As
filed with the Securities and Exchange Commission on April 13, 2007
Registration No. 333-140966
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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þ
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Pre-Effective Amendment No. 1
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o
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Post-Effective Amendment No. __
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The Gabelli Healthcare & Wellness
Rx
Trust
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (914) 921-5100
One Corporate Center, Rye, New York 10580-1422
(Address of Principal Executive Offices) (Zip code)
Agnes Mullady
The Gabelli Healthcare & Wellness
Rx
Trust
One Corporate Center
Rye, New York 10580-1422
(Name and Address of Agent for Service)
Copies to:
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James E. McKee, Esq.
The Gabelli Healthcare & Wellness
Rx
Trust
One Corporate Center
Rye, New York 10580-1422
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Rose F. DiMartino, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933:
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Proposed Maximum
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Proposed Maximum
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Aggregate Offering
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Title of Securities
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Amount Being
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Offering Price Per
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Price Being
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Amount of
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Being Registered
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Registered
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Unit Being Offered
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Offered
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Registration Fee
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Common Shares,
$0.001 par value
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9,000,000*
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$8**
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$72,000,000
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$2,210.40***
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*
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The amount being registered assumes a dividend of 1 common share of the Registrant for every
20 shares held of common stock of The Gabelli Equity Trust Inc. If this ratio changes, the
number of shares to be issued will be adjusted accordingly, but the proposed maximum aggregate
offering price will remain unchanged.
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**
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No separate consideration will be received for shares to be distributed to the common
shareholders of The Gabelli Equity Trust Inc.
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***
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Of this amount, $30.70 has previously been paid.
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Approximate date of proposed public offering: As soon as possible after the effective date of this
Registration Statement.
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The Gabelli Equity Trust Inc.
One Corporate Center
Rye, New York 10580-1422
April 18, 2007
Dear Fellow Shareholder:
I invite you to the Annual Meeting of Shareholders of The Gabelli Equity Trust Inc. (the
Equity Trust) to be held on May 14, 2007. At the Annual Meeting, shareholders will be asked to
approve a proposal to distribute to common shareholders, in the form of a dividend, shares of a
newly-organized, non-diversified, closed-end management investment company, The Gabelli Healthcare
& Wellness
Rx
Trust (the Healthcare Trust). The enclosed Proxy Statement/Prospectus
describes the proposal in detail.
While the Equity Trust is also a non-diversified, closed-end management investment company,
the Equity Trust has historically pursued a more diversified portfolio structure than originally
contemplated. This is in large part attributable to measures taken by your Board of Directors (the
Board) to reduce or eliminate any market discount from the Equity Trusts net asset value per
share. In particular, as a result of the adoption of the Equity Trusts 10% distribution policy,
we continue to manage the Equity Trusts portfolio to consistently achieve a return commensurate
with this policy. This in turn has led us to greater diversification in the Equity Trust.
At the same time, we continue to be attracted to the opportunities for long-term capital
growth presented in the healthcare and wellness industries. Demographic trends are benefiting
healthcare and wellness related businesses and have created global investment opportunities. To
enable the Equity Trusts common shareholders to participate more directly in these opportunities,
we are proposing to contribute approximately $70 million of the Equity Trusts net assets to the
Healthcare Trust, which would adopt a policy of concentrating its investments in healthcare and
wellness related businesses. If approved, each Equity Trust common shareholder would receive one
share of the Healthcare Trust for the number of whole common shares of the Equity Trust owned on
the dividend record date that will produce a total dividend of approximately $70 million. At
current net asset valuation, this would result in a dividend of one share of the Healthcare Trust
for each twenty shares of Equity Trust common stock. The $70 million target size was established by
the Board to satisfy the New York Stock Exchange listing standards and to ensure the Healthcare
Trust has sufficient assets to conduct its investment program with a reasonable expense ratio. No
commission or other sales charge would be imposed. The Healthcare Trust expects to distribute its
net investment income and net realized capital gains annually, with its first distribution
anticipated at year-end 2007.
Please note that the proposed transaction will not change the Equity Trusts 10% distribution
policy. The Equity Trust will continue to make quarterly distributions to its common shareholders
as it has done since the policys inception in 1987.
We believe this proposal represents an attractive opportunity for the shareholders of the
Equity Trust, and we urge you to carefully consider the merits of this proposal.
Very truly yours,
Mario J. Gabelli
Chairman of the Board and Chief Investment Officer
Whether or not you plan to attend the annual meeting of shareholders, please complete, date and
sign the enclosed proxy card and return the same as soon as possible in the enclosed envelope
(unless you are voting by telephone or through the Internet), which needs no postage if mailed in
the United States.
Telephone/Internet Voting
Various brokerage firms and financial intermediaries may offer the convenience of providing you
voting instructions via telephone or the Internet for shares held through such firms and
intermediaries. If available, instructions are included in this Proxy Statement/Prospectus and on
the proxy card.
THE GABELLI EQUITY TRUST INC.
One Corporate Center
Rye, New York 10580-1422
(914) 921-5070
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 14, 2007
To the Shareholders of
THE GABELLI EQUITY TRUST INC.
Notice is hereby given that the Annual Meeting of Shareholders (the Meeting) of The Gabelli
Equity Trust Inc. (the Equity Trust) will be held at The Cole Auditorium, The Greenwich Library,
101 West Putnam Avenue, Greenwich, Connecticut 06830, on Monday, May 14, 2007, at 9:00 a.m., for
the following purposes:
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1.
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To consider and vote upon a proposal to distribute to Equity Trust common
shareholders approximately $70 million of the Equity Trusts net assets in the form of
shares of The Gabelli Healthcare & Wellness
Rx
Trust, a newly-organized,
closed-end management investment company, to be approved by the holders of the Equity
Trusts Common Stock and holders of its Series C Auction Rate Cumulative Preferred
Stock, 5.875% Series D Cumulative Preferred Stock, Series E Auction Rate Cumulative
Preferred Stock, and 6.20% Series F Cumulative Preferred Stock (together, the
Preferred Stock), voting together as a single class (
Proposal 1
);
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2.
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To elect three (3) Directors of the Equity Trust, to be elected by the holders
of the Equity Trusts Common Stock and holders of its Preferred Stock, voting together
as a single class (
Proposal 2
); and
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3.
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To consider and vote upon such other matters, including adjournments, as may
properly come before said Meeting or any adjournments thereof.
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These items are discussed in greater detail in the attached Proxy Statement/Prospectus.
The close of business on March 12, 2007, has been fixed as the record date for the
determination of shareholders entitled to notice of and to vote at the Meeting and any adjournments
thereof.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN THE EQUITY TRUST. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, WE ASK THAT YOU PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE
UNITED STATES. INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXIES ARE SET FORTH ON THE INSIDE COVER.
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By Order of the Board of Directors,
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JAMES E. MCKEE
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Secretary
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April 18, 2007
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to you and avoid the
time and expense to the Equity Trust involved in validating your vote if you fail to sign your
proxy card properly.
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Individual Accounts:
Sign your name exactly as it appears in the registration
on the proxy card.
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2.
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Joint Accounts:
Either party may sign, but the name of the party signing should
conform exactly to a name shown in the registration.
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3.
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All Other Accounts:
The capacity of the individuals signing the proxy card
should be indicated unless it is reflected in the form of registration. For example:
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Registration
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Valid Signature
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Corporate Accounts
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(1)
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ABC Corp.
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ABC Corp.
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(2)
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ABC Corp.
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John Doe, Treasurer
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(3)
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ABC Corp.
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c/o John Doe, Treasurer
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John Doe
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(4)
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ABC Corp., Profit Sharing Plan
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John Doe, Trustee
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Trust Accounts
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(1)
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ABC Trust
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Jane B. Doe, Trustee
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(2)
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Jane B. Doe, Trustee
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u/t/d 12/28/78
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Jane B. Doe
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Custodian or Estate Accounts
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(1)
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John B. Smith, Cust.
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f/b/o John B. Smith, Jr. UGMA
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John B. Smith
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(2)
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John B. Smith, Executor
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Estate of Jane Smith
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John B. Smith, Executor
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Telephone/Internet Voting
Various brokerage firms and financial intermediaries may offer the convenience of providing
you voting instructions via telephone or the Internet for shares held through such firms and
intermediaries. If available, instructions are included with this Proxy Statement and proxy card.
THE GABELLI EQUITY TRUST INC.
ANNUAL MEETING OF SHAREHOLDERS
May 14, 2007
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is furnished in connection with the solicitation of proxies by
the Board of Directors (the Board) of The Gabelli Equity Trust Inc. (the Equity Trust) for use
at the Annual Meeting of Shareholders of the Equity Trust to be held on May 14, 2007, at 9:00 a.m.,
at The Cole Auditorium, The Greenwich Library, 101 West Putnam Avenue, Greenwich, Connecticut
06830, and at any adjournments or postponements thereof (the Meeting). A Notice of Annual Meeting
of Shareholders and a proxy card accompany this Proxy Statement/Prospectus, all of which are first
being mailed to shareholders on or about April 18, 2007.
Among the proposals to be considered at the Meeting is a proposal (Proposal 1) to distribute
to Equity Trust common shareholders common shares of beneficial interest of The Gabelli Healthcare
& Wellness
Rx
Trust, a newly-organized, closed-end management investment company (the
Healthcare Trust). Under this proposal, the Equity Trust will contribute a portion of its assets
(which is anticipated to consist largely or exclusively of cash and short-term fixed income
instruments) having a value of approximately $70 million to the Healthcare Trust, an investment
company organized under the laws of the State of Delaware and wholly-owned by the Equity Trust. All
of the common shares of beneficial interest of the Healthcare Trust (the Healthcare Trust Common
Shares) will then be distributed by the Equity Trust as a dividend to the Equity Trusts common
shareholders at a rate of one (1) Healthcare Trust Common Share for every twenty (20) shares held
of the Equity Trusts common stock. See The Transaction.
Like the Equity Trust, the Healthcare Trust is a closed-end, non-diversified management
investment company. The investment objective of the Healthcare Trust is long-term growth of
capital. The primary investment objective of the Equity Trust is long-term growth of capital, with
income as a secondary objective. Under normal circumstances, the Healthcare Trust will invest at
least 80% of its assets (plus borrowings made for investment purposes) in equity securities (such
as common stock and preferred stock) and income producing securities (such as fixed income debt
securities and securities convertible into common stock) of domestic and foreign companies in the
healthcare and wellness industries, whereas the Equity Trust attempts to achieve its objective by
investing primarily in a portfolio of equity securities of companies involved in a wide variety of
industries. Companies in the healthcare and wellness industries are defined as those companies
that are primarily engaged in providing products, services and/or equipment related to healthcare,
medical or lifestyle needs (
i.e.
, food, beverages, nutrition and weight management). Primarily engaged, as used
in this Proxy Statement/Prospectus, means a company that derives at least 50% of its revenues or
earnings from, or devotes at least 50% of its assets to, the indicated businesses. Specific sector
investments for the Healthcare Trust will include, but are not limited to, dental, orthopedics,
cardiology, hearing aid, life science, in-vitro diagnostics, medical supplies and products,
aesthetics and plastic surgery, veterinary, pharmacy benefits management, healthcare distribution,
healthcare imaging, pharmaceuticals, biotechnology, healthcare plans, healthcare services, and
healthcare equipment, as well as food, beverages, nutrition and weight management. The Healthcare
Trust will focus on companies that are growing globally due to favorable demographic trends and may
invest without limitation in securities of foreign issuers. No assurances can be given that the
Healthcare Trusts objectives will be achieved.
Application will be made to list the Healthcare Trusts shares on the New York Stock Exchange
(NYSE). Although there is no current trading market for Healthcare Trust Common Shares, it is
expected that when issued trading of such shares will commence on the NYSE four business days
prior to the record date set by the Board of the Equity Trust for the distribution of the shares of
the Healthcare Trust. If an Equity Trust common shareholder sells the shares in the Healthcare
Trust that it receives through the dividend, the shareholder may incur brokerage commissions and
the sale may constitute a taxable event for the shareholder.
Shares of closed-end funds often trade at a discount to net asset value. The Equity Trust
cannot predict whether the Healthcare Trust Common Shares will trade at, below or above net asset
value. Shareholders must bear the risk of loss created by the possibility that the Healthcare Trust
Common Shares may trade at a discount to net asset value.
The Equity Trusts common stock trades on the NYSE under the symbol GAB. The Equity Trusts
most recent annual report, including audited financial statements for the year ended December 31,
2006, is available upon request by writing to the Equity Trust at One Corporate Center, Rye, New
York 10580-1422, by calling the Equity Trust at (800) GABELLI (422-3554), or via the Internet at
www.gabelli.com. The address and telephone number of the Healthcare Trust are the same as those of
the Equity Trust noted above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS SETS FORTH CONCISELY CERTAIN INFORMATION ABOUT THE EQUITY
TRUST AND THE HEALTHCARE TRUST THAT SHAREHOLDERS SHOULD KNOW BEFORE GIVING A PROXY AND IT SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE.
INFORMATION CONTAINED HEREIN IS NOT COMPLETE AND MAY BE CHANGED. A REGISTRATION STATEMENT
RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
WHERE SUCH OFFER, SOLICITATION OR SALE WOULD NOT BE PERMITTED.
April 18, 2007
TABLE OF CONTENTS
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Page
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-i-
TABLE OF CONTENTS
(CONTINUED)
-ii-
GENERAL VOTING INFORMATION
In addition to the solicitation of proxies by mail, officers of the Equity Trust and regular
employees of Computershare Trust Company, N.A. (Computershare), the Equity Trusts transfer
agent, and affiliates of Computershare or other representatives of the Equity Trust may also
solicit proxies by telephone, telegraph, Internet or in person. In addition, the Equity Trust has
retained The Altman Group, Inc. to assist in the solicitation of proxies for a minimum fee of
$3,000 plus reimbursement of expenses. The costs of solicitation and the expenses incurred in
connection with preparing the Proxy Statement/Prospectus and its enclosures will be paid by the
Equity Trust. The Equity Trust will reimburse brokerage firms and others for their expenses in
forwarding solicitation materials to the beneficial owners of its shares.
If the enclosed proxy is properly executed and returned in time to be voted at the Meeting,
the Equity Trust Shares (as defined below) represented thereby will be voted FOR Proposals 1 and
2 and FOR any other matters deemed appropriate unless instructions to the contrary are marked
thereon. Any shareholder who has given a proxy has the right to revoke it at any time prior to its
exercise either by attending the Meeting and voting his or her shares in person or by submitting a
letter of revocation or a later-dated proxy to the Equity Trust at the above address prior to the
date of the Meeting.
A quorum of shareholders is constituted by the presence in person or by proxy of the holders
of a majority of the outstanding shares of the Equity Trust entitled to vote at the Meeting. In
the event a quorum is not present at the Meeting, or in the event that a quorum is present at the
Meeting but sufficient votes to approve any of the proposed items are not received, the persons
named as proxies may propose one or more adjournments of such Meeting to permit further
solicitation of proxies. A shareholder vote may be taken on one or more of the proposals in this
Proxy Statement prior to such adjournment if sufficient votes have been received for approval and
it is otherwise appropriate. Any such adjournment will require the affirmative vote of a majority
of those shares present at the Meeting in person or by proxy. If a quorum is present, the persons
named as proxies will vote those proxies that they are entitled to vote FOR any proposal in favor
of such adjournment and will vote those proxies required to be voted AGAINST any proposal against
any such adjournment. Absent the establishment of a subsequent record date and the giving of notice
to the holders of record thereon, the adjourned Meeting must take place not more than 120 days
after the record date. At such adjourned Meeting, any business may be transacted which might have
been transacted at the original Meeting. If a quorum is present, a shareholder vote may be taken on
one or more of the proposals properly brought before the Meeting prior to any adjournment if
sufficient votes have been received and it is otherwise appropriate.
The close of business on March 12, 2007 has been fixed as the record date for the
determination of shareholders entitled to notice of and to vote at the Meeting and all adjournments
thereof.
The Equity Trust has two classes of capital stock: common stock, par value $0.001 per share
(the Equity Trust Common Stock), and preferred stock consisting of (i) Series C Auction Rate
Cumulative Preferred Stock (Series C Preferred), (ii) 5.875% Series D Cumulative Preferred Stock
(Series D Preferred), (iii) Series E Auction Rate Cumulative Preferred Stock (Series E
Preferred), and (iv) 6.20% Series F Cumulative Preferred Stock (Series F Preferred), each having
a par value of $0.001 per share (together, the Preferred Stock and together with the Equity Trust
Common Stock, the Equity Trust Shares). The holders of the Equity Trust Common Stock and
Preferred Stock are each entitled to one vote for each full share held and an appropriate fraction
of a vote for each fractional share held. On the record date, there were 168,756,272 shares of
Equity Trust Common Stock, 5,200 shares of Series C Preferred Stock, 2,949,700 shares of Series D
Preferred Stock, 2,000 shares of Series E Preferred Stock, and 6,000,000 shares of Series F
Preferred Stock outstanding. The Equity Trust completed its redemption of 100% of its outstanding
7.25% Tax Advantaged Cumulative Preferred Stock (the Series A Preferred)
on June 17, 2003. The Equity Trust completed its redemption of 100% of its outstanding 7.20% Tax
Advantaged Series B Cumulative Preferred Stock (the Series B Preferred) on January 8, 2007.
As of the record date, there were no persons known to the Equity Trust to be beneficial owners
of more than 5% of the Equity Trusts outstanding shares of Common Stock or Preferred Stock.
SUMMARY OF VOTING RIGHTS ON PROXY PROPOSALS
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1.
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Proposal to Distribute to Equity
Trust Common Shareholders approximately
$70 million of the Equity Trusts net
assets in the form of shares of The
Gabelli Healthcare & Wellness
Rx
Trust:
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Common and Preferred
Shareholders, voting together as
a single class
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2.
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Election of Directors:
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Common and Preferred
Shareholders, voting together as
a single class, vote to elect
three Directors: Mario J.
Gabelli, CFA; Thomas E. Bratter;
and Arthur V. Ferrara
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3.
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Other Business:
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Common and Preferred
Shareholders, voting together as
a single class
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2
PROXY STATEMENT/PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed information included
elsewhere in this Proxy Statement/Prospectus.
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The Transaction
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The Board of the
Equity Trust has
approved, subject to
shareholder
approval, the
contribution of a
portion of the
Equity Trusts
assets (which is
anticipated to
consist largely or
exclusively of cash
and short-term fixed
income instruments)
having a value of
approximately $70
million (4% of the
Equity Trusts net
assets attributable
to Common Stock as
of March 31, 2007)
to the Healthcare
Trust, a newly
formed investment
company organized
under the laws of
the State of
Delaware and
wholly-owned by the
Equity Trust. All of
the Healthcare Trust
Common Shares (as
hereinafter defined)
will then be
distributed by the
Equity Trust as a
dividend to its
common shareholders
at a rate of one (1)
Healthcare Trust
Common Share for
every twenty (20)
shares held of
Equity Trust Common
Stock. The
contribution of such
Equity Trust assets
to the Healthcare
Trust and the
subsequent
distribution of the
Healthcare Trusts
shares to Equity
Trust common
shareholders is
referred to herein
as the
Transaction. See
The Transaction.
The Transaction may
involve a
non-taxable return
of capital to Equity
Trust common
shareholders. See
Federal Income Tax
Consequences of the
Transaction and
Taxation below.
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The Gabelli Healthcare & Wellness
Rx
Trust
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A newly formed
investment company
organized under the
laws of the State of
Delaware by the
Equity Trust and
registered under the
Investment Company
Act of 1940, as
amended (the 1940
Act), as a
non-diversified,
closed-end
management
investment company.
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Comparison of Investment Objectives and Policies of
the Equity Trust and the Healthcare Trust
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The primary
investment objective
of the Equity Trust
is long-term growth
of capital, with
income as a
secondary objective.
The Equity Trust
attempts to achieve
its objective by
investing primarily
in a portfolio of
equity securities of
companies involved
in a wide variety of
industries. The
investment objective
of the Healthcare
Trust is long-term
growth of capital.
Under normal
circumstances, the
Healthcare Trust
will invest at least
80% of its assets
(plus borrowings
made for investment
purposes) in equity
securities (such as
common stock and
preferred stock) and
income producing
securities (such as
fixed income debt
securities and
securities
convertible into
common stock) of
foreign and domestic
companies in the
healthcare and
wellness industries,
whereas the Equity
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Trust attempts to
achieve its
objective by
investing primarily
in a portfolio of
equity securities of
companies in a wide
variety of
industries.
Companies in the
healthcare and
wellness industries
are defined as those
companies which are
primarily engaged in
providing products, services and/or
equipment related to
healthcare, medical,
or lifestyle needs
(
i.e.
, food, beverages, nutrition and
weight management).
Primarily engaged,
as used in this
Proxy
Statement/Prospectus,
means a company
that derives at
least 50% of its
revenues or earnings
from, or devotes at
least 50% of its
assets to, the
indicated
businesses.
Specific sector
investments for the
Healthcare Trust
will include, but
are not limited to,
dental, orthopedics,
cardiology, hearing
aid, life science,
in-vitro
diagnostics, medical
supplies and
products, aesthetics
and plastic surgery,
veterinary, pharmacy
benefits management,
healthcare
distribution,
healthcare imaging,
pharmaceuticals,
biotechnology,
healthcare plans,
healthcare services,
and healthcare
equipment, as well
as food, beverages,
nutrition and weight
management. The
Healthcare Trust may
invest without
limitation in
securities of
foreign issuers,
although the portion
invested in foreign
securities will vary
over time based on
market conditions.
The Investment
Adviser expects,
subject to market
conditions, that the
assets contributed
to the Healthcare
Trust will be
invested in
accordance with the
Healthcare Trusts
investment
objectives and
policies within
three months after
the completion of
the Transaction but
not later than six
months. See
Investment
Objectives and
Policies of the
Equity Trust and the
Healthcare Trust.
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The investment
practices and
restrictions of each
of the Healthcare
Trust and the Equity
Trust are similar
except that,
generally, (i) the Healthcare Trust will concentrate in the
healthcare and wellness industries, whereas the Equity Trust will
not have an industry concentration, (ii) the
Healthcare Trust has
no fundamental
policy with respect
to purchasing
securities of
investment
companies, (iii) the
Healthcare Trust may
borrow money,
including on margin,
to the extent
permitted by
applicable law
whereas the Equity
Trust is limited to
borrowings not
exceeding 10% of its
total assets to
finance repurchases
of its shares and 5%
for extraordinary or
emergency purposes,
(iv) there is no
limitation on the
amount of foreign
securities in which
the Healthcare Trust
may invest whereas
the Equity Trust is
limited to investing
up to 35% of its
total assets in
asset, determined at
the time of
purchase, in foreign
securities, (v) the
Healthcare Trust may
invest without limit
in illiquid
securities whereas
the Equity Trust may
not invest more than
10% of its total
assets in illiquid
securities and (vi)
the Healthcare Trust
may, whereas the
Equity Trust may
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not, make short
sales of securities.
For a more detailed
description of the
differences between
the investment
practices and
restrictions of the
Healthcare Trust and
the Equity Trust,
see Appendix A
Investment
Practices and
Appendix B
Investment
Restrictions.
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Investment Adviser to the Healthcare Trust; Advisory
Fees
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Gabelli Funds, LLC
(the Investment
Adviser), the
investment adviser
to the Equity Trust,
will also serve as
investment adviser
to the Healthcare
Trust. The advisory
fee structure for
the Healthcare Trust
will be the same as
that of the Equity
Trust. The
investment advisory
agreement between
the Healthcare Trust
and the Investment
Adviser combines
investment advisory
and administrative
responsibilities in
one agreement. The
Investment Advisers
fee is computed
weekly and paid
monthly at the
annual rate of 1.00%
of the Healthcare
Trusts average
weekly net assets.
See Investment
Advisory and Other
Services.
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Exchange Listing
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Application will be
made to list the
Healthcare Trusts
shares on the NYSE,
subject to notice of
issuance of such
shares. Although
there is no current
trading market for
Healthcare Trust
Common Shares, it is
expected that when
issued trading of
such shares will
commence on the NYSE
four business days
prior to the record
date set by the
Board for the
distribution of the
shares of the
Healthcare Trust.
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Federal Income Tax Consequences of the Transaction
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The Transaction is
not currently
expected to increase
significantly the
total amount of
taxable
distributions
received by the
Equity Trust
shareholders for the
year ending December
31, 2007 and is not
expected to result
in the recognition
of significant
taxable gain by the
Equity Trust.
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The distribution of
Healthcare Trust
Common Shares and
cash in lieu of
fractional shares to
holders of Equity
Trust Common Stock
will constitute a
dividend to each
such shareholder up
to its portion of
the Equity Trusts
current or
accumulated earnings
and profits (but not
in excess of the
fair market value of
Healthcare Trust
shares and cash
received by such
shareholder) and
generally will be
taxable to such
shareholder as a
distribution of
ordinary income
and/or long-term
capital gains. To
the extent that the
fair market value of
the distributed
Healthcare Trust
shares and cash
exceeds the
allocated current
earnings and profits
and any accumulated
earnings and profits
from prior years,
the excess will
first be treated as
a non-taxable return
of capital, reducing
the Equity Trust
Common Stock
holders tax basis
in its Equity Trust
shares; thereafter,
distributions in
excess of the Equity
Trust Common Stock
holders basis will
be
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taxable as gain
realized from a
deemed sale of its
Equity Trust Common
Stock. Each Equity
Trust Common Stock
holder will take a
fair market value
tax basis in the
Healthcare Trust
shares received and
will have a new
holding period
beginning on the day
following the date
of the distribution.
In addition to the
other information
necessary to file
tax returns, the
Equity Trust will
provide shareholders
with information as
to the amount of the
distribution to be
treated as a
dividend.
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The Healthcare Trust
has received an
opinion of counsel
to the effect that
the foregoing
discussion
accurately
summarizes the
material federal
income tax
consequences of the
Transaction. The
foregoing summary is
subject to and
qualified in its
entirety by the
discussion in The
Transaction
Federal Income Tax
Consequences of the
Transaction and
Taxation below.
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Comparison of Distribution
Policies of the Equity Trust and the Healthcare Trust
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Under an existing
order of exemption
received from the
Securities and
Exchange Commission
(the Commission)
from Section 19(b)
of the 1940 Act (the
Section 19(b)
Exemptive Order),
the Equity Trust and
the Healthcare Trust
may distribute
capital gains to
shareholders more
frequently than
annually. The Equity
Trust will continue
to make quarterly
distributions
pursuant to its 10%
distribution policy.
The Healthcare Trust
plans to make
distributions of any
net investment
income and net
realized capital
gains on an annual
basis beginning at
year-end 2007. See
Distributions;
Automatic Dividend
Reinvestment and
Voluntary Cash
Purchase Plan.
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Manner of Effecting the Distribution
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The Equity Trusts
Board is expected to
declare a
distribution (the
Distribution) of
all the outstanding
Healthcare Trust
Common Shares
payable to the
holders of record of
the Equity Trust
Common Stock as of
the close of
business on a date
(the Distribution
Record Date) to be
determined, together
with the payable
date for the
Distribution (the
Distribution
Date), by the
Equity Trusts Board
promptly following
shareholder approval
of the Transaction
and receipt of an
exemptive order from
the Commission. A
vote will not be
taken on the
Transaction and the
Distribution will
not occur unless and
until the Commission
issues an exemptive
order with respect
to the Transaction.
On or about the
Distribution Date,
the Equity Trust
will contribute a
portion of its
assets (which is
anticipated to
consist largely or
exclusively of cash
and short-term fixed
income instruments)
having a value of
approximately $70
million to the
Healthcare Trust.
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The Equity Trust
will effect the
Distribution on the
Distribution Date by
providing for the
delivery of the
Healthcare Trust
Common Shares to
Computershare Trust
Company, N.A. (the
Distribution
Agent) for
distribution to
holders of record of
Equity Trust Common
Stock as of the
close of business on
the Distribution
Record Date. The
Distribution will be
made on the basis of
one (1) Healthcare
Trust Common Share
for every twenty
(20) shares of
Equity Trust Common
Stock outstanding on
the Distribution
Record Date. All
such Healthcare
Trust Common Shares
will be fully paid
and non-assessable.
Commencing on or
about the
Distribution Date,
Healthcare Trust
Common Shares will
be credited in
book-entry form to
accounts registered
directly with the
transfer agent, with
a confirmation
statement mailed to
shareholders.
Shareholders will
not receive share
certificates unless
they request them
from the transfer
agent.
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Fractional shares of
Healthcare Trust
Common Shares will
only be issued as
part of the
Distribution to
holders of Equity
Trust Common Stock
who are participants
in the Equity
Trusts Automatic
Dividend
Reinvestment and
Voluntary Cash
Purchase Plan (the
Equity Trust
Plan). The
Distribution Agent
will aggregate the
fractional shares to
which holders who
are not participants
in the Equity Trust
Plan would otherwise
be entitled and
attempt to sell them
in the open market
at the then
prevailing prices on
behalf of such
holders, and such
holders will receive
instead a cash
payment in the
amount of their pro
rata share of the
total sales
proceeds.
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No holder of Equity
Trust Common Stock
will be required to
pay any cash or
other consideration
for the Healthcare
Trust Common Shares
received in the
Distribution or to
surrender or
exchange shares of
Equity Trust Common
Stock in order to
receive Healthcare
Trust Common Shares.
The Distribution
will not affect the
number of, or the
rights attaching to,
outstanding shares
of Equity Trust
Common Stock. See
The Transaction
Manner of Effecting
the Distribution.
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Healthcare Trust
Common Shares
distributed in
connection with the
Distribution will be
freely transferable
except for shares
received by persons
who may be deemed to
be affiliates of
the Healthcare Trust
under the Securities
Act of 1933, as
amended (the 1933
Act). See The
Transaction
Manner of Effecting
the Distribution.
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Risk Factors and Special Considerations; Repurchase
and Charter Provisions.
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As shareholders of a
closed-end fund, the
Healthcare Trust
shareholders do not
have the right to
redeem their shares.
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However, the
Healthcare Trust
Common Shares are
freely transferable,
except for shares
received by persons
who may be deemed to
be affiliates of
the Healthcare Trust
under the 1933 Act,
and shareholders
desiring liquidity
may, subject to
applicable
securities laws,
trade their shares
on the NYSE or other
markets on which the
shares may trade at
the then current
market value. Like
the Equity Trust,
the Healthcare Trust
is authorized to
repurchase its
common shares on the
open market when the
shares are trading
at a discount of 10%
or more (or such
other percentage as
its Board of
Trustees may
determine from time
to time) from the
net asset value. In
addition, certain
provisions of the
Healthcare Trusts
Declaration of Trust
may be regarded as
anti-takeover
provisions. Pursuant
to these provisions
only one of the
three classes of
trustees is elected
each year, and the
affirmative vote of
the holders of 75%
of the outstanding
voting shares of the
Healthcare Trust is
necessary to
authorize amendments
to the Healthcare
Trusts Declaration
of Trust that would
be necessary to
modify these
provisions or to
directly or
indirectly convert
the Healthcare Trust
from a closed-end to
an open-end
investment company.
In addition, the
affirmative vote of
the holders of 80%
of the outstanding
voting shares of
each class of the
Healthcare Trust,
voting as a class,
is generally
required to
authorize certain
business
transactions with
the beneficial owner
of more than 5% of
any class of the
Healthcare Trusts
capital stock.
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In addition, if the
Healthcare Trust
issues preferred
shares, the holders
of the preferred
shares would have
the authority to
elect two trustees
at all times and
would have separate
class voting rights
on specified matters
including conversion
of the Healthcare
Trust to an open-end
investment company
and certain
reorganizations of
the Healthcare
Trust. The overall
effect of these
provisions is to
render more
difficult the
accomplishment of a
merger with, or the
assumption of
control by, a
principal
shareholder, or the
conversion of the
Healthcare Trust to
an open-end
investment company.
These provisions may
have the effect of
depriving Healthcare
Trust common
shareholders of an
opportunity to sell
their shares at a
premium to the
prevailing market
price. See
Description of
Capital Stock of the
Equity Trust and
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the
Healthcare Trust
Certain Provisions
of the Governing
Documents of the
Equity Trust and the
Healthcare Trust.
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Non-Diversified Status
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As a non-diversified
investment company
under the 1940 Act,
the Healthcare
Trust, like the
Equity Trust, is not
limited in the
proportion of its
assets that may be
invested in
securities of a
single issuer, and
accordingly, an
investment in the
Healthcare Trust
may, under certain
circumstances,
present greater risk
to an investor than
an investment in a
diversified company.
See Investment
Objectives and
Policies of the
Equity Trust and the
Healthcare Trust,
Risk Factors and
Taxation.
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Discount to Net Asset Value
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Shares of closed-end
investment companies
often trade at a
discount from net
asset value. This
characteristic of
shares of a
closed-end
investment company
is a risk separate
and distinct from
the risk that the
Healthcare Trusts
net asset value may
decrease. The Equity
Trust cannot predict
whether the
Healthcare Trusts
shares will trade
at, below or above
net asset value. The
risk of holding
shares of closed-end
investment companies
that might trade at
a discount to net
asset value is more
pronounced for
shareholders who
wish to sell their
shares in a
relatively short
period of time after
completion of the
Distribution. For
those shareholders,
realization of a
gain or loss on
their investment is
likely to be more
dependent upon the
existence of a
premium or discount
than upon portfolio
performance. See
Investment
Objectives and
Policies of the
Equity Trust and the
Healthcare Trust
and Risk Factors.
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Taxable Distribution
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Each holder of
Equity Trust Common
Stock will recognize
taxable income as a
result of the
distribution of the
Healthcare Trust
Common Shares and
cash in lieu of
fractional shares.
The Transaction is
not currently
expected to increase
significantly the
total amount of
taxable
distributions
received by the
Equity Trust common
shareholders for
this year, provided
that the Equity
Trust, as it
expects, does not
contribute
securities with
significant net
unrealized
appreciation to the
Healthcare Trust in
exchange for
Healthcare Trust
Common Shares. In
the event that the
Equity Trust does
contribute
securities with
significant net
unrealized
appreciation, the
Transaction could
result in the
recognition of
significant taxable
gain by the Equity
Trust and could
increase the total
amount of taxable
distributions
received by the
Equity Trust
shareholders for
this year. See
Proxy
Statement/Prospectus
Summary Federal
Income Tax
Consequences of the
Transaction and
The
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Transaction
Federal Income Tax
Consequences of the
Transaction.
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Costs Associated with Sales of Healthcare Trust
Common Shares
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If an Equity Trust
common shareholder
sells the Healthcare
Trust Common Shares
that he or she
receives, the
shareholder may
incur brokerage
commissions and the
sale may constitute
a taxable event for
the shareholder.
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Industry Risks
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The Healthcare Trust
will invest a
significant portion
of its assets in
companies in the
healthcare and
wellness industries
and, as a result,
the value of the
Healthcare Trust
Common Shares will
be more susceptible
to factors affecting
those companies,
including
governmental
regulation, changes
in government
subsidy and
reimbursement
levels, governmental
approval process,
rapid obsolescence
of products and
services and patent
expirations. As a
consequence of its
concentration
policy, the
Healthcare Trusts
investments may be
subject to greater
risk and market
fluctuation than a
fund that has
securities
representing a
broader range of
alternatives. See
Investment
Objectives and
Polices of the
Equity Trust and the
Healthcare Trust
and Risk Factors.
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Foreign Securities
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There is no
limitation on the
amount of foreign
securities in which
the Healthcare Trust
may invest, although
the portion invested
in foreign
securities will vary
over time based on
market conditions.
The Equity Trust, in
contrast, may invest
up to 35% of its
total assets,
determined at the
time of purchase, 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
Healthcare Trust to
be affected
favorably or
unfavorably by
changes in currency
exchange rates and
revaluations of
currencies. See
Investment
Objectives and
Policies of the
Equity Trust and the
Healthcare Trust
and Risk Factors.
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Use of Leverage
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As provided in the
1940 Act and subject
to certain
exceptions, the
Healthcare Trust may
issue debt or
preferred shares so
long as the
Healthcare Trusts
total assets
immediately after
such issuance, less
certain ordinary
course liabilities,
exceed 300% of the
amount of the debt
outstanding and
exceed 200% of the
sum of the amount of
preferred shares and
debt outstanding.
The Equity Trust may
issue debt for
certain restricted
purposes up to 10%
of its total assets
and preferred stock
up to the 200% asset
coverage limitation.
In accordance with
Commission staff
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guidelines, each
fund may also issue
convertible
preferred shares,
which may permit
each fund to obtain
leverage at
attractive rates.
The use of leverage
may magnify the
impact on common
shareholders of
changes in net asset
value and the cost
of leverage could
exceed the return on
the securities
acquired with the
proceeds of the
leverage, thereby
diminishing returns
to such common
shareholders. In
addition, the fund
may be required to
sell investments in
order to meet
interest or dividend
payments on the debt
or preferred shares
when it may be
disadvantageous to
do so. See Risk
Factors and
Appendix A
Investment
Practices.
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11
TABLE OF FEES AND EXPENSES
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Equity Trust
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Healthcare Trust
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Shareholder Transaction Expenses
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Voluntary Cash Purchase Plan Purchase Fees
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$0.75 per
transaction plus
pro rata share of
brokerage
commissions
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$0.75 per
transaction plus
pro rata share of
brokerage
commissions
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Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan Fees
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$2.50 per sale
transaction plus
pro rata share of
brokerage
commissions
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$2.50 per sale
transaction plus
pro rata share of
brokerage
commissions
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Annual Operating Expenses
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(as a percentage of net assets
attributable to common
shares)
(1)
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Management Fees
(2)
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1.29
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%
(2)
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1.00
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%
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Other Expenses
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0.15
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%
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0.67
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%
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Total Annual Operating Expenses
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1.43
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%
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1.67
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%
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(1) The percentages in the above table expressing annual fund operating expenses are based on
the Equity Trusts actual operating expenses for the year ended December 31, 2006 and estimated
amounts for the Healthcare Trusts first full fiscal year.
(2) The Investment Adviser has agreed to reduce the management fee on the incremental assets
attributable to the Equity Trusts Preferred Stock if the total return of the net asset value of
the Common Stock, including distributions and advisory fee subject to reduction, does not exceed
the stated dividend rate or corresponding swap rate of each particular series of the Preferred
Stock for the fiscal year. The Equity Trusts total return on the net asset value of the Common
Stock is monitored on a monthly basis to assess whether the total return on the net asset value of
the Common Stock exceeds the stated dividend rate or corresponding swap rate of all outstanding
Preferred Stock. Thus, management fees were accrued on these assets. The Equity Trusts operating
expenses as a percentage of average net assets including the liquidation value of Preferred Stock
equated to 1.11%.
Example
The following examples illustrate the projected dollar amount of cumulative expenses that
would be incurred over various periods with respect to a hypothetical investment in each of the
Equity Trust and the Healthcare Trust. These amounts are based upon payment by each of the Equity
Trust and the Healthcare Trust of expenses at levels set forth in the above table.
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return:
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1 Year
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3 Years
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5 Years
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10 Years
|
Equity Trust Common Stock
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$
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15
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$
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45
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$
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78
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$
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171
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Healthcare Trust Common
Shares
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$
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17
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$
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53
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$
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91
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$
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198
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The foregoing table is to assist you in understanding the various costs and expenses that an
investor in each of the Equity Trust and the Healthcare Trust would bear directly or indirectly.
The assumed 5% annual return is not a prediction of, and does not represent, the projected or
actual performance of the Equity Trust Common Stock or the Healthcare Trust Common Shares. Actual
expenses and annual rates of return may be more or less than those assumed for purposes of the
Example.
The Healthcare Trust is a newly-formed entity with no operating history. As such, expenses are
estimated based on an anticipated size of the Healthcare Trust of $70 million.
12
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
The following unaudited pro forma statement of assets and liabilities of the Equity Trust and
the Healthcare Trust assumes that the Distribution occurred as of December 31, 2006, that the
spin-off was at a rate of one Healthcare Trust Common Share for every twenty shares of Equity Trust
Common Stock resulting in 8,437,813 Healthcare Trust Common Shares outstanding and that the assets
contributed to the Healthcare Trust were valued at cost.
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
Equity Trust
|
|
|
|
|
Equity Trust
|
|
|
Healthcare Trust
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
$
|
2,082,155,007
|
|
|
Investments, at value(1)
|
|
$
|
2,014,652,503
|
|
|
$
|
67,502,504
|
|
|
$
|
56,305,196
|
|
|
Cash and other assets
|
|
$
|
56,305,196
|
|
|
$
|
0
|
|
|
|
|
|
|
|
$
|
2,138,460,203
|
|
|
Total Assets
|
|
$
|
2,070,957,699
|
|
|
$
|
67,502,504
|
|
$
|
24,061,424
|
|
|
Liabilities
|
|
$
|
24,761,424
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
527,492,500
|
|
|
Preferred Stock
|
|
$
|
527,492,500
|
|
|
$
|
0
|
|
|
|
|
|
|
|
$
|
1,586,906,279
|
|
|
Net Assets Attributable to Common Shares
|
|
$
|
1,518,703,775
|
|
|
$
|
67,502,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets Attributable to Common Shares Consist of
:
|
|
|
|
|
|
|
|
|
$
|
1,110,082,186
|
|
|
Paid-in capital, at $0.001 par value
|
|
$
|
1,110,082,186
|
|
|
$
|
67,502,504
|
|
$
|
693,273
|
|
|
Accumulated net investment income
|
|
$
|
0
|
|
|
$
|
0
|
|
$
|
0
|
|
|
Accumulated distributions in excess of
net investment income
|
|
$
|
(67,509,231
|
)
|
|
$
|
0
|
|
($
|
5,141,866
|
)
|
|
Accumulated distributions in excess of
net realized gain on investments,
options, futures contracts, swap
contracts, and foreign currency
transactions
|
|
($
|
5,141,866
|
)
|
|
$
|
0
|
|
$
|
480,729,847
|
|
|
Net unrealized appreciation on
investments
|
|
$
|
480,729,847
|
|
|
$
|
0
|
|
$
|
625,830
|
|
|
Net unrealized appreciation on swap
contracts
|
|
$
|
625,830
|
|
|
$
|
0
|
|
($
|
87,420
|
)
|
|
Net unrealized appreciation on futures
|
|
($
|
87,420
|
)
|
|
$
|
0
|
|
$
|
4,429
|
|
|
Net unrealized appreciation on foreign
currency transactions
|
|
$
|
4,429
|
|
|
$
|
0
|
|
|
|
|
|
|
|
$
|
1,586,906,279
|
|
|
Total Net Assets
|
|
$
|
1,518,703,775
|
|
|
$
|
67,502,504
|
|
|
|
|
|
|
|
|
$
|
9.40
|
|
|
Net Asset Value Per Common Share
|
|
$
|
9.00
|
|
|
$
|
8.00
|
|
|
|
|
|
|
|
|
Set forth below is information with respect to the Equity Trust Common Stock and the
Healthcare Trust Common Shares following the Distribution. The following table assumes that the
Distribution will be based on the 168,756,272 shares of Equity Trust Common Stock outstanding as of
December 31, 2006.
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Held By
|
|
|
|
|
|
|
|
|
Company Or
|
|
|
|
|
|
|
|
|
For Its Own
|
|
Amount
|
|
|
Amount Authorized
|
|
Account
|
|
Outstanding
|
Equity Trust Common Stock
|
|
|
246,000,000
|
|
|
|
N/A
|
|
|
|
168,756,272
|
|
Healthcare Trust Common
Shares
|
|
unlimited
|
|
|
N/A
|
|
|
|
8,437,813
|
|
|
PROPOSAL 1:
TO APPROVE THE DISTRIBUTION TO EQUITY TRUST COMMON SHAREHOLDERS OF APPROXIMATELY $70 MILLION OF THE
EQUITY TRUSTS NET ASSETS IN THE FORM OF SHARES OF THE GABELLI HEALTHCARE & WELLNESS
Rx
TRUST, A NEWLY-ORGANIZED, CLOSED-END, MANAGEMENT INVESTMENT COMPANY.
At the Meeting, a proposal will be presented to approve or disapprove a distribution to Equity
Trust common shareholders of approximately $70 million of the Equity Trusts total net assets in
the form of Healthcare Trust Common Shares.
THE TRANSACTION
Background
The Equity Trust commenced investment operations on August 21, 1986 as a non-diversified,
closed-end management investment company seeking long-term growth of capital primarily through
investment in a portfolio of equity securities selected by the Investment Adviser. Income is a
secondary objective of the Equity Trust. As of December 31, 2006, the Equity Trusts total net
assets approximated $2.11 billion. When it commenced operations, the Equity Trust stated in its
prospectus that, as a non-diversified investment company, the Equity Trust could concentrate
investments in individual issues to a greater degree than a diversified investment company.
While the Equity Trust is a non-diversified, closed-end management investment company, the
Equity Trust has historically pursued a more diversified portfolio structure than originally
contemplated due in large part to measures taken by the Board to reduce any discount between the
trading price of the Equity Trusts shares and the Equity Trusts net asset value. The measures
taken by the Board include authorizing the purchase of Equity Trust shares in the open market
whenever a discount of 10% or more exists and adopting a 10% distribution policy.
1
The
Board believes that the adoption of the 10% distribution policy has ameliorated the discount at which the Equity Trusts shares trade,
which, in turn, has led to greater diversification than required under the 1940 Act and the
Internal Revenue Code of 1986, as amended (the Code). At the same time, the Investment Adviser
has found that opportunities exist for long-term growth in the global healthcare industry due to
demographic trends benefiting
1
Pursuant to this policy, the Equity Trust
pays a minimum annual distribution of 10% of the average net asset value of the
Equity Trust. The Equity Trusts current quarterly distribution level is
set at $0.20 per share in each of the first three quarters of the year. The
Equity Trust pays an adjusting distribution in the fourth quarter of an amount
sufficient to pay 10% of the average net asset value of the Equity Trust, as of
the last day of the four preceding calendar quarters, or to satisfy the minimum
distribution requirements of the Internal Revenue Code of 1986, as amended,
whichever is greater.
14
healthcare and wellness related businesses. The focused opportunity
to invest in a segment of the healthcare and wellness industries that the Transaction will provide
is not available in the Equity Trust as currently structured.
Description Of The Transaction
In order to provide common shareholders additional opportunities for capital gains from their
investments, the Board has approved, subject to shareholder approval and the receipt of an
exemptive order from the Commission, the contribution of a portion of the Equity Trusts net assets
having a value of approximately $70 million (4% of the Equity Trusts net assets attributable to
Common Stock as of March 31, 2007) to the Healthcare Trust, a newly-formed investment company
organized under the laws of the State of Delaware and wholly owned by the Equity Trust. It is
anticipated that the contributed assets will consist largely or exclusively of cash and short-term
fixed income instruments. All the Healthcare Trust Common Shares will then be distributed by the
Equity Trust as a dividend to its common shareholders at a rate of one Healthcare Trust Common
Share for every twenty shares held of Equity Trust Common Stock. Holders of the Equity Trust
Preferred Stock will not participate in the Transaction, and the Transaction will not affect those
holders except that the asset coverage of the Preferred Stock as required under the 1940 Act and
under rating agency guidelines will be reduced to an immaterial extent. The Transaction may
involve a non-taxable return of capital to Equity Trust common shareholders. See Federal Income
Tax Consequences of The Transaction and Taxation. A vote will not be taken on the Transaction
unless and until the Commission issues an exemptive order with respect to the Transaction.
