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ANNUAL REPORT
DECEMBER 31, 2001
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Our cover icon represents the underpinnings of Gabelli. The Teton mountains
in Wyoming represent what we believe in in America -- that creativity,
ingenuity, hard work and a global uniqueness provide enduring values. They also
stand out in an increasingly complex, interconnected and interdependent economic
world.
INVESTMENT OBJECTIVE:
The Gabelli Utility Trust is a closed-end, non-diversified management
investment company whose primary objectives are long-term growth of capital and
income. The Utility Trust will invest in companies that provide products,
services or equipment for the generation or distribution of electricity, gas and
water. Additionally, the Utility Trust will invest in companies in
telecommunications services or infrastructure operations.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
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TO OUR SHAREHOLDERS,
In our view the major investment theme for electric, gas and telephone
utilities can be summed up in two words: size matters. Electric generators with
a large and geographically diverse portfolio of generating plants can trade
around their structural long positions to enhance returns while avoiding the
risk of asset concentration in a single market that experiences a hiccup, as all
markets do from time to time. Electric, gas and telephone distribution companies
can spread their substantial fixed costs over a larger base of customers, and
see the cost per customer decline, enhancing earnings while reducing prices. The
current unsettled market conditions seem to have caused the consolidation
activity seen over the past several years to slow for a while, but the
underlying economics continue to point to continuing merger and acquisition
activity over time. Things seem to be picking up a bit already, and if Congress
cooperates, which is always a big question mark, we could be off to the races
next year.
PREMIUM / DISCOUNT DISCUSSION
As a refresher to our shareholders, the price of a closed-end mutual fund
is determined in the open market by willing buyers and sellers. Shares of the
Trust trade on the New York Stock Exchange and may trade at a premium to (higher
than) net asset value ("NAV") (the market value of the Trust's underlying
portfolio) or a discount to (lower than) net asset value. Of the 470 closed-end
funds in the U.S., approximately 30% currently trade at premiums to NAV versus
24% five years ago and 18% ten years ago.
Ideally, the Trust's market price will generally track the NAV. The Trust's
premium or discount to NAV fluctuates over time. Over our Trust's 2 1/2-year
history, the range fluctuated from a 2% discount in October 2000 to a 27%
premium in December 2001. The average variance from NAV for the Trust since
inception is an 8% premium to NAV. Shortly after the inception of the Trust, the
market price of the Trust exceeded the NAV and this premium has increased
throughout the year.
"Mr. Market" often provides opportunities to invest at a discount. The
Trust has considered various initiatives to narrow the discount when appropriate
through distribution policies, rights offerings, share repurchase programs and
potential use of leverage.
The Trust's long-term investment goal is growth of capital and income. We
believe that our stock selection process adds to the investment equation. We
have a successful history of investment providing shareholders average annual
returns of 8.5% since inception. However, it is important to remember that "Mr.
Market" is a pendulum that swings both ways. As the market moves away from
momentum investing and back to basics, we believe that an excessive premium for
the Trust is not likely to be sustainable.
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EDGAR REPRESNTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PREMIUM/DISCOUNT SINCE INCEPTION
0.1672
0.0816
0.1152
0.0582
0.0117
0.0007
Y2k 0.0375
0.0289
-0.0127
0.0417
-0.0016
0.0403
0.0016
0.0081
0.0064
-0.022
0.0003
0.0658
Year 2001 0.0532
0.1445
0.0728
0.1646
0.1409
0.1223
0.1229
0.1643
0.1572
0.2455
0.2414
0.2746
INVESTMENT RESULTS (a)
--------------------------------------------------------------------------------
Quarter
---------------------------------
1st 2nd 3rd 4th Year
----------------------------------------
2001: Net Asset Value ...... $7.83 $7.93 $7.38 $7.32 $7.32
Total Return ......... (2.8)% 3.1% (5.2)% 2.1% (3.2)%
--------------------------------------------------------------------------------
2000: Net Asset Value ...... $7.66 $7.63 $8.26 $8.21 $8.21
Total Return ......... 2.6% 1.5% 10.3% 6.3% 22.0%
--------------------------------------------------------------------------------
1999: Net Asset Value ...... -- -- $7.51 $7.62 $7.62
Total Return ......... -- -- 0.1%(c) 3.5% 3.6%(c)
--------------------------------------------------------------------------------
Average Annual Returns - December 31, 2001
------------------------------------------
Average Annual Average Annual
NAV Return (a) Investment Return (b)
--------------- --------------------
1 Year ............................ (3.15)% 15.82%
Life of Fund (c) .................. 8.49% 16.58%
(a) Life of Fund return based on initial net asset value of $7.50. Total returns
and average annual returns reflect changes in net asset value and reinvestment
of distributions and are net of expenses. Of course, the returns noted represent
past performance and do not guarantee future results. Investment returns and the
principal value of an investment will fluctuate. When shares are sold they may
be worth more or less than their original cost.
(b) Life of Fund return based on initial offering price of $7.50. Total returns
and average annual returns reflect changes in closing market values on the New
York Stock Exchange and reinvestment of distributions.
(c) From commencement of investment operations on July 9, 1999.
--------------------------------------------------------------------------------
INVESTMENT PERFORMANCE
For the fourth quarter ended December 31, 2001, The Gabelli Utility Trust's
(the "Trust") net asset value ("NAV") rose 2.06% after adjusting for the
reinvestment of the $0.25 per share in distributions. The Standard & Poor's
("S&P") Utility Index and the Lipper Utility Fund Average declined 3.26% and
0.74%, respectively, over the same period. The S&P Utility Index is an unmanaged
indicator of electric and gas utility stock performance, while the Lipper
Average reflects the average performance of open-end mutual funds classified in
this particular category.
The Trust fell 3.15% during 2001 after adjusting for the reinvestment of
the $0.70 per share in distributions. The S&P Utility Index and the Lipper
Utility Fund Average fell 30.43% and 21.24%, respectively, over the same
twelve-month period. Since inception on July 9, 1999 through December 31, 2001,
the Trust had a cumulative total return of 22.44%, including adjustments of
$1.85 per share in distributions, which equates to an average annual total
return of 8.49%.
The Trust's shares of beneficial interest ended the fourth quarter at $9.33
per share on the New York Stock Exchange, a premium to the net asset value of
27.46% and a total return of 12.41% for the fourth quarter. The Trust's common
shares rose 15.82% during 2001 after adjusting for all distributions.
OUR APPROACH
There are nearly 80 publicly traded investor-owned electric utilities in
the U.S., and this is at least 50 more than we need from the standpoint of
economic efficiency. Stand-alone natural gas distribution companies make no
economic sense either; the combination utility model is clearly better. The
balkanized structure of the industry is inherently inefficient, and competitive
forces are now putting pressure on the marginal players. The big companies feel
the need to get bigger to achieve scale economies, and the small companies are
selling out as the cost of staying in the game rises. It is only because of a
complex and lengthy merger review and approval process that the industry remains
as fragmented as it is. Our investments in regulated utility companies have
primarily, though not exclusively, focused on fundamentally sound, reasonably
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2
priced mid-cap and small-cap utilities that are likely acquisition targets for
large utilities seeking to bulk up. We also like the beneficiaries of developing
trends. This has led to our ongoing focus on incumbent local telecommunications
companies, natural gas pipelines and storage operators, and wholesale electric
generators, another group that is in our opinion increasingly ripe for
consolidation.
COMMENTARY
People tell me that utilities are boring, and I always dispute it. The good
utilities are boring. They provide safe, reliable service in good weather and in
bad, and earn steady, predictable returns on investment. They pay decent
dividends to shareholders. They take prudent risks in the expectation of earning
reasonable returns. They try to stay out of the papers. They are Clark Kent, not
Superman. They are as dull as dishwater.
