all times,
and, subject to the prior rights, if any, of the holders of any debt
securities outstanding, to elect a majority of the directors if at any time
dividends on such preferred shares are unpaid in an amount equal to two
full years' dividends on such securities, and to continue to be so
represented until all dividends in arrears are paid or otherwise provided
for;
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<PAGE> 45
(d) provision must be made requiring approval by the vote of a
majority (i.e., the lesser of a majority of the outstanding shares or
two-thirds of a quorum of such shares) of such preferred shares, voting as
a class, of any plan of reorganization adversely affecting such preferred
shares; of any action to change the classification of the investment
company from a non-diversified to a diversified company; or of any action
to change its classification from a closed-end investment company to an
open-end investment company; of any action to borrow money, issue senior
securities, underwrite securities of other persons, purchase or sell real
estate or commodities or make loans to other persons that is not authorized
in such company's registration statement under the 1940 Act, of any
deviation from fundamental investment restrictions or other fundamental
policies of such company or of any change in the nature of the business of
such company so as to cease to be an investment company; and
(e) such class of shares must have complete priority over any other
class as to distribution of assets and payment of dividends, which
dividends must be cumulative.
The 1940 Act limits registered closed-end investment companies such as the
Equity Trust and the Utility Fund to one class of debt securities and to one
class of preferred shares, except that (i) any such class may be issued in one
or more series so long as no such series has a preference or priority over any
other series upon the distribution of the assets of such company or in respect
of the payment of interest or dividends and (ii) promissory notes or other
evidences of indebtedness issued in consideration of any loan, extension, or
renewal thereof, made by a bank or other person and privately arranged, and not
intended to be publicly distributed, are not deemed to be a separate class of
debt securities. In addition, debt securities do not include any promissory note
or other evidence of indebtedness of temporary purposed only and in an amount
not exceeding 5% of the value of the total assets of the investment company at
the time.
REPORTS TO SHAREHOLDERS
The Equity Trust sends, and the Utility Fund will send, unaudited
semi-annual and audited annual reports to their respective shareholders,
including a list of investments held.
EXPERTS
PricewaterhouseCoopers LLP, independent accountants, 1177 Avenue of the
Americas, New York, New York 10036, serve as auditors of the Equity Trust and
the Utility Fund and annually renders an opinion on the financial statements of
each fund.
The statement of assets and liabilities of the Utility Fund, as of March
29, 1999, contained in this Proxy Statement/Prospectus has been included herein
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, and upon the authority of such firm as experts in auditing and
accounting. The statement of assets and liabilities of the Equity Trust, as of
December 31, 1998, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended and the selected per share date and ratios for each of the
five years in the period then ended included in the Annual Report have been
audited by PricewaterhouseCoopers LLP, independent accountants, as indicated in
their report with respect thereto, and are incorporated by reference in reliance
upon such report and upon the authority of such firm as experts in accounting
and auditing.
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<PAGE> 46
FURTHER INFORMATION
The disclosure concerning the Transaction in this Proxy
Statement/Prospectus does not contain all of the information included in the
Registration Statement filed with the SEC under the 1933 Act, with respect to
the shares of Utility Fund Common Stock to be distributed in the Transaction,
certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The Registration Statement, including exhibits filed
therewith, may be examined at the office of the SEC in Washington, D.C.
Statements contained in this Proxy Statement/Prospectus as to the contents
of any contract or other document referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, of which this Proxy
Statement/ Prospectus forms a part, each such statement being qualified in all
respects by such reference.
FINANCIAL STATEMENTS
The Annual Report of the Equity Trust either accompanies this Proxy
Statement/Prospectus or was previously sent to the person to whom this Proxy
Statement/Prospectus is being sent, is incorporated herein by reference with
respect to all information other than the information set forth in the
respective Letters to Shareholders included therein. The Equity Trust will
furnish, without charge, a copy of the Annual Report, upon request to the Equity
Trust at One Corporate Center, Rye, New York 10580-1434, telephone (914)
921-5070.
REQUIRED VOTE FOR THE TRANSACTION
Approval of the Transaction by the shareholders is to be determined by the
vote of a majority of the outstanding shares of the Equity Trust (holders of
Common Stock and holders of Cumulative Preferred Stock voting together as a
single class). Under the 1940 Act, this means that to be approved, the
Transaction must receive the affirmative vote of the lesser of (1) a majority of
the outstanding shares of the Equity Trust, or (2) 66 2/3% or more of the shares
of the Equity Trust represented at the Meeting if more than 50% of the
outstanding shares of the Equity Trust are present or represented by proxy at
the Meeting ("Majority Vote"). While the Equity Trust has no present intention
of making any additional distributions in the form of registered investment
companies other than the distribution of the Utility Fund as described above,
the Board of Directors of the Equity Trust in the future could authorize such
additional distributions. The Board of Directors of the Equity Trust may elect
to delay or not to proceed with the Transaction notwithstanding its approval by
shareholders if for any reason the Board of Directors determines that such
action would be in the best interests of shareholders.
THE BOARD OF DIRECTORS, INCLUDING THE "NON-INTERESTED" DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE TRANSACTION.
PROPOSAL 2: TO ELECT THREE DIRECTORS OF THE TRUST
At the meeting, three of the nine directors of the Equity Trust are to be
elected to hold office for a period of three years and until their successors
are elected and qualified (Messrs. Callaghan, Fahrenkopf and Zizza). The Board
of Directors is divided into three classes. Each year the term of office of one
class will expire. Unless authority is withheld, it is the intention of the
persons named in the proxy to vote the proxy FOR the election of the nominees
named below. Each nominee has indicated that he will serve if elected, but if
any
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<PAGE> 47
nominee should be unable to serve, the proxy will be voted for any other person
determined by the persons named in the proxy in accordance with their judgment.
Each of the directors of the Equity Trust has served in that capacity since the
July 14, 1986 organizational meeting of the Trust with the exception of (i) Mr.
Conn who became a director of the Equity Trust on May 15, 1989, (ii) Mr. Pohl,
who became a director of the Equity Trust on February 19, 1992 and (iii) Mr.
Fahrenkopf, who became a director of the Equity Trust on May 11, 1998.
Under the Equity Trust's Articles of Incorporation and the 1940 Act,
holders of the Equity Trust's Cumulative Preferred Stock, voting as a separate
class, are entitled to elect two directors, and holders of the Equity Trust's
Common Stock and Cumulative Preferred Stock, voting as a single class, are
entitled to elect the remaining directors, subject to the provisions of the 1940
Act and the Equity Trust's Articles of Incorporation and By-Laws. The holders of
the Equity Trust's Cumulative Preferred Stock would elect the minimum number of
additional directors that would represent a majority of the directors in the
event that dividends on the Equity Trust's Cumulative Preferred Stock are in
arrears for two full years. Felix J. Christiana and James P. Conn are currently
the directors elected solely by the holders of the Equity Trust's Cumulative
Preferred Stock.