The primary investment objective of the Equity Trust is long-term growth of capital, with
income as a secondary objective. The investment objective of the Healthcare Trust is long-term
growth of capital. Under normal market conditions, the Healthcare Trust will invest at least 80% of
its assets (plus borrowings made for investment purposes) in equity securities (such as common
stock and preferred stock) and income producing securities (such as fixed income debt securities
and securities convertible into common stock) of domestic and foreign companies in the healthcare
and wellness industries, whereas the Equity Trust attempts to achieve its objective by investing
primarily in a portfolio of equity securities of companies in a wide variety of industries.
Companies in the healthcare and wellness industries are defined as those companies that are
primarily engaged in providing products, services and/or equipment related to healthcare, medical,
or lifestyle needs (
i.e.
, food, beverages, nutrition and weight management). Primarily engaged, as used in this
Proxy Statement/Prospectus, means a company that derives at least 50% of its revenues or earnings
from, or devotes at least 50% of its assets to, the indicated businesses. Specific sector
investments will include, but are not limited to, dental, orthopedics, cardiology, hearing aid,
life science, in-vitro diagnostics, medical supplies and products, aesthetics and plastic surgery,
veterinary, pharmacy benefits management, healthcare distribution, healthcare imaging,
pharmaceuticals, biotechnology, healthcare plans, healthcare services, and healthcare equipment, as
well as food, beverages, nutrition and weight management. The Healthcare Trust may invest without
limitation in securities of foreign issuers, although the portion invested in foreign securities
will vary over time based on market conditions. As a result, the Healthcare Trust over time may be
expected to experience different investment results from the Equity Trust. The Investment Adviser
expects that the assets contributed to the Healthcare Trust will be invested in accordance with the
Healthcare Trusts investment objective and policies within three months after the completion of
the Transaction, but in not later than six months.
The Healthcare Trust will register under the 1940 Act as a non-diversified, closed-end
investment company, and the Investment Adviser will serve as investment adviser to the Healthcare
Trust. The
advisory fee structure for the Healthcare Trust will be the same as that for the Equity Trust
(see Investment Advisory and Other Services), and application will be made to list the Healthcare
Trust Common Shares on the NYSE. The Distribution Record Date and the Distribution Date will be
determined by the Board following shareholder approval of the Transaction. The investment
restrictions,
15
policy of concentration in healthcare and wellness businesses and other matters
relating to the Healthcare Trusts structure are described below. See Investment Objectives and
Policies of the Equity Trust and the Healthcare Trust.
The Board believes that the Transaction will result in the following benefits to Equity Trust
common shareholders:
|
|
1.
|
|
The shareholders will receive shares of an investment company with a different
risk-return profile from the Equity Trust, thereby providing shareholders with the
following alternatives: (a) retaining their shares in both the Equity Trust and the
Healthcare Trust; (b) selling their Healthcare Trust shares and retaining their Equity
Trust shares; or (c) selling their Equity Trust shares and retaining their Healthcare
Trust shares. As a consequence, the Equity Trusts shareholders may more closely align
their investment portfolio with their desired exposure to different segments of the
equity market. If a shareholder sells his or her shares in either the Equity Trust or
the Healthcare Trust, the shareholder can be expected to incur brokerage commissions
and such sale may constitute a taxable event for the shareholder.
|
|
|
|
|
2.
|
|
Healthcare Trust Common Shares will be issued at a much lower transaction cost
to investors than is typically the case for a newly-organized closed-end equity fund
since there will be no underwriting discounts or commissions. The Transaction will not
result in an increase in the aggregate net assets of the Equity Trust and the
Healthcare Trust.
|
|
|
|
|
3.
|
|
As a concentrated fund, the Healthcare Trust will afford shareholders the
opportunity to seek the capital appreciation opportunities presented by a particular
market segment. The Healthcare Trusts policy of concentrating in the healthcare and
wellness industries is a fundamental policy that can be changed only with approval of
the holders of a majority of the Healthcare Trusts outstanding voting securities. Of
course, as a consequence of its concentration policy, the Healthcare Trusts
investments may be subject to greater risk and market fluctuation than a fund that has
securities representing a broader range of investment alternatives.
|
|
|
|
|
4.
|
|
The Healthcare Trust will distribute substantially all of its annual net
investment income and net realized capital gains to shareholders at year end. The
Healthcare Trust does not currently intend to adopt a distribution policy similar to
the Equity Trusts 10% distribution policy. Consequently, the Healthcare Trust may be
more fully invested in equity securities. The Healthcare Trusts cash requirements for
dividends and distributions will exist at year end only, since it does not intend to
pay distributions quarterly. The distribution policy of the Healthcare Trust may be
modified from time to time by the Healthcare Trusts Board. As a regulated investment
company under the Code, the Healthcare Trust will not be subject to U.S. federal income
tax on its investment company taxable income that it distributes to shareholders,
provided that at least 90% of its investment company taxable income for that taxable
year is distributed to its shareholders. See Taxation.
|
|
The Board believes that the benefits of the Transaction outlined above outweigh the costs of
the Transaction. For a description of the costs and expenses relating to the Transaction, see
Transaction Expenses below.
16
Federal Income Tax Consequences Of The Transaction
The Equity Trust will contribute cash and securities to the Healthcare Trust in exchange for
Healthcare Trust Common Shares. Such contribution should not be a taxable event to either the
Equity Trust or the Healthcare Trust, but the subsequent distribution of Healthcare Trust Common
Shares to holders of Equity Trust Common Stock may be a taxable event to the Equity Trust and its
shareholders as noted below.
The Equity Trust does not expect that any significant amount of net unrealized appreciation
will exist in the securities transferred to the Healthcare Trust. Accordingly, the Transaction is
not expected to result in the recognition of significant taxable gain by the Equity Trust and,
except as noted below, is not expected to increase significantly the total amount of taxable
distributions received by Equity Trust common shareholders for this year. In addition, the Board
has considered the tax consequences of the Transaction to its shareholders and has determined that
the benefits of the Transaction outweigh any adverse tax consequences.
The distribution of Healthcare Trust Common Shares and cash in lieu of fractional shares to
holders of Equity Trust Common Stock will constitute a dividend to each such shareholder up to its
portion of the Equity Trusts current or accumulated earnings and profits (but not in excess of the
fair market value of Healthcare Trust Common Shares and cash received by such shareholder) and
generally will be taxable to such shareholder as a distribution of ordinary income and/or long-term
capital gains. The Equity Trusts current earnings and profits for 2007 (including earnings and
profits, if any, from the Transaction) will be allocated pro rata among all the Equity Trusts
distributions during this year. The Equity Trust intends to contribute to the Healthcare Trust
assets that do not reflect in the aggregate net unrealized appreciation so as to minimize any
increase in the Equity Trusts earnings and profits as a result of the Transaction. To the extent
that the fair market value of the distributed Healthcare Trust Common Shares and cash exceeds the
allocated current earnings and profits and any accumulated earnings and profits from prior years,
the excess will first be treated as a non-taxable return of capital, reducing the Equity Trust
Common Stock holders tax basis in its Equity Trust shares; thereafter, any distributions in excess
of the Equity Trust Common Stock holders tax basis will be taxable as gain realized from a deemed
sale of its Equity Trust shares. Each shareholder will take a fair market value tax basis in the
Healthcare Trust Common Shares received and will have a new holding period beginning on the day
following the Distribution Date. In addition to the other information necessary to file tax
returns, the Equity Trust will provide shareholders with information as to the amount of the
distribution to be treated as a dividend.
The Healthcare Trust has received an opinion of counsel to the effect that the foregoing
discussion accurately summarizes the material federal income tax consequences of the Transaction.
The foregoing discussion is subject to and qualified in its entirety by the discussion in
Taxation below.
Exchange Listing
Application will be made to list the Healthcare Trust Common Shares on the NYSE, subject to
notice of issuance thereof. Although there is no current trading market for Healthcare Trust
Common Shares, it is expected that when issued trading of such shares will commence on the NYSE
four business days prior to the Distribution Record Date.
Transaction Expenses
The costs of organizing the Healthcare Trust and effecting the distribution of the Healthcare
Trust Common Shares to the Equity Trusts common shareholders, including the fees and expenses of
counsel and accountants and printing, listing and registration fees, are estimated to be
approximately $700,000
17
and will be borne by the Equity Trust. In addition, the Healthcare Trust will incur operating
expenses on an ongoing basis, including legal, auditing, transfer agency and custodian expenses
that, when aggregated with the fees payable by the Equity Trust for similar services after the
distribution, will likely exceed the fees currently payable by the Equity Trust for those services.
It is not expected that the Distribution will have a significant effect on the annual expenses of
the Equity Trust as a percentage of its net assets.
Manner of Effecting the Distribution
If the Transaction is approved by shareholders of the Equity Trust and all other conditions
thereto are satisfied, the Board is expected to declare the Distribution of all the outstanding
Healthcare Trust Common Shares, payable on the Distribution Date to the holders of record of the
Equity Trust Common Stock as of the close of business on the Distribution Record Date. The
Distribution Record Date and the Distribution Date will be determined by the Board promptly
following shareholder approval of the Transaction.
The Equity Trust will effect the Distribution on the Distribution Date by providing for the
delivery of Healthcare Trust Common Shares to the Distribution Agent for distribution to holders of
record of Equity Trust Common Stock as of the close of business on the Distribution Record Date.
The Distribution will be made on the basis of one (1) Healthcare Trust Common Share for every
twenty (20) shares of Equity Trust Common Stock outstanding on the Distribution Record Date. All
such Healthcare Trust Common Shares will be fully paid and nonassessable. The holders of Healthcare
Trust Common Shares will have no preemptive rights to subscribe for additional Healthcare Trust
Common Shares or other securities of the Healthcare Trust. See Description of Capital Stock of the
Equity Trust and the Healthcare Trust Healthcare Trust Common Shares. Commencing on or about
the Distribution Date, certificates representing Healthcare Trust Common Shares will be credited in
book-entry form to accounts registered directly with the transfer agent, with a confirmation
statement mailed to shareholders. Shareholders who have their Equity Trust shares registered with
the transfer agent in book-entry form in their names will receive shares of the Healthcare Trust in
book-entry form and will not receive share certificates unless they request them from the transfer
agent.
Fractional shares of Healthcare Trust Common Shares will only be issued as part of the
Distribution to holders of Equity Trust Common Stock who are participants in the Equity Trust Plan.
The Distribution Agent will aggregate the fractional shares to which holders who are not
participants in the Equity Trust Plan would otherwise be entitled and attempt to sell them in the
open market at then prevailing prices on behalf of such holders, and such holders will receive
instead a cash payment in the amount of their pro rata share of the total sales proceeds. Thus, a
person who holds a number of shares of Equity Trust Common Stock that is not an even multiple of
twenty and who is not a participant in the Equity Trust Plan will receive the appropriate number of
Healthcare Trust Common Shares of and a check for his or her pro rata share of the proceeds from
sales of fractional share interests. A holder of fewer than twenty shares of Equity Trust Common
Stock who is not a participant in the Equity Trust Plan will receive no Healthcare Trust Common
Shares in the Distribution but will be entitled only to his or her pro rata share of the proceeds
from sales of fractional share interests. Sales of fractional Healthcare Trust Common Shares are
expected to be made as soon as practicable after the Distribution Date and checks representing
proceeds of fractional share sales of Healthcare Trust Common Shares will be mailed shortly
thereafter. The Equity Trust will bear the cost of commissions incurred in connection with such
sales.
No holder of Equity Trust Common Stock will be required to pay to the Equity Trust any cash or
other consideration for the Healthcare Trust Common Shares received in the Distribution or to
surrender or exchange shares of Equity Trust Common Stock in order to receive Healthcare Trust
Common Shares. The Distribution will not affect the number of, nor the rights attaching to,
outstanding shares of Equity Trust Common Stock.
18
Healthcare Trust Common Shares distributed in connection with the Distribution will be freely
transferable, except for shares received by persons who may be deemed to be affiliates of the
Healthcare Trust under the 1933 Act. Persons who may be deemed to be affiliates of the
Healthcare Trust after the Distribution generally include individuals or entities that control, are
controlled by or are under common control with the Healthcare Trust, and may include certain
officers and trustees of the Healthcare Trust as well as principal shareholders of the Healthcare
Trust. Persons who are affiliates of the Healthcare Trust will be permitted to sell their
Healthcare Trust Common Shares only pursuant to an effective registration statement under the 1933
Act or an exemption from the registration requirements of the 1933 Act, such as the exemptions
afforded by Section 4(2) of the 1933 Act and Rule 144 thereunder.
Costs Associated With Sales of Healthcare Trust Common Shares
If an Equity Trust common shareholder sells Healthcare Trust Common Shares that he or she
receives in the Distribution, the shareholder may incur brokerage commissions and the sale may
constitute a taxable event for the shareholder.
Allocation of Investment Opportunities
After the Distribution, the Equity Trust and the Healthcare Trust and other clients of the
Investment Adviser or its affiliates may purchase or sell the same securities. The Investment
Adviser follows a policy of allocating purchases and sales of the same security among the Equity
Trust and other managed accounts in a manner deemed fair and equitable to all accounts. See
Portfolio Transactions in the section entitled Additional Information.
INVESTMENT OBJECTIVES AND POLICIES OF
THE EQUITY TRUST AND THE HEALTHCARE TRUST
The primary investment objective of the Equity Trust is long-term growth of capital, with
income as a secondary objective. The investment objective of the Healthcare Trust is long-term
growth of capital. Unlike the Equity Trust, which attempts to achieve its objective by investing
primarily in a portfolio of equity securities of companies in a wide variety of industries, the
Healthcare Trust will invest primarily in common stock and other securities of domestic and foreign
companies involved in the healthcare and wellness industries.
The
Healthcare Trusts policy of concentrating in the healthcare and
wellness industries is fundamental and therefore may not be changed
without the approval of the holders of the majority of the Healthcare Trusts outstanding voting
securities, as defined in the 1940 Act. Except as expressly stated herein, none of the Healthcare
Trusts policies are fundamental and may be modified by the Healthcare Trusts Board of Trustees
(the Healthcare Trust Board).
The Equity Trust
The Equity Trust attempts to achieve its objectives by investing primarily in a portfolio of
equity securities consisting of common stock, preferred stock, convertible or exchangeable
securities and warrants and rights to purchase such securities, selected by the Investment Adviser.
Under normal market conditions, the Equity Trust will invest at least 80% of the value of its
total assets in equity securities.
The Healthcare Trust
Under normal market conditions, the Healthcare Trust will invest at least 80% of its assets
(plus borrowings made for investment purposes) in equity securities (such as common stock and
preferred stock) and income producing securities (such as fixed income debt securities and
securities convertible
19
into common stock) of foreign and domestic companies involved to a substantial extent in
providing products, services or equipment for the healthcare and wellness industries.
It is anticipated that the Healthcare Trust will invest primarily in equity securities of
companies in the healthcare and wellness industries. However, the Healthcare Trust may also invest
in preferred stocks and debt securities of any quality and any maturity of such companies when it
appears that the Healthcare Trust will be better able to achieve its investment objective through
investments in such securities or when the Healthcare Trust is temporarily in a defensive position.
The remaining 20% of its assets may be invested in other securities, including stocks, debt
obligations and money market instruments, as well as certain derivative instruments in the
healthcare and wellness industries or other industries. Moreover, should extraordinary conditions
affecting such sectors or securities markets as a whole warrant, the Healthcare Trust may
temporarily be primarily invested in money market instruments. These factors may change rapidly.
The Healthcare Trust emphasizes quality in selecting healthcare and wellness investments, and looks
for companies that have sound financial structures and identifiable growth prospects. Believing
that demographic trends will affect global market opportunities, the Healthcare Trust intends to
position itself to take advantage of demographic trends.
The Healthcare Trust may invest without limitation in securities of foreign issuers, although
the portion invested in foreign securities will vary over time based on market conditions. Foreign
investments may involve certain risk and opportunity considerations not typically associated with
investing in domestic issuers and could cause the Healthcare Trust to be affected favorably or
unfavorably by changes in currency exchange rates and revaluations of currencies. For a further
discussion of the risks associated with investing in foreign securities and a description of other
risks inherent in the Healthcare Trusts investment objectives and policies, see Investment
Objectives and Policies of the Equity Trust and the Healthcare Trust and Risk Factors.
INVESTMENT METHODOLOGY OF THE EQUITY TRUST AND THE HEALTHCARE TRUST
In selecting securities for the Equity Trust and the Healthcare Trust, the Investment Adviser
normally will consider the following factors, among others:
|
|
|
the Investment Advisers own evaluations of the private market value (as defined below),
cash flow, earnings per share and other fundamental aspects of the underlying assets and
business of the company;
|
|
|
|
|
the potential for capital appreciation of the securities;
|
|
|
|
|
the interest or dividend income generated by the securities;
|
|
|
|
|
the prices of the securities relative to other comparable securities;
|
|
|
|
|
whether the securities are entitled to the benefits of call protection or other
protective covenants;
|
|
|
|
|
the existence of any anti-dilution protections or guarantees of the security; and
|
|
|
|
|
|
the diversification of the portfolio of the funds as to issuers.
|
|
The Investment Advisers investment philosophy with respect to equity securities is to
identify assets that are selling in the public market at a discount to their private market value.
The Investment Adviser defines private market value as the value informed purchasers are willing to
pay to acquire assets
20
with similar characteristics. The Investment Adviser also normally evaluates an issuers free cash
flow and long-term earnings trends. Finally, the Investment Adviser looks for a catalyst, something
indigenous to the company, its industry or country, that will surface additional value.
The investment objectives of long-term growth of capital with income as a secondary objective
for the Equity Trust and long-term growth of capital for the Healthcare Trust are fundamental
policies. The Healthcare Trusts policy of concentration in companies in the healthcare and
wellness industries is also a fundamental policy of the Healthcare Trust. Under the 1940 Act, a
fundamental policy may not be changed without the vote of a majority, as defined in the 1940 Act,
of the outstanding voting securities of the applicable fund (voting together as a single class). In
addition, pursuant to the Articles Supplementary of each of the series of Equity Trust Preferred
Stock, a majority, as defined in the 1940 Act, of the outstanding shares of Equity Trust Preferred
Stock (voting separately as a single class) is also required to change a fundamental policy.
Risk Factors
Except for industry concentration risk, market discount risk, foreign securities risk, and
risks to holders of common shares of issuance of senior securities, the Equity Trust and the
Healthcare Trust are generally subject to the same risk factors, as discussed below.
Industry Concentration Risks.
As a result of investing a significant portion of its assets in
companies in the healthcare and wellness industries, the Healthcare Trust will generally have more
industry concentration risk than the Equity Trust, which has historically been broadly diversified
across industry groups.
As a result of investing a significant portion of its assets in companies in the healthcare
and wellness industries, the value of the Healthcare Trusts shares will be more susceptible to
factors affecting those particular types of companies, which may include, among others,
governmental regulation, changes in government subsidy and reimbursement levels, the governmental
approval process, rapid obsolescence of products and services and patent expirations. In addition,
global demographic changes could have a positive or negative impact on the Healthcare Trusts
shares. The Investment Adviser believes that certain healthcare and wellness related companies
could experience growth as a result of demographic changes and the Healthcare Trust intends to
focus on companies that will benefit from these demographic trends. However, certain of these
companies may be less able to anticipate demographic trends and investments in these companies
would not be likely to perform as well as investments in those that do.
The Equity Trust has historically been broadly diversified across industry groups. The Equity
Trust, however, may invest up to 25% of its total assets in securities of a single industry. The
net assets of the Equity Trust would be more susceptible to factors affecting those particular
types of companies that, depending on the particular industry, may include, among others:
governmental regulation; inflation; cost increases in raw materials, fuel and other operating
expenses; technological innovations that may render existing products and equipment obsolete; and
increasing interest rates resulting in high interest costs on borrowings needed for capital
investment, including costs associated with compliance with environmental and other regulations. In
such circumstances the Equity Trusts investments may be subject to greater risk and market
fluctuation than a fund that had securities representing a broader range of industries.
Long-Term Objective.
Each of the Equity Trust and the Healthcare Trust seek long-term growth
of capital, but the Equity Trust also seeks income as a secondary objective. Neither the Equity
Trust nor the Healthcare Trust is meant to provide a vehicle for those who wish to exploit
short-term swings in the stock market. An investment in shares of the Equity Trust and/or shares of
the Healthcare Trust should not be considered a complete investment program. Each shareholder
should take into account the
21
shareholders investment objectives as well as the shareholders other investments when
considering the Transaction.
Non-Diversified Status.
Both the Equity Trust and the Healthcare Trust are classified as
non-diversified investment companies under the 1940 Act, which means neither the Equity Trust nor
the Healthcare Trust is limited by the 1940 Act in the proportion of its assets that may be
invested in the securities of a single issuer. As non-diversified investment companies, the Equity
Trust and the Healthcare Trust may invest in the securities of individual issuers to a greater
degree than a diversified investment company. As a result, the Equity Trust and the Healthcare
Trust may be more vulnerable to events affecting a single issuer and therefore subject to greater
volatility than a fund that is more broadly diversified. Accordingly, an investment in the Equity
Trust and the Healthcare Trust may present greater risk to an investor than an investment in a
diversified company.
To qualify as a regulated investment company, or RIC for purposes of the Code, the Equity
Trust has in the past conducted and the Equity Trust and the Healthcare Trust each intends to
conduct its operations in a manner that will relieve it of any liability for federal income tax to
the extent its earnings are distributed to shareholders. See Taxation. To so qualify as a
regulated investment company, among other requirements, the Equity Trust and the Healthcare Trust
each will limit its investments so that, at the close of each quarter of the taxable year:
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not more than 25% of the market value of its total assets will be invested in
the securities (other than United States government securities or the securities of
other RICs) of a single issuer, any two or more issuers in which the fund owns 20%
or more of the voting securities and which are determined to be engaged in the
same, similar or related trades or businesses or in the securities of one or more
qualified publicly traded partnerships (as defined in the Code); and
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at least 50% of the market value of the funds assets will be represented by
cash, securities of other regulated investment companies, United States government
securities and other securities, with such other securities limited in respect of
any one issuer to an amount not greater than 5% of the value of its assets and not
more than 10% of the outstanding voting securities of such issuer.
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Market Discount Risk.
As a newly organized, non-diversified, closed-end management investment
company with no operating history and since, unlike the Equity Trust,
it has not adopted a 10% distribution policy, the Healthcare Trust is generally more susceptible to market
discount risk than the Equity Trust. Shares of closed-end investment companies often trade at a
discount from net asset value. The characteristic of shares of a closed-end fund is a risk separate
and distinct from the risk that the Healthcare Trusts net asset value may decrease. Neither the
Equity Trust nor the Investment Adviser can predict whether the Healthcare Trusts shares will
trade at, below or above net asset value. The risk of holding shares of a closed-end fund that
might trade at a discount is more pronounced for shareholders who wish to sell their shares in a
relatively short period of time after the Distribution because, for those investors, realization of
a gain or loss on their investments is likely to be more dependent upon the existence of a premium
or discount than upon portfolio performance. The Healthcare Trusts shares are not subject to
redemption. Shareholders desiring liquidity may, subject to applicable securities laws, trade their
shares in the Healthcare Trust on the NYSE or other markets on which such shares may trade at the
then current market value, which may differ from the then current net
asset value. In addition, neither the Equity Trust nor the Investment
Adviser can predict whether the Distribution will adversely affect
the premium or discount at which the Equity Trust shares were
trading prior to the Distribution. For information
concerning the trading history of the Equity Trusts shares, see Description of Capital Stock of
the Equity Trust and the Healthcare Trust Equity Trust Common Stock and Preferred Stock.
22
Lower Grade Securities.
The Equity Trust and the Healthcare Trust each have the same risk with
respect to lower-grade securities. The Equity Trust and the Healthcare Trust each may invest up to
10% of its total assets in fixed-income securities rated below investment grade by recognized
statistical rating agencies or unrated securities of comparable quality These securities, which
may be preferred stock or debt, are predominantly speculative and involve major risk exposure to
adverse conditions. Debt securities that are not rated or that are rated lower than BBB by S&P or
lower than Baa by Moodys are referred to in the financial press as junk bonds.
Generally, such lower grade securities and unrated securities of comparable quality offer a
higher current yield than is offered by higher rated securities, but also (i) will likely have some
quality and protective characteristics that, in the judgment of the rating organizations, are
outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuers capacity to pay interest and repay principal
in accordance with the terms of the obligation. The market values of certain of these securities
also tend to be more sensitive to individual corporate developments and changes in economic
conditions than higher quality securities. In addition, such securities generally present a higher
degree of credit risk. The risk of loss due to default by these issuers is significantly greater
because such lower grade securities and unrated securities of comparable quality generally are
unsecured and frequently are subordinated to the prior payment of senior indebtedness. In light of
these risks, the Investment Adviser, in evaluating the creditworthiness of an issue, whether rated
or unrated, will take various factors into consideration, which may include, as applicable, the
issuers operating history, financial resources and its sensitivity to economic conditions and
trends, the market support for the facility financed by the issue, the perceived ability and
integrity of the issuers management, and regulatory matters.
In addition, the market value of securities in lower rated categories is more volatile than
that of higher quality securities, and the markets in which such lower rated or unrated securities
are traded are more limited than those in which higher rated securities are traded. The existence
of limited markets may make it more difficult for each of the Equity Trust and the Healthcare Trust
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 Equity Trust and the Healthcare Trust to purchase and may also have the effect
of limiting the ability of the Equity Trust and the Healthcare Trust to sell securities at their
fair value in response to changes in the economy or the financial markets.
Lower grade securities also present risks based on payment expectations. If an issuer calls
the obligation for redemption (often a feature of fixed income securities), the Equity Trust and
the Healthcare Trust may have to replace the security with a lower yielding security, resulting in
a decreased return for investors. Also, as the principal value of nonconvertible bonds and
preferred stocks moves inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by the Equity Trust and the Healthcare Trust may decline
proportionately more than a portfolio consisting of higher rated securities. Investments in zero
coupon bonds may be more speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay regular income streams.
As part of its investment in lower grade securities, the Equity Trust and the Healthcare Trust
may invest in securities of issuers in default. The Equity Trust and the Healthcare Trust will make
an investment in securities of issuers in default only when the Investment Adviser believes that
such issuers will honor their obligations or emerge from bankruptcy protection under a plan
pursuant to which the securities received by the Equity Trust and the Healthcare Trust in exchange
for its defaulted securities will have a value in excess of the Equity Trust and the Healthcare
Trusts investment. By investing in securities of issuers in default, each of the Equity Trust and
the Healthcare Trust bears the risk that these
23
issuers will not continue to honor their obligations or emerge from bankruptcy protection or that
the value of the securities will not otherwise appreciate.
In addition to using recognized rating agencies and other sources, the Investment Adviser also
performs its own analysis of issues in seeking investments that it believes to be underrated (and
thus higher yielding) in light of the financial condition of the issuer. Its analysis of issuers
may include, among other things, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical cost, strength of management, responsiveness to business
conditions, credit standing, and current anticipated results of operations. In selecting
investments for the Equity Trust and the Healthcare Trust, the Investment Adviser may also consider
general business conditions, anticipated changes in interest rates, and the outlook for specific
industries.
Subsequent to its purchase by the Equity Trust or the Healthcare Trust, an issue of securities
may cease to be rated or its rating may be reduced. In addition, it is possible that statistical
rating agencies may change their ratings of a particular issue to reflect subsequent events.
Moreover, such ratings do not assess the risk of a decline in market value. None of these events
will require the sale of the securities by the Equity Trust or the Healthcare Trust, although the
Investment Adviser will consider these events in determining whether the Equity Trust and the
Healthcare Trust should continue to hold the securities.
The market for lower grade and comparable unrated securities has experienced several periods
of significantly adverse price and liquidity, particularly at or around times of economic
recessions. Past market recessions have adversely affected the value of such securities as well as
the ability of certain issuers of such securities to repay principal and pay interest thereon or to
refinance such securities. The market for those securities may react in a similar fashion in the
future.
For a further description of lower rated securities and the risks associated therewith, see
Appendix A. For a description of the ratings categories of certain recognized statistical ratings
agencies, see Appendix D.
Foreign Securities
. The Healthcare Trust may invest a higher portion of its assets outside
the United States than the Equity Trust and may, therefore, have higher foreign securities risk.
The Equity Trust may invest up to 35% of its total assets in foreign securities determined at the
time of purchase. There is no limitation on the amount of foreign securities in which the
Healthcare Trust may invest. Investments in the securities of foreign issuers involve certain
considerations and risks not ordinarily associated with investments in securities of domestic
issuers. Foreign companies are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to United States companies. Foreign
securities exchanges, brokers and listed companies may be subject to less government supervision
and regulation than exists in the United States. Dividend and interest income may be subject to
withholding and other foreign taxes, which may adversely affect the net return on such investments.
There may be difficulty in obtaining or enforcing a court judgment abroad. In addition, it may be
difficult to effect repatriation of capital invested in certain countries. In addition, with
respect to certain countries, there are risks of expropriation, confiscatory taxation, political or
social instability or diplomatic developments that could affect assets of each of the Equity Trust
and the Healthcare Trust held in foreign countries. Dividend income the Equity Trust and the
Healthcare Trust receive from foreign securities may not be eligible for the special tax treatment
applicable to qualified dividend income.
There may be less publicly available information about a foreign company than a United States
company. Foreign securities markets may have substantially less volume than United States
securities markets and some foreign company securities are less liquid than securities of otherwise
comparable United States companies. A portfolio of foreign securities may also be adversely
affected by fluctuations in the rates of exchange between the currencies of different nations and
by exchange control regulations. Foreign markets also have different clearance and settlement
procedures that could cause each of the
24
Equity Trust and the Healthcare Trust to encounter difficulties in purchasing and selling
securities on such markets and may result in each of the Equity Trust and the Healthcare Trust
missing attractive investment opportunities or experiencing loss. In addition, a portfolio that
includes foreign securities can expect to have a higher expense ratio because of the increased
transaction costs on non-United States securities markets and the increased costs of maintaining
the custody of foreign securities.
The Equity Trust and the Healthcare Trust also may purchase sponsored American Depositary
Receipts (ADRs) or United States dollar denominated securities of foreign issuers. ADRs are
receipts issued by United States banks or trust companies in respect of securities of foreign
issuers held on deposit for use in the United States securities markets. While ADRs may not
necessarily be denominated in the same currency as the securities into which they may be converted,
many of the risks associated with foreign securities may also apply to ADRs. In addition, the
underlying issuers of certain depositary receipts, particularly unsponsored or unregistered
depositary receipts, are under no obligation to distribute shareholder communications to the
holders of such receipts, or to pass through to them any voting rights with respect to the
deposited securities.
Value Investing Risk.
Both the Equity Trust and the Healthcare Trust are subject to value
investing risk. Each of the Equity Trust and the Healthcare Trust focuses its investments on the
securities of companies that the Investment Adviser believes to be undervalued or inexpensive
relative to other investments. These types of securities may present risks in addition to the
general risks associated with investing in common and preferred stocks. These securities generally
are selected on the basis of an issuers fundamentals relative to current market price. Such
securities are subject to the risk of mis-estimation of certain fundamental factors. In addition,
during certain time periods market dynamics may strongly favor growth stocks of issuers that do
not display strong fundamentals relative to market price based upon positive price momentum and
other factors. Disciplined adherence to a value investment mandate during such periods can result
in significant underperformance relative to overall market indices and other managed investment
vehicles that pursue growth style investments and/or flexible equity style mandates.
Smaller Companies.
Both the Equity Trust and the Healthcare Trust are subject to the risk of
investing in smaller companies. The Equity Trust and the Healthcare Trust may invest in smaller
companies that may benefit from the development of new products and services. These smaller
companies may present greater opportunities for capital appreciation, and may also involve greater
investment risk than larger, more established companies. For example, smaller companies may have
more limited product lines, market or financial resources and their securities may trade less
frequently and in lower volume than the securities of larger, more established companies. As a
result, the prices of the securities of such smaller companies may fluctuate to a greater degree
than the prices of securities of other issuers.
Special Risks of Derivative Transactions.
Both the Equity Trust and the Healthcare Trust are
subject to risks associated with derivative transactions. Participation in the options or futures
markets and in currency exchange transactions involves investment risks and transaction costs to
which the Equity Trust and the Healthcare Trust would not be subject absent the use of these
strategies. If the Investment Advisers prediction of movements in the direction of the securities,
foreign currency and interest rate markets are inaccurate, the consequences to each fund may leave
it in a worse position than if such strategies were not used. Risks inherent in the use of options,
foreign currency, futures contracts and options on futures contracts, securities indices and
foreign currencies include:
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dependence on the Investment Advisers ability to predict correctly movements in
the direction of interest rates, securities prices and currency markets;
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imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities or currencies being
hedged;
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the fact that skills needed to use these strategies are different from those
needed to select portfolio securities;
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the possible absence of a liquid secondary market for any particular instrument
at any time;
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the possible need to defer closing out certain hedged positions to avoid adverse
tax consequences; and
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the possible inability of each of the Equity Trust and the Healthcare Trust to
purchase or sell a security at a time that otherwise would be favorable for it to
do so, or the possible need for each fund to sell a security at a disadvantageous
time due to a need for each fund to maintain cover or to segregate securities in
connection with the hedging techniques.
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Futures Transactions
. Both the Equity Trust and the Healthcare Trust may be subject to risks
associated with futures transaction as each may make investments in futures and options on futures.
Risks, include, but are not limited, to the following:
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no assurance that futures contracts or options on futures can be offset at
favorable prices;
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possible reduction of the yield of the fund due to the use of hedging;
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possible reduction in value of both the securities hedged and the hedging instrument;
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possible lack of liquidity due to daily limits or price fluctuations;
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imperfect correlation between the contracts and the securities being hedged; and
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losses from investing in futures transactions that are potentially unlimited and
the segregation requirements for such transactions.
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For a further description of such investments, see Appendix A.
Forward Currency Exchange Contracts.
Both the Equity Trust and the Healthcare Trust may be
subject to risks associated with entering into forward currency exchange contracts. The use of
forward currency exchange contracts may involve certain risks, including the failure of the
counterparty to perform its obligations under the contract and that the use of forward contracts
may not serve as a complete hedge because of an imperfect correlation between movements in the
prices of the contracts and the prices of the currencies hedged or used for cover. For a further
description of such investments, see Appendix A.
Counterparty Risk.
Each of the Equity Trust and the Healthcare Trust will be subject to credit
risk with respect to the counterparties to the derivative contracts purchased by each fund. If a
counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative
contract due to financial difficulties, each fund may experience significant delays in obtaining
any recovery under the derivative contract in bankruptcy or other reorganization proceeding. Each
fund may obtain only a limited recovery or may obtain no recovery in such circumstances.
26
Dependence on Key Personnel.
The Investment Adviser is dependent upon the expertise of Mr.
Mario J. Gabelli in providing advisory services with respect to each funds investments. If the
Investment Adviser were to lose the services of Mr. Gabelli, its ability to service each 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.
Risks to Holders of Common Shares of Issuance of Senior Securities.
Only the Equity Trust
currently has issued preferred shares. The Healthcare Trust may issue preferred shares in the
future but does not contemplate doing so at this time. A leveraged capital structure creates
certain special risks and potential benefits not associated with unleveraged funds having similar
investment objectives and policies. Any investment income or gains from the capital represented by
preferred shares or debt which is in excess of the dividends payable thereon will cause the total
return of the common shares to be higher than would otherwise be the case. Conversely, if the
investment performance of the capital represented by preferred shares or debt fails to cover the
dividends payable thereon, the total return of the common shares would be less or, in the case of
negative returns, would result in higher negative returns to a greater extent than would otherwise
be the case. The requirement to pay dividends on preferred shares or debt in full before any
dividends may be paid on or distribution made to the common shares means that dividends on or
distributions to the common shares from earnings may be reduced or eliminated.
The mandatory requirements of the 1940 Act could also pose certain risks for the holders of
common shares in the same circumstances. If the asset coverage for any preferred shares or debt
securities falls below the requirements of the 1940 Act, a fund would be unable to pay dividends on
or make distributions to its common shares. Although an inability to pay dividends on or make
distributions to the common shares could conceivably cause a fund to lose its special federal
income tax status, which would be materially adverse to the holders of the common shares, such
inability can be avoided through the use of mandatory redemption requirements designed to ensure
that the fund maintains the necessary asset coverage.
The class voting rights of preferred shares could make it more difficult for a fund to take
certain actions that may, in the future, be proposed by the Board and/or the holders of common
shares, such as a merger, exchange of securities, liquidation or alteration of the rights of a
class of a funds securities if such actions would be adverse to the preferred shares, or such as
converting a fund to an open-end investment company or acting inconsistently with its fundamental
investment restrictions or other fundamental policies or seeking to operate other than as an
investment company.
The Equity Trust currently has preferred shares outstanding. Preferred shares (additional
preferred shares in the case of the Equity Trust) will be issued only if the Board of the
Healthcare Trust or the Equity Trust, as the case may be, determines in light of all relevant
circumstances known to the Board that to do so would be in the best interests of the fund and its
shareholders. The circumstances that the Board will consider before issuing preferred shares
include not only the dividend rate on the preferred shares in comparison to the historical
performance of the fund but also such matters as the terms on which the fund can call the preferred
shares, the circumstances in which the Investment Adviser will earn additional investment advisory
fees on the net assets attributable to the preferred shares and the ability of the fund to meet the
asset coverage tests and other requirements imposed by the rating agencies for such preferred
shares.
The issuance of preferred shares convertible into common shares might also reduce net income
per share of such shares and net asset value per share of such shares if these securities are
converted into common shares. Such income dilution would occur if the fund could, from the
investments made with the proceeds of the preferred shares, earn an amount per common share
issuable upon conversion greater than the dividend required to be paid on the amount of preferred
shares convertible into one common share.
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Such net asset value dilution would occur if preferred shares were converted at a time when
the net asset value per common share was greater than the conversion price.
Anti-Takeover Provisions.
The Governing Documents of both the Equity Trust and the Healthcare
Trust include anti-takeover provisions. The Articles of Incorporation, Articles Supplementary and
By-Laws of the Equity Trust and the Agreement and Declaration of Trust and By-Laws of the
Healthcare Trust include provisions that could limit the ability of other entities or persons to
acquire control of the applicable fund or convert the fund to an open-end fund. See Description of
Capital Stock of the Equity Trust and the Healthcare Trust Certain Provisions of the Governing
Documents of the Equity and Trust and the Healthcare Trust.
Status as a Regulated Investment Company.
The Equity Trust has elected and has qualified, and
intends to remain qualified, for federal income tax purposes as a regulated investment company
under Subchapter M of the Code. The Healthcare Trust intends to elect to qualify as a regulated
investment company under Subchapter M of the Code. Qualification requires, among other things,
compliance by each fund with certain distribution requirements. Statutory limitations on
distributions on the common shares if a fund fails to satisfy the 1940 Acts asset coverage
requirements could jeopardize each funds ability to meet such distribution requirements. The
Equity Trust presently intends, however, to purchase or redeem shares of Preferred Stock to the
extent necessary in order to maintain compliance with such asset coverage requirements. See
Taxation for a more complete discussion of these and other federal income tax considerations.
Temporary Investments.
During temporary defensive periods and during inopportune periods to
be fully invested the Equity Trust and the Healthcare Trust each 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 of the U.S. Government; others,
such as those of the Export-Import Bank of the U.S., are supported by the right of the issuer to
borrow from the U.S. Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase the agencys
obligations; and still others, such as those of the Student Loan Marketing Association, are
supported only by the credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored instrumentalities if it is
not obligated to do so by law.
INVESTMENT RESTRICTIONS
The Equity Trust and the Healthcare Trust operate, unless noted otherwise, under the same
investment restrictions described in Appendix B. The investment practices and restrictions of each
of the Healthcare Trust and the Equity Trust are similar except that,
generally, (i) the Healthcare Trust will concentrate in the
healthcare and wellness industries, whereas the Equity Trust will not
have an industry concentration, (ii) the Healthcare
Trust has no fundamental policy with respect to purchasing securities of other investment
companies, (iii) the Healthcare Trust may borrow money, including on margin, to the extent permitted
by applicable law whereas the Equity Trust is limited to borrowings not exceeding 10% of its total
assets to finance repurchases of its shares and 5% for extraordinary
or emergency purposes, (iv)
there is no limitation on the amount of foreign securities in which the Healthcare Trust may invest
whereas the Equity Trust is limited to investing up to 35% of its total assets, determined at the
time of purchase, in foreign securities, (v) the Healthcare Trust may invest without limit in
illiquid securities whereas the Equity Trust may not invest more than 10% of its total assets in
illiquid securities and (vi) the Healthcare Trust may, whereas the Equity Trust may not, make short
sales of securities. For a more detailed description of the differences between the investment
practices and restrictions of the Healthcare Trust and the Equity Trust, see Appendix A
Investment Practices and Appendix B Investment Restrictions.
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MANAGEMENT OF THE EQUITY TRUST AND THE HEALTHCARE TRUST
Information About Directors/Trustees and Officers
The business and affairs of the Equity Trust and the Healthcare Trust are managed under the
direction of the Board of each fund, and the day-to-day operations of each fund are conducted
through or under the direction of its officers.
The persons who currently serve as Directors of the Equity Trust, with the exception of Frank
J. Fahrenkopf, Jr., Arthur V. Ferrara and Anthony R. Pustorino, are also Trustees of the Healthcare
Trust. Vincent D. Enright, Robert C. Kolodny and Anthonie C. van Ekris, who do not currently serve
as Directors of the Equity Trust, will serve as Trustees of the Healthcare Trust. The names and
business address of the Directors/Trustees and principal officers of each 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 Directors/Trustees, their positions with certain other organizations and
companies. The officers set forth below serve both funds unless otherwise indicated.
Directors/Trustees who are interested persons of each fund, as defined by the 1940 Act, are
listed under the caption Interested Directors/Trustees.
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Number of
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Portfolios in
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Complex
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Name, Position(s),
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Term of Office
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Principal Occupation(s)
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Other Directorships
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Overseen by
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Business Address
(1)
and
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and Length of
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During the Past Five
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Held by
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Director/
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Age
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Time Served
(2)
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Years
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Director/Trustee
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Trustee
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Interested
Director/Trustee:
(3)
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Mario J. Gabelli
Director/Trustee and
Chief
Investment Officer
Age: 64
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Since 1986 for Equity
Trust; since 2007 for
Healthcare Trust
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Chairman and Chief
Executive Officer
of GAMCO Investors,
Inc.; Chief
Investment Officer
Value Portfolios
of Gabelli Funds,
LLC and GAMCO Asset
Management Inc.;
Chief Executive
Officer of GGCP,
Inc.
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Director of Morgan
Group Holdings,
Inc. (holding
company); Chairman
of the Board of
Lynch Interactive
Corporation
(multimedia and
communication
services)
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Independent
Directors/Trustees:
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Thomas E. Bratter
Director/Trustee
Age: 67
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Since 1986 for Equity
Trust; since 2007 for
Healthcare Trust
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Director, President
and Founder of The
John Dewey Academy
(residential
college preparatory
therapeutic high
school).
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None
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Anthony J. Colavita
(4)
Director/Trustee
Age: 71
|
|
Since 1999 for Equity
Trust; since 2007 for
Healthcare Trust
|
|
Partner in the law
firm of Anthony J.
Colavita, P.C.
|
|
None
|
|
|
35
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Portfolios in
|
|
|
|
|
|
|
|
|
Complex
|
Name, Position(s),
|
|
Term of Office
|
|
Principal Occupation(s)
|
|
Other Directorships
|
|
Overseen by
|
Business Address
(1)
and
|
|
and Length of
|
|
During the Past Five
|
|
Held by
|
|
Director/
|
Age
|
|
Time Served
(2)
|
|
Years
|
|
Director/Trustee
|
|
Trustee
|
James P. Conn
(4)
Director/Trustee
Age: 69
|
|
Since 1989 for Equity
Trust; since 2007 for
Healthcare Trust
|
|
Former Managing
Director and Chief
Investment Officer
of Financial
Security Assurance
Holdings Ltd.
(insurance holding
company)
(1992-1998).
|
|
Director of First
Republic Bank
(banking)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
Vincent D. Enright
Trustee
Age: 63
|
|
Since 2007 for
Healthcare Trust only
|
|
Former Senior Vice
President and Chief
Financial Officer
of KeySpan Energy
Corp. (utility
holding company)
(1994-1998).
|
|
None
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank J. Fahrenkopf, Jr.
Director
Age: 67
|
|
Since 1998 for Equity
Trust only
|
|
President and Chief
Executive Officer
of the American
Gaming Association;
Co-Chairman of the
Commission on
Presidential
Debates; Chairman
of the Republican
National Committee
(1983-1989).
|
|
Director of First
Republic Bank
(banking)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthur V. Ferrara
Director
Age: 76
|
|
Since 2001 for Equity
Trust only
|
|
Former Chairman of
the Board and Chief
Executive Officer
of The Guardian
Life Insurance
Company of America
(1993-1995).
|
|
Director of The
Guardian Sponsored
Mutual Funds
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert C. Kolodny
Trustee
Age: 62
|
|
Since 2007 for
Healthcare Trust only
|
|
Physician, author
and lecturer
(self-employed);
General Partner of
KBS Partnership,
KBS II Investment
Partnership, KBS
III Investment
Partnership, KBS IV
Limited
Partnership, KBS
New Dimensions,
L.P., KBS Global
Opportunities, L.P.
and KBS VII Limited
Partnership
(private investment
partnerships);
Medical Director
and Chairman of the
Board of the
Behavioral Medicine
Institute.
|
|
None
|
|
|
2
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Portfolios in
|
|
|
|
|
|
|
|
|
Complex
|
Name, Position(s),
|
|
Term of Office
|
|
Principal Occupation(s)
|
|
Other Directorships
|
|
Overseen by
|
Business Address
(1)
and
|
|
and Length of
|
|
During the Past Five
|
|
Held by
|
|
Director/
|
Age
|
|
Time Served
(2)
|
|
Years
|
|
Director/Trustee
|
|
Trustee
|
Anthony R. Pustorino
Director
Age: 81
|
|
Since 1986 for Equity
Trust only
|
|
Certified Public
Accountant;
Professor Emeritus,
Pace University.
|
|
Director of The LGL
Group, Inc.
(diversified
manufacturing)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthonie C. van Ekris
Trustee
Age: 72
|
|
Since 2007 for
Healthcare Trust only
|
|
Chairman of BALMAC
International, Inc.
(commodities and
futures trading).
|
|
None
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
Salvatore J. Zizza
Director/Trustee
Age: 61
|
|
Since 1986 for Equity
Trust;
since 2007 for
Healthcare Trust
|
|
Chairman of Zizza &
Co., Ltd.
|
|
Director of
Hollis-Eden
Pharmaceuticals
(biotechnology) and
Earl Scheib, Inc.