The bad utilities are fascinating, each in their own miserable way. Their
badness usually comes from over-reaching, from trying to be different and more
than they basically are. Which brings me to Enron. In November, Enron, the
pipeline that morphed into a hedge fund, went bankrupt. It was the largest
bankruptcy in U.S. history, and proved to be larger than initially thought. The
billions in debt that the company took such pains to conceal from its investors,
auditors, counterparties and debt rating agencies returned with the bankruptcy
filing to the scene of the crime, Enron's balance sheet. The unedifying
spectacle of creditors squabbling over the assets is under way, Enron's senior
officers are desperately trying to blame each other for the collapse, and
Congress is convening hearings. Tens of thousands of innocent, hard-working
employees who thought that they worked for the greatest company in the energy
industry are suddenly out of work and out of luck. Employee 401K accounts were
loaded with Enron stock that legally could not be sold by holders who watched
helplessly as it circled, and then fell into the abyss. A year ago, Enron
sported the largest market capitalization in the utility universe, and by itself
carried a weighting of 19% of the Standard & Poor's ("S&P") Utility Index. Today
the stock trades at under $1.00 per share, and is on its way to zero. The Enron
story has it all: pride, greed, lies, humiliation and tragedy. You can't call it
boring. No way.
Opponents of deregulation, and there are many, will point to Enron's
collapse as the inevitable result of competition in electric and gas markets.
This is self-serving nonsense, but that won't matter in the short run. The
witch-hunt is under way, and the movement towards competitive wholesale energy
markets has suffered a major blow. This presents major challenges for industry
participants, and that includes us as investors and as consumers. We can live
with unbridled competition. We can live with fully regulated markets, although
at some considerable cost. The real danger is that we could, as a nation, end up
with "managed competition" where companies continue to have the obligation to
serve, and must manage competitive risk in markets where the costs of bad luck
or bad decisions are borne by investors, while the benefits of good luck or wise
decisions are truncated by regulation. A "market" where companies earn only
their cost of capital when everything goes right and are exposed to unlimited
downside when everything does not is not going to attract capital.
We are seeing this already. In December and January, many competitive
generators, including Mirant, American Electric Power, Allegheny Power, PPL and
Calpine, slashed their plans to build new generating assets. In its January
conference call, PPL cited the price caps imposed by federal and state
regulators in response to shortage-induced price spikes as a major factor in its
decision to reduce its investment in competitive generation. At the moment,
there is plenty of capacity because the economy is weak and the weather is warm,
so demand is low. A couple of years down the road, with normal economic growth,
the shoes are going to pinch. At the moment the U.S. is stalled halfway down the
road to fully competitive energy markets, with no energy policy. We saw earlier
this year that it takes a crisis to break a political impasse, but in the midst
of a crisis it is very hard to take the long view of the nation's ultimate best
interests. In the "price spike" crisis early in 2001 (how long ago it seems!),
the imposition of price caps was the only tangible result, and the caps did
bring prices down. The rationing of capacity that will result in a couple of
years will not, in the public's mind, be connected with the price caps that
caused it. We live in interesting times.
In the current unsettled environment, vanilla has been the flavor of the
year. The utility stocks that have performed well have been the low-risk,
slow-growth Steady Eddies: the electric and gas distribution companies with
little or no competitive market presence. As is so often the case, the stocks
for which expectations were highest early in the year have done the worst: the
wholesale generators and the natural gas pipelines. A year ago, the competitive
generators traded at 20 to 35 times 2001 earnings estimates, the gas pipelines
traded at 16 to 45 times 2001 earnings estimates, and the plain vanilla
utilities traded at 11 to 13 times earnings. Today the plain vanilla utilities
trade about where they were a year ago while the wholesale generators
3
trade at 8 to 10 times greatly reduced estimates and the dwindling universe of
pipelines trade at 10 to 12 times 2001 estimates. The vanilla utilities trade at
2 to 3 times earnings growth while the generators and pipelines trade at less
than 1 times earnings growth, because investors are skeptical about the
companies' ability to deliver that growth.
You can see where I'm going with this. The Trust is buying shares of
beaten-down wholesale generators today. When natural gas commodity prices crack
in the spring, as we currently expect, we plan to buy some pipeline names. We
don't expect the generating companies or the pipelines to get back to prior
highs, which represented extreme overvaluation on unrealistic earnings
expectations. Today, however, expectations are a lot more realistic and
valuations are compelling. Warts and all, these stocks have gotten very cheap.
FINANCIAL ENGINEERING -- ONE OF OUR CATALYSTS
A component of our investment methodology is to identify industry and
sector trends and themes ahead of the curve and position ourselves to take
advantage of these developments. Consolidation in a particular industry is one
such dynamic. As we have shared with you in previous quarterly letters, the
activity in mergers and acquisitions, albeit slow, contributed significantly to
the performance of our Trust. The accompanying table illustrates how deal
activity surfaced value in a small sample of the portfolio holdings.
--------------------------------------------------------------------------------
2001 COMPLETED DEALS
NUMBER AVERAGE COST CLOSING
TRUST HOLDING OF SHARES (a) PER SHARE (b) PRICE (c) CLOSING DATE %RETURN (d)
-------------- ------------- ------------- --------- ------------ -----------
FIRST QUARTER 2001 DEALS
------------------------
Azurix Corp. 500,000 $7.26 $8.38 03/19/01 15.43%
SECOND QUARTER 2001 DEALS
-------------------------
Powertel Inc. 5,037 53.60 59.05 05/23/01 10.17%
MCN Energy Group Inc. 18,000 21.78 27.22 05/30/01 24.98%
FOURTH QUARTER 2001 DEALS
-------------------------
Bangor Hydro-Electric Co. 85,000 20.03 26.78 10/11/01 33.70%
Louis Dreyfus Natural Gas Corp. 20,000 39.58 39.60 11/01/01 0.05%
GPU Inc. 8,000 30.29 40.71 11/06/01 34.40%
Canadian Hunter Exploration Ltd. 50,000 33.39 33.70 12/03/01 0.93%
--------------------------------------------------------------------------------
(a) Number of shares held by the Trust on the final day of trading for the
issuer.
(b) Average purchase price of issuer's shares held by the Trust on the final day
of trading for the issuer.
(c) Closing price on the final day of trading for the issuer or the tender price
on the closing date of the tender offer.
(d) Represents average estimated return based on average cost per share and
closing price per share.
NOTE: SEE THE PORTFOLIO OF INVESTMENTS FOR A COMPLETE LISTING OF HOLDINGS.
--------------------------------------------------------------------------------
4
LET'S TALK STOCKS
The following are stock specifics on selected holdings of our Trust.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend that we believe will develop over
time.
BROADWING INC. (BRW - $9.50 - NYSE) located in Cincinnati, OH, received its new
name in 1999 when local phone provider Cincinnati Bell made a $3.2 billion
acquisition of IXC Communications and gained access to a nation-wide all optical
fiber network. Broadwing's Cincinnati-based operations include one million local
phone lines and about 480,000 wireless customers through its 80% ownership of a
wireless joint venture with AT&T Wireless Services (AWE - $14.37 - NYSE).
Broadwing also offers long distance voice and broadband data services to other
carriers and enterprise accounts on a nation-wide basis. Broadwing's incumbent
local exchange carrier's ("ILEC") operations are surrounded by SBC
Communications (SBC - $39.17 - NYSE)/Ameritech's local footprint.
CENTURYTEL INC. (CTL - $32.80 - NYSE), based in Monroe, Louisiana, is the eighth
largest local telephone company in the U.S., with over 1.8 million access lines
in the South and Midwest. CenturyTel also has over 740,000 cellular customers.
Through acquisitions, CTL has created clusters of rural telephone and cellular
companies within commuting distance of metropolitan areas in states including
Wisconsin, Michigan, Ohio, Louisiana and Arkansas. With the $2.2 billion
acquisition of Portland-based Pacific Telecom, CenturyTel has added seven
states, ten cellular markets and 640,000 access lines to its customer base. The
acquired operations have nearly doubled Century's revenues. The company has
recently announced acquisition of 675,000 additional access lines from Verizon
for $2.15 billion. Century also announced its decision to divest its wireless
operations and focus on growing its rural wireline operations. In July, the
company received an unsolicited bid from Alltel (AT - $61.73 -NYSE) to acquire
CenturyTel for $43 per share in cash and Alltel stock. CenturyTel management has
rejected Alltel's offer.