The Equity Trust pays each director not affiliated with the Investment
Adviser or its affiliates, a fee of $12,000 per year plus $1,500 per meeting
attended in person and by telephone, together with the director's actual
out-of-pocket expenses relating to attendance at meetings. The aggregate
remuneration paid by the Equity Trust to such directors during the fiscal year
ended December 31, 1998, amounted to $156,500.
During the year ended December 31, 1998, the directors of the Equity Trust
met six times, two of which were special meetings of directors. Each director
then serving in such capacity, except Mr. Pohl, attended at least 75% of the
meetings of directors and of any Committee of which he is a member. Mr.
Fahrenkopf attended 80% of the meetings during the period from May 11, 1998
(when he became a director) through December 31, 1998. Messrs. Christiana and
Pustorino, who are not "interested persons" of the Equity Trust as defined in
the 1940 Act, serve on the Equity Trust's Audit Committee. The Audit Committee
is responsible for recommending the selection of the Equity Trust's independent
accountants and reviewing all audit as well as non-audit services performed for
the Equity Trust. During the fiscal year ended December 31, 1998, the Audit
Committee met twice.
The directors serving on the Equity Trust's Nominating Committee are
Messrs. Christiana (Chairman) and Zizza. The Nominating Committee is responsible
for 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. Such recommendations should be
forwarded to the Secretary of the Equity Trust. The Nominating Committee did not
meet during the fiscal year ended December 31, 1998. The Equity Trust does not
have a standing compensation committee.
The following table sets forth certain information regarding the
compensation of the Equity Trust's directors and officers. Mr. Diagonale is
employed by the Equity Trust and is not employed by the Investment Adviser.
Officers of the Equity Trust who are employed by the Investment Adviser receive
no compensation or expense reimbursement from the Equity Trust.
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<PAGE> 48
COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM THE EQUITY
COMPENSATION TRUST AND FUND
NAME OF PERSON FROM THE COMPLEX PAID TO
AND POSITION EQUITY TRUST DIRECTORS*
-------------- ------------ ------------------
<S> <C> <C>
MARIO J. GABELLI $ 0 $ 0(13)
Chairman of the Board
DR. THOMAS E. BRATTER $ 22,000 $ 27,500(2)
Director
BILL CALLAGHAN $ 22,000 $ 41,500(3)
Director
FELIX J. CHRISTIANA $ 21,500 $ 88,500(9)
Director
JAMES P. CONN $ 20,500 $ 46,000(5)
Director
FRANK J. FAHRENKOPF, JR. $ 8,000 $ 8,000(1)
Director
KARL OTTO POHL $ 19,000 $102,466(15)
Director
ANTHONY R. PUSTORINO $ 22,000 $100,500(9)
Director
SALVATORE J. ZIZZA $ 21,500 $ 51,000(4)
Director
MARC S. DIAGONALE $115,000 $115,000(1)
Vice President
</TABLE>
- ------------
* Represents the total compensation paid to such persons during the calendar
year ended December 31, 1998 by investment companies (including the Equity
Trust) or portfolios thereof from which such person receives compensation that
are considered part of the same fund complex as the Equity Trust because they
have common or affiliated investment advisers. The number in parenthesis
represents the number of such investment companies and portfolios.
For additional information regarding the nominees for election to the Board
of Directors of the Equity Trust, directors whose terms of office continue
beyond the 1999 Annual Meeting and the officers and directors of the Equity
Trust as a group, see "Management of the Utility Fund and the Equity Trust."
REQUIRED VOTE
Election of each director of the Equity Trust requires the affirmative vote
of the holders of a plurality of the applicable classes of shares of the Equity
Trust represented at the Meeting if a quorum is present (holders of Common Stock
and holders of Cumulative Preferred Stock voting together as a single class for
each of the three directors).
THE BOARD OF DIRECTORS, INCLUDING THE "NON-INTERESTED" DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO ELECT THE RESPECTIVE
DIRECTORS OF THE EQUITY TRUST.
PROPOSAL 3: TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE
INDEPENDENT ACCOUNTANTS OF THE EQUITY TRUST FOR THE YEAR ENDING DECEMBER 31,
1999
Upon recommendation by the Audit Committee, PricewaterhouseCoopers LLP,
1177 Avenue of the Americas, New York, New York 10036, has been selected by the
vote of a majority of those directors who are not "interested persons" of the
Equity Trust to serve as independent accountants for the Equity Trust's fiscal
year ending December 31, 1999. PricewaterhouseCoopers LLP has advised the Equity
Trust that it is independent with respect to the Equity Trust in accordance with
the applicable requirements of the American Institute of Certified Public
Accountants and the SEC.
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<PAGE> 49
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Meeting to answer appropriate questions and will be given the opportunity to
make a statement if they so desire.
REQUIRED VOTE
Ratification of the selection of PricewaterhouseCoopers LLP as independent
accountants requires the affirmative vote of a majority of the votes cast by
holders of shares of the Equity Trust (holders of Common Stock and holders of
Cumulative Preferred Stock voting together as a single class) represented at the
Meeting if a quorum is present.
THE BOARD OF DIRECTORS, INCLUDING THE "NON-INTERESTED" DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO RATIFY THE SELECTION
OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS OF THE EQUITY TRUST
FOR THE YEAR ENDING DECEMBER 31, 1999.
ADDITIONAL INFORMATION
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the Equity
Trust, the Investment Adviser is responsible for placing purchase and sales
orders and the allocation of brokerage on behalf of the Equity Trust.
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 Equity Trust. However, Gabelli & Company, Inc. ("Gabelli
& Company") may execute transactions in the over-the-counter markets on an
agency basis and receive a stated commission therefrom. To the extent consistent
with applicable provisions of the 1940 Act and the rules and exemptions adopted
by the SEC thereunder, as well as other regulatory requirements, the Equity
Trust's Board of Directors have determined that portfolio transactions may be
executed through Gabelli & Company and its broker-dealer affiliates if, in the
judgment of the Investment Adviser, the use of those broker-dealers is likely to
result in price and execution at least as favorable as those of other qualified
broker-dealers, and if, in particular transactions, those broker-dealers charge
the Equity Trust a rate consistent with that charged to comparable unaffiliated
customers in similar transactions. The Equity Trust 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 Equity Trust, taking into account such
factors as price, size of order, difficulty of execution and operational
facilities of the firm involved and the firm's risk in positioning a block of
securities. While the Investment Adviser generally seeks reasonably competitive
commission rates, the Equity Trust does not necessarily pay the lowest
commission available.
For the fiscal years ended December 31, 1996, December 31, 1997 and
December 31, 1998, the Equity Trust paid a total of $439,741, $846,195 and
$829,777, respectively, in brokerage commissions of which Gabelli & Company
received $119,897, $170,831 and $362,787, respectively, and of which Keeley
Investment Corp. received $2,100, $8,005 and $2,215, respectively. The amount
received by Gabelli & Company, Inc. and Keeley Investment Corp. from the Equity
Trust in respect of brokerage commissions for the fiscal year ended December 31,
1998 represented 43.7% and 0.3%, respectively, of the total of all brokerage
commissions paid during such fiscal year. Such commissions were paid with
respect to 48.4% and 0.3%, respectively, of the total dollar value of all
transactions involving the payment of brokerage commissions effected during the
fiscal year.
