As filed with the Securities and Exchange Commission on October 14, 2004
Securities Act File No. 333-118701
Investment Company Act File No. 811-09243
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
[ ] Registration Statement under the Securities Act of 1933
[X] Pre-Effective Amendment No. 1
[ ] Post-Effective Amendment No.
and/or
[X] Registration Statement under the Investment Company Act of
1940 Amendment No. 11
(Check Appropriate Box or Boxes)
THE GABELLI UTILITY TRUST
(Exact Name of Registrant as Specified in Charter)
One Corporate Center
Rye, New York 10580-1434
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
(800) 422-3554
Bruce N. Alpert
The Gabelli Utility Trust
One Corporate Center
Rye, New York 10580-1434
(914) 921-5100
(Name and Address of Agent for Service)
Copies to:
James E. McKee, Esq. Richard T. Prins, Esq.
The Gabelli Utility Trust Skadden, Arps, Slate, Meagher & Flom LLP
One Corporate Center Four Times Square
Rye, New York 10580 New York, New York 10036
Approximate date of proposed public offering: As soon as practicable
after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, as amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [X]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Aggregate Maximum Maximum
Amount Offering Aggregate Amount of
Title of Securities Being Price Per Offering Registration
Being Registered Registered Share(1) Price Fee (2)
--------------------- ---------- ---------- ----------- -------------
Shares of Common 7,500,000 9.89 74,175,000 $9398.00
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 October 12, 2004.
(2) $123.66 previously paid.
ii
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 Not Be Made in any Province
of Canada Where it is Not Permitted by Law.
iii
CROSS-REFERENCE SHEET
PURSUANT TO RULE 481(a)
PART A
N-2 Item Number Location in Part A (Caption)
---------------------------------------------------------- ----------------------------------------------
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 SeniorSecurities............. Not Applicable
12. Legal Proceedings.................................... Not Applicable
13. Table of Contents of the Statement of
Additional Information............................... Table of Contents of the Statement of Additional
Information
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 Holders................ Management of the Fund
20. Investment Advisory and Other Services............... Management of the Fund
21. Brokerage Allocation and Other Practices............. Portfolio Transactions
22. Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan......................... Automatic Dividend Reinvestment and Voluntary
Cash Purchase Plan
23. Tax Status........................................... Taxation
24. General Information.................................. General Information
25. Beneficial Owners.................................... Beneficial Owners
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.
iv
___________ RIGHTS FOR ___________ SHARES
THE GABELLI
UTILITY TRUST
COMMON SHARES
The Gabelli Utility Trust (the "Fund") is issuing transferable rights
("Rights") to its 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 four Rights that you
receive, you may buy one new Common Share of the Fund plus, in certain
circumstances and only if you are a shareholder on the record date for the
rights offering, 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 October __, 2004 (the "Record Date") rounded up to the nearest
number of Rights evenly divisible by four. 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 four.
The Rights are transferable and will be admitted for trading on the
New York Stock Exchange ("NYSE") under the symbol "GUT RT." 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 October __, 2004 (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
November __, 2004, unless the Offer is extended as described in this Prospectus
(the "Expiration Date"). Rights acquired in the secondary market may not
participate in the oversubscription privilege.
The Fund is a non-diversified, closed-end management investment
company registered under the Investment Company Act of 1940 (the "1940 Act").
The Fund's primary investment objectives are 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 or (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. We cannot assure you that the Fund's investment objective 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 10580-1422 and its telephone number is (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.
v
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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY SECURITIES
REGULATORY AUTHORITY IN CANADA. THIS OFFERING WILL NOT BE MADE IN ANY PROVINCE
OF CANADA WHERE IT IS NOT PERMITTED BY LAW.
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 MAY, 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 and Mr. Mario J. Gabelli, who may be deemed to control the Fund's
investment adviser, or his affiliated entities may also purchase additional
shares through the primary subscription and over-subscription privilege on the
same terms as other shareholders.
This Prospectus sets forth concisely certain information about the
Fund that a prospective investor should know before investing. Investors are
advised to read and retain it for future reference.
A Statement of Additional Information dated October __, 2004 (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.
October __, 2004
vi
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
COMMON SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY...........................................................1
TABLE OF FEES AND EXPENSES...................................................8
FINANCIAL HIGHLIGHTS.........................................................8
THE OFFER...................................................................13
USE OF PROCEEDS.............................................................21
INVESTMENT OBJECTIVES AND POLICIES..........................................21
RISKS.......................................................................24
MANAGEMENT OF THE FUND......................................................30
DIVIDENDS AND DISTRIBUTIONS.................................................32
TAXATION....................................................................33
CAPITALIZATION..............................................................35
ANTI-TAKEOVER PROVISIONS OF THE DECLARATION OF TRUST AND BY-LAWS............38
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR..........39
LEGAL MATTERS...............................................................39
EXPERTS.....................................................................39
FURTHER INFORMATION.........................................................39
vii
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
incurring any commission or 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 four 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
four.
