As filed with the Securities and Exchange Commission on May 22, 2003
Securities Act File No. _________
Investment Company Act File No. 811-09243
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
____________________
[X] Registration Statement under the Securities Act of 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
and/or
[X] Registration Statement under the Investment Company Act of
1940 Amendment No. 5
(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
Amount Proposed Maximum Proposed Maximum Amount of
Title of Securities Being Offering Price Per Aggregate Offering Registration
Being Registered Registered Share (1) Price(2) Fee
Shares of
Common 100,000 9.35 $935,000 $76.00
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 May 15, 2003.
(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. This offering will be made in the Province of
Ontario but will not be made in the Province of Quebec or any other province
of Canada where it is not permitted by law.
2
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; Dividends and Distributions;
Capitalization
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. General Information and History Not Applicable
17. Investment Objectives and Policies...................Investment Objectives; Investment Practices;
18. Management...........................................Management of the Fund
19. Control Persons and Principal Management of the Fund
Holders .........................................
20. Investment Advisory and Other Ser- Management of the Fund
vices................................................
21. Brokerage Allocation and Other Portfolio Transactions
Practices............................................
3
22. Automatic Dividend Reinvestment and Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan.........................Voluntary Cash Purchase Plan
23. Tax Status...........................................Taxation
24. General Information..................................General Information
25. Beneficial Owner.....................................Beneficial Owner
26. 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.
4
PROSPECTUS
RIGHTS FOR SHARES
THE GABELLI
UTILITY TRUST
COMMON SHARES
The Gabelli Utility Trust (the "Fund") is issuing transferable rights
("Rights") to its common shareholders of common shares of beneficial interest,
par value $.001 per share (the "Common Shares"). These Rights will allow you
to subscribe for new Common Shares of the Fund. For every three Rights that
you receive, you may buy one new Common Share of the Fund plus, in certain
circumstances, additional Common Shares pursuant to an over- subscription
privilege. You will receive one Right for each outstanding Common Share of the
Fund you own on May , 2003(the "Record Date") rounded up to the nearest number
of Rights evenly divisible by three. Fractional shares will not be issued upon
the exercise of the Rights. Accordingly, new Common Shares may be purchased
only pursuant to the exercise of Rights in integral multiples of three.
The Rights are transferable and will be admitted for trading on the New
York Stock Exchange ("NYSE") under the symbol "____." The Common Shares are
presently listed on the NYSE under the symbol "GUT." The new Common Shares
issued in this Rights offering (the "Offer") will also be listed under the
symbol "GUT." On [______], 2003 (the last trading date prior to the Common
Shares trading ex-Rights), the last reported net asset value per share of the
Common Shares was $____ and the last reported sales price per Common Share on
the NYSE was $____. The purchase price per Common Share (the "Subscription
Price") will be _____. The offer will expire at 5:00 p.m., New York Time, on
June __, 2003, 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 80% 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 COMMON 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. Accordingly, this Prospectus should be
retained for future reference.
A Statement of Additional Information dated June __, 2003 (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 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 Common Share..................... $____ None $____
Total................................ $__________ None $_________(2)
(1) Before deduction of expenses incurred by the Fund, estimated at $_______.
(2) _________ shares representing $__________ of the proceeds can only be
issued if the Common Shares on the Expiration Date are trading at or
above their per share net asset value. In the event the Common Shares on
the Expiration Date are not trading at or above their per share net
asset value, then the maximum proceeds to the Fund will be $__________.
_______________________________
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 DILUTION OR ACCRETION OF THE AGGREGATE NET ASSET VALUE OF YOUR
SHARES DEPENDING UPON WHETHER THE FUND'S NET ASSET VALUE PER SHARE IS ABOVE OR
BELOW THE SUBSCRIPTION PRICE ON THE EXPIRATION DATE. The Fund cannot state
precisely the extent of any dilution or accretion at this time because the
Fund does not know what the net asset value per Common 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
2
shares through the primary subscription and over-subscription privilege 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 June __, 2003 (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 (defined below) of receipt of a
request. Investors may also obtain the Statement of Additional Information,
material incorporated by reference, and other information about the Fund from
the SEC's website (http://www.sec.gov). Shareholder inquiries should be
directed to the Subscription Agent, EquiServe, at (800) 336- 6983 or (781)
575-2000.
_________________________________
June __, 2003
3
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this prospectus.
If given or made, such information or representation must not be relied upon
as having been authorized by the Fund or the Fund's Investment Adviser. This
Prospectus does not constitute an offer to sell or the solicitation of an
offer to buy any security other than the Common Shares offered by this
Prospectus, nor does it constitute an offer to sell or the solicitation of an
offer to buy shares of Common Shares by anyone in any jurisdiction which such
offer or solicitation would be unlawful.
_________________________________
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY..................................................................................5
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.............................................................................41
DIVIDENDS AND DISTRIBUTIONS........................................................................44
TAXATION...........................................................................................45
CAPITALIZATION.....................................................................................47
CUSTODIAN, TRANSFER AGENT, DIVIDEND-DISBURSING AGENT AND
REGISTRAR....................................................................................50
LEGAL MATTERS......................................................................................51
EXPERTS............................................................................................51
FURTHER INFORMATION................................................................................51
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS..................................................51
INVESTMENT OBJECTIVES AND POLICIES................................................................B-1
INVESTMENT RESTRICTIONS..........................................................................B-11
MANAGEMENT OF THE FUND...........................................................................B-13
PORTFOLIO TRANSACTIONS...........................................................................B-22
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN...........................................................B-24
TAXATION.........................................................................................B-26
NET ASSET VALUE..................................................................................B-32
GENERAL INFORMATION..............................................................................B-33
COUNSEL AND INDEPENDENT ACCOUNTANTS..............................................................B-33
BENEFICIAL OWNERS................................................................................B-33
FINANCIAL STATEMENTS.............................................................................B-33
APPENDIX A........................................................................................A-1
4
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 which can be found on page ___,
under the heading "Risk Factors and Special Considerations."
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..................................._________
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.
** Holders of Rights will be able to acquire additional Fund shares
pursuant to an over- subscription privilege in certain circumstances.
==============================================================================
Shareholders' inquiries should be directed to:
EquiServe
(800) 336-6983 or (781) 575-2000
or Gabelli
(800) GABELLI (422-3554)
==============================================================================
5
OVER-SUBSCRIPTION PRIVILEGE
Shareholders on the Record Date ("Record Date Shareholders") who fully
exercise all Rights initially issued to them are entitled to buy those Fund
shares, referred to as "primary subscription shares" that were not bought by
other Rights holders. If enough primary subscription shares are available, all
such requests will be honored in full. If the requests for primary
subscription shares exceed the primary subscription shares available, the
available primary subscription shares will be allocated pro rata among those
fully exercising on the Record Date Shareholders 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."
In addition, in the event that the Fund's per share net asset value on
the Expiration Date is equal to or greater than the Subscription Price, the
Fund, in its sole discretion, may determine to issue up to _________
additional Common Shares, referred to as "secondary over-subscription shares,"
to satisfy over-subscription requests in excess of the new Fund shares
available for primary subscription. The Fund, in its sole discretion, would
also be able to issue additional Common Shares in an amount of up to 20% of
the sum of shares issued pursuant to the primary subscription and secondary
over-subscription. Any such new Common Shares will be allocated and issued in
conjunction with the secondary over- subscription shares to Record Date
Shareholders who are eligible to receive secondary over- subscription shares.
Should the Fund determine to issue some or all of the secondary over-
subscription shares, it will be allocated only among Record Date Shareholders
who submitted over-subscription requests. Rights holders who are not Record
Date Shareholders may not participate in the secondary over-subscription.
Secondary over-subscription shares will be allocated pro rata among those
fully exercising Record Date Shareholders who over- subscribe based on the
number of Rights originally issued to them by the Fund.
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, Providence, Rhode Island (the
"Subscription Agent") at the address indicated on the
Subscription Certificate. Your completed and signed
6
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 by the close of business on the
third Business Day after the Expiration Date pursuant to a
notice of guaranteed delivery. 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 July __,
2003, 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 (i) a Rights holder is unable to exercise because the Rights represent
the right to subscribe for less than one new Share (defined herein) or, (ii)
attributable to shareholders whose record addresses are outside the United
States and the Province of Ontario, Canada or who have an AFO or FPO address
as described below under "Restrictions on Foreign Shareholders." 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. 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 such
Rights are sold, less any applicable brokerage commissions, taxes and other
expenses. For purposes of this Prospectus, a "Business Day" shall mean any day
on which trading is conducted on the NYSE.
7
==============================================================================
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 $_______.
