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<SEC-DOCUMENT>0000950123-00-011158.txt : 20001204
<SEC-HEADER>0000950123-00-011158.hdr.sgml : 20001204
ACCESSION NUMBER:		0000950123-00-011158
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		11
FILED AS OF DATE:		20001201

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			GABELLI EQUITY TRUST INC
		CENTRAL INDEX KEY:			0000794685
		STANDARD INDUSTRIAL CLASSIFICATION:	 []
		IRS NUMBER:				222736509
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		
		SEC FILE NUMBER:	333-47012
		FILM NUMBER:		782272

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		
		SEC FILE NUMBER:	811-04700
		FILM NUMBER:		782273

	BUSINESS ADDRESS:	
		STREET 1:		ONE CORP CENTER
		CITY:			RYE
		STATE:			NY
		ZIP:			10580
		BUSINESS PHONE:		9149215070
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>y42087a2n-2a.txt
<DESCRIPTION>AMENDMENT NO. 2 TO FORM N-2
<TEXT>

<PAGE>   1


    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 2000


                                               SECURITIES ACT FILE NO. 333-47012
                                         INVESTMENT COMPANY ACT FILE NO. 8114700
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                    U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            ------------------------

                                    FORM N-2

          [X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                       [X] PRE-EFFECTIVE AMENDMENT NO. 2

                    [ ] POST-EFFECTIVE AMENDMENT NO.
      [X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
                              [X] AMENDMENT NO. 22
                            ------------------------

                         THE GABELLI EQUITY TRUST INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                            ------------------------

                              ONE CORPORATE CENTER
                              RYE, NEW YORK 10580
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (914) 921-5070
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                            ------------------------

                                BRUCE N. ALPERT
                         THE GABELLI EQUITY TRUST INC.
                              ONE CORPORATE CENTER
                              RYE, NEW YORK 10580
                    (NAME AND ADDRESS OF AGENT FOR SERVICE)

                            ------------------------

                                WITH COPIES TO:

                            DANIEL SCHLOENDORN, ESQ.
                            WILLKIE FARR & GALLAGHER
                               787 SEVENTH AVENUE
                            NEW YORK, NEW YORK 10019
                            ------------------------

     APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.

     If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box.  [X]

     It is proposed that the filing will become effective when declared
effective pursuant to Section 8(c).  [ ]

     This amendment designates a new effective date for a previously filed
registration statement.  [ ]

     This Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is             .  [ ]
                            ------------------------

        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
                                                                  PROPOSED MAXIMUM     PROPOSED MAXIMUM        AMOUNT OF
           TITLE OF SECURITIES                 AMOUNT BEING           OFFERING            AGGREGATE           REGISTRATION
             BEING REGISTERED                   REGISTERED       PRICE PER UNIT(1)      OFFERING PRICE           FEE(2)
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                  <C>                  <C>                  <C>
Shares of Common Stock, par value $.001
  per share...............................      17,896,103                                                      $37,797
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) As calculated pursuant to Rule 457(c) under the Securities Act of 1933, as
    amended. Based on the average of the high and low sales prices reported on
    the New York Stock Exchange on              , 2000.
(2) Previously paid.

                            ------------------------

     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2

Notice to Canadian Residents:
These Securities Have Not Been Approved
or Disapproved By Any Securities or
Regulatory Authority in Canada.
<PAGE>   3

                         THE GABELLI EQUITY TRUST INC.

                                    FORM N-2
                             CROSS-REFERENCE SHEET
                          PARTS A AND B OF PROSPECTUS

<TABLE>
<CAPTION>
ITEM NO.                       CAPTION                                 LOCATION IN PROSPECTUS
- --------                       -------                                 ----------------------
<C>        <S>                                               <C>
   1.      Outside Front Cover.............................  Front Cover Page
   2.      Inside Front and Outside Back Cover Page........  Front Cover Page
   3.      Fee Table and Synopsis..........................  Prospectus Summary: Fee Table
   4.      Financial Highlights............................  Financial Highlights
   5.      Plan of Distribution............................  Not Applicable
   6.      Selling Shareholders............................  Not Applicable
   7.      Use of Proceeds.................................  Use of Proceeds
   8.      General Description of the Registrant...........  Front Cover Page; Prospectus Summary; The
                                                               Fund; Investment Objectives and Policies;
                                                               Risk Factors and Special Considerations;
                                                               Capital Stock
   9.      Management......................................  Management of the Fund; Portfolio
                                                             Transactions; Custodians and Transfer,
                                                               Dividend Disbursing Agent and Registrar
  10.      Capital Stock...................................  The Offer; Capital Stock, Dividends and
                                                               Distributions; Automatic Dividend
                                                               Reinvestment and Voluntary Cash Purchase
                                                               Plan; Taxation
  11.      Defaults and Arrears on Senior Securities.......  Not Applicable
  12.      Legal Proceedings...............................  Not Applicable
  13.      Table of Contents of the Statement of Additional
           Information.....................................  Table of Contents of the Statement of
                                                             Additional Information
</TABLE>

<TABLE>
<CAPTION>
ITEM NO.                       CAPTION                       LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
- --------                       -------                       -----------------------------------------------
<C>        <S>                                               <C>
  14.      Cover Page......................................  Front Cover Page
  15.      Table of Contents...............................  Front Cover Page
  16.      General Information and History.................  Not Applicable
  17.      Investment Objectives and Policies..............  Investment Objectives and Policies; Investment
                                                               Restrictions
  18.      Management......................................  Management of the Fund
  19.      Control Persons and Principal Holders of
           Securities......................................  Beneficial Owners
  20.      Investment Advisory and Other Services..........  Management of the Fund
  21.      Brokerage Allocation and Other Practices........  Portfolio Transactions
  22.      Tax Status......................................  Taxation
  23.      Financial Statements............................  Financial Statements
</TABLE>

PART C

     Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>   4

PROSPECTUS

                    107,376,618 RIGHTS FOR 17,896,103 SHARES

                                  THE GABELLI
                               EQUITY TRUST INC.
                                  COMMON STOCK             [GABELLI GLOBAL LOGO]

    The Gabelli Equity Trust Inc. (the "Fund") is issuing transferable rights
("Rights") to its shareholders. These Rights will allow you to subscribe for new
shares of common stock of the Fund. For every six Rights that you receive, you
may buy one new Fund share. You will receive one Right for each outstanding Fund
share you own on          , 2000 (the "Record Date"). Fractional shares will not
be issued upon the exercise of the Rights. Accordingly, shares may be purchased
only pursuant to the exercise of Rights in integral multiples of six. The number
of Rights issued to a shareholder on the Record Date will be rounded up to the
nearest number of Rights evenly divisible by six. In the case of shares of
common stock held of record by Cede & Co. ("Cede"), as nominee for the
Depository Trust Company ("DTC"), or any other depository or nominee, the number
of Rights issued to Cede or such other depository or nominee will be adjusted to
permit rounding up (to the nearest number of Rights evenly divisible by six) of
the Rights to be received by beneficial owners for whom it is the holder of
record only if Cede or such other depository or nominee provides to the Fund on
or before the close of business on          , 2000 written representation of the
number of Rights required for such rounding. Also, shareholders on the Record
Date may purchase shares not acquired by other shareholders in this Rights
offering (the "Offer"), subject to limitations discussed in this prospectus.

    The Rights are transferable and will be admitted for trading on the New York
Stock Exchange ("NYSE") under the symbol "GAB RT." The Fund's shares of common
stock are listed, and the shares issued pursuant to this Offer will be listed,
on the NYSE under the symbol "GAB." On          , 2000, the last reported net
asset value per share of the Fund's shares was $         and the last reported
sales price of a share on the NYSE was $         . THE PURCHASE PRICE PER SHARE
(the "Subscription Price") WILL BE $    . THE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK TIME, ON          , 2001, unless the Offer is extended as described in
this Prospectus (the "Expiration Date").

    The Fund is a non-diversified, closed-end management investment company. The
Fund's primary investment objective is long-term growth of capital, primarily
through investing in a portfolio of equity securities selected by Gabelli Funds,
LLC, (the "Investment Adviser"). Income is a secondary objective of the Fund. An
investment in the Fund is not appropriate for all investors. No assurances can
be given that the Fund's objectives will be achieved. FOR A DISCUSSION OF
CERTAIN RISK FACTORS AND SPECIAL CONSIDERATIONS WITH RESPECT TO OWNING SHARES OF
THE FUND, SEE "RISK FACTORS AND SPECIAL CONSIDERATIONS" ON PAGE   OF THIS
PROSPECTUS. The Fund has outstanding a class of preferred stock which has
resulted in a leveraged capital structure. For a discussion of the effects and
certain risks associated with the use of leverage see "Capital Stock -- Effects
of Leveraging". The address of the Fund is One Corporate Center, Rye, New York
10580 and its telephone number is (914) 921-5070.
                            ------------------------

       NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY SECURITIES
            COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR
             DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
                 ANY REPRESENTATION TO THE CONTRARY IS A CRIME.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
                                          SUBSCRIPTION PRICE        SALES LOAD       PROCEEDS TO FUND(1)
- ---------------------------------------------------------------------------------------------------------
<S>                                      <C>                   <C>                   <C>
Per Share..............................           $                    None                   $
- ---------------------------------------------------------------------------------------------------------
Total..................................           $                    None                   $
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>

(1) Before deduction of expenses incurred by the Fund, estimated at $500,000.
                            ------------------------

    SHAREHOLDERS WHO DO NOT EXERCISE THEIR RIGHTS SHOULD EXPECT THAT THEY WILL,
AT THE COMPLETION OF THE OFFER, OWN A SMALLER PROPORTIONAL INTEREST IN THE FUND
THAN IF THEY EXERCISED THEIR RIGHTS. AS A RESULT OF THE OFFER YOU MAY EXPERIENCE
AN IMMEDIATE DILUTION, WHICH COULD BE SUBSTANTIAL, OF THE AGGREGATE NET ASSET
VALUE OF YOUR SHARES. This is because the Subscription Price per share and/or
the net proceeds to the Fund for each new share sold are likely to be less than
the Fund's net asset value per share on the Expiration Date. The Fund cannot
state precisely the extent of this dilution at this time because the Fund does
not know what the net asset value per share will be when the Offer expires or
what proportion of the Rights will be exercised. The Investment Adviser may
purchase through the primary subscription and the over-subscription privilege
Shares with an aggregate Subscription Price of up to $         million. Mr.
Mario J. Gabelli, who may be deemed to control the Fund's investment adviser, or
his affiliated entities may also purchase additional Shares in such manner and
on the same terms as other shareholders.
                            ------------------------

    This Prospectus sets forth concisely certain information about the Fund that
a prospective investor should know before investing. Investors are advised to
read and retain it for future reference. A Statement of Additional Information
dated          , 2000 (the "SAI") containing additional information about the
Fund has been filed with the SEC and is incorporated by reference in its
entirety into this Prospectus. A copy of the SAI, the table of contents of which
appears on page   of this Prospectus, may be obtained without charge by
contacting the Fund at (800) GABELLI ((800) 422-3554) or (914) 921-5070. The SAI
will be sent within two business days of receipt of a request. Shareholder
inquiries should be directed to the Subscription Agent, EquiServe, at (800)
336-6983 or (781) 575-2000.
                            ------------------------

                               December   , 2000
<PAGE>   5

                               PROSPECTUS SUMMARY

     This summary highlights some information that is described more fully
elsewhere in this Prospectus. It may not contain all of the information that is
important to you. To understand the Offer fully, you should read the entire
document carefully, including the risk factors.

PURPOSE OF THE OFFER

     The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and its existing shareholders to increase the assets
of the Fund so that the Fund may be in a better position to take advantage of
investment opportunities that may arise. The Offer seeks to reward existing
shareholders by giving them the opportunity to purchase additional shares at a
price that may be below market and/or net asset value without incurring any
commission charge. The distribution of the Rights, which themselves may have
intrinsic value, will also give non-participating shareholders the potential of
receiving a cash payment upon the sale of their rights, which may be viewed as
partial compensation for the possible dilution of their interests in the Fund as
a result of the Offer.

     The Board of Directors believes that increasing the size of the Fund may
lower the Fund's expenses as a proportion of average net assets because the
Fund's fixed costs can be spread over a larger asset base. There can be no
assurance that by increasing the size of the Fund, the Fund's expense ratio will
be lowered. The Board of Directors also believes that a larger number of
outstanding shares and a larger number of beneficial owners of shares could
increase the level of market interest in and visibility of the Fund and improve
the trading liquidity of the Fund's shares on the NYSE.

IMPORTANT TERMS OF THE OFFER

<TABLE>
<S>                                                    <C>
Total number of shares available for primary
  subscription.......................................  17,896,103
Number of Rights you will receive for each
  outstanding share you own on the Record Date.......  One Right for every one share*
Number of shares you may purchase with your Rights at
  the Subscription Price per share...................  One share for every six Rights
Subscription Price...................................  $
</TABLE>

- ---------------
* The number of Rights to be issued to a Shareholder on the Record Date will be
  rounded up to the nearest number of Rights evenly divisible by six.

                 Shareholders' inquiries should be directed to:
                                   EquiServe
                        (800) 336-6983 or (781) 575-2000

OVER-SUBSCRIPTION PRIVILEGE

     Shareholders on the Record Date who fully exercise all Rights initially
issued to them are entitled to buy those shares that were not bought by other
Rights holders. If enough shares are available, all shareholder requests to buy
shares that were not bought by other Rights holders will be honored in full. If
the requests for shares exceed the shares available, the available shares will
be allocated pro rata among those shareholders on the Record Date who
over-subscribe based on the number of Rights originally issued to them by the
Fund. Shares acquired pursuant to the over-subscription privilege are subject to
allotment, which is more fully discussed under "The Offer -- Over-Subscription
Privilege."

                                        2
<PAGE>   6

METHOD FOR EXERCISING RIGHTS

     Except as described below, subscription certificates evidencing the Rights
("Subscription Certificates") will be sent to Record Date shareholders or their
nominees. If you wish to exercise your Rights, you may do so in the following
ways:

          (1) Complete and sign the Subscription Certificate. Mail it in the
     envelope provided or deliver it, together with payment in full to
     EquiServe, Boston, Massachusetts (the "Subscription Agent") at the address
     indicated on the Subscription Certificate. Your completed and signed
     Subscription Certificate and payment must be received by the Expiration
     Date.

          (2) Contact your broker, banker or trust company, which can arrange,
     on your behalf, to guarantee delivery of payment and delivery of a properly
     completed and executed Subscription Certificate pursuant to a notice of
     guaranteed delivery ("Notice of Guaranteed Delivery") by the close of
     business on the third business day after the Expiration Date. A fee may be
     charged for this service. The Notice of Guaranteed Delivery must be
     received by the Expiration Date.

     Rights holders will have no right to rescind a purchase after the
Subscription Agent has received payment. See "The Offer -- Method of Exercise of
Rights" and "The Offer -- Payment for Shares."

SALE OF RIGHTS

     The Rights are transferable until the Expiration Date and have been
admitted for trading on the NYSE. Although no assurance can be given that a
market for the Rights will develop, trading in the Rights on the NYSE will begin
three Business Days prior to the Record Date and may be conducted until the
close of trading on the last NYSE trading day prior to the Expiration Date. The
value of the Rights, if any, will be reflected by the market price. Rights may
be sold by individual holders or may be submitted to the Subscription Agent for
sale. Any Rights submitted to the Subscription Agent for sale must be received
by the Subscription Agent on or before January   , 2001, one business day prior
to the Expiration Date, due to normal settlement procedures. Trading of the
Rights on the NYSE will be conducted on a when-issued basis until and including
the date on which the Subscription Certificates are mailed to Record Date
shareholders and thereafter will be conducted on a regular way basis until and
including the last NYSE trading day prior to the Expiration Date. The shares
will begin trading ex-Rights two Business Days prior to the Record Date. If the
Subscription Agent receives Rights for sale in a timely manner, it will use its
best efforts to sell the Rights on the NYSE. The Subscription Agent will also
attempt to sell any Rights a Rights holder is unable to exercise because the
Rights represent the right to subscribe for less than one Share. Any commissions
will be paid by the selling Rights holders. Neither the Fund nor the
Subscription Agent will be responsible if Rights cannot be sold and neither has
guaranteed any minimum sales price for the Rights. For purposes of this
Prospectus, a "Business Day" shall mean any day on which trading is conducted on
the NYSE.

 Shareholders are urged to obtain a recent trading price for the Rights on the
   New York Stock Exchange from their broker, bank, financial advisor or the
                                financial press.

OFFERING FEES AND EXPENSES

     Offering expenses incurred by the Fund are estimated to be $500,000.

RESTRICTIONS ON FOREIGN SHAREHOLDERS

     The Fund will not mail Subscription Certificates to shareholders whose
record addresses are outside the United States and the Provinces of Quebec and
Ontario, Canada or who have an APO or FPO address. Shareholders whose addresses
are outside the United States and the Provinces of Quebec and Ontario, Canada or
who have an APO or FPO address and who wish to subscribe to the Offer either
partially or in full should contact the Subscription Agent, EquiServe, by
written instruction or recorded telephone conversation no later than three
Business Days prior to the Expiration Date. If the Subscription Agent has
received no instruction by such date, the Subscription Agent will attempt to
sell all Rights and remit the net proceeds, if any, to such shareholders. If the
Rights can be sold, sales of these Rights will be deemed to have been effected

                                        3
<PAGE>   7

at the weighted average price received by the Subscription Agent on the day the
Rights are sold, less any applicable brokerage commissions, taxes and other
expenses.

USE OF PROCEEDS

     We estimate the net proceeds of the Offer to be approximately
$            . This figure is based on the Subscription Price per share of
$     and assumes all shares offered are sold and that the expenses related to
the Offer estimated at approximately $500,000 are paid.

     Gabelli Funds, LLC anticipates that it will take approximately six months
for the Fund to invest these proceeds in accordance with its investment
objective and policies under current market conditions. Pending investment, the
proceeds will be invested in certain short-term debt instruments.

IMPORTANT DATES TO REMEMBER

     Please note that the dates in the table below may change if the Offer is
extended.

<TABLE>
<CAPTION>
                     EVENT                                        DATE
                     -----                        -------------------------------------
<S>                                               <C>
Record Date.....................................                      December   , 2000
Subscription Period.............................  December   , 2000 to January   , 2001
Expiration of the Offer*........................                       January   , 2001
Payment for Guarantees of Delivery Due*.........                       January   , 2001
Confirmation to Participants....................                       January   , 2001
</TABLE>

- ---------------
* A shareholder exercising Rights must deliver by January   , 2001 either (a) a
  Subscription Certificate and payment for shares or (b) a Notice of Guaranteed
  Delivery.

INFORMATION REGARDING THE FUND

     The Fund has been engaged in business as a non-diversified, closed-end
management investment company since August 21, 1986. The Fund's primary
investment objective is long-term growth of capital, primarily through
investment in a portfolio of equity securities selected by the Investment
Adviser. Equity securities in which the Fund may invest include common stock,
preferred stock, convertible securities and rights and warrants to purchase such
securities. Income is a secondary objective of the Fund. No assurance can be
given that the Fund's investment objectives will be achieved. See "Investment
Objectives and Policies". The Fund's outstanding common stock is listed and
traded on the NYSE. The average weekly trading volume of the Fund's common stock
on the NYSE during the period from January 1, 1999 through December 31, 1999 was
116,767 shares. As of September 30, 2000, the net assets of the Fund were
approximately $1,392 million.

INFORMATION REGARDING THE INVESTMENT ADVISER

     Gabelli Funds, LLC (together with its predecessor, Gabelli Group Capital
Partners, Inc., formerly named Gabelli Funds, Inc., the "Investment Adviser")
has served as the investment adviser to the Fund since its inception. The
Investment Adviser also provides certain administrative services to the Fund.
Mr. Mario J. Gabelli, the Chairman of the Board, President, Chief Executive
Officer, Chief Investment Officer and indirect majority shareholder of the
Investment Adviser, has been engaged in the business of providing investment
advisory and portfolio management services for over 23 years and is currently
affiliated with investment advisers which, as of September 30, 2000, managed
total assets of approximately $23.8 billion. The Fund pays the Investment
Adviser a monthly fee at the annual rate of 1.00% of the Fund's average weekly
net assets. See "Management of the Fund -- Investment Adviser." Since the
Investment Adviser's fees are based on the net assets of the Fund, the
Investment Adviser will benefit from the Offer. In addition, two Directors who
are "interested persons" of the Fund could benefit indirectly from the Offer
because of their interests in the Investment Adviser. See "The Offer -- Purpose
of the Offer."

                                        4
<PAGE>   8

RISK FACTORS AND SPECIAL CONSIDERATIONS

     The following summarizes some of the matters that you should consider
before investing in the Fund through the Offer.

Dilution......................   Shareholders who do not exercise their Rights
                                 should expect that they will, at the completion
                                 of the Offer, own a smaller proportional
                                 interest in the Fund than if they exercised
                                 their Rights. As a result of the Offer you may
                                 experience an immediate dilution, which could
                                 be substantial, of the aggregate net asset
                                 value of your shares. This is because the
                                 Subscription Price per share and/or the net
                                 proceeds to the Fund for each new share sold
                                 are likely to be less than the Fund's net asset
                                 value per share on the Expiration Date. The
                                 Fund cannot state precisely the extent of this
                                 dilution at this time because the Fund does not
                                 know what the net asset value per share will be
                                 when the Offer expires or what proportion of
                                 the Rights will be exercised. For example,
                                 assuming that all Rights are exercised and the
                                 Subscription Price is $8.00, which is      %
                                 below the Fund's net asset value per share of
                                 $     per share as of           , 2000, the
                                 Fund's net asset value per share (after payment
                                 of soliciting fees and estimated offering
                                 expenses) would be reduced by approximately
                                 $     per share (or      %). See "Risk Factors
                                 and Special Considerations -- Dilution."

                                 If you do not wish to exercise your Rights, you
                                 should consider selling these Rights as set
                                 forth in this Prospectus. Any cash you receive
                                 from selling your Rights should serve as
                                 partial compensation for any possible dilution
                                 of your interest in the Fund. The Fund cannot
                                 give any assurance, however, that a market for
                                 the Rights will develop or that the Rights will
                                 have any marketable value.

Discount From Net Asset
Value.........................   Shares of closed-end funds frequently trade at
                                 a market price that is less then the value of
                                 the net assets attributable to those shares.
                                 The possibility that shares of the Fund will
                                 trade at a discount from net asset value is a
                                 risk separate and distinct from the risk that
                                 the Fund's net asset value will decrease. The
                                 risk of purchasing shares of a closed-end fund
                                 that might trade at a discount is more
                                 pronounced for investors who wish to sell their
                                 shares in a relatively short period of time
                                 because, for those investors, realization of a
                                 gain or loss on their investments is likely to
                                 be more dependent upon the existence of a
                                 premium or discount than upon portfolio
                                 performance. See "Capital Stock."

Repurchase and Charter
Provisions....................   You will be free to dispose of your shares on
                                 the NYSE or other markets on which the shares
                                 may trade, but, because the Fund is a
                                 closed-end fund, you do not have the right to
                                 redeem your Shares. The Fund is authorized to
                                 repurchase its shares on the open market when
                                 the shares are trading at a discount of 10% or
                                 more from net asset value. Certain provisions
                                 of the Fund's Articles of Incorporation and
                                 By-Laws may be regarded as "anti-takeover"
                                 provisions. These provisions include a system
                                 in which only one of three classes of Directors
                                 is elected each year and the requirement that
                                 the affirmative vote of the holders of 66 2/3%
                                 of the outstanding shares of each class of the
                                 Fund is necessary to authorize the

                                        5
<PAGE>   9

                                 conversion of the Fund from a closed-end to an
                                 open-end investment company or generally to
                                 authorize certain business transactions with
                                 the beneficial owner of more than 5% of the
                                 outstanding shares of the Fund. The Fund
                                 currently has a class of preferred stock
                                 outstanding and, as required by law, the
                                 conversion of the Fund from a closed-end
                                 investment company to an open-end investment
                                 company would require the approval of a
                                 "majority" of the shareholders, as defined in
                                 the Investment Company Act of 1940, as amended
                                 (the "1940 Act"), of the outstanding shares of
                                 preferred stock as well. 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. These provisions may have the
                                 effect of depriving you of an opportunity to
                                 sell your shares at a premium above the
                                 prevailing market price. See "Capital
                                 Stock -- Certain Provisions of the Articles of
                                 Incorporation and By-Laws."

Non-Diversified Status........   As a non-diversified investment company under
                                 the 1940 Act, the Fund is not limited in the
                                 proportion of its assets that may be invested
                                 in securities of a single issuer. As a result
                                 of investing a greater portion of its assets in
                                 the securities of a smaller number of issuers,
                                 the Fund may be more vulnerable to events
                                 affecting a single issuer and therefore subject
                                 to greater volatility than a fund that is more
                                 broadly diversified. Accordingly, an investment
                                 in the Fund may, under some circumstances,
                                 present greater risk to an investor than an
                                 investment in a diversified company. See "Risk
                                 Factors and Special
                                 Considerations -- Non-Diversified Status."

Foreign Securities............   The Fund may invest up to 35% of its total
                                 assets in foreign securities. Investing in
                                 securities of foreign companies and foreign
                                 governments, which generally are denominated in
                                 foreign currencies, may involve certain risk
                                 and opportunity considerations not typically
                                 associated with investing in domestic companies
                                 and could cause the Fund to be affected
                                 favorably or unfavorably by changes in currency
                                 exchange rates and revaluation of currencies.
                                 See "Risk Factors and Special
                                 Considerations -- Foreign Securities."

Dependence on Key Personnel...   The Investment Adviser is dependent upon the
                                 expertise of Mr. Mario J. Gabelli in providing
                                 advisory services with respect to the Fund's
                                 investments. If the Investment Adviser were to
                                 lose the services of Mr. Gabelli, its ability
                                 to service the Fund could be adversely
                                 affected. There can be no assurance that a
                                 suitable replacement could be found for Mr.
                                 Gabelli in the event of his death, resignation,
                                 retirement or inability to act on behalf of the
                                 Investment Adviser.

     You should carefully consider your ability to assume the foregoing risks
before making an investment in the Fund. An investment in shares of the Fund is
not appropriate for all investors.

                                        6
<PAGE>   10

                                   FEE TABLE

     The following table sets forth certain fees and expenses of the Fund.

<TABLE>
<S>                                                           <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price)..............      0%
Automatic Dividend Reinvestment and Cash Purchase Plan
  Fees(a)...................................................   $0.75
ANNUAL EXPENSES (as a percentage of net assets attributable
  to common shares)
Management Fees.............................................   1.00%
Other Expenses..............................................   0.27%
TOTAL ANNUAL EXPENSES.......................................   1.27%
</TABLE>

- ---------------
(a) A fee of $0.75 is charged with respect to each purchase by a participant in
    the Fund's Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
    (the "Plan"). A fee of $2.50 is charged in connection with the sale of
    shares that are held in book-entry form, such as shares held by a
    shareholder through the Plan. See "Dividends and Distributions; Automatic
    Dividend Reinvestment and Voluntary Cash Purchase Plan."

<TABLE>
<CAPTION>
                         EXAMPLE                           1 YEAR    3 YEARS    5 YEARS    10 YEARS
                         -------                           ------    -------    -------    --------
<S>                                                        <C>       <C>        <C>        <C>
You would pay the following expenses on a $1,000
  investment assuming a 5% annual return(b)..............   $13        $40        $70        $153
</TABLE>

- ---------------
(b) Amounts are exclusive of fees discussed in Note (a) above.

     THE PURPOSE OF THE FOREGOING TABLE AND EXAMPLE IS TO ASSIST RIGHTS HOLDERS
IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND
BEARS, DIRECTLY OR INDIRECTLY, BUT SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR RATES OF RETURN. THE ACTUAL EXPENSES OF THE FUND MAY
BE GREATER OR LESS THAN THOSE SHOWN. The figures provided under "Other Expenses"
are based upon estimated amounts for the current fiscal year. For more complete
descriptions of certain of the Fund's cost and expenses, see "Management of the
Fund" in this Prospectus and the SAI.

                                        7
<PAGE>   11

                              FINANCIAL HIGHLIGHTS

     The table below sets forth selected financial data for a share of Common
Stock outstanding throughout the period presented. The per share operating
performance and ratios for the period ended December 31, 1999 have been audited
by PricewaterhouseCoopers LLP, the Fund's independent accountants, as stated in
their report which is incorporated by reference into the SAI. The following
information should be read in conjunction with the Financial Statements and
Notes thereto, which are incorporated by reference into the SAI.

   SELECTED DATA FOR AN EQUITY TRUST COMMON SHARE OUTSTANDING THROUGHOUT EACH
                                     PERIOD

<TABLE>
<CAPTION>
                                           SIX MONTHS ENDED                         YEAR ENDED DECEMBER 31,
                                           JUNE 30, 2000(a)    ------------------------------------------------------------------
                                             (UNAUDITED)        1999(a)       1998(a)       1997(a)       1996(a)       1995(a)
                                           ----------------    ----------    ----------    ----------    ----------    ----------
<S>                                        <C>                 <C>           <C>           <C>           <C>           <C>
OPERATING PERFORMANCE:
  Net asset value, beginning of period...     $    12.75       $    11.47    $    11.56    $     9.77    $     9.95    $    9.46
                                              ----------       ----------    ----------    ----------    ----------    ---------
  Net investment income..................           0.02             0.04          0.07          0.08          0.11         0.13
  Net realized and unrealized gain(loss)
    on investments.......................          (0.12)            3.25          1.09          2.75          0.71         1.74
                                              ----------       ----------    ----------    ----------    ----------    ---------
  Total from investment operations.......          (0.10)            3.29          1.16          2.83          0.82         1.87
                                              ----------       ----------    ----------    ----------    ----------    ---------
  Decrease in net asset value from Equity
    Trust share transactions.............             --               --            --            --            --        (0.37)
  Offering expenses charged to capital
    surplus..............................             --               --         (0.04)           --            --        (0.01)
DISTRIBUTIONS TO COMMON STOCK
  SHAREHOLDERS:
  Net investment income..................          (0.02)           (0.03)(c)      (0.06)       (0.08)        (0.11)       (0.13)(b)
  In excess of net investment income.....             --               --            --         (0.00)(d)         --          --
  Net realized gain on investments.......          (0.52)           (1.21)(c)      (1.10)       (0.92)        (0.78)       (0.47)(b)
  In excess of net realized gain on
    investments..........................             --               --            --         (0.01)        (0.00)(d)    (0.02)
  Paid-in capital........................             --            (0.68)(c)        --         (0.03)        (0.11)       (0.38)(b)
DISTRIBUTIONS TO PREFERRED STOCK
  SHAREHOLDERS:
  Net investment income..................          (0.00)(d)        (0.00)(d)     (0.00)(d)        --           --            --
  Net realized gain on investments.......          (0.04)           (0.09)        (0.05)           --           --            --
                                              ----------       ----------    ----------    ----------    ----------    ---------
  Total distributions....................          (0.58)           (2.01)        (1.21)        (1.04)        (1.00)       (1.00)
                                              ----------       ----------    ----------    ----------    ----------    ---------
NET ASSET VALUE, END OF PERIOD...........     $    12.07       $    12.75    $    11.47    $    11.56    $     9.77    $    9.95
                                              ==========       ==========    ==========    ==========    ==========    =========
  Market value, end of period............     $    12.19       $    12.56    $    11.56    $    11.69    $     9.38    $    9.38
                                              ==========       ==========    ==========    ==========    ==========    =========
  Net asset value total return++.........          (1.06)%          29.49%         9.55%        30.46%         9.00%       20.60%
                                              ==========       ==========    ==========    ==========    ==========    =========
TOTAL INVESTMENT RETURN+.................           1.39%           26.57%         9.23%        37.46%        11.00%       11.70%
                                              ==========       ==========    ==========    ==========    ==========    =========
RATIOS TO AVERAGE NET ASSETS AVAILABLE TO
  COMMON STOCK SHAREHOLDERS AND
  SUPPLEMENTAL DATA:
  Net assets, end of period (in 000's)...     $1,429,916       $1,503,641    $1,352,190    $1,210,570    $1,015,437   $1,034,091
  Net assets attributable to common
    shares, end of period (in 000's).....     $1,295,526       $1,368,981    $1,217,190    $1,210,570    $1,015,437   $1,034,091
  Ratio of net investment income to
    average net assets attributable to
    common stock.........................           0.34%(g)         0.34%         0.60%         0.76%         1.07%        1.26%
  Ratio of operating expenses to average
    net assets attributable to common
    stock................................           1.25%(g)         1.27%         1.15%         1.14%         1.18%        1.21%
  Ratio of operating expenses to average
    total net assets(f)..................           1.13%(g)         1.15%         1.09%         1.14%         1.18%        1.21%
  Portfolio turnover rate................           15.7%            38.0%         39.8%         39.2%         18.9%        25.1%
PREFERRED STOCK:
  Liquidation value, end of period (in
    000's)...............................     $  134,390       $  134,660    $  135,000            --            --           --
  Total shares outstanding (in 000's)....          5,376            5,386         5,400            --            --           --
  Asset coverage.........................          1,064%           1,117%        1,001%           --            --           --
  Liquidation preference per share.......     $    25.00       $    25.00    $    25.00            --            --           --
  Average market value(e)................     $    22.19       $    24.43    $    25.63            --            --           --
</TABLE>

- ---------------

 +   Based on market value per share, adjusted for reinvestment of
     distributions, including the effect of shares issued pursuant to previous
     rights offering, assuming full subscription by shareholder.


++   Based on net asset value per share, adjusted for reinvestment of
     distributions, including the effect of shares issued pursuant to previous
     rights offering, assuming full subscription by shareholder.


(a)  Per share amounts have been calculated using the monthly average shares
     outstanding method.

(b) A distribution equivalent to $0.75 per share for The Gabelli Global
    Multimedia Trust Inc. spin-off from net investment income, realized
    short-term gains, and paid-in capital were $0.064, $0.031, and $0.655,
    respectively.

(c)  A distribution equivalent to $0.75 per share for the Gabelli Utility Trust
     spin-off from net investment income, realized short-term gains, realized
     long-term gains, and paid-in capital were $0.01029, $0.07453, $0.34218 and
     $0.32300, respectively.

(d) Amount represents less than $0.005 per share.

(e)  Based on weekly prices.

(f)  Amounts are attributable to both common and preferred stock assets. Prior
     to 1998, there was no preferred stock outstanding.

(g)  Annualized.

                                        8
<PAGE>   12

                                   THE OFFER

TERMS OF THE OFFER

     The Fund is issuing to shareholders on the Record Date ("Record Date
Shareholders") Rights to subscribe for the shares (the "Shares") of the Fund's
Common Stock ("Common Stock"). Each Record Date Shareholder is being issued one
transferable Right for each share of Common Stock owned on the Record Date. The
Rights entitle the holder to acquire at the Subscription Price one Share for
each six Rights held. Fractional shares will not be issued upon the exercise of
the Rights. Accordingly, shares may be purchased only pursuant to the exercise
of Rights in integral multiples of six. The number of Rights issued to a
shareholder on the Record Date will be rounded up to the nearest number of
Rights evenly divisible by six. In the case of shares of common stock held of
record by Cede & Co. ("Cede"), as nominee for the Depository Trust Company
("DTC"), or any other depository or nominee, the number of Rights issued to Cede
or such other depository or nominee will be adjusted to permit rounding up (to
the nearest number of Rights evenly divisible by six) of the Rights to be
received by beneficial owners for whom it is the holder of record only if Cede
or such other depository or nominee provides to the Fund on or before the close
of business on                , 2000 written representation of the number of
Rights required for such rounding. Rights may be exercised at any time during
the period (the "Subscription Period"), which commences on December  , 2000 and
ends at 5:00 p.m., New York time, on January  , 2001, unless extended by the
Fund to a date not later than                , 2001, 5:00 p.m., New York time.
See "Expiration of the Offer." The Right to acquire one additional Share for
each six Rights held during the Subscription Period at the Subscription Price is
hereinafter referred to as the "Primary Subscription."

     In addition, any Record Date Shareholder who fully exercises all Rights
initially issued to him is entitled to subscribe for Shares that were not
otherwise subscribed for by others on Primary Subscription (the
"Over-Subscription Privilege"). For purposes of determining the maximum number
of Shares a Record Date Shareholder may acquire pursuant to the Offer,
broker-dealers whose shares are held of record by Cede & Co., Inc. ("Cede"),
nominee for The Depository Trust Company, or by any other depository or nominee,
will be deemed to be the holders of the Rights that are issued to Cede or such
other depository or nominee on their behalf. Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment, which is more fully
discussed below under "Over-Subscription Privilege."

     The Investment Adviser, as a Record Date Shareholder, has advised the Fund
that its members have authorized it to purchase through the Primary Subscription
and the Over-Subscription Privilege underlying Shares with an aggregate
Subscription Price of up to $          million to the extent the Shares become
available to it in accordance with the Primary Subscription and the allotment
provisions of the Over-Subscription Privilege. In addition, Mario J. Gabelli
individually or his affiliated entities, as a Record Date Shareholder, may also
purchase Shares through the Primary Subscription and the Over-Subscription
Privilege. Such over-subscriptions by the Investment Adviser and Mr. Gabelli may
disproportionately increase their already existing ownership resulting in a
higher percentage ownership of outstanding shares of the Fund. Any Shares so
acquired by the Investment Adviser or Mr. Gabelli, as "affiliates" of the Fund
as that term is defined under the Securities Act of 1933, as amended (the
"Securities Act"), may only be sold in accordance with Rule 144 under the
Securities Act or another applicable exemption or pursuant to an effective
registration statement under the Securities Act. In general, under Rule 144, as
currently in effect, an "affiliate" of the Fund is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly reported
trading volume of the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain restrictions on the
manner of sale, to notice requirements and to the availability of current public
information about the Fund. In addition, any profit resulting from the sale of
Shares so acquired, if the Shares are held for a period of less than six months,
will be returned to the Fund.

