As filed with the Securities and Exchange Commission on February 26, 1999
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Registration No. 33-__
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No. __
The Gabelli Utility Fund
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (914) 921-5070
One Corporate Center, Rye, New York 10580
(Address of Principal Executive Offices) (Zip code)
Bruce N. Alpert
The Gabelli Utility Fund
One Corporate Center
Rye, New York 10580
(Name and Address of Agent for Service)
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Copies to:
James E. McKee, Esq. Richard T. Prins, Esq.
The Gabelli Utility Fund Skadden, Arps, Slate, Meager & Flom LLP
One Corporate Center 919 Third Avenue
Rye, New York 10580 New York, New York 10022
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933:
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Proposed
Maximum Proposed Maximum
Title of Offering Price Aggregate Amount of
Securities Amount Being per Offering Registration
Being Registered Registered Unit Price Fee
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Common Stock, 7,500,000* $10** $75,000,000** $20,850**
$.001 par value
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* The amount being registered assumes a dividend of 1 share of
Registrant's Common Stock for every 14 shares held of Common Stock of
The Gabelli Equity Trust Inc. If this ratio changes, the number of
shares to be issued will be adjusted accordingly, but the proposed
maximum aggregate offering price will remain unchanged.
** Assumes contribution by The Gabelli Equity Trust Inc. of approximately
$75 million of its net assets as of ______, 1999 to Registrant. No
separate consideration will be received for shares of Common Stock to be
distributed to the shareholders of The Gabelli Equity Trust Inc.
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement.
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
THE GABELLI UTILITY FUND
FORM N-14 CROSS REFERENCE SHEET Pursuant to Rule
481(a) Under the Securities Act of 1933
Prospectus/Proxy
Part A Item No. and Caption Statement Caption
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Item 1. Beginning of Cover Page; Cross Reference Sheet
Registration
Statement and Outside
Front Cover
Page of Prospectus
Item 2. Beginning and Outside Table of Contents
Back Cover
Page of Prospectus
Item 3. Fee Table, Synopsis Proxy Statement/Prospectus Summary;
Information Table of Fees and Expenses
and Risk Factors
Item 4. Information About the Proxy Statement/Prospectus Summary;
Transaction The Transaction; Pro Forma
Statement of Assets and
Liabilities
Item 5. Information About the Cover Page; Proxy
Registrant Statement/Prospectus Summary;
Investment Objectives and Policies
of the Utility Fund and the Equity
Trust; Further Information;
Description of Common Stock of the
Utility Fund and the Equity Trust
Item 6. Information About the Proxy Statement/Prospectus Summary;
Company Being Acquired Investment Objectives and Policies
of the Utility Fund and the
Equity Trust; Further
Information; Description of the
Common Stock of the Utility
Fund and the Equity Trust
Item 7. Voting Information General Voting Information;
Principal Shareholders;
Additional Information --
Broker Non-Votes and
Abstentions; Required Vote for
the Transaction
Item 8. Interest of Certain Experts
Persons and Experts
Item 9. Additional Information Not Applicable
required for
Reoffering By Persons
Deemed to be Underwriters
Proxy Statement/
Part B Item No. and Caption* Prospectus Caption
- ---------------------------- -------------------
Item 10. Cover Page Not Applicable
Item 11. Table of Contents Not Applicable
Item 12. Additional Information Investment Objectives and Policies
About the of the Utility Fund and the
Registrant Equity Trust; Description of
Common Stock of the Utility
Fund and the Equity Trust;
Management of the Utility Fund
and the Equity Trust; Principal
Shareholders; Taxation
Item 13. Additional Information Not Applicable
About the Company Being
Acquired
Item 14. Financial Statements The Gabelli Utility Fund Statement
of Assets and Liabilities;
Annual Report of The Gabelli
Equity Trust Inc. and
Semi-Annual Report of The
Gabelli Equity Trust Inc.
incorporated by reference; Pro
Forma Statement of Assets and
Liabilities
Part C Item No. and Caption Other Information Caption
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Item 15. Indemnification Incorporated by reference to Part
A caption "Description of
Common Stock of the Utility
Fund and the Equity Trust --
Limitation of Officers' and
Directors' Liability"
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
* All information required to be set forth in Part B: Statement of
Additional Information has been included in
Part A: The Proxy Statement/Prospectus.
THE GABELLI EQUITY TRUST INC.
One Corporate Center
Rye, New York 10580-1434
______ , 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 constant 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% pay-out
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 each fourteen shares of the
Equity Trust owned on the dividend record date. No commission or other
sales charge would be imposed. The Utility Fund expects to pay dividends
monthly.
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
Chairman of the Board and President
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL 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.