RESTRICTIONS ON FOREIGN SHAREHOLDERS
The Fund will not mail Subscription Certificates to shareholders
whose record addresses are outside the United States and the Province of
Ontario, Canada or who have an APO or FPO address. Shareholders whose
addresses are outside the United States and the Province of 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. The Fund will determine whether
the offering may be made to any such shareholder. This offering will not be
made in the Province of Quebec or any other jurisdiction where it would be
unlawful to do so. If the Subscription Agent has received no instruction by
the third Business Day prior to the Expiration Date or the Fund has determined
that the offering may not be made to a particular shareholder, the
Subscription Agent will attempt to sell all of such shareholder's Rights and
remit the net proceeds, if any, to such shareholder. 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 new Common 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.
8
EVENT DATE
Record Date...........................................................................June __, 2003
Subscription Period.............................................June __, 2003 through July __, 2003**
Expiration of the Offer*..............................................................July __, 2003**
Payment for Guarantees of Delivery Due*...............................................July __, 2003**
Confirmation to Participants..........................................................July __, 2003**
------------------------------------
* A shareholder exercising Rights must deliver by 5:00 New York time on
July __, 2003 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 July __, 2003.
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 80% 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 are listed and traded on the New York Stock Exchange
(the "NYSE"). The average weekly trading volume of the Fund's Common Shares on
the NYSE during the period from January 1, 2002 through December 31, 2002 was
______ shares. As of April 30, 2003, the net assets of the Fund were
approximately $__________.
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 March 31, 2003,
managed total assets of approximately $___ 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
9
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 dilution
of the aggregate net asset value of your
shares. If the Subscription Price per
share is below the Fund's net asset value
per share of the Fund's shares on the
Expiration Date, you will experience an
immediate dilution of the aggregate net
asset value of your shares if you do not
participate in the Offer. The Fund cannot
state precisely the extent of this
dilution (if any) if you do not exercise
your Rights 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
at the expiration of the Offer increases
to $____, the Fund's net asset value per
share (after payment of estimated offering
expenses) would be reduced by
approximately $____ (____%) per share. If
however, the Subscription Price is above
the Fund's net asset value per share on
the Expiration Date as it was on the date
of this Prospectus you will experience an
immediate accretion of the aggregate net
asset value of your shares, even if you do
not exercise your Rights. See "Risk
Factors and Special Considerations--
Dilution." If you do not wish to exercise
your Rights, you should consider selling
them as set forth in this Prospectus. 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
10
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.
Trading Premium.....................Historically, the Fund's Common Shares
have traded at a premium to their net
asset value per share. As of June __ 2003,
this premium was ___%. There is no
guarantee that this premium is sustainable
either during the term of the Offer or
over the long term. The issuance of
additional Common Shares pursuant to the
Offer and the related over- subscription
and secondary over-subscription privileges
may reduce or eliminate any premium that
common shareholders may have otherwise
received for their Common Shares.
Share 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 Common 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. There is no assurance that
any action undertaken to repurchase shares
will result in the shares trading at a
price which approximates their net asset
value. Share repurchases by the Fund would
decrease the capital of the Fund and could
have the effect of increasing the Fund's
expense ratio.
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
11
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 shares
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 shares as has been
authorized by the Board of Trustees of the
Fund (see "Capitalization" below), the
holders of the preferred shares would have
the authority to elect two trustees at all
times and would have separate class voting
rights on specified matters including
conversion of the 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
12
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 shares 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 shares
and debt outstanding. Such debt or
preferred shares may be convertible in
accordance with SEC staff guidelines which
may permit the Fund to obtain leverage at
attractive rates. Use of leverage may
magnify the impact on the holders of
Common Shares 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
shares when it may be disadvantageous to
do so. Leveraging through the issuance of
preferred shares requires that the holders
of the preferred shares have class voting
rights on various matters that could make
it more difficult for the holders of the
Common Shares 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."
At a meeting held on February 21, 2003,
the Board of Trustees authorized the
issuance of up to 2,000,000 shares of
Series A Cumulative Preferred Stock,
liquidation preference $25.00 per share,
and up to 5,000 shares of Series B Auction
Rate Cumulative Preferred Stock,
liquidation preference $25,000 per share.
There is no guarantee that either type of
preferred shares will be issued.
13
See "Capitalization."
Industry Risks......................The Fund will invest 80% 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
increases in interest rates resulting in
higher interest costs on 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."
Key Personnel Dependence............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 as a regulated investment
company, for U.S. federal income tax
purposes. Such qualification requires,
among other things, compliance by the Fund
with certain distribution requirements.
The Fund is also, however, subject to
certain statutory limitations on
distributions on its Common Shares if the
Fund fails to satisfy the 1940 Act's asset
coverage requirements which could
jeopardize the Fund's ability to meet the
regulated investment company distribution
requirements. See "Taxation" for a more
complete discussion.
14
TABLE OF FEES AND EXPENSES
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 Shares)
Management Fees................................................ 1.00%
Other Expenses 0.93%
--------------
Total Annual Operating Expenses....................... 1.93%
--------------
(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: (2)
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$ - $ - $ - $ -
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 Fund's Common Shares.
Actual expenses and annual rates of return may be more or less than those
assumed for purposes of the Example.
____________________________
15
(2) Amounts are exclusive of fees discussed in Note (1) above.
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a Common Share
outstanding throughout the periods presented. The per share operating
performance and ratios for the fiscal years ended December 31, 2002, 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.
16
Selected Data for a Common Share Outstanding Throughout Each Period
Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
2002 2001 2000 1999 (a)
-------------- -------------- -------------- --------------
OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 7.32 $ 8.21 $ 7.62 $ 7.50
Net investment income.................. 0.11 0.12 (e) 0.15 0.08
Net realized and unrealized gain(loss)
on investments......................... (0.62) (0.32)(e) 1.44 0.19
Total from investment operations....... (0.51) (0.20) 1.59 0.27
CHANGE IN NET ASSET VALUE
FROM TRANSACTIONS IN SHARES
OF BENEFICIAL INTEREST:
Increase in net asset value from shares
issued in rights offering.............. 0.15 -- -- --
Increase in net asset value from Trust
share transactions..................... 0.03 0.01 0.00 0.00
DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income.................. (0.11) (0.21) (0.06) (0.08)
Net realized gain on investments....... (0.36) (0.49) (0.94) (0.07)
Return of Capital...................... (0.25) -- -- --
Total distributions.................... (0.72) (0.70) (1.00) (0.15)
NET ASSET VALUE, END OF PERIOD: $ 6.27 $7.32 $8.21 $ 7.62
Market value, end of period............ $ 8.72 $9.33 $8.75 $ 7.63
Net asset value total return + ........ (6.79%) (3.15%) 22.01% 3.62%
Total Investment Return ++ .............. 1.70% 15.82% 29.95% 3.70%
RATIOS TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 95,111 $ 82,197 $ 90,669 $ 83,330
Ratio of net investment income to average
net assets (c)......................... 1.65% 1.57% 1.88% 2.27%(b)
Ratio of operating expenses to average
assets (c)(d).......................... 1.93% 2.00% 1.95% 1.85%(b)
net Portfolio turnover rate............ 29% 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 including the effects of shares issued pursuant to
rights offering, assuming full subscription by shareholder. 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, 2002,
December 31, 2001 and the year ended December 31, 2000, the expense
ratios would be 1.93%, 2.00% and 1.93%, respectively.
17
(e) 2001's Net investment income per share and net realized and
unrealized gain (loss) on investments were originally presented in
the Financial Highlights without regard to character of distributions
paid during the year. Amounts as previously reported of $0.61 and
$(0.81), respectively, have been revised to reflect reclassification
of amounts based on the character of 2001 distributions.
THE OFFER
TERMS OF THE OFFER
The Fund is issuing to Record Date Shareholders Rights to subscribe
for additional Common Shares. Each Record Date Shareholder is being issued one
transferable Right for each Common Share owned on the Record Date. The Right
entitles the holder to acquire at the Subscription Price one Share for each
three Rights held rounded up to the nearest number of Rights evenly divisible
by three. 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. In the case of Common Shares 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 June __, 2003 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 June __, 2003, and
ends at 5:00 p.m., New York time, on July __, 2003 (the "Subscription
Period"), unless extended by the Fund to a date not later than July __, 2003,
5:00 p.m., New York time. See "Expiration of the Offer." The Right to acquire
one additional Share for each Right held during the Subscription Period at the
Subscription Price will be referred to in the remainder of this Prospectus as
the "Primary Subscription."