     Rights will be evidenced by Subscription Certificates. The number of Rights
issued to each holder will be stated on the Subscription Certificates delivered
to the holder. The method by which Rights may be exercised and Shares paid for
is set forth below in "Method of Exercise of Rights" and "Payment for Shares." A
Rights

                                        9
<PAGE>   13

holder will have no right to rescind a purchase after the Subscription Agent has
received payment. See "Payment for Shares" below. Shares issued pursuant to an
exercise of Rights will be listed on the NYSE.

     The Rights are transferable until the Expiration Date and will be admitted
for trading on the NYSE. Assuming a market exists for the Rights, the Rights may
be purchased and sold through usual brokerage channels and sold through
EquiServe, Boston, Massachusetts (the "Subscription Agent"). Although no
assurance can be given that a market for the Rights will develop, trading in the
Rights on the NYSE will begin three Business Days before the Record Date and may
be conducted until the close of trading on the last Exchange trading day prior
to the Expiration Date. Trading of the Rights on the NYSE will be conducted on a
when-issued basis until and including the date on which the Subscription
Certificates are mailed to Record Date Shareholders and thereafter will be
conducted on a regular way basis until and including the last NYSE trading day
prior to the Expiration Date. The method by which Rights may be transferred is
set forth below in "Method of Transferring Rights." The Common Stock will begin
trading ex-Rights two Business Days prior to the Record Date. For purposes of
this Prospectus, a "Business Day" shall mean any day on which trading is
conducted on the NYSE.

     Nominees who hold shares of the Fund's common stock for the account of
others, such as banks, brokers, trustees or depositories for securities, should
notify the respective beneficial owners of such shares as soon as possible to
ascertain such beneficial owners' intentions and to obtain instructions with
respect to the Rights. If the beneficial owner so instructs, the nominee should
complete the Subscription Certificate and submit it to the Subscription Agent
with proper payment. In addition, beneficial owners of the Fund's common stock
or Rights held through such a nominee should contact the nominee and request the
nominee to effect transactions in accordance with the beneficial owner's
instructions.

PURPOSE OF THE OFFER

     The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and the shareholders to increase the assets of the
Fund available for investment thereby permitting the Fund to be in a better
position to more fully take advantage of investment opportunities that may
arise. The Offer seeks to reward existing shareholders by giving them the right
to purchase additional shares at a price that may be below market and/or net
asset value without incurring any commission charge. The distribution to
shareholders of transferable Rights, which themselves may have intrinsic value,
will also afford non-subscribing shareholders the potential of receiving a cash
payment upon sale of such Rights, receipt of which may be viewed as partial
compensation for the possible dilution of their interests in the Fund.

     The Fund's Investment Adviser will benefit from the Offer because the
Investment Adviser's fee is based on the average net assets of the Fund. See
"Management of the Fund." It is not possible to state precisely the amount of
additional compensation the Investment Adviser will receive as a result of the
Offer because the proceeds of the Offer will be invested in additional portfolio
securities which will fluctuate in value. However, assuming all Rights are
exercised and that the Fund receives the maximum proceeds of the Offer, the
annual compensation to be received by the Investment Adviser would be increased
by approximately $          . Two of the Fund's Directors who voted to authorize
the Offer are "interested persons" of the Investment Adviser within the meaning
of the 1940 Act. One of these Directors, Mario J. Gabelli, could benefit
indirectly from the Offer because of his interest in the Investment Adviser. See
"Management of the Fund" in the SAI. While it was cognizant of the possible
participation of the Investment Adviser and Mr. Gabelli in the Offer as
shareholders, the Fund's Board of Directors nevertheless concluded that the
Offer was in the best interest of shareholders, since all shareholders of the
Fund are treated equally under the terms of the Offer.

     In October 1991, September 1992, July 1993 and October 1995, the Fund
issued transferable rights to stockholders entitling the holders thereof to
subscribe for an aggregate of 7,882,562 shares, 9,563,615 shares, 11,654,962 and
14,931,831 shares, respectively, of the Fund's Common Stock at the rate of one
share of Common Stock for each six rights held and entitling stockholders to
subscribe for any shares not acquired by exercise of primary subscription
rights. The subscription price in each of the offerings was $8.00 per share,
representing a discount to the prevailing net asset value of the Fund's Common
Stock at the time of the offer of approximately 23.8% in the 1991 offering,
24.7% in the 1992 offering, 29.7% in the 1993 offering, 13.5% in

                                       10
<PAGE>   14

the 1995 offering and a discount from market value of approximately 22.1% in
each offering. Each of the rights offerings was substantially oversubscribed,
resulting in the issuance of the maximum number of shares being offered. The
Fund raised $63,060,496 in the 1991 offering, $76,508,920 in the 1992 offering,
$93,239,712 in the 1993 offering and $119,451,048 in the 1995 offering, while
subscriptions remitted to the Fund totaled more than $136,000,000, $164,000,000,
$176,000,000, and $200,000,000, respectively. As a percentage of the shares
outstanding on the record dates for the offering, more than 91% participated in
the 1991 offering, more than 92% participated in the 1992 offering, more than
93% participated in the 1993 offering and more than 88% participated in the 1995
offering. The Fund's net asset value per share immediately following the 1995
rights offering was reduced by approximately $0.37 per share. In the calendar
year following the 1995 rights offering, the Fund's annualized expense ratio was
1.18%.

     The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms which may or may not be similar to the Offer. Any such future rights
offering will be made in accordance with the 1940 Act. Under the laws of
Maryland, the state in which the Fund is incorporated, the Board of Directors is
authorized to approve rights offerings without obtaining shareholder approval.
The staff of the Securities and Exchange Commission ("SEC") has interpreted the
1940 Act as not requiring shareholder approval of a rights offering at a price
below the then current net asset value so long as certain conditions are met,
including a good faith determination by the fund's board of directors that such
offering would result in a net benefit to existing shareholders.

OVER-SUBSCRIPTION PRIVILEGE

     If all of the Rights initially issued are not exercised, any Shares for
which subscriptions have not been received will be offered, by means of the
Over-Subscription Privilege, to Record Date Shareholders who have exercised all
the Rights initially issued to them and who wish to acquire more than the number
of Shares for which the Rights issued to them are exercisable. Record Date
Shareholders who exercise all the Rights initially issued to them will have the
opportunity to indicate on the Subscription Certificate how many Shares they are
willing to acquire pursuant to the Over-Subscription Privilege. If sufficient
Shares remain after the Primary Subscriptions have been exercised, all
over-subscriptions will be honored in full. If sufficient Shares are not
available to honor all over-subscriptions, the available Shares will be
allocated among those who over-subscribe based on the number of Rights
originally issued to them by the Fund. The percentage of remaining Shares each
over-subscribing shareholder may acquire will be rounded down to result in
delivery of whole Shares. The allocation process may involve a series of
allocations in order to assure that the total number of Shares available for
over-subscriptions is distributed on a pro rata basis.

     The method by which Shares will be distributed and allocated pursuant to
the Over-Subscription Privilege is as follows. Shares will be available for
purchase pursuant to the Over-Subscription Privilege only to the extent that the
maximum number of Shares is not subscribed for through the exercise of the
Primary Subscription by the Expiration Date. If the Shares so available ("Excess
Shares") are not sufficient to satisfy all subscriptions pursuant to the
Over-Subscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional Shares) among those holders of Rights
exercising the Over-Subscription Privilege, in proportion, not to the number of
Shares requested pursuant to the Over-Subscription Privilege, but to the number
of shares held on the Record Date; provided, however, that if this pro rata
allocation results in any holder being allocated a greater number of Excess
Shares than the holder subscribed for pursuant to the exercise of such holder's
Over-Subscription Privilege, then such holder will be allocated only such number
of Excess Shares as such holder subscribed for and the remaining Excess Shares
will be allocated among all other holders exercising Over-Subscription
Privileges. The formula to be used in allocating the Excess Shares is as
follows:

<TABLE>
<S>                                <C>  <C>
   Holder's Record Date Position
   -----------------------------
   Total Record Date Position       X   Excess Shares Remaining
     of All Over-Subscribers
</TABLE>

     The Fund will not offer or sell any Shares which are not subscribed for
under the Primary Subscription or the Over-Subscription Privilege.

                                       11
<PAGE>   15

THE SUBSCRIPTION PRICE

     The Subscription Price for the Shares to be issued pursuant to the Rights
will be $          .

     The Fund announced the Offer prior to the commencement of trading on the
NYSE on           , 2000. The net asset value per share of Common Stock at the
close of business on           , 2000 and           , 2000 was $          and
$          , respectively. The last reported sale price of a share of the Fund's
Common Stock on the NYSE on those dates was $          and $          ,
respectively, representing a      % and a      % discount, respectively, in
relation to the net asset value per share of Common Stock at the close of
business on these dates.

SALES BY SUBSCRIPTION AGENT

     Holders of Rights who do not wish to exercise any or all of their Rights
may instruct the Subscription Agent to sell any unexercised Rights. The
Subscription Certificates representing the Rights to be sold by the Subscription
Agent must be received on or before January      , 2001. Upon the timely receipt
of appropriate instructions to sell Rights, the Subscription Agent will use its
best efforts to complete the sale and will remit the proceeds of sale, net of
commissions, to the holders. If the Rights can be sold, sales of the Rights will
be deemed to have been effected at the weighted average price received by the
Subscription Agent on the day such Rights are sold. The selling Rights holder
will pay all brokerage commissions incurred by the Subscription Agent. These
sales may be effected by the Subscription Agent through Gabelli & Company, Inc.,
a registered broker-dealer and an affiliate of the Investment Adviser, for up to
$0.03 per Right, provided that, if the Subscription Agent is able to negotiate a
lower brokerage commission with an independent broker, the Subscription Agent
will execute these sales through the broker. Gabelli & Company, Inc. may also
act on behalf of its clients to purchase or sell Rights in the open market and
be compensated therefor. The Subscription Agent will automatically attempt to
sell any unexercised Rights that remain unclaimed as a result of Subscription
Certificates being returned by the postal authorities as undeliverable as of the
fourth Business Day prior to the Expiration Date. These sales will be made net
of commissions on behalf of the nonclaiming shareholders. Proceeds from those
sales will be held by State Street Bank and Trust Company ("State Street"), in
its capacity as the Fund's transfer agent, for the account of the nonclaiming
shareholder until the proceeds are either claimed or escheated. There can be no
assurance that the Subscription Agent will be able to complete the sale of any
of these Rights and neither the Fund nor the Subscription Agent has guaranteed
any minimum sales price for the Rights. All of these Rights will be sold at the
market price, if any, on the NYSE or through an unaffiliated market maker if no
market exists on the NYSE.

METHOD OF TRANSFERRING RIGHTS

     The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register the portion of the
Rights evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing the transferred Rights).
In this event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights holder or, if the Rights holder so
instructs, to an additional transferee.

     Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow at least three Business Days prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred Rights,
and to the transferor with respect to retained rights, if any, and (iii) the
Rights evidenced by the new Subscription Certificates to be exercised or sold by
the recipients thereof. Neither the Fund nor the Subscription Agent shall have
any liability to a transferee or transferor of Rights if Subscription
Certificates are not received in time for exercise or sale prior to the
Expiration Date.

                                       12
<PAGE>   16

     Except for the fees charged by the Subscription Agent (which will be paid
by the Fund as described below), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of these commissions, fees or expenses will
be paid by the Fund or the Subscription Agent.

     The Fund anticipates that the Rights will be eligible for transfer through,
and that the exercise of the Primary Subscription (but not the Over-Subscription
Privilege) may be effected through, the facilities of DTC (Rights exercised
through DTC are referred to as "DTC Exercised Rights"). The holder of a DTC
Exercised Right may exercise the Over-Subscription Privilege in respect of such
DTC Exercised Right by properly executing and delivering to the Subscription
Agent, at or prior to 5:00 p.m., New York time, on the Expiration Date, a DTC
Participant Over-Subscription Form, together with payment of the Subscription
Price for the number of Shares for which the Over-Subscription Privilege is to
be exercised. Copies of the DTC Participant Over-Subscription Form may be
obtained from the Subscription Agent.

EXPIRATION OF THE OFFER

     The Offer will expire at 5:00 p.m., New York time, on January  , 2001,
unless extended by the Fund to a date not later than           , 2001, 5:00
p.m., New York time (the "Expiration Date"). Rights will expire on the
Expiration Date and thereafter may not be exercised.

SUBSCRIPTION AGENT

     The Subscription Agent is EquiServe, Att: Corporate Actions, P.O. Box 9573,
Boston, Massachusetts 02205-9573. The Subscription Agent will receive from the
Fund an amount estimated to be $          comprised of the fee for its services
and the reimbursement for certain expenses related to the Offer. INQUIRIES BY
ALL HOLDERS OF RIGHTS SHOULD BE DIRECTED TO P.O. BOX 9573, BOSTON, MASSACHUSETTS
02205-9573 (TELEPHONE (800) 336-6983 OR (781) 575-2000); HOLDERS MAY ALSO
CONSULT THEIR BROKERS OR NOMINEES.

METHOD OF EXERCISE OF RIGHTS

     Rights may be exercised by filling in and signing the reverse side of the
Subscription Certificate and mailing it in the envelope provided, or otherwise
delivering the completed and signed Subscription Certificate to the Subscription
Agent, together with payment for the Shares as described below under "Payment
for Shares." Rights may also be exercised through a Rights holder's broker, who
may charge the Rights holder a servicing fee in connection with such exercise.

     Completed Subscription Certificates must be received by the Subscription
Agent prior to 5:00 p.m., New York time, on the Expiration Date (unless payment
is effected by means of a notice of guaranteed delivery as described below under
"Payment for Shares"). The Subscription Certificate and payment should be
delivered to EquiServe at the following address:

<TABLE>
<S>                           <C>
     If By Mail:              EquiServe
                              Att: Corporate Actions
                              P.O. Box 9573
                              Boston, MA 02205-9573
     If By Hand:              Securities Transfer and Reporting Services, Inc.
                              c/o EquiServe
                              100 Williams St. Galleria
                              New York, NY 10038
     If By Overnight
       Courier:               EquiServe
                              Att: Corporate Actions
                              40 Campanelli Drive
                              Braintree, MA 02184
</TABLE>

                                       13
<PAGE>   17

PAYMENT FOR SHARES

     Holders of Rights who acquire Shares on Primary Subscription or pursuant to
the Over-Subscription Privilege may choose between the following methods of
payment:

          (1) A subscription will be accepted by the Subscription Agent if,
     prior to 5:00 p.m., New York time, on the Expiration Date, the Subscription
     Agent has received a notice of guaranteed delivery by telegram or otherwise
     from a bank, a trust company, or a NYSE member, guaranteeing delivery of
     (i) payment of the full Subscription Price for the Shares subscribed for on
     Primary Subscription and any additional Shares subscribed for pursuant to
     the Over-Subscription Privilege and (ii) a properly completed and executed
     Subscription Certificate. The Subscription Agent will not honor a notice of
     guaranteed delivery if a properly completed and executed Subscription
     Certificate and full payment is not received by the Subscription Agent by
     the close of business on the third Business Day after the Expiration Date.
     The notice of guaranteed delivery may be delivered to the Subscription
     Agent in the same manner as Subscription Certificates at the addresses set
     forth above, or may be transmitted to the Subscription Agent by facsimile
     transmission (telecopy number (781) 575-4826; telephone number to confirm
     receipt (781) 575-4816).

          (2) Alternatively, a holder of Rights can send the Subscription
     Certificate together with payment in the form of a check for the Shares
     subscribed for on Primary Subscription and additional Shares subscribed for
     pursuant to the Over-Subscription Privilege to the Subscription Agent based
     on the Subscription Price of $     per Share. To be accepted, the payment,
     together with the executed Subscription Certificate, must be received by
     the Subscription Agent at the addresses noted above prior to 5:00 p.m., New
     York time, on the Expiration Date. The Subscription Agent will deposit all
     stock purchase checks received by it prior to the final due date into a
     segregated interest-bearing account pending proration and distribution of
     Shares. The Subscription Agent will not accept cash as a means of payment
     for Shares. EXCEPT AS OTHERWISE SET FORTH BELOW, A PAYMENT PURSUANT TO THIS
     METHOD MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A
     BANK LOCATED IN THE CONTINENTAL UNITED STATES, MUST BE PAYABLE TO THE
     GABELLI EQUITY TRUST INC., AND MUST ACCOMPANY AN EXECUTED SUBSCRIPTION
     CERTIFICATE TO BE ACCEPTED. If the aggregate Subscription Price paid by a
     Record Date Shareholder is insufficient to purchase the number of shares of
     Common Stock that the holder indicates are being subscribed for, or if a
     Record Date Shareholder does not specify the number of shares of Common
     Stock to be purchased, then the Record Date Shareholder will be deemed to
     have exercised first, the Primary Subscription Rights (if not already fully
     exercised) and second, the Over-Subscription Privilege to the full extent
     of the payment tendered. If the aggregate Subscription Price paid by a
     Record Date Shareholder is greater than the shares he has indicated an
     intention to subscribe, then the Record Date Shareholder will be deemed to
     have exercised first, the Primary Subscription Rights (if not already fully
     subscribed) and second, the Over-Subscription Privilege to the full extent
     of the excess payment tendered.

     Within ten Business Days following the Expiration Date (the "Confirmation
Date"), a confirmation will be sent by the Subscription Agent to each holder of
Rights (or, if the Fund's shares are held by Cede or any other depository or
nominee, to Cede or such other depository or nominee), showing (i) the number of
Shares acquired pursuant to the Primary Subscription, (ii) the number of Shares,
if any, acquired pursuant to the Over-Subscription Privilege, (iii) the per
Share and total purchase price for the Shares and (iv) any excess to be refunded
by the Fund to such holder as a result of payment for Shares pursuant to the
Over-Subscription Privilege which the holder is not acquiring. Any payment
required from a holder of Rights must be received by the Subscription Agent on
the Expiration Date, or if the Rights holder has elected to make payment by
means of a notice of guaranteed delivery, on the third Business Day after the
Expiration Date. Any excess payment to be refunded by the Fund to a holder of
Rights, or to be paid to a holder of Rights as a result of sales of Rights on
his behalf by the Subscription Agent or exercises by Record Date Shareholders of
their Over-Subscription Privileges, and all interest accrued on the holder's
excess payment will be mailed by the Subscription Agent to the holder within
fifteen Business Days after the Expiration Date. Interest on the excess payment
will accrue through the date that is one Business Day prior to the mail date of
the reimbursement check. All payments by a holder of Rights must be in United
States dollars by money order or check drawn on a bank located in the
                                       14
<PAGE>   18

continental United States of America and payable to The Gabelli Equity Trust
Inc., except that holders of Rights who are residents of the province of Ontario
may make payment in U.S. dollars by money order or check drawn on a bank located
in the province of Ontario.

     Whichever of the two methods described above is used, issuance and delivery
of certificates for the Shares purchased are subject to collection of checks and
actual payment pursuant to any notice of guaranteed delivery.

     A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received payment either by means of a notice of
guaranteed delivery or a check.

     If a holder of Rights who acquires Shares pursuant to the Primary
Subscription or the Over-Subscription Privilege does not make payment of any
amounts due, the Fund reserves the right to take any or all of the following
actions: (i) find other purchasers for such subscribed-for and unpaid-for
Shares; (ii) apply any payment actually received by it toward the purchase of
the greatest whole number of Shares which could be acquired by such holder upon
exercise of the Primary Subscription or the Over-Subscription Privilege; (iii)
sell all or a portion of the Shares purchased by the holder, in the open market,
and apply the proceeds to the amounts owed; and (iv) exercise any and all other
rights or remedies to which it may be entitled, including, without limitation,
the right to set off against payments actually received by it with respect to
such subscribed Shares and to enforce the relevant guaranty of payment.

     Holders who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositaries for securities, should notify the respective
beneficial owners of the shares as soon as possible to ascertain the beneficial
owners' intentions and to obtain instructions with respect to the Rights. If the
beneficial owner so instructs, the record holder of the Rights should complete
Subscription Certificates and submit them to the Subscription Agent with the
proper payment. In addition, beneficial owners of Common Stock or Rights held
through such a holder should contact the holder and request the holder to effect
transactions in accordance with the beneficial owner's instructions.

     The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
FUND.

     THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT THE CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE
AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE
FOR PAYMENT, BY MEANS OF A CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.

     All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. Neither the Fund nor the Subscription Agent will be
under any duty to give notification of any defect or irregularity in connection
with the submission of Subscription Certificates or incur any liability for
failure to give such notification.

DELIVERY OF STOCK CERTIFICATES

     Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to subscribers as soon as practicable after the
corresponding Rights have been validly exercised and full payment for the Shares
has been received and cleared. Certificates representing Shares purchased
pursuant to the Over-Subscription Privilege will be delivered to subscribers as
soon as practicable after the Expiration Date and after all allocations have
been effected. Participants in the Fund's Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan (the "Plan") will be issued Rights for the shares
held in their accounts in the
                                       15
<PAGE>   19

Plan. Participants wishing to exercise these Rights must exercise the Rights in
accordance with the procedures set forth above in "Method of Exercise of Rights"
and "Payment for Shares." These Rights will not be exercised automatically by
the Plan. Plan participants exercising their Rights will receive their Primary
and Over-Subscription Shares via an uncertificated credit to their existing
account. To request a stock certificate, participants in the Plan should check
the appropriate box on the Subscription Certificate. These Shares will remain
subject to the same investment option as previously selected by the Plan
participant.

FOREIGN RESTRICTIONS

     Subscription Certificates will only be mailed to Record Date Shareholders
whose addresses are within the United States and the Provinces of Quebec and
Ontario, Canada (other than an APO or FPO address). Record Date Shareholders
whose addresses are outside the United States and the Provinces of Quebec and
Ontario, Canada or who have an APO or FPO address and who wish to subscribe to
the Offer either partially or in full should contact the Subscription Agent,
EquiServe, by written instruction or recorded telephone conversation no later
than three Business Days prior to the Expiration Date. If the Subscription Agent
has received no instruction by such date, the Subscription Agent will attempt to
sell all Rights and remit the net proceeds, if any, to such shareholders. If the
Rights can be sold, sales of these Rights will be deemed to have been effected
at the weighted average price received by the Subscription Agent on the day the
Rights are sold, less any applicable brokerage commissions, taxes and other
expenses.

     Under the securities laws of the Province of Quebec, investors residing in
Quebec may, subject to compliance with all applicable regulatory requirements,
transfer either the Rights or the Shares to be acquired upon the exercise of
these Rights to other subscribers of the Offer, to persons with whom they are
related or to persons residing outside of Quebec in a transaction effected on an
organized market.

     Under the securities laws of the Province of Ontario, investors residing in
Ontario may, subject to compliance with all applicable regulatory requirements,
transfer either the Rights or the Shares to be acquired upon the exercise of
such Rights (i) through a dealer registered in Ontario that effects the
transaction through the facilities of the NYSE or (ii) through certain other
means as provided under and in compliance with Ontario securities laws.

FEDERAL INCOME TAX CONSEQUENCES

     The following is a general summary of the significant federal income tax
consequences of the receipt of Rights by a Record Date Shareholder and a
subsequent lapse, exercise or sale of such Rights. The discussion also addresses
the significant federal income tax consequences to a holder that purchases
Rights in a secondary-market transaction (e.g., on the NYSE). The discussion is
based upon applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Regulations promulgated thereunder and other
authorities currently in effect, and does not address state or local tax
consequences. Moreover, the discussion assumes that the fair market value of the
Rights distributed to all of the Record Date Shareholders will, upon the date of
such distribution, be less than 15% of the total fair market value of all of the
Fund's Common Stock on such date.

RECORD DATE SHAREHOLDERS

     For federal income tax purposes, neither the receipt nor the exercise of
Rights by a Record Date Shareholder will result in taxable income to such
shareholder, and no taxable loss will be realized by a Record Date Shareholder
who allows his Rights to expire without exercise. A taxable gain or loss
recognized by a Record Date Shareholder upon a sale of a Right will be a capital
gain or loss (assuming the Right is held as a capital asset at the time of sale)
and will be a short-term capital gain or loss. A Record Date Shareholder's
holding period for a share of Common Stock acquired upon exercise of a Right (a
"New Share") begins with the date of exercise of the Right. A taxable gain or
loss recognized by a Record Date Shareholder upon a sale of a New Share will be
a capital gain or loss (assuming the New Share is held as a capital asset at the
time of sale) and will be a long-term capital gain or loss if the New Share has
been held at the time of sale for more than one year.

                                       16
<PAGE>   20

     Unless a Record Date Shareholder makes the election described in the
following paragraph, his basis for determining gain or loss upon the sale of a
Right will be zero and his basis for determining gain or loss upon the sale of a
New Share will be equal to the sum of the Subscription Price for the New Share
and any servicing fee charged to the shareholder by his broker, bank or trust
company. Moreover, unless a Record Date Shareholder makes the election described
in the following paragraph, the receipt of a Right and the lapse, sale or
exercise thereof will have no effect on the federal income tax basis of those
shares of Common Stock of the Fund that such shareholder originally owned
("Original Shares").

     A Record Date Shareholder may make an election to allocate the federal
income tax basis of his Original Shares between such Original Shares and all of
the Rights that he receives pursuant to the Offer in proportion to their
respective fair market values as of the date of distribution of the Rights.
Thus, if such an election is made and the Record Date Shareholder sells or
exercises his Rights, the shareholder's basis in his Original Shares will be
reduced by an amount equal to the basis allocated to the Rights. This election
is irrevocable and must be made in a statement attached to the shareholder's
federal income tax return for the taxable year in which the Rights are
distributed. If an electing Record Date Shareholder exercises his Rights, the
basis of his New Shares will be equal to the sum of the Subscription Price for
such New Shares (as increased by any servicing fee charged to the shareholder by
his broker, bank or trust company) plus the basis allocated to such Rights as
described above. Accordingly, Record Date Shareholders should consider the
advisability of making the above-described election if they intend to exercise
their Rights. However, if an electing Record Date Shareholder does not sell or
exercise his Rights, no taxable loss will be realized as a result of the lapse
of such Rights and no portion of the shareholder's basis in his Original Shares
will be allocated to the unexercised Rights.

PURCHASERS OF RIGHTS

     For federal income tax purposes, the exercise of Rights by a purchaser who
acquires such Rights on the NYSE or in another secondary-market transaction will
not result in taxable income to such purchaser, and a taxable loss will be
realized by a purchaser who allows his Rights to expire without exercise. Such
taxable loss will be a short-term capital loss if the purchaser holds the Rights
as capital assets at the time of their expiration. A taxable gain or loss
recognized by a purchaser upon a sale of a Right will be a capital gain or loss
(assuming the Right is held as a capital asset at the time of sale) and will be
a short-term capital gain or loss. A purchaser's basis for determining gain or
loss upon the sale of a New Share acquired through the exercise of a Right will
be equal to the sum of the Subscription Price for the New Share plus the
purchase price of the Right or Rights that were exercised in order to acquire
such New Share (with such Subscription Price and purchase price each being
increased by any applicable servicing fees charged to the purchaser by his
broker, bank or trust company). A purchaser's holding period for a New Share
acquired upon exercise of a Right begins with the date of exercise of the Right.
A taxable gain or loss recognized by a purchaser upon a sale of a New Share will
be a capital gain or loss (assuming the New Share is held as a capital asset at
the time of sale) and will be a long-term capital gain or loss if the New Share
has been held at the time of sale for more than one year.

EMPLOYEE PLAN CONSIDERATIONS

     Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including
corporate savings and 401(k) plans, Keogh Plans of self-employed individuals and
Individual Retirement Accounts ("IRA") (each a "Benefit Plan" and collectively,
"Benefit Plans"), should be aware that additional contributions of cash in order
to exercise Rights would be treated as Benefit Plan contributions and, when
taken together with contributions previously made, may subject a Benefit Plan to
excise taxes for excess or nondeductible contributions. In the case of Benefit
Plans qualified under Section 401(a) of the Code, additional cash contributions
could cause the maximum contribution limitations of Section 415 of the Code or
other qualification rules to be violated. Benefit Plans contemplating making
additional cash contributions to exercise Rights should consult with their
counsel prior to making such contributions.

                                       17
<PAGE>   21

     Benefit Plans and other tax exempt entities, including governmental plans,
should also be aware that if they borrow in order to finance their exercise of
Rights, they may become subject to the tax on unrelated business taxable income
("UBTI") under Section 511 of the Code. If any portion of an IRA is used as
security for a loan, the portion so used is also treated as distributed to the
IRA depositor.

     ERISA contains prudence and diversification requirements and ERISA and the
Code contain prohibited transaction rules that may impact the exercise of
Rights. Among the prohibited transaction exemptions issued by the Department of
Labor that may exempt a Benefit Plan's exercise of Rights are Prohibited
Transaction Exemption 84-24 (governing purchases of shares in investment
companies) and Prohibited Transaction Exemption 75-1 (covering sales of
securities).

     Due to the complexity of these rules and the penalties for noncompliance,
Benefit Plans should consult with their counsel regarding the consequences of
their exercise of Rights under ERISA and the Code.

RISK FACTORS AND SPECIAL CONSIDERATIONS

     An immediate dilution of the aggregate net asset value of the shares owned
by shareholders who do not fully exercise their Rights is likely to be
experienced as a result of the Offer because the Subscription Price is likely to
be less than the then net asset value per share, and the number of shares
outstanding after the Offer is likely to increase in greater percentage than the
increase in the size of the Fund's assets. In addition, as a result of the terms
of the Offer, shareholders who do not fully exercise their Rights should expect
that they will, at the completion of the Offer, own a smaller proportional
interest in the Fund than would otherwise be the case. Although it is not
possible to state precisely the amount of such a decrease in value, because it
is not known at this time what the net asset value per share will be at the
Expiration Date, this dilution could be substantial. For example, assuming that
all Rights are exercised and that the Subscription Price of $          is      %
below the Fund's then net asset value per share, the Fund's net asset value per
share (before deduction of expenses incurred in connection with the Offer) would
be reduced by approximately $     per share.

                                    THE FUND

     The Fund, incorporated in Maryland on May 20, 1986, is a non-diversified,
closed-end management investment company registered under the 1940 Act. The
Fund's Common Stock is traded on the NYSE under the symbol "GAB."

     The Fund's primary investment objective is long-term growth of capital. The
Fund seeks to achieve its objective by investing primarily in a portfolio of
equity securities which include the common stock, preferred stock, convertible
securities, options and warrants of foreign and domestic companies selected by
the Investment Adviser. Income is the secondary investment objective of the
Fund. Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities.

                                USE OF PROCEEDS

     The net proceeds of the Offer, assuming all Shares offered hereby are sold,
are estimated to be approximately $          million, after deducting expenses
payable by the Fund estimated at approximately $500,000. The Investment Adviser
anticipates that investment of the proceeds, in accordance with the Fund's
investment objectives and policies, will be invested promptly as investment
opportunities are identified, depending on market conditions and the
availability of appropriate securities, and is anticipated to take approximately
six months. Pending investment in accordance with the Fund's investment
objectives and policies, the proceeds will be held in obligations of the United
States Government, its agencies or instrumentalities ("U.S. Government
Securities") and other short-term money market instruments.

                                       18
<PAGE>   22

                       INVESTMENT OBJECTIVES AND POLICIES

INVESTMENT OBJECTIVE

     The primary investment objective of the Fund is long-term growth of
capital. Income is a secondary objective of the Fund. The Fund attempts to
achieve its objectives by investing primarily in a portfolio of equity
securities consisting of common stock, preferred stock, convertible or
exchangeable securities and warrants and rights to purchase such securities
selected by the Investment Adviser. The Investment Adviser selects investments
on the basis of fundamental value and, accordingly, the Fund typically invests
in the securities of companies that are believed by the Investment Adviser to be
priced lower than justified in relation to their underlying assets. Other
important factors in the selection of investments include favorable price/
earnings and debt/equity ratios and strong management.

     The Fund's secondary investment objective is income, which the Fund seeks
to achieve, in part, by investing up to 10% of its total assets in a portfolio
consisting primarily of high-yielding, fixed-income securities, such as
corporate bonds, debentures, notes, convertible securities, preferred stocks and
domestic and foreign government obligations. Generally, debt securities
purchased by the Fund will be rated in the lower rating categories of recognized
statistical rating agencies, such as securities rated "CCC" or lower by Standard
& Poor's Ratings Services ("S&P") or "Caa" or lower by Moody's Investors
Service, Inc. ("Moody's"), or will be nonrated securities of comparable quality.
These debt securities are predominantly speculative and involve major risk
exposure to adverse conditions and are often referred to in the financial press
as "junk bonds."

     The Fund's investment objectives of long-term growth of capital and income
are fundamental policies and may not be changed without the authorization of the
holders of a majority of the Fund's outstanding voting securities. As used in
this Prospectus, a "majority of the Fund's outstanding voting securities" means
the lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares.

INVESTMENT METHODOLOGY OF THE FUND

     In selecting securities for the Fund, the Investment Adviser normally will
consider the following factors, among others: (1) the Investment Adviser's own
evaluations of the private market value, cash flow, earnings per share and other
fundamental aspects of the underlying assets and business of the company, (2)
the potential for capital appreciation of the securities; (3) the interest or
dividend income generated by the securities; (4) the prices of the securities
relative to other comparable securities; (5) whether the securities are entitled
to the benefits of call protection or other protective covenants (e.g., events
of acceleration or events of default for failure to comply with certain
financial ratios or to satisfy other financial covenants or benchmarks; (6) the
existence of any anti-dilution protections or guarantees of the security; and
(7) the diversification of the portfolio of the Fund as to issuers. The
Investment Adviser's investment philosophy with respect to equity securities
seeks to identify securities of companies that are selling in the public market
at a discount to their private market value, which the Investment Adviser
defines as the value informed purchasers are willing to pay to acquire assets
with similar characteristics. The Investment Adviser also normally evaluates the
issuers' free cash flow and long-term earnings trends. Finally, the Investment
Adviser looks for a catalyst -- something in the company's industry or
indigenous to the company or country itself that will surface additional value.

OTHER INVESTMENT PRACTICES

     Foreign Securities.  The Fund may invest up to 35% of its total assets in
foreign securities. Among the foreign securities in which the Fund may invest
are those issued by companies located in developing countries, which are
countries in the initial stages of their industrialization cycles. Investing in
the equity and debt markets of developing countries involves exposure to
economic structures that are generally less diverse and less mature, and to
political systems that can be expected to have less stability, than those of
developed countries. The markets of developing countries historically have been
more volatile than the markets of the

                                       19
<PAGE>   23

more mature economies of developed countries, but often have provided higher
rates of return to investors. The Fund may also invest in debt securities of
foreign governments.

     Temporary Investments.  Although under normal market conditions at least
65% of the Fund's assets will consist of equity securities, when a temporary
defensive posture is believed by the Investment Adviser to be warranted
("temporary defensive periods"), the Fund may without limitation hold cash or
invest its assets in money market instruments and repurchase agreements in
respect of those instruments. The Fund may also invest up to 10% of the market
value of its total assets during temporary defensive periods in shares of money
market mutual funds that invest primarily in U.S. Government Securities and
repurchase agreements in respect of those securities. For a further description
of such transactions, see "Investment Objectives and Policies -- Investment
Practices" in the SAI.

     Lower Rated Securities.  The Fund may invest up to 10% of its total assets
in fixed-income securities issued by U.S. and foreign corporations, governments
and agencies that are rated below investment grade by primary rating services
such as S&P and Moody's. These high-yield, higher-risk securities are commonly
known as "junk bonds." These debt securities are predominantly speculative and
involve major risk exposure to adverse conditions.

     Repurchase Agreements.  The Fund may engage in repurchase agreement
transactions involving money market instruments with banks, registered
broker-dealers and government securities dealers approved by the Investment
Adviser under the supervision of the Board of Directors. The Fund will not enter
into repurchase agreements with the Investment Adviser or any of its affiliates.
Under the terms of a typical repurchase agreement, the Fund would acquire an
underlying debt obligation for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed price and time, thereby determining the
yield during its holding period. Thus, repurchase agreements may be seen to be
loans by the Fund collateralized by the underlying debt obligation. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the holding period. The value of the underlying securities
will be at least equal at all times to the total amount of the repurchase
obligation, including interest. The Fund bears a risk of loss in the event that
the other party to a repurchase agreement defaults on its obligations and the
Fund is delayed in or prevented from exercising its rights to dispose of the
collateral securities, including the risk of a possible decline in the value of
the underlying securities during the period in which it seeks to assert these
rights. The Investment Adviser, acting under the supervision of the Fund's Board
of Directors, reviews the creditworthiness of those banks and dealers with which
the Fund enters into repurchase agreements to evaluate these risks and monitors
on an ongoing basis the value of the securities subject to repurchase agreements
to ensure that the value is maintained at the required level.

     Other Investments.  The Fund is permitted to invest in special situations,
options and futures contracts, engage in forward currency transactions and enter
into forward commitments for the purchase or sale of securities, including on a
"when issued" or "delayed delivery" basis, and the Fund may make short sales of
securities. See the SAI for a discussion of these investments and techniques and
the risks associated with them.

                                       20
<PAGE>   24

                    RISK FACTORS AND SPECIAL CONSIDERATIONS

     Please consider the matters set forth below. You should read this entire
Prospectus and the SAI before you decide whether to exercise your Rights. In
addition, you should consider the matters set forth below.