THE GABELLI EQUITY TRUST INC.
One Corporate Center
Rye, New York 10580-1434
(914) 921-5000
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held on
May 17, 1999
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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
purposes:
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
______ , 1999
This Statement is printed on recycled paper.
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:
REGISTRATION VALID SIGNATURE
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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 John B. Smith.
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith John B. Smith, Jr.,
Executor
THE GABELLI EQUITY TRUST INC.
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ANNUAL MEETING OF SHAREHOLDERS
______, 1999
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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 under the symbol "______". 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.
The Equity Trust's Common Stock trades on the New York Stock Exchange
under the symbol "GAB." 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.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE WHERE SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
______, 1999
TABLE OF CONTENTS
Page
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GENERAL VOTING INFORMATION...................................................5
PROXY STATEMENT/PROSPECTUS SUMMARY...........................................6
TABLE OF FEES AND EXPENSES..................................................11
The Transaction.............................................................12
Background............................................................12
Description of the Transaction........................................12
Federal Income Tax Consequences of the Transaction....................14
Listing...............................................................14
Transaction Expenses..................................................14
Manner of Effecting the Distribution..................................15
Costs Associated with Sales of Utility Fund Common Stock..............16
Allocation of Investment Opportunities................................16
Investment Objectives and Policies of
the Utility Fund and the Equity Trust.................................16
Risk Factors................................................................18
Investment Restrictions.....................................................20
Management of Utility Fund
and the Equity Trust..................................................21
Investment Advisory and Other Services......................................26
Portfolio Transactions and Brokerage........................................28
Determination of Net Asset Value............................................28
Distributions; Automatic Dividend Reinvestment and Voluntary Cash Purchase
Plan..................................................................29
Taxation....................................................................30
Principal Shareholders......................................................32
Custodian, Transfer Agent, Dividend
Disbursing Agent and Registrar........................................32
Description of Common Stock of the
Utility Fund and the Equity Trust.....................................33
Reports to Shareholders.....................................................39
Experts ....................................................................39
Further Information.........................................................39
Financial Statements........................................................39
Required Vote for the Transaction...........................................39
PROPOSAL 2..................................................................40
PROPOSAL 3..................................................................42
ADDITIONAL INFORMATION......................................................42
SHAREHOLDER PROPOSALS.......................................................44
OTHER MATTERS TO COME BEFORE THE MEETING....................................44
APPENDIX A.................................................................A-1
APPENDIX B.................................................................B-1
APPENDIX C.................................................................C-1
APPENDIX D.................................................................D-1
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 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 ______, 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 ______ shares of common stock and ______ 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 Equity Trust
except that, as of ______, 1999, ______ shares were held of record by Cede
& Co., a nominee partnership of The Depository Trust Company. Of such
shares, ______ shares of common stock and ______ shares of cumulative
preferred stock, representing ______% and ______% of the outstanding common
and cumulative preferred shares, respectively, of the Equity Trust, are
held by The Depository Trust Company as nominee for Salomon Smith Barney
Inc., representing approximately ______ discretionary and non-discretionary
accounts. As of ______, 1999, the officers and directors of the Equity
Trust, as a group, owned ______ shares of the Equity Trust, representing
______% of The Equity Trust's outstanding shares.
This Proxy Statement/Prospectus is first being mailed to shareholders
on or about ______, 1999.
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 Invest-
ment 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 secondary
investment objective is income. See "Investment
Objectives and Policies of the Utility Fund and the
Equity Trust."
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 under the symbol
"______" 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 Equity Trust will receive an opinion of counsel to
the effect that this description accurately
summarizes the material federal income tax
consequences of the distribution of shares of the
Utility Fund to Equity Trust shareholders. 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 amount of the distribution of Utility Fund shares
to Equity Trust shareholders will equal the fair
market value of the Utility Fund shares as of the
Distribution Date (as hereinafter defined) plus any
cash received in lieu of fractional shares. The
receipt of this distribution will be taxable as a
dividend to the shareholders for federal income tax
purposes to the extent the distribution is out of
the current and accumulated earnings and profits of
the Equity Trust. The balance, if any, of the
distribution that does not constitute a dividend
will first be treated as a non-taxable return of
capital up to the amount of each shareholder's tax
basis in its shares of the Equity Trust, and such
shareholder's tax basis will be correspondingly
reduced. Thereafter, the excess over the amount
treated as a non-taxable return of capital will be
treated as capital gain if such Equity Trust shares
were held as a capital asset. 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 determining the portion of the
distribution that will be out of current earnings
and profits, the Equity Trust's current earnings
and profits for 1999 will be allocated pro rata
among all the Equity Trust's distributions in
respect of 1999. The Equity Trust intends to
contribute to the Utility Fund assets so as to
minimize any increase in the Equity Trust's
earnings and profits as a result of the
Transaction. In the event that such securities have
aggregate unrealized gain, such gain would be
recognized by the Equity Trust upon the
distribution of the Utility Fund shares to the
Equity Trust shareholders with the result that the
Equity Trust's earnings and profits would increase
to the extent of such recognized gain. In addition
to 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 foregoing discussion is subject to and qualified in
its entirety by the discussion in "Taxation" below.
