As filed with the Securities and Exchange Commission on March 22, 2002
Securities Act File No. 333-_____
Investment Company Act File No. 811-09243
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
--------------------
[X] Registration Statement under the Securities Act of 1933
[ ] Pre-Effective Amendment No. 1
[ ] Post-Effective Amendment No. 1
and/or
[X] Registration Statement under the Investment
Company Act of 1940 Amendment No. 3
(Check Appropriate Box or Boxes)
--------------------
THE GABELLI UTILITY TRUST
(Exact Name of Registrant as Specified in Charter)
--------------------
One Corporate Center
Rye, New York 10580-1434
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 422-3554
Bruce N. Alpert
The Gabelli Utility Trust
One Corporate Center
Rye, New York 10580-1434
(914) 921-5100
(Name and Address of Agent for Service)
--------------------
Copies to:
James E. McKee, Esq. Richard T. Prins, Esq.
The Gabelli Utility Trust Skadden, Arps, Slate, Meagher & Flom LLP
One Corporate Center Four Times Square
Rye, New York 10580 New York, New York 10036
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, as amended, other than securities offered in connection with a
dividend reinvestment plan, check the following box. [X]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Securities Being Offering Price Offering Price Registration
Being Registered Registered Per Share(1) (2) Fee
Shares of 100,000 10.03 1,003,000 $93
Common
beneficial interest
(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 March 21, 2002.
(2) Estimated solely for the purpose of calculating the registration fee.
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 WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND
EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
Notice to Canadian Residents:
These Securities Have Not Been Approved or Disapproved by any Securities or
Regulatory Authority in Canada.
CROSS-REFERENCE SHEET
PURSUANT TO RULE 481(a)
N-2 Item Number Location in Part A (Caption)
------------------------------------------------------------------------------------------------------------------
PART A
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; Table of Fees and
Expenses
4. Financial Highlights.................................Financial Highlights
5. Plan of Distribution.................................The Offer
6. Selling Shareholders.................................Not Applicable
7. Use of Proceeds......................................Use of Proceeds;
8. General Description of the Registrant................Investment Objectives and Policies; The
Offer; Risk Factors and Special
Considerations
9. Management...........................................Management of the Fund
10. Capital Stock........................................The Offer; Capitalization; Custodian,
Transfer Agent, Dividend-Disbursing Agent
and Registrar; Dividends and Distributions;
Taxation
11. Defaults and Arrears on Senior
Securities...........................................Not Applicable
12. Legal Proceedings....................................Not Applicable
13. Table of Contents of the Statement of Table of Contents of the Statement of
Additional Information...............................Additional Information
PART B Location in Statement of
Additional Information
------------------------------------------------------------------------------------------------------------------
14. Cover Page...........................................Outside Front Cover Page
15. Table of Contents....................................Outside Front Cover Page
16. Investment Objectives and Policies...................Investment Objectives; Investment Practices;
17. Management...........................................Management of the Fund
18. Control Persons and Principal Holders ...............Management of the Fund
19. Investment Advisory and Other Services...............Management of the Fund
20. Brokerage Allocation and Other Practices.............Portfolio Transactions
21. Automatic Dividend Reinvestment and Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan.........................Voluntary Cash Purchase Plan
22. Tax Status...........................................Taxation
23. General Information..................................General Information
24. Beneficial Owner.....................................Beneficial Owner
25. Financial Statements.................................Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
PROSPECTUS
__________ RIGHTS FOR __________ SHARES
[GABELLI UTILITY TRUST LOGO]
THE GABELLI
UTILITY TRUST
COMMON STOCK
The Gabelli Utility Trust (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 three Rights that you
receive, you may buy one new Fund share. You will receive one Right for
each outstanding Fund share you own on April __, 2002 (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 three. 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 three. 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
three) 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 May __, 2002 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 "GUT 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 "GUT." On April __, 2002
(the last date prior to the Fund's shares trading ex-Rights), 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 MAY __, 2002, unless the Offer is
extended as described in this Prospectus (the "Expiration Date").
The Fund is a non-diversified, closed-end management investment
company registered under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Fund's primary investment objective is long-term
growth of capital and income, which the Fund attempts to achieve by
investing at least 65% of its total assets in common stock and other
securities of foreign and domestic companies involved to a substantial
extent (e.g., at least 50% of the assets, gross income or profits of such
company is committed to or derived from) in providing products, services or
equipment for (i) the generation or distribution of electricity, gas and
water and (ii) telecommunications services or infrastructure operations,
such as airports, toll roads and municipal services. Gabelli Funds, LLC
(the "Investment Adviser") serves as investment adviser to 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 address of the Fund is One Corporate Center,
Rye, New York 10580 and its telephone number (914) 921-5070.
This Prospectus sets forth certain information about the Fund an
investor should know before investing and should be retained for future
reference.
A Statement of Additional Information dated April __, 2002 (the
"SAI") has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus. The table of contents of the
SAI appears on page __ of this Prospectus. A copy of the SAI may be
obtained without charge by writing to the Fund at its address at One
Corporate Center, Rye, New York 10580-1434 or calling the Fund toll-free at
(800) 422-3554.
---------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
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.
SUBSCRIPTION PROCEEDS
PRICE SALES LOAD TO FUND(1)
----------------------- --------------------- ---------------------
Per Share............................ $[ ] None $[ ]
Total................................ $[ ] None $[ ]
(1) Before deduction of expenses incurred by the Fund, estimated at $[ ].
---------------------------------
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's parent company,
Gabelli Asset Management Inc. and its affiliates ("Affiliated Parties") may
purchase shares through the primary subscription and the over-subscription
privilege shares and 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 pro spective investor should know before investing. Investors
are advised to read and retain it for future reference. A Statement of
Additional Information dated April __, 2002 (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.
---------------------------------
April __, 2002
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 Trustees 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 in curring 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 Trustees 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 Trustees 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
Total number of shares available for primary subscription...................................3,747,614
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 three Rights
Subscription Price...............................................................................$[ ]
--------------
* 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 three.
===============================================================================
Shareholders' inquiries should be directed to:
EquiServe
[(800) 336-6983 or (781) 575-2000]
or Gabelli
(800) GABELLI (422-3554)
===============================================================================
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."
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 May __, 2002, 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 in part 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.
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 $[ ] are paid.
The Investment Adviser expects to invest such proceeds in
accordance with the Fund's investment objectives and policies within six
months after receipt of such proceeds, depending on market conditions for
the types of securities in which the Fund principally invests. Pending such
investment, the proceeds will be held in high quality short-term debt
securities and instruments.
IMPORTANT DATES TO REMEMBER
Please note that the dates in the table below may change if the
Offer is extended.
EVENT DATE
----- ----
Record Date........................................................................April __, 2002
Subscription Period.............................................April __, 2002 through May __, 2002**
Expiration of the Offer*...............................................................May __, 2002**
Payment for Guarantees of Delivery Due*................................................May __, 2002**
Confirmation to Participants..........................................................June __, 2002**
---------------------------
* A shareholder exercising Rights must deliver by May __, 2002 either
(a) a Subscription Certificate and payment for shares or (b) a Notice
of Guaranteed Delivery.
** Unless the offer is extended to a date no later than May __, 2002.
INFORMATION REGARDING THE FUND
The Fund is a closed-end non-diversified management investment
company organized under the laws of the State of Delaware on February 25,
1999. The Fund's primary investment objective is long-term growth of
capital and income, which the Fund attempts to achieve by investing at
least 65% of its total assets in common stock and other securities of
foreign and domestic companies involved to a substantial extent in
providing (i) products, services or equipment for the generation or
distribution of electricity, gas and water and (ii) telecommunications
services or infrastructure operations, such as airports, toll roads and
municipal services (collectively, the "Utility Industry"). No assurance can
be given that the Fund's investment objectives will be achieved. See
"Investment Objectives and Policies." The Fund's outstanding common shares
of beneficial interest, par value $.001 per share (the "Common Stock"), is
listed and traded on the New York Stock Exchange (the "NYSE"). The average
weekly trading volume of the Fund's common stock on the NYSE during the
period from January 1, 2001 through December 31, 2001 was [ ] shares. As of
December 31, 2001, the net assets of the Fund were approximately $[ ]
million.
INFORMATION REGARDING THE INVESTMENT ADVISER
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. The Investment Adviser and its
affiliates have been engaged in the business of providing investment
advisory and portfolio management services for over 25 years and as of
December 31, 2001, managed total assets of approximately $24.8 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, three Trustees 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."
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 if you do not participate in the
Offer. 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, the
Subscription Price is $[ ] and the
Fund's net asset value per share
remains the same ($_____ ) as on __,
2002 , the Fund's net asset value per
share (after payment of estimated
offering expenses) would be reduced by
approximately $[ ] ([ ]%) per share.
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.
Market Loss.........................Shares of closed-end funds frequently
trade at a market price that is less
than the value of the net assets
attributable to those shares, although
for most of the Fund's life its shares
have traded at a premium over net asset
value per share. The possibility that
shares of the Fund will trade at a
discount from net asset value or at
premiums that are unsustainable over
the long term are risks 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 or
unsustainable premium 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 "Risk
Factors and Special
Considerations--Market Value and Net
Asset Value."
Shares Repurchases..................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 (or such other
percentage as the Board may determine
from time to time) from net asset
value.
Charter Provisions..................Certain provisions of the Fund's
Declaration of Trust may be regarded as
"anti-takeover" provisions. Pursuant to
these provisions only one of the three
classes of directors (which term
includes trustees) is elected each
year, and the affirmative vote of the
holders of 75% of the outstanding
voting shares of the Fund (together
with a separate class vote by the
holders of any preferred stock
outstanding) is necessary to authorize
amendments to the Fund's Declaration of
Trust that would be necessary to
convert the Fund from a closed-end to
an open-end investment company. In
addition, the affirmative vote of the
holders of 80% of the outstanding
voting shares of each class of the
Fund, voting as a class, is generally
required to authorize certain business
transactions with the beneficial owner
of more than 5% of the outstanding
shares of the Fund. In addition, if the
Fund issues preferred stock, the
holders of the preferred shares would
have the authority to elect two
directors at all times and would have
separate class voting rights on
specified matters including conversion
of the Fund to open-end status and
certain reorganizations of the Fund.
The overall effect of these provisions
is to render more difficult the
accomplishment of a merger with, or the
assumption of control by, a principal
shareholder, or the conversion of the
Fund to open-end status. These
provisions may have the effect of
depriving Fund shareholders of an
opportunity to sell their shares at a
premium above the prevailing market
price. See "Certain Provisions of the
Declaration of Trust 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.................There is no limitation on the amount of
foreign securities in which the Fund
may invest. Investing in securities of
foreign companies and foreign
governments, which generally are
denominated in foreign currencies, may
involve certain risk and opportunity
considerations not typically associated
with investing in domestic companies
and could cause the Fund to be affected
favorably or unfavorably by changes in
currency exchange rates and
revaluations of currencies. See
"Investment Objectives and Policies"
and "Risk Factors and Special
Considerations.
Leveraging..........................As provided in the 1940 Act and subject
to certain exceptions, the Fund may
issue debt or preferred stock so long
as the Fund's total assets immediately
after such issuance, less certain
ordinary course liabilities, exceed
300% of the amount of the debt
outstanding and exceed 200% of the sum
of the amount of preferred stock and
debt outstanding. Such debt or
preferred stock may be convertible in
accordance with SEC staff guidelines
which may permit each fund to obtain
leverage at attractive rates. Use of
leverage may magnify the impact on the
holders of common stock of changes in
net asset value and the cost of
leverage may exceed the return on the
securities acquired with the proceeds
of leverage, thereby diminishing rather
than enhancing the return to such
shareholders and generally making the
Fund's total return to such
shareholders more volatile. In
addition, the Fund may be required to
sell investments in order to meet
dividend or interest payments on the
debt or preferred stock when it may be
disadvantageous to do so. Leveraging
through the issuance of preferred stock
requires that the holders of the
preferred stock have class voting
rights on various matters that could
make it more difficult for the holders
of the Common Stock to change the
investment objectives or fundamental
policies of the fund, to convert it to
an open-end fund or make certain other
changes. See "Risk Factors and Special
Considerations" and "Special Investment
Methods".
Industry Risks......................The Fund will invest at least 65% of
its assets in companies in the Utility
Industry and, as a result, the value of
the Fund's shares will be more
susceptible to factors affecting those
particular types of companies,
including governmental regulation,
deregulation, inflationary and other
cost increases in fuel and other
operating expenses and high interest
costs or borrowings needed for capital
construction programs, including
compliance with environmental
regulations. As a consequence of its
concentration policy, the Fund's
investments may be subject to greater
risk and market fluctuation than a fund
that has securities representing a
broader range of alternatives. See
"Investment Objectives and Policies"
and "Risk Factors and Special
Considerations."
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.
Taxation............................The Fund intends to continue to be
treated and qualify, for U.S. federal
income tax purposes, as a regulated
investment company. Qualification
requires, among other things,
compliance by the Fund with certain
distribution requirements. Statutory
limitations on distributions on the
Common Stock if the Fund fails to
satisfy the 1940 Act's asset coverage
requirements could jeopardize the
Fund's ability to meet the distribution
requirements. See "Taxation" for a more
complete discussion of these and other
U.S. federal income tax considerations.
Distribution Policy.................Pursuant to an exemptive order (the
"Order") issued to the Fund by the
Securities and Exchange Commission
("SEC") the Fund makes distributions of
net investment income and capital gains
monthly subject to certain conditions
contained in the Order. See
"Distribution Policy."
Dividend-Disbursing Agent and
Registrar...........................Boston Safe Deposit and Trust Company
serves as the Fund's custodian and
EquiServe Trust Company N.A.
("EquiServe") serves as transfer and
dividend-disbursing agent and registrar
and as agent to provide notice of
redemption and certain voting rights.
See "Custodian, Transfer Agent,
Dividend-Disbursing Agent and
Registrar."
TABLE OF FEES AND EXPENSES
Registrant
SHAREHOLDER TRANSACTION EXPENSES
Voluntary Cash Purchase Plan Purchase Fees.............................. $0.75 (1)
Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan Sales Fees................................................ $2.50 (1)
ANNUAL OPERATING EXPENSES (as a percentage of net
assets attributable to Common Stock)....................................
Management Fees......................................................... 1.00%
Other Expenses 1.00%
-----------------------------
Total Annual Operating Expenses................................ 2.00%
-----------------------------
(1) Shareholders participating in the Fund's Automatic Dividend
Reinvestment and Voluntary Cash Purchase Plan would pay $0.75 per
transaction to purchase shares and $2.50 per transaction to sell
shares. See "Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan" in the SAI.
EXAMPLE
The following examples illustrate the projected dollar amount of
cumulative expenses that would be incurred over various periods with
respect to a hypothetical investment in the Fund. These amounts are based
upon payment by the Fund of expenses at levels set forth in the above
table.
You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return: (3)
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$20 $63 $108 $233
The foregoing table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The assumed 5% annual return is not a prediction of, and does
not represent, the projected or actual performance of the Common Stock.
Actual expenses and annual rates of return may be more or less than those
assumed for purposes of the Example.
----------------------------
(3) Amounts are exclusive of fees discussed in Note (1) above.