In addition, any Record Date Shareholder who fully exercises all
Rights initially issued to him is entitled to subscribe for Common Shares
available for Primary Subscription (the "Primary Subscription Shares") that
were not subscribed for by other Rights holders on Primary Subscription. In
addition, in the event that the Common Shares on the Expiration Date are
trading at or above its per share net asset value, the Fund may, in its sole
discretion, issue up to an additional _____ shares (the "Secondary
Over-Subscription Shares") to satisfy over-subscription requests in excess of
the available Primary Subscription Shares. The Fund, in its sole discretion,
would also be able to issue additional Common Shares in an amount of up to 20%
of the sum of the Primary Subscription Shares and Secondary Over- Subscription
Shares. The entitlement to subscribe for un-subscribed Primary Subscription
Shares, any Secondary Over-Subscription Shares and any additional Common
Shares will be referred to in the remainder of this Prospectus as the
"Over-Subscription Privilege"). For purposes of determining the maximum number
of Common Shares a Record Date Shareholder may acquire pursuant to the Offer,
broker-dealers whose Common Shares are
18
held of record by case, nominee for DTC, 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. Common 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 Common Shares through the Primary Subscription and the
Over-Subscription Privilege to the extent Common 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
Common 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 Common Shares if any Record Date
Shareholder fails to fully exercise its Rights. Any Common Shares acquired
whether by Primary Subscription or the Over-Subscription Privilege 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 Common Shares that does not exceed the greater of 1%
of the then outstanding Common Shares or the average weekly reported trading
volume of the Common Shares 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 Common Shares under Rule 144, if the Common 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 Certificate
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. Common 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 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
19
and may be conducted until the close of trading on the last NYSE 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 under "Method of Transferring Rights."
The Common Shares will begin trading ex-Rights two Business Days prior to the
Record Date.
Nominees who hold the Fund's Common Shares 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 will
complete the Subscription Certificate and submit it to the Subscription Agent
with proper payment. In addition, beneficial owners of the Common Shares or
Rights held through such a nominee should contact the nominee and request the
nominee to effect transactions in accordance with such 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 Shares at a price that may be below market and/or net asset
value without incurring any commission charge. The distribution to
shareholders of transferable Rights, which themselves may have intrinsic
value, will also afford non-subscribing shareholders the potential of
receiving a cash payment upon sale of such Rights, receipt of which may be
viewed as partial compensation for the possible dilution of their interests in
the Fund.
The Fund's Investment Adviser will benefit from the Offer because the
Investment Adviser's fee is based on the average net assets of the Fund. See
"Management of the Fund." It is not possible to state precisely the amount of
additional compensation the Investment Adviser will receive as a result of the
Offer because the proceeds of the Offer will be invested in additional
portfolio securities which will fluctuate in value. However, assuming all
Rights are exercised and that the Fund receives the maximum proceeds of the
Offer, the annual compensation to be received by the Investment Adviser would
be increased by approximately $______. 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
20
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 make 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 Trustee's 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 Primary
Subscription 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 additional Common Shares. 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 Primary
Subscription Shares remain after the Primary Subscriptions have been
exercised, all over-subscription requests will be honored in full. If
sufficient Primary Subscription Shares are not available to honor all
subscription requests, the available Common Shares will be allocated among
those Record Date Shareholders who over-subscribe based on the number of
Rights originally issued to them by the Fund.
In addition, the Board of Trustees of the Fund has established a
Pricing Committee which is authorized, in the event that the Fund's per share
net asset value on the Expiration Date is at or above the Subscription Price,
to direct the Fund to issue Secondary Over- Subscription Shares to satisfy
over-subscription requests in excess of the available Primary Subscription
Shares. The Fund would also be able to issue additional Common Shares in an
amount of up to 20% of the sum of the Primary Subscription Shares and
Secondary Over- Subscription Shares. Should the Pricing Committee determine to
issue some or all of these Secondary Over-Subscription Shares and any
additional Common Shares, they will be allocated only among Record Date
Shareholders that submitted over-subscription requests. Rights holders who are
not Record Date Shareholders may not participate in the secondary
over-subscription. Secondary Over-Subscription Shares and any additional
Common Shares will be allocated pro rata among those fully exercising Record
Date Shareholders who over- subscribe based on the number of Rights originally
issued to them by the Fund. Any Secondary Over-Subscription Shares issued by
the Fund, collectively with any Primary
21
Subscription Shares not subscribed for through the Primary Subscription, and
any additional Common Shares, will be referred to in this Prospectus as the
"Excess Shares."
The percentage of Excess Shares each over-subscribing Record Date
Shareholder may acquire will be rounded down to result in delivery of whole
Common Shares; provided, however, that if a 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 then entitled to receive Excess Shares whose
over-subscription requests have not been fully honored. The allocation process
may be iterative in order to assure that the total number of Excess Shares is
distributed in accordance with the method described above.
The formula to be used in allocating the Excess Shares is as follows:
Record Date Shareholder's Position x Excess Shares Remaining
----------------------------------
Total Record Date Position
of All Over-Subscribers
The Fund will not offer or sell any Common 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 May __, 2003. The net asset value per
Common Share at the close of business on May __, 2003 (the last date prior to
the Fund's announcement of the Offer), was $___. The last reported sale price
of a Common Share on the NYSE on that date was $___, representing a __%
premium in relation to the then current net asset value per share and a
premium in relation to the Subscription Price.
SALES BY SUBSCRIPTION AGENT
Holders of Rights who are unable or do not wish to exercise any or
all of their Rights may instruct the Subscription Agent to sell any
unexercised Rights. The Subscription Certificates representing the Rights to
be sold by the Subscription Agent must be received on or before July __, 2003.
Upon the timely receipt of the 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
22
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 that independent broker. Gabelli & Company, Inc. may also
act on behalf of its clients to purchase or sell Rights in the open market and
be compensated for its services. 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
holders of Rights. Proceeds from those sales will be held by EquiServe, in its
capacity as the Fund's transfer agent, for the account of the nonclaiming
holder of rights 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.
23
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 July __, 2003,
unless extended by the Fund to a date not later than July __, 2003, 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
43025, Providence, R.I. 02940-3025. 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 43025,
PROVIDENCE, R.I. 02940-3025 (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:
24
If By Mail: P.O. Box 43025
Reporting Services, Inc.
Providence, RI 02940-3025
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
Attn: 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 Common Shares subscribed for on the Primary Subscription and
any additional Common 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 (fax
number (781) 380-3388; 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 Common
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
25
the final due date into a segregated interest-bearing account pending
proration and distribution of Common Shares. The Subscription Agent
will not accept cash as a means of payment for Common 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 Common Shares that the holder indicates are being subscribed for,
or if a Record Date Shareholder does not specify the number of Common
Shares 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 such holder is greater than the
Common Shares he has indicated an intention to subscribe, then the
Rights holder 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.
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. 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. Whichever of the two methods of payment 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.
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 Common 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 Common Shares
and (iv) any excess to be refunded by the Fund to such holder as a result of
payment for Common 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
26
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 province of
Ontario may make payment in U.S. dollars by money order or check drawn on a
bank located in the province of Ontario.
Whichever of the two methods described above is used, issuance and
delivery of certificates for the Common 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 Common 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 Common Shares; (ii) apply any payment actually received by it
toward the purchase of the greatest whole number of Common 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 Common 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
Common Shares and to enforce the relevant guaranty of payment.
Holders who hold Common Shares for the account of others, such as
brokers, trustees or depositories for securities, should notify the respective
beneficial owners of the Common Shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the record holder of the Rights
should complete Subscription Certificates and submit them to the Subscription
Agent with the proper payment. In addition, beneficial owners of Common Shares
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
27
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 time, on the Expiration Date. Because uncertified personal checks may
take at least five Business Days to clear, you are strongly urged to pay, or
arrange for payment, by means of a certified or cashier's check or money
order.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by the Fund, whose
determinations will be final and binding. The Fund in its sole discretion may
waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported
exercise of any Right. Subscriptions will not be deemed to have been received
or accepted until all irregularities have been waived or cured within such
time as the Fund determines in its sole discretion. Neither the Fund nor the
Subscription Agent will be under any duty to give notification of any defect
or irregularity in connection with the submission of Subscription Certificates
or incur any liability for failure to give such notification.
DELIVERY OF STOCK CERTIFICATES
Certificates representing Common 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 Common Shares has been received and cleared. Certificates representing
Common 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 Common 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." 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 Common
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 Province of
Ontario, Canada (other than an APO or FPO address). Record Date Shareholders
whose addresses are outside the United States and the Province of 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,
28
EquiServe, by written instruction or recorded telephone conversation no later
than three Business Days prior to the Expiration Date. The Fund will determine
whether the offering may be made to any such shareholder. If the Subscription
Agent has received no instruction by the third Business Day prior to the
Expiration Date or the Fund has determined that the Offering may not be made
to a particular shareholder, the Subscription Agent will attempt to sell all
of such shareholder's 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 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 Common 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 Common Share acquired upon
the exercise of a Right will be a capital gain or loss assuming the Common
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 Common Share has been held at the
time of sale for more than one year.
As noted above, your basis in Common 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 Shares at such time, the basis of the Rights issued to you
will be zero unless you elect to allocate your basis of previously owned
29
Common Shares to the Rights issued to you in the Offer. This allocation is
based upon the relative fair market value of such Common 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 Common 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 Common 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
Rights holders 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
30
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 Common Shares offered
hereby are sold, are estimated to be approximately $__________, 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 80% 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 20%
of its assets may be invested in other securities including stocks, debt
obligations and money market instruments, as well as certain derivative
instruments in the 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 investment policy of the Fund relating to the type of securities
in which 80% of the Fund's net assets must be invested may be changed by the
Board of Trustees without shareholder approval. Shareholders will, however,
receive at least 60 days' prior notice of any change in this policy.