Subject to obtaining the best price and execution, brokers who provided
supplemental research, market and statistical information to the Investment
Adviser or its affiliates may receive orders for transactions by the
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<PAGE> 50
Equity Trust. The term "research, market and statistical information" includes
advice as to the value of securities, and advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, and furnishing analyses and reports
concerning issues, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. Information so received will
be in addition to and not in lieu of the services required to be performed by
the Investment Adviser under its 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
Equity Trust, and not all such information is used by the Investment Adviser in
connection with the Equity Trust. 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 Equity Trust.
Although investment decisions for the Equity Trust are made independently
from those of the other accounts managed by the Investment Adviser and its
affiliates, investments of the kind made by the Equity Trust may also be made by
those other accounts. When the same securities are purchased for or sold by the
Equity Trust and any of such other accounts, it is the policy of the Investment
Adviser and its affiliates to allocate such purchases and sales in the manner
deemed fair and equitable to all of the accounts, including the Equity Trust.
BROKER NON-VOTES AND ABSTENTIONS
If a proxy which is properly executed and returned accompanied by
instructions to withhold authority to vote represents a broker "non-vote" (that
is, a proxy from a broker or nominee indicating that such person has not
received instructions from the beneficial owner or other person entitled to vote
shares on a particular matter with respect to which the broker or nominee does
not have discretionary power), is unmarked or marked with an abstention
(collectively, "abstentions"), the shares represented thereby will be considered
to be present at the meeting for purposes of determining the existence of a
quorum for the transaction of business. Under applicable law, abstentions do not
constitute a vote "for" or "against" a matter and will be disregarded in
determining the "votes cast" on an issue.
Shareholders of the Equity Trust will be informed of the voting results of
the Meeting in the Equity Trust's Semi-Annual Report dated June 30, 1999.
SHAREHOLDER PROPOSALS
All proposals by shareholders of the Equity Trust, which are intended to be
presented at the Equity Trust's next Annual Meeting of Shareholders to be held
in 2000, must be received by the Trust for consideration for inclusion in the
Equity Trust's proxy statement and proxy relating to that meeting no later than
November 22, 1999.
OTHER MATTERS TO COME BEFORE THE MEETING
The directors of the Equity Trust do not intend to present any other
business at the Meeting, nor are they aware that any shareholder intends to do
so. If, however, any other matters are properly brought before the Meeting, the
persons named in the accompanying form of proxy will vote thereon in accordance
with their judgment.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees of
The Gabelli Utility Fund
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of The Gabelli
Utility Fund (the "Fund") at March 29, 1999 in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Fund's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this financial
statement in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
March 30, 1999
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THE GABELLI UTILITY FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF MARCH 29, 1999
<TABLE>
<S> <C>
ASSETS
Cash................................................... $100,000
--------
Total Assets...................................... 100,000
--------
LIABILITIES
Total Liabilities................................. 0
--------
Net Assets, applicable to 10,000 shares of Common Stock,
$.001 par value, issued and outstanding (authorized
unlimited shares)......................................... $100,000
========
Net Asset Value per share ($100,000 divided by 10,000 shares
of Common Stock outstanding).............................. $ 10.00
========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
- ---------------
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
(1) The Gabelli Utility Fund (the "Utility Fund") was organized on February 25,
1999 under the laws of the State of Delaware and will be registered under
the Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The Utility Fund has had no
operations other than organizational matters and the issuance and sale and
offering of 10,000 shares of Common Stock on March 29, 1999 to The Gabelli
Equity Trust Inc. (the "Equity Trust"). Organizational expenses estimated at
$330,000 will be borne by the Equity Trust.
(2) The Gabelli Utility Fund intends to enter into an Investment Advisory
Agreement with Gabelli Funds, LLC (the "Investment Adviser") pursuant to
which the Investment Adviser will be responsible for providing investment
management and advisory services to the Utility Fund. For its services, the
Investment Adviser will receive a fee computed weekly and payable monthly at
an annual rate of 1.00% of the Utility Fund's average weekly net assets.
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<PAGE> 53
APPENDIX A
INVESTMENT PRACTICES
Securities Subject to Reorganization. The Equity Trust and the Utility
Fund each may invest without limit in securities for which a tender or exchange
offer has been made or announced and in securities of companies for which a
merger, consolidation, liquidation or reorganization proposal has been announced
if, in the judgment of the Investment Adviser, there is a reasonable prospect of
high total return significantly greater than the brokerage and other transaction
expenses involved.
In general, securities which are the subject of such an offer or proposal
sell at a premium to their historic market price immediately prior to the
announcement of the offer or may also discount what the stated or appraised
value of the security would be if the contemplated transaction were approved or
consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by shareholders of the
prospective portfolio company as a result of the contemplated transaction; or
fails adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Investment Adviser which must appraise not only the value of the
issuer and its component businesses as well as the assets or securities to be
received as a result of the contemplated transaction but also the financial
resources and business motivation of the offeror and the dynamics and business
climate when the offer or proposal is in process. Since such investments are
ordinarily short-term in nature, they will tend to increase the turnover ratio
of the Equity Trust or the Utility Fund, as applicable, thereby increasing its
brokerage and other transaction expenses. The Investment Adviser intends to
select investments of the type described which, in its view, have a reasonable
prospect of capital appreciation which is significant in relation to both risk
involved and the potential of available alternative investments.
Temporary Investments. Although under normal market conditions at least
65% of the Equity Trust's total assets will consist of a portfolio of equity
securities of companies in a wide variety of industries and at least 65% of the
Utility Fund's assets will consist of common stock and other securities of
foreign and domestic companies involved in the utility industry, when a
temporary defensive posture is believed by the Investment Adviser to be
warranted ("temporary defensive periods"), the Equity Trust or the Utility Fund
may without limitation hold cash or invest its assets in money market
instruments and repurchase agreements in respect of those instruments. The money
market instruments in which the Equity Trust or the Utility Fund may invest are
obligations of the United States Government, its agencies or instrumentalities
("U.S. Government Securities"); commercial paper rated A-1 or higher by Standard
& Poor's Corporation ("S&P") or Prime-1 by Moody's Investors Service, Inc.
("Moody's"); and certificates of deposit and bankers' acceptances issued by
domestic branches of U.S. banks that are members of the Federal Deposit
Insurance Corporation. For a description of such ratings, see Appendix D. During
temporary defensive periods, the Utility Fund may also invest to the extent
permitted by applicable law, and the Equity Trust may invest up to 10% of the
market value of its total assets, in shares of money market mutual funds. Money
market mutual funds are investment companies and the investments in those
companies by the Equity Trust (and in some cases by the Utility Fund) are
subject to certain other limitations under the Equity Trust's fundamental
investment restrictions and applicable law. See Appendix B -- Investment
Restrictions. As a shareholder in a mutual fund, the Equity Trust or the Utility
Fund will bear its ratable share of the funds' expenses, including management
fees,
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and will remain subject to payment of the fees to the Investment Adviser, with
respect to assets so invested. See "Investment Advisory and Other Services" in
the Proxy Statement/Prospectus.
