<PAGE>1
As filed with the Securities and Exchange Commission on September 1, 1995
Securities Act File No. 33-_____
Investment Company Act File No. 811-4700
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ____
[ ] Post-Effective Amendment No. ____
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 15
THE GABELLI EQUITY TRUST INC.
(Exact name of registrant as specified in its charter)
One Corporate Center
Rye, New York 10580
(Address of principal executive offices)
(914) 921-5070
(Registrant's telephone number, including area code)
Bruce N. Alpert
The Gabelli Equity Trust Inc.
One Corporate Center
Rye, New York 10580
(Name and address of agent for service)
With copies to:
Daniel Schloendorn, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act
of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [X]
It is proposed that the filing will become effective when declared
effective pursuant to Section 8(c). [ ]
This Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is ___________________. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Maximum Amount of
Title of Securities Aggregate Registration
Being Registered Offering Price* Fee
------------------- --------------- ------------
<S> <C> <C>
Shares of Common Stock, par value $.001
per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $147,386,839 $50,823.05
</TABLE>
* Calculated pursuant to Rule 457(c) when the Securities Act of 1933, as
amended. Based on the average of the high and low sales price reported on
the New York Stock Exchange on August 28, 1995.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>2
THE GABELLI EQUITY TRUST INC.
Form N-2
Cross-Reference Sheet
Parts A and B of Prospectus
Item No. Caption Location in Prospectus
-------- ------- ----------------------
1. Outside Front Cover . . . . . . . Front Cover Page
2. Inside Front and Outside Back . . Front Cover Page
Cover Page
3. Fee Table and Synopsis . . . . . . Prospectus Summary; Fee Table
4. Financial Highlights . . . . . . . Financial Highlights
5. Plan of Distribution . . . . . . . Not Applicable
6. Selling Stockholders . . . . . . . Not Applicable
7. Use of Proceeds . . . . . . . . . Use of Proceeds
8. General Description of the Front Cover Page; Prospectus Summary;
Registrant . . . . . . . . . . . . The Fund; Investment Objectives and
Policies; Risk Factors and Special
Considerations; Common Stock
9. Management . . . . . . . . . . . . Management of the Fund; Portfolio
Transactions; Custodians and
Transfer, Dividend Disbursing Agent
and Registrar
10. Capital Stock, Long-Term Debt and
Other Securities . . . . . . . . . The Offer; Common Stock; Dividends and
Distributions; Automatic Dividend
Reinvestment and Voluntary Cash
Purchase Plan; Taxation
11. Defaults and Arrears on Senior
Securities . . . . . . . . . . . . Not Applicable
12. Legal Proceedings . . . . . . . . Not Applicable
13. Table of Contents of the Statement
of Additional Information . . . . Table of Contents of the Statement of
Additional Information
<PAGE>3
Location in Statement
Item No. Caption of Additional Information
-------- ------- -------------------------
14. Cover Page . . . . . . . . . . . . Front Cover Page
15. Table of Contents . . . . . . . . Front Cover Page
16. General Information and History . Not Applicable
17. Investment Objectives and Investment Objectives and Policies;
Policies . . . . . . . . . . . . . Investment Restrictions
18. Management . . . . . . . . . . . . Management of the Fund
19. Control Persons and Principal
Holders of Securities . . . . . Beneficial Owner
20. Investment Advisory and Other
Services . . . . . . . . . . . . Management of the Fund
21. Brokerage Allocation and Other
Practices . . . . . . . . . . . . Portfolio Transactions
22. Tax Status . . . . . . . . . . . . Taxation
23. Financial Statements . . . . . . . Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
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 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 IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>4
PROSPECTUS Subject to Completion Dated September 1, 1995
_________ Rights for _________ Shares
The Gabelli Equity Trust Inc.
Common Stock
The Gabelli Equity Trust Inc. (the "Fund") is issuing to its stockholders
of record ("Record Date Stockholders") as of the close of business on
____________, 1995 rights ("Rights") entitling the holders thereof to
subscribe for an aggregate of _________ shares (the "Shares") of the Fund's
Common Stock (the "Offer") at the rate of one share of Common Stock for each
six Rights held and entitling such Record Date Stockholder to subscribe,
subject to certain limitations and subject to allotment, for any Shares not
acquired by exercise of primary subscription Rights. The Rights are
transferable and have been admitted for trading on the New York Stock
Exchange. See "The Offer." THE SUBSCRIPTION PRICE PER SHARE (the
"Subscription Price") WILL BE $________.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK TIME, ON _________, 1995
unless extended as described herein (the "Expiration Date"). Stockholder
inquiries should be directed to the Subscription Agent, State Street Bank and
Trust Company, at (800) 336-6983 or (617) 328-5000.
The Fund is a closed-end non-diversified management investment company.
Its investment objective is long-term growth of capital, primarily through a
portfolio of equity securities selected by Gabelli Funds, Inc., the investment
adviser to the Fund. Income is a secondary objective of the Fund. No
assurances can be given that the Fund's objectives will be achieved. For a
discussion of certain risk factors and special considerations with respect to
owning shares of the Fund, see "Risk Factors and Special Considerations." The
address of the Fund is One Corporate Center, Rye, New York 10580 and its
telephone number is (914) 921-5070.
The Fund announced the Offer after the close of trading on the New York
Stock Exchange on August 18, 1995. The net asset value per share of Common
Stock at the close of business on August 18, 1995 and _________, 1995 was
$10.45 and $____, respectively, and the last reported sale price of a share of
the Fund's Common Stock on such Exchange on those dates was $9.875 and
$______, respectively. The Fund's Common Stock trades under the symbol "GAB"
on the New York Stock Exchange.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY SECURITIES
COMMISSION OR REGULATORY AUTHORITY IN CANADA NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY
SECURITIES COMMISSION OR REGULATORY AUTHORITY IN CANADA
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Subscription Price Sales Load Proceeds to Fund (1)
------------------ ---------- --------------------
<S> <C> <C> <C>
Per Share . . . . . . . . . . $_______ None $______
Total . . . . . . . . . . . . $_______ None $______
</TABLE>
(1) Before deduction of offering expenses incurred by the Fund, estimated at
$_______.
Because the Subscription Price per share is likely to be less than the
net asset value per share, the Offer is likely to result in a substantial
dilution of the aggregate net asset value of the shares owned by stockholders
who do not fully exercise their Rights. In addition, as a result of the terms
of the Offer, stockholders who do not fully exercise their Rights should
expect that they will, upon the completion of the Offer, own a smaller
proportional interest in the Fund than would otherwise be the case. Gabelli
Funds, Inc., the Fund's investment adviser, may purchase through the primary
subscription and the over-subscription privilege Shares with an aggregate
Subscription Price of up to $___ million. Mr. Mario J. Gabelli may also
purchase additional Shares with an aggregate Subscription Price of up to
$_____ million in such manner. See "The Offer Terms of the Offer."
This Prospectus sets forth concisely certain information about the Fund that
investors should know before investing and it should be read and retained for
future reference. A Statement of Additional Information dated _________, 1995
(the "SAI") containing additional information about the Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference
in its entirety into this Prospectus.
A copy of the SAI, the table of contents of which appears on page ____ of
this Prospectus, may be obtained without charge by contacting the Fund at
(800) GABELLI ((800) 422-3554) or (914) 921-5070. The SAI will be sent
within two business days of receipt of such request by the Fund.
________, 1995
<PAGE>5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information included elsewhere in this Prospectus.
Terms of the Offer
The Gabelli Equity Trust Inc. (the "Fund") is issuing to stockholders of
record ("Record Date Stockholders") as of the close of business on _________,
1995 (the "Record Date") rights ("Rights") to subscribe for an aggregate of
_________ shares of Common Stock (sometimes referred to herein as the
"Shares") of the Fund. Each such stockholder is being issued one Right for
each full share of Common Stock owned on the Record Date. The Rights entitle
the holder to acquire at the Subscription Price (as hereinafter defined) one
Share for each six Rights held. Rights may be exercised at any time during
the period (the "Subscription Period"), which commences on ________, 1995 and
ends at 5:00 p.m., New York time on __________, 1995, unless extended by the
Fund to a date not later than ___________, 1995 (the "Expiration Date"). The
right to acquire during the Subscription Period at the Subscription Price one
additional Share for each six Rights held is hereinafter referred to as the
"Primary Subscription."
In addition, any Record Date Stockholder who fully exercises all Rights
initially issued to him (other than those Rights which cannot be exercised
because they represent the right to acquire less than one Share) is entitled
to subscribe for Shares which were not otherwise subscribed for by others on
Primary Subscription (the Over-Subscription Privilege"). For purposes of
determining the number of Shares a Record Date Stockholder may acquire
pursuant to the Offer, broker-dealers whose shares are held of record by Cede
& Co., Inc. ("Cede"), nominee for The Depository Trust Company, or by any
other depository or nominee will be deemed to be the holders of the Rights
that are issued to Cede or such other depository or nominee on their behalf.
Shares acquired pursuant to the Over-Subscription Privilege are subject to
allotment, which is more fully discussed under "The Offer Over-Subscription
Privilege."
The subscription price per share (the "Subscription Price") will be
$_______. Rights will be evidenced by subscription certificates
("Subscription Certificates") and may be exercised by completing a
Subscription Certificate and delivering it, together with payment, either by
means of a notice of guaranteed delivery or a check, to State Street Bank and
Trust Company, Boston, Massachusetts (the "Subscription Agent"). Rights
holders will have no right to rescind a purchase after the Subscription Agent
has received payment. See "The Offer Method of Exercise of Rights" and "The
Offer Payment for Shares." Shares issued pursuant to an exercise of Rights
will be listed on the New York Stock Exchange, Inc. (hereinafter referred to
as the "New York Stock Exchange" or the "Exchange").
The Rights are transferable until the Expiration Date and have been
admitted for trading on the Exchange. Although no assurance can be given that
a market for the Rights will develop, trading in the Rights on the Exchange
will begin three Business Days prior to the Record Date and may be conducted
until the close of trading on the last Exchange trading day prior to the
Expiration Date. The value of the Rights, if any, will be reflected by the
market price. Rights may be sold by individual holders or may be submitted to
the Subscription Agent for sale. Any Rights submitted to the Subscription
Agent for sale must be received by the Subscription Agent on or before
_________, 1995, one Business Day (as defined below) prior to the Expiration
Date, due to normal settlement procedures. Trading of the Rights on the
Exchange will be conducted on a when issued basis until and including the date
on which the Subscription Certificates are mailed to Record Date Stockholders
and thereafter will be conducted on a regular way basis until and including
the last Exchange trading day prior to the Expiration Date. The Common Stock
will begin trading ex-Rights two Business Days prior to the Record Date. If
the Subscription Agent receives Rights for sale in a timely manner, it will
use its best efforts to sell the Rights on the New York Stock Exchange. The
Subscription Agent will also attempt to sell any Rights a Rights holder is
unable to exercise because such Rights represent the right to subscribe for
less than one Share. Any commissions will be paid by the selling Rights
holders. Neither the Fund nor the Subscription Agent will be responsible if
Rights cannot be sold and neither has guaranteed any minimum sales price for
the Rights. For purposes of this Prospectus, a "Business Day" shall mean any
day on which trading is conducted on the Exchange.
<PAGE>6
Stockholders are urged to obtain a recent trading price for the Rights
on the New York Stock Exchange from their broker, bank, financial advisor
or the financial press.
Stockholders' inquiries should be directed to:
State Street Bank and Trust Company
(800) 336-6983 or (617) 328-5000
Important Dates to Remember
Event Date
----- ----
Record Date . . . . . . . . . . . . . . . ______, 1995
Subscription Period . . . . . . . . . . . ______, 1995 through ______, 1995*
Expiration of the Offer . . . . . . . . . ______, 1995*
Payment for Guarantees of Delivery Due . ______, 1995*
Confirmation to Participants . . . . . . ______, 1995*
____________________
* Unless the Offer is extended to a date not later than _____, 1995.
Information Regarding the Fund
The Fund has been engaged in business as a closed-end non-diversified
management investment company since August 21, 1986. The Fund's investment
objective is long-term growth of capital, primarily through investment in a
portfolio of equity securities selected by Gabelli Funds, Inc., the investment
adviser to the Fund. Equity securities in which the Fund may invest consist
of common stock, preferred stock, convertible or exchangeable securities and
warrants and rights to purchase such securities. Income is a secondary
objective of the Fund. No assurance can be given that the Fund's investment
objectives will be achieved. See Investment Objectives and Policies. The
Fund's outstanding common stock, par value $.001 per share (the Common
Stock ), is listed and traded on the Exchange. The average weekly trading
volume of the Common Stock on the Exchange during the year ended December 31,
1994 was 214,844 shares. As of July 31, 1995, the net assets of the Fund were
approximately $926.8 million.
Information Regarding the Investment Adviser
Gabelli Funds, Inc. (the Investment Adviser ) has served as the
investment adviser to the Fund since its inception. The Investment Adviser
also provides certain administrative services to the Fund. Mr. Mario J.
Gabelli, the Chairman of the Board, President, Chief Executive Officer, Chief
Investment Officer and majority stockholder of the Investment Adviser, has
been engaged in the business of providing investment advisory and portfolio
management services for over 15 years and is currently affiliated with
investment advisers which, as of July 31, 1995, managed total assets of
approximately $9.0 billion. The Fund pays the Investment Adviser a monthly
fee at the annual rate of 1.00% of the Fund's average weekly net assets. The
investment advisory fee is higher than comparable fees paid by most other
investment companies. See Management of the Fund Investment Adviser.
Since the Investment Adviser's fees are based on the net assets of the Fund,
the Investment Adviser will benefit from the Offer. In addition, one Director
who is an interested person of the Fund could benefit indirectly from the
Offer because of his interests in the Investment Adviser. See The Offer -
Purpose of the Offer.
Risk Factors and Special Considerations
The following summarizes certain matters that should be considered, among
others, in connection with the Offer.
Dilution . . . . . . An immediate dilution of the aggregate net asset
value of the shares owned by stockholders who do not
fully exercise their Rights is likely to be
experienced as a result of the Offer because the
Subscription Price is likely to be less than the then
net asset value per share, and the number of shares
outstanding after the Offer is likely to increase in
greater percentage than the increase in the size of
the Fund's assets.
<PAGE>7
In addition, as a result of the terms of the Offer,
stockholders who do not fully exercise their
Rights should expect that they will, at the
completion of the Offer, own a smaller proportional
interest in the Fund than would otherwise be the
case. Although it is not possible to state
precisely the amount of such a decrease in value,
because it is not known at this time what the net
asset value per share will be at the Expiration
Date, such dilution could be substantial. For
example, assuming that all Rights are exercised and
that the Subscription Price of $_____ is ___% below
the Fund's then net asset value per share, the
Fund's net asset value per share (before deduction
of expenses incurred in connection with the
Offer) would be reduced by approximately $____
per share.
Discount From
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 fund is a
risk separate and distinct from the risk that the
Fund's net asset value will decrease. The risk of
purchasing shares of a closed-end fund that might
trade at a discount is more pronounced for investors
who wish to sell their shares in a relatively short
period of time because for those investors,
realization of a gain or loss on their investments is
likely to be more dependent upon the existence of a
premium or discount than upon portfolio performance.
Although the Fund's shares have generally traded on
the New York Stock Exchange at a premium over the
past three years, the Fund's shares have since
inception generally traded at a discount to net asset
value. See Common Stock.
Repurchase and
Charter Provisions . The Fund's stockholders will be free to dispose of
their Shares on the New York Stock Exchange or other
markets on which the Shares may trade, but, as a
closed-end fund, the Fund's stockholders do not have
the right to redeem their Shares. The Fund is
authorized to repurchase its shares on the open
market when the shares are trading at a discount of
10% or more from net asset value. In addition,
certain provisions of the Fund's Articles of
Incorporation and By-Laws may be regarded as anti-
takeover provisions. These provisions consist of a
system in which only one of three classes of
Directors is elected each year and the requirement
that the affirmative vote of the holders of 66 % of
the outstanding shares of the Fund is necessary to
authorize the conversion of the Fund from a closed-
end to an open-end investment company or generally to
authorize certain business transactions with the
beneficial owner of more than 5% of the outstanding
shares of the Fund. The overall effect of these
provisions is to render more difficult the
accomplishment of a merger or the assumption of
control by a principal stockholder. These provisions
may have the effect of depriving stockholders of an
opportunity to sell their shares at a premium above
the prevailing market price. See Common Stock
Certain Provisions of the Articles of Incorporation
and By-Laws.
Non-Diversified Status As a non-diversified investment company under the
Investment Company Act of 1940, as amended (the 1940
Act ), the Fund is not limited in the proportion of
its assets that may be invested in securities of a
single issuer, and, accordingly, an investment in the
Fund may, under certain circumstances, present
greater risk to an investor than an investment in a
diversified company. See Risk Factors and Special
Considerations Non-Diversified Status.
<PAGE>8
Foreign Securities . The Fund 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 risks and opportunity considerations
not typically associated with investing in domestic
companies and could cause the Fund to be affected
favorably or unfavorably by changes in currency
exchange rates and revaluation of currencies. See
"Risk Factors and Special Considerations Foreign
Securities."
Dependence on Key
Personnel . . . . . . The Investment Adviser is dependent upon the
expertise of Mr. Mario J. Gabelli in providing
advisory services with respect to the Fund's
investments. There is no contract of
employment between the Investment Adviser and
Mr. Gabelli. If the Investment Adviser were
to lose the services of Mr. Gabelli, its
ability to service the Fund could
be adversely affected. There can be no
assurance that a suitable replacement
could be found for Mr. Gabelli in the
event of his death, resignation,
retirement or inability to act on behalf
of the Investment Adviser.
Distributions . . . . The Fund's policy is to make quarterly distributions
of $0.25 per share at the end of each of the first
three calendar quarters of each year. The Fund'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 Fund as of the last
day of the four preceding calendar quarters less
the aggregate distributions of $0.75 per share
made for the most recent three calendar quarters)
in order to meet the Fund's 10% pay-out goal as
well as the distribution requirements of the
Internal Revenue Code of 1986, as amended (the
"Code"). During 1995, for the purpose of providing
investors the benefit of capital gains tax treatment
for the final dividend of the year to the
fullest extent, the Directors declared a $.50
distribution payable in the fourth quarter to pay
its long-term capital gains once for the year,
thus, in effect combining the third and fourth
quarter distributions. In connection with the 1940
Act requirement that long-term capital gains be
distributed only once per year and the Board
of Directors' desire to pay dividends on a
quarterly basis, authority was granted for the Fund
to file an exemptive request with the Commission
to allow the Fund to distribute long-term
capital gains more frequently than once a year.
If the exemption is granted, the Directors expect
to declare quarterly distributions in 1996.
Otherwise, the Fund plans to pay a $0.25 per
share distribution in each of the first two
quarters of 1996, and declare an adjusting dividend
to meet the Fund's 10% distribution policy as well
as distribution requirements under the Code. 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 stockholder's tax basis in his
shares) which can be made payable by the Fund
either in the form of a cash distribution or a stock
dividend. The amount treated as a tax-free return
of capital will reduce a stockholder'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 Fund's current and
accumulated earnings and profits. Such
distribution policy may, under certain
circumstances, have certain adverse consequences
to the Fund and its stockholders. See
"Dividends and Distributions; Automatic Dividend
Reinvestment Voluntary and Cash Purchase Plan"
for a discussion of the Fund's distribution
policy and the circumstances under which such
consequences may occur.
<PAGE>9
The Fund reserves the right, but does not currently
intend, to retain for reinvestment net long-term
capital gains in excess of net short-term capital
losses. Such amounts will be taxed to shareholders as
long-term capital gains and shareholders will be able
to claim their proportionate share of the federal
income taxes paid by the Fund on such gains as a
credit against their own federal income tax
liabilities, and will be entitled to increase the
adjusted tax basis of their Fund shares by the
difference between their undistributed capital gains
and their tax credit. See "Taxation."
<PAGE>10
FEE TABLE
The following table sets forth certain fees and expenses of the Fund.
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price) . . . . 0%
Automatic Dividend Reinvestment and Cash
Purchase Plan Fees* . . . . . . . . . . . . . . . . .$0.75
Annual Expenses (as a percentage of net assets)
Management Fees . . . . . . . . . . . . . . . . . . 1.0%
Other Expenses . . . . . . . . . . . . . . . . . . . .3%
Total Annual Expenses . . . . . . . . . . . . . . . 1.3%
----------------------------------
*A fee of $0.75 is charged with respect to each purchase by a participant in
the Fund's Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
(the "Plan"). A fee of $2.50 is charged in connection with the sale of shares
that are held in book-entry form, such as shares held by a stockholder through
the Plan.
Example 1 Year 3 Years 5 Years 10 Years
------- ------ ------- ------- --------
You would pay the following
expenses on a $1,000
investment assuming a 5%
annual return . . . . . . $14* $41 $71 $157
--------------------------------
* Includes a $.75 automatic dividend reinvestment fee; without such fee,
expenses in year one would be $13.
The purpose of the foregoing table and example is to assist Rights
holders in understanding the various costs and expenses that an investor in
the Fund bears, directly or indirectly, but should not be considered a
representation of past or future expenses or rate of return. The actual
expenses of the Fund may be greater or less than those shown. The figures
provided under Other Expenses are based upon estimated amounts for the
current fiscal year. For more complete descriptions of certain of the Fund's
cost and expenses, see Management of the Fund" in the Prospectus and the SAI.
<PAGE>11
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a share of Common
Stock outstanding throughout each period presented. The per share operating
performance and ratios for each of the periods, other than the six-month
period ended June 30, 1995, has been audited by Price Waterhouse LLP, the
Fund's independent accountants, as stated in their report which is
incorporated by reference into the SAI. The following information should be
read in conjunction with the Financial Statements and Notes thereto, which are
incorporated by reference into the SAI.
Per Share Operating Performance
For a Fund Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
1995
1986* 1987 1988 1989 1990 1991 1992 1993(a) 1994(a) (Unaudited)
----- ---- ---- ---- ---- ---- ---- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period . $ 9.35 $ 9.40 $ 9.82 $ 11.22 $ 13.34 $ 10.49 $ 10.61 $ 10.58 $ 11.23 $ 9.46
Net investment income . 0.10 0.16 0.14 0.38 0.44 0.27 0.19 0.14 0.14 0.07
Net realized and
unrealized gain/(loss)
on investments . . . (0.04) 0.89 2.32+ 3.26+ (2.11) 1.37 1.21 2.13 (0.08) 0.89
Provision for income
taxes . . . . . . . . . - - (0.09) (0.21) - - - - - -
Total from investment
operations . . . . . 0.06 1.05 2.37 3.43 (1.67) 1.64 1.40 2.27 0.06 0.96
Increase/(decrease) in
net asset value from
Fund share transactions - 0.01 0.02 - - (0.42) (0.36) (0.50) - -
Offering expenses charged
to capital surplus . (0.01) - - - - (0.01) (0.01) (0.01) - -
Distributions to
stockholders from:
Net investment income . . - (0.19) (0.21) (0.29) (0.53) (0.27) (0.19) (0.11) (0.14)(b) (0.07)
Distributions in excess
of net investment
income . . . . . . . - - - - - - - - - (0.43)
Net realized gains . - (0.45) (0.78) (1.02) (0.23) (0.14) (0.38) (0.77) (0.37) -
Distributions in excess
of net realized gains - - - - - - - (0.02) - -
Paid-in capital . . . - - - - (0.42) (0.68) (0.49) (0.21) (1.32)(b) -
Total distributions . . 0.00 (0.64) (0.99) (1.31) (1.18) (1.09) (1.06) (1.11) (1.83) (0.50)
Net asset value, end of
period . . . . . . . $ 9.40 $ 9.82 $ 11.22 $ 13.34 $ 10.49 $ 10.61 $ 10.58 $ 11.23 $ 9.46 $ 9.92
Market value, end of
period . . . . . . . $ 8.625 $ 7.625 $ 9.875 $ 14.000 $ 10.500 $ 10.125 $ 10.250 $ 12.125 $ 9.625 $ 10.000
Total Investment
Return**+ . . . . . . (13.8)% (0.9)% 37.8% 59.0% (16.7)% 10.9% 15.9% 36.5% (5.1)% 9.3%
Net Asset Value Total
Return*** . . . . . . 0.5% 17.1% 21.5% 33.2% (12.7)% 16.2% 14.2% 22.4% 0.5% 10.3%
Ratios to average net
assets/supplemental
data:
Net assets, end of period
(in 000's) . . . . . $413,760 $429,490 $484,792 $589,990 $479,863 $595,151 $725,263 $937,773 $825,193 $882,888
Net investment income 2.89%++ 1.50% 1.36% 2.82% 3.84% 2.34% 1.88% 1.25% 1.29% 1.46%++
Operating expenses . 1.24%++ 1.24% 1.25% 1.18% 1.18% 1.24% 1.22% 1.20% 1.19% 1.25%++
Portfolio turnover rate 58.8% 96.5% 51.5% 28.1% 15.5% 11.2% 12.5% 24.4% 22.2% 8.3%
</TABLE>
_____________________
* The Fund commenced operations on August 21, 1986.
** Based on market value per share, adjusted for reinvestment of
distributions and taxes, including distribution of rights, assuming full
subscription by stockholder.
*** Based on net asset value per share, adjusted for reinvestment of
distributions and taxes, including distribution of rights, assuming full
subscription by stockholder.
+ Before provision for income taxes.
++Annualized.
(a) Per share amounts have been calculated using the monthly average shares
outstanding method.
(b) A distribution equivalent to $0.75 per share for The Gabelli Global
Multimedia Trust Inc. spin-off from net investment income, realized short-
term gains, and paid-in capital were $0.064, $0.031 and $0.655,
respectively.
<PAGE>12
THE OFFER
Terms of the Offer
The Fund is issuing to Record Date Stockholders Rights to subscribe for the
Shares. Each Record Date Stockholder is being issued one transferable Right
for each share of Common Stock owned on the Record Date. The Rights entitle
the holder to acquire at the Subscription Price one Share for each six Rights
held. No Rights will be issued for fractional shares. Rights may be
exercised at any time during the Subscription Period, which commences on
___________, 1995 and ends at 5:00 p.m., New York time, on _______, 1995,
unless extended by the Fund to a date not later than _________, 1995, 5:00
p.m., New York time. See "Expiration of the Offer."
In addition, any Record Date Stockholder who fully exercises all Rights
initially issued to him (other than those Rights which cannot be exercised
because they represent the right to acquire less than one Share) is entitled
to subscribe for Shares which were not otherwise subscribed for by others on
Primary Subscription. For purposes of determining the maximum number of
Shares a Record Date Stockholder may acquire pursuant to the Offer, broker-
dealers whose shares are held of record by Cede or by any other depository or
nominee will be deemed to be the holders of the Rights that are issued to Cede
or such other depository or nominee on their behalf. Shares acquired pursuant
to the Over-Subscription Privilege are subject to allotment, which is more
fully discussed below under "Over-Subscription Privilege."
The Investment Adviser, as a Record Date Stockholder, has advised the Fund
that its board of directors has authorized it to purchase through the Primary
Subscription and the Over-Subscription Privilege underlying Shares with an
aggregate Subscription Price of up to $__ million to the extent such Shares
become available to it in accordance with the Primary Subscription and the
allotment provisions of the Over-Subscription Privilege. In addition, Mario
J. Gabelli individually, as a Record Date Stockholder, may also purchase
Shares through the Primary Subscription and the Over-Subscription Privilege
with an aggregate Subscription Price of up to $____. Such over-subscriptions
by the Investment Adviser and Mr. Gabelli may disproportionately increase
their existing ownership resulting in a higher percentage ownership of
outstanding shares of the Fund. Any Shares so acquired by the Investment
Adviser or Mr. Gabelli, as "affiliates" of the Fund as that term is defined
under the Securities Act of 1933, as amended (the "Securities Act"), may only
be sold in accordance with Rule 144 under the Securities Act or pursuant to an
effective registration statement under the Securities Act. In general, under
Rule 144, as currently in effect, an "affiliate" of the Fund is entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of 1% of the then outstanding shares of Common Stock or the
average weekly reported trading volume of the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain restrictions on the manner of sale, to notice requirements and to the
availability of current public information about the Fund. In addition, any
profit resulting from the sale of Shares so acquired, if such Shares are held
for a period of less than six months, will be returned to the Fund.
Rights will be evidenced by Subscription Certificates. The number of Rights
issued to each holder will be stated on the Subscription Certificates
delivered to such holder. The method by which Rights may be exercised and
Shares paid for is set forth below in "Method of Exercise of Rights" and
"Payment for Shares." A Rights holder will have no right to rescind a
purchase after the Subscription Agent has received payment. See "Payment for
Shares" below. Shares issued pursuant to an exercise of Rights will be listed
on the New York Stock Exchange.