Although many companies in the Utility Industry traditionally pay
above average dividends, the Fund intends to focus on those companies whose
securities have the potential
31
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 will invest in securities of
issuers located in countries other than the United States and may invest in
such foreign securities without limitation. 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
32
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 will
provide financial support to U.S. government-sponsored instrumentalities if it
is not obligated to do so by law. During temporary defensive periods, the Fund
may not achieve its investment objective.
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.
33
FUTURES CONTRACTS AND OPTIONS THEREON
The Fund may 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. Under
current CFTC regulations, 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 its total 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 its total assets.
FORWARD CURRENCY EXCHANGE CONTRACTS
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 shares 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
shares and debt outstanding. Such debt or preferred shares may
34
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 has adopted certain investment restrictions as fundamental
policies of the Fund. Under the 1940 Act, a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the 1940 Act. The Fund's investment restrictions are
more fully discussed under "Investment Restrictions" in the SAI.
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 and may result
in taxable gains being passed to shareholders. 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" in the SAI for a
discussion of these investments and techniques and the risks associated with
them.
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
35
investment objectives as well as the shareholder's other investments when
considering the Offering.
RISK FACTORS AND SPECIAL CONSIDERATIONS
There are a number of risks that an investor should consider in
evaluating the Fund. 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, if the Subscription Price is below
the Fund's net asset value per share on the Expiration Date the net asset
value of your Common Shares will be diluted (reduced) immediately as a result
of the Offer because:
- the offered Common Shares are being sold at less than their current net
asset value.
- you will indirectly bear the expenses of the Offer.
- the number of Common Shares outstanding after the Offer will have
increased proportionately more than the increase in the amount of the
Fund's net assets.
On the other hand, if the Subscription Price is above the Fund's net
asset value per share on the Expiration Date after deducting the expenses of
the Offer, the Fund's net asset value per share will be accreted (increased)
immediately as a result of the Offer whether or not you participate in the
Offer because:
- the offered Common Shares are being sold at more than their current
net asset value after deducting the expenses of the Offer.
- the number of Common Shares outstanding after the Offer will have
increased proportionately less than the increase in the amount of the
Fund's net assets.
Furthermore, if you do not participate in the Over-Subscription
Privilege, your percentage ownership may also be diluted. 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 impact of the Offer on net
asset value per share is shown by the following examples, assuming a $____
Subscription Price:
36
Scenario 1: (assumes net asset value per share is above subscription
price)(1)
NAV........................................................................$___
Subscription Price.........................................................$___
Reduction in NAV($)(2).....................................................$___
Reduction in NAV(%)........................................................ ___%
Scenario 2: (assumes net asset value per share is below subscription
price)(1)
NAV........................................................................$___
Subscription Price.........................................................$___
Increase in NAV($)(2)......................................................$___
Increase 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 Common 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 increasing interest
rates resulting in high interest costs on 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 Common 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
37
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.
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 Common Shares are not subject to
redemption. Shareholders desiring liquidity may, subject to applicable
securities laws, trade their shares in the Fund on the NYSE or other markets
on which such shares may trade at the then current market value, which may
differ from the then current net asset value.
TRADING PREMIUM
Historically, the Fund's Common Shares have traded at a premium to their net
asset value. As of June __ 2003, this premium was ___%. There is no guarantee
that this premium is sustainable either during the term of this Offer or over
the long term. The issuance of additional Common Shares pursuant to the Offer
and the Over- Subscription Privilege may reduce or eliminate any premium that
common shareholders may have otherwise received for their Common Shares.
38
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.
39
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 predictions 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 it had
not used such strategies. 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 Investment
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 the use of forward contracts may not serve as a
complete hedge because of an imperfect correlation between movements in the
prices of the contracts and the prices of the currencies hedged or
40
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 SHARES 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 shares 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 shares 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 shares and debt outstanding. Such debt or
preferred shares may be convertible in accordance with 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
41
of Common Shares, 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.
The issuance of preferred shares convertible into Common Shares 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 shares convertible into one Common Share. 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.
On February 21, 2003, the Board of Trustees of the Fund authorized the
issuance of up to 2,000,000 shares of Series A Cumulative Preferred Stock,
liquidation preference $25.00 per share, and 5,000 shares of Series B Auction
Rate Cumulative Preferred Stock, liquidation preference $25,000 per share.
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. There is no guarantee that the Fund will issue Series A Cumulative
Preferred Stock or Series B Auction Rate Cumulative Preferred Stock.
Dependence on Key Personnel
The Investment Adviser is dependent upon the expertise of Mr. Mario
J. Gabelli in providing advisory services with respect to the Fund's
investments. 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.
42
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 Investment Adviser, together with other affiliated investment
advisers, has assets under management totaling over $20.7 billion as of December
31, 2002. 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, 2002, the Investment Adviser and its affiliate, Gabelli
Advisers, Inc., act as primary investment adviser to 18 management investment
companies with aggregate net assets of $8.7 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 $10 billion under management as of December 31, 2002. Gabelli Fixed
Income LLC, an affiliate of the Investment Adviser, acts as investment adviser
for The Treasurer's Fund, Inc. and separate accounts having aggregate assets
of $1.6 billion under management as of December 31, 2002. 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 a majority 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
43
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.
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 Investment 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. Over the past five years, Mr. Gabelli has
served as Chairman of the Board and Chief Executive Officer of Gabelli Asset
Management Inc.; Chief Investment Officer of GAMCO Investors, Inc.; Chairman
of the Board and Chief Executive Officer of Lynch Corporation, a diversified
manufacturing company, and Lynch Interactive Corporation, a multimedia and
communications services company; and Director of Spinnaker Industries, Inc., a
manufacturing company.
44
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.
45
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 Investment 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
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 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 Shares. 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 payable after the Expiration Date.
The Fund, along with other registered investment companies advised by
the Investment Adviser (the "Other Funds"), has obtained an exemption from
Section 19(b) of the 1940 Act and Rule 19b-1 thereunder permitting the Fund to
make periodic distributions of long-term capital gains provided that the Fund
maintains distribution policies with respect to the Common Shares 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 Common Share 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
46
of capital. If the Fund's net investment income, net short-term capital gains
and net long- term capital gains for any year exceed the amount required to be
distributed under the Fund's 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
47
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 Fund, 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-
48
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
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 withholding
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.
--------
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.
49
CAPITALIZATION
COMMON STOCK
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 Shares and preferred shares. 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, the
Common Shares will be fully paid and non-assessable. Common Shares are not
redeemable and have no preemptive, conversion or cumulative voting rights.
The following table shows the number of shares of (i) capital shares
authorized, (ii) capital shares unissued and (iii) capital shares outstanding
for each class of authorized securities of the Fund as of April 30, 2003.
Amount Held
by Company
Amount or for its Own Amount
Title of Class Authorized Account Outstanding
Common Shares.......................... unlimited none
Preferred Shares....................... unlimited none none
The Common Shares are listed and traded on the NYSE under the symbol
"GUT." The average weekly trading volume of the Common Shares on the NYSE for
the 12 months ended December 31, 2002 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 Shares and the net asset value and the
premium or discount from net asset value at which the Common Shares was
trading, expressed as a percentage of net asset value, at each of the high and
low closing prices provided.
50
PREMIUM OR DISCOUNT
MARKET PRICE (1) NET ASSET VALUE (2) AS % OF NAV
-------------------------- ----------------------------- ------------------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
------------- ---- --- ---- --- ---- ---
3/31/01
6/30/01
9/30/01
12/31/01
3/31/02
6/30/02
9/30/02
12/31/02
3/31/03
------------------------------------
(1) As reported on the NYSE
(2) Based on the Fund's computations.
PREFERRED STOCK
The Fund's Board of Directors has authority to cause the Fund to
issue and sell up to 2,000,000 shares of Series A Cumulative Preferred Stock,
par value $0.001 per share and 5,000 shares of Series B Auction Rate
Cumulative Preferred Stock, par value $0.001. The terms of preferred stock
issued by the Fund will be fixed by the Board of Trustees and materially limit
and/or qualify the rights of the holders of the Fund's common shares. There is
no guarantee that the Fund will issue all or any of the Series A Cumulative
Preferred Stock or Series B Auction Rate Preferred Stock.
EFFECTS OF LEVERAGE
The only obligation that the Fund has to the holders of the preferred
shares is to pay the applicable dividend rate. Any return earned in excess of
the stated dividend rate would directly benefit common stockholders; however,
any shortfall from the stated rate would negatively affect the Fund's common
shareholders. The following table is designed to assist you in understanding
the effects of the existing leverage on your shares of the Fund's common
shares. The table assumes that __ shares of Series A Cumulative Preferred
Stock are issued and outstanding and __ shares of Series B Auction Rate
Cumulative Stock are issued and outstanding. The assumed returns appearing in
the table are hypothetical and actual returns may be greater or less than
those appearing in the table.