(automotive
services)
|
|
|
26
|
|
|
Officers:
|
|
|
|
|
|
Name, Position(s), Address and
|
|
Term of Office and Length of
|
|
Principal Occupation(s) During Past Five
|
Age
(1)
|
|
Time Served
|
|
Years
|
Bruce N. Alpert
President
Age: 55
|
|
Since 1988 for
Equity Trust only
|
|
Executive Vice President (since
1988) and Chief
Operating Officer (from 1988 to March 2007) of Gabelli Funds, LLC
since 1988; Director and President of
Gabelli Advisers, Inc. since 1998;
Officer of all registered investment
companies in the Gabelli Funds complex except the Healthcare Trust.
|
|
|
|
|
|
Carter W. Austin
Vice President
Age: 40
|
|
Since 2000 for
Equity Trust;
since
2007 for Healthcare
Trust
|
|
Vice President of the Equity Trust
since 2000, The Gabelli Dividend &
Income Trust since 2003, The Gabelli
Global Gold, Natural Resources & Income
Trust since 2005, The Gabelli Global
Deal Fund since 2006, and the
Healthcare Trust since 2007; Vice
President of Gabelli Funds, LLC since
1996.
|
|
|
|
|
|
Peter D. Goldstein
Chief Compliance Officer
Age: 53
|
|
Since 2004 for
Equity Trust;
since
2007 for Healthcare
Trust
|
|
Director of Regulatory Affairs for
GAMCO Investors, Inc. since 2004; Chief
Compliance Officer of all registered
investment companies in the Gabelli
Funds complex; Vice President of
Goldman Sachs Asset Management from
2000-2004.
|
|
|
|
|
|
James E. McKee
Secretary
Age: 43
|
|
Since 1995 for
Equity Trust; since
2007 for Healthcare
Trust
|
|
Vice President, General Counsel and
Secretary of GAMCO Investors, Inc.
since 1999 and GAMCO Asset Management
Inc. since 1993; Secretary of all
registered investment companies advised
by Gabelli Advisers, Inc. and Gabelli
Funds, LLC.
|
|
31
|
|
|
|
|
|
Name, Position(s), Address and
|
|
Term of Office and Length of
|
|
Principal Occupation(s) During Past Five
|
Age
(1)
|
|
Time Served
|
|
Years
|
Agnes Mullady
President and Treasurer
Age: 48
|
|
Treasurer since
2006 for Equity
Trust; President
and Treasurer since
2007 for Healthcare
Trust
|
|
President and Chief Operating Officer
of Closed-End Funds for Gabelli Funds,
LLC since March 2007; Officer of all
registered investment companies in the
Gabelli Funds complex; Senior Vice
President of U.S. Trust Company, N.A.
and Treasurer and Chief Financial
Officer of Excelsior Funds from
2004-2005; Chief Financial Officer of
AMIC Distribution Partners from
2002-2004; Controller of Reserve
Management, Inc. and Reserve Partners,
Inc. and Treasurer of Reserve Funds
from 2000-2002.
|
|
|
|
|
|
LoAn P. Nguyen
Vice President & Ombudsman
Age: 24
|
|
Since 2006 for
Equity Trust only
|
|
Vice President of the Equity Trust
since 2006 and The Gabelli Global
Multimedia Trust Inc. since 2004;
Portfolio Administrator for Gabelli
Funds, LLC during 2004; Student at
Boston College prior to 2004.
|
|
|
|
|
|
David I. Schachter
Vice President
Age: 53
|
|
Since 2007 for
Healthcare Trust
only
|
|
Vice President of The Gabelli Utility
Trust since 1999, The Gabelli Global
Utility & Income Trust since 2004, The
Gabelli Global Deal Fund since 2006,
and the Healthcare Trust since 2007;
Vice President of Gabelli & Company,
Inc. since 1999.
|
|
|
|
|
|
Adam E. Tokar
Assistant Vice President &
Ombudsman
Age: 27
|
|
Since 2007 for
Healthcare Trust
only
|
|
Assistant Vice President of the
Healthcare Trust since 2007; Portfolio
Administrator for GAMCO Asset
Management Inc. since 2003; Student at
Gettysburg College prior to 2003.
|
|
|
|
|
|
(1)
|
|
Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted.
|
|
|
|
(2)
|
|
The Board of Directors/Trustees of the Equity Trust and the Healthcare Trust are divided
into three classes, each class having a term of three years. Each year the term of office of
one class expires and the successor or successors elected to such class serve for a three-year
term. However, to ensure that the term of a class of the Healthcare Trusts Trustees expires
each year, one class of the Healthcare Trusts Trustees will serve an initial one-year term
and three-year terms thereafter and another class of its Trustees will serve an initial
two-year term and three-year terms thereafter.
|
|
|
|
|
|
Messrs. Gabelli, Bratter and Ferrara are nominees to serve, if elected, as Directors of the
Equity Trust until the Equity Trusts 2010 Annual Meeting of Shareholders (See Proposal 2) or
until their successors are duly elected and qualified. The terms of Messrs. Colavita,
Fahrenkopf and Zizza as Directors of the Equity Trust continue until the Equity Trusts 2008
Annual Meeting of Shareholders or until their successors are duly elected and qualified. The
terms of Messrs. Conn and Pustorino as Directors of the Equity Trust continue until the Equity
Trusts 2009 Annual Meeting of Shareholders or until their successors are duly elected and
qualified.
|
|
|
|
|
|
The terms of Messrs. Gabelli, Enright and van Ekris as Trustees of the Healthcare Trust continue
until 2008 or until their successors are duly elected and qualified. The terms of Messrs.
Colavita, Kolodny and Zizza as Trustees of the Healthcare Trust continue until 2009 or until
their successors are duly elected and qualified. The terms of Messrs. Bratter and Conn as
Trustees of the Healthcare Trust continue until 2010 or until their successors are duly elected
and qualified. See Description of Capital Stock of the Equity Trust and the Healthcare Trust
Certain Provisions of the Governing Documents of the Equity Trust and the Healthcare Trust.
|
|
|
|
(3)
|
|
Interested person of the Equity Trust and the Healthcare Trust as defined in the 1940 Act.
Mr. Gabelli is considered an interested person of the Equity Trust and the Healthcare Trust
because of his affiliation with the Investment Adviser and Gabelli & Company, which executes
portfolio transactions for the Equity Trust and may execute portfolio transactions for the
Healthcare Trust, and as a controlling shareholder because of the level of his ownership of
common shares of the Equity Trust.
|
|
|
|
(4)
|
|
As a Director, elected solely by holders of the Equity Trusts Preferred Stock.
|
|
32
Beneficial Ownership of Shares Held in the Equity Trust and the Fund Complex for each Director
and Nominee for Election as Director
Set forth in the table below is the dollar range of equity securities in the Equity Trust
beneficially owned by each Director and Nominee for election as Director and the aggregate dollar
range of equity securities in the Fund complex beneficially owned by each Director and Nominee for
election as Director.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Dollar Range of Securities Held
|
|
|
Dollar Range of Equity
|
|
in all Registered Investment Companies
|
|
|
Securities Held in the Equity
|
|
Overseen by Directors in the Fund
|
Name of Director/Nominee
|
|
Trust*
(1)
|
|
Complex*
(1)(2)
|
Interested Director/Nominee:
|
|
|
|
|
|
|
|
|
Mario J. Gabelli
|
|
|
E
|
|
|
|
E
|
|
|
|
|
|
|
|
|
|
|
Independent Directors/Nominees:
|
|
|
|
|
|
|
|
|
Thomas E. Bratter
|
|
|
E
|
|
|
|
E
|
|
|
|
|
|
|
|
|
|
|
Anthony J. Colavita
**
|
|
|
C
|
|
|
|
E
|
|
|
|
|
|
|
|
|
|
|
James P. Conn
|
|
|
E
|
|
|
|
E
|
|
|
|
|
|
|
|
|
|
|
Frank J. Fahrenkopf, Jr.
|
|
|
A
|
|
|
|
B
|
|
|
|
|
|
|
|
|
|
|
Arthur V. Ferrara
|
|
|
A
|
|
|
|
E
|
|
|
|
|
|
|
|
|
|
|
Anthony R. Pustorino
**
|
|
|
E
|
|
|
|
E
|
|
|
|
|
|
|
|
|
|
|
Salvatore J. Zizza
|
|
|
E
|
|
|
|
E
|
|
|
A. None
B. $1 $10,000
C. $10,001 $50,000
D. $50,001 $100,000
E. Over $100,000
All shares were valued as of December 31, 2006.
|
|
|
|
**
|
|
Messrs. Colavita and Pustorino each beneficially own less than 1% of the common stock of
The LGL Group, Inc., having a value of $9,338 and $14,028, respectively, as of December 31,
2006. The LGL Group, Inc. may be deemed to be controlled by Mario J. Gabelli and in that event
would be deemed to be under common control with the Investment Adviser to the Equity Trust and
the Healthcare Trust.
|
|
|
|
(1)
|
|
This information has been furnished for each Director and Nominee for election as Director
as of December 31, 2006. Beneficial Ownership is determined in accordance with Section
16a-1(a)(2) of the Securities Exchange Act of 1934, as amended.
|
|
|
(2)
|
|
The Fund Complex includes all the funds that are considered part of the same fund complex
as the Equity Trust because they have common or affiliated investment advisers.
|
Audit Committee
The Audit Committee is composed of three of the independent (as such term is defined by the
NYSEs listing standards (the NYSE Listing Standards)) Directors/Trustees of the Equity Trust and
the Healthcare Trust, namely, Messrs. Colavita, Pustorino and Zizza for the Equity Trust and
Messrs. Colavita, Enright and Zizza for the Healthcare Trust. Each Audit Committee member has been
determined by the Board to be financially literate. The role of each funds Audit Committee is to
assist the Board in its oversight of (i) the quality and integrity of the funds financial
statement reporting process and the independent audit and reviews thereof; (ii) the funds
accounting and financial reporting
33
policies and practices, its internal controls and, as appropriate, the internal controls of certain
of its service providers; (iii) the funds compliance with legal and regulatory requirements; and
(iv) the independent registered public accounting firms qualifications, independence and
performance. The Audit Committee also is required to prepare an audit committee report pursuant to
the rules of the Commission for inclusion in each funds annual proxy statement. The Audit
Committee of each fund operates pursuant to the Audit Committee Charter (the Audit Charter) that
was most recently reviewed and approved by each funds Board on February 22, 2007.
Pursuant to the Audit Charter, the Audit Committee is responsible for conferring with the
independent registered public accounting firm for each of the Equity Trust and the Healthcare
Trust, reviewing annual financial statements, approving the selection of each funds independent
registered public accounting firm and overseeing each funds internal controls. The Audit Charter
also contains provisions relating to the pre-approval by the Audit Committee of certain non-audit
services to be provided by
(
) to each fund and to the Investment Adviser and certain
of its affiliates. The Audit Committee advises the full Board with respect to accounting, auditing
and financial matters affecting each fund. As set forth in the Audit Charter, management is
responsible for maintaining appropriate systems for accounting and internal control, and each
funds independent registered public accounting firm is responsible for planning and carrying out
proper audits and reviews. The independent registered public accounting firm is ultimately
accountable to the Board and to the Audit Committee, as representatives of shareholders. The
independent registered public accounting firm for each fund reports directly to the Audit
Committee.
Audit Committee Report
In performing its oversight function, at a meeting held on February 20, 2007, the Audit
Committee reviewed and discussed with management of the Equity Trust
and ___ the audited financial
statements of the Equity Trust as of and for the year ended December 31, 2006, and discussed the
audit of such financial statements with the independent registered public accounting firm.
In addition, the Audit Committee discussed with the independent registered public accounting
firm the accounting principles applied by the Equity Trust and such other matters brought to the
attention of the Audit Committee by the independent registered public accounting firm as required
by Statement of Auditing Standards No. 61,
Communications with Audit Committees
, as currently
modified or supplemented. The Audit Committee also received from the independent registered public
accounting firm the written disclosures and statements required by the Commissions independence
rules, delineating relationships between the independent registered public accounting firm and the
Equity Trust and discussed the impact that any such relationships might have on the objectivity and
independence of the independent registered public accounting firm.
As set forth above, and as more fully set forth in the Audit Charter, the Audit Committee has
significant duties and powers in its oversight role with respect to the Equity Trusts financial
reporting procedures, internal control systems and the independent audit process.
The members of the Audit Committee are not, and do not represent themselves to be,
professionally engaged in the practice of auditing or accounting and are not employed by the Equity
Trust for accounting, financial management, or internal control purposes. Moreover, the Audit
Committee relies on and makes no independent verification of the facts presented to it or
representations made by management or the Equity Trusts independent registered public accounting
firm. Accordingly, the Audit Committees oversight does not provide an independent basis to
determine that management has maintained appropriate accounting and/or financial reporting
principles and policies, or internal controls and procedures, designed to assure compliance with
accounting standards and applicable laws and
34
regulations. Furthermore, the Audit Committees
considerations and discussions referred to above do not
provide assurance that the audit of Equity Trusts financial statements has been carried out in
accordance with the standards of the Public Company Accounting Oversight Board (United States) or
that the financial statements are presented in accordance with generally accepted accounting
principles (United States).
Based on its consideration of the audited financial statements and the discussions referred to
above with management and the Equity Trusts independent registered public accounting firm, and
subject to the limitations on the responsibilities and role of the Audit Committee set forth in the
Audit Charter and those discussed above, the Audit Committee recommended to the Equity Trusts
Board of Directors that the Equity Trusts audited financial statements be included in the Equity
Trusts Annual Report for the year ended December 31, 2006.
Submitted by the Audit Committee of the Equity Trusts Board of Directors
Anthony R. Pustorino, Chairman
Anthony J. Colavita
Salvatore J. Zizza
February 22, 2007
The Audit Committee of the Equity Trust met twice during the year ended December 31, 2006.
Nominating Committee
The Board of each of the Equity Trust and the Healthcare Trust has a Nominating Committee
composed of three of the independent (as such term is defined by the NYSE Listing Standards)
Directors/Trustees, namely, Messrs. Colavita, Ferrara and Zizza for the Equity Trust and Messrs.
Colavita, Enright and Zizza for the Healthcare Trust. The Nominating Committee of the Equity Trust
met once during the year ended December 31, 2006. The Nominating Committee is responsible for
identifying and recommending to the Board individuals believed to be qualified to become Board
members in the event that a position is vacated or created. The Nominating Committee will consider
Director/Trustee candidates recommended by shareholders. In considering candidates submitted by
shareholders, the Nominating Committee will take into consideration the needs of the Board, the
qualifications of the candidate and the interests of shareholders. The Nominating Committee may
also take into consideration the number of shares held by the recommending shareholder and the
length of time that such shares have been held. To recommend a candidate for consideration by the
Nominating Committee, a shareholder must submit the recommendation in writing and must include the
following information:
|
|
|
The name of the shareholder and evidence of the shareholders ownership of shares of the
Equity Trust or the Healthcare Trust, as applicable, including the number of shares owned
and the length of time of ownership;
|
|
|
|
|
The name of the candidate, the candidates resume or a listing of his or her
qualifications to be a Director/Trustee of the Equity Trust or the Healthcare Trust, as
applicable, and the persons consent to be named as a Director/Trustee if selected by the
Nominating Committee and nominated by the Board; and
|
|
|
|
|
|
If requested by the Nominating Committee, a completed and signed directors/trustees
questionnaire.
|
|
35
The shareholder recommendation and information described above must be sent to James E. McKee,
the funds Secretary, c/o Gabelli Funds, LLC, at One Corporate Center, Rye, NY 10580-1422,
and must be received by the Secretary no less than 120 days prior to the anniversary date of the
funds most recent annual meeting of shareholders or, if the meeting has moved by more than 30
days, a reasonable amount of time before the meeting.
The Nominating Committee believes that the minimum qualifications for serving as a
Director/Trustee of the Equity Trust or the Healthcare Trust are that the individual demonstrate,
by significant accomplishment in his or her field, an ability to make a meaningful contribution to
the Boards oversight of the business and affairs of each fund and have an impeccable record and
reputation for honest and ethical conduct in both his or her professional and personal activities.
In addition, the Nominating Committee examines a candidates specific experiences and skills, time
availability in light of other commitments, potential conflicts of interest and independence from
management and each fund. The Nominating Committee also seeks to have the Board represent a
diversity of backgrounds and experience.
The Equity Trusts Nominating Committee adopted a charter on May 12, 2004, and amended the
charter on November 17, 2004. The Healthcare Trusts Nominating Committee adopted a charter on
February 22, 2007. Each charter can be found on the funds website at www.gabelli.com.
Proxy Voting Committee
The Equity Trust and the Healthcare Trust each has a Proxy Voting Committee, which, if so
determined by the Board, is authorized to exercise voting power and/or dispositive power over
specific securities held in a funds portfolio for such period as the Board may determine. The
Directors serving on each Proxy Voting Committee are Messrs. Conn, Ferrara and Pustorino for the
Equity Trust and Messrs. Conn, Enright and Kolodny for the Healthcare Trust.
Remuneration of Directors/Trustees and Officers
The Equity Trust pays each Director who is not affiliated with the Investment Adviser or its
affiliates a fee of $12,000 per year plus $1,500 per meeting attended in person, $1,000 per
Committee meeting attended in person, and $500 per telephonic meeting, together with the Directors
actual out-of-pocket expenses relating to his attendance at such meetings. In addition, the Audit
Committee Chairman receives an annual fee of $3,000, the Nominating Committee Chairman receives an
annual fee of $2,000, and the Proxy Voting Committee Chairman receives an annual fee of $1,500. The
aggregate remuneration (not including out-of-pocket expenses) paid by the Equity Trust to such
Directors during the year ended December 31, 2006 amounted to $138,500. During the year ended
December 31, 2006, the Directors of the Equity Trust met four times, none of which were special
meetings of Directors. Each Director then serving in such capacity attended at least 75% of the
meetings of Directors and of any Committee of which he is a member. For a description of the
remuneration received by each director of the Equity Trust individually and the total remuneration
received by each such Director from funds in the Gabelli Funds complex for the year ended December
31, 2006, see Proposal 2 Compensation Table.
The Healthcare Trust will pay each Trustee who is not affiliated with the Investment Adviser
or its affiliates a fee of $3,000 per year plus $1,000 per meeting attended in person, $500 per
Committee meeting attending in person, and $500 per telephonic meeting, together with the Trustees
actual out-of-pocket expenses relating to his attendance at such meetings. In addition, the Audit
Committee Chairman receives an annual fee of $3,000 and the Nominating Committee Chairman receives
an annual fee of $3,000.
36
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Management
The Investment Adviser, located at One Corporate Center, Rye, New York 10580-1422, serves as
the investment adviser to the Equity Trust and the Healthcare Trust pursuant to an investment
advisory agreement with each fund (each such agreement, an Advisory Agreement). The Investment
Adviser was organized in 1999 and is the successor to Gabelli Funds, Inc., which was organized in
1980. As of December 31, 2006, the Investment Adviser acted as registered investment adviser to 27
management investment companies with aggregate net assets of $14.5 billion. The Investment Adviser,
together with other affiliated investment advisers, had assets under management totaling
approximately $28.1 billion as of December 31, 2006. GAMCO Asset Management Inc., an affiliate of
the Investment Adviser, acts as investment adviser for individuals, pension trusts, profit sharing
trusts and endowments, and as a sub-adviser to management investment companies having aggregate
assets of $12.6 billion under management as of December 31, 2006. Gabelli Fixed Income LLC, an
affiliate of the Investment Adviser, acts as investment adviser for separate accounts having
aggregate assets of approximately $50 million under management as of December 31, 2006. Gabelli
Advisers, Inc., an affiliate of the Investment Adviser, acts as investment manager to the Westwood
Funds having aggregate assets of approximately $400 million under management as of December 31,
2006.
The Investment Adviser is a wholly-owned subsidiary of GAMCO Investors, Inc., a New York
corporation, whose Class A Common Stock is traded on the NYSE under the symbol GBL. Mr. Mario J.
Gabelli may be deemed a controlling person of the Investment Adviser on the basis of his
ownership of a majority of the stock of GGCP, Inc., which owns a majority of the capital stock of
GAMCO Investors, Inc.
The Investment Adviser will provide a continuous investment program for the portfolios of the
Equity Trust and the Healthcare Trust and oversee the administration of all aspects of each funds
business and affairs. The Investment Adviser has sole investment discretion for the assets of the
Equity Trust and the Healthcare Trust under the supervision of each funds Board and in accordance
with each funds stated policies. The Investment Adviser will select investments for the Equity
Trust and the Healthcare Trust and will place purchase and sale orders on behalf of each fund.
Investment Advisory Agreements
Affiliates of the Investment Adviser may, in the ordinary course of their business, acquire
for their own account or for the accounts of their advisory clients, significant (and possibly
controlling) positions in the securities of companies that may also be suitable for investment by
each fund. The securities in which each fund might invest may thereby be limited to some extent.
For instance, many companies in the past several years have adopted so-called poison pill or
other defensive measures designed to discourage or prevent the completion of non-negotiated offers
for control of the company. Such defensive measures may have the effect of limiting the stock of
the company that might otherwise be acquired by each fund if the affiliates of the Investment
Adviser or their advisory accounts have or acquire a significant position in the same securities.
However, the Investment Adviser does not believe that the investment activities of its affiliates
will have a material adverse effect upon each fund in seeking to achieve its investment objectives.
Securities purchased or sold pursuant to contemporaneous orders entered on behalf of the investment
company accounts of the Investment Adviser or the advisory accounts managed by its affiliates for
their unaffiliated clients are allocated pursuant to principles believed to be fair and not
disadvantageous to any such accounts. In addition, all such orders are accorded priority of
execution over orders entered on behalf of accounts in which the Investment Adviser or its
affiliates have a substantial pecuniary interest. Each fund may on occasion give advice or take
action with respect to other clients that differs from the actions taken with respect to the
applicable fund. Each fund may invest
37
in the securities of companies that are investment management clients of GAMCO Asset
Management Inc. In addition, portfolio companies or their officers or directors may be minority
shareholders of the Investment Adviser or its affiliates.
Under the terms of each Advisory Agreement, the Investment Adviser manages the portfolio of a
fund in accordance with its stated investment objective and policies, makes investment decisions
for the fund, places orders to purchase and sell securities on behalf of the fund and manages its
other business and affairs, all subject to the supervision and direction of each funds Board. In
addition, under each Advisory Agreement, the Investment Adviser oversees the administration of all
aspects of the funds business and affairs and provides, or arranges for others to provide, at the
Investment Advisers expense, certain enumerated services, including maintaining the funds books
and records, preparing reports to the funds shareholders and supervising the calculation of the
net asset value of its shares. All expenses of computing the net asset value of the Equity Trust or
the Healthcare Trust, including any equipment or services obtained solely for the purpose of
pricing shares or valuing its investment portfolio, underwriting compensation and reimbursements in
connection with sales of its securities, the costs of utilizing a third party to monitor
and collect class action settlements on behalf of the funds, compensation to an administrator for
certain SEC filings on behalf of the funds, the fees and expenses of directors/trustees who are not
officers or employees of the Investment Adviser of its affiliates, compensation and other expenses
of employees of the fund as approved by the directors/trustees, the pro rata costs of the funds
chief compliance officer, charges of the custodian, any sub-custodian and transfer agent and
dividend paying agent, expenses in connection with the Automatic Dividend Reinvestment Plan and
Voluntary Cash Purchase Plan, accounting and pricing costs, membership fees in trade associations,
expenses for legal and independent accountants services, costs of printing proxies, share
certificates and shareholder reports, fidelity bond coverage for fund officers and employees,
director/trustee and officers errors and omissions insurance coverage, and stock exchange listing
fees will be an expense of the fund unless the Investment Adviser voluntarily assumes
responsibility for such expenses. During fiscal 2006, the Equity Trust paid or accrued $45,000 to
the Investment Adviser in connection with the cost of computing the Equity Trusts net asset value.
Each Advisory Agreement combines investment advisory and certain administrative
responsibilities in one agreement. For services rendered by the Investment Adviser on behalf of
each funds Advisory Agreement, the fund pays the Investment Adviser a fee computed weekly and paid
monthly at the annual rate of 1.00% of the average weekly net assets of the fund. For purposes of
calculating this fee, a funds average weekly net assets will be deemed to be the average weekly
value of the funds total assets minus the sum of the funds liabilities (such liabilities exclude
the aggregate liquidation preference of outstanding preferred shares and accumulated dividends, if
any, on those shares). The Investment Adviser has agreed to reduce the management fee on the
incremental assets attributable to Equity Trust Preferred Stock if the total return of the net
asset value of Equity Trust Common Stock, including distributions and management fees subject to
reduction, does not exceed the stated dividend rate or corresponding swap rate of each particular
series of Preferred Stock for the fiscal year. The Equity Trusts total return on the net asset
value of its Common Stock is monitored on a monthly basis to assess whether the total return on the
net asset value of its Common Stock exceeds the stated dividend rate or corresponding swap rate of
each particular series of outstanding Preferred Sock for the period. The test to confirm the
accrual of the management fee on the assets attributable to each particular series of Preferred
Stock is annual. The Equity Trust will accrue for the management fee on these assets during the
fiscal year if it appears probable that the Equity Trust will incur the additional management fee
on those assets. For the year ended December 31, 2006, the Equity Trusts total return on the net
asset value of the Common Stock exceeded the stated dividend rate or corresponding swap rate of all
the outstanding Preferred Stock. Thus management fees were accrued on these assets.
Each Advisory Agreement provides that in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties thereunder, the Investment Adviser
is not liable for any error of judgment or mistake of law or for any loss suffered by each fund. As
part of the
38
Advisory Agreement, each fund has agreed that the name Gabelli is the Investment Advisers
property, and that in the event the Investment Adviser ceases to act as an investment adviser to a
fund, a fund will change its name to one not including Gabelli.
Pursuant to its terms, each Advisory Agreement will remain in effect with respect to the
Equity Trust or the Healthcare Trust, as the case may be, until the second anniversary of
shareholder approval of such Agreement, and from year to year thereafter if approved annually (i)
by the respective Board or by the holders of a majority of its outstanding voting securities and
(ii) by a majority of the Directors/Trustees who are not interested persons (as defined in the
1940 Act) of any party to an Advisory Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval.
A discussion regarding the basis of the Boards approval of the Advisory Agreement for the
Equity Trust is available in the Equity Trusts semi-annual report to shareholders for the six
months ended June 30, 2006. A discussion regarding the basis of the Boards approval of the
Advisory Agreement for the Healthcare Trust will be available in the Healthcare Trusts semi-annual
report to shareholders for the period ending June 30, 2007 or the annual report to shareholders for
the period ending December 31, 2007, depending on when the Transaction is effected and the
commencement of investment operations of the Healthcare Trust.
Selection of Securities Brokers
Each Advisory Agreement contains provisions relating to the selection of securities brokers to
effect the portfolio transactions of the Equity Trust and the Healthcare Trust. Under those
provisions, the Investment Adviser may (i) direct fund portfolio brokerage to Gabelli & Company or
other broker-dealer affiliates of the Investment Adviser and (ii) pay commissions to brokers other
than Gabelli & Company that are higher than might be charged by another qualified broker to obtain
brokerage and/or research services considered by the Investment Adviser to be useful or desirable
for its investment management of the funds and/or its other advisory accounts or those of any
investment adviser affiliated with it.
Portfolio Management
Mario J. Gabelli is currently and has been responsible for the day-to-day management of the
Equity Trust since its inception and will lead the investment team responsible for the day-to-day
management of the Healthcare Trust. Mr. Gabelli has served as Chairman and Chief Executive Officer
of GAMCO Investors, Inc. and its predecessors since 1976. Mr. Gabelli is the Chief Investment
Officer Value Portfolios for the Investment Adviser and GAMCO Asset Management Inc. Mr. Gabelli
serves as portfolio manager for several funds in the Gabelli fund family and is a director of
several funds in the Gabelli fund family. Because of the diverse nature of Mr. Gabellis
responsibilities, he will devote less than all of his time to the day-to-day management of each of
the Equity Trust and the Healthcare Trust. Mr. Gabelli is also Chief Executive Officer of GGCP,
Inc. as well as Chairman of the Board of Lynch Interactive Corporation, a multimedia and
communication services company.
Additionally, as of December 31, 2006, Caesar M.P. Bryan managed approximately $103 million of
the Equity Trusts assets. Mr. Bryan has been a Senior Vice President and Portfolio Manager with
GAMCO Asset Management Inc. (a wholly-owned subsidiary of GAMCO Investors, Inc.) and Portfolio
Manager of the GAMCO Gold Fund, Inc. since May 1994 and the GAMCO International Growth Fund, Inc.
since June 1995, Co-Portfolio Manager of the GAMCO Global Opportunity Fund since May 1998, Gold
Companies Portfolio Manager of the Gabelli Global Gold, Natural Resources & Income Trust since
March 2005, and a member of the GAMCO Global Growth Fund portfolio management team since September
2000.
39
For additional information such as the portfolio managers compensation, other accounts
managed by the portfolio managers, and the portfolio managers ownership of securities in the
Equity Trust, see the section entitled Additional Information Portfolio Management Information.
Sub-Administrator
PFPC Inc., with its principal office located at 400 Bellevue Parkway, Wilmington, Delaware
19809, serves as sub-administrator for the Equity Trust. For these services and the related
expenses borne by PFPC, the Investment Adviser pays a prorated monthly fee at the annual rate of
0.0275% of the first $10.0 billion of the aggregate average net assets of the fund and all other
funds advised by the Investment Adviser and administered by PFPC, 0.0125% of the aggregate average
net assets exceeding $10 billion, and 0.01% of the aggregate average net assets in excess of $15
billion. The Investment Adviser will enter into an agreement with PFPC to serve as
sub-administrator for the Healthcare Trust under the same terms as those provided to the Equity
Trust.
Payment of Expenses
For purposes of the calculation of the fees payable to the Investment Adviser by the Equity
Trust and the Healthcare Trust, respectively, average weekly net assets of each of the Equity Trust
and the Healthcare Trust are determined at the end of each month on the basis of its average net
assets for each week during the month. The assets for each weekly period are determined by
averaging the net assets at the end of a week with the net assets at the end of the prior week.
The Investment Adviser will be obligated to pay expenses associated with providing the
services contemplated by the respective Advisory Agreements including certain expenses to be
incurred in its operation, including: computing the net asset value of the Equity Trust or the
Healthcare Trust, including any equipment or services obtained solely for the purpose of pricing
shares or valuing its investment portfolio, underwriting compensation and reimbursements in
connection with sales of its securities, the costs of utilizing a third party to monitor
and collect class action settlements on behalf of the funds, compensation to an administrator for
certain SEC filings on behalf of the funds, the fees and expenses of directors/trustees who are not
officers or employees of the Investment Adviser of its affiliates, compensation and other expenses
of employees of the fund as approved by the directors/trustees, the pro rata costs of the funds
chief compliance officer, charges of the custodian, any sub-custodian and transfer agent and
dividend paying agent, expenses in connection with the Automatic Dividend Reinvestment Plan and
Voluntary Cash Purchase Plan, accounting and pricing costs, membership fees in trade associations,
expenses for legal and independent accountants services, costs of printing proxies, share
certificates and shareholder reports, fidelity bond coverage for fund officers and employees,
director/trustee and officers errors and omissions insurance coverage, and stock exchange listing
fees will be an expense of the fund unless the Investment Adviser voluntarily assumes
responsibility for such expenses.
Regulatory Matters
The Equity Trust received the following information from the Investment Adviser.
Over the past several years, the staff of the Commission (the Staff), the staff of the New
York Attorney Generals office (the NYAG) and officials of other states have been conducting
industry-wide inquiries into, and bringing enforcement and other proceedings regarding, trading
abuses involving open-end investment companies. The Investment Adviser and its affiliates have
received information requests and subpoenas for documents and testimony from the Staff and the NYAG
in connection with these inquiries and have responded to these requests. The Investment Adviser has
implemented additional compliance policies and procedures in response to recent industry
initiatives and its internal reviews of its mutual fund practices in a variety of areas. The
Investment Adviser has not found any information that it believes would be material to the ability
of the Investment Adviser to fulfill its obligations under the
40
Advisory Agreement. More specifically, the Investment Adviser has found no evidence of arrangements
for trading in the Gabelli mutual funds after the 4:00 p.m. pricing time and no evidence of
improper short-term trading in these funds by its investment professionals or senior executives.
The Investment Adviser did find that one investor, who had been engaged in short-term trading in
one of the Gabelli mutual funds (the prospectus of which did not at that time impose limits on
short-term trading) and who had subsequently made an investment in a hedge fund managed by an
affiliate of the Investment Adviser, was banned from the mutual fund only after certain other
investors were banned. The Investment Adviser believes that this relationship was not material to
the Investment Adviser. The Investment Adviser also found that certain discussions took place in
2002 and 2003 between the Investment Advisers staff and personnel of an investment advisor
regarding possible frequent trading in certain Gabelli domestic equity funds. In June 2006, the
Investment Adviser began discussions with the Staff regarding a possible resolution of their
inquiry. In February 2007, the Investment Adviser made an offer of settlement to the Staff for
communication to the Commission for its consideration to resolve this matter. This offer of
settlement is subject to final agreement regarding the specific language of the Commissions
administrative order and other settlement documents. Since these discussions are ongoing, the
Investment Adviser cannot determine whether they will ultimately result in a settlement of this
matter. There can be no assurance that any resolution of this matter will not have a material
adverse impact on the Investment Adviser or on its ability to fulfill its obligations under the
Advisory Agreement.
The Investment Adviser was informed by the Staff that they may recommend to the Commission
that the Investment Adviser be held accountable for the actions of two of the closed-end funds
managed by the Investment Adviser relating to Section 19(a) and Rule 19a-1 of the 1940 Act. These
provisions require registered investment companies to provide written statements to shareholders
when a distribution is made from a source other than net investment income. While the two funds
sent annual statements containing the required information and Form 1099-DIV statements as required
by the IRS, the funds did not send written statements to shareholders with each distribution in
2002 and 2003. The closed-end funds managed by the Investment Adviser changed their notification
procedures in 2004 and the Investment Adviser believes that all of the funds have been in
compliance with Section 19(a) and Rule 19a-1 of the 1940 Act since that time. The Staffs notice to
the Investment Adviser did not relate to the Equity Trust. The Staff indicated that they may
recommend to the Commission that administrative remedies be sought, including a monetary penalty.
The Investment Adviser cannot predict whether an administrative proceeding will be instituted and,
if so, what the ultimate resolution might be. The Investment Adviser currently expects that any
resolution of this matter will not have a material effect on the Investment Advisers ability to
fulfill its obligations under the Advisory Agreement. If the Commission were to revoke the
exemptive order that the Equity Trust relies upon to make distributions of capital gains more
frequently than annually, the Board may consider whether to modify or possibly eliminate the Equity
Trusts current distribution policy.
PORTFOLIO TRANSACTIONS
Principal transactions are not entered into with affiliates of the Equity Trust, nor will they
be entered into with affiliates of the Healthcare Trust. However, Gabelli & Company, an affiliate
of the Investment Adviser, may execute portfolio transactions on stock exchanges and in the
over-the-counter markets on an agency basis and receive a stated commission therefore. For a more
detailed discussion of each funds brokerage allocation practices, see Portfolio Transactions in
the section entitled Additional Information.
NET ASSET VALUE
The net asset value of the Equity Trusts shares is computed and that of the Healthcare
Trusts shares will be computed, based on the market value of the securities it holds and
determined daily as of the close of the regular trading day on the NYSE. For purposes of
determining each funds net asset value per share, portfolio securities listed or traded on a
nationally recognized securities exchange or
41
traded in the U.S. over-the-counter market for which market quotations are readily available are
valued at the last quoted sale price or a markets official closing price as of the close of
business on the day the securities are being valued. Portfolio securities listed or traded on a
nationally recognized securities exchange or traded in the U.S. over-the-counter market for which
market quotations are readily available are valued at the last quoted sale price or a markets
official closing price as of the close of business on the day the securities are being valued. If
there were no sales that day, the security is valued at the average of the closing bid and asked
prices or, if there were no asked prices quoted on that day, then the security is valued at the
closing bid price on that day. If no bid or asked prices are quoted on such day, the security is
valued at the most recently available price or, if the Board so determines, by such other method as
the Board shall determine in good faith to reflect its fair market value. Portfolio securities
traded on more than one national securities exchange or market are valued according to the broadest
and most representative market, as determined by the Investment Adviser.
Portfolio securities primarily traded on a foreign market are generally valued at the
preceding closing values of such securities on the relevant market, but may be fair valued pursuant
to procedures established by the Board if market conditions change significantly after the close of
the foreign market but prior to the close of business on the day the securities are being valued.
Debt instruments with remaining maturities of 60 days or less that are not credit impaired are
valued at amortized cost, unless the Board determines such amount does not reflect the securities
fair value, in which case these securities will be fair valued as determined by the Board. Debt
instruments having a maturity greater than 60 days for which market quotations are readily
available are valued at the average of the latest bid and asked prices. If there were no asked
prices quoted on such day, the security is valued using the closing bid price. Futures contracts
are valued at the closing settlement price of the exchange or board of trade on which the
applicable contract is traded.
Securities and assets for which market quotations are not readily available are fair valued as
determined by the Board. Fair valuation methodologies and procedures may include, but are not
limited to: analysis and review of available financial and non-financial information about the
company; comparisons to the valuation and changes in valuation of similar securities, including a
comparison of foreign securities to the equivalent U.S. dollar value ADR securities at the close of
the U.S. exchange; and evaluation of any other information that could be indicative of the value
of the security.
DISTRIBUTIONS; AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
The Equity Trusts 10% Distribution Policy
The Equity Trust has a policy, which may be modified at any time by its Board, of paying a
minimum annual distribution of 10% of the average net asset value of the Equity Trust to common
shareholders. The Equity Trusts current quarterly distribution level is set at $0.20 per share in
each of the first three quarters of the year. The Equity Trust pays an adjusting distribution in
the fourth quarter of an amount sufficient to pay 10% of the average net asset value of the Equity
Trust, as of the last day of the four preceding calendar quarters, or to satisfy the minimum
distribution requirements of the Code, whichever is greater. Each quarter, the Board reviews the
amount of any potential distribution and the income, capital gain or capital available. This policy
permits common shareholders to realize a predictable, but not assured, level of cash flow and some
liquidity periodically with respect to their shares of common stock without having to sell their
shares. The Equity Trust may retain for reinvestment, and pay the resulting federal income taxes on
its net capital gain, if any, although the Equity Trust reserves the authority to distribute its
net capital gain in any year. To avoid paying income tax at the corporate level, the Equity Trust
distributes substantially all of its investment company taxable income and net capital gain. The
Transaction may satisfy a portion of the 10% distribution policy in conjunction with the
42
adjusting
distribution that the Board of the Equity Trust will consider during the fourth calendar
quarter. The Equity Trusts distribution policy is subject to modification by the Board at any
time.
The Equity Trust, along with other closed-end registered investment companies advised by the
Investment Adviser, has obtained an exemption from Section 19(b) of the 1940 Act and Rule 19b-1
thereunder permitting it to make periodic distributions of long-term capital gains provided that
any distribution policy of the Equity Trust with respect to its common stock calls for periodic
(e.g., quarterly or semi-annually, but in no event more frequently than monthly) distributions in
an amount equal to a fixed percentage of the Equity Trusts average net asset value over a
specified period of time or market price per share of Common Stock at or about the time of
distribution or payment of a fixed dollar amount. The exemption also permits the Equity Trust to
make distributions with respect to its Preferred Stock in accordance with such stocks terms.
The distribution to Equity Trust common shareholders of Healthcare Trust Common Shares will not
change the Equity Trusts 10% Distribution Policy.
The assets of the Equity Trust will decrease pursuant to the Transaction by approximately $70
million, and since any subsequent distributions will reflect the lower net asset value of the
Equity Trust post-Transaction, the amount payable in 2007 pursuant to the 10% Distribution Policy
will be lower than if the Transaction had not occurred by an immaterial amount, assuming the
Distribution of the Healthcare Trust Common Shares is excluded from the total amount distributed
pursuant to the 10% Distribution Policy. However, the Equity Trusts Board may choose to consider
all or a portion of the distribution as satisfying a portion of the 10% Distribution Policy when it
considers the adjusting distribution in the fourth calendar quarter.
In the event the Equity Trust distributes amounts in excess of its investment company taxable
income and net realized capital gain, such distributions will decrease the Equity Trusts total
assets and, therefore, have the potential effect of increasing its expense ratio, as the Equity
Trusts fixed expenses will become a larger percentage of the Equity Trusts average net assets.
In addition, in order to make such distributions, the Equity Trust might have to sell a portion of
its investment portfolio at a time when independent investment judgment might not dictate such
action.
Distributions by The Healthcare Trust
While the Equity Trust makes distributions quarterly pursuant to its 10% distribution policy,
the Healthcare Trust will distribute substantially all of its net investment income and net
realized capital gains to shareholders at year end. The distribution policy of the Healthcare Trust
may be modified from time to time by the Healthcare Trusts Board. As a regulated investment
company under the Code, the Healthcare Trust will not be subjected to U.S. federal income tax on
its investment company taxable income that it distributes to shareholders, provided that at least
90% of its investment company taxable income for that taxable year is distributed to its
shareholders.
Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
Under the Equity Trust Plan and the substantially similar Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan adopted by the Healthcare Trust (each, the Plan), a shareholder
whose common shares are registered in his or her own name will have all distributions reinvested
automatically by Computershare, which is agent under the Plan, unless the shareholder elects to
receive cash. Distributions with respect to shares registered in the name of a broker-dealer or
other nominee (that is, in street name) will be reinvested by the broker or nominee in additional
shares under the Plan, unless the service is not provided by the broker or nominee or the
shareholder elects to receive distributions in cash. For a further description of the Plan, see
Appendix C.
43
TAXATION
The following discussion is a brief summary of certain United States federal income tax
considerations affecting the Equity Trust and the Healthcare Trust and their shareholders. The
discussion reflects applicable tax laws of the United States as of the date of this Proxy
Statement/Prospectus, which tax laws may be changed or subject to new interpretations by the courts
or the Internal Revenue Service (the IRS) retroactively or prospectively. No attempt is made to
present a detailed explanation of all United States federal, state, local and foreign tax concerns
affecting the Equity Trust and the Healthcare Trust and their shareholders, and the discussion set
forth herein does not constitute tax advice. Investors are urged to consult their own tax advisers
to determine the tax consequences to them of investing in the Equity Trust and the Healthcare
Trust.
Taxation of the Equity Trust and the Healthcare Trust
The Equity Trust has elected to be treated and has qualified as, and intends to continue to
qualify as, a regulated investment company under Subchapter M of the Code, and the Healthcare Trust
intends to elect and qualify to be treated as a regulated investment company under the Code.
Accordingly, each of the Equity Trust and the Healthcare Trust must, among other things, (i) derive
in each taxable year at least 90% of its gross income from (a) dividends, interest (including
tax-exempt interest), payments with respect to certain securities loans, and gains from the sale or
other disposition of stock, securities or foreign currencies, or other income (including but not
limited to gain from options, futures and forward contracts) derived with respect to its business
of investing in such stock, securities or currencies and (b) net income derived from interests in
certain publicly traded partnerships for United States federal income tax purposes and that derive
less than 90% of their gross income from the items described in (a) above (each a Qualified
Publicly Traded Partnership); and (ii) diversify its holdings so that, at the end of each quarter
of each taxable year (a) at least 50% of the value of each funds total assets is represented by
cash and cash items, United States government securities, the securities of other regulated
investment companies and other securities, with such other securities limited, in respect of any
one issuer, to an amount not greater than 5% of the value of the funds total assets and not more
than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the
value of the funds total assets is invested in the securities of (I) any one issuer (other than
United States government securities and the securities of other regulated investment companies),
(II) any two or more issuers (other than registered investment companies) in which the fund owns
20% or more of the voting securities and that are determined to be engaged in the same business or
similar or related trades or businesses or (III) any one or more Qualified Publicly Traded
Partnerships.
Each of the Equity Trust and the Healthcare Trusts investments in partnerships, including in
Qualified Publicly Traded Partnerships, may result in each fund being subject to state, local or
foreign income, franchise or withholding tax liabilities.
As regulated investment companies, each of the Equity Trust and the Healthcare Trust generally
will not be subject to United States federal income tax on income and gains that it distributes
(with the Equity Trusts distribution of the shares of the Healthcare Trust constituting a
distribution for this purpose) each taxable year to shareholders, if it distributes at least 90% of
the sum of the funds (i) investment company taxable income (which includes, among other items,
dividends, interest and the excess of any net short-term capital gains over net long-term capital
losses and other taxable income other than any net capital gain (as defined below) reduced by
deductible expenses) determined without regard to the deduction for dividends and distributions
paid and (ii) its net tax-exempt interest (the excess of its gross tax-exempt interest over certain
disallowed deductions). Each of the Equity Trust and the Healthcare Trust intends to distribute at
least annually substantially all of such income.
44
Amounts not distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax at the fund level. To avoid the tax, each
of the Equity Trust and the Healthcare Trust must distribute during each calendar year an amount at
least equal to the sum of (i) 98% of its ordinary income (not taking into account any capital gains
or losses) for the calendar year, (ii) 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the
calendar year (unless an election is made to use the funds fiscal year), and (iii) certain
undistributed amounts from previous years on which the fund paid no United States federal income
tax. While each fund intends to distribute any income and capital gains in the manner necessary to
minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of a
funds taxable income and capital gains will be distributed to avoid entirely the imposition of the
tax. In that event, each fund will be liable for the tax only on the amount by which it does not
meet the foregoing distribution requirement.
If for any taxable year either of the Equity Trust or the Healthcare Trust does not qualify as
a regulated investment company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for distributions to shareholders.
The Equity Trust has a policy, which may be modified at any time by its Board, of paying a
minimum annual distribution of 10% of the average net asset value of the Equity Trust, paid
quarterly, to holders of its Common Stock. In the event that the Equity Trusts investment company
taxable income and net capital gain exceed the total of its quarterly distributions, in order to
avoid paying income tax at the corporate level, the Equity Trust intends to pay such excess once a
year. If, for any calendar year, the total quarterly distributions exceed both current earnings and
profits and accumulated earnings and profits, the excess will generally be treated as a tax-free
return of capital up to the amount of a shareholders tax basis in the stock. The amount treated as
a tax-free return of capital will reduce a shareholders tax basis in the stock, thereby increasing
such shareholders potential gain or reducing his or her potential loss on the sale of the stock.
Any amounts distributed to a shareholder in excess of his or her basis in the stock will be taxable
to the shareholder as capital gain. The Equity Trusts distribution policy may cause it to make
taxable distributions to shareholders in excess of the minimum amounts of such taxable
distributions it would be required to make in order to avoid liability for federal income tax. In
certain situations, this excess distribution may cause shareholders to be liable for taxes for
which they would not otherwise be liable if the Equity Trust paid only that amount required to
avoid liability for federal income tax.