The Rights are transferable until the Expiration Date and have been admitted
for trading on the New York Stock Exchange. Assuming a market exists for the
Rights, the Rights may be purchased and sold through usual brokerage channels
and sold through the Subscription Agent. Although no assurance can be given
that a market for the Rights will develop, trading in the Rights on the
Exchange will begin three Business Days before the Record Date and may be
conducted until the close of trading on the last Exchange trading day prior to
the Expiration Date. Trading of the Rights on the Exchange will be conducted
on a when issued basis until and including the date on which the Subscription
Certificates are mailed to Record Date Stockholders and thereafter will be
conducted on a regular way basis until and including the last Exchange trading
day prior to the Expiration Date. The method by which Rights may be
transferred is set forth below in "Method of Transferring Rights." The
underlying Shares will also be admitted for trading on the New York Stock
Exchange and will begin trading Ex-Rights two Business Days prior to the
Record Date. Since fractional Shares will not be issued, Rights holders who
receive, or who are left with, fewer than six Rights will be unable to
exercise such Rights and will not be entitled to receive any cash in lieu of
such fractional Shares. However, the Subscription Agent will automatically
attempt to sell the number of Rights which a Rights holder is unable to
exercise for such reason after return of a completed and fully exercised
Subscription Certificate, and will remit the proceeds of any such sale net of
commissions to the Rights holder.
<PAGE>13
Purpose of the Offer
The Board of Directors of the Fund has determined that it would be in the best
interests of the Fund and the stockholders to increase the assets of the Fund
available for investment thereby permitting the Fund to be in a better
position to more fully take advantage of investment opportunities that may
arise. The Board of Directors also considered the performance of the Fund
following three similar rights offerings conducted by the Fund in the past
five years as described below and the fact that such rights offerings were
over-subscribed. The Offer seeks to reward existing stockholders by giving
them the right to purchase additional shares at a price that may be below
market and/or net asset value without incurring any commission charge. The
distribution to stockholders of transferable Rights which themselves may have
intrinsic value will also afford non-subscribing stockholders the potential of
receiving a cash payment upon sale of such Rights, receipt of which may be
viewed as compensation for the possible dilution of their interests in the
Fund.
In October 1991, September 1992 and July 1993, the Fund issued transferable
rights to stockholders entitling the holders thereof to subscribe for an
aggregate of 7,882,562 shares, 9,563,615 shares and 11,654,962 shares,
respectively, of the Fund's Common Stock at the rate of one share of Common
Stock for each six rights held and entitling stockholders 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 Fund's Common Stock at the
time of the offer of approximately 27.5% in the 1991 offering, 22.5% in the
1992 offering and 29.9% in the 1993 offering and a discount from market value
of approximately 25.6% in each offering. Each of the rights offerings was
substantially oversubscribed, resulting in the issuance of the maximum number
of shares being offered. The Fund raised $63,060,496 in the 1991 offering,
$76,508,920 in the 1992 offering and $93,239,696 in the 1993 offering, while
subscriptions remitted to the Fund totaled more than $136,000,000,
$164,000,000 and $176,000,000, 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 and more
than 93% participated in the 1993 offering.
The Fund's Investment Adviser and The Shareholder Services Group, Inc., its
sub-administrator (the "Sub-Administrator"), will benefit from the Offer
because the Investment Adviser's fee and the Sub-Administrator's fee are based
on the average net assets of the Fund. See "Management of the Fund." It is
not possible to state precisely the amount of additional compensation the
Investment Adviser or Sub-Administrator will receive as a result of the Offer
because the proceeds of the Offer will be invested in additional portfolio
securities which will fluctuate in value. However, assuming all Rights are
exercised and that the Fund receives the maximum proceeds of the Offer, the
annual compensation to be received by the Investment Adviser and the Sub-
Administrator would be increased by approximately $_______ and $______,
respectively. Two of the Fund's Directors who voted to authorize the Offer
are "interested persons" of the Investment Adviser within the meaning of the
1940 Act. One of these Directors, Mario J. Gabelli, could benefit indirectly
from the Offer because of his interest in the Investment Adviser. The other
seven Directors are not "interested persons" of the Fund. See "Management of
the Fund" in the SAI. While it was cognizant of the possible participation of
the Investment Adviser and Mr. Gabelli in the Offer as stockholders, the
Fund's Board of Directors nevertheless concluded that the Offer was in the
best interest of stockholders, since all stockholders of the Fund are treated
equally under the terms of the Offer.
The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms which
may or may not be similar to the Offer. Any such future rights offering will
be made in accordance with the 1940 Act. Under the laws of Maryland, the
state in which the Fund is incorporated, the Board of Directors is authorized
to approve rights offerings without obtaining stockholder approval. The staff
of the Securities and Exchange Commission (the "Commission") has interpreted
the 1940 Act as not requiring stockholder approval of a rights offering at a
price below the then current net asset value so long as certain conditions are
met, including a good faith determination by the fund's board of directors
that such offering would result in a net benefit to existing stockholders.
While the Fund's Board of Directors has made this determination with respect
to the Offer, the Fund's stockholders approved rights offerings generally at
the 1993 Annual Meeting of Stockholders.
Over-Subscription Privilege
If all of the Rights initially issued are not exercised, any Shares for which
subscriptions have not been received will be offered, by means of the Over-
Subscription Privilege, to Record Date Stockholders who have exercised all the
Rights initially issued to them and who wish to acquire more than the number
of Shares for which the Rights issued to them are exercisable. Record Date
Stockholders who exercise all the Rights initially issued to them will have
the opportunity to indicate on the Subscription Certificate how many Shares
they are willing to acquire pursuant to
<PAGE>14
the Over-Subscription Privilege. If sufficient Shares remain after the
Primary Subscriptions have been exercised, all over-subscriptions will be
honored in full. If sufficient Shares are not available to honor all over-
subscriptions, the available Shares will be allocated among those who over-
subscribe based on the number of Rights originally issued to them by the Fund.
The percentage of remaining Shares each over-subscribing stockholder may
acquire will be rounded down to result in delivery of whole Shares. The
allocation process may involve a series of allocations in order to assure that
the total number of Shares available for over-subscriptions is distributed on
a pro rata basis.
The method by which Shares will be distributed and allocated pursuant to the
Over-Subscription Privilege is as follows. Shares will be available for
purchase pursuant to the Over-Subscription Privilege only to the extent that
the maximum number of Shares is not subscribed for through the exercise of the
Primary Subscription by the Expiration Date. If the Shares so available
("Excess Shares") are not sufficient to satisfy all subscriptions pursuant to
the Over-Subscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional Shares) among those holders of
Rights exercising the Over-Subscription privilege, in proportion, not to the
number of Shares requested pursuant to the Over-Subscription Privilege, but to
the number of shares held on the Record Date; provided, however, that if such
pro rata allocation results in any holder being allocated a greater number of
Excess Shares than such holder subscribed for pursuant to the exercise of such
holder's Over-Subscription Privilege, then such holder will be allocated only
such number of Excess Shares as such holder subscribed for and the remaining
Excess Shares will be allocated among all other holders exercising Over-
Subscription Privileges. The formula to be used in allocating the Excess
Shares is as follows:
Holder's Record Date Position
-----------------------------
Total Record Date Position X Excess Shares Remaining
of all Over-Subscribers
The Fund will not offer or sell any Shares which are not subscribed for under
the Primary Subscription or the Over-Subscription Privilege.
The Subscription Price
The Subscription Price for the Shares to be issued pursuant to the Rights will
be $____.
The Fund announced the Offer after the close of trading on the New York Stock
Exchange on August 18, 1995. The net asset value per share of Common Stock at
the close of business on August 18, 1995 and _______, 1995 was $10.45 and
$________, respectively. The last reported sale price of a share of the
Fund's Common Stock on the Exchange on those dates was $9.875 and $_____,
respectively, representing a 5.5% discount and a ____% [premium/discount],
respectively, in relation to the net asset value per share of Common Stock at
the close of business on such dates.
Sales by Subscription Agent
Holders of Rights who do not wish to exercise any or all of their Rights may
instruct the Subscription Agent to sell any unexercised Rights. The
Subscription Certificates representing the Rights to be sold by the
Subscription Agent must be received on or before _________, 1995. Upon the
timely receipt of appropriate instructions to sell Rights, the Subscription
Agent will use its best efforts to complete the sale and will remit the
proceeds of sale, net of commissions, to the holders. If the Rights can be
sold, sales of such Rights will be deemed to have been effected at the
weighted average price received by the Subscription Agent on the day such
Rights are sold. The selling Rights holder will pay all brokerage commissions
incurred by the Subscription Agent. Such sales may be effected by the
Subscription Agent through Gabelli & Company, Inc., a registered broker-dealer
and an indirect majority-owned subsidiary of the Investment Adviser, for up to
$____ per Right, provided that, if the Subscription Agent is able to negotiate
a lower brokerage commission with an independent broker, the Subscription
Agent will execute these sales through the broker. Gabelli & Company, Inc.
may also act on behalf of its clients to purchase Rights in the open market
and be compensated therefor. In addition, upon return of a completed and
fully exercised Subscription Certificate, the Subscription Agent will
automatically attempt to sell any Rights a Rights holder is unable to exercise
because such Rights will represent the right to subscribe for less than one
Share. The Subscription Agent will also attempt to sell all Rights which
remain unclaimed as a result of Subscription Certificates being returned by
the postal authorities as undeliverable as of the fourth Business Day prior to
the Expiration Date. Such sales will be made net of commissions on behalf of
the nonclaiming stockholders. Proceeds from those sales will be held by State
Street Bank and Trust Company, in its capacity as the Fund's transfer agent,
for the account of such nonclaiming stockholder until such proceeds are either
claimed or escheat. There can be no assurance that the Subscription Agent
will be able to complete the sale of any such Rights and neither the Fund nor
the
<PAGE>15
Subscription Agent has guaranteed any minimum sales price for the Rights. All
such Rights will be sold at the market price, if any, on the New York Stock
Exchange.
Method of Transferring Rights
The Rights evidenced by a single Subscription Certificate may be transferred
in whole by endorsing the Subscription Certificate for transfer in accordance
with the accompanying instructions. A portion of the Rights evidenced by a
single Subscription Certificate (but not fractional Rights) may be transferred
by delivering to the Subscription Agent a Subscription Certificate properly
endorsed for transfer, with instructions to register such portion of the
Rights evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred
Rights). In such event, a new Subscription Certificate evidencing the balance
of the Rights will be issued to the Rights holder or, if the Rights holder so
instructs, to an additional transferee.
Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow at least three Business Days prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued
and transmitted to the transferee or transferees with respect to transferred
Rights, and to the transferor with respect to retained rights, if any, and
(iii) the Rights evidenced by such new Subscription Certificates to be
exercised or sold by the recipients thereof. Neither the Fund nor the
Subscription Agent shall have any liability to a transferee or transferor of
Rights if Subscription Certificates are not received in time for exercise or
sale prior to the Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid by
the Fund as described below), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection
with the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will
be paid by the Fund or the Subscription Agent.
The Fund anticipates that the Rights will be eligible for transfer through,
and that the exercise of the Primary Subscription (but not the Over-
Subscription Privilege) may be effected through, the facilities of The
Depository Trust Company ("DTC"; Rights exercised through DTC are referred to
as "DTC Exercised Rights"). The holder of a DTC Exercised Right may exercise
the Over-Subscription Privilege in respect of such DTC Exercised Right by
properly executing and delivering to the Subscription Agent, at or prior to
5:00 p.m., New York time, on the Expiration Date, a DTC Participant Over-
Subscription Form, together with payment of the Subscription Price for the
number of Shares for which the Over-Subscription Privilege is to be exercised.
Copies of the DTC Participant Over-Subscription Form may be obtained from the
Subscription Agent.
Expiration of the Offer
The Offer will expire at 5:00 p.m., New York time, on __________, 1995, unless
extended by the Fund to a date not later than __________, 1995, 5:00 p.m., New
York time (the "Expiration Date"). Rights will expire on the Expiration Date
and thereafter may not be exercised.
Subscription Agent
The Subscription Agent is State Street Bank and Trust Company, P.O. Box 8200,
Boston, Massachusetts 02266-8200. The Subscription Agent will receive from
the Fund an amount estimated to be $_________, comprised of the fee for its
services and the reimbursement for certain expenses related to the Offer. The
Subscription Agent is also the Fund's dividend disbursing agent, transfer
agent and registrar. Inquiries by all holders of Rights should be directed to
P.O. Box 8200, Boston, Massachusetts 02266-8200 (telephone (800) 336-6983 or
(617) 328-5000 Ex. 6406); holders may also consult their brokers or nominees.
Method of Exercise of Rights
Rights may be exercised by filling in and signing the reverse side of the
Subscription Certificate and mailing it on the envelope provided, or otherwise
delivering the completed and signed Subscription Certificate to the
Subscription Agent, together with payment for the Shares as described below
under "Payment for Shares." Rights may also be exercised through a Rights
holder's broker, who may charge such Rights holder a servicing fee in
connection with such exercise. Fractional Shares will not be issued, and
Rights holders who receive, or who are left with, fewer than six Rights will
not be able to exercise such Rights. The Subscription Agent will
automatically attempt to sell the number of Rights which a Rights holder is
unable to exercise for this reason after return of a completed and fully
exercised Subscription Certificate and will remit the proceeds of such sale
net of commissions to the Rights holder.
<PAGE>16
Completed Subscription Certificates must be received by the Subscription Agent
prior to 5:00 p.m., New York time, on the Expiration Date (unless payment is
effected by means of a notice of guaranteed delivery as described below under
"Payment for Shares"). The Subscription Certificate and payment should be
delivered to STATE STREET BANK AND TRUST COMPANY, Attention: Corporate Stock
Transfer Department at the following address:
If By Mail:
P.O. Box 9061
Boston, Massachusetts 02205-8686
If By Hand:
225 Franklin Street or 61 Broadway
Concourse Level Concourse Level
Boston, Massachusetts 02110 New York, New York 10006
If By Overnight Courier:
c/o Boston Financial Data Services, Inc.,
Corporate Stock Transfer Department
Two Heritage Drive 4th Floor
North Quincy, Massachusetts 02171
Payment of Shares
Holders of Rights who acquire Shares on Primary Subscription or pursuant to
the Over-Subscription Privilege may choose between the following methods of
payment:
(1) A subscription will be accepted by the Subscription Agent if,
prior to 5:00 p.m., New York time, on the Expiration Date, the
Subscription Agent has received a notice of guaranteed delivery by
telegram or otherwise from a bank, a trust company, or a New York Stock
Exchange member, guaranteeing delivery of (i) payment of the full
Subscription Price for the Shares subscribed for on Primary Subscription
and any additional Shares subscribed for pursuant to the Over-Subscription
Privilege and (ii) a properly completed and executed Subscription
Certificate. The Subscription Agent will not honor a notice of guaranteed
delivery if a properly completed and executed Subscription Certificate and
full payment is not received by the Subscription Agent by the close of
business on the fifth Business Day after the Expiration Date. The notice
of guaranteed delivery may be delivered to the Subscription Agent in the
same manner as Subscription Certificates at the addresses set forth above,
or may be transmitted to the Subscription Agent by facsimile transmission
(telecopy number (617) 774-4519; telephone number to confirm receipt is
(617) 774-4511).
(2) Alternatively, a holder of Rights can send the Subscription
Certificate together with payment in the form of a check for the Shares
subscribed for on Primary Subscription and additional Shares subscribed
for pursuant to the Over-Subscription Privilege to the Subscription Agent
based on the Subscription Price of $________ per Share. To be accepted,
such payment, together with the executed Subscription Certificate, must be
received by the Subscription Agent at the addresses noted above prior to
5:00 p.m., New York time, on the Expiration Date. The Subscription Agent
will deposit all stock purchase checks received by it prior to the final
due date into a segregated interest-bearing account pending proration and
distribution of Shares. The Subscription Agent will not accept cash as a
means of payment for Shares. EXCEPT AS OTHERWISE SET FORTH BELOW, A
PAYMENT PURSUANT TO THIS METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY
ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE CONTINENTAL UNITED STATES,
MUST BE PAYABLE TO THE GABELLI EQUITY TRUST INC., AND MUST ACCOMPANY AN
EXECUTED SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. If the aggregate
Subscription Price paid by a Record Date Stockholder is insufficient to
purchase the number of shares of Common Stock that the holder indicates
are being subscribed for, or if a Record Date Stockholder does not specify
the number of shares of Common Stock to be purchased, then the Record Date
Stockholder will be deemed to have exercised first, the Primary
Subscription Rights (if not already fully exercised) and second, the Over-
Subscription Privilege to the full extent of the payment tendered. If the
aggregate Subscription Price paid by a Record Date Stockholder exceeds the
amount necessary to purchase the number of shares of Common Stock for
which the Record Date Stockholder has indicated an intention to subscribe,
then the Record Date Stockholder will be deemed to have exercised first,
the Primary Subscription Rights (if not already fully subscribed) and
second, the Over-Subscription Privilege to the full extent of the excess
payment tendered.
<PAGE>17
Within ten Business Days following the Expiration Date (the "Confirmation
Date"), a confirmation will be sent by the Subscription Agent to each holder
of Rights (or, if the Fund's shares are held by Cede or any other depository
or nominee, to Cede or such other depository or nominee), showing (i) the
number of Shares acquired pursuant to the Primary Subscription, (ii) the
number of Shares, if any, acquired pursuant to the Over-Subscription
Privilege, (iii) the per Share and total purchase price for the Shares and
(iv) any excess to be refunded by the Fund to such holder as a result of
payment for Shares pursuant to the Over-Subscription Privilege which the
holder is not acquiring. Any payment required from a holder of Rights must be
received by the Subscription Agent on the Expiration Date, or if the Rights
holder has elected to make payment by means of a notice of guaranteed
delivery, on the fifth Business Day after the Expiration Date. Any excess
payment to be refunded by the Fund to a holder of Rights, or to be paid to a
holder of Rights as a result of sales of Rights on his behalf by the
Subscription Agent or exercises by Record Date Stockholders of their Over-
Subscription Privileges, and all interest accrued on such holder's excess
payment will be mailed by the Subscription Agent to such holder within fifteen
Business Days after the Expiration Date. Interest on such excess payment will
accrue through the date that is one Business Day prior to the mail date of the
reimbursement check. All payments by a holder of Rights must be in United
States dollars by money order or check drawn on a bank located in the
continental United States of America and payable to The Gabelli Equity Trust
Inc. except that holders of Rights who are residents of the Province of
Ontario may also make payment in U.S. dollars by money order or check drawn on
a bank located in the province of Ontario.
Whichever of the two methods described above is used, issuance and
delivery of certificates for the Shares purchased are subject to collection of
checks and actual payment pursuant to any notice of guaranteed delivery.
A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received payment either by means of a notice of
guaranteed delivery or a check.
If a holder of Rights who acquires Shares pursuant to the Primary
Subscription or the Over-Subscription Privilege does not make payment of any
amounts due, the Fund reserves the right to take any or all of the following
actions: (i) find other purchasers for such subscribed-for and unpaid-for
Shares; (ii) apply any payment actually received by it toward the purchase of
the greatest whole number of Shares which could be acquired by such holder
upon exercise of the Primary Subscription or the Over-Subscription Privilege;
(iii) sell all or a portion of the Shares purchased by the holder, in the open
market, and apply the proceeds to the amounts owed; and (iv) exercise any and
all other rights or remedies to which it may be entitled, including, without
limitation, the right to set off against payments actually received by it with
respect to such subscribed Shares and to enforce the relevant guaranty of
payment.
Holders who hold shares of Common Stock for the account of others, such
as brokers, trustees or depositaries for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the record holder of such
Rights should complete Subscription Certificates and submit them to the
Subscription Agent with the proper payment. In addition, beneficial owners of
Common Stock or Rights held through such a holder should contact the holder
and request the holder to effect transactions in accordance with the
beneficial owner's instructions.
The instructions accompanying the Subscription Certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES
TO THE FUND.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED
PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE
STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF A CERTIFIED OR
CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Fund, whose determinations
will be final and binding. The Fund in its sole discretion may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Fund determines in its sole discretion.
<PAGE>18
Neither the Fund nor the Subscription Agent will be under any duty to give
notification of any defect or irregularity in connection with the submission
of Subscription Certificates or incur any liability for failure to give such
notification.
Delivery of Stock Certificates
Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to subscribers as soon as practicable after the
corresponding Rights have been validly exercised and full payment for such
Shares has been received and cleared. Certificates representing Shares
purchased pursuant to the Over-Subscription Privilege will be delivered to
subscribers as soon as practicable after the Expiration Date and after all
allocations have been effected. Participants in the Fund's Automatic Dividend
Reinvestment and Voluntary Cash Purchase Plan (the "Plan") will be issued
Rights for the shares held in their accounts in the Plan. Participants
wishing to exercise such Rights must exercise such Rights in accordance with
the procedures set forth above in "Method of Exercise of Rights" and "Payment
for Shares." Such Rights will not be exercised automatically by the Plan.
Plan participants exercising their Rights will receive their Primary and Over-
Subscription Shares via an uncertificated credit to their existing account.
To request a stock certificate, participants in the Plan should check the
appropriate box on the Subscription Certificate. Such Shares will remain
subject to the same investment option as previously selected by the Plan
participant.
Foreign Restrictions
Subscriptions Certificates will only be mailed to Record Date
Stockholders whose addresses are within the United States and the Provinces of
Quebec and Ontario, Canada (other than an APO or FPO address). Record Date
Stockholders whose addresses are outside the United States and the Provinces
of Quebec and Ontario, Canada or who have an APO or FPO address and who wish
to subscribe to the Offer either partially or in full should contact the
Subscription Agent, State Street Bank and Trust Company, by written
instruction or recorded telephone conversation no later than three Business
Days prior to the Expiration Date. If the Subscription Agent has received no
instruction by such date, the Subscription Agent will attempt to sell all
Rights and remit the net proceeds, if any, to such stockholders. If the
Rights can be sold, sales of such Rights will be deemed to have been effected
at the weighted average price received by the Subscription Agent on the day
such Rights are sold, less any applicable brokerage commissions, taxes and
other expenses.
Under the securities laws of the Province of Quebec, investors residing
in Quebec may, subject to compliance with all applicable regulatory
requirements, transfer either the Rights or the Shares to be acquired upon the
exercise of such Rights to other subscribers of the Offer, to persons with
whom they are related or to persons residing outside of Quebec in a
transaction effected on an organized market.
Under the securities laws of the Province of Ontario, investors residing
in Ontario may, subject to compliance with all applicable regulatory
requirements, transfer either the Rights or the Shares to be acquired upon the
exercise of such Rights (i) through a dealer registered in Ontario that
effects the transaction through the facilities of the New York Stock Exchange
or (ii) through certain other means as provided under and in compliance with
Ontario securities laws.
Federal Income Tax Consequences
For federal income tax purposes, neither the receipt nor the exercise of
the Rights by Record Date Stockholders will result in taxable income to
holders of the Common Stock, and no loss will be realized if the Rights expire
without exercise.
With respect to Rights issued to Record Date Stockholders that are
subsequently exercised or disposed of, if the fair market value of the Rights
on the date of distribution is equal to 15 percent or more of the fair market
value of the Common Stock, the adjusted basis in the Rights exercised or
disposed of is determined by allocating the adjusted basis in the Common Stock
with respect to which the distribution is made between such Rights and such
Common Stock in proportion to their fair market value on the date of
distribution (the "General Rule"). In these circumstances, the adjusted basis
in the Shares acquired through exercise of the Rights is the Subscription
Price plus the adjusted basis in the Rights exercised. If the fair market
value of the Rights on the date of distribution is less than 15 percent of the
fair market value of the Common Stock on that date, in the absence of an
election to apply the General Rule, the adjusted basis in the Rights exercised
or disposed of is zero, and the adjusted basis in the newly acquired Common
Stock is the Subscription Price. An election to apply the General Rule should
be made in the form of a statement attached to the stockholder's tax return
for the year in which the Rights were received
<PAGE>19
and must be made with respect to all Rights received in this distribution.
The election, once made, is irrevocable with respect to these Rights.
With respect to Rights which are purchased, the basis in the Rights is
their cost, and the basis of the newly acquired Shares issued upon exercise of
such Rights is the Subscription Price for the newly acquired Shares plus the
basis in the Rights exercised. If any purchased Rights expire without
exercise, the Rights holder will recognize a short-term capital loss.
If Rights are sold, the gain or loss will be the difference between their
adjusted basis and their sale price. The gain or loss recognized upon the
sale of the Rights will be capital gain or loss if the Rights were held as a
capital asset at the time of sale and will be long-term capital gain or loss
if the Rights are deemed to have been held at the time of sale for more than
one year. The holding period for the Rights which are sold includes the
holding period of the Common Stock in respect of which the Rights were
distributed.
The holding period for a Share acquired upon exercise of a Right begins
with the date of exercise. The gain or loss recognized upon a sale of that
Share will be capital gain or loss if the Share was held as a capital asset at
the time of sale and will be long-term capital gain or loss if it was held at
the time of sale for more than one year.
The foregoing is a general summary of the applicable provisions of the
Code and United States Treasury regulations presently in effect, and does not
cover state or local taxes. The Code and such regulations are subject to
change by legislative or administrative action. Stockholders are advised to
consult their own tax advisors with respect to the particular tax consequences
to them with respect to exercise or transfer of Rights.
Employee Plan Considerations
Stockholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including
corporate savings and 401(k) plans), Keogh Plans of self-employed individuals
and Individual Retirement Accounts (collectively, "Benefit Plans") should be
aware that additional contributions of cash in order to exercise Rights would
be treated as Benefit Plan contributions and, when taken together with
contributions previously made, may subject a Benefit Plan to excise taxes for
excess or nondeductible contributions. In the case of Benefit Plans qualified
under Section 401(a) of the Code, additional cash contributions could cause
the maximum contribution limitations of Section 415 of the Code or other
qualification rules to be violated. Benefit Plans contemplating making
additional cash contributions to exercise Rights should consult with their
counsel prior to making such contributions.
Benefit Plans and other tax exempt entities, including governmental
plans, should also be aware that if they borrow in order to finance their
exercise of Rights, they may become subject to the tax on unrelated business
taxable income ("UBTI") under Section 511 of the Code. If any portion of an
Individual Retirement Account ("IRA") is used as security for a loan, the
portion so used is also treated as distributed to the IRA depositor.
ERISA contains prudence and diversification requirements and ERISA and
the Code contain prohibited transaction rules that may impact the exercise of
Rights. Among the prohibited transaction exemptions issued by the Department
of Labor that may exempt a Benefit Plan's exercise of Rights are Prohibited
Transaction Exemption 84-24 (governing purchases of shares in investment
companies) and Prohibited Transaction Exemption 75-1 (covering shares of
securities).
Due to the complexity of these rules and the penalties for noncompliance,
Benefit Plans should consult with their counsel regarding the consequences of
their exercise of Rights under ERISA and the Code.
Risk Factors and Special Considerations
An immediate dilution of the aggregate net asset value of the shares
owned by stockholders who do not fully exercise their Rights is likely to be
experienced as a result of the Offer because the Subscription Price is likely
to be less than the then net asset value per share, and the number of shares
outstanding after the Offer is likely to increase in greater percentage than
the increase in the size of the Fund's assets. In addition, as a result of
the terms of the Offer, stockholders who do not fully exercise their Rights
should expect that they will, at the completion of the Offer, own a smaller
proportional interest in the Fund than would otherwise be the case. Although
it is not possible to state precisely the amount of such a decrease in value,
because it is not known at this time what the net asset value per share will
be at the Expiration Date, such dilution could be substantial. For example,
assuming that all Rights are exercised and that the Subscription Price of
$____ is ___% below the Fund's then net asset value per
<PAGE>20
share, the Fund's net asset value per share (before deduction of expenses
incurred in connection with the Offer) would be reduced by approximately $___
per share.
THE FUND
The Fund, incorporated in Maryland on May 20, 1986, is a non-diversified,
closed-end management investment company registered under the 1940 Act. The
Fund's Common Stock is traded on the New York Stock Exchange under the symbol
"GAB."
The Fund's primary investment objective is long-term growth of capital.
Income is a secondary objective of the Fund. The Fund seeks to achieve its
objective 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. Under normal market conditions, the Fund will invest
at least 65% of its total assets in equity securities.
USE OF PROCEEDS
The net proceeds of the Offer, assuming all Shares offered hereby are
sold, are estimated to be approximately $_________, after deducting expenses
payable by the Fund estimated at approximately $_______. The Investment
Adviser anticipates that investment of such proceeds, in accordance with the
Fund's investment objectives and policies, will be invested promptly as
investment opportunities are identified, depending on market conditions and
the availability of appropriate securities, but in no event will such
investment take longer than six months. Pending such investment in accordance
with the Fund's investment objectives and policies, the proceeds will be held
in obligations of the United States Government, its agencies or
instrumentalities ("U.S. Government Securities") and other short-term money
market instruments.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following special considerations associated
with an exercise of Rights and an additional investment in the Fund.
Long-Term Objective
The Fund is intended for investors seeking long-term capital growth. The
Fund is not meant to provide a vehicle for those who wish to play short-term
swings in the stock market. An investment in shares of the Fund should not be
considered a complete investment program. Each prospective purchaser should
take into account his investment objectives as well as his other investments
when considering the purchase of shares of the Fund.