CINERGY CORP. (CIN - $33.43 - NYSE) is another consolidation play. Cinergy has
been to the altar more times than Billy Bob Thornton (or Elizabeth Taylor for
our more senior shareholders), but never quite got the deal done. The stumbling
block has been, as always, "social issues." The logjam may be breaking, however,
given the burgeoning stock and option position of Cinergy's senior management
team. Cinergy has a mouthwatering portfolio of very low cost coal-fired
generating plants, an opportunity to make a lot of money in the deregulating
Ohio wholesale generating market, and transmission access that is highly
strategic to a bigger buyer. The stock is cheap at 12 times consensus 2002 EPS
of $2.80. We think that the stock is cheap because investors have been waiting
so long for the sale that many have given up and moved on.
CONSTELLATION ENERGY GROUP INC. (CEG - $26.55 - NYSE) is a position that was
initiated in October at about the current price. The stock is a fallen angel.
Constellation had grandiose plans to split off the competitive generation
business as a separate publicly traded stock. In October, as the generating
companies' stocks cratered, the company reversed its strategy and flushed its
entire senior management team. The new management and strategy will be unveiled
at an analyst meeting in January. The company expects to earn $2.70 in 2002 and
should be earning at least $3.00 in 2003. The stock is statistically cheap but
will remain under a cloud until the company starts to deliver results in line
with expectations. We expect a dividend increase related to the company's new,
lower risk strategy to be announced shortly, which should give the stock some
yield support.
NIAGARA MOHAWK HOLDINGS INC. (NMK - $17.73 - NYSE) agreed to be acquired by the
National Grid of the U.K. in August 2000 for $19 per share in cash and stock.
The acquisition is expected to close shortly. The New York regulators recently
approved the merger. The company's revenue growth prospects are minimal, but its
operations are inefficient and its cost structure is bloated. The Grid expects
to be able to reduce Niagara Mohawk's cost base by 10% or $90 million. Assuming
that the Grid attains its cost reduction targets, which we think are readily
attainable, the acquisition will be accretive to the Grid's EPS in the first
year.
ONEOK INC. (OKE - $17.84 - NYSE) is pronounced "wun-oke," not "oh-nee-ock." One
company, in Oklahoma. Get it? We didn't, either. No matter. The Trust initiated
a position in ONEOK late in the third quarter. The stock had fallen along with
natural gas prices, and then got shredded when S&P dropped the company from the
S&P 500 Index. The index funds had to sell; we bought. We're looking for a sale.
Western Resources owns 45% of ONEOK and would like to sell. They have two
problems: first, avoiding capital gains taxes and second, keeping the sale
proceeds away from the sticky fingers of the Kansas regulators. Both problems
are difficult but not impossible. We think that ONEOK management would be
amenable to an approach from a buyer willing to
5
structure a bid such that shareholders, customers and management all benefit.
Possible buyers include Utilicorp (UCU - $25.17 - NYSE), Oklahoma Gas & Electric
and American Electric Power (AEP - $43.53 - NYSE), among others.
RGS ENERGY GROUP INC. (RGS - $37.60 - NYSE) is a small electric and gas utility
serving metropolitan Rochester, NY, a city that is the economic hub of upstate
New York. In February, 2001 RGS agreed to be acquired by Energy East, its
upstate neighbor, for $39.50 per share. We support this deal. RGS got a good
premium for its shareholders while mitigating lingering concerns about the
deteriorating outlook for major industrial customers, including Xerox and
Eastman Kodak. Energy East is paying a reasonable multiple and is acquiring a
company with increasingly valuable and strategic generation assets and a service
territory that presents ample scope for cost reduction over time.
SCANA CORP. (SCG - $27.83 - NYSE) is the parent company of South Carolina
Electric & Gas. It generates and distributes electricity to more than 537,000
South Carolina households and businesses. It provides natural gas to nearly 1.1
million customers in North Carolina, South Carolina and Georgia. The company was
able to monetize its telecommunications ventures this past spring through the
acquisition of VoiceStream Wireless and Powertel by Deutsche Telekom. SCANA is a
small company surrounded by much larger utilities: Duke and Progress to the
north, and Southern Company to the south. Either Progress or Southern would
acquire SCANA in a heartbeat if management was willing to sell. Unfortunately,
in our view, the company is determined to remain independent for the foreseeable
future.
SEMCO ENERGY INC. (SEN - $10.75 - NYSE) is a diversified energy and
infrastructure company distributing gas to over 367,000 customers in Michigan
and Alaska. It also has businesses involved in gas engineering services
including pipeline construction and natural gas storage in various regions
throughout the United States. The company's propane division is one of the
largest suppliers in the Upper Peninsula of Michigan.
SJW CORP. (SJW - $85.29 - AMEX) is a California water utility serving San Jose.
In 1999 the company agreed to sell out to American Water Works (AWK - $41.75 -
NYSE) for more than $100 per share. American Water Works itself is now being
acquired by the German utility giant RWE (RWEOY - $37.75 - Nasdaq BB). SJW's
sale ran into state regulatory problems and American Water Works walked away
last year. SJW is going to be sold eventually, and we think that California
Water Service Group (CWT - $25.75 - NYSE) is the best buyer. SJW trades at a
moderate premium because its near term earnings are depressed and because
takeover speculation continues to circulate. With normal weather we expect the
company to earn about $5.00 per share this year.
MONTHLY DISTRIBUTIONS
The Trust previously had a $0.05 per share monthly distribution policy in
place when the monthly distribution was increased by 20% to $0.06 per share
beginning in October 2001. The Trust paid an incremental distribution of $0.07
per share to shareholders on December 27, 2001 that allows the Trust to avoid
the imposition of Federal income and excise tax on undistributed taxable income.
WWW.GABELLI.COM
Please visit us on the Internet. Our homepage at http://www.gabelli.com
contains information about Gabelli Asset Management Inc., the Gabelli Mutual
Funds, IRAs, 401(k)s, quarterly reports, closing prices and other current news.
You can send us e-mail at info@gabelli.com.
In our efforts to bring our shareholders more timely portfolio information,
Gabelli Fund's portfolio managers regularly participate in chat sessions at
www.gabelli.com as reflected below.
WHO WHEN
--- ----
Special Chats: Mario J. Gabelli First Monday of each month
Howard Ward First Tuesday of each month
6
In addition, every Wednesday will feature a different portfolio manager.
The upcoming Wednesday chat schedule is as follows:
FEBRUARY MARCH APRIL
-------- ----- -----
1st Wednesday Charles Minter & Martin Weiner Henry van der Eb Susan Bryne
2nd Wednesday Ivan Arteaga Walter Walsh & Laura Linehan Lynda Calkin
3rd Wednesday Tim O'Brien Tim O'Brien Caesar Bryan
4th Wednesday Barbara Marcin Barbara Marcin Barbara Marcin
All chat sessions start at 4:15 ET. Please arrive early, as participation
is limited.
You may sign up for our HIGHLIGHTS e-mail newsletter at www.gabelli.com and
receive early notice of chat sessions, closing mutual fund prices, news events
and media sightings.
Sincerely,
/S/
MARIO J. GABELLI, CFA
Portfolio Manager and Chief Investment Officer
February 5, 2002
--------------------------------------------------------------------------------
SELECTED HOLDINGS
DECEMBER 31, 2001
-----------------
Broadwing Inc. ONEOKInc.
CenturyTel Inc. RGS Energy Group Inc.
Cinergy Corp. SCANA Corp.
Constellation Energy Group Inc. SEMCO Energy Inc.
Niagara Mohawk Holdings Inc. SJW Corp.