51
Assumed return on portfolio (net of
expenses).............................. -10.00% -5.00% 0.00% 5.00% 10.00%
Corresponding return to common - % - % - % - % - %
stockholder............................
The following factors associated with leveraging could increase the
investment risk and volatility of the price of the Fund's common shares:
o leveraging exaggerates any increase or decrease in the value
of the Fund's common shares;
o the dividend requirements on preferred shares may exceed the
income from the portfolio securities purchased with the
proceeds from the issuance of preferred shares;
o a decline in net asset value results if the investment
performance of the additional securities purchased fails to
cover their cost to the Fund (including any dividend
requirements of preferred shares);
o a decline in net asset value could affect the ability of the
Fund to make common share dividend payments;
o a failure to pay dividends or make distributions on its
common stock could result in the Fund's ceasing to qualify
as a regulated investment company under the Code; and
o if the asset coverage for preferred shares or debt
securities declines to less than two hundred percent or
three hundred percent, respectively (as a result of market
fluctuations or otherwise), the Fund may be required to sell
a portion of its investments when it may be disadvantageous
to do so.
Pursuant to Section 18 of the 1940 Act, it is unlawful for the Fund,
as a registered closed-end investment company, to issue any class of senior
security, or to sell any senior security that it issues, unless it can satisfy
certain "asset coverage." The asset coverage with respect to a senior security
representing indebtedness means the ratio of the value of the Fund's total
assets (less all liabilities and indebtedness not represented by senior
securities) to the aggregate amount of the Fund's senior securities
representing indebtedness. The asset coverage with respect to a senior
security representing stock means the ratio of the value of the Fund's total
assets (less all liabilities and indebtedness not represented by senior
securities) to the aggregate amount of the Fund's senior securities
representing indebtedness plus the aggregate liquidation preference of the
Fund's outstanding preferred shares.
52
If, as is expected with the Fund, a registered investment company's
senior securities are equity securities, such securities must have an asset
coverage of at least 200% immediately following its issuance. If a registered
investment company's senior securities represent indebtedness, such
indebtedness must have an asset coverage of at least 300% immediately after
their issuance. Subject to certain exceptions, during any period following
issuance that the Fund fails to satisfy these asset coverage ratios, it will,
among other things, be prohibited from declaring any dividend or declaring any
other distribution in respect of its common shares except a dividend payable
in common shares issued by the Fund. A registered investment company may, to
the extent permitted by the 1940 Act, segregate assets or "cover" transactions
in order to avoid the creation of a class of senior security.
Any rating received by the Fund on its preferred shares, or on any
other senior security that it may issue, is an assessment by the applicable
rating agency of the capacity of the Fund to satisfy its obligations on its
senior securities. However, an expected "AAA" rating on the Fund's preferred
shares would not eliminate or mitigate the risks associated with investing in
the Fund's common shares. In addition, should a rating on the Fund's preferred
shares be lowered or withdrawn by the relevant rating agency, there may be an
adverse effect on the market value of the Fund's preferred shares and the Fund
may also be required to redeem all or part of its preferred shares. If the Fund
were required to redeem its outstanding preferred shares (in whole or part) as a
result of the change in or withdrawal of the rating, the common shares of the
Fund would lose the benefits associated with a leveraged capital structure.
VOTING RIGHTS
Except as otherwise stated in this Prospectus and as otherwise
required by applicable law, holders of shares of the Fund's preferred shares
will be entitled to one vote per share on each matter submitted to a vote of
shareholders and will vote together with holders of shares of the Fund's
common shares as a single class.
In connection with the election of the Fund's trustees, holders of
the Fund's preferred shares, voting as a single class, will be entitled at all
times to elect two of the Fund's trustees, and the remaining trustees will be
elected by holders of common shares and holders of shares of preferred shares
voting together as a single class. In addition, if at any time dividends on
outstanding shares of the Fund's preferred shares are unpaid in an amount
equal to at least two full years of dividends, the 1940 Act requires that the
holders of the Fund's preferred shares, voting as a separate class, will elect
an additional number of trustees such that, when added to the two directors
elected exclusively by the holders of preferred shares as described above,
trustees elected exclusively by the holders of the Fund's preferred shares
constitute a bare majority of the Fund's Board of Trustees, so increased by
such smallest possible number. Such additional trustees will be elected at a
special meeting of preferred shareholders that will be called and held as soon
as practicable.
53
So long as full cumulative dividends for two full years or more have
not been paid on the Fund's preferred shares, at each subsequent meeting at
which trustees are to be elected, the holders of shares of preferred shares,
voting as a single class, will be entitled to elect the smallest number of
additional trustees that, together with the two directors that are elected
routinely by the preferred shareholders voting as a separate class,
constitutes a bare majority of the total number of trustees of the Fund as so
increased. The Fund's By-Laws currently limit the maximum number of trustees
of the Fund to fifteen. In the event that an increase in the number of
trustees elected solely by the preferred shareholders would cause the total
number of trustees to exceed fifteen, one or more trustees, other than the two
previously elected by the holders of the preferred shares voting as a separate
class, would resign so that the result would be that a majority of the Fund's
Board had been elected by the holders of the preferred shares, voting as a
separate class. Except as otherwise provided in the immediately preceding
sentence, the terms of office of the trustees that do not resign at the time
of that election will continue.
If the Fund thereafter pays, or declares and sets apart for payment
in full, all dividends payable on all outstanding shares of preferred shares
for all past dividend periods, the additional voting rights of the preferred
shareholders as described above will cease, and the terms of office of all of
the additional trustees elected by the preferred shareholders (but not of the
directors with respect to whose election the holders of shares of common
shares were entitled to vote or the two trustees the preferred shareholders
have the right to elect as a separate class in any event) will terminate
automatically.
So long as shares of the Fund's preferred shares are outstanding, the
Fund will not, without the affirmative vote of the holders of a majority of
the shares of preferred shares outstanding at the time, voting separately as
one class, amend, alter or repeal the provisions of its Declaration of Trust,
as amended and supplemented (including the Statement of Preferences) (the
"Charter'), whether by merger, consolidation or otherwise, so as to materially
adversely affect any of the contract rights of the preferred stockholders
expressly set forth in the Charter. To the extent permitted under the 1940
Act, in the event shares of more than one series of preferred shares are
outstanding, the Fund will not approve any of the actions set forth in the
preceding sentence which materially adversely affects the contract rights
expressly set forth in the Charter of a holder of shares of a series of
preferred shares differently than those of a holder of shares of any other
series of preferred shares without the affirmative vote of at least a majority
of votes entitled to be cast by holders of the preferred shares of each series
materially adversely affected and outstanding at such time (each such
materially adversely affected series voting separately as a class). Unless a
higher percentage is provided for under the Charter, the affirmative vote of a
majority (as defined in the 1940 Act) of the votes entitled to be cast by
holders of outstanding shares of the Fund's preferred shares, voting as a
separate class, will be required to approve any plan of reorganization
adversely affecting such stock or any action requiring a vote of security
holders under Section 13(a) of the 1940 Act, including, among other things,
open-ending the Fund and changing the Fund's investment objective or changing
the investment restrictions described as fundamental policies under
"Investment Restrictions" in the SAI.
54
The class vote of holders of shares of the preferred shares described
above in each case will be in addition to a separate vote of the requisite
percentage of shares of common shares and preferred shares, voting together as
a single class, necessary to authorize the action in question. The foregoing
voting provisions, however, will not apply to any preferred shares that have
been (i) redeemed or (ii) called for redemption, and for which sufficient
deposit assets have been provided to the dividend-disbursing agent to effect
such redemption at or prior to the time when the act with respect to which
such vote otherwise would be required will occur. The holders of preferred
shares will have no preemptive rights or rights to cumulative voting.
ANTI-TAKEOVER 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 shares 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;
55
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 Shares 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 PO Box 43025, Providence,
R.I. 02940- 3025, 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.
56
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.
EXPERTS
The financial statements of the Fund as of December 31, 2002 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 Shares are 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 Common 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus constitute forward-looking
statements, which involve known and unknown risks, uncertainties and other
factors that may cause the actual results, levels of activity, performance or
achievements of the Fund to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, those listed
under "Risk Factors" and elsewhere in this Prospectus. As a result of the
foregoing and other factors, no assurance can be given as to the future
results, levels of activity or achievements, and neither the Fund nor any
other person assumes responsibility for the
57
accuracy and completeness of such statements. To the extent required by law,
the Fund undertakes to supplement this Prospectus to reflect any material
changes to the Fund after the date of this Prospectus.