Lower Rated Securities. The Equity Trust may invest up to 10%, and the
Utility Fund may invest up to 25%, of its total assets in fixed-income
securities rated in the lower rating categories of recognized statistical rating
agencies, such as securities rated "CCC" or lower by S&P or "Caa" or lower by
Moody's, or non-rated securities of comparable quality. These debt securities
are predominantly speculative and involve major risk exposure to adverse
conditions and are often referred to in the financial press as "junk bonds."
Generally, such lower rated securities and unrated securities of comparable
quality offer a higher current yield than is offered by higher rated securities,
but also (i) will likely have some quality and protective characteristics that,
in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economics conditions than
higher quality bonds. In addition, such lower rated securities and comparable
unrated securities generally present a higher degree of credit risk. The risk of
loss due to default by these issuers is significantly greater because such lower
rated securities and unrated securities of comparable quality generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. In light of these risks, the Investment Adviser, in evaluating the
creditworthiness of an issue, whether rated or unrated, will take various
factors into consideration, which may include, as applicable, the issuer's
financial resources, its sensitivity to economic conditions and trends, the
operating history of and the community support for the facility financed by the
issue, the ability of the issuer's management and regulatory matters.
In addition, the market value of securities in lower rated categories is
more volatile than that of higher quality securities, and the markets in which
such lower rated or unrated securities are traded are more limited than those in
which higher rated securities are traded. The existence of limited markets may
make it more difficult for each of the Equity Trust and the Utility 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 Equity Trust and the Utility
Fund to purchase and may also have the effect of limiting the ability of the
Equity Trust and the Utility Fund to sell securities at their fair value to
respond to changes in the economy or the financial markets.
Lower rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Equity Trust
or the Utility 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 Equity Trust and
the Utility 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 Equity Trust and the Utility Fund each may invest in securities of
issuers in default within their limitations on the purchase of fixed-income
securities. The Equity Trust and the Utility Fund each 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 and the value of these securities will appreciate. By investing in
securities of issuers in default, the Equity Trust or the Utility Fund bears the
risk
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that these issuers will not continue to honor their obligations or emerge from
bankruptcy protection or that the value of the securities will not appreciate.
In addition to using recognized rating agencies and other sources, the
Investment Adviser also performs its own analysis of issues in seeking
investments that it believes to be underrated (and thus higher-yielding) in
light of the financial condition of the issuer. Its analysis of issuers may
include, among other things, current and anticipated cash flow and borrowing
requirements, value of assets in relation to historical cost, strength of
management, responsiveness to business conditions, credit standing and current
anticipated results of operations. In selecting investments for the Equity Trust
and the Utility 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 Equity Trust or the Utility 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 change their
ratings of a particular issue or reflect subsequent events on a timely basis.
None of these events will require the sale of the securities by the Equity Trust
or the Utility Fund, although the Investment Adviser will consider these events
in determining whether the Equity Trust or the Utility Fund should continue to
hold the securities.
Fixed-income securities, including lower rated securities and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as the
Equity Trust and the Utility Fund. If an issuer exercises these rights during
periods of declining interest rates, the Equity Trust or the Utility Fund may
have to replace the security with a lower yielding security, thus resulting in a
decreased return for the Equity Trust or the Utility Fund.
The market for certain lower rated and comparable unrated securities
several years ago experienced a major economic recession. The recession
adversely affected the value of such securities as well as the ability of
certain issuers of such securities to repay principal and pay interest thereon.
The market for those securities could react in a similar fashion in the event of
any future economic recession.
Options. A call option is a contract that, in return for a premium, gives
the holder of the option the right to buy from the writer of the call option the
security underlying the option at a specified exercise price at any time during
the term of the option. The writer of the call option has the obligation, upon
exercise of the option, to deliver the underlying security upon payment of the
exercise price during the option period. A put option is the reverse of a call
option, giving the holder the right to sell the security to the writer and
obligating the writer to purchase the underlying security from the holder.
A written call option is "covered" if the writer owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Utility Fund holds a call on the same security as the call
written where the exercise price of the call held is (1) equal to or less than
the exercise price of the call written or (2) greater than the exercise price of
the call written if the difference is maintained by the Utility Fund in cash,
U.S. Government Securities or other high grade short-term obligations in a
segregated account held with its custodian. A written put option is "covered" if
the Utility Fund maintains cash or other high grade short-term obligations with
a value equal to the exercise price in a segregated account held with its
custodian, or else holds a put on the same security as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written.
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If the Equity Trust or the Utility Fund has written an option, it may
terminate its obligation by effecting a closing purchase transaction. This is
accomplished by purchasing an option of the same series as the option previously
written. However, once it has been assigned an exercise notice, the Equity Trust
or the Utility Fund will be unable to effect a closing purchase transaction.
Similarly, if the Equity Trust or the Utility 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 Equity Trust or the Utility Fund so
desires.
The Equity Trust or the Utility 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 Equity Trust or the Utility Fund will realize a loss from a closing
transaction if the price of the transaction is more than the premium received
from writing the option or is less than the premium paid to purchase the option.
Since call option prices generally reflect increases in the price of the
underlying security, any loss resulting from the repurchase of a call option may
also be wholly or partially offset by unrealized appreciation of the underlying
security. Other principal factors affecting the market value of a put or a call
option include supply and demand, interest rates, the current market price and
price volatility of the underlying security and the time remaining until the
expiration date. Gains and losses on investments in options depend, in part, on
the ability of the Investment Adviser to predict correctly the effect of these
factors. The use of options cannot serve as a complete hedge since the price
movement of securities underlying the options will not necessarily follow the
price movements of the portfolio securities subject to the hedge.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Equity Trust and
the Utility Fund each will generally purchase or write only those options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange will exist for any particular option.
In such event, it might not be possible to effect closing transactions in
particular options, so that the Equity Trust or the Utility 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
Equity Trust or the Utility Fund, as a covered call option writer, is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it delivers the
underlying security upon exercise or otherwise covers the position.
In addition to options on individual securities, the Equity Trust and the
Utility Fund each may also purchase and sell call and put options on securities
indexes. A stock index reflects in a single number the market value of many
different stocks. Relative values are assigned to the stocks included in an
index and the index fluctuates with changes in the market values of the stocks.
The options give the holder the right to receive a cash settlement during the
term of the option based on the difference between the exercise price and the
value of the index. By writing a put or call option on a securities index, the
Equity Trust or the Utility Fund is obligated, in return for the premium
received, to make delivery of this amount. The Equity Trust or the Utility Fund
may offset its position in stock index options prior to expiration by entering
into an closing transaction on an exchange or it may let the option expire
unexercised.
The Equity Trust and the Utility Fund each also may buy or sell put and
call options on foreign currencies. A put option on a foreign currency gives the
purchaser of the option the right to sell a foreign currency at the exercise
price until the option expires. A call option on a foreign currency gives the
purchaser of the option the right to purchase the currency at the exercise price
until the option expires. Currency options traded on U.S. or other exchanges may
be subject to position limits which may limit the ability of the Equity
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Trust or the Utility Fund to reduce foreign currency risk using such options.
Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller and generally do not have as much market liquidity as exchange-traded
options. Over-the-counter options are illiquid securities.
Use of options on securities indexes entails the risk that trading in the
options may be interrupted if trading in certain securities included in the
index is interrupted. Neither the Equity Trust nor the Utility Fund will
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 Equity Trust or the Utility Fund
are unlikely to correlate precisely with movements in the level of an index and,
therefore, the use of options on indexes cannot serve as a complete hedge and
will depend, in part, on the ability of the Investment Adviser to predict
correctly movements in the direction of the stock market generally or of a
particular industry. Because options on securities indexes require settlement in
cash, the Investment Adviser may be forced to liquidate portfolio securities to
meet settlement obligations. The SEC considers over-the-counter options such as
options on indexes illiquid securities.
Although the Investment Adviser will attempt to take appropriate measures
to minimize the risks relating to the Equity Trust's and the Utility Fund's
writing of put and call options, there can be no assurance that the Equity Trust
or the Utility Fund will succeed in any option-writing program it undertakes.
Futures Contracts and Options on Futures. Neither the Equity Trust nor the
Utility Fund will enter into futures contracts or options on futures contracts
unless (i) the aggregate initial margins and premiums do not exceed 5% of the
fair market value of its assets and (ii) the aggregate market value of its
outstanding futures contracts and the market value of the currencies and futures
contracts subject to outstanding options written by the Equity Trust or the
Utility Fund, as the case may be, do not exceed 50% of the market value of its
total assets. It is anticipated that these investments, if any, will be made by
the Equity Trust or the Utility Fund solely for the purpose of hedging against
changes in the value of its portfolio securities and in the value of securities
it intends to purchase. Such investments will only be made if they are
economically appropriate to the reduction of risks involved in the management of
the Equity Trust or the Utility Fund. In this regard, the Equity Trust and the
Utility Fund each may enter into futures contracts or options on futures for the
purchase or sale of securities indices or other financial instruments including
but not limited U.S. Government securities.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities underlying the
contract at a specified price at a specified future time. A "purchaser" of a
futures contract (or a "long" futures position) means the assumption of a
contractual obligation to acquire the securities underlying the contract at a
specified future time. Certain futures contracts, including stock and bond index
futures, are settled on a net cash payment basis rather than by the sale and
delivery of the securities underlying the futures contracts.
No consideration will be paid or received by the Equity Trust or the
Utility Fund upon the purchase or sale of a futures contract. Initially, the
Equity Trust or the Utility 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
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"variation margin," to and from the broker will be made daily as the price of
the index or security underlying the futures contract fluctuates. At any time
prior to the expiration of the futures contract, the Equity Trust or the Utility
Fund may elect to close the position by taking an opposite position, which will
operate to terminate its existing position in the contract.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract at a specified
exercise price at any time to the expiration of the option. Upon exercise of an
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's futures margin account attributable to that contract, which
represents the amount by which the market price of the futures contract exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. The potential loss related to the
purchase of an option on futures on contracts is limited to the premium paid for
the option (plus transaction costs). Because the value of the option purchased
is fixed at the point of sale, there are no daily cash payments by the purchaser
to reflect changes in the value of the underlying contract; however, the value
of the option does change daily and that change would be reflected in the net
assets of the Equity Trust or the Utility 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 Equity Trust or the Utility 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 Equity Trust or the Utility 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 high grade debt securities equal to the market value
of the contract must be deposited and maintained in a segregated account with
the custodian of the Equity Trust or the Utility Fund, as the case may be, to
collateralize the positions, in order for the fund to avoid being treated as
having issued a senior security in the amount of its obligations. For short
positions in futures contracts and sales of call options, the Equity Trust or
the Utility Fund may establish a segregated account (not with a futures
commission merchant or broker) with cash obligations of the U.S. Government and
its agencies and instrumentalities or other high grade debt securities that,
when added to amounts deposited with a futures commission merchant or a broker
as margin, equal the market value of the instruments or currency underlying the
futures contracts or call options, respectively (but are no less than the stock
price of the call option or the market price at which the short positions were
established).
Forward Currency Transactions. The Equity Trust and the Utility Fund each
may hold currencies to meet settlement requirements for foreign securities and
may engage in currency exchange transactions to protect against uncertainty in
the level of future exchange rates between a particular foreign currency and the
U.S. dollar or between foreign currencies in which its securities are or may be
denominated. Forward currency contracts are agreements to exchange one currency
for another at a future date. The date (which may be any agreed-upon fixed
number of days in the future), the amount of currency to be exchanged and the
price at which the exchange takes place will be negotiated and fixed for the
term of the contract at the time that the Equity Trust or the Utility Fund
enters into the contract. Forward currency contracts (1) are traded in a market
conducted directly between currency traders (typically, commercial banks or
other financial institutions) and their customers, (2) generally have no deposit
requirements and (3) are typically
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consummated without payment of any commissions. The Equity Trust or the Utility
Fund, however, may enter into forward currency contracts requiring deposits or
involving the payment of commissions. To assure that its forward currency
contracts are not used to achieve investment leverage, the Equity Trust or the
Utility Fund will segregate liquid assets consisting of cash, U.S. Government
Securities or other liquid high grade debt obligations with its custodian, or a
designated sub-custodian, in an amount at all times equal to or exceeding its
commitment with respect to the contracts.
The dealings of the Equity Trust and the Utility Fund in forward foreign
exchange is limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of one forward
foreign currency for another currency with respect to specific receivables or
payable of the Equity Trust or the Utility Fund accruing in connection with the
purchase and sale of its portfolio securities or its payment of dividends and
distributions. Position hedging is the purchase or sale of one forward foreign
currency for another currency with respect to portfolio security positions
denominated or quoted in the foreign currency to offset the effect of an
anticipated substantial appreciation or depreciation, respectively, in the value
of the currency relative to the U.S. dollar. In this situation, the Equity Trust
or the Utility Fund also may, for example, enter into a forward contract to sell
or purchase a different foreign currency for a fixed U.S. dollar amount where it
is believed that the U.S. dollar value of the currency to be sold or bought
pursuant to the forward contract will fall or rise, as the case may be, whenever
there is a decline or increase, respectively, in the U.S. dollar value of the
currency in which its portfolio securities are denominated (this practice being
referred to as a "cross-hedge").
In hedging a specific transaction, the Equity Trust or the Utility Fund may
enter into a forward contract with respect to either the currency in which the
transaction is denominated or another currency deemed appropriated by the
Investment Adviser. The amount the Equity Trust or the Utility Fund may invest
in forward currency contracts is limited to the amount of its aggregate
investments in foreign currencies.
The use of forward currency contracts may involve certain risks, including
the failure of the counterparty to perform its obligations under the contract,
and such use may not serve as a complete hedge because of an imperfect
correlation between movements in the prices of the contracts and the prices of
the currencies hedged or used for cover. The Equity Trust and the Utility Fund
each will only enter into forward currency contracts with parties which it
believes to be creditworthy institutions.