Non-Diversified Status
The Fund is classified as a "non-diversified" investment company under
the Act, which means the Fund is not limited by the Act in the proportion of
its assets that may be invested in the securities of a single issuer. However,
the Fund has in the past conducted and intends to continue to conduct its
operations so as to qualify as a "regulated investment company" for purposes
of the Code, which will relieve the Fund 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 Fund 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 the Fund's total assets will be invested
in the securities of a single issuer, and (ii) with respect to 50% of the
market value of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities of a single issuer and the
Fund will not own more than 10% of the outstanding voting securities of a
single issuer. The Fund's investments in U.S. Government Securities are not
subject to these limitations. Because the Fund, as a non-diversified
investment company, may invest in the securities of individual issuers to a
greater degree than a diversified investment company, an investment in the
Fund may, under certain circumstances, present greater risk to an investor
than an investment in a diversified company.
Temporary Investments
During temporary defensive periods the Fund may invest in U.S. Government
Securities and in money market mutual funds 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"
<PAGE>21
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.
Repurchase Agreements
During temporary defensive periods or for cash management purposes, the
Fund may engage in repurchase agreement transactions involving money market
instruments with banks, registered broker-dealers and government securities
dealers approved by the Fund's Board of Directors. The Fund will not enter
into repurchase agreements with the Investment Adviser or any of its
affiliates. Under the terms of a typical repurchase agreement, the Fund would
acquire any underlying debt obligation for a relatively short period (usually
not more than one week) subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed price and time, thereby
determining the yield during the Fund's holding period. Thus, repurchase
agreements may be seen to be loans by the Fund collateralized by the
underlying debt obligation. This arrangement results in a fixed rate of return
that is not subject to market fluctuations during the Fund's holding period.
The value of the underlying securities will be at least equal at all times to
the total amount of the repurchase obligation, including interest. The Fund
bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Fund is delayed in or prevented
from exercising its rights to dispose of the collateral securities, including
the risk of a possible decline in the value of the underlying securities
during the period in which the Fund seeks to assert these rights. The
Investment Adviser, acting under the supervision of the Fund's Board of
Directors, reviews the creditworthiness of those banks and dealers with which
the Fund enters into repurchase agreements to evaluate these risks and
monitors on an ongoing basis the value of the securities subject to repurchase
agreements to ensure that the value is maintained at the required level.
Foreign Securities
The Fund 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 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.
Lower Rated Securities
The Fund may invest up to 10% of its total assets in fixed-income
securities rated in the lower rating categories of recognized statistical
rating agencies, such as securities rated "CCC" or lower by Standard & Poor's
Corporation ("S&P") or "Caa" or lower by Moody's Investors Service, Inc.
("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."
Futures Transactions
The Fund may enter into certain futures contracts or options on futures
contracts. Futures and options on futures entail certain risks, including but
not limited to the following: no assurance that futures contracts or options
on futures can be offset at favorable prices, possible reduction of the yield
of the Fund due to the use of hedging, possible reduction in value of both the
securities hedged and the hedging instrument, possible lack of liquidity due
<PAGE>22
to daily limits on price fluctuations, imperfect correlation between the
contracts and the securities being hedged, losses from investing in futures
transactions that are potentially unlimited and the segregation requirements
for such transactions. For a further description, see"Investment Objectives
and Policies Investment Practices" in the SAI.
Forward Currency Transactions
The Fund may for hedging purposes enter into forward currency contracts.
The use of forward currency contracts may involve certain risks, including the
failure of the counter party to perform its obligations under the contract,
and that 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 Fund will only enter into
forward currency contracts with parties which it believes to be creditworthy
institutions. For a further description of such investments, see "Investment
Objectives and Policies Investment Practices" in the SAI.
Market Value and 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 fund is a
risk separate and distinct from the risk that the Fund's net asset value will
decrease. The risk of purchasing shares of a closed-end fund that might trade
at a discount is more pronounced for investors who wish to sell their shares
in a relatively short period of time because for those investors, realization
of a gain or loss on their investments is likely to be more dependent upon the
existence of a premium or discount than upon portfolio performance. Although
the Fund's shares have over the past three-year period generally traded in the
market above net asset value, since the commencement of the Fund's operations
the Fund's shares have generally traded in the market at a discount to net
asset value. The Fund's shares are not subject to redemption. Investors
desiring liquidity may, subject to applicable securities laws, trade their
shares in the Fund on any exchange where such shares are then trading at
current market value, which may differ from the then current net asset value.
For information concerning the trading history of the Fund's shares, see
"Common Stock."
Dependence on Key Personnel
The Investment Adviser is dependent upon the expertise of Mr. Mario J.
Gabelli in providing advisory services with respect to the Fund s investments.
There is no contract of employment between the Investment Adviser and Mr.
Gabelli. If the Investment Adviser were to lose the services of Mr. Gabelli,
its ability to service the Fund could be adversely affected. There can be no
assurance that a suitable replacement could be found for Mr. Gabelli in the
event of his death, resignation, retirement or inability to act on behalf of
the Investment Adviser.
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Fund is long-term growth of
capital. Income is a secondary objective of the Fund. The Fund 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. The Investment Adviser selects investments
on the basis of fundamental value and, accordingly, the Fund typically invests
in the securities of companies that are believed by the Investment Adviser to
be priced lower than justified in relation to their underlying assets. Other
important factors in the selection of investments include favorable
price/earnings and debt/equity ratios and strong management.
The Fund's secondary investment objective is income, which the Fund seeks
to achieve, in part, by investing up to 10% of its total assets in a portfolio
consisting primarily of high-yielding, fixed-income securities, such as
corporate bonds, debentures, notes, convertible securities, preferred stocks
and domestic and foreign government obligations. Generally, debt securities
purchased by the Fund will be 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 will be 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."
The Fund's investment objectives of long-term growth of capital and
income are fundamental policies and may not be changed without the
authorization of the holders of a majority of the Fund's outstanding voting
securities. As used in this Prospectus, a "majority of the Fund's outstanding
voting securities" means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares.
<PAGE>23
Investment Methodology of the Fund
In selecting securities for the Fund, the Investment Adviser normally
will consider the following factors, among others: (1) the Investment
Adviser's own evaluations of the private market value, cash flow, earnings per
share and other fundamental aspects of the underlying assets and business of
the company; (2) the potential for capital 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 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.
Certain Practices
Foreign Securities. The Fund may invest up to 35% of its total assets in
foreign securities. Among the foreign securities in which the Fund may invest
are those issued by companies located in developing countries, which are
countries in the initial stages of their industrialization cycles. Investing
in the equity and debt markets of developing countries involves exposure to
economic structures that are generally less diverse and less mature, and to
political systems that can be expected to have less stability, than those of
developed countries. The markets of developing countries historically have
been more volatile than the markets of the more mature economies of developed
countries, but often have provided higher rates of return to investors. The
Fund may also invest in debt securities of foreign governments. See
"Investment Objectives and Policies -- Investment Practices" in the SAI.
Temporary Investments. Although under normal market conditions at least
65% of the Fund's assets will consist of equity securities, when a temporary
defensive posture is believed by the Investment Adviser to be warranted
("temporary defensive periods"), the Fund may without limitation hold cash or
invest its assets in money market instruments and repurchase agreements in
respect of those instruments. The Fund may also invest up to 10% of the
market value of its total assets during temporary defensive periods in shares
of money market mutual funds that invest primarily in U.S. Government
Securities and repurchase agreements in respect of those securities. For a
further description of such transactions, see "Investment Objectives and
Policies -- Investment Practices" in the SAI.
Repurchase Agreements. During temporary defensive periods or for cash
management purposes, the Fund 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. The Fund
will not enter into repurchase agreements with the Investment Adviser or any
of its affiliates. See "Investment Objectives and Policies -- Investment
Practices" in the SAI.
Other Investments. The Fund is permitted to invest in special
situations, options and futures contracts. See the SAI for a discussion of
these investments and techniques and the risks associated with them.
MANAGEMENT OF THE FUND
Directors and Officers
The business and affairs of the Fund are managed under the direction of
the Fund s Board of Directors, and the day to day operations of the Fund are
conducted through or under the direction of the officers of the Fund.
Although the Fund is a Maryland corporation, Karl Otto Pohl, one of
its Directors, is a resident of Germany, and substantially all of his assets
are located outside of the United States. Mr. Pohl has
not authorized an agent for service of process in the United States.
Consequently, it may be difficult for investors to effect service of
process upon him within the United States or to enforce, in United States
courts, judgments against him obtained in such courts predicated on the
civil liability provisions of the United States securities laws. In
addition, there is doubt as to the enforceability in German courts of
liabilities predicated solely upon the United States securities laws,
whether or not such liabilities are based upon judgments of courts in the
United States. For certain information regarding the Directors and
officers of the Fund, see "Management of the Fund" in the SAI.
<PAGE>24
Investment Adviser
Gabelli Funds, Inc., a New York corporation, with offices at One
Corporate Center, Rye, New York 10580-1434, is investment adviser to the Fund.
The Investment Adviser was organized in 1980 and as of July 31, 1995, is a
registered investment adviser to fourteen management companies with aggregate
net assets of $4.0 billion. GAMCO Investors, Inc., a subsidiary of the
Investment Adviser, acts as investment adviser for individuals, pension
trusts, profit sharing trusts and endowments, having aggregate assets in
excess of $4.9 billion under its management as of July 31, 1995. Mr. Mario J.
Gabelli may be deemed a "controlling person" of the Investment Adviser on the
basis of his ownership of stock of the Investment Adviser.
The Investment Adviser has sole investment discretion for the Fund with
respect to the Fund's portfolio under the supervision of the Fund's Board of
Directors and in accordance with the Fund's stated policies. The Investment
Adviser will select investments for the Fund and will place purchase and sale
orders on behalf of the Fund. For its services, the Investment Adviser is
paid a fee computed daily and paid monthly at an annual rate of 1.00% of the
average weekly net assets of the Fund. For additional information regarding
the Investment Adviser, see "Management of the Fund -- Investment Advisory and
Administrative Arrangements" in the SAI.
Portfolio Management
Mario J. Gabelli, who is Chairman of the Board, Chief Executive Officer
and Chief Investment Officer of the Investment Adviser, has managed the Fund's
assets since its inception. For a more detailed description of Mr. Gabelli's
business experience during the past five years, see "Management of the Fund --
Directors and Officers" in the SAI.
Sub-Administrator
The Investment Adviser has certain administrative responsibilities to the
Fund under its Advisory Agreement with the Fund. The Investment Adviser has
retained The Shareholder Services Group, Inc. as Sub-Administrator to provide
certain administrative services necessary for the Fund's operations other than
those performed by the Investment Adviser under its Advisory Agreement. These
services include, but are not limited to, supplying the Investment Adviser
with office facilities, statistical and research data, data processing
services, clerical, accounting and bookkeeping services, internal audit and
legal services, the preparation and distribution of materials for meeting of
the Fund's Board of Directors, compliance testing of the Fund's activities and
the preparation of stockholder reports, tax returns and other regulatory
filings. For such services by the Sub-Administrator, the Investment Adviser
pays the Trust Sub-Administrator a monthly fee based upon the aggregate
average daily net assets of certain funds advised by the Investment Adviser,
including the Fund, as follows: .10% of average daily net assets up to $1
billion, .08% of average daily net assets between $1 billion to $1.5 billion,
.03% of average daily net assets between $1.5 billion to $3 billion and .02%
of average daily assets over $3 billion. The Investment Adviser also
reimburses the Sub-Administrator for certain out-of-pocket expenses incurred
by the Sub-Administrator as a result of its duties under the sub-
administration agreement. Either the Investment Adviser or the Sub-
Administrator may terminate the sub-administration agreement on 60 days'
written notice. The Sub-Administrator has its principal office located at One
Exchange Place, 53 State Street, Boston, Massachusetts 02109.
Payment of Expenses
For purposes of the calculation of the fees payable to the Investment
Adviser by the Fund, average weekly net assets of the Fund are determined at
the end of each month on the basis of its average net assets for each week
during the month. The assets for each weekly period are determined by
averaging the net assets at the end of a week with the net assets at the end
of the prior week.
The Investment Adviser will be obligated to pay expenses associated with
providing the services contemplated by the Advisory Agreement including
compensation of and office space for its officers and employees connected with
investment and economic research, trading and investment management and
administration of the Fund, as well as the fees of all Directors of the Fund
who are affiliated with the Investment Adviser or any of its affiliates. The
Fund pays all other expenses incurred in its operation including, among other
things, expenses for legal and independent accountants' services, costs of
printing proxies, stock certificates and stockholder reports, charges of the
custodian, any subcustodian and transfer and dividend paying agent, expenses
in connection with the Plan, Commission 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
<PAGE>25
of qualifying its shares for sale in various states, litigation and other
extraordinary or non-recurring expenses, and other expenses properly payable
by the Fund.
PORTFOLIO TRANSACTIONS
Principal transactions are not entered into with affiliates of the Fund.
However, Gabelli & Company, Inc., an affiliate of the Investment Adviser, may
execute transactions in the over-the-counter markets on an agency basis and
receive a stated commission therefrom. For a more detailed discussion of the
Fund's brokerage allocation practice, see the SAI under "Portfolio
Transactions."
DIVIDENDS AND DISTRIBUTIONS; AUTOMATIC DIVIDEND
REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
10% Distribution Policy. The Fund's policy is to make quarterly
distributions of $0.25 per share at the end of each of the first three
calendar quarters of each year. The Fund'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 Fund as of the last day of the four preceding calendar
quarters less the aggregate distributions of $0.75 per share made for the most
recent three calendar quarters) in order to meet the Fund's 10% pay-out goal
as well as the Code's distribution requirements. During 1995, for the purpose
of providing investors the benefit of capital gains tax treatment for the
final dividend of the year to the fullest extent, the Directors declared a
$.50 distribution payable in the fourth quarter to pay its long-term capital
gains once for the year, thus, in effect combining the third and fourth
quarter distributions. In connection with the 1940 Act requirement that long-
term capital gains be distributed only once per year and the Board of
Directors' desire to pay dividends on a quarterly basis, authority was granted
for the Fund to file an exemptive request with the Commission to allow the
Fund to distribute long-term capital gains more frequently than once a year.
If the exemption is granted, the Directors expect to declare quarterly
distributions in 1996. Otherwise, the Fund plans to pay a $0.25 per share
distribution in each of the first two quarters of 1996, and declare an
adjusting dividend to meet the Fund's 10% distribution policy as well as
distribution requirements under the Code.
The Fund reserves the right, but does not currently intend, to retain for
reinvestment and pay federal income taxes on the excess of its net realized
long-term capital gains over its net realized short-term capital losses, if
any, although the Fund reserves the authority to distribute such excess in any
year. 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 stockholder's tax basis
in his shares) which can be made payable by the Fund either in the form of a
cash distribution or a stock dividend. The amount treated as a tax-free return
of capital will reduce a stockholder'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 Fund's current and accumulated earnings and profits.
In the event the Fund distributes amounts in excess of its net investment
income and net realized capital gains, such distributions will decrease the
Fund's total assets and, therefore, have the likely effect of increasing the
Fund's expense ratio. In addition, in order to make such distributions, the
Fund may have to sell a portion of its investment portfolio at a time when
independent investment judgment might not dictate such action. Such sales, if
they involve assets held for less than three months, could also adversely
affect the Fund's status as a regulated investment company since, in order for
the Fund to qualify as a regulated investment company, for each taxable year,
less than 30% of the Fund's gross income must be derived from gains realized
on the sale or other disposition of stocks or securities held for less than
three months.
Under the Automatic Dividend Reinvestment and Voluntary Cash Purchase
Plan adopted by the Fund, a stockholder 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 stockholder elects to receive cash and has so instructed State
Street either in writing at the address set forth below or by telephone at
(800) 336-6983. Distributions with respect to shares registered in the name
of a broker-dealer or other nominee (that is, in "street name") will be
reinvested by the broker or nominee in additional shares under the Plan,
unless the service is not provided by the broker or nominee or the stockholder
elects to receive distributions in cash. Under the Plan, whenever the market
price of the Common Stock is equal to or exceeds net asset value at the time
shares are valued for purposes of determining the number of shares equivalent
to the cash dividend or capital gains distribution, participants in such plan
are issued shares of Common Stock, valued at the greater of (i) the net asset
<PAGE>26
value as most recently determined or (ii) 95% of the then current market price
of the Common Stock. If the net asset value of the Common Stock at the time
of valuation exceeds the market price of the Common Stock, participants will
receive shares from the Fund, valued at market price. If the Fund should
declare a dividend or capital gains distribution payable only in cash, State
Street will, as agent for the participants, buy Fund shares in the open
market, on the 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 Fund to issue shares at net asset value if,
following the commencement of such purchases, the market value of the Common
Stock exceeds net asset value.
Participants in the Plan have the option of making additional cash
payments to State Street, semi-annually, for investment in the shares as
applicable. Such payments may be made in any amount from $250 to $3,000.
There is no charge to participants for reinvesting dividends or capital
gains distributions payable in either stock or cash. State Street's fees for
handling the reinvestment of such dividends and capital gains distributions
are paid by the Fund. There are no brokerage charges with respect to shares
issued directly by the Fund, as a result of dividends or capital gains
distributions payable in stock or in cash. However, each participant bears a
pro rata share of brokerage commissions incurred with respect to State
Street's open market purchases in connection with the reinvestment of
dividends or capital gains distributions.
With respect to purchases from voluntary cash payments, State Street will
charge $0.75 for each such purchase for a participant, plus a pro rata share
of the brokerage commissions. A fee of $2.50 is charged in connection with
the sale of shares that are held in book-entry form, such as shares of Common
Stock held by a stockholder through the Plan. Commissions may also be charged
on such transactions.
The automatic reinvestment of dividends and distributions will not
relieve participants of any income tax which may be payable on such dividends
or distributions.
All correspondence concerning the Plan should be directed to State Street
at P.O. Box 8200, Boston, Massachusetts 02266-8200. For a further description
of the Plan, see "Automatic Dividend Reinvestment and Voluntary Cash Purchase
Plan" in the SAI.
TAXATION
Taxation
The Fund has qualified, and intends to continue to qualify, each year as
a "regulated investment company" under the Code. Accordingly, the Fund will
not be liable for federal income taxes to the extent its taxable net
investment income and net realized capital gain, if any, are distributed to
stockholders, provided that at least 90% of its investment company taxable
income (i.e., 90% of the taxable income minus the excess, if any, of its net
realized long-term capital gain over its net realized short-term capital loss
(including any capital loss carryovers) plus or minus certain other
adjustments as specified in section 852 of the Code) for the taxable year is
distributed to stockholders. The Fund will be subject to tax at regular
corporate rates on any income or gains that it does not distribute.
Furthermore, the Fund is subject to a 4% nondeductible federal excise tax on
certain undistributed amounts of ordinary income and capital gains. The Fund
intends to make such distributions as are necessary to avoid the application
of this excise tax.
The Fund reserves the right, but does not currently intend, to retain for
reinvestment net long-term gains in excess of net short-term capital losses
and the Fund will be subject to a corporate tax (currently at a rate of 35%)
on the retained amount, if any. The Fund would designate such retained
amounts as undistributed capital gains. As a result, such amounts would be
taxed to stockholders as long-term capital gains and stockholders would be
able to claim their proportionate shares of the federal income taxes paid by
the Fund on such gains as a credit against their own federal income tax
liabilities, and would be entitled to increase the adjusted tax basis of their
shares of the Fund by 65% of their undistributed capital gains. Qualified
pension and profit sharing funds, certain trusts and other organizations or
persons not subject to federal income tax on capital gains and certain non-
resident alien individuals and foreign corporations would be entitled to a
refund of their pro rata share of such taxes paid by the Fund upon filing
appropriate returns or claims for refund with the proper tax authorities.
Failure by such entities and their sponsors or responsible fiduciaries to
properly account for such refund could result in adverse federal income tax
consequences.
The Fund sends its written statements and notices to its respective
stockholders regarding the tax status of all dividends and distributions made
during each calendar year.
<PAGE>27
Dividend and capital gain distributions may also be subject to state and
local taxes. Stockholders are urged to consult their attorneys or tax advisors
regarding specific questions as to federal, state or local taxes. Non-U.S.
stockholders are urged to consult their own tax advisors concerning the
applicability of the United States withholding tax. For a more detailed
discussion of tax matters affecting the Fund and its stockholders, see
"Taxation" in the SAI.
COMMON STOCK
The Fund, which was incorporated under the laws of the State of Maryland
on May 20, 1986, is authorized to issue 200,000,000 shares of Common Stock,
par value $.001 per share. Each share has equal voting, dividend,
distribution and liquidation rights. The shares outstanding are fully paid
and non-assessable. Shares of the Common Stock are not redeemable and have no
preemptive, conversion or cumulative voting rights.
Set forth below is information with respect to the Fund Common Stock as
of August 30, 1995.
Amount Held by Fund for
Amount Authorized Its Own Account Amount Outstanding
----------------- ----------------------- ------------------
200,000,000 shares 0 shares 88,988,280 shares
The Fund's shares are listed and traded on the New York Stock Exchange
under the symbol "GAB." The average weekly trading volume of the Common Stock
on the New York Stock Exchange during the year ended December 31, 1994 was
214,284 shares. The following table sets forth for the quarters indicated the
high and low closing prices on the New York Stock Exchange per share of the
Common Stock and the net asset value and the premium or discount from net
asset value at which the Common Stock was trading, expressed as a percentage
of net asset value, at each of the high and low closing prices provided.
<TABLE>
<CAPTION>
Premium or Discount as %
Market Price(1) Net Asset Value(2) of NAV
--------------- ------------------ ------------------------
Quarter Ended High Low High Low High Low
------------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
March 31, 1993 . . . . . . . . . . . . . . . . . . . . . 11.50 10.125 10.92 10.60 5.31 -4.48
June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . 11.25 10.75 10.99 11.13 2.37 -3.41
September 30, 1993 . . . . . . . . . . . . . . . . . . . 12.00 10.50 11.41 11.49 5.17 -8.46
December 31, 1993 . . . . . . . . . . . . . . . . . . . . 12.50 11.75 11.67 11.02 7.11 6.62
March 31, 1994 . . . . . . . . . . . . . . . . . . . . . 12.25 10.50 11.44 10.22 7.08 -1.50
June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . 11.375 10.375 10.84 10.54 4.94 -1.57
September 30, 1994 . . . . . . . . . . . . . . . . . . . 11.75 10.875 11.00 10.72 6.82 1.45
December 31, 1994 . . . . . . . . . . . . . . . . . . . . 11.25 9.125 10.02 9.34 12.28 -2.30
March 31, 1995 . . . . . . . . . . . . . . . . . . . . . 10.25 9.375 9.83 9.42 4.27 -0.48
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . 10.00 9.625 10.04 9.81 -0.40 -1.89
September 30, 1995* . . . . . . . . . . . . . . . . . . .
</TABLE>
_______________
(1) As reported on the New York Stock Exchange.
(2) Based on the Fund's computations.
* Through September ___, 1995.
Repurchase of Shares
The Fund is a closed-end, management investment company and as such its
stockholders do not, and will not, have the right to redeem its shares. The
Fund, however, may repurchase its shares from time to time as and when it
deems such a repurchase advisable. Such repurchases may be made when the
Fund's shares are trading
<PAGE>28
at a discount of 10% or more (or such other percentage as the Board of
Directors of the Fund may determine from time to time) from the net asset
value of the shares. Pursuant to the 1940 Act, the Fund may repurchase its
shares on a securities exchange (provided that the Fund has informed its
stockholders 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
stockholders of an intention to purchase shares and purchasing in a manner and
on a basis which does not discriminate unfairly against the other stockholders
through their interest in the Fund.
Shares repurchased by the Fund will constitute authorized shares of the
Fund available for reissuance. The Fund may incur debt, in an amount not
exceeding 10% of its total assets, to finance share repurchase transactions.
See "Investment Restrictions" in the SAI. Any gain in the value of the
investments of the Fund during the term of the borrowing that exceeds the
interest paid on the amount borrowed would cause the net asset value of its
shares to increase more rapidly than in the absence of borrowing.
Conversely, any decline in the value of the investments of the Fund would
cause the net asset value of its shares to decrease more rapidly than in
the absence of borrowing. Borrowing money thus creates an opportunity for
greater capital gain but at the same time increases exposure to capital
risk.
When the Fund repurchases its shares for a price below their net asset
value, the net asset value of those shares that remain outstanding will be
enhanced, but this does not necessarily mean that the market price of those
outstanding shares will be affected, either positively or negatively.
Further, interest on borrowings to finance share repurchase transactions will
reduce the net income of the Fund.
During the period from October 21, 1987 through November 25, 1988, the
Fund repurchased an aggregate of 800,000 shares of its Common Stock at prices
per share ranging from $6.50 to $10.00 in transactions effected on the New
York Stock Exchange pursuant to authorization by the Fund's Board of
Directors. Such repurchases were effected at the then prevailing market
price, and were not financed with any borrowings.
The Fund does not currently have an established tender offer program or
established schedule for considering tender offers. No assurance can be given
that the Board of Directors of the Fund will decide to undertake any such
tender offers in the future, or, if undertaken, that they will reduce any
market discount.
Although the Fund's shares have over the past three-year period generally
traded in the market above net asset value, since the commencement of the
Fund s operations, the Fund's shares have generally traded in the market at a
discount to net asset value.
For the net asset value per share and the reported sales price of a share
of the Fund's Common Stock on the New York Stock Exchange as of a recent date,
see "The Offer -- Subscription Price."
Certain Provisions of the Articles of Incorporation and Bylaws
The Fund presently has provisions in its Articles of Incorporation and
By-Laws (together, in each case, its "Governing Documents") which could have
the effect of limiting, in each case, (i) the ability of other entities or
persons to acquire control of the Fund, (ii) the Fund's freedom to engage in
certain transactions, or (iii) the ability of the Fund's Directors or
stockholders to amend the Governing Documents or effectuate changes in the
Fund's management. These provisions of the Governing Documents of the Fund
may be regarded as "anti-takeover" provisions. The Board of Directors of the
Fund is divided into three classes, each having a term of three years. Each
year the term of one class of Directors will expire. Accordingly, only those
Directors in one class may be changed in any one year, and it would require
two years to change a majority of the Board of Directors. Such system of
electing Directors may have the effect of maintaining the continuity of
management and, thus, make it more difficult for the stockholders of the Fund
to change the majority of Directors. See "Management of the Fund" in the SAI.
A Director of the Fund may be removed with or without cause by a vote of a
majority of the votes entitled to be cast for the election of Directors of the
Fund. In addition, the affirmative vote of the holders of 66 % of its
outstanding shares is required to authorize the conversion of the Fund from a
closed-end to an open-end investment company or generally to authorize any of
the following transactions:
(i) merger or consolidation of the Fund with or into any other
corporation;
(ii) issuance of any securities of the Fund to any person or entity
for cash;
(iii) sale, lease or exchange of all or any substantial part of the
assets of the Fund to any entity or person (except assets having an
aggregate fair market value of less than $1,000,000); or
(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);
<PAGE>29
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares of
the Fund. However, such vote would not be required when, under certain
conditions, the Board of Directors approves the transaction. Reference is
made to the Governing Documents of the Fund, on file with the Commission; for
the full text of these provisions, see "Further Information."
The provisions of the Governing Documents described above could have the
effect of depriving the owners of shares in the Fund of opportunities to sell
their shares at a premium over prevailing market prices, by discouraging a
third party from seeking to obtain control of the Fund in a tender offer or
similar transaction. The overall effect of these provisions is to render more
difficult the accomplishment of a merger or the assumption of control by a
principal stockholder. The Board of Directors has determined that the
foregoing voting requirements, which are generally greater than the minimum
requirements under Maryland law and the 1940 Act, are in the best interests of
the stockholders generally.
CUSTODIAN AND TRANSFER, 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
Fund's assets pursuant to a custody agreement. Under the custody agreement,
Boston Safe holds the Fund's assets in compliance with the 1940 Act. For its
custody services, Boston Safe will receive a monthly fee based upon the
average weekly value of the total assets of the Fund, plus certain charges for
securities transactions.
State Street serves as the Fund's dividend disbursing agent, as agent
under the Fund's Plan and as transfer agent and registrar for shares of the
Fund.
LEGAL MATTERS
With respect to matters of United States law, the validity of the shares
offered hereby will be passed on for the Fund by Willkie Farr & Gallagher, New
York, New York. Willkie Farr & Gallagher from time to time also serves as
counsel to the Investment Adviser or its affiliates. Counsel for the Fund
will rely, as to matters of Maryland law, on Venable, Baetjer and Howard, LLP,
Baltimore, Maryland.