58
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 OF COMMON SHARES OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
COMMON SHARES 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..................................................................................5
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.............................................................................41
DIVIDENDS AND DISTRIBUTIONS........................................................................44
TAXATION ..........................................................................................45
CAPITALIZATION.....................................................................................47
CUSTODIAN, TRANSFER AGENT, DIVIDEND-DISBURSING AGENT AND
REGISTRAR.................................................................................50
LEGAL MATTERS......................................................................................51
EXPERTS ..........................................................................................51
FURTHER INFORMATION................................................................................51
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS..................................................51
59
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
PAGE
----
INVESTMENT OBJECTIVES AND POLICIES................................................................B-1
INVESTMENT RESTRICTIONS..........................................................................B-11
MANAGEMENT OF THE FUND...........................................................................B-13
PORTFOLIO TRANSACTIONS...........................................................................B-22
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN........................................................B-24
TAXATION ........................................................................................B-26
NET ASSET VALUE..................................................................................B-32
GENERAL INFORMATION..............................................................................B-33
COUNSEL AND INDEPENDENT ACCOUNTANTS..............................................................B-33
BENEFICIAL OWNERS................................................................................B-33
FINANCIAL STATEMENTS.............................................................................B-33
APPENDIX A........................................................................................A-1
60
_________________________________
_________________________________
THE GABELLI UTILITY TRUST
__________ SHARES
OF COMMON SHARES
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE TO SUCH SHARES
PROSPECTUS
June __, 2003
_________________________________
_________________________________
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 80% 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 June
__, 2003 (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 (the "Commission") upon payment of the
fee prescribed, or inspected at the Commission's office or via its website
(www.sec.gov) at no charge.
This Statement of Additional Information is dated June __, 2003.
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 80% 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.
B-1
INVESTMENT PRACTICES
Securities Subject to Reorganization. The Fund may invest without
limit in securities of companies 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 Investment 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 and/or 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 80% 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
B-2
"Investment Restrictions." As a shareholder in a mutual fund, the Fund will
bear its ratable share of 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
B-3
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 or currency underlying the option at a specified exercise
price at any time during the term of the option.
B-4
The writer of the call option has the obligation, upon exercise of the option,
to deliver the underlying security or currency upon payment of the exercise
price during the option period. A put option is the reverse of a call option,
giving the holder the right to sell the security 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.
B-5
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 a closing transaction on an exchange or it may let
the option expire unexercised.
The Fund also may buy or sell put and call options on foreign
currencies. A put option on a foreign currency gives the purchaser of the
option the right to sell a foreign currency at the exercise price until the
option expires. A call option on a foreign currency gives the purchaser of the
option the right to purchase the currency at the exercise price until the
option expires. Currency options traded on U.S. or other exchanges may be
subject to position limits which may limit the ability of the Fund to reduce
foreign currency risk using such options. Over-the-counter options differ from
exchange-traded options in that they are two-party contracts with price and
other terms negotiated between buyer and seller and generally do not have as
much market liquidity as exchange-traded options. Over-the- counter options
are illiquid securities.
Use of options on securities 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
B-6
industry. Because options on securities indices require settlement in cash,
the Adviser may be forced to liquidate 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 to U.S. Government
Securities.
A "sale" of a futures contract (or a "short" futures position) means
the assumption of a contractual obligation to deliver the securities
underlying the contract at a specified price at a specified future time. A
"purchaser" of a futures contract (or a "long" futures position) means the
assumption of a contractual obligation to acquire the securities underlying
the contract at a specified future time. Certain futures contracts, including
stock and bond index futures, are settled on a net cash payment basis rather
than by the sale and delivery of the securities underlying the futures
contracts.
No consideration will be paid or received by the Fund upon the
purchase or sale of a futures contract. Initially, the Fund will be required
to deposit with the broker an amount of cash or cash equivalents equal to
approximately 1% to 10% of the contract amount (this amount is subject to
change by the exchange or board of trade on which the contract is traded and
brokers or members of such board of trade may charge a higher amount). This
amount is known as "initial margin" and is in the nature of a performance bond
or good faith deposit on the contract. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the price of
the index or security underlying the futures contract fluctuates. At any time
prior to the expiration of 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
B-7
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 reduction in value of both the
securities hedged and the hedging instrument, possible lack of liquidity due
to daily limits on price fluctuations, imperfect correlation between the
contracts and the securities being hedged, losses from investing in futures
transactions that are potentially unlimited and the segregation requirements
described below.
In the event the Fund sells a put option or enters into long futures
contracts, under current interpretations of the 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
B-8
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 appropriate 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
B-9
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
B-10
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 at all times to the total
amount of the repurchase obligation, including interest. The Fund bears a risk
of loss in the event that the other party to a repurchase agreement defaults
on its obligations and the Fund is delayed in or prevented from exercising its
rights to dispose of the collateral securities, including the risk of a
possible decline in the value of the underlying securities during the period
in which it seeks to assert these rights. The 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.
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:
B-11
(1) invest 25% or more of its total assets, taken at market value at the
time of each investment, in the securities of issuers in any
particular industry other than the Utility Industry. This restriction
does not apply to investments in U.S. Government Securities.
(2) 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.
(3) 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.
(4) 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.
(5) issue senior securities, except to the extent permitted by applicable
law.
(6) 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.
B-12
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 Investment 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
Fund Other
Name (And Age), Position Term of Office Principal Complex Directorships
with the Fund and and Length of Occupation During Overseen by Held by
Business Address1 Time Served2 Past Five Years Trustee Trustee
----------------- ------------ --------------- ------- -------
INTERESTED Since 1999* Chairman of the Board, Chief 22 Director of
TRUSTEES: Executive Officer of Gabelli Morgan Group
*Mario J. Gabelli (60) Asset Management Inc. and Holdings, Inc.
Trustee and Chief Investment Chief Investment Officer of (transportation
Officer the Investment Adviser and services); Vice
GAMCO Investors, Inc; Chairman of
Director/Trustee and Chief Lynch
Investment Officer of other Corporation
registered investment (diversified
companies in the Gabelli fund manufacturing
complex. company).
*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.
B-13
Number of
Portfolios in
Fund Other
Name (And Age), Position Term of Office Principal Complex Directorships
with the Fund and and Length of Occupation During Overseen by Held by
Business Address1 Time Served2 Past Five Years Trustee Trustee
----------------- ------------ --------------- ------- -------
*Karl Otto Pohl (73) Since 1999*** Member of the Shareholder 31 Director of
Trustee Committee of Sal. Oppenheim Gabelli Asset
Jr. & Cie, Zurich (private Management
investment bank); Former Inc.; Chairman,
President of the Deutsche Incentive Capital
Bundesbank and Chairman of and Incentive
its Central Bank Council from Asset
1980 through 1991; Management
Director/Trustee of other (Zurich);
registered investment Director at Sal.
companies in the Gabelli fund Oppenheim Jr. &
complex. Cie, Zurich
DISINTERESTED Director, President and 3 ___
TRUSTEES: Founder, The John Dewey
Dr. Thomas E. Bratter (63) Since 1999* Academy (residential college
Trustee preparatory therapeutic high
school); Director/Trustee of
other registered investment
companies in the Gabelli fund
complex.
Anthony J. Colavita (67) Since 1999** President and Attorney at law 33 ___
Trustee in the law firm of Anthony J.
Colavita, P.C. since 1961;
Director/Trustee of other
registered investment
companies in the Gabelli fund
complex.
James P. Conn (65) Since 1999*** Former Managing Director 11 Director of
Trustee and Chief Investment Officer LaQuinta Corp.
of Financial Security (hotels) and First
Assurance Holdings Ltd., Republic Bank
1992-1998; Trustee of other
registered investment
companies in the Gabelli fund
complex.
B-14
Number of
Portfolios in
Fund Other
Name (And Age), Position Term of Office Principal Complex Directorships
with the Fund and and Length of Occupation During Overseen by Held by
Business Address1 Time Served2 Past Five Years Trustee Trustee
----------------- ------------ --------------- ------- -------
Vincent D. Enright (59) Since 1999* Former Senior Vice President 11 ___
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. (63) 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. Morrissey (63) Since 1999** Partner in the law firm of 9 ___
Trustee Morrissey, Hawkins & Lynch;
Trustee of other
registered investment
companies in the Gabelli
fund complex.
Anthony R. Pustorino (77) Since 1999*** Certified Public Accountant; 17 ___
Trustee Professor Emeritus, Pace
University; Trustee of
other registered
investment companies in
the Gabelli fund
complex.
B-15
Number of
Portfolios in
Fund Other
Name (And Age), Position Term of Office Principal Complex Directorships
with the Fund and and Length of Occupation During Overseen by Held by
Business Address1 Time Served2 Past Five Years Trustee Trustee
----------------- ------------ --------------- ------- -------
Salvatore J. Zizza (67) Since 1999** Chairman of Hallmark 9 Director of
Trustee Electrical Supply Corp.; Hollis Eden
Former Executive Vice
Pharmaceuticals
President of FMG Group
(a healthcare provider);
Trustee of other
registered investment
companies in the Gabelli
fund complex.