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a share of
Common Stock outstanding throughout the periods presented. The per share
operating performance and ratios for the fiscal years ended December 31,
2001, December 31, 2000 and 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 A COMMON SHARE
OUTSTANDING THROUGHOUT EACH PERIOD
Year Ended Year Ended Period Ended
December 31, December 31, December 31,
2001 2000 1999 (a)
-------------- ------------- --------------
OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 8.21 $ 7.62 $ 7.50
------ ------ ------
Net investment income.................. 0.61 0.15 0.08
Net realized and unrealized gain(loss)
on investments.......................... (0.81) 1.44 0.19
------ ---- ----
Total from investment operations....... (0.20) 1.59 0.27
------ ---- ----
Increase in net asset value from Trust
share transactions......................... 0.01 -- --
----- ---- ----
DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income.................. (0.21) (0.06) (0.08)
Net realized gain on investments....... (0.49) (0.94) (0.07)
----- ------ ------
Total distributions.................... (0.70) (1.00) (0.15)
------ ------ ------
NET ASSET VALUE, END OF PERIOD: 7.32 8.21 $ 7.62
==== ==== ======
Market value, end of period............ 9.33 8.75 $ 7.63
==== ==== ======
Net asset value total return + ........ (3.15%) 22.01% 3.62%
======= ====== =====
Total Investment Return ++ .............. 15.82% 29.95% 3.70%
====== ====== =====
RATIOS TO AVERAGE NET ASSETS
AVAILABLE TO COMMON STOCK
SHAREHOLDERS AND
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 82,197 $ 90,669 $ 83,330
Ratio of net investment income to average
net assets (c)......................... 1.57% 1.88% 2.27%(b)
Ratio of operating expenses to average
net assets (c)(d).......................... 2.00% 1.95% 1.75%(b)
Portfolio turnover rate................ 41% 92% 37%
+ Based on net asset value per share, adjusted for reinvestment of
distributions. Total return for the period of less than one year
is not annualized.
++ Based on market value per share, adjusted for reinvestment of
distributions. Total return for the period of less than one year
is not annualized.
(a) The Gabelli Utility Trust commenced investment operations on July
9, 1999.
(b) Annualized.
(c) During the period ended December 31, 1999, the Utility Trust's
administrator voluntarily reimbursed certain expenses. If such
reimbursement had not occurred, the annualized ratios of net
investment income and operating expenses to average net assets
would have been 1.85% and 2.17%, respectively.
(d) The ratios do not include a reduction of expenses for custodian
fee credits on cash balances maintained with the custodian.
Including such custodian fee credits for the year ended December
31, 2001 and the year ended December 31, 2000, the expense ratios
would be 2.00% and 1.93%, respectively.
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 three 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 three. 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
three. 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 three) 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 May __, 2002 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 April __,
2002, and ends at 5:00 p.m., New York time, on May __, 2002, unless
extended by the Fund to a date not later than May __, 2002, 5:00 p.m., New
York time. See "Expiration of the Offer." The Right to acquire one
additional Share for each three 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."
Officers of the Investment Adviser have advised the Fund that the
Affiliated Parties, as Record Date Shareholders, have been authorized to
purchase Shares through the Primary Subscription and the Over-Subscription
Privilege 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 Affiliated Parties 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 Affiliated Parties 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 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 Trustees 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 in
vested 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 $[ ] thousand.
Three of the Fund's Trustees, including Mario J. Gabelli, who voted to
authorize the Offer are "interested persons" of the Investment Adviser
within the meaning of the 1940 Act and may benefit indirectly from the
Offer because of their interest in the Investment Adviser. See "Management
of the Fund" in the SAI. In determining that the Offer was in the best
interest of shareholders, the Fund's Board of Trustees was cognizant of
this benefit as well as the possible participation of the Affiliated
Parties and Mr. Gabelli in the Offer as shareholders on the same basis as
other shareholders.
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
Delaware, the state in which the Fund is organized, and the Trust's
Declaration of Trust, the Board of Trustees 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:
Holder's Record Date Position x Excess Shares Remaining
-----------------------------
Total Record Date Position
of All Over-Subscribers
The Fund will not offer or sell any Shares which are not
subscribed for under the Primary Subscription or the Over-Subscription
Privilege.
THE SUBSCRIPTION PRICE
The Subscription Price for the Shares to be issued pursuant to the
Rights will be $[ ].
The Fund announced the Offer on January 10, 2002. The net asset
value per share of Common Stock at the close of business on April __, 2002
and April __, 2002 (the last date prior to the Fund's Shares trading
ex-Rights), 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 [ ]% premium,
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 repre senting the Rights to be sold by the
Subscription Agent must be received on or before May __, 2002. 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, at a commission
of up to $0.02 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
EquiServe, 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.
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 and
Over-Subscription may be effected through, the facilities of DTC (Rights
exercised through DTC are referred to as "DTC Exercised Rights").
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York time, on May __,
2002, unless extended by the Fund to a date not later than May __, 2002,
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:
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
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
UTILITY TRUST, 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 continental United States of
America and payable to The Gabelli Utility Trust except that holders of
Rights who are residents of the provinces of Ontario or Quebec, as
applicable, may make payment in U.S. dollars by money order or check drawn
on a bank located in the province of Ontario or Quebec, as applicable.
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
ex ercise 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 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 in part 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 other exchange or market outside of Canada; (ii) to a person or company
outside of Canada, or (iii) through certain other means as provided under
and in compliance with Ontario securities laws.
FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS
For U.S. federal income tax purposes, neither the receipt nor the
exercise of the Rights will result in taxable income to you. Moreover, you
will not realize a loss if you do not exercise the Rights. The holding
period for a share acquired upon exercise of a Right begins with the date
of exercise. The basis for determining gain or loss upon the sale of a
share acquired upon the exercise of a Right will be equal to the sum of:
- the subscription price per share,
- any servicing fee charged to you by your broker,
bank or trust company, and
- the basis, if any, in the Rights that you
exercised.
A gain or loss recognized upon a sale of a share acquired upon the
exercise of a Right will be a capital gain or loss assuming the share is
held as a capital asset at the time of sale. This gain or loss will be a
long-term capital gain or loss if the share has been held at the time of
sale for more than one year.
As noted above, your basis in shares issued under the Offer
includes your basis in the Rights underlying those shares. Assuming that,
as the Fund expects, the aggregate fair market value of the Rights at the
time they are distributed is less than 15% of the aggregate fair market
value of the Fund's Common Stock at such time, the basis of the Rights
issued to you will be zero unless you elect to allocate your basis of
previously owned shares to the Rights issued to you in the Offer. This
allocation is based upon the relative fair market value of such shares and
the Rights as of the date of distribution of the Rights. Thus, if you make
such an election and the Rights are later exercised, the basis in the
shares you originally owned will be reduced by an amount equal to the basis
allocated to the Rights. This election must be made in a statement attached
to your federal income tax return for the year in which the Rights are
distributed. If the rights expire without exercise, you will realize no
loss and you will not be permitted to allocate a portion of your basis in
the shares to the unexercised Rights.
The foregoing is a general summary of the material United States
federal income tax consequences of the receipt and exercise of Rights. The
discussion is based upon applicable provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), U.S. Treasury regulations thereunder and
other authorities currently in effect, and does not cover state, local or
foreign taxes. The Code and Treasury regulations thereunder are subject to
change by legislative or administrative action, possibly with retroactive
effect. You should consult your tax advisors regarding specific questions
as to federal, state, local or foreign taxes. You should also review the
discussion of certain tax considerations affecting yourself and the Fund
set forth under "Taxation."
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 may be treated as Benefit
Plan contributions and, when taken together with contributions previously
made, may subject a Benefit Plan to excise taxes for excess or
nondeductible contributions. In the case of Benefit Plans qualified under
Section 401(a) of the Code, additional cash contributions could cause the
maximum contribution limitations of Section 415 of the Code or other
qualification rules to be violated. Benefit Plans contemplating making
additional cash contributions to exercise Rights should consult with their
counsel prior to making such contributions.
Benefit Plans and other tax exempt entities, including
governmental plans, should also be aware that if they borrow in order to
finance their exercise of Rights, they may become subject to the tax on
unrelated business taxable income ("UBTI") under Section 511 of the Code.
If any portion of an 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.
USE OF PROCEEDS
The net proceeds of the Offer, assuming all Shares offered hereby
are sold, are estimated to be approximately $[ ] million, before deducting
expenses payable by the Fund estimated at approximately $[ ]. 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 not more than approximately six months.
INVESTMENT OBJECTIVES AND POLICIES
The Fund is a closed-end non-diversified management investment
company organized under the laws of the State of Delaware on February 25,
1999.
The primary objective of the Fund is long-term growth of capital
and income, which the Fund attempts to achieve by investing at least 65% of
its total assets in common stock and other securities of foreign and
domestic companies involved to a substantial extent (e.g., at least 50% of
the assets, gross income or net profits of a company is committed to or
derived from) in providing products, services or equipment for (i) the
generation or distribution of electricity, gas and water and (ii)
telecommunications services or infrastructure operations, such as airports,
toll roads and municipal services (collectively, the "Utility Industry").
The remaining 35% of its assets may be invested in other securities
including stocks, debt obligations and money market instruments, as well as
certain derivative instruments in the utility industry or other industries.
Morever, should extraordinary conditions affecting such sectors or
securities markets as a whole warrant, the Fund may temporarily be
primarily invested in money market instruments.
The companies in which the Fund may invest are those that are
included to a substantial extent in the Utility Industry. Although many of
these companies traditionally pay above average dividends, the Fund intends
to focus on those companies whose securities have the potential to increase
in value. The Fund's performance is expected to reflect conditions
affecting public utility industries. These industries are sensitive to
factors such as interest rates, local and national government regulations,
the price and availability of fuel, environmental protection or energy
conservation regulations, weather, the level of demand for services, and
the risks associated with constructing and operating nuclear power
facilities. These factors may change rapidly. The Fund emphasizes quality
in selecting utility investments, and generally looks for companies that
have proven dividend records and sound financial structures. Believing that
the industry is under consolidation due to changes in regulation, the Fund
intends to position itself to take advantage of trends in consolidation.
Under normal circumstances the Fund may invest in securities of
issuers located in countries other than the United States. Investing in
securities of foreign issuers, which generally are denominated in foreign
currencies, may involve certain risk and opportunity considerations not
typically associated with investing in domestic companies and could cause
the Fund to be affected favorably or unfavorably by changes in currency
exchange rates and revaluations of currencies.
INVESTMENT METHODOLOGY OF THE FUND
In selecting securities for the Fund, the Investment Adviser
normally will consider the following factors, among others: (1) the
Investment Adviser's own evaluations of the private market value, cash
flow, earnings per share and other fundamental aspects of the underlying
assets and business of the company; (2) the potential for capital
appreciation of the securities; (3) the interest or dividend income
generated by the securities; (4) the prices of the securities relative to
other comparable securities; (5) whether the securities are entitled to the
benefits of call protection or other protective covenants; (6) the
existence of any anti-dilution protections or guarantees of the security;
and (7) the diversification of the portfolio of the Fund as to issuers. The
Investment Adviser's investment philosophy with respect to debt and equity
securities seeks to identify assets that are selling in the public market
at a discount to their private market value, which the Investment Adviser
defines as the value informed purchasers are willing to pay to acquire
assets with similar characteristics. The Investment Adviser also normally
evaluates the issuers' free cash flow and long-term earnings trends.
Finally, the Investment Adviser looks for a catalyst -- something in the
company's industry or indigenous to the company or country itself that will
surface additional value.
TEMPORARY INVESTMENTS
During temporary defensive periods and during inopportune periods
to be fully invested, 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. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association, are supported by the "full faith and credit" of the
U.S. Government; others, such as those of the Export-Import Bank of the
U.S., are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
OPTIONS
On behalf of the Fund, the Investment Adviser may, subject to the
guidelines of the Board of Trustees, purchase or sell, i.e., write, options
on securities, securities indices and foreign currencies which are listed
on a national securities exchange or in the U.S. over-the-counter ("OTC")
markets as a means of achieving additional return or of hedging the value
of the Fund's portfolio. The Fund may write covered call options on common
stocks that it owns or has an immediate right to acquire through conversion
or exchange of other securities in an amount not to exceed 25% of total
assets or invest up to 10% of its total assets in the purchase of put
options on common stocks that the Fund owns or may acquire through the
conversion or exchange of other securities that it owns.
A call option is a contract that gives the holder of the option
the right to buy from the writer (seller) of the call option, in return for
a premium paid, the security underlying the option at a specified exercise
price at any time during the term of the option. The writer of the call
option has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price during the option
period.
A put option is a contract that gives the holder of the option the
right to sell to the writer (seller), in return for the premium, the
underlying security at a specified price during the term of the option. The
writer of the put, who receives the premium, has the obligation to buy the
underlying security upon exercise, at the exercise price during the option
period.
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.
There can be no assurance that a closing purchase transaction can be
effected when the Fund so desires.
An exchange-traded option may be closed out only on an exchange
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.
FUTURES CONTRACTS AND OPTIONS THEREON
On behalf of the Fund, the Investment Adviser may, subject to
guidelines of the Board of Trustees, purchase and sell financial futures
contracts and options thereon which are traded on a commodities exchange or
board of trade for certain hedging, yield enhancement and risk management
purposes, in accordance with regulations of the Commodity Futures Trading
Commission ("CFTC"). These futures contracts and related options may be on
debt securities, financial indices, securities indices, U.S. Government
securities and foreign currencies. A financial futures contract is an
agreement to purchase or sell an agreed amount of securities or currencies
at a set price for delivery in the future.
Under CFTC regulations, the Investment Adviser on behalf of the
Fund may purchase and sell futures contracts and options thereon for bona
fide hedging purposes, as defined under CFTC regulations, without regard to
the percentage of the Fund's assets committed to margin and option
premiums. 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.
FORWARD CURRENCY EXCHANGE CONTRACTS
Subject to guidelines of the Board of Trustees, the Fund may enter
into forward foreign currency exchange contracts to protect the value of
its portfolio against future changes in the level of currency exchange
rates. The Fund may enter into such contracts 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 a forward contract to purchase or sell currency. A
forward contract on foreign currency is 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 Fund's dealings in forward contracts will be
limited to hedging involving either specific transactions or portfolio
positions, and the amount the Fund may invest in forward currency contracts
is limited to the amount of its aggregate investments in foreign
currencies. The Fund will only enter into forward currency contracts with
parties which it believes to be creditworthy.
LEVERAGING
As provided in the 1940 Act and subject to compliance with the
Fund's investment objectives, policies and restrictions, the Fund may issue
debt or preferred stock so long as the Fund's total assets immediately
after such issuance, less certain ordinary course liabilities, exceed 300%
of the amount of the debt outstanding and exceed 200% of the sum of the
amount of preferred stock and debt outstanding. Such debt or preferred
stock may be convertible in accordance with SEC staff guidelines which may
permit the Fund to obtain leverage at attractive rates.
Further information on the investment objectives and policies of
the Fund are set forth in the SAI.
INVESTMENT RESTRICTIONS
The Fund operates under the following restrictions that constitute
fundamental policies that, except as otherwise noted, cannot be changed
without the affirmative vote of the holders of a majority of the
outstanding voting securities of the Fund. Except as otherwise noted, 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 any action.