EXPERTS
The financial statements of the Fund as of December 31, 1994 have been
incorporated by reference into the SAI in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of that firm
as experts in accounting and auditing. Price Waterhouse LLP is located at
1177 Avenue of the Americas, New York, New York 10036.
FURTHER INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information filed by the Fund can be inspected and copied
at public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549; Seven World Trade Center, 13th Floor,
New York, New York 10048; and 500 West Madison Street, Chicago, Illinois
60661. The Fund's Common Stock is listed on the New York Stock Exchange.
Reports, proxy statements and other information concerning the Fund can be
inspected and copied at the Library of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form N-
2 (together with the SAI and all the exhibits and the appendix thereto, the
"Registration Statement") filed by the Fund with the Commission under the
Securities Act and the 1940 Act. This Prospectus and the SAI do not contain
all of the information set forth in the Registration Statement. Reference is
hereby made to the Registration Statement and related exhibits for further
information with respect to the Fund and the Shares offered hereby.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in
its entirety by reference to the copy of the applicable document filed with
the Commission.
<PAGE>30
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
Page
----
Investment Objectives and Policies . . . . . . . . .
Investment Restrictions . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . . . . . . . . .
Portfolio Transactions . . . . . . . . . . . . . . .
Automatic Dividend Reinvestment
and Voluntary Cash Purchase Plan . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . . . . . .
Beneficial Owner . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . .
<PAGE>31
APPENDIX A
CORPORATE BOND RATINGS
Moody's Investors Service, Inc.
Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risk appear
somewhat larger than in Aaa Securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa Bonds that are rated Baa are considered as medium-grade obligations i.e.,
they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Moody's applies numerical modifiers (1, 2, and 3) with respect to
the bonds rated "Aa" through "B." The modifier 1 indicates that the company
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the company
ranks in the lower end of its generic rating category.
Caa Bonds that are rated Caa are of poor standing. These issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds that are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds that are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Standard & Poor's Ratings Group
AAA This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay
principal.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
<PAGE>32
A Principal and interest payments on bonds in this category are regarded as
safe. Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher rated categories.
BBB This is the lowest investment grade. Debt rated BBB has an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than in higher
rated categories.
Speculative Grade
Debt rated BB, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB indicates the lowest
degree of speculation, and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions. Debt rated C1 is reserved for income bonds on which no
interest is being paid and debt rated D is in payment default.
In July 1994, S&P initiated an "r" symbol to its ratings. The "r" symbol
is attached to derivatives, hybrids and certain other obligations that
S&P believes may experience high variability in expected returns due to
non-credit risks created by the terms of the obligations.
"AA" to "CCC" may be modified by the addition of a plus or minus sign to show
relative standing within the major categories.
"NR" indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
a particular type of obligation as a matter of policy.
<PAGE>33
=============================== =============================
No dealer, salesman, or
other person has been
authorized to give any
information or to make any
representation not contained
in this Prospectus. If given
or made, such information or The Gabelli Equity Trust Inc.
representation must not be
relied upon as having been
authorized by the Fund or the
Fund's investment advisers. _________ Shares of Common
This Prospectus does not Stock
constitute an offer to sell or Issuable Upon Exercise of
the solicitation of an offer Rights
to buy any security other than to Subscribe to Such Shares
the shares of Common Stock
offered by this Prospectus,
nor does it constitute an
offer to sell or the
solicitation of an offer to
buy shares of Common Stock by
anyone in any jurisdiction in
which such offer or
solicitation would be
unlawful. Neither the
delivery of this Prospectus
nor any sale made hereunder
shall, under any
circumstances, create an
implication that there has
been no change in the facts as
set forth in the Prospectus or
in the affairs of the Fund
since the date hereof.
_________________
TABLE OF CONTENTS ______________
Page PROSPECTUS
______________
Prospectus Summary . . .
Fee Table . . . . . . . .
Financial Highlights . .
The Offer . . . . . . . .
The Fund . . . . . . . .
Use of Proceeds . . . .
Risk Factors and Special
Considerations . . . . .
Investment Objectives and
Policies . . . . . . . .
Management of the Fund .
Portfolio Transactions .
Dividends and Distributions;
Automatic Dividend
Reinvestment and Voluntary
Cash Purchase Plan . . .
Taxation . . . . . . . .
Common Stock . . . . . .
Custodian and Transfer,
Dividend Disbursing Agent
and Registrar . . . .
Legal Matters . . . . .
Experts . . . . . . . .
Further Information . .
Table of Contents of Statement
of Additional Information
Appendix A . . . . . . .
_______________
______ __, 1995
=============================== =============================
<PAGE>
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 STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>34
Subject to Completion Dated September 1, 1995
THE GABELLI EQUITY TRUST INC.
STATEMENT OF ADDITIONAL INFORMATION
The Gabelli Equity Trust Inc. (the "Fund") is a non-diversified,
closed-end management investment company that seeks long-term growth of
capital by investing primarily in a portfolio of equity securities selected by
Gabelli Funds, Inc., the investment adviser to the Fund. Income is a
secondary investment objective. It is the policy of the Fund, under normal
market conditions, to invest at least 65% of its total assets in equity
securities.
This Statement of Additional Information ("SAI") is not a
prospectus, but should be read in conjunction with the Prospectus for the Fund
dated ______ __, 1995 (the "Prospectus"). This SAI does not include all
information that a prospective investor should consider before purchasing
shares of the Fund, and investors should obtain and read the Prospectus prior
to purchasing shares. A copy of the Prospectus may be obtained without
charge, by calling the Fund at (800) GABELLI ((800)-422-3554) or (914) 921-
5070. This SAI incorporates by reference the entire Prospectus.
TABLE OF CONTENTS
Page
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 12
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . 15
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 24
Automatic Dividend Reinvestment
and Voluntary Cash Purchase Plan . . . . . . . . . . . . . . . . . . . 26
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Beneficial Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 32
The Prospectus and this SAI omit certain of the information
contained in the registration statement filed with the Securities and Exchange
Commission, Washington, D.C. The registration statement may be obtained from
the Securities and Exchange Commission upon payment of the fee prescribed, or
inspected at the Securities and Exchange Commission's office at no charge.
This Statement of Additional Information is dated ______ , 1995.
<PAGE>35
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Fund's primary investment objective is long-term growth of capital.
Income is a secondary objective. Under normal market conditions, the Fund
will invest at least 65% of its total assets in equity securities. See
"Investment Objectives and Policies" in the Prospectus.
Investment Practices
Special Situations. Although the Fund typically invests in the
securities of companies on the basis of their fundamental value, the Fund from
time to time may invest in companies that are determined by Gabelli Funds,
Inc. (the "Investment Adviser") to possess "special situation"
characteristics. In general, a special situation company is a company whose
securities are expected to increase in value solely by reason of a development
particularly or uniquely applicable to the company. Developments that may
create special situations include, among others, a liquidation,
reorganization, recapitalization or merger, material litigation, technological
breakthrough or new management or management policies. The principal risk
associated with investments in special situation companies is that the
anticipated development thought to create the special situation may not occur
and the investment therefore may not appreciate in value or may decline in
value.
Temporary Investments. Although under normal market conditions at least
65% of the Fund's assets will consist of equity securities, when a temporary
defensive posture is believed by the Investment Adviser to be warranted
("temporary defensive periods"), the Fund may hold without limitation cash or
invest its assets in money market instruments and repurchase agreements in
respect of those instruments. The money market instruments in which the Fund
may invest are obligations of the United States government, its agencies or
instrumentalities ("U.S. Government Securities"); commercial paper rated A-1
or higher by Standard & Poor's Corporation ("S&P") or Prime-1 by Moody's
Investors Service, Inc. ("Moody's"); and certificates of deposit and bankers'
acceptances issued by domestic branches of U.S. banks that are members of the
Federal Deposit Insurance Corporation. For a description of such ratings, see
Appendix A to the Prospectus. The Fund may also invest up to 10% of the
market value of its total assets during temporary defensive periods in shares
of money market mutual funds that invest primarily in U.S. Government
Securities and repurchase agreements in respect of those securities. Money
market mutual funds are investment companies and the investments by the Fund
in those companies are subject to certain other limitations. See "Investment
Restrictions." As a stockholder in a mutual fund, the Fund will bear its
ratable share of the fund's expenses, including
<PAGE>36
management fees, and will remain subject to payment of the fees to the
Investment Adviser with respect to assets so invested.
Lower Rated Securities. The Fund may invest up to 10% of its total
assets in fixed-income securities rated in the lower rating categories of
recognized statistical rating agencies, such as securities rated "CCC" or
lower by S&P or "Caa" or lower by Moody's, or non-rated securities of
comparable quality. These debt securities are predominantly speculative and
involve major risk exposure to adverse conditions and are often referred to in
the financial press as "junk bonds."
Generally, such lower rated securities and unrated securities of
comparable quality offer a higher current yield than is offered by higher
rated securities, but also (i) will likely have some quality and protective
characteristics that, in the judgment of the rating organizations, are
outweighed by large uncertainties or major risk exposures to adverse
conditions and (ii) are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of
the obligation. The market values of certain of these securities also tend to
be more sensitive to individual corporate developments and changes in economic
conditions than higher quality bonds. In addition, such lower rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is
significantly greater because 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 the Fund to obtain accurate market quotations
for purposes of valuing its portfolio and calculating its net asset value.
Moreover, the lack of a liquid trading market may restrict the availability of
securities for the Fund to purchase and may also have the effect of limiting
the ability of the Fund to sell securities at their fair value to respond to
changes in the economy or the financial markets.
<PAGE>37
Lower rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption (often a
typical feature of fixed income securities), the Fund may have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. Also, as the principal value of bonds moves inversely with
movements in interest rates, in the event of rising interest rates the value
of the securities held by the Fund may decline proportionately more than a
portfolio consisting of higher rated securities. Investments in zero coupon
bonds may be more speculative and subject to greater fluctuations in value due
to changes in interest rates than bonds that pay interest currently.
Within the Fund's limitation on the purchase of fixed-income securities,
the Fund may invest in securities of issuers in default. The Fund will invest
in securities of issuers in default only when the Investment Adviser believes
that such issuers will honor their obligations or emerge from bankruptcy
protection and the value of these securities will appreciate. By investing in
securities of issuers in default, the Fund bears the risk that these issuers
will not continue to honor their obligations or emerge from bankruptcy
protection or that the value of the securities will not appreciate.
In addition to using recognized rating agencies and other sources, the
Investment Adviser also performs its own analysis of issues in seeking
investments that it believes to be underrated (and thus higher-yielding) in
light of the financial condition of the issuer. Its analysis of issuers may
include, among other things, current and anticipated cash flow and borrowing
requirements, value of assets in relation to historical cost, strength of
management, responsiveness to business conditions, credit standing and current
anticipated results of operations. In selecting investments for the Fund, the
Investment Adviser may also consider general business conditions, anticipated
changes in interest rates and the outlook for specific industries.
Subsequent to its purchase by the Fund, an issue of securities may cease
to be rated or its rating may be reduced. In addition, it is possible that
statistical rating agencies might not change their ratings of a particular
issue or reflect subsequent events on a timely basis. None of these events
will require the sale of the securities by the Fund, although the Investment
Adviser will consider these events in determining whether the Fund should
continue to hold the securities.
Fixed-income securities, including low-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 Fund. If an issuer
<PAGE>38
exercises these rights during periods of declining interest rates, the Fund
may have to replace the security with a lower yielding security, thus
resulting in a decreased return to the Fund.
The market for certain lower rated and comparable unrated securities has
in the past experienced a major economic recession. The recession adversely
affected the value of such securities as well as the ability of certain
issuers of such securities to repay principal and pay interest thereon. The
market for those securities could react in a similar fashion in the event of
any future economic recession.
Options. 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 call option is "covered" if the 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 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 Fund in cash, U.S.
Government Securities or other high grade short-term obligations in a
segregated account held with its custodian. A put option is "covered" if the
Fund maintains cash or other high grade short-term obligations with a value
equal to the exercise price in a segregated account held with its custodian,
or else holds a put on the same 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 Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing
an option of the same series as the option previously written. However, once
it has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the holder of an
option it may liquidate its position by effecting a closing sale transaction.
This is accomplished by selling an option of the same
<PAGE>39
series as the option previously purchased. There can be no assurance that a
closing purchase or sale transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than
the premium received from writing the option or is less than the premium paid
to purchase the option. Since call option prices generally reflect increases
in the price of the underlying security, any loss resulting from the
repurchase of a call option may also be wholly or partially offset by
unrealized appreciation of the underlying security. Other principal factors
affecting the market value of a put or a call option include supply and
demand, interest rates, the current market price and price volatility of the
underlying security and the time remaining until the expiration date. Gains
and losses on investments in options depend, in part, on the ability of the
Investment Adviser to predict correctly the effect of these factors. The use
of options cannot serve as a complete hedge since the price movement of
securities underlying the options will not necessarily follow the price
movements of the portfolio securities subject to the hedge.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be
an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option. In such event, it
might not be possible to effect closing transactions in particular options, so
that the Fund would have to exercise its options in order to realize any
profit and would incur brokerage commissions upon the exercise of call options
and upon the subsequent disposition of underlying securities for the exercise
of put options. If the Fund, as a covered call option writer, is unable to
effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers
the underlying security upon exercise or otherwise covers the position.
In addition to options on securities, the Fund may also purchase and sell
call and put options on securities 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
<PAGE>40
index. By writing a put or call option on a securities index, the Fund is
obligated, in return for the premium received, to make delivery of this
amount. The Fund may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or it may let
the option expire unexercised.
The Fund also may buy or sell put and call options on foreign currencies.
A put option on a foreign currency gives the purchaser of the option the right
to sell a foreign currency at the exercise price until the option expires. A
call option on a foreign currency gives the purchaser of the option the right
to purchase the currency at the exercise price until the option expires.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Fund to reduce foreign currency risk
using such options. Over-the-counter options differ from exchange-traded
options in that they are two-party contracts with price and other terms
negotiated between buyer and seller and generally do not have as much market
liquidity as exchange-traded options. Over-the-counter options are 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. The Fund will not purchase these options unless the
Investment Adviser is satisfied with the development, depth and liquidity of
the market and the Investment Adviser believes the options can be closed out.
Price movements in the portfolio of the Fund may not correlate precisely
with 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 Fund has qualified, and intends to continue to qualify, as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). One requirement for such qualification is that the Fund
must derive less than 30% of its gross income from gains from the sale or
other disposition of securities held for less than three months. Therefore,
the Fund may be limited in its ability to engage in options transactions.
Although the Investment Adviser will attempt to take appropriate measures
to minimize the risks relating to the Fund's
<PAGE>41
writing of put and call options, there can be no assurance that the Fund will
succeed in any option-writing program it undertakes.
Futures Contracts and Options on Futures. The Fund will not enter into
futures contracts or options on futures contracts unless (i) the aggregate
initial margins and premiums do not exceed 5% of the fair market value of its
assets and (ii) the aggregate market value of its outstanding futures
contracts and the market value of the currencies and futures contracts subject
to outstanding options written by the Fund, as the case may be, do not exceed
50% of the market value of its total assets. It is anticipated that these
investments, if any, will be made by the Fund solely for the purpose of
hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Such investments will only be
made if they are economically appropriate to the reduction of risks involved
in the management of the Fund. In this regard, the Fund may enter into
futures contracts or options on futures for the purchase or sale of securities
indices or other financial instruments including but not limited to U.S.
Government Securities.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the 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 Fund upon the purchase
or sale of a futures contract. Initially, the Fund will be required to
deposit with the broker an amount of cash or cash equivalents equal to
approximately 1% to 10% of the contract amount (this amount is subject to
change by the exchange or board of trade on which the contract is traded and
brokers or members of such board of trade may charge a higher amount). This
amount is known as "initial margin" and is in the nature of a performance bond
or good faith deposit on the contract. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the price of
the index or security underlying the futures contract fluctuates. At any time
prior to the expiration of a futures contract, the Fund may elect to close the
position by taking an opposite position, which will operate to terminate its
existing position in the contract.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures
<PAGE>42
contract at a specified exercise price at any time prior to the expiration of
the option. Upon exercise of an option, the delivery of the futures 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
contracts is limited to the premium paid for the option (plus transaction
costs). Because the value of the option purchased is fixed at the point of
sale, there are no daily cash payments by the purchaser to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net assets of the Fund.
Futures and options on futures entail certain risks, including but not
limited to the following: no assurance that futures contracts or options on
futures can be offset at favorable prices, possible reduction of the yield of
the Fund due to the use of hedging, possible reduction in value of both the
securities hedged and the hedging instrument, possible lack of liquidity due
to daily limits on price fluctuations, imperfect correlation between the
contracts and the securities being hedged, losses from investing in futures
transactions that are potentially unlimited and the segregation requirements
described below.
In the event the Fund sells a put option or enters into long futures
contracts, under current interpretations of the Investment Company Act of
1940, as amended (the "1940 Act") an amount of cash, U.S. Government
Securities or other high grade debt securities equal to the market value of
the contract must be deposited and maintained in a segregated account with the
custodian of the Fund to collateralize the positions, thereby ensuring that
the use of the contract is unleveraged. For short positions in futures
contracts and sales of call options, the Fund may establish a segregated
account (not with a futures commission merchant or broker) with cash, U.S.
Government Securities or other high grade debt securities that, when added to
amounts deposited with a futures commission merchant or a broker as margin,
equal the market value of the instruments or currency underlying the futures
contracts or call options, respectively (but are not less than the stock price
of the call option or the market price at which the short positions were
established).
Forward Currency Transactions. The Fund 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
<PAGE>43
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 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 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 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 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 payables of the
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 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 Fund may enter into a forward
contract with respect to either the currency in which the transaction is
denominated or another currency deemed appropriate by the Investment Adviser.
The amount the Fund may invest in forward currency contracts is limited to the
amount of its aggregate investments in foreign currencies.
<PAGE>44
The use of forward currency contracts may involve certain risks,
including the failure of the counterparty to perform its obligations under the
contract, and that 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 Fund will only enter
into forward currency contracts with parties which it believes to be
creditworthy institutions.
<PAGE>45
INVESTMENT RESTRICTIONS
The Fund operates under the following restrictions that constitute
fundamental policies that cannot be changed without the affirmative vote of
the holders of a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act). All percentage limitations set forth below apply
immediately after a purchase or initial investment and any subsequent change
in any applicable percentage resulting from market fluctuations does not
require elimination of any security from the portfolio. The Fund may not:
1. Invest 25% or more of its total assets, taken at market value at
the time of each investment, in the securities of issuers in any
particular industry. This restriction does not apply to investments in
U.S. Government Securities.
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization,
if more than 10% of the market value of the total assets of the Fund
would be invested in securities of other investment companies, more than
5% of the market value of the total assets of the Fund would be invested
in the securities of any one investment company or the Fund would own
more than 3% of any other investment company's securities; provided,
however, this restriction shall not apply to securities of any investment
company organized by the Fund that are to be distributed pro rata as a
dividend to its stockholders.
3. Purchase or sell commodities or commodity contracts except that
the Fund may purchase or sell futures contracts and related options
thereon if immediately thereafter (i) no more than 5% of its total assets
are invested in margins and premiums and (ii) the aggregate market value
of its outstanding futures contracts and market value of the currencies
and futures contracts subject to outstanding options written by the Fund
do not exceed 50% of the market value of its total assets. The Fund may
not purchase or sell real estate, provided that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
4. Purchase any securities on margin or make short sales of
securities, except that the Fund may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of portfolio
securities.
5. Make loans of money, except by the purchase of a portion of
publicly distributed debt obligations in which the Fund may invest, and
repurchase agreements with respect to
<PAGE>46
those obligations, consistent with its investment objectives and
policies. The Fund reserves the authority to make loans of its
portfolio securities to financial intermediaries in an aggregate amount
not exceeding 20% of its total assets. Any such loans will only be made
upon approval of, and subject to any conditions imposed by, the Board
of Directors of the Fund. Because these loans would at all times
be fully collateralized, the risk of loss in the event of default of
the borrower should be slight.
6. Borrow money, except that the Fund may borrow from banks and
other financial institutions on an unsecured basis, in an amount not
exceeding 10% of its total assets, to finance the repurchase of its
shares. See "Common Stock -- Repurchase of Shares" in the Prospectus.
The Fund also may borrow money on a secured basis from banks as a
temporary measure for extraordinary or emergency purposes. Temporary
borrowings may not exceed 5% of the value of the total assets of the Fund
at the time the loan is made. The Fund may pledge up to 10% of the
lesser of the cost or value of its total assets to secure temporary
borrowings. The Fund will not borrow for investment purposes.
Immediately after any borrowing, the Fund will maintain asset coverage of
not less than 300% with respect to all borrowings. While the borrowing
of the Fund exceeds 5% of its respective total assets, the Fund will make
no further purchases of securities, although this limitation will not
apply to repurchase transactions as described above.
7. Issue senior securities, as defined in the 1940 Act, or
mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities it owns or holds except as may be necessary
in connection with borrowings mentioned in (6) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of the total
assets of the Fund taken at the lesser of cost or market value and except
that collateral arrangements with respect to the writing of options or
any other hedging activity shall not be deemed a pledge of assets or the
issuance of a senior security.
8. Underwrite securities of other issuers except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as
amended, in selling portfolio securities; provided, however, this
restriction shall not apply to securities of any investment company
organized by the Fund that are to be distributed pro rata as a dividend
to its stockholders.
9. Invest more than 10% of its total assets in illiquid securities,
such as repurchase agreements with maturities in
<PAGE>47
excess of seven days, or securities that at the time of purchase have
legal or contractual restrictions on resale.
<PAGE>48
MANAGEMENT OF THE FUND
Directors and Officers
Overall responsibility for management and supervision of the Fund rests
with its Board of Directors. The Board of Directors approves all significant
agreements between the Fund and the companies that furnish the Fund with
services, including agreements with the Investment Adviser, the Fund's
custodian and the Fund's transfer agent. The day-to-day operations of the Fund
are delegated to the Investment Adviser.
The names and business addresses of the Directors and principal officers
of the Fund are set forth in the following table, together with their
positions and their principal occupations during the past five years and, in
the case of the Directors, their positions with certain other organizations
and companies. Directors who are "interested persons" of the Fund, as defined
by the 1940 Act, are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Business Address (Age) Position with the Fund Five Years
------------------------------- ---------------------- --------------------------------
<S> <C> <C>
Paul R. Ades (54) Director Partner in the law firm of Murov and
272 South Wellwood Avenue Ades. Director of one other
P.O. Box 504 registered investment company
Lindenhurst, New York 11757 advised by the Investment Adviser.
Dr. Thomas E. Bratter (55) Director Director, President and Founder, The
The John Dewey Academy John Dewey Academy (residential
Searles Castle college preparatory therapeutic high
Main Street school). Director of one other
Great Barrington, registered investment company
Massachusetts 01230 advised by the Investment Adviser.
Bill Callaghan (51) Director President of Bill Callaghan
225 West 39th Street Associates Ltd., an executive search
New York, New York 10018 company. Director of two other
registered investment companies
advised by the Investment Adviser.
</TABLE>
<PAGE>49
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Business Address (Age) Position with the Fund Five Years
------------------------------- ---------------------- --------------------------------
<S> <C> <C>
Felix J. Christiana (70) Director Retired; formerly Senior Vice
45 Pondfield Parkway President of Dollar Dry Dock Savings
Mt. Vernon, New York 10552 Bank. Director/Trustee of eight
other registered investment
companies advised by the Investment
Adviser.
James P. Conn (57) Director Managing Director of Financial
One Corporate Center Security Assurance since 1992;
Rye, New York 10580-1434 President and Chief Executive
Officer of Bay Meadows Operating
Company from 1988 through 1992.
Director/Trustee of three other
registered investment companies
advised by the Investment Adviser.
*Mario J. Gabelli (52) Chairman of the Board, Chairman of the Board, Chief
One Corporate Center President and Chief Executive Officer and Chief
Rye, New York 10580-1434 Investment Officer Investment Officer of the Investment
Adviser; Chief Investment Officer of
GAMCO Investors Inc.; Chairman of
the Board and Director of Lynch
Corporation; Director and Adviser of
Gabelli International Ltd.
Director/Trustee of eleven other
registered investment companies
advised by the Investment Adviser.
</TABLE>
<PAGE>50
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Business Address (Age) Position with the Fund Five Years
------------------------------- ---------------------- --------------------------------
<S> <C> <C>
*Karl Otto Pohl (65) Director Partner of Sal. Oppenheim Jr. & Cie
One Corporate Center (private investment bank); President
Rye, New York 10580-1434 of the Deutsche Bundesbank and
Chairman of its Central Bank Council
from 1980 through 1991; Currently
Board Member of Zurich
Versicherungs-Gesellschaft
(Insurance); the International
Council for JP Morgan & Co.;
Supervisory Board Member of Royal
Dutch; ROBECo/o Group; and Advisory
Director of Unilever N.V. and
Unilever Deutschland; German
Governor of The International
Monetary Fund (1980-1991); Board
Member, Bank for International
Settlements (1980-1991); and
Chairman of the European Economic
Community Central Bank Governors
(1990-1991). Director/Trustee of all
other registered investment
companies advised by the Investment
Adviser.
</TABLE>
<PAGE>51
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Business Address (Age) Position with the Fund Five Years
------------------------------- ---------------------- --------------------------------
<S> <C> <C>
Anthony R. Pustorino (69) Director Certified Public Accountant.
121 Arleigh Road Professor of Accounting, Pace
Douglaston, New York 11363 University, since 1965. Director,
President and stockholder of
Pustorino, Puglisi & Co., P.C.,
certified public accountants, from
1961 to 1990. Director/Trustee of
seven other registered investment
companies advised by the Investment
Adviser.
Salvatore J. Zizza (49) Director President and Chief Executive
The Lehigh Group, Inc. Officer of The Lehigh Group, Inc.
810 Seventh Avenue, 27th Floor (an electrical supply wholesaler).
New York, New York 10019 Director/Trustee of four other
registered investment companies
advised by the Investment Adviser.
</TABLE>
<PAGE>52
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Business Address (Age) Position with the Fund Five Years
------------------------------- ---------------------- --------------------------------
<S> <C> <C>
Bruce N. Alpert (43) Vice President and Vice President and Chief Financial
One Corporate Center Treasurer and Administrative Officer of the
Rye, New York 10580-1434 investment advisory division 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.
James E. McKee (32) Secretary Vice President, General Counsel and
One Corporate Center Secretary of the Investment Adviser
Rye, New York 10580-1434 (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; Staff attorney
from 1989-1992 and a branch chief
from 1992-1993 of the Securities and
Exchange Commission - - Northeast
Regional Office.
</TABLE>
<PAGE>53
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Business Address (Age) Position with the Fund Five Years
------------------------------- ---------------------- --------------------------------
<S> <C> <C>
Marc Diagonale (28) Vice President Client services representative of
One Corporate Center Gabelli & Company, Inc. since March
Rye, New York 10580-1434 1993; masters of business
administration student at New York
University from September 1990 to
May 1992; Vice President of The
Gabelli Global Multimedia Trust Inc.
</TABLE>
_______________
* "Interested person" of the Fund, as defined in the 1940 Act.
Mr. Gabelli is an "interested person" of the Fund as a result of his
employment as an officer of the Fund and the Investment Adviser. Mr. Gabelli
is also a registered representative of an affiliated broker-dealer. Mr. Pohl
receives fees from the Investment Adviser but has no obligation to provide any
services to it. Although this relationship does not appear to require
designation of Mr. Pohl as an "interested person," the Fund is currently
making such designation in order to avoid the possibility that Mr. Pohl's
independence would be questioned.
The Board of Directors of the Fund are divided into three classes,
with a class having a term of three years. Each year the term of office of one
class of directors expires. See "Common Stock -- Certain Provisions of the
Articles of Incorporation and By-Laws of the Fund" in the Prospectus.
Remuneration of Directors and Officers
The Fund pays each Director who is not affiliated with the
Investment Adviser or its affiliates a fee of $10,000 per year plus $1,000 per
Directors' meeting attended, together with each Director's actual out-of-
pocket expenses relating to attendance at such meetings. The aggregate
remuneration paid by the Fund to such Directors during fiscal year 1994
amounted to $115,466.66.
Mr. Marc Diagonale, Vice President of the Fund, has performed
stockholder services on behalf of the Fund since it commenced operations. Mr.
Diagonale also performs similar services for The Gabelli Global Multimedia
Trust Inc. His salary of $90,000
<PAGE>54
per annum is borne by both funds, of which $80,000 is paid by the Fund.
The following table shows certain compensation information for the
Directors of the Fund for the fiscal year ended December 31, 1994. None of
the Fund's executive officers and Directors who are also officers or directors
of the Investment Adviser received any compensation from the Fund for such
period.
<TABLE>
<CAPTION>
Total Compensation
Pension or Retirement From Fund and Fund
Aggregate Compensation Benefits Accrued as Annual Benefits Upon Complex Paid to
Name of Director from Fund Part of Fund Expenses Retirement Directors+
---------------- ---------------------- --------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Paul R. Ades $14,000 0 N/A $14,000
Dr. Thomas E. Bratter $14,000 0 N/A $14,000
Bill Callaghan $14,000 0 N/A $28,000
Felix J. Christiana $15,000 0 N/A $64,500
James P. Conn $14,000 0 N/A $30,000
Karl Otto Pohl $13,000 0 N/A $64,750
Anthony R. Pustorino $15,000 0 N/A $69,000
Salvatore J. Zizza $14,000 0 N/A $35,000
</TABLE>
__________________________
+ See "Principal Occupation During Past Five Years" in previous table for the
number of Boards of other registered investment companies advised by the
Investment Adviser on which such Director serves.