Officers
Name (And Age), Position Term of Office Principal
with the Fund and and Length of Occupation During
Business Address1 Time Served Past Five Years
----------------- ----------- ---------------
Bruce N. Alpert (51) Since 1999 Executive Vice President and
President Chief Operating Officer of the
Adviser since June 1988; Director
and President of Gabelli
Advisers, Inc.; Officer of all
other registered investment
companies in the Gabelli fund
complex; Vice President
of The Treasurer's Fund
Inc.;
Gus A. Coutsouros (40) Since 2003 Vice President and Chief
Vice President and Treasurer Financial Officer of Gabelli
Funds, LLC since 1998 and an
officer of all mutual funds
advised by Gabelli Funds, LLC
and its affiliates. Chief
Financial Officer of Gabelli
Advisers, Inc. Prior to 1998,
Treasurer of Lazard Funds.
B-16
David Schachter (49) Since 1999 Vice President of the Fund since
Vice President 1999; Financial Services
Research 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 (39) Since 1999 Vice President, General Counsel
Secretary of the Fund and Secretary of the Adviser
(since 1999) and Vice President
of GAMCO Investors, Inc.
(since 1993); Secretary of the
registered investment companies
in the Gabelli fund complex.
_____________________
* "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 Investment 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 10580-1422, unless otherwise
noted.
2 The Fund'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 Fund's 2004 Annual Meeting of Shareholders
and until their successors are duly elected and qualified.
**-- Term expires at the Fund's 2005 Annual Meeting of Shareholders
and until their successors are duly elected and qualified.
***-- Term expires at the Fund's 2006 Annual Meeting of Shareholders
and until their successors are duly elected and qualified.
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. Bratter, Enright and Mario Gabelli as trustees of the Fund expire in
2004; and the terms of Messrs. Colavita, Fahrenkopf, Morrissey and Zizza as
trustees of the Fund expire in 2005; the terms of Messrs. Conn, John Gabelli,
Pohl and Pustorino as trustees of the Fund expire in 2006.
B-17
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 B E
John D. Gabelli A E
Karl Otto Pohl A A
DISINTERESTED TRUSTEES
Dr. Thomas E. Bratter A E
James P. Conn C E
Vincent D. Enright A E
Frank J. Fahrenkopf, Jr. A B
Robert J. Morrissey A C
Anthony J. Pustonino C
Salvatore J. Zizza D E
------------------------------------------
* KEY TO DOLLAR RANGES
A. None
B. $1 - $10,000
C. $10,001 - $50,000
D. $50,001 - $100,000
E. Over $100,000
All shares were valued as of December 31, 2002.
The Trustees serving on the Fund'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 Fund. The Nominating Committee did not meet
during the year ended December 31, 2002. The Fund does not have a standing
compensation committee.
B-18
Messrs. Pustorino (Chairman), Colavita and Enright serve on the
Fund's Audit Committee and these Trustees are not "interested persons" of the
Fund 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 Fund and the internal controls
of certain service providers, overseeing the quality and objectivity of the
Fund's financial statements and the audit thereof and to act as a liaison
between the Board of Trustees and the Fund's independent accountants. During
the year ended December 31, 2002, the Audit Committee met twice.
As of April 30, 2003, the Directors and Officers of the Fund as a
group beneficially owned approximately [less than 1]% of the outstanding
shares of the Fund's Common Shares.
REMUNERATION OF TRUSTEES AND OFFICERS
The Fund pays each trustee who is not affiliated with the Investment
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, 2002.
Mr. Schachter is employed by the Fund and his compensation is evaluated and
approved by the Trustees. Other officers who are employed by the Investment
Adviser receive no compensation or expense reimbursement from the Fund.
COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
TOTAL COMPENSATION
FROM THE FUND AND
AGGREGATE FUND COMPLEX PAID
NAME OF PERSON AND COMPENSATION TO TRUSTEES/
POSITION FROM THE FUND OFFICERS*
MARIO J. GABELLI Chairman of the Board $0 $0
DR. THOMAS E. BRATTER Trustee $5,000 $31,000
ANTHONY J. COLAVITA Trustee $6,000 $152,286
JAMES P. CONN Trustee $5,000 $53,500
VINCENT D. ENRIGHT Trustee $6,000 $54,536
FRANK J. FAHRENKOPF, JR. Trustee $5,000 $31,000
JOHN D. GABELLI Trustee $0 $0
ROBERT J. MORRISSEY Trustee $6,000 $45,000
KARL OTTO POHL Trustee $0 $0
ANTHONY R. PUSTORINO Trustee $6,000 $132,286
SALVATORE J. ZIZZA Trustee $5,000 $73,750
B-19
* Represents the total compensation paid to such persons during the
calendar year ended December 31, 2002 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. The number in parenthesis represents the number of such
investment companies.
For his services as Vice President of the Fund, Mr. Schachter received
compensation in 2002 of $130,000.
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 Investment
Adviser is a New York corporation with principal offices located at One
Corporate Center, Rye, New York 10580-1422. The Investment Adviser was organized
in 1999 and is the successor to Gabelli Funds, Inc. which was organized in 1980.
As of December 31, 2002, the Investment Adviser and its affiliates acted as
registered investment advisers to 18 management investment companies with
aggregate net assets of $ 8.7 billion. The Investment Adviser, together with
other affiliated investment advisers, has assets under management totaling $20.7
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 a sub-adviser to management investment companies, having
aggregate assets of $10 billion under management as of December 31, 2002.
Gabelli Fixed Income LLC, an affiliate of the Investment Adviser, acts as
investment adviser for The Treasurer's Fund, Inc. and separate accounts having
aggregate assets of $1.6 billion under management as of December 31, 2002. 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
a majority of the capital stock of Gabelli Asset Management Inc.
Under the terms of the Advisory Agreement, the Investment 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
B-20
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 Investment Adviser oversees the administration of
all aspects of the Fund's business and affairs and provides, or arranges for
others to provide, at the Investment Adviser's expense, certain enumerated
services, including maintaining the Fund's books and records, preparing
reports to the Fund's shareholders and supervising the calculation of the net
asset value of its shares. All expenses of computing the net asset value of
the Fund, including any equipment or services obtained solely for the purpose
of pricing shares or valuing its investment portfolio, will be an expense of
the Fund under its Advisory Agreement unless the Investment Adviser
voluntarily assumes responsibility for such expense. For its services, the
Investment Adviser is paid a fee computed daily and paid monthly at an annual
rate of 1.00% of the average weekly net assets of the Fund.
The economic terms of the Advisory Agreement between the Fund and its
Investment Adviser were unanimously approved by the Fund's Board of Trustees
at its May 14, 2002 meeting. The Board's approval included a majority of the
Trustees who are not parties to the Advisory Agreement or interested persons
of any such party (as such term is defined in the 1940 Act). In approving the
Advisory Agreement, the Board of Trustees considered, among other things, the
nature and quality of services to be provided by the Investment Adviser, the
profitability to the Investment Adviser of its relationship with the Fund,
economies of scale and comparative fees and expense ratios.
The Advisory Agreement combines investment advisory and
administrative responsibilities in one agreement. For services rendered by the
Investment Adviser on behalf of the Fund under the Advisory Agreement, the
Fund pays the Investment Adviser a fee computed daily and paid monthly at the
annual rate of 1.00% of the average weekly net assets of the Fund.
For each of the years ended December 31, 2000, December 31, 2001 and
December 31, 2002, the Investment Adviser was paid $861,678, $855,435 and
$878,549, respectively, for advisory and administrative services rendered to
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 Investment Adviser is not liable for
any error or judgment or mistake of law or for any loss suffered by the Fund.
As part of the Advisory Agreement, the Fund has agreed that the name "Gabelli"
is the Investment Adviser's property, and that in the event the Investment
Adviser ceases to act as an investment adviser to the Fund, the Fund will
change its name to one not including "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
B-21
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.