The Fund may not:
o invest 25% or more of its total assets, taken at market value at the
time of each investment, in the securities of issuers in any particular
industry other than the Utility Industry. This restriction does not
apply to investments in U.S. Government Securities.
o 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.
o make loans of money, except by the purchase of a portion of private or
publicly distributed debt obligations or the entering into of
repurchase agreements. The Fund reserves the authority to make loans of
its portfolio securities to financial intermediaries in an aggregate
amount not exceeding 20% of its total assets. Any such loans will only
be made upon approval of, and subject to any conditions imposed by, the
Board of Trustees of the Fund. Because these loans are required to be
fully collateralized at all times, the risk of loss in the event of
default of the borrower should be slight.
o borrow money except to the extent permitted by applicable law. The 1940
Act currently requires that the Fund have 300% asset coverage with
respect to all borrowings other than temporary borrowings of up to 5%
of the value of its total assets.
o issue senior securities, except to the extent permitted by applicable
law.
o underwrite securities of other issuers except insofar as the Fund may
be deemed an underwriter under the Securities Act 1933 (the "1933 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.
PORTFOLIO TURNOVER
The Fund buys and sells securities to accomplish its investment
objective. The investment policies of the Fund may lead to frequent changes
in investments, particularly in periods of rapidly fluctuating interest or
currency exchange rates. The portfolio turnover may be higher than that of
other investment companies.
Portfolio turnover generally involves some expense to the Fund,
including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other securities. The
portfolio turnover rate is computed by dividing the lesser of the amount of
the long-term securities purchased or securities sold by the average
monthly value of securities owned during the year (excluding securities
whose maturities at acquisition were one year or less).
OTHER INVESTMENTS
The Fund is permitted to invest in securities subject to
reorganization, lower rated securities and repurchase agreements 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 "Investment Objectives and Policies --Investment
Practices --When Issued, Delayed Delivery Securities and Forward
Commitments" in the SAI for a discussion of these investments and
techniques and the risks associated with them.
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, you will likely own a
smaller proportional interest in the Fund when the Offer is over. In
addition, whether or not you exercise your Rights, the per share net asset
value of your shares likely will be diluted (reduced) immediately as a
result of the Offer because:
- the shares offered may 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 net asset value
increases as shown by the following examples, assuming a $[ ] Subscription
Price:
Scenario 1:(1)
NAV............................................................$
----------
Subscription Price.............................................$
----------
Reduction in NAV($)(2)...............................................$( )
----
Reduction in NAV(%)..................................................( )%
----
Scenario 2:(1)
NAV............................................................$
----------
Subscription Price.............................................$
----------
Reduction in NAV($)(2)...............................................$( )
----
Reduction in NAV(%)..................................................( )%
----
------------------------------------
(1) Both examples assume full primary and over-subscription privilege
exercise. Actual amounts may vary due to rounding.
(2) Assumes $[ ] in estimated offering expenses.
If you do not wish to exercise your Rights, you should consider
selling them 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.
INDUSTRY RISKS
The Fund will invest a significant portion of its assets in
foreign and domestic companies involved in the Utility Industry and, as a
result, the value of the Fund's shares will be more susceptible to factors
affecting those particular types of companies, including governmental
regulation, inflation, cost increases in fuel and other operating expenses
and high interest costs such as borrowings needed for capital construction
programs, including compliance with environmental regulations.
Various regulatory regimes impose limitations on the percentage of
the shares of a public utility held by an investment for its clients. These
limitations may unfavorably restrict the ability of the Fund to make
certain investments.
In addition, deregulation of the utility industry could have a
positive or negative impact on the Fund's shares. The Investment Adviser
believes that certain utility companies' fundamentals should continue to
improve as the industry undergoes deregulation. Companies may seek to
strengthen their competitive positions through mergers and takeovers. The
loosening of the government regulation of utilities should encourage
convergence within the industry. Improving earnings prospects, strong cash
flows, share repurchases and takeovers from industry consolidation may tend
to boost share prices. However, as has occurred in California and
elsewhere, certain companies may be less able to meet the challenge of
deregulation as competition increases and investments in these companies
would not be likely to perform well.
LONG-TERM OBJECTIVE
The Fund is intended for investors seeking long-term capital
growth and income. The Fund is not meant to provide a vehicle for those who
wish to play short-term swings in the stock market. An investment in shares
of the Fund should not be considered a complete investment program. Each
shareholder should take into account the shareholder's investment
objectives as well as the shareholder's other investments when considering
the Offering.
NON-DIVERSIFIED STATUS
The Fund is classified as a "non-diversified" investment company
under the 1940 Act, which means that 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 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 U.S. federal income tax if all of its
earnings are distributed to shareholders. See "Taxation --Taxation of the
Fund." Because the Fund, as a non-diversified investment company, may invest
in the securities of individual issuers to a greater degree than a diversified
investment company, an investment in the Fund may present greater risk to an
investor than an investment in a diversified company because the investment
risk may be concentrated in fewer securities.
MARKET VALUE AND NET ASSET VALUE
Shares of closed-end investment companies frequently trade at a
discount from net asset value, although for most of the Fund's life its
shares have traded at a premium over net asset value per share. The
possibility that shares of a closed-end fund will trade at a discount from
net asset value or at premiums that are unsustainable over the long term
are risks separate and distinct from the risk that the Fund's net asset
value will decrease. The risk of holding shares of a closed-end fund that
might trade at a discount or unsustainable premium is more pronounced for
shareholders who wish to sell their shares in a relatively short period of
time after acquiring them because, for those investors, realization of a
gain or loss on their investments is likely to be more dependent upon the
existence of a premium or discount than upon portfolio performance. The
Fund's shares are not subject to redemption. Shareholders desiring
liquidity may, subject to applicable securities laws, trade their shares in
the Fund on the New York Stock Exchange or other markets on which such
shares may trade at the then current market value, which may differ from
the then current net asset value.
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, Inc., or non-rated securities of comparable quality.
These debt securities are predominantly speculative and involve major risk
exposure to adverse conditions and are often referred to in the financial
press as "junk bonds."
FOREIGN SECURITIES
There is no limitation on the amount of foreign securities in which
the Fund may invest. Investing in securities of foreign companies and foreign
governments, which generally are denominated in foreign currencies, may
involve certain risk and opportunity considerations not typically associated
with investing in domestic companies and could cause the Fund to be affected
favorably or unfavorably by changes in currency exchange rates and
revaluations of currencies. In addition, less information may be available
about foreign companies and foreign governments than about domestic companies
and foreign companies and foreign governments generally are not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to
domestic companies. Foreign securities and their markets may not be as liquid
as U.S. securities and their markets. Securities of some foreign companies may
involve greater market risk than securities of U.S. companies. Investment in
foreign securities may result in higher expenses than investing in domestic
securities because of the payment of fixed brokerage commissions on foreign
exchanges, which generally are higher than commissions on U.S. exchanges, and
the imposition of transfer taxes or transaction charges associated with
foreign exchanges. Investment in foreign securities also may be subject to
local economic or political risks, including instability of some foreign
governments, the possibility of currency blockage or the imposition of
withholding taxes on dividend or interest payments, and the potential for
expropriation, nationalization or confiscatory taxation and limitations on the
use or removal of funds or other assets.
Among the foreign securities in which the Fund may invest are
those issued by companies located in developing countries, which are
countries in the initial stages of their industrialization cycles.
Investing in the equity and debt markets of developing countries involves
exposure to economic structures that are generally less diverse and less
mature, and to political systems that can be expected to have less
stability, than those of developed countries. The markets of developing
countries historically have been more volatile than the markets of the more
mature economies of developed countries, but often have provided higher
rates of return to investors. The Fund may also invest in debt securities
of foreign governments.
For a further description of lower rated securities and the risks
associated therewith, see "Investment Objectives and Policies -- Lower
Rated Securities."
SPECIAL RISKS OF DERIVATIVE TRANSACTIONS
Participation in the options or futures markets and in currency
exchange transactions involves investment risks and transaction costs to which
the Fund would not be subject absent the use of these strategies. If the
Investment Adviser's prediction of movements in the direction of the
securities, foreign currency and interest rate markets are inaccurate, the
consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of options, foreign
currency, futures contracts and options on futures contracts, securities
indices and foreign currencies include (1) dependence on the Adviser's ability
to predict correctly movements in the direction of interest rates, securities
prices and currency markets; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices
of the securities or currencies being hedged; (3) the fact that skills needed
to use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; (6) the possible
inability of the Fund to purchase or sell a security at a time that otherwise
would be favorable for it to do so, or the possible need for the Fund to sell
a security at a disadvantageous time due to a need for the Fund to maintain
"cover" or to segregate securities in connection with the hedging techniques;
and (7) the creditworthiness of counterparties. For a further description, see
"Risk Factors and Special Considerations -- Futures Transactions" and "Risk
Factors and Special Considerations -- Forward Currency Exchange Contracts."
FUTURES TRANSACTIONS
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 fluctuation, 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 EXCHANGE CONTRACTS
The use of forward currency contracts may involve certain risks,
including the failure of the counter party to perform its obligations under
the contract, and that such use may not serve as a complete hedge because
of an imperfect correlation between movements in the prices of the
contracts and the prices of the currencies hedged or used for cover. For a
further description of such investments, see "Investment Objectives and
Policies -- Investment Practices" in the SAI.
RISKS TO HOLDERS OF COMMON STOCK OF LEVERAGING AND ISSUANCE OF
SENIOR SECURITIES
Leverage entails two primary risks. The first risk is that the use
of leverage magnifies the impact on the common shareholders of changes in
net asset value. For example, a fund that uses 33% leverage (that is, $50
of leverage per $100 of common equity) will show a 1.5% increase or decline
in net asset value for each 1% increase or decline in the value of its
total assets. The second risk is that the cost of leverage will exceed the
return on the securities acquired with the proceeds of leverage, thereby
diminishing rather than enhancing the return to common shareholders. If the
fund were to utilize leverage, these two risks would generally make the
Fund's total return to common shareholders more volatile. In addition, the
Fund might be required to sell investments in order to meet dividend or
interest payments on the debt or preferred stock when it may be
disadvantageous to do so.
As provided in the 1940 Act and subject to certain exceptions, the
Fund may issue debt or preferred stock so long as the Fund's total assets
immediately after such issuance, less certain ordinary course liabilities,
exceed 300% of the amount of the debt outstanding and exceed 200% of the sum
of the amount of the preferred stock and debt outstanding. Such debt or
preferred stock may be convertible in accordance with Securities and Exchange
Commission ("SEC") guidelines which may permit the registrant to obtain
leverage at attractive rates. A leveraged capital structure creates certain
special risks and potential benefits not associated with unleveraged funds
having similar investment objectives and policies. Any investment income or
gains from the capital represented by preferred shares or debt which is in
excess of the dividends payable thereon will cause the total return of the
common shares to be higher than would otherwise be the case. Conversely, if
the investment performance of the capital represented by preferred shares or
debt fails to cover the dividends payable thereon, the total return of the
common shares would be less or, in the case of negative returns, would result
in higher negative returns to a greater extent than would otherwise be the
case. The requirement under the 1940 Act to pay in full dividends on preferred
shares or interest on debt before any dividends may be paid on the common
shares means that dividends on the common shares from earnings may be reduced
or eliminated. Although an inability to pay dividends on the common shares
could conceivably result in the Fund ceasing to qualify as a regulated
investment company under the Code, which would be materially adverse to the
holders of the common shares, such inability can be avoided through the use of
mandatory redemption requirements designed to ensure that the Fund maintains
the necessary asset coverage.
The class voting rights of preferred shares could make it more
difficult for the Fund to take certain actions that may, in the future, be
proposed by the Board and/or the holders of Common Stock, such as a merger,
exchange of securities, liquidation or alteration of the rights of a class
of the Fund's securities if such actions would be adverse to the preferred
shares, or such as changing to an open-end investment company or acting
inconsistently with its fundamental investment restrictions or other
fundamental policies or seeking to operate other than as an investment
company.
Preferred shares will be issued only if the Board of the Fund
determines in light of all relevant circumstances known to the Board that
to do so would be in the best interests of the Fund and its common
shareholders. The circumstances that the Board will consider before issuing
preferred shares include not only the dividend rate on the preferred shares
in comparison to the historical performance of the Fund but also such
matters as the terms on which the Fund can call the preferred shares, the
circumstances in which the Investment Adviser will earn additional
investment advisory fees on the net assets attributable to the preferred
shares and the ability of the Fund to meet the asset coverage tests and
other requirements imposed by the rating agencies for such preferred
shares.
The issuance of preferred shares convertible into shares of common
stock might also reduce the net income and net asset value per share of the
common shares upon conversion. Such income dilution would occur if the Fund
could, from the investments made with the proceeds of the preferred shares,
earn an amount per common share issuable upon conversion greater than the
dividend required to be paid on the amount of preferred stock convertible into
one share of common stock. Such net asset value dilution would occur if
preferred shares were converted at a time when the net asset value per common
share was greater than the conversion price.
MANAGEMENT OF THE FUND
The Fund's Board of Trustees (who, with its officers, are
described in the SAI) has overall responsibility for the management of the
Fund. The Board of Trustees decides upon matters of general policy and
reviews the actions of the Investment Adviser and the Administrator (as
defined below). Pursuant to an Investment Advisory Contract with the Fund,
the Investment Adviser, under the supervision of the Fund's Board of
Trustees, provides a continuous investment program for the Fund's
portfolio; provides investment research and makes and executes
recommendations for the purchase and sale of securities; and provides all
facilities and personnel, including officers required for its
administrative management and pays the compensation of all officers and
directors of the Fund who are its affiliates. As compensation for its
services and the related expenses borne by the Investment Adviser, the Fund
pays the Investment Adviser a fee, computed daily and payable monthly,
equal, on an annual basis, to 1.00% of the Fund's average weekly net
assets, which is higher than that paid by most mutual funds. 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 Adviser, together with other affiliated investment advisers,
has assets under management totaling over $24.8 billion as of December 31,
2001. The Investment Adviser was organized in 1999 and is the successor to
the investment advisory division of Gabelli Funds, Inc. which was organized
in 1980. As of December 31, 2001, the Investment Adviser and its affiliate,
Gabelli Advisers, Inc., act as primary investment adviser to 18 management
investment companies with aggregate net assets of $11.1 billion. GAMCO
Investors, Inc., an affiliate of the Investment Adviser, acts as investment
adviser for individuals, pension trusts, profit sharing trusts and
endowments, and as investment sub-adviser to management investment
companies having aggregate assets of $11.5 billion under management as of
December 31, 2001. Gabelli Fixed Income LLC, an affiliate of the Investment
Adviser, acts as investment adviser for the Treasurer's Fund and separate
accounts having aggregate assets of $1.6 billion under management as of
December 31, 2001. The Investment Adviser is a wholly-owned subsidiary of
Gabelli Asset Management Inc., a New York corporation, whose Class A Common
Stock is traded on the New York Stock Exchange under the symbol "GBL." Mr.
Mario J. Gabelli may be deemed a "controlling person" of the Investment
Adviser on the basis of his ownership of a majority of the stock of the
Gabelli Group Capital Partners, Inc., which owns 78.6% of the capital stock
of Gabelli Asset Management Inc.
The Investment Adviser is obligated to pay expenses associated with
providing the services contemplated by the Investment Advisory Agreement
between the Fund and the Investment Adviser (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 trustees
of the Fund who are affiliated with the Investment Adviser. 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 its respective Automatic Dividend Reinvestment and Voluntary
Cash Purchase 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.