Comparison of
Distribution
Policies of the
Utility Fund and
the Equity Trust. The Utility Fund will distribute to shareholders
substantially all of its annual net income monthly
and capital gains quarterly or more frequently
pursuant to its order granting exemption from
Section 19(b) of the 1940 Act and any amendments
thereto. The Equity Trust will continue to make
quarterly dividend payments pursuant to its 10%
pay-out 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 the 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.
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 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
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.
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.
No holder of Equity Trust Common Stock will be
required to pay 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, or the
rights attaching to, outstanding shares of Equity
Trust Common Stock. See "The Transaction - Manner
of Effecting the Distribution."
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 Con-
siderations...... 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 and By-Laws 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 convert the
Utility Fund from a closed-end to an open-end
investment company or generally to authorize
certain business transactions with the beneficial
owner of more than 5% of the outstanding shares of
the 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."
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
Special Considerations" 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 - Risk Factors
and Special Considerations."
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
the Utility Fund's shares will be more susceptible
to factors affecting those particular types of
companies, including governmental regulation,
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. See "Investment Objectives and Polices
of the Utility Fund and the Equity Trust - Risk
Factors and Special Considerations."
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 - Risk
Factors and Special Considerations."
TABLE OF FEES AND EXPENSES
Equity Utility
Trust Fund
------ -------
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%
----- -----
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Equity Trust........................ $15 $40 $67 $144
Utility Fund........................ $21 $59 $99 $211
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 current
fiscal year.
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% pay-out" 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% pay-out 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"). To illustrate, while a
non-diversified company may have as few as 13 issuers within its portfolio
and continue to satisfy the 1940 Act and Code diversification requirements
applicable to a "non-diversified" registered investment company, as of the
end of each of the last five fiscal years the Equity Trust has had an
average of 288 corporate issuers included within its securities portfolio.
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%
pay-out policy.
- --------
(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.
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 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 is registered 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 its order granting exemption
from Section 19(b) of the 1940 Act ("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% pay-out 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
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 Equity Trust
shareholders may be a taxable event to the Equity Trust and its
shareholders as noted below. However, the Equity Trust does not expect that
any significant amount of unrealized gains will exist in the securities
transferred to the Utility Fund.
The Utility Fund will receive an opinion of counsel to the effect
that the distribution of shares of the Utility Fund to Equity Trust
shareholders likely will be a taxable event for Equity Trust shareholders
and, under certain circumstances, will be a taxable event for the Equity
Trust. However, the Transaction is not expected to increase significantly
the total amount of taxable distributions received by 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 to Equity Trust shareholders
will constitute a dividend to each shareholder up to the amount of the
Equity Trust's current or accumulated earnings and profits and generally
will be taxable to such shareholder as a distribution of ordinary income
and/or long-term capital gains. The Equity Trust intends to contribute to
the Utility Fund assets that do not reflect in the aggregate unrealized
appreciation so as to minimize any increase in the Equity Trust's earnings
and profits as a result of the Transaction. The Equity Trust's current
earnings and profits for 1999 will be allocated among all the Equity
Trust's distributions during this year. To the extent that the fair market
value of the distributed Utility Fund shares exceeds the allocated current
earnings and profits and any accumulated earnings and profits from prior
years, the distribution will first be treated as a tax-free return of
capital, reducing the common shareholder's basis in its Equity Trust
shares; distributions in excess of the common shareholder's tax basis will
be taxable as gain realized from the 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. The distribution will
not affect the 7.25% Cumulative Preferred Stock distribution.
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 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 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.
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 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.
No holder of Equity Trust Common Stock will be required to pay 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."
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
______ shares of Equity Trust Common Stock outstanding as of ______, 1999.
AMOUNT HELD BY
COMPANY
AMOUNT OR FOR ITS OWN AMOUNT
AUTHORIZED ACCOUNT OUTSTANDING
---------- --------------- -----------
Utility Fund Common 200,000,000
Stock................... shares 0 shares ______ shares
Equity Trust Common 192,000,000 0 shares ______ shares
Stock................... shares
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
common stock of companies in the utility industries. However, the Utility
Fund may invest primarily in preferred stocks and debt securities 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. 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 the Fund's
utility investments, and looks for companies that have proven dividend
records and sound financial structures. Feeling that the industry is under
consolidation due to changes in regulation, we want to position ourselves
to take advantage of trends in consolidation.