PRINCIPAL RISKS ASSOCIATED WITH THE FUND

DILUTION

     If you do not exercise all of your Rights, when the Offer is over you will
own a smaller proportional interest in the Fund. In addition, whether or not you
exercise your Rights, the per share net asset value of your shares will be
diluted (reduced) immediately as a result of the Offer because:

     - the shares offered will be sold at less than their current net asset
       value

     - you will indirectly bear the expenses of the Offer

     - the number of shares outstanding after the Offer will have increased
       proportionately more than the increase in the size of the Fund's net
       assets

     The Fund cannot state precisely the amount of any dilution because it is
not known at this time what the net asset value per share will be on the
Expiration Date or what proportion of the Rights will be exercised. The dilution
may be substantial and will increase if the share price declines in relation to
the net asset value as shown by the following examples, assuming an $8.00
Subscription Price:

     Scenario 1: Shares trade above per share net asset value (premium)(1)

<TABLE>
<S>                                                           <C>
Share Price.................................................   $
                                                               ------
NAV.........................................................   $
                                                               ------
Subscription Price..........................................   $ 8.00
                                                               ------
Reduction in NAV($)(2)......................................   $(    )
                                                               ------
Reduction in NAV(%).........................................    (    )%
                                                               ------
</TABLE>

     Scenario 2: Shares trade below per share net asset value at the time the
offer expires (discount)(1)

<TABLE>
<S>                                                           <C>
Share Price.................................................   $
                                                               ------
NAV.........................................................   $
                                                               ------
Subscription Price..........................................   $ 8.00
                                                               ------
Reduction in NAV($)(2)......................................   $(   )
                                                               ------
Reduction in NAV(%).........................................    (   )%
                                                               ------
</TABLE>

- ---------------
(1) Both examples assume full primary and over-subscription privilege exercised.
    Actual amounts may vary due to rounding.

(2) Assumes $500,000 in estimated offering expenses.

     You will incur a greater dilution in net asset value per share if you do
not exercise your Rights than if you do exercise your Rights.

     If you do not wish to exercise your Rights, you should consider selling
these Rights as set forth in this Prospectus. Any cash you receive from selling
your Rights should serve as partial compensation for any possible dilution of
your interest in the Fund. The Fund cannot give assurance, however, that a
market for the Rights will develop or that the Rights will have any marketable
value.

                                       21
<PAGE>   25

MARKET RISK

     The market value of a security may move up and down, sometimes rapidly and
unpredictably. These fluctuations, which are often referred to as "volatility,"
may cause a security to be worth less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy or the
market as a whole. Market risk is common to most investments, including stocks
and bonds and the investment funds that invest in them.

LONG-TERM OBJECTIVE

     The Fund is intended for investors seeking long-term capital growth. The
Fund is not meant to provide a vehicle for those who wish to play short-term
swings in the stock market. You should not consider an investment in shares of
the Fund as a complete investment program. You should take into account your
investment objectives as well as your other investments when considering whether
or not to participate in the Offer.

NON-DIVERSIFIED STATUS

     The Fund is classified as a "non-diversified" investment company under the
1940 Act, which means the Fund is not limited by the 1940 Act in the proportion
of its assets that may be invested in the securities of a single issuer.
However, the Fund has in the past conducted and intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Code, which will relieve it of any liability for federal income tax to the
extent its earnings are distributed to shareholders. To qualify as a "regulated
investment company," among other requirements, the Fund will limit its
investments so that, at the close of each quarter of the taxable year:

     - not more than 25% of the market value of its total assets will be
       invested in the securities of a single issuer, and

     - at least 50% of the market value of the Fund's assets is represented by
       cash, securities of other regulated investment companies, U.S. Government
       Securities and other securities that do not amount to more than 5% of a
       single issuer and not more than 10% of a single issuer's voting
       securities. The investments of the Fund in U.S. Government Securities are
       not subject to these limitations.

     As a non-diversified investment company, the Fund may invest in the
securities of individual issuers to a greater degree than a diversified
investment company. As a result, the Fund may be more vulnerable to events
affecting a single issuer and therefore subject to greater volatility than a
fund that is more broadly diversified. Accordingly, an investment in the Fund
may present greater risk to an investor than an investment in a diversified
company.

FOREIGN SECURITIES

     The Fund may invest up to 35% of its total assets in foreign securities.
The risks which the Fund faces when it invests in securities of foreign
companies and foreign governments include:

     - fluctuations in exchange rates between the U.S. dollar and foreign
       currencies

     - unavailable or deficient key information about an issuer, security or
       market

     - lack of uniform financial reporting standards and other regulatory
       requirements

     - expropriations, capital or currency controls, punitive taxes or
       nationalizations

     - economic policy changes, social and political instability, military
       action and war

     - changed circumstances in dealings between nations

     - greater volatility and illiquidity of foreign securities

     - costs incurred in connection with conversion between various currencies

                                       22
<PAGE>   26

     - higher foreign brokerage commissions

     - possible extended settlement period

     - revaluations of currencies

     - transfer taxes or transaction charges

     - greater difficulty in protecting and enforcing the Fund's rights

     Each of the above risks is more pronounced with respect to the Fund's
investments in securities of companies and governments in the world's emerging
(less developed) markets. For a further description of the Fund's investments in
foreign securities, see "Investment Objectives and Policies -- Certain
Practices -- Foreign Securities."

MARKET VALUE AND NET ASSET VALUE

     The shares of closed-end investment companies frequently trade at a
discount from net asset value. This characteristic of shares of a closed-end
fund is a risk separate and distinct from the risk that the Fund's net asset
value may decrease. Since the commencement of the Fund's operations, the Fund's
shares have generally traded in the market at a discount to net asset value. See
"Capital Stock." The risk of purchasing shares of a closed-end fund that might
trade at a discount is more pronounced if you wish to sell your shares in a
relatively short period of time. If you do so, realization of a gain or loss on
your investment is likely to be more dependent upon the existence of a premium
or discount than upon portfolio performance. The Fund's shares are not subject
to redemption. Investors desiring liquidity may, subject to applicable
securities laws, trade their shares in the Fund on any exchange where such
shares are then trading at current market value, which may differ from the then
current net asset value.

Additional Risks Associated with the Fund

LOWER RATED SECURITIES

     High yield securities, also sometimes referred to as "junk bonds,"
generally pay a premium above the yields of U.S. Government Securities or mature
corporate issuers because they are subject to greater risks than these
securities. Hence, high yield securities usually carry a medium-grade or below
investment grade rating, which reflect their speculative character and the
following risks:

     - greater volatility

     - greater credit risk

     - potentially greater sensitivity to general economic or industry
       conditions

     - potential lack of attractive resale opportunities (illiquidity)

     - additional expenses to seek recovery from issuers who default

     The market value of lower-rated securities may be more volatile than the
market value of higher-rated securities and generally tends to reflect the
market's perception of the creditworthiness of the issuer and short-term market
developments to a greater extent than more highly rated securities, which
reflect primarily fluctuations in general levels of interest rates.

     Ratings are relative and subjective and not absolute standards of quality.
Securities ratings are based largely on the issuer's historical financial
condition and the rating agencies' analysis at the time of rating. Consequently,
the rating assigned to any particular security is not necessarily a reflection
of the issuer's current financial condition.

     For a further description of lower rated securities and the risks
associated therewith, see "Investment Objectives and Policies -- Investment
Practices" in the SAI. For a description of the ratings categories of certain
recognized statistical ratings agencies, see Appendix A.

                                       23
<PAGE>   27

TEMPORARY INVESTMENTS

     During temporary defensive periods the Fund may invest in U.S. Government
Securities and in money market mutual funds not affiliated with the Investment
Adviser that invest in those securities. While certain U.S. Government
Securities are supported by the "full faith and credit" of the U.S. Government,
others are supported only by the credit of the issuing 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. For a further description of such investments, see "Investment
Objectives and Policies -- Investment Practices" in the SAI.

     To the extent that the Fund holds temporary investments, it will not be
pursuing its investment objectives.

REPURCHASE AGREEMENTS

     During temporary defensive periods or for cash management purposes, the
Fund may engage in repurchase agreement transactions with banks, registered
broker-dealers and government securities dealers approved by the Investment
Adviser under the supervision of the Board of Directors. Under the terms of a
typical repurchase agreement, the Fund would acquire an underlying debt
obligation for a relatively short period (usually not more than 1 week) subject
to an obligation of the seller to repurchase such debt obligation from the Fund
at some agreed upon premium. The Fund bears a risk of loss in the event that the
other party to a repurchase agreement defaults on its obligations and the Fund
is delayed in or prevented from exercising its rights to dispose of the
collateral securities, including the risk of a possible decline in the value of
the underlying securities during the period in which it seeks to assert these
rights. For a further description of these transactions, see "Investment
Objectives and Policies -- Certain Practices -- Repurchase Agreements."

HEDGING

     If the expectations about the changes in the interest rates or evaluations
of the normal yield relationship between two securities proves to be incorrect,
the Fund's income, net asset value and potential capital gains may be decreased
or its potential capital losses may be increased. The Fund's use of hedging
strategies will result in the loss of principal under certain market conditions
and will involve certain other risks.

FUTURES TRANSACTIONS

     Futures and options on futures entail certain risks, including:

     - no assurance that futures contracts or options on futures can be offset
       at favorable prices

     - reduction of the yield of the Fund due to the use of hedging

     - reduction in value of both the securities hedged and the hedging
       instrument

     - illiquidity 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 for such transactions

     For a further description, see "Investment Objectives and Policies --
Investment Practices" in the SAI.

FORWARD CURRENCY TRANSACTIONS

     The use of forward currency contracts may involve certain risks, including:

     - default of the counter-party under the contract,

     - incomplete 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

                                       24
<PAGE>   28

     For a further description of such investments, see "Investment Objectives
and Policies -- Investment Practices" in the SAI.

DEPENDENCE ON KEY PERSONNEL

     The Investment Adviser is dependent upon the expertise of Mr. Mario J.
Gabelli in providing advisory services with respect to the Fund's investments.
If the Investment Adviser were to lose the services of Mr. Gabelli, its ability
to service the Fund could be adversely affected. There can be no assurance that
a suitable replacement could be found for Mr. Gabelli in the event of his death,
resignation, retirement or inability to act on behalf of the Investment Adviser.

LEVERAGED CAPITAL STRUCTURE

     The Fund has a leveraged capital structure which presents certain
additional risks. For a further description of these additional risks, see
"Capital Stock -- Effects of Leverage."

INTEREST-RATE RISK


     Changes in interest rates may cause a decline in the market value of an
investment. With bonds and other fixed-income Securities, a rise in interest
rates typically causes a fall in values, while a fall in interest rates
typically causes a rise in values.


                                       25
<PAGE>   29

                             MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS

     The business and affairs of the Fund are managed under the direction of the
Fund's Board of Directors, and the day-to-day operations of the Fund are
conducted through or under the direction of the officers of the Fund. Although
the Fund is a Maryland corporation, Karl Otto Pohl, one of its Directors, is a
resident of Germany, and substantially all of his assets are located outside of
the United States. Mr. Pohl has not authorized an agent for service of process
in the United States. Consequently, it may be difficult for investors to effect
service of process upon him within the United States or to enforce, in United
States courts, judgments against him obtained in such courts predicated on the
civil liability provisions of the United States securities laws. In addition,
there is doubt as to the enforceability in German courts of liabilities
predicated solely upon the United States securities laws, whether or not such
liabilities are based upon judgments of courts in the United States. For certain
information regarding the Directors and officers of the Fund, see "Management of
the Fund" in the SAI.

INVESTMENT ADVISER

     The Investment Adviser, whose principal business address is: One Corporate
Center, Rye, New York 10580, is a New York limited liability company which also
serves as Investment Adviser to other closed-end investment companies and
open-end investment companies with aggregate assets in excess of $11.8 billion
as of September 30, 2000. The Investment Adviser is a registered investment
adviser under the 1940 Act. Mr. Mario J. Gabelli may be deemed a "controlling
person" of the Investment Adviser on the basis of his controlling interest in
the parent company of the Investment Adviser. The Investment Adviser has several
affiliates that provide investment advisory services: GAMCO Investors, Inc.
("GAMCO"), a wholly-owned subsidiary of the Investment Adviser, acts as
investment adviser for individuals, pension trusts, profit-sharing trusts and
endowments, and had assets under management of approximately $9.8 billion under
its management as of September 30, 2000; Gabelli Advisers, Inc. acts as
investment adviser to the Gabelli Westwood Funds with assets under management of
approximately $413 million as of September 30, 2000; Gabelli Securities, Inc.
acts as general partner or investment manager to certain alternative investments
products, consisting primarily of risk arbitrage and merchant banking limited
partnerships and offshore companies, with assets under management of
approximately $416 million as of September 30, 2000; and Gabelli Fixed Income,
LLC acts as investment adviser for the three portfolios of The Treasurer's Fund
and separate accounts having assets under management of approximately $1.4
billion as of September 30, 2000.

     The Investment Adviser has sole investment discretion for the Fund with
respect to the Fund's portfolio under the supervision of the Fund's Board of
Directors and in accordance with the Fund's stated policies. The Investment
Adviser will select investments for the Fund and will place purchase and sale
orders on behalf of the Fund. For its services, the Investment Adviser is paid a
fee computed daily and paid monthly at an annual rate of 1.00% of the average
weekly net assets of the Fund. For additional information regarding the
Investment Adviser, see "The Adviser" in the SAI.


     Canadian shareholders should note, to the extent applicable, that there may
be difficulty enforcing any legal rights against the Investment Adviser because
it is resident outside Canada and all of it assets are situated outside Canada.


PORTFOLIO MANAGEMENT

     Mario J. Gabelli, who is Chief Investment Officer of the Investment
Adviser, has managed the Fund's assets since its inception. In addition, over
the past five years, Mr. Gabelli has served as Chairman of the Board and Chief
Executive Officer of Gabelli Asset Management Inc.; Chief Investment Officer of
GAMCO Investors, Inc.; Chairman of the Board and Chief Executive Officer of
Lynch Corporation, a diversified manufacturing company, and Lynch Interactive
Corporation, a multimedia and communications services company; and Director of
Spinnaker Industries, Inc., a manufacturing company.

                                       26
<PAGE>   30

SUB-ADMINISTRATOR

     The Investment Adviser has certain administrative responsibilities to the
Fund under its Advisory Agreement with the Fund. The Investment Adviser has
retained PFPC, Inc. as Sub-Administrator to provide certain administrative
services necessary for the Fund's operations other than those performed by the
Investment Adviser under its Advisory Agreement. These services include, but are
not limited to, supplying the Investment Adviser with office facilities,
statistical and research data, data processing services, clerical, accounting
and bookkeeping services, internal audit and regulatory administration services,
the preparation and distribution of materials for meeting of the Fund's Board of
Directors, compliance testing of the Fund's activities and the preparation of
stockholder reports, tax returns and other regulatory filings. For such services
by the Sub-Administrator, the Investment Adviser pays the Sub-Administrator a
monthly fee based upon the aggregate average daily net assets of certain funds
advised by the Investment Adviser, including the Fund, as follows: .0275% on
aggregate net assets under administration of $0-$10 billion, .0125% on aggregate
net assets under administration of $10-$15 billion and .0100% on aggregate net
assets under administration over $15 billion, which together with services
rendered, is subject to re-negotiation if net assets under administration exceed
$20 billion. The Investment Adviser also reimburses the Sub-Administrator for
certain out-of-pocket expenses incurred by the Sub-Administrator as a result of
its duties under the sub-administrative agreement. Either the Investment Adviser
or the Sub-Administrator may terminate the sub-administration agreement on 60
days' written notice. The Sub-Administrator has its principal office located at
101 Federal Street, Boston, Massachusetts 02110.

PAYMENT OF EXPENSES

     For purposes of the calculation of the fees payable to the Investment
Adviser by the Fund, average weekly net assets of the Fund are determined at the
end of each month on the basis of its average net assets for each week during
the month. The assets for each weekly period are determined by averaging the net
assets at the end of a week with the net assets at the end of the prior week.

     The Investment Adviser will be obligated to pay expenses associated with
providing the services contemplated by the Advisory Agreement including
compensation of and office space for its officers and employees connected with
investment and economic research, trading and investment management and
administration of the Fund, as well as the fees of all Directors of the Fund who
are affiliated with the Investment Adviser or any of its affiliates. The Fund
pays all other expenses incurred in its operation including, among other things,
expenses for legal and independent accountants' services, costs of printing
proxies, stock certificates and shareholder reports, charges of the custodian,
any subcustodian and transfer and dividend paying agent, expenses in connection
with the Plan, SEC fees, fees and expenses of unaffiliated Directors, accounting
and pricing costs, membership fees in trade associations, fidelity bond coverage
for its officers and employees, directors' and officers' errors and omission
insurance coverage, interest, brokerage costs, taxes, stock exchange listing
fees and expenses, expenses of qualifying its shares for sale in various states,
litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by the Fund.

                             PORTFOLIO TRANSACTIONS

     Principal transactions are not entered into with affiliates of the Fund.
However, Gabelli & Company, Inc., an affiliate of the Investment Adviser, may
execute transactions in the over-the-counter markets on an agency basis and
receive a stated commission therefrom. For a more detailed discussion of the
Fund's brokerage allocation practice, see the SAI under "Portfolio
Transactions."

                DIVIDENDS AND DISTRIBUTIONS; AUTOMATIC DIVIDEND
                 REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN

     The Fund's policy is to make quarterly distributions of $0.27 per share at
the end of each of the first three calendar quarters of each year to holders of
its Common Stock. The Fund's distribution in December for each calendar year is
an adjusting distribution (equal to the sum of 2.5% of the net asset value of
the Fund as of the

                                       27
<PAGE>   31

last day of the four preceding calendar quarters less the aggregate
distributions of $0.81 per share made for the most recent three calendar
quarters) in order to meet the Fund's 10% pay-out goal as well as the Code's
distribution requirements.

     The dividend policy of the Fund may be modified from time to time by the
Board of Directors. As a regulated investment company under the Code, the Fund
will not be subjected to U.S. federal income tax on its investment company
taxable income that it distributes to shareholders, provided that at least 90%
of its taxable income for the taxable year is distributed to its shareholders.

     The Fund, along with other registered investment companies advised by the
Investment Adviser (the "Other Funds"), has obtained an exemption from Section
19(b) of the 1940 Act and Rule 19b-1 thereunder permitting the Fund to make
periodic distributions of long-term capital gains provided that the Fund
maintains distribution policies with respect to the Common Stock and Preferred
Stock calling for periodic (e.g., quarterly or semi-annually, but in no event
more frequently than quarterly, except that the Fund may elect to pay a dividend
pursuant to Section 855 of the Code in addition to the four quarterly payments)
distributions in an amount equal to a fixed percentage of the Fund's average net
asset value over a specified period of time or market price per share of Common
Stock or a fixed percentage of the Preferred Stock's liquidation preference at
or about the time of distribution or pay-out or a fixed dollar amount. If the
total distributions required by the proposed periodic pay-out policy exceed the
Fund's net investment income and net capital gains, the excess will be treated
as a return of capital. If the Fund's net investment income, net short-term
capital gains and net long-term capital gains for any year exceed the amount
required to be distributed under the proposed periodic pay-out policy, the Fund
generally intends to pay such excess once a year, but may, in its discretion,
retain and not distribute net long-term capital gains to the extent of such
excess.

     As of September 30, 2000, the Fund has outstanding 5,374,900 shares of
7.25% Cumulative Preferred Stock, liquidation preference $25 per share (the
"Cumulative Preferred Stock"), which are senior securities of the Fund.
Dividends on the Cumulative Preferred Stock accrue at an annual rate of 7.25% of
the liquidation preference 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 in each year. The Fund is contemplating an additional issuance
of Preferred Stock after the completion of this Rights offering.

     The Fund, along with the other Funds, has filed an application with the SEC
that seeks an exemptive order permitting the Fund to make periodic distributions
of long-term capital gains as often as monthly in any one taxable year in
respect of its Common Stock and Preferred Stock (to the extent allowed by the
terms thereof). The application is still pending.

     Under the Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
adopted by the Fund, a shareholder whose Common Stock is registered in his own
name will have all distributions reinvested automatically by State Street Bank,
which is the agent under the Plan, unless the shareholder elects to receive cash
and has so instructed State Street either in writing at the address set forth
below or by telephone at (617) 786-3000. 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. Under the Plan, whenever
the market price of the Common Stock is equal to or exceeds net asset value at
the time shares are valued for purposes of determining the number of shares
equivalent to the cash dividend or capital gains distribution, participants in
such plan are issued shares of Common Stock, valued at the greater of (i) the
net asset value as most recently determined or (ii) 95% of the then current
market price of the Common Stock. If the net asset value of the Common Stock at
the time of valuation exceeds the market price of the Common Stock, participants
will receive shares from the Fund, valued at market price. If the Fund should
declare a dividend or capital gains distribution payable only in cash, State
Street will, as agent for the participants, buy Fund shares in the open market,
on the NYSE or elsewhere, for the participants' accounts, except that State
Street will endeavor to terminate purchases in the open market and cause the
Fund to issue shares at net asset value if, following the commencement of such
purchases, the market value of the Common Stock exceeds net asset value.

                                       28
<PAGE>   32

     Participants in the Plan have the option of making additional cash payments
to State Street, on or about the 1st and 15th of each month, for investment in
the shares as applicable. Such payments may be made in any amount from $250 to
$10,000.

     There is no charge to participants for reinvesting dividends or capital
gains distributions payable in either stock or cash. State Street's fees for
handling the reinvestment of such dividends and capital gains distributions are
paid by the Fund. There are no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains distributions
payable in stock or in cash. However, each participant bears a pro rata share of
brokerage commissions incurred with respect to State Street's open market
purchases in connection with the reinvestment of dividends or capital gains
distributions.

     With respect to purchases from voluntary cash payments, State Street will
charge $0.75 for each such purchase for a participant, plus a pro rata share of
the brokerage commissions. A fee of $2.50 per transaction is charged in
connection with the sale of shares that are held in book-entry form, such as
shares of Common Stock held by a shareholder through the Plan. Commissions may
also be charged on such transactions.

     The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable on such dividends or
distributions.

     Participants in the Plan may terminate their accounts under the Plan by
notifying State Street in writing. Upon termination, participants may request to
receive a certificate for the number of full shares then held in their Plan
account along with a check in payment for any fractional share interest they may
have. The payment for the fractional share interest will be valued at the
opening price of the Fund on the date their discontinuance is effective. In the
alternative, participants may liquidate their reinvestment shares. If a
participant wishes to liquidate his or her reinvestment shares, the cost 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.

     All correspondence concerning the Plan should be directed to State Street
at P.O. Box 8200, Boston, Massachusetts 02266-8200. For a further description of
the Plan, see "Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan"
in the SAI.

                                    TAXATION

TAXATION

     The Fund has qualified, and intends to continue to qualify, each year as a
"regulated investment company" under the Code. Accordingly, the Fund will not be
liable for federal income taxes to the extent its taxable net investment income
and net realized capital gain, if any, are distributed to shareholders, provided
that at least 90% of its investment company taxable income (i.e., 90% of the
Fund's taxable income minus the excess, if any, of its net realized long-term
capital gain over its net realized short-term capital loss (including any
capital loss carryovers) plus or minus certain other adjustments as specified in
section 852 of the Code) for the taxable year is distributed to shareholders.
The Fund will be subject to tax at regular corporate rates on any income or
gains that it does not distribute. Furthermore, the Fund is subject to a 4%
nondeductible federal excise tax on certain undistributed amounts of ordinary
income and capital gains. The Fund intends to make such distributions as are
necessary to avoid the application of this excise tax.

     The Fund reserves the right, but does not currently intend, to retain for
reinvestment net long-term gains in excess of net short-term capital losses and
the Fund will be subject to a corporate tax (currently at a rate of 35%) on the
retained amount, if any. The Fund would designate such retained amounts as
undistributed capital gains. As a result, such amounts would be taxed to
shareholders as long-term capital gains and shareholders would be able to claim
their proportionate shares of the federal income taxes paid by the Fund on such
gains as a credit against their own federal income tax liabilities, and would be
entitled to increase the adjusted tax basis of their shares of the Fund by 65%
of their undistributed capital gains. Qualified pension and profit sharing
funds, certain trusts and other organizations or persons not subject to federal
income tax on capital gains and certain non-resident alien individuals and
foreign corporations would be entitled to a refund
                                       29
<PAGE>   33

of their pro rata share of such taxes paid by the Fund upon filing appropriate
returns or claims for refund with the proper tax authorities. Failure by such
entities and their sponsors or responsible fiduciaries to properly account for
such refund could result in adverse federal income tax consequences.

     The Fund sends its written statements and notices to its respective
shareholders regarding the tax status of all dividends and distributions made
during each calendar year.

     Dividend and capital gain distributions may also be subject to state and
local taxes. Shareholders are urged to consult their attorneys or tax advisors
regarding specific questions as to federal, state or local taxes. Non-U.S.
shareholders are urged to consult their own tax advisors concerning the
applicability of the United States withholding tax. For a more detailed
discussion of tax matters affecting the Fund and its shareholders, see
"Taxation" in the SAI.

                                 CAPITAL STOCK

     Common Stock.  The Fund, which was incorporated under the laws of the State
of Maryland on May 20, 1986, is authorized to issue 194,250,000 shares of Common
Stock, par value $.001 per share. Each share of Common Stock has equal voting,
dividend, distribution and liquidation rights. The shares of Common Stock
outstanding are fully paid and non-assessable. Shares of the Common Stock are
not redeemable and have no preemptive, conversion or cumulative voting rights.

     The Fund's shares of Common Stock are listed and traded on the NYSE under
the symbol "GAB." The average weekly trading volume of the Common Stock on the
NYSE for the 12 months ended September 30, 2000 was 109,623 shares. The
following table sets forth for the quarters indicated the high and low closing
prices on the NYSE per share of the Common Stock and the net asset value and the
premium or discount from net asset value at which the Common Stock was trading,
expressed as a percentage of net asset value, at each of the high and low
closing prices provided.

<TABLE>
<CAPTION>
                                                                                               PREMIUM OR DISCOUNT
                                      MARKET PRICE(1)             NET ASSET VALUE(2)               AS % OF NAV
                                   ---------------------         ---------------------         -------------------
          QUARTER ENDED             HIGH           LOW            HIGH           LOW           HIGH           LOW
          -------------            ------         ------         ------         ------         -----         -----
<S>                                <C>            <C>            <C>            <C>            <C>           <C>
3/31/98..........................  $12.31         $11.25         $12.60         $11.20          2.27%        -5.75%
6/30/98..........................  $12.44         $11.06         $12.85         $11.91         -2.20%        -9.43%
9/30/98..........................  $12.13         $ 9.88         $12.65         $10.43         -4.11%        -5.27%
12/31/98.........................  $11.94         $ 9.63         $11.58         $ 9.75          3.11%        -1.23%
3/31/99..........................  $12.13         $11.50         $12.00         $11.31          1.08%         1.68%
6/30/99..........................  $12.63         $11.81         $12.92         $11.70         -2.24%         0.94%
9/30/99..........................  $12.19         $11.13         $12.73         $11.01         -4.24%         1.09%
12/31/99.........................  $12.56         $11.19         $12.75         $11.08         -1.49%         0.99%
3/31/00..........................  $12.63         $11.00         $12.98         $12.00         -2.70%        -8.33%
6/30/00..........................  $12.19         $11.19         $12.71         $11.68         -4.09%        -4.20%
9/30/00..........................  $12.50         $11.31         $12.64         $11.48          0.73%        -3.21%
</TABLE>

- ---------------
(1) As reported on the NYSE.

(2) Based on the Fund's computations.

     Preferred Stock.  The Fund's Board of Directors has authority to cause the
Fund to issue and sell up to 5,750,000 shares of Preferred Stock, par value
$.001 per share (the "Preferred Stock"). The terms of such Preferred Stock may
be fixed by the Board of Directors and would materially limit and/or qualify the
rights of the holders of the Fund's Common Stock. As of September 30, 2000, the
Fund has outstanding 5,374,900 shares of 7.25% Tax Advantaged Cumulative
Preferred Stock ("Cumulative Preferred Stock"), which are senior securities of
the Fund. Dividends on the Cumulative Preferred Stock accrue at an annual rate
of 7.25% of the liquidation preference of $25 per share and are cumulative from
the date of original issuance thereof and are payable quarterly on March 26,
June 26, September 26 and December 26 in each year.

     It was a condition to the issuance of the Cumulative Preferred Stock that
it be rated "aaa" by Moody's. In connection with the receipt of such rating, the
composition of the Fund's portfolio must reflect guidelines

                                       30
<PAGE>   34

established by Moody's and the Fund is required to maintain a minimum discounted
asset coverage with respect to the Cumulative Preferred Stock. See "Moody's
Discount Factors" in the SAI.

     The Cumulative Preferred Stock is subject to mandatory redemption in whole
or in part by the Fund for cash at a price equal to $25 per share plus
accumulated but unpaid dividends (whether or not earned or declared) (the
"Redemption Price") if the Fund fails to maintain either of the minimum asset
coverages required by Moody's and the 1940 Act. Commencing June 9, 2003 and
thereafter, the Fund at its option may redeem the Cumulative Preferred Stock in
whole or in part for cash at a price equal to the Redemption Price. Prior to
June 9, 2003, the Cumulative Preferred Stock may be redeemed, at the option of
the Fund, for a cash price equal to the Redemption Price, only to the extent
necessary for the Fund to continue to qualify for tax treatment as a regulated
investment company.

     All shares of Cumulative Preferred Stock are fully paid and nonassessable.

     Set forth below is information with respect to the Fund's capital stock as
of September 30, 2000.

<TABLE>
<CAPTION>
                                                              AMOUNT HELD BY
                                                               FUND FOR ITS
            CLASS OF STOCK              AMOUNT AUTHORIZED      OWN ACCOUNT        AMOUNT OUTSTANDING
            --------------              ------------------    --------------      ------------------
<S>                                     <C>                   <C>                 <C>
Common Stock..........................  194,250,000 shares     N/A* shares        107,376,617 shares
Preferred Stock.......................    5,750,000 shares     N/A* shares          5,374,900 shares
</TABLE>

EFFECTS OF LEVERAGE

     The only obligation that the Fund has to the Preferred Shareholders is to
pay the stated dividend rate of 7.25%. Any return earned in excess of the stated
dividend rate, which is less than the Fund's average annual return, would
directly benefit Common Shareholders; however, any shortfall from the stated
rate would impact the Common Shareholders in the opposite fashion. The following
table is designed to assist you in understanding the effects of leverage on your
investment in the Fund. The figures appearing in the table are hypothetical and
actual returns may be greater or less than those appearing in the table.

<TABLE>
<S>                                               <C>      <C>     <C>     <C>    <C>
Assumed return on portfolio (net of expenses)...     -10%     -5%      0%     5%     10%
Corresponding return to common stockholder......  -12.57%  -6.85%  -1.13%  4.58%  10.30%
</TABLE>

     The following factors associated with leveraging could increase the
investment risk and volatility of the price of the Fund's shares: (1) leveraging
exaggerates any increase or decrease in the value of the Fund's shares; (2) the
dividend requirements on preferred stock may exceed the income from the
portfolio securities purchased with the proceeds from the issuance of preferred
stock; (3) a decline in net asset value results if the investment performance of
the additional securities purchased fails to cover their cost to the Fund
(including any dividend requirements of preferred stock) to the Fund; (4) a
decline in net asset value could affect the ability of the Fund to make common
stock dividend payments; (5) a failure to pay dividends or make distributions
could result in the Fund's ceasing to qualify as a regulated investment company
under the Code; and (6) if the asset coverage for preferred stock or debt
securities declines to less than two hundred percent or three hundred percent,
respectively (as a result of market fluctuations or otherwise), the Fund may be
required to sell a portion of its investments when it may be disadvantageous to
do so.

     Pursuant to Section 18 of the 1940 Act, it is unlawful for the Fund, as a
registered closed-end investment company, to issue any class of senior security,
or to sell any such security of which it is an issuer, unless it can satisfy
certain "asset coverage" ratios. The asset coverage ratio means the ratio of the
value of the total assets of such investment company (less all liabilities and
indebtedness not represented by senior securities) to the aggregate amount of
debt securities of such investment company (plus the involuntary liquidation
preference of the preferred stock of such company).

     If the senior securities are stock, such as the Cumulative Preferred Stock
issued by the Fund, such stock must have an asset coverage of at least 200%
immediately after issuance or sale of such stock. If the senior securities
represent an indebtedness ("debt securities"), such debt securities must have an
asset coverage of at least 300% immediately after issuance or sale of such debt
securities.

                                       31
<PAGE>   35

     Subject to certain exceptions, if the Fund fails to satisfy these asset
coverage ratios, it will, among other things, be prohibited from declaring any
dividend (except a dividend payable in stock issued by the Fund) or declaring
any other distribution. Notwithstanding the foregoing, a registered investment
company may, to the extent permitted by the 1940 Act, segregate assets or
"cover" transactions in order to avoid the creation of a class of senior
security.

     The rating received by the Fund on its Cumulative Preferred Stock, or on
any other senior security which it may issue, is an assessment of the capacity
of the Fund to satisfy its obligations on the Cumulative Preferred Stock or such
other senior security. However, the rating on the Cumulative Preferred Stock
does not eliminate or mitigate the risks associated with investing in the Fund's
securities.

     In addition, should the rating on the Cumulative Preferred Stock be lowered
or withdrawn by the relevant rating agency, there may be an adverse effect on
the market value of the Cumulative Preferred Stock. The Fund may also be
required to redeem all or part of the Cumulative Preferred Stock. If such
partial or whole redemption of the Cumulative Preferred Stock occurs, as a
result of the change in or withdrawal of the rating, the common stock of the
Fund will lose the benefits associated with a leveraged capital structure.

VOTING RIGHTS

     Except as otherwise stated in this Prospectus and as otherwise required by
applicable law, holders of shares of Cumulative Preferred Stock will be entitled
to one vote per share on each matter submitted to a vote of shareholders and
will vote together with holders of shares of Common Stock and of any other
Preferred Stock then outstanding as a single class.

     In connection with the election of the Fund's directors, holders of shares
of Cumulative Preferred Stock and any other Preferred Stock, voting as a single
class, will be entitled at all times to elect two of the Fund's directors, and
the remaining directors will be elected by holders of shares of Common Stock and
holders of shares of Cumulative Preferred Stock and any other Preferred Stock,
voting together as a single class. In addition, if at any time dividends on
outstanding shares of Cumulative Preferred Stock and/or any other Preferred
Stock are unpaid in an amount equal to at least two full years' dividends
thereon or if at any time holders of any shares of Preferred Stock are entitled,
together with the holders of shares of Cumulative Preferred stock to elect a
majority of the directors of the Fund under the 1940 Act, then the number of
directors constituting the Board of Directors automatically will be increased by
the smallest number that, when added to the two directors elected exclusively by
the holders of shares of Cumulative Preferred Stock and any other Preferred
Stock as described above, would constitute a majority of the Board of Directors
as so increased by such smallest number. Such additional directors will be
elected by the holders of Cumulative Preferred Stock and any other Preferred
Stock, voting as a separate class, at a special meeting of shareholders which
will be called and held as soon as practicable, and at all subsequent meetings
at which directors are to be elected, the holders of shares of Cumulative
Preferred Stock and any other Preferred Stock, voting as a single class, will be
entitled to elect the smallest number of additional directors that, together
with the two directors which such holders in any event will be entitled to
elect, constitutes a majority of the total number of directors of the Fund as so
increased. The Articles of Incorporation currently limits the maximum number of
directors of the Fund to twelve. In the event that an increase in the number of
directors elected solely by the holders of shares of Cumulative Preferred Stock
and any other Preferred Stock would cause the total number of directors to
exceed twelve, one or more directors, other than the two previously elected by
the holders of shares of Cumulative Preferred Stock and Preferred Stock, voting
as a separate class, would resign so that the result would be that a majority of
the Board of Directors had been elected by the holders of the Cumulative
Preferred Stock and any other Preferred Stock, voting as a separate class.
Except as otherwise provided in the immediately preceding sentence, the terms of
office of the persons who are directors at the time of that election will
continue. If the Fund thereafter pays, or declares and sets apart for payment in
full, all dividends payable on all outstanding shares of Cumulative Preferred
Stock and any other Preferred Stock for all past dividend periods, the
additional voting rights of the holders of shares of Cumulative Preferred Stock
and any other Preferred Stock as described above will cease, and the terms of
office of all of the additional directors elected by the holders of shares of
Cumulative Preferred Stock and any other Preferred Stock (but not of the
directors with respect to whose election the holders of shares of Common Stock
were entitled to vote or the
                                       32
<PAGE>   36

two directors the holders of shares of Cumulative Preferred Stock and any other
Preferred Stock have the right to elect as a separate class in any event) will
terminate automatically.

     So long as shares of the Cumulative Preferred Stock are outstanding, the
Fund will not, without the affirmative vote of the holders of a majority of the
shares of Preferred Stock outstanding at the time, voting separately as one
class, amend, alter or repeal the provisions of the Articles of Incorporation,
as amended and supplemented (including the Articles Supplementary) of the Fund
(the "Articles of Incorporation"), whether by merger, consolidation or
otherwise, so as to materially adversely affect any of the contract rights
expressly set forth in the Articles of Incorporation of holders of shares of the
Cumulative Preferred Stock or any other Preferred Stock. To the extent permitted
under the 1940 Act, in the event shares of more than one series of Preferred
Stock are outstanding, the Fund will not approve any of the actions set forth in
the preceding sentence which materially adversely affects the contract rights
expressly set forth in the Articles of Incorporation of a holder of shares of a
series of Preferred Stock differently than those of a holder of shares of any
other series of Preferred Stock without the affirmative vote of at least a
majority of votes entitled to be cast by holders of the Preferred Stock of each
series materially adversely affected and outstanding at such time (each such
materially adversely affected series voting separately as a class). Unless a
higher percentage is provided for under the Articles of Incorporation, the
affirmative vote of a majority (as defined in the 1940 Act) of the votes
entitled to be cast by holders of outstanding shares of the Cumulative Preferred
stock and any other Preferred Stock, voting as a separate class, will be
required to approve any plan of reorganization adversely affecting such shares
or any action requiring a vote of security holders under Section 13(a) of the
1940 Act, including, among other things, open-ending the Fund and changes in the
Fund's investment objective or changes in the investment restrictions described
as fundamental policies under "Investment Objectives and Policies" and
"Investment Restrictions" in the Prospectus and the SAI. The class vote of
holders of shares of the Cumulative Preferred Stock and any other Preferred
Stock described above in each case will be in addition to a separate vote of the
requisite percentage of shares of Common Stock and Cumulative Preferred Stock
and any other Preferred Stock, voting together as a single class, necessary to
authorize the action in question.