Limitation of Officers' and Directors' Liability
The By-Laws of the Fund provide that the Fund will indemnify its
Directors and officers and may indemnify its employees or agents against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their offices with the Fund, to the fullest extent
permitted by law except that such indemnity shall not protect any such person
against any liability to the Fund or its stockholders to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. In addition, the Articles of Incorporation of the Fund provide that
the Fund's Directors and officers will not be liable to stockholders for money
damages, except in limited instances. However, nothing in the Articles of
Incorporation or the By-Laws protects or indemnifies a Director, officer,
employee or agent of the Fund against any liability to which such person would
otherwise be subject in the event of such
<PAGE>55
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 had been
adjudged to be liable to the Fund.
Investment Advisory and Administrative Arrangements
Gabelli Funds, Inc. acts as the Fund's investment adviser pursuant
to an advisory agreement with the Fund (the "Advisory Agreement"). Under the
terms of the Advisory Agreement, the Investment Adviser manages the portfolio
of the Fund in accordance with its stated investment objectives and policies,
makes investment decisions for the Fund, places orders to purchase and sell
securities on behalf of the Fund and manages its other business and affairs,
all subject to the supervision and direction of the Fund's Board of Directors.
In addition, under the Advisory Agreement, the Investment Adviser oversees the
administration of all aspects of the Fund's business and affairs and provides,
or arranges for others to provide, at the Investment Adviser's expense,
certain enumerated services, including maintaining the Fund's books and
records, preparing reports to the Fund's stockholders and supervising the
calculation of the net asset value of its shares. All expenses of computing
the net asset value of the Fund, including any equipment or services obtained
solely for the purpose of pricing shares or valuing its investment portfolio,
will be an expense of the Fund under its Advisory Agreement. Notwithstanding
the foregoing sentence, the Investment Adviser does not currently intend for
the Fund to incur such expenses and, accordingly, until June 27, 1996 (a
period of two years from the date of the Advisory Agreement), the Investment
Adviser will assume any expenses of computing the Fund's net asset value
payable under its Advisory Agreement. The expenses of computing the net asset
value of the Fund are anticipated to be approximately $50,000 per year.
The Advisory Agreement combines investment advisory and
administrative responsibilities in one agreement. The Investment Adviser has
in turn retained The Shareholder Services Group, Inc. to act as sub-
administrator to the Fund. See "Management of the Fund -- Sub-Administrator"
in the Prospectus.
For services rendered by the Investment Adviser on behalf of the
Fund under the Advisory Agreement, the Fund pays the
<PAGE>56
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 fees payable under the
Advisory Agreement are higher than the fees payable by most registered
investment companies.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties thereunder, the Investment Adviser is not liable for
any error or judgment or mistake of law or for any loss suffered by the Fund.
As part of the Advisory Agreement, the Fund has agreed that the name "Gabelli"
is the Investment 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 the word "Gabelli."
Pursuant to its terms, the Advisory Agreement will remain in effect
with respect to the Fund until June 27, 1996, 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 (as defined in the 1940 Act)
and (ii) by a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of any party to the Advisory Agreement, by vote cast
in person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement 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 the vote of the holders of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act).
For the fiscal years ended December 31, 1994, December 31, 1993 and
December 31, 1992, the Investment Adviser was paid $8,978,663, $6,221,109 and
$4,695,152, respectively, for services rendered to the Fund. Prior to June
27, 1994, the Fund had an investment advisory agreement with the Investment
Adviser pursuant to which the Investment Adviser was paid a fee computed
weekly and paid monthly at the annual rate of 0.75% of the value of the Fund's
average weekly net assets and an administration agreement (the "Administration
Agreement") with The Boston Company Advisors, Inc. ("Boston Advisers")
pursuant to which Boston Advisors received an annual fee equal to 0.25% of the
value of the Fund's average weekly net assets. The Fund paid Boston Advisors
$1,565,051 and $2,073,702 for the fiscal years ended December 31, 1992 and
December 31, 1993 and $1,798,576 for the fiscal period from January 1, 1994 to
June 27, 1994. On June 27, 1994, the Fund terminated the Administration
Agreement and entered into the Advisory Agreement which combined investment
advisory and administration fees and responsibilities within one agreement.
<PAGE>57
Foreign Custodial Arrangements
Rules adopted under the 1940 Act permit the Fund to maintain its
foreign securities in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, any foreign securities in
the portfolio of the Fund may be held by subcustodians approved by the
Directors of the Fund in accordance with the regulations of the Commission.
Selection of any such subcustodians will be made by the Directors of
the Fund following a consideration of a number of factors, including but not
limited to the reliability and financial stability of the institution, the
ability of the institution to perform capably custodial services for the Fund,
the reputation of the institution in its national market, the political and
economic stability of the country or countries in which the subcustodians are
located, and risks of potential nationalization or expropriation of assets of
the Fund. In addition, the 1940 Act requires that certain foreign
subcustodians, among other things, have stockholders' equity in excess of $200
million, have no lien on the Fund's assets and maintain adequate and
accessible records.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the
Fund, the Investment Adviser is responsible for placing purchase and sale
orders and the allocation of brokerage on behalf of the Fund. Transactions in
equity securities are in most cases effected on U.S. stock exchanges and
involve the payment of negotiated brokerage commissions. In general, there may
be no stated commission in the case of securities traded in over-the-counter
markets, but the prices of those securities may include undisclosed
commissions or mark-ups. Principal transactions are not entered into with
affiliates of the Fund. However, Gabelli & Company, Inc. ("Gabelli &
Company") may execute transactions in the over-the-counter markets on an
agency basis and receive a stated commission therefrom. To the extent
consistent with applicable provisions of the 1940 Act and the rules and
exemptions adopted by the Commission thereunder, as well as other regulatory
requirements, the Fund's Board of Directors have determined that portfolio
transactions may be executed through Gabelli & Company and its broker-dealer
affiliates if, in the judgment of the Investment Adviser, the use of those
broker-dealers is likely to result in price and execution at least as
favorable as those of other qualified broker-dealers, and if, in particular
transactions, those broker-dealers charge the Fund a rate consistent with that
charged to comparable unaffiliated customers in similar transactions. The Fund
has no obligation to deal with any broker or
<PAGE>58
group of brokers in executing transactions in portfolio securities. In
executing transactions, the Investment Adviser seeks to obtain the best price
and execution for the Fund, taking into account such factors as price, size of
order, difficulty of execution and operational facilities of the firm involved
and the firm's risk in positioning a block of securities. While the Investment
Adviser generally seeks reasonably competitive commission rates, the Fund does
not necessarily pay the lowest commission available.
During the fiscal years ended December 31, 1994, December 31, 1993
and December 31, 1992, the Fund paid $161,163, $356,429 and $236,576,
respectively, in brokerage commissions. Brokerage commissions in the amount
of $21,616 and $23,005 were paid by the Fund to Gabelli & Company and its
affiliates for the fiscal years ended 1993 and 1992. During fiscal year 1994,
the Fund paid to Gabelli & Company and its affiliates $16,476 in brokerage
commissions, representing 10.2% of the total of all brokerage paid during such
period. Such commissions were paid with respect to 7.1% of the total dollar
value of all transactions involving the payment of brokerage commissions
effected during the period.
Subject to obtaining the best price and execution, brokers who
provide supplemental research, market and statistical information to the
Investment Adviser or its affiliates may receive orders for transactions by
the Fund. The term "research, market and statistical information" includes
advice as to the value of securities, and advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, and furnishing analyses and reports
concerning issues, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. Information so received
will be in addition to and not in lieu of the services required to be
performed by the Investment Adviser under the Advisory Agreement and the
expenses of the Investment Adviser will not necessarily be reduced as a result
of the receipt of such supplemental information. Such information may be
useful to the Investment Adviser and its affiliates in providing services to
clients other than the Fund, and not all such information is used by the
Investment Adviser in connection with the Fund. Conversely, such information
provided to the Investment Adviser and its affiliates by brokers and dealers
through whom other clients of the Investment Adviser and its affiliates effect
securities transactions may be useful to the Investment Adviser in providing
services to the Fund.
Although investment decisions for the Fund are made independently
from those of the other accounts managed by the Investment Adviser and its
affiliates, investments of the kind made by the Fund may also be made by those
other accounts. When the same securities are purchased for or sold by the Fund
and any of such
<PAGE>59
other accounts, it is the policy of the Investment Adviser and its affiliates
to allocate such purchases and sales in the manner deemed fair and equitable
to all of the accounts, including the Fund.
Portfolio Turnover
The Fund's portfolio turnover rate for the fiscal year ended
December 31, 1994 and December 31, 1993 were 22.2% and 24.4%, respectively.
Portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities by the monthly average value
of securities in its portfolio during the year, excluding portfolio securities
the maturities of which at the time of acquisition were one year or less. The
ability of the Fund to enter into certain short-term transactions will be
limited by the requirement that certain gains on securities may not exceed 30%
of its annual gross income for federal income tax purposes. However,
portfolio turnover will not otherwise be a limiting factor in making
investment decisions for the Fund. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expense than a lower rate, which
expense must be borne by the Fund and its stockholders.
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
Under the Fund's Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan (the "Plan"), a stockholder whose shares of the Fund's common
stock, par value $.001 per share (the "Common Stock") is registered in his own
name will have all distributions reinvested automatically by State Street,
which is agent under the Plan, unless the stockholder 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 stockholder elects to receive
distributions in cash. Investors who own Common Stock registered in street
name should consult their broker-dealers for details regarding reinvestment.
All distributions to investors who do not participate in the Plan will be paid
by check mailed directly to the record holder by State Street as dividend
disbursing agent.
Under the Plan, whenever the market price of the Common Stock is
equal to or exceeds net asset value at the time shares are valued for purposes
of determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants in the Plan are issued shares of Common
Stock, valued at the greater of (i) the net asset value as most recently
determined or (ii) 95% of the then current market price of the Common Stock.
The valuation
<PAGE>60
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
Fund, valued at market price. If the Fund should declare a dividend or
capital gains distribution payable only in cash, State Street will buy the
Common Stock for such Plan in the open market, on the 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 Fund to issue
shares at net asset value if, following the commencement of such purchases,
the market value of the Common Stock exceeds net asset value.
Participants in the Plan have the option of making additional cash
payments to State Street, semi-annually, for investment in the shares as
applicable. Such payments may be made in any amount from $250 to $3,000. State
Street will use all funds received from participants to purchase shares of the
Fund in the open market on or about February 15 and August 15 of each year.
Any voluntary cash payments received more than 30 days prior to these dates
will be returned by State Street, and interest will not be paid on any
uninvested cash payments. To avoid unnecessary cash accumulations, and also to
allow ample time for receipt and processing by State Street, 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 February 15 or August 15, as the case may be. 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 stockholder accounts in the Plan and
furnishes written confirmations of all transactions in the account, including
information needed by stockholders for personal and tax records. Shares in the
account of each Plan participant will be held by State Street in
noncertificated form in the name of the participant. A Plan participant may
send its share certificates to State Street so that the shares represented by
such certificates will be held by State Street in the participant's
stockholder account under the Plan.
In the case of stockholders 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 stockholder as representing the total amount registered in the
stockholder's name and held for the account of beneficial owners who
participate in the Plan.
<PAGE>61
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the Plan members at
least 90 days before the record date for such dividend or distribution. The
Plan also may be amended or terminated by State Street on at least 90 days'
written notice to the Plan participants. All correspondence concerning the
Plan should be directed to State Street at P.O. Box 8200, Boston,
Massachusetts 02266-8200.
TAXATION
The following is a summary of certain material United States federal
income tax considerations regarding the purchase, ownership and disposition of
shares in the Fund. Each prospective stockholder is urged to consult his own
tax adviser with respect to the specific federal, state and local tax
consequences of investing in the Fund. The summary is based on the laws in
effect on the date of this SAI, which are subject to change.
The Fund has qualified and intends to continue to qualify and elect
to be treated as a regulated investment company for each taxable year under
the Code. To so qualify, the Fund must, among other things: (a) derive at
least 90% of its gross income in each taxable year from dividends, interest,
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, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income in each
taxable year from the sale or other disposition of (i) stock or securities
held for less than three months, (ii) options, futures or forward contracts
(other than options, futures or forward contracts on foreign currencies) held
for less than three months and (iii) foreign currencies (or options, futures
or forward contracts on such foreign currencies) held for less than three
months but only if such currencies (or options, futures or forward contracts)
are not directly related to the Fund's principal business of investing in
stock or securities (or options or futures with respect to stock or
securities); and (c) diversify its holdings so that, at the end of each
quarter of the Fund's taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by cash, securities of other regulated
investment companies, U.S. Government Securities and other securities, with
such other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's assets and not greater than 10% of the
outstanding voting securities of such issuer and (ii) not more than 25% of the
value
<PAGE>62
of its assets is invested in the securities (other than U.S. Government
Securities or securities of other regulated investment companies) of any one
issuer or any two or more issuers that the Fund controls and are determined to
be engaged in the same or similar trades or businesses or related trades or
businesses. The Fund expects that all of its foreign currency gains will be
directly related to its principal business of investing in stocks and
securities.
Legislation that would repeal the 30% limitation on a regulated
investment company's ability to make short-term investments is currently being
considered by Congress.
As a regulated investment company, the Fund will not be subject to
United States federal income tax on its net investment income (i.e., income
other than its net realized long- and short-term capital gains) and its net
realized long- and short-term capital gains, if any, that it distributes to
its stockholders, provided that an amount equal to at least 90% of its
investment company taxable income (i.e., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains over its net
realized short-term capital losses (including any capital loss carryovers),
plus or minus certain other adjustments as specified in section 852 of the
Code) for the taxable year is distributed, but will be subject to tax at
regular corporate rates on any income or gains that it does not distribute.
Furthermore, the Fund will be subject to a United States corporate income tax
with respect to such distributed amounts in any year that it fails to qualify
as a regulated investment company or fails to meet this distribution
requirement. Any dividend declared by the Fund in October, November or
December of any calendar year and payable to stockholders of record on a
specified date in such a month shall be deemed to have been received by each
stockholder on December 31 of such calendar year and to have been paid by the
Fund not later than such December 31, provided that such dividend is actually
paid by the Fund during January of the following calendar year.
Dividends paid from net investment income are taxable to
stockholders as ordinary income whether or not reinvested in shares of the
Fund. Distributions by the Fund of the excess, if any, of net long-term
capital gains over net short-term capital losses will be taxable to
stockholders as long-term capital gains regardless of how long stockholders
have held shares of the Fund and will not be eligible for the dividends-
received deduction for corporations. As a general rule, gain or loss on a
sale of shares held for more than one year will be a long-term capital gain or
loss, and gain or loss on a sale of shares held for one year or less will be a
short-term capital gain or loss.
<PAGE>63
If the Fund is the holder of record of any stock on the record date
for any dividends payable with respect to such stock, such dividends are
included in the Fund's gross income not as of the date received but as of the
later of (i) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled
to receive the declared, but unpaid, dividends) or (ii) the date the Fund
acquired such stock.
Capital Gain Distributions
If a stockholder receives a distribution taxable as long-term
capital gain with respect to shares of the Fund and such shares are sold
within six 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.
The Fund reserves the right, but does not currently intend, to
retain for reinvestment net long-term gains in excess of net short-term
capital losses and the Fund will be subject to a corporate tax (currently at a
rate of 35%) on the retained amount, if any. The Fund would designate such
retained amounts as undistributed capital gains. As a result, such amounts
would be taxed to stockholders as long-term capital gains and stockholders
would be able to claim their proportionate shares of the federal income taxes
paid by the Fund on such gains as a credit against their own federal income
tax liabilities, and would be entitled to increase the adjusted tax basis of
their shares of the Fund by 65% of their undistributed capital gains and their
tax credit. Qualified pension and profit sharing funds, certain trusts and
other organizations or persons not subject to federal income tax on capital
gains and certain non-resident alien individuals and foreign corporations
would be entitled to a refund of their pro rata share of such taxes paid by
the Fund upon filing appropriate returns or claims for refund with the proper
tax authorities. Failure by such entities and their sponsors or responsible
fiduciaries to properly account for such refund could result in adverse
federal income tax consequences.
Backup Withholding
If a stockholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is
not subject to backup withholding, then the stockholder may be subject to a
31% backup withholding tax with respect to (i) any taxable dividends and
distributions and (ii) any proceeds of any redemption or exchange of portfolio
shares. An individual's taxpayer identification
<PAGE>64
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.
Dividends received by corporate stockholders from the Fund will
generally qualify for the federal dividends-received deduction for domestic
corporate stockholders to the extent the dividends do not exceed the aggregate
amount of dividends received by the Fund from qualified domestic corporations.
If securities held by the Fund are considered to be "debt-financed"
(generally, acquired with borrowed funds), are held by the Fund for less than
46 days (91 days in the case of certain preferred stock), or are subject to
certain forms of hedges, the portion of the dividends paid by the Fund that
corresponds to the dividends paid with respect to the securities will not be
eligible for the corporate dividends-received deduction.
The Fund sends written statements and notices to its stockholders
regarding the tax status of all dividends and distributions made during each
calendar year.
Dividend and capital gain distributions may also be subject to state
and local taxes. Stockholders are urged to consult their attorneys or tax
advisors regarding specific questions as to federal, state or local taxes.
Non-U.S. stockholders are urged to consult their own tax advisors concerning
the applicability of the United States withholding tax.
Other Tax Consequences
In addition to the federal income tax consequences described above,
which are applicable to an investment in the Fund, there may be other federal,
state or local tax considerations applicable to the circumstances of a
particular investor. 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 Fund, its stockholders and/or its assets. No rulings
have been sought from the Internal Revenue Service with respect to any of the
tax matters discussed above.
NET ASSET VALUE
The net asset value of the Fund's shares is computed based on the
market value of the securities it holds and determined daily as of the close
of regular trading on the New York Stock Exchange and reported in financial
newspapers of general circulation as of the last day of each week.
<PAGE>65
Portfolio securities which are traded only on stock exchanges are
valued at the last sale price as of the close of regular trading on the day
the securities are being valued, or lacking any sales, at the mean between
closing bid and asked prices. Securities traded in the over-the-counter market
which are Nasdaq National Market securities are valued at the last sale price
as of the close of regular trading on the day the securities are being valued.
Other over-the-counter securities are valued at the most recent bid prices as
obtained from one or more dealers that make markets in the securities.
Portfolio securities which are traded both in the over-the-counter market and
on a stock exchange are valued according to the broadest and most
representative market, as determined by the Investment Adviser. Securities
traded primarily on foreign exchanges are valued at the closing values of such
securities on their respective exchanges as of the day the securities are
being valued. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund. Short-term
investments that mature in 60 days or less are valued at amortized cost,
unless the Board of Directors of the Fund determines that such valuation does
not constitute fair value.
Net asset value per share is calculated by dividing the value of the
securities held plus any cash or other assets minus all liabilities, including
accrued expenses, by the total number of shares outstanding at such time.
BENEFICIAL OWNER
There are no persons known to the Fund who may be deemed beneficial
owners of 5% or more of shares of the Fund's Common Stock because they
possessed or shared voting or investment power with respect to shares of the
Fund's Common Stock. As of August 30, 1995, the officers and Directors of the
Fund, as a group, beneficially owned 966,970 shares of the Fund,
representing 1.08% of the Fund's outstanding shares.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended December 31, 1994
and its unaudited Semi-Annual Report for the fiscal period ended June 30, 1995
(the "Reports"), which either accompany this SAI or have previously been
provided to the person to whom the Prospectus is being sent, are incorporated
herein by reference with respect to all information other than the information
set forth in the Letter to Stockholders included therein. The Fund will
furnish, without charge, a copy of its
<PAGE>66
Reports, upon request to the Fund at One Corporate Center, Rye, New York 10580
or by telephone at (914) 921-5070.
<PAGE>67
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) (a) Financial Statements for the fiscal year ended December 31,
1994*
(i) -- Portfolio of Investments as of December 31, 1994
(ii) -- Statement of Assets and Liabilities as of December
31, 1994
(iii) -- Statement of Operations for the year ended December
31, 1994
(iv) -- Statement of Changes in Net Assets for the fiscal
year ended December 31, 1994 and the fiscal year
ended December 31, 1993
(v) -- Financial highlights for a share of capital stock
outstanding throughout the fiscal year ended December
31, 1994, the fiscal year ended December 31, 1993,
the fiscal year ended December 31, 1992, the fiscal
year ended December 31, 1991, the fiscal year ended
December 31, 1990, the fiscal year ended December 31,
1989, the fiscal year ended December 31, 1988, the
fiscal year ended December 31, 1987 and the fiscal
period August 21, 1986 through December 31, 1986
(vi) -- Notes to Financial Statements
(vii) -- Report of Independent Accountants
(b) Financial Statements for the fiscal period ended June 30,
1995**
(i) -- Portfolio of Investments as of June 30, 1995
(ii) -- Statement of Assets and Liabilities as of June 30,
1995
(iii) -- Statement of Operations for the six months ended June
30, 1995
(iv) -- Statement of Changes in Net Assets for the six months
ended June 30, 1995 and the fiscal year ended
December 31, 1994
(v) -- Financial highlights for a share of capital stock
outstanding throughout the six months ended June 30,
1995, the fiscal year ended December 31, 1994, the
fiscal year ended December 31, 1993, the fiscal year
ended December 31, 1992, the fiscal year ended
December 31, 1991, the fiscal year ended December 31,
1990, the fiscal year ended December 31, 1989, the
fiscal year ended December 31, 1988, the fiscal year
ended December 31, 1987 and the fiscal year ended
December 31, 1986
(vi) -- Notes to Financial Statements
_________________
* The Fund's Annual Report for 1994 was filed on March 3, 1995. See also
Exhibit (o) to the Registration Statement.
** Incorporated by reference to the Fund's Semi-Annual Report for the Period
Ended June 30, 1995, filed on August 28, 1995 (EDGAR Accession No.
0000927405-95-000062).
(2) Exhibits
(a) (1) -- Articles of Incorporation*
(2) -- Articles of Amendment**
(3) -- Articles of Amendment****
(b) -- By-Laws*
(c) -- Not applicable
(d) (1) -- Specimen certificate for Common Stock, par value
$.001 per share***
(2) -- Form of Subscription Certificate+
(3) -- Form of Notice of Guaranteed Delivery+
<PAGE>68
(4) -- Form of DTC Participant Oversubscription
Exercise Form+
(5) -- Form of Nominee Holder Over-Subscription
Certification+
(6) -- Form of Subscription, Distribution and Escrow
Agency Agreement+
(e) -- Automatic Dividend Reinvestment and Voluntary
Cash Purchase Plan*****
(f) -- Not applicable
(g) -- Investment Advisory Agreement between the Fund
and Gabelli Funds, Inc.+
(h) -- Not applicable
(i) -- Not applicable
(j) -- Custodial Contract between the Fund and Boston
Safe and Deposit Trust Company**
(k) (1) -- Registrar, Transfer Agency and Service Agreement
between the Fund and State Street Bank and Trust
Company+
(2) -- Transfer Agent and Registrar Services Fee
Agreement between the Fund and State Street Bank
and Trust Company+
(l) (1) -- Opinion and consent of Willkie Farr & Gallagher+
(2) -- Opinion and consent of Venable, Baetjer and Howard,
LLP+
(m) -- Not applicable
(n) -- Consent of Price Waterhouse LLP
(o) -- Annual Report for 1994
(p) -- Purchase Agreement***
(q) -- Not applicable
(r) -- Financial Data Schedule+
__________________
* Incorporated by reference to Registrant's Registration Statement on Form
N-2, exhibit __, filed with the Commission on June 9, 1986 (the
"Registration Statement").
** Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to the Registration Statement, exhibit __, filed with the Commission on
July 18, 1986.
*** Incorporated by reference to Registrant's Pre-Effective Amendment No. 2
to the Registration Statement, exhibit __, filed with the Commission on
August 14, 1986.
**** Incorporated by reference to Registrant's Amendment No. 7 to the
Registration Statement, exhibit __, filed with the Commission on May 1,
1991.
***** Incorporated by reference to Registrant's Pre-Effective Amendment
No. 1 to the Registrant's Registration Statement on Form N-2,
exhibit (e), filed with the Commission on July 8, 1993.
+ To be filed by amendment.
<PAGE>69
Item 25. Marketing Arrangements
Not applicable
Item 26. Other Expenses of Issuance
The following table sets forth the estimated expenses to be incurred
in connection with the Offer described in this Registration Statement:
<TABLE>
<CAPTION>
<C>
<S> $
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
New York Stock Exchange
listing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Printing (other than stock
certificates) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Engraving and printing
stock certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Fees and expenses of
qualification under state securities laws (including fees of counsel) . . . *
Auditing fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Subscription Agent's fees
and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
-----------
Total $ *
</TABLE>
_______________
* To be supplied by amendment.
<PAGE>70
Item 27. Persons Controlled by or Under Common Control with
Registrant
None.
Item 28. Number of Holders of Securities
Common Stock, par value $.001 per share: 17,755 record holders as
of August 25, 1995.
Item 29. Indemnification
The response of this Item is incorporated by reference to the
caption "Common Stock -- Limitation of Officers' and Directors' Liability" set
forth in the Prospectus.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to Directors,
officers and controlling persons of the Fund, pursuant to the foregoing
provisions or otherwise, the Fund has been advised that in the opinion of the
Securities and Exchange Commission (the "SEC") such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Fund of expenses incurred or paid by a Director,
officer or controlling person of the Fund in the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or
controlling person in connection with the securities being registered, the
Fund will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 30. Business and Other Connections of Investment Adviser
Registrant is fulfilling the requirement of this Item 30 to provide
a list of the officers and directors of its investment adviser, together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by that entity or those of its officers and
directors during the past two years, by incorporating by reference the
information contained in the Form ADV filed with the SEC pursuant to the
Investment Advisers Act of 1940 by Gabelli Funds, Inc. (SEC File No.
801-26202).
<PAGE>71
Item 31. Location of Accounts and Records
Gabelli Funds, Inc.
One Corporate Center
Rye, New York 10580
(with respect to its services as Investment Adviser)
State Street Bank and Trust Company
Two Heritage Drive
North Quincy, Massachusetts 02171
(with respect to its services as transfer agent, dividend disbursing
agent and registrar)
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
(with respect to its services as custodian)
The Shareholder Services Group, Inc.
One Exchange Place
53 State Street
Boston, Massachusetts 02109
(with respect to its services as Sub-Administrator)
Item 32. Management Services
Not applicable.
Item 33. Undertakings
(a) Registrant undertakes to suspend offering its shares until it
amends its prospectus contained herein if (1) subsequent to the effective date
of its Registration Statement, the net asset value per share declines more
than 10 percent from its net asset value per share as of the effective date of
this Registration Statement, or (2) the net asset value per share increases to
an amount greater than its net proceeds as stated in the prospectus contained
herein.
(b) Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Act;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the
<PAGE>72
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to
Rule 424(b) ( 230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; or
(iii) to include any material information with respect
to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) that, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(c) Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(d) Registrant hereby undertakes to send by first class mail or
other means designed to ensure equally prompt delivery, within two business
days of receipt of a written or oral request, a Statement of Additional
Information.
<PAGE>73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Rye, State of New York, on the 1st
day of September, 1995.
THE GABELLI EQUITY TRUST INC.
By /s/ Bruce N. Alpert
Bruce N. Alpert
Vice President and Treasurer
Each person whose signature appears below hereby constitutes and appoints
Mario J. Gabelli and Bruce N. Alpert, and each of them, his lawful attorney-
in-fact and agents with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, and
hereby grants to such attorney-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that such attorneys-
in-fact and agents or any of them, or his or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
Signature Title Date
--------- ----- ----
Chairman of the
Board, President
Mario J. Gabelli and Chief
Investment Officer
/s/ Paul R. Ades Director September, 1995
Paul R. Ades
/s/ Thomas E. Bratter Director September, 1995
Thomas E. Bratter
/s/ Bill Callaghan Director September, 1995
Bill Callaghan
/s/ Felix J. Christiana Director September, 1995
Felix J. Christiana
/s/ James P. Conn Director September, 1995
James P. Conn
/s/ Karl Otto Pohl Director September, 1995
Karl Otto Pohl
/s/ Anthony R. Pustorino Director September, 1995
Anthony R. Pustorino
<PAGE>74
/s/ Salvatore J. Zizza Director September, 1995
Salvatore J. Zizza
/s/ Bruce N. Alpert Treasurer September, 1995
Bruce N. Alpert (Principal
Financial and
Accounting
Officer)
<PAGE>75
EXHIBIT INDEX
Page in
Sequential
Numbering
System
----------
(n) -- Consent of Price Waterhouse LLP
(o) -- Annual Report for 1994
<PAGE>1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this registration
statement on Form N-2 (the "Registration Statement") of our report dated
February 9, 1995, relating to the financial statements and financial
highlights appearing in the December 31, 1994 Annual Report to Shareholders of
The Gabelli Equity Trust Inc., which is also incorporated by reference into
the Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Experts" in the Prospectus.