Taxation of Shareholders
Distributions paid to investors by each of the Equity Trust and the Healthcare Trust from its
investment company taxable income which includes the excess of net short-term capital gains over
net long-term capital losses (together referred to hereinafter as ordinary income dividends) are
generally taxable to investors as ordinary income to the extent of the earnings and profits of each
of the Equity Trust and the Healthcare Trust. Such distributions (if designated by the Equity Trust
and the Healthcare Trust) may, however, qualify (provided holding periods and other requirements
are met) (i) for the dividends received deduction in the case of corporate shareholders to the
extent that the income of the Equity Trust and the Healthcare Trust consists of dividend income
from United States corporations, and (ii) for taxable years through December 31, 2010, as qualified
dividend income eligible for the reduced maximum Federal tax rate to individuals of generally 15%
(currently 5% for individuals in lower tax brackets) to the extent that the fund receives qualified
dividend income. Qualified dividend income is, in general, dividend income from taxable domestic
corporations and certain foreign corporations (e.g., generally, foreign corporations incorporated
in a possession of the United States or in certain countries with a qualified comprehensive tax
treaty with the United States, or whose stock with respect to which such dividend is paid is
readily tradable on an established securities market in the United States). Distributions made to
investors from an excess of net long-term capital gains over net short-term capital
45
losses (capital gain dividends), including capital gain dividends credited to you but retained by
the Equity Trust and the Healthcare Trust, are taxable to you as long-term capital gains if they
have been properly designated by each of the Equity Trust and the Healthcare Trust, regardless of
the length of time investors have owned shares of the fund. The maximum Federal tax rate on net
long-term capital gain of individuals is reduced generally from 20% to 15% (currently 5% for
individuals in lower brackets) for such gain realized before January 1, 2011. Distributions in
excess of the earnings and profits of each of Equity Trust and the Healthcare Trust will first
reduce the adjusted tax basis of shares held by an investor and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to you (assuming the shares are held as a capital
asset). Generally, not later than 60 days after the close of its taxable year, the Equity Trust and
the Healthcare Trust will provide investors with a written notice designating the amount of any
qualified dividend income or capital gain dividends and other distributions.
The sale, exchange, redemption or other disposition of common or preferred shares of each of
the Equity Trust and the Healthcare Trust will generally result in capital gain or loss to an
investor, and will be long-term capital gain or loss if the shares have been held for more than one
year at the time of sale. Any loss upon the sale or exchange of fund shares held for six months or
less will be treated as long-term capital loss to the extent of any capital gain dividends received
(including amounts credited as an undistributed capital gain dividend) by an investor. A loss
realized on a sale or exchange of shares of the Equity Trust and the Healthcare Trust will be
disallowed if other substantially identical shares of the Equity Trust and the Healthcare Trust is
acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day
period beginning 30 days before and ending 30 days after the date that the shares are disposed of.
In such case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
Present law taxes both long-term and short-term capital gains of corporations at the rates
applicable to ordinary income.
If each of the Equity Trust and the Healthcare Trust pays a distribution in January that was
declared in the previous October, November or December to shareholders of record on a specified
date in one of such months, then such distribution will be treated for tax purposes as being paid
by the fund and received by shareholders not later than December 31 of the year in which the
distribution was declared.
Each of the Equity Trust and the Healthcare Trust is required in certain circumstances to
backup withhold on taxable dividends or distributions and certain other payments paid to
non-corporate holders of the funds shares who do not furnish the Equity Trust and the Healthcare
Trust with their correct taxpayer identification number (in the case of individuals, their social
security number) and certain certifications, or who are otherwise subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld from payments made to you may be
refunded or credited against your United States federal income tax liability, if any, provided that
the required information is furnished to the IRS.
Distributions may be subject to additional state, local, and foreign taxes, depending on each
shareholders particular situation. Non-U.S. shareholders may be subject to U.S. tax rules that
differ significantly from those summarized above, including the likelihood that ordinary income
dividends distributed to them will be subject to withholding of U.S. tax at a rate of 30% (or a
lower treaty rate, if applicable). Non-U.S. investors should consult their own tax advisers
regarding U.S. federal, state, local and foreign tax considerations.
The foregoing is a general and abbreviated summary of the provisions of the Code and the
Treasury regulations in effect as they directly govern the taxation of the Equity Trust and the
Healthcare Trust and each of their shareholders. These provisions are subject to change by
legislative or administrative action, and any such change may be retroactive. A more complete
discussion of the tax rules applicable to the Equity Trust and the Healthcare Trust and each of
their
46
shareholders can be found in Appendix F. Shareholders are urged to consult their tax advisers
regarding specific questions as to United States federal, foreign, state, local income or other
taxes.
PRINCIPAL SHAREHOLDERS
The Equity Trust
Set forth below is information as of December 31, 2006 with respect to the beneficial
ownership of shares of Common and Preferred Stock of the Equity Trust by (i) each of the interested
and independent Directors (ii) all of the Equity Trusts interested and independent Directors as a
group and (iii) each person who is known by the Equity Trust to be the beneficial owner of more
than five percent of the outstanding shares of Common Stock. As of the record date, the fund is
unaware of any shareholder owning 5 percent or more of the outstanding shares of Common or
Preferred Stock. Unless otherwise provided, the address of each holder is Gabelli Funds, LLC, One
Corporate Center, Rye, NY 10580-1422.
Set forth in the table below is the amount of shares beneficially owned by each Director of the
Equity Trust:
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of
|
|
|
Name of Director/Nominee
|
|
Beneficial Ownership
(1)
|
|
Percent of Shares Outstanding
(2)
|
Interested Director/Nominee:
|
|
|
|
|
|
|
|
|
Mario J. Gabelli
(3)
|
|
|
1,872,005
|
|
|
|
1.1
|
%
|
Independent Directors/Nominees:
|
|
|
|
|
|
|
|
|
Thomas E. Bratter
|
|
29,958
375 Series B Preferred
|
|
|
*
|
|
Anthony J. Colavita
(4)
|
|
2,835
750 Series B Preferred
|
|
|
*
|
|
James P. Conn
|
|
44,758
750 Series B Preferred
|
|
|
*
|
|
Frank J. Fahrenkopf, Jr.
|
|
|
0
|
|
|
|
*
|
|
Arthur V. Ferrara
|
|
|
0
|
|
|
|
*
|
|
Anthony R. Pustorino
(5)
|
|
|
13,620
|
|
|
|
*
|
|
Salvatore J. Zizza
(6)
|
|
|
39,190
|
|
|
|
*
|
|
All Directors as a group (8 persons)
|
|
|
2,002,366
|
|
|
|
1.2
|
%
|
5% Shareholders:
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
This information has been furnished for each Director and Nominee for election as Director
as of December 31, 2006. Beneficial Ownership is determined in accordance with Section
16a-1(a)(2) of the Securities Exchange Act of 1934. Reflects ownership of Common Stock unless
otherwise noted.
|
|
|
(2)
|
|
An asterisk indicates that the ownership amount constitutes less than 1% of the total shares
outstanding.
|
47
|
|
|
|
(3)
|
|
Includes 947,963 shares owned directly by Mr. Gabelli, 37,358 shares owned by a family
partnership for which Mr. Gabelli serves as general partner, and 886,684 shares owned by GAMCO
Investors, Inc. or its affiliates. Mr. Gabelli disclaims beneficial ownership of the shares
held by the discretionary accounts and by the entities named except to the extent of his
interest in such entities.
|
|
|
(4)
|
|
Comprised of 2,835 common shares and 750 preferred shares owned by Mr. Colavitas spouse for
which he disclaims beneficial ownership.
|
|
(5)
|
|
Includes 2,632 common shares owned by Mr. Pustorinos spouse for which he disclaims
beneficial ownership.
|
|
(6)
|
|
Includes 28,300 common shares owned by Mr. Zizzas sons for which he disclaims beneficial
ownership.
|
The Healthcare Trust
As of the date of this Proxy Statement/Prospectus, 1 Healthcare Trust Common Share is
outstanding, which is owned beneficially and of record by the Equity Trust. This share was issued
in respect of the Equity Trusts contribution of $8 of initial capital to the Healthcare Trust. The
Equity Trust will also contribute an additional $99,992 of initial capital before the public
offering of the Healthcare Trusts Common Shares. The Equity Trust has represented that these
shares were purchased for investment purposes only and that they will be sold only pursuant to a
registration statement under the 1933 Act or an applicable exemption therefrom.
CUSTODIAN, TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND REGISTRAR
Mellon Trust of New England, N.A. (Mellon), located at 135 Santilli Highway, Everett,
Massachusetts 02149, serves as the custodian of the Equity Trusts assets pursuant to a custody
agreement. Under the custody agreement, Mellon holds the Equity Trusts assets in compliance with
the 1940 Act. For its services, Mellon receives a monthly fee based upon the average weekly value
of the total assets of the Equity Trust, plus certain charges for securities transactions.
Computershare Trust Company, N.A., located at 250 Royall Street, Canton, Massachusetts 02021,
serves as the Equity Trusts dividend disbursing agent, as agent under the Equity Trusts Plan and
as transfer agent and registrar with respect to the Equity Trust Common Stock. Computershare also
serves as the Equity Trusts transfer agent, registrar, dividend disbursing agent and redemption
agent with respect to the Series D Preferred and Series F Preferred.
The Bank of New York, located at 100 Church Street, New York, New York 10286, serves as
auction agent, transfer agent, registrar, dividend disbursing agent and redemption agent with
respect to the Series C Preferred and Series E Preferred.
Mellon will serve as the custodian of the Healthcare Trusts assets pursuant to a custody
agreement. Under the custody agreement, Mellon will hold the Healthcare Trusts assets in
compliance with the 1940 Act. For its custody services, Mellon will receive a monthly fee based
upon the average weekly value of the total assets of the Healthcare Trust, plus certain charges for
securities transactions.
Computershare will serve as the Healthcare Trusts dividend disbursing agent, as agent under
the Healthcare Trusts Plan and as transfer agent and registrar with respect to the Healthcare
Trusts Common Shares.
Rules adopted under the 1940 Act permit the Equity Trust and the Healthcare Trust each to
maintain its foreign securities in the custody of certain eligible foreign banks and securities
depositories. Pursuant to those rules, any foreign securities in the portfolio of the Equity Trust
or the Healthcare Trust may be held by subcustodians approved by the Directors of the Equity Trust
or the Trustees of the Healthcare Trust, as the case may be, in accordance with the regulations of
the Commission. Selection of
48
any such subcustodians will be made by the Directors of the Equity Trust or the Trustees of
the Healthcare Trust, as the case may be, following a consideration of a number of factors,
including but not limited to the reliability and financial stability of the institution, the
ability of the institution to perform capably custodial services for the Equity Trust or the
Healthcare Trust, as applicable, the reputation of the institution in its national market, the
political and economic stability of the country or countries in which the subcustodians are
located, and risks of potential nationalization or expropriation of assets of the Equity Trust or
the Healthcare Trust, as applicable.
DESCRIPTION OF CAPITAL STOCK OF THE
EQUITY TRUST AND THE HEALTHCARE TRUST
Equity Trust Common Stock and Preferred Stock
Common Stock
Pursuant to an amendment to the Equity Trusts Articles of Incorporation that was approved by
shareholders in 2004, the Board may increase or decrease the aggregate number of shares of stock of
the Equity Trust or the number of shares of any class or series that the Equity Trust has authority
to issue without shareholder approval. The Equity Trust is currently authorized to issue
246,000,000 shares of Equity Trust Common Stock, par value $0.001 per share. Holders of the Equity
Trust Common Stock are entitled to one vote per share held. Holders of shares of Common Stock are
entitled to share equally in distributions authorized by the Equity Trusts Board payable to the
holders of such shares and in the net assets of the Equity Trust available on liquidation for
distribution to holders of such shares. The shares of Equity Trust Common Stock have noncumulative
voting rights and no conversion, preemptive or other subscription rights, and are not redeemable.
In the event of liquidation, each share of Equity Trust Common Stock is entitled to its proportion
of the Equity Trusts assets after payment of debts and expenses and the amounts payable to holders
of the Equity Trust Preferred Stock ranking senior to the shares of Common Stock as described
below.
The Equity Trusts outstanding Common Stock is listed and traded on the NYSE under the symbol
GAB. The average weekly trading volume of the Equity Trust Common Stock on the NYSE during the
period from January 1, 2006 through December 31, 2006 was 457,504 shares. The average weekly
trading volume of the Common Stock on the NYSE during the period from January 1, 2007 through March
31, 2007 was 290,800 shares. The Equity Trusts shares of Common Stock have traded in the market at
both premiums to and discounts from net asset value. Over the Equity Trusts twenty year history,
the range fluctuated from a 38% premium in June 2002 to a 27% discount in December 1987. The
previous extended period over which the premium existed occurred during the twenty month period
from August 1993 to march 1995. Currently, the Equity Trust trades near parity to its net asset
value.
The Equity Trust may repurchase its shares of Common Stock from time to time as and when it
deems such repurchase advisable, subject to maintaining required asset coverage for each series of
outstanding preferred stock. The Board has adopted a policy to authorize such repurchases when the
shares are trading at a discount of 10% or more from net asset value. The policy does not limit the
amount of Common Stock that can be repurchased. The percentage of the discount from net asset value
at which share repurchases will be authorized may be changed at any time by the Board. Through
December 31, 2006, the Equity Trust has not repurchased shares of its Common Stock under this
authorization.
Shareholders whose Common Stock is registered in their own name will have all distributions
reinvested pursuant to the Plan unless they specifically elect to opt out of the Plan. For a more
detailed discussion of the Plan, see Automatic Dividend Reinvestment and Voluntary Cash Purchase
Plan in the Appendix C.
49
Preferred Stock
Currently, 24,000,000 shares of the Equity Trusts capital stock have been classified by the
Board as Preferred Stock, par value $0.001 per share. The terms of such Preferred Stock may be
fixed by the Board and may materially limit and/or qualify the rights of the holders of the Equity
Trust Common Stock. As of December 31, 2006, the Equity Trust had 4,950,000 outstanding shares of
Series B Preferred, 5,200 outstanding shares of Series C Preferred, 2,949,700 outstanding shares of
Series D Preferred, 2,000 outstanding shares of Series E Preferred, and 6,000,000 outstanding
shares of Series F Preferred. On January 8, 2007, the Equity Trust completed its redemption of 100%
of its outstanding shares of Series B Preferred.
Distributions on the Series C Preferred accumulate at a variable rate set at a weekly auction.
The Series C Preferred is rated Aaa by Moodys and AAA by S&P. The liquidation preference of
the Series C Preferred is $25,000 per share. The Equity Trust generally may redeem the outstanding
Series C Preferred, in whole or in part, at any time other than during a non-call period. The
Series C Preferred is not traded on any public exchange.
Distributions on the Series D Preferred accumulate at an annual rate of 5.875% of the
liquidation preference of $25 per share, are cumulative from the date of original issuance thereof,
and are payable quarterly on March 26, June 26, September 26 and December 26 of each year. The
Series D Preferred is rated Aaa by Moodys. The Equity Trusts outstanding Series D Preferred is
redeemable at the liquidation preference plus accumulated but unpaid dividends (whether or not
earned or declared) at the option of the Equity Trust beginning October 7, 2008. The Series D
Preferred is listed and traded on the NYSE under the symbol GAB PrD.
Distributions on the Series E Preferred accumulate at a variable rate set at a weekly auction.
The Series E Preferred is rated Aaa by Moodys and AAA by S&P. The liquidation preference of
the Series E Preferred is $25,000. The Equity Trust generally may redeem the outstanding Series E
Preferred, in whole or in part, at any time other than during a non-call period. The Series E
Preferred is not traded on any public exchange.
Distributions on the Series F Preferred accumulate at an annual rate of 6.20% of the
liquidation preference of $25 per share, are cumulative from the date of original issuance thereof,
and are payable quarterly on March 26, June 26, September 26 and December 26 of each year. The
Series F Preferred is rated Aaa by Moodys. The Equity Trusts outstanding Series F Preferred is
redeemable at the liquidation preference plus accumulated but unpaid dividends (whether or not
earned or declared) at the option of the Equity Trust beginning November 10, 2011. The Series F
Preferred is listed and traded on the NYSE under the symbol GAB PrF.
The following table shows (i) the classes of capital stock authorized, (ii) the number of
shares authorized in each class, and (iii) the number of shares outstanding in each class as of
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
Class of Equity Trust Stock
|
|
Amount Authorized
|
|
|
Amount Outstanding
|
|
Common Stock
|
|
|
246,000,000
|
|
|
|
168,756,272
|
|
Series A Preferred
|
|
|
5,367,900
|
|
|
|
0
|
|
Series B Preferred
|
|
|
6,600,000
|
|
|
|
4,950,000
|
*
|
Series C Preferred
|
|
|
5,200
|
|
|
|
5,200
|
|
Series D Preferred
|
|
|
3,000,000
|
|
|
|
2,949,700
|
|
|
50
|
|
|
|
|
|
|
|
|
|
Class of Equity Trust Stock
|
|
Amount Authorized
|
|
|
Amount Outstanding
|
|
Series E Preferred
|
|
|
2,000
|
|
|
|
2,000
|
|
Series F Preferred
|
|
|
6,000,000
|
|
|
|
6,000,000
|
|
Preferred Stock
|
|
|
3,024,900
|
|
|
|
0
|
|
|
|
|
|
|
*
|
|
On January 8, 2007, the Equity Trust completed its redemption of 100% of its
outstanding shares of Series B Preferred.
|
|
Healthcare Trust Common Shares
The Healthcare Trust was organized as a statutory trust under the laws of the State of
Delaware on February 20, 2007 and is authorized to issue an unlimited number of shares of
beneficial interest, par value $0.001 per share, in multiple classes and series thereof as
determined from time to time by the Board, who also have the authority without shareholder approval
to establish the designations, powers, preferences, voting, conversion and other rights,
limitations, qualifications and terms and conditions of each such class and series. The Board of
the Healthcare Trust has authorized issuance of an unlimited number of common shares of beneficial
interest. Each share within a particular class or series thereof has equal voting, dividend,
distribution and liquidation rights. When issued, the Healthcare Trust Common Shares distributed in
the Transaction will be fully paid and non-assessable. Healthcare Trust Common Shares are not
redeemable and have no preemptive, conversion or cumulative voting rights.
See Pro Forma Statement of Assets and Liabilities for certain information with respect to the
Healthcare Trust Common Shares following the Distribution.
Repurchase Of Shares
The Equity Trust and the Healthcare Trust are closed-end management investment companies and
as such their respective shareholders do not, and will not, have the right to redeem their shares.
The Equity Trust and the Healthcare Trust each, however, may repurchase its shares from time to
time as and when it deems such a repurchase advisable. Such repurchases will be made when the
Equity Trusts shares or the Healthcare Trusts shares, as the case may be, are trading at a
discount of 10% or more (or such other percentage as the Board of the Equity Trust or the
Healthcare Trust may determine from time to time) from the net asset value of the shares. Pursuant
to the 1940 Act, the Equity Trust and the Healthcare Trust each may repurchase its shares on a
securities exchange (provided that the Equity Trust or the Healthcare Trust, as the case may be,
has informed its shareholders within the preceding six months of its intention to repurchase such
shares) or as otherwise permitted in accordance with Rule 23c-1 under the 1940 Act. Under that
Rule, certain conditions must be met regarding, among other things, distribution of net income for
the preceding fiscal year, identity of the seller, price paid, brokerage commissions, prior notice
to shareholders of an intention to purchase shares and purchasing in a manner and on a basis which
does not discriminate unfairly against the other shareholders through their interest in the Equity
Trust or the Healthcare Trust, as the case may be.
Shares repurchased by the Equity Trust or the Healthcare Trust will be retired and will not be
available for reissuance. The Equity Trust and the Healthcare Trust each may incur debt, in an
amount not exceeding in the case of the Equity Trust 10% of its total assets, to finance share
repurchase transactions. See Investment Restrictions. Any gain in the value of the investments of
the Equity Trust or the Healthcare Trust, as the case may be, during the term of the borrowing that
exceeds the interest paid on the amount borrowed would cause the net asset value of its shares to
increase more rapidly than in the absence of borrowing. Conversely, any decline in the value of the
investments of the Equity Trust or the Healthcare Trust, as the case may be, would cause the net
asset value of its shares to decrease more rapidly than in the absence of borrowing. Borrowing
money thus creates an opportunity for greater capital gain but at the same time increases exposure
to capital risk.
51
When the Equity Trust or the Healthcare Trust repurchases its shares for a price below their
net asset value, the net asset value of those shares that remain outstanding will be enhanced, but
this does not necessarily mean that the market price of those outstanding shares will be affected,
either positively or negatively. Further, interest on borrowings to finance share repurchase
transactions will reduce the net income of the Equity Trust or the Healthcare Trust, as applicable.
Neither the Equity Trust nor the Healthcare Trust currently has an established tender offer
program or established schedule for considering tender offers. No assurance can be given that the
Board of either the Equity Trust or the Healthcare Trust will decide to undertake any such tender
offers in the future, or, if undertaken, that they will reduce any market discount.
Rights Offerings
The Equity Trust has and may in the future, and the Healthcare Trust may in the future, and at
their discretion, choose to make rights offerings from time to time for a number of shares and on
terms that may or may not be similar to any of the Equity Trusts previous offers. Any such future
rights offering will be made in accordance with the 1940 Act. Under the laws of Maryland, the state
in which the Equity Trust was incorporated, and Delaware, the state in which the Healthcare Trust
was organized, respectively, the Board of each fund is authorized to approve rights offerings
without obtaining shareholder approval. The staff of the Commission has interpreted the 1940 Act as
not requiring shareholder approval of a transferable rights offering at a price below the then
current net asset value so long as certain conditions are met, including (i) a good faith
determination by a funds Board that such offering would result in a net benefit to existing
shareholders; (ii) the offering fully protects shareholders preemptive rights and does not
discriminate among shareholders (except for the possible effect of not offering fractional rights);
(iii) management uses its best efforts to ensure an adequate trading market in the rights for use
by shareholders who do not exercise such rights; and (iv) the ratio of a transferable rights
offering does not exceed one new share for each three rights held.
The Multimedia Trust and The Utility Trust
On November 15, 1994, the Equity Trust effected a transaction substantially similar to the
Transaction by contributing $64,382,764 of its assets in exchange for 8,587,702 shares of The
Gabelli Global Multimedia Trust Inc. (the Multimedia Trust), a newly-formed, non-diversified,
closed-end registered investment company. The Multimedia Trusts investment objective is long-term
growth of capital and, under normal market conditions, the Multimedia Trust seeks to achieve its
investment objective by investing at least 80% of its total assets in common stock and other
securities of foreign and domestic companies in the telecommunications, media, publishing and
entertainment industries. The transaction has proven successful. From its inception on November 15,
1994 through December 31, 2006, the Multimedia Trust has had an annualized rate of return of 12.4%
and an average annualized expense ratio of 1.51% based on total assets.
On July 9, 1999, the Equity Trust effected a transaction substantially similar to the
Transaction by contributing $79,587,260 of its assets in exchange for 10,611,635 shares of The
Gabelli Utility Trust (the Utility Trust), a newly-formed, non-diversified, closed-end registered
investment company. The Utility Trusts investment objective is long-term growth of capital and
income and, under normal market conditions, the Utility Trust seeks to achieve its investment
objective by investing at least 80% of its total assets in common stock and other securities of
foreign and domestic companies in the utility industry. The transaction has proven successful. From
its inception on July 9, 1999 through December 31, 2006, the Utility Trust has had an annualized
rate of return of 11.3% and an average annualized expense ratio of 1.73% based on total assets.
52
Certain Provisions of The Governing Documents of the Equity Trust and the Healthcare Trust
The Equity Trust and the Healthcare Trust each presently has provisions in its Articles of
Incorporation or Agreement and Declaration of Trust, respectively, and By-Laws (together, in each
case, its Governing Documents) which could have the effect of limiting, in each case,
|
|
(i)
|
|
the ability of other entities or persons to acquire control of the fund,
|
|
|
|
|
(ii)
|
|
the funds freedom to engage in certain transactions, or
|
|
|
|
|
(iii)
|
|
the ability of the funds directors/trustees or shareholders to amend the
Governing Documents or effectuate changes in the funds management.
|
|
These provisions of the Governing Documents of the Equity Trust and the Healthcare Trust may
be regarded as anti-takeover provisions. The Boards of the Equity Trust and the Healthcare Trust
are each divided into three classes, each having a term of no more than three years (except, to
ensure that the term of a class of the Healthcare Trusts Trustees expires each year, one class of
the Healthcare Trusts Trustees will serve an initial one-year term and three-year terms thereafter
and another class of its Trustees will serve an initial two-year term and three-year terms
thereafter). Each year the term of one class of Directors/Trustees will expire. Accordingly, only
those Directors/Trustees in one class may be changed in any one year, and it would require a
minimum of two years to change a majority of the Board. Further, one Director in each of two of the
classes of the Equity Trust is elected solely by the holders of the Equity Trusts Preferred Stock
and cannot be removed or replaced by the holders of the Common Stock. The same feature will apply
to the Healthcare Trust if it issues preferred shares. Such system of electing Directors/Trustees
may have the effect of maintaining the continuity of management and, thus, make it more difficult
for the shareholders of that fund to change the majority of Directors/Trustees. See Management of
the Equity Trust and the Healthcare Trust Directors/Trustees and Officers.
A director or trustee of either the Equity Trust or the Healthcare Trust may be removed with
or without cause by a vote of, in the case of the Equity Trust, a majority, and, in the case of the
Healthcare Trust, 66 2/3% of the votes entitled to be cast for the election of such director. In
addition, the affirmative vote of the holders of 66 2/3% of the outstanding shares of each class
(voting separately) of the Equity Trust is required to authorize its conversion from a closed-end
to an open-end investment company. With respect to the Healthcare Trust, this voting requirement
also applies to mergers into or a sale of all or substantially all of its assets to an open-end
fund (or other closed-end fund that does not have minority shareholder protections against
conversion to open-end status) and is 75% of its outstanding voting shares and, if the Healthcare
Trust issues preferred shares, the same separate class vote of the preferred shares as is required
for the Equity Trust. In addition, the 66 2/3% vote (80% in the case of the Healthcare Trust) of
the holders of the outstanding voting securities of each class of the fund, voting as a class is
generally required in order to authorize any of the following transactions:
|
(i)
|
|
merger or consolidation of the fund with or into any entity;
|
|
|
(ii)
|
|
issuance of any securities of the fund for cash to any person or entity;
|
|
|
|
(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 for the Equity Trust and $5,000,000 for the Healthcare Trust);
|
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|
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(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 for the Equity Trust and $5,000,000 for the Healthcare Trust);
or
|
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53
|
|
(v)
|
|
in the case of the Healthcare Trust, the purchase of the Healthcare Trusts
Common Shares by the fund from any other person or entity;
|
|
If such person or entity is directly, or indirectly through affiliates, the beneficial owner
of more than 5% of the outstanding shares of the Equity Trust or the Healthcare Trust, however,
such vote would not be required when, under certain conditions, the Board approves the transaction.
Reference is made to the Governing Documents of the Equity Trust and the Healthcare Trust, 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 either fund of opportunities to sell their shares at a premium over
prevailing market prices, by discouraging a third party from seeking to obtain control of either
the Equity Trust or the Healthcare Trust in a tender offer or similar transaction. The overall
effect of these provisions is to render more difficult the accomplishment of a merger or the
assumption of control by a principal shareholder.
Limitation of Directors and Officers Liability
The Governing Documents of each of the Equity Trust and the Healthcare Trust provide that the
fund will indemnify its Directors/Trustees and officers and may indemnify its employees or agents
against liabilities and expenses incurred in connection with litigation in which they may be
involved because of their positions with the fund, to the fullest extent permitted by law. However,
nothing in the Governing Documents of either the Equity Trust or the Healthcare Trust protects or
indemnifies a Director/Trustee, officer, employee or agent of such fund against any liability to
which such person would otherwise be subject in the event of such persons willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her
position.
1940 Act Restrictions on Issuance of Senior Securities
The 1940 Act permits registered closed-end investment companies such as the Equity Trust and
the Healthcare Trust to issue senior securities under certain circumstances as summarized below.
In the first instance, such issuance must be consistent with the fundamental investment
restrictions and any other fundamental restrictions of the investment company. Moreover, if such
class of senior securities represents an indebtedness (debt securities), then the following
requirements must be met:
|
(a)
|
|
such debt securities must have an asset coverage (meaning the ratio which the
value of the total assets of the investment company, less all liabilities and
indebtedness not represented by senior securities, bears to the aggregate amount of
debt securities) of at least 300% immediately after issuance or sale of such debt
securities:
|
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|
(b)
|
|
provision must be made to prohibit the declaration of any dividend (other than
a stock dividend) or the declaration of any other distribution upon any class of the
capital stock of the investment company, or the purchase of any such capital stock by
the company, unless, after giving effect to such action, such debt securities have an
asset coverage of at least 300% (200% in the case of dividends on any preferred stock);
and
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(c)
|
|
provision must be made either that:
|
|
(i)
|
|
if on the last business day of each of twelve consecutive
calendar months such debt securities have an asset coverage of less than 100%,
the holders of such
|
54
|
|
|
|
securities voting as a class will be entitled to elect at least a majority
of the members of the board of the investment company, until such debt
securities have an asset coverage of at least 100% on the last business day
of three consecutive calendar months, or
|
|
|
|
(ii)
|
|
if on the last business day of each of twenty-four consecutive
calendar months such debt securities have an asset coverage of less than 100%,
an event of default shall be deemed to have occurred.
|
If the senior securities are preferred stock (preferred shares), then the following
requirements must be met:
|
(a)
|
|
such shares must have an asset coverage (meaning the ratio which the value of
the total assets of the investment company, less all liabilities and indebtedness not
represented by senior securities, bears to the aggregate amount of debt securities of
such company plus the involuntary liquidation preference of the preferred shares of
such company) of at least 200% immediately after such issuance or sale;
|
|
|
|
(b)
|
|
provision must be made to prohibit the declaration of any dividend (other than
a dividend payable in common shares) or the declaration of any other distribution upon
the common shares of the company, or the purchase of any such common shares, unless,
after giving effect to such action, such preferred shares have an asset coverage of at
least 200%;
|
|
|
|
(c)
|
|
provision must be made to entitle the holders of such preferred shares, voting
as a class, to elect at least two directors at all times, and, subject to the prior
rights, if any, of the holders of any debt securities outstanding, to elect a majority
of the directors if at any time dividends on such preferred shares are unpaid in an
amount equal to two full years dividends on such securities, and to continue to be so
represented until all dividends in arrears are paid or otherwise provided for;
|
|
|
|
(d)
|
|
provision must be made requiring approval by the vote of a majority (i.e., the
lesser of a majority of the outstanding shares or two-thirds of a quorum of such shares) of such preferred shares, voting as a class, of any plan of reorganization
adversely affecting such preferred shares; of any action to change the classification
of the investment company from a non-diversified to a diversified company; or of any
action to change its classification from a closed-end investment company to an open-end
investment company; of any action to borrow money, issue senior securities, underwrite
securities of other persons, purchase or sell real estate or commodities or make loans
to other persons that are not authorized in such companys registration statement under
the 1940 Act, of any deviation from fundamental investment restrictions or other
fundamental policies of such company or of any change in the nature of the business of
such company so as to cease to be an investment company; and
|
|
|
|
(e)
|
|
such class of shares must have complete priority over any other class as to
distribution of assets and payment of dividends, which dividends must be cumulative.
|
The 1940 Act limits registered closed-end investment companies such as the Equity Trust and
the Healthcare Trust to one class of debt securities and to one class of preferred shares, except
that (i) any such class may be issued in one or more series so long as no such series has a
preference or priority over any other series upon the distribution of the assets of such company or
in respect of the payment of interest or dividends and (ii) promissory notes or other evidences of
indebtedness issued in consideration of any loan, extension, or renewal thereof, made by a bank or
other person and privately arranged, and not
55
intended to be publicly distributed, are not deemed to be a separate class of debt securities.
In addition, debt securities do not include any promissory note or other evidence of indebtedness
of temporary purposed only and in an amount not exceeding 5% of the value of the total assets of
the investment company at the time.
EXPERTS
___
serves as the independent registered public accounting firm of the Equity Trust and the
Healthcare Trust. ___ annually renders, or will annually render, an opinion on the financial
statements of the respective fund. Additional information about ___, the independent registered
public accounting firm of the Equity Trust, is provided in Proposal 2 below.
The statement of assets and liabilities of the Healthcare Trust, as of March 23, 2007,
contained in this Proxy Statement/Prospectus has been included herein in reliance on the report of
___ and upon the authority of such firm as experts in auditing and accounting. The statement of
assets and liabilities of the Equity Trust, as of December 31, 2006, and the related statement of
operations for the year then ended, the statements of changes in net assets for each of the two
years in the period then ended and the selected per share date and ratios for each of the five
years in the period then ended included in the Annual Report have been audited by ___, as indicated
in their report with respect thereto, and are incorporated by reference in reliance upon such
report and upon the authority of such firm as experts in accounting and auditing.
Further Information
The Equity Trust and the Healthcare Trust are subject to the informational requirements of the
1934 Act and the 1940 Act and in accordance therewith file, or will file, reports and other
information with the Commission. Reports, proxy statements and other information filed by the
Equity Trust and Healthcare Trust with the Commission pursuant to the informational requirements of
the 1934 Act and the 1940 Act can be inspected and copied at the public reference facilities
maintained by the Commission, 100 F Street, N.E., Washington, D.C. 20549. The Commission maintains
a web site at http://www.sec.gov containing reports, proxy and information statements and other
information regarding registrants, including the Equity Trust and the Healthcare Trust, that file
electronically with the Commission.
The Equity Trust Common Stock, Series D Preferred and Series F Preferred are listed on the
NYSE. Reports, proxy statements and other information concerning the Equity Trust and filed with
the Commission by the Equity Trust will be available for inspection at the NYSE, 20 Broad Street,
New York, New York 10005.
The Healthcare Trust Common Shares will be listed on the NYSE. Reports, proxy statements and
other information concerning the Healthcare Trust and filed with the Commission by the Healthcare
Trust will be available for inspection at the NYSE, 20 Broad Street, New York, New York 10005.
Statements contained in this Proxy Statement/Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and, in each instance, reference is made
to the copy of such contract or other document filed as an exhibit to the Registration Statement,
of which this Proxy Statement/Prospectus forms a part, each such statement being qualified in all
respects by such reference.
56
FINANCIAL STATEMENTS
The Annual Report of the Equity Trust either accompanies this Proxy Statement/Prospectus or
was previously sent to the person to whom this Proxy Statement/Prospectus is being sent, and is
incorporated herein. Investors can call 800-422-3554 to request copies of the Equity Trusts annual
and semi-annual reports, to request other information about the Equity Trust, or to make
shareholder inquiries. The Equity Trusts reports are also available at the website
http://www.gabelli.com. You may also obtain the Equity Trusts Statement of Additional Information,
reports, proxy and information statements and other information regarding the Equity Trust that is
filed electronically with the Commission on the Commissions web
site (
http://www.sec.gov
).
Required Vote for Proposal 1
Approval of the Transaction by the shareholders is to be determined by the vote of a majority
of the outstanding shares of the Equity Trust (holders of Equity Trust Common Stock and holders of
Preferred Stock, voting together as a single class). Under the 1940 Act, this means that to be
approved, the Transaction must receive the affirmative vote of the lesser of (1) a majority of the
outstanding shares of the Equity Trust, or (2) 66 2/3% or more of the shares of the Equity Trust
represented at the Meeting if more than 50% of the outstanding shares of the Equity Trust are
present or represented by proxy at the Meeting (Majority Vote). While the Equity Trust has no
present intention of making any additional distributions in the form of registered investment
companies other than the distribution of the Healthcare Trust as described above, the Board of the
Equity Trust in the future could authorize such additional distributions. The Board may elect to
delay or not to proceed with the Transaction notwithstanding its approval by shareholders if for
any reason the Board determines that such action would be in the best interests of shareholders.
The Board, including the Independent Directors, unanimously recommends that the common and
preferred shareholders vote FOR approval of the Transaction.
PROPOSAL 2: TO ELECT THREE (3) DIRECTORS OF THE EQUITY TRUST
Nominees for the Board of Directors
The Board is divided into three classes, each class having a term of three years. Each year
the term of office of one class will expire. Mario J. Gabelli, Thomas E. Bratter and Arthur V.
Ferrara have each been nominated by the Board for a three-year term to expire at the Equity Trusts
2010 Annual Meeting of Shareholders or until their successors are duly elected and qualified. Each
of the Directors of the Equity Trust has served in that capacity since the July 14, 1986
organizational meeting of the Equity Trust with the exception of (i) Mr. Conn, who became a
Director of the Equity Trust on May 15, 1989, (ii) Mr. Fahrenkopf, who became a Director of the
Equity Trust on May 11, 1998, (iii) Mr. Colavita, who became a Director of the Equity Trust on
November 17, 1999, and (iv) Mr. Ferrara, who became a Director of the Equity Trust on August 15,
2001. All of the Directors of the Equity Trust are also directors or trustees of other investment
companies for which the Investment Adviser or its affiliates serve as investment adviser. The
classes of Directors are indicated below:
Nominees to Serve Until 2010 Annual Meeting of Shareholders
Mario J. Gabelli, CFA
Thomas E. Bratter
Arthur V. Ferrara
57
Directors Serving Until 2009 Annual Meeting of Shareholders
James P. Conn
Anthony R. Pustorino
Directors Serving Until 2008 Annual Meeting of Shareholders
Anthony J. Colavita
Frank J. Fahrenkopf, Jr.
Salvatore J. Zizza
Under the Equity Trusts Governing Documents and the 1940 Act, holders of the Equity Trusts
outstanding Preferred Stock, voting as a separate class, are entitled to elect two Directors, and
holders of the Equity Trusts outstanding Common Stock and Preferred Stock, voting together as a
single class, are entitled to elect the remaining Directors, subject to the provisions of the 1940
Act and the Equity Trusts Governing Documents. The holders of the Equity Trusts outstanding
Preferred Stock would be entitled to elect the minimum number of additional Directors that would
represent a majority of the Directors in the event that dividends on the Equity Trusts Preferred
Stock are in arrears for two full years. No dividend arrearages exist as of the date of this Proxy
Statement/Prospectus. Messrs. Colavita and Conn are currently the Directors elected solely by the
holders of the Equity Trusts Preferred Stock. Unless authority is withheld, it is the intention of
the persons named in the proxy to vote the proxy FOR the election of the nominees named above.
Each nominee has indicated that he has consented to serve as a Director if elected at the Meeting.
If a designated nominee declines or otherwise becomes unavailable for election, however, the proxy
confers discretionary power on the persons named therein to vote in favor of a substitute nominee
or nominees.
The following table sets forth certain information regarding the compensation of the Equity
Trusts Directors and officers for the fiscal year ended December 31, 2006. Officers who are
employed by the Investment Adviser receive no compensation or expense reimbursement from the Equity
Trust.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Compensation
|
|
|
|
|
|
|
From The Equity
|
|
|
Aggregate Compensation
|
|
Trust And Fund
|
Name Of Person
|
|
From The
|
|
Complex Paid To
|
And Position
|
|
Equity Trust
|
|
Directors and Officers*
|
Interested Director/Nominee:
|
|
|
|
|
|
|
|
|
Mario J. Gabelli
Chairman of the Board and
Chief Investment Officer
|
|
$
|
0
|
|
|
$
|
0
|
(24)
|
Independent Directors/Nominees
|
|
|
|
|
|
|
|
|
Thomas E. Bratter
Director
|
|
$
|
18,000
|
|
|
$
|
34,000
|
(3)
|
Anthony J. Colavita
Director
|
|
$
|
22,000
|
|
|
$
|
199,383
|
(34)
à
|
James P. Conn
Director
|
|
$
|
18,000
|
|
|
$
|
88,500
|
(14)
|
Frank J. Fahrenkopf, Jr.
Director
|
|
$
|
18,000
|
|
|
$
|
60,000
|
(5)
|
Arthur V. Ferrara
Director
|
|
$
|
18,000
|
|
|
$
|
24,500
|
(5)
|
Anthony R. Pustorino
Director
|
|
$
|
24,500
|
|
|
$
|
139,500
|
(14)
|
Salvatore J. Zizza
Director
|
|
$
|
20,000
|
|
|
$
|
139,383
|
(25)
à
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Compensation
|
|
|
|
|
|
|
From The Equity
|
|
|
Aggregate Compensation
|
|
Trust And Fund
|
Name Of Person
|
|
From The
|
|
Complex Paid To
|
And Position
|
|
Equity Trust
|
|
Directors and Officers*
|
Officers
|
|
|
|
|
|
|
|
|
Carter W. Austin
Vice President
|
|
$
|
125,000
|
|
|
$
|
350,000
|
(7)
|
Dawn M. Donato
Assistant Vice President
|
|
$
|
71,250
|
|
|
$
|
71,250
|
(1)
|
|
|
|
|
*
|
|
Represents the total compensation paid to such persons during the calendar year ended
December 31, 2006 by investment companies (including the Equity Trust) or portfolios thereof
from which such person receives compensation that are considered part of the same fund complex
as the Equity Trust because they have common or affiliated investment advisers. The number in
parenthesis represents the number of such investment companies and portfolios.
|
|
**
|
|
Ms. Donato was employed by the Equity Trust and not by the Investment Adviser (although
during her tenure she was eligible to receive incentive-based variable compensation from
affiliates of the Investment Adviser). Ms. Donato resigned her position as an officer and
employee of the Equity Trust on October 6, 2006.
|
|
|
à
|
|
Includes compensation for serving as a Trustee of Ned Davis Research Funds, Inc., which was
liquidated on February 10, 2006.
|
|
Other Board Related Matters
The Board has established the following procedures in order to facilitate communications between
the Board and the shareholders of the Equity Trust and other interested parties.
Receipt of Communications
Shareholders of the Equity Trust and other interested parties may contact the Board or any
member of the Board by mail or electronically. To communicate with the Board or any member of the
Board, correspondence should be addressed to the Board or the Board member(s) with whom you wish to
communicate by either name or title. All such correspondence should be sent c/o the Equity Trust
at One Corporate Center, Rye, NY 10580-1422. To communicate with the Board electronically,
shareholders may send an e-mail to gabellifundsboard@gabelli.com.
Forwarding the Communications
All communications received will be opened by the office of the General Counsel of the
Investment Adviser for the sole purpose of determining whether the contents represent a message to
one or more Directors. The office of the General Counsel will forward promptly to the addressee(s)
any contents that relate to the Equity Trust and that are not in the nature of advertising,
promotion of a product or service, or patently offensive or otherwise objectionable material. In
the case of communications to the Board of the Equity Trust or any committee or group of members of
the Board, the General Counsels office will make sufficient copies of the contents to send to each
Director who is a member of the group or committee to which the envelope or e-mail is addressed.
The Equity Trust does not expect Directors of the Equity Trust or Nominees for election as
Director to attend the Annual Meeting of Shareholders.
Independent Registered Public Accounting Firm
___
has been selected to serve as the Equity Trusts independent registered public accounting firm
for the year ending December 31, 2007. ___ acted as the Equity Trusts independent registered
public accounting firm for the year ended December 31, 2006. The Equity Trust knows of no direct
financial or material indirect financial interest of ___ in the Equity Trust. A representative of
___ will not be present at the Meeting, but will be available by telephone and will have an
opportunity to make a statement, if asked, and will be available to respond to appropriate
questions.
59
Set forth in the table below are audit fees and non-audit related fees billed to the Equity
Trust by ___ for professional services received during and for the years ended December 31, 2005
and 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
Year Ended
|
|
|
|
|
|
Audit-Related
|
|
|
|
|
December 31
|
|
Audit Fees
|
|
Fees
|
|
Tax Fees**
|
|
All Other Fees
|
2005
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
2006
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Audit-Related Fees are those fees billed to the
Equity Trust by ___ in connection with the
preparation of Preferred Stock Reports to Moodys and S&P.
|
|
|
|
**
|
|
Tax Fees are those fees billed by ___ in connection with tax compliance services, including
primarily the review of the Equity Trusts income tax returns.
|
|
The Equity Trusts Audit Committee Charter requires that the Audit Committee pre-approve
all audit and non-audit services to be provided by the independent registered public accounting
firm to the Equity Trust, and all non-audit services to be provided by the independent registered
public accounting firm to the Equity Trusts Investment Adviser and service providers controlling,
controlled by, or under common control with the Equity Trusts Investment Adviser (affiliates)
that provide on-going services to the Equity Trust (a Covered Services Provider), if the
engagement relates directly to the operations and financial reporting of the Equity Trust. The
Audit Committee may delegate its responsibility to pre-approve any such audit and permissible
non-audit services to the Chairman of the Audit Committee, and the Chairman must report his
decision(s) to the Audit Committee, at its next regularly scheduled meeting after the Chairmans
pre-approval of such services. The Audit Committee may also establish detailed pre-approval
policies and procedures for pre-approval of such services in accordance with applicable laws,
including the delegation of some or all of the Audit Committees pre-approval responsibilities to
other persons (other than the Investment Adviser or the Equity Trusts officers). Pre-approval by
the Audit Committee of any permissible non-audit services is not required so long as: (i) the
aggregate amount of all such permissible non-audit services provided to the Equity Trust, the
Investment Adviser, and any Covered Services Provider constitutes not more than 5% of the total
amount of revenues paid by the Equity Trust to its independent registered public accounting firm
during the year in which the permissible non-audit services are provided; (ii) the permissible
non-audit services were not recognized by the Equity Trust at the time of the engagement to be
non-audit services; and (iii) such services are promptly brought to the attention of the Audit
Committee and approved by the Audit Committee or the Chairman prior to the completion of the audit.
All of the audit, audit-related, and tax services described above for
which ___ billed the Equity
Trust fees for the years ended December 31, 2005 and December 31, 2006 were pre-approved by the
Audit Committee.
For
the year ended December 31, 2006, ___ has represented to the Equity Trust that it did not
provide any non-audit services (or bill any fees for such services) to the Investment Adviser or
any affiliates thereof that provide services to the Equity Trust.
Compliance with the Securities Exchange Act of 1934
Section 16(a) of the 1934 Act and Section 30(h) of the 1940 Act, and the rules thereunder,
require the Equity Trusts executive officers and Directors, executive officers and directors of
the Investment Adviser, certain other affiliated persons of the Investment Adviser, and persons who
own more than 10% of a registered class of the Equity Trusts securities to file reports of
ownership and changes in ownership with the Commission and the NYSE and to furnish the Equity Trust
with copies of all Section 16(a) forms they file. Based solely on the Equity Trusts review of the
copies of such forms it received for the year ended December 31, 2006, the Equity Trust believes
that during that year such persons complied with all such applicable filing requirements.
60
Required Vote for Proposal 2
The election of each of the listed Nominees for Director of the Equity Trust requires the
affirmative vote of the holders of a plurality of the applicable classes of shares of the Equity
Trust represented at the Meeting if a quorum is present (holders of Common Stock and holders of
Preferred Stock voting together as a single class for each of the three directors).
The Board, including the Independent Directors, unanimously recommends that the common and
preferred shareholders vote FOR the election of each Nominee.
BROKER NON-VOTES AND ABSTENTIONS
For purposes of determining the presence of a quorum for transacting business at the Meeting,
abstentions and broker non-votes (that is, proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owner or other persons entitled to vote
shares on a particular matter with respect to which the brokers or nominees do not have
discretionary power) will be treated as shares that are present but that have not been voted.
Accordingly, shareholders are urged to forward their voting instructions promptly.
Abstentions or broker non-votes will not be counted as votes cast and will have no effect on
the result of the vote. Abstentions or broker non-votes, however, will be considered to be present
at the Meeting for purposes of determining the existence of a quorum.
Shareholders of the Equity Trust will be informed of the voting results of the Meeting in the
Equity Trusts Semi-Annual Report dated June 30, 2007.
OTHER MATTERS TO COME BEFORE THE MEETING
The Board of the Equity Trust does not intend to present any other business at the Meeting,
nor are they aware that any shareholder intends to do so. If, however, any other matters are
properly brought before the Meeting, the persons named in the accompanying form of proxy will vote
thereon in accordance with their judgment.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND
THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD AS SOON AS
POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
SHAREHOLDER PROPOSALS
All proposals by shareholders of the Equity Trust, which are intended to be presented at the
Equity Trusts next Annual Meeting of Shareholders to be held in 2008, must be received by the
Equity Trust for consideration for inclusion in the Equity Trusts proxy statement and proxy
relating to that meeting no later than December 17, 2007. There are additional requirements
regarding proposals of shareholders, and a shareholder contemplating submission of a proposal is
referred to Rule 14a-8 under the 1934 Act.