     The foregoing voting provisions will not apply to any shares of Cumulative
Preferred Stock if, at or prior to the time when the act with respect to which
such vote otherwise would be required will be effected, such shares will have
been (i) redeemed or (ii) called for redemption and sufficient deposit assets
provided to the dividend-disbursing agent to effect such redemption. The holders
of Cumulative Preferred Stock will have no preemptive rights or rights to
cumulative voting.

REPURCHASE OF SHARES

     The Fund is a closed-end, management investment company and as such its
shareholders do not, and will not, have the right to redeem its shares. The
Fund, however, may repurchase its shares from time to time as and when it deems
such a repurchase advisable. Such repurchases may be made when the Fund's shares
are trading at a discount of 10% or more (or such other percentage as the Board
of Directors of the Fund may determine from time to time) from the net asset
value of the shares. Pursuant to the 1940 Act, the Fund may repurchase its
shares on a securities exchange (provided that the Fund has informed its
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 sellers, 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 Fund.

     The Fund may incur debt, in an amount not exceeding 10% of its total
assets, to finance share repurchase transactions. See "Investment Restrictions"
in the SAI. Any gain in the value of the investments of the Fund during the term
of the borrowing that exceeds the interest paid on the amount borrowed would
cause the net asset value of its shares to increase more rapidly than in the
absence of borrowing. Conversely, any decline in the value of the investments of
the Fund would cause the net asset value of its shares to decrease more rapidly

                                       33
<PAGE>   37

than in the absence of borrowing. Borrowing money thus creates an opportunity
for greater capital gain but at the same time increases exposure to capital
risk.

     When the Fund repurchases its shares for a price below their net asset
value, the net asset value of those shares that remain outstanding will be
enhanced, but this does not necessarily mean that the market price of those
outstanding shares will be affected, either positively or negatively. Further,
interest on borrowings to finance share repurchase transactions will reduce the
net income of the Fund.

     For the nine months ended September 30, 2000, no shares were repurchased by
the Fund in the open market.

     The Fund does not currently have an established tender offer program or
established schedule for considering tender offers. No assurance can be given
that the Board of Directors of the Fund will decide to undertake any such tender
offers in the future, or, if undertaken, that they will reduce any market
discount.

     From the commencement of the Fund's operations, the Fund's shares have
traded in the market for extended periods at both a premium to and a discount
from net asset value.

     For the net asset value per share and the reported sales price of a share
of the Fund's Common Stock on the NYSE as of a recent date, see "The
Offer -- Subscription Price."

CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS

     The Fund presently has provisions in its Articles of Incorporation and
By-Laws (together, in each case, its "Governing Documents") which could have the
effect of limiting, in each case, (i) the ability of other entities or persons
to acquire control of the Fund, (ii) the Fund's freedom to engage in certain
transactions, or (iii) the ability of the Fund's Directors or shareholders to
amend the Governing Documents or effectuate changes in the Fund's management.
These provisions of the Governing Documents of the Fund may be regarded as
"anti-takeover" provisions. The Board of Directors of the Fund is divided into
three classes, each having a term of no more than three years. Each year the
term of one class of Directors will expire. Accordingly, only those Directors in
one class may be changed in any one year, and it would require two years to
change a majority of the Board of Directors. Such system of electing Directors
may have the effect of maintaining the continuity of management and, thus, make
it more difficult for the shareholders of the Fund to change the majority of
Directors. See "Management of the Fund" in the SAI. A Director of the Fund may
be removed, but only with cause and by a vote of a majority of the votes
entitled to be cast for the election of Directors of the Fund. In addition, the
affirmative vote of the holders of 66 2/3% of its outstanding shares of each
class is required to authorize the conversion of the Fund from a closed-end to
an open-end investment company or generally to authorize any of the following
transactions:

          (i) merger or consolidation of the Fund with or into any other
     corporation;

          (ii) issuance of any securities of the Fund to any person or entity
     for cash;

          (iii) sale, lease or exchange of all or any substantial part of the
     assets of the Fund to any entity or person (except assets having an
     aggregate fair market value of less than $1,000,000); or

          (v) sale, lease or exchange to the Fund, in exchange for securities of
     the Fund, of any assets of any entity or person (except assets having an
     aggregate fair market value of less than $1,000,000);

if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares of
the Fund. However, such vote would not be required when, under certain
conditions, the Board of Directors approves the transaction. Reference is made
to the Governing Documents of the Fund, on file with the SEC; for the full text
of these provisions, see "Further Information."

     The provisions of the Governing Documents described above could have the
effect of depriving the owners of shares in the Fund of opportunities to sell
their shares at a premium over prevailing market prices, by discouraging a third
party from seeking to obtain control of the Fund in a tender offer or similar
transaction. The overall effect of these provisions is to render more difficult
the accomplishment of a merger or the assumption of control by a principal
shareholder. The Board of Directors has determined that the foregoing
                                       34
<PAGE>   38

voting requirements, which are generally greater than the minimum requirements
under Maryland law and the 1940 Act, are in the best interests of the
shareholders generally.

        CUSTODIAN AND TRANSFER, DIVIDEND DISBURSING AGENT AND REGISTRAR

     Boston Safe Deposit and Trust Company (the "Custodian"), located at One
Boston Place, Boston, Massachusetts 02019, serves as the custodian of the Fund's
assets pursuant to a custody agreement. Under the custody agreement, the
Custodian holds the Fund's assets in compliance with the 1940 Act. For its
services, the Custodian will receive a monthly fee based upon the average weekly
value of the total assets of the Fund, plus certain charges for securities
transactions.

     State Street Bank and Trust Company located at Two Heritage Drive, Quincy,
Massachusetts 02171, serves as the Fund's dividend disbursing agent, as agent
under the Fund's Plan and as transfer agent and registrar for shares of the
Fund.

                                 LEGAL MATTERS

     With respect to matters of United States law, the validity of the shares
offered hereby will be passed on for the Fund by Willkie Farr & Gallagher, 787
Seventh Avenue New York, New York 10019. Counsel for the Fund will rely, as to
certain matters of Maryland law, on Venable, Baetjer and Howard, LLP 1800
Mercantile Bank and Trust Building, 2 Hopkins Plaza, Baltimore, Maryland 21201.

                                    EXPERTS

     The unaudited financial statements of the Fund as of June 30, 2000 have
been incorporated by reference into the SAI. The audited financial statements of
the Fund as of December 31, 1999 have also been incorporated by reference into
the SAI in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing. PricewaterhouseCoopers LLP is located at 1177 Avenue of the Americas,
New York, New York 10036.

                              FURTHER INFORMATION

     The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy statements
and other information with the SEC. Such reports, proxy statements and other
information filed by the Fund can be inspected and copied at public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549; Seven World Trade Center, 13th Floor, New York, New York 10048; and 500
West Madison Street, Chicago, Illinois 60661. The Fund's Common Stock is listed
on the NYSE. Reports, proxy statements and other information concerning the Fund
can be inspected and copied at the Library of the NYSE at 20 Broad Street, New
York, New York 10005.

     This Prospectus constitutes a part of a registration statement on Form N-2
(together with the SAI and all the exhibits and the appendix thereto, the
"Registration Statement") filed by the Fund with the SEC under the Securities
Act and the 1940 Act. This Prospectus and the SAI do not contain all of the
information set forth in the Registration Statement. Reference is hereby made to
the Registration Statement and related exhibits for further information with
respect to the Fund and the Shares offered hereby. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the SEC.

                                       35
<PAGE>   39

                               TABLE OF CONTENTS
                                       OF
                      STATEMENT OF ADDITIONAL INFORMATION


<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Investment Objectives and Policies..........................    2
Investment Restrictions.....................................   10
Management of the Fund......................................   12
The Investment Adviser......................................   15
Portfolio Transactions......................................   17
Automatic Dividend Reinvestment and Voluntary Cash Purchase
  Plan......................................................   18
Taxation....................................................   19
Moody's Discount Factors....................................   24
Net Asset Value.............................................   27
General Information.........................................   28
Beneficial Owners...........................................   28
Financial Statements........................................   28
</TABLE>


                                       36
<PAGE>   40

                                                                      APPENDIX A
                             CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.

<TABLE>
<S>  <C>
Aaa  Bonds that are rated Aaa are judged to be of the best
     quality. They carry the smallest degree of investment risk
     and are generally referred to as "gilt edge." Interest
     payments are protected by a large or exceptionally stable
     margin and principal is secure. While the various protective
     elements are likely to change, such changes as can be
     visualized are most unlikely to impair the fundamentally
     strong position of such issues.
Aa   Bonds that are rated Aa are judged to be of high quality by
     all standards. Together with the Aaa group they comprise
     what are generally known as high grade bonds. They are rated
     lower than the best bonds because margins of protection may
     not be as large as in Aaa securities or fluctuation of
     protective elements may be of greater amplitude or there may
     be other elements present which make the long-term risk
     appear somewhat larger than in Aaa Securities.
A    Bonds that are rated A possess many favorable investment
     attributes and are to be considered as upper-medium-grade
     obligations. Factors giving security to principal and
     interest are considered adequate, but elements may be
     present which suggest a susceptibility to impairment some
     time in the future.
Baa  Bonds that are rated Baa are considered as medium-grade
     obligations i.e., they are neither highly protected nor
     poorly secured. Interest payments and principal security
     appear adequate for the present. but certain protective
     elements may be lacking or may be characteristically
     unreliable over any great length of time. Such bonds lack
     outstanding investment characteristics and in fact have
     speculative characteristics as well.
Ba   Bonds that are rated Ba are judged to have speculative
     elements; their future cannot be considered as well assured.
     Often the protection of interest and principal payments may
     be very moderate and thereby not well safeguarded during
     both good and bad times over the future Uncertainty of
     position characterizes bonds in this class.
B    Bonds that are rated B generally lack characteristics of the
     desirable investment. Assurance of interest and principal
     payments or of maintenance of other terms of the contract
     over any long period of time may be small. Moody's applies
     numerical modifiers (1, 2, and 3) with respect to the bonds
     rated "Aa" through "B." The modifier 1 indicates that the
     company ranks in the higher end of its generic rating
     category; the modifier 2 indicates a mid-range ranking; and
     the modifier 3 indicates that the company ranks in the lower
     end of its generic rating category.
Caa  Bonds that are rated Caa are of poor standing. These issues
     may be in default or there may be present elements of danger
     with respect to principal or interest.
Ca   Bonds that are rated Ca represent obligations which are
     speculative in a high degree. Such issues are often in
     default or have other marked shortcomings.
C    Bonds that are rated C are the lowest rated class of bonds
     and issues so rated can be regarded as having extremely poor
     prospects of ever attaining any real investment standing.
</TABLE>

                                       A-1
<PAGE>   41

STANDARD & POOR'S RATINGS GROUP

<TABLE>
<S>  <C>
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.
</TABLE>

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.

                                       A-2
<PAGE>   42

             ------------------------------------------------------
             ------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR THE FUND'S INVESTMENT ADVISER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS AS SET FORTH IN THE
PROSPECTUS OR IN THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF.

                            ------------------------

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
Prospectus Summary....................    2
Fee Table.............................    7
Financial Highlights..................    8
The Offer.............................    9
The Fund..............................   18
Use of Proceeds.......................   18
Investment Objectives and Policies....   19
Risk Factors and Special
  Considerations......................   21
Management of the Fund................   26
Portfolio Transactions................   27
Dividends and Distributions; Automatic
  Dividend Reinvestment and Voluntary
  Cash Purchase Plan..................   27
Taxation..............................   29
Capital Stock.........................   30
Custodian and Transfer, Dividend
  Disbursing Agent and Registrar......   35
Legal Matters.........................   35
Experts...............................   35
Further Information...................   35
Table of Contents of Statement of
  Additional Information..............   36
Appendix A............................  A-1
</TABLE>

             ------------------------------------------------------
             ------------------------------------------------------

             ------------------------------------------------------
             ------------------------------------------------------
                               THE GABELLI EQUITY
                                    TRUST INC.

                              17,896,103 SHARES
                                OF COMMON STOCK
                        ISSUABLE UPON EXERCISE OF RIGHTS
                          TO SUBSCRIBE TO SUCH SHARES

                             [GABELLI GLOBAL LOGO]
                            ------------------------

                                   PROSPECTUS
                            ------------------------
                                _________, 2000

             ------------------------------------------------------
             ------------------------------------------------------
<PAGE>   43

                         The Gabelli Equity Trust Inc.

                              ONE CORPORATE CENTER

                            RYE, NEW YORK 10580-1434

                    TELEPHONE 1-800-GABELLI (1-800-422-3554)

                      STATEMENT OF ADDITIONAL INFORMATION

                                             , 2000

     This Statement of Additional Information (the "SAI") relates to The Gabelli
Equity Trust Inc. (the "Fund"), and is not a prospectus. The Prospectus dated
November   , 2000 ("Prospectus") sets forth concisely certain information about
the Fund that investors should know before investing and it should be read and
retained for future reference. This SAI contains additional and more detailed
information and should be read in conjunction with the balance of the Fund's
registration statement. Copies of the Prospectus and additional copies of the
SAI may be obtained without charge by writing or telephoning the Fund at the
address and telephone number set forth above.

     The Prospectus and this SAI omit certain of the information contained in
the registration statement filed with the Securities and Exchange Commission
("SEC"), Washington, D.C. The registration statement may be obtained from the
SEC upon payment of the fee prescribed, or inspected at the SEC's office at no
charge.

     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THE
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
INVESTMENT OBJECTIVES AND POLICES...........................    2
INVESTMENT RESTRICTIONS.....................................   10
MANAGEMENT OF THE FUND......................................   12
THE INVESTMENT ADVISER......................................   15
PORTFOLIO TRANSACTIONS......................................   17
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE
  PLAN......................................................   18
TAXATION....................................................   19
MOODY'S DISCOUNT FACTORS....................................   24
NET ASSET VALUE.............................................   27
GENERAL INFORMATION.........................................   28
BENEFICIAL OWNERS...........................................   28
FINANCIAL STATEMENTS........................................   28
</TABLE>

<PAGE>   44

                       INVESTMENT OBJECTIVES AND POLICIES

INVESTMENT OBJECTIVES

     The Fund's primary investment objective is long-term growth of capital.
Income is a secondary objective. Under normal market conditions, the Fund will
invest at least 65% of its total assets in equity securities including common
stock, preferred stock, convertible securities, options and warrants. See
"Investment Objectives and Policies" in the Prospectus.

INVESTMENT PRACTICES

     Special Situations.  Subject to the Fund's policy of investing at least 65%
of its total assets in companies on the basis of fundamental value, the Fund
from time to time may, as a non-principal investment strategy, invest in
companies that are determined by Gabelli Funds, LLC (the "Investment Adviser")
to possess "special situation" characteristics. In general, a special situation
company is a company whose securities are expected to increase in value solely
by reason of a development particularly or uniquely applicable to the company.
Developments that may create special situations include, among others, a
liquidation, reorganization, recapitalization or merger, material litigation,
technological breakthrough or new management or management policies. The
principal risk associated with investments in special situation companies is
that the anticipated development thought to create the special situation may not
occur and the investment therefore may not appreciate in value or may decline in
value.

     Temporary Investments.  Although under normal market conditions at least
65% of the Fund's assets will consist of equity securities, including common
stock, preferred stock, convertible securities, options and warrants, when a
temporary defensive posture is believed by the Investment Adviser to be
warranted ("temporary defensive periods"), the Fund may hold without limitation
cash or invest its assets in money market instruments and repurchase agreements
in respect of those instruments. The money market instruments in which the Fund
may invest are obligations of the United States government, its agencies or
instrumentalities ("U.S. Government Securities"); commercial paper rated A-1 or
higher by Standard & Poor's Ratings Services ("S&P") or Prime-1 by Moody's
Investors Service, Inc. ("Moody's"); and certificates of deposit and bankers'
acceptances issued by domestic branches of U.S. banks that are members of the
Federal Deposit Insurance Corporation. For a description of such ratings, see
Appendix A to the Prospectus. The Fund may also invest up to 10% of the market
value of its total assets during temporary defensive periods in shares of money
market mutual funds that invest primarily in U.S. Government Securities and
repurchase agreements in respect of those securities. Money market mutual funds
are investment companies and the investments by the Fund in those companies are
subject to certain other limitations. See "Investment Restrictions." As a
shareholder in a mutual fund, the Fund will bear its ratable share of the fund's
expenses, including management fees, and will remain subject to payment of the
fees to the investment advisers with respect to assets so invested.

     Lower Rated Securities.  The Fund may invest up to 10% of its total assets
in fixed-income securities rated in the lower rating categories of recognized
statistical rating agencies, such as securities rated "CCC" or lower by S&P or
"Caa" or lower by Moody's, or non-rated securities of comparable quality. These
debt securities are predominantly speculative and involve major risk exposure to
adverse conditions and are often referred to in the financial press as "junk
bonds."

     Generally, such lower rated securities and unrated securities of comparable
quality offer a higher current yield than is offered by higher rated securities,
but also (i) will likely have some quality and protective characteristics that,
in the judgment of the rating organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (ii) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than higher
quality bonds. In addition, such lower rated securities and comparable unrated
securities generally present a higher degree of credit risk. The risk of loss
due to default by these issuers is significantly greater because such lower
rated securities and unrated securities of comparable quality

                                        2
<PAGE>   45

generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness. In light of these risks, the Investment Adviser, in
evaluating the creditworthiness of an issue, whether rated or unrated, will take
various factors into consideration, which may include, as applicable, the
issuer's financial resources, its sensitivity to economic conditions and trends,
the operating history of and the community support for the facility financed by
the issue, the ability of the issuer's management and regulatory matters.

     In addition, the market value of securities in lower rated categories is
more volatile than that of higher quality securities, and the markets in which
such lower rated or unrated securities are traded are more limited than those in
which higher rated securities are traded. The existence of limited markets may
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value. Moreover,
the lack of a liquid trading market may restrict the availability of securities
for the Fund to purchase and may also have the effect of limiting the ability of
the Fund to sell securities at their fair market value to respond to changes in
the economy or the financial markets.

     Lower rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption (often a typical
feature of fixed income securities), the Fund may have to replace the security
with a lower yielding security, resulting in a decreased return for investors.
Also, as the principal value of bonds moves inversely with movements in interest
rates, in the event of rising interest rates the value of the securities held by
the Fund may decline proportionately more than a portfolio consisting of higher
rated securities. Investments in zero coupon bonds may be more speculative and
subject to greater fluctuations in value due to changes in interest rates than
bonds that pay interest currently.

     The Fund may invest in securities of issuers in default. The Fund will
invest in securities of issuers in default only when the Investment Adviser
believes that such issuers will honor their obligations or emerge from
bankruptcy protection and the value of these securities will appreciate. By
investing in securities of issuers in default, the Fund bears the risk that
these issuers will not continue to honor their obligations or emerge from
bankruptcy protection or that the value of the securities will not appreciate.

     In addition to using recognized rating agencies and other sources, the
Investment Adviser also performs its own analysis in seeking investments that it
believes to be underrated (and thus higher-yielding) in light of the financial
condition of the issuer. Its analysis of issuers may include, among other
things, current and anticipated cash flow and borrowing requirements, value of
assets in relation to historical cost, strength of management, responsiveness to
business conditions, credit standing and current anticipated results of
operations. In selecting investments for the Fund, the Investment Adviser may
also consider general business conditions, anticipated changes in interest rates
and the outlook for specific industries.

     Subsequent to its purchase by the Fund, an issue of securities may cease to
be rated or its rating may be reduced. In addition, it is possible that
statistical rating agencies might not change their ratings of a particular issue
or reflect subsequent events on a timely basis. Moreover, such ratings do not
assess the risk of a decline in market value. None of these events will require
the sale of the securities by the Fund, although the Investment Adviser will
consider these events in determining whether the Fund should continue to hold
the securities.

     The market for certain lower rated and comparable unrated securities has in
the past experienced a major economic recession. The recession adversely
affected the value of such securities as well as the ability of certain issuers
of such securities to repay principal and pay interest thereon. The market for
those securities could react in a similar fashion in the event of any future
economic recession.

     As a result of all these factors, the net asset value of the Fund, to the
extent it invests in high yield bonds, is expected to be more volatile than the
net asset value of funds which invest solely in higher rated debt securities.

     Options.  A call option is a contract that, in return for a premium, gives
the holder of the option the right to buy from the writer of the call option the
security 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 to sell the
security or
                                        3
<PAGE>   46

currency to the writer and obligating the writer to purchase the underlying
security or currency from the holder.

     A call option is "covered" if the Fund owns the underlying instrument
covered by the call or has an absolute and immediate right to acquire that
instrument without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other instrument held in its portfolio. A call option is also
covered if the Fund holds a call on the same instrument as the call written
where the exercise price of the call held is (1) equal to or less than the
exercise price of the call written or (2) greater than the exercise price of the
call written if the difference is maintained by the Fund in cash, U.S.
Government Securities or other high grade short-term obligations in a segregated
account held with its custodian. A put option is "covered" if the Fund maintains
cash or other high grade short-term obligations with a value equal to the
exercise price in a segregated account held with its custodian, or else holds a
put on the same instrument as the put written where the exercise price of the
put held is equal to or greater than the exercise price of the put written.

     If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. However, once it has
been assigned an exercise notice, the Fund will be able to effect a closing
purchase transaction. Similarly, if the Fund is the holder of an option it may
liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. There can be no assurance that a closing purchase or sale transaction
can be effected when the Fund so desires.

     The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in the
price of the underlying security, any loss resulting from the repurchase of a
call option may also be wholly or partially offset by unrealized appreciation of
the underlying security. Other principal factors affecting the market value of a
put or a call option include supply and demand, interest rates, the current
market price and price volatility of the underlying security and the time
remaining until the expiration date. Gains and losses on investments in options
depend, in part, on the ability of the Investment Adviser to predict correctly
the effect of these factors. The use of options cannot serve as a complete hedge
since the price movement of securities underlying the options will not
necessarily follow the price movements of the portfolio securities subject to
the hedge.

     An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option. In such event, it might not be
possible to effect closing transactions in particular options, so that the Fund
would have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities for the exercise of put options.
If the Fund, as a covered call option writer, is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or otherwise covers the position.

     In addition to options on securities, the Fund may also purchase and sell
call and put options on securities indices. A stock index reflects in a single
number the market value of many different stocks. Relative values are assigned
to the stocks included in an index and the index fluctuates with changes in the
market values of the stocks. The options give the holder the right to receive a
cash settlement during the term of the option based on the difference between
the exercise price and the value of the index. By writing a put or call option
on a securities index, the Fund is obligated, in return for the premium
received, to make delivery of this amount. The Fund may offset its position in
the stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.

                                        4
<PAGE>   47

     The Fund also may buy or sell and call options on foreign currencies. A put
option on a foreign currency gives the purchaser of the option the right to sell
a foreign currency at the exercise price until the option expires. A call option
on a foreign currency gives the purchaser of the option the right to purchase
the currency at the exercise price until the option expires. Currency options
traded on U.S. or other exchanges may be subject to position limits which may
limit the ability of the Fund to reduce foreign currency risk using such
options. Over-the-counter options differ from exchange-traded options in that
they are two-party contracts with price and other terms negotiated between buyer
and seller and generally do not have as much market liquidity as exchange-traded
options. Over-the-counter options are illiquid securities.

     Use of options on securities indices entails the risk that trading in the
options may be interrupted if trading in certain securities included in the
index is interrupted. The Fund will not purchase these options unless the
Investment Adviser is satisfied with the development, depth and liquidity of the
market and the Investment Adviser believes the options can be closed out.

     Price movements in the portfolio of the Fund may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indexes cannot serve as a complete hedge and will depend, in part, on the
ability of the Investment Adviser to predict correctly movements in the
direction of the stock market generally or of a particular industry. Because
options on securities indexes require settlement in cash, the Investment Adviser
may be forced to liquidate portfolio securities to meet settlement obligations.

     Although the Investment Adviser will attempt to take appropriate measures
to minimize the risks relating to the Fund's writing of put and call options,
there can be no assurance that the Fund will succeed in any option writing
program it undertakes.

     Futures Contracts and Options on Futures.  The Fund will not enter into
futures contracts or options on futures contracts unless (i) the aggregate
initial margins and premiums do not exceed 5% of the fair market value of its
assets and (ii) the aggregate market value of its outstanding futures contracts
and the market value of the currencies and futures contracts subject to
outstanding options written by the Fund, as the case may be, do not exceed 50%
of the market value of its total assets. It is anticipated that these
investments, if any, will be made by the Fund solely for the purpose of bona
fide hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Such investments will only be made
if they are economically appropriate to the reduction of risks involved in the
management of the Fund. In this regard, the Fund may enter into futures
contracts or options on futures for the purchase or sale of securities indices
or other financial instruments including but not limited to U.S. Government
Securities.

     A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the assets underlying the
contract at a specified price at a specified future time. A "purchaser" of a
futures contract (or a "long" futures position) means the assumption of a
contractual obligation to acquire the assets underlying the contract at a
specified future time. Certain futures contracts, including stock and bond index
futures, are settled on a net cash payment basis rather than by the sale and
delivery of the assets underlying the futures contracts.

     No consideration will be paid or received by the Fund upon the purchase or
sale of a futures contract. Initially, the Fund will be required to deposit with
the broker an amount of cash or cash equivalents equal to approximately 1% to
10% of the contract amount (this amount is subject to change by the exchange or
board of trade on which the contract is traded and brokers or members of such
board of trade may charge a higher amount). This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on the
contract. Subsequent payments, known as "variation margin," to and from the
broker will be made daily as the price of the index or security underlying the
futures contract fluctuates. At any time prior to the expiration of a futures
contract, the Fund may elect to close the position by taking an opposite
position, which will operate to terminate its existing position in the contract.

     An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract at a specified
exercise price at any time to the expiration of the option. Upon exercise of an
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's futures margin account attributable

                                        5
<PAGE>   48

to that contract, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option on the futures contract. The potential
loss related to the purchase of an option on futures contracts is limited to the
premium paid for the option (plus transaction costs). Because the value of the
option purchased is fixed at the point of sale, there are no daily cash payments
by the purchaser to reflect changes in the value of the underlying contract;
however, the value of the option does change daily and that change would be
reflected in the net assets of the Fund.

     Futures and options on futures entail certain risks, including but not
limited to the following: no assurance that futures contracts or options on
futures can be offset at favorable prices, possible reduction of the yield of
the Fund due to the use of hedging, possible reduction in value of both the
securities hedged and the hedging instrument, possible lack of liquidity due to
daily limits on price fluctuations, imperfect correlation between the contracts
and the securities being hedged, losses from investing in futures transactions
that are potentially unlimited and the segregation requirements described below.

     In the event the Fund sells a put option or enters into long futures
contracts, under current interpretations of the Investment Company Act of 1940,
as amended (the "1940 Act") an amount of cash or liquid securities equal to the
market value of the contract must be deposited and maintained in a segregated
account with the custodian of the Fund to collateralize the positions, thereby
ensuring that the use of the contract is unleveraged. For short positions in
futures contracts and sales of call options, the Fund may establish a segregated
account (not with a futures commission merchant or broker) with cash or liquid
securities that, when added to amounts deposited with a futures commission
merchant or a broker as margin, equal the market value of the instruments or
currency underlying the futures contract or call options, respectively (but are
not less than the stock price of the call option or the market price at which
the short positions were established).

     Interest Rate Futures Contracts and Options Thereon.  The Fund may purchase
or sell interest rate futures contracts to take advantage of or to protect the
Fund against fluctuations in interest rates affecting the value of debt
securities which the Fund holds or intends to acquire. For example, if interest
rates are expected to increase, the Fund might sell futures contracts on debt
securities, the values of which historically have a high degree of positive
correlation to the values of the Fund's portfolio securities. Such a sale would
have an effect similar to selling an equivalent value of the Fund's portfolio
securities. If interest rates increase, the value of the Fund's portfolio
securities will decline, but the value of the futures contracts to the Fund will
increase at approximately an equivalent rate thereby keeping the net asset value
of the Fund from declining as much as it otherwise would have. The Fund could
accomplish similar results by selling debt securities with longer maturities and
investing in debt securities with shorter maturities when interest rates are
expected to increase. However, since the futures market may be more liquid than
the cash market, the use of futures contracts as a risk management technique
allows the Fund to maintain a defensive position without having to sell its
portfolio securities.

     Similarly, the Fund may purchase interest rate futures contracts when it is
expected that interest rates may decline. The purchase of futures contracts for
this purpose constitutes a hedge against increases in the price of debt
securities (caused by declining interest rates) which the Fund intends to
acquire. Since fluctuations in the value of appropriately selected futures
contracts should approximate that of the debt securities that will be purchased,
the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make its
intended purchase of the debt securities in the cash market and currently
liquidate its futures position. To the extent the Fund enters into futures
contracts for this purpose, it will maintain in a segregated asset account with
the Fund's custodian, assets sufficient to cover the Fund's obligations 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 the Fund with its custodian with respect to such
futures contracts.

     The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the

                                        6
<PAGE>   49

futures contract upon which it is based or the price of the underlying debt
securities, it may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of futures
contracts, when the Fund is not fully invested it may purchase a call option on
a futures contract to hedge against a market advance due to declining interest
rates.

     The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's 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 which are deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of debt securities which the Fund
intends to purchase. If a put or call option the Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Fund's losses from options on futures it has written may to some extent be
reduced or increased by changes in the value of its portfolio securities.

     Currency Futures and Options Thereon.  Generally, foreign currency futures
contracts and options thereon are similar to the interest rate futures contracts
and options thereon discussed previously. By entering into currency futures and
options thereon, the Fund will seek to establish the rate at which it will be
entitled to exchange U.S. dollars for another currency at a future time. By
selling currency futures, the Fund will seek to establish the number of dollars
it will receive at delivery for a certain amount of a foreign currency. In this
way, whenever the Fund anticipates a decline in the value of a foreign currency
against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value
of some or all of the securities held in its portfolio that are denominated in
that currency. By purchasing currency futures, the Fund can establish the number
of dollars it will be required to pay for a specified amount of a foreign
currency in a future month. Thus, if the Fund intends to buy securities in the
future and expects the U.S. dollar to decline against the relevant foreign
currency during the period before the purchase is effected, the Fund can attempt
to "lock in" the price in U.S. dollars of the securities it intends to acquire.

     The purchase of options on currency futures will allow the Fund, for the
price of the premium and related transaction costs it must pay for the option,
to decide whether or not to buy (in the case of a call option) or to sell (in
the case of a put option) a futures contract at a specified price at any time
during the period before the option expires. If the Investment Adviser, in
purchasing an option, has been correct in its judgment concerning the direction
in which the price of a foreign currency would move as against the U.S. dollar,
the Fund may exercise the option and thereby take a futures position to hedge
against the risk it had correctly anticipated or close out the option position
at a gain that will offset, to some extent, currency exchange losses otherwise
suffered by the Fund. If exchange rates move in a way the Fund did not
anticipate, however, the Fund will have incurred the expense of the option
without obtaining the expected benefit; any such movement in exchange rates may
also thereby reduce rather than enhance the Fund's profits on its underlying
securities transactions.

     Securities Index Futures Contracts and Options Thereon.  Purchases or sales
of securities index futures contracts are used for hedging purposes to attempt
to protect the Fund's current or intended investments from broad fluctuations in
stock or bond prices. For example, the Fund may sell securities index futures
contracts in anticipation of or during a market decline to attempt to offset the
decrease in market value of the Fund's securities portfolio that might otherwise
result. If such decline occurs, the loss in value of portfolio securities may be
offset, in whole or part, by gains on the futures position. When the Fund is not
fully invested in the securities market and anticipates a significant market
advance, it may purchase securities index futures contracts in order to gain
rapid market exposure that may, in part or entirely, offset increases in the
cost of

                                        7
<PAGE>   50

securities that the Fund intends to purchase. As such purchases are made, the
corresponding positions in securities index futures contracts will be closed
out. The Fund may write put and call options on securities index futures
contracts for hedging purposes.

     Limitations on the Purchase and Sale of Futures Contracts and Options on
Futures Contracts.  Subject to the guidelines of the Board of Directors, the
Fund may engage in transactions in futures contracts and options hereon only for
bona fide hedging, yield enhancement and risk management purposes, in each case
in accordance with the rules and regulations of the CFTC, and not for
speculation.

     Regulations of the CFTC applicable to the Fund permit the Fund's futures
and options on futures transactions to include (i) bona fide hedging
transactions without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) non-hedging transactions, provided that the
Fund not enter into such non-hedging transactions if, immediately thereafter,
the sum of the amount of initial margin deposits on the Fund's existing futures
positions and option premiums would exceed 5% of the market value of the Fund's
liquidating value, after taking into account unrealized profits and unrealized
losses on any such transactions.

     Forward Currency Exchange Contracts.  The Fund may engage in currency
transactions otherwise than on futures exchanges to protect against future
changes in the level of future currency exchange rates. The Fund will conduct
such currency exchange transactions either on a spot, i.e., cash, basis at the
rate then prevailing in the currency exchange market or on a forward 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. The risk of shifting of a forward currency contract will be
substantially the same as a futures contract having similar terms. The Fund's
dealing in forward currency exchange will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward currency with respect to specific receivables or
payables of the Fund generally arising in connection with the purchase or sale
of its portfolio securities and accruals of interest receivable and Fund
expenses. Position hedging is the forward sale of currency with respect to
portfolio security positions denominated or quoted in that currency or in a
currency bearing a high degree of positive correlation to the value of that
currency.

     The Fund may not position hedge with respect to a particular currency for
an amount greater than the aggregate market value (determined at the time of
making any sale of forward currency) of the securities held in its portfolio
denominated or quoted in, or currently convertible into, such currency. If the
Fund enters into a position hedging transaction, the Fund's 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 Fund's 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 Fund's commitment with respect to the
forward contract.

     At or before the maturity of a forward sale contract, the Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and offset its contractual obligations to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to
delivery. If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices. Should forward prices decline during the
period between the Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for the purchase of
the currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to purchase is less than the price of the currency it has
agreed to sell. Should forward prices increase, the Fund will suffer a loss to
the extent the price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell. Closing out forward purchase contracts
involves similar offsetting transactions.

     The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward
                                        8
<PAGE>   51

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, the Fund may not be able to contract to sell the currency at a price
above the level to which the currency is anticipated to decline.

     Special Risk Considerations Relating to Futures and Options Thereon.  The
Fund's ability to establish and close out positions in futures contracts and
options thereon will be subject to the development and maintenance of liquid
markets. Although the Fund generally will purchase or sell only those futures
contracts and options thereon for which there appears to be a liquid market,
there is no assurance that a liquid market on an exchange will exist for any
particular futures contract or option thereon at any particular time. In the
event no liquid market exists for a particular futures contract or option
thereon in which the Fund maintains a position, it will not be possible to
effect a closing transaction in that contract or to do so at a satisfactory
price and the Fund would have to either make or take delivery under the futures
contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a
purchased option, exercise the option. In the case of a futures contract or an
option thereon which the Fund has written and which the Fund is unable to close,
the Fund would be required to maintain margin deposits on the futures contract
or option thereon and to make variation margin payments until the contract is
closed.

     Successful use of futures contracts and options thereon and forward
contracts by the Fund is subject to the ability of the Investment Adviser to
predict correctly movements in the direction of interest and foreign currency
rates. If the Investment Adviser's expectations are not met, the Fund will be in
a worse position than if a hedging strategy had not been pursued. For example,
if the Fund has hedged against the possibility of an increase in interest rates
which would adversely affect the price of securities in its portfolio and the
price of such securities increases instead, the Fund will lose part or all of
the benefit of the increased value of its securities because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash to meet daily variation margin requirements, it
may have to sell securities to meet the requirements. These sales may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Fund may have to sell securities at a time when it is disadvantageous to do
so.

     Additional Risks of Foreign Options, Futures Contracts, Options on Futures
Contracts and Forward Contracts.  Options, futures contracts and options thereon
and forward contracts on securities and currencies may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities. The value of such positions
also could be adversely affected by (i) other complex foreign political, legal
and economic factors, (ii) lesser availability than in the U.S. of data on which
to make trading decisions, (iii) delays in the Fund's ability to act upon
economic events occurring in the foreign markets during non-business hours in
the U.S., (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the U.S. and (v) lesser trading
volume.

     Exchanges on which options, futures and options on futures are traded may
impose limits on the positions that the Fund may take in certain circumstances.

     Risks of Currency Transactions.  Currency transactions are also subject to
risks different from those of other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences
economic planning and policy, purchases and sales of currency and related
instruments can be adversely affected by government exchange controls,
limitations or restrictions on repatriation of currency, and manipulation, or
exchange restrictions imposed by governments. These forms of governmental action
can result in losses to the Fund if it is unable to deliver or receive currency
or monies in settlement of obligations and could also cause hedges it has
entered into to be rendered useless, resulting in full currency exposure as well
as incurring transaction costs.

                                        9
<PAGE>   52

     When Issued, Delayed Delivery Securities and Forward Commitments.  The Fund
may enter into forward commitments for the purchase or sale of securities,
including on a "when issued" or "delayed delivery" basis, in excess of customary
settlement periods for the type of security involved. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such as
approval and consummation of a merger, corporate reorganization or debt
restructuring, i.e., a when, as and if issued security. When such transactions
are negotiated, the price is fixed at the time of the commitment, with payment
and delivery taking place in the future, generally a month or more after the
date of the commitment. While it may only enter into a forward commitment with
the intention of actually acquiring the security, the Fund may sell the security
before the settlement date if it is deemed advisable.

     Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate with its custodian cash or liquid
securities in an aggregate amount at least equal to the amount of its
outstanding forward commitments.