--------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
7
THE GABELLI UTILITY TRUST
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2001
MARKET
SHARES COST VALUE
------ -------- -------
COMMON STOCKS -- 76.6%
AGRICULTURE -- 0.1%
10,600 Cadiz Inc.+ .......................... $ 95,339 $ 85,012
---------- ----------
COMMUNICATIONS EQUIPMENT -- 0.3%
40,000 Furukawa Electric Co. Ltd. ........... 628,930 212,422
---------- ----------
ENERGY AND UTILITIES: ELECTRIC-- 28.4%
12,000 AES Corp.+ ........................... 359,036 196,200
10,000 Calpine Corp.+ ....................... 160,326 167,900
70,000 Cinergy Corp. ........................ 2,106,153 2,340,100
10,000 Cleco Corp. .......................... 153,250 219,700
115,000 Conectiv Inc. ........................ 2,019,821 2,816,350
55,000 DPL Inc. ............................. 1,152,088 1,324,400
20,219 DTE Energy Co. ....................... 886,992 847,985
164,900 El Paso Electric Co.+ ................ 1,505,961 2,391,050
12,000 FPL Group Inc. ....................... 653,346 676,800
52,200 Maine Public Service Co. ............. 946,754 1,552,950
240,000 Niagara Mohawk
Holdings Inc.+ ..................... 3,521,249 4,255,200
140,000 Northeast Utilities .................. 2,875,426 2,468,200
1,500 Orion Power Holdings Inc.+ ........... 28,106 39,150
57,000 SCANA Corp. .......................... 1,455,381 1,586,310
30,000 TECO Energy Inc. ..................... 696,545 787,200
25,000 UIL Holdings Corp. ................... 1,096,481 1,282,500
20,000 Unisource Energy Corp. ............... 236,625 363,800
---------- ----------
19,853,540 23,315,795
---------- ----------
ENERGY AND UTILITIES: INTEGRATED-- 21.4%
13,000 Allete ............................... 222,463 327,600
40,000 CH Energy Group Inc. ................. 1,481,732 1,738,800
70,000 Constellation Energy
Group Inc. ......................... 1,721,293 1,858,500
5,000 Dominion Resources Inc. .............. 304,000 300,500
45,000 DQE Inc. ............................. 1,172,140 851,850
15,000 Edison International ................. 165,700 226,500
5,000 Empire District Electric Co. ......... 98,000 105,000
18,000 Entergy Corp. ........................ 505,492 703,980
3,979 FirstEnergy Corp. .................... 137,371 139,185
50,000 Florida Public Utilities Co. ......... 792,675 861,500
30,000 Madison Gas & Electric Co. ........... 621,679 793,500
10,000 Mirant Corp.+ ........................ 148,693 160,200
30,000 Montana Power Co. .................... 512,203 172,500
52,000 NSTAR ................................ 2,222,019 2,332,200
18,000 PG&E Corp. ........................... 213,988 346,320
40,000 Progress Energy Inc. ................. 20,800 17,600
6,000 Puget Energy Inc. .................... 136,670 131,340
95,000 RGS Energy Group Inc. ................ 2,522,402 3,572,000
5,000 Sierra Pacific Resources+ ............ 68,000 75,250
140,000 Western Resources Inc. ............... 2,460,757 2,408,000
7,000 WPS Resources Corp. .................. 204,319 255,850
9,000 Xcel Energy Inc. ..................... 257,790 249,660
---------- ----------
15,990,186 17,627,835
---------- ----------
ENERGY AND UTILITIES: NATURAL GAS-- 11.2%
35,000 AGL Resources Inc. ................... 640,625 805,700
5,000 Cascade Natural Gas Corp. ............ 109,218 110,250
2,000 Chesapeake Utilities Corp. ........... 36,525 39,600
34,000 Delta Natural Gas Co. Inc. ........... 570,349 686,800
5,000 Dynegy Inc., Cl. A ................... 105,675 127,500
14,000 National Fuel Gas Co. ................ 356,898 345,800
12,000 Nicor Inc. ........................... 434,475 499,680
40,000 ONEOK Inc. ........................... 676,494 713,600
MARKET
SHARES COST VALUE
------ -------- -------
19,000 Peoples Energy Corp. ................. $ 665,481 $ 720,670
23,000 Piedmont Natural
Gas Co. Inc. ....................... 687,398 823,400
100,000 SEMCO Energy Inc. .................... 1,534,170 1,075,000
20,254 Southern Union Co. ................... 336,801 381,991
130,000 Southwest Gas Corp. .................. 3,288,133 2,905,500
---------- ----------
9,442,242 9,235,491
---------- ----------
ENERGY AND UTILITIES: WATER -- 5.9%
8,000 American States Water Co. ............ 266,713 279,600
11,000 Artesian Resources Corp.,
Cl. A .............................. 257,250 340,340
25,500 Birmingham Utilities Inc. ............ 497,726 480,675
20,520 California Water
Service Group ...................... 566,928 528,390
7,500 Connecticut Water
Service Inc. ....................... 146,455 221,775
21,200 Middlesex Water Co. .................. 615,485 719,104
45,000 NiSource Inc.+ ....................... 90,000 104,400
5,466 Pennichuck Corp. ..................... 99,323 147,582
35,000 Philadelphia Suburban Corp. .......... 532,452 789,250
13,500 SJW Corp. ............................ 1,380,854 1,151,415
5,250 Southwest Water Co. .................. 52,062 74,130
---------- ----------
4,505,248 4,836,661
---------- ----------
ENVIRONMENTAL SERVICES -- 0.1%
12,000 Catalytica Energy
Systems Inc.+ ...................... 183,587 54,840
---------- ----------
SATELLITE -- 0.7%
40,000 General Motors Corp., Cl. H+ ......... 859,107 618,000
---------- ----------
TELECOMMUNICATIONS -- 7.5%
1,000 ALLTEL Corp. ......................... 53,560 61,730
15,000 AT&T Canada Inc., Cl. B+ ............. 450,053 452,850
10,000 AT&T Corp. ........................... 207,500 181,400
20,000 BellSouth Corp. ...................... 833,879 763,000
110,000 Broadwing Inc.+ ...................... 1,341,641 1,045,000
22,000 BT Group plc, ADR+ ................... 915,541 808,500
52,000 CenturyTel Inc. ...................... 2,016,440 1,705,600
25,000 Citizens Communications Co.+ ......... 276,186 266,500
4,000 Commonwealth Telephone
Enterprises Inc.+ .................. 130,004 182,000
13,700 Conestoga Enterprises Inc. ........... 230,199 437,716
12,000 Deutsche Telekom AG, ADR ............. 237,061 202,800
2,000 France Telecom SA, ADR ............... 68,016 79,980
---------- ----------
6,760,080 6,187,076
---------- ----------
WIRELESS COMMUNICATIONS-- 1.0%
20,000 mm02 plc, ADR+ ....................... 244,185 252,000
52,000 Nextel Communications Inc.,
Cl. A+ ............................. 841,333 569,920
---------- ----------
1,085,518 821,920
---------- ----------
TOTAL COMMON
STOCKS .............................. 59,403,777 62,995,052
---------- ----------
PREFERRED STOCKS -- 0.8%
TELECOMMUNICATIONS -- 0.8%
15,000 Citizens Communications Co.,
5.00% .............................. 741,191 667,500
---------- ----------
8
THE GABELLI UTILITY TRUST
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2001
PRINCIPAL MARKET
AMOUNT COST VALUE
--------- -------- --------
CORPORATE BONDS -- 3.5%
ENERGY AND UTILITIES: INTEGRATED -- 0.9%
$ 1,000,000 Mirant Corp.,
Sub. Deb. Cv.
2.500%, 06/15/21 ...................$ 745,058 $ 755,000
----------- -----------
ENVIRONMENTAL SERVICES-- 2.5%
2,050,000 Waste Management Inc.,
Sub. Deb. Cv.