When Issued, Delayed Delivery Securities and Forward Commitments. The
Equity Trust and the Utility Fund each 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 Equity Trust or the Utility 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 Equity Trust or the
Utility Fund prior to the settlement date. Each of the Equity Trust and the
Utility Fund will segregate with its custodian cash or liquid high-grade debt
securities in an aggregate amount at least equal to the amount of its
outstanding forward commitments.
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Short Sales. The Utility Fund may make short sales of securities. A short
sale is a transaction in which the Utility Fund sells a security it does not own
in anticipation that the market price of that security will decline. The market
value of the securities sold short of any one insurer will not exceed either 5%
of the Utility Fund's total assets or 5% of such issuer's voting securities. The
Utility 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 Utility Fund's aggregate short sales of a particular class of
securities exceeds 25% of the outstanding securities of that class. The Utility
Fund may also make short sales "against the box" without respect to such
limitations. In this type of short sale, at the time of the sale, the Utility
Fund owns, or has the immediate and unconditional right to acquire at no
additional cost, the identical security.
The Utility Fund expects to make short sales both to obtain capital gains
from anticipated declines in securities and as a form of hedging to offset
potential declines in long positions in the same or similar securities. The
short sale of a security is considered a speculative investment technique.
When the Utility 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 Utility 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 Utility Fund's obligation to replace the borrowed security will be
secured by collateral deposited with the broker-dealer, usually cash, U.S.
government securities or other highly liquid securities. The Utility Fund will
also be required to deposit similar collateral with its custodian, Boston Safe
Deposit and Trust Company ("Boston Safe"), and, to the extent, if any, necessary
so that the value of both collateral deposits in the aggregate is at all times
equal to the greater of the price at which the security is sold short of 100% of
the current market value of the security sold short. Depending on arrangements
made with the broker-dealer from which it borrowed the security regarding
payment of any amounts received by the Utility Fund on such security, the
Utility 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 Utility Fund
replaces the borrowed security, the Utility Fund will incur a loss; conversely,
if the price declines, the Utility Fund will realize a capital gain. Any gain
will be decreased, any loss increased, by the transaction costs described above.
Although the Utility Fund's gain is limited to the price at which it sold the
security short, its potential loss is theoretically unlimited.
To secure its obligations to deliver the securities sold short, the Utility
Fund will deposit in escrow in a separate account with the custodian, an amount
at least equal to the securities sold short or securities convertible into, or
exchangeable for, the securities. The Utility 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 Utility Fund, because
the Utility Fund may want to continue to receive interest and dividend payments
on securities in its portfolio that are convertible into the securities sold
short.
Repurchase Agreements. The Equity Trust and the Utility Fund each may
engage in repurchase agreement transactions involving money market instruments
with banks, registered broker-dealers and government securities dealers approved
by the Board of Directors. Neither the Equity Trust nor the Utility Fund will
enter into repurchase agreements with the Investment Adviser or any of its
affiliates. Under the terms of a typical repurchase agreement, the Equity Trust
or the Utility Fund, as the case may be, would acquire an underlying debt
obligation for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase, and the Equity Trust or
the Utility Fund, as the case may be, to resell,
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the obligation at an agreed price and time, thereby determining the yield during
its holding period. Thus, repurchase agreements may be seen to be loans by the
Equity Trust or the Utility Fund collateralized by the underlying debt
obligation. This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the holding period. The value of the
underlying securities will be at least equal to all times to the total amount of
the repurchase obligation, including interest. The Equity Trust or the Utility
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Equity Trust or the Utility Fund
is delayed in or prevented from exercising its rights to dispose of the
collateral securities, including the risk of a possible decline in the value of
the underlying securities during the period in which it seeks to assert these
rights. The Investment Adviser, acting under the supervision of the Board of
Directors of the Equity Trust or the Utility Fund, reviews the creditworthiness
of those banks and dealers with which the Equity Trust or the Utility Fund, as
the case may be, enters into repurchase agreements to evaluate these risks and
monitors on an ongoing basis the value of the securities subject to repurchase
agreements to ensure that the value is maintained at the required level.
Leveraging. As provided in the 1940 Act and subject to certain exceptions,
the Utility Fund may issue debt or preferred stock so long as the Utility Fund's
total assets, less certain ordinary course liabilities, exceed 300% of the
amount of the debt outstanding and exceed 200% of the sum of the amount of
preferred stock and debt outstanding and the Equity Trust may issue debt for
certain restricted purposes up to 10% of its total assets and preferred stock up
to the 200% asset coverage limitation. Such debt or preferred stock may be
convertible in accordance with SEC staff guidelines which may permit each fund
to obtain leverage at attractive rates. Leverage entails two primary risks. The
first risk is that the use of leverage magnifies the impact on the holders of
common stock of changes in net asset value. For example, a fund that uses 33%
leverage will show a 1.5% increase or decline in net asset value for each 1%
increase or decline in the value of its total assets. The second risk is that
the cost of leverage will exceed the return on the securities acquired with the
proceeds of leverage, thereby diminishing rather than enhancing the return to
holders of common stock. These two risks would generally make the fund's total
return to holders of common stock more volatile. in addition, the fund may be
required to sell investments in order to meet dividend or interest payments on
the debt or preferred stock when it may be disadvantageous to do so.
A decline in net asset value could affect the ability of the Equity Trust
or the Utility Fund to make common stock dividend payments and such a failure to
pay dividends or make distributions could result in the Equity Trust or the
Utility Fund ceasing to qualify as a regulated investment company under the
Code. See "Taxation." Finally, if the asset coverage for preferred stock or debt
securities declines to less than 200% or 300%, respectively (as a result of
market fluctuations or otherwise), the Equity Trust or the Utility Fund may be
required to sell a portion of its investments to redeem the preferred stock or
repay the debt when it may be disadvantageous to do so.
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APPENDIX B
INVESTMENT RESTRICTIONS
The Equity Trust and the Utility Fund operate under the following
restrictions that constitute fundamental policies that, except as otherwise
noted, cannot be changed without the affirmative vote of the holders of a
majority of the outstanding voting securities of the Equity Trust or the Utility
Fund, as the case may be. Except as otherwise noted, these investment
restrictions apply to both the Equity Trust and the Utility Fund, and 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.
1. Neither the Equity Trust nor the Utility Fund may 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, in the case of the Utility Fund, the utility industry. This
restriction does not apply to investments in U.S. Government Securities.
2. The Equity Trust may not 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 Equity Trust would be invested in securities of other investment
companies, more than 5% of the market value of the total assets of the
Equity Trust would be invested in the securities of any one investment
company or the Equity Trust would own more than 3% of any other investment
company's securities; provided, however, this restriction shall not apply
to securities of any investment company organized by the Equity Trust that
are to be distributed pro rata as a dividend to its shareholders. The
Utility Fund has no fundamental policy in this area.
3. Neither the Equity Trust nor the Utility Fund may purchase or sell
commodities or commodity contracts except that the Equity Trust and the
Utility Fund each 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 Equity Trust or the Utility Fund, as the case may be, do not exceed 50%
of the market value of its total assets. Neither the Equity Trust nor the
Utility Fund may purchase or sell real estate, provided that each may
invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein.