     Restricted and Illiquid Securities.  The Fund 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. 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 is not as well assured as that of publicly traded securities,
and accordingly the Board of Directors will monitor their liquidity. The Board
will review pertinent factors such as trading activity, reliability of price
information and trading patterns of comparable securities in determining whether
to treat any such security as liquid for purposes of the foregoing 15% test. To
the extent the Board treats such securities as liquid, temporary impairments to
trading patterns of such securities may adversely affect the Fund's liquidity.

     To the extent it can do so consistent with the foregoing limitations, the
Fund may invest in non-publicly traded securities, including securities that are
not registered under the Securities Act of 1933, as amended (the "Securities
Act"), but that can be offered and sold to qualified institutional buyers under
Rule 144A under the Securities Act. The Board of Directors has adopted
guidelines and delegated to the Adviser, subject to the supervision of the Board
of Directors, the daily function of determining and monitoring the liquidity of
Rule 144A securities. Rule 144A securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.

                            INVESTMENT RESTRICTIONS

     The Fund operates under the following restrictions that constitute
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act). All percentage limitations set forth below apply
immediately after a purchase or initial investment and any subsequent change in
any applicable percentage resulting from market fluctuations does not require
elimination of any security from the portfolio.

     The Fund may not:

          1. Invest 25% or more of its total assets, taken at market value at
     the time of each investment, in the securities of issuers in any particular
     industry. This restriction does not apply to investments in U.S. Government
     Securities.

          2. Purchase securities of other investment companies, except in
     connection with a merger, consolidation, acquisition or reorganization, if
     more than 10% of the market value of the total assets of the Fund would be
     invested in securities of other investment companies, more than 5% of the
     market value of the total assets of the Fund would be invested in the
     securities of any one investment company or the Fund would own more than 3%
     of any other investment company's securities; provided, however, this
                                       10
<PAGE>   53

     restriction shall not apply to securities of any investment company
     organized by the Fund that are to be distributed pro rata as a dividend to
     its shareholders.

          3. Purchase or sell commodities or commodity contracts except that the
     Fund may purchase or sell futures contracts and related options thereon if
     immediately thereafter (i) no more than 5% of its total assets are invested
     in margins and premiums and (ii) the aggregate market value of its
     outstanding futures contracts and market value of the currencies and
     futures contracts subject to outstanding options written by the Fund do not
     exceed 50% of the market value of its total assets. The Fund may not
     purchase or sell real estate, provided that the Fund may invest in
     securities secured by real estate or interests therein or issued by
     companies which invest in real estate or interests therein.

          4. Purchase any securities on margin or make short sales, except that
     the Fund may obtain such short-term credit as may be necessary for the
     clearance of purchases and sales of portfolio securities.

          5. Make loans of money, except by the purchase of a portion of
     publicly distributed debt obligations in which the Fund may invest, and
     repurchase agreements with respect to those obligations, consistent with
     its investment objectives and policies. The Fund reserves the authority to
     make loans of its portfolio securities to financial intermediaries in an
     aggregate amount not exceeding 20% of its total assets. Any such loans may
     only be made upon approval of, and subject to any conditions imposed by,
     the Board of Directors of the Fund. Because these loans would at all times
     be fully collateralized, the risk of loss in the event of default of the
     borrower should be slight.

          6. Borrow money, except that the Fund may borrow from banks and other
     financial institutions on an unsecured basis, in an amount not exceeding
     10% of its total assets, to finance the repurchase of its shares. The Fund
     also may borrow money on a secured basis from banks as a temporary measure
     for extraordinary or emergency purposes. Temporary borrowings may not
     exceed 5% of the value of the total assets of the Fund at the time the loan
     is made. The Fund may pledge up to 10% of the lesser of the cost or value
     of its total assets to secure temporary borrowings. The Fund will not
     borrow for investment purposes. Immediately after any borrowing, the Fund
     will maintain asset coverage of not less than 300% with respect to all
     borrowings. While the borrowing of the Fund exceeds 5% of its respective
     total assets, the Fund will make no further purchases of securities,
     although this limitation will not apply to repurchase transactions as
     described above.

          7. Issue senior securities, except to the extent permitted by
     applicable law.

          8. Underwrite securities of other issuers except insofar as the Fund
     may be deemed an underwriter under the Securities Act in selling portfolio
     securities; provided, however, this restriction shall not apply to
     securities of any investment company organized by the Fund that are to be
     distributed pro rata as a dividend to its shareholders.

          9. 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.

                                       11
<PAGE>   54

                             MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS


     Overall responsibility for management and supervision of the Fund rests
with its Board of Directors. The Board of Directors approves all significant
agreements between the Fund and the companies that furnish the Fund with
services, including agreements with the Investment Adviser, Boston Safe Deposit
and Trust Company, the Fund's custodian (the "Custodian") and the Fund's
transfer agent. The day-to-day operations of the Fund are delegated to the
Investment Adviser.


     The names and business addresses of the Directors and Officers of the Fund
are set forth in the following table, together with their positions with the
Fund and their principal business occupations during the past five years and
their affiliations, if any, with the Investment Adviser or the Fund's
Administrator. Directors who are "interested persons" of the Fund, as defined by
the 1940 Act, are indicated by an asterisk. Cumulative Preferred Stock directors
are indicated by a "+".

     As of November 24, 2000 the Directors and Officers of the Fund as a group
beneficially owned 1,322,790 shares of the Fund equaling 1.23% of the Fund's
outstanding shares.

<TABLE>
<CAPTION>
                                            POSITION WITH             PRINCIPAL OCCUPATION DURING
   NAME, BUSINESS ADDRESS AND AGE             THE FUND                      PAST FIVE YEARS
   ------------------------------      -----------------------    ------------------------------------
<S>                                    <C>                        <C>
Dr. Thomas E. Bratter................  Director                   Director, President and Founder, The
  One Corporate Center                                            John Dewey Academy (residential
  Rye, New York 10580-1434                                        college preparatory therapeutic high
  Age: 61                                                         school).(7)(16)
Felix J. Christiana+.................  Director                   Former Senior Vice President of
  One Corporate Center                                            Dollar Dry Dock Savings
  Rye, New York 10580-1434                                        Bank.(l)(5)(6)(7)(8)
  Age: 75                                                         (10)(13)(16)(17)(19)
Anthony J. Colavita..................  Director                   President and Attorney at Law in the
  One Corporate Center                                            law firm of Anthony J. Colavita,
  Rye, New York 10580-1434                                        P.C. since
  Age: 64                                                         1961.(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)
                                                                  (11)(12)(13)(14)(15)(16)(17)(18)
                                                                  (19)
James P. Conn+.......................  Director                   Former Managing Director and Chief
  One Corporate Center                                            Investment Officer of Financial
  Rye, New York 10580-1434                                        Security Assurance Holdings Ltd.
  Age: 62                                                         (1992-1998); Director of Meditrust
                                                                  Corporation (real estate investment
                                                                  trust) and First Republic
                                                                  Bank.(1)(7)(10)(16)(18)
Frank J. Fahrenkopf, Jr..............  Director                   President and Chief Executive
  One Corporate Center                                            Officer of the American Gaming
  Rye, New York 10580-1434                                        Association since June 1995; Partner
  Age: 61                                                         of Hogan and Hartson (law firm);
                                                                  Chairman of International Trade
                                                                  Practice Group; Co-Chairman of the
                                                                  Commission on Presidential Debates;
                                                                  Former Chairman of the Republican
                                                                  National Committee.(7)(16)
</TABLE>

                                       12
<PAGE>   55

<TABLE>
<CAPTION>
                                            POSITION WITH             PRINCIPAL OCCUPATION DURING
   NAME, BUSINESS ADDRESS AND AGE             THE FUND                      PAST FIVE YEARS
   ------------------------------      -----------------------    ------------------------------------
<S>                                    <C>                        <C>
Mario J. Gabelli*....................  President, Director,       Chairman of the Board and Chief
  One Corporate Center                 and Chief Investment       Investment Officer of Gabelli Asset
  Rye, New York 10580-1434             Officer                    Management Inc. and Chief Investment
  Age: 58                                                         Officer of Gabelli Funds, LLC and
                                                                  GAMCO Investors, Inc.; Chairman of
                                                                  the Board and Chief Executive
                                                                  Officer of Lynch Corporation
                                                                  (diversified manufacturing company)
                                                                  and Lynch Interactive Corporation (a
                                                                  multimedia and services company);
                                                                  Director of Spinnaker Industries,
                                                                  Inc. (manufacturing
                                                                  company).(1)(2)(3)(5)
                                                                  (6)(7)(8)(9)(10)(11)(12)(13)(14)
                                                                  (15)(16)(17)
Karl Otto Pohl*......................  Director                   Member of the Shareholder Committee
  One Corporate Center                                            of Sal Oppenheim Jr. & Cie (private
  Rye, New York 10580-1434                                        investment bank); Director of
  Age: 70                                                         Gabelli Asset Management Inc.
                                                                  (investment management), Zurich
                                                                  Allied (insurance), and TrizecHahn
                                                                  Corp. (real estate company); Former
                                                                  President of the Deutsche Bundesbank
                                                                  and Chairman of its Central Bank
                                                                  Council (1980-1991).
                                                                  (1)(2)(3)(5)(6)(7)(8)(9)(10)(11)
                                                                  (12)(13)(14)(15)(16)(17)(18)(19)
Anthony R. Pustorino.................  Director                   Certified Public Accountant;
  One Corporate Center                                            Professor of Accounting, Pace
  Rye, New York 10580-1434                                        University since
  Age: 75                                                         1965.(1)(3)(4)(5)(6)(7)(10)(11)(16)
                                                                  (17)(19)
Salvatore J. Zizza...................  Director                   Chairman of The Bethlehem Corp.;
  One Corporate Center                                            Board Member of Hollis Eden
  Rye, New York 10580-1434                                        Pharmaceuticals; Former Executive
  Age: 54                                                         Vice President of FMG Group (a
                                                                  healthcare provider); Former
                                                                  President and Chief Executive
                                                                  Officer of the Lehigh Group Inc. (an
                                                                  electrical supply wholesaler);
                                                                  Former Chairman of the Executive
                                                                  Committee and Director of Binnings
                                                                  Buildings Products, Inc. until 1997;
                                                                  Adviser to The Gabelli Growth
                                                                  Fund.(1) (5)(7)(16)
Bruce N. Alpert......................  Vice President and         Executive Vice President and Chief
  One Corporate Center                 Treasurer                  Operating Officer of Gabelli Funds,
  Rye, New York 10580-1434                                        LLC since 1988; Director and
  Age: 48                                                         President of Gabelli Advisers, Inc.,
                                                                  and an officer of all mutual funds
                                                                  managed by Gabelli Funds, LLC and
                                                                  its affiliates.
James E. McKee.......................  Secretary                  Vice President, General Counsel and
  One Corporate Center                                            Secretary of Gabelli Asset
  Rye, New York 10580-1434                                        Management, Inc. since 1999 and
  Age: 37                                                         GAMCO Investors, Inc. since 1993;
                                                                  Secretary of all mutual funds
                                                                  managed by Gabelli Funds, LLC and
                                                                  its affiliates.
</TABLE>

                                       13
<PAGE>   56

<TABLE>
<CAPTION>
                                            POSITION WITH             PRINCIPAL OCCUPATION DURING
   NAME, BUSINESS ADDRESS AND AGE             THE FUND                      PAST FIVE YEARS
   ------------------------------      -----------------------    ------------------------------------
<S>                                    <C>                        <C>
Carter W. Austin.....................  Vice President             Vice President of Gabelli Funds, LLC
  One Corporate Center                                            since 1996. Previously, Director of
  Rye, New York 10580-1434                                        Business Development, for Links Club
  Age: 33                                                         International (an affiliate of the
                                                                  PGA Tour).
</TABLE>

- ---------------
  *  "Interested person" of the Fund, as defined in the 1940 Act. Mr. Gabelli is
     an "interested person" of the Fund as a result of his employment as an
     officer of the Fund and the Adviser. Mr. Gabelli is also a registered
     representative of an affiliated broker-dealer. Mr. Pohl is a Director of
     the parent company of the Adviser.

 (1) Trustee of The Gabelli Asset Fund

 (2) Trustee of The Gabelli Blue Chip Value Fund

 (3) Director of Gabelli Capital Series Fund, Inc.

 (4) Director of Comstock Funds, Inc.

 (5) Director of The Gabelli Convertible Securities Fund, Inc.

 (6) Director of Gabelli Equity Series Funds, Inc.

 (7) Director of The Gabelli Global Multimedia Trust Inc.

 (8) Director of Gabelli Global Series Funds, Inc.

 (9) Director of Gabelli Gold Fund, Inc.

(10) Trustee of The Gabelli Growth Fund

(11) Director of Gabelli International Growth Fund, Inc.

(12) Director of The Gabelli Investor Funds, Inc.

(13) Trustee of The Gabelli Mathers Fund

(14) Trustee of The Gabelli Money Market Funds

(15) Trustee of The Gabelli Utilities Fund

(16) Trustee of The Gabelli Utility Trust

(17) Director of The Gabelli Value Fund Inc.

(18) Trustee of The Gabelli Westwood Funds

(19) Director of The Treasurer's Fund, Inc.

     The Board of Directors of the Fund is divided into three classes, with a
class having a term of no more than three years. Each year the term of office of
one class of directors expires. See "Certain Provisions of the Charter and
By-Laws" in the Prospectus.

     The Fund and the Investment Adviser have adopted a code of ethics (the
"Code of Ethics") under Rule 17J-1 of the 1940 Act. The Code of Ethics permits
personnel, subject to the Code of Ethics and its restrictive provisions, to
invest in securities, including securities that may be purchased or held by the
Fund. The Code of Ethics can be reviewed and copied at the United States
Securities and Exchange Commission's Public Reference Room in Washington, D.C..
Information on the operations of the Reference Room may be obtained by calling
the Commission at (202) 742-8090. The Code of Ethics is also available on the
EDGAR database on the Commission's Internet 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 Commission's Public Reference Room Section, Washington, D.C. 20549-
0102.

REMUNERATION OF DIRECTORS AND OFFICERS

     The Fund 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 Directors'
meeting attended and $500 per meeting by telephone, together

                                       14
<PAGE>   57


with each Director's actual out-of-pocket expenses relating to attendance at
such meetings. The aggregate remuneration accrued by the Fund during the year
ended December 31, 1999 amounted to $164,048.


     The following table shows certain compensation information for the
Directors of the Fund for the year ended December 31, 1999. Officers and
Directors of the Fund who are employed by the Adviser received no compensation
or expense reimbursement from the Fund.

<TABLE>
<CAPTION>
                                                                AGGREGATE            TOTAL
                                                              COMPENSATION     COMPENSATION FROM
                                                                FROM FUND        FUND AND FUND
                NAME OF DIRECTOR OR OFFICER                   (FISCAL YEAR)      COMPLEX PAID*
                ---------------------------                   -------------    -----------------
<S>                                                           <C>              <C>
Mario J. Gabelli............................................     $     0           $      0(17)
Dr. Thomas E. Bratter.......................................     $21,500           $ 33,750(3)
Felix J. Christiana.........................................     $24,000           $ 99,250(11)
Anthony J. Colavita.........................................     $ 2,000           $ 94,875(17)
James P. Conn...............................................     $21,000           $ 53,625(6)
Frank J. Fahrenkopf, Jr.....................................     $21,610           $ 26,577(3)
Karl Otto Pohl..............................................     $ 1,300           $  7,042(19)
Anthony R. Pustorino........................................     $23,000           $107,250(11)
Salvatore J. Zizza..........................................     $20,500           $ 58,750(5)+
</TABLE>

- ---------------
* Represents the total compensation paid to such persons during the calendar
  year ended December 31, 1999 by portfolios of investment companies (including
  the Fund) from which such person receives compensation that are considered
  part of the same fund complex as the Fund because they have common or
  affiliated investment advisers. The parenthetical number represents the number
  of such investment companies from which such person received compensation.

+ Includes compensation received from serving as an adviser of The Gabelli
  Growth Fund during 1999.

LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY

     The By-Laws of the Fund provide that the Fund will indemnify its Directors
and officers and may indemnify its employees or agents against liabilities and
expenses incurred in connection with litigation in which they may be involved
because of their offices with the Fund, to the fullest extent permitted by law.
In addition, the Articles of Incorporation of the Fund provide that the Fund's
Directors and officers will not be liable to shareholders for money damages,
except in limited instances. However, nothing in the Articles of Incorporation
or the By-Laws protects or indemnifies a Director, officer, employee or agent of
the Fund against any liability to which such person would otherwise be subject
in the event of such person's active or deliberate dishonesty which is material
to the cause of action or to the extent that the person received an improper
benefit or profit in money, property or services to the extent of such money,
property or services. In addition, indemnification is not permitted for any act
or omission committed in bad faith which is material to the cause of action or,
with respect to any criminal proceeding, if the person had reasonable cause to
believe that the act or omission was unlawful. In addition, indemnification may
not be provided in respect of any proceeding in which the person had been
adjudged to be liable to the Fund.

                             THE INVESTMENT ADVISER

     The Investment Adviser is a New York limited liability company that also
serves as Investment Adviser to other closed-end investment companies and
open-end investment companies with aggregate assets in excess of $11.8 billion
as of September 30, 2000. The Investment Adviser is a registered investment
adviser under the 1940 Act. Mr. Mario J. Gabelli may be deemed a "controlling
person" of the Adviser on the basis of his controlling interest in the parent
company of the Investment Adviser. The Investment Adviser has several affiliates
that provide investment advisory services: GAMCO Investors, Inc. ("GAMCO") a
wholly-owned subsidiary of the Investment Adviser acts as investment adviser for
individuals, pension trusts, profit-sharing trusts and endowments, and had
assets under management of approximately $9.8 billion under its manage-

                                       15
<PAGE>   58

ment as of September 30, 2000; Gabelli Advisers, Inc. acts as to the Gabelli
Westwood Funds with assets under management of approximately $413 million as of
September 30, 2000; Gabelli Securities, Inc. acts as general partner or
investment manager to certain alternative investments products, consisting
primarily of risk arbitrage and merchant banking limited partnerships and
offshore companies, with assets under management of approximately $416 million
as of September 30, 2000; and Gabelli Fixed Income, LLC acts as investment
adviser for the three portfolios of The Treasurer's Fund and separate accounts
having assets under management of approximately $1.4 billion as of September 30,
2000.

     Affiliates of the Investment Adviser may, in the ordinary course of their
business, acquire for their own account or for the accounts of their advisory
clients, significant (and possibly controlling) positions in the securities of
companies that may also be suitable for investment by the Fund. The securities
in which the Fund might invest may thereby be limited to some extent. For
instance, many companies in the past several years have adopted so-called
"poison pill" or other defensive measures designed to discourage or prevent the
completion of non-negotiated offers for control of the company. Such defensive
measures may have the effect of limiting the shares of the company which might
otherwise be acquired by the Fund if the affiliates of the Investment Adviser or
their advisory accounts have or acquire a significant position in the same
securities However, the Investment Adviser does not believe that the investment
activities of its affiliates will have a material adverse effect upon the Fund
in seeking to achieve its investment objectives. Securities purchased or sold
pursuant to contemporaneous orders entered on behalf of the investment company
accounts of the Investment Adviser or the advisory accounts managed by its
affiliates for their unaffiliated clients are allocated pursuant to principles
believed to be fair and not disadvantageous to any such accounts. In addition,
all such orders are generally accorded priority of execution over orders entered
on behalf of accounts in which the Investment Adviser or its affiliates have a
substantial pecuniary interest. The Investment Adviser may on occasion give
advice or take action with respect to other clients that differ from the actions
taken with respect to the Fund. The Fund may invest in the securities of
companies which are investment management clients of GAMCO. In addition,
portfolio companies or their officers or directors may be minority shareholders
of the Adviser or its affiliates

     Pursuant to an Advisory Agreement (the "Advisory Agreement"), the
Investment Adviser manages the portfolio of the Fund in accordance with its
stated investment objectives and policies, makes investment decisions for the
Fund, places orders to purchase and sell securities on behalf of the Fund and
manages its other business and affairs, all subject to the supervision and
direction of the Fund's Board of Directors. In addition, under the Advisory
Agreement, the Investment Adviser oversees the administration of all aspects of
the Fund's business and affairs and provides, or arranges for others to provide,
at the Investment Adviser's expense, certain enumerated services, including
maintaining the Fund's books and records, preparing reports to the Fund's
shareholders and supervising the calculation of the net asset value of its
shares. All expenses of computing the net asset value of the Fund, including any
equipment or services obtained solely for the purpose of pricing shares or
valuing its investment portfolio, are considered to be an expense of the Fund
under its Advisory Agreement.

     The Advisory Agreement combines investment advisory and administrative
responsibilities in one agreement. The Adviser has in turn retained PFPC, Inc.,
to act as sub-administrator to the Fund. See "Management of the
Fund -- Sub-Administrator" in the Prospectus.

     For services rendered by the Investment Adviser on behalf of the Fund under
the Advisory Agreement, the Fund pays the Investment Adviser a fee computed
daily and paid monthly at the annual rate of 1.00% of the average weekly net
assets of the Fund. The fees payable under the Advisory Agreement are higher
than the fees payable by most registered investment companies. Notwithstanding
the foregoing, the Investment Adviser will waive the portion of its investment
advisory fee attributable to an amount of assets of the Fund equal to the
aggregate stated value of the Cumulative Preferred Stock for any calendar year
in which the total return of the Fund, including distributions and the advisory
fee subject to potential waiver, allocable to common stock is less than the
stated dividend rate of the Cumulative Preferred Stock.

     The Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard for its obligations and duties
thereunder, the Investment Adviser is not liable for any error

                                       16
<PAGE>   59

or judgment or mistake of law or for any loss suffered by the Fund. As part of
the Advisory Agreement, the Fund has agreed that the name "Gabelli" is the
Investment Adviser's property, and that in the event the Investment Adviser
ceases to act as an investment adviser to the Fund, the Fund will change its
name to one not including the word "Gabelli."

     The Advisory Agreement was initially approved by the Board of Directors at
a meeting held on July 17, 1986 and was approved most recently by the Board of
Directors on May 17, 2000. The Advisory Agreement is terminable without penalty
by the Fund on not more than sixty days' written notice when authorized by the
Board of Directors of the Fund, by the holders of a majority of the outstanding
voting securities of the Fund, as defined in the 1940 Act, or by the Investment
Adviser. The Advisory Agreement will automatically terminate in the event of its
assignment, as defined in the 1940 Act. The Advisory Agreement provides that,
unless terminated, it will remain in effect so long as continuance of the
Advisory Agreement is approved annually by the Board of Directors of the Fund,
or the shareholders of the Fund and in either case, by a majority vote of the
Directors who are not parties to the Advisory Contract or "interested persons"
as defined in the 1940 Act of any such person cast in person at a meeting called
specifically for the purpose of voting on the continuance of the Advisory
Agreement.

     For each of the years ended December 31, 1997, December 31, 1998 and
December 31, 1999, the Investment Adviser was paid $11,136,210, $12,272,654 and
$14,000,719, respectively, for advisory and administrative services rendered to
the Fund.

                             PORTFOLIO TRANSACTIONS

     Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is responsible for placing purchase and sale orders and the
allocation of brokerage on behalf of the Fund. Transactions in equity securities
are in most cases effected on U.S. stock exchanges and involve the payment of
negotiated brokerage commissions. In general, there may be no stated commission
in the case of certain debt securities and securities traded in over-the-counter
markets, but the prices of those securities may include undisclosed commissions
or mark-ups. Principal transactions are not entered into with affiliates of the
Fund. However, Gabelli & Company, Inc. ("Gabelli & Company") may execute
transactions in the over-the counter markets on an agency basis and receive a
stated commission therefrom. To the extent consistent with applicable provisions
of the 1940 Act and the rules and exemptions adopted by the Commission
thereunder, as well as other regulatory requirements, the Fund's Board of
Directors 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 Fund a rate
consistent with that charged to comparable unaffiliated customers in similar
transactions. The Fund has no obligation to deal with any broker or group of
brokers in executing transactions in portfolio securities. In executing
transactions, the Investment Adviser seeks to obtain the best price and
execution for the Fund, taking into account such factors as the price, size of
order, difficulty of execution and operational facilities of the firm involved
and the firm's risk in positioning a block of securities. While the Investment
Adviser generally seeks reasonably competitive commission rates, the Fund does
not necessarily pay the lowest commission available


     For the fiscal years ended December 31, 1997, December 31, 1998 and
December 31, 1999, the Fund paid a total of $845,429, $836,479, $1,137,510,
respectively, in brokerage commissions, of which Gabelli & Company, Inc. and its
affiliates received $178,336, $362,737 and $554,925, respectively. The amount
received by Gabelli & Company, Inc. and its affiliates from the Fund in respect
of brokerage commissions for the fiscal year ended December 31, 1999 represented
48.7% of the aggregate dollar amount of brokerage commissions paid by the Fund
for such period. In addition, for the fiscal year ended December 31, 1999, the
Fund paid brokerage commissions to Gabelli & Company, Inc. with respect to 57.7%
of the aggregate dollar amount of transactions by the Fund.


     Subject to obtaining the best price and execution, brokers who provide
supplemental research, market and statistical information to the Investment
Adviser or its affiliates may receive orders for transactions by the
                                       17
<PAGE>   60

Fund. The term "research, market and statistical information" includes advice as
to the value of securities, and advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and furnishing analyses and reports concerning issues,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. Information so received will be in addition to and not
in lieu of the services required to be performed by the Investment Adviser under
the Advisory Agreement and the expenses of the Investment Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information. Such information may be useful to the Investment Adviser and its
affiliates in providing services to clients other than the Fund, and not all
such information is used by the Investment Adviser in connection with the Fund.
Conversely, such information provided to the Investment Adviser and its
affiliates by brokers and dealers through whom other clients of the Investment
Adviser and its affiliates effect securities transactions may be useful to the
Investment Adviser in providing services to the Fund.

     Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Investment Adviser and its
affiliates, investments of the kind made by the Fund may also be made by those
other accounts. When the same securities are purchased for or sold by the Fund
and any of such other accounts, it is the policy of the Investment Adviser and
its affiliates to allocate such purchases and sales in the manner deemed fair
and equitable to all of the accounts, including the Fund.

PORTFOLIO TURNOVER

     The Fund's portfolio turnover rate for the fiscal years ended December 31,
1998 and December 31, 1999 was 39.8% and 38.0%, respectively. Portfolio turnover
rate is calculated by dividing the lesser of the Fund's annual sales or
purchases of portfolio securities by the monthly average value of securities in
its portfolio during the year, excluding portfolio securities the maturities of
which at the time of acquisition were one year or less. However, portfolio
turnover will not otherwise be a limiting factor in making investment decisions
for the Fund. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expense than a lower rate, which expense must be borne by
the Fund and its shareholders.

        AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN

     Under the Fund's Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan (the "Plan"), a shareholder whose shares of the Fund's common
stock, par value $.001 per share (the "Common Stock") is registered in his own
name will have all distributions reinvested automatically by State Street, which
is agent under the Plan, unless the shareholder elects to receive cash.
Distributions with respect to shares registered in the name of a broker-dealer
or other nominee (that is, in "street name") will be reinvested by the broker or
nominee in additional shares under the Plan, unless the service is not provided
by the broker or nominee or the shareholder elects to receive distributions in
cash. Investors who own Common Stock registered in street name should consult
their broker-dealers for details regarding reinvestment. All distributions to
investors who do not participate in the Plan will be paid by check mailed
directly to the record holder by State Street Bank and Trust Company ("State
Street") as dividend disbursing agent.

     Under the Plan, whenever the market price of the Common Stock is equal to
or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants in the Plan are issued shares of Common Stock,
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the Common Stock. The valuation
date is the dividend or distribution payment date or, if that date is not a New
York Stock Exchange trading day, the next preceding trading day. If the net
asset value of the Common Stock at the time of valuation exceeds the market
price of the Common Stock, participants will receive shares from the Fund,
valued at market price. If the Fund should declare a dividend or capital gains
distribution payable only in cash, State Street will buy the Common Stock for
such Plan in the open market, on the NYSE or elsewhere, for the participants'
accounts, except that State Street will endeavor to terminate purchases in the
open market and cause the Fund to issue shares at net asset value if, following
the commencement of such purchases, the market value of the Common Stock exceeds
net asset value.

                                       18
<PAGE>   61

     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 Voluntary Cash Purchase Plan is another vehicle for shareholders of the
Fund 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 and participate in the Dividend Reinvestment Plan.

     Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street for investments in the Fund's shares at
the then current market price. Shareholders may send an amount from $250 to
$10,000. State Street will use these funds to purchase shares in the open market
on or about the 1st and 15th of each month. State Street will charge each
shareholder who participates $0.75, plus a pro rata share of the brokerage
commissions. Brokerage charges for such purchases are expected to be less than
the usual brokerage charge for such transactions. It is suggested that any
voluntary cash payments be sent to State Street such that State Street receives
such payments approximately 10 days before the investment date. Funds not
received at least 5 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 State Street at least 48 hours before such payment is to
be invested.

     State Street maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by State Street in noncertificated form in
the name of the participant. A Plan participant may send its share certificates
to State Street so that the shares represented by such certificates will be held
by State Street in the participant's shareholder account under the Plan.

     In the case of shareholders such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, State Street will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who participate in the Plan.

     Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the Plan members at
least 90 days before the record date for such dividend or distribution. The Plan
also may be amended or terminated by State Street on at least 90 days' written
notice to the Plan participants. All correspondence concerning the Plan should
be directed to State Street at P.O. Box 8200, Boston, Massachusetts 02266-8200.

                                    TAXATION

     The following discussion is a brief summary of certain United States
federal income tax considerations affecting the Fund and its shareholders. No
attempt is made to present a detailed explanation of all federal, state, local
and foreign tax concerns, and the discussions set forth here and in the
Prospectus do not constitute tax advice. Investors are urged to consult their
own tax advisers with any specific questions relating to federal, state, local
and foreign taxes. The discussion reflects applicable tax laws of the United
States as of the date of this SAI, which tax laws may be changed or subject to
new interpretations by the courts or the Internal Revenue Service retroactively
or prospectively.

GENERAL

     The Fund intends to continue to qualify as a regulated investment company
(a "RIC") under Subchapter M of the Code. If it so qualifies, the Fund will not
be subject to federal income tax on the portion of its net investment income
(i.e., income other than its net realized long-term and short-term capital gains
and on its net realized long-term and short-term capital gains, if any, which it
distributes to its shareholders in each taxable year, provided that an amount
equal to at least 90% of the sum of its investment company taxable income (i.e.,
90% of its taxable income minus the excess, if any, of its net realized
long-term capital gains over
                                       19
<PAGE>   62

its net realized short-term capital losses (including any capital loss
carryovers), plus or minus certain other adjustments as specified in the Code)
and any net tax-exempt income for the taxable year is distributed to its
shareholders, but will be subject to tax at regular corporate rates on any
taxable income or gains that it does not distribute.

     Qualification as a RIC requires, among other things, that the Fund: (a)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies and
(b) diversify its holdings so that, at the end of each quarter of each of the
Fund's taxable years, (i) at least 50% of the market value of the Fund's assets
is represented by cash, cash items, U.S. government securities, securities of
other RICs 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 Fund's
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities (other
than U.S. government securities or the securities of other RICs) of any one
issuer or any two or more issuers that the Fund controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses.

TAXATION OF THE FUND

     If the Fund were unable to satisfy the 90% distribution requirement or
otherwise were to fail to qualify as a RIC in any year, it would be taxed in the
same manner as an ordinary corporation and distributions to the Fund's
shareholders would not be deductible by the Fund in computing its taxable
income. To qualify again to be taxed as a RIC in a subsequent year, the Fund
would be required to distribute to Cumulative Preferred Shareholders and Common
Shareholders as a net investment income dividend, its earnings and profits
attributable to non-RIC years reduced by an interest charge payable by the Fund
to the Internal Revenue Service ("IRS"). In addition, if the Fund failed to
qualify as a RIC for a period greater than one taxable year, then the Fund would
be required to recognize and pay tax on any net built-in gains with respect to
certain of the Fund's assets (the excess of aggregate gains, including items of
income, over aggregate losses with respect to such assets that would have been
realized if the Fund had been liquidated) in order to qualify as a RIC in a
subsequent year.

     Under the Code, amounts not distributed by a RIC on a timely basis in
accordance with a calendar-year distribution requirement are subject to a 4%
excise tax. To avoid the tax, the Fund must distribute during each calendar year
an amount at least equal to the sum of (1) 98% of its ordinary income for the
calendar year, (2) 98% of its capital gain net income (both long-term and
short-term) for the one-year period ending on October 31 of such year (unless an
election is made by a fund with a November or December year-end to use the
fund's fiscal year), and (3) all ordinary income and capital gain net income for
previous years that were not previously distributed. A distribution will be
treated as paid during the calendar year if it is paid during the calendar year
or declared by the Fund in October, November or December of the year, payable to
shareholders of record on a date during such month and paid by the Fund during
January of the following year. Any such distributions paid during January of the
following year will be deemed to be received on December 31 of the year the
distributions are declared, rather than when the distributions are received.
While the Fund intends to distribute its ordinary income and capital gain net
income in the manner necessary to minimize imposition of the 4% excise tax,
there can be no assurance that sufficient amounts of the Fund's ordinary income
and capital gain net income will be distributed to avoid entirely the imposition
of the tax. In such event, the Fund will be liable for the tax only on the
amount by which it does not meet the foregoing distribution requirements.

     Gain or loss on the sales of securities by the Fund will 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.

                                       20
<PAGE>   63

     Foreign currency gain or loss on non-U.S. dollar denominated bonds and
other similar debt instruments 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 net investment income and loss.

     If the Fund invests in stock of a passive foreign investment company (a
"PFIC"), the Fund may be subject to federal income tax on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock even if such income is distributed as a taxable dividend by the Fund to
its shareholders. The tax would be determined by allocating such distribution or
gain ratably to each day of the Fund's holding period for the stock. The amount
so allocated to any taxable year of the Fund prior to the taxable year in which
the excess distribution or disposition occurs would be taxed to the Fund at the
highest marginal federal corporate income tax rate in effect for the year to
which it was allocated, and the tax would be further increased by an interest
charge. The amount allocated to the taxable year of the distribution or
disposition would be included in the Fund's net investment income and,
accordingly, would not be taxable to the Fund to the extent distributed by the
Fund as taxable dividends to shareholders.

     If the Fund invests in stock of a PFIC, the Fund may be able to elect to be
a "qualified electing fund," in lieu of being taxable in the manner described in
the above paragraph and to include annually in income its pro rata share of the
ordinary earnings and net capital gain of the PFIC, even if not distributed to
the Fund, and such amounts would be subject to the 90% and excise tax
distribution requirements described above. In order to make this election, the
Fund would be required to obtain annual information from the PFICs in which it
invests, which may be difficult or impossible to obtain. Alternatively, the Fund
may be able to elect to mark to market its PFIC stock, resulting in the stock
being treated as sold and repurchased at fair market value on the last business
day of each taxable year. Any resulting gain would be reported as ordinary
income, and any resulting loss would be an ordinary loss that could only be
deducted to the extent of previously recognized gains.

     The Fund may invest in debt obligations purchased at a discount, with the
result that the Fund may be required to accrue income for federal income tax
purposes before amounts due under the obligation are paid. The Fund may also
invest in securities rated in the medium to lower rating categories of
nationally recognized rating organizations, and in unrated securities ("high
yield securities"). A portion of the interest payments on such high yield
securities may be treated as dividends for federal income tax purposes.

     As a result of investing in stock of PFICs or securities purchased at a
discount or any other investment that produces income that is not matched by a
corresponding cash distribution to the Fund, the Fund could be required to
include in current income, income it has not yet received. Any such income would
be treated as income earned by the Fund and therefore would be subject to the
distribution requirements of the Code. This might prevent the Fund from
distributing 90% of its net investment income, as is required in order to avoid
Fund-level federal income taxation, or might prevent the Fund from distributing
enough ordinary income and capital gain net income to avoid completely the
imposition of the excise tax. To avoid this result, the Fund may be required to
borrow money or dispose of other securities to be able to make distributions to
its shareholders.

     If the Fund does not meet the asset coverage requirements of the 1940 Act
and the Articles Supplementary, the Fund will be required to suspend
distributions to the holders of the common stock until the asset coverage is
restored. See "Description of Cumulative Preferred Stock -- Dividends" and
"Description of Capital Stock" Such a suspension of distributions might prevent
the Fund from distributing 90% of its net investment income, as is required in
order to avoid Fund-level federal income taxation, or might prevent the Fund
from distributing enough income and capital gain net income to avoid completely
imposition of the excise tax. Upon any failure to meet the asset coverage
requirements of the 1940 Act or the Articles Supplementary, the Fund may, and in
certain circumstances will, be required to partially redeem the shares of
Cumulative Preferred Stock in order to restore the requisite asset coverage and
avoid the adverse consequences to the Fund and its shareholders of failing to
qualify as a RIC. If asset coverage were restored, the Fund would again be able
to pay dividends and might be able to avoid Fund-level federal income taxation
on the Fund's undistributed income.

                                       21
<PAGE>   64

HEDGING TRANSACTIONS

     Certain options, futures contracts and options on futures contracts are
"section 1256 contracts." Any gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
("60/40"). Also, section 1256 contracts held by the Fund at the end of each
taxable year are "marked-to-market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as 60/40 gain or loss.

     Hedging transactions undertaken by the Fund may result in "straddles" for
federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Fund. In addition, losses realized by the Fund
on positions that are part of a straddle may be deferred under the straddle
rules, rather than being taken into account in calculating the taxable income
for the taxable year in which such losses are realized. Further, the Fund may be
required to capitalize, rather than deduct currently, any interest expense on
indebtedness incurred or continued to purchase or carry any positions that are
part of a straddle.

     The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions may be determined under rules that vary according to
the election(s) made. The rules applicable under certain of the elections
accelerate the recognition of gain or loss from the affected straddle positions.

     Because application of the straddle rules may affect the character and
timing of the Fund's gains, losses and deductions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.