In addition to the fees of the Investment Adviser, the Fund is
responsible for the payment of all its other expenses incurred in the
operation of the Fund, which include, among other things, expenses for
legal and independent accountant's services, stock exchange listing fees,
expenses relating to the offering of preferred stock, costs of printing
proxies, stock certificates and shareholder reports, charges of Boston Safe
Deposit and Trust Company ("Boston Safe" or the "Custodian,") charges of
EquiServe, SEC fees, fees and expenses of unaffiliated directors,
accounting and printing costs, the Fund's pro rata portion of membership
fees in trade organizations, fidelity bond coverage for the Fund's officers
and employees, interest, brokerage costs, taxes, expenses of qualifying the
Fund for sale in various states, expenses of personnel performing
shareholder servicing functions, litigation and other extraordinary or
non-recurring expenses and other expenses properly payable by the Fund.
The Investment Advisory Contract contains provisions relating to
the selection of securities brokers to effect the portfolio transactions of
the Fund. Under those provisions, the Investment Adviser may (1) direct
Fund portfolio brokerage to Gabelli & Company, Inc. or other broker-dealer
affiliates of the Investment Adviser; and (2) pay commissions to brokers
other than Gabelli & Company, Inc. which are higher than might be charged
by another qualified broker to obtain brokerage and/or research services
considered by the Investment Adviser to be useful or desirable for its
investment management of the Fund and/or its other advisory accounts or
those of any investment adviser affiliated with it. The SAI contains
further information about the Investment Advisory Contract including a more
complete description of the advisory and expense arrangements, exculpatory
and brokerage provisions, as well as information on the brokerage practices
of the Fund.
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 its assets are
situated outside Canada.
PORTFOLIO MANAGER
Mario J. Gabelli is the leader of a team which is primarily
responsible for the day-to- day management of the Fund. Mr. Gabelli has served
as Chairman, President and Chief Investment Officer of the Adviser since 1980.
Mr. Gabelli also serves as Portfolio Manager for several other funds in the
Gabelli fund family. Because of the diverse nature of Mr. Gabelli's
responsibilities, he will devote less than all of his time to the day-to-day
management at the Fund.
NON-RESIDENT DIRECTORS
Karl Otto Pohl, a trustee of the Fund, resides outside the United
States and all or a significant portion of his assets are located outside
the United States. He has no authorized agent in the United States to
receive service of process. As a result, it may not be possible for
investors to effect service of process within the United States or to
enforce against him in United States courts judgments predicated upon civil
liability provisions of United States securities laws. It may also not be
possible to enforce against him in foreign courts judgments of United
States courts or liabilities in original actions predicated upon civil
liability provisions of the United States securities laws.
ADMINISTRATOR
The Investment Adviser has entered into sub-administration
agreement with PFPC Inc. (the "Sub-Administrator") pursuant to which the
Sub-Administrator provides certain administrative services necessary for
the Fund's operations which do not include the investment advisory and
portfolio management services provided by the Adviser. For these services
and the related expenses borne by the Sub-Administrator, the Investment
Adviser pays a prorated monthly fee at the annual rate of .0275% of the
first $10.0 billion of the aggregate average net assets of the Fund and all
other funds advised by the Investment Adviser and administered by the
Sub-Administrator, .0125% of the aggregate average net assets exceeding
$10.0 billion and .01% of the aggregate average net assets in excess of $15
billion. The Sub-Administrator has its principal office at 3200 Horizon
Drive, King of Prussia, Pennsylvania 19406.
PORTFOLIO TRANSACTIONS
Principal transactions are not entered into with affiliates of the
Fund. However, Gabelli & Company 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
The Fund's policy is to make monthly distributions to holders of
its Common Stock. The source of such distribution is determined pursuant to
an exemptive order issued by the SEC (as described below). As a regulated
investment company under the Code, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income that it
distributes to shareholders, provided that at least 90% of its investment
company taxable income for that taxable year is distributed to its
shareholders. See "Taxation." Shareholders exercising Rights will be
entitled to receive dividends on shares issued pursuant to the Offering
beginning with dividends declared and payable after the Expiration Date.
The Fund, along with other registered investment companies advised
by the 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 calling
for periodic (e.g., quarterly or semi-annually, but in no event more
frequently than monthly) distributions in an amount equal to a fixed
percentage of the Fund's average net asset value over a specified period of
time or market price per share of Common Stock at or about the time of
distribution or pay-out of 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 invest ment 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. The Fund reserves the right, but does
not currently intend, to retain for reinvestment and pay U.S. federal
income taxes on the excess of its net realized long-term capital gains over
its net short-term capital losses, if any.
TAXATION
TAXATION OF THE FUND
The Fund has qualified and elected to be taxed as a regulated
investment company under Subchapter M of the Code. Accordingly, the Fund
must, among other things, (a) derive in each taxable year at least 90% of
its gross income (including tax-exempt interest) from dividends, interest,
payments with respect to certain securities loans, and gains from the sale
or other disposition of stock, securities or foreign currencies, or other
income (including but not limited to gain from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the
end of each fiscal quarter (i) at least 50% of the market value of the
Fund's total assets is represented by cash and cash items, U.S. Government
securities, the securities of other regulated investment companies and
other securities, with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the value of the Fund's total
assets and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the market value of the Fund's total
assets is invested in the securities of any issuer (other than U.S.
Government securities and the securities of other regulated investment
companies) or of any two or more issuers that the Fund controls and that
are determined to be engaged in the same business or similar or related
trades or businesses.
As a regulated investment company, the Fund generally is not
subject to U.S. federal income tax on income and gains that it distributes
each taxable year to shareholders, if at least 90% of the sum of the Fund's
(i) investment company taxable income (which includes, among other items,
dividends, interest and the excess of any net short-term capital gains over
net long-term capital losses and other taxable income other than any net
capital gain (as defined below) reduced by deductible expenses) determined
without regard to the deduction for dividends paid and (ii) its net tax
exempt interest (the excess of its gross tax exempt interest over certain
disallowed deductions). The Fund intends to distribute at least annually
substantially all of such income.
Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4%
excise tax at the Fund level. To avoid the tax, the Fund must distribute
during each calendar year an amount equal to the sum of (1) at least 98% of
its ordinary income (not taking into account any capital gains or losses) for
the calendar year, (2) at least 98% of its capital gains in excess of its
capital losses (adjusted for certain ordinary losses) for a one-year period
generally ending on October 31 of the calendar year (unless, an election is
made by a fund with a November or December year-end to use the fund's fiscal
year), and (3) certain undistributed amounts from previous years on which the
fund paid no U.S. federal income tax. While the Fund intends to distribute any
income and capital gains in the manner necessary to minimize imposition of the
4% excise tax, there can be no assurance that sufficient amounts of the Fund's
taxable income and capital gains will be distributed to avoid entirely the
imposition of the tax. In that event, the Fund will be liable for the tax only
on the amount by which it does not meet the foregoing distribution
requirement.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital
gains) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable to the shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits.
TAXATION OF THE SHAREHOLDERS
Distributions paid to you by the Fund from its ordinary income or
from an excess of net short-term capital gains over net long-term capital
losses (together referred to hereinafter as "ordinary income dividends")
are taxable to you as ordinary income to the extent of the Fund's earning
and profits. Distributions made to you from an excess of net long-term
capital gains over net short-term capital losses ("capital gain
dividends"), including capital gain dividends credited to you but retained
by the Trust, are taxable to you as long-term capital gains, regardless of
the length of time you have owned Fund shares. Distributions in excess of
the Fund's earnings and profits will first reduce the adjusted tax basis of
your shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to you (assuming the shares are held as a capital
asset). Generally, not later than 60 days after the close of its taxable
year, the Fund will provide you with a written notice designating the
amount of any ordinary income dividends or capital gain dividends and other
distributions.
The sale or other disposition of common shares of the Fund will
generally result in capital gain or loss to you, and will be long-term capital
gain or loss if the shares have been held for more than one year at the time
of sale. Any loss upon the sale or exchange of Fund shares held for six months
or less will be treated as long-term capital loss to the extent of any capital
gain dividends received (including amounts credited as an undistributed
capital gain dividend) by you. A loss realized on a sale or exchange of shares
of the Fund will be disallowed if other Fund shares are acquired (whether
through the automatic reinvestment of dividends or otherwise) within a 61-day
period beginning 30 days before and ending 30 days after the date that the
shares are disposed of. In such case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Present law taxes both long-term and
short-term capital gains of corporations at the rates applicable to ordinary
income. For non- corporate taxpayers, however, short-term capital gains and
ordinary income will currently be taxed at a maximum rate of 38.6% while
long-term capital gains generally will be taxed at a maximum rate of 20% and
10% for taxpayers in the 15% bracket. The 20% capital gains rate and the 10%
capital rate will be reduced to 18% and 8% respectively, for capital assets
held for more than five years if the holding period begins after December 31,
2000.(1)
--------
(1) The Economic Growth and Tax Relief Reconciliation Act of 2001,
effective for taxable years beginning after December 31, 2000,
creates a new 10 percent income tax bracket and reduces the tax
rates applicable to ordinary income over a six year phase-in
period. Beginning in the taxable year 2006, ordinary income will
be subject to a 35% maximum rate, with approxi mately
proportionate reductions in the other ordinary rates.
Dividends and other taxable distributions are taxable to you even
though they are reinvested in additional shares of the Fund. If the Fund
pays you a dividend in January which was declared in the previous October,
November or December to shareholders of record on a specified date in one
of such months, then such dividend will be treated for tax purposes as
being paid by the Fund and received by you on December 31 of the year in
which the dividend was declared.
The Fund is required in certain circumstances to backup withhold
on taxable dividends and certain other payments paid to non-corporate
holders of the Fund's shares who do not furnish the Fund with their correct
taxpayer identification number (in the case of individuals, their social
security number) and certain certifications, or who are otherwise subject
to backup withholding. Backup withholding is not an additional tax. Any
amounts withheld from payments made to you may be refunded or credited
against your U.S. federal income tax liability, if any, provided that the
required information is furnished to the Internal Revenue Service.
The foregoing is a general and abbreviated summary of the
provisions of the Code and the Treasury regulations in effect as they
directly govern the taxation of the Fund and its shareholders. These
provisions are subject to change by legislative or administrative action,
and any such change may be retroactive. A more complete discussion of the
tax rules applicable to the Fund can be found in the Statement of
Additional Information which is incorporated by reference into this
prospectus. Shareholders are urged to consult their tax advisers regarding
specific questions as to U.S. federal, foreign, state, local income or
other taxes.
CAPITALIZATION
The Fund is authorized to issue an unlimited number of shares of
beneficial interest, par value $.001 per share, in multiple classes and series
thereof as determined from time to time by the Board of Trustees. The Board of
Trustees of the Fund has authorized issuance of an unlimited number of shares
of two classes, the Common Stock and preferred stock. Each share within a
particular class or series thereof has equal voting, dividend, distribution
and liquidation rights. When issued, in accordance with the terms thereof,
shares of Common Stock will be fully paid and non-assessable. Shares of Common
Stock are not redeemable and have no preemptive, conversion or cumulative
voting rights.
The following table shows the number of shares of (i) capital
stock authorized, (ii) capital stock unissued and (iii) capital stock
outstanding for each class of authorized securities of the Fund as of [ ],
2001.
Amount Held by
Company or for
Title of Class Amount Authorized its Own Account Amount Outstanding
Common Stock........................... unlimited
----------------------- ------------------- ----------------------
Preferred Stock........................ unlimited none none
----------------------- ------------------- ----------------------
The Common Stock is listed and traded on the NYSE under the symbol
"GUT." The average weekly trading volume of the Common Stock on the NYSE
for the 12 months ended December 31, 2001 was _______ 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.
PREMIUM OR DISCOUNT
MARKET PRICE (1) NET ASSET VALUE (2) AS % OF NAV
-------------------------- ---------------------------- ------------------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
------------- ---- --- ---- --- ---- ---
------------------------------------
(1) As reported on the NYSE
CERTAIN PROVISIONS OF THE DECLARATION OF TRUST AND BY-LAWS
The Fund presently has provisions in its Declaration of Trust and
By-Laws (together, 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 trustees 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 Trustees of the Fund
is divided into three classes, each having a term of no more than three
years (except, to ensure that the term of a class of the Fund's trustees
expires each year, one class of the Fund's trustees will serve an initial
one-year term and three-year terms thereafter and another class of its
trustees will serve an initial two-year term and three-year terms
thereafter). Each year the term of one class of trustees will expire.
Accordingly, only those trustees in one class may be changed in any one
year, and it would require a minimum of two years to change a majority of
the Board of Trustees. Such system of electing trustees 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
trustees. See "Trustees and Officers." A trustee of the Fund may be removed
with or without cause by 66 2/3% of the votes entitled to be cast for the
election of such trustees. Special voting requirements also apply to
mergers into or a sale of all or substantially all of the Fund's assets and
conversion of the Fund into an open-end fund (or other closed-end fund
commonly known as an "interval fund"). These special voting requirements
are 75% of the outstanding voting shares (together with a separate vote by
the holders of any preferred stock outstanding). In addition, 80% of the
holders of the outstanding voting securities of the Fund voting as a class
is generally required in order to authorize any of the following
transactions:
o merger or consolidation of the Fund with or into any other
corporation;
o issuance of any securities of the Fund to any person or entity for
cash;
o 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);
o 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); or
o the purchase of the Fund's Common Stock by the Fund from any other
person or entity;
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the outstanding shares of
the Fund. However, such vote would not be required when, under certain
conditions, the Board of Trustees 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.
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.
CUSTODIAN, TRANSFER AGENT, 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.
Equiserve Trust Company, N.A. located at 150 Royall Street,
Canton, Massachusetts 02021, 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
Certain legal matters will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, special counsel to the Fund in
connection with the offering of Common Shares and this rights offering.
EXPERTS
The financial statements of the Fund as of December 31, 2001 have
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; 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.
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 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
PAGE
PROSPECTUS SUMMARY.........................................................4
TABLE OF FEES AND EXPENSES................................................14
FINANCIAL HIGHLIGHTS......................................................15
THE OFFER.................................................................17
USE OF PROCEEDS...........................................................30
INVESTMENT OBJECTIVES AND POLICIES........................................30
RISK FACTORS AND SPECIAL CONSIDERATIONS...................................35
MANAGEMENT OF THE FUND....................................................42
DIVIDENDS AND DISTRIBUTIONS...............................................45
TAXATION .................................................................46
CAPITALIZATION............................................................47
CUSTODIAN, TRANSFER AGENT, DIVIDEND-DISBURSING
AGENT AND REGISTRAR..............................................50
LEGAL MATTERS.............................................................51
EXPERTS .................................................................51
FURTHER INFORMATION.......................................................51
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
INVESTMENT OBJECTIVES AND POLICIES..........................................1
PORTFOLIO TRANSACTIONS.....................................................20
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN..................................22
TAXATION ..................................................................24
NET ASSET VALUE............................................................30
GENERAL INFORMATION........................................................31
BENEFICIAL OWNER...........................................................31
APPENDIX A................................................................A-1
=================================
THE GABELLI UTILITY TRUST
[ ] SHARES
OF COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE TO SUCH SHARES
[GABELLI GLOBAL LOGO]
PROSPECTUS
April __, 2002
=================================
STATEMENT OF ADDITIONAL INFORMATION
The Gabelli Utility Trust (the "Fund") is a non-diversified,
closed-end management investment company that seeks long-term growth of
capital and income by investing primarily in a portfolio of equity
securities selected by Gabelli Funds, LLC, the investment adviser to the
Fund (the "Adviser"). It is the policy of the Fund, under normal market
conditions, to invest at least 65% of its total assets in common stock and
other securities of foreign and domestic companies involved to a
substantial extent (e.g., at least 50% of the assets, gross income or net
profits of a company is committed to or derived from) in providing
products, services or equipment for (i) the generation or distribution of
electricity, gas and water and (ii) telecommunications services or
infrastructure operations, such as airports, toll roads and municipal
services.