4.000%, 02/01/02 ................... 2,046,628 2,047,438
----------- -----------
TELECOMMUNICATIONS -- 0.1%
100,000 Williams Communications
Group Inc.
10.875%, 10/01/09 .................. 41,936 41,500
----------- -----------
TOTAL CORPORATE
BONDS ............................... 2,833,622 2,843,938
----------- -----------
U.S. GOVERNMENT OBLIGATIONS-- 19.2%
15,807,000 U.S. Treasury Bills,
1.670% to 2.180%++,
01/03/02 to 02/14/02 ............... 15,776,656 15,777,694
----------- -----------
TOTAL INVESTMENTS-- 100.1% ........................$78,755,246 82,284,184
===========
OTHER ASSETS AND LIABILITIES (NET)-- (0.1)% ....... (86,794)
-----------
NET ASSETS-- 100.0% ............................... $82,197,390
===========
NET ASSET VALUE
($82,197,390 / 11,229,797 shares outstanding) .. $7.32
=====
-------------
For Federal tax purposes:
Aggregate cost ....................... $77,107,553
===========
Gross unrealized appreciation ........ $ 9,764,329
Gross unrealized depreciation ........ (4,587,698)
-----------
Net unrealized appreciation .......... $ 5,176,631
===========
-------------
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt.
See accompanying notes to financial statements.
9
THE GABELLI UTILITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2001
ASSETS:
Investments, at value (Cost $78,755,246) ................. $82,284,184
Cash ..................................................... 1,086
Dividends and interest receivable ........................ 267,711
Receivable for investments sold .......................... 14,570
Other assets ............................................. 2,003
-----------
TOTAL ASSETS ............................................. 82,569,554
-----------
LIABILITIES:
Payable for investments purchased ........................ 98,320
Payable for investment advisory fees ..................... 66,863
Payable for shareholder services fees .................... 50,000
Payable for shareholder communications
expenses .............................................. 82,596
Other accrued expenses. .................................. 74,385
-----------
TOTAL LIABILITIES ........................................ 372,164
-----------
NET ASSETS applicable to 11,229,797
shares outstanding .................................... $82,197,390
===========
NET ASSETS CONSIST OF:
Shares of beneficial interest, at par value .............. $ 11,230
Additional paid-in capital ............................... 76,934,156
Accumulated net investment income ........................ 26,387
Accumulated net realized gain on investments ............. 1,696,679
Net unrealized appreciation on investments ............... 3,528,938
-----------
TOTAL NET ASSETS ......................................... $82,197,390
===========
NET ASSET VALUE
($82,197,390 / 11,229,797 shares
outstanding; unlimited number of shares
authorized of $0.001 par value) ....................... $7.32
=====
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
INVESTMENT INCOME:
Dividends (net of foreign taxes $626) .................... $ 2,131,715
Interest ................................................. 918,404
-----------
TOTAL INVESTMENT INCOME .................................. 3,050,119
-----------
EXPENSES:
Investment advisory fees ................................. 855,435
Shareholder services fees ................................ 354,269
Shareholder communications expenses ...................... 224,083
Payroll .................................................. 97,500
Trustees' fees ........................................... 50,489
Legal and audit fees ..................................... 30,777
Custodian fees ........................................... 20,069
Miscellaneous expenses ................................... 77,379
-----------
TOTAL EXPENSES ........................................... 1,710,001
-----------
LESS: CUSTODIAN FEE CREDIT ............................... (1,425)
-----------
NET EXPENSES ............................................. 1,708,576
-----------
NET INVESTMENT INCOME .................................... 1,341,543
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments ......................... 2,449,730
Net change in unrealized appreciation/
depreciation on investments ........................... (6,032,844)
-----------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS ........................................ (3,583,114)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ....................................... $(2,241,571)
===========
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -----------------
OPERATIONS:
Net investment income ................................................. $ 1,341,543 $ 1,619,740
Net realized gain on investments ...................................... 2,449,730 8,062,841
Net change in unrealized appreciation/depreciation on investments ..... (6,032,844) 7,802,312
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....... (2,241,571) 17,484,893
----------- -----------
DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS:
Net investment income ................................................. (2,323,380) (616,358)
Net realized short-term gain on investments ........................... (3,688,951) (1,540,733)
Net realized long-term gain on investments ............................ (1,799,825) (8,819,770)
----------- -----------
TOTAL DISTRIBUTIONS TO COMMON STOCK SHAREHOLDERS ...................... (7,812,156) (10,976,861)
----------- -----------
TRUST SHARE TRANSACTIONS:
Net increase in net assets from Trust share transactions .............. 1,581,923 831,592
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ................................. (8,471,804) 7,339,624
NET ASSETS:
Beginning of period ................................................... 90,669,194 83,329,570
----------- -----------
End of period (including undistributed net investment income of
$26,387 and $1,003,382, respectively) .............................. $82,197,390 $90,669,194
=========== ===========
See accompanying notes to financial statements.
10
THE GABELLI UTILITY TRUST
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION. The Gabelli Utility Trust (the "Utility Trust") is a
closed-end, non-diversified management investment company organized as a
Delaware business trust on February 25, 1999 and registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), whose primary objective is
long-term growth of capital and income. The Utility Trust had no operations
prior to July 9, 1999, other than the sale of 10,000 shares of beneficial
interest for $100,000 to The Gabelli Equity Trust Inc. (the "Equity Trust") at
$10.00 per share. On July 9, 1999, the Utility Trust had a 4 for 3 stock split
making the balance of Utility Trust shares held by the Equity Trust as 13,333.
On July 9, 1999, the Equity Trust contributed $79,487,260 in cash and securities
in exchange for shares of the Utility Trust, and on the same date distributed
such shares to Equity Trust shareholders of record on July 1, 1999 at the rate
of one share of the Utility Trust for every ten shares of the Equity Trust.
Investment operations commenced on July 9, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Utility Trust in the preparation of its financial statements.
SECURITY VALUATION. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded in the U.S.
over-the-counter market for which market quotations are readily available are
valued at the last quoted sale price on that exchange or market as of the close
of business on the day the securities are being valued. If there were no sales
that day, the security is valued at the average of the closing bid and asked
prices or, if there were no asked prices quoted on that day, then the security
is valued at the closing bid price on that day. If no bid or asked prices are
quoted on such day, the security is valued at the most recently available price
or, if the Board of Trustees so determines, by such other method as the Board of
Trustees shall determine in good faith, to reflect its fair market value.
Portfolio securities traded on more than one national securities exchange or
market are valued according to the broadest and most representative market, as
determined by Gabelli Funds, LLC (the "Adviser"). Portfolio securities primarily
traded in foreign markets are generally valued at the preceding closing values
of such securities on their respective exchanges or markets. Securities and
assets for which market quotations are not readily available are valued at their
fair value as determined in good faith under procedures established by and under
the general supervision of the Board of Trustees. Short term debt securities
with remaining maturities of 60 days or less are valued at amortized cost,
unless the Board of Trustees determines such does not reflect the securities
fair value, in which case these securities will be valued at their fair value as
determined by the Board of Trustees. Debt instruments having a maturity greater
than 60 days for which market quotations are readily available are valued at the
latest average of the bid and asked prices. If there were no asked prices quoted
on such day, the security is valued using the closing bid price on that day.
Options are valued at the last sale price on the exchange on which they are
listed. If no sales of such options have taken place that day, they will be
valued at the mean between their closing bid and asked prices.