FOREIGN TAXES

     Since the Fund may invest in foreign securities, its income from such
securities may be subject to non-U.S. taxes. It is anticipated that the Fund
will not invest more than 35% of its total assets in foreign securities.
Accordingly, the Fund will not be eligible to elect to "pass-through" to
stockholders of the Fund the ability to use the foreign tax deduction or foreign
tax credit for foreign taxes paid with respect to qualifying taxes. In order to
make such an election, at least 50% of the Fund's total assets would be required
to be invested in foreign securities.

TAXATION OF STOCKHOLDERS

     The Fund will determine either to distribute or to retain for reinvestment
all or part of its net capital gain. If any such gains are retained, the Fund
will be subject to a tax of 35% of such amount. In that event, the Fund expects
to designate the retained amount as undistributed capital gains in a notice to
its shareholders, each of whom (1) will be required to include in income for tax
purposes as long-term capital gains its share of such undistributed amount, (2)
will be entitled to credit its proportionate share of the tax paid by the Fund
against its Federal income tax liability and to claim refunds to the extent that
the credit exceeds such liability, and (3) will increase its basis in its shares
of the Fund by an amount equal to 65% of the amount of undistributed capital
gains included in such shareholder's gross income.

     Distributions of Ordinary Income Dividends are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Ordinary Income
Dividends paid by the Fund may qualify for the dividends received deduction
available to corporations, but only to the extent that the Fund's income
consists of qualified dividends received from U.S. corporations. The amount of
any dividend distribution eligible for the dividends received deduction will be
designated by the Fund in a written notice to shareholders within 60 days of the
close of the taxable year. Distributions of net capital gains designated as
capital gain dividends ("Capital Gain Dividends"), if any, are taxable as
long-term capital gains, whether paid in cash or in shares, regardless of how
long the shareholder has held the Fund's shares, and are not eligible for the
dividends received deduction.

     Shareholders receiving distributions in the form of newly issued shares
will have a basis in such shares of the Fund equal to the fair market value of
such shares on the distribution date. If the net asset value of shares
                                       22
<PAGE>   65

is reduced below a shareholder's cost as a result of a distribution by the Fund,
such distribution will be taxable even though it represents a return of invested
capital. The price of shares purchased at any time may reflect the amount of a
forthcoming distribution. Those purchasing shares 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.

     Upon a sale or exchange of shares, a shareholder will realize a taxable
gain or loss depending upon his or her basis in the shares. Such gain or loss
will be treated as 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 within a 61-day period beginning 30
days before and ending 30 days after the day that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.

     Any loss realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any Capital Gain Dividends received by
the shareholder with respect to such shares.

     Ordinary Income Dividends and Capital Gains Dividends also may be subject
to state and local taxes. Shareholders are urged to consult their own tax
advisers regarding specific questions about the U.S. Federal, state, local or
foreign tax consequences to them of investing in the Fund.

BACKUP WITHHOLDING

     The Fund may be required to withhold federal income tax at a rate of 31% on
all taxable distributions payable to 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 credited against the shareholder's federal income tax liability.

     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.

                                       23
<PAGE>   66

                            MOODY'S DISCOUNT FACTORS

     The following table identifies the Moody's Discount Factors used to
discount particular Moody's Eligible Assets, as defined in the Prospectus.

<TABLE>
<CAPTION>
                                                                  MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET:                               DISCOUNT FACTOR:
- -------------------------------                               ----------------
<S>                                                           <C>
Short Term Money Market Instruments (other than U.S.
  Government Obligations set forth below) and other
  commercial paper:
  Demand or time deposits, certificates of deposit and
     bankers' acceptances includible in Moody's Short Term
     Money Market Instruments...............................        1.00
  Commercial paper rated P-1 by Moody's maturing in 30 days
     or less................................................        1.00
  Commercial paper rated P-1 by Moody's maturing in more
     than 30 days but in 270 days or less...................        1.15
  Commercial paper rated A-1+ by S&P maturing in 270 days or
     less...................................................        1.25
  Repurchase obligations includible in Moody's Short Term
     Money Market Instruments if term is less than 30 days
     and counterparty is rated at least A2..................        1.00
  Other repurchase obligations..............................           *
Common stocks...............................................        3.00
Convertible preferred stocks................................        3.00
Preferred stocks:
  Auction rate preferred stocks.............................        3.50
  Other preferred stocks issued by issuers in the financial
     and industrial industries..............................        1.62
  Other preferred stocks issued by issuers in the utilities
     industry...............................................        1.40
U.S. Government Obligations (other than U.S. Treasury
  Securities Strips set forth below) with remaining terms of
  maturity of:
     1 year or less.........................................        1.04
     2 years or less........................................        1.09
     3 years or less........................................        1.12
     4 years or less........................................        1.15
     5 years or less........................................        1.18
     7 years or less........................................        1.21
     10 years or less.......................................        1.24
     15 years or less.......................................        1.25
     20 years or less.......................................        1.26
     30 years or less.......................................        1.26
U.S. Treasury Securities Strips with remaining terms to
  maturity of:
     1 year or less.........................................        1.04
     2 years or less........................................        1.10
     3 years or less........................................        1.14
     4 years or less........................................        1.18
     5 years or less........................................        1.21
     7 years or less........................................        1.27
     10 years or less.......................................        1.34
     15 years or less.......................................        1.45
     20 years or less.......................................        1.54
     30 years or less.......................................        1.66
</TABLE>

                                       24
<PAGE>   67

<TABLE>
<CAPTION>
                                                                  MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET:                               DISCOUNT FACTOR:
- -------------------------------                               ----------------
<S>                                                           <C>
Corporate evidences of indebtedness:
  Corporate evidences of indebtedness rated Aaa3 with
     remaining terms to maturity of:
     1 year or less.........................................        1.10
     2 years or less........................................        1.13
     3 years or less........................................        1.18
     4 years or less........................................        1.21
     5 years or less........................................        1.23
     7 years or less........................................        1.27
     10 years or less.......................................        1.30
     15 years or less.......................................        1.31
     20 years or less.......................................        1.32
     30 years or less.......................................        1.33
  Corporate evidences of indebtedness rated Aa3 with
     remaining terms to maturity of:
     1 year or less.........................................        1.15
     2 years or less........................................        1.20
     3 years or less........................................        1.23
     4 years or less........................................        1.27
     5 years or less........................................        1.29
     7 years or less........................................        1.33
     10 years or less.......................................        1.36
     15 years or less.......................................        1.37
     20 years or less.......................................        1.38
     30 years or less.......................................        1.39
  Corporate evidences of indebtedness rated A3 with
     remaining terms to maturity of:
     1 year or less.........................................        1.20
     2 years or less........................................        1.26
     3 years or less........................................        1.29
     4 years or less........................................        1.33
     5 years or less........................................        1.35
     7 years or less........................................        1.39
     10 years or less.......................................        1.42
     15 years or less.......................................        1.43
     20 years or less.......................................        1.45
     30 years or less.......................................        1.45
  Corporate evidences of indebtedness rated at least Baa3
     with remaining terms of maturity of:
     1 year or less.........................................        1.25
     2 years or less........................................        1.31
     3 years or less........................................        1.35
     4 years or less........................................        1.38
     5 years or less........................................        1.41
     7 years or less........................................        1.45
     10 years or less.......................................        1.48
     15 years or less.......................................        1.50
     20 years or less.......................................        1.51
     30 years or less.......................................        1.52
</TABLE>

                                       25
<PAGE>   68

<TABLE>
<CAPTION>
                                                                  MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET:                               DISCOUNT FACTOR:
- -------------------------------                               ----------------
<S>                                                           <C>
  Corporate evidences of indebtedness rated at least Ba3
     with remaining terms of
     maturity of:
     1 year or less.........................................        1.36
     2 years or less........................................        1.42
     3 years or less........................................        1.46
     4 years or less........................................        1.50
     5 years or less........................................        1.53
     7 years or less........................................        1.57
     10 years or less.......................................        1.61
     15 years or less.......................................        1.62
     20 years or less.......................................        1.64
     30 years or less.......................................        1.64
  Corporate evidences of indebtedness rated at least B1 and
     B2 with remaining terms of maturity of:
     1 year or less.........................................        1.46
     2 years or less........................................        1.53
     3 years or less........................................        1.57
     4 years or less........................................        1.61
     5 years or less........................................        1.65
     7 years or less........................................        1.70
     10 years or less.......................................        1.73
     15 years or less.......................................        1.75
     20 years or less.......................................        1.76
     30 years or less.......................................        1.77
  Convertible corporate evidences of indebtedness rated with
     senior debt securities rated Aa3 issued by the
     following type of issuers:
     Utility................................................        1.28
     Industrial.............................................        1.75
     Financial..............................................        1.53
     Transportation.........................................        2.13
  Convertible corporate evidences of indebtedness rated with
     senior debt securities rated A3 issued by the following
     type of issuers:
     Utility................................................        1.33
     Industrial.............................................        1.80
     Financial..............................................        1.58
     Transportation.........................................        2.18
  Convertible corporate evidences of indebtedness rated with
     senior debt securities rated Baa3 issued by the
     following type of issuers:
     Utility................................................        1.48
     Industrial.............................................        1.95
     Financial..............................................        1.73
     Transportation.........................................        2.33
  Convertible corporate bonds with senior debt securities
     rated Ba3 issued by the following type of issuers:
     Utility................................................        1.49
     Industrial.............................................        1.96
     Financial..............................................        1.74
     Transportation.........................................        2.34
</TABLE>

                                       26
<PAGE>   69

<TABLE>
<CAPTION>
                                                                  MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET:                               DISCOUNT FACTOR:
- -------------------------------                               ----------------
<S>                                                           <C>
  Convertible corporate bonds with senior debt securities
     rated B1 or B2 issued by the following type of issuers:
     Utility................................................        1.59
     Industrial.............................................        2.06
     Financial..............................................        1.84
     Transportation.........................................        2.44
</TABLE>

- ---------------

* Discount Factors applicable to underlying assets.

                                NET ASSET VALUE

     The net asset value of the Fund's common shares is computed based on the
market value of the securities it holds and determined daily as of the close of
regular trading on the NYSE and reported in financial newspapers of general
circulation as of the last day of each week.

     Portfolio securities which are traded only on stock exchanges are valued at
the last sale price as of the close of regular trading on the day the securities
are being valued, or lacking any sales, at the mean between closing bid and
asked prices. Securities traded in the over-the-counter market which are Nasdaq
National Market securities are valued at the last sale price as of the close of
regular trading on the day the securities are being valued. Other
over-the-counter securities are valued at the most recent bid prices as obtained
from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the counter market and on a stock
exchange are valued according to the broadest and most representative market, as
determined by the Investment Adviser. Securities traded primarily on foreign
exchanges are valued at the closing values of such securities on their
respective exchanges as of the day the securities are being valued. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Directors of the Fund. Short-term investments that mature in 60 days or less are
valued at amortized cost, unless the Board of Directors of the Fund determines
that such valuation does not constitute fair value.

     Net asset value per share is calculated by dividing the value of the
securities held plus any cash or other assets minus all liabilities, including
accrued expenses, and less the liquidation value of any preferred stock
outstanding by the total number of shares outstanding at such time.

                                       27
<PAGE>   70

                              GENERAL INFORMATION

COUNSEL AND INDEPENDENT ACCOUNTANTS

     Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019,
serves as the Fund's legal counsel.

     PricewaterhouseCoopers LLP ("PWC"), 1177 Avenue of the Americas, New York,
New York 10036, has been selected as independent accountants for the Fund. As
the Fund's independent accountants PWC is responsible for auditing the Fund's
financial statements in accordance with Generally Accepted Accounting
Principles. PWC also prepares a report of its findings thereon and presents its
findings to the Fund's Board of Directors. PWC also reviews the Fund's state and
federal income tax returns prepared by the Fund's Administrator. For its
services, PWC charges fees which are paid by the Fund.

CUSTODIAN AND TRANSFER, DIVIDEND DISBURSING AGENT AND REGISTRAR

     Boston Safe Deposit and Trust Company (the "Custodian"), located at One
Boston Place, Boston, Massachusetts 02019, serves as the custodian of the Fund's
assets pursuant to a custody agreement. Under the custody agreement, the
Custodian holds the Fund's assets in compliance with the 1940 Act. For its
services, the Custodian will receive a monthly fee based upon the average weekly
value of the total assets of the Fund, plus certain charges for securities
transactions.

     State Street Bank and Trust Company located at Two Heritage Drive, Quincy,
Massachusetts 02171, serves as the Fund's dividend disbursing agent, as agent
under the Fund's Plan and as transfer agent and registrar for shares of the
Fund.

                               BENEFICIAL OWNERS

     There are no persons known to the Fund who may be deemed beneficial owners
of 5% or more of shares of the Fund's Common Stock because they possessed or
shared voting or investment power with respect to shares of the Fund's Common
Stock. As of November 24, 2000, the Directors and Officers of the Fund as a
group beneficially owned approximately 1.23% of the outstanding shares of the
Fund's Common Stock.

                              FINANCIAL STATEMENTS

     The unaudited financial statements included in the Semi-Annual Report to
the Fund's Shareholders for the six months ended June 30, 2000 are incorporated
herein by reference from the Fund's Semi-Annual Report to Shareholders filed
with the SEC on August 31, 2000. The audited financial statements included in
the Annual Report to the Fund's Shareholders for the fiscal year ended December
31, 1999, together with the report of PricewaterhouseCoopers LLP thereon, are
also incorporated herein by reference from the Fund's Annual Report to
Shareholders filed with the SEC on March 7, 2000. All other portions of the
Annual Report to Shareholders are not incorporated herein by reference and are
not part of the Registration Statement. A copy of the Annual Report to
Shareholders may be obtained without charge by writing to the Fund at its
address at One Corporate Center, Rye, New York 10580-1434 or by calling the Fund
toll-free at 800-GABELLI (422-3554).

                                       28
<PAGE>   71

                                     PART C

                               OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS


<TABLE>
<C>                     <C>        <S>        <C>  <C>
         (1)              (a)      Financial Statements (unaudited) for the fiscal period ended June 30,
                                   2000(1)

                                   (i)         --  Portfolio of Investments as of June 30, 2000

                                   (ii)        --  Statement of Assets and Liabilities as of June 30, 2000

                                   (iii)       --  Statement of Operations for the six months ended June 30,
                                                   2000

                                   (iv)        --  Statement of Changes in Net Assets for the six months ended

                                   (v)         --  June 30, 2000 and the year ended December 31, 1999
                                                   Financial highlights for a share of capital stock

                                   (vi)        --  outstanding throughout the six months ended June 30, 2000
                                                   and the years ended December 31, 1995-1999
                                                   Notes to Financial Statements

                          (b)      Financial Statements (audited) for the fiscal year ended December 31,
                                   1999(2)


                                  (i)         --  Portfolio of Investments as of December 31, 1999

                                  (ii)        --  Statement of Assets and Liabilities as of December 31, 1999

                                  (iii)       --  Statement of Operations for the year ended December 31,
                                                  1999
                                  (iv)        --  Statement of Changes in Net Assets for the years ended

                                  (v)         --  December 31, 1998 and 1999
                                                  Financial highlights for a share of capital stock

                                  (vi)        --  outstanding throughout the periods ended December 31, 1995,
                                                  1996, 1997, 1998 and 1999
                                                  Notes to Financial Statements
                                  (vii)       --  Report of Independent Accountants

         (2)              Exhibits
                          (a)                  --  Articles of Incorporation(3)
                                                   Articles Supplementary(3)
                          (b)                  --  By-Laws(3)
                          (c)                  --  Not applicable
                          (d)      (i)         --  Form of certificate for Common Stock, par value $.001 per
                                                   share(4)

                                   (ii)        --  Form of Subscription Certificate(5)

                                   (iii)       --  Form of Notice of Guaranteed Delivery(5)

                                   (iv)        --  Form of DTC Participant Oversubscription Exercise Form(5)

                                   (v)         --  Form of Nominee Holder Over-Subscription Certification(5)

                                   (vi)        --  Form of Subscription, Distribution and Escrow Agency
                                                   Agreement(5)
                          (e)                  --  Automatic Dividend Reinvestment and Voluntary Cash Purchase
                                                   Plan(3)
                          (f)                  --  Not applicable
                          (g)                  --  Investment Advisory Agreement between the Fund and Gabelli
                                                   Funds LLC(4)
</TABLE>


                                       C-1
<PAGE>   72


<TABLE>
<C>        <C>        <S>        <C>        <C>
                 (h)                    --  Not applicable
                 (i)                    --  Not applicable
                 (j)                    --  Custodial Contract between the Fund and Boston Safe Deposit and Trust
                                            Company(3)
                 (k)                    --  Registrar, Transfer Agency and Service Agreement between the Fund and
                                            State Street Bank and Trust Company(4)
                                        --  Transfer Agent and Registrar Services Fee Agreement between the Fund and
                                            State Street Bank and Trust Company(4)
                 (l)                    --  Opinion and consent of Willkie Farr & Gallagher(5)
                                        --  Opinion and consent of Venable, Baetjer and Howard, LLP(5)
                 (m)                    --  Not applicable
                 (n)  (1)               --  Consent of PricewaterhouseCoopers LLP(5)
                      (2)               --  Power of Attorney(5)
                 (o)                    --  Not applicable
                 (p)                    --  Purchase Agreement between the Fund and The Gabelli Equity Trust Inc.(3)
                 (q)                    --  Not applicable
                 (r)                    --  Code of Ethics(5)
</TABLE>


- ---------------
(1) Incorporated by reference to the Fund's Semiannual Report for the six months
    ended June 30, 2000, File No. 311-4700, as filed with the Securities and
    Exchange Commission on August 31, 2000 (EDGAR Accession No.
    0000935069-00-000477).

(2) Incorporated by reference to the Fund's Annual Report for the year ended
    December 31, 1999, File No. 811-4700, as filed with the Securities and
    Exchange Commission on March 7, 2000 (EDGAR Accession No.
    0000935069-00-000130).

(3) Incorporated by reference to Registrant's Pre-Effective Amendment No. 2 to
    the Fund's Registration Statement on Form N-2, File Nos. 333-45951 and
    811-4700; as filed with the Securities and Exchange Commission on February
    10, 1998 (EDGAR Accession No. 0000950123-99-003497).

(4) Incorporated by reference to Registrant's Pre-Effective Amendment No. 1 to
    the Fund's Registration Statement on Form N-2, File Nos. 33-62323 and
    811-4700, as filed with the Securities and Exchange Commission on October
    13, 1995 (EDGAR Accession No. 0000950123-95-002829).


(5) Filed herewith.


ITEM 25.  MARKETING ARRANGEMENTS

     Not applicable.

ITEM 26.  OTHER EXPENSES OF ISSUANCE

     The following table sets forth the estimated expenses to be incurred in
connection with the Offer described in this Registration Statement:


<TABLE>
<S>                                                           <C>
Registration fees...........................................  $ 37,797
                                                              --------
New York Stock Exchange listing fee.........................    44,300
                                                              --------
Printing (other than stock certificates)....................    44,000
                                                              --------
Engraving and printing stock certificates...................     6,000
                                                              --------
Fees and expenses of qualification under state securities
  laws (including fees of counsel)..........................    10,000
                                                              --------
Auditing fees and expenses..................................     7,500
                                                              --------
</TABLE>


                                       C-2
<PAGE>   73

<TABLE>
<S>                                                           <C>
Legal fees and expenses.....................................   140,000
                                                              --------
Subscription Agent's fees and expenses......................   125,000
                                                              --------
Postage.....................................................    80,000
                                                              --------
Miscellaneous...............................................     5,403
                                                              --------
Total.......................................................  $500,000
                                                              ========
</TABLE>


- ---------------
* To be supplied by amendment.

ITEM 27.  PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

     None.

ITEM 28.  NUMBER OF HOLDERS OF SECURITIES


     Common Stock, par value $.001 per share: 13,594 record holders as of
October 1, 2000.



     Cumulative Preferred Stock, par value $.001 per share: 75 record holders as
of October 1, 2000.


ITEM 29.  INDEMNIFICATION

     The response of this Item is incorporated by reference to the caption
"Capital Stock -- Limitation of Officers' and Directors' Liability" set forth in
the Prospectus.

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to Directors,
officers and controlling persons of the Fund, pursuant to the foregoing
provisions or otherwise, the Fund has been advised that in the opinion of the
Securities and Exchange Commission (the "SEC") such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Fund of expenses incurred or paid by
a Director, officer or controlling person of the Fund in the successful defense
of any action, suit or proceeding) is asserted by such Director, officer or
controlling person in connection with the securities being registered, the Fund
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

ITEM 30.  BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

     Registrant is fulfilling the requirement of this Item 30 to provide a list
of the officers and directors of its investment adviser, together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by that entity or those of its officers and
directors during the past two years, by incorporating by reference the
information contained in the Form ADV filed with the SEC pursuant to the
Investment Advisers Act of 1940 by Gabelli Funds, LLC (SEC File No. 333-42780).

ITEM 31.  LOCATION OF ACCOUNTS AND RECORDS

     Gabelli Funds, LLC
     One Corporate Center
     Rye, New York 10580
     (with respect to its services as Investment Adviser)

                                       C-3
<PAGE>   74

     State Street Bank and Trust Company
     Two Heritage Drive
     Quincy, Massachusetts 02171
     (with respect to its services as transfer agent, dividend disbursing agent
     and registrar)

     Boston Safe Deposit and Trust Company
     One Boston Place
     Boston, Massachusetts 02108
     (with respect to its services as custodian)

     PFPC, Inc.
     101 Federal Street
     Boston, MA 02110
     (with respect to its services as Sub-Administrator)

ITEM 32.  MANAGEMENT SERVICES

     Not applicable.

ITEM 33.  UNDERTAKINGS

     (a) Registrant undertakes to suspend offering its shares until it amends
its prospectus contained herein if (1) subsequent to the effective date of its
Registration Statement, the net asset value per share declines more than 10
percent from its net asset value per share as of the effective date of this
Registration Statement, or (2) the net asset value per share increases to an
amount greater than its net proceeds as stated in the prospectus contained
herein.

     (b) Registrant hereby undertakes:

          (1) to file, during any period in which offers or sales are being
     made, a post-effective amendment to this Registration Statement:

             (i) to include any prospectus required by Section 10(a)(3) of the
        Act;

             (ii) to reflect in the prospectus any facts or events arising after
        the effective date of the Registration Statement (or the most recent
        post-effective amendment thereof) which, individually or in the
        aggregate, represent a fundamental change in the information set forth
        in the Registration Statement. Notwithstanding the foregoing, any
        increase or decrease in volume of securities offered (if the total
        dollar value of securities offered would not exceed that which was
        registered) and any deviation from the low or high end of the estimated
        maximum offering range may be reflected in the form of prospectus filed
        with the Commission pursuant to Rule 424(b) (sec. 230.424(b) of this
        chapter) if, in the aggregate, the changes in volume and price represent
        no more than a 20% change in the maximum aggregate offering price set
        forth in the "Calculation of Registration Fee" table in the effective
        Registration Statement; or

             (iii) to include any material information with respect to the plan
        of distribution not previously disclosed in the Registration Statement
        or any material change to such information in the Registration
        Statement.

          (2) that, for the purpose of determining any liability under the
     Securities Act, each such post-effective amendment shall be deemed to be a
     new registration statement relating to the securities offered therein, and
     the offering of such securities at that time shall be deemed to be the
     initial bona fide offering thereof.

          (3) to remove from registration by means of a post-effective amendment
     any of the securities being registered which remain unsold at the
     termination of the offering.

                                       C-4
<PAGE>   75

     (c) Registrant hereby undertakes that:

          (1) For purposes of determining any liability under the Securities
     Act, the information omitted from the form of prospectus filed as part of
     this Registration Statement in reliance upon Rule 430A and contained in a
     form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act shall be deemed to be part of this
     Registration Statement as of the time it was declared effective.

          (2) For the purpose of determining any liability under the Securities
     Act, each post-effective amendment that contains a form of prospectus shall
     be deemed to be a new registration statement relating to the securities
     offered therein, and the offering of such securities at that time shall be
     deemed to be the initial bona fide offering thereof.

     (d) Registrant hereby undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, a Statement of Additional Information.

                                       C-5
<PAGE>   76

                                   SIGNATURES


     Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Rye, State of New York, on the 1st day
of December, 2000.


                                          THE GABELLI EQUITY TRUST INC.

                                          By       /s/ BRUCE N. ALPERT
                                            ------------------------------------
                                                      Bruce N. Alpert
                                                Vice President and Treasurer


     IN WITNESS WHEREOF, the undersigned officers and Directors have hereunto
set their hands this 1st Day of December, 2000.


<TABLE>
<CAPTION>
                     SIGNATURE                                    TITLE                     DATE
                     ---------                                    -----                     ----
<C>                                                    <S>                           <C>

                         *                             Chairman of the Board,
- ---------------------------------------------------    President and Chief
                 Mario J. Gabelli                      Investment Officer

                         *                             Director
- ---------------------------------------------------
                 Thomas E. Bratter

                         *                             Director
- ---------------------------------------------------
                Anthony J. Colavita

                         *                             Director
- ---------------------------------------------------
                Felix J. Christiana

                         *                             Director
- ---------------------------------------------------
                   James P. Conn

                         *                             Director
- ---------------------------------------------------
             Frank J. Fahrenkopf, Jr.

                         *                             Director
- ---------------------------------------------------
                  Karl Otto Pohl

                         *                             Director
- ---------------------------------------------------
               Anthony R. Pustorino

                         *                             Director
- ---------------------------------------------------
                Salvatore J. Zizza

           /s/           BRUCE N. ALPERT               Treasurer (Principal
- ---------------------------------------------------    Financial and Accounting
                  Bruce N. Alpert                      Officer)

           /s/           BRUCE N. ALPERT
- ---------------------------------------------------
                  Bruce N. Alpert
                as Attorney-In-Fact
</TABLE>

                                       C-6
<PAGE>   77

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
 EXHIBIT                                                                  PAGE
 NUMBER                              EXHIBIT                             NUMBER
 -------                             -------                             ------
<S>        <C>                                                           <C>
Exhibit A  (1) Articles of Incorporation*..............................
           (2) Articles Supplementary*.................................
Exhibit B  By-Laws*....................................................
Exhibit C  Not applicable..............................................
Exhibit D  (1) Form of Stock Certificate*..............................
           (2) Form of Subscription Certificate**......................
           (3) Form of Notice of Guaranteed Delivery**.................
           (4) Form of DTC Participant Oversubscription Exercise
           Form**......................................................
           (5) Form of Nominee Holder Over-Subscription
           Certification**.............................................
           (6) Form of Subscription, Distribution and Escrow Agency
           Agreement**.................................................
Exhibit E  Automatic Dividend Reinvestment and Voluntary Cash Purchase
           Plan*.......................................................
Exhibit F  Not applicable..............................................
Exhibit G  Investment Advisory Agreement between the Fund and Gabelli
           Funds LLC*..................................................
Exhibit H  Not applicable..............................................
Exhibit I  Not applicable..............................................
Exhibit J  Custodial Contract between the Fund and Boston Safe Deposit
           and Trust Company*..........................................
Exhibit K  (1) Registrar, Transfer Agency and Service Agreement between
           the Fund and State Street Bank and Trust Company*...........
           (2) Transfer Agent and Registrar Services Fee Agreement
           between the Fund and State Street Bank and Trust Company*...
Exhibit L  (1) Opinion and consent of Willkie Farr & Gallagher**.......
           (2) Opinion and consent of Venable, Baetjer and Howard,
           LLP**.......................................................
Exhibit M  Not applicable..............................................
Exhibit N  (1) Consent of PricewaterhouseCoopers LLP**.................
           (2) Power of Attorney**.....................................
Exhibit O  Not applicable..............................................
Exhibit P  Purchase Agreement between the Fund and The Gabelli Equity
           Trust Inc.* ................................................
Exhibit Q  Not applicable..............................................
Exhibit R  Code of Ethics**............................................
</TABLE>


- ---------------
 * Previously filed.
** Filed herewith.

                                       C-7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.D.2
<SEQUENCE>2
<FILENAME>y42087a2ex99-d_2.txt
<DESCRIPTION>FORM OF SUBSCRIPTION CERTIFICATE
<TEXT>

<PAGE>   1

                                                                   EXHIBIT D(II)

        VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT BEFORE 5:00 P.M.
                      NEW YORK TIME ON THE EXPIRATION DATE

CONTROL NO.
- ----------------                 MAXIMUM PRIMARY SUBSCRIPTION SHARES AVAILABLE
                              -------------------------------------------------

                         THE GABELLI EQUITY TRUST INC.
                      SUBSCRIPTION RIGHTS FOR COMMON STOCK

Dear Shareholder:

    IN ORDER TO EXERCISE YOUR RIGHTS, YOU MUST COMPLETE BOTH SIDES OF THE TEAR
OFF CARD.

    As the registered owner of the Subscription Certificate below, you are
entitled to subscribe for the number of shares of Common Stock, $.001 par value
per share, of The Gabelli Equity Trust Inc. (the "Fund"), shown above pursuant
to the Primary Subscription Right and upon the terms and conditions and at the
Subscription Price for each share of Common Stock specified in the Prospectus
relating thereto. The Rights represented hereby include the Over-Subscription
Privilege for Rights holders, as described in the Prospectus. Under the
Privilege, any number of additional shares may be purchased by a Rights holder
if such shares are available and the holder's Primary Subscription Rights have
been fully exercised to the extent possible.

    Registered owners who are participants in The Gabelli Equity Trust Inc.
Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan will receive
their primary and oversubscription shares via an uncertificated share credit to
their existing accounts. To request a stock certificate, participants in the
plan must check Box D on the reverse side of the Subscription Certificate below.
Registered owners who are not participants in the plan will be automatically
issued stock certificates. Stock certificates for primary share subscriptions
will be delivered as soon as practicable after receipt of the required completed
Subscription Certificate and after full payment has been received and cleared.
Stock certificates for oversubscriptions and confirmation statements reflecting
uncertificated share credits for dividend reinvestment accounts will be
delivered as soon as practicable after the Expiration Date and after all
allocations have been effected.

                     THE SUBSCRIPTION RIGHT IS TRANSFERABLE

    PAYMENT MUST BE IN UNITED STATES DOLLARS. ONLY MONEY ORDERS OR CHECKS DRAWN
ON A BANK LOCATED IN THE CONTINENTAL UNITED STATES (OR FOR CANADIAN RESIDENTS
ONLY, ON A BANK LOCATED IN CANADA) AND MADE PAYABLE TO THE GABELLI EQUITY TRUST
INC. WILL BE ACCEPTED. PLEASE REFERENCE YOUR RIGHTS CARD CONTROL NUMBER ON YOUR
CHECK, MONEY ORDER OR NOTICE OF GUARANTEED DELIVERY.

 -------------------------------------------------------------------------------

        VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT BEFORE 5:00 P.M.
                      NEW YORK TIME ON THE EXPIRATION DATE

CONTROL NO.
- ----------------
CUSIP NO.
- ----------------          RIGHTS REPRESENTED BY THIS SUBSCRIPTION
                          CERTIFICATE

                          -------------------------------------------------
                                   ACCOUNT NO.

                     -----------------------------------------------------------

                         THE GABELLI EQUITY TRUST INC.
                      SUBSCRIPTION RIGHTS FOR COMMON STOCK
          (COMPLETE APPROPRIATE SECTION ON REVERSE SIDE OF THIS FORM)

    The registered owner of this Subscription Certificate named below, or
assigns, is entitled to the number of Rights to subscribe for the Common Stock,
$.001 par value, of The Gabelli Equity Trust Inc. (the "Fund") shown above, in
the ratio of one share of Common Stock for each six Rights, pursuant to the
Primary Subscription Right and upon the terms and conditions and at the price
for each share of Common Stock specified in the Prospectus relating thereto. The
Rights represented hereby include the Over-Subscription Privilege for Record
Date Stockholders only, as described in the Prospectus. Under this Privilege,
any number of additional shares may be purchased by a Record Date Stockholder if
such shares are available and the owner's Primary Subscription Rights have been
fully exercised to the extent possible and the pro rata allocation requirements
have been satisfied. Stock certificates for the shares subscribed for pursuant
to the Primary Subscription Right will be delivered as soon as practicable after
receipt of the required completed Subscription Certificate and after full
payment has been received and cleared. Stock certificates for the shares
subscribed for pursuant to the Over-Subscription Privilege will be delivered as
soon as practicable after the Expiration Date and after all allocations have
been effected. Registered owners who are participants in The Gabelli Equity
Trust Inc. Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan will
receive their primary and oversubscription shares via an uncertificated share
credit to their existing accounts. To request a stock certificate, participants
in the plan should check Box D on the reverse side of this form. Any refund in
connection with an over-subscription will be delivered as soon as practicable
after the Expiration Date and after all allocations have been effected. The
Subscription Certificate may be transferred in the same manner and with the same
effect as in the case of a negotiable instrument payable to specific persons, by
duly completing and signing the assignment on the reverse side hereof. To
subscribe pursuant to the Primary Subscription Right or the Over-Subscription
Privilege, six Rights and the Subscription Price are required for each share of
Common Stock. Payment of the $    per share must accompany the Subscription
Certificate. See reverse side of forms.
<PAGE>   2

To subscribe for your primary shares please complete line "A" on the card below.

Example:

100 shares = 100 rights (100 rights will be AUTOMATICALLY rounded up to 102
rights, the nearest number of rights divisible by six)

102 rights divided by 6 = 17 primary shares

The maximum number of primary subscription shares would be 17.

<TABLE>
<C>  <C>              <S>
 A.        17         x  $____ = $_____
     (No. of shares)
</TABLE>

If you are not subscribing for your full Primary Subscription, check box "E"
below and we will attempt to sell any remaining unexercised Rights.

To subscribe for any over-subscription shares please complete line "B" below.

PLEASE NOTE:  Only Record Date Stockholders who have exercised their Primary
Subscription in full may apply for shares pursuant to the Over-Subscription
Privilege.

PAYMENT OF SHARES:  Full payment for both the primary and over-subscription
shares or a notice of guaranteed delivery must accompany this subscription.
Please reference your rights card control number on your check, money order or
notice of guaranteed delivery.

    If the aggregate Subscription Price paid by a Record Date Stockholder is
insufficient to purchase the number of shares of Common Stock that the holder
indicates are being subscribed for, or if a Record Date Stockholder does not
specify the number of shares of Common Stock to be purchased, then the Record
Date Stockholder will be deemed to have exercised first, the Primary
Subscription Right (if not already fully exercised) and second, the
Over-Subscription Privilege to purchase shares of Common Stock to the full
extent of the payment rendered. If the aggregate Subscription Price paid by a
Record Date Stockholder exceeds the amount necessary to purchase the number of
shares of Common Stock for which the Record Date Stockholder has indicated an
intention to subscribe, then the Record Date Stockholder will be deemed to have
exercised first, the Primary Subscription Right (if not already fully exercised)
and second, the Over-Subscription Privilege to the full extent of the excess
payment tendered.

 -------------------------------------------------------------------------------

               Expiration Date January  , 2001 (unless extended)
To: EQUISERVE
   Attention: Corporate Actions

                    PLEASE FILL IN ALL APPLICABLE INFORMATION

                                    By Mail:
                                 P.O. Box 9573
                             Boston, MA 02205-9573

                             By Overnight Courier:
                              40 Campanelli Drive
                              Braintree, MA 02184

<TABLE>
<C>  <S>                        <C>              <C>               <C>  <C>
 A.  Primary Subscription       _____________ x         $           =   $________
     (6 Rights = 1 share)       (No. of Shares)  (Purchase Price)
 B.  Over-Subscription
     Privilege                  _____________ x         $           =   $________(1)
                                   (Shares)      (Purchase Price)
 C.  Amount of Check Enclosed
                                                                    =   $________
     (or amount in notice of guaranteed delivery)
 D.  IF YOU CURRENTLY PARTICIPATE IN THE FUND'S AUTOMATIC DIVIDEND REINVESTMENT
     AND CASH PURCHASE PLAN AND WISH TO RECEIVE A CERTIFICATE, CHECK HERE [ ]
</TABLE>

                                 By Facsimile:
                                 (781) 575-4826

With the original Subscription Certificate to be sent by mail, hand or overnight
courier. Confirm facsimile by telephone to (781) 575-4816

                                    By Hand:

                Securities Transfer and Reporting Services, Inc.
                                 c/o EquiServe
                           100 Williams St. Galleria
                               New York, NY 10038

E. Sell any Remaining Rights [ ]

F. Sell all of my Rights [ ]

(1) The Over-Subscription Privilege can be exercised only by a Record Date
    Stockholder, as described in the Prospectus, and only if the Rights
    initially issued to him are exercised to the fullest extent possible.

- --------------------------------------------------------------------------------

SECTION 1. TO SUBSCRIBE: I hereby irrevocably subscribe for the face amount of
Common Stock indicated as the total of A and B hereon upon the terms and
conditions specified in the Prospectus relating thereto, receipt of which is
acknowledged. I hereby agree that if I fail to pay for the shares of Common
Stock for which I have subscribed, the Fund may exercise any of the remedies set
forth in the Prospectus.

           TO SELL: If I have checked either the box on line E or on line F, I
authorize the sale of Rights by the Subscription Agent according to the
procedures described in the Prospectus.

- ------------------------------------------------------------------

- ------------------------------------------------------------------
Signature(s) of Subscriber(s)

- ------------------------------------------------------------------
Address for delivery of Shares if other than shown on front

If permanent change of address, check here [ ]

Please give your telephone number: (  ) _______________

Please give your e-mail address: ___________________
SECTION 2. TO TRANSFER RIGHTS (except pursuant to E or F above):
   For value received, ________ of the Rights represented by the Subscription
   Certificate are assigned to:

- ------------------------------------------------------------------
                         (Print Full Name of Assignee)

- ------------------------------------------------------------------
                              (Print Full Address)

- ------------------------------------------------------------------
                          Signature(s) of Assignee(s)

IMPORTANT: The Signature(s) must correspond in every particular, without
           alteration, with the name(s) as printed on your Subscription
           Certificate.