61
ADDITIONAL INFORMATION
Portfolio Transactions
Subject to policies established by the Board of the Equity Trust, the Investment Adviser is
responsible for placing purchase and sale orders and the allocation of brokerage on behalf of the
Equity Trust. Transactions in equity securities are in most cases effected on U.S. stock exchanges
and involve the payment of negotiated brokerage commissions. In general, there may be no stated
commission in the case of securities traded in over-the-counter markets, but the prices of those
securities may include undisclosed commissions or mark-ups. Principal transactions are not entered
into with affiliates of the Equity Trust. However, Gabelli & Company 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 Equity Trusts Board
has determined that portfolio transactions may be executed through Gabelli & Company and its
broker-dealer affiliates if, in the judgment of the Investment Adviser, the use of those
broker-dealers is likely to result in price and execution at least as favorable as those of other
qualified broker-dealers and if, in particular transactions, those broker-dealers charge the Equity
Trust a rate consistent with that charged to comparable unaffiliated customers in similar
transactions. The Equity Trust has no obligations to deal with any broker or group of brokers in
executing transactions in portfolio securities. In executing transactions, the Investment Adviser
seeks to obtain the best price and execution for the Equity Trust, taking into account such factors
as price, size of order, difficulty of execution and operational facilities of the firm involved
and the firms risk in positioning a block of securities. While the Investment Adviser generally
seeks reasonably competitive commission rates, the Equity Trust does not necessarily pay the lowest
commission available.
Subject to obtaining the best price and execution, brokers who provide supplemental research,
market and statistical information or other services (e.g. wire services) to the Investment Adviser
or its affiliates may receive orders for transactions by the Equity Trust. The term research,
market and statistical information includes advice as to the value of securities, and advisability
of investing in, purchasing or selling securities, and the availability of securities or purchasers
or sellers of securities, and furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance of accounts.
Information so received will be in addition to and not in lieu of the services required to be
performed by the Investment Adviser under 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 Equity Trust, and not all such information is used by
the Investment Adviser in connection with the Equity Trust. Conversely, such information provided
to the Investment Adviser and its affiliates by brokers and dealers through whom other clients of
the Investment Adviser and its affiliates effect securities transactions may be useful to the
Investment Adviser in providing services to the Equity Trust.
Although investment decisions for the Equity Trust are made independently from those of the
other accounts managed by the Investment Adviser and its affiliates, investments of the kind made
by the Equity Trust may also be made by those other accounts. When the same securities are
purchased for or sold by the Equity Trust and any of such other accounts, it is the policy of the
Investment Adviser and its affiliates to allocate such purchases and sales in a manner deemed fair
and equitable to all of the accounts, including the Equity Trust.
For the fiscal years ended December 31, 2004, December 31, 2005 and December 31, 2006, the
Equity Trust paid a total of $1,249,931, $814,155 and $829,093, respectively, in brokerage
commissions, of which Gabelli & Company and its affiliates received, $835,136, $469,081 and
$483,095, respectively. The amount received by Gabelli & Company and its affiliates from the Equity
Trust in respect of
62
brokerage commissions for the fiscal year ended December 31, 2006 represented approximately 58.27%
of the aggregate dollar amount of brokerage commissions paid by the Equity Trust for such period
and approximately 52.86% of the aggregate dollar amount of transactions by the Equity Trust for
such period.
Portfolio Turnover
The Equity Trust does not engage in the trading of securities for the purpose of realizing
short-term profits, but adjusts its portfolio as it deems advisable in view of prevailing or
anticipated market conditions to accomplish its investment objective. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses than a lower rate, which
expenses must be borne by the Equity Trust and its shareholders. High portfolio turnover may also
result in the realization of substantial net short-term capital gains and any distributions
resulting from such gains will be taxable at ordinary income rates for U.S. federal income tax
purposes. The Equity Trusts portfolio turnover rates for the years ended December 31, 2005 and
December 31, 2006 were 22% and 30%, respectively. The portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by the average monthly value of
the Equity Trusts portfolio securities. For purposes of this calculation, portfolio securities
exclude purchases and sales of debt securities having a maturity at the date of purchase of one
year or less.
Proxy Voting Procedures
The Equity Trust and the Healthcare Trust have adopted the proxy voting procedures of the
Investment Adviser and have directed the Investment Adviser to vote all proxies relating to each
respective funds voting securities in accordance with such procedures. The proxy voting procedures
are attached hereto as Appendix E. Information regarding how the Equity Trust voted proxies
relating to portfolio securities during the most recent 12-month period ended June 30 is available
(i) without charge, upon request, by calling 800-422-3554, or on the Registrants website at
www.gabelli.com, and (ii) on the Commissions website at http://www.sec.gov.
Code of Ethics
Each of the Equity Trust and the Healthcare Trust and the Investment Adviser have adopted a
code of ethics (the Code of Ethics) under Rule 17j-1 under the 1940 Act. The Code of Ethics
permits personnel, subject to the Code of Ethics and its restrictive provisions, to invest in
securities, including securities that may be purchased or held by a fund. The Code of Ethics of
each fund can be reviewed and copied at the Commissions Public Reference Room in Washington, D.C.
Information on the operations of the Reference Room may be obtained by calling the Commission at
202-551-8090. The Code of Ethics is also available on the EDGAR database on the Commissions
Internet web site at http://www.sec.gov. Copies of the Code of Ethics may also be obtained, after
paying a duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov, or by writing the Commissions Public Reference Room, Washington, D.C.
20549-0102.
Code of Conduct for Chief Executive and Senior Financial Officers
Each of the Equity Trust and the Healthcare Trust and the Investment Adviser have adopted a
code of conduct for the principal executive and financial officers. This code of conduct sets forth
policies to guide the principal executive and financial officers in the performance of their
duties. The code of conduct is on file with the Commission and can be reviewed and copied at the
Commissions Public Reference Room in Washington, D.C., and information on the operation of the
Public Reference Room may be obtained by calling the Commission at 202-551-8090. The code of
conduct is also available on the EDGAR Database on the Commissions Internet web site at
http://www.sec.gov, and copies of the code of conduct may be obtained, after paying a duplicating
fee, by electronic request at the following e-mail
63
address: publicinfo@sec.gov, or by writing the Commissions Public Reference Room, Washington, D.C.
20549-0102.
Portfolio Manager Information
Other Accounts Managed
The information below lists other accounts for which the Equity Trusts portfolio managers
were primarily responsible for the day-to-day management during the year ended December 31, 2006.
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Number of
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Accounts
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Managed with
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Total Assets
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Name of
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Total Number
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Advisory Fee
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with Advisory
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Portfolio
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Types of
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of Accounts
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Based on
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Fee Based on
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Manager
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Accounts
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Managed
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Total Assets
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Performance
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Performance
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Mario J. Gabelli
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Registered
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19
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$11.8 billion
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5
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$3.2 billion
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Investment
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Companies
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Other Pooled
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17
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$840 million
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15
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$560 million
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Investment Vehicles
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Other Accounts
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1,818
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$11.0 billion
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6
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$1.5 billion
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Caesar M.P. Bryan
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Registered
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5
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$1.1 billion
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0
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$
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0
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Investment
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Companies
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Other Pooled
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1
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$4.0 million
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1
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$4.0 million
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Investment Vehicles
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Other Accounts
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5
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$50.5 million
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0
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$
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0
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Potential Conflicts of Interest
Actual or apparent conflicts of interest may arise when the portfolio manager also has
day-to-day management responsibilities with respect to one or more other accounts. These potential
conflicts include:
Allocation of Limited Time and Attention
.
Because the portfolio manager manages many accounts,
he may not be able to formulate as complete a strategy or identify equally attractive investment
opportunities for each of those accounts as if he were to devote substantially more attention to
the management of only a few accounts.
Allocation of Limited Investment Opportunities
.
If the portfolio manager identifies an
investment opportunity that may be suitable for multiple accounts, the Equity Trust may not be able
to take full advantage of that opportunity because the opportunity may need to be allocated among
all or many of these accounts or other accounts primarily managed by other portfolio managers of
the Investment Adviser and its affiliates.
64
Pursuit of Differing Strategies
.
At times, the portfolio manager may determine that an
investment opportunity may be appropriate for only some of the accounts for which he exercises
investment responsibility, or may decide that certain of the accounts should take differing
positions with respect to a particular security. In these cases, the portfolio manager may execute
differing or opposite transactions for one or more accounts which may affect the market price of
the security or the execution of the transactions, or both, to the detriment of one or more of his
accounts.
Selection of Broker/ Dealers
.
Because of Mr. Gabellis position with, and his indirect
majority ownership interest in, an affiliated broker dealer, Gabelli & Company, he may have an
incentive to use Gabelli & Company to execute portfolio transactions for the Equity Trust even if
using Gabelli & Company is not in the best interest of the fund.
Variation in Compensation
.
A conflict of interest may arise where the financial or other
benefits available to the portfolio manager differ among the accounts that he manages. If the
structure of the Investment Advisers management fee or the portfolio managers compensation
differs among accounts (such as where certain accounts pay higher management fees or
performance-based management fees), the portfolio manager may be motivated to favor certain
accounts over others. The portfolio manager also may be motivated to favor accounts in which he has
an investment interest, or in which the Investment Adviser or its affiliates have investment
interests. In Mr. Gabellis case, the Investment Advisers compensation (and expenses) for the
Equity Trust is marginally greater as a percentage of assets than for certain other accounts and is
less than for certain other accounts managed by Mr. Gabelli, while his personal compensation
structure varies with near-term performance to a greater degree in certain performance fee-based
accounts than with non-performance-based accounts. In addition, he has investment interests in
several of the funds managed by the Investment Adviser and its affiliates. The Investment Adviser
and the Equity Trust have adopted compliance policies and procedures that are designed to address
the various conflicts of interest that may arise for the Investment Adviser and its staff members.
However, there is no guarantee that such policies and procedures will be able to detect and address
every situation in which an actual or potential conflict may arise. In Mr. Bryans case, his
compensation is not affected by changes in assets of the Equity Trust while it is for other
accounts that he manages.
Compensation Structure
. Mr. Gabelli receives incentive-based variable compensation based on a
percentage of net revenues received by the Investment Adviser for managing the fund. Net revenues
are determined by deducting from gross investment management fees the firms expenses (other than
Mr. Gabellis compensation) allocable to the Equity Trust. Additionally, he receives similar
incentive-based variable compensation for managing other accounts within the firm. This method of
compensation is based on the premise that superior long-term performance in managing a portfolio
should be rewarded with higher compensation as a result of growth of assets through appreciation
and net investment activity. Five closed-end registered investment companies managed by Mr. Gabelli
have arrangements whereby the Investment Adviser will only receive its investment advisory fee
attributable to the liquidation value of outstanding preferred stock (and Mr. Gabelli would only
receive his percentage of such advisory fee) if certain performance levels are met. Mr. Gabelli
manages other accounts with performance fees. Compensation for managing these accounts has two
components. One component of the fee is based on a percentage of net revenues received by the
Investment Adviser for managing the account. The second component is based on absolute performance
of the account, with respect to which a percentage of such performance fee is paid to Mr. Gabelli.
As an executive officer of the Investment Advisers parent company, GAMCO Investors, Inc., Mr.
Gabelli also receives ten percent of the net operating profits of the parent company. Mr. Gabelli
receives no base salary, no annual bonus and no stock options.
The compensation of other portfolio managers in the Gabelli organization is reviewed
annually and structured to enable it to attract and retain highly qualified professionals in a
competitive
65
environment. Mr. Bryan receives a compensation package that includes a minimum draw or base
salary, equity-based incentive compensation via awards of stock options, and incentive-based
variable compensation based on a percentage of net revenues received by the Investment Adviser for
managing certain accounts other than the funds to the extent that the amount exceeds a minimum
level of compensation. Net revenues are determined by deducting from gross investment management
fees certain of the firms expenses (other than Mr. Bryans compensation) allocable to such other
accounts. This method of compensation is based on the premise that superior long-term performance
in managing a portfolio should be rewarded with higher compensation as a result of growth of assets
through appreciation and net investment activity. Equity-based incentive compensation is based on
an evaluation by the Investment Advisers parent, GAMCO Investors, Inc., of quantitative and
qualitative performance evaluation criteria.
Mr. Bryans compensation for managing other pooled investment accounts is based on a
percentage of net revenues received by the Investment Adviser for managing the account.
Compensation for managing accounts that have a performance-based fee will have two components. One
component is based on a percentage of net revenues received by the Investment Adviser for managing
the account. The second component is based on absolute performance of the account, with respect to
which a percentage of the performance fee is paid to the portfolio manager.
Ownership of Stock in the Equity Trust.
Set forth in the table below is the dollar range of
equity securities in the Equity Trust beneficially owned by Messrs. Gabelli and Bryan:
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Dollar Range of
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Equity Securities
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Name
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Held in Fund
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Mario J. Gabelli
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G
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Caesar M.P. Bryan
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A
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Key to Dollar Ranges Information as of December 31, 2006
A. None
B. $1$10,000
C. $10,001$50,000
D. $50,001$100,000
E. $100,001$500,000
F. $500,001$1,000,000
G. over $1,000,000
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholder of The Gabelli Healthcare and Wellness
Rx
Trust:
In our opinion, the accompanying statement of assets and liabilities presents fairly, in all
material respects, the financial position of The Gabelli Healthcare & Wellness
Rx
Trust
(the Fund) at , 2007 in conformity with accounting principles generally accepted in the
United States of America. This financial statement is the responsibility of the Funds management;
our responsibility is to express an opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statement, assessing the accounting
66
principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
/s/ [_____]
67
The
Gabelli Healthcare & Wellness
Rx
Trust
Statement Of Assets And Liabilities
As Of March 23, 2007
[To be included]
68
APPENDIX A
INVESTMENT PRACTICES
Special Situations
.
Although the Equity Trust and the Healthcare Trust typically invest in
the securities of companies on the basis of fundamental value, each fund from time to time may, as
a non-principal investment strategy, invest in companies that are determined by the Investment
Adviser to possess special situation characteristics. In general, a special situation company is
a company whose securities are expected to increase in value solely by reason of a development
particularly or uniquely applicable to the company. Developments that may create special situations
include, among others, a liquidation, reorganization, recapitalization or merger, material
litigation, technological breakthrough or new management or management policies. The principal risk
associated with investments in special situation companies is that the anticipated development
thought to create the special situation may not occur and the investment therefore may not
appreciate in value or may decline in value.
Options
.
The Equity Trust and the Healthcare Trust may, subject to guidelines of the
respective Boards, purchase or sell (i.e., write) options on securities, securities indices and
foreign currencies which are listed on a national securities exchange or in the United States
over-the-counter (OTC) markets as a means of achieving additional return or of hedging the value
of the applicable funds portfolio.
Each of the Equity Trust and the Healthcare Trust may write covered call options on common
stocks that it owns or has an immediate right to acquire through conversion or exchange of other
securities in an amount not to exceed 25% of total assets or invest up to 10% of its total assets
in the purchase of put options on common stocks that the fund owns or may acquire through the
conversion or exchange of other securities that it owns.
A call option is a contract that gives the holder of the option the right to buy from the
writer (seller) of the call option, in return for a premium paid, the security or currency
underlying the option at a specified exercise price at any time during the term of the option. The
writer of the call option has the obligation, upon exercise of the option, to deliver the
underlying security or currency upon payment of the exercise price during the option period.
A put option is the reverse of a call option, giving the holder the right, in return for a
premium, to sell the underlying security or currency to the writer, at a specified price, and
obligating the writer to purchase the underlying security or currency from the holder at that
price. The writer of the put, who receives the premium, has the obligation to buy the underlying
security or currency upon exercise, at the exercise price during the option period.
If each of the Equity Trust and the Healthcare Trust has written an option, it may terminate
its obligation by effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. There can be no assurance that a
closing purchase transaction can be effected when the fund so desires.
An exchange traded option may be closed out only on an exchange that provides a secondary
market for an option of the same series. Although the Equity Trust and the Healthcare Trust will
generally purchase or write only those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange will exist for any
particular option.
A call option is covered if each of the Equity Trust and the Healthcare Trust owns the
underlying instrument covered by the call or has an absolute and immediate right to acquire that
instrument without additional cash consideration upon conversion or exchange of another instrument
held
A-1
in its portfolio (or for additional cash consideration held in a segregated account by its
custodian). A call option is also covered if each of the Equity Trust and the Healthcare Trust
holds a call on the same instrument as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written or (ii) greater than the
exercise price of the call written if the difference is maintained by each of the Equity Trust and
the Healthcare Trust in cash, U.S. Government Obligations (as defined under Investment
Restrictions) or other high-grade short-term obligations in a segregated account with its
custodian. A put option is covered if each of the Equity Trust and the Healthcare Trust maintains
cash or other high grade short-term obligations with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same instrument as the put
written where the exercise price of the put held is equal to or greater than the exercise price of
the put written. If each of the Equity Trust and the Healthcare Trust has written an option, it may
terminate its obligation by effecting a closing purchase transaction. This is accomplished by
purchasing an option of the same series as the option previously written. However, once the Equity
Trust and the Healthcare Trust have been assigned an exercise notice, they will be unable to effect
a closing purchase transaction. Similarly, if each of the Equity Trust and the Healthcare Trust is
the holder of an option it may liquidate its position by effecting a closing sale transaction. This
is accomplished by selling an option of the same series as the option previously purchased. There
can be no assurance that either a closing purchase or sale transaction can be effected when each of
the Equity Trust and the Healthcare Trust so desires.
Each of the Equity Trust and the Healthcare Trust 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; each of the Equity Trust and the
Healthcare Trust 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 that provides a secondary market for
an option of the same series or in a private transaction. Although each of the Equity Trust and the
Healthcare Trust 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 each of the Equity Trust and the Healthcare Trust 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 each of the Equity Trust and the Healthcare Trust, 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, each of the Equity Trust and the Healthcare Trust may
also purchase and sell call and put options on securities indices. A stock index reflects in a
single number the market value of many different stocks. Relative values are assigned to the stocks
included in an index and the index fluctuates with changes in the market values of the stocks. The
options give the holder the right to receive a cash settlement during the term of the option based
on the difference between the exercise price and the value of the index. By writing a put or call
option on a securities index, each of the Equity
A-2
Trust and the Healthcare Trust is obligated, in return for the premium received, to make delivery
of this amount. Each of the Equity Trust and the Healthcare Trust may offset its position in the
stock index options prior to expiration by entering into a closing transaction on an exchange or it
may let the option expire unexercised.
Each of the Equity Trust and the Healthcare Trust may also buy or sell put and call options on
foreign currencies. A put option on a foreign currency gives the purchaser of the option the right
to sell a foreign currency at the exercise price until the option expires. A call option on a
foreign currency gives the purchaser of the option the right to purchase the currency at the
exercise price until the option expires. Currency options traded on U.S. or other exchanges may be
subject to position limits which may limit the ability of a fund to reduce foreign currency risk
using such options. Over-the-counter options differ from exchange-traded options in that they are
two-party contracts with price and other terms negotiated between buyer and seller and generally do
not have as much market liquidity as exchange-traded options. Over-the-counter options are
considered illiquid securities.
Use of options on securities indices entails the risk that trading in the options may be
interrupted if trading in certain securities included in the index is interrupted. Each of the
Equity Trust and the Healthcare Trust 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 each of the Equity Trust and the Healthcare Trust may not
correlate precisely with the movements in the level of an index and, therefore, the use of options
on indices cannot serve as a complete hedge and will depend, in part, on the ability of the
Investment Adviser to predict correctly movements in the direction of the stock market generally or
of a particular industry. Because options on securities indices require settlement in cash, each of
the Equity Trust and the Healthcare Trust may be forced to liquidate portfolio securities to meet
settlement obligations.
Although the Investment Adviser will attempt to take appropriate measures to minimize the
risks relating to each of the Equity Trusts and the Healthcare Trusts writing of put and call
options, there can be no assurance that a fund will succeed in any option writing program it
undertakes.
Futures Contracts and Options on Futures
.
A sale of a futures contract (or a short futures
position) means the assumption of a contractual obligation to deliver the assets underlying the
contract at a specified price at a specified future time. A purchase of a futures contract (or a
long futures position) means the assumption of a contractual obligation to acquire the assets
underlying the contract at a specified price at a specified future time. Certain futures contracts,
including stock and bond index futures, are settled on a net cash payment basis rather than by the
sale and delivery of the assets underlying the futures contracts. No consideration will be paid or
received by each of the Equity Trust and the Healthcare Trust upon the purchase or sale of a
futures contract. Initially, each of the Equity Trust and the Healthcare Trust will be required to
deposit with the broker an amount of cash or cash equivalents equal to approximately 1% to 10% of
the contract amount (this amount is subject to change by the exchange or board of trade on which
the contract is traded and brokers or members of such board of trade may charge a higher amount).
This amount is known as initial margin and is in the nature of a performance bond or good faith
deposit on the contract. Subsequent payments, known as variation margin, to and from the broker
will be made daily as the price of the index or security underlying the futures contracts
fluctuates. At any time prior to the expiration of a futures contract, each of the Equity Trust and
the Healthcare Trust may close the position by taking an opposite position, which will operate to
terminate its existing position in the contract.
A-3
An option on a futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a futures contract at a specified exercise price at any time prior to the
expiration of the option. Upon exercise of an option, the delivery of the futures positions by the
writer of the option to the holder of the option will be accompanied by delivery of the accumulated
balance in the writers futures margin account attributable to that contract, which represents the
amount by which the market price of the futures contract exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures contract. The potential
loss related to the purchase of an option on futures contracts is limited to the premium paid for
the option (plus transaction costs). Because the value of the option purchased is fixed at the
point of sale, there are no daily cash payments by the purchaser to reflect changes 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 each of the Equity Trust and the Healthcare Trust.
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 a 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 each of the Equity Trust and the Healthcare Trust sells a put option or enters
into long futures contracts, under current interpretations of the 1940 Act an amount of cash,
obligations of the U.S. government and its agencies and instrumentalities or other liquid
securities equal to the market value of the contract must be deposited and maintained in a
segregated account with the custodian of each of the Equity Trust and the Healthcare Trust 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, each of the Equity Trust and the
Healthcare Trust may establish a segregated account (not with a futures commission merchant or
broker) with cash or liquid securities that, when added to amounts deposited with a futures
commission merchant or a broker as margin, equal the market value of the instruments or currency
underlying the futures contract or call option or the market price at which the short positions
were established.
Interest Rate Futures Contracts and Options Thereon
.
Each of the Equity Trust and the
Healthcare Trust may purchase or sell interest rate futures contracts to take advantage of, or to
protect against, fluctuations in interest rates affecting the value of debt securities which each
fund holds or intends to acquire. For example, if interest rates are expected to increase, each of
the Equity Trust and the Healthcare Trust might sell futures contracts on debt securities the
values of which historically have a high degree of positive correlation to the values of each
funds portfolio securities. Such a sale would have an effect similar to selling an equivalent
value of each of the Equity Trusts and the Healthcare Trusts portfolio securities. If interest
rates increase, the value of each of the Equity Trusts and the Healthcare Trusts portfolio
securities will decline, but the value of the futures contracts to each fund will increase at
approximately an equivalent rate, thereby keeping the net asset value of each fund from declining
as much as it otherwise would have. Each of the Equity Trust and the Healthcare Trust could
accomplish similar results by selling debt securities with longer maturities and investing in debt
securities with shorter maturities when interest rates are expected to increase. However, since the
futures market may be more liquid than the cash market, the use of futures contracts as a risk
management technique allows each of the Equity Trust and the Healthcare Trust to maintain a
defensive position without having to sell its portfolio securities.
Similarly, each of the Equity Trust and the Healthcare Trust may purchase interest rate
futures contracts when it is expected that interest rates may decline. The purchase of futures
contracts for this purpose constitutes a hedge against increases in the price of debt securities
(caused by declining interest
A-4
rates) which each fund intends to acquire. Since fluctuations in the value of appropriately
selected futures contracts should approximate that of the debt securities that will be purchased,
each of the Equity Trust and the Healthcare Trust can take advantage of the anticipated rise in the
cost of the debt securities without actually buying them. Subsequently, each of the Equity Trust
and the Healthcare Trust can make its intended purchase of the debt securities in the cash market
and concurrently liquidate its futures position. To the extent each of the Equity Trust and the
Healthcare Trust enters into futures contracts for this purpose, it will maintain, in a segregated
asset account with the custodian of each fund, assets sufficient to cover the obligations of each
fund with respect to such futures contracts, which will consist of cash or other liquid securities
from its portfolio in an amount equal to the difference between the fluctuating market value of
such futures contracts and the aggregate value of the initial margin deposited by each fund with
its custodian with respect to such futures contracts.
The purchase of a call option on a futures contract is similar in some respects to the
purchase of a call option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or the price of the
underlying debt securities, it may or may not be less risky than ownership of the futures contract
or underlying debt securities. As with the purchase of futures contracts, when each of the Equity
Trust and the Healthcare Trust is not fully invested it may purchase a call option on a futures
contract to hedge against a market advance due to declining interest rates.
The purchase of a put option on a futures contract is similar to the purchase of protective
put options on portfolio securities. Each of the Equity Trust and the Healthcare Trust will
purchase a put option on a futures contract to hedge its portfolio against the risk of rising
interest rates and consequent reduction in the value of portfolio securities.
The writing of a call option on a futures contract constitutes a partial hedge against
declining prices of the securities that are deliverable upon exercise of the futures contract. If
the futures price at expiration of the option is below the exercise price, each of the Equity Trust
and the Healthcare Trust will retain the full amount of the option premium, which provides a
partial hedge against any decline that may have occurred in its portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against increasing prices of the
securities that are deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, each of the Equity Trust and the
Healthcare Trust will retain the full amount of the option premium, which provides a partial hedge
against any increase in the price of debt securities that it intends to purchase. If a put or call
option each of the Equity Trust and the Healthcare Trust has written is exercised, each fund may
incur a loss which will be reduced by the amount of the premium it received. Depending on the
degree of correlation between changes in the value of its portfolio securities and changes in the
value of its futures positions, losses of each of the Equity Trust and the Healthcare Trust from
options on futures it has written may to some extent be reduced or increased by changes in the
value of its portfolio securities.
Currency Futures and Options Thereon
.
Generally, foreign currency futures contracts and
options thereon are similar to the interest rate futures contracts and options thereon discussed
previously. By entering into currency futures and options thereon, each of the Equity Trust and the
Healthcare Trust will seek to establish the rate at which it will be entitled to exchange U.S.
dollars for another currency at a future time. By selling currency futures, each of the Equity
Trust and the Healthcare Trust will seek to establish the number of dollars it will receive at
delivery for a certain amount of a foreign currency. In this way, whenever each of the Equity Trust
and the Healthcare Trust anticipates a decline in the value of a foreign currency against the U.S.
dollar, each fund can attempt to lock in the U.S. dollar value of some or all of the securities
held in its portfolio that are denominated in that currency. By purchasing currency futures, each
of the Equity Trust and the Healthcare Trust can establish the number of dollars it will be
required to pay for a specified amount of a foreign currency in a future month. Thus, if each of
the
A-5
Equity Trust and the Healthcare Trust intends to buy securities in the future and expects the U.S.
dollar to decline against the relevant foreign currency during the period before the purchase is
effected, each fund can attempt to lock in the price in U.S. dollars of the securities it intends
to acquire.
The purchase of options on currency futures will allow each of the Equity Trust and the
Healthcare Trust, for the price of the premium and related transaction costs it must pay for the
option, to decide whether or not to buy (in the case of a call option) or to sell (in the case of a
put option) a futures contract at a specified price at any time during the period before the option
expires. If the Investment Adviser, in purchasing an option, has been correct in its judgment
concerning the direction in which the price of a foreign currency would move as against the U.S.
dollar, each of the Equity Trust and the Healthcare Trust may exercise the option and thereby take
a futures position to hedge against the risk it had correctly anticipated or close out the option
position at a gain that will offset, to some extent, currency exchange losses otherwise suffered by
each fund. If exchange rates move in a way each of the Equity Trust and the Healthcare Trust did
not anticipate, however, each fund will have incurred the expense of the option without obtaining
the expected benefit; any such movement in exchange rates may also thereby reduce, rather than
enhance, each funds profits on its underlying securities transactions.
Securities Index Futures Contracts and Options Thereon
.
Purchases or sales of securities index
futures contracts are used for hedging purposes to attempt to protect each funds current or
intended investments from broad fluctuations in stock or bond prices. For example, each of the
Equity Trust and the Healthcare Trust may sell securities index futures contracts in anticipation
of or during a market decline to attempt to offset the decrease in market value of its securities
portfolio that might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position. When each of the
Equity Trust and the Healthcare Trust is not fully invested in the securities market and
anticipates a significant market advance, it may purchase securities index futures contracts in
order to gain rapid market exposure that may, in part or entirely, offset increases in the cost of
securities that it intends to purchase. As such purchases are made, the corresponding positions in
securities index futures contracts will be closed out. Each of the Equity Trust and the Healthcare
Trust may write put and call options on securities index futures contracts for hedging purposes.
Limitations on the Purchase and Sale of Futures Contracts and Options on Futures Contracts
.
The Investment Adviser has claimed an exclusion from the definition of the term commodity pool
operator under the Commodity Exchange Act and therefore is not subject to registration under the
Commodity Exchange Act. Accordingly, each of the Equity Trust and the Healthcare Trusts
investments in derivative instruments described in this Proxy Statement/Prospectus are not limited
by or subject to regulation under the Commodity Exchange Act or otherwise regulated by the
Commodity Futures Trading Commission. Nevertheless, investment restrictions of each of the Equity
Trust and the Healthcare Trust place certain limitations and prohibitions on each funds ability to
purchase or sell commodities or commodity contracts. See Investment Restrictions in Appendix B.
Under these restrictions, each of the Equity Trust and the Healthcare Trust may not enter into
futures contracts or options on futures contracts unless (i) the aggregate initial margins and
premiums do not exceed 5% of the fair market value of the funds total assets and (ii) the
aggregate market value of outstanding futures contracts of each of the Equity Trust and the
Healthcare Trust 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 each of the Equity Trust and the Healthcare Trusts total assets. In addition, investment in
futures contracts and related options generally will be limited by the rating agency guidelines
applicable to any of a funds outstanding preferred shares.
Forward Currency Exchange Contracts
.
Each of the Equity Trust and the Healthcare Trust may
engage in currency transactions other than on futures exchanges to protect against future changes
in the level of future currency exchange rates. Each of the Equity Trust and the Healthcare Trust
will conduct
A-6
such currency exchange transactions either on a spot, i.e., cash, basis at the rate then prevailing
in the currency exchange market or on a forward basis, by entering into forward contracts to
purchase or sell currency. A forward contract on foreign currency involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed number of days agreed
upon by the parties from the date of the contract, at a price set on the date of the contract.
Dealing in forward currency exchange by each of the Equity Trust and the Healthcare Trust will be
limited to hedging involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward currency with respect to specific receivables or
payables of each of the Equity Trust and the Healthcare Trust generally arising in connection with
the purchase or sale of its portfolio securities and accruals of interest receivable and fund
expenses. Position hedging is the forward sale of currency with respect to portfolio security
positions denominated or quoted in that currency or in a currency bearing a high degree of positive
correlation to the value of that currency.
Each of the Equity Trust and the Healthcare Trust may not position hedge with respect to a
particular currency for an amount greater than the aggregate market value (determined at the time
of making any sale of forward currency) of the securities held in its portfolio denominated or
quoted in, or currently convertible into, such currency. If a fund enters into a position hedging
transaction, the funds custodian or subcustodian will place cash or other liquid securities in a
segregated account of the fund in an amount equal to the value of the funds total assets committed
to the consummation of the given forward contract. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the account so that
the value of the account will, at all times, equal the amount of the funds commitment with respect
to the forward contract.
At or before the maturity of a forward sale contract, each of the Equity Trust and the
Healthcare Trust may either sell a portfolio security and make delivery of the currency, or retain
the security and offset its contractual obligations to deliver the currency by purchasing a second
contract pursuant to which each fund will obtain, on the same maturity date, the same amount of the
currency which it is obligated to deliver. If each of the Equity Trust and the Healthcare Trust
retains the portfolio security and engages in an offsetting transaction, each fund, at the time of
execution of the offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward contract prices. Should forward prices decline during the period between
entering into a forward contract by each of the Equity Trust and the Healthcare Trust for the sale
of a currency and the date it enters into an offsetting contract for the purchase of the currency,
each fund will realize a gain to the extent the price of the currency it has agreed to purchase is
less than the price of the currency it has agreed to sell. Should forward prices increase, each of
the Equity Trust and the Healthcare Trust will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. Closing
out forward purchase contracts involves similar offsetting transactions.
The cost to each of the Equity Trust and the Healthcare Trust of engaging in currency
transactions varies with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions are involved. The use of foreign
currency contracts does not eliminate fluctuations in the underlying prices of the securities, but
it does establish a rate of exchange that can be achieved in the future. In addition, although
forward currency contracts limit the risk of loss due to a decline in the value of the hedged
currency, they also limit any potential gain that might result if the value of the currency
increases.
If a decline in any currency is generally anticipated by the Investment Adviser, each of the
Equity Trust and the Healthcare Trust may not be able to contract to sell the currency at a price
above the level to which the currency is anticipated to decline.
A-7
Special Risk Considerations Relating to Futures and Options Thereon
.
The ability to establish
and close out positions in futures contracts and options thereon by each of the Equity Trust and
the Healthcare Trust will be subject to the development and maintenance of liquid markets. Although
each of the Equity Trust and the Healthcare Trust generally will purchase or sell only those
futures contracts and options thereon for which there appears to be a liquid market, there is no
assurance that a liquid market on an exchange will exist for any particular futures contract or
option thereon at any particular time.
In the event no liquid market exists for a particular futures contract or option thereon in
which each of the Equity Trust and the Healthcare Trust maintains a position, it will not be
possible to effect a closing transaction in that contract or to do so at a satisfactory price and
each fund would have to either make or take delivery under the futures contract or, in the case of
a written option, wait to sell the underlying securities until the option expires or is exercised
or, in the case of a purchased option, exercise the option. In the case of a futures contract or an
option thereon which each of the Equity Trust and the Healthcare Trust has written and which each
fund is unable to close, each fund would be required to maintain margin deposits on the futures
contract or option thereon and to make variation margin payments until the contract is closed.
Successful use of futures contracts and options thereon and forward contracts by each of the
Equity Trust and the Healthcare Trust is subject to the ability of the Investment Adviser to
predict correctly movements in the direction of interest and foreign currency rates. If the
Investment Advisers expectations are not met, each of the Equity Trust and the Healthcare Trust
will be in a worse position than if a hedging strategy had not been pursued. For example, if a fund
has hedged against the possibility of an increase in interest rates that would adversely affect the
price of securities in its portfolio and the price of such securities increases instead, the fund
will lose part or all of the benefit of the increased value of its securities because it will have
offsetting losses in its futures positions. In addition, in such situations, if the fund has
insufficient cash to meet daily variation margin requirements, it may have to sell securities to
meet the requirements. These sales may be, but will not necessarily be, at increased prices that
reflect the rising market. Each of the Equity Trust and the Healthcare Trust may have to sell
securities at a time when it is disadvantageous to do so.
Additional Risks of Foreign Options, Futures Contracts, Options on Futures Contracts and
Forward Contracts
.
Options, futures contracts and options thereon and forward contracts on
securities and currencies may be traded on foreign exchanges. Such transactions may not be
regulated as effectively as similar transactions in the U.S., may not involve a clearing mechanism
and related guarantees, and are subject to the risk of governmental actions affecting trading in,
or the prices of, foreign securities. The value of such positions also could be adversely affected
by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than
in the U.S. of data on which to make trading decisions, (iii) delays in the ability of each of the
Equity Trust and the Healthcare Trust to act upon economic events occurring in the foreign markets
during non-business hours in the U.S., (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the U.S. and (v) lesser trading volume.
Exchanges on which options, futures and options on futures are traded may impose limits on the
positions that a fund may take in certain circumstances.
Risks of Currency Transactions
.
Currency transactions are also subject to risks different from
those of other portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and sales of currency
and related instruments can be adversely affected by government exchange controls, limitations or
restrictions on repatriation of currency, and manipulation, or exchange restrictions imposed by
governments. These forms of governmental action can result in losses to each of the Equity Trust
and the Healthcare Trust if it
A-8
is unable to deliver or receive currency or monies in settlement of obligations and could also
cause hedges it has entered into to be rendered useless, resulting in full currency exposure as
well as incurring transaction costs.
When Issued, Delayed Delivery Securities and Forward Commitments
.
Each of the Equity Trust and
the Healthcare Trust may enter into forward commitments for the purchase or sale of securities,
including on a when issued or delayed delivery basis, in excess of customary settlement periods
for the type of security involved. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a when, as and if issued security. When such
transactions are negotiated, the price is fixed at the time of the commitment, with payment and
delivery taking place in the future, generally a month or more after the date of the commitment.
While a fund will enter into a forward commitment with the intention of actually acquiring the
security, the fund may sell the security before the settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market fluctuation, and no
interest (or dividends) accrues to the fund prior to the settlement date. Each of the Equity Trust
and the Healthcare Trust will segregate with its custodian cash or liquid securities in an
aggregate amount at least equal to the amount of its outstanding forward commitments.
Restricted and Illiquid Securities
.
The Equity Trust may invest up to a total of 10% of its
net assets in securities that are subject to restrictions on resale and securities the markets for
which are illiquid, including repurchase agreements with more than seven days to maturity. The
Healthcare Trust may invest without limit in illiquid securities. Illiquid securities include
securities the disposition of which is subject to substantial legal or contractual restrictions.
The sale of illiquid securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of securities eligible for trading
on national securities exchanges or in the over-the-counter markets. Restricted securities may sell
at a price lower than similar securities that are not subject to restrictions on resale. Unseasoned
issuers are companies (including predecessors) that have operated less than three years. The
continued liquidity of such securities may not be as well assured as that of publicly traded
securities, and accordingly the Board of each of the Equity Trust and the Healthcare Trust will
monitor their liquidity. The Board will review pertinent factors such as trading activity,
reliability of price information and trading patterns of comparable securities in determining
whether to treat any such security as liquid for purposes of the foregoing 10% test. To the extent
the Boards treat such securities as liquid, temporary impairments to trading patterns of such
securities may adversely affect each of the liquidity of each of the Equity Trust and the
Healthcare Trust.
In accordance with pronouncements of the Commission, the Equity Trust may invest in restricted
securities that can be traded among qualified institutional buyers under Rule 144A under the 1933
Act without registration and may treat them as liquid for purposes of the foregoing 10% test if
such securities are found to be liquid. The Board of each of the Equity Trust and the Healthcare
Trust has adopted guidelines and delegated to the Investment Adviser, subject to the supervision of
the Board, the function of determining and monitoring the liquidity of particular Rule 144A
securities.
A-9
APPENDIX B
INVESTMENT RESTRICTIONS
The Equity Trust and the Healthcare Trust operate under the following restrictions that
constitute fundamental policies under the 1940 Act and that, except as otherwise noted, cannot be
changed without the affirmative vote of a majority, as defined in the 1940 Act, of the outstanding
voting securities (voting together as a single class) of the Equity Trust or the Healthcare Trust,
as the case may be. In addition, pursuant to the Equity Trusts Articles Supplementary, a majority,
as defined in the 1940 Act, of the outstanding preferred stock (voting separately as a single
class) is also required to change a fundamental policy, as defined in the 1940 Act. For purposes of
the preferred stock voting rights described in the foregoing sentence, except as otherwise required
under the 1940 Act, the majority of the outstanding preferred stock means, in accordance with
Section 2(a)(42) of the 1940 Act, the vote of (i) of 67% or more of the shares of preferred stock
present at the shareholders meeting called for such vote, if the holders of more than 50% of the
outstanding preferred stock are present or represented by proxy or (ii) more than 50% of the
outstanding preferred stock, whichever is less. Except as otherwise noted, the following
restrictions apply to both the Equity Trust and the Healthcare Trust and all percentage limitations
set forth below apply immediately after a purchase or initial investment and, except for the
borrowing limit in Investment Restriction No. 6, any subsequent change in any applicable percentage
resulting from market fluctuations does not require any action.
1. Neither the Equity Trust nor the Healthcare Trust may invest 25% or more of its total
assets, taken at market value at the time of each investment, in the securities of issuers in any
particular industry except that the Healthcare Trust will invest 25% or more of its total assets in
the healthcare and wellness industries. This restriction does not apply to investments in direct
obligations of the United States or its agencies or instrumentalities that are entitled to the full
faith and credit of the United States and that, other than United States Treasury Bills, provide
for the periodic payment of interest and the full payment of principal at maturity or call for
redemption (U.S. Government Obligations).
2. The Equity Trust may not purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, if more than 10% of the
market value of the total assets of the Equity Trust would be invested in securities of other
investment companies, more than 5% of the market value of the total assets of the Equity Trust
would be invested in the securities of any one investment company or the Equity Trust would own
more than 3% of any other investment companys securities, provided, however, this restriction
shall not apply to securities of any investment company organized by the Equity Trust that are to
be distributed pro rata as a dividend to its shareholders. The Healthcare Trust has no fundamental
policy regarding investment in other investment companies.
3. Neither the Equity Trust nor the Healthcare Trust may purchase or sell commodities or
commodity contracts except that each 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
initial margins and premiums and (ii) the aggregate market value of its outstanding futures
contracts and market value of the currencies and futures contracts subject to outstanding options
written by the Equity Trust or the Healthcare Trust do not exceed 50% of the market value of its
total assets. Neither the Equity Trust nor the Healthcare Trust may purchase or sell real estate,
provided that each fund may invest in securities secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein.
B-1
4. The Equity Trust may not purchase any securities on margin or make short sales, except that
the fund may obtain such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities. The Healthcare Trust has no such fundamental policy.
5. Neither the Equity Trust nor the Healthcare Trust may make loans of money, except by the
purchase of a portion of publicly distributed debt obligations (in the case of the Equity Trust) or
privately or publicly distributed debt obligations (in the case of the Healthcare Trust), and enter
into repurchase agreements with respect to those obligations, consistent with its investment
objectives and policies. The Equity Trust and the Healthcare Trust each reserves the authority to
make loans of its portfolio securities to financial intermediaries in an aggregate amount not
exceeding 20% of its total assets. Any such loans may only be made upon approval of, and subject to
any conditions imposed by, the Board of the Equity Trust or the Healthcare Trust. 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. The Equity Trust may not borrow money, except that it may borrow from banks and other
financial institutions on an unsecured basis, in an amount not exceeding 10% of its total assets,
to finance the repurchase of its shares as described previously. See Description of Capital Stock
of the Equity Trust and the Healthcare Trust Repurchase of Shares. The Healthcare Trust may
borrow money to the extent permitted by applicable law and may pledge assets to secure such
borrowings or other issuances of senior securities. The 1940 Act currently requires that the
Healthcare Trust have 300% asset coverage with respect to all borrowings other than temporary
borrowings of up to 5% of the value of its total assets. The Equity Trust may borrow money on a
secured basis from banks as a temporary measure for extraordinary or emergency purposes. Temporary
borrowings may not exceed 5% of the value of the total assets of the Equity Trust at the time the
loan is made. The Equity Trust may pledge up to 10% of the lesser of the cost or value of its total
assets to secure temporary borrowings. The Equity Trust will not borrow for investment purposes.
Immediately after any borrowing, the Equity Trust will maintain asset coverage of not less than
300% with respect to all borrowings. While the borrowing of the Equity Trust exceeds 5% of its
total assets, the Equity Trust will make no further purchases of securities, although this
limitation will not apply to repurchase transactions as described above.
7. Neither the Equity Trust nor the Healthcare Trust may issue senior securities, except to
the extent permitted by applicable law.
8. Neither the Equity Trust nor the Healthcare Trust may underwrite securities of other
issuers except insofar as each fund may be deemed an underwriter under the 1933 Act in selling
portfolio securities; provided, however, this restriction shall not apply to securities of any
investment company organized by each fund that are to be distributed pro rata as a dividend to its
shareholders.
9. The Equity Trust may not invest more than 10% of its total assets in illiquid securities,
such as repurchase agreements with maturities in excess of seven days, or securities that at the
time of purchase have legal or contractual restrictions on resale. The Healthcare Trust may invest
without limit in illiquid securities.
B-2
APPENDIX C
AUTOMATIC DIVIDEND REINVESTMENT AND
VOLUNTARY CASH PURCHASE PLAN
Under the Equity Trust Plan and the substantially similar Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan adopted by the Healthcare Trust (each, the Plan), a shareholder
whose Common Shares are registered in his or her own name will have all distributions reinvested
automatically by Computershare Trust Company, N.A. (Computershare), which is agent under the
Plan, unless the shareholder elects to receive cash. Distributions with respect to shares
registered in the name of a broker-dealer or other nominee (that is, in street name) will be
reinvested by the broker or nominee in additional shares under the Plan, unless the service is not
provided by the broker or nominee or the shareholder elects to receive distributions in cash.
Investors who own shares of Common Shares 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 Computershare
as dividend disbursing agent.
Enrollment in the Plan
It is the policy of the Equity Trust Inc. and the Healthcare Trust (each, the Fund) to
automatically reinvest dividends. As a registered shareholder you automatically become a
participant in the Funds Plan. The Plan authorizes the Fund to issue shares of Common 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 Fund. Plan participants may send their share certificates to
Computershare 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.
or The Gabelli Healthcare & Wellness
Rx
Trust
c/o Computershare
P.O. Box 43010
Providence, RI 02940-3010
Shareholders requesting this cash election must include the shareholders name and address as they
appear on the share certificate. Shareholders with additional questions regarding the Plan, or
requesting a copy of the terms of the Plan may contact Computershare at (800) 336-6983.
If your shares are held in the name of a broker, bank, or nominee, you should contact such
institution. If such institution is not participating in the Plan, your account will be credited
with a cash dividend. In order to participate in the Plan through such institution, it may be
necessary for you to have your shares taken out of street name and re-registered in your own
name. Once registered in your own name your dividends will be automatically reinvested. Certain
brokers participate in the Plan. Shareholders holding shares in street name at participating
institutions will have dividends automatically reinvested. Shareholders wishing a cash dividend at
such institution must contact their broker to make this change.
The number of shares of Common Shares distributed to participants in the Plan in lieu of cash
dividends is determined in the following manner. Under the Plan, whenever the market price of the
Funds Common Shaes 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 Common Shares valued at the greater of (i) the net asset
value as most recently determined or (ii) 95% of
C-1
the then current market price of the Funds Common Shares. The valuation date is the dividend or
distribution payment date or, if that date is not a NYSE trading day, the next trading day. If the
net asset value of the Common Shares at the time of valuation exceeds the market price of the
Common Shares, participants will receive shares from the Fund valued at market price. If the Fund
should declare a dividend or capital gains distribution payable only in cash, Computershare will
buy Common Shares in the open market, or on the NYSE or elsewhere, for the participants accounts,
except that Computershare will endeavor to terminate purchases in the open market and cause the
Fund to issue shares at net asset value if, following the commencement of such purchases, the
market value of the Common Shares exceed the then current net asset value.