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 under 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 - Risk Factors and Special
Considerations."
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 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
are fundamental policies of both the Equity Trust and the Utility Fund. 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.
Various regulatory regimes impose limitations on the percentage of
the shares of a public entity held by an investment for its clients. These
limitations may unfavorably restrict the ability of the Utility Fund to
make certain investments.
Long-Term Objective. Each of the Equity Trust and the Utility Fund is
intended for investors seeking long-term capital growth 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 will 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 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.
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 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 Common Shareholders 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 the preferred shares 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 the preferred shares 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 the preferred shares 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 common shareholders 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 common shareholders, 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 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 and 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. 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 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.
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 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 Vincent Enright and Anthony Colavita, 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, and the principal officers of the Equity Trust hold the same or
similar offices with the Utility Fund. The names and business addresses of
the directors and principal officers of the Equity Trust and of the Utility
Fund are set forth in the following table, together with their positions
and their principal occupations during the past five years and, in the case
of the directors, their positions with certain other organizations and
companies. Directors who are "interested persons" of the Equity Trust and
the Utility Fund, as defined by the 1940 Act, are indicated by an asterisk.
Equity Trust 7.25% Cumulative Preferred Stock directors are indicated by a
"+".
<TABLE>
<CAPTION>
Number and Percentage of
Position with the Equity Trust Equity Trust Shares
and the Utility Fund and Beneficially
Name and Business Principal Occupation Owned** Directly or
Address (Age) During Past Five Years Indirectly on ______, 1999
COMMON PREFERRED
------ ---------
<S> <C> <C> <C>
Dr. Thomas E. Bratter(60) Director of the Equity ____*** 0
One Corporate Center Trust and the Utility
Rye, NY 10580-1434 Fund. Director, President
and Founder, The John
Dewey Academy (residential
college preparatory
therapeutic high school).(10)
Bill Callaghan (54) Director of the Equity ____*** 0
One Corporate Center Trust and the
Rye, NY 10580-1434 Utility Fund. President
of Bill Callaghan Associates
Ltd., an executive search
company.(3)(10)
+Felix J. Christiana (73) Director of the Equity ____*** ____***
Anthony J. Colavita Trust and the
One Corporate Center Utility Fund. Retired;
Rye, NY 10580-1434 formerly Senior
Vice President of Dollar
Dry Dock Savings Bank.
(1)(2)(3)(4)(5)(8)(10)(13)
Anthony J. Colavita (62) President and Attorney at ____*** ____***
One Corporate Center law in the law firm of
Rye, NY 10580-1434 Anthony J. 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 ____*** ____***
One Corporate Center Trust and the
Rye, New York 10580-1434 Utility Fund. Former
Managing Director and Chief
Investment Officer
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 ____*** ____***
One Corporate Center Fund. Senior Vice
Rye, NY 10580-1434 President and Chief
Financial Officer of
KeySpan Energy Corporation.
Frank J. Fahrenkopf, Director of the Equity
Jr. (59) Trust and the Utility Fund.
One Corporate Center President and CEO of
Rye, New York 10508-1434 the American Gaming Association
since June 1995; Partner
of Hogan & Hartson; Chairman of
International Trade Practice
Group. Co-Chairman of the
Commission on Presidential
Debates; former Chairman
of the Republican National
Committee.
*Mario J. Gabelli (56) Chairman of the Board, (_____%) 0
One Corporate Center President and Chief
Rye, New York 10580-1434 Investment Officer
of the Equity Trust and the
Utility Fund. 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)
*Karl Otto Pohl (69) Director of the Equity 0 0
One Corporate Center Trust and the Utility Fund.
Rye, New York 10580-1434 Member of the Shareholder
Committee of Sal. Oppenheim
Jr. & Cie (private investment
bank); Board Member of Trizee
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 ____*** ____***
One Corporate Center Trust and the Utility Fund.
Rye, New York 10580-1434 Certified Public
Accountant, Professor of
Accounting, Pace University,
since 1965. (1)(2)(3)
(4)(5)(10)(11)(13)
*Salvatore J. Zizza (53) Director of the Equity ____*** 0
One Corporate Center Trust and the Utility Fund.
Rye, New York 10580-1434 Chairman of The 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)
Bruce N. Alpert (47) Vice President and
One Corporate Center Treasurer of the Equity Trust
Rye, New York 10580-1434 and the Utility Fund. Executive
Vice President and Chief
Operating Officer of the
Investment Adviser since June
1988; Chief Operating Officer,
Vice President and Treasurer
of The Gabelli Value Fund Inc.
since September 1989;
President and Treasurer of The
Gabelli Asset Fund and The
Gabelli Growth Fund; Vice
President and Treasurer of all
other registered investment
companies advised by the
Investment Adviser; Vice
President of The Treasurer's
Fund Inc.; Vice President of
Gabelli Westwood Funds.