This Statement of Additional Information ("SAI") is not a
prospectus, but should be read in conjunction with the Prospectus for the
Fund dated April __, 2002 (the "Prospectus"). This SAI does not include any
information that a prospective investor should consider before purchasing
shares of the Fund, and investors should obtain and read the Prospectus
prior to purchasing shares. A copy of the Prospectus may be obtained
without charge, by calling the Fund at 1-800-GABELLI (1-800-422-3554) or
(914) 921-5070. This SAI incorporates by reference the entire Prospectus.
The Prospectus and this SAI omit certain of the information
contained in the regis tration statement filed with the Securities and
Exchange Commission, Washington, D.C. The registration statement may be
obtained from the Securities and Exchange Commission upon payment of the
fee prescribed, or inspected at the Securities and Exchange Commission's
office at no charge.
This Statement of Additional Information is dated April __, 2002.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Fund's primary investment objectives are long-term growth of
capital and in come. Under normal market conditions, the Fund will invest
at least 65% of its total assets in common stock and other securities of
foreign and domestic companies involved to a sub stantial extent (e.g., at
least 50% of the assets, gross income or net profits of a company is
committed to or derived from) in providing products, services or equipment
for (i) the generation or distribution of electricity, gas and water and
(ii) telecommunications services or infrastructure operations, such as
airports, toll roads and municipal services. See "Investment Objectives and
Policies" in the Prospectus.
INVESTMENT PRACTICES
Securities Subject to Reorganization. The Fund may invest without
limit in securities for which a tender or exchange offer has been made or
announced and in securities of companies for which a merger, consolidation,
liquidation or reorganization proposal has been announced if, in the
judgment of the Adviser, there is a reasonable prospect of high total
return significantly greater than the brokerage and other transaction
expenses involved.
In general, securities which are the subject of such an offer or
proposal sell at a premium to their historic market price immediately prior
to the announcement of the offer or may also discount what the stated or
appraised value of the security would be if the contemplated transaction
were approved or consummated. Such investments may be advantageous when the
discount significantly overstates the risk of the contingencies involved;
significantly undervalues the securities, assets or cash to be received by
shareholders of the prospective portfolio company as a result of the
contemplated transaction; or fails adequately to recognize the possibility
that the offer or proposal may be replaced or superseded by an offer or
proposal of greater value. The evaluation of such contingencies requires
unusually broad knowledge and experience on the part of the Adviser which
must appraise not only the value of the issuer and its component businesses
as well as the assets or securities to be received as a result of the
contemplated transaction but also the financial resources and business
motivation of the offer or and the dynamics and business climate when the
offer or proposal is in process. Since such investments are ordinarily
short-term in nature, they will tend to increase the turnover ratio of the
Fund, thereby increasing its brokerage and other transaction expenses. The
Adviser intends to select investments of the type described which, in its
view, have a reasonable prospect of capital appreciation which is
significant in relation to both risk involved and the potential of
available alternative investments.
Temporary Investments. Although under normal market conditions at
least 65% of the Fund's assets will consist of common stock and other
securities of foreign and domestic companies involved in the utility industry,
when a temporary defensive posture is believed by the 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 money market instruments in which the Fund
may invest are obligations of the United States Government, its agencies or
instrumentalities ("U.S. Government Securities"); commercial paper rated A-1
or higher by Standard & Poor's Corporation ("S&P") or Prime-1 by Moody's
Investors Service, Inc. ("Moody's"); and certificates of deposit and bankers'
acceptances issued by domestic branches of U.S. banks that are members of the
Federal Deposit Insurance Corporation. During temporary defensive periods, the
Fund may also invest to the extent permitted by applicable law in shares of
money market mutual funds. Money market mutual funds are investment companies
and the investments in those companies in some cases by the Fund are subject
to certain fundamental investment restrictions and applicable law. See
"Investment Restrictions." As a shareholder in a mutual fund, the Fund will
bear its ratable share of the its expenses, including management fees, and
will remain subject to payment of the fees to the Adviser, with respect to
assets so invested. See "Management of the Fund-Investment Advisory and
Administration Arrangements."
Lower Rated Securities. The Fund may invest up to 10% of its total
assets in fixed-income securities rated in the lower rating categories of
recognized statistical rating agencies, such as securities rated "CCC" or
lower by S&P or "Caa" or lower by Moody's, or non-rated securities of
comparable quality. These debt securities are predominantly speculative and
involve major risk exposure to adverse conditions and are often referred to
in the financial press as "junk bonds."
Generally, such lower rated securities and unrated securities of
comparable quality offer a higher current yield than is offered by higher
rated securities, but also (i) will likely have some quality and protective
characteristics that, in the judgment of the rating organizations, are
outweighed by large uncertainties or major risk exposures to adverse
conditions and (ii) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligation. The market values of certain of these
securities also tend to be more sensitive to individual corporate
developments and changes in economic conditions than higher quality bonds.
In addition, such lower rated securities and comparable unrated securities
generally present a higher degree of credit risk. The risk of loss due to
default by these issuers is significantly greater because such lower rated
securities and unrated securities of comparable quality generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. In light of these risks, the Adviser, in evaluating the
creditworthiness of an issue, whether rated or unrated, will take various
factors into consideration, which may include, as applicable, the issuer's
financial resources, its sensitivity to economic conditions and trends, the
operating history of and the community support for the facility financed by
the issue, the ability of the issuer's management and regulatory matters.
In addition, the market value of securities in lower rated
categories is more volatile than that of higher quality securities, and the
markets in which such lower rated or unrated securities are traded are more
limited than those in which higher rated securities are traded. The
existence of limited markets may make it more difficult for the Fund to
obtain accurate market quotations for purposes of valuing its portfolio and
calculating its net asset value. Moreover, the lack of a liquid trading
market may restrict the availability of securities for the Fund to purchase
and may also have the effect of limiting the ability of the Fund to sell
securities at their fair value to respond to changes in the economy or the
financial markets.
Lower-rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, 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 within
their limitations on the purchase of fixed-income securities. The Fund will
make an investment in securities of issuers in default only when the
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 Adviser also performs its own analysis of issues in seeking investments
that it believes to be underrated (and thus higher-yielding) in light of
the financial condition of the issuer. Its analysis of issuers may include,
among other things, current and anticipated cash flow and borrowing
requirements, value of assets in relation to historical cost, strength of
management, responsiveness to business conditions, credit standing and
current anticipated results of operations. In selecting investments for the
Fund, the 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 change their ratings of a particular
issue or reflect subsequent events on a timely basis. None of these events
will require the sale of the securities by the Fund, although the Adviser
will consider these events in determining whether the Fund should continue
to hold the securities.
Fixed-income securities, including lower rated securities and
comparable unrated securities, frequently have call or buy-back features
that permit their issuers to call or repurchase the securities from their
holders, such as the Fund. If an issuer exercises these rights during
periods of declining interest rates, the Fund may have to replace the
security with a lower yielding security, thus resulting in a decreased
return for the Fund.
The market for certain lower rated and comparable unrated
securities several years ago experienced a major economic recession. Past
recessions have adversely affected the value of such securities as well as
the ability of certain issuers of such securities to repay principal and
pay interest thereon. The market for those securities could react in a
similar fashion in the event of any future economic recession.
Options. A call option is a contract that, in return for a premium,
gives the holder of the option the right to buy from the writer of the call
option the security underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option has the
obligation, upon exercise of the option, to deliver the underlying security
upon payment of the exercise price during the option period. A put option is
the reverse of a call option, giving the holder the right to sell the security
to the writer and obligating the writer to purchase the underlying security
from the holder.
A written call option is "covered" if the writer owns the
underlying security covered by the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or
for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds a call on the
same security as the call written where the exercise price of the call held
is (1) equal to or less than the exercise price of the call written or (2)
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities or other high
grade short-term obligations in a segregated account held with its
custodian. A written put option is "covered" if the Fund maintains cash or
other high grade short-term obligations with a value equal to the exercise
price in a segregated account held with its custodian, or else holds a put
on the same security as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put written.
If the Fund has written an option, it may terminate its obligation
by effecting a closing purchase transaction. This is accomplished by
purchasing an option of the same series as the option previously written.
However, once it has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction. Similarly, if the Fund is
the holder of an option it may liquidate its position by effecting a
closing sale transaction. This is accomplished by selling an option of the
same series as the option previously purchased. There can be no assurance
that either 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 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 or in a private
transaction. 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 individual 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 stock index
options prior to expiration by entering into an closing transaction on an
exchange or it may let the option expire unexercised.
The Fund also may buy or sell put and call options on foreign
currencies. A put option on a foreign currency gives the purchaser of the
option the right to sell a foreign currency at the exercise price until the
option expires. A call option on a foreign currency gives the purchaser of
the option the right to purchase the currency at the exercise price until
the option expires. Currency options traded on U.S. or other exchanges may
be subject to position limits which may limit the ability of the Fund to
reduce foreign currency risk using such options. Over-the-counter options
differ from exchange-traded options in that they are two-party contracts
with price and other terms negotiated between buyer and seller and
generally do not have as much market liquidity as exchange-traded options.
Over-the-counter options are illiquid securities.
Use of options on securities 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 Adviser is satisfied with the development, depth and liquidity
of the market and the Adviser believes the options can be closed out.
Price movements in the portfolio of the Fund are unlikely to
correlate precisely with movements in the level of an index and, therefore,
the use of options on indices cannot serve as a complete hedge and will
depend, in part, on the ability of the Adviser to predict correctly
movements in the direction of the stock market generally or of a particular
industry. Because options on securities indices require settlement in cash,
the Adviser may be forced to liqui date portfolio securities to meet
settlement obligations. The staff of the SEC considers over-the-counter
options such as options on indices illiquid securities.
Although the 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 do not exceed
50% of the market value of its total assets. It is anticipated that these
investments, if any, will be made by the Fund solely for the purpose of
hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Such investments will only be
made if they are economically appropriate to the reduction of risks
involved in the management of the Fund. In this regard, the Fund may enter
into futures contracts or options on futures for the purchase or sale of
securities indices or other financial instruments including but not limited
U.S. Government securities.
A "sale" of a futures contract (or a "short" futures position)
means the assumption of a contractual obligation to deliver the securities
underlying the contract at a specified price at a specified future time. A
"purchaser" of a futures contract (or a "long" futures position) means the
assumption of a contractual obligation to acquire the securities underlying
the contract at a specified future time. Certain futures contracts,
including stock and bond index futures, are settled on a net cash payment
basis rather than by the sale and delivery of the securities underlying the
futures contracts.
No consideration will be paid or received by the Fund upon the
purchase or sale of a futures contract. Initially, the Fund will be
required to deposit with the broker an amount of cash or cash equivalents
equal to approximately 1% to 10% of the contract amount (this amount is
subject to change by the exchange or board of trade on which the contract
is traded and brokers or members of such board of trade may charge a higher
amount). This amount is known as "initial margin" and is in the nature of a
performance bond or good faith deposit on the contract. Subsequent
payments, known as "variation margin," to and from the broker will be made
daily as the price of the index or security underlying the futures contract
fluctuates. At any time prior to the expiration of the 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 to
that contract, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on futures on contracts is
limited to the premium paid for the option (plus transaction costs). Because
the value of the option purchased is fixed at the point of sale, there are no
daily cash payments by the purchaser to reflect changes in the value of the
underlying contract; however, the value of the option does change daily and
that change would be reflected in the net assets of the 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 reduc tion 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 1940 Act, an amount
of cash, obligations of the U.S. Government and its agencies and
instrumentalities or other liquid securities equal to the market value of
the contract must be deposited and maintained in a segregated account with
the custodian of the Fund to collateralize the positions, in order for the
Fund to avoid being treated as having issued a senior security in the
amount of its obligations. For short positions in futures contracts and
sales of call options, the Fund may establish a segregated account (not
with a futures commission merchant or broker) with cash obligations of the
U.S. Government and its agencies and instrumentalities or other high grade
debt securities that, when added to amounts deposited with a futures
commission merchant or a broker as margin, equal the market value of the
instruments or currency underlying the futures contracts or call options,
respectively (but are no less than the stock price of the call option or
the market price at which the short positions were established).
Forward Currency Transactions. The Fund may hold currencies to meet
settlement requirements for foreign securities and may engage in currency
exchange transactions to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which its securities are or may be denominated.
Forward currency contracts are agreements to exchange one currency for another
at a future date. The date (which may be any agreed-upon fixed number of days
in the future), the amount of currency to be exchanged and the price at which
the exchange takes place will be negotiated and fixed for the term of the
contract at the time that the Fund enters into the contract. Forward currency
contracts (1) are traded in a market conducted directly between currency
traders (typically, commercial banks or other financial institutions) and
their customers, (2) generally have no deposit requirements and (3) are
typically consummated without payment of any commissions. The Fund, however,
may enter into forward currency contracts requiring deposits or involving the
payment of commissions. To assure that its forward currency contracts are not
used to achieve investment leverage, the Fund will segregate liquid assets
consisting of cash, U.S. Government Securities or other liquid securities with
its custodian, or a designated sub-custodian, in an amount at all times equal
to or exceeding its commitment with respect to the contracts.
The dealings of the Fund in forward foreign exchange are limited
to hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of one forward foreign currency
for another currency with respect to specific receivables or payables of
the Fund accruing in connection with the purchase and sale of its portfolio
securities or its payment of dividends and distributions. Position hedging
is the purchase or sale of one forward foreign currency for another
currency with respect to portfolio security positions denominated or quoted
in the foreign currency to offset the effect of an anticipated substantial
appreciation or depreciation, respectively, in the value of the currency
relative to the U.S. dollar. In this situation, the Fund also may, for
example, enter into a forward contract to sell or purchase a different
foreign currency for a fixed U.S. dollar amount where it is believed that
the U.S. dollar value of the currency to be sold or bought pursuant to the
forward contract will fall or rise, as the case may be, whenever there is a
decline or increase, respectively, in the U.S. dollar value of the currency
in which its portfolio securities are denominated (this practice being
referred to as a "cross-hedge").
In hedging a specific transaction, the Fund may enter into a
forward contract with respect to either the currency in which the
transaction is denominated or another currency deemed appropriated by the
Adviser. The amount the Fund may invest in forward currency contracts is
limited to the amount of its aggregate investments in foreign currencies.
The use of forward currency contracts may involve certain risks,
including the failure of the counterparty to perform its obligations under
the contract, and such use may not serve as a complete hedge because of an
imperfect correlation between movements in the prices of the contracts and
the prices of the currencies hedged or used for cover. The Fund will only
enter into forward currency contracts with parties which it believes to be
creditworthy institutions.
When Issued, Delayed Delivery Securities and Forward Commitments.
The 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 will 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.
Short Sales. The Fund may make short sales of securities. A short
sale is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. The
market value of the securities sold short of any one issuer will not exceed
either 5% of the Fund's total assets or 5% of such issuer's voting
securities. The Fund also will not make a short sale, if, after giving
effect to such sale, the market value of all securities sold short exceeds
25% of the value of its assets or the Fund's aggregate short sales of a
particular class of securities exceeds 25% of the outstanding securities of
that class. The Fund may also make short sales "against the box" without
respect to such limitations. In this type of short sale, at the time of the
sale, the Fund owns, or has the immediate and unconditional right to
acquire at no additional cost, the identical security.