REPURCHASE AGREEMENTS. The Utility Trust may enter into repurchase
agreements with primary government securities dealers recognized by the Federal
Reserve Bank of New York, with member banks of the Federal Reserve System or
with other brokers or dealers that meet credit guidelines established by the
Adviser and reviewed by the Board of Trustees. Under the terms of a typical
repurchase agreement, the Utility Trust takes possession of an underlying debt
obligation subject to an obligation of the seller to repurchase, and the Utility
Trust to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Utility Trust's holding period. The Utility
Trust will always receive and maintain securities as collateral whose market
value, including accrued interest, will be at least equal to 100% of the dollar
amount invested by the Utility Trust in each agreement. The Utility Trust will
make payment for such securities only upon physical delivery or upon evidence of
book entry transfer of the collateral to the account of the custodian. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to maintain the adequacy of
the collateral. If the seller defaults and the value of the collateral declines
or if bankruptcy proceedings are commenced with respect to the seller of the
security, realization of the collateral by the Utility Trust may be delayed or
limited.
SECURITIES SOLD SHORT. A short sale involves selling a security which the
Utility Trust does not own. The proceeds received for short sales are recorded
as liabilities and the Utility Trust records an unrealized gain or loss to the
extent of the difference between the proceeds received and the value of the open
short position on the day of determination. The Utility Trust records a realized
gain or loss when the short position is closed out. By entering into a short
sale, the Utility Trust bears the market risk of an unfavorable change in the
price of the security sold short. Dividends on short sales are recorded as an
expense by the Utility Trust on the ex-dividend date and interest expense is
recorded on the accrual basis.
FOREIGN CURRENCY TRANSLATION. The books and records of the Utility Trust
are maintained in United States (U.S.) dollars. Foreign currencies, investments
and other assets and liabilities are translated into U.S. dollars at the
exchange rates prevailing at the end of the period, and purchases and sales of
investment securities, income and expenses are translated at the exchange rate
prevailing on the respective dates of such transactions. Unrealized gains and
losses, which result from changes in foreign exchange rates and/or changes in
market prices of securities, have been included in unrealized
appreciation/depreciation on investments and foreign currency transactions. Net
realized foreign currency gains and losses resulting from changes in exchange
rates include foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency
transactions and the difference between the amounts of interest and dividends
recorded on the books of the Utility Trust and the amounts actually received.
The portion of foreign currency gains and losses related to fluctuation in
exchange rates between the initial trade date and subsequent sale trade date is
included in realized gain/(loss) on investments.
11
THE GABELLI UTILITY TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for as of the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Distributions to shareholders
are recorded on the ex-dividend date. Income distributions and capital gain
distributions are determined in accordance with Federal income tax regulations,
which may differ from accounting principles generally accepted in the United
States.
For the year ended December 31, 2001, reclassifications were made to
increase accumulated net investment income for $4,842 and decrease accumulated
net realized gain on investments for $4,842.
For the fiscal year ended December 31, 2001, the tax character of
distributions paid does not materially differ from accounting principles
generally accepted in the United States.
PROVISION FOR INCOME TAXES. The Utility Trust intends to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a result, a Federal income tax provision is
not required.
As of December 31, 2001, the components of accumulated earnings/(losses) on
a tax basis were as follows:
Undistributed ordinary income
(inclusive of short term capital gains) . $ 49,953
Undistributed long term capital gains ..... 25,420
Net unrealized appreciation ............... 5,176,631
-----------
Total accumulated earnings ................ $ 5,252,004
===========
Dividends and interest from non-U.S. sources received by the Utility Trust
are generally subject to non-U.S. withholding taxes at rates ranging up to 30%.
Such withholding taxes may be reduced or eliminated under the terms of
applicable U.S. income tax treaties, and the Utility Trust intends to undertake
any procedural steps required to claim the benefits of such treaties.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES. The Utility Trust has entered
into an investment advisory agreement (the "Advisory Agreement") with the
Adviser which provides that the Utility Trust will pay the Adviser on the first
business day of each month a fee for the previous month equal on an annual basis
to 1.00% of the value of the Utility Trust's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Utility Trust's portfolio and oversees the
administration of all aspects of the Utility Trust's business and affairs.
During the year ended December 31, 2001, Gabelli & Company, Inc. and its
affiliates received $70,203 in brokerage commissions as a result of executing
agency transactions in portfolio securities on behalf of the Utility Trust.
4. PORTFOLIO SECURITIES. Cost of purchases and proceeds from sales of
securities, other than short-term securities, for the year ended December 31,
2001 aggregated $34,805,014 and $27,034,764, respectively.
5. CAPITAL. The Board of Trustees of the Utility Trust has authorized the
repurchase of 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 of Trustees may
determine from time to time) from the net asset value of the shares. During the
year ended December 31, 2001, the Utility Trust did not repurchase any shares of
beneficial interest in the open market.
Transactions in shares of beneficial interest were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
--------------------- ----------------------
Shares Amount Shares Amount
-------- -------- -------- --------
Shares issued upon reinvestment
of dividends and distributions ..... 190,378 $1,581,923 103,573 $ 831,592
------- ---------- ------- ---------
Net increase ......................... 190,378 $1,581,923 103,573 $ 831,592
------- ---------- ------- ---------
6. INDUSTRY CONCENTRATION. Because the Utility Trust primarily invests in common
stocks and other securities of foreign and domestic companies in the utility
industry, its portfolio may be subject to greater risk and market fluctuations
than a portfolio of securities representing a broad range of investments.
12
THE GABELLI UTILITY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UTILITY TRUST SHARE OF BENEFICIAL INTEREST 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
======= ======= =======
Net asset value total return+ ......................................... (3.15)% 22.01% 3.62%
======= ======= =======
Market value, end of period ........................................... $ 9.33 $ 8.75 $ 7.63
======= ======= =======
Total investment return++ ............................................. 15.82% 29.95% 3.70%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .................................. $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% 1.85%(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.
See accompanying notes to financial statements.
13
THE GABELLI UTILITY TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
The Gabelli Utility Trust
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Utility Trust (the
"Trust") at December 31, 2001, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the two years in the period
then ended and for the period July 9, 1999 (commencement of investment
operations) through December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trust's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2001 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
/S/ Pricewaterhouse Cooper LLP
1177 Avenue of the Americas
New York, NY 10036
February 15, 2002
14
THE GABELLI UTILITY TRUST
ADDITIONAL FUND INFORMATION (UNAUDITED)
The business and affairs of the Trust are managed under the direction of
the Trust's Board of Trustees. Information pertaining to the Trustees and
officers of the Trust is set forth below. The Fund's Statement of Additional
Information includes additional information about The Gabelli Utility Trust
Trustees and is available, without charge, upon request, by calling
1-800-GABELLI (1-800-422-3554) or by writing to The Gabelli Utility Trust at One
Corporate Center, Rye, NY 10580.
TERM OF NUMBER OF
OFFICE AND FUNDS IN FUND
NAME, POSITION(S) LENGTH OF COMPLEX
ADDRESS1 TIME OVERSEEN BY PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AND AGE SERVED2 TRUSTEE DURING PAST FIVE YEARS HELD BY TRUSTEE
----------------- -------- ----------- ----------------------- --------------------
INTERESTED DIRECTORS3:
MARIO J. GABELLI Since 1999*** 21 Chairman of the Board and Chief Executive Director of Morgan Group
Trustee, President and Officer of Gabelli Asset Management Inc. and Holdings, Inc.(transportation
Chief Investment Officer Chief Investment Officer of Gabelli Funds, services); Vice Chairman
Age: 59 LLC and GAMCO Investors, Inc.; of Lynch Corporation
Chairman and Chief Executive Officer of (diversified manufacturing)
Lynch Interactive Corporation (multimedia
and services)
JOHN D. GABELLI Since 1999** 9 Senior Vice President of Gabelli & --
Trustee Company, Inc., Director of Gabelli Advisers,
Inc.
Age: 57
KARL OTTO POHL Since 1999** 30 Member of the Shareholder Committee of Director of Gabelli Asset
Trustee Sal Oppenheim Jr. & Cie (private invest- Management Inc. (investment
Age: 72 ment bank); Former President of the management); Chairman,
Deutsche Bundesbank and Chairman of its Incentive Capital and Incentive
Central Bank Council (1980-1991) Asset Management (Zurich);
Director at Sal Oppenheim Jr.