Your signature must be guaranteed by:
 a) a commercial bank or trust company or
 b) a member firm of a domestic stock exchange or
 c) a savings bank or credit union.

Signature
- ----------------------------------------------------------
                                (Name of Bank or Firm)

Guaranteed By:
- -----------------------------------------------------
                             (Signature of Officer and Title)

                                       ----------------------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.D.3
<SEQUENCE>3
<FILENAME>y42087a2ex99-d_3.txt
<DESCRIPTION>FORM OF NOTICE OF GUARANTEED DELIVERY
<TEXT>

<PAGE>   1

                                                                  EXHIBIT d(iii)

                         NOTICE OF GUARANTEED DELIVERY
                         FOR SHARES OF COMMON STOCK OF

                         THE GABELLI EQUITY TRUST INC.
                   SUBSCRIBED FOR UNDER PRIMARY SUBSCRIPTION
                      AND THE OVER-SUBSCRIPTION PRIVILEGE

As set forth in the Prospectus, this form or one substantially equivalent hereto
may be used as a means of effecting subscription and payment for all shares of
the Fund's Common Stock (the "Shares") subscribed for under the Primary
Subscription and the Over-Subscription Privilege. Such form may be delivered by
hand or sent by facsimile transmission, overnight courier or first class mail to
the Subscription Agent.

                           THE SUBSCRIPTION AGENT IS:

                                   EQUISERVE
                          Attention: Corporate Actions

<TABLE>
<S>                                            <C>
                  BY MAIL:                                     BY FACSIMILE:
                P.O. Box 9573                                 (781) 575-4826
            Boston, MA 02205-9573
</TABLE>

                            CONFIRM BY TELEPHONE TO:
                                 (781) 575-4816

<TABLE>
<S>                                            <C>
            BY OVERNIGHT COURIER:                                BY HAND:
             40 Campanelli Drive                Securities Transfer and Reporting Services, Inc.
             Braintree, MA 02184                               c/o EquiServe
                                                         100 Williams St. Galleria
                                                            New York, NY 10038
</TABLE>

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A
TELECOPY FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A
VALID DELIVERY.

The New York Stock Exchange member firm or bank or trust company which completes
this form must communicate this guarantee and the number of Shares subscribed
for in connection with this guarantee (separately disclosed as to the Primary
Subscription and the Over-Subscription Privilege) to the Subscription Agent and
must deliver this Notice of Guaranteed Delivery of Payment, guaranteeing
delivery of (a) payment in full for all subscribed Shares and (b) a properly
completed and signed copy of the Subscription Certificate (which certificate and
full payment must then be delivered no later than the close of business of the
third business day after the Expiration Date, unless extended) to the
Subscription Agent prior to 5:00 p.m., New York time, on the Expiration Date,
unless extended. Failure to do so will result in a forfeiture of the Rights.

                                   GUARANTEE

The undersigned, a member firm of the New York Stock Exchange or a bank or trust
company having an office or correspondent in the United States, guarantees
delivery to the Subscription Agent by no later than 5:00 p.m., New York time, on
January   , 2001 (unless extended as described in the Prospectus) of (a) a
properly completed and executed Subscription Certificate and (b) payment of the
full Subscription Price for Shares subscribed for on Primary Subscription and
for any additional Shares subscribed for pursuant to the Over-Subscription
Privilege, as subscription for such Shares is indicated herein or in the
Subscription Certificate.

                           (continued on other side)
<PAGE>   2

                                                       BROKER ASSIGNED CONTROL #
                                                                       ---------


                         THE GABELLI EQUITY TRUST INC.


<TABLE>
<C>  <S>                    <C>                    <C>                    <C>
 1.  Primary Subscription   Number of Rights to    Number of Primary      Payment to be made in
                            be exercised           Shares requested for   connection with
                                                   which you are          Primary Shares
                                                   guaranteeing delivery
                                                   of Rights and Payment
                            ________ Rights        ________ Shares        $________
                                                   (Rights / by 6)

 2.  Over-Subscription                             Number of Over-        Payment to be made in
                                                   Subscription Shares    connection with Over-
                                                   requested for which    Subscription Shares
                                                   you are guaranteeing
                                                   payment
                                                   ________ Shares        $____________

 3.  Totals                 Total Number of
                            Rights to be
                            Delivered

                            ________ Rights                               $____________
                                                                          Total Payment
</TABLE>

Method of delivery (circle one)

A.  Through DTC

B.  Direct to EquiServe, as Subscription Agent. Please reference below the
    registration of the Rights to be delivered.

                      ------------------------------------

                      ------------------------------------

                      ------------------------------------

PLEASE SIGN A UNIQUE CONTROL NUMBER FOR EACH GUARANTEE SUBMITTED.  This number
needs to be referenced on any direct delivery of Rights or any delivery through
DTC. In addition, please note that if you are guaranteeing for Over-Subscription
Privilege Shares and are a DTC participant, you must also execute and forward to
EquiServe a DTC Participant Over-Subscription Exercise form.

<TABLE>
<S>                                                <C>

- --------------------------------------------       --------------------------------------------
Name of Firm                                       Authorized Signature

- --------------------------------------------       --------------------------------------------
DTC Participant Number                             Title

- --------------------------------------------       --------------------------------------------
Address                                            Name (Please Type or Print)

- --------------------------------------------       --------------------------------------------
                                    Zip Code       Phone Number

- --------------------------------------------       --------------------------------------------
Contact Name                                       Date
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.D.4
<SEQUENCE>4
<FILENAME>y42087a2ex99-d_4.txt
<DESCRIPTION>FORM OF DTC PARTICIPATION OVERSUBSCRIPTION FORM
<TEXT>

<PAGE>   1

                                                                   EXHIBIT d(iv)

                         THE GABELLI EQUITY TRUST INC.
                                RIGHTS OFFERING

                DTC PARTICIPANT OVER-SUBSCRIPTION EXERCISE FORM

THIS FORM IS TO BE USED ONLY BY DEPOSITORY TRUST COMPANY PARTICIPANTS TO
EXERCISE THE OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO
WHICH THE PRIMARY SUBSCRIPTION WAS EXERCISED AND DELIVERED THROUGH THE
FACILITIES OF THE DEPOSITORY TRUST COMPANY. ALL OTHER EXERCISES OF
OVER-SUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE
SUBSCRIPTION CERTIFICATES.
                      ------------------------------------

THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE COMPANY'S
PROSPECTUS DATED                , 2000 (THE "PROSPECTUS") AND ARE INCORPORATED
HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM
THE COMPANY AND THE SUBSCRIPTION AGENT.
                      ------------------------------------

VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT BY 5:00 PM, NEW YORK CITY TIME,
ON JANUARY   , 2001, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE").
                      ------------------------------------

1.  The undersigned hereby certifies to the Company and the Subscription Agent
that it is a participant in The Depository Trust Company ("DTC") and that it has
either (i) fully exercised its Rights under the Primary Subscription and
delivered such exercised Rights to the Subscription Agent by means of transfer
to the DTC account of the Subscription Agent or (ii) delivered to the
Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise of
the Rights under the Primary Subscription and will deliver the Rights called for
in such Notice of Guaranteed Delivery to the Subscription Agent by means of
transfer to such DTC account of the Subscription Agent.

2.  The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, ____________ shares of Common Stock and
certifies to the Company and the Subscription Agent that such Over-Subscription
Privilege is being exercised for the account or accounts of persons (which may
include the undersigned) on whose behalf all Primary Subscription Rights have
been exercised.

3.  The undersigned understands that payment of the Subscription Price of $
per share for each share of Common Stock subscribed for pursuant to the
Over-Subscription Privilege must be received by the Subscription Agent at or
before 5:00 p.m., New York City time, on the Expiration Date and represents that
such payment, in the aggregate amount of $________, either (check appropriate
box):

     [ ] has been or is being delivered to the Subscription Agent pursuant to
the Notice of Guaranteed Delivery referred to above

               or

     [ ] is being delivered to the Subscription Agent herewith

               or

     [ ] has been delivered separately to the Subscription Agent;

                           (continued on other side)
<PAGE>   2

        and, in the case of funds not delivered pursuant to a Notice of
        Guaranteed Delivery, is or was delivered in the manner set forth below
        (check appropriate box and complete information relating thereto):

     [ ] uncertified check

     [ ] certified check

     [ ] bank draft

- ------------------------------------
 Primary Subscription Confirmation
               Number

- ------------------------------------
       DTC Participant Number

- ------------------------------------
      Name of DTC Participant

For allocation purposes, the total number of record date shares owned by the
persons on whose behalf this Over-Subscription Privilege is being exercised were
________________________.

Registration into which shares, interest and/or refund checks should be issued:

Name:
- ----------------------------------------------

      ----------------------------------------------------

Address:
- --------------------------------------------

       ---------------------------------------------------

       ---------------------------------------------------

Certified TIN:
- --------------------------------------

By:
- -------------------------------------------------
Name:
Title:

Contact Name:
- -------------------------------------

Phone Number:
- ------------------------------------

Dated:             , 200
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.D.5
<SEQUENCE>5
<FILENAME>y42087a2ex99-d_5.txt
<DESCRIPTION>FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION CERT.
<TEXT>

<PAGE>   1

                                                                    EXHIBIT d(v)

                         THE GABELLI EQUITY TRUST INC.
                                RIGHTS OFFERING

                 NOMINEE HOLDER OVER-SUBSCRIPTION CERTIFICATION
                   PLEASE COMPLETE ALL APPLICABLE INFORMATION

<TABLE>
<S>                                  <C>                                  <C>
   By Express Mail or Overnight                   By Mail:                                    By Hand:
              Courier:
             EquiServe                            EquiServe               Securities Transfer and Reporting Services, Inc.
      Att: Corporate Actions               Att: Corporate Actions                          c/o EquiServe
        40 Campanelli Drive                     P.O. Box 9573                        100 Williams St. Galleria
  Braintree, Massachusetts 02184            Boston, MA 02205-9573                        New York, NY 10038
</TABLE>

     THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE OVER-
SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE PRIMARY
SUBSCRIPTION PRIVILEGE WAS EXERCISED IN FULL AND DELIVERED THROUGH THE
FACILITIES OF A COMMON DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION
PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES.

     THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED                , 2000 (THE "PROSPECTUS") AND ARE INCORPORATED
HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM
THE SUBSCRIPTION AGENT.

     VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL OR WITH
A PROPERLY COMPLETED NOTICE OF GUARANTEED DELIVERY BEFORE 5:00 P.M., NEW YORK
CITY TIME, ON JANUARY   , 2001, UNLESS EXTENDED BY THE FUND (THE "EXPIRATION
DATE").

     1.  The undersigned hereby certifies to the Subscription Agent that it is a
participant in ____________ [Name of Depository] (the "Depository") and that it
has either (i) exercised the Primary Subscription in respect of the Rights and
delivered such exercised Rights to the Subscription Agent by means of transfer
to the Depository Account of the Subscription Agent or (ii) delivered to the
Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise of
the Primary Subscription Privilege and will deliver the Rights called for in
such Notice of Guaranteed Delivery to the Subscription Agent by means of
transfer to such Depository Account of Subscription Agent.

     2.  The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, ____________ shares of Common Stock and
certifies to the Subscription Agent that such Over-Subscription Privilege is
being exercised for the account or accounts of persons (which may include the
undersigned) on whose behalf all Primary Subscription Rights have been
exercised.*

     3.  The undersigned understands that payment of the Subscription Price of
$   per share for each share of Common Stock subscribed for pursuant to the
Over-Subscription Privilege must be received by the Subscription Agent before
5:00 p.m., New York City time, on the Expiration Date, unless a Notice of
Guaranteed Delivery is used, in which case, payment in full must be received by
the Subscription Agent no later than the close of business on the third business
day after the Expiration Date and represents that such payment, in the aggregate
amount of $________, either
<PAGE>   2

                            (check appropriate box)

     [ ] has been or is being delivered to the Subscription Agent pursuant to
         the Notice of Guaranteed Delivery referred to above

               or

     [ ] is being delivered to the Subscription Agent herewith

               or

     [ ] has been delivered separately to the Subscription Agent; and, in the
         case of funds not delivered pursuant to a Notice of Guaranteed
         Delivery, is or was delivered in the manner set forth below (check
         appropriate box and complete information relating thereto):

       [ ] uncertified check

       [ ] certified check

       [ ] bank draft

- --------------------------------------------------------------------------------
Primary Subscription Confirmation Number

<TABLE>
<S>                                                <C>
                                                   --------------------------------------------
                                                   Name of Nominee Holder

- --------------------------------------------       --------------------------------------------
Depository Participant Number                      Address

Contact Name:
  -------------------------------------
                                                   --------------------------------------------
                                                   City                State                Zip
                                                   Code

Phone Number:
  ------------------------------------

                                                   By:
                                                   --------------------------------------------

                                                   Name:
                                                   --------------------------------------------

                                                   Title:
                                                   --------------------------------------------
</TABLE>

Dated:             , 200

* PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE POSITION
OF RIGHTS OWNED, THE NUMBER OF PRIMARY SHARES SUBSCRIBED AND THE NUMBER OF
OVER-SUBSCRIPTION SHARES, IF APPLICABLE, REQUESTED BY EACH SUCH OWNER.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.D.6
<SEQUENCE>6
<FILENAME>y42087a2ex99-d_6.txt
<DESCRIPTION>FORM OF SUBSCRIPTION, DISTRIBUTION & ESCROW AGREMT
<TEXT>

<PAGE>   1

                                                                   EXHIBIT d(vi)

             SUBSCRIPTION, DISTRIBUTION AND ESCROW AGENCY AGREEMENT

     This Subscription, Distribution and Escrow Agency Agreement (the
"Agreement") is made as of October 21, 1991 between The Gabelli Equity Trust
Inc., a Maryland Corporation ("Gabelli") and State Street Bank and Trust
Company, a national banking association, as subscription, distribution and
escrow agent ("Agent").

     WHEREAS, Gabelli proposes to make a subscription offer by issuing
certificates or other evidences of subscription rights, in the form designated
by Gabelli ("Subscription Certificates") to shareholders of record ("Record Date
Shareholders") of its Common Capital Stock as of a record date specified by
Gabelli (the "Record Date"), pursuant to which each Record Date Shareholder will
have certain rights (the "Rights") to subscribe to shares of Gabelli Common
Capital Stock, par value $.001 ("Common Capital Stock"), as described in and
upon such terms as are set forth in the prospectus (the "Prospectus") included
in the Form N-2 Registration Statement filed by Gabelli with the Securities and
Exchange Commission on September 13, 1991, as amended by any amendment filed
with respect thereto (the "Registration Statement");

     WHEREAS, Gabelli wishes the Agent to perform certain acts on behalf of
Gabelli, and the Agent is willing to so act, in connection with the distribution
of the Subscription Certificates and the issuance and exercise of the Rights to
subscribe therein set forth, all upon the terms and conditions set forth herein;

     NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties agree as follows:

          1. Pursuant to resolution of its Board of Directors Gabelli hereby
     appoints and authorizes the Agent to act on its behalf in accordance with
     the provisions hereof, and the Agent hereby accepts such appointment and
     agrees to so act.

          2. (a) Each Subscription Certificate shall evidence the Rights of the
     Record Date Shareholder therein named to purchase Common Capital Stock upon
     the terms and conditions therein and herein set forth.

            (b) Upon the written advice of Gabelli, signed by its Chairman,
     President, Secretary or Assistant Secretary, as to the Record Date, the
     Agent shall, from a list of Gabelli Shareholders as of the Record Date to
     be prepared by the Agent in its capacity as Transfer Agent of Gabelli,
     prepare and record Subscription Certificates in the names of the Record
     Date Shareholders, setting forth the number of Rights to subscribe to
     Gabelli Common Capital Stock calculated on the basis of one Right for each
     share of Common Capital Stock recorded on the Gabelli books in the name of
     each such Record Date Shareholder as of the Record Date. Each Subscription
     Certificate shall be dated as of the Record Date and shall be executed
     manually or by facsimiles signature of a duly authorized Officer of
     Gabelli. Upon the written advice, signed as aforesaid, as to the effective
     date of the Registration Statement, the Agent shall as promptly as
     practicable countersign and deliver the Subscription Certificates, together
     with a copy of the Prospectus, to all Record Date Shareholders. No
     Subscription Certificate shall be valid for any purpose unless so executed.
     Should any Officer whose signature has been placed upon any Subscription
     Certificate cease to hold such office at any time thereafter, such event
     shall have no effect on the validity of such Subscription Certificate.

          3. (a) Each Subscription Certificate shall be irrevocable and fully
     transferable. The Agent shall, in its capacity as Transfer Agent of Gabelli
     maintain a register of Subscription Certificates and the holders of record
     thereof (each of whom shall be deemed a "Record Date Shareholder" hereunder
     for purposes of determining the rights of holders of Subscription
     Certificates). Each Subscription Certificate shall, subject to the
     provisions thereof, entitle the Record Date Shareholder in whose name it is
     recorded to the following:
<PAGE>   2

             (1) The right (the "Basic Subscription Right") to purchase a number
        of shares of Common Capital Stock equal to one share of Common Capital
        Stock for every six Subscription Rights; provided, however, that no
        fractional shares of Common Capital Stock shall be issued; and

             (2) The right (the "Oversubscription Right") to purchase from
        Gabelli additional shares of Common Capital Stock, subject to the
        availability of such shares and to allotment of such shares as may be
        available among Record Date Shareholders who exercise Oversubscription
        Rights on the basis specified in the Prospectus; provided, however, that
        a Record Date Shareholder who has not exercised his Basic Subscription
        Rights with respect to the full number of shares that such Record Date
        Shareholder is entitled to purchase by virtue of his Basic Subscription
        Rights as of the Expiration Date, if any, shall not be entitled to any
        Oversubscription Rights.

            (b) A Record Date Shareholder may exercise his Basic Subscription
     Rights and Oversubscription Rights by delivery to the Agent at its
     corporate office specified in the Prospectus of (i) the Subscription
     Certificate with respect thereto, duly executed by such Record Date
     Shareholder in accordance with and as provided by the terms and conditions
     of the Subscription Certificate, together with (ii) the purchase price of
     $8.00 for each share of Common Capital Stock subscribed for by exercise of
     such Rights, in United States dollars in cash, by check, or bank draft
     drawn on a bank in the continental United States or by postal, telegraphic,
     or express money order, in each case payable to the order of Gabelli.

            (c) Rights may be exercised at any time after the date of issuance
     of the Subscription Certificates with respect thereto but no later than
     5:00 P.M. Eastern Daylight Time on such date as Gabelli shall designate to
     the Agent in writing (the "Expiration Date"). For the purpose of
     determining the time of the exercise of any Rights, delivery of any
     material to the Agent shall be deemed to occur when such materials are
     received at the corporate office of the Agent specified in the Prospectus.

            (d) Not withstanding the provisions of Section 3(b) and 3(c)
     retarding delivery of an executed Subscription Certificate to the Agent
     prior to 5:00 P.M. Eastern Daylight Time on the Expiration Date, if prior
     to such time the Agent receives notice of guaranteed delivery by telegram
     or otherwise from a bank, trust company or a New York Stock Exchange member
     guaranteeing delivery of (i) full payment for shares purchased and
     subscribed for by virtue of a Rights Holder's Rights, and (ii) a properly
     completed and executed Subscription Certificate, then such exercise of
     Basic Subscription Rights and Oversubscription Rights shall be regarded as
     timely, subject, however, to receipt of the duly executed Subscription
     Certificate and full payment for the Capital Common Stock by the Agent
     within five business days after the Expiration Date (as defined in the
     Prospectus).

            (e) Within five business days following the Expiration Date (the
     "Confirmation Date"), the Agent shall send a confirmation to each
     Shareholder (or, if shares of Common Capital Stock on the Record Date are
     held by Cede & Co. or any other depository or nominee, to Cede & Co. or
     such other depository or nominee), showing (i) the number of shares
     acquired pursuant to the Basic Subscription Rights, (ii) the number of
     shares, if any, acquired pursuant to the Oversubscription Rights, (iii) the
     per share and total purchase price for the shares, (iv) any amount payable
     to the Shareholder pursuant to Section 9, and (v) any excess to be refunded
     by Gabelli to such Shareholder, in each case based on the Subscription
     Price. Any excess payment to be refunded by Gabelli to a Shareholder, shall
     be mailed by the Agent to the Shareholder within fifteen business days
     after the Expiration Date, as provided in Section 6 below.

          4. If, after allocation of shares of Common Capital Stock to persons
     exercising Basic Subscription Rights, there remain unexercised Rights, then
     the Agent shall allot the shares issuable upon exercise of such unexercised
     Rights (the "Remaining Shares") to persons exercising Oversubscription
     Rights, in the amounts of such oversubscriptions. If the number of shares
     for which Oversubscription Rights have been exercised is greater than the
     Remaining Shares, the Agent shall allot the Remaining Shares to the persons
     exercising Oversubscription Rights pro rata based solely on the number of
     Basic Subscription Rights exercised by each of them. The Agent shall advise
     Gabelli immediately upon the completion of the allocation set forth above
     as to the total number of shares subscribed and distributable.
<PAGE>   3

          5. (a) The Agent, will deliver (i) certificates representing those
     shares purchased pursuant to exercise of Basic Subscription Rights as soon
     as practicable after the corresponding Rights have been validly exercised
     and full payment for such shares has been received and cleared; (ii)
     certificates representing those shares purchased pursuant to the exercise
     of Oversubscription Rights as soon as practicable after the Expiration Date
     and after all allocations have been effected; (iii) in the case of each
     Rights Holder whose rights were sold pursuant to Section 9, within fifteen
     business days after the Expiration Date, proceeds of such sale (provided,
     however, that proceeds of sales on behalf of Record Dale Shareholders whose
     Subscription Certificates are undeliverable shall be held by the Agent
     until they are either claimed or escheated); (iv) in the case of each
     Record Date Shareholder who subscribed, pursuant to the exercise of
     Oversubscription Rights, for a greater number of shares than was allotted
     to such Record Date Shareholder under Section 4, within fifteen business
     days after the Expiration Date, a refund (and interest on such) in the
     amount of the difference between the purchase price delivered for the
     shares subscribed for pursuant to the exercise of such Oversubscription
     Rights and the purchase price of the shares so allotted under Section 4 (an
     "Excess Payment").

          6. (a) All proceeds received by the Agent from Rights holders in
     respect of the exercise of rights shall be held by the Agent, on behalf of
     Gabelli, in a segregated, interest-bearing escrow account (the "Escrow
     Account"). Pending disbursement in the manner described in Section 6(b)
     below, Funds held in the Escrow Account shall be invested by the Agent at
     the direction of Gabelli.

            (b) The Agent shall deliver all proceeds received in respect of this
     exercise of the Rights (including interest earned thereon) to Gabelli as
     promptly as practicable, but in no event later than fifteen business days
     after the Confirmation Date. Proceeds held in respect of Excess Payments
     (including interest earned thereon) shall be refunded to Record Date
     Shareholders entitled to such a refund within fifteen business days after
     the Expiration Date.

          7. The Agent shall promptly advise Gabelli as to the date of delivery
     of Common Capital Stock hereunder and shall supply Gabelli with a certified
     list of Shareholders as of the Record Date.

          8. The Agent shall account promptly to Gabelli with respect to Rights
     exercised and concurrently account for all monies received and returned by
     the Agent with respect to the purchase of shares of Common Capital Stock
     upon the exercise of Rights.

          9. The Agent shall use its best efforts to sell on the New York Stock
     Exchange, on the terms set forth in the Prospectus, (i) all Rights
     submitted to it for sale by Rights Holders in accordance with the
     Prospectus, provided such Rights are received by the Agent at least one day
     prior to the Expiration Date, (ii) all Rights of Record Date Shareholders
     whose Subscription Certificates remain unclaimed as a result of being
     returned by postal authorities as undeliverable as of one business day
     prior to the Expiration Date, and (iii) all rights a Rights Holder is
     unable to exercise because such rights represent the right to subscribe for
     less than one share. Such sales will be made through a broker or brokers
     selected by the Subscription Agent, and the Agent shall deliver the
     proceeds of such sales to the Rights Holder net of commissions charged by
     such broker or brokers.

          10. In the event the Agent does not receive, within five business days
     after the Expiration Date, any amount due from a Rights Holder as specified
     in Section 3(e), then it shall take such action with respect to such Rights
     Holder's Subscription Rights as may be instructed in writing by Gabelli,
     including without limitation (i) applying any payment actually received by
     it toward the purchase of the greatest whole number of shares of Common
     Capital Stock which could be acquired with such payment, (ii) allocating
     the shares subject to such Subscription Rights to one or more other Record
     Date Shareholders, and (iii) selling all or a portion of the shares of
     Common Capital Stock deliverable upon exercise of such Subscription Rights
     on the open market, and applying the proceeds thereof to the amount owed.

          11. No Subscription Certificate shall entitle a Rights Holder to vote
     or receive dividends or be deemed the holder of shares of Common Capital
     Stock for any purpose, nor shall anything contained in any Subscription
     Certificate be construed to confer upon any Rights Holder any of the rights
     of a shareholder of Gabelli or any right to vote, give or withhold consent
     to any action by Gabelli (whether
<PAGE>   4

     upon any recapitalization, issue of stock, reclassification of stock,
     consolidation, merger, conveyance or otherwise), receive notice of meetings
     of other action affecting shareholders, or receive dividends or otherwise,
     until the Rights evidenced thereby shall have been exercised and the shares
     of Common Capital Stock purchasable upon the exercise thereof shall have
     become deliverable as provided in this Agreement and in the Prospectus.

          12. If any Subscription Certificate is lost, stolen, mutilated, or
     destroyed the Agent may, on such terms which will indemnify Gabelli as the
     Agent may in its discretion impose (which shall, in the case of a
     Subscription Certificate include the surrender thereof), issue a new
     Subscription Certificate of like denomination in substitution for the
     Subscription Certificate so lost, stolen or mutilated or destroyed.

          13. (a) Gabelli covenants that all shares of Common Capital Stock
     issued on exercise of Rights set forth in the Subscription Certificates
     will be validly issued, fully paid, nonassessable and free of preemptive
     rights.

              (b) Gabelli shall furnish to the Agent, upon request, an opinion
     of counsel satisfactory to the Agent to the effect that a registration
     statement under the Securities Act of 1933, as amended (the "Act"), is then
     in effect with respect to its shares of Common Capital Stock issuable upon
     exercise of the Rights set forth in the Subscription Certificates. Upon
     written advice to the Agent that the Securities and Exchange Commission
     shall have issued or threatened to have issued any order preventing or
     suspending the use of the Prospectus, or if for any reason it shall be
     necessary to amend or supplement the Prospectus in order to comply with the
     Act, the Agent shall cease acting hereunder until receipt of written
     instructions from Gabelli and such assurances as it may reasonably request
     that it may comply with such instruction without violations of the Act.

          14. (a) Any corporation into which the Agent may be merged or
     converted or with which it may be consolidated, or any corporation
     resulting from any merger, conversion or consolidation to which the Agent
     shall be a party, or any corporation succeeding to the corporate trust
     business of the Agent, shall be the successor to the Agent hereunder
     without the execution or filing of any of the parties hereto, provided that
     such corporation would be eligible for appointment as a successor Agent. In
     case at the time such successor to the Agent shall succeed to the agency
     created by this Agreement, any of the Subscription Certificates shall have
     been countersigned but not delivered, any such successor to the Agent may
     adopt the countersignature of the original Agent and deliver such
     Subscription Certificates so countersigned, and in case at that time any of
     the Subscription Certificates shall not have been countersigned, any
     successor to the Agent may countersign such Subscription Certificates
     either in the name of the predecessor Agent or in the name of the successor
     Agent, and in all such cases such Subscription Certificates shall have the
     full force provided in the Subscription Certificates and in this Agreement.

              (b) In case at any time the name of the Agent shall be changed and
     at such time any of the Subscription Certificates shall have been
     countersigned but not delivered, the Agent may adopt the countersignature
     under its prior name and deliver Subscription Certificates so
     countersigned, and in case at that time any of the Subscription
     Certificates shall not have been countersigned, the Agent may countersign
     such Subscription Certificates either in its prior name or in its changed
     name, and in all such cases such Subscription Certificates shall have the
     full force provided in the Subscription Certificates and in this Agreement.

          15. Gabelli agrees to pay to the Agent from time to time, on demand of
     the Agent, reasonable compensation for all services rendered by it
     hereunder and also its reasonable expenses and other disbursements incurred
     in the administration and execution of this Agreement and the exercise and
     performance of its duties hereunder.

          16. The Agent undertakes the duties and obligations imposed by this
     Agreement upon the following terms and conditions:

              (a) Whenever in the performance of its duties under this Agreement
     the Agent shall deem it necessary or desirable that any fact or matter be
     proved or established, prior to taking or suffering any action hereunder,
     such fact or matter (unless other evidence in respect thereof is herein
     specifically
<PAGE>   5

     prescribed) may be deemed to be conclusively proved and established by a
     certificate signed by the Chairman of the Board or President or a Vice
     President or the Secretary or Assistant Secretary or the Treasurer of
     Gabelli delivered to the Agent, and such certificate shall be full
     authorization to the Agent for any action taken or suffered in good faith
     by it under the provisions of this Agreement in reliance upon such
     certificate.

              (b) The Agent shall not be responsible for and Gabelli shall
     indemnify and hold the Agent harmless from and against, any and all losses,
     damages, costs, charges, counsel fees, payments, expenses and liability
     arising out of or attributable to all actions of the Agent or its agents or
     subcontractors required to be taken pursuant to this Agreement, provided
     that such actions are taken in good faith and without negligence or willful
     misconduct.

              (c) The Agent shall be liable hereunder only for its own
     negligence or willful misconduct.

              (d) Nothing herein shall preclude the Agent from acting in any
     other capacity for Gabelli or for any other legal entity.

              (e) The Agent is hereby authorized and directed to accept
     instructions with respect to the performance of its duties hereunder from
     any officer or assistant officer of Gabelli and to apply to any such
     officer of Gabelli for advice or instructions in connection with its
     duties, and shall be indemnified and not be liable for any action taken or
     suffered by it in good faith in accordance with instructions of any officer
     or assistant officer.

              (f) The Agent shall be indemnified and shall incur no liability
     for or in respect of any action taken, suffered, or omitted by it in
     reliance upon any Subscription Certificate or certificate for Common
     Capital Stock, instrument of assignment or transfer, power of attorney,
     endorsement, affidavit, letter, notice, direction, consent, certificate,
     statement, or other paper or document that it reasonably believes to be
     genuine and to be signed, executed and, where necessary, verified or
     acknowledged, by the proper person or persons.

              (g) Neither party to this Agreement shall be liable to the other
     party for consequential damages under any provision of this Agreement of
     for any consequential damages arising out of any act or failure to act
     hereunder.

          17. The Agent, may without the consent or concurrence of the
     Shareholders in whose names Subscription Certificates are registered, by
     supplemental agreement or otherwise, concur with Gabelli in making any
     changes or corrections in a Subscription Certificate that it shall have
     been advised by counsel (who may be counsel for Gabelli) is appropriate to
     cure any ambiguity or to correct any defective or inconsistent provision or
     clerical omission or mistake or manifest error therein or herein contained,
     and which shall not be inconsistent with the provisions of the Subscription
     Certificate except insofar as any such change may confer additional rights
     upon the Rights Holders.

          18. Assignment

             a. Except as provided in Section c below, neither this Agreement
                nor any rights or obligations hereunder may be assigned by
                either party without the written consent of the other party.

             b. This Agreement shall inure to the benefit of and be binding upon
                the parties and their respective permitted successors and
                assigns.

             c. The Agent may, without further consent on the part of Gabelli,
                subcontract for the performance hereof with (i) Boston Financial
                Data Services, Inc., a Massachusetts corporation ("BFDS") which
                is duly registered as a transfer agent pursuant to Section
                17(c)(1) of the Securities Exchange Act of 1934 ("Section
                A(c)(1)"), or (ii) the current third party vendor utilized by
                BFDS; provided, however, that the Agent shall be as fully
                responsible to Gabelli for the acts and omissions of any
                subcontractor as it is for its own acts and omissions.

          19. All the covenants and provisions of this Agreement by or for the
     benefit of Gabelli, or the Agent shall bind and insure to the benefit of
     their respective successors and assigns hereunder.
<PAGE>   6

          20. The validity, interpretation and performance of this Agreement
     shall be governed by the law of the Commonwealth of Massachusetts.

<TABLE>
<S>                                                    <C>
STATE STREET BANK AND TRUST COMPANY                    THE GABELLI EQUITY TRUST, INC.

By:                                                    By:
    -------------------------------------------------  -------------------------------------------------
    Vice President                                         Vice President

Dated:
 -------------------------------------------------     Dated:
                                                       -----------------------------------------------
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.L.1
<SEQUENCE>7
<FILENAME>y42087a2ex99-l_1.txt
<DESCRIPTION>OPINION & CONSENT OF WILLKIE FARR & GALLAGHER
<TEXT>

<PAGE>   1
                                                                Exhibit L (1)
                     [WILLKIE FARR & GALLAGHER LETTERHEAD]


December 1, 2000

The Gabelli Equity Trust Inc.
One Corporate Center
Rye, New York 10580-1435

Ladies and Gentlemen:

We have acted as counsel to The Gabelli Equity Trust Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, in connection
with the issuance of up to 17,896,103 shares (the "Shares") of its common stock,
par value $.001 per share (the "Common Stock"), pursuant to the exercise of
rights (the "Rights") to purchase Common Stock to be distributed to the
shareholders of the Fund (the "Offer") in accordance with the Fund's
Registration Statement on Form N-2 (File Nos. 333-47012 and 811-4700) under the
Securities Act of 1933, as amended, and under the Investment Company Act of
1940, as amended (the "Registration Statement").

We have examined copies of the Articles of Incorporation and By-Laws of the
Fund, as amended, the Registration Statement, resolutions adopted by the Fund's
Board of Directors and other records and documents that we have deemed necessary
for the purpose of this opinion. We have also examined such other documents,
papers, statutes and authorities as we have deemed necessary to form a basis for
the opinion hereinafter expressed. We have assumed that the Fund has no
"Principal Shareholder" as defined in Article VIII of the Fund's Articles of
Incorporation and have relied upon a certificate of the Assistant Secretary of
the Fund to the effect that the Fund has no knowledge of any such Principal
Shareholder.

In our examination, we have assumed the genuineness of all signatures and the
conformity to original documents of all copies submitted to us. As to various
questions of fact material to our opinion, we have relied upon statements and
certificates of officers and representatives of the Fund and others. As to
matters governed by the laws of Maryland, we have relied upon the opinion of
Messrs. Venable, Baetjer and Howard, LLP that is attached to this opinion.

Based upon the foregoing, we are of the opinion that, when the purchase price
for the Shares has been determined by the duly appointed Pricing Committee of
the Board of Directors as authorized by the Board of Directors, the Shares to be
issued upon exercise of the Rights will have been duly authorized and that when
the Shares have been sold, issued and paid for as contemplated by the
Registration
<PAGE>   2
December 1, 2000
Page 2


Statement, the Shares will have been validly and legally issued and will be
fully paid and non-assessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus included as part of the Registration Statement. We do
not thereby admit that we are "experts" as that term is used in the Securities
Act of 1933, as amended, and the regulations thereunder.



Very truly yours,


/s/ Willkie Farr & Gallagher
- ----------------------------









</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.L.2
<SEQUENCE>8
<FILENAME>y42087a2ex99-l_2.txt
<DESCRIPTION>OPINION & CONSENT OF VENABLE BAETJER & HOWARD LLP
<TEXT>

<PAGE>   1
                                                                Exhibit L (2)
                               December 1, 2000



Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York  10019-6099

               Re:    The Gabelli Equity Trust Inc.

Ladies and Gentlemen:

               We have acted as special Maryland counsel for The Gabelli Equity
Trust Inc., a Maryland corporation (the "Fund"), in connection with the issuance
of up to 17,896,103 shares (the "Shares") of its common stock, $.001 par value
per share (the "Common Stock") pursuant to the exercise of rights (the "Rights")
to purchase Common Stock to be distributed to the Fund's stockholders in
accordance with the Fund's Registration Statement on Form N-2 (File No.
333-47012) (the "Registration Statement").

               As Maryland counsel for the Fund, we are familiar with its
Charter and Bylaws. We have examined the prospectus with respect to the Rights
contained in the Registration Statement, substantially in the form in which it
is to become effective (the "Prospectus"), and the form of subscription
certificate for exercise of the Rights. We have examined and relied upon a
certificate of the Maryland State Department of Assessments and Taxation to the
effect that the Fund is duly incorporated and existing under the laws of the
State of Maryland and is in good standing and duly authorized to transact
business in the State of Maryland. We have further examined and relied upon a
certificate of an officer of the Fund with respect to the Fund's Charter and
Bylaws and certain action taken by its Board of Directors, among other matters
addressed in the certificate. We have examined and relied upon such corporate
records of the Fund and other documents and certificates as to factual matters
as we have deemed necessary to render the opinion expressed herein.

               We have assumed that the Fund has no "Principal Shareholder" as
defined in Article VIII of the Fund's Charter and have relied upon a certificate
of an officer of the Fund to the effect that the Fund has no knowledge of any
such "Principal Shareholder." We have also assumed, without independent
verification, the authenticity of all documents submitted to us as originals,
the conformity with originals of all documents submitted to us as copies, and
the genuineness of all signatures.

<PAGE>   2
Willkie Farr & Gallagher
December 1, 2000
Page 2



               Based on such examination, we are of the opinion and so advise
you that when the purchase price for the Shares has been determined by the duly
appointed Pricing Committee of the Board of Directors as authorized by the Board
of Directors, the Shares of Common Stock to be issued upon exercise of the
Rights will have been duly authorized and that when the Shares have thereafter
been sold, issued and paid for as contemplated by the Registration Statement,
the Shares will have been validly and legally issued and will be fully paid and
nonassessable.