The Fund expects to make short sales both to obtain capital gains
from anticipated declines in securities and as a form of hedging to offset
potential declines in long positions in the same or similar securities. The
short sale of a security is considered a speculative investment technique.
When the Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short
sale in order to satisfy its obligation to deliver the security upon
conclusion of the sale. The Fund may have to pay a fee to borrow particular
securities and is often obligated to pay over any payments received on such
borrowed securities.
The Fund's obligation to replace the borrowed security will be
secured by collateral deposited with the broker-dealer, usually cash, U.S.
government securities or other highly liquid debt securities. The Fund will
also be required to deposit similar collateral with its custodian, Boston
Safe Deposit and Trust Company ("Boston Safe"), and, to the extent, if any,
necessary so that the value of both collateral deposits in the aggregate is
at all times equal to the greater of the price at which the security is
sold short or 100% of the current market value of the security sold short.
Depending on arrangements made with the broker-dealer from which it
borrowed the security regarding payment over of any payments received by
the Fund on such security, the Fund may not receive any payments (including
interest) on its collateral deposited with such broker-dealer. If the price
of the security sold short increases between the time of the short sale and
the time the Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a capital
gain. Any gain will be decreased, any loss increased, by the transaction
costs described above. Although the Fund's gain is limited to the price at
which it sold the security short, its potential loss is theoretically
unlimited.
To secure its obligations to deliver the securities sold short, the
Fund will deposit in escrow in a separate account with the custodian, an
amount at least equal to the securities sold short or securities convertible
into, or exchangeable for, the securities. The Fund may close out a short
position by purchasing and delivering an equal amount of securities sold
short, rather than by delivering securities already held by the Fund, because
the Fund may want to continue to receive interest and dividend payments on
securities in its portfolio that are convertible into the securities sold
short.
Repurchase Agreements. The Fund may engage in repurchase agreement
transactions involving money market instruments with banks, registered
broker-dealers and government securities dealers approved by the Adviser.
The Fund will not enter into repurchase agreements with the 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 to 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 Adviser, acting under the supervision of the Board
of Trustees of the Fund, 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.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
Overall responsibility for management and supervision of the Fund
rests with its Board of Trustees. The Board of Trustees approves all
significant agreements between the Fund and the companies that furnish the
Fund with services, including agreements with the Adviser, the Fund's
custodian and the Fund's transfer agent. The day-to-day operations of the
Fund are delegated to the Adviser.
The names and business addresses of the trustees and principal
officers of the Fund are set forth in the following table, together with
their positions and their principal occupations during the past five years
and, in the case of the trustees, their positions with certain other
organizations and companies. Trustees who are "interested persons" of the
Fund, as defined by the 1940 Act, are indicated by an asterisk.
Trustees
Number of
Portfolios in Other
Name (And Age), Position Term of Office Principal Fund Complex Directorships
with the Fund and and Length of Occupation During Overseen by Held by
Business Address1 Time Served2 Past Five Years Director Director
---------------- ----------- --------------- -------- --------
INTERESTED Since 1999*** President and Chief 21 Director of
TRUSTEES3: Investment Officer of the Morgan Group
--------
*Mario J. Gabelli (59) Fund; Chairman of the Board, Holdings, Inc.
Chairman of the Board Chief Executive Officer of (transportation
Gabelli Asset Management services); Vice
Inc. and Chief Investment Chairman of
Officer of the Adviser and Lynch
GAMCO Investors, Inc; Corporation
Chairman and Trustee of other (diversified
registered investment manufacturing
companies in the Gabelli fund company).
complex.
John D. Gabelli (58) Since 1999** Senior Vice President of 9 ____
Trustee Gabelli & Company and
Director of Gabelli Advisers,
Inc.; Trustee of other
registered investment
companies in the Gabelli fund
complex.
Number of
*Karl Otto Pohl (72) Since 1999** Member of the Shareholder 30 Director of
Trustee Committee of Sal. Oppenheim Gabelli Asset
Jr. & Cie (private investment Management
bank); Former President of the Inc.;
Deutsche Bundesbank and Chairman,
Chairman of its Central Bank Incentive
Council from 1980 through Capital and
1991; Trustee of other Incentive
registered investment Asset
companies in the Gabelli fund Management
complex. (Zurich);
Director at Sal
Oppenheim Jr.
& Cie, Zurich
DISINTERESTED Director, President and 3 ___
TRUSTEES: Founder, The John Dewey
---------
Dr. Thomas E. Bratter 62 Since 1999*** Academy (residential college
Trustee preparatory therapeutic high
school); Trustee of other
registered investment
companies in the Gabelli fund
complex.
Anthony J. Colavita 66 Since 1999* President and Attorney at law 32 ___
Trustee in the law firm of Anthony J.
Colavita, P.C. since 1961;
Trustee of other registered
investment companies in the
Gabelli fund complex.
James P. Conn (64) Since 1999** Former Managing Director 11 Director of
Trustee and Chief Investment Officer LaQuinta
of Financial Security Corp. (hotels)
Assurance Holdings Ltd., and First
1992-1998; Director of Republic Bank
Meditrust Corporation (real
estate investment
trust); Director of
First Republic Bank;
Trustee of other
registered investment
companies in the
Gabelli fund complex.
Vincent D. Enright (58) Since 1999* Former Senior Vice President 10 ___
Trustee and Chief Financial Officer of
KeySpan Energy
Corporation through
1998; Trustee of
other registered
investment companies
in the Gabelli fund
complex.
Frank J. Fahrenkopf, Jr. (62) Since 1999* President and CEO of the 3 ___
Trustee American Gaming Association
since June 1995; Partner of
Hogan & Hartson; Chairman
of International Trade Practice
Group. Co-Chairman of the
Commission on Presidential
Debates; former Chairman of
the Republican National
Committee; Trustee of other
registered investment
companies in the Gabelli fund
complex.
Robert J. Morrisey (62) Since 1999* Partner in the law firm of 8 ___
Trustee Morrissey & Hawkins;
Trustee of other
registered investment
companies in the
Gabelli fund complex.
Anthony R. Pustorino (76) Since 1999** Certified Public Accountant; 16 ___
Trustee Professor Emeritus (since
2002) and Professor
of Accounting, Pace
University, since
1965 (prior to 2002);
Trustee of other
registered investment
companies in the
Gabelli fund complex.
Salvatore J. Zizza (56) Since 1999* Chairman of Hallmark 8 Board
Trustee Electrical Supply Corp.; Member of
Former Executive Vice Hollis Eden
President of FMG Group (a Pharmaceutica
healthcare provider); Former ls, Bion
President and Chief Executive Environmental
Officer of the Lehigh Group Technologies
Inc. (an electrical supply Inc. and The
wholesaler); Trustee of [ ] Credit Store
registered investment Inc.
companies in the Gabelli fund
complex.
Officers
Name (And Age), Position Principal
with the Fund and Occupation During
Business Address Past Five Years
---------------- ---------------
Bruce N. Alpert (50) Executive Vice President and Chief Operating Officer
Vice President and Treasurer of the Adviser since June 1988; Director and President
One Corporate Center of Gabelli Advisers, Inc.; Officer of all other
Rye, New York 10580-1434 registered investment companies in the Gabelli fund
complex; Vice President of The Treasurer's Fund Inc.;
Vice President of Gabelli Westwood Funds.
David Schachter (48) Vice President of the Fund since July 9, 1999; Officer
Vice President of certain other registered investment companies in the
One Corporate Center Gabelli fund complex; Financial Services Research Rye, New
York 10580-1434 Analyst of Gabelli & Company from October 1, 1998
to July 9, 1999; Prior to October, 1998, Vice President
of Thomas J. Herzfeld Advisers, Inc., a registered
investment adviser and noted closed-end fund
authority.
James E. McKee (38) Vice President and Secretary of the Adviser (since
Secretary of the Fund 1995) and Vice President and General Counsel of
One Corporate Center GAMCO Investors, Inc. (since 1993); Secretary of the
Rye, New York 10580-1434 registered investment companies in the Gabelli fund
complex; Vice President and Secretary of Gabelli
Asset Management.
* "Interested person" of the Fund, as defined in the 1940 Act. Mr. Mario Gabelli is an
"interested person" of the Fund as a result of his employment as an officer of the
Fund and the Adviser. Messrs. John and Mario Gabelli are registered representatives
of an affiliated broker-dealer. Mr. Pohl is a director of the parent company of the
Adviser.
-----------------------
1 Address: One Corporate Center, Rye, NY 10580, unless otherwise noted.
2 The Trust's Board of Trustees is divided into three classes, each class having a term
of three years. Each year the term of office of one class expires
and the successor or successors elected to such class serve for a
three year term. The three year term for each class expires as
follows:
*-- Term expires at the Trust's 2002 Annual Meeting of
Shareholders and until their successors are duly elected and
qualified.
**-- Term expires at the Trust's 2003 Annual Meeting of
Shareholders and until their successors are duly elected and
qualified.
***-- Term expires at the Trust's 2004 Annual Meeting of
Shareholders and until their successors are duly elected and
qualified.
3 "Interested person" of the Trust as defined in the Investment Company Act of 1940.
Messrs. M. Gabelli, J. Gabelli and Pohl are each considered an "interested person"
because of their affiliation with Gabelli Funds LLC which acts as the Trust's
investment adviser.
The Board of Trustees of the Fund are divided into three classes,
with a class having a term of three years except as described below. Each
year the term of office of one class of trustees of the Fund will expire.
However, to ensure that the term of a class of the Fund's trustees expires
each year, one class of the Fund's trustees will serve three-year terms.
The terms of Messrs. Colavita, Fahrenkopf, Morrissey and Zizza as trustees
of the Fund expire in 2002; the terms of Messrs. Conn, John Gabelli, Pohl
and Pustorino as trustees of the Fund expire in 2003; and the terms of
Messrs. Bratter, Enright and Mario Gabelli as trustees of the Fund expire
in 2004. See "Certain Provisions of the Declaration of Trust and the
By-Laws" in the Prospectus.
Name of Director Dollar Range of Equity Aggregate Dollar Range of
Securities in the Fund Equity Securities in all
Registered Investment
Companies Overseen by
Directors in Family of
Investment Companies
INTERESTED TRUSTEES
Mario J. Gabelli
John D. Gabelli
Karl Otto Pohl
DISINTERESTED TRUSTEES
Dr. Thomas E. Bratter
James P. Conn
Vincent D. Enright
Frank J. Fahrenkopf, Jr.
Robert J. Morrissey
Anthony J. Pustonino
Salvatore J. Zizza
The Trustees serving on the Trust's Nominating Committee are
Messrs. Zizza (Chairman) and Colavita. The Nominating Committee is
responsible for recommending qualified candidates to the Board in the event
that a position is vacated or created. The Nominating Committee would
consider recommendations by shareholders if a vacancy were to exist. Such
recommendations should be forwarded to the Secretary of the Trust. [The
Nominating Committee did not meet during the year ended December 31, 2001.]
The Trust does not have a standing compensation committee.
Messrs. Pustorino (Chairman), Colavita and Enright serve on the
Trust's Audit Committee and these Trustees are not "interested persons" of
the Trust as defined in the 1940 Act. The Audit Committee is responsible
for reviewing and evaluating issues related to the accounting and financial
reporting policies and internal controls of the Trust and the internal
controls of certain service providers, overseeing the quality and
objectivity of the Trust's financial statements and the audit thereof and
to act as a liaison between the Board of Trustees and the Trust's
independent accountants. During the year ended December 31, 2001, the Audit
Committee met twice.
REMUNERATION OF TRUSTEES AND OFFICERS
The Fund pays each trustee who is not affiliated with the Adviser
or its affiliates a fee of $3,000 per year plus $500 per meeting attended,
together with each trustee's actual out-of-pocket expenses relating to
attendance at such meetings.
The following table shows certain compensation information for
the Trustees and Officers of the Fund for the fiscal year ended December
31, 2001. Mr. Schachter is employed by the Fund and his compensation is
evaluated and approved by the Trustees.
Other officers who are employed by the Adviser receive no compensation or
expense reimbursement from the Fund.
COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
TOTAL
COMPENSATION
FROM THE FUND
AND FUND
AGGREGATE COMPLEX PAID
NAME OF PERSON AND COMPENSATION TO TRUSTEES/
POSITION* FROM THE FUND OFFICERS**
MARIO J. GABELLI Chairman of the Board $0 $0
(17)
DR. THOMAS E. BRATTER Trustee (3) $5,000 $31,500
JAMES P. CONN (5) Trustee $5,000 $53,750
VINCENT D. ENRIGHT (5) Trustee $5,500 $46,250
FRANK J. FAHRENKOPF, JR. (3) Trustee $5,000 $31,500
JOHN D. GABELLI (4) Trustee $0 $0
ROBERT J. MORRISSEY $4,500 $37,266
KARL OTTO POHL (19) Trustee $0 $0
ANTHONY R. PUSTORINO (12) Trustee $6,000 $125,250
SALVATORE J. ZIZZA (7) Trustee $5,500 $64,266
ANTHONY J. COLAVITA (20) $6,500 $145,016
* The number in parenthesis represents the number of such investment
companies and portfolios.
** Represents the total compensation paid to such persons during the
calendar year ended December 31, 2001 by investment companies
(including the Fund) or portfolios thereof 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.
For his services as Vice President of the Fund, Mr. Schachter receives an annual fee of $_________.
LIMITATION OF OFFICERS' AND TRUSTEES' LIABILITY.
The Governing Documents of the Fund provide that the Fund will
indemnify its trustees and officers and may indemnify its employees or agents
against liabilities and expenses incurred in connection with litigation in
which they may be involved because of their positions with the Fund, to the
fullest extent permitted by law. However, nothing in the Governing Documents
of the Fund protects or indemnifies a trustee, 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 willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his or her
position.
INVESTMENT ADVISORY AND ADMINISTRATIVE ARRANGEMENTS
Gabelli Funds, LLC acts as the Fund's investment adviser pursuant
to an advisory agreement with the Fund (the "Advisory Agreement"). The
Adviser is a New York corporation with principal offices located at One
Corporate Center, Rye, New York 10580. The Adviser was organized in 1999
and is the successor to Gabelli Funds, Inc. which was organized in 1980. As
of December 31, 2001, the Adviser and its affiliates acted as registered
investment advisers to 20 management investment companies with aggregate
net assets of $11.1 billion. The Adviser, together with other affiliated
investment advisers, has assets under management totaling $24.8 billion.
GAMCO Investors, Inc., an affiliate of the Adviser, acts as investment
adviser for individuals, pension trusts, profit sharing trusts and
endowments and as a sub-adviser to management investment companies, having
aggregate assets of $11.5 billion under management as of December 31, 2001.
Gabelli Fixed Income LLC, an affiliate of the Adviser, acts as investment
adviser for The Treasurer's Fund and separate accounts having aggregate
assets of $1.6 billion under management as of December 31, 2001. The
Adviser is a wholly-owned subsidiary of Gabelli Asset Management Inc., a
New York corporation, whose Class A Common Stock is traded on the New York
Stock Exchange under the symbol "GBL." Mr. Mario J. Gabelli may be deemed a
"controlling person" of the Adviser on the basis of his ownership of a
majority of the stock of the Gabelli Group Capital Partners, Inc., which
owns 78.6% of the capital stock of Gabelli Asset Management Inc. as of
February 28, 2002.