James E. McKee (36) Secretary of the Equity
One Corporate Center Trust and the Utility Fund.
Rye, New York 10580-1434 Vice President, General
Counsel and Secretary of the
Investment Adviser (since
1995) and Vice President and
General Counsel of GAMCO
Investors, Inc. (since 1993);
Secretary of the registered
investment companies advised
by the Investment Adviser and
its affiliates; Branch Chief
of the Securities and Exchange
Commission -- Northeast
Regional Office, 1992-1993.
Marc S. Diagonale (32) Vice President of the
One Corporate Center Equity Trust. Client services
Rye, New York 10580-1434 representative of Gabelli &
Company, Inc. since March
1993.
Directors and Officers __________ ____***
as a Group (______%)
</TABLE>
- ----------------
* "Interested person" of the Equity Trust and the Utility Fund, as
defined in the 1940 Act. Mr. Gabelli is an "interested person" of each fund
as a result of his employment as an officer of the fund and the Investment
Adviser. Mr. Gabelli is a registered representative of an affiliated
broker-dealer. 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 within the last three years with Binnings Building
Products, Inc., an entity which was controlled by GLI, Inc., an affiliate
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) Director of The Gabelli Asset (8) Director of Gabelli Global
Fund. Series Funds, Inc.
(2) Director of The Gabelli Growth (9) Director of Gabelli Gold Fund,
Fund. Inc.
(3) Director of The Gabelli Value (10)Director of The Gabelli Global
Fund Inc. Multimedia Trust
(4) Director of The Gabelli Inc.
Convertible Securities (11)Director of Gabelli Capital
Fund, Inc. Series Funds
(5) Director of Gabelli Equity Series (12)Director of Gabelli
Funds, Inc. International Growth Fund,
(6) Director of The Gabelli Money Inc.
Market Funds (13)Director of the Treasurer's
(7) Director of Gabelli Investor Fund, Inc.
Funds, Inc. (14)Director of the Gabelli Westwood
Funds
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. Conn,
Pohl and Pustorino as directors of the Equity Trust and of the Utility Fund
expire in 2000; 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. Bratter,
Christiana and Gabelli as directors of the Equity Trust and the Utility
Fund expire in 2001. 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 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 $2,000 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.
Mr. Diagonale will perform similar services on behalf of the Utility Fund.
He currently receives a salary from the Equity Trust at the annual rate of
$115,000. When the Utility Fund commences operations, this salary will be
borne by both the Equity Trust and the Utility Fund on the basis of their
relative net assets.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Gabelli Asset Management Inc. is the parent company of the Investment
Adviser and, together with other investment advisers, has assets under
management totaling $16.2 billion. 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 acts as a registered
investment adviser to 13 management investment companies with aggregate net
assets of $7.2 billion. GAMCO Investors, Inc., a sister subsidiary of the
Investment Adviser, acts as investment adviser for individuals, pension
trusts, profit sharing trusts and endowments, having aggregate assets of
$8.0 billion under this management as of December 31, 1998. Gabelli Fixed
Income LLC, an affiliate of the Investment Adviser, acts as investment
adviser for the Treasurer's Funds and separate accounts having aggregate
assets under management of $1.0 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.
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.
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 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."
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, 0.03% 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 53 State Street, Boston MA 02109-2873.
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) .03% if the total aggregate assets managed by
the Investment Adviser and administered by the Administrator exceed $1.5
billion and (ii) .02% if such assets exceed $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 with the Investment Adviser or any
of its affiliates. 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 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 and reported in financial
newspapers of general circulation as of the last day of each week.
Portfolio securities which are traded on a nationally recognized
stock exchange or Nasdaq National Market System are valued are the last
sale price as of the close of regular trading on the day the securities are
being valued, or lacking any sales, at the mean between closing bid and
asked prices. If no asked prices are quoted on such day, then the security
is valued at the closing bid price on such day. Other over-the-counter
securities are valued at the mean of the current bid and asked prices as
reported by Nasdaq, or in the case of securities not quoted by Nasdaq, the
National Quotation Bureau or other comparable source as the Board of
Directors deems appropriate to reflect their fair value. If no asked prices
are quoted on that day, then the security is valued at the closing bid
price on such day. If no bid or asked prices are quoted on that day, then
the security is valued by such method as the Board of Directors shall
determine in good faith to reflect its fair market value. Portfolio
securities traded on more than one national securities exchange or market
are valued according to the broadest and most representative market, as
determined by the Investment Adviser. Securities traded primarily on
foreign exchanges are valued at the closing price on such exchanges
immediately prior to the close of the New York Stock Exchange. Securities
and assets for which market quotations are not readily available are valued
at fair value as determined in good faith by or under the direction of the
Board of Directors. 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. Options are valued at the last sale price as of the
close of regular trading, or lacking any sales, at the mean between the
last bid and asked prices.