& Cie, Zurich
NON-INTERESTED TRUSTEES:
THOMAS E. BRATTER Since 1999*** 3 Director, President and Founder, The John --
Trustee Dewey Academy (residential college
Age: 62 preparatory therapeutic high school)
ANTHONY J. COLAVITA Since 1999* 32 President and Attorney at Law in the law firm --
Trustee of Anthony J. Colavita, P.C.
Age: 66
JAMES P. CONN Since 1999** 11 Former Managing Director and Chief Investment Director of LaQuinta Corp.
Trustee Officer of Financial Security Assurance Holdings (hotels) and First Republic
Age: 64 Ltd. (1992-1998) Bank
VINCENT D. ENRIGHT Since 1999*** 10 Former Senior Vice President and Chief --
Trustee Financial Officer of KeySpan Energy
Age: 58 Corporation
FRANK J. FAHRENKOPF JR. Since 1999* 3 President and Chief Executive Officer of the --
Trustee American Gaming Association since June
Age: 62 1995; Partner of Hogan & Hartson (law
firm); Chairman of International Trade
Practice Group; Co-Chairman of the
Commission on Presidential Debates;
Former Chairman of the Republican
National Committee
ROBERT J. MORRISSEY Since 1999* 8 Partner in the law firm of Morrissey & --
Trustee Hawkins
Age: 62
ANTHONY R. PUSTORINO Since 1999** 16 Certified Public Accountant; Professor --
Trustee Emeritus, Pace University
Age: 76
SALVATORE J. ZIZZA Since 1999* 8 Chairman, Hallmark Electrical Supplies Corp.; Board Member of Hollis Eden
Director Former Executive Vice President of FMG Pharmaceuticals,
Age: 56 Group (OTC), a healthcare provider; Former Bion Environmental
President and Chief Executive Officer of the Technologies Inc.
Lehigh Group Inc., an interior constructionand The Credit Store Inc.
company, through 1997
15
THE GABELLI UTILITY TRUST
ADDITIONAL FUND INFORMATION (CONTINUED) (UNAUDITED)
TERM OF NUMBER OF
OFFICE AND FUNDS IN FUND
NAME, POSITION(S) LENGTH OF COMPLEX
ADDRESS1 TIME OVERSEEN BY PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AND AGE SERVED2 TRUSTEE DURING PAST FIVE YEARS HELD BY TRUSTEE
----------------- -------- ----------- ----------------------- --------------------
INTERESTED DIRECTORS3:
OFFICERS:
BRUCE N. ALPERT Since 1999 -- Executive Vice President and Chief Operating --
Vice President and Officer of Gabelli Funds, LLC since 1988 and
Treasurer an officer of all mutual funds advised by
Age: 50 Gabelli Funds, LLC and its affiliates
Director and President of the Gabelli Advisors, Inc.
DAVID I. SCHACHTER Since 1999 -- Vice President of the Trust since 1999. --
Vice President Research Analyst of Gabelli & Company, Inc.
Age: 48 since 1999. Prior to October 1999, Mr. Schachter
worked for Thomas J. Herzfeld Advisors, an
investment advisor specializing in closed-end funds.
JAMES E. MCKEE Since 1999 -- Vice President, General Counsel and Secretary --
Secretary of Gabelli Asset Management Inc. since 1999
Age: 38 and GAMCO Investors, Inc. since 1993; Secretary
of all mutual funds advised by Gabelli Advisers,
Inc. and Gabelli Funds, LLC.
-----------------------------
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.
16
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THE GABELLI UTILITY TRUST
AND YOUR PERSONAL PRIVACY
WHO ARE WE?
The Gabelli Utility Trust (the "Trust") is a closed-end investment company
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940. We are managed by Gabelli Funds LLC, which is
affiliated with Gabelli Asset Management Inc. Gabelli Asset Management is a
publicly-held company that has subsidiaries that provide investment
advisory or brokerage services for a variety of clients.
WHAT KIND OF NON-PUBLIC INFORMATION DO WE COLLECT ABOUT YOU IF YOU BECOME A
GABELLI CUSTOMER?
When you purchase shares of the Trust on the New York Stock Exchange, you
have the option of registering directly with our transfer agent in order,
for example, to participate in our dividend reinvestment plan.
o INFORMATION YOU GIVE US ON YOUR APPLICATION FORM. This could include
your name, address, telephone number, social security number, bank
account number, and other information.
o INFORMATION ABOUT YOUR TRANSACTIONS WITH US. This would include
information about the shares that you buy or sell, it may also include
information about whether you sell or exercise rights that we have
issued from time to time. If we hire someone else to provide
services--like a transfer agent--we will also have information about
the transactions that you conduct through them.
WHAT INFORMATION DO WE DISCLOSE AND TO WHOM DO WE DISCLOSE IT?
We do not disclose any non-public personal information about our customers
or former customers to anyone, other than our affiliates, our service
providers who need to know such information and as otherwise permitted by
law. If you want to find out what the law permits, you can read the privacy
rules adopted by the Securities and Exchange Commission. They are in volume
17 of the Code of Federal Regulations, Part 248. The Commission often posts
information about its regulations on its web site, WWW.SEC.GOV.
WHAT DO WE DO TO PROTECT YOUR PERSONAL INFORMATION?
We restrict access to non-public personal information about you to the
people who need to know that information in order to perform their jobs or
provide services to you and to ensure that we are complying with the laws
governing the securities business. We maintain physical, electronic, and
procedural safeguards to keep your personal information confidential.
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
17
THE GABELLI UTILITY TRUST
INCOME TAX INFORMATION (UNAUDITED)
DECEMBER 31, 2001
CASH DIVIDENDS AND DISTRIBUTIONS
TOTAL AMOUNT ORDINARY LONG-TERM DIVIDEND
PAYABLE RECORD PAID INVESTMENT CAPITAL REINVESTMENT
DATE DATE PER SHARE INCOME GAINS PRICE
--------- ---------- ----------- ------------ --------- -----------
SHARES OF BENEFICIAL INTEREST
01/29/01 01/19/01 $0.05000 $0.04919 $0.00081 $7.96000
02/26/01 02/15/01 0.05000 0.04919 0.00081 7.94000
03/28/01 03/22/01 0.05000 0.04919 0.00081 8.12250
04/30/01 04/20/01 0.05000 0.04919 0.00081 8.74000
05/29/01 05/18/01 0.05000 0.04919 0.00081 8.53100
06/29/01 06/21/01 0.05000 0.04919 0.00081 8.45500
07/27/01 07/13/01 0.05000 0.03797 0.01203 8.37900
08/29/01 08/15/01 0.05000 0.02953 0.02047 8.52150
09/26/01 09/12/01 0.05000 0.02953 0.02047 7.98000
10/29/01 10/15/01 0.06000 0.03540 0.02460 8.67350
11/28/01 11/13/01 0.06000 0.03540 0.02460 8.59750
12/27/01 12/12/01 0.13000 0.07680 0.05320 8.79700
-------- --------- --------
$0.70000 $0.53977 $0.16023
A Form 1099-DIV has been mailed to all shareholders of record for the
distributions mentioned above, setting forth specific amounts to be included in
the 2001 tax returns. Ordinary income distributions include net investment
income and realized net short-term capital gains. 100% of the long-term capital
gains paid by the Utility Trust in 2001 was classified as "20% Rate Gains"
subject to a maximum tax rate of 20% (or 10% depending on an individual's tax
bracket). Capital gain distributions are reported in box 2a of Form 1099-DIV.
CORPORATE DIVIDENDS RECEIVED DEDUCTION AND U.S. GOVERNMENT SECURITIES INCOME
The Utility Trust paid to common shareholders an ordinary income dividend
totalling $0.53977 per share in 2001. The percentage of such dividends that
qualifies for the dividends received deduction available to corporations is
59.29% for all such dividends paid in 2001. The percentage of the ordinary
income dividends paid by the Utility Trust during 2001 derived from U.S.