               This letter expresses our opinion with respect to the Maryland
General Corporation Law governing matters such as the authorization and issuance
of stock. It does not extend to the securities laws or "Blue Sky" laws of
Maryland, to federal securities laws or to other laws.

               You may rely upon our foregoing opinion in rendering your opinion
to the Fund that is to be filed as an exhibit to the Registration Statement. We
consent to the filing of this opinion as an exhibit to the Registration
Statement and the reference to us under the caption "Legal Matters" in the
Prospectus. We do not thereby admit that we are "experts" as that term is used
in the Securities Act of l933 and the regulations thereunder.

                                Very truly yours,



                               /s/ Venable, Baetjer and Howard, LLP







</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.N.1
<SEQUENCE>9
<FILENAME>y42087a2ex99-n_1.txt
<DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS LLP
<TEXT>

<PAGE>   1
                                                                   EXHIBIT N (1)

                       CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to the incorporation by reference in this Registration
Statement on Form N-2 of our report dated February 11, 2000, relating to the
financial statements and financial highlights of The Gabelli Equity Trust Inc.
which appear in the December 31, 1999 Annual Report to Shareholders of The
Gabelli Equity Trust Inc. which is also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights", "Experts", "Counsel and Independent
Accountants" and "Financial Statements" in such Registration Statement.



/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
New York, New York
December 1, 2000








</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.N.2
<SEQUENCE>10
<FILENAME>y42087a2ex99-n_2.txt
<DESCRIPTION>POWER OF ATTORNEY
<TEXT>

<PAGE>   1
                                                                Exhibit N (2)
                                POWER OF ATTORNEY


        We, the undersigned, hereby severally constitute and appoint Mario J.
Gabelli, Bruce N. Alpert and J. Hamilton Crawford, and each of them singly, true
and lawful attorneys, with full power to them and each of them, to sign for us,
and in our hands and in the capacities indicated below, any and all Registration
Statements on Form N-2 of The Gabelli Equity Trust Inc., and any and all
amendments thereto, and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission, granting unto said attorneys, and each of
them acting alone, full authority and power to do and perform each and every act
and thing requisite or necessary to be done in the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys or any or them may lawfully do or cause to be
done by virtue thereof.

        WITNESS our hands as of the dates set forth below:

<TABLE>
<CAPTION>
Signature:                          Title:                              Date:
- ---------                           -----                               ----
<S>                                 <C>                                <C>

/s/ Mario J. Gabelli                Chairman of the Board
- --------------------
Mario J. Gabelli


/s/ Paul R. Ades                    Director
- ----------------
Paul R. Ades


/s/ Dr. Thomas E. Bratter           Director
- -------------------------
Dr. Thomas E. Bratter


/s/ Bill Callaghan                  Director
- ------------------
Bill Callaghan


/s/ Felix J. Christiana             Director
- -----------------------
Felix J. Christiana


/s/ James P. Conn                   Director
- ----------------------
James P. Conn


/s/ Karl Otto Pohl                  Director
- ------------------
Karl Otto Pohl


/s/ Anthony R. Pustorino            Director
- ------------------------
Anthony R. Pustorino


/s/ Salvatore J. Zizza              Director
- ----------------------
Salvatore J. Zizza
</TABLE>







</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.R
<SEQUENCE>11
<FILENAME>y42087a2ex99-r.txt
<DESCRIPTION>CODE OF ETHICS
<TEXT>

<PAGE>   1
                                                                       EXHIBIT R

                                    SECTION S

                                 CODE OF ETHICS

Gabelli Funds, LLC
GAMCO Investors, Inc.
Gabelli & Company, Inc.
Gabelli Advisers, Inc.
Gabelli Fixed Income LLC

Each Registered Investment Company
      or series thereof (each of which
      is considered to be a Company
      for this purpose) for which any
      of the Companies listed above
      presently or hereafter provides
      investment advisory or principal
      underwriting services, other than a
      money market fund or a fund
      that does not invest in Securities.

                                  INTRODUCTION

        This Code of Ethics establishes rules of conduct for persons who are
associated with the companies named above or with the registered investment
companies for which such companies provide investment advisory or principal
underwriter services. The Code governs their personal investment and other
investment-related activities.

        The basic rule is very simple: put the client's interests first. The
rest of the rules elaborate this principle. Some of the rules are imposed
specifically by law. For example, the laws that govern investment advisers
specifically prohibit fraudulent activity, making statements that are not true
or that are misleading or omit something that is significant in the context and
engaging in manipulative practices. These are general words, of course, and over
the years the courts, the regulators and investment advisers have interpreted
these words and established codes of conduct for their employees and others who
have access to their investment decisions and trading activities. Indeed, the
rules obligate investment advisers to adopt written rules that are reasonably
designed to prevent the illegal activities described above and must follow
procedures that will enable them to prevent such activities.

        This Code is intended to assist the companies in fulfilling their
obligations under the law. The first part lays out who the Code applies to, the
second part deals with personal investment activities, the third part deals with
other sensitive business practices, and subsequent parts deal with reporting and
administrative procedures.
<PAGE>   2

        The Code is very important to the companies and their employees.
Violations can not only cause the companies embarrassment, loss of business,
legal restrictions, fines and other punishments but for employees can lead to
demotion, suspension, firing, ejection from the securities business and very
large fines.

I.      APPLICABILITY

        A.     The Code applies to each of the following:

               1.   The Companies named or described at the top of page one of
                    the Code and all entities that are under common management
                    with these Companies or otherwise agree to be subject to the
                    Code ("Affiliates"). A listing of the Affiliates, which is
                    periodically updated, is attached as Exhibit A.

               2.   Any officer, director or employee of any Company, Affiliate
                    or Fund Client (as defined below) whose job regularly
                    involves him in the investment process. This includes the
                    formulation and making of investment recommendations and
                    decisions, the purchase and sale of securities for clients
                    and the utilization of information about investment
                    recommendations, decisions and trades. Due to the manner in
                    which the Companies and the Affiliates conduct their
                    business, every employee should assume that he is subject to
                    the Code unless the Compliance Officer specifies otherwise.

               3.   With respect to all of the Companies, Affiliates and Fund
                    Clients except Gabelli & Company, Inc., any natural person
                    who controls any of the Companies, Affiliates or Fund
                    Clients and who obtains information regarding the Companies'
                    or the Affiliates' investment recommendations or decisions.
                    However, a person whose control arises only as a result of
                    his official position with such entity is excluded.
                    Disinterested directors of Fund Clients and independent
                    directors of the Companies (excluding Gabelli & Company,
                    Inc.), Gabelli Asset Management Inc., and Gabelli Group
                    Capital Partners, Inc., for example, are excluded from
                    coverage under this item.

               4.   With respect to all of the Companies and Fund Clients except
                    Gabelli & Company, Inc., any director, officer, general
                    partner or person performing a similar function even if he
                    has no knowledge of and is not involved in the investment
                    process. Disinterested directors of Fund Clients and
                    independent directors of the Companies (excluding Gabelli &
                    Company, Inc.) and Affiliates are included in coverage under
                    this item.

               5.   As an exception, the Code does not apply to any director,
                    officer or employee of any Fund Client (such as certain of
                    The Gabelli Westwood Funds) with respect to which the
                    Companies' services do not involve the
<PAGE>   3

                    formulation or making of investment recommendations or
                    decisions or the execution of portfolio transactions if that
                    person is also a director, officer or employee of any entity
                    that does perform such services (such as Westwood Management
                    Corp.). These individuals are covered by codes of ethics
                    adopted by such entities.

        B.     Definitions

               1.   ACCESS PERSONS. The Companies and the persons described in
                    items (A)2 and (A)3 above other than those excluded by item
                    (A)5 above.

               2.   ACCESS PERSON ACCOUNT. Includes all advisory, brokerage,
                    trust or other accounts or forms of direct beneficial
                    ownership in which one or more Access Persons and/or one or
                    more members of an Access Person's immediate family have a
                    substantial proportionate economic interest. Immediate
                    family includes an Access Person's spouse and minor children
                    living with the Access Person. A substantial proportionate
                    economic interest will generally be 10% of the equity in the
                    account in the case of any single Access Person and 25% of
                    the equity in the account in the case of all Access Persons
                    in the aggregate, whichever is first applicable. Investment
                    partnerships and similar indirect means of ownership other
                    than registered open-end investment companies are also
                    treated as accounts.

                    As an exception, accounts in which one or more Access
                    Persons and/or their immediate family have a substantial
                    proportionate interest which are maintained with persons who
                    have no affiliation with the Companies and with respect to
                    which no Access Person has, in the judgment of the
                    Compliance Officer after reviewing the terms and
                    circumstances, any direct or indirect influence or control
                    over the investment or portfolio execution process are not
                    Access Person Accounts.

                    As a further exception, subject to the provisions of Article
                    II(I)7, bona fide market making accounts of Gabelli &
                    Company, Inc. are not Access Person Accounts.

                    As a further exception, subject to the provisions of Article
                    II(I)7, bona fide error accounts of the Companies and the
                    Affiliates are not Access Person Accounts.

               3.   ASSOCIATE PORTFOLIO MANAGERS. Access Persons who are engaged
                    in securities research and analysis for designated Clients
                    or are responsible for investment recommendations for
                    designated Clients but who are not principally responsible
                    for investment decisions with respect to any Client
                    accounts.
<PAGE>   4

               4.   CLIENTS. Investment advisory accounts maintained with any of
                    the Companies or Affiliates by any person, other than Access
                    Person Accounts. However, Fund Clients covered by item
                    (A)(5) above are considered Client accounts only with
                    respect to employees specifically identified by the
                    Compliance Officer as having regular information regarding
                    investment recommendations or decisions or portfolio
                    transactions for such Fund Clients.

               5.   COMPANIES. The companies named or described at the top of
                    page one of the Code.

               6.   COMPLIANCE OFFICER. The persons designated as the compliance
                    officers of the Companies.

               7.   COVERED PERSONS. The Companies, the Access Persons and the
                    persons described in item (A)4 above.

               8.   FUND CLIENTS. Clients that are registered investment
                    companies or series thereof.

               9.   PORTFOLIO MANAGERS. Access Persons who are principally
                    responsible for investment decisions with respect to any
                    Client accounts.

               10.  SECURITY. Any financial instrument treated as a security for
                    investment purposes and any related instrument such as a
                    futures, forward or swap contract entered into with respect
                    to one or more securities, a basket of or an index of
                    securities or components of securities. However, the term
                    security does not include securities issued by the
                    Government of the United States, bankers' acceptances, bank
                    certificates of deposit, commercial paper and high quality
                    short-term debt instruments, including repurchase
                    agreements, or shares of registered open-end investment
                    companies.

II.     RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES

        A.     Basic Restriction on Investing Activities

               If a purchase or sale order is pending or under active
               consideration for any Client account by any Company or Affiliate,
               neither the same Security nor any related Security (such as an
               option, warrant or convertible security) may be bought or sold
               for any Access Person Account.

        B.     Initial Public Offerings
<PAGE>   5

               No Security or related Security may be acquired in an initial
               public offering for any Access Person Account.


<PAGE>   6

        C.     Blackout Period

               No Security or related Security may be bought or sold for the
               account of any Portfolio Manager or Associate Portfolio Manager
               during the period commencing seven (7) days prior to and ending
               seven (7) calendar days after the purchase or sale (or entry of
               an order for the purchase or sale) of that Security or any
               related Security for the account of any Client with respect to
               which such person has been designated a Portfolio Manager or
               Associate Portfolio Manager, unless the Client account receives
               at least as good a price as the account of the Portfolio Manager
               or Associate Portfolio Manager and the Compliance Officer
               determines under the circumstances that the Client account has
               not been adversely affected (including with respect to the amount
               of such Security able to be bought by the Client account) by the
               transaction for the account of the Portfolio Manager or Associate
               Portfolio Manager.

        D.     Short-term Trading

               No Security or related Security may, within a 60 day period, be
               bought and sold or sold and bought at a profit for any Access
               Person Account if the Security or related Security was held at
               any time during that period in any Client account.

        E.     Exempt Transactions

               Participation on an ongoing basis in an issuer's dividend
               reinvestment or stock purchase plan, participation in any
               transaction over which no Access Person had any direct or
               indirect influence or control and involuntary transactions (such
               as mergers, inheritances, gifts, etc.) are exempt from the
               restrictions set forth in paragraphs (A) and (C) above without
               case by case preclearance under paragraph (G) below.

        F.     Permitted Exceptions

               Purchases and sales of the following Securities for Access Person
               Accounts are exempt from the restrictions set forth in paragraphs
               A, C and D above if such purchases and sales comply with the
               pre-clearance requirements of paragraph (G) below:

               1.   Non-convertible fixed income Securities rated at least "A";

               2.   Equity Securities of a class having a market capitalization
                    in excess of $1 billion;

               3.   Equity Securities of a class having a market capitalization
                    in excess of $500 million if the transaction in question and
                    the aggregate amount of such Securities and any related
                    Securities purchased and sold for the
<PAGE>   7

                    Access Person Account in question during the preceding 60
                    days does not exceed 100 shares;

               4.   Municipal Securities; and

               5.   Securities transactions effected for federal, state or local
                    income tax purposes that are identified to the Compliance
                    Officer at the time as being effected for such purposes.

               In addition, the exercise of rights that were received pro rata
               with other security holders is exempt if the pre-clearance
               procedures are satisfied.

        G.     Pre-Clearance of Personal Securities Transactions

               No Security may be bought or sold for an Access Person Account
               unless (i) the Access Person obtains prior approval from the
               Compliance Officer or, in the absence of the Compliance Officer,
               from the general counsel of Gabelli Asset Management Inc.; (ii)
               the approved transaction is completed on the same day approval is
               received; and (iii) the Compliance Officer or the general counsel
               does not rescind such approval prior to execution of the
               transaction (See paragraph I below for details of the
               Pre-Clearance Process.)

        H.     Private Placements

               The Compliance Officer will not approve purchases or sale of
               Securities that are not publicly traded, unless the Access Person
               provides full details of the proposed transaction (including
               written certification that the investment opportunity did not
               arise by virtue of such person's activities on behalf of any
               Client) and the Compliance Officer concludes, after consultation
               with one or more of the relevant Portfolio Managers, that the
               Companies would have no foreseeable interest in investing in such
               Security or any related Security for the account of any Client.

        I.     Pre-Clearance Process

               1.   No Securities may be purchased or sold for any Access Person
                    Account unless the particular transaction has been approved
                    in writing by the Compliance Officer or, in his absence, the
                    general counsel of Gabelli Asset Management Inc. The
                    Compliance Officer shall review not less frequently than
                    weekly reports from the trading desk (or, if applicable,
                    confirmations from brokers) to assure that all transactions
                    effected for Access Person Accounts are effected in
                    compliance with this Code.

               2.   No Securities may be purchased or sold for any Access Person
                    Account other than through the trading desk of Gabelli &
                    Company, Inc., unless express permission is granted by the
                    Compliance Officer. Such
<PAGE>   8

                    permission may be granted only on the condition that the
                    third party broker supply the Compliance Officer, on a
                    timely basis, duplicate copies of confirmations of all
                    personal Securities transactions for such Access Person in
                    the accounts maintained with such third party broker and
                    copies of periodic statements for all such accounts.

               3.   A Trading Approval Form, attached as Exhibit B, must be
                    completed and submitted to the Compliance Officer for
                    approval prior to entry of an order.

               4.   After reviewing the proposed trade, the level of potential
                    investment interest on behalf of Clients in the Security in
                    question and the Companies' restricted lists, the Compliance
                    Officer shall approve (or disapprove) a trading order on
                    behalf of an Access Person as expeditiously as possible. The
                    Compliance Officer will generally approve transactions
                    described in paragraph (F) above unless the Security in
                    question or a related security is on the Restricted List or
                    the Compliance Officer believes for any other reason that
                    the Access Person Account should not trade in such Security
                    at such time.

               5.   Once an Access Person's Trading Approval Form is approved,
                    the form must be forwarded to the trading desk (or, if a
                    third party broker is permitted, to the Compliance Officer)
                    for execution on the same day. If the Access Person's
                    trading order request is not approved, or is not executed on
                    the same day it is approved, the clearance lapses although
                    such trading order request maybe resubmitted at a later
                    date.

               6.   In the absence of the Compliance Officer, an Access Person
                    may submit his or her Trading Approval Form to the general
                    counsel of Gabelli Asset Management Inc. Trading approval
                    for the Compliance Officer must be obtained from the general
                    counsel, and trading approval for the general counsel must
                    be obtained from the Compliance Officer. In no case will the
                    Trading Desk accept an order for an Access Person Account
                    unless it is accompanied by a signed Trading Approval Form.

               7.   The Compliance Officer shall review all Trading Approval
                    Forms, all initial, quarterly and annual disclosure
                    certifications and the trading activities on behalf of all
                    Client accounts with a view to ensuring that all Covered
                    Persons are complying with the spirit as well as the
                    detailed requirements of this Code. The Compliance Officer
                    will review all transactions in the market making accounts
                    of Gabelli & Company, Inc. and the error accounts of the
                    Companies and the Affiliates in order to ensure that such
                    transactions are bona fide market making or error
                    transactions or are conducted in accordance with the
                    requirements of this Article II.
<PAGE>   9

III.    OTHER INVESTMENT-RELATED RESTRICTIONS

        A.     Gifts

               No Access Person shall accept any gift or other item of more than
               $100 in value from any person or entity that does business with
               or on behalf of any Client.

        B.     Service As a Director

               No Access Person shall commence service on the Board of Directors
               of a publicly traded company or any company in which any Client
               account has an interest without prior authorization from the
               Compliance Committee based upon a determination that the Board
               service would not be inconsistent with the interests of the
               Clients. The Compliance Committee shall include the senior
               Compliance Officer of Gabelli Asset Management Inc., the general
               counsel of Gabelli Asset Management Inc. and at least two of the
               senior executives from among the Companies.

IV.     REPORTS AND ADDITIONAL COMPLIANCE PROCEDURES

        A.      Every Covered Person, except independent directors of Affiliates
                of the Companies, must submit a report (a form of which is
                appended as Exhibit C) containing the information set forth in
                paragraph (B) below with respect to transactions in any Security
                in which such Covered Person has or by reason of such
                transaction acquires, any direct or indirect beneficial
                ownership (as defined in Exhibit D) in the Security, and with
                respect to any account established by the Covered Person in
                which any Securities were held for the direct or indirect
                benefit of the Covered Person; provided, however, that:

                1.  a Covered Person who is required to make reports only
                    because he is a director of one of the Fund Clients and who
                    is a "disinterested" director thereof need not make a report
                    with respect to any transactions other than those where he
                    knew or should have known in the course of his duties as a
                    director that any Fund Client of which he is a director has
                    made or makes a purchase or sale of the same or a related
                    Security within 15 days before or after the purchase or sale
                    of such Security or related Security by such director.

                2.  a Covered Person need not make a report with respect to any
                    transaction effected for, and Securities held in, any
                    account over which such person does not have any direct or
                    indirect influence or control; and

                3.  a Covered Person will be deemed to have complied with the
                    requirements of this Article IV insofar as the Compliance
                    Officer receives in a timely
<PAGE>   10

                    fashion duplicate monthly or quarterly brokerage statements
                    or transaction confirmations on which all transactions
                    required to be reported hereunder are described.

         B.     A Covered Person must submit the report required by this Article
                to the Compliance Officer no later than 10 days after the end of
                the calendar quarter in which the transaction or account to
                which the report relates was effected or established, and the
                report must contain the date that the report is submitted.

                1.  This report must contain the following information with
                    respect to transactions:

                    a.   The date of the transaction, the title and number of
                         shares and the principal amount of each Security
                         involved;

                    b.   The nature of the transaction (i.e., purchase, sale or
                         any other type of acquisition or disposition);

                    c.   The price at which the transaction was effected; and

                    d.   The name of the broker, dealer or bank with or through
                         whom the transaction was effected.

                2.  This report must contain the following information with
                    respect to accounts established:

                    a.   The name of the broker, dealer or bank with whom the
                         account was established; and

                    b.   The date the account was established.

         C.     Any report submitted to comply with the requirements of this
                Article IV may contain a statement that the report shall not be
                construed as an admission by the person making such report that
                he has any direct or indirect beneficial ownership in the
                Security to which the report relates. A person need not make any
                report under this Article IV with respect to transactions
                effected for, and Securities held in, any account over which the
                person has no direct or indirect influence or control

         D.     No later than 10 days after beginning employment with any of the
                Companies or Affiliates or otherwise becoming a Covered Person,
                each Covered Person (except for a "disinterested" director of
                the Fund Client, or an "independent" director of the Companies
                (other than Gabelli & Company, Inc.), or Gabelli Asset
                Management Inc. or Gabelli Group Capital Partners, Inc. who is
                required to submit reports solely by reason of being such a
                director) must submit a report containing the following
                information:
<PAGE>   11

               1.   The title, number of shares and principal amount of each
                    Security in which the Covered Person had any direct or
                    indirect beneficial ownership when the person became a
                    Covered Person;

               2.   The name of any broker, dealer or bank with whom the Covered
                    Person maintained an account in which any Securities were
                    held for the direct or indirect benefit of the Covered
                    Person as of the date the person became a Covered Person;
                    and

               3.   The date that the report is submitted.

               The form of such report is attached as Exhibit E.

         E.    Annually each Covered Person must certify that he has read and
               understood the Code and recognizes that he is subject to such
               Code. In addition, annually each Covered Person must certify
               that he has disclosed or reported all personal Securities
               transactions required to be disclosed or reported under the Code
               and that he is not subject to any regulatory disability
               described in the annual certification form. Furthermore, each
               Covered Person (except for a "disinterested" director of the
               Fund Client or an "independent" director of any of the Companies
               (other than Gabelli & Company, Inc.), Gabelli Asset Management
               Inc. or Gabelli Group Capital Partners, Inc. who is required to
               submit reports solely by reason of being such a director)
               annually must submit a report containing the following
               information (which information must be current as of a date no
               more than 30 days before the report is submitted):

               1.   The title, number of shares and principal amount of each
                    Security in which the Covered Person had any direct or
                    indirect beneficial ownership;

               2.   The name of any broker, dealer or bank with whom the Covered
                    Person maintains an account in which any Securities are held
                    for the direct or indirect benefit of the Covered Person;
                    and

               3.   The date that the report is submitted.

               The form of such certification and report is attached as Exhibit
               F.

         F.    At least annually (or quarterly in the case of Items 4 and 5
               below), each of the Companies that has a Fund Client or that
               provides principal underwriting services for a Fund Client shall,
               together with each Fund Client, furnish a written report to the
               Board of Directors of the Fund Client that:

               1.   Describes any issues arising under the Code since the last
                    report.
<PAGE>   12

               2.   Certifies that the Companies have developed procedures
                    concerning Covered Persons' personal trading activities and
                    reporting requirements relevant to such Fund Clients that
                    are reasonably necessary to prevent violations of the Code;

               3.   Recommends changes, if any, to the Fund Clients' or the
                    Companies' Codes of Ethics or procedures;

               4.   Provides a summary of any material or substantive violations
                    of this Code by Covered Persons with respect to such Fund
                    Clients which occurred during the past quarter and the
                    nature of any remedial action taken; and

               5.   Describes any material or significant exceptions to any
                    provisions of this Code of Ethics as determined under
                    Article VI below.

        G.     The Compliance Officer shall notify each employee of any of the
               Companies or Affiliates as to whether such person is considered
               to be an Access Person or Covered Person and shall notify each
               other person that is considered to be an Access Person or Covered
               Person.

V.      SANCTIONS

        Upon discovering that a Covered Person has not complied with the
        requirements of this Code, the Board of Directors of the relevant
        Company or of the relevant Fund Client, whichever is most appropriate
        under the circumstances, may impose on that person whatever sanctions
        the Board deems appropriate, including, among other things, disgorgement
        of profit, censure, suspension or termination of employment. Material
        violations of requirements of this Code by employees of Covered Persons
        and any sanctions imposed in connection therewith shall be reported not
        less frequently than quarterly to the Board of Directors of any relevant
        Company or Fund Client, as applicable.

VI.     EXCEPTIONS

        The Compliance Committee of the Companies reserves the right to decide,
        on a case-by-case basis, exceptions to any provisions under this Code.
        Any exceptions made hereunder will be maintained in writing by the
        Compliance Committee and presented to the Board of Directors of any
        relevant Fund Client at its next scheduled meeting.

VII.    PRESERVATION OF DOCUMENTS

        This Code, a copy of each report by a Covered Person, any written report
        made hereunder by the Companies or the Compliance Officer, lists of all
        persons required to make reports, a list of any exceptions, and the
        reasons therefor, with respect to Article II.B, and any records under
        Article II.G with respect to purchases pursuant to Article II.H above,
        shall
<PAGE>   13

        be preserved with the records of the relevant Company and any relevant
        Fund Client for the period required by Rule 17j-1.

VIII.   OTHER LAWS, RULES AND STATEMENTS OF POLICY

        Nothing contained in this Code shall be interpreted as relieving any
        Covered Person from acting in accordance with the provision of any
        applicable law, rule or regulation or any other statement of policy or
        procedure governing the conduct of such person adopted by the Companies,
        the Affiliates or the Fund Clients.

IX.     FURTHER INFORMATION

        If any person has any question with regard to the applicability of the
        provisions of this Code generally or with regard to any Securities
        transaction or transactions, he should consult the Compliance Officer.

<PAGE>   14

                                                                       EXHIBIT A


                       LIST OF AFFILIATES OF THE COMPANIES



ALCE Partners, L.P.
Darien Associates LLC
Gabelli Asset Management Inc.
Gabelli Associates Fund
Gabelli Associates Limited
Gabelli Fixed Income Distributors
Gabelli Fixed Income, Inc.
Gabelli Global Partners, L.P.
Gabelli Global Partners, Ltd.
Gabelli International Gold Fund Limited
Gabelli International Limited
Gabelli International II Limited
Gabelli International Securities Limited
Gabelli Multimedia Partners, L.P.
Gabelli Performance Partnership L.P.
Gabelli Securities, Inc.
Gemini Capital Management Ltd.
GLI, Inc.
Gabelli Group Capital Partners, Inc.
Gabelli Global Partners, L.P.
Gabelli Global Partners, Ltd.
Gabelli European Partners, Ltd.
Gabelli Fund, LDC
MJG Associates, Inc.
New Century Capital Partners, L.P.



<PAGE>   15



                                                                       EXHIBIT B

                       PRE-CLEARANCE TRADING APPROVAL FORM


I, ______________________________________ (name), am an Access Person or
authorized officer thereof and seek pre-clearance to engage in the transaction
described below for the benefit of myself or another Access Person:

Acquisition or Disposition (circle one)
- --------------------------

Name of Account:
                ---------------------------------------------------------------

Account Number:
               ----------------------------------------------------------------

Date of Request:
                ---------------------------------------------------------------

Security:
         ----------------------------------------------------------------------

Amount or # of Shares:
                      ---------------------------------------------------------

Broker:
       ------------------------------------------------------------------------

If the transaction involves a Security that is not publicly traded, a
description of proposed transaction, source of investment opportunity and any
potential conflicts of interest:



I hereby certify that, to the best of my knowledge, the transaction described
herein is not prohibited by the Code of Ethics and that the opportunity to
engage in the transaction did not arise by virtue of my activities on behalf of
any Client.

Signature:                                       Print Name:
          -------------------------------------             -------------------

Approved or Disapproved(Circle One)
- -----------------------

Date of Approval:
                 ------------------------------

Signature:                                       Print Name:
          -------------------------------------             -------------------

If approval is granted, please forward this form to the trading desk (or if a
third party broker is permitted, to the Compliance Officer) for immediate
execution.


<PAGE>   16



                                                                       EXHIBIT C


                               TRANSACTION REPORT


Report submitted by:
                    -----------------------------------------------------------
                                   Print Name



This transaction report (the "Report") is submitted pursuant to Section IV (B)
of the Code of Ethics of the Companies and supplies information with respect to
transactions in any Security in which you may be deemed to have, or by reason of
such transaction acquire, any direct or indirect beneficial ownership interest,
and with respect to accounts established by you in which any Securities were
held for your direct or indirect benefit, for the period specified below. If you
were not employed by or affiliated with us during this entire period, amend the
dates specified below to cover your period of employment or affiliation.

Unless the context otherwise requires, all terms used in the Report shall have
the same meaning as set forth in the Code of Ethics.

If you have no reportable transactions or new accounts, sign and return this
page only. If you have reportable transactions or new accounts, complete, sign
and return Page 2 and any attachments.




I HAD NO REPORTABLE SECURITIES TRANSACTIONS OR ACCOUNTS ESTABLISHED DURING THE
PERIOD     THROUGH    . I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF
ETHICS AND THAT, TO THE BEST OF MY KNOWLEDGE, THE INFORMATION FURNISHED IN THIS
REPORT IS TRUE AND CORRECT.



Signature
         ---------------------------------------------------------------------

Position
        ----------------------------------------------------------------------

Date
    --------------------------------------------------------------------------

<PAGE>   17

                                                                          Page 2

                               TRANSACTION REPORT


Report submitted by:
                    -----------------------------------------------------------
                                         Print Name


The following tables supply the information required by Section IV (B) of the
Code of Ethics for the period specified below. Transactions reported on
brokerage statements or duplicate confirmations actually received by the
Compliance Officer do not have to be listed although it is your responsibility
to make sure that such statements or confirmations are complete and have been
received in a timely fashion.

<TABLE>
<CAPTION>
                                               TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------

                             Whether Purchase,                                        Name of
                              Sale, Short Sale                                  Broker/Dealer with    Nature of
  Securities                  or Other Type of                     Price per      or through Whom     Ownership
  (Name and       Date of      Disposition or     Quantity of      Share or       the Transaction        of
   Symbol)      Transaction     Acquisition        Securities     Other Unit       was Effected      Securities
   -------      -----------     -----------        ----------     ----------       ------------      ----------
<S>              <C>          <C>                 <C>             <C>           <C>                   <C>

</TABLE>




<TABLE>
<CAPTION>
                                    NEW ACCOUNTS ESTABLISHED
- -------------------------------------------------------------------------------------------------
Name of Broker, Dealer or Bank            Account Number             Date Account Established
- ------------------------------            --------------             ------------------------
<S>                                      <C>                        <C>

</TABLE>





* To the extent specified above, I hereby disclaim beneficial ownership of any
securities listed in this Report or brokerage statements or transaction
confirmations provided by me.


I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST
OF MY KNOWLEDGE, THE INFORMATION IN THIS REPORT IS TRUE AND CORRECT FOR THE
PERIOD OF      THROUGH      .


Signature                                       Date
          ---------------------------------           ------------------------

Position
         ------------------------------------------


<PAGE>   18


                                                                       EXHIBIT D

                              BENEFICIAL OWNERSHIP

For purposes of the attached Code of Ethics, "beneficial ownership" shall be
interpreted in the same manner as it would be in determining whether a person is
subject to the provisions of Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder, except the determination of direct or
indirect beneficial ownership shall apply to all securities that a Covered
Person has or acquires. The term "beneficial ownership" of securities would
include not only ownership of securities held be a Covered Person for his own
benefit, whether in bearer form or registered in his name or otherwise, but also
ownership of securities held for his benefit by others (regardless of whether or
how they are registered) such as custodians, brokers, executors, administrators,
or trustees (including trusts in which he has only a remainder interest), and
securities held for his account by pledges, securities owned by a partnership in
which he is a member if he may exercise a controlling influence over the
purchase, sale of voting of such securities, and securities owned by any
corporation or similar entry in which he owns securities if the shareholder is a
control-ling shareholder of the entity and has or shares investment control over
the entity's portfolio.

Ordinarily, this term would not include securities held by executors or
administrators in estates in which a Covered Person is a legatee or beneficiary
unless there is a specified legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.

Securities held in the name of another should be considered as beneficially
owned by a Covered Person where such person enjoys "financial benefits
substantially equivalent to ownership." The Securities and Exchange Commission
has said that, although the final determination of beneficial ownership is a
question to be determined in the light of the facts of the particular case,
generally a person is regarded as the beneficial owner of securities held in the
name of his or her spouse and their minor children. Absent special circumstances
such relationship ordinarily results in such person obtaining financial benefits
substantially equivalent to ownership, e.g., application of the income derived
from such securities to maintain a common home, or to meet expenses that such
person otherwise would meet from other sources, or the ability to exercises a
controlling influence over the purchase, sale or voting of such securities.

A Covered Person also may be regarded as the beneficial owner of securities held
in the name of another person, if by reason of any contract, understanding,
relationship, agreement, or other agreement, he obtains therefrom financial
benefits substantially equivalent to those of ownership.

A Covered Person also is regarded as the beneficial owner of securities held in
the name of a spouse, minor children or other person, even though he does not
obtain therefrom the aforementioned benefits of ownership, if he can vest or
revest title in himself at once or at some future time.


<PAGE>   19



                                                                       EXHIBIT E

                             INITIAL HOLDINGS REPORT


Report submitted by:
                    -----------------------------------------------------------
                                   Print Name



This initial holdings report (the "Report") is submitted pursuant to Section IV
(D) of the Code of Ethics of the Companies and supplies information with respect
to any Security in which you may be deemed to have any direct or indirect
beneficial ownership interest and any accounts established by you in which any
Securities were held for your direct or indirect benefit, as of the date you
became subject to the Code of Ethics.

Unless the context otherwise requires, all terms used in the Report shall have
the same meaning as set forth in the Code of Ethics.

If you have no reportable Securities or accounts, sign and return this page
only. If you have reportable Securities or accounts, complete, sign and return
Page 2 and any attachments.








I HAVE NO REPORTABLE SECURITIES OR ACCOUNTS AS OF       . I CERTIFY THAT I AM
FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST OF MY KNOWLEDGE,
THE INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT.



Signature
         ----------------------------------------------------------------------

Position
        -----------------------------------------------------------------------

Date
    ---------------------------------------------------------------------------


<PAGE>   20





                                                                          Page 2

                             INITIAL HOLDINGS REPORT



Report submitted by:
                    -----------------------------------------------------------
                                         Print Name

The following tables supply the information required by Section IV (D) of the
Code of Ethics as of the date you became subject to the Code.



<TABLE>
<CAPTION>
                                              SECURITIES HOLDINGS
- ---------------------------------------------------------------------------------------------------------
                                                            Name of Broker/Dealer      Nature of Ownership of
Securities (Name and Symbol)   Quantity of Securities    Where Securities Are  Held          Securities
- ----------------------------   ----------------------    --------------------------          ----------
<S>                           <C>                        <C>                           <C>

</TABLE>









<TABLE>
<CAPTION>
                                               ACCOUNTS
- ---------------------------------------------------------------------------------------------------------
   Name of Broker, Dealer or Bank                        Account Number
   ------------------------------                        --------------
<S>                                                    <C>

</TABLE>






I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST
OF MY KNOWLEDGE, THE INFORMATION IN THIS REPORT IS TRUE AND CORRECT AS OF
__________________________________.



Signature                                        Date
          --------------------------------           ----------------------

Position
         ---------------------------------


<PAGE>   21


                                                                       EXHIBIT F


                     ANNUAL CERTIFICATION OF CODE OF ETHICS



A.      I (a Covered Person) hereby certify that I have read and understood the
        Code of Ethics dated February 15, 2000, and recognize that I am subject
        to its provisions. In addition, I hereby certify that I have disclosed
        or reported all personal Securities transactions required to be
        disclosed or reported under the Code of Ethics;

B.      Within the last ten years there have been no complaints or disciplinary
        actions filed against me by any regulated securities or commodities
        exchange, any self-regulatory securities or commodities organization,
        any attorney general, or any governmental office or agency regulating
        insurance, securities, commodities or financial transactions in the
        United States, in any state of the United States, or in any other
        country;

C.      I have not within the last ten years been convicted of or acknowledged
        commission of any felony or misdemeanor arising out of my conduct as an
        employee, salesperson, officer, director, insurance agent, broker,
        dealer, underwriter, investment manager or investment advisor; and

D.      I have not been denied permission or otherwise enjoined by order,
        judgment or decree of any court of competent jurisdiction, regulated
        securities or commodities exchange, self-regulatory securities or
        commodities organization or other federal or state regulatory authority
        from acting as an investment advisor, securities or commodities broker
        or dealer, commodity pool operator or trading advisor or as an
        affiliated person or employee of any investment company, bank, insurance
        company or commodity broker, dealer, pool operator or trading advisor,
        or from engaging in or continuing any conduct or practice in connection
        with any such activity or the purchase or sale of any security.

E.      Unless I am exempt from filing an Annual Holdings Report (as a
        "disinterested" director of a Fund Client or an independent director of
        an Affiliate), I have attached a completed Annual Holdings Report which
        is accurate as of a date no more than 30 days ago.




Print Name:
                  ----------------------------------------------------------

Signature:
                  ----------------------------------------------------------

Date:
                  ----------------------------------------------------------

<PAGE>   22

                                                                          Page 2

                             ANNUAL HOLDINGS REPORT



Report submitted by:
                    ----------------------------------------------------------
                                     Print Name


The following tables supply the information required by Section IV (E) of the
Code of Ethics as of a date no more than 30 days before this report is
submitted. If you have no reportable Securities holdings or accounts, write
"None" in the space provided.




<TABLE>
<CAPTION>
                                        SECURITIES HOLDINGS
- ------------------------------------------------------------------------------------------------------------------
                                                          Name of Broker/Dealer Where        Nature of Ownership
Securities (Name and Symbol)    Quantity of Securities       Securities Are Held                of Securities
- -----------------------------   ----------------------       -------------------                -------------
<S>                             <C>                       <C>                               <C>

</TABLE>








<TABLE>
<CAPTION>
                                              ACCOUNTS
- -----------------------------------------------------------------------------------------------------
Name of Broker, Dealer or Bank                                       Account Number
- ------------------------------                                       --------------
<S>                                                               <C>

</TABLE>










Signature                                        Date
          --------------------------------           --------------------------

Position
         ---------------------------------

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