Net asset value per share is calculated by dividing the value of the
securities held plus any cash or other assets minus all liabilities,
including accrued expenses, by the total number of shares outstanding at
such time.
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% pay-out goal 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%
pay-out 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 its 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% pay-out 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, 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 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.
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 dividend 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 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 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. 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 ______, 1999, the current Directors and officers of the Equity
Trust, as a group, beneficially owned ______ shares of the Equity Trust,
representing ______% of the Equity Trust's outstanding shares, including
______ shares owned individually by Mario J. Gabelli and ______ shares
owned by the Investment Adviser and its affiliates. 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.
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 COMMON 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 sub-series thereof as determined from time
to time by the Board of Directors. The Board of Directors has authorized
issuance of an unlimited number of shares of two classes, Common Stock and
Preferred 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.
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
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
Equity Trust Common Stock, par value $.001 per share and 8,000,000 shares
of Cumulative Preferred Stock, par value $0.001. Each share 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.
Set forth below is information with respect to the Equity Trust
Common Stock and Cumulative Preferred Stock as of December 31, 1998.
Amount Held by
Equity Trust
or for Its Own Amount
Amount Authorized Account Outstanding
- --------------------- --------------------- ----------------
192,000,000 common shares 0 shares 106,116,347
8,000,000 preferred shares 0 shares 5,400,000
The Equity Trust's Common Stock and Cumulative Preferred Stock are
listed and traded on the New York Stock Exchange under the symbols "GAB"
and "GABPr", respectively. The following table sets forth for the quarters
indicated the high and low closing prices on the New York Stock Exchange
per share of Equity Trust Common Stock and the net asset value and the
premium or discount from net asset value at which the Equity Trust Common
Stock was trading, expressed as a percentage of the net asset value, at
each of the high and low closing prices provided.
Premium or
Net Asset Discount as %
Quarter Market Price(1) Value(2) of NAV
Ended High Low High Low High Low
12/31/96............... 9.500 9.000 10.04 8.21 -5.38 -9.62
03/31/97............... 9.875 9.125 10.25 9.68 -3.66 -5.73
06/30/97............... 10.25 9.25 10.47 9.61 -2.10 -3.75
09/30/97............... 10.9375 10.0625 11.49 10.77 -4.81 -6.57
12/31/97............... 11.75 9.75 11.85 11.09 -0.84 -12.08
03/31/98............... 12.375 11.000 12.60 11.26 -1.79 -2.31
06/30/98............... 12.5625 11.0625 12.85 11.81 -2.24 -6.33
09/30/98............... 12.125 9.5000 12.65 10.29 -4.15 -7.68
12/31/98............... 11.9375 5.00 11.58 9.63 3.09 -1.35
03/31/99............... _______ _______ ______ ______ ______ ______
- ----------
(1) As reported on the New York Stock Exchange.
(2) Based on the Equity Trust's computations.
The Equity Trust's shares have traded in the market above, at and
below net asset value since the commencement of the Equity Trust's
operations. During the past three years, the Equity Trust's shares have
traded from time to time in the market at a discount to net asset value.
The net asset value per share of a share of Equity Trust Common Stock
at the close of business on ______, 1999 was $______ and the last reported
sales price of a share of Equity Trust Common Stock on the New York Stock
Exchange on such date was $______.
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.
Shares repurchased by the Equity Trust will constitute authorized and
unissued shares of the Equity Trust available for reissuance. The Equity
Trust and the Utility Fund each may incur debt, in an amount not exceeding
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, more than 91% 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 Act. Under the laws of Delaware, the state in
which both the Equity Trust and the Utility Fund are incorporated, the
Board of Directors of each company is authorized to approve rights
offerings without obtaining shareholder approval. The staff of the SEC has
interpreted the 1940 Act as not requiring shareholder approval of a
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 company'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 Fund 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 proved to be 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 a majority of the votes entitled to be cast for the election of
directors of such fund. In addition, the affirmative vote of the holders of
662/3 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 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. In addition, approval of the Board and the 662/3% vote (75% in the
case of the Utility Fund) 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);
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 By-Laws 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
offices with the fund, to the fullest extend permitted by law. In addition,
the Governing Documents of each of the Equity Trust and the Utility Fund
provide that its directors and officers will not be liable to shareholders
for money damages, except in limited instances. 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 active or deliberate dishonesty which is material to the
cause of action or to the extent that the person received an improper
benefit or profit in money, property or services to the extent of such
money, property or services. In addition, indemnification is not permitted
for any act or omission committed in bad faith which is material to the
cause of action or, with respect to any criminal proceeding, if the person
had reasonable cause to believe that the act or omission was unlawful. In
addition, indemnification may not be provided in respect of any proceeding
in which the person has been adjudged to be liable to the fund.