The automatic reinvestment of dividends and capital gains distributions will not relieve
participants of any income tax which may be payable on such distributions. A participant in the
Plan will be treated for Federal income tax purposes as having received, on a dividend payment
date, a dividend or distribution in an amount equal to the cash the participant could have received
instead of shares.
The Fund reserves the right to amend or terminate the Plan as applied to any voluntary cash
payments made and any dividend or distribution paid subsequent to written notice of the change sent
to the members of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by Computershare on at least 90 days
written notice to participants in the Plan.
Voluntary Cash Purchase Plan
The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders to increase their
investment in the Fund. In order to participate in the Voluntary Cash Purchase Plan, shareholders
must have their shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making additional cash payments
to Computershare for investments in the Funds shares at the then current market price.
Shareholders may send an amount from $250 to $10,000. Computershare will use these funds to
purchase shares in the open market on or about the 1st and 15th of each month. Computershare will
charge each shareholder who participates $0.75, plus a pro rata share of the brokerage commissions.
Brokerage charges for such purchases are expected to be less than the usual brokerage charge for
such transactions. It is suggested that any voluntary cash payments be sent to Computershare, P.O.
Box 43010, Providence, RI 02940-3010 such that Computershare receives such payments approximately
10 days before the 1st and 15th of the month. Funds not received at least five days before the
investment date shall be held for investment until the next purchase date. A payment may be
withdrawn without charge if notice is received by Computershare at least 48 hours before such
payment is to be invested.
Shareholders wishing to liquidate shares held at Computershare
must do so in writing or by
telephone. Please submit your request to the above mentioned address or telephone number. Include
in your request your name, address and account number. The cost to liquidate shares is $2.50 per
transaction as well as the brokerage commission incurred. Brokerage charges are expected to be less
than the usual brokerage charge for such transactions.
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 Fund.
The Fund reserves the right to amend or terminate the Plans as applied to any voluntary cash
payments made and any dividend or distribution paid subsequent to written notice of the change sent
to the members of the Plan at least 90 days before the record date for such dividend or
distribution. The Plan
also may be amended or terminated by Computershare on at least 90 days written notice to
participants in the Plan.
C-2
APPENDIX D
DESCRIPTION OF RATINGS
CORPORATE BOND RATINGS MOODYS 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 that 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 that 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. Moodys 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 that 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.
D-1
STANDARD & POORS RATINGS SERVICES
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.
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 C 1 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 noncredit 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.
D-2
APPENDIX E
PROXY VOTING
The Voting of Proxies on Behalf of Clients
Rules 204(4)-2 and 204-2 under the Investment Advisers Act of 1940 and Rule 30b1-4 under the
Investment Company Act of 1940 require investment advisers to adopt written policies and procedures
governing the voting of proxies on behalf of their clients.
These procedures will be used by GAMCO Asset Management Inc., Gabelli Funds, LLC, Gabelli
Securities, Inc., and Gabelli Advisers, Inc. (collectively, the Advisers) to determine how to
vote proxies relating to portfolio securities held by their clients, including the procedures that
the Advisers use when a vote presents a conflict between the interests of the shareholders of an
investment company managed by one of the Advisers, on the one hand, and those of the Advisers the
principal underwriter, or any affiliated person of the investment company, the Advisers, or the
principal underwriter. These procedures will not apply where the Advisers do not have voting
discretion or where the Advisers have agreed to with a client to vote the clients proxies in
accordance with specific guidelines or procedures supplied by the client (to the extent permitted
by ERISA).
I. Proxy Voting Committee
The Proxy Voting Committee was originally formed in April 1989 for the purpose of formulating
guidelines and reviewing proxy statements within the parameters set by the substantive proxy voting
guidelines originally published by GAMCO Investors, Inc. in 1988 and updated periodically, a copy
of which are appended as Exhibit A. The Committee will include representatives of Research,
Administration, Legal, and the Advisers. Additional or replacement members of the Committee will
be nominated by the Chairman and voted upon by the entire Committee.
Meetings are held as needed basis to form views on the manner in which the Advisers should
vote proxies on behalf of their clients.
In general, the Director of Proxy Voting Services, using the Proxy Guidelines, recommendations
of Institutional Shareholder Corporate Governance Service (ISS), other third-party services, and
the analysts of Gabelli & Company, Inc., will determine how to vote on each issue. For
non-controversial matters, the Director of Proxy Voting Services may vote the proxy if the vote is
(1) consistent with the recommendations of the issuers Board of Directors and not contrary to the
Proxy Guidelines; (2) consistent with the recommendations of the issuers Board of Directors and is
a non-controversial issue not covered by the Proxy Guidelines; or (3) the vote is contrary to the
recommendations of the Board of Directors but is consistent with the Proxy Guidelines. In those
instances, the Director of Proxy Voting Services or the Chairman of the Committee may sign and date
the proxy statement indicating how each issue will be voted.
All matters identified by the Chairman of the Committee, the Director of Proxy Voting Services
or the Legal Department as controversial, taking into account the recommendations of ISS or other
third party services and the analysts of Gabelli & Company, Inc., will be presented to the Proxy
Voting Committee. If the Chairman of the Committee, the Director of Proxy Voting Services or the
Legal Department has identified the matter as one that (1) is controversial; (2) would benefit from
deliberation
E-1
by the Proxy Voting Committee; or (3) may give rise to a conflict of interest between the
Advisers and their clients, the Chairman of the Committee will initially determine what vote to
recommend that the Advisers should cast and the matter will go before the Committee.
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A.
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Conflicts of Interest.
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The Advisers have implemented these proxy voting procedures in order to prevent
conflicts of interest from influencing their proxy voting decisions. By following
the Proxy Guidelines, as well as the recommendations of ISS, other third-party
services and the analysts of Gabelli & Company, the Advisers are able to avoid,
wherever possible, the influence of potential conflicts of interest. Nevertheless,
circumstances may arise in which one or more of the Advisers are faced with a
conflict of interest or the appearance of a conflict of interest in connection with
its vote. In general, a conflict of interest may arise when an Adviser knowingly
does business with an issuer, and may appear to have a material conflict between its
own interests and the interests of the shareholders of an investment company managed
by one of the Advisers regarding how the proxy is to be voted. A conflict also may
exist when an Adviser has actual knowledge of a material business arrangement
between an issuer and an affiliate of the Adviser.
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In practical terms, a conflict of interest may arise, for example, when a proxy is
voted for a company that is a client of one of the Advisers, such as GAMCO Asset
Management Inc. A conflict also may arise when a client of one of the Advisers has
made a shareholder proposal in a proxy to be voted upon by one or more of the
Advisers. The Director of Proxy Voting Services, together with the Legal
Department, will scrutinize all proxies for these or other situations that may give
rise to a conflict of interest with respect to the voting of proxies.
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B.
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Operation of Proxy Voting Committee
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For matters submitted to the Committee, each member of the Committee will receive,
prior to the meeting, a copy of the proxy statement, any relevant third party
research, a summary of any views provided by the Chief Investment Officer and any
recommendations by Gabelli & Company, Inc. analysts. The Chief Investment Officer
or the Gabelli & Company, Inc. analysts may be invited to present their viewpoints.
If the Director of Proxy Voting Services or the Legal Department believe that the
matter before the committee is one with respect to which a conflict of interest may
exist between the Advisers and their clients, counsel will provide an opinion to the
Committee concerning the conflict. If the matter is one in which the interests of
the clients of one or more of Advisers may diverge, counsel will so advise and the
Committee may make different recommendations as to different clients. For any
matters where the recommendation may trigger appraisal rights, counsel will provide
an opinion concerning the likely risks and merits of such an appraisal action.
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Each matter submitted to the Committee will be determined by the vote of a majority of the
members present at the meeting. Should the vote concerning one or more recommendations be tied in
a vote of the Committee, the Chairman of the Committee will cast the deciding vote. The Committee
will notify the proxy department of its decisions and the proxies will be voted accordingly.
E-2
Although the Proxy Guidelines express the normal preferences for the voting of any shares not
covered by a contrary investment guideline provided by the client, the Committee is not bound by
the preferences set forth in the Proxy Guidelines and will review each matter on its own merits.
Written minutes of all Proxy Voting Committee meetings will be maintained. The Advisers subscribe
to ISS, which supplies current information on companies, matters being voted on, regulations,
trends in proxy voting and information on corporate governance issues.
If the vote cast either by the analyst or as a result of the deliberations of the Proxy Voting
Committee runs contrary to the recommendation of the Board of Directors of the issuer, the matter
will be referred to legal counsel to determine whether an amendment to the most recently filed
Schedule 13D is appropriate.
II. Social Issues and Other Client Guidelines
If a client has provided special instructions relating to the voting of proxies, they should
be noted in the clients account file and forwarded to the proxy department. This is the
responsibility of the investment professional or sales assistant for the client. In accordance
with Department of Labor guidelines, the Advisers policy is to vote on behalf of ERISA accounts in
the best interest of the plan participants with regard to social issues that carry an economic
impact. Where an account is not governed by ERISA, the Advisers will vote shares held on behalf of
the client in a manner consistent with any individual investment/voting guidelines provided by the
client. Otherwise the Advisers will abstain with respect to those shares.
III. Client Retention of Voting Rights
If a client chooses to retain the right to vote proxies or if there is any change in voting
authority, the following should be notified by the investment professional or sales assistant for
the client.
Operations
Legal Department
Proxy Department
Investment professional assigned to the account
In the event that the Board of Directors (or a Committee thereof) of one or more of the
investment companies managed by one of the Advisers has retained direct voting control over any
security, the Proxy Voting Department will provide each Board Member (or Committee member) with a
copy of the proxy statement together with any other relevant information including recommendations
of ISS or other third-party services.
IV. Voting Records
The Proxy Voting Department will retain a record of matters voted upon by the Advisers for
their clients. The Advisers staff may request proxy-voting records for use in presentations to
current or prospective clients. Requests for proxy voting records should be made at least ten days
prior to client meetings.
If a client wishes to receive a proxy voting record on a quarterly, semi-annual or annual
basis, please notify the Proxy Voting Department. The reports will be available for mailing
approximately ten days after the quarter end of the period. First quarter reports may be delayed
since the end of the quarter falls during the height of the proxy season.
E-3
A letter is sent to the custodians for all clients for which the Advisers have voting
responsibility instructing them to forward all proxy materials to:
[Adviser
name]
Attn: Proxy Voting Department
One Corporate Center
Rye, New York 10580-1433
The sales assistant sends the letters to the custodians along with the trading/DTC instructions.
Proxy voting records will be retained in compliance with Rule 204-2 under the Investment Advisers
Act.
V. Voting Procedures
1. Custodian banks, outside brokerage firms and Wexford Clearing Services Corporation are
responsible for forwarding proxies directly to GAMCO.
Proxies are received in one of two forms:
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Shareholder Vote Authorization Forms (VAFs) Issued
by ADP. VAFs must be voted through the issuing
institution causing a time lag. ADP is an outside
service contracted by the various institutions to
issue proxy materials.
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Proxy cards which may be voted directly.
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2. Upon receipt of the proxy, the number of shares each form represents is logged into the proxy
system according to security.
3. In the case of a discrepancy such as an incorrect number of shares, an improperly signed or
dated card, wrong class of security, etc., the issuing custodian is notified by phone. A corrected
proxy is requested. Any arrangements are made to insure that a proper proxy is received in time to
be voted (overnight delivery, fax, etc.). When securities are out on loan on record date, the
custodian is requested to supply written verification.
4. Upon receipt of instructions from the proxy committee (see Administrative), the votes are cast
and recorded for each account on an individual basis.
Since January 1, 1992, records have been maintained on the Proxy Edge system. The system is backed
up regularly. From 1990 through 1991, records were maintained on the PROXY VOTER system and in
hardcopy format. Prior to 1990, records were maintained on diskette and in hardcopy format.
PROXY EDGE records include:
Security
Name and Cusip Number
Date and Type of Meeting (Annual, Special, Contest)
Client Name
Adviser or Fund Account Number
Directors Recommendation
How GAMCO voted for the client on each issue
The rationale for the vote when it is appropriate
Records prior to the institution of the PROXY EDGE system include:
Security name
Type of Meeting (Annual, Special, Contest)
E-4
Date of Meeting
Name of Custodian
Name of Client
Custodian Account Number
Adviser or Fund Account Number
Directors recommendation
How the Adviser voted for the client on each issue
Date the proxy statement was received and by whom
Name of person posting the vote
Date and method by which the vote was cast
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From these records individual client proxy voting records are compiled. It is our policy
to provide institutional clients with a proxy voting record during client reviews. In
addition, we will supply a proxy voting record at the request of the client on a quarterly,
semi-annual or annual basis.
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5. VAFs are kept alphabetically by security. Records for the current proxy season are located in
the Proxy Voting Department office. In preparation for the upcoming season, files are transferred
to an offsite storage facility during January/February.
6. Shareholder Vote Authorization Forms issued by ADP are always sent directly to a specific
individual at ADP.
7. If a proxy card or VAF is received too late to be voted in the conventional matter, every
attempt is made to vote on one of the following manners:
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VAFs can be faxed to ADP up until the time of the meeting. This
is followed up by mailing the original form.
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When a solicitor has been retained, the solicitor is called. At
the solicitors direction, the proxy is faxed.
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8. In the case of a proxy contest, records are maintained for each opposing entity.
9. Voting in Person
a) At times it may be necessary to vote the shares in person. In this case, a legal proxy is
obtained in the following manner:
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Banks and brokerage firms using the services at ADP:
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The back of the VAF is stamped indicating that we wish to vote in person. The forms are then
sent overnight to ADP. ADP issues individual legal proxies and sends them back via overnight (or
the Adviser can pay messenger charges). A lead-time of at least two weeks prior to the meeting is
needed to do this. Alternatively, the procedures detailed below for banks not using ADP may be
implemented.
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Banks and brokerage firms issuing proxies directly:
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The bank is called and/or faxed and a legal proxy is requested.
All legal proxies should appoint:
E-5
Representative of [Adviser name] with full power of substitution.
b) The legal proxies are given to the person attending the meeting along with the following
supplemental material:
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A limited Power of Attorney appointing the attendee an Adviser representative.
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A list of all shares being voted by custodian only. Client names and account numbers are not included. This list must
be presented, along with the proxies, to the Inspectors of Elections and/or tabulator at least one-half hour prior to
the scheduled start of the meeting. The tabulator must qualify the votes (i.e. determine if the vote have previously
been cast, if the votes have been rescinded, etc. vote have previously been cast, etc.).
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A sample ERISA and Individual contract.
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A sample of the annual authorization to vote proxies form.
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A copy of our most recent Schedule 13D filing (if applicable).
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E-6
APPENDIX A
GENERAL POLICY STATEMENT
It is the policy of
GAMCO Investors, Inc.
to vote in the best economic interests of our clients.
As we state in our Magna Carta of Shareholders Rights, established in May 1988, we are neither
for
nor
against
management. We are for shareholders.
At our first proxy committee meeting in 1989, it was decided that each proxy statement should be
evaluated on its own merits within the framework first established by our Magna Carta of
Shareholders Rights. The attached guidelines serve to enhance that broad framework.
We do not consider any issue routine. We take into consideration all of our research on the
company, its directors, and their short and long-term goals for the company. In cases where issues
that we generally do not approve of are combined with other issues, the negative aspects of the
issues will be factored into the evaluation of the overall proposals but will not necessitate a
vote in opposition to the overall proposals.
BOARD OF DIRECTORS
The advisers do not consider the election of the Board of Directors a routine issue. Each slate of
directors is evaluated on a case-by-case basis.
Factors taken into consideration include:
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Historical responsiveness to shareholders
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This may include such areas as:
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Paying greenmail
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Failure to adopt shareholder resolutions receiving a majority of shareholder votes
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Qualifications
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Nominating committee in place
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Number of outside directors on the board
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Attendance at meetings
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Overall performance
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SELECTION OF AUDITORS
In general, we support the Board of Directors recommendation for auditors.
BLANK CHECK PREFERRED STOCK
We oppose the issuance of blank check preferred stock.
Blank check preferred stock allows the company to issue stock and establish dividends, voting
rights, etc. without further shareholder approval.
E-7
CLASSIFIED BOARD
A classified board is one where the directors are divided into classes with overlapping terms. A
different class is elected at each annual meeting.
While a classified board promotes continuity of directors facilitating long range planning, we feel
directors should be accountable to shareholders on an annual basis. We will look at this proposal
on a case-by-case basis taking into consideration the boards historical responsiveness to the
rights of shareholders.
Where a classified board is in place we will generally not support attempts to change to an
annually elected board.
When an annually elected board is in place, we generally will not support attempts to classify the
board.
INCREASE AUTHORIZED COMMON STOCK
The
request to increase the amount of authorized shares is considered on
a case-by-case basis.
Factors taken into consideration include:
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Future use of additional shares
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Stock split
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Stock option or other executive compensation plan
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Finance growth of company/strengthen balance sheet
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Aid in restructuring
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Improve credit rating
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Implement a poison pill or other takeover defense
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Amount of stock currently authorized but not yet issued or reserved for stock option plans
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Amount of additional stock to be authorized and its dilutive effect
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We will support this proposal if a detailed and verifiable plan for the use of the additional
shares is contained in the proxy statement.
CONFIDENTIAL BALLOT
We support the idea that a shareholders identity and vote should be treated with confidentiality.
However, we look at this issue on a case-by-case basis.
In order to promote confidentiality in the voting process, we endorse the use of independent
Inspectors of Election.
CUMULATIVE VOTING
In general, we support cumulative voting.
Cumulative voting is a process by which a shareholder may multiply the number of directors being
elected by the number of shares held on record date and cast the total number for one candidate or
allocate the voting among two or more candidates.
E-8
Where cumulative voting is in place, we will vote against any proposal to rescind this shareholder
right.
Cumulative voting may result in a minority block of stock gaining representation on the board.
When a proposal is made to institute cumulative voting, the proposal will be reviewed on a
case-by-case basis. While we feel that each board member should represent all shareholders,
cumulative voting provides minority shareholders an opportunity to have their views represented.
DIRECTOR LIABILITY AND INDEMNIFICATION
We support efforts to attract the best possible directors by limiting the liability and increasing
the indemnification of directors, except in the case of insider dealing
EQUAL ACCESS TO THE PROXY
The SECs rules provide for shareholder resolutions. However, the resolutions are limited in scope
and there is a 500 word limit on proponents written arguments. Management has no such
limitations. While we support equal access to the proxy, we would look at such variables as length
of time required to respond, percentage of ownership, etc.
FAIR PRICE PROVISIONS
Charter provisions requiring a bidder to pay all shareholders a fair price are intended to prevent
two-tier tender offers that may be abusive. Typically, these provisions do not apply to
board-approved transactions.
We support fair price provisions because we feel all shareholders should be entitled to receive the
same benefits.
Reviewed on a case-by-case basis.
GOLDEN PARACHUTES
Golden parachutes are severance payments to top executives who are terminated or demoted after a
takeover.
We support any proposal that would assure management of its own welfare so that they may continue
to make decisions in the best interest of the company and shareholders even if the decision results
in them losing their job. We do not, however, support excessive golden parachutes. Therefore,
each proposal will be decided on a case-by- case basis.
Note: Congress has imposed a tax on any parachute that is more than three times the executives
average annual compensation.
ANTI-GREENMAIL PROPOSALS
We do not support greenmail. An offer extended to one shareholder should be extended to all
shareholders equally across the board.
LIMIT SHAREHOLDERS RIGHTS TO CALL SPECIAL MEETINGS
We support the right of shareholders to call a special meeting.
E-9
CONSIDERATION OF NONFINANCIAL EFFECTS OF A MERGER
This proposal releases the directors from only looking at the financial effects of a merger and
allows them the opportunity to consider the mergers effects on employees, the community, and
consumers.
As a fiduciary, we are obligated to vote in the best economic interests of our clients. In
general, this proposal does not allow us to do that. Therefore, we generally cannot support this
proposal.
Reviewed on a case-by-case basis.
MERGERS, BUYOUTS, SPIN-OFFS, RESTRUCTURINGS
Each of the above is considered on a case-by-case basis. According to the Department of Labor, we
are not required to vote for a proposal simply because the offering price is at a premium to the
current market price. We may take into consideration the long term interests of the shareholders.
MILITARY ISSUES
Shareholder proposals regarding military production must be evaluated on a purely economic set of
criteria for our ERISA clients. As such, decisions will be made on a case-by-case basis.
In voting on this proposal for our non-ERISA clients, we will vote according to the clients
direction when applicable. Where no direction has been given, we will vote in the best economic
interests of our clients. It is not our duty to impose our social judgment on others.
NORTHERN IRELAND
Shareholder proposals requesting the signing of the MacBride principles for the purpose of
countering the discrimination of Catholics in hiring practices must be evaluated on a purely
economic set of criteria for our ERISA clients. As such, decisions will be made on a case-by-case
basis.
In voting on this proposal for our non-ERISA clients, we will vote according to client direction
when applicable. Where no direction has been given, we will vote in the best economic interests of
our clients. It is not our duty to impose our social judgment on others.
OPT OUT OF STATE ANTI-TAKEOVER LAW
This shareholder proposal requests that a company opt out of the coverage of the states
anti-takeover statutes. Example: Delaware law requires that a buyer must acquire at least 85% of
the companys stock before the buyer can exercise control unless the board approves.
We consider this on a case-by-case basis. Our decision will be based on the following:
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Management history of responsiveness to shareholders
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Other mitigating factors
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POISON PILL
In general, we do not endorse poison pills.
E-10
In certain cases where management has a history of being responsive to the needs of shareholders
and the stock is very liquid, we will reconsider this position.
REINCORPORATION
Generally, we support reincorporation for well-defined business reasons. We oppose reincorporation
if proposed solely for the purpose of reincorporating in a state with more stringent anti-takeover
statutes that may negatively impact the value of the stock.
STOCK OPTION PLANS
Stock option plans are an excellent way to attract, hold and motivate directors and employees.
However, each stock option plan must be evaluated on its own merits, taking into consideration the
following:
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Dilution of voting power or earnings per share by more than 10%
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Kind of stock to be awarded, to whom, when and how much
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Amount of stock already authorized but not yet issued under existing stock option plans
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SUPERMAJORITY VOTE REQUIREMENTS
Supermajority vote requirements in a companys charter or bylaws require a level of voting approval
in excess of a simple majority of the outstanding shares. In general, we oppose
supermajority-voting requirements. Supermajority requirements often exceed the average level of
shareholder participation. We support proposals approvals by a simple majority of the shares
voting.
LIMIT SHAREHOLDERS RIGHT TO ACT BY WRITTEN CONSENT
Written consent allows shareholders to initiate and carry on a shareholder action without having to
wait until the next annual meeting or to call a special meeting. It permits action to be taken by
the written consent of the same percentage of the shares that would be required to effect proposed
action at a shareholder meeting.
Reviewed on a case-by-case basis.
E-11
APPENDIX F
TAXATION
The following discussion is a brief summary of certain U.S. federal income tax considerations
affecting the Equity Trust and the Healthcare Trust and each of their shareholders. The discussion
reflects applicable tax laws of the United States as of the date of this Proxy
Statement/Prospectus, which tax laws may be changed or subject to new interpretations by the courts
or the Internal Revenue Service (the IRS) retroactively or prospectively. No attempt is made to
present a detailed explanation of all U.S. federal, state, local and foreign tax concerns affecting
the Equity Trust and the Healthcare Trust and each of their shareholders (including shareholders
owning a large position in each of the Equity Trust and the Healthcare Trust), and the discussions
set forth herein do not constitute tax advice. Investors are urged to consult their own tax
advisers to determine the tax consequences to them of investing in the Equity Trust and the
Healthcare Trust.
Taxation of a Fund
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 (the Code) (a RIC).
The Healthcare Trust intends to elect to and qualify as a regulated investment company under
Subchapter M of the Code. Accordingly, each fund must or will, as the case may be, among other
things, (i) derive in each taxable year at least 90% of its gross income from (a) dividends,
interest (including tax-exempt interest), payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign currencies, or other
income (including but not limited to gain from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies and (b) net income
derived from interests in certain publicly traded partnerships that are treated as partnerships for
U.S. federal income tax purposes and that derive less than 90% of their gross income from the items
described in (a) above (each a Qualified Publicly Traded Partnership); and (ii) diversify its
holdings so that, at the end of each quarter of each taxable year (a) at least 50% of the value of
its total assets is represented by cash and cash items, U.S. government securities, the securities
of other regulated investment companies and other securities, with such other securities limited,
in respect of any one issuer, to an amount not greater than 5% of the value of a funds total
assets and not more than 10% of the outstanding voting securities of such issuer and (b) not more
than 25% of the value of a funds total assets is invested in the securities of (I) any one issuer
(other than U.S. government securities and the securities of other RICs), (II) any two or more
issuers in which a fund owns more than 20% or more of the voting securities and that are determined
to be engaged in the same business or similar or related trades or businesses or (III) any one or
more Qualified Publicly Traded Partnerships.
The investments of each of the Equity Trust and the Healthcare Trust in partnerships,
including Qualified Publicly Traded Partnerships, may result in each fund being subject to state,
local, or foreign income, franchise or withholding tax liabilities.
As RICs, each fund generally is or will not be, as the case may be, subject to U.S. federal
income tax on income and gains that it distributes each taxable year to shareholders, if it
distributes at least 90% of the sum of each funds (i) investment company taxable income (which
includes, among other items, dividends, interest and the excess of any net short-term capital gain
over net long-term capital loss and other taxable income, other than any net long-term capital
gain, reduced by deductible expenses) determined without regard to the deduction for dividends paid
and (ii) its net tax-exempt interest (the excess of its gross tax-exempt interest over certain
disallowed deductions). Each fund intends to distribute at least annually substantially all of such
income.
F-1
Amounts not distributed on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax at the fund level. To avoid the tax, each
of the Equity Trust and the Healthcare Trust must or will, as the case may be, distribute during
each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income (not
taking into account any capital gain or loss) for the calendar year, (ii) 98% of its capital gain
in excess of its capital loss (adjusted for certain ordinary losses) for a one-year period
generally ending on October 31 of the calendar year (unless an election is made to use the funds
fiscal year), and (iii) certain undistributed amounts from previous years on which a fund paid no
federal income tax. While each fund intends to distribute any income and capital gain in the manner
necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient
amounts of the funds taxable income and capital gain will be distributed to avoid entirely the
imposition of the tax. In that event, each fund will be liable for the tax only on the amount by
which it does not meet the foregoing distribution requirement.
A distribution will be treated as paid during the calendar year if it is paid during the
calendar year or declared by each of the Equity Trust and the Healthcare Trust in October, November
or December of the year, payable to shareholders of record on a date during such a month and paid
by each fund during January of the following year. Any such distributions paid during January of
the following year will be deemed to be received no later than December 31 of the year the
distributions are declared, rather than when the distributions are received.
If a fund were unable to satisfy the 90% distribution requirement or otherwise were to fail to
qualify as a RIC in any year, it would be taxed in the same manner as an ordinary corporation and
distributions to the funds shareholders would not be deductible by the fund in computing its
taxable income. To qualify again to be taxed as a RIC in a subsequent year, the Equity Trust and
the Healthcare Trust each would be required to distribute to its shareholders its earnings and
profits attributable to non-RIC years. In addition, if the Equity Trust and the Healthcare Trust
each failed to qualify as a RIC for a period greater than two taxable years, then each fund would
be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate
gain, including items of income, over aggregate loss that would have been realized if each fund had
been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a
period of ten years, in order to qualify as a RIC in a subsequent year.
Gain or loss on the sales of securities by each fund will generally be long-term capital gain
or loss if the securities have been held by the fund for more than one year. Gain or loss on the
sale of securities held for one year or less will be short-term capital gain or loss.
Foreign currency gain or loss on non-U.S. dollar-denominated securities and on any non-U.S.
dollar-denominated futures contracts, options and forward contracts that are not section 1256
contracts (as defined below) generally will be treated as ordinary income and loss.
Investments by either the Equity Trust or the Healthcare Trust in certain passive foreign
investment companies (PFICs) could subject such fund to federal income tax (including interest
charges) on certain distributions or dispositions with respect to those investments which cannot be
eliminated by making distributions to shareholders. Elections may be available to a fund to
mitigate the effect of this tax provided that the PFIC complies with certain reporting
requirements, but such elections generally accelerate the recognition of income without the receipt
of cash. Dividends paid by PFICs will not qualify for the reduced tax rates discussed below under
Taxation of Shareholders.
Each fund may invest in debt obligations purchased at a discount with the result that each
fund may be required to accrue income for U.S. federal income tax purposes before amounts due under
the obligations are paid. Each fund may also invest in securities rated in the medium to lower
rating categories of nationally recognized rating organizations, and in unrated securities (high
yield
F-2
securities). A portion of the interest payments on such high yield securities may be treated as
dividends for certain U.S. federal income tax purposes.
As a result of investing in stock of PFICs or securities purchased at a discount or any other
investment that produces income that is not matched by a corresponding cash distribution to either
of the Equity Trust or the Healthcare Trust, such fund could be required to include in current
income, income it has not yet received. Any such income would be treated as income earned by each
fund and therefore would be subject to the distribution requirements of the Code. This might
prevent a fund from distributing 90% of its investment company taxable income as is required in
order to avoid fund-level federal income taxation on all of its income, or might prevent a fund
from distributing enough ordinary income and capital gain net income to avoid completely the
imposition of the excise tax. To avoid this result, a fund may be required to borrow money or
dispose of securities to be able to make distributions to its shareholders.
If either of the Equity Trust or the Healthcare Trust does not meet the asset coverage
requirements of the 1940 Act and, in the case of the Equity Trust, the Articles Supplementary, the
fund will be required to suspend distributions to the holders of common shares until the asset
coverage is restored. Such a suspension of distributions might prevent each fund from distributing
90% of its investment company taxable income as is required in order to avoid fund-level federal
income taxation on all of its income, or might prevent the fund from distributing enough income and
capital gain net income to avoid completely imposition of the excise tax.
Certain of the funds investment practices are subject to special and complex U.S. federal
income tax provisions that may, among other things, (i) disallow, suspend or otherwise limit the
allowance of certain losses or deductions, (ii) convert lower taxed long-term capital gains into
higher taxed short-term capital gains or ordinary income, (iii) convert ordinary loss or a
deduction into capital loss (the deductibility of which is more limited), (iv) cause a fund to
recognize income or gain without a corresponding receipt of cash, (v) adversely affect the time as
to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the
characterization of certain complex financial transactions and (vii) produce income that will not
qualify as good income for purposes of the 90% annual gross income requirement described above.
Each of the Equity Trust and the Healthcare Trust will monitor its transactions and may make
certain tax elections to mitigate the effect of these rules and prevent disqualification of the
fund as a regulated investment company.
Foreign Taxes
Since each of the Equity Trust and the Healthcare Trust may invest in foreign securities,
income from such securities may be subject to non-U.S. taxes. Each fund expects to invest less than
50% of its total assets in foreign securities. As long as each fund continues to invest less than
50% of its assets in foreign securities it will not be eligible to elect to pass-through to
shareholders of a fund the ability to use the foreign tax deduction or foreign tax credit for
foreign taxes paid with respect to qualifying taxes.
Taxation of Shareholders
The Equity Trust and the Healthcare Trust each will determine either to distribute or to
retain for reinvestment all or part of its net capital gain. If any such gain is retained, the
Equity Trust and the Healthcare Trust each will be subject to a tax of 35% of such amount. In that
event, each fund expects to designate the retained amount as undistributed capital gain in a notice
to its shareholders, each of whom (i) will be required to include in income for tax purposes as
long-term capital gain its share of such undistributed amounts, (ii) will be entitled to credit its
proportionate share of the tax paid by each fund against its federal income tax liability and to
claim refunds to the extent that the credit exceeds such
F-3
liability and (iii) will increase its basis in its shares of the fund by an amount equal to 65% of
the amount of undistributed capital gain included in such shareholders gross income.
Distributions paid by each fund from its investment company taxable income, which includes net
short-term capital gain, generally are taxable as ordinary income to the extent of each funds
earnings and profits. Such distributions, if designated by the Equity Trust or the Healthcare
Trust, may, however, qualify (provided holding period and other requirements are met by each of the
Equity Trust and the Healthcare Trust and each of their shareholders) (i) for the dividends
received deduction available to corporations, but only to the extent that each funds income
consists of dividend income from U.S. corporations and (ii) for taxable years through December 31,
2010, as qualified dividend income eligible for the reduced maximum federal tax rate to individuals
of generally 15% (currently 5% for individuals in lower tax brackets) to the extent that each fund
receives qualified dividend income. Qualified dividend income is, in general, dividend income from
taxable domestic corporations and certain qualified foreign corporations (e.g., generally, foreign
corporations incorporated in a possession of the United States or in certain countries with a
qualifying comprehensive tax treaty with the United States, or whose shares with respect to which
such dividend is paid is readily tradable on an established securities market in the United
States). A qualified foreign corporation does not include a foreign corporation which for the
taxable year of the corporation in which the dividend was paid, or the preceding taxable year, is a
passive foreign investment company, as defined in the Code. If either of the Equity Trust or the
Healthcare Trust engages in certain securities lending transaction, the amount received by each
fund that is the equivalent of the dividends paid by the issuer on the securities loaned will not
be eligible for qualified dividend income treatment. Distributions of net capital gain designated
as capital gain distributions, if any, are taxable to shareholders at rates applicable to long-term
capital gain, whether paid in cash or in shares, and regardless of how long the shareholder has
held each funds shares. Capital gain distributions are not eligible for the dividends received
deduction. The maximum federal tax rate on net long-term capital gain of individuals is reduced
generally from 20% to 15% (currently 5% for individuals in lower brackets) for such gain realized
before January 1, 2011. Unrecaptured Section 1250 gain distributions, if any, will be subject to a
25% tax. Distributions in excess of each funds earnings and profits will first reduce the adjusted
tax basis of a holders shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gain to such holder (assuming the shares are held as a capital asset). For
non-corporate taxpayers, investment company taxable income (other than qualified dividend income)
will currently be taxed at a maximum rate of 35%, while net capital gain generally will be taxed at
a maximum rate of 15%. For corporate taxpayers, both investment company taxable income and net
capital gain are taxed at a maximum rate of 35%.
If an individual receives a dividend that is eligible for qualified dividend income treatment,
and such dividend constitutes an extraordinary dividend, any loss on the sale or exchange of
shares in respect of which the extraordinary dividend was paid, then the loss will be long-term
capital loss to the extent of such extraordinary dividend. An extraordinary dividend for this
purpose is generally a dividend (i) in an amount greater than or equal to 10% or 5% of the
taxpayers tax basis (or trading value) in a share of common stock or preferred stock,
respectively, aggregating dividends with ex-dividend dates within an 85-day period or (ii) in an
amount greater than 20% of the taxpayers tax basis (or trading value) in a share of common or
preferred stock, aggregating dividends with ex-dividend dates within a 365-day period.
The IRS currently requires that a registered investment company that has two or more classes
of stock allocate to each such class proportionate amounts of each type of its income (such as
ordinary income, capital gains, dividends qualifying for the dividends received deduction (DRD)
and qualified dividend income) based upon the percentage of total dividends paid out of current or
accumulated earnings and profits to each class for the tax year. Accordingly, the Equity Trust
intends each year to allocate capital gain dividends, dividends qualifying for the DRD and
dividends that constitute qualified
F-4
dividend income, if any, between its common stock and preferred stock in proportion to the total
dividends paid out of current or accumulated earnings and profits to each class with respect to
such tax year. Distributions in excess of the Equity Trusts current and accumulated earnings and
profits, if any, however, will not be allocated proportionately among the common stock and
preferred stock. Since the Equity Trusts current and accumulated earnings and profits will first
be used to pay dividends on its preferred stock, distributions in excess of such earnings and
profits, if any, will be made disproportionately to holders of shares of Common Stock.
Shareholders may be entitled to offset their capital gain distributions (but not distributions
eligible for qualified dividend income treatment) with capital loss. There are a number of
statutory provisions affecting when capital loss may be offset against capital gain, and limiting
the use of loss from certain investments and activities. Accordingly, shareholders with capital
loss are urged to consult their tax advisers.
The price of stock purchased at any time may reflect the amount of a forthcoming distribution.
Those purchasing stock just prior to a distribution will receive a distribution which will be
taxable to them even though it represents in part a return of invested capital.
Certain types of income received by the Equity Trust or the Healthcare Trust from real estate
investment trusts (REITs), real estate mortgage investment conduits (REMICs), taxable mortgage
pools or other investments may cause each fund to designate some or all of its distributions as
excess inclusion income. To fund shareholders such excess inclusion income may (1) constitute
taxable income, as unrelated business taxable income (UBTI) for those shareholders who would
otherwise be tax-exempt such as individual retirement accounts, 401(k) accounts, Keough plans,
pension plans and certain charitable entities; (2) not be offset against net operating losses for
tax purposes; (3) not be eligible for reduced U.S. withholding for non-U.S. shareholders even from
tax treaty countries; and (4) cause a fund to be subject to tax if certain disqualified
organizations as defined by the Code are fund shareholders.
Upon a sale, exchange, redemption or other disposition of stock, a shareholder will generally
realize a taxable gain or loss equal to the difference between the amount of cash and the fair
market value of other property received and the shareholders adjusted tax basis in the stock. Such
gain or loss will be treated as long-term capital gain or loss if the shares have been held for
more than one year. Any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced by substantially identical shares within a 61-day period beginning
30 days before and ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Equity Trust or Healthcare Trust shares held
by the shareholder for six months or less will be treated for tax purposes as a long-term capital
loss to the extent of any capital gain distributions received by the shareholder (or amounts
credited to the shareholder as an undistributed capital gain) with respect to such shares.
Ordinary income distributions and capital gain distributions also may be subject to state and
local taxes. Shareholders are urged to consult their own tax advisers regarding specific questions
about federal (including the application of the alternative minimum tax rules), state, local or
foreign tax consequences to them of investing in the Equity Trust or the Healthcare Trust.
Shareholders will receive, if appropriate, various written notices after the close of each of
the Equity Trust and the Healthcare Trusts taxable years regarding the U.S. federal income tax
status of certain dividends, distributions and deemed distributions that were paid (or that are
treated as having been paid) by each fund to its shareholders during the preceding taxable year.
F-5
If a shareholder recognizes a loss with respect to the Equity Trust or the Healthcare Trusts
shares of $2 million or more for an individual shareholder or $10 million or more for a corporate
shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct
shareholders of portfolio securities are in many cases exempted from this reporting requirement,
but under current guidance, shareholders of a regulated investment company are not exempted. The
fact that a loss is reportable under these regulations does not affect the legal determination of
whether the taxpayers treatment of the loss is proper. Shareholders should consult their tax
advisors to determine the applicability of these regulations in light of their individual
circumstances.
Dividends paid or distributions made by the Equity Trust or the Healthcare Trust to
shareholders who are non-resident aliens or foreign entities (foreign investors) are generally
subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax
treaty to the extent derived from investment income and short-term capital gains. In order to
obtain a reduced rate of withholding, a foreign investor will be required to provide an IRS Form
W-8BEN certifying its entitlement to benefits under a treaty. The withholding tax does not apply to
regular dividends paid or distributions made to a foreign investor who provides a Form W-8ECI,
certifying that the dividends or distributions are effectively connected with the foreign
investors conduct of a trade or business within the United States. Instead, the effectively
connected dividends or distributions will be subject to regular U.S. income tax as if the foreign
investor were a U.S. shareholder. A non-U.S. corporation receiving effectively connected dividends
or distributions may also be subject to additional branch profits tax imposed at a rate of 30%
(or lower treaty rate). A foreign investor who fails to provide an IRS Form W-8BEN or other
applicable form may be subject to backup withholding at the appropriate rate.
In general, United States federal withholding tax will not apply to any gain or income
realized by a foreign investor in respect of any distributions of net long-term capital gains over
net short-term capital losses, exempt-interest dividends, or upon the sale or other disposition of
shares of the Equity Trust or the Healthcare Trust.
For taxable years beginning before January 1, 2008, properly-designated dividends or
distributions are generally exempt from United States federal withholding tax where they (i) are
paid in respect of qualified net interest income of the Equity Trust or the Healthcare Trust, as
applicable (generally, the Equity Trusts or the Healthcare Trusts U.S. source interest income,
other than certain contingent interest and interest from obligations of a corporation or
partnership in which the Equity Trust or the Healthcare Trust is each at least a 10% shareholder,
reduced by expenses that are allocable to such income) or (ii) are paid in respect of the Equity
Trusts or the Healthcare Trusts qualified short-term capital gains (generally, the excess of
the Equity Trusts or the Healthcare Trusts net short-term capital gain over the Equity Trusts or
the Healthcare Trusts, as applicable, long-term capital loss for such taxable year). However,
depending on its circumstances, the Equity Trust or the Healthcare Trust may designate all, some or
none of its potentially eligible dividends or distributions as such qualified net interest income
or as qualified short-term capital gains, and/or treat such dividends or distributions, in whole or
in part, as ineligible for this exemption from withholding. In order to qualify for this exemption
from withholding, a foreign investor will need to comply with applicable certification requirements
relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN or substitute
Form). In the case of shares held through an intermediary, the intermediary may withhold even if
the Equity Trust or the Healthcare Trust designates the payment as qualified net interest income or
qualified short-term capital gain. Foreign investors should contact their intermediaries with
respect to the application of these rules to their accounts.
F-6
Backup Withholding
The Equity Trust and the Healthcare Trust each may be required to withhold U.S. federal income
tax on all taxable distributions and redemption proceeds payable to non-corporate shareholders who
fail to provide the fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may be refunded or credited
against such shareholders U.S. federal income tax liability, if any, provided that the required
information is furnished to the IRS.
The foregoing is a general and abbreviated summary of the applicable provisions of the Code
and Treasury regulations presently in effect. For the complete provisions, reference should be made
to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and
the Treasury regulations are subject to change by legislative, judicial or administrative action,
either prospectively or retroactively. Persons considering an investment in shares of Common Shares
should consult their own tax advisers regarding the purchase, ownership and disposition of Common
Shares.
F-7
THE GABELLI HEALTHCARE & WELLNESS
Rx
TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification
The Agreement and Declaration of Trust of the Healthcare Trust provides that the Healthcare Trust
will indemnify its Trustees and officers and may indemnify its employees or agents against
liabilities and expenses incurred in connection with litigation in which they may be involved
because of their positions with the Healthcare Trust to the fullest extent permitted by law. However, nothing
in the Agreement and Declaration of Trust of the Healthcare Trust protects or indemnifies a
trustee, officer, employee or agent of the Healthcare Trust against any liability to which such
person would otherwise be subject in the event of such persons willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of his or her
position.
Item 16. Exhibits
(1)
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Declaration of Trust of Registrant.*
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(2)
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By-Laws of Registrant.*
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(3)
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Not Applicable.
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(4)
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Not Applicable.
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(5)
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Form of Registrants Common Share Certificate.*
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(6)
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Form of Investment Advisory Agreement between Registrant and Gabelli Funds, LLC*
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(7)
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Not Applicable.
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(8)
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Not Applicable.
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(9)(a)
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Form of Custodian Contract between Registrant and Mellon Trust of New England, N.A.*
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(9)(b)
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Form of Custodian Fee Schedule between Registrant and Mellon Trust of New England, N.A.*
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(9)(c)
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Form of Registrar, Transfer Agency and Service Agreement between Registrant and
Computershare Trust Company, N.A.*
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(9)(d)
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Form of Fee and Service Fee Schedule between Registrant and
Computershare Trust Company, N.A.*
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(10)
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Not Applicable.
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(11)
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Opinion and Consent of Richards, Layton & Finger with respect to legality of shares.*
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(12)
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Opinion and Consent of Willkie Farr & Gallagher LLP with respect to tax matters.*
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(13)
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Not Applicable.
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C-1
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(14)
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Consent of Independent Auditors to be filed.
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(15)
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Not Applicable.
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(16)
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Power of Attorney.**
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(17)(a)
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Form of Proxy Cards*
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(17)(b)
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Initial Purchase Agreement between Registrant and The Gabelli
Equity Trust Inc.*
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(17)(c)
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Annual Report of The Gabelli Equity Trust Inc. to Shareholders for the fiscal year ended
December 31, 2006.***
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(17)(d)
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Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan of Registrant.*
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*
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Filed herewith.
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**
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Incorporated by reference to the Registrants Registration Statement on Form N-14 filed with the
Commission on February 28, 2007.
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***
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Incorporated by reference from The Gabelli Equity Trust Inc.s Form N-CSR as filed with the
Commission on March 7, 2007 (Accession No. 0000935069-07-000515).
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Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering of the securities
registered through the use of a prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above
will be filed as a part of an amendment to the Registration Statement and will not be used until
the amendment is effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
C-2
SIGNATURES
As required by the Securities Act of 1933, this Registrants Registration Statement has been signed
on behalf of the Registrant, in the City of Rye, State of New York,
on the 13th day of April,
2007.
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THE GABELLI HEALTHCARE & WELLNESS
Rx
TRUST
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/s/ Agnes Mullady
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By: Agnes Mullady
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President
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As required by the Securities Act of 1933, this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
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Name
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Title
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Date
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/s/ Agnes Mullady
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President and Principal Executive Officer
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April 13, 2007
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Agnes Mullady
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/s/ Agnes Mullady
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Treasurer and Principal Financial Officer
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April 13, 2007
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Agnes Mullady
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/s/ Mario J. Gabelli*
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Trustee
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April 13, 2007
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Mario J. Gabelli
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/s/ Thomas E. Bratter*
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Trustee
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April 13, 2007
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Thomas E. Bratter
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/s/ Anthony J. Colavita*
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Trustee
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April 13, 2007
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Anthony J. Colavita
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/s/ James P. Conn*
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Trustee
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April 13, 2007
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James P. Conn
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/s/ Vincent D. Enright*
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Trustee
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April 13, 2007
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Vincent D. Enright
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/s/ Robert C. Kolodny*
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Trustee
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April 13, 2007
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Robert C. Kolodny
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/s/ Anthonie C. van Ekris*
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Trustee
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April 13, 2007
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Anthonie C. van Ekris
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/s/ Salvatore J. Zizza*
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Trustee
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April 13, 2007
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Salvatore Zizza
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By:
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*/s/ James E. McKee
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James E. McKee
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Attorney-in-Fact
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Exhibit (1)
THE GABELLI HEALTHCARE & WELLNESS
Rx
TRUST
AMENDED AGREEMENT AND DECLARATION OF TRUST
April 9, 2007
TABLE OF CONTENTS
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ARTICLE I.
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The Trust
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1.1
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Name
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1
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1.2
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Definitions
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1
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ARTICLE II.
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Trustees
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2.1
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Number and Qualification
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3
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2.2
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Term and Election
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3
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2.3
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Resignation and Removal
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3
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2.4
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Vacancies
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4
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2.5
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Meetings
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4
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2.6
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Officers
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5
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ARTICLE III.
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Powers and Duties of Trustees
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3.1
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General
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5
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3.2
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Investments
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5
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3.3
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Legal Title
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5
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3.4
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Issuance and Repurchase of Shares
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6
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3.5
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Borrow Money or Utilize Leverage
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6
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3.6
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Collection and Payment
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6
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3.7
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Expenses
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6
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3.8
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By-Laws
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7
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3.9
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Miscellaneous Powers
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7
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i
TABLE OF CONTENTS
(CONTINUED)
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3.10
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Delegation; Committees
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7
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3.11
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Further Powers
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7
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ARTICLE IV.