/s/ Price Waterhouse
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
August 25, 1995
<PAGE>
THE GABELLI [LOGO]
EQUITY TRUST INC.
ANNUAL REPORT
DECEMBER 31, 1994
<PAGE>
INTERACTIVE COUCH POTATO TM(C)
INTERACTIVE (in' ter ak' t iv) Having the capacity for communication flow
in each direction.*
COUCH (kouch) An appellation for the heavy user of
television, depicted in the metaphor as
POTATO (po ta' to) plopped before the television set like a
(pe ta' to) vegetable with eyes. The term was coined
in the early 1980s by a group of
Baby Boomers in the San Francisco area who
playfully glorified their addiction to the
tube. Calling themselves The Couch Potatoes,
they formed a national club and published a
hilarious newsletter in the couch potato
lifestyle containing bizarre recipes for that
vital companion to the TV set, the toaster
oven. After a burst of enlistments, the club
quietly disappeared. All that remains
today is the metaphor, and its current use
tends to be more pejorative than
self-mocking or affectionate.*
*Source: NTC Mass Media Directory.
INVESTMENT OBJECTIVE:
The Gabelli Equity Trust Inc. is a
closed-end, non-diversified
management investment company
whose primary objective is long-term
growth of capital, with income as a
secondary objective.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
<PAGE>
To Our Shareholders,
Following three consecutive years in which The Gabelli Equity Trust
Inc. ("Equity Trust") materially exceeded its real rate of return target, our
portfolio made little progress in 1994. Contracting price/earnings and
price/cash flow multiples consistent with higher interest rates restrained
stocks in general. In addition, telecommunications, cable television and
entertainment and information software stocks - the industries converging to
form the interactive media superhighway - had a bumpy ride as they hit some of
the inevitable "potholes" formed by the reconstruction of our national
communications system. Also, despite much better than expected earnings from
industrial cyclicals, the group struggled against the strong headwind of rising
interest rates.
[FIGURE 1]
THE GABELLI [LOGO]
EQUITY TRUST INC.
The Equity Trust's net asset value per share, after adjusting for all
distributions and the spin-off of The Gabelli Global Multimedia Trust Inc.
("Multimedia Trust"), increased 0.5% for the year ended December 31, 1994.
This compares to the 1.3% increase in the unmanaged S&P 500 Index, a widely
accepted unmanaged index of stock market performance. The Equity Trust's net
asset value closed the year at $9.46 per share, slipping 2.5% for the fourth
quarter from $10.80 per share on September 30, 1994, after adjusting for the
Multimedia Trust spin-off and the December distribution. The S&P 500 Index was
unchanged for the fourth quarter.
The Equity Trust's common shares ended the year at $9.625 per share on
the New York Stock Exchange, unchanged for the fourth quarter and down 5.1% for
the year after adjusting for all distributions and the spin-off.
WHAT WE DO
We do what is described as bottoms up research: we read annual
reports; we visit the competition; we talk to customers; we go belly to belly
with management. We structure our portfolio by picking stocks.
In past reports, we have tried to articulate our investment philosophy
and methodology. The following graphic further illustrates the interplay among
the four components of our valuation approach.
Our focus is on free cash flow; earnings before interest, taxes,
depreciation and amortization (EBITDA) minus the capital expenditures necessary
to grow the business. We believe free cash flow is the best barometer of a
business' value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long-term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to or detract from our private market value estimates. Finally,
we look for a catalyst; something happening in the company's industry or
indigenous to the company itself that will surface value. In the case of the
independent telephone stocks, the catalyst is a regulatory change. In the
agricultural equipment business, it is the increasing worldwide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division, or the development of a profitable
new business.
[FIGURE 2]
When we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a
<PAGE>
proven long-term method for preserving and enhancing wealth in the U.S.
equities market. At the margin, our new investments are focused on businesses
that are well managed and will benefit from sustainable long-term economic
dynamics. These include macro trends, such as globalization of the market in
filmed entertainment and telecommunications, and micro trends, such as
increased focus on productivity enhancing goods and services.
SPIN-OFF OF THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
On October 3, 1994, the shareholders of the Equity Trust approved the
spin-off of a portion of the Equity Trust's assets in the form of shares of
Multimedia Trust, a newly organized non-diversified, closed-end management
investment company which will seek long-term capital appreciation by investing
primarily in common stocks of foreign and domestic companies involved in the
telecommunications, media, publishing and entertainment industries.
We are pleased to announce that the spin-off was successfully
completed on the distribution date of November 15, 1994. Each shareholder
received one share of the Multimedia Trust for every ten shares of the Equity
Trust he/she owned. Shares of the Multimedia Trust started trading on the New
York Stock Exchange on a regular way basis on November 16, 1994 under the
symbol GGT. The initial net asset value of the Multimedia Trust was $7.50 per
share.
THE YEAR IN REVIEW
In last year's letter to you, we predicted that stronger corporate
profits would battle higher interest rates over the direction of the stock
market. It's been a close fight, but at the time of this writing, it appears
the first few rounds have gone to the Federal Reserve. Despite corporate
earnings growth well above consensus expectations, the market has not been able
to sustain any momentum in the face of inflationary concerns and steadily
rising interest rates. In general, every punch landed in the form of better
than expected earnings has been effectively countered by another increase in
rates.
The Equity Trust, with its focus on undervalued assets, benefitted
from the early stages of what we believe will be the third great wave of
corporate restructurings. Stocks like American Express Company (AXP - $29.50 -
NYSE), American Brands, Inc. (AMB - $37.50 - NYSE) and Hilton Hotels
Corporation (HLT - $67.375 - NYSE) advanced as their respective corporate
managements began reshaping the companies. We expect to see more of this type
of restructuring accompanied by an increase in corporate takeovers in 1995.
Selected industry groups also did well. Specific to our portfolio,
cellular telephone stocks, like AirTouch Communications (ATI - $29.125 - NYSE)
and LIN Broadcasting Corporation (LINB - $133.50 - NASDAQ), prospered as
subscriber and cash flow growth continued to exceed expectations. Broadcasters
such as United Television, Inc. (UTVI - $54.50 - NASDAQ) posted good gains as
advertising supported media rebounded with the economy. Selected manufacturing
companies like AptarGroup Inc. (ATR - $28.75 - NYSE), IDEX Corporation (IEX -
$42.25 - NYSE), SPS Technologies, Inc. (ST - $25.375 - NYSE), and Wynn's
International, Inc. (WN - $22.00 - NYSE) also did well as they expanded their
international franchises.
There were also disappointments. Telephone stocks like Rochester
Telephone Corporation (RTC - $21.125 - NYSE), Southern New England
Telecommunications Corporation (SNG - $32.125 - NYSE) and Telephone and Data
Systems, Inc. (TDS - $46.125 - ASE), retreated in the face of higher interest
rates and the uncertainty of how well they will cope with impending competition
in their local markets. Cable bashing by the White House and another round of
rate reductions crimped our holdings in cable television companies like
Tele-Communications, Inc. (TCOMA - $21.75 - NASDAQ). Media conglomerates, most
notably Time Warner Inc. (TWX - $35.125 - NYSE) and Viacom Inc. (VIA - $41.625
- ASE), weakened in reaction to the speculative excesses in 1993 and investor
confusion over precisely what role they would play in the interactive arena.
2
<PAGE>
1995 - THE ECONOMY
One of the major factors that will impact the domestic economy going
forward is the rate of inflation. Obviously, Federal Reserve Chairman Alan
Greenspan is determined not to let inflation accelerate on his watch. As we
see it, the elements driving inflation in the months ahead are commodity
pricing and inflation's service and labor components. We are at a stage in the
economy where raw material costs will play a psychological and catalytic role.
In 1994, we witnessed increases in the prices of selected goods such as lumber,
coffee and copper, with intermediate goods rising sharply as the year
progressed. The wild card this year will be oil. In the service component,
rising health care costs have been contained. While these costs leaped forward
at rates as high as 15% per annum for years, 1994 actually saw costs rise under
5%. Competition should continue to reign in health care costs going forward.
In the critical labor sector, however, the focus of the worker in
America's heartland is shifting from worrying about being laid off to "how many
days can I get away to go hunting?" The implication is that labor costs will
rise. The ability to shift labor intensive manufacturing and services to other
parts of the world has not, however, been lost on all involved - including
labor. This should restrain inflation's labor component.
The statistical conclusion we reach is an inflation rate of 4.5% in
1995. Given that long-term interest rates are comprised of real return plus
premiums for actual inflation and inflationary expectations, we expect
long-term rates to go over 8% as we reach a cyclical peak in economic activity.
In addition, the demand for funds by lesser developed countries may also add
to nominal interest rates long-term borrowers receive. Short-term rates should
also continue to rise.
1995 - THE STOCK MARKET
The likelihood of higher interest rates and further multiple
contraction - the same dynamics that restrained stocks in 1994 - are still in
place. Will the market retreat substantially from current levels? That
depends on just how much inflation we actually experience, how much capital
flows out of equity mutual funds back into money market instruments, and
whether we experience any more financial accidents. As previously mentioned,
we do see inflationary pressure on the economy and expect the Fed to react
accordingly. We do worry that the enormous amount of money that flowed into
equity mutual funds over the last several years could reverse itself. To these
reservations, we add a third concern: that some form of financial meltdown -
big losses in derivatives trading such as the recently exposed difficulties in
Orange County, or other currency crises similar to the Mexican Peso debacle -
could stampede investors. Our 1994 forecast of an up 5% to down 10% market for
the year is still realistic for 1995.
There is one notable trend we expect to impact our portfolio favorably
in 1995. This trend, which we have shared with you on several occasions in the
past, is the increased level of transactions inspired in part by General
Electric's (GE - $51.00 - NYSE) unsolicited bid for Kemper on March 14 of this
past year. In going after Kemper, GE's Jack Welch sounded a resounding GONG
making it acceptable to do hostile transactions to fill a product niche or a
distribution channel. While the deal was never consummated, it signalled
another surge in takeovers, which should increase in kinetic fashion in 1995.
Strong cash flow, a willing banking community, lower long-term capital gains
taxes, and a voracious appetite for deals by large, well-heeled buyers, all
point to good opportunities for value investors, particularly in small
companies.
Longer term, there are several other trends that should benefit the
American economy, the stock market and our portfolio. One is consumerism.
There are 3 billion people in China, India and emerging countries such as
Indonesia, where the gross domestic products ("GDP") are growing at a double
digit pace. This is a boon for coveted American goods and services. In the
past four years, the 900 million people in India have increased their use of
satellite dishes from 400,000 to 10 million! Think of what that implies for
American entertainment software producers like Time Warner and Viacom. Another
way to qualify the enormous impact of this region is to consider that a one
ounce increase in per capita beef consumption in China translates into Iowa
having the equivalent of the fourth highest GDP in the world. Think of what
this would do for Deere & Company (DE - $66.25 - NYSE).
3
<PAGE>
We also see a trend relating to competition with Japan. Japanese
corporations are increasingly cash flow sensitive and are shifting their focus
from gaining market share to increasing profitability. This spells opportunity
for companies that compete directly with Japan and are capable of accelerating
market share gains. The American automobile industry and General Motors
Corporation (GM - $42.25 - NYSE) are good examples.
Another favorable trend is strong growth in travel related services.
A one percent increase in real disposable income translates into a 1.5% rise in
the consumption of travel related services. Hilton and American Express remain
strong favorites here.
OUR RESPONSE
With our short-term reservations about the broad market on record, we
do see opportunities for stock pickers in 1995.
We remain committed to selected telephone, cable television and
entertainment and information software producers. Regulatory change, new
technology and numerous joint ventures among participants in all three
industries have created confusion for investors who can't see the forest
through the trees. The forest is present in the form of enormous incremental
revenue and earnings for well managed companies in all three industries. As
the interactive superhighway stretches out before us, quality companies like
Tele-Communications, Inc., Time Warner and Viacom will travel in the fast lane.
We will also see smaller players, like Chris-Craft Industries, Inc.
(CCN - $34.50 - NYSE), C-TEC Corporation (CTEX - $19.875 - NASDAQ),
International Family Entertainment Inc. (FAM - $12.625 - NYSE) and Media
General, Inc. (MEG'A - $28.375 - ASE), succeeding on their own or through
strategic alliances or incorporation into larger, more financially robust
entities. This is just the beginning of a media "mating game" that will
continue for the balance of the decade.
After a bit of a beating in the latter half of 1994, we believe
selected auto and auto parts stocks can do well in the year ahead. General
Motors is making progress on all fronts: cost control, the introduction of
competitive new auto lines and most importantly, a steady regaining of market
share. Echlin Inc. (ECH - $30.00 - NYSE) and Standard Motor Products, Inc.
(SMP - $19.75 - NYSE) are continuing to extend their dominant market share
franchises in engine components and brake systems.
Finally, we expect the Equity Trust to benefit from truly special
situations in a variety of industries. Corporate restructurings and takeovers
will be the catalyst. To repeat an earlier point, General Electric's proposed
takeover of Kemper last spring sounded a bell - it made it OK once again to do
hostile deals. When we look back a few years from now, we will see that as a
watershed event: the beginning of a third great wave of takeovers in the U.S.
In the 1960s it was the conglomeratization of America. In the 1980s it was the
leveraged buyout. In the 1990s it will be strategic acquisitions designed to
expand and extend franchises throughout the global marketplace. Our
traditional focus on dominant market share franchises selling at a deep
discount to "real world" economic value will put us directly in the path of
global consolidation on numerous industry fronts.
LET'S TALK STOCKS
The following are stock specifics on selected holdings of the Equity
Trust's investments. Favorable EBITDA prospects do not necessarily translate
into higher stock prices, but they do express a positive trend which we believe
will develop over time.
American Express Company (AXP - $ 29.50 - NYSE) is best known for its American
Express Card. Less recognized, however, are its other operations such as
Minneapolis-based American Express Financial Advisors, Inc. (formerly IDS
Financial Services), which sells financial products ranging from mutual funds
to annuities. In 1993, American express completed the sale of The Boston
Company, Inc. and the brokerage and asset management divisions of Shearson
Lehman Brothers, Inc The former went to Mellon Bank
4
<PAGE>
Corporation, while the latter joined Primerica's Smith Barney unit. In 1994,
Harvey Golub, chairman and CEO, continued to demonstrate his desire to refocus
AXP on its core charge card and travel services businesses by spinning off
Lehman Brothers, Inc. This divestiture places American Express in a strong
position to focus on growing its earnings at a double digit rate over the
balance of this decade.
Time Warner Inc. (TWX - $35.125 - NYSE, Reset Notes, Zero Coupon - $94.50, Cv.
Sub. Deb., 8.75% - $94.25) is one of the largest diversified media and
publishing companies in the world with a market capitalization of over $15
billion. Warner Brothers Studios, the company's filmed entertainment
subsidiary, was ranked number one at the box office for the third consecutive
year. Time Warner is restructuring its business into copyright and creativity
(notably publishing, music and filmed entertainment) on one side and
distribution (mostly cable) on the other.
General Motors Corporation (GM - $42.25 - NYSE) is benefitting from a sharp
recovery in North American auto sales. In 1994, its North American operations
were profitable for the first time in four years and international profits
continue to grow. Additionally, under the helm of Jack Smith, GM is improving
the style and quality of its cars, rationalizing its production processes and
greatly reducing its costs. With peak earning power of over $10 per share, GM
remains a core holding.
Media General, Inc. (MEG'A - $28.375 - ASE) is a Richmond, Va.-based company
with interests in newspapers (Richmond, Va., Tampa, Fl. and Winston-Salem,
N.C.), TV stations (Tampa, Charleston, S.C. and Jacksonville, Fl.) and cable
television (Fairfax County, Va.). With a cyclical recovery in the operations
and values of media properties, the defense of the Richmond franchise from
encroachment from the Washington Post and the pickup in transactions in the
cable arena, this company is poised for a rebound.
Telephone and Data Systems, Inc. (TDS - $46.125 - ASE) is the seventh largest
cellular telephone company in the U.S. and, in addition, is a large independent
(non-Regional Bell Operating Company) telephone and paging company. TDS has
grown its asset base aggressively via acquisitions and is now poised to begin
reaping the rewards of accelerating cash flow, earnings per share and private
market value. The company was founded and is controlled and run by the Carlson
family of Chicago whom we consider to be among the best in the business. The
stock, which has been under selling pressure for what we consider to be
transitory reasons, is now undervalued relative to the company's private market
value of roughly $70 per share and high earnings per share growth going
forward.
Pittway Corporation (PRY - $39.00 - ASE)has undergone significant changes over
the past few years, selling or spinning off businesses representing half its
sales volume and over 60% of its income. The company has two remaining core
businesses, manufacturing and distributing professional burglar and fire alarm
equipment and publishing trade magazines and directories. The Ademco Security
Group, approximately 75% of revenues, is having banner years. Penton
Publishing appears to be emerging from three years of difficult operating
conditions as operating margins are now showing improvement. Pittway is
involved in real estate and other promising ventures, including a 45% interest
in a leading manufacturer of encryption equipment and a 5% equity interest in a
satellite broadcast company.
Sprint Corporation (FON - $27.625 - NYSE) remains very attractive in light of
its very low valuation and prospects for earnings acceleration. It trades at
a 59% discount to our $67 estimate of private market value. We expect the
telephone and cellular operations to be the main contributors to operations due
to the continuation of strong customer growth. Cellular subscriber growth was
67% last year. Long distance operations should maintain call volume growth at
the industry average of approximately 8%. Sprint's high cost structure also
provides an opportunity for earnings acceleration through further cost
restructuring. An alliance with a multinational communications partner also
appears imminent and will provide Sprint with the critical mass necessary to
position itself strategically as a dominant player in the global
telecommunications market.
Viacom Inc. (VIA- $41.625 - ASE) has evolved into one of the world's dominant
media companies. Following its recent acquisitions of Paramount Communications
and Blockbuster Entertainment, the company is now selling non-core assets and
focusing on the global expansion of its media franchises.
5
<PAGE>
Chris-Craft Industries, Inc. (CCN - $34.50 - NYSE) is primarily engaged in
television broadcasting through its roughly 70% ownership of BHC
Communications, Inc. (BHC - $73.50 - ASE). BHC owns and operates independent
TV stations in Los Angeles (KCOP) and Portland, Oregon (KPTV). BHC controls
50% of United Television, Inc. (UTVI - $54.50 - NASDAQ), an operator of an
NBC-affiliated TV station, an ABC affiliate and three independent outlets. BHC
has entered into a partnership agreement with Paramount Communications, Inc. to
form and launch a new, fifth television network to be called United Paramount
Television Network. With about $1.5 billion in marketable securities and cash,
derived from the 1993 disposition of Time Warner securities, CCN is strongly
positioned to expand its operations. CCN is the eighth largest TV station
group owner in the U.S., covering almost 20%of TV households.
10% DISTRIBUTION POLICY
Pursuant to The Gabelli Equity Trust's 10% Distribution Policy, the
Fund will distribute $0.25 per share at the end of each of the first three
calendar quarters. The final distribution in December is an adjusting
distribution in order to meet the Fund's 10% payout goal as well as Internal
Revenue Code requirements.
The Fund recently distributed its year end distribution of $0.33 per
share on December 27, 1994. The next distribution is scheduled for payment in
March of 1995.
IN CONCLUSION
After three very rewarding years, the Equity Trust has bided time in
1994. We acknowledge that in the challenging stock market environment we
expect in the first half of 1995, it will be difficult to move steadily
forward. We suggested that investing in 1994 was like walking through mud.
There is likely to be more slippery ground ahead. Our job has always been to
find solid footing in the form of fundamentally undervalued stocks. That will
continue to be our commitment.
Looking farther ahead, we believe the Equity Trust is well positioned
in industry groups and individual stocks which have great potential for the
balance of the decade. We remain confident that our annualized 10% real rate
of return objective is achievable. We will continue to leverage our research
capabilities in industries like telecommunications and media to extend our
global reach.
In closing 1994, we thank you for the trust you have shown in our
investing abilities and express our dedication to achieving our shared
financial goal: to increase the value of the assets you have entrusted to us.
Sincerely,
/s/ MARIO J. GABELLI
-------------------------
Mario J. Gabelli, CFA
President and Chief Investment Officer
February 1, 1995
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
DECEMBER 31, 1994
-----------------
<S> <C>
Time Warner Inc. Pittway Corporation
Chris-Craft Industries, Inc. General Motors Corporation
Viacom Inc. American Express Company
United Television, Inc. Telephone and Data Systems, Inc.
Sprint Corporation Media General, Inc.
</TABLE>
6
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO CHANGES
QUARTER ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
OWNERSHIP AT
DECEMBER 31,
SHARES 1994
-------- -------------
<S> <C> <C>
NET PURCHASES
COMMON STOCKS
Associated Group Inc., Class A(a)... 67,500 67,500
Associated Group Inc., Class B(a)... 67,500 67,500
Buckyrus Erie Company, New(b)....... 356 356
Caesars World, Inc.................. 77,000 100,000
CANAL+, Sponsored ADR............... 1,000 16,000
C-TEC Corporation(c)................ 81,000 141,000
Dole Food Company, Inc.............. 3,000 63,000
General Host Corporation............ 6,300 66,300
GTECH Holdings Corporation.......... 10,000 10,000
Independent Newspapers ORD.......... 5,000 35,000
LIN Television Corporation(d)....... 17,000 17,000
Lufkin Industries, Inc.............. 2,000 22,000
Mellon Bank Corporation(e).......... 1,897 19,500
Neiman-Marcus Group, Inc. .......... 600 430,600
News Corporation Limited
ADR(f)............................ 2,500 5,000
Oriental Press Group ORD............ 50,000 149,000
Puritan Bennett Corporation......... 8,000 8,000
Quaker Oats Company(f).............. 25,000 50,000
Royce Value Trust, Inc.(g).......... 5,357 32,769
Scientific-Atlanta Inc.(f).......... 1,000 2,000
Southwestern Bell
Corporation(h).................... 97,200 217,200
Sprint Corporation.................. 17,500 667,500
SPS Technologies, Inc............... 7,500 82,500
Telecom Argentina Stet-France
Telecom S.A., Sponsored ADR....... 1,400 3,000
Telefonica de Argentina S.A.,
ADR, Class B...................... 1,400 3,000
Telefonos de Mexico S.A.,
Sponsored ADR..................... 7,000 10,000
Tenneco Inc.(i)..................... 9,705 102,205
THORN EMI plc, Sponsored ADR........ 10,000 120,000
PREFERRED STOCKS
News Corporation Ltd., Sponsored
ADR, Pfd.......................... 2,500 2,500
Telecomunicacoes de Sao Paulo
SA-TELESP, Pfd.,
Registered(j)(k).................. 10,241 710,241
Telecomunicacoes de Sao Paulo
SA-TELESP, Pfd.,
Receipts(k)....................... 1,420,482 1,420,482
NET SALES
COMMON STOCKS
Allen Group Inc..................... 6,000 110,000
American Cyanamid Company(l)........ 447,000 --
AMR Corporation..................... 1,500 95,000
APS Holding Corporation, Class
A................................. 1,000 34,000
AptarGroup Inc...................... 1,200 350,000
Associated Communications
Corporation, Class A(h)........... 270,000 --
B-E Holdings, Inc.(b)............... 69,144 --
Burlington Resources Inc............ 5,000 115,000
Carter-Wallace, Inc................. 5,000 115,000
Chrysler Corporation................ 5,000 --
Coca-Cola Enterprises Inc........... 45,000 315,000
Deutsche Bank AG, ADR............... 1,000 15,500
Eastern Enterprises................. 110,000 --
Fibreboard Corporation, New......... 1,000 3,000
IDEX Corporation.................... 2,100 269,000
Johnson & Johnson................... 25,000 220,000
Lehman Brothers Holdings Inc........ 14,000 100,000
Minerals Technologies Inc........... 2,000 5,500
Modine Manufacturing Company........ 5,000 335,000
Morgan Grenfell SMALLCap
Fund, Inc......................... 1,000 15,451
Navistar International
Corporation....................... 20,000 380,000
PACCAR Inc.......................... 750 5,000
Pacific Telesis Group............... 5,000 30,000
PepsiCo, Inc........................ 5,000 155,000
Philip Morris Companies Inc......... 5,000 25,000
Philips Electronics N.V., New York.. 25,000 190,000
Pittway Corporation, Class A........ 10,000 395,000
Plum Creek Timber Company,
L.P............................... 2,500 12,500
Republic Automotive Parts,
Inc............................... 1,500 27,500
Salomon Inc......................... 35,000 30,000
Sequa Corporation, Class B.......... 1,500 42,000
Telephone and Data Systems, Inc..... 2,600 322,000
Tredegar Industries Inc............. 42,000 --
Viacom Inc., Class B................ 21,000 250,000
PREFERRED STOCKS
Telecomunicacoes de Sao Paulo SA-
TELESP, Pfd., Refunding(k)........ 10,241 --
Tenneco Inc. Pfd., Depository
Shares representing 1/2 Pfd.,
Series A(i)....................... 10,000 --
COMMON STOCK WARRANTS AND
RIGHTS
Royce Value Trust, Inc., Rights,
expires 10/28/1994................ 27,412 --
Viacom Inc., Class B, Warrants,
expires 06/06/1997................ 20,000 --
Viacom Inc., Class B, Warrants,
expires 06/06/1999................ 20,000 --
Viacom Inc., Contingent Value
Rights, expires 07/07/1995........ 10,000 60,000
</TABLE>
---------------
(a) Spinoff -- 0.25 shares of Associated Group Inc., Class A for each share of
Associated Communications Corporation, Class A.
-- 0.25 shares of Associated Group Inc., Class B for each share of
Associated Communications Corporation, Class A.
(b) Plan of reorganization -- 0.0051530 shares of Buckyrus Erie Company, New for
every 1 share of B-E Holdings, Inc.
(c) Rights subscription.
(d) Spinoff -- 1 share of LIN Television Corporation for every 2 shares of LIN
Broadcasting Corporation.
(e) 3 for 2 stock split.
(f) 2 for 1 stock split.
(g) Stock dividend.
(h) Merger -- 0.36 shares of Southwestern Bell Corporation for every 1 share of
Associated Communications Corporation, Class A.
(i) Conversion -- 0.970488 shares of common stock for every 1 share of preferred
stock.
(j) Assimilation of shares -- Telecomunicacoes de Sao Paulo SA-TELESP, Pfd.,
Refunding into Telecomunicacoes de Sao Paulo SA-TELESP, Pfd., Registered.
(k) 2 for 1 stock split -- Telecomunicacoes de Sao Paulo SA-TELESP, Pfd.,
Registered split into Telecomunicacoes de Sao Paulo SA-TELESP, Pfd.,
Receipts.
(l) Tendered all shares @101.00.