RESTRICTIONS ON ISSUANCE OF SENIOR SECURITIES
Overview
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;
(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 a 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
quarterly 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 render an opinion on the
financial statements of each fund.
The statement of assets and liabilities of the Utility Fund, as of
______, 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.
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.
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) 67% 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 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 Preferred Stock, voting as a separate class, are entitled to
elect two directors, and holders of the common stock and 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 represent 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 Messrs. Fahrenkopf and 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 accounting 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.
COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM
FROM THE THE EQUITY TRUST
EQUITY AND FUND COMPLEX
NAME OF PERSON AND POSITION TRUST PAID TO DIRECTORS*
------------- -------------------
MARIO J. GABELLI $ 0 $ 0
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 $ 132,932(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
* 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 (common and preferred shareholders vote as a single class for each
of the three directors).
THE BOARD OF DIRECTORS, INCLUDING THE "NON-INTERESTED" DIRECTORS,
RECOMMENDS THAT THE COMMON AND PREFERRED 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.
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 (common and preferred
shareholders 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.
During the fiscal year ended December 31, 1998, the Equity Trust paid
$______ in brokerage commissions. Such commissions were paid with respect
to ______% of the total dollar value of all transactions involving the
payment of brokerage commissions effected during the period. For the fiscal
year ended December 31, 1998, the Equity Trust paid Gabelli & Company
$______ in brokerage commissions representing ______% of the total of all
brokerage commissions paid during such fiscal year. Such commissions were
paid with respect to ______% 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 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.
THE GABELLI UTILITY FUND
STATEMENT OF ASSETS AND LIABILITIES
AS OF ______, 1999
ASSETS
Cash ..................................................$100,000
Total Assets......................................$100,000
--------
LIABILITIES
Net Assets, applicable to 10,000 shares issued and outstanding100,000
Net Asset Value per share ($100,000 divided by 10,000 shares of common
stock outstanding)........................................
$10.00
======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
NOTES TO STATEMENTS 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 is
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 of 10,000 shares of Common Stock on ______,
1999 to The Gabelli Equity Trust Inc. Organizational expenses
estimated at $330,000 will be borne by the Equity Trust.
(2) The 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.
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's
expenses, including management fees, 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 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 Equity Trust or the Utility
Fund 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 Equity Trust or
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 Equity Trust or
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 Equity Trust or 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.
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 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
"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 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.
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 debt 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 over of any payments
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, 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 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 common shareholders of changes in net asset
value. For example, a fund that uses 33% leverage will show a 1.5% increase
or decline in net asset value for each 1% increase or decline in the value
of its total assets. The second risk is that the cost of leverage will
exceed the return on the securities acquired with the proceeds of leverage,
thereby diminishing rather than enhancing the return to common
shareholders. These two risks would generally make the Fund's total return
to common shareholders more volatile. in addition, the Fund may be required
to sell investment 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.
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. Neither the Equity Trust nor the Utility Fund may purchase
any securities on margin or, in the case of the Equity Trust, make
short sales of securities, except that the Equity Trust and the
Utility Fund each may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of portfolio
securities.
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 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. 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.
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 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. 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 15th of
the month. 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 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.
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.
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.
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.
THE GABELLI UTILITY FUND
PART C
OTHER INFORMATION
Item 15. Indemnification
- ---------------------------------
The response to this item is incorporated by reference to
the caption "Description of Common Stock of the Utility
Fund and the Equity Trust - - Limitation of Officers' and
Directors' Liability" in Part A of this Registration
Statement.
Insofar as indemnification for liability arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of Registrant pursuant
to the forgoing provisions, or otherwise, Registrant has
been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in
the Securities Act of 1933, and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a
director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling
person in connection with the securities being
registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is
against public policy as expressed in the Securities Act
of 1933 and will be governed by the final adjudication of
such issue.
Item 16. Exhibits
- --------------------------
(1) Declaration of Trust of Registrant.**
(2) By-Laws of Registrant.**
(3) Not Applicable.
(4) Not Applicable.
(5) Form of Registrant's Common Stock Certificate.**
(6) Form of Investment Advisory Agreement between Registrant
and Gabelli Funds, LLC**
(7) Not Applicable.