Under the terms of the Advisory Agreement, the Adviser manages the
portfolio of the Fund in accordance with its stated investment objective
and policies, makes investment decisions for the Fund, places orders to
purchase and sell securities on behalf of the Fund and manages its other
business and affairs, all subject to the supervision and direction of the
Fund's Board of Trustees. In addition, under the Advisory Agreement, the
Adviser oversees the administration of all aspects of the Fund's business
and affairs and provides, or arranges for others to provide, at the
Adviser's expense, certain enumerated services, including main taining the
Fund's books and records, preparing reports to the Fund's shareholders and
super vising the calculation of the net asset value of its shares. All
expenses of computing the net asset value of the Fund, including any
equipment or services obtained solely for the purpose of pricing shares or
valuing its investment portfolio, will be an expense of the Fund under its
Advisory Agreement unless the Adviser voluntarily assumes responsibility
for such expense. For its services, the 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.
The Advisory Agreement combines investment advisory and
administrative responsibilities in one agreement. For services rendered by
the Adviser on behalf of the Fund under the Advisory Agreement, the Fund
pays the Adviser a fee computed daily and paid monthly at the annual rate
of 1.00% of the average weekly net assets of the Fund.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties thereunder, the Adviser is not liable for any error
or judgment or mistake of law or for any loss suffered by the Fund. As part
of the Advisory Agreement, the Fund has agreed that the name "Gabelli" is
the Adviser's property, and that in the event the Adviser ceases to act as
an investment adviser to the Fund, the Fund will change its name to one not
including "Gabelli."
Pursuant to its terms, the Advisory Agreement will remain in
effect with respect to the Fund until the second anniversary of shareholder
approval of such Agreement, and from year to year thereafter if approved
annually (i) by the Fund's Board of Trustees or by the holders of a
majority of its outstanding voting securities and (ii) by a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of
any party to the Advisory Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement
terminates automatically on its assignment and may be terminated without
penalty on 60 days' written notice at the option of either party thereto or
by a vote of a majority (as defined in the 1940 Act) of the Fund's
outstanding shares.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Trustees of the Fund,
the Adviser is responsible for placing purchase and sale orders and the
allocation of brokerage on behalf of the Fund. Transactions in equity
securities are in most cases effected on U.S. stock exchanges and involve the
payment of negotiated brokerage commissions. In general, there may be no
stated commission in the case of securities traded in over-the-counter
markets, but the prices of those securities may include undisclosed
commissions or mark-ups. Principal transactions are not entered into with
affiliates of the Fund. However, Gabelli & Company may execute transactions in
the over-the-counter markets on an agency basis and receive a stated
commission therefrom. To the extent consistent with applicable provisions of
the 1940 Act and the rules and exemptions adopted by the SEC thereunder, as
well as other regulatory requirements, the Fund's Board of Trustees have
determined that portfolio transactions may be executed through Gabelli &
Company and its broker-dealer affiliates if, in the judgment of the 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 obligations to deal with any broker or group of
brokers in executing transactions in portfolio securities. In executing
transactions, the Adviser seeks to obtain the best price and execution for the
Fund, taking into account such factors as price, size of order, difficulty of
execution and operational facilities of the firm involved and the firm's risk
in positioning a block of securities. While the Adviser generally seeks
reasonably competitive commission rates, the Fund does not necessarily pay the
lowest commission available.
Subject to obtaining the best price and execution, brokers who
provide supplemental research, market and statistical information to the
Adviser or its affiliates may receive orders for transactions by the Fund.
The term "research, market and statistical information" includes advice as
to the value of securities, and advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or
sellers of securities, and furnishing analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio
strategy and the performance of accounts. Information so received will be
in addition to and not in lieu of the services required to be performed by
the Adviser under the Advisory Agreement and the expenses of the Adviser
will not necessarily be reduced as a result of the receipt of such
supplemental information. Such information may be useful to the Adviser and
its affiliates in providing services to clients other than the Fund, and
not all such information is used by the Adviser in connection with the
Fund. Conversely, such information provided to the Adviser and its
affiliates by brokers and dealers through whom other clients of the Adviser
and its affiliates effect securities transactions may be useful to the
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 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 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.
REPURCHASE OF SHARES
The Fund is a closed-end, non-diversified, management investment
company and as such its shareholders do not, and will not, have the right
to redeem their shares. The Fund, however, may repurchase its shares from
time to time as and when it deems such a repurchase advisable. Such
repurchases will be made when the Fund's shares are trading at a discount
of 10% or more (or such other percentage as the Board of Trustees 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, status of
the seller, price paid, brokerage commissions, prior notice to shareholders
of an intention to purchase shares and purchasing in a manner and on a
basis which does not discriminate unfairly against the other shareholders
through their interest in the Fund.
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.
PORTFOLIO TURNOVER
The portfolio turnover rates of the Fund for the fiscal years
ending December 31, 2001 and 2000 were 41% and 92%, respectively. Portfolio
turnover rate is calculated by dividing the lesser of an investment
company's annual sales or purchases of portfolio securities by the monthly
average value of securities in its portfolio during the year, excluding
portfolio securities the maturities of which at the time of acquisition
were one year or less. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expense than a lower rate,
which expense must be borne by the Fund and its shareholders, as
applicable.
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
Under the Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan adopted by the Fund ( the "Plan"), a shareholder whose Common
Stock is registered in his own name, including all Shares issued pursuant
to the Rights Offering and all shares held by a shareholder participating
in the Rights Offering, will have all distributions reinvested
automatically by Equiserve Trust Company ("Equiserve"), 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 Equiserve as dividend disbursing agent.
Under the Plan, whenever the market price of the Common Stock is
equal to or exceeds net asset value at the time shares are valued for purposes
of determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants in such plan are issued shares of Common
Stock, valued at the greater of (i) the net asset value as most recently
determined or (ii) 95% of the then current market price of the Common Stock.
The valuation date is the dividend or distribution payment date or, if that
date is not a New York Stock Exchange trading day, the next preceding trading
day. If the net asset value of the Common Stock at the time of valuation
exceeds the market price of the Common Stock, participants will receive shares
from the Fund, or acquired by the Plan agent in the open market, valued at
market price. If the Fund should declare a dividend or capital gains
distribution payable only in cash, Equiserve will buy the Fund's Common Stock
for the Plan in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts, except that Equiserve 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 its Common Stock exceeds net asset value.
Participants in the Plan have the option of making additional cash
payments to Equiserve, twice per month for the Fund, for investment in the
shares. Such payments may be made in any amount from $250 to $10,000.
Equiserve will use all funds received from participants to purchase shares
of the Fund in the open market on the 1st and 15th of each month. It is
suggested that participants send voluntary cash payments to Equiserve in a
manner that ensures that Equiserve will receive these payments
approximately 10 days before the investment date. A participant may without
charge withdraw a voluntary cash payment by written notice, if the notice
is received by Equiserve at least 48 hours before such payment is to be
invested.
Equiserve 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 Equiserve in
noncertificated form in the name of the participant, and each shareholder's
proxy will include those shares purchased pursuant to the Plan. A Plan
participant may send his share certificates to Equiserve so that the shares
represented by such certificates will be held by Equiserve 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, Equiserve will
administer the Plan on the basis of the number of shares certified from
time to time by the shareholder as representing the total amount registered
in the shareholder's name and held for the account of beneficial owners who
participate in the Plan.
There is no charge to participants for reinvesting dividends or
capital gains distributions payable in either stock or cash. Equiserve'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 Equiserve's open market purchases in connection with the
reinvestment of dividends or capital gains distributions.
With respect to purchases from voluntary cash payments, Equiserve
will charge $0.75 for each such purchase for a participant, plus a pro rata
share of the brokerage commissions. Brokerage charges for purchasing small
amounts of stock for individual accounts through the Plan are expected to
be less than the usual brokerage charges for such transactions, as
Equiserve will be purchasing shares for all participants in blocks and
prorating the lower commission thus attainable.
The automatic reinvestment of dividends and distributions will not
relieve participants of any income tax which may be payable on such
dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate its Plan as
applied to any voluntary cash payments made and any dividend or
distribution paid subsequent to written notice of the change sent to the
members of such Plan at least 90 days before the record date for such
dividend or distribution. The Plan also may be amended or terminated by
Equiserve on at least 90 days' written notice to the participants in such
Plan. All correspondence concerning the Plan should be directed to
Equiserve at [P.O. Box 9573, Boston, Massachusetts 02205-9573].
TAXATION
Set forth below is a discussion of certain U.S. federal income tax
issues concerning the Fund and the purchase, ownership and disposition of
Fund shares. This discussion is based upon present provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities,
all of which are subject to change, which change may be retroactive. This
discussion does not purport to be complete or to deal with all aspects of
U.S. federal income taxation that may be relevant to investors in light of
their particular circumstances. Prospective investors should consult their
own tax advisers with regard to the U.S. federal tax consequences of the
purchase, ownership, or disposition of Fund shares, as well as the tax
consequences arising under the laws of any state, foreign country, or other
taxing jurisdiction.
TAX STATUS OF THE FUND
The Fund has qualified and elected to be taxed as a regulated
investment company under Subchapter M of the Code. Accordingly, the Fund
must, among other things, (a) derive in each taxable year at least 90% of
its gross income (including tax-exempt interest) from dividends, interest,
payments with respect to certain securities loans, and gains from the sale
or other disposition of stock, securities or foreign currencies, or other
income (including but not limited to gain from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the
end of each fiscal quarter (i) at least 50% of the market value of the
Fund's total assets is represented by cash and cash items, U.S. Government
securities, the securities of other regulated investment companies and
other securities, with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the value of the Fund's total
assets and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's total assets
is invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies) or
of any two or more issuers that the Fund controls and that are determined
to be engaged in the same business or similar or related trades or
businesses.
As a regulated investment company, the Fund generally is not
subject to U.S. federal income tax on income and gains that it distributes
each taxable year to shareholders, if at least 90% of the sum of the Fund's
(i) investment company taxable income (which includes, among other items,
dividends, interest, the excess of any net short-term capital gains over
net long-term capital losses) and other taxable income other than any net
capital gain (as defined below) reduced by deductible expenses) determined
without regard to the deduction for dividends paid and (ii) its net tax
exempt interest (the excess of its gross tax exempt interest over certain
disallowed deductions). The Fund may retain for investment its net capital
gain (which consists of the excess of its net long-term capital gain over
its net short-term capital loss). However, if the Fund retains any net
capital gain or any investment company taxable income, it will be subject
to tax at regular corporate rates on the amount retained. The Fund intends
to distribute annually substantially all of such income.
Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4%
excise tax at the Fund level. To avoid the tax, the Fund must distribute
during each calendar year an amount equal to the sum of (1) at least 98% of
its ordinary income (not taking into account any capital gains or losses)
for the calendar year, (2) at least 98% of its capital gains in excess of
its capital losses (adjusted for certain ordinary losses) for a one-year
period generally ending on October 31 of the calendar year (unless, an
election is made by a fund with a November or December year-end to use the
fund's fiscal year), and (3) certain undistributed amounts from previous
years on which the Fund paid no U.S. federal income tax. While the Fund
intends to distribute income and capital gains in the manner necessary to
minimize imposition of the 4% excise tax, there can be no assurance that
sufficient amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In that event, the
Fund will be liable for the tax only on the amount by which it does not
meet the foregoing distribution requirement.
A distribution will be treated as paid on December 31 of a
calendar year if it is declared by the Fund in October, November or
December of that year with a record date in such a month and paid by the
Fund during January of the following year. Such a distribution will be
taxable to shareholders in the calendar year in which the distribution is
declared, rather than the calendar year in which it is received.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital
gains) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable to the shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits.
DISTRIBUTIONS
Distributions paid by the Fund from its ordinary income or from an
excess of net short-term capital gains over net long-term capital losses
(together referred to hereinafter as "ordinary income dividends") are
taxable to shareholders as ordinary income to the extent of the Fund's
earnings and profits. Distributions made from an excess of net long-term
capital gains over net short-term capital losses ("capital gain
dividends"), including capital gain dividends credited to a shareholder but
retained by the Trust (as described below), are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder
has owned Fund shares. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and,
after such adjusted tax basis is reduced to zero, will constitute capital
gains to such holder (assuming the shares are held as a capital asset).
Dividend distributions of investment company taxable income are taxable to
a shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends
are attributable to dividends received by the Fund from U.S. corporations,
may, subject to limitations, be eligible for the dividends received
deduction. Generally, not later than 60 days after the close of its taxable
year, the Fund will provide its shareholders with a written notice
designating the amount of any ordinary income dividends, capital gain
dividends or dividends qualifying for a dividends received deduction and
other distributions.
Investors should be careful to consider the tax implications of
buying shares of the Fund just prior to the record date of a distribution
(including a capital gain dividend). The price of shares purchased at such
a time will reflect the amount of the forthcoming distribution, but the
distribution will generally be taxable to the shareholder.
If the Fund retains any net capital gain, it may designate the
retained amount as undistributed capital gains in a notice to its
shareholders who, if subject to U.S. federal income tax on long-term
capital gains, (i) will be required to include in income their share of
such undistributed long-term capital gain and (ii) will be entitled to
credit their proportionate share of the tax paid by the Fund against their
U.S. federal tax liability, if any, and to claim refunds to the extent the
credit exceeds such liability. For U.S. federal income tax purposes, the
tax basis of shares owned by a shareholder of the Fund will be increased by
the amount of undistributed capital gain included in the gross income of
such shareholder less the tax deemed paid by such shareholder under clause
(ii) of the preceding sentence.
FOREIGN TAXES
The Fund may be subject to certain taxes imposed by the countries in
which it in vests or operates. If the Fund qualifies as a regulated investment
company and if more than 50% of the value of the Fund's total assets at the
close of any taxable year consists of stocks or securities of foreign
corporations, the Fund may elect, for U.S. federal income tax pur poses, to
treat any foreign taxes paid by the Fund that qualify as income or similar
taxes under U.S. federal income tax principles as having been paid by the
Fund's shareholders. For any year for which the Fund makes such an election,
each shareholder will be required to include in its gross income an amount
equal to its allocable share of such taxes paid by the Fund and the
shareholders will be entitled, subject to certain limitations, to credit their
portions of these amounts against their U.S. federal income tax liability, if
any, or to deduct their portions from their U.S. taxable income, if any. No
deduction for foreign taxes may be claimed by individuals who do not itemize
deductions. In any year in which it elects to "pass through" foreign taxes to
shareholders, the Fund will notify shareholders within 60 days after the close
of the Fund's taxable year of the amount of such taxes and the sources of its
income. Because application of the credit depends on the particular
circumstances for each shareholder, shareholders are advised to consult their
own tax advisers.
DISPOSITIONS
The sale or other disposition of common shares of the Fund will
generally result in capital gain or loss to shareholders, and will be
long-term capital gain or loss if the shares have been held for more than
one year at the time of sale. Any loss upon the sale or exchange of Fund
shares held for six months or less will be treated as long-term capital
loss to the extent of any capital gain dividends received (including
amounts credited as an undistributed capital gain dividend) by the
shareholder. A loss realized on a sale or exchange of shares of the Fund
will be disallowed if other Fund shares are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the shares
are disposed of. In such case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Present law taxes both long-term
and short-term capital gains of corporations at the rates applicable to
ordinary income. For non-corporate taxpayers, however, short-term capital
gains and ordinary income will currently be taxed at a maximum rate of
38.6% while long-term capital gains generally will be taxed at a maximum
rate of 20% and 10% for taxpayers in the 15% bracket. Tthe 20% capital
gains rate and the 10% capital gains rate will be reduced to 17% and 8%
respectively, for capital assets held for more than five years if the
holding period begins after December 31, 2000.