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Limitations of Liability and Indemnification
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4.1
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No Personal Liability of Shareholders, Trustees, etc
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8
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4.2
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Mandatory Indemnification
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8
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4.3
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No Duty of Investigation; Notice in Trust Instruments, etc
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9
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4.4
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Reliance on Experts, etc
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10
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ARTICLE V.
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Shares of Beneficial Interest
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5.1
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Beneficial Interest
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10
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5.2
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Classes and Series
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10
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5.3
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Issuance of Shares
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10
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5.4
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Rights of Shareholders
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11
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5.5
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Trust Only
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11
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5.6
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Register of Shares
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11
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5.7
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Transfer Agent and Registrar
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11
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5.8
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Transfer of Shares
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11
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5.9
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Notices
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12
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5.10
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Net Asset Value
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12
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5.11
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Distributions to Shareholders.
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12
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ii
TABLE OF CONTENTS
(CONTINUED)
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ARTICLE VI.
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Shareholders
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6.1
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Meetings of Shareholders
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13
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6.2
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Voting
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13
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6.3
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Notice of Meeting, Shareholder Proposals and Record Date
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13
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6.4
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Quorum and Required Vote.
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14
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6.5
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Proxies, etc
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14
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6.6
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Reports
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15
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6.7
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Inspection of Records
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15
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6.8
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Shareholder Action by Written Consent
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15
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ARTICLE VII.
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Duration: Termination of Trust; Amendment; Mergers, Etc.
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7.1
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Duration
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15
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7.2
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Termination.
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15
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7.3
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Amendment Procedure.
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16
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7.4
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Merger, Consolidation and Sale of Assets
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17
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7.5
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Redemption; Conversion
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17
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7.6
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Certain Transactions
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17
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ARTICLE VIII.
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Miscellaneous
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8.1
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Filing
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19
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8.2
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Resident Agent
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19
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8.3
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Governing Law
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20
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iii
TABLE OF CONTENTS
(CONTINUED)
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8.4
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Counterparts
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20
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8.5
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Reliance by Third Parties
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20
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8.6
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Provisions in Conflict with Law or Regulation.
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20
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iv
THE
GABELLI HEALTHCARE &
WELLNESS
Rx
TRUST
AGREEMENT AND DECLARATION OF TRUST
AMENDED AGREEMENT AND DECLARATION OF TRUST made as of the 9th day of April 2007, by the
Trustees hereunder, and by the holders of shares of beneficial interest issued hereunder as
hereinafter provided.
WHEREAS, this Trust has been formed to carry on business as set forth more particularly
hereinafter;
WHEREAS, this Trust is authorized to issue an unlimited number of its shares of beneficial
interest all in accordance with the provisions hereinafter set forth;
WHEREAS, the Trustees have agreed to manage all property coming into their hands as Trustees
of a Delaware statutory trust in accordance with the provisions hereinafter set forth; and
WHEREAS, the parties hereto intend that the Trust created by this Declaration and the
Certificate of Trust filed with the Secretary of State of the State of Delaware on February 20,
2007 shall constitute a statutory trust under the Delaware Statutory Trust Statute and that this
Declaration shall constitute the governing instrument of such statutory trust.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash, securities, and
other assets which they may from time to time acquire in any manner as Trustees hereunder IN TRUST
to manage and dispose of the same upon the following terms and conditions for the benefit of the
holders from time to time of shares of beneficial interest in this Trust as hereinafter set forth.
ARTICLE I.
The Trust
1.1 Name. This Trust shall be known as the The Gabelli Healthcare & Wellness
Rx
Trust and the Trustees shall conduct the business of the Trust under that name or any other name
or names as they may from time to time determine.
1.2 Definitions. As used in this Declaration, the following terms shall have the following
meanings:
The terms Affiliated Person, Assignment, Commission, Interested Person and Principal
Underwriter shall have the meanings given them in the Investment Company Act of 1940, as amended.
By-Laws shall mean the By-Laws of the Trust as amended from time to time by the Trustees.
Code shall mean the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.
Commission shall mean the Securities and Exchange Commission.
Declaration shall mean this Amended Agreement and Declaration of Trust, as amended or
amended and restated from time to time, including by way of any classifying or reclassifying Shares
of any class or any series of any such class or determining any designations, powers, preferences,
voting, conversion and other rights, limitations, qualifications and terms and conditions thereof.
Delaware Statutory Trust Statute shall mean the provisions of the Delaware Statutory Trust
Act, 12 Del. C. ss.3801, et. seq., as such Act may be amended from time to time.
Person shall mean and include natural persons, corporations, partnerships, trusts, limited
liability companies, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
Prospectus shall mean the currently effective Prospectus of the Trust, if any, under the
Securities Act of 1933, as amended.
Shareholders shall mean as of any particular time the holders of record of outstanding
Shares of the Trust at such time.
Shares shall mean the transferable units of beneficial interest into which the beneficial
interest in the Trust shall be divided from time to time and includes fractions of Shares as well
as whole Shares. All references to Shares shall be deemed to be Shares of any or all or series
thereof as the context may require.
Trust shall mean the Trust established by this Declaration, as amended from time to time,
inclusive of each such amendment.
Trustees shall mean the signatory to this Declaration, so long as he shall continue in
office in accordance with the terms hereof, and all other persons who at the time in question have
been duly elected or appointed and have qualified as trustees in accordance with the provisions
hereof and are then in office.
Trust Property shall mean as of any particular time any and all property, real or personal,
tangible or intangible, which at such time is owned or held by or for the account of the Trust or
the Trustees in such capacity.
The 1933 Act refers to the Securities Act of 1933 and the rules and regulations promulgated
thereunder and applicable exemptions therefrom covering the Trust and its affiliated persons, as
amended from time to time.
The 1940 Act refers to the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder and applicable exemptions granted therefrom, as amended from time to time.
- 2 -
ARTICLE II.
Trustees
2.1 Number and Qualification. Prior to a public offering of Shares, there may be a sole
Trustee and thereafter the number of Trustees shall be such number, not less than three, as shall
be set forth in a written instrument signed or adopted by a majority of the Trustees then in
office. No reduction in the number of Trustees shall have the effect of removing any Trustee from
office prior to the expiration of his term. An individual nominated as a Trustee shall be at least
21 years of age and not older than such age as shall be set forth in a written instrument signed or
adopted by not less than two-thirds of the Trustees then in office and shall not be under legal
disability. Trustees need not own Shares and may succeed themselves in office.
2.2 Term and Election. The Board of Trustees shall be divided into three classes. Within the
limits specified in Section 2.1, the number of the Trustees in each class shall be determined by
resolution of the Board of Trustees. The initial term of office of the first class shall expire on
the date of the first annual meeting of Shareholders or special meeting in lieu thereof. The
initial term of office of the second class shall expire on the date of the second annual meeting of
Shareholders or special meeting in lieu thereof. The initial term of office of the third class
shall expire on the date of the third annual meeting of Shareholders or special meeting in lieu
thereof. Upon expiration of the initial term of office of each class as set forth above and the
expiration of each subsequent term of office of such class, the term of Trustees of such class
shall be three years and until his or her successor shall have been elected and shall have
qualified or until his or her earlier resignation, removal, incompetence, incapacitation or death.
2.3 Resignation and Removal. Any Trustee may resign his Trust (without need for prior or
subsequent accounting) by an instrument in writing signed by him and delivered or mailed to the
Chairman, if any, the President or the Secretary and such resignation shall be effective upon such
delivery, or at a later date provided in such instrument. Any Trustee may be removed (provided the
aggregate number of Trustees after such removal shall not be less than the number required by
Section 2.1 hereof) for cause at any time by written instrument, signed by a majority of the
remaining Trustees, specifying the date when such removal shall become effective. Any Trustee may
be removed (provided the aggregate number of Trustees after such removal shall not be less than the
minimum number required by Section 2.1 hereof) without cause at any time by a written instrument,
signed or adopted by two-thirds of the remaining Trustees or by vote of Shares having not less than
two-thirds of the aggregate number of Shares entitled to vote in the election of such Trustee,
specifying the date when such removal shall become effective. Upon the resignation or removal of a
Trustee, or such persons otherwise ceasing to be a Trustee, such persons shall execute and deliver
such documents as the remaining Trustees shall require for the purpose of conveying to the Trust or
the remaining Trustees any Trust Property held in the name of the resigning or removed Trustee.
Upon the incapacity or death of any Trustee, such Trustees legal representative shall execute and
deliver on such Trustees behalf such documents as the remaining Trustees shall require as provided
in the preceding sentence.
- 3 -
2.4 Vacancies. The term of office of a Trustee shall terminate and a vacancy shall occur in
the event of the removal, resignation, incompetence or other incapacity to perform the duties of
the office, or death, of a Trustee. Whenever a vacancy in the Board of Trustees shall occur, the
remaining Trustees may fill such vacancy by appointing an individual having the qualifications
described in this Article by a written instrument signed or adopted by a majority of the Trustees
then in office or by election by the Shareholders, or may leave such vacancy unfilled or may reduce
the number of Trustees (provided the aggregate number of Trustees after such reduction shall not be
less than the minimum number required by Section 2.1 hereof). Any vacancy created by an increase in
Trustees may be filled by the appointment of an individual having the qualifications described in
this Article by a majority of the Trustees then in office or by election by the Shareholders. No
vacancy shall operate to annul this Declaration or to revoke any existing agency created pursuant
to the terms of this Declaration. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided herein, the Trustees in office, regardless of their number,
shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon
the Trustees by this Declaration.
2.5 Meetings. Meetings of the Trustees shall be held from time to time upon the call of the
Chairman, if any, the President, the Secretary or any two Trustees. Regular meetings of the
Trustees may be held without call or notice at a time and place fixed by the By-Laws or by
resolution of the Trustees. Notice of any other meeting shall be mailed not less than 48 hours
before the meeting or otherwise actually delivered orally or in writing not less than 24 hours
before the meeting, but may be waived in writing by any Trustee either before or after such
meeting. The attendance of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been lawfully called or
convened. The Trustees may act with or without a meeting. A quorum for all meetings of the Trustees
shall be one-third of the Trustees then in office. Unless provided otherwise in this Declaration of
Trust, any action of the Trustees may be taken at a meeting by vote of a majority of the Trustees
present (a quorum being present) or without a meeting by written consent of a majority of the
Trustees or such other proportion as shall be specified herein for action at a meeting at which all
Trustees then in office are present.
Any committee of the Trustees, including an executive committee, if any, may act with or
without a meeting. A quorum for all meetings of any such committee shall be a majority of the
members thereof. Unless provided otherwise in this Declaration, any action of any such committee
may be taken at a meeting by vote of a majority of the members present (a quorum being present) or
without a meeting by written consent of a majority of the members or such other proportion as shall
be specified herein for action at a meeting at which all committee members are present.
With respect to actions of the Trustees and any committee of the Trustees, Trustees who are
Interested Persons in any action to be taken may be counted for quorum purposes under this Section
and shall be entitled to vote to the extent not prohibited by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the Trustees or any committee
thereof by means of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other; participation in a
- 4 -
meeting pursuant to any such communications system shall constitute presence in person at such
meeting except as otherwise provided by the 1940 Act.
The Trustees may elect a Chairman of the Board of Trustees, who shall not, in his or her
capacity as such, be an officer of the Trust and who shall serve at the pleasure of the Trustees.
2.6 Officers. The Trustees shall elect a President, a Secretary and a Treasurer who shall
serve at the pleasure of the Trustees or until their successors are elected. The Trustees may elect
or appoint or may authorize the Chairman, if any, or President to appoint such other officers or
agents with such other titles and powers as the Trustees may deem to be advisable. A Chairman
shall, and the President, Secretary and Treasurer may, but need not, be a Trustee.
ARTICLE III.
Powers and Duties of Trustees
3.1 General. The Trustees shall owe to the Trust and its Shareholders the same fiduciary
duties as owed by directors of corporations to such corporations and their stockholders under the
general corporation law of the State of Delaware. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust Property and business in their own right, but with such
powers of delegation as may be permitted by this Declaration. The Trustees shall have power to
engage in any activity not prohibited by Delaware law. The enumeration of any specific power herein
shall not be construed as limiting the aforesaid power. The Trustees may perform such acts as in
their sole discretion are proper for conducting the business of the Trust. The powers of the
Trustees may be exercised without order of or resort to any court. No Trustee shall be obligated to
give any bond or other security for the performance of any of his duties or powers hereunder.
3.2 Investments. The Trustees shall have power to:
(a) manage, conduct, operate and carry on the business of an investment company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise acquire, hold, pledge, sell,
assign, transfer, exchange, distribute or otherwise deal in or dispose of any and all sorts of
property, tangible or intangible, including but not limited to securities of any type whatsoever,
whether equity or non-equity, of any issuer, evidences of indebtedness of any person and any other
rights, interests, instruments or property of any sort and to exercise any and all rights, powers
and privileges of ownership or interest in respect of any and all such investments of every kind
and description, including, without limitation, the right to consent and otherwise act with respect
thereto, with power to designate one or more Persons to exercise any of said rights, powers and
privileges in respect of any of said investments. The Trustees shall not be limited by any law
limiting the investments which may be made by fiduciaries.
3.3 Legal Title. Legal title to all the Trust Property shall be vested in the Trustees as
joint tenants except that the Trustees shall have power to cause legal title to any Trust Property
to be held by or in the name of one or more of the Trustees, or in the name of the Trust, or in the
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name of any other Person as nominee, custodian or pledgee, on such terms as the Trustees may
determine, provided that the interest of the Trust therein is appropriately protected.
The right, title and interest of the Trustees in the Trust Property shall vest automatically
in each person who may hereafter become a Trustee upon his due election and qualification. Upon the
ceasing of any person to be a Trustee for any reason, such person shall automatically cease to have
any right, title or interest in any of the Trust Property, and the right, title and interest of
such Trustee in the Trust Property shall vest automatically in the remaining Trustees. Such vesting
and cessation shall be effective whether or not conveyancing documents have been executed and
delivered.
3.4 Issuance and Repurchase of Shares. Subject to the provisions of this Declaration and
applicable law, the Trustees shall have the power to issue, sell, repurchase, redeem, retire,
cancel, acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal in, Shares,
including Shares in fractional denominations, and to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property whether capital or surplus
or otherwise, to the full extent now or hereafter not prohibited by the laws of the State of
Delaware governing statutory trusts.
3.5 Borrow Money or Utilize Leverage. The Trustees shall have the power to borrow money or
otherwise obtain credit or utilize leverage in connection with the activities of the Trust to the
maximum extent permitted by law, including by regulation or order, and to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets of the Trust, including the
lending of portfolio securities, and to endorse, guarantee, or undertake the performance of any
obligation, contract or engagement of any other person, firm, association or corporation.
3.6 Collection and Payment. The Trustees shall have power to collect all property due to the
Trust; to pay all claims, including taxes, against the Trust Property or the Trust, the Trustees or
any officer, employee or agent of the Trust; to prosecute, defend, compromise or abandon any claims
relating to the Trust Property or the Trust, or the Trustees or any officer, employee or agent of
the Trust; to foreclose any security interest securing any obligations, by virtue of which any
property is owed to the Trust; and to enter into releases, agreements and other instruments. Except
to the extent required for a Delaware business corporation, the Shareholders shall have no power to
vote as to whether or not a court action, legal proceeding or claim should or should not be brought
or maintained derivatively or as a class action on behalf of the Trust or the Shareholders.
3.7 Expenses. The Trustees shall have power to incur and pay out of the assets or income of
the Trust any expenses which in the opinion of the Trustees are necessary or appropriate to carry
out any of the purposes of this Declaration, and the business of the Trust, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The Trustees shall fix the
compensation of all officers, employees and Trustees. The Trustees may pay themselves such
compensation for special services, including legal, underwriting, syndicating and brokerage
services, as they in good faith may deem reasonable and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.
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3.8 By-Laws. The Trustees may adopt and from time to time amend or repeal By-Laws for the
conduct of the business of the Trust. Such By-Laws shall be binding on the Trust and the
Shareholders unless inconsistent with the provisions of this Declaration. The Shareholders shall
not have authority to adopt, amend or repeal By-Laws.
3.9 Miscellaneous Powers. The Trustees shall have the power to: (a) employ or contract with
such Persons as the Trustees may deem desirable for the transaction of the business of the Trust,
including investment advisors, administrators, custodians, transfer agents, shareholder services
providers, accountants, counsel, brokers, dealers and others, and to delegate or grant to such
persons all such power and authority as the Trustees may determine; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) purchase, and pay for out of Trust
Property, insurance policies insuring the Shareholders, Trustees, officers, employees, agents,
investment advisors, distributors, selected dealers or independent contractors of the Trust against
all claims arising by reason of holding any such position or by reason of any action taken or
omitted by any such Person in such capacity, whether or not constituting negligence, or whether or
not the Trust would have the power to indemnify such Person against such liability; (d) establish
pension, profit-sharing, share purchase, and other retirement, incentive and benefit plans for any
Trustees, officers, employees and agents of the Trust; (e) make donations, irrespective of benefit
to the Trust, for charitable, religious, educational, scientific, civic or similar purposes; (f) to
the extent permitted by applicable law, indemnify any Person with whom the Trust has dealings,
including without limitation any investment adviser, administrator, manager, transfer agent,
custodian, distributor or selected dealer, or any other person as the Trustees may see fit to such
extent as the Trustees shall determine; (g) guarantee indebtedness or contractual obligations of
others; (h) determine and change the fiscal year of the Trust and the method in which its accounts
shall be kept; and (i) adopt a seal for the Trust but the absence of such seal shall not impair the
validity of any instrument executed on behalf of the Trust.
3.10 Delegation; Committees. The Trustees shall have the power, consistent with their
continuing exclusive authority over the management of the Trust and the Trust Property, to delegate
from time to time to such of their number or to officers, employees or agents of the Trust the
doing of such things and the execution of such instruments either in the name of the Trust or the
names of the Trustees or otherwise as the Trustees may deem expedient. The Trustees may designate
one or more committees each of which shall have all or such lesser portion of the power and
authority of the entire Board of Trustees as the Trustees shall determine from time to time, except
to the extent action by the entire Board of Trustees or particular Trustees is required by the 1940
Act.
3.11 Further Powers. The Trustees shall have the power to conduct the business of the Trust
and carry on its operations in any and all of its branches and maintain offices both within and
without the State of Delaware, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and of foreign
governments, and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the interests of the
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Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the Trustees.
ARTICLE IV.
Limitations of Liability and Indemnification
4.1 No Personal Liability of Shareholders, Trustees, etc. No Shareholder of the Trust shall be
subject in such capacity to any personal liability whatsoever to any Person in connection with
Trust Property or the acts, obligations or affairs of the Trust. Shareholders shall have the same
limitation of personal liability as is extended to stockholders of a private corporation for profit
incorporated under the general corporation law of the State of Delaware. No Trustee or officer of
the Trust shall be subject in such capacity to any personal liability whatsoever to any Person,
other than the Trust or its Shareholders, in connection with Trust Property or the affairs of the
Trust, save only liability to the Trust or its Shareholders arising from bad faith, willful
misfeasance, gross negligence or reckless disregard for his duty to such Person; and, subject to
the foregoing exception, all such Persons shall look solely to the Trust Property for satisfaction
of claims of any nature arising in connection with the affairs of the Trust. If any Shareholder,
Trustee or officer, as such, of the Trust, is made a party to any suit or proceeding to enforce any
such liability, subject to the foregoing exception, he shall not, on account thereof, be held to
any personal liability.
4.2 Mandatory Indemnification. (a) The Trust shall indemnify the Trustees and officers of the
Trust (each such person being an indemnitee) against any liabilities and expenses, including
amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and reasonable
counsel fees reasonably incurred by such indemnitee in connection with the defense or disposition
of any action, suit or other proceeding, whether civil or criminal, before any court or
administrative or investigative body in which he may be or may have been involved as a party or
otherwise (other than, except as authorized by the Trustees, as the plaintiff or complainant) or
with which he may be or may have been threatened, while acting in any capacity set forth above in
this Section 4.2 by reason of his having acted in any such capacity, except with respect to any
matter as to which he shall not have acted in good faith in the reasonable belief that his action
was in the best interest of the Trust or, in the case of any criminal proceeding, as to which he
shall have had reasonable cause to believe that the conduct was unlawful, provided, however, that
no indemnitee shall be indemnified hereunder against any liability to any person or any expense of
such indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith, (iii) gross
negligence (negligence in the case of Affiliated Indemnitees), or (iv) reckless disregard of the
duties involved in the conduct of his position (the conduct referred to in such clauses (i) through
(iv) being sometimes referred to herein as disabling conduct). Notwithstanding the foregoing,
with respect to any action, suit or other proceeding voluntarily prosecuted by any indemnitee as
plaintiff, indemnification shall be mandatory only if the prosecution of such action, suit or other
proceeding by such indemnitee was authorized by a majority of the Trustees.
(b) Notwithstanding the foregoing, no indemnification shall be made hereunder unless there has
been a determination (1) by a final decision on the merits by a court or other body of competent
jurisdiction before whom the issue of entitlement to indemnification hereunder was
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brought that such indemnitee is entitled to indemnification hereunder or, (2) in the absence
of such a decision, by (i) a majority vote of a quorum of those Trustees who are neither Interested
Persons of the Trust nor parties to the proceeding (Disinterested Non-Party Trustees), that the
indemnitee is entitled to indemnification hereunder, or (ii) if such quorum is not obtainable or
even if obtainable, if such majority so directs, independent legal counsel in a written opinion
conclude that the indemnitee should be entitled to indemnification hereunder. All determinations to
make advance payments in connection with the expense of defending any proceeding shall be
authorized and made in accordance with the immediately succeeding paragraph (c) below.
(c) The Trust shall make advance payments in connection with the expenses of defending any
action with respect to which indemnification might be sought hereunder if the Trust receives a
written affirmation by the indemnitee of the indemnitees good faith belief that the standards of
conduct necessary for indemnification have been met and a written undertaking to reimburse the
Trust unless it is subsequently determined that he is entitled to such indemnification and if a
majority of the Trustees determine that the applicable standards of conduct necessary for
indemnification appear to have been met. In addition, at least one of the following conditions must
be met: (1) the indemnitee shall provide adequate security for his undertaking, (2) the Trust shall
be insured against losses arising by reason of any lawful advances, or (3) a majority of a quorum
of the Disinterested Non-Party Trustees, or if a majority vote of such quorum so direct,
independent legal counsel in a written opinion, shall conclude, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that there is substantial reason to
believe that the indemnitee ultimately will be found entitled to indemnification.
(d) The rights accruing to any indemnitee under these provisions shall not exclude any other
right to which he may be lawfully entitled.
(e) Notwithstanding the foregoing, subject to any limitations provided by the 1940 Act and
this Declaration, the Trust shall have the power and authority to indemnify Persons providing
services to the Trust to the full extent provided by law as if the Trust were a corporation
organized under the Delaware General Corporation Law provided that such indemnification has been
approved by a majority of the Trustees.
4.3 No Duty of Investigation; Notice in Trust Instruments, etc. No purchaser, lender, transfer
agent or other person dealing with the Trustees or with any officer, employee or agent of the Trust
shall be bound to make any inquiry concerning the validity of any transaction purporting to be made
by the Trustees or by said officer, employee or agent or be liable for the application of money or
property paid, loaned, or delivered to or on the order of the Trustees or of said officer, employee
or agent. Every obligation, contract, undertaking, instrument, certificate, Share, other security
of the Trust, and every other act or thing whatsoever executed in connection with the Trust shall
be conclusively taken to have been executed or done by the executors thereof only in their capacity
as Trustees under this Declaration or in their capacity as officers, employees or agents of the
Trust. The Trustees may maintain insurance for the protection of the Trust Property, its
Shareholders, Trustees, officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable or is required by the 1940 Act.
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4.4 Reliance on Experts, etc. Each Trustee and officer or employee of the Trust shall, in the
performance of its duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of account or other
records of the Trust, upon an opinion of counsel, or upon reports made to the Trust by any of the
Trusts officers or employees or by any advisor, administrator, manager, distributor, selected
dealer, accountant, appraiser or other expert or consultant selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel or other person
may also be a Trustee.
ARTICLE V.
Shares of Beneficial Interest
5.1 Beneficial Interest. The interest of the beneficiaries hereunder shall be divided into an
unlimited number of shares of beneficial interest, par value $.001 per share. All Shares issued in
accordance with the terms hereof, including, without limitation, Shares issued in connection with a
dividend in Shares or a split of Shares, shall be fully paid and nonassessable when the
consideration determined by the Trustees (if any) therefor shall have been received by the Trust.
5.2 Classes and Series. The Trustees shall have the authority, without the approval of the
holders of any Shares of the Trust, to classify and reclassify issued and unissued Shares into one
or more classes and one or more series of any or all of such classes, each of which classes and
series thereof shall have such designations, powers, preferences, voting, conversion and other
rights, limitations, qualifications and terms and conditions as the Trustees shall determine from
time to time with respect to each such class or series; provided, however, that no reclassification
of any issued and outstanding Shares and no modifications of any of the designations, powers,
preferences, voting, conversion or other rights, limitations, qualifications and terms and
conditions of any issued and outstanding Shares may be made by the Trustees without the affirmative
vote of the holders of Shares specified in Section 7.3(a) to the extent required thereby. The
initial class of Shares of the Trust shall be designated as Common Shares, subject to
redesignation as aforesaid. To the extent expressly determined by the Trustees as aforesaid, all
consideration received by the Trust for the issue or sale of Shares of a class, together with all
income, earnings, profits and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any Trusts or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong to such class subject only to
the rights of the creditors, and all liabilities allocable to such class shall be charged thereto.
5.3 Issuance of Shares. The Trustees, in their discretion, may from time to time without vote
of the Shareholders issue Shares of any class or any series of any such class to such party or
parties and for such amount and type of consideration, including cash or property, at such time or
times, and on such terms as the Trustees may determine, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. The Trustees may from time to time divide or combine the Shares of any
class or any series of any such class into a greater or lesser number without thereby changing the
proportionate beneficial interest in such Shares. Issuances and repurchases
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of Shares may be made in whole Shares and/or l/l,000ths of a Share or multiples thereof as the
Trustees may determine.
5.4 Rights of Shareholders. The Shares shall be personal property giving only the rights in
this Declaration specifically set forth. The ownership of the Trust Property of every description
and the right to conduct any business are vested exclusively in the Trustees, and the Shareholders
shall have no interest therein other than the beneficial interest conferred by their Shares, and
they shall have no right to call for any partition or division of any property, profits, rights or
interests of the Trust nor can they be called upon to share or assume any losses of the Trust
suffer an assessment of any kind by virtue of their ownership of Shares. The Shares shall not
entitle the holder to preference, preemptive, appraisal, conversion or exchange rights (except as
specified in this Section 5.4, in Section 7.4 or as specified by the Trustees in the designation or
redesignation of any class or series thereof of the Shares).
5.5 Trust Only. It is the intention of the Trustees to create only the relationship of Trustee
and beneficiary between the Trustees and each Shareholder from time to time. It is not the
intention of the Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment or any form of legal relationship other than a Trust. Nothing in
this Declaration shall be construed to make the Shareholders, either by themselves or with the
Trustees, partners or members of a joint stock association.
5.6 Register of Shares. A register shall be kept at the Trust or any transfer agent duly
appointed by the Trustees under the direction of the Trustees which shall contain the names and
addresses of the Shareholders and the number of Shares held by them respectively and a record of
all transfers thereof. Separate registers shall be established and maintained for each class and
each series of each class. Each such register shall be conclusive as to who are the holders of the
Shares of the applicable class and series and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall be
entitled to receive payment of any dividend or distribution, nor to have notice given to him as
herein provided, until he has given his address to a transfer agent or such other officer or agent
of the Trustees as shall keep the register for entry thereon. It is not contemplated that
certificates will be issued for the Shares; however, the Trustees, in their discretion, may
authorize the issuance of share certificates and promulgate appropriate fees therefore and rules
and regulations as to their use.
5.7 Transfer Agent and Registrar. The Trustees shall have power to employ a transfer agent or
transfer agents, and a registrar or registrars, with respect to the Shares. The transfer agent or
transfer agents may keep the applicable register and record therein, the original issues and
transfers, if any, of the said Shares. Any such transfer agent and registrar shall perform the
duties usually performed by transfer agents and registrars of stock in a corporation, as modified
by the Trustees.
5.8 Transfer of Shares. Shares shall be transferable on the records of the Trust only by the
record holder thereof or by its agent thereto duly authorized in writing, upon delivery to the
Trustees or a transfer agent of the Trust of a duly executed instrument of transfer, together with
such evidence of the genuineness of each such execution and authorization and of other matters as
may reasonably be required. Upon such delivery the transfer shall be recorded on the
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applicable register of the Trust. Until such record is made, the Shareholder of record shall
be deemed to be the holder of such Shares for all purposes hereof and neither the Trustees nor any
transfer agent or registrar nor any officer, employee or agent of the Trust shall be affected by
any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death, bankruptcy, or
incompetence of any Shareholder, or otherwise by operation of law, shall be recorded on the
applicable register of Shares as the holder of such Shares upon production of the proper evidence
thereof to the Trustees or a transfer agent of the Trust, but until such record is made, the
Shareholder of record shall be deemed to be the holder of such for all purposes hereof, and neither
the Trustees nor any transfer agent or registrar nor any officer or agent of the Trust shall be
affected by any notice of such death, bankruptcy or incompetence, or other operation of law.
5.9 Notices. Any and all notices to which any Shareholder hereunder may be entitled and any
and all communications to any Shareholder shall be deemed duly given or made if mailed, postage
prepaid, addressed to any Shareholder of record at his last known address as recorded on the
applicable register of the Trust and may be sent together with any such notice or other
communication to another Shareholder at the same address. To the extent consistent with applicable
law, including any regulation or order, or consented to by any Shareholder, any such notice or
other communication may be given or made in any other manner.
5.10 Net Asset Value. The value of the assets of the Trust, the amount of liabilities of the
Trust and the net asset value of each outstanding Common Share of the Trust shall be determined at
such time or times on such days as the Trustees may determine, in accordance with the 1940 Act. The
method of determination of net asset value shall be determined by the Trustees. The power and duty
to make net asset value determinations and calculations may be delegated by the Trustees.
5.11 Distributions to Shareholders.
(a) The Trustees shall from time to time distribute among the Shares (or one or more classes
or series thereof) such portion of the net profits, surplus (including paid-in surplus), capital,
or assets held by the Trustees as they may deem proper or as may otherwise be determined in the
instrument setting forth the terms of such Shares or such class or series of Shares, which need not
be ratable with respect to distributions in respect of Shares of any other class or series thereof
of the Trust. Such distributions may be made in cash or property (including without limitation any
type of obligations of the Trust or any assets thereof) or any combination thereof.
(b) Distributions may be made to the Shareholders of record entitled to such distribution at
the time such distribution is declared or at such later date as shall be determined by the Trust
prior to the date of payment.
(c) The Trustees may always retain from any source such amount as they may deem necessary to
pay the debts or expenses of the Trust or to meet obligations of the Trust, or as they otherwise
may deem desirable to use in the conduct of its affairs or to retain for future requirements or
extensions of the business of the Trust.
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ARTICLE VI.
Shareholders
6.1 Meetings of Shareholders. The Trust may, but shall not be required to, hold annual
meetings of the holders of any class or series of Shares. An annual or special meeting of
Shareholders may be called at any time only by the Trustees; provided, however, that if May 31 of
any year shall have passed and the Trustees shall not have called an annual meeting of Shareholders
for such year, the Trustees shall call a meeting for the purpose of voting on the removal of one or
more Trustees or the termination of any investment advisory agreement or independent accountants,
upon written request of holders of Shares of the Trust having in the aggregate not less than a
majority of the votes of the outstanding Shares of the Trust entitled to vote on the matter or
matters in question, such request specifying the purpose or purposes for which such meeting is to
be called. Any meeting of Shareholders shall be held within or without the State of Delaware on
such day and at such time as the Trustees shall designate.
6.2 Voting. Shareholders shall have no power to vote on any matter (including matters as to
which the Delaware Statutory Trust Statute specifies a voting requirement in the absence of a
provision in the Declaration, it being the intention of this Declaration that Shareholders shall
have no power to vote on any such matter except as described herein) except matters on which a vote
of Shares is required by or pursuant to the 1940 Act, this Declaration, the By-Laws or resolution
of the Trustees. Any matter required to be submitted for approval of any of the Shares and
affecting one or more classes or series shall require approval by the required vote of Shares of
the affected class or classes and series voting together as a single class and, if such matter
affects one or more classes or series thereof differently from one or more other classes or series
thereof or from one or more series of the same class, approval by the required vote of Shares of
such other class or classes or series or series voting as a separate class shall be required in
order to be approved with respect to such other class or classes or series or series; provided,
however, that except to the extent required by the 1940 Act, there shall be no separate class votes
on the election or removal of Trustees or the selection of auditors for the Trust. Shareholders of
a particular class or series thereof shall not be entitled to vote on any matter that affects the
rights or interests of only one or more other classes or series of such other class or classes or
only one or more other series of the same class. There shall be no cumulative voting in the
election or removal of Trustees.
6.3 Notice of Meeting, Shareholder Proposals and Record Date. Notice of all meetings of
Shareholders, stating the time, place and purposes of the meeting, shall be given by the Trustees
by mail to each Shareholder of record entitled to vote thereat at its registered address, mailed at
least 10 days before the meeting or otherwise in compliance with applicable law. Except with
respect to an annual meeting, at which any business required by the 1940 Act may be conducted, only
the business stated in the notice of the meeting shall be considered at such meeting. Subject to
the provisions of applicable law, any Shareholder wishing to include a proposal to be considered at
an annual meeting must submit such proposal to the Trust at least 30 days in advance of such
meeting. Any adjourned meeting may be held as adjourned one or more times without further notice
not later than 130 days after the record date. For the purposes of determining the Shareholders who
are entitled to notice of and to vote at any meeting the Trustees may, without closing the transfer
books, fix a date not more than 100 days prior to the
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date of such meeting of Shareholders as a record date for the determination of the Persons to
be treated as Shareholders of record for such purposes.
6.4 Quorum and Required Vote.
(a) The holders of one-third of the outstanding Shares of the Trust on the record date present
in person or by proxy shall constitute a quorum at any meeting of the Shareholders for purposes of
conducting business on which a vote of all Shareholders of the Trust is being taken. The holders of
one-third of the outstanding Shares of a class or classes on the record date present in person or
by proxy shall constitute a quorum at any meeting of the Shareholders of such class or classes for
purposes of conducting business on which a vote of Shareholders of such class or classes is being
taken. The holders of one-third of the outstanding Shares of a series or series on the record date
present in person or by proxy shall constitute a quorum at any meeting of the Shareholders of such
series or series for purposes of conducting business on which a vote of Shareholders of such series
or series is being taken. Shares underlying a proxy as to which a broker or other intermediary
states its absence of authority to vote with respect to one or more matters shall be treated as
present for purposes of establishing a quorum for taking action on any such matter only to the
extent so determined by the Trustees at or prior to the meeting of Shareholders at which such
matter is to be considered.
(b) Subject to any provision of the 1940 Act or this Declaration specifying or requiring a
greater or lesser vote requirement for the transaction of any matter of business at any meeting of
Shareholders or, in the absence of any such provision of the 1940 Act or this Declaration, subject
to any provision of the By-Laws or resolution of the Trustees specifying or requiring a greater or
lesser vote requirement, (i) the affirmative vote of a plurality (or, if provided by the By-Laws, a
majority) of the Shares present in person or represented by proxy and entitled to vote for the
election of any Trustee or Trustees shall be the act of such Shareholders with respect to the
election of such Trustee or Trustees, (ii) the affirmative vote of a majority of the Shares present
in person or represented by proxy and entitled to vote on any other matter shall be the act of the
Shareholders with respect to such matter, and (iii) where a separate vote of one or more classes or
series is required on any matter, the affirmative vote of a majority of the Shares of such class or
classes or series or series present in person or represented by proxy and entitled to vote on such
matter shall be the act of the Shareholders of such class or classes or series or series with
respect to such matter. Except to the extent otherwise required by the 1940 Act, a majority of the
Shares of any series or class shall mean the lesser of a majority of the outstanding Shares of such
class or series and at least 67% of a quorum of at least 50% of the Shares held of record on the
relevant record date present in person or by proxy.
6.5 Proxies, etc. At any meeting of Shareholders, any holder of Shares entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall
have been placed on file with the Secretary, or with such other officer or agent of the Trust as
the Secretary may direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a resolution of a majority of the Trustees, proxies may be solicited in the name of one
or more Trustees or one or more of the officers or employees of the Trust. Only Shareholders of
record shall be entitled to vote. Each full Share shall be entitled to one vote and each fractional
Share shall be entitled to a vote equal to its fraction of a full Share. When any Share is held
jointly by several persons, any one of them may vote at any meeting in person or by proxy in
respect of
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such Share, but if more than one of them shall be present at such meeting in person or by
proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such
vote shall not be received in respect of such Share. A proxy purporting to be given by or on behalf
of a Shareholder of record on the record date for a meeting shall be deemed valid unless challenged
at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. If
the holder of any such Share is a minor or a person of unsound mind, and subject to guardianship or
to the legal control of any other person as regards the charge or management of such Share, he may
vote by his guardian or such other person appointed or having such control, and such vote may be
given in person or by proxy. The Trustees shall have the authority to make and modify from time to
time regulations regarding the validity of proxies. In addition to signed proxies, such regulations
may authorize facsimile, telephonic, Internet and other methods of appointing a proxy that are
subject to such supervision by or under the direction of the Trustees as the Trustees shall
determine.
6.6 Reports. The Trustees shall cause to be prepared and sent to Shareholders at least
annually and more frequently to the extent and in the form required by law or any exchange on which
Shares are listed a report of operations containing financial statements of the Trust prepared in
conformity with generally accepted accounting principles and applicable law.
6.7 Inspection of Records. The records of the Trust shall be open to inspection by Persons who
have been holders of record of at least $25,000 (or such higher amount as may be authorized by law)
in net asset value or liquidation preference of Shares for a continuous period of not less than six
months to the same extent and for the same purposes as is permitted under the Delaware General
Business Corporation Law to shareholders of a Delaware business corporation.
6.8 Shareholder Action by Written Consent. Any action which may be taken by Shareholders by
vote may be taken without a meeting if the holders of all of the Shares entitled to vote thereon
consent to the action in writing and the written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a
meeting of Shareholders.
ARTICLE VII.
Duration: Termination of Trust; Amendment; Mergers, Etc.
7.1 Duration. Subject to termination in accordance with the provisions of Section 7.2 hereof,
the Trust created hereby shall have perpetual existence.
7.2 Termination.
(a) The Trust may be dissolved, after two thirds of the Trustees then in office have approved
a resolution therefor, upon approval by Shares having at least 75% of the votes of all of the
Shares outstanding on the record date for such meeting, voting as a single class except to the
extent required by the 1940 Act. Upon the dissolution of the Trust:
(i) The Trust shall carry on no business except for the purpose of winding up its affairs.
- 15 -
(ii) The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of
the Trustees under this Declaration shall continue until the affairs of the Trust shall have been
wound up, including the power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, merger where the Trust is not the survivor, transfer or
otherwise dispose of all or any part of the remaining Trust Property to one or more Persons at
public or private sale for consideration which may consist in whole or in part in cash, securities
or other property of any kind, discharge or pay its liabilities, and do all other acts appropriate
to liquidate its business; provided that any sale, conveyance, assignment, exchange, merger in
which the Trust is not the survivor, transfer or other disposition of all or substantially all the
Trust Property of the Trust shall require approval of the principal terms of the transaction and
the nature and amount of the consideration with the same vote as required for dissolution pursuant
to paragraph (a) above.
(iii) After paying or adequately providing for the payment of all liabilities, and upon
receipt of such releases, indemnities and refunding agreements, as they deem necessary for their
protection, the Trustees may distribute the remaining Trust Property, in cash or in kind or partly
each, among the Shareholders according to their respective rights.
(b) After the winding up and termination of the Trust and distribution to the Shareholders as
herein provided, a majority of the Trustees shall execute and lodge among the records of the Trust
an instrument in writing setting forth the fact of such termination and shall execute and file a
certificate of cancellation with the Secretary of State of the State of Delaware. Upon termination
of the Trust, the Trustees shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders shall thereupon cease.
7.3 Amendment Procedure.
(a) Except as required by applicable law or this Declaration, the Trustees may amend this
Declaration without any vote of Shareholders, including to change the name of the Trust or any
class or series, to make any change that does not adversely affect the relative rights or
preferences of any class or series of Shares or to conform this Declaration to the requirements of
the 1940 Act or any other applicable law, but the Trustees shall not be liable for failing to do
so. If a vote of Shareholders is required by applicable law or this Declaration, or if the Trustees
determine to submit an amendment to a vote of Shareholders, then, other than with respect to
amendments of Sections 2.2, 2.3, 3.8, 6.1, 6.2, 6.4, 6.8, 7.1, 7.2, 7.3, 7.4, 7.5 and 7.6, this
Declaration may be amended, after a majority of the Trustees then in office have approved a
resolution therefor, by the affirmative vote set forth in Section 6.4(b)(ii). Sections 2.2, 2.3,
3.8, 6.1, 6.2, 6.4, 6.8, 7.1, 7.2, 7.3, 7.4, 7.5 and 7.6 may only be amended, after a majority of
the Trustees then in office have approved a resolution therefor, by the affirmative vote of the
holders of not less than 75% of the affected Shares outstanding on the record date.
(b) Nothing contained in this Declaration shall permit the amendment of this Declaration to
impair the exemption from personal liability of the Shareholders, Trustees, officers, employees and
agents of the Trust or to permit assessments upon Shareholders.
(c) An amendment duly adopted by the requisite vote of the Board of Trustees and, if required,
Shareholders as aforesaid, shall become effective at the time of such adoption or at
- 16 -
such other time as may be designated by the Board of Trustees or Shareholders, as the case may
be. A certification signed by a majority of the Trustees setting forth an amendment and reciting
that it was duly adopted by the Trustees and, if required, Shareholders as aforesaid, or a copy of
the Declaration, as amended, and executed by a majority of the Trustees, shall be conclusive
evidence of such amendment when lodged among the records of the Trust or at such other time
designated by the Trustees.
Notwithstanding any other provision hereof, until such time as Shares are issued and
outstanding, this Declaration may be terminated or amended in any respect by the affirmative vote
of a majority of the Trustees or by an instrument signed by a majority of the Trustees then in
office.
7.4 Merger, Consolidation and Sale of Assets. Subject to Section 7.6, the Trust may merge or
consolidate with any other corporation, association, Trust or other organization or may sell, lease
or exchange all or substantially all of the Trust Property or the property, including its good will
or may convert into another form of organization, upon such terms and conditions and for such
consideration when and as authorized by two-thirds of the Trustees then in office and thereafter
approved by the affirmative vote of the holders of not less than 75% (a majority (as defined in
Section 6.4(b)) in the event the provisions of the governing instruments of the entity resulting
from such transaction or, in the case of a sale or exchange of assets, the acquiring entity contain
substantially the same provisions as Sections 2.2, 2.3, 3.8, 6.1, 6.2, 6.4, 6.8, 7.1, 7.2, 7.3,
7.4, 7.5 and 7.6 of this Declaration) of the affected Shares outstanding on the record date for the
meeting of Shareholders to approve such transaction, and any such merger, consolidation, sale,
lease, exchange or conversion shall be determined for all purposes to have been accomplished under
and pursuant to the statutes of the State of Delaware.
7.5 Redemption; Conversion. No holder of Shares of any class or series, other than in
accordance with the provisions of Section 23(c) (excluding Rule 23c-3 thereunder) of the 1940 Act
and other than to the extent expressly determined by the Trustees with respect to Shares qualifying
as preferred stock pursuant to Section 18(a) of the 1940 Act, shall have any right to require the
Trust or any person controlled by the Trust to purchase any of such holders Shares. The Trust may
be converted at any time from a closed-end investment company to an open-end investment company
as those terms are defined by the 1940 Act or a company obligated to repurchase shares under Rule
23c-3 of the 1940 Act (an interval company), upon the approval of such a proposal, together with
the necessary amendments to this Declaration to permit such a conversion, by two-thirds of the
Trustees then in office, by the holders of not less than 75% of the Trusts outstanding Shares
entitled to vote thereon and by such vote or votes of the holders of any class or classes or series
of Shares as may be required by the 1940 Act. From time to time, the Trustees may consider
recommending to the Shareholders a proposal to convert the Trust from a closed-end company to an
open-end company or interval company. Upon the recommendation and subsequent adoption of such a
proposal and the necessary amendments to this Declaration to permit such a conversion by the
requisite proportion of the Trusts outstanding Shares entitled to vote, the Trust shall, upon
complying with any requirements of the 1940 Act and state law, become an open-end investment
company.
7.6 Certain Transactions. (a) Subject to the exceptions provided in paragraph (d) of this
Section, the types of transactions described in paragraph (c) of this Section shall, following
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the completion of the initial public offering of the common Shares, require the affirmative
vote or consent of the holders of 80% of the Shares of each class outstanding and entitled to vote,
voting as a separate class, when a Principal Shareholder (as defined in paragraph (b) of this
Section) is a party to the transaction. Such affirmative vote or consent shall be in addition to
the vote or consent of the holders of Shares otherwise required by or pursuant to the 1940 Act,
this Declaration, the Bylaws or resolution of the Board of Trustees.
(b) The term Principal Shareholder shall mean any Person which is the beneficial owner,
directly or indirectly, of five percent (5%) or more of the outstanding Shares and shall include
any affiliate or associate, as such terms are defined in clause (ii) below, of such Person. For the
purposes of this Section, in addition to the Shares which a Person beneficially owns directly, (a)
any Person shall be deemed to be the beneficial owner of any Shares (i) which it has the right to
acquire pursuant to any agreement or upon exercise of conversion rights or warrants, or otherwise
(but excluding share options granted by the Trust) or (ii) which are beneficially owned, directly
or indirectly (including Shares deemed owned through application of clause (i) above), by any other
Person with which its affiliate or associate (as defined below) has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or disposing of Shares, or which is
its affiliate or associate as those terms are defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934 as in effect on the date of initial adoption
of this Declaration, and (b) the outstanding Shares shall include Shares deemed owned through
application of clauses (i) and (ii) above but shall not include any other Shares which may be
issuable pursuant to any agreement, or upon exercise of conversion rights or warrants, or
otherwise.
(c) This Section shall apply to the following transactions:
(i) The merger or consolidation of the Trust or any subsidiary of the Trust with or into any
Principal Shareholder.
(ii) The issuance of any securities of the Trust to any Principal Shareholder for cash (other
than pursuant to any automatic dividend reinvestment plan or pursuant to any offering in which such
Principal Shareholder acquires securities that represent no greater a percentage of any class or
series of securities being offered than the percentage of the same class or series of securities
beneficially owned by such Principal Shareholder immediately prior to such offering or, in the case
of a class or series not then owned beneficially by such Principal Shareholder, the percentage of
Common Shares beneficially owned by such Principal Shareholder immediately prior to such offering).