(8) Not Applicable.
(9) (a) Form of Custodian Contract between Registrant and State
Street Bank and Trust Company.**
(9) (b) Form of Custodian Fee Schedule between Registrant and
State Street Bank and Trust Company.**
(9) (c) Form of Registrar, Transfer Agency and Service Agreement
between Registrant and State Street Bank and Trust
Company.**
(9) (d) Form of Transfer Agent and Registrar Services Fee
Agreement between Registrant and State Street Bank and
Trust Company.**
(10) Not Applicable.
(11) Opinion and Consent of Skadden, Arps, Slate, Meagher &
Flom LLP with respect to legality.**
(12) Opinion and Consent of Skadden, Arps, Slate, Meagher &
Flom LLP with respect to tax matters.**
(13) Not Applicable.
(14) Consents of PricewaterhouseCoopers LLP.**
(15) Not Applicable.
(16) Power of Attorney.**
(17) (a) Form of Proxy Card.*
(17) (b) Purchase Agreement dated ______, 1999 between Registrant
and The Gabelli Equity Trust Inc.**
(17) (c) Annual Report of The Gabelli Equity Trust Inc. to
Shareholders for the fiscal year ended December 31, 1998.**
(17) (d) Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan of Registrant.**
- ---------------
* Filed herewith.
** To be filed by amendment.**
Item 17. Undertakings
- ------------------------------
(1) The undersigned Registrant agrees that prior to any
public reoffering of the securities registered through
the use of a prospectus which is a part of this
Registration Statement by any person or party who is
deemed to be an underwriter within the meaning of Rule
145(c) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the
applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the
information called for by the other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as
a part of an amendment to the Registration Statement and
will not be used until the amendment is effective, and
that, in determining any liability under the Securities
Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement for the
securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial
bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, this Registrant's
Registration Statement has been signed on behalf of the Registrant, in the
City of Rye, State of New York, on the 26th day of February, 1999.
THE GABELLI UTILITY FUND
By:/s/Bruce N. Alpert
------------------------------
Vice President and Treasurer
As required by the Securities Act of 1933, this Registration
Statement has been signed below by the following person in the capacity and
on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Bruce N. Alpert Sole Trustee February 26, 1999
- ------------------------
Bruce N. Alpert
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------------------------------------------------
(1) Declaration of Trust of Registrant**
(2) By-Laws of Registrant**
(5) Form of Registrant's Common Stock Certificate.**
(9) (a) Form of Custodian Contract between Registrant**
and State Street Bank and Trust Company.
(9) (b) Form of Custodian Fee Schedule between Registrant and
State Street Bank and Trust Company.**
(9) (c) Form of Registrar, Transfer Agency and Service
Agreement between Registrant and State Street Bank
and Trust Company.**
(9) (d) Form of Transfer Agent and Registrar Services
Fee Agreement.**
(10) Form of Investment Advisory Agreement between
Registrant and Gabelli Funds, LLC.**
(11) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
LLP with respect to legality .**
(12) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
LLP with respect to tax matters.**
(14) Consents of PricewaterhouseCoopers LLP.**
(16) Power of Attorney.**
(17) (a) Form of Proxy Card.*
(17) (b) Purchase Agreement dated ______, 1999 between
Registrant and The Gabelli Equity Trust Inc.**
(17) (c) Annual Report of The Gabelli Equity Trust Inc. to
Shareholders for the fiscal year ended December 31, 1998.**
(17) (d) Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan of Registrant.**
- ---------------
* Filed herewith.
** To be filed by amendment.
<TABLE>
<CAPTION>
EXHIBIT (17)(A)
|X| PLEASE MARK VOTES AS IN
THIS EXAMPLE
<S> <C> <C> <C> <C>
For Against Abstain
|_| |_| |_|
1) To consider and vote upon a
THE GABELLI proposal to distribute to Equity
EQUITY Trust shareholders of
TRUST I 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
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
For Against Abstain
|_| |_| |_|
4) To consider and vote upon such
other matters as may come before
said meeting or any adjournment
thereof.
</TABLE>
Please be sure to sign Date
and date this Proxy.
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.
DETACH CARD
THE GABELLI EQUITY TRUST INC.
Dear Shareholder:
Please take note of the important information enclosed with this Proxy
Ballot. The enclosed proxy materials discuss the proposed transaction in
detail.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares shall
be voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Shareholders, May
17, 1999.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
The Gabelli Equity Trust Inc.
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 here title.
- ------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
_______________________________ _____________________________________
_______________________________ _____________________________________
_______________________________ _____________________________________
_______________________________ _____________________________________