CODE OF ETHICS
The Fund and the Investment Adviser have adopted a code of ethics
(the "Code of Ethics") under Rule 17j-1 of the 1940 Act. The Code of Ethics
permits personnel, subject to the Code of Ethics and its restrictive
provisions, to invest in securities, including securities that may be
purchased or held by the Fund. The Code of Ethics can be reviewed and copied
at the United States Securities and Exchange Commission's Public Reference
Room in Washington, D.C. Information on the operations of the Reference Room
may be obtained by calling the Securities and Exchange Commission at (202)
942-8090. The Code of Ethics is also available on the EDGAR database on the
Securities and Exchange Commission's web site at http://www.sec.gov. Copies of
the Code of Ethics may also be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: publicinfo@sec.gov, or by
writing the Securities and Exchange Commission's Public Reference Room
Section, Washington, D.C. 20549- 0102.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Trustees of the
Fund, the Investment Adviser is responsible for placing purchase and sale
orders and the allocation of brokerage on behalf of the Fund. Transactions in
equity securities are in most cases effected on U.S. stock exchanges and
involve the payment of negotiated brokerage commissions. In general, there may
be no stated commission in the case of securities traded in over-the-counter
markets, but the prices of those securities may include undisclosed
commissions or mark- ups. Principal transactions are not entered into with
affiliates of the Fund. However, Gabelli & Company 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 Investment
Adviser, the use of those broker-dealers is likely to result in price and
execution at least as favorable as those of other qualified broker- dealers,
and if, in particular transactions, those broker-dealers charge the Fund a
rate consistent with that charged to comparable unaffiliated customers in
similar transactions. The Fund has no obligations to deal with any broker or
group of brokers in executing transactions in portfolio securities. In
executing transactions, the Investment Adviser seeks to obtain the best price
and execution for the Fund, taking into account such factors as price, size of
order, difficulty of execution and operational facilities of the firm involved
and the
B-22
firm's risk in positioning a block of securities. While the Investment Adviser
generally seeks reasonably competitive commission rates, the Fund does not
necessarily pay the lowest commission available.
Subject to obtaining the best price and execution, brokers who
provide supplemental research, market and statistical information to the
Investment Adviser or its affiliates may receive orders for transactions by
the Fund. The term "research, market and statistical information" includes
advice as to the value of securities, and advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, and furnishing analyses and reports
concerning issues, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. Information so received
will be in addition to and not in lieu of the services required to be
performed by the Investment Adviser under the Advisory Agreement and the
expenses of the Investment Adviser will not necessarily be reduced as a result
of the receipt of such supplemental information. Such information may be
useful to the Investment Adviser and its affiliates in providing services to
clients other than the Fund, and not all such information is used by the
Investment Adviser in connection with the Fund. Conversely, such information
provided to the Investment Adviser and its affiliates by brokers and dealers
through whom other clients of the Investment Adviser and its affiliates effect
securities transactions may be useful to the Investment Adviser in providing
services to the Fund.
Although investment decisions for the Fund are made independently
from those of the other accounts managed by the Investment Adviser and its
affiliates, investments of the kind made by the Fund may also be made by those
other accounts. When the same securities are purchased for or sold by the Fund
and any of such other accounts, it is the policy of the Investment Adviser and
its affiliates to allocate such purchases and sales in the manner deemed fair
and equitable to all of the accounts, including the Fund.
For the fiscal years ended December 31, 2000, December 31, 2001 and
December 31, 2002, the Fund paid a total of $__________, $__________, and
$__________, respectively, in brokerage commissions, of which Gabelli &
Company, Inc. and its affiliates received $__________, $__________, and
$__________, respectively. The amount received by Gabelli & Company, Inc. and
its affiliates from the Fund in respect of brokerage commissions for the
fiscal year ended December 31, 2002 represented approximately _____% of the
aggregate dollar amount of brokerage commissions paid by the Fund for such
period and approximately _____% of the aggregate dollar amount of transactions
by the Fund for such period.
B-23
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, 2002 and 2001 were 29% and 41%, 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. A higher rate of portfolio turnover may
also result in taxable gains being passed to shareholders.
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 Shares are
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.
B-24
Investors who own Common Shares registered in street name should consult their
broker- dealers for details regarding reinvestment. All distributions to
investors who do not participate in the Plan will be paid by check mailed
directly to the record holder by Equiserve as dividend disbursing agent.
Under the Plan, whenever the market price of the Common Shares 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 Common Shares, 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 Shares. 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 Shares at the time of valuation exceeds the market
price of the Common Shares, 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 Shares 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
Shares 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. Common 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
B-25
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
43025, Providence, R.I. 02940-3025.
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.
B-26
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
B-27
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 Fund (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
B-28
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. The
20% capital gains rate and the 10%
B-29
capital gains 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, 2000.2
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 who are U.S. citizens or resident
aliens 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.
--------
2 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 approximately proportionate reductions in
the other ordinary rates.
B-30
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,
B-31
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 generally 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
B-32
the Board of Trustees. Short-term investments that mature in more than 60 days
are valued at the highest bid price obtained from a dealer maintaining an
active market 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.
Trading takes place in various foreign markets on days which are not
Business Days and therefore the Fund's respective net asset value per share is
not calculated. The calculation of the Fund's net asset value may not take
place contemporaneously with the determination of the prices of portfolio
securities held by the Fund. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the
close of the NYSE will not be reflected in the Fund's calculation of net asset
value unless the Board of Trustees deems that the particular event would
materially affect the net asset value, in which case the fair value of those
securities will be determined by consideration of other factors by or under
the direction of the Board of Trustees.
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, Four 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 OWNERS
There are no persons known to the Fund who may be deemed beneficial
owners of 5% or more of shares of the Fund's Common Shares because they
possessed or shared voting or investment power with respect to the Fund's
Common Shares.
FINANCIAL STATEMENTS
The audited financial statements included in the Annual Report to the
Fund's Shareholders for the fiscal year ended December 31, 2002, together with
the report of PricewaterhouseCoopers LLP thereon, are also incorporated herein
by reference from the
B-33
Fund's Annual Report to Shareholders. All other portions of the Annual Report
to Shareholders and Semi-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 10580-1422 or
by calling the Fund toll-free at 800- GABELLI (422-3554).
B-34
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.
A-1
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
non-credit risks created by the terms of the obligations.
"AA" to "CCC" may be modified by the addition of a plus or minus sign
to show relative standing within the major categories.
"NR" indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
_________________________________
A-2
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Part A
Financial highlights (audited) for a share outstanding throughout the
periods ended December 31, 2002, 2001, 2000 and 1999.
Part B
Financial Statements (audited) for the fiscal year 2002(1)
(i) Portfolio of Investments as of December 31, 2002
(ii) Statement of Assets and Liabilities as of December 31, 2002
(iii) Statement of Operations for the year ended December 31, 2002
(iv) Statement of Changes in Net Assets for the year ended
December 31, 2002
(v) Financial highlights for a share outstanding throughout the
periods 2002, 2001, 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 Share Certificate(3)
(ii) Form of Subscription Certificate(2)
(iii) Form of Notice of Guaranteed Delivery of Payment(3)
(iv) Form of Nominee Holder Oversubscription Certification(3)
(v) Form of Subscription, Distribution and Escrow Agency
Agreement(3)
(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
1
(j)(1) Form of Custodian Contract between Registrant and Boston
Safe Deposit and Trust Company(2)
(2) Form of Custodian Fee Schedule between Registrant and
Boston Safe Deposit and Trust Company(2)
(k) Form of Registrar, Transfer Agency and Service Agreement
between Registrant and Equiserve Trust Company(2)
(l) Opinion and Consent of Skadden, Arps, Slate, Meagher &
Flom LLP with respect to legality(3)
(m) Not applicable
(n) (i) Consent of PricewaterhouseCoopers LLP(4)
(ii) Powers of Attorney(2)
(o) Not applicable
(p) Not applicable
(q) Codes of Ethics of the Trust and the Advisor(2)
___________________
(1) Incorporated by reference to the Fund's annual report filed on
March 10, 2003.
(2) Filed previously.
(3) To be filed by Amendment.
(4) Filed herewith.
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
2
NONE
Item 28. Number of Holders of Securities as of May __, 2003
Title of Class Number of Record Holders
Common Shares of Beneficial Interest, par value
$.001 per share ________
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
3
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.
4
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 21st day of May, 2003.
THE GABELLI UTILITY TRUST
By: /s/ Bruce N. Alpert
____________________________
Bruce N. Alpert
President
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
* Chief Investment Officer May 21, 2003
--------------------------- and Trustee
Mario J. Gabelli
/s/ Bruce N. Alpert
--------------------------- President May 21, 2003
Bruce N. Alpert
*
--------------------------- Trustee May 21, 2003
Thomas E. Bratter
*
--------------------------- Trustee May 21, 2003
Anthony J. Colavita
*
--------------------------- Trustee May 21, 2003
James P. Conn
*
--------------------------- Trustee May 21, 2003
Vincent D. Enright
*
--------------------------- Trustee May 21, 2003
Frank J. Fahrenkopf, Jr.
*
--------------------------- Trustee May 21, 2003
John D. Gabelli
*
--------------------------- Trustee May 21, 2003
Robert J. Morrissey
*
--------------------------- Trustee May 21, 2003
Karl Otto Pohl
5
Signature Title Date
*
--------------------------- Trustee May 21, 2003
Anthony R. Pustorino
*
--------------------------- Trustee May 21, 2003
Salvatore J. Zizza
/s/ Gus A. Coutsouros
--------------------------- Vice President and May 21, 2003
Gus A. Coutsouros Treasurer
---------------------------
*By: Bruce N. Alpert,
Attorney-in-Fact
6
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-99(n)(1) Consent of PricewaterhouseCoopers LLP
7