4. The Equity Trust may not purchase any securities on margin or make
short sales of securities, except that the Equity Trust may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities. The Utility Fund has no fundamental policy
restricting borrowings on margin or short selling.
5. Neither the Equity Trust nor the Utility Fund may make loans of
money, except by the purchase of a portion of publicly distributed debt
obligations (in the case of the Equity Trust) or private or publicly
distributed debt obligations (in the case of the Utility Fund), entering
into repurchase agreements (which in the case of the Equity Trust are
limited to publicly traded debt obligations in which it may invest). The
Equity Trust and the Utility Fund each 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
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such loans will only be made upon approval of, and subject to any
conditions imposed by, the Board of Directors of the Equity Trust or of the
Utility Fund, as the case may be. Because these loans are required to be
fully collateralized at all times, the risk of loss in the event of default
of the borrower should be slight.
6. The Utility Fund may borrow money to the extent permitted by
applicable law and may pledge assets to secure such borrowings or other
issuances of senior securities. The 1940 Act currently requires that the
Utility Fund have 300% asset coverage with respect to all borrowings other
than temporary borrowings of up to 5% of the value of its total assets. The
Equity Trust may not borrow money, except that it 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
as described above. See "Description of Common Stock of the Utility Fund
and the Equity Trust -- Repurchase of Shares." The Equity Trust 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 Equity Trust at the time the loan
is made. The Equity Trust may pledge up to 10% of the lesser of the cost or
value of its total assets to secure temporary borrowings. The Equity Trust
will not borrow for investment purposes. Immediately after any borrowing,
the Equity Trust will maintain asset coverage of not less than 300% with
respect to all borrowings. While the borrowing of the Equity Trust exceeds
5% of its total assets, the Equity Trust will make no further purchases of
securities, although this limitation will not apply to repurchase
transactions as described above.
7. Issue senior securities, except to the extent permitted by
applicable law.
8. Underwrite securities of other issuers except insofar as the Equity
Trust or the Utility Fund may be deemed an underwriter under the 1933 Act
in selling portfolio securities; provided, however, this restriction shall
not apply to securities of any investment company organized by the Equity
Trust or the Utility Fund that are to be distributed pro rata as a dividend
to its shareholders.
9. The Utility Fund may invest without limit in illiquid securities.
The Equity Trust may not invest more than 10% of its total assets in
illiquid securities, such as certain repurchase agreements with maturities
in excess of seven days, or securities that have legal or contractual
restrictions on resale.
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APPENDIX C
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
Under the Equity Trust Plan and the substantially similar Automatic
Dividend Reinvestment and Voluntary Cash Purchase Plan adopted by the Utility
Fund (each, the "Plan"), a shareholder whose Common Stock is registered in his
own name will have all distributions reinvested automatically by State Street
Bank and Trust Company ("State Street"), which is agent under the Plan, unless
the shareholder elects to receive cash. Distributions with respect to shares
registered in the name of a broker-dealer or other nominee (that is, in "street
name") will be reinvested by the broker or nominee in additional shares under
the Plan, unless the service is not provided by the broker or nominee or the
shareholder elects to receive distributions in cash. Investors who own Common
Stock registered in street name should consult their broker-dealers for details
regarding reinvestment. All distributions to investors who do not participate in
the Plan will be paid by check mailed directly to the record holder by State
Street as dividend disbursing agent.
Under the Plan, whenever the market price of the Common Stock is equal to
or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants in such plan are issued shares of Common Stock,
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Common Stock. The valuation
date is the dividend or distribution payment date or, if that date is not a New
York Stock Exchange trading day, the next preceding trading day. If the net
asset value of the Common Stock at the time of valuation exceeds the market
price of the Common Stock, participants will receive shares from the Equity
Trust or the Utility Fund, as applicable, or acquired by the Plan agent in the
market, valued at market price. As required by the 1940 Act, the shareholders of
the Equity Trust and the Equity Trust as the sole shareholder of the Utility
Fund has approved issuance of new shares by the relevant fund if the market
price of such shares at the time is less than their net asset value per share.
If the Equity Trust or the Utility Fund should declare a dividend or capital
gains distribution payable only in cash, State Street will buy such investment
company's Common Stock for such Plan in the open market, on the New York Stock
Exchange or elsewhere, for the participants' accounts, except that State Street
will endeavor to terminate purchases in the open market and cause the Equity
Trust or the Utility Fund, as the case may be, to issue shares at net asset
value if, following the commencement of such purchases, the market value of its
Common Stock exceeds net asset value.
Participants in the Plan have the option of making additional cash payments
to State Street, monthly for the Equity Trust and twice per month for the
Utility Fund, for investment in the shares as applicable. Such payments may be
made in any amount from $250 to $10,000. State Street will use all funds
received from participants to purchase Equity Trust shares or Utility Fund
shares, as applicable, in the open market on the 15th of each month for the
Equity Trust (on or about the 1st and 15th of each month beginning on or about
June 1, 1999) and on the 1st and 15th of each month for the Utility Fund. It is
suggested that participants send voluntary cash payments to State Street in a
manner that ensures that State Street will receive these payments approximately
10 days before the investment date. A participant may without charge withdraw a
voluntary cash payment by written notice, if the notice is received by State
Street at least 48 hours before such payment is to be invested.
State Street maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares
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in the account of each Plan participant will be held by State Street in
noncertificated form in the name of the participant, and each shareholder's
proxy will include those shares purchased pursuant to the Plan. A Plan
participant may send his share certificates to State Street so that the shares
represented by such certificates will be held by State Street in the
participant's shareholder account under the Plan.
In the case of shareholders such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, State Street will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who participate in the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions payable in either stock or cash. State Street's fees for
handling the reinvestment of such dividends and capital gains distributions are
paid by the Equity Trust or Utility Fund, as the case may be. There are no
brokerage charges with respect to shares issued directly by the Equity Trust or
Utility Fund, as the case may be, as a result of dividends or capital gains
distributions payable in stock or in cash. However, each participant bears a pro
rata share of brokerage commissions incurred with respect to State Street's open
market purchases in connection with the reinvestment of dividends or capital
gains distributions.
With respect to purchases from voluntary cash payments, State Street will
charge $0.75 for each such purchase for a participant, plus a pro rata share of
the brokerage commissions. Brokerage charges for purchasing small amounts of
stock for individual accounts through the Plan are expected to be less than the
usual brokerage charges for such transactions, as State Street will be
purchasing shares for all participants in blocks and prorating the lower
commission thus attainable.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends or
distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Equity Trust and the Utility Fund each reserves the right to
amend or terminate its respective 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 such Plan at least 90 days before the record date
for such dividend or distribution. Each Plan also may be amended or terminated
by State Street on at least 90 days' written notice to the respective
participants in such Plan. All correspondence concerning the Plan should be
directed to State Street at P.O. Box 8200, Boston, Massachusetts 02266-8200.