7
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
----------- ------------ ------------
<S> <C> <C> <C>
COMMON STOCKS -- 84.4%
INDUSTRIAL EQUIPMENT AND SUPPLIES -- 12.4%
165,000 AMETEK Inc.......................................... $ 2,287,143 $ 2,784,375
180,000 Ampco-Pittsburgh Corporation........................ 2,386,035 1,777,500
350,000 AptarGroup Inc...................................... 5,739,469 10,062,500
7,000 Caterpillar Inc..................................... 191,305 385,875
65,000 CLARCOR Inc......................................... 1,181,600 1,381,250
61,425 Crane Co............................................ 1,536,949 1,650,797
118,000 CTS Corporation..................................... 2,642,127 3,274,500
124,000 Deere & Company..................................... 3,591,078 8,215,000
239,500 Donaldson Company, Inc.............................. 2,754,035 5,748,000
19,125 Duriron Company, Inc................................ 109,331 339,469
3,000 Fibreboard Corporation, New+........................ 103,697 82,125
120,000 Greif Brothers Corporation, Class A................. 4,285,781 5,190,000
1,700 Greif Brothers Corporation, Class B(a).............. 69,824 73,525
33,500 Guardsman Products, Inc............................. 371,325 418,750
269,000 IDEX Corporation+................................... 3,974,350 11,365,250
10,000 Keystone International, Inc......................... 208,562 170,000
35,000 Lafarge Corporation................................. 595,375 621,250
22,000 Lufkin Industries, Inc.............................. 402,724 407,000
12,000 M/A-Com, Inc.+...................................... 57,975 87,000
36,000 Manitowoc Company, Inc.............................. 775,750 778,500
100,000 Mark IV Industries, Inc............................. 1,001,938 1,975,000
10,000 Martin Marietta Materials Group..................... 230,813 177,500
5,500 Minerals Technologies Inc........................... 135,225 160,875
380,000 Navistar International Corporation+................. 8,137,358 5,747,500
130,000 Nortek Inc.+........................................ 808,129 1,543,750
5,000 Nortek Inc., Special Common+(a)..................... 72,155 59,375
5,000 PACCAR Inc.......................................... 274,751 221,250
45,000 Pittway Corporation................................. 985,804 1,755,000
395,000 Pittway Corporation, Class A........................ 6,155,785 15,898,750
2,000 Scientific-Atlanta Inc.............................. 29,175 42,000
29,000 Sequa Corporation, Class A+......................... 1,193,619 754,000
42,000 Sequa Corporation, Class B+......................... 2,113,460 1,118,250
82,500 SPS Technologies, Inc.+............................. 2,778,288 2,093,438
100,000 St. Joe Paper Company............................... 3,333,516 5,425,000
280,000 Varity Corporation, New+............................ 5,578,157 10,150,000
20,000 Watts Industries, Inc., Class A..................... 415,830 422,500
------------ ------------
66,508,438 102,356,854
------------ ------------
TELECOMMUNICATIONS -- 12.4%
10,000 ALLTEL Corporation.................................. 280,812 301,250
168,000 AT&T Corporation.................................... 6,301,308 8,442,000
3,000 Ameritech Corporation............................... 113,675 121,125
70,000 BC TELECOM Inc...................................... 1,267,196 1,197,648
80,000 BCE Inc............................................. 2,681,717 2,570,000
500 BellSouth Corporation............................... 28,963 27,062
7,000 British Telecommunications plc, Sponsored ADR....... 450,422 420,875
1,000 Bruncor, Inc........................................ 16,627 17,287
50,000 Cable & Wireless plc, Sponsored ADR................. 1,037,173 875,000
35,000 Cincinnati Bell Inc................................. 650,375 586,250
1,000 Compania de Telefonos de Chile SA, Sponsored ADR.... 73,050 78,750
141,000 C-TEC Corporation+.................................. 2,782,272 2,802,375
30,000 C-TEC Corporation, Class B+......................... 463,817 581,250
440,000 GTE Corporation..................................... 8,821,086 13,365,000
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
----------- ------------ ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
15,000 Hong Kong Telcommunications Ltd., Sponsored ADR..... $ 214,925 $ 286,875
1,000 Hungarian Telephone & Cable Corporation+............ 12,000 10,500
1,020,000 Jamaica Telephone Ltd. ORD.......................... 101,641 91,892
5 Japan Telecom Co., Ltd.............................. 235,991 170,095
40,000 Lincoln Telecommunications Company.................. 593,225 680,000
5,000 Maritime Telegraph and Telephone Company, Limited... 88,631 80,200
2,500 MCI Communications Corporation...................... 60,794 45,937
3,000 MFS Communications Company, Inc.+................... 89,077 98,250
25,000 Motorola, Inc....................................... 478,875 1,446,875
3,000 NewTel Enterprises Limited.......................... 47,888 42,238
50,000 NYNEX Corporation................................... 2,038,358 1,837,500
160,000 Outlet Communications, Inc., Class A+............... 1,734,690 2,680,000
30,000 Pacific Telesis Group............................... 977,865 855,000
2,000 Philippine Long Distance Telephone Company.......... 81,413 110,250
3,000 Quebec-Telephone.................................... 44,643 38,629
60,000 Rochester Telephone Corporation..................... 1,021,750 1,267,500
50,000 Royal PTT Nederland NV, Sponsored ADR............... 1,337,435 1,650,000
10,000 Singapore Telecommunications Limited ORD............ 23,114 19,074
20,000 Southern New England Telecommunications
Corporation....................................... 724,562 642,500
217,200 Southwestern Bell Corporation....................... 3,875,737 8,769,450
667,500 Sprint Corporation.................................. 9,119,070 18,439,688
3,000,000 STET-Societa Finanziaria Telefonica p.a. ORD+....... 5,770,661 8,802,961
3,000 Telecom Argentina Stet-France Telecom S.A.,
Sponsored ADR..................................... 162,251 146,250
500 Telecom Corporation of New Zealand Limited,
Sponsored ADR..................................... 18,438 25,688
3,200,000 Telecom Italia SPA, ORD+............................ 6,460,061 8,328,092
260,000 Telecomunicacoes Brasileiras SA, Sponsored ADR...... 4,632,854 11,602,500
5,927 Telecomunicacoes Brasileiras SA, Sponsored
ADR, 144A(c)...................................... 333,317 264,492
3,000 Telefonica de Argentina S.A., ADR, Class B.......... 179,430 159,000
55,000 Telefonica de Espana, Sponsored ADR................. 1,880,319 1,931,875
10,000 Telefonos de Mexico S.A., Sponsored ADR............. 444,750 410,000
------------ ------------
67,752,258 102,319,183
------------ ------------
BROADCASTING -- 8.3%
135,000 BHC Communications Inc., Class A+................... 7,118,598 9,922,500
70,000 Capital Cities/ABC Inc.............................. 3,120,473 5,967,500
307,100 Chris-Craft Industries, Inc......................... 4,690,339 10,594,950
496,552 Chris-Craft Industries, Inc., Class B(a)............ 8,836,333 17,131,044
10,000 Flextech plc ORD+................................... 51,250 61,808
2,500 Grupo Televisa SA, GDR.............................. 66,063 79,375
128,000 Havas, Sponsored ADR................................ 2,466,155 2,464,000
81,036 International Family Entertainment Inc., Class B+... 1,022,652 1,023,080
30,000 Liberty Corporation................................. 855,887 761,250
17,000 LIN Television Corporation+......................... 67,980 386,750
50,000 Television Broadcasting ORD......................... 190,970 199,676
369,000 United Television, Inc.+............................ 10,603,495 20,110,500
------------ ------------
39,090,195 68,702,433
------------ ------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
----------- ------------ -------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES -- 5.9%
570,000 American Express Company............................ $ 10,418,500 $ 16,815,000
26,000 Banco Santander, ADR................................ 1,112,397 994,500
260 Berkshire Hathaway Inc.+............................ 824,299 5,304,000
31,200 Berliner Bank Aktiengesellschaft.................... 6,205,687 7,219,751
18,000 Commerzbank AG, Sponsored ADR....................... 715,857 764,622
15,500 Deutsche Bank AG, ADR............................... 6,422,445 7,204,648
5,000 Financial Security Assurance........................ 109,125 105,000
25,000 Hibernia Corporation................................ 198,750 193,750
100,000 Lehman Brothers Holdings Inc........................ 2,284,759 1,475,000
19,500 Mellon Bank Corporation............................. 698,947 597,188
33,000 Midland Company..................................... 977,318 1,427,250
12,000 Morgan (J.P.) & Co. Incorporated.................... 752,350 672,000
60,000 Riggs National Corporation+......................... 552,538 502,500
30,000 Salomon Inc......................................... 1,469,877 1,125,000
10,000 SunTrust Banks, Inc................................. 419,333 477,500
80,000 Unitrin, Inc........................................ 2,683,746 3,440,000
2,000 U.S. Trust Corporation.............................. 105,790 127,000
8,000 Value Line, Inc..................................... 183,160 248,000
------------ ------------
36,134,878 48,692,709
------------ ------------
WIRELESS COMMUNICATIONS -- 4.7%
250,000 Airtouch Communications+............................ 5,710,602 7,281,250
110,000 Allen Group Inc..................................... 1,343,490 2,626,250
13,500 BCE Mobile Communications Inc.+..................... 385,305 428,266
182,500 Century Telephone Enterprises, Inc.................. 981,345 5,383,750
90,000 COMSAT Corporation.................................. 1,760,100 1,676,250
10,000 Contel Cellular Inc.+............................... 162,268 249,375
34,000 LIN Broadcasting Corporation+....................... 811,449 4,539,000
22,500 NEXTEL Communications, Inc., Class A+............... 271,250 323,438
41,000 Securicor Group plc, ORD............................ 611,606 986,700
4,000 Securicor Group plc, Class A ORD.................... 45,880 62,903
5,500 Teleglobe Inc....................................... 83,078 74,497
322,000 Telephone and Data Systems, Inc..................... 3,135,658 14,852,250
7,500 Vodafone Group, Sponsored ADR....................... 168,094 252,187
------------ ------------
15,470,125 38,736,116
------------ ------------
FOOD AND BEVERAGE -- 4.4%
8,500 Brau und Brunnen.................................... 1,803,795 1,859,932
30,000 Campbell Soup Company............................... 870,925 1,323,750
315,000 Coca-Cola Enterprises Inc........................... 4,547,723 5,630,625
63,000 Dole Food Company, Inc.............................. 2,012,520 1,449,000
60,000 Dr Pepper/Seven-Up Companies, Inc.+................. 1,248,688 1,537,500
30,000 Eskimo Pie Corporation.............................. 498,750 562,500
115,000 Fomento Economico Mexicano SA, ADR.................. 419,250 293,250
10,000 Foster's Brewing Group Limited, ADR................. 9,735 8,200
34,000 General Mills, Inc.................................. 889,100 1,938,000
20,000 Guinness plc, Sponsored ADR......................... 729,362 703,400
45,000 Kellogg Company..................................... 2,393,384 2,615,625
155,000 PepsiCo, Inc........................................ 5,080,908 5,618,750
300,000 Pet Incorporated.................................... 4,410,257 5,925,000
50,000 Quaker Oats Company................................. 1,300,650 1,537,500
41,666 Ralcorp Holdings Inc.+.............................. 1,810,154 927,069
45,000 Ralston-Continental Baking Group+................... 418,364 168,750
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
----------- ------------ ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE (CONTINUED)
50,000 Seagram Company Ltd................................. $ 1,321,438 $ 1,475,000
50,000 Wrigley, (Wm) Jr. Company........................... 2,037,906 2,468,750
------------ ------------
31,802,909 36,042,601
------------ ------------
ENTERTAINMENT -- 4.3%
1,500 Churchhill Downs Inc................................ 67,372 63,750
10,000 Gaylord Entertainment Company, Class A.............. 204,672 227,500
50,000 GC Companies Inc.+.................................. 952,487 1,312,500
10,000 GTECH Holdings Corporation+......................... 170,269 203,750
12,000 PolyGram NV......................................... 315,663 553,500
13,650 Sony Music Entertainment ORD+....................... 589,405 767,085
120,000 THORN EMI plc, Sponsored ADR........................ 1,752,187 1,938,000
230,000 Time Warner Inc..................................... 5,432,223 8,078,750
61,072 Todd-AO Corporation................................. 183,216 290,092
290,000 Viacom Inc., Class A+............................... 3,264,108 12,071,250
250,000 Viacom Inc., Class B+............................... 4,001,318 10,156,250
------------ ------------
16,932,920 35,662,427
------------ ------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.8%
34,000 APS Holding Corporation, Class A+................... 527,000 960,500
3,500 Detroit Diesel Corporation+......................... 94,235 74,813
72,500 Echlin Inc.......................................... 1,145,362 2,175,000
150,000 Genuine Parts Company............................... 5,327,630 5,400,000
80,000 Handy & Harman...................................... 1,032,075 1,230,000
113,000 Johnson Controls, Inc............................... 3,157,576 5,537,000
335,000 Modine Manufacturing Company........................ 3,496,578 9,631,250
30,000 Pep Boys-Manny, Moe & Jack.......................... 531,000 930,000
10,100 Quaker State Corporation............................ 141,905 141,400
80,000 RB & W Corporation+................................. 477,569 640,000
27,500 Republic Automotive Parts, Inc.+.................... 204,233 369,531
50,000 SPX Corporation..................................... 1,119,925 831,250
128,000 Standard Motor Products, Inc........................ 870,900 2,528,000
30,000 Wynn's International, Inc........................... 420,462 660,000
------------ ------------
18,546,450 31,108,744
------------ ------------
DIVERSIFIED INDUSTRIAL -- 3.6%
16,000 Culbro Corporation+................................. 363,164 214,000
40,000 GATX Corporation.................................... 673,434 1,760,000
112,000 ITT Corporation..................................... 7,360,459 9,926,000
375,000 Lamson & Sessions Co.+.............................. 2,325,669 2,250,000
26,000 Lawter International, Inc........................... 209,793 315,250
75,000 Minnesota Mining and Manufacturing Company.......... 3,936,856 4,003,125
30,000 Morrison Knudsen Corporation........................ 585,700 382,500
115,000 National Service Industries, Inc.................... 2,561,115 2,946,875
102,205 Tenneco Inc......................................... 4,707,632 4,343,707
43,000 Thomas Industries Inc............................... 617,782 618,125
90,000 Trinity Industries, Inc............................. 1,543,169 2,835,000
100,000 Tyler Corporation+.................................. 354,618 325,000
------------ ------------
25,239,391 29,919,582
------------ ------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
----------- ------------ ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CABLE -- 3.6%
16,000 CANAL+, Sponsored ADR............................... $ 601,875 $ 512,744
65,000 Comcast Corporation, Class A........................ 1,009,207 999,375
68,125 Comcast Corporation, Class A Special................ 655,333 1,068,711
475,000 Media General, Inc., Class A........................ 9,204,364 13,478,125
150,000 Multimedia, Inc., Class A, New+..................... 2,695,220 4,275,000
40,000 Shaw Communications Inc., Class B, Conv............. 382,635 285,154
412,125 Tele-Communications, Inc., Class A+................. 8,151,419 8,963,719
------------ ------------
22,700,053 29,582,828
------------ ------------
CONSUMER PRODUCTS -- 3.6%
150,000 American Brands, Inc................................ 5,613,436 5,625,000
40,000 Black & Decker Corporation.......................... 751,244 950,000
60,000 Brunswick Corporation............................... 810,876 1,132,500
115,000 Carter-Wallace, Inc................................. 2,018,978 1,495,000
50,000 Church & Dwight Co., Inc............................ 1,095,357 900,000
12,500 Duracell International Inc.......................... 337,872 542,187
33,000 First Brands Corporation............................ 855,025 1,155,000
12,000 Gillette Company.................................... 691,975 897,000
6,000 National Presto Industries Inc...................... 197,165 249,000
30,000 Outboard Marine Corp................................ 579,550 588,750
25,000 Philip Morris Companies Inc......................... 1,267,453 1,437,500
60,000 Procter & Gamble Company............................ 3,176,254 3,720,000
130,000 Ralston Purina Group................................ 3,816,396 5,801,250
50,000 Scotts Company, Class A+............................ 833,295 793,750
60,000 Tambrands Inc....................................... 2,458,402 2,317,500
100,000 Whitman Corporation................................. 1,082,376 1,725,000
------------ ------------
25,585,654 29,329,437
------------ ------------
PUBLISHING -- 2.8%
382,000 Harcourt General, Inc............................... 6,286,832 13,465,500
35,000 Independent Newspapers ORD.......................... 169,292 149,512
12,000 McGraw-Hill, Inc.................................... 707,700 802,500
10,000 Meredith Corporation................................ 410,762 466,250
190,002 New York Times Company, Class A..................... 2,610,818 4,203,794
5,000 News Corporation Limited, ADR....................... 54,120 78,125
149,000 Oriental Press Group ORD............................ 100,090 69,806
2,024 Pearson plc ORD..................................... 20,058 17,672
39,500 Reader's Digest Association Inc., Class B........... 1,564,715 1,767,625
20,000 South China Morning Post Holdings ORD............... 11,768 11,696
230,000 Western Publishing Group, Inc.+..................... 3,633,014 2,185,000
------------ ------------
15,569,169 23,217,480
------------ ------------
HEALTH CARE -- 2.2%
10,000 Amgen, Inc.+........................................ 366,444 590,000
6,500 Biogen, Inc.+....................................... 181,025 271,375
220,000 Johnson & Johnson................................... 10,209,745 12,045,000
24,000 Mallinckrodt Group, Inc............................. 710,919 717,000
85,000 Marion Merrell Dow Inc.............................. 2,895,141 1,731,875
10,000 Pfizer, Inc......................................... 639,063 772,500
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
----------- ------------ ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HEALTH CARE (CONTINUED)
8,000 Puritan Bennett Corporation......................... $ 153,244 $ 168,000
56,000 Sandoz Ltd., Sponsored ADR.......................... 1,009,438 1,421,000
------------ ------------
16,165,019 17,716,750
------------ ------------
BUSINESS SERVICES -- 2.0%
216,000 Ecolab Inc.......................................... 3,448,907 4,536,000
60,000 Gerber Scientific Inc............................... 460,407 780,000
125,000 International Business Machines Corporation......... 6,188,440 9,187,500
125,000 Landauer, Inc....................................... 809,065 2,078,125
------------ ------------
10,906,819 16,581,625
------------ ------------
AUTOMOTIVE -- 1.9%
4,400 Daimler-Benz Aktiengesellschaft, ADR................ 217,444 216,700
36,000 Ford Motor Company.................................. 724,608 1,008,000
305,000 General Motors Corporation.......................... 9,788,875 12,886,250
30,000 Harley-Davidson, Inc................................ 298,350 840,000
7,500 Volkswagen AG, Sponsored ADR........................ 354,063 410,625
------------ ------------
11,383,340 15,361,575
------------ ------------
ENERGY -- 1.6%
34,000 Apache Corporation.................................. 844,013 850,000
30,000 Atlantic Richfield Company.......................... 3,218,828 3,052,500
52,500 British Petroleum Company plc, ADR.................. 2,431,318 4,193,438
115,000 Burlington Resources Inc............................ 5,340,447 4,025,000
4,000 Chevron Corporation................................. 138,350 178,500
300,000 Kaneb Services, Inc.+............................... 1,545,137 637,500
30,000 Santa Fe Energy Resources, Inc...................... 285,125 240,000
------------ ------------
13,803,218 13,176,938
------------ ------------
HOTELS AND CASINOS -- 1.4%
100,000 Caesars World, Inc.+................................ 5,930,979 6,675,000
55,000 Hilton Hotels Corporation........................... 2,502,467 3,705,625
50,000 Mirage Resorts Incorporated+........................ 532,231 1,025,000
------------ ------------
8,965,677 11,405,625
------------ ------------
CONSUMER SERVICES -- 1.3%
29,000 Bay Meadows Operating Company....................... 498,410 416,875
450,000 Rollins, Inc........................................ 4,479,713 10,293,750
10,000 Sierra On-Line, Inc.+............................... 158,303 342,500
------------ ------------
5,136,426 11,053,125
------------ ------------
RETAIL -- 0.9%
25,000 Crown Books Corporation+............................ 284,112 387,500
50,000 Earl Scheib, Inc.+.................................. 546,456 293,750
66,300 General Host Corporation............................ 511,329 306,638
30,000 Lillian Vernon Corporation.......................... 364,849 457,500
430,600 Neiman-Marcus Group, Inc............................ 6,131,550 5,813,100
22,000 Strawbridge & Clothier, Series A.................... 580,752 503,250
------------ ------------
8,419,048 7,761,738
------------ ------------
ELECTRONICS -- 0.7%
1,000 Hitachi, Ltd., ADR.................................. 60,300 99,250
1,000 Matsushita Electric Industrial Co. Ltd., ADR........ 92,800 163,000
1,500 NEC Corp., ADR...................................... 43,625 85,500
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
----------- ------------ ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONICS (CONTINUED)
190,000 Philips Electronics N.V., New York.................. $ 2,486,241 $ 5,581,250
2,000 Sony Corporation.................................... 63,850 112,250
------------ ------------
2,746,816 6,041,250
------------ ------------
AIRLINES -- 0.6%
95,000 AMR Corporation+.................................... 6,279,252 5,058,750
------------ ------------
COUNTRY/CLOSED-END FUNDS -- 0.4%
1,000 Clemente Global Growth Fund Inc..................... 5,800 8,500
70,000 Emerging Germany Fund............................... 512,662 516,250
25,000 France Growth Fund Inc.+............................ 249,375 228,125
60,292 Future Germany Fund................................. 750,876 866,697
34,250 Italy Fund, Inc..................................... 300,170 278,281
15,451 Morgan Grenfell SMALLCap Fund, Inc.................. 117,492 137,128
70,388 New Germany Fund.................................... 770,530 809,462
32,769 Royce Value Trust, Inc.............................. 348,547 360,459
------------ ------------
3,055,452 3,204,902
------------ ------------
PAPER AND FOREST PRODUCTS -- 0.3%
12,500 Plum Creek Timber Company, L.P...................... 163,196 250,000
35,000 Rayonier Inc........................................ 183,384 1,067,500
30,000 Westvaco Corporation................................ 1,092,125 1,177,500
------------ ------------
1,438,705 2,495,000
------------ ------------
AVIATION: PARTS AND SERVICES -- 0.3%
50,000 Curtiss-Wright Corporation.......................... 2,491,103 1,818,750
145,000 Hi-Shear Industries Inc.+........................... 2,317,757 561,875
2,000 PS Group, Inc.+..................................... 23,413 21,750
------------ ------------
4,832,273 2,402,375
------------ ------------
METALS AND MINING -- 0.3%
15,000 American Barrick Resources Corporation.............. 403,375 333,750
356 Buckyrus Erie Company, New+......................... 17,977 2,494
13,500 Homestake Mining Company............................ 206,675 231,188
20,000 Newmont Gold Company................................ 800,047 712,500
50,000 Pegasus Gold Inc.................................... 931,657 568,750
10,000 Placer Dome Inc..................................... 175,163 217,500
------------ ------------
2,534,894 2,066,182
------------ ------------
SPECIALTY CHEMICAL -- 0.2%
55,500 Ferro Corporation................................... 835,106 1,325,062
36,000 Pratt & Lambert, Inc................................ 523,025 675,000
------------ ------------
1,358,131 2,000,062
------------ ------------
TRANSPORTATION -- 0.1%
11,000 Florida East Coast Industries Inc................... 523,108 726,000
------------ ------------
OTHER -- 0.4%
67,500 Associated Group Inc., Class A+..................... 303,845 1,586,250
67,500 Associated Group Inc., Class B+..................... 298,019 1,586,250
1,000 Belize Holdings Inc................................. 12,250 15,625
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
----------- ------------ ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
OTHER (CONTINUED)
10,000 Sotheby's Holdings, Class A......................... $ 127,062 $ 115,000
------------ ------------
741,176 3,303,125
------------ ------------
TOTAL COMMON STOCKS.............................................. 479,621,794 696,025,416
------------ ------------
PREFERRED STOCKS -- 0.8%
AUTOMOTIVE -- 0.5%
75,000 General Motors Corporation, Depository Shares, Pfd.,
$3.25............................................. 3,750,000 4,303,125
------------ ------------
CONSUMER PRODUCTS -- 0.2%
34,000 Fieldcrest, Cannon Inc., 6.000%, Series A, Pfd.
Conv., 144A(c).................................... 1,877,500 1,700,000
------------ ------------
TELECOMMUNICATIONS -- 0.1%
8,000 Tele-Communications,
Inc., Jr. Pfd., Class B, Ex., 6.000%.............. 408,017 464,000
1,420,482 Telecomunicacoes de Sao Paulo SA-TELESP, Pfd.,
Receipts.......................................... 174,169 202,087
710,241 Telecomunicacoes de Sao Paulo SA-TELESP, Pfd.,
Registered........................................ 87,084 101,044
------------ ------------
669,270 767,131
------------ ------------
DIVERSIFIED INDUSTRIAL -- 0.0%
3,500 GATX Corporation, 3.875%, Pfd. Conv................. 185,600 189,000
------------ ------------
PUBLISHING -- 0.0%
2,500 News Corporation Ltd., Sponsored ADR, Pfd........... 23,380 34,688
------------ ------------
TOTAL PREFERRED STOCKS........................................... 6,505,750 6,993,944
------------ ------------
COMMON STOCK WARRANTS AND RIGHTS -- 0.0%
ENTERTAINMENT -- 0.0%
60,000 Viacom Inc., Contingent Value Rights, expires
07/07/1995+....................................... 307,800 183,750
------------ ------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
CORPORATE BONDS -- 7.0%
ENTERTAINMENT -- 6.4%
$20,500,000 Time Warner, Inc., Reset Note,
Zero Coupon through 08/15/1995 due 08/15/2002..... 19,456,101 19,372,500
34,228,000 Time Warner, Inc., Conv. Sub. Deb.,
8.750% due 01/10/2015............................. 36,068,025 32,259,890
1,575,000 Viacom Inc., Ex. Sub. Deb.,
8.000% due 07/07/2006............................. 1,017,844 1,352,531
------------ ------------
56,541,970 52,984,921
------------ ------------
INDUSTRIAL EQUIPMENT AND SUPPLIES -- 0.5%
1,000,000 Mark IV Industries, Conv. Deb.,
6.250% due 02/15/2007............................. 1,000,000 1,310,000
3,300,000 Nortek Inc., Sr. Sub. Note,
9.875% due 03/01/2004............................. 3,256,920 2,895,750
------------ ------------
4,256,920 4,205,750
------------ ------------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
THE GABELLI EQUITY TRUST INC.
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT COST VALUE
----------- ------------ ------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.1%
$ 500,000 GenCorp Inc., Sub. Deb. Conv.,
8.000% due 08/01/2002............................. $ 490,000 $ 460,000
------------ ------------
PUBLISHING -- 0.0%
200,000 News American Holdings Incorporated, Gtd. Ex. Sub.
Note,
Zero Coupon due 03/31/2002........................ 115,440 137,750
------------ ------------
BROADCASTING -- 0.0%
FRF 125,000 Havas, Conv. Bonds,
3.000% due 12/31/1997............................. 26,357 26,868
------------ ------------
TOTAL CORPORATE BONDS............................................ 61,430,687 57,815,289
------------ ------------
U.S. TREASURY BILL -- 7.2%
$59,000,000 U.S. Treasury Bill,
4.070% ++ due 01/19/1995(d)......................... 58,853,780 58,853,780
------------ ------------
REPURCHASE AGREEMENT -- 0.4%
3,265,000 Agreement with Goldman, Sachs & Company, 5.500%
dated 12/30/1994, to be repurchased at $3,266,995
on 01/03/1995, collateralized by $3,085,000 U.S.
Treasury Bonds, 9.125% due 05/15/2009 (value
$3,373,940)....................................... 3,265,000 3,265,000
------------ ------------
TOTAL INVESTMENTS................................. 99.8% $609,984,811(b) 823,137,179
===========
OTHER ASSETS AND LIABILITIES (NET)................ 0.2 2,055,420
---- -----------
NET ASSETS........................................ 100.0% $825,192,599
===== ===========
</TABLE>
---------------
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Aggregate cost for Federal tax purposes was $609,460,421. Net unrealized
appreciation for Federal tax purposes was $213,676,758. (gross unrealized
appreciation was $240,131,791 and gross unrealized depreciation was
$26,455,033).
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(d) Securities pledged as collateral for futures contracts.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR -- American Depositary Receipt, GDR--Global Depositary Receipt, FRF--French
Franc, ORD--Ordinary Share
FUTURES CONTRACTS--SHORT POSITION
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS DEPRECIATION
----------- -----------
<S> <C>
362 S&P 500 Index Futures, March 1995.................................. $ 1,378,180
===========
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
THE GABELLI EQUITY TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $609,984,811)
See accompanying portfolio:
Investment securities............................................ $761,018,399
U.S. Government obligation....................................... 58,853,780
Repurchase agreement............................................. 3,265,000
-----------
823,137,179
Cash and foreign currency (Cost $45,406)......................... 45,379
Dividends receivable............................................. 1,526,665
Interest receivable.............................................. 899,046
Variation Margin................................................. 588,250
Receivable for investment securities sold........................ 371,050
Other receivables................................................ 256,068
-----------
Total Assets............................................. 826,823,637
-----------
LIABILITIES:
Payable for investment advisory fee.............................. $ 685,829
Payable for investment securities purchased...................... 624,490
Accrued expenses and other payables.............................. 320,719
---------
Total Liabilities........................................ 1,631,038
-----------
NET ASSETS for 87,223,731 shares outstanding....................... $825,192,599
===========
NET ASSETS CONSIST OF:
Common stock at par value........................................ $ 87,224
Additional paid-in capital....................................... 611,384,030
Accumulated net realized gain on investments sold................ 1,902,570
Net unrealized appreciation of investments....................... 211,818,775
-----------
Total Net Assets......................................... $825,192,599
===========
NET ASSET VALUE ($825,192,599 / 87,223,731 shares outstanding)..... $9.46
(200,000,000 shares authorized of $0.001 par value) =====
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
THE GABELLI EQUITY TRUST INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $286,951)....... $12,590,238
Interest....................................................... 9,668,059
-----------
Total Investment Income................................ 22,258,297
-----------
EXPENSES:
Investment advisory fee........................................ $ 8,978,663
Shareholder communications expense............................. 738,327
Transfer agent fees............................................ 302,756
Custodian fees................................................. 236,476
Directors' fees................................................ 125,467
Legal and audit fees........................................... 101,240
Payroll........................................................ 65,618
Other.......................................................... 124,126
-----------
Total Expenses......................................... 10,672,673
-----------
NET INVESTMENT INCOME............................................ 11,585,624
-----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain on:
Securities transactions..................................... 31,159,059
Written option transactions................................. 480
Futures transactions........................................ 1,619,920
Forward foreign exchange contracts and foreign currency
transactions............................................... 2,160
-----------
Net realized gain on investments during the year............... 32,781,619
-----------
Net change in unrealized appreciation/depreciation of:
Securities.................................................. (38,171,843)
Written option transactions................................. 2,439
Futures transactions........................................ (1,317,018)
Foreign currency and net other assets....................... 10,775
-----------
Net change in unrealized appreciation/depreciation of
investments during the year......................... (39,475,647)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS.................. (6,694,028)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................................... $ 4,891,596
===========
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
THE GABELLI EQUITY TRUST INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/94 12/31/93
------------- -----------
<S> <C> <C>
Net investment income....................................... $ 11,585,624 $ 10,369,756
Net realized gain on investments during the year............ 32,781,619 58,109,518
Net change in unrealized appreciation/depreciation of
investments during the year............................... (39,475,647) 99,210,459
------------- ------------
Net increase in net assets resulting from operations........ 4,891,596 167,689,733
Distributions to shareholders from:*
Net investment income.................................. (11,514,882) (8,821,854)
Net realized gain on investments....................... (31,614,199) (58,091,852)
Distributions in excess of net realized gain on
investments.......................................... -- (1,745,413)
Paid-in capital........................................ (112,954,633) (15,825,764)
Net increase in net assets from Equity Trust share
transactions.............................................. 38,611,705 129,304,867
------------- ------------
Net increase/(decrease) in net assets....................... (112,580,413) 212,509,717
NET ASSETS:
Beginning of year........................................... 937,773,012 725,263,295
------------- ------------
End of year................................................. $ 825,192,599 $937,773,012
============ ============
</TABLE>
---------------
* Distributions for The Gabelli Global Multimedia Trust Inc. spin-off from net
investment income, realized short-term gains and paid-in capital were
$5,507,685, $2,660,988 and $56,314,066, respectively.