BACKUP WITHHOLDING
The Fund generally will be required to withhold U.S. federal
income tax ("backup withholding") from dividends, capital gain
distributions and certain other amounts paid to shareholders if (1) the
shareholder fails to furnish the Fund with the shareholder's correct
taxpayer identification number or social security number, (2) the Internal
Revenue Service notifies the shareholder or the Fund that the shareholder
has failed to report properly certain interest and dividend income to the
Internal Revenue Service and to respond to notices to that effect, or (3)
when required to do so, the shareholder fails to certify that he or she is
not subject to backup withholding. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability.
FOREIGN INVESTORS
A shareholder that is a nonresident alien individual or a foreign
corporation (a "foreign investor") generally may be subject to U.S.
withholding tax at the rate of 30% (or possibly a lower rate provided by an
applicable tax treaty) on ordinary income dividends. Different tax
consequences may result if the foreign investor is engaged in a trade or
business in the United States or, in the case of an individual, is present
in the United States for 183 or more days during a taxable year and certain
other conditions are met.
FUND INVESTMENTS
The Fund will invest in securities rated in the lower rating
categories of nationally recognized rating organizations ("junk bonds" or
"high yield bonds"). Some of these junk bonds or high-yield bonds may be
purchased at a discount and may therefore cause the Fund to accrue and
distribute income before amounts due under the obligations are paid. In
addition, a portion of the interest on such junk bonds and high-yield bonds
may be treated as dividends for U.S. federal income tax purposes. In such
cases, if the issuer of the junk bonds or high-yield bonds is a domestic
corporation, dividend payments by the Fund will be eligible for the
dividends received deduction to the extent of the deemed dividend portion
of such interest.
The Fund may write (i.e., sell) covered call and covered put
options on its portfolio securities, purchase call and put options on
securities and engage in transactions in financial futures and related
options on such futures. Such options and futures contracts that are
"Section 1256 contracts" will be "marked to market" for U.S. federal income
tax purposes at the end of each taxable year, i.e., each such option or
futures contract will be treated as sold for its fair market value on the
last day of the taxable year. Subject to certain exceptions, generally gain
or loss from Section 1256 contracts will be 60% long-term and 40% short-
term capital gain or loss. Application of these rules to Section 1256
contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above,
however, will not apply to certain transactions entered into by the Fund
primarily to reduce the risk of changes in price or interest or currency
exchange rate with respect to its investments.
The U.S. federal income tax rules governing the taxation of
interest rate swaps are not entirely clear and may require the Fund to
treat payment received under such arrangements as ordinary income and to
amortize such payment under certain circumstances. The Fund does not
anticipate that its activity in this regard will affect its qualification
as a regulated investment company.
Code Section 1092, which applies to certain "straddles," may
affect the taxation of the Fund's sales of securities and transactions in
options and futures. Under Code Section 1092, the Fund may, for U.S.
federal income tax purposes, be required to postpone recognition of losses
incurred in certain sales of securities and certain closing transactions in
options and futures.
Passive Foreign Investment Companies. The Fund may invest in
shares of foreign corporations that may be classified under the Code as
passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets, or 75% or more of its gross income is
investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to
a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In
general, under the PFIC rules, any excess distribution is treated as having
been realized ratably over the period during which the Fund held the PFIC
shares. The Fund will itself be subject to tax on the portion, if any, of
an excess distribution that is so allocated to prior Fund taxable years and
an interest factor will be added to the tax, as if the tax had been payable
in such prior taxable years. Certain distributions from a PFIC as well as
gain from the sale of PFIC shares are treated as excess distributions.
Excess distributions are characterized as ordinary income even though,
absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under one election currently available in some
circumstances, the Fund would be required to include in its gross income
its share of the earnings of a PFIC, on a current basis, whether or not
distributions were received from the PFIC in a given year. Under another
election, the Fund would be required to mark to market the Fund's PFIC
shares at the end of each taxable year, with the result that unrealized
gains would be treated as realized and such gains would be required to be
reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to
the extent of any net mark-to-market gains included in income in prior
years. If either one of these elections were made the special rules,
discussed above, relating to the taxation of excess distributions would not
apply.
Certain of the Fund's investment practices are subject to special
and complex federal income tax provisions that may, among other things, (i)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (ii) convert lower taxed long-term capital gains into higher
taxed short-term capital or ordinary income, (iii) convert ordinary loss or
a deduction into capital loss (the deductibility of which is more limited),
(iv) cause the Fund to recognize income or gain without a corresponding
receipt of cash, (v) adversely affect the time as to when a purchase or
sale of stock or securities is deemed to occur and (vi) adversely alter the
characterization of certain complex financial transactions.
The foregoing is a general summary of the provisions of the Code and
the Treasury Regulations in effect as they directly govern the U.S. federal
income taxation of the Fund and its shareholders. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive. Ordinary income and capital gain dividends may also be subject to
state, local, foreign income or other taxes. Certain states exempt from state
income taxation dividends paid by regulated investment companies which are
derived from interest on United States Government obligations. State law
varies as to whether dividend income attributable to United States Government
obligations is exempt from state income tax. Shareholders are urged to consult
their tax advisers regarding specific questions as to U.S. federal, foreign,
state, local income or other taxes.
NET ASSET VALUE
The net asset value of the Fund's shares will be computed, based
on the market value of the securities it holds and determined daily as of
the close of regular trading on the New York Stock Exchange.
Portfolio instruments of the Fund which are traded in a market
subject to government regulation on which trades are reported
contemporaneously will be valued at the last sale price on the principal
market for such instruments as of the close of regular trading on the day
the instruments are being valued, or lacking any sales, at the average of
the bid and asked price on the principal market for such instruments on the
most recent date on which bid and asked prices are available. Other readily
marketable assets will be valued at the average of quotations provided by
dealers maintaining an active market in such instruments. Securities and
other assets for which market quotations are not readily available will be
valued at fair value as determined in good faith by or under the direction
of the Board of Trustees. Short-term investments that mature in more than
60 days are valued at the highest bid price ob tained from a dealer
maintaining an active market in that security or on the basis of prices
obtained from a pricing service approved as reliable by the Board of
Trustees. Short-term investments that mature in 60 days or fewer are valued
at amortized cost, unless the Board of Trustees determines that such
valuation does not constitute fair value. The Fund may employ recognized
pricing services from time to time for the purpose of pricing portfolio
instruments.
Net asset value per share is calculated by dividing the value of
the securities held plus any cash or other assets minus all liabilities,
including accrued expenses, by the total number of shares outstanding at
such time.
GENERAL INFORMATION
COUNSEL AND INDEPENDENT ACCOUNTANTS
Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New
York, New York 10036 is special counsel to the Fund in connection with the
rights offering.
PricewaterhouseCoopers LLP, independent accountants, 1177 Avenue
of the Americas, New York, New York 10036, serve as auditors of the Fund
and will annually render an opinion on the financial statements of the
Fund.
BENEFICIAL OWNER
There are no persons known to the Fund who may be deemed
beneficial owners of 5% or more of shares of the Fund's Common Stock
because they possessed or shared voting or investment power with respect to
shares of the Fund's Common Stock.
FINANCIAL STATEMENTS
The audited financial statements included in the Annual Report to
the Fund's Shareholders for the fiscal year ended December 31, 2001,
together with the report of PricewaterhouseCoopers LLP thereon, are also
incorporated herein by reference from the Fund's Annual Report to
Shareholders. 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).
APPENDIX A
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa
Securities.
A Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa Bonds that are rated Baa are considered as medium-grade
obligations i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
B Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small. Moody's applies numerical modifiers
(1, 2, and 3) with respect to the bonds rated "Aa" through "B." The
modifier 1 indicates that the company ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
Caa Bonds that are rated Caa are of poor standing. These issues may
be in default or there may be present elements of danger with
respect to principal or interest.
Ca Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C Bonds that are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
STANDARD & POOR'S RATINGS SERVICES
AAA This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and
repay principal.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small
degree. Principal and interest payments on bonds in this
category are regarded as safe.
A Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated
categories.
Speculative Grade
Debt rated BB, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation, and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions. Debt rated [C1] is reserved for income
bonds on which no interest is being paid and debt rated D is in payment
default.
In July 1994, S&P initiated an "r" symbol to its ratings. The "r"
symbol is attached to derivatives, hybrids and certain other obligations
that S&P believes may experience high variability in expected returns due
to 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.
---------------------------------
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
(a) Financial Statements (audited) for the fiscal year 2001(1) (i)
Portfolio of Investments as of December 31, 2001 (ii) Statement of
Assets and Liabilities as of December 31, 2001 (iii) Statement of
Operations for the year ended December 31, 2001 (iv) Statement of
Changes in Net Assets for the year ended December 31, 2001
(v) Financial highlights for a share outstanding throughout
the periods 2001 and 2000 and 1999.
(vi) Notes to Financial Statements
(vii) Report of Independent Accountants
(2) Exhibits
(a) Amended and Restated Agreement and Declaration of Trust of
Registrant(2)
(b) Amended and Restated By-Laws of Registrant(2)
(c) Not applicable
(d) (i) Form of Registrant's Common Stock Certificate(2)
(ii) Form of Subscription Certificate(4) (iii) Form of Notice of
Guaranteed Delivery of Payment(4) (iv) Form of DTC Participant
Oversubscription Exercise Form(4) (v) Form of Nominee Holder
Oversubscription Certification(4) (vi) Form of Subscription,
Distribution and Escrow Agency Agreement(2)
(e) Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan of
Registrant(2)
(f) Not applicable
(g) Form of Investment Advisory Agreement between Registrant and
Gabelli Funds, LLC(2)
(h) Not applicable
(i) Not applicable
(j)(1)Form of Custodian Contract between Registrant and Boston Safe
Deposit and Trust Company(4)
(j)(2)Form of Custodian Fee Schedule between Registrant and Boston Safe
Deposit and Trust Company(4)
(k)(1) Form of Registrar, Transfer Agency and Service Agreement
between Registrant and Equiserve Trust Company (2)
(k)(2) Form of Transfer Agent and Registrar Service Fee Agreement between
Registrant and Equiserve Trust Company(2)
(k)(3) Assignment of Registrar, Transfer Agency and Service Agreement
to Equiserve Trust Company (N.A.)(4)
(l) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP
with respect to legality(4)
(m) Not applicable
(n) (i) Consent of PricewaterhouseCoopers LLP(3)
(ii) Powers of Attorney(2)
(o) Not applicable
(p) Not applicable
(q) Codes of Ethics of the Trust and the Advisor (4)
-------------------
(1) Incorporated by reference to the Fund's annual report filed on
March [8], 2001
(2) Previously filed.
(3) Filed herewith.
(4) To be filed by Amendment.
Item 25. Marketing Arrangements
Not Applicable
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred
in connection with the offering described in this Registration Statement:
SEC registration fees........................................ $
New York Stock Exchange listing fee..........................
Printing and engraving expenses .............................
Auditing fees and expenses ..................................
Legal fees and expenses......................................
Blue Sky fees and expenses...................................
Miscellaneous................................................
Total................................................. $
Item 27. Persons Controlled by or Under Common Control with Registrant
NONE
Item 28. Number of Holders of Securities as of March 21, 2002
Number of Record
Title of Class Holders
Capital Stock, par value $.001 per share 11,368
Item 29. Indemnification
The response of this Item is incorporated by reference to the
caption "Limitation of Officers' and Trustees Liability" in the Part B of
this Registration Statement.
Insofar as indemnification for liability arising under the 1933 Act
may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant
has been advised that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the 1933 Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered. Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the 1933 Act and will be
governed by the final adjudication of such issue.
Item 30. Business and Other Connections of Adviser
Item 30. Business and Other Connections of Investment Adviser
The Adviser, a limited liability company organized under the laws
of the State of New York, acts as investment adviser to the Registrant. The
Registrant is fulfilling the requirement of this Item 30 to provide a list
of the officers and directors of the Investment Adviser, together with
information as to any other business, profession, vocation or employment of
a substantial nature engaged in by the Investment Adviser or those officers
and directors during the past two years, by incorporating by reference the
information contained in the Form ADV of the Investment Adviser filed with
the Commission pursuant to the Investment Advisers Act of 1940 (Commission
File No. 801-26202).
Item 31. Location of Accounts and Records
The accounts and records of the Registrant are maintained in part
at the office of the Adviser at One Corporate Center, Rye, New York
10580-1434, in part at the offices of the Custodian, Boston Safe Deposit
and Trust Company, One Boston Place, Boston, Massachusetts 02108, at the
offices of the Fund's Administrator, PFPC, Inc, 3200 Horizon Drive, King of
Prussia, Pennsylvania 19406, and in part at the offices of EquiServe Trust
Company, N.A., 150 Royall Street, Mail Stop 45-02-62, Canton, MA 02021.
Item 32. Management Services
Not applicable.
Item 33. Undertakings
o Registrant undertakes to suspend the offering of shares
until the prospectus is amended, if subsequent to the
effective date of this registration statement, its net
asset value declines more than ten percent from its net
asset value, as of the effective date of the registration
statement or its net asset value increases to an amount
greater than its net proceeds as stated in the
prospectus.
o Not applicable.
o Not applicable.
o Not applicable.
o Registrant undertakes that, for the purpose of
determining any liability under the 1933 Act the
information omitted from the form of prospectus filed as
part of the Registration Statement in reliance upon Rule
430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 497(h) will be deemed to be a
part of the Registration Statement as of the time it was
declared effective.
Registrant undertakes that, for the purpose of
determining any liability under the 1933 Act, each
post-effective amendment that contains a form of
prospectus will be deemed to be a new Registration
Statement relating to the securities offered therein, and
the offering of such securities at that time will be
deemed to be the initial bona fide offering thereof.
o Registrant 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, any Statement of Additional Information
constituting Part B of this Registration Statement.
SIGNATURES
As required by the Securities Act of 1933, this Registrant's
Registration Statement has been signed on behalf of the Registrant, in the
City of Rye, State of New York, on the ____ day of March 22, 2002.
THE GABELLI UTILITY TRUST
By: *
----------------------------------
Bruce N. Alpert
Vice President and Treasurer
As required by the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
* Chairman of the Board, March 22, 2002
---------------------------------------
Mario J. Gabelli President, Chief Investment
Officer and Trustee
* Chief Financial Officer March 22, 2002
---------------------------------------
Bruce N. Alpert
* Trustee March 22, 2002
---------------------------------------
Thomas E. Bratter
* Trustee March 22, 2002
---------------------------------------
Felix J. Christiana
* Trustee March 22, 2002
---------------------------------------
Anthony J. Colavita
* Trustee March 22, 2002
---------------------------------------
James P. Conn
* Trustee March 22, 2002
---------------------------------------
Vincent D. Enright
* Trustee March 22, 2002
---------------------------------------
Frank J. Fahrenkopf, Jr.
* Trustee March 22, 2002
---------------------------------------
John D. Gabelli
* Trustee March 22, 2002
---------------------------------------
Karl Otto Pohl
* Trustee March 22, 2002
---------------------------------------
Anthony R. Pustorino
* Trustee March 22, 2002
---------------------------------------
Salvatore J. Zizza
* March 22, 2002
------------------------------------------
Bruce N. Alpert,
Attorney-in-Fact
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-99 (n) (1) Consent of PricewaterhouseCoopers LLP
EX-99 (n)(2) Powers of Attorney