Government Securities was 9.18%. However, it should be noted that the Utility
Trust did not hold more than 50% of its assets in U.S. Government Securities at
the end of each calendar quarter during 2001.
HISTORICAL DISTRIBUTION SUMMARY - SHARES OF BENEFICIAL INTEREST
SHORT- LONG-
TERM TERM
INVESTMENT CAPITAL CAPITAL TOTAL
INCOME GAINS(A) GAINS DISTRIBUTIONS
------------ ----------- ----------- ---------------
2001 ........... $0.20835 $0.33142 $0.16023 $0.70000
2000 ........... 0.05620 0.14020 0.80360 1.00000
1999 ........... 0.08049 0.00090 0.06861 0.15000
--------------
(a) Taxable as ordinary income.
18
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
ENROLLMENT IN THE PLAN
It is the policy of The Gabelli Utility Trust ("Utility Trust") to
automatically reinvest dividends. As a "registered" shareholder you
automatically become a participant in the Utility Trust's Automatic Dividend
Reinvestment Plan (the "Plan"). The Plan authorizes the Utility Trust to issue
shares to participants upon an income dividend or a capital gains distribution
regardless of whether the shares are trading at a discount or a premium to net
asset value. All distributions to shareholders whose shares are registered in
their own names will be automatically reinvested pursuant to the Plan in
additional shares of the Utility Trust. Plan participants may send their stock
certificates to EquiServe Trust Company ("EquiServe") to be held in their
dividend reinvestment account. Registered shareholders wishing to receive their
distribution in cash must submit this request in writing to:
The Gabelli Utility Trust
c/o EquiServe
P.O. Box 43011
Providence, RI 02940-3011
Shareholders requesting this cash election must include the shareholder's
name and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan may contact EquiServe at 1 (800)
336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at EquiServe must
do so in writing or by telephone. Please submit your request to the above
mentioned address or telephone number. Include in your request your name,
address and account number. The cost to liquidate shares is $2.50 per
transaction as well as the brokerage commission incurred. Brokerage charges are
expected to be less than the usual brokerage charge for such transactions.
If your shares are held in the name of a broker, bank or nominee, you
should contact such institution. If such institution is not participating in the
Plan, your account will be credited with a cash dividend. In order to
participate in the Plan through such institution, it may be necessary for you to
have your shares taken out of "street name" and re-registered in your own name.
Once registered in your own name your dividends will be automatically
reinvested. Certain brokers participate in the Plan. Shareholders holding shares
in "street name" at participating institutions will have dividends automatically
reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
The number of shares of Common Stock distributed to participants in the
Plan in lieu of cash dividends is determined in the following manner. Under the
Plan, whenever the market price of the Utility Trust's Common Stock is equal to
or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividends or capital
gains distribution, participants are issued shares of Common Stock valued at the
greater of (i) the net asset value as most recently determined or (ii) 95% of
the then current market price of the Utility Trust's Common Stock. The valuation
date is the dividend or distribution payment date or, if that date is not a New
York Stock Exchange trading day, the next trading day. If the net asset value of
the Common Stock at the time of valuation exceeds the market price of the Common
Stock, participants will receive shares from the Utility Trust valued at market
price. If the Utility Trust should declare a dividend or capital gains
distribution payable only in cash, EquiServe will buy Common Stock in the open
market, or 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 Utility Trust to issue shares at net asset value if,
following the commencement of such purchases, the market value of the Common
Stock exceeds the then current net asset value.
The automatic reinvestment of dividends and capital gains distributions
will not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
19
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN (CONTINUED)
The Utility Trust reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the members of the Plan
at least 90 days before the record date for such dividend or distribution. The
Plan also may be amended or terminated by EquiServe on at least 90 days' written
notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the Utility Trust. In order to
participate in the Voluntary Cash Purchase Plan, shareholders must have their
shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to EquiServe for investments in the Utility Trust's
shares at the then current market price. Shareholders may send an amount from
$250 to $10,000. EquiServe will use these funds to purchase shares in the open
market on or about the 1st and 15th of each month. EquiServe will charge each
shareholder who participates $0.75, plus a pro rata share of the brokerage
commissions. Brokerage charges for such purchases are expected to be less than
the usual brokerage charge for such transactions. It is suggested that any
voluntary cash payments be sent to EquiServe, P.O. Box 43011, Providence, RI
02940-3011 such that EquiServe receives such payments approximately 10 days
before the 1st and 15th of the month. Funds not received at least five days
before the investment date shall be held for investment in the following month.
A payment may be withdrawn without charge if notice is received by EquiServe at
least 48 hours before such payment is to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Utility Trust.
The Annual Meeting of the Utility Trust's stockholders will be held at
11:00 A.M. on Monday, May 20, 2002, at The Bruce Museum, One Museum Drive in
Greenwich, Connecticut.
20
TRUSTEES AND OFFICERS
THE GABELLI UTILITY TRUST
ONE CORPORATE CENTER, RYE, NY 10580-1422
TRUSTEES
Mario J. Gabelli, CFA
CHAIRMAN AND CHIEF INVESTMENT OFFICER,
GABELLI ASSET MANAGEMENT INC.
Dr. Thomas E. Bratter
PRESIDENT, JOHN DEWEY ACADEMY
Anthony J. Colavita
ATTORNEY-AT-LAW,
ANTHONY J. COLAVITA, P.C.
James P. Conn
FORMER MANAGING DIRECTOR AND CHIEF INVESTMENT OFFICER,
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
Vincent D. Enright
FORMER SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER,
KEYSPAN ENERGY CORP.
Frank J. Fahrenkopf, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
AMERICAN GAMING ASSOCIATION
John D. Gabelli
SENIOR VICE PRESIDENT,
GABELLI & COMPANY, INC.
Robert J. Morrissey
ATTORNEY-AT-LAW
MORRISSEY, HAWKINS &LYNCH
Karl Otto Pohl
FORMER PRESIDENT, DEUTSCHE BUNDESBANK
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT,
PROFESSOR EMERITUS, PACE UNIVERSITY
Salvatore J. Zizza
CHAIRMAN, HALLMARK ELECTRICAL SUPPLIES CORP.
OFFICERS
Mario J. Gabelli, CFA
PRESIDENT & CHIEF INVESTMENT OFFICER
Bruce N. Alpert
VICE PRESIDENT & TREASURER
David I. Schachter
VICE PRESIDENT & OMBUDSMAN
James E. McKee
SECRETARY
INVESTMENT ADVISOR
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
CUSTODIAN
Boston Safe Deposit and Trust Company
COUNSEL
Skadden, Arps, Slate, Meagher & Flom, LLP
TRANSFER AGENT AND REGISTRAR
EquiServe Trust Company
STOCK EXCHANGE LISTING
COMMON
NYSE-Symbol: GUT
Shares Outstanding: 11,229,797
The Net Asset Value appears in the Publicly Traded Funds column, under the
heading "Specialized Equity Funds," in Sunday's The New York Times and in
Monday's The Wall Street Journal. It is also listed in Barron's Mutual
Funds/Closed End Funds section under the heading "Specialized Equity Funds."
The Net Asset Value may be obtained each day by calling (914) 921-5071.
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For general information about the Gabelli Funds, call 1-800-GABELLI
(1-800-422-3554), fax us at 914-921-5118, visit Gabelli Funds' Internet homepage
at: HTTP://WWW.GABELLI.COM or e-mail us at: closedend@gabelli.com
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Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Utility Trust may, from time to time,
purchase its shares in the open market when the Utility Trust shares are trading
at a discount of 10% or more from the net asset value of the shares.
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THE GABELLI UTILITY TRUST
ONE CORPORATE CENTER, RYE, NY 10580-1422
PHONE: 1-800-GABELLI (1-800-422-3554)
FAX: 1-914-921-5118 INTERNET: WWW.GABELLI.COM
E-MAIL: CLOSEDEND@GABELLI.COM
GBFUF-AR-12/01