See Notes to Financial Statements.
19
<PAGE>
THE GABELLI EQUITY TRUST INC.
FINANCIAL HIGHLIGHTS
PER SHARE AMOUNTS FOR AN EQUITY TRUST SHARE OUTSTANDING THROUGHOUT EACH
PERIOD/YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1986* 1987 1988 1989 1990 1991 1992 1993(a) 1994(a)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
year......................... $ 9.35 $ 9.40 $ 9.82 $ 11.22 $ 13.34 $ 10.49 $ 10.61 $ 10.58 $ 11.23
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income.......... 0.10 0.16 0.14 0.38 0.44 0.27 0.19 0.14 0.14
Net realized and unrealized
gain/(loss) on investments... (0.04) 0.89 2.32+ 3.26+ (2.11) 1.37 1.21 2.13 (0.08)
Provision for income taxes..... -- -- (0.09) (0.21) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations................... 0.06 1.05 2.37 3.43 (1.67) 1.64 1.40 2.27 0.06
Increase/(decrease) in net
asset value from Equity Trust
share transactions........... -- 0.01 0.02 -- -- (0.42) (0.36) (0.50) --
Offering expenses charged to
capital surplus.............. (0.01) -- -- -- -- (0.01) (0.01) (0.01) --
Distributions to shareholders
from:
Net investment income...... -- (0.19) (0.21) (0.29) (0.53) (0.27) (0.19) (0.11) (0.14)(b)
Distributions in excess of
net investment income.... -- -- -- -- -- -- -- -- --
Net realized gains......... -- (0.45) (0.78) (1.02) (0.23) (0.14) (0.38) (0.77) (0.37)
Distributions in excess of
net realized gains....... -- -- -- -- -- -- -- (0.02) --
Paid-in capital............ -- -- -- -- (0.42) (0.68) (0.49) (0.21) (1.32)(b)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions............ 0.00 (0.64) (0.99) (1.31) (1.18) (1.09) (1.06) (1.11) (1.83)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of year... $ 9.40 $ 9.82 $ 11.22 $ 13.34 $ 10.49 $ 10.61 $ 10.58 $ 11.23 $ 9.46
========= ========= ========= ========= ========= ========= ========= ========= ========
Market value, end of year...... $ 8.625 $ 7.625 $ 9.875 $ 14.000 $ 10.500 $ 10.125 $ 10.250 $ 12.125 $ 9.625
========= ========= ========= ========= ========= ========= ========= ========= ========
Total Investment Return**+..... (13.8)% (0.9)% 37.8% 59.0% (16.7)% 10.9% 15.9% 36.5% (5.1)%
========= ========= ========= ========= ========= ========= ========= ========= ========
Net Asset Value Total
Return***.................... 0.5% 17.1% 21.5% 33.2% (12.7)% 16.2% 14.2% 22.4% 0.5%
========= ========= ========= ========= ========= ========= ========= ========= ========
Ratios to average net
assets/supplemental data:
Net assets, end of year
(in 000's)................... $413,760 $429,490 $484,792 $589,990 $479,863 $595,151 $725,263 $937,773 $825,193
Net investment income...... 2.89%++ 1.50% 1.36% 2.82% 3.84% 2.34% 1.88% 1.25% 1.29%
Operating expenses......... 1.24%++ 1.24% 1.25% 1.18% 1.18% 1.24% 1.22% 1.20% 1.19%
Portfolio turnover rate........ 58.8% 96.5% 51.5% 28.1% 15.5% 11.2% 12.5% 24.4% 22.2%
</TABLE>
---------------
* The Equity Trust commenced operations on August 21, 1986.
** Based on market value per share, adjusted for reinvestment of
distributions and taxes, including distribution of Rights, assuming full
subscription by shareholder.
*** Based on net asset value per share, adjusted for reinvestment of
distributions and taxes, including distribution of Rights, assuming full
subscription by shareholder.
+ Before provision for income taxes.
++ Annualized.
(a) Per share amounts have been calculated using the monthly average shares
outstanding method.
(b) A distribution equivalent to $0.75 per share for The Gabelli Global
Multimedia Trust Inc. spin-off from net investment income, realized
short-term gains, and paid-in capital were $0.064, $0.031 and $0.655,
respectively.
See Notes to Financial Statements.
20
<PAGE>
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Gabelli Equity Trust Inc. ("Equity Trust") is a closed-end,
non-diversified management investment company organized as a Maryland
corporation and registered under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Equity Trust had no operations until August 11, 1986, when
it sold 10,696 shares of common stock to Gabelli Funds, Inc. (the "Adviser") for
$100,008. Investment operations commenced on August 21, 1986.
The following is a summary of significant accounting policies followed by
the Equity Trust in the preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on a stock
exchange or NASDAQ National Market System are valued at the last sale price as
of the close of business on the day the securities are being valued, or lacking
any sales, at the mean between closing bid and asked prices. Other
over-the-counter securities are valued at the most recent bid prices as obtained
from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market, as
determined by the Adviser. Securities traded primarily on foreign exchanges are
valued at the closing price immediately prior to the close of the New York Stock
Exchange of such securities on their respective exchanges or markets. Securities
and assets for which market quotations are not readily available are valued at
fair market value as determined in good faith by or under the direction of the
Board of Directors of the Equity Trust. Options are generally valued at the last
sale price or, in the absence of a last sale price, the last bid price.
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 on that
security. 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.
Repurchase Agreements. The Equity Trust may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, the Equity
Trust takes possession of 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 to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Equity Trust's holding
period. This arrangement results in a fixed rate of return that is not subject
to market fluctuations during the Equity Trust's holding period. The value of
the collateral is at least equal at all times to the total amount of the
repurchase obligation, including interest. The Equity Trust bears a risk of loss
in the event that the other party to a repurchase agreement defaults on its
obligations and the Equity Trust is delayed 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 while the
Equity Trust seeks to assert its rights. The Adviser, acting under the
supervision of the Board of Directors, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Equity Trust
enters into repurchase agreements to evaluate potential risks.
Option Accounting. The Equity Trust may purchase or write listed call or
put options on securities to hedge the value of the Equity Trust's portfolio.
Upon the purchase of a put or call option by the Equity Trust, the premium paid
is recorded as an investment, the value of which is marked-to-market daily. When
a purchased option expires, the Equity Trust will realize a loss in the amount
of the cost of the option. When the Equity Trust enters into a closing sale
transaction, the Equity Trust will realize a gain or loss depending on whether
the sales proceeds from the closing sale transaction are greater or lower than
the cost of the option. When the Equity Trust exercises a put option, it will
realize a gain or loss from the sale of the underlying security and the proceeds
from such sale will be decreased by the premium originally paid. When the Equity
Trust exercises a call option, the cost of the security which the Equity Trust
purchases upon exercise will be increased by the premium originally paid.
21
<PAGE>
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
When the Equity Trust writes an option, an amount equal to the premium
received by the Equity Trust is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Equity Trust realizes
a gain equal to the amount of the premium received. When the Equity Trust enters
into a closing purchase transaction, the Equity Trust realizes a gain (or loss
if the cost of the closing purchase transaction exceeds the premium received
when the option was sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a call option is exercised, the Equity Trust realizes a gain or loss from
the sale of the underlying security and the proceeds from such sale are
increased by the premium originally received. When a put option is exercised,
the amount of the premium originally received will reduce the cost of the
security which the Equity Trust purchased upon exercise.
The risk associated with purchasing options is limited to the premium
originally paid. The risk in writing a call option is the Equity Trust may
forego the opportunity of profit if the market price of the underlying security
increases and the option is exercised. The risk in writing a put option is that
the Equity Trust may incur a loss if the market price of the underlying security
decreases and the option is exercised. In addition, there is a risk that the
Equity Trust may not be able to enter into a closing transaction because of an
illiquid secondary market.
Futures Contracts. The Equity Trust may engage in futures contracts 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's investments. Upon entering into
a futures contract, the Equity Trust is required to deposit with the broker an
amount of cash or cash equivalents equal to a certain percentage of the contract
amount. This is known as the "initial margin." Subsequent payments ("variation
margin") are made or received by the Equity Trust each day, depending on the
daily fluctuation of the value of the contract. The daily changes in the
contract are recorded as unrealized gains or losses. The Equity Trust recognizes
a realized gain or loss when the contract is closed. The net unrealized
appreciation/depreciation is shown in the financial statements.
There are several risks in connection with the use of futures contracts as
a hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk the
Equity Trust may not be able to enter into a closing transaction because of an
illiquid secondary market.
Forward Foreign Exchange Contracts. The Equity Trust may hold currencies
to meet settlement requirements for foreign securities and may engage in
currency exchange transactions to hedge against changes in exchange rates.
Forward foreign currency contracts are valued at the forward rate and are
marked-to-market daily. The change in market value is recorded by the Equity
Trust as an unrealized gain or loss. When the contract is closed, the Equity
Trust records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was
closed.
The use of forward foreign currency contracts does not eliminate
fluctuations in the underlying prices of the Equity Trust's portfolio
securities, but it does establish a rate of exchange that can be achieved in the
future. Although forward foreign currency contracts limit the risk of loss due
to a decline in the value of the hedged currency, they also limit any potential
gain that might result should the value of the currency increase. In addition,
the Equity Trust could be exposed to risks if the counterparties to the
contracts are unable to meet the terms of their contracts.
Foreign Currency. The books and records of the Equity Trust are maintained
in United States (U.S.) dollars. Foreign currencies, investments and other
assets and liabilities are translated into U.S.
22
<PAGE>
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
dollars at the exchange rates prevailing at the end of the period, and purchases
and sales of investment securities, income and expenses are translated on the
respective dates of such transactions. Unrealized gains and losses, not relating
to securities, which result from changes in foreign currency exchange rates have
been included in unrealized appreciation/depreciation of foreign currency and
other assets and liabilities. Unrealized gains and losses of securities, which
result from changes in foreign exchange rates as well as changes in market
prices of securities, have been included in unrealized appreciation/depreciation
of investment securities. Net realized foreign currency gains and losses
resulting from changes in exchange rates include foreign currency gains and
losses between trade date and settlement date on investment securities
transactions, foreign currency transactions and the difference between the
amounts of interest and dividends recorded on the books of the Equity Trust and
the amounts actually received. The portion of foreign currency gains and losses
related to fluctuation in exchange rates between the initial trade date and
subsequent sale trade date is included in realized gain/(loss) from investment
securities sold.
Securities Transactions and Investment Income. Securities transactions are
accounted for as of the trade date with realized gain or loss on investments
determined using specific identification as the cost method. Interest income
(including amortization of premium and discount) is recorded as earned.
Dividends and Distributions to Shareholders. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by the Equity Trust,
temporary differences and differing characterization of distributions made by
the Equity Trust.
Permanent differences incurred during the year ended December 31, 1994
resulting from different book and tax accounting policies for currency gains and
losses are reclassified between net investment income and net realized gains at
year end. The reclassifications for the year ended December 31, 1994 were a
decrease in distributions in excess of net investment income of $5,562,692 and a
decrease in accumulated net realized gain of $5,562,692.
Paid-in capital was reduced by $112,954,633 due to a tax basis return of
capital.
Provision for Income Taxes. The Equity Trust has qualified and intends to
continue to qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended. As a result, a Federal income tax
provision is not required.
2. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
Prior to the close of business on May 6, 1994, The Boston Company Advisors,
Inc. ("Boston Advisors") served as the Equity Trust's administrator pursuant to
an administration and support agreement (the "Administration Agreement"). On May
6, 1994, the Administration Agreement was assigned to The Shareholder Services
Group, Inc. ("TSSG"), a subsidiary of First Data Corporation. Pursuant to the
Administration Agreement, the Equity Trust paid Boston Advisors and TSSG an
annual fee equal to 0.25 percent of the value of the Equity Trust's average
weekly net assets.
Prior to June 27, 1994, the Equity Trust had an investment advisory
agreement with the Adviser, pursuant to which the Adviser was paid a fee
computed weekly and paid monthly at the annual rate of 0.75 percent of the value
of the Equity Trust's average weekly net assets. On June 27, 1994, the Equity
Trust terminated the Administration Agreement and entered into a new investment
advisory agreement with the Adviser which combined investment advisory and
administration fees and responsibilities within one agreement. Pursuant to the
new investment advisory agreement, the Adviser receives a fee computed weekly
and paid monthly at the annual rate of 1.00 percent of the value of the Equity
Trust's average weekly net assets. Administration fees paid to Boston Advisors
for the period prior to
23
<PAGE>
THE GABELLI EQUITY TRUST INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 27, 1994 were $1,135,215 and are included under investment advisory fees in
the statement of operations for the year ended December 31, 1994.
During the year ended December 31, 1994, Gabelli & Company, Inc. ("Gabelli
& Company") and its affiliates received $16,476 in brokerage commissions as a
result of executing agency transactions in portfolio securities on behalf of the
Equity Trust.
Having received the Board of Directors and shareholders approval, on
November 15, 1994 the Equity Trust contributed $64,482,739 in cash in exchange
for shares of a newly formed, wholly owned investment company subsidiary, The
Gabelli Global Multimedia Trust Inc., and on the same date distributed such
shares to holders of record on October 17, 1994 at the rate of one share of the
Multimedia Trust for every ten shares of the Equity Trust. The distribution was
equivalent to $0.75 per share of the Equity Trust, of which $0.064, $0.031 and
$0.655 was derived from undistributed net investment income, short term capital
gains and paid-in capital, respectively.
3. PORTFOLIO SECURITIES
Cost of purchases and proceeds from sales of securities, other than
short-term securities, aggregated $175,133,193 and $198,126,215, respectively,
for the year ended December 31, 1994.
Option activity for the year ended December 31, 1994 was as follows:
<TABLE>
<CAPTION>
NUMBER
OF CONTRACTS PREMIUM
------------ --------
<S> <C> <C>
Options outstanding at December 31, 1993......................... 110 $ 8,249
Options written.................................................. 70 25,234
Options exercised................................................ (170) (33,003)
Options expired.................................................. (10) (480)
------ --------
Options outstanding at December 31, 1994......................... 0 $ 0
========= ========
</TABLE>
4. CAPITAL
Common stock transactions were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994** DECEMBER 31, 1993**
--------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
-------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Issued via rights offerings*................ -- -- 11,654,962 $ 92,589,185
Issued due to reinvestment of dividends and
distributions............................. 3,750,021 $38,611,705 3,281,057 36,715,682
--------- ----------- ---------- -----------
Net increase................................ 3,750,021 $38,611,705 14,936,019 $129,304,867
========= =========== ========== ===========
</TABLE>
---------------
* On July 14, 1993 the Equity Trust distributed a transferable Right for each
of the 69,929,784 shares outstanding to shareholders of record on that date
entitling each shareholder to acquire with six Rights one newly issued share
of Common Stock at the issue price of $8.00 per share.
** Estimated stock issuance costs relating to the July 14, 1993 Rights Offering,
which totalled approximately $650,511, were charged directly against the
proceeds of the offering on July 14, 1993. During the year ended December 31,
1994, the estimated stock issuance costs exceeded the actual stock issuance
costs by $109,131. Therefore, additional paid-in capital has been increased
by this amount in 1994.
24
<PAGE>
THE GABELLI EQUITY TRUST INC.
QUARTERLY RESULTS OF INVESTMENT OPERATIONS (UNAUDITED)
Shown in thousands of dollars and per common share:
<TABLE>
<CAPTION>
NET REALIZED
AND UNREALIZED NET
TOTAL NET GAIN/(LOSS) ON INCREASE/(DECREASE)
INVESTMENT INVESTMENT INVESTMENTS AND IN NET ASSETS
INCOME INCOME NET OTHER ASSETS FROM OPERATIONS
---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994--QUARTER ENDED
12/31/94................ $5,395 $0.06 $2,801 $0.03 $(25,113) $(0.29) $(22,312) $(0.26)
09/30/94................ 5,936 0.07 3,190 0.04 50,303 0.59 53,493 0.63
06/30/94................ 5,895 0.07 3,306 0.04 (2,277) (0.03) 1,029 0.01
03/31/94................ 5,032 0.06 2,289 0.03 (29,607) (0.35) (27,318) (0.32)
1993--QUARTER ENDED
12/31/93................ 5,474 0.07 2,690 0.03 14,193 0.17 16,883 0.20
09/30/93................ 4,641 0.06 1,892 0.03 62,348 0.78 64,240 0.81
06/30/93................ 5,020 0.07 2,831 0.04 36,374 0.53 39,205 0.57
03/31/93................ 5,179 0.07 2,957 0.04 44,405 0.65 47,362 0.69
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of The Gabelli Equity Trust Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Equity Trust Inc. (the
"Equity Trust") at December 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the eight years in
the period then ended and for the period August 21, 1986 (commencement of
operations) through December 31, 1986, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Equity Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1994 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 9, 1995
25
<PAGE>
THE GABELLI EQUITY TRUST INC.
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
CALENDAR YEAR 1994
CASH DIVIDENDS AND DISTRIBUTIONS
<TABLE>
<CAPTION>
TOTAL AMOUNT ORDINARY RETURN LONG-TERM DIVIDEND
PAYABLE RECORD PAID INVESTMENT OF CAPITAL REINVESTMENT
DATE DATE PER SHARE INCOME CAPITAL GAINS PRICE
-------- -------- ------------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
03/25/94 03/11/94 $ 0.25000 $0.03170 $0.21830 -- $10.92
06/24/94 06/10/94 0.25000 0.03170 0.21830 -- 10.45
09/26/94 09/12/94 0.25000 0.03170 0.21830 -- 10.72
11/15/94 10/17/94 0.80625 0.10213 0.70412 -- NA
12/27/94 12/13/94 0.33000 0.00340 0.02360 $0.3030 9.41
----------- --------- -------- --------
$ 1.88625 $0.20063 $1.38262 $0.3030
</TABLE>
A Form 1099-DIV has been mailed to all shareholders of record for the
distributions mentioned above, setting forth specific amounts to be included in
the 1994 tax returns. Ordinary income distributions include net investment
income and realized net short-term capital gains.
RETURN OF CAPITAL
The amount received as a non-taxable (return of capital) distribution
should be applied to reduce the tax cost of shares. This amount will be
reflected on Form 1099-DIV. If the amount of the non-taxable portion exceeds
your tax basis, the excess will be taxable as a capital gain.
CORPORATE DIVIDENDS RECEIVED DEDUCTION AND U.S. TREASURY SECURITIES INCOME
The Equity Trust paid to shareholders ordinary income dividends of $0.03170
per share on March 25, 1994, $0.03170 per share on June 24, 1994, $0.03170 per
share on September 26, 1994 and $0.00340 per share on December 27, 1994. The
percentage of such dividends that qualifies for the dividends received deduction
available to corporations is 63.88% for all such dividends paid in 1994. The
percentage of the ordinary income dividends paid by the Equity Trust during 1994
derived from U.S. Treasury Securities was 15.88%.
DISTRIBUTION OF SHARES OF THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
The distribution of shares of The Gabelli Global Multimedia Trust Inc. on
November 15, 1994 did not create any additional tax liability for shareholders
of the Equity Trust. A portion of the Equity Trust's net investment income and
short-term capital gains were allocated to the spin-off distribution as detailed
in the table above. The initial cost basis of the Multimedia Trust shares is
$8.0625, the fair market value on the distribution date, determined by averaging
the high and low trading price on the distribution date. The holding period for
the Multimedia Trust shares begins on November 16, 1994.
Shareholders of record on October 17, 1994, who sold shares of the Equity
Trust from October 11, 1994 through November 15, 1994, effectively sold shares
of the Multimedia Trust via "due bills." Such shareholders must recognize the
income allocated to the distribution and must also reduce their cost basis of
the Equity Trust by the amount allocated as a return of capital.
26
<PAGE>
HISTORICAL DISTRIBUTION SUMMARY
<TABLE>
<CAPTION>
TAXES PAID
SHORT- LONG- UNDISTRIBUTED ON
TERM TERM LONG-TERM UNDISTRIBUTED ADJUSTMENT
ANNUAL INVESTMENT CAPITAL CAPITAL RETURN OF CAPITAL CAPITAL TOTAL TO
SUMMARY INCOME GAINS GAINS CAPITAL(a) GAINS GAINS(b) DISTRIBUTIONS COST BASIS
-------------------- ---------- -------- -------- ---------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994(c)............. $0.13536 $0.06527 $0.30300 $1.38262 -- -- $ 1.88625 $1.38262-
1993(d)............. 0.13050 0.02030 0.72930 0.22990 -- -- $ 1.11000 0.22990-
1992(e)............. 0.20530 0.04050 0.29660 0.51760 -- -- $ 1.06000 0.51760-
1991(f)............. 0.22590 0.03990 0.14420 0.68000 -- -- $ 1.09000 0.68000-
1990................ 0.50470 -- 0.22950 0.44580 -- -- $ 1.18000 0.44580-
1989................ 0.29100 0.35650 0.66250 -- $0.6288 $0.2138 $ 1.31000 0.41500+
1988................ 0.14500 0.20900 0.19600 -- 0.2513 0.0854 $ 0.55000 0.16590+
1987................ 0.25600 0.49100 0.33500 -- -- -- $ 1.08200 --
</TABLE>
---------------
(a) Non-taxable.
(b) Net Asset Value is reduced by this amount on the last business day of the
year.
(c) On November 15, 1994, the Company distributed shares of the Gabelli Global
Multimedia Trust Inc. valued at $8.0625 per share.
(d) On July 14, 1993, the Company distributed Rights equivalent to $0.50 per
share upon full subscription of all issued shares.
(e) On September 28, 1992, the Company distributed Rights equivalent to $0.36
per share upon full subscription of all issued shares.
(f) On October 21, 1991, the Company distributed Rights equivalent to $0.42 per
share upon full subscription of all issued shares.
- Decrease in cost basis.
+ Increase in cost basis.
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
ENROLLMENT IN THE PLAN
It is the policy of The Gabelli Equity Trust Inc. ("Equity Trust") to
automatically reinvest dividends. As a "registered" shareholder you
automatically become a participant in the Equity Trust's Automatic Dividend
Reinvestment Plan (the "Plan"). The Plan authorizes the Equity Trust to issue
shares to participants upon an income dividend or a capital gains distribution
regardless of whether the shares are trading at a discount or a premium to net
asset value. All distributions to shareholders whose shares are registered in
their own names will be automatically reinvested pursuant to the Plan in
additional shares of the Equity Trust. Plan participants may send their stock
certificates to State Street Bank & Trust Company to be held in their dividend
reinvestment account. Registered shareholders wishing to receive their
distribution in cash must submit this request in writing to:
The Gabelli Equity Trust Inc.
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Shareholders requesting this cash election must include the shareholder's
name and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan may contact State Street Bank and Trust
Company at 1 (800) 426-5523.
Shareholders wishing to liquidate reinvested shares held at State Street
Bank and Trust Company must do so in writing. Please submit your request to the
above mentioned address. Include in your request your name, address and account
number. The cost to liquidate shares is $2.50 per transaction as well as the
brokerage commission incurred. Brokerage charges are expected to be less than
the usual brokerage charge for such transactions.
If your shares are held in the name of a broker, bank or nominee, you
should contact such institution. If such institution is not participating in the
Plan, your account will be credited with a cash dividend. In order to
participate in the Plan through such institution, it may be necessary for you to
have your shares taken out of "street name" and re-registered in your own name.
Once registered in your own name your dividends will be automatically
reinvested. Certain brokers participate in the Plan. Shareholders holding shares
in "street name" at such institution will have dividends automatically
reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
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The number of shares of Common Stock distributed to participants in the
Plan in lieu of cash dividends is determined in the following manner. Under the
Plan, whenever the market price of the Equity Trust's Common Stock is equal to
or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividends or capital
gains distribution, participants are issued shares of Common Stock valued at the
greater of (i) the net asset value as most recently determined or (ii) 95% of
the then current market price of the Equity Trust's 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 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 valued at market
price. If the Equity Trust should declare a dividend or capital gains
distribution payable only in cash, State Street will buy Common Stock in the
open market, or 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 to issue shares at net
asset value if, following the commencement of such purchases, the market value
of the Common Stock exceeds net asset value.
The automatic reinvestment of dividends and capital gains distributions
will not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Equity Trust reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the members of the Plan
at least 90 days before the record date for such dividend or distribution. The
Plan also may be amended or terminated by State Street on at least 90 days'
written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the Equity Trust. In order to
participate in the Voluntary Cash Purchase Plan, shareholders must have their
shares registered in their own name and participate in the Dividend Reinvestment
Plan.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street Bank and Trust Company for investments
in the Equity Trust's shares at the then current market price. Shareholders may
send an amount from $250 to $3,000. State Street Bank and Trust Company will use
these funds to purchase shares in the open market on or about February 15 and
August 15 of each year. State Street Bank and Trust Company will charge each
shareholder who participates $0.75, plus a pro rata share of the brokerage
commissions. Brokerage charges for such purchases are expected to be less than
the usual brokerage charge for such transactions. It is suggested that any
voluntary cash payments be sent to State Street Bank and Trust Company, P.O. Box
8200, Boston, MA 02266-8200, such that State Street receives such payments
approximately 10 days before February 15 or August 15. A payment may be
withdrawn without charge if notice is received by State Street Bank and Trust
Company at least 48 hours before such payment is to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Equity Trust.
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OFFICERS AND DIRECTORS
THE GABELLI EQUITY TRUST INC.
ONE CORPORATE CENTER, RYE, NY 10580-1434
Directors Investment Advisor
Mario J. Gabelli, Chairman Gabelli Funds, Inc.
Paul R. Ades One Corporate Center
Attorney-at-Law Rye, New York 10580-1434
Partner, Murov & Ades
Dr. Thomas E. Bratter Custodian
President, John Dewey Academy Boston Safe Deposit and Trust Company
Bill Callaghan
President, Bill Callaghan Counsel
Associates
Felix J. Christiana Willkie Farr & Gallagher
Former Senior Vice President,
Dollar Dry Dock Savings Bank Transfer Agent and Registrar
James P. Conn State Street Bank and Trust Company
Managing Director/Chief Investment
Officer, Stock Exchange Listing
Financial Security Assurance NYSE-Symbol: GAB
Karl Otto Pohl
Former President, Deutsche Shares Outstanding: 87,223,731
Bundesbank
Anthony R. Pustorino The Net Asset Value appears in the
Certified Public Accountant Publicly Traded Funds column, under the
Professor, Pace University heading "Specialized Equity and
Salvatore J. Zizza Convertible Funds," in Saturday's
Chairman & Chief Executive Officer The New York Times and Monday's The
The Lehigh Group, Inc. Wall Street Journal. It is also listed
in Barron's Mutual Funds/Closed End
Officers Funds section under the heading
Mario J. Gabelli General Equity Funds.
President &
Chief Investment Officer The Net Asset Value may be obtained
Bruce N. Alpert each day by calling (914) 921-5071.
Vice President & Treasurer
Marc S. Diagonale
Assistant Vice President
J. Hamilton Crawford, Jr.
Secretary
Brigid O. Bieber
Assistant Secretary
Richard W. Ingram
Assistant Treasurer
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Equity Trust may from time to time
purchase shares of its capital stock in the open market when the Equity Trust
shares are trading at a discount of 10% or more from the net asset value of the
shares.
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ONE CORPORATE CENTER RYE, NEW YORK 10580-1434