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APPENDIX D
DESCRIPTION OF RATINGS
Description of Moody's Investors Service, Inc.'s ("Moody's") Corporate Bond
Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
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DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P") CORPORATE DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for debt in higher rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculative and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D Rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: In July 1994, S&P added an "r" symbol to its ratings. The "r" symbol is
attached to derivatives, hybrids and certain other obligations that S&P believes
may experience high variability in expected returns due to non-credit risks
created by the terms of the obligations.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
aaa: An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa: An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a: An issue which is rated a is considered to be an upper medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classifications, earnings and asset protection are nevertheless expected
to be maintained at adequate levels.
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baa: An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
ba: An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b: An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payment.
ca: An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
c: This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S PREFERRED STOCK RATINGS
AAA: This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA: A preferred stock issue rated AA also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
A: An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effect of changes in circumstances and economic conditions.
BBB: An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB, B, CCC: Preferred stock rated BB, B, and CCC are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of speculation and
CCC the highest degree of speculation. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC: The rating CC is reserved for a preferred stock in arrears on dividends
or sinking fund payments but that is currently paying.
C: A preferred stock rated C is a non-paying issue.
D: A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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[X] PLEASE MARK VOTES AS IN
THIS EXAMPLE
<TABLE>
<S> <C> <C>
For Against Abstain
[ ] [ ] [ ]
1) To consider and vote upon a proposal to
THE GABELLI distribute to Equity Trust shareholders
EQUITY TRUST INC. approximately $75 million
of the Equity Trust's net assets in the
HOLDERS form of shares of The Gabelli Utility Fund
OF a newly organized closed-end, registered
COMMON STOCK investment company; and
For Withhold For All
All Authority Except
[ ] [ ] [ ]
2) To elect three (3) Directors of the Equity Trust:
Bill Callaghan, Frank J. Fahrenkopf, Jr.,
Salvatore J. Zizza; and
NOTE: IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A
PARTICULAR NOMINEE(S), MARK THE "FOR ALL EXCEPT"
BOX AND STRIKE A LINE THROUGH THE NAME(S) OF THE
NOMINEE(S). YOUR SHARES WILL BE VOTED FOR THE
REMAINING NOMINEE(S)
For Against Abstain
[ ] [ ] [ ]
3) To ratify the selection of PricewaterhouseCoopers
LLP as the independent accountants of
the Equity Trust for the year ending
December 31, 1999; and
4) To consider and vote upon such other matters as may come before
said meeting or any adjournment thereof.
---------------------
Please be sure to sign and date this Proxy. Date
- ------------------------------------------------------------------
Shareholder sign here Co-owner sign here
- ------------------------------------------------------------------
Mark box at right if comments [ ]
or address changes have been noted
on the reverse side of this card.
</TABLE>
<PAGE> 70
THE GABELLI EQUITY TRUST INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE DIRECTORS
The undersigned hereby appoints Mario J. Gabelli, Bruce N. Alpert and James E.
McKee, and each of them, attorneys and proxies of the undersigned, with full
powers of substitution and revocation, to represent the undersigned and to vote
on behalf of the undersigned all shares of The Gabelli Equity Trust Inc. (the
"Equity Trust") which the undersigned is entitled to vote at the Annual Meeting
of Shareholders of the Equity Trust to be held On May 17, 1999 at 9:00 a.m.,
and at any adjournments thereof. The undersigned hereby acknowledges receipt of
the Notice of Meeting and Proxy Statement/Prospectus and hereby instructs said
attorneys and proxies to vote said shares as indicated herein, in their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Meeting.
A majority of the proxies present, and acting at the Meeting in person or by
substitute (or, if only one shall be so present, then that one) shall have and
may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
This proxy, if properly executed, will be voted in the manner directed by the
undersigned shareholder. If no direction is made, this proxy will be voted FOR
the proposed transaction. Please refer to the Proxy Statement/Prospectus for a
discussion of the proposed transaction.
- -------------------------------------------------------------------------------
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE
Please sign this proxy exactly as your name appears on the books of the Equity
Trust. Joint owners should each sign personally. Trustees and other fiduciaries
should indicate the capacity in which they sign, and where more than one name
appears, a majority must sign. If a corporation, the signature should be that
of an authorized officer who should state his or her title.
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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<PAGE> 71
/X/ PLEASE MARK VOTES
AS IN EXAMPLE
THE GABELLI EQUITY TRUST INC.
HOLDERS OF CUMULATIVE PREFERRED STOCK
1) To consider and vote upon a proposal For Against Abstain
to distribute to Equity Trust
shareholders approximately $75 / / / / / /
million of the Equity Trust's net
assets in the form of shares of
The Gabelli Utility Fund a newly
organized closed-end, registered
investment company; and
2) To elect three (3) Directors of the For Withhold For All
Equity Trust: Bill Callaghan, Frank All Authority Except
J. Fahrenkopf, Jr., Salvatore J.
Zizza; and / / / / / /
NOTE: IF YOU DO NOT WISH YOUR SHARES
VOTED "FOR" A PARTICULAR NOMINEE(S),
MARK THE "FOR ALL EXCEPT" BOX AND
STRIKE A LINE THROUGH THE NAME(S) OF
THE NOMINEE(S). YOUR SHARES WILL BE
VOTED FOR THE REMAINING NOMINEE(S)
3) To ratify the selection of For Against Abstain
PricewaterhouseCoopers LLP as the
independent accountants of the / / / / / /
Equity Trust for the year ending
December 31, 1999; and
4) To consider and vote upon such other
matters as may come before said
meeting or any adjournment thereof.
Please be sure to sign and date this Proxy.
Date
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Shareholder sign here
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Co-owner sign here
Mark box at right if comments / /
or address changes have been
noted on the reverse side of
this card.
<PAGE> 72
The Gabelli Equity Trust Inc.
This proxy is solicited on behalf of the Directors
The undersigned hereby appoints Mario J. Gabelli, Bruce N. Alpert and James E.
McKee, and each of them, attorneys and proxies of the undersigned, with full
powers of substitution and revocation, to represent the undersigned and to vote
on behalf of the undersigned all shares of The Gabelli Equity Trust Inc. (the
"Equity Trust") which the undersigned is entitled to vote at the Annual Meeting
of Shareholders of the Equity Trust to be held on May 17, 1999 at 9:00 a.m.,
and at any adjournments thereof. The undersigned hereby acknowledges receipt of
the Notice of Meeting and Proxy Statement/Prospectus and hereby instructs said
attorneys and proxies to vote said shares as indicated herein, in their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Meeting.
A majority of the proxies present, and acting at the Meeting in person or by
substitute (or, if only one shall be so present, then that one) shall have and
may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
This proxy, if properly executed, will be voted in the manner directed by the
undersigned shareholder. If no direction is made, this proxy will be voted FOR
the proposed transaction. Please refer to the Proxy Statement/Prospectus for a
discussion of the proposed transaction.
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE
Please sign this proxy exactly as your name appears on the books of the Equity
Trust. Joint owners should each sign personally. Trustees and other fiduciaries
should indicate the capacity in which they sign, and where more than one name
appears, a majority must sign. If a corporation, the signature should be that
of an authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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