(iii) The sale, lease or exchange of all or any substantial part of the assets of the Trust to
any Principal Shareholder (except assets having an aggregate fair market value of less than
$5,000,000, aggregating for the purpose of such computation all assets sold, leased or exchanged in
any series of similar transactions within a twelve-month period).
(iv) The sale, lease or exchange to the Trust or any subsidiary thereof, in exchange for
securities of the Trust of any assets of any Principal Shareholder (except assets having an
aggregate fair market value of less than $5,000,000, aggregating for the purposes of
- 18 -
such computation all assets sold, leased or exchanged in any series of similar transactions
within a twelve-month period).
(v) The purchase by the Trust or any Person controlled by the Trust of any Common Shares of
the Trust from such Principal Shareholder or any person to whom such Principal Shareholder shall
have knowingly transferred such Common Shares other than pursuant to a tender offer available to
all Shareholders of the same class or series in which such Principal Shareholder or transferee
tenders no greater percentage of the Shares of such class or series than are tendered by all other
Shareholders of such class or series in the aggregate.
(d) The provisions of this Section shall not be applicable to (i) any of the transactions
described in paragraph (c) of this Section if two-thirds of the Board of Trustees then in office
shall by resolution have approved a memorandum of understanding or agreement with such Principal
Shareholder with respect to and substantially consistent with such transaction prior to the time
such Person shall have become a Principal Shareholder, or (ii) any such transaction with any
corporation of which a majority of the outstanding shares of all classes of a stock normally
entitled to vote in elections of directors is owned of record or beneficially by the Trust and its
subsidiaries and of which such Person is not a Principal Shareholder.
(e) The Board of Trustees shall have the power and duty to determine for the purposes of this
Section on the basis of information known to the Trust whether (i) a Person beneficially owns five
percent (5%) or more of the outstanding Shares, (ii) a Person is an affiliate or associate (as
defined above) of another, (iii) the assets being acquired or leased to or by the Trust or any
subsidiary thereof constitute a substantial part of the assets of the Trust and have an aggregate
fair market value of less than $5,000,000, and (iv) the memorandum of understanding or agreement
referred to in paragraph (d) hereof is substantially consistent with the transaction covered
thereby. Any such determination shall be conclusive and binding for all purposes of this Section.
ARTICLE VIII.
Miscellaneous
8.1 Filing. This Declaration and any amendment (including any supplement) hereto shall be
filed in such places as may be required or as the Trustees deem appropriate. Each amendment shall
be accompanied by a certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein, and shall, upon insertion in the Trusts minute book, be
conclusive evidence of all amendments contained therein. A restated Declaration, containing the
original Declaration as amended by all amendments theretofore made, may be executed from time to
time by a majority of the Trustees and shall, upon insertion in the Trusts minute book, be
conclusive evidence of all amendments contained therein and may thereafter be referred to in lieu
of the original Declaration and the various amendments thereto.
8.2 Resident Agent. The Trust shall maintain a resident agent in the State of Delaware, which
agent shall initially be The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware
19801. The Trustees may designate a successor resident agent, provided, however, that
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such appointment shall not become effective until written notice thereof is delivered to the
office of the Secretary of the State.
8.3 Governing Law. This Declaration is executed by a majority of the Trustees and delivered in
the State of Delaware and with reference to the laws thereof, and the rights of all parties and the
validity and construction of every provision hereof shall be subject to and construed according to
the laws of said State and reference shall be specifically made to the business corporation law of
the State of Delaware as to the construction of matters not specifically covered herein or as to
which an ambiguity exists, although such law shall not be viewed as limiting the powers otherwise
granted to the Trustees hereunder and any ambiguity shall be viewed in favor of such powers.
8.4 Counterparts. This Declaration may be simultaneously executed in several counterparts,
each of which shall be deemed to be an original, and such counterparts, together, shall constitute
one and the same instrument, which shall be sufficiently evidenced by any such original
counterpart.
8.5 Reliance by Third Parties. Any certificate executed by an individual who, according to the
records of the Trust, or of any recording office in which this Declaration may be recorded, appears
to be a Trustee hereunder, certifying to: (a) the number or identity of Trustees or Shareholders,
(b) the name of the Trust, (c) the due authorization of the execution of any instrument or writing,
(d) the form of any vote passed at a meeting of Trustees or Shareholders, (e) the fact that the
number of Trustees or Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (f) the form of any By-Laws adopted by or the
identity of any officers elected by the Trustees, or (g) the existence of any fact or facts which
in any manner relate to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any person dealing with the Trustees and their successors.
8.6 Provisions in Conflict with Law or Regulation.
(a) The provisions of this Declaration are severable, and if the Trustees shall determine,
with the advice of counsel, that any of such provisions is in conflict with the 1940 Act, the
regulated investment company provisions of the Code or with other applicable laws and regulations,
the conflicting provision shall be deemed never to have constituted a part of this Declaration to
the extent of such conflict; provided, however, that such determination shall not affect any of the
remaining provisions of this Declaration or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration shall be held invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration in any jurisdiction.
- 20 -
IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and
year first above written.
By:
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Carter W. Austin
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Sole Trustee
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Exhibit 9(a)
FORM OF
MUTUAL FUND CUSTODY
AND SERVICES AGREEMENT
TABLE OF CONTENTS
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SECTION
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PAGE
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DEFINITIONS
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1
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ARTICLE I CUSTODY PROVISIONS
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3
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1.
Appointment of Custodian
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3
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2.
Custody of Cash and Securities
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7
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3.
Settlement of Fund Transactions
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8
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4.
Lending of Securities
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8
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5.
Persons Having Access to Assets of the Fund
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8
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6.
Standard of Care; Scope of Custodial Responsibilities
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8
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7.
Appointment of Subcustodians
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10
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8.
Overdraft Facility and Security for Payment
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10
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9.
Tax Obligations
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11
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ARTICLE II FOREIGN CUSTODY MANAGER SERVICES
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12
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1.
Delegation
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12
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2.
Changes to Appendix C
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12
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3.
Reports to Board
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12
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4.
Monitoring System
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12
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5.
Standard of Care
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12
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6.
Use of Securities Depositories
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12
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ARTICLE III INFORMATION SERVICES
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12
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1.
Risk Analysis
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12
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2.
Monitoring of Securities Depositories
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13
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3.
Use of Agents
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13
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4.
Exercise of Reasonable Care
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13
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5.
Liabilities and Warranties
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13
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ARTICLE IV GENERAL PROVISIONS
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13
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1.
Compensation
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13
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2.
Insolvency of Foreign Custodians
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14
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3.
Liability for Depositories
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14
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4.
Damages
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14
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5.
Indemnification; Liability of the Fund
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14
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6.
Force Majeure
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14
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7.
Termination
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14
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8.
Inspection of Books and Records
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15
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9.
Miscellaneous
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15
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APPENDIX A. AUTHORIZED PERSONS
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19
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APPENDIX B. FUND OFFICERS
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21
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APPENDIX C. SELECTED COUNTRIES
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22
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EXHIBIT A. CUSTOMER IDENTIFICATION PROGRAM NOTICE
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24
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i
MUTUAL FUND CUSTODY AND
SERVICES AGREEMENT
This
AGREEMENT,
effective as of the
day of
,2007, and is between
THE
GABELLI HEALTHCARE & WELLNESS RX TRUST
, (the Fund) a
organized under the
laws of the
having its principal office and place of business at One Corporate
Center, Rye, NY 10580-1422, and
MELLON TRUST OF NEW ENGLAND, N.A.
, (the Custodian) a national
banking association with its principal place of business at One Boston Place, Boston, Massachusetts
02108.
W
I
T
N
E
S
S
E
T
H
:
WHEREAS,
the Fund and the Custodian desire to set forth their agreement with respect to the
custody of the Funds Securities and cash and the processing of Securities transactions;
WHEREAS
, the Board desires to delegate certain of its responsibilities for performing the
services set forth in paragraphs (c)(1), (c)(2) and (c)(3) of Rule 17f-5 to the Custodian as a
Foreign Custody Manager;
WHEREAS
, the Custodian agrees to accept such delegation with respect to Assets, including
those held by Foreign Custodians in the Selected Countries as set forth in jurisdictions listed on
Appendix C
as set forth in Article II; and
WHEREAS
, the Custodian agrees to perform the function of a Primary Custodian under Rule 17f-7;
NOW THEREFORE
, the Fund and the Custodian agree as follows:
DEFINITIONS
The following words and phrases, unless the context requires otherwise, shall have the
following meanings:
1.
Act
: the Investment Company Act of 1940 and the Rules and Regulations thereunder, all as
amended from time to time.
2.
Agreement
: this agreement and any amendments.
3.
Assets
: any of the Funds investments, including foreign currencies and investments for which
the primary market is outside the United States, and such cash and cash equivalents as are
reasonably necessary to effect the Funds transactions in such investments.
4.
Authorized Person
: the Chairman of the Funds Board, its President, and any Vice President,
Secretary, Treasurer or any other person, whether or not any such person is an officer or employee
of the Fund, duly authorized by the Board to add or delete
1
jurisdictions pursuant to Article II and to give Instructions on behalf of the Fund which is listed
in the Certificate annexed hereto as
Appendix A
or such other Certificate as may be
received by the Custodian from time to time.
5.
Board
: the Board of Trustees (or the body authorized to exercise authority similar to that of
the board of directors of a corporation) of the Fund.
6.
Book-Entry System
: the Federal Reserve/Treasury book-entry system for United States and
federal agency Securities, its successor or successors and its nominee or nominees.
7.
Business Day
: any day on which the Fund, the Custodian, the Book-Entry System and appropriate
clearing corporation(s) are open for business.
8.
Certificate
: any notice, instruction or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, which is actually received by the Custodian and signed
on behalf of the Fund by an Authorized Person or Persons designated by the Board to issue a
Certificate.
9.
Eligible Securities Depository
: the meaning of the term set forth in Rule 17f-7(b)(1).
10.
Foreign Custodian
: (a) a banking institution or trust company incorporated or organized under
the laws of a country other than the United States, that is regulated as such by the countrys
government or an agency of the countrys government; (b) a majority-owned direct or indirect
subsidiary of a U.S. Bank or bank-holding company; or (c) any entity other than a Securities
Depository with respect to which exemptive or no-action relief has been granted by the Securities
and Exchange Commission. For the avoidance of doubt, the term Foreign Custodian shall not
include Euroclear, Clearstream, Bank One or any other transnational system for the central handling
of securities or equivalent book-entries regardless of whether or not such entities or their
service providers are acting in a custodial capacity with respect to Assets, Securities or other
property of the Fund.
11. Foreign Custody Manager
: the meaning set forth in Rule 17f-5(a)(3).
12.
Instructions
: (i) all directions to the Custodian from an Authorized Person pursuant to the
terms of this Agreement; (ii) all directions by or on behalf of the Fund to the Custodian in its
corporate capacity (or any of its affiliates) with respect to contracts for foreign exchange; (iii)
all directions by or on behalf of the Fund pursuant to an agreement with Custodian (or any of its
affiliates) with respect to benefit disbursement services or information or transactional services
provided via a web site sponsored by the Custodian (or any of its affiliates) (e.g., the Workbench
web site) and (iv) all directions by or on behalf of the Fund pursuant to any other agreement or
procedure between the Custodian (or any of its affiliates) and the Fund, if such agreement or
procedure specifically provides that authorized persons thereunder are deemed to be authorized to
give instructions under this Agreement. Instructions shall be in writing, transmitted by first
class mail, overnight delivery, private courier, facsimile, or shall be an electronic
2
transmission subject to the Custodians policies and procedures, other institutional delivery
systems or trade matching utilities as directed by an Authorized Person and supported by the
Custodian, or other methods agreed upon in writing by the Fund and Custodian. The Custodian may,
in its discretion, accept oral directions and instructions from an Authorized Person and may
require confirmation in writing. However, where the Custodian acts on an oral direction prior to
receipt of a written confirmation, the Custodian shall not be liable if a subsequent written
confirmation fails to conform to the oral direction.
13.
Primary Custodian
: the meaning set forth in Rule 17f-7(b)(2).
14.
Prospectus
: a Funds current prospectus and statement of additional information relating to
the registration of the Shares under the Securities Act of 1933, as amended.
15.
Risk Analysis
: the analysis required under Rule 17f-7(a)(1)(i)(A).
16.
Rules 17f-4, 17f-5
and
17f-7
: such Rules as promulgated under Section 17(f) of the Act, as
such rules (and any successor rules or regulations) may be amended from time to time.
17.
Security
or
Securities
: bonds, debentures, notes, stocks, shares, evidences of
indebtedness, and other securities, commodities, interests and investments from time to time owned
by the Fund.
18.
Securities Depository
: a system for the central handling of securities as defined in Rule
17f-4.
19.
Selected Countries
: the jurisdictions listed on
Appendix C
as such may be amended
from time to time in accordance with Article II.
20.
Shares
: shares of the Fund, however designated.
ARTICLE I. CUSTODY PROVISIONS
1.
Appointment of Custodian
.
The Board appoints, and the Custodian accepts appointment as
custodian of all the Securities and monies at the time owned by or in the possession of the Fund
during the period of this Agreement.
2.
Custody of Cash and Securities
.
a.
Receipt and Holding of Assets
. The Fund will deliver or cause to be delivered to
the Custodian all Securities and monies owned by it at any time during the period of this Custody
Agreement. The Custodian will not be responsible for such Securities and monies until actually
received. The Board specifically authorizes the Custodian to hold Securities, Assets or other
property of the Fund with any domestic
subcustodian, or Securities Depository, and Foreign Custodians or Eligible Securities
3
Depositories in the Selected Countries as provided in Article II. Securities and monies of the
Fund deposited in a Securities Depository or Eligible Securities Depositories will be reflected in
an account or accounts which include only assets held by the Custodian or a Foreign Custodian for
its customers.
b.
Disbursements of Cash and Delivery of Securities
. The Custodian shall disburse
cash or deliver out Securities only for the purposes listed below. Instructions must specify or
evidence the purpose for which any transaction is to be made and the Fund shall be solely
responsible to assure that Instructions are in accord with any limitations or restrictions
applicable to the Fund
(1) In payment for Securities purchased for the Fund;
(2) In payment of dividends or distributions with respect to Shares;
(3) In payment for Shares which have been redeemed by the Fund;
(4) In payment of taxes;
(5) When Securities are sold, called, redeemed, retired, or otherwise become payable;
(6) In exchange for or upon conversion into other securities alone or other securities and
cash pursuant to any plan or merger, consolidation, reorganization, recapitalization or
readjustment;
(7) Upon conversion of Securities pursuant to their terms into other securities;
(8) Upon exercise of subscription, purchase or other similar rights represented by Securities;
(9) For the payment of interest, management or supervisory fees, distributions or operating
expenses;
(10) In payment of fees and in reimbursement of the expenses and liabilities of the Custodian
attributable to the Fund;
(11) In connection with any borrowings by the Fund or short sales of securities requiring a
pledge of Securities, but only against receipt of amounts borrowed;
(12) In connection with any loans, but only against receipt of adequate collateral as
specified in Instructions which shall reflect any restrictions applicable to the Fund.
(13) For the purpose of redeeming Shares of the capital stock of the Fund and the delivery to,
or the crediting to the account of, the Custodian or the Funds
transfer agent, such Shares to be purchased or redeemed;
4
(14) For the purpose of redeeming in kind Shares of the Fund against delivery to the
Custodian, its Subcustodian or the Customer Funds transfer agent of such Shares to be so redeemed;
(15) For delivery in accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the Exchange
Act) and a member of The National Association of Securities Dealers, Inc. (NASD), relating to
compliance with the rules of The Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund. The Custodian will act only in
accordance with Instructions in the delivery of Securities to be held in escrow and will have no
responsibility or liability for any such Securities which are not returned promptly when due other
than to make proper requests for such return;
(16) For spot or forward foreign exchange transactions to facilitate security trading, receipt
of income from Securities or related transactions;
(17) Upon the termination of this Agreement; and
(18) For other proper purposes as may be specified in Instructions issued by an Authorized
Person of the Fund which shall include a statement of the purpose for which the delivery or payment
is to be made, the amount of the payment or specific Securities to be delivered, the name of the
person or persons to whom delivery or payment is to be made, and a Certificate stating that the
purpose is a proper purpose under the instruments governing the Fund.
(19) For delivery of Securities or monies of the Fund as set forth under Article I, Section 7.
c.
Actions Which May be Taken Without Instructions
. Unless an Instruction to the
contrary is received, the Custodian shall:
(1) Collect all income due or payable, provided that the Custodian shall not be responsible
for the failure to receive payment of (or late payment of) distributions or other payments with
respect to Securities or other property held in the account;
(2) Present for payment and collect the amount payable upon all Securities which may mature or
be called, redeemed, retired or otherwise become payable. Notwithstanding the foregoing, the
Custodian shall have no responsibility to the Fund for monitoring or ascertaining any call,
redemption or retirement dates with respect to put bonds or similar instruments which are owned by
the Fund and held by the Custodian or its nominees where such dates are not published in sources
routinely used by the Custodian. Nor shall the Custodian have any responsibility or liability to
the Fund for any loss by the Fund for any missed payments or other defaults resulting therefrom,
unless the Custodian received timely notification from the Fund specifying the time, place and
manner for the presentment of any such put bond owned by the Fund and held
5
by the Custodian or its
nominee. The Custodian shall not be responsible and assumes no liability for the accuracy or
completeness of any notification the Custodian may furnish to the Fund with respect to put bonds or
similar instruments;
(3) Surrender Securities in temporary form for definitive Securities;
(4) Hold directly, or through a Securities Depository with respect to Securities therein
deposited, for the account of the Fund all rights and similar Securities issued with respect to any
Securities held by the Custodian hereunder for the Fund;
(5) Submit or cause to be submitted to the Fund or its investment advisor as designated by the
Fund information actually received by the Custodian regarding ownership rights pertaining to
property held for the Fund;
(6) Deliver or cause to be delivered any Securities held for the Fund in exchange for other
Securities or cash issued or paid in connection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or the exercise of any conversion
privilege;
(7) Deliver or cause to be delivered any Securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation or recapitalization or sale of assets of any corporation, and
receive and hold under the terms of this Agreement such certificates of deposit, interim receipts
or other instruments or documents as may be issued to it to evidence such delivery;
(8) Make or cause to be made such transfers or exchanges of the assets specifically allocated
to the Fund and take such other steps as shall be stated in Instructions to be for the purpose of
effectuating any duly authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
(9) Deliver Securities upon the receipt of payment in connection with any repurchase agreement
related to such Securities entered into by the Fund;
(10) Deliver Securities owned by the Fund to the issuer thereof or its agent when such
Securities are called, redeemed, retired or otherwise become payable; provided, however, that in
any such case the cash or other consideration is to be delivered to the Custodian. Notwithstanding
the foregoing, the Custodian shall have no responsibility to the Fund for monitoring or
ascertaining any call, redemption or retirement dates with respect to the put bonds or similar
instruments which are owned by the Fund and held by the Custodian or its nominee where such dates
are not published in sources routinely used by the Custodian. Nor shall the Custodian have any
responsibility or liability to the Fund for any loss by the Fund for any missed payment or other
default resulting therefrom unless the Custodian received timely notification from the Fund
specifying the time, place and manner for the presentment of any such put bond owned by the Fund
and held by the Custodian or its nominee. The Custodian shall not be
responsible and assumes no liability to the Fund for the accuracy or completeness of any
notification the Custodian may furnish to the Fund with respect to put bonds or similar
investments;
6
(11) Endorse and collect all checks, drafts or other orders for the payment of money received
by the Custodian for the account of the Fund; and
(12) Execute any and all documents, agreements or other instruments as may be necessary or
desirable for the accomplishment of the purposes of this Agreement.
d.
Confirmation and Statements
. Promptly after the close of business on each day, the
Custodian shall furnish the Fund with confirmations and a summary of all transfers to or from the
account of the Fund during the day. Where securities purchased by the Fund are in a fungible bulk
of securities registered in the name of the Custodian (or its nominee) or shown on the Custodians
account on the books of a Securities Depository, the Custodian shall by book-entry or otherwise
identify the quantity of those securities belonging to the Fund. At least monthly, the Custodian
shall furnish the Fund with a detailed statement of the Securities and monies held for the Fund
under this Custody Agreement.
e.
Registration of Securities
. The Custodian is authorized to hold all Securities,
Assets, or other property of the Fund in nominee name, in bearer form or in book-entry form. The
Custodian may register any Securities, Assets or other property of the Fund in the name of the
Fund, in the name of the Custodian, any domestic subcustodian, or Foreign Custodian, in the name of
any duly appointed registered nominee of such entity, or in the name of a Securities Depository or
its successor or successors, or its nominee or nominees. The Fund agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee or in the name of a Securities
Depository, any Securities which it may hold for the account of the Fund and which may from time to
time be registered in the name of the Fund.
f.
Segregated Accounts
. Upon receipt of Instructions, the Custodian will, from time
to time establish segregated accounts on behalf of the Fund to hold and deal with specified assets
as shall be directed.
3.
Settlement of Fund Transactions
.
a.
Customary Practices
. Settlement of transactions may be effected in accordance with
trading and processing practices customary in the jurisdiction or market where the transaction
occurs. The Fund acknowledges that this may, in certain circumstances, require the delivery of
cash or Securities (or other property) without the concurrent receipt of Securities (or other
property) or cash. In such circumstances, the Custodian shall have no responsibility for
nonreceipt of payments (or late payment) or nondelivery of Securities or other property (or late
delivery) by the counterparty.
b.
Contractual Income
. The Custodian shall credit the Fund, in accordance
with the Custodians standard operating procedure, with income and maturity proceeds on
securities on contractual payment date net of any taxes or upon actual receipt. To the extent the
Custodian credits income on contractual payment date, the Custodian may
7
reverse such accounting
entries to the contractual payment date if the Custodian reasonably believes that such amount will
not be received.
c.
Contractual Settlement
. The Custodian will attend to the settlement of securities
transactions in accordance with the Custodians standard operating procedure, on the basis of
either contractual settlement date accounting or actual settlement date accounting. To the extent
the Custodian settles certain securities transactions on the basis of contractual settlement date
accounting, the Custodian may reverse to the contractual settlement date any entry relating to such
contractual settlement if the Custodian reasonably believes that such amount will not be received.
4.
Lending of Securities
.
The Custodian may lend the assets of the Fund in
accordance with the terms and conditions of a separate securities lending agreement, approved by
the Fund.
5.
Persons Having Access to Assets of the Fund
.
a. No trustee or agent of the Fund, and no officer, director, employee or agent of the Funds
investment adviser, of any sub-investment adviser of the Fund, or of the Funds administrator,
shall have physical access to the assets of the Fund held by the Custodian or be authorized or
permitted to withdraw any investments of the Fund, nor shall the Custodian deliver any assets of
the Fund to any such person. No officer, director, employee or agent of the Custodian who holds
any similar position with the Funds investment adviser, with any sub-investment adviser of the
Fund or with the Funds administrator shall have access to the assets of the Fund.
b. Nothing in this Section 5 shall prohibit any duly authorized officer, employee or agent of
the Fund, or any duly authorized officer, director, employee or agent of the investment adviser, of
any sub-investment adviser of the Fund or of the Funds administrator, from giving Instructions to
the Custodian or executing a Certificate so long as it does not result in delivery of or access to
assets of the Fund prohibited by paragraph (a) of this Section 5.
6.
Standard of Care; Scope of Custodial Responsibilities
.
a.
Standard of Care
. Custodian shall be required to exercise reasonable care with
respect to its duties under this Agreement unless otherwise provided.
(1) Notwithstanding any other provision of this Custody Agreement, the Custodian shall not be
liable for any loss or damage, including counsel fees, resulting from its action or omission to act
or otherwise, except for any such loss or damage arising out of the negligence or willful
misconduct of the Custodian.
(2) The Custodian may, with respect to questions of law, apply for and obtain the advice and
opinion of counsel to the Fund or of its own counsel, at the expense of the Fund, and shall be
fully protected with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion.
8
b.
Scope of Duties
. Without limiting the generality of the foregoing, the Custodian
shall be under no duty or obligation to inquire into, and shall not be liable for:
(1) The acts or omissions of any agent appointed pursuant to Instructions of the Fund or its
investment advisor including, but not limited to, any broker-dealer or other entity to hold any
Securities or other property of the Fund as collateral or otherwise pursuant to any investment
strategy.
(2) The validity of the issue of any Securities purchased by the Fund, the legality of the
purchase thereof, or the propriety of the amount paid therefor;
(3) The legality of the sale of any Securities by the Fund or the propriety of the amount for
which the same are sold;
(4) The legality of the issue or sale of any Shares, or the sufficiency of the amount to be
received therefor;
(5) The legality of the redemption of any Shares, or the propriety of the amount to be paid
therefore
(6) The legality of the declaration or payment of any distribution of the Fund;
(7) The legality of any borrowing for temporary administrative or emergency purposes.
c.
No Liability Until Receipt
. The Custodian shall not be liable for, or considered
to be the Custodian of, any money, whether or not represented by any check, draft, or other
instrument for the payment of money, received by it on behalf of the Fund until the Custodian
actually receives and collects such money.
d.
Amounts Due from Transfer Agent
. The Custodian shall not be required to effect
collection of any amount due to the Fund from the Funds transfer agent nor be required to cause
payment or distribution by such transfer agent of any amount paid by the Custodian to the transfer
agent.
e.
Collection Where Payment Refused
. The Custodian shall not be required to take
action to effect collection of any amount, if the Securities upon which such amount is payable are
in default, or if payment is refused after due demand or presentation, unless and until it shall be
directed to take such action and it shall be assured to its satisfaction of reimbursement of its
related costs and expenses.
f.
No Duty to Ascertain Authority
. The Custodian shall not be under any
duty or obligation to ascertain whether any Securities at any time delivered to or held by it
for the Fund are such as may properly be held by the Fund under the provisions of its governing
instruments or Prospectus.
9
g.
Reliance on Instructions
. The Custodian shall be entitled to rely upon any
Instruction, notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be genuine and to be signed by an officer or Authorized Person of the
Fund. Where the Custodian is issued Instructions orally, the Fund acknowledge that if written
confirmation is requested, the validity of the transactions or enforceability of the transactions
authorized by the Fund shall not be affected if such confirmation is not received or is contrary to
oral Instructions given. The Custodian shall be fully protected in acting in accordance with all
such Instructions and in failing to act in the absence thereof. The Custodian shall be under no
duty to question any direction of an Authorized Person with respect to the portion of the account
over which such Authorized Person has authority, to review any property held in the account, to
make any suggestions with respect to the investment and reinvestment of the assets in the account,
or to evaluate or question the performance of any Authorized Person. The Custodian shall not be
responsible or liable for any diminution of value of any securities or other property held by the
Custodian or its subcustodians pursuant to Instructions. In following Instructions, the Custodian
shall be fully protected and shall not be liable for the acts or omissions of any person or entity
not selected or retained by the Custodian in its sole discretion, including but not limited to, any
broker-dealer or other entity designed by the Fund or Authorized Person to hold property of the
account as collateral or otherwise pursuant to an investment strategy.
7.
Appointment of Subcustodians; Transfer of Assets to Subcustodians or Brokers
. The
Custodian is hereby authorized to appoint one or more domestic subcustodians (which may be an
affiliate of the Custodian) to hold Securities and monies at any time owned by the Fund. The
Custodian will give the Fund prompt notice of any such appointment. The Custodian is also hereby
authorized when acting pursuant to Instructions to: 1) place assets with any Foreign Custodian
located in a jurisdiction which is not a Selected Country and with Euroclear, Clearstream, Banc One
or any other transnational depository; and 2) place assets with a broker or any such domestic
subcustodian or Foreign Custodian in connection with futures, options, short selling or other
transactions. When acting pursuant to such Instructions, the Custodian shall not be liable for the
acts or omissions of any such broker, subcustodian or Foreign Custodian.
8.
Overdraft Facility and Security for Payment
. In the event that the Custodian receives
Instructions to make payments or transfers of monies on behalf of the Fund for which there would
be, at the close of business on the date of such payment or transfer, insufficient monies held by
the Custodian on behalf of the Fund, the Custodian may, in its sole discretion, provide an
overdraft (an Overdraft) to the Fund in an amount sufficient to allow the completion of such
payment or transfer. Any Overdraft provided hereunder: (a) shall be payable on the next Business
Day, unless otherwise agreed by the Fund and the Custodian; and (b) shall accrue interest from the
date of the Overdraft to the date of payment in full by the Fund at
a rate agreed upon from time to time by the Custodian and the Fund or, in the absence of specific
agreement, by such rate as charged to other customers of Custodian under procedures uniformly
applied. The Custodian and the Fund acknowledge that the purpose of such Overdraft is to
temporarily finance the purchase of Securities for prompt delivery in accordance with the terms
hereof, to meet unanticipated or unusual redemptions, to allow the settlement of foreign exchange
contracts or to meet other unanticipated Fund expenses. The Custodian shall promptly
10
notify the
Fund (an Overdraft Notice) of any Overdraft. To secure payment of any Overdraft and related
interest and expenses, the Fund hereby grants to the Custodian a first priority security interest
in and right of setoff against the Securities and cash in the Funds account, including all income,
substitutions and proceeds, whether now owned or hereafter acquired (the Collateral), in the full
amount of such Overdraft, interest and expenses; provided that the Fund does not grant the
Custodian a security interest in any Securities issued by an affiliate of the Custodian (as defined
in Section 23A of the Federal Reserve Act). The Custodian and the Fund intend that, as the
securities intermediary with respect to the Collateral, the Custodians security interest shall
automatically be perfected when it attaches. Should the Fund fail to pay promptly any amounts owed
hereunder, the Custodian shall be entitled to use available cash in the Funds account and to
liquidate Securities in the account as necessary to meet the Funds obligations relating to such
Overdraft, interest and expenses. In any such case, and without limiting the foregoing, the
Custodian shall be entitled to take such other actions(s) or exercise such other options, powers
and rights as the Custodian now or hereafter has as a secured creditor under the Massachusetts
Uniform Commercial Code or any other applicable law.
9.
Tax Obligations
.
For purposes of this Agreement, Tax Obligations shall mean taxes,
withholding, certification and reporting requirements, claims for exemptions or refund, interest,
penalties, additions to tax and other related expenses. To the extent that the Custodian has
received relevant and necessary information with respect to the account, the Custodian shall
perform the following services with respect to Tax Obligations:
a. The Custodian shall file claims for exemptions or refunds with respect to withheld foreign
(non-U.S.) taxes in instances in which such claims are appropriate upon receipt of sufficient
information;
b. The Custodian shall withhold appropriate amounts, as required by U.S. tax laws, with
respect to amounts received on behalf of nonresident aliens upon receipt of Instructions; and
c. The Custodian shall provide to the Fund or the Authorized Person such information received
by the Custodian which could, in the Custodians reasonable belief, assist the Fund or the
Authorized Person in the submission of any reports or returns with respect to Tax Obligations. The
Fund shall inform the Custodian in writing as to which party or parties shall receive information
from the Custodian.
The Custodian shall provide such other services with respect to Tax Obligations, including
preparation and filing of tax returns and reports and payment of amounts due
(to the extent funded), as requested by the Fund and agreed to by the Custodian in writing.
The Custodian shall have no independent obligation to determine the existence of any information
with respect to, or the extent of, any Tax Obligations now or hereafter imposed on the Fund or the
account by any taxing authority. Except as specifically provided herein or agreed to in writing by
the Custodian, the Custodian shall have no
11
obligations or liability with respect to Tax
Obligations, including, without limitation, any obligation to file or submit returns or reports
with any taxing authorities.
In making payments to service providers pursuant to Instructions, the Fund acknowledges that
the Custodian is acting as a paying agent and not as the payor, for tax information reporting and
withholding purposes.
ARTICLE II. FOREIGN CUSTODY MANAGER SERVICES
1.
Delegation
. The Board delegates to, and the Custodian hereby agrees to accept
responsibility as the Funds Foreign Custody Manager for selecting, contracting with and monitoring
Foreign Custodians in Selected Countries set forth in Appendix C in accordance with Rule 17f-5(c).
2.
Changes to Appendix C
.
Appendix C may be amended by written agreement from time to time
to add or delete jurisdictions by written agreement signed by an Authorized Person of the Fund and
the Custodian, but the Custodian reserves the right to delete jurisdictions upon reasonable notice
to the Fund
.
3.
Reports to Board
.
Custodian shall provide written reports notifying the Board of the
placement of Assets with a particular Foreign Custodian and of any material change in the Funds
foreign custody arrangements. Such reports shall be provided to the Board quarterly, except as
otherwise agreed by the Custodian and the Fund.
4.
Monitoring System
.
In each case in which the Custodian has exercised delegated
authority to place Assets with a Foreign Custodian, the Custodian shall establish a system, to
re-assess or re-evaluate selected Foreign Custodians, at least annually in accordance with Rule
17f-5(c)(3).
5.
Standard of Care
.
In exercising the delegated authority under this Article II of the
Agreement, the Custodian agrees to exercise reasonable care, prudence and diligence such as a
person having responsibility for the safekeeping of the Assets would exercise in like
circumstances. Contracts with Foreign Custodians shall provide for reasonable care for Assets
based on the standards applicable to Foreign Custodians in the Selected Country. In making this
determination, the Custodian shall consider the provisions of Rule 17f-5(c)(2).
6.
Use of Securities Depositories.
In exercising its delegated authority, the Custodian
may assume that the Fund and its investment adviser have determined, pursuant to Rule 17f-7, that
the
depository provides reasonable safeguards against custody risks, if the Fund decides to place and
maintain foreign assets with any Securities Depository as to which the Custodian has provided the
Fund with a Risk Analysis.
ARTICLE III. INFORMATION SERVICES
1.
Risk Analysis
. The Custodian will provide the Fund with a Risk Analysis with respect
to Securities Depositories operating in the countries listed in Appendix C. If the
12
Custodian is
unable to provide a Risk Analysis with respect to a particular Securities Depository, it will
notify the Fund. If a new Securities Depository commences operation in one of the Appendix C
countries, the Custodian will provide the Fund with a Risk Analysis in a reasonably practicable
time after such Securities Depository becomes operational. If a new country is added to Appendix
C, the Custodian will provide the Fund with a Risk Analysis with respect to each Securities
Depository in that country within a reasonably practicable time after the addition of the country
to Appendix C.
2.
Monitoring of Securities Depositories
. The Custodian will monitor the custody risks
associated with maintaining assets with each Securities Depository for which it has provided the
Fund with a Risk Analysis as required under Rule 17f-7. The Custodian will promptly notify the Fund
or its investment adviser of any material change in these risks.
3.
Use of Agents
. The Custodian may employ agents, including, but not limited to Foreign
Custodians, to perform its responsibilities under Sections 1 and 2 above.
4.
Exercise of Reasonable Care
The Custodian will exercise reasonable care, prudence, and
diligence in performing its responsibilities under this Article III. With respect to the Risk
Analyses provided or monitoring performed by an agent, the Custodian will exercise reasonable care
in the selection of such agent, and shall be entitled to rely upon information provided by agents
so selected in the performance of its duties and responsibilities under this Article III.
5.
Liabilities and Warranties
. While the Custodian will take reasonable precautions to
ensure that information provided is accurate, the Custodian shall have no liability with respect to
information provided to it by third parties. Due to the nature and source of information, and the
necessity of relying on various information sources, most of which are external to the Custodian,
the Custodian shall have no liability for direct or indirect use of such information.
ARTICLE IV. GENERAL PROVISIONS
1.
Compensation
.
a. The Fund will compensate the Custodian for its services rendered under
this Agreement in accordance with the fees set forth in a separate Fee Schedule which schedule
may be modified by the Custodian upon not less than sixty days prior written notice to the Fund.
b. The Custodian will bill the Fund as soon as practicable after the end of each calendar
month. The Fund will promptly pay to the Custodian the amount of such billing.
c. If not paid directly or timely by the Fund, the Custodian may charge against assets held
on behalf of the Fund compensation and any expenses incurred by the Custodian in the performance of
its duties pursuant to this Agreement. The Custodian shall also be entitled to charge against
assets of the Fund the amount of any loss, damage, liability or expense incurred with respect to
the Fund including counsel fees for which it
13
shall be entitled to reimbursement under the
provisions of this Agreement. The expenses which the Custodian may charge include, but are not
limited to, the expenses of domestic subcustodians and Foreign Custodians incurred in settling
transactions.
2.
Insolvency of Foreign Custodians
. The Custodian shall be responsible for losses or
damages suffered by the Fund arising as a result of the insolvency of a Foreign Custodian only to
the extent that the Custodian failed to comply with the standard of care set forth in Article II
with respect to the selection and monitoring of such Foreign Custodian.
3.
Liability for Depositories
.
The Custodian shall not be responsible for any losses
resulting from the deposit or maintenance of Securities, Assets or other property of the Fund with
a Securities Depository.
4.
Damages.
Under no circumstances shall the Custodian be liable for any indirect,
consequential or special damages with respect to its role as Foreign Custody Manager, Custodian or
information vendor.
5.
Indemnification; Liability of the Fund.
a. The Fund shall indemnify and hold the Custodian harmless from all liability and costs,
including reasonable counsel fees and expenses, relating to or arising out of the performance of
the Custodians obligations under this Agreement except to the extent resulting from the
Custodians negligence or willful misconduct. This provision shall survive the termination of this
Agreement.
b. The Custodian will indemnify and hold the Fund, its officers, trustees, employees, and
affiliates harmless from all liability and costs, including reasonable counsel fees and expenses,
relating to or arising out of the breach of this Agreement, negligence, misconduct, or violation of
law, rule or regulation except to the extent resulting from the negligence or willful misconduct by
the fund, its officers, directors, or affiliates. This provision shall survive the termination of
this Agreement.
c. The Fund and the Custodian agree that the obligations of the Fund under this Agreement
shall not be binding upon any of the trustees, shareholders, nominees, officers, employees or
agents, whether past, present or future, of the Fund, individually, but are binding only upon the
assets and property of the Fund.
6.
Force Majeure.
Notwithstanding anything in this Agreement to the contrary contained
herein, the Custodian shall not be responsible or liable for its failure to perform under this
Agreement or for any losses to the account resulting from any event beyond the reasonable control
of the Custodian, its agents or subcustodians. This provision shall survive the termination of
this Agreement
7.
Termination.
a. Either party may terminate this Agreement by giving the other party sixty (60) days notice
in writing, specifying the date of such termination. In the event notice is
14
given by the Fund, it
shall be accompanied by a Certificate evidencing the vote of the Funds Board to terminate this
Agreement and designating a successor.
b. In the event notice of termination is given by the Custodian, the Fund shall, on or before
the termination date, deliver to the Custodian a Certificate evidencing the vote of the Board
designating a successor custodian. In the absence of such designation, the Custodian may designate
a successor custodian, which shall be a person qualified to so act under the Act or the Fund. If
the Fund fails to designate a successor custodian, the Fund shall, upon the date specified in the
notice of termination, and upon the delivery by the Custodian of all Securities and monies then
owned by the Fund, be deemed to be its own custodian and the Custodian shall thereby be relieved of
all duties and or the Fund responsibilities under this Agreement other than the duty with respect
to Securities held in the Book-Entry System which cannot be delivered to the Fund.
c. Upon termination of the Agreement, the Custodian shall, upon receipt of a notice of
acceptance by the successor custodian, deliver to the successor all Securities and monies then held
by the Custodian on behalf of the Fund, after deducting all fees, expenses and other amounts owed.
d. In the event of a dispute following the termination of this Agreement, all relevant
provisions shall be deemed to continue to apply to the obligations and liabilities of the parties.
8.
Inspection of Books and Records
. The books and records of the Custodian directly
related to the Fund shall be open to inspection and audit at reasonable times by officers and
auditors employed by the Fund at its own expense and with prior written notice to the Custodian,
and by the appropriate employees of the Securities and Exchange Commission.
9.
Miscellaneous.
a.
Appendix A
is a Certificate signed by the Secretary of the Fund setting forth the
names and the signatures of Authorized Persons. The Fund shall furnish a new
Certificate when the list of Authorized Persons is changed in any way. Until a new
certification is received, the Custodian shall be fully protected in acting upon Instructions from
Authorized Persons as set forth in the last delivered Certificate.
b.
Appendix B
is a Certificate signed by the Secretary of the Fund setting forth the
names and the signatures of the present officers of the Fund. The Fund agrees to furnish to the
Custodian a new Certificate when any changes are made. Until a new Certificate is received, the
Custodian shall be fully protected in relying upon the last delivered Certificate.
c. Any required written notice or other instrument shall be sufficiently given if addressed to
the Custodian or the Fund as the case may be and delivered to it at its offices at:
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The Custodian:
Mellon Trust of New England, N.A.
135 Santilli Highway
Everett, MA 02149
Attn: Claire Driscoll, Vice President
The Fund: The Gabelli Healthcare & Wellness Rx Trust
One Corporate Center
Rye, NY 10580-1422
Attn. Bruce N. Alpert, President
With a Copy to
Gabelli Funds, LLC
One Corporate Center
Rye, NY 10580-1422
Attn: James E. McKee, Secretary
or at such other place as the parties may from time to time designate to the other in writing.
d. This Agreement may not be amended or modified except by a written agreement executed by
both parties.
e. This Agreement shall extend to and shall be binding upon the parties hereto, and their
respective successors and assigns; provided, however, that this Agreement shall not be assignable
by the Fund without the written consent of the Custodian, or by the Custodian without the written
consent of the Fund authorized or approved by a vote of the Board, provided, however, that the
Custodian may assign the Agreement or any function thereof to any corporation or entity which
directly or
indirectly is controlled by, or is under common control with, the Custodian and any other
attempted assignment without written consent shall be null and void.
f. Nothing in this Agreement shall give or be construed to give or confer upon any third party
any rights hereunder.
g. The Custodian represents that it is a U.S. Bank within the meaning of paragraph (a)(7) of
Rule 17f-5.
h. The Fund acknowledges and agrees that, except as expressly set forth in this Agreement, the
Fund is solely responsible to assure that the maintenance of the Funds Securities and cash
hereunder complies with applicable laws and regulations, including without limitation the Act and
the rules and regulations promulgated thereunder and applicable interpretations thereof or
exemptions therefrom. The Fund represents that it has determined that it is reasonable to rely on
Custodian to perform the responsibilities delegated pursuant to this Agreement.
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i. This Agreement shall be construed in accordance with the laws of The Commonwealth of
Massachusetts.
j. The captions of the Agreement are included for convenience of reference only and in no way
define or delimit any of the provisions hereof or otherwise affect their construction or effect.
k. Each party represents to the other that it has all necessary power and authority, and has
obtained any consent or approval necessary to permit it, to enter into and perform this Agreement
and that this Agreement does not violate, give rise to a default or right of termination under or
otherwise conflict with any applicable law, regulation, ruling, decree or other governmental
authorization or any contract to which it is a party or by which any of its assets is bound. Each
party represents and warrants that the individual executing this Agreement on its behalf has the
requisite authority to bind the Fund or the Custodian to this Agreement. The Fund has received and
read the Customer Identification Program Notice, a copy of which is attached to this Agreement as
Exhibit A.
l. This Agreement may be executed in any number of counterparts, each of which shall be deemed
to be an original, but such counterparts shall, together, constitute only one instrument.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF
, the parties hereto have caused this Agreement to be executed by their
respective representatives duly authorized as of the day and year first above written.
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THE GABELLI HEALTHCARE & WELLNESS RX TRUST
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By:
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Name:
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Title:
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President
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MELLON TRUST OF NEW ENGLAND, N.A.
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By:
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Name:
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Claire Driscoll
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Title:
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Vice President
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APPENDIX A
LIST OF AUTHORIZED PERSONS
I,
, the Secretary of The Gabelli Healthcare & Wellness Rx Trust, a
organized under the laws of the State of
(the Fund), do hereby
certify that:
The following individuals have been duly authorized as Authorized Persons to give Instructions
on behalf of the Fund and the specimen signatures set forth opposite their respective names are
their true and correct signatures:
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Name
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Signature
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Mario J. Gabelli
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Bruce N. Alpert
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Carter W. Austin
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Joseph H. Egan
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Peter D. Goldstein
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James E. McKee
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Agnes Mullady
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Christopher E. Tangorra
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Bozena Czepulkowski
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Marianna DiBenedetto
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John F. Herman
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David James
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James P. Conn
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Name
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Signature
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Alta Krauss
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Kathryn Peruto
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Arthur Ramanjulu
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Thomas A. Trainer
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Linda Wild
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By:
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Secretary
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Dated:
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APPENDIX B
FUND OFFICERS
I,
, the Secretary of The Gabelli Healthcare & Wellness
Rx Trust, a
organized under the laws of the State of
(the Fund), do hereby
certify that:
The following individuals serve in the following positions with the Fund and each individual
has been duly elected or appointed to each such position and qualified therefor in conformity with
the Funds governing instrument and the specimen signatures set forth opposite their respective
names are their true and correct signatures:
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Name
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Position
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Signature
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Agnes
Mullady
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President
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Agnes Mullady
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Treasurer
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Joseph H. Egan
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Assistant Treasurer
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James E. McKee
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Secretary
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Peter A. Goldstein
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Chief Compliance Officer
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Carter W. Austin
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Vice President
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David L. Schachter
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Vice President
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APPENDIX C
SELECTED COUNTRIES
ARGENTINA
AUSTRALIA
AUSTRIA
BAHRAIN
BANGLADESH
BELGIUM
BERMUDA
BOTSWANA
BRAZIL
BULGARIA
CANADA
CHILE
CHINA/SHANGHAI
CHINA/SHENZHEN
CLEARSTREAM
COLOMBIA
CROATIA
CZECH REPUBLIC
DENMARK
EGYPT
ESTONIA
EUROCLEAR
FINLAND
FRANCE
GERMANY
GHANA
GREECE
HONGKONG
HUNGARY
ICELAND
INDIA
INDONESIA
IRELAND
ISRAEL
ITALY
JAPAN
JORDAN
KAZAKHSTAN
KENYA
KOREA
LATVIA
LEBANON
LITHUANIA
LUXEMBOURG
MALAYSIA
MAURITIUS
MEXICO
MOROCCO
NETHERLANDS
NEW ZEALAND
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NORWAY
OMAN
PAKISTAN
PANAMA
PERU
THE PHILIPPINES
POLAND
PORTUGAL
ROMANIA
RUSSIA
SINGAPORE
SLOVAKIA
SLOVENIA
SOUTH AFRICA
SPAIN
SRI LANKA
SWEDEN
SWITZERLAND
TAIWAN
THAILAND
TURKEY
UGANDA
UKRAINE
UNITED KINGDOM
UNITED STATES
URUGUAY
VENEZUELA
VIETNAM
ZAMBIA
ZIMBABWE
*Note, Custodian will not act as a Foreign Custody Manager with respect to assets held in this
country. Holding assets and use of Mellons usual subcustodian in this country is subject to
Instructions by the Fund and its execution of a separate letter-agreement pertaining to custody and
market risks.
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EXHIBIT A
CUSTOMER IDENTIFICATION PROGRAM NOTICE
CUSTOMER IDENTIFICATION PROGRAM NOTICE
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT
To help the government fight the funding of terrorism and money laundering activities, all
financial institutions are required by law to obtain, verify and record information that identifies
each individual or entity that opens an account.
What this means for you: When you open an account, we will ask you for your name, address,
taxpayer or other government identification number and other information, such as date of birth for
individuals, that will allow us to identify you. We may also ask to see identification documents
such as a drivers license, passport or documents showing existence of the entity.
24