** Holders of Rights on the Record Date will be able to acquire
additional Fund shares pursuant to an over-subscription privilege in
certain circumstances.
Shareholder inquiries should be directed to:
EquiServe
(800) 336-6983 or (781)
575-2000
or Gabelli
(800) GABELLI (422-3554)
OVER-SUBSCRIPTION PRIVILEGE
Shareholders on the Record Date ("Record Date Shareholders") who
fully exercise all Rights initially issued to them are entitled to buy
those Fund shares, referred to as "primary over-subscription shares," that
were not purchased by other Rights holders. If enough primary
over-subscription shares are available, all such requests will be honored
in full. If the requests for primary over-subscription shares exceed the
primary over-subscription shares available, the available primary 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. Shares acquired pursuant to the over-
subscription privilege are subject to allotment, which is more fully discussed
1
under "The Offer -- Over-Subscription Privilege." RIGHTS ACQUIRED IN THE
SECONDARY MARKET MAY NOT PARTICIPATE IN THE OVERSUBSCRIPTION PRIVILEGE.
In addition, in the event that the Fund's per share net asset value on
the Expiration Date is equal to or less 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, they
will be allocated only among Record Date Shareholders who submitted
over-subscription requests. 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. RIGHTS ACQUIRED IN THE SECONDARY MARKET MAY NOT PARTICIPATE IN THE
OVERSUBSCRIPTION PRIVILEGE.
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 (the "Subscription Agent") at the address
indicated on the Subscription Certificate. Your completed and
signed Subscription Certificate and payment must be received
by the Expiration Date.
(2) Contact your broker, banker or trust company, which can
arrange, on your behalf to deliver your payment and to
guarantee 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 by your broker, bank or trust company. Your payment
once 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 November __, 2004, one Business
Day prior to the Expiration Date, due to normal settlement procedures. Rights
that are sold will not confer any right to acquire any Common Shares in the
primary or secondary oversubscription, and any Record Date shareholder who
sells any Rights will not be eligible to participate in the primary or
secondary over-subscription. 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
2
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 Canada or who have an APO or
FPO address as described below under "Restrictions on Foreign Shareholders"
and under "Foreign Restrictions" in the prospectus. 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.
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.
Banks, broker-dealers and trust companies that hold Common Shares for the
accounts of others are advised to notify those persons that purchase Rights in
the secondary market that such Rights may not participate in the
over-subscription privilege.
OFFERING FEES AND EXPENSES
Offering expenses incurred by the Fund are estimated to be $_______.
RESTRICTIONS ON FOREIGN SHAREHOLDERS
Subscription Certificates will only be mailed to shareholders whose
record addresses are within the United States and Canada (other than an APO or
FPO address). Shareholders whose addresses are outside the United States and
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
any 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
The Fund estimates 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 anticipates that investment of the proceeds
will be made in accordance with the Fund's investment objectives and policies
as appropriate investment opportunities are identified, which is expected to be
substantially completed in approximately three months; however, the
identification of appropriate investment opportunities pursuant to the
Investment Adviser's investment style or changes in market conditions may cause
the investment period to extend as long as six months. 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.
3
EVENT DATE
----- ----
Record Date............................................ October __, 2004
Subscription Period.................................... October.__,.2004.through
November __, 2004**
Expiration of the Offer*............................... November __, 2004**
Guarantees of Delivery Due*............................ November __, 2004**
Confirmation to Participants........................... December __, 2004**
* A shareholder exercising Rights must deliver by 5:00 New York time on
November __, 2004 either (a) a Subscription Certificate and payment
for Shares or (b) a notice of guaranteed delivery and payment for
Shares.
** Unless the offer is extended to a date no later than December __, 2004.
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 or
(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, 2003 through December 31, 2003 was
_______ shares. The Fund has outstanding 1,184,200 shares of 5.625% Series A
Cumulative Preferred Shares, liquidation preference $25 per share (the "Series
A Preferred Shares") and 1,000 shares of Series B Auction Rate Preferred
Shares, liquidation preference $25,000 per share (the "Series B Preferred
Shares"). As of September 30, 2004, the net assets of the Fund were
approximately $210,251,818.75.
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 September 30, 2004,
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 (which for this purpose includes the liquidation
preference of the Fund's outstanding preferred shares). The Investment
Adviser's fee is subject to a voluntary fee waiver under certain circumstances.
See "Management of the Fund -- Investment Adviser." Since the Investment
Adviser's fees are based on the net assets of the Fund, the Investment Adviser
will benefit from the Offer. In addition, three Trustees who are "interested
persons" of the Fund could benefit indirectly from the Offer because of their
interests in the Investment Adviser. See "The Offer -- Purpose of the Offer."
RISKS
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 may, at the completion
of the Offer, own a smaller
proportional interest in the Fund
than if they exercise their Rights.
As a result of the Offer you may
experience dilution in net asset
value per share if the Subscription
Price per share is below the net
asset value per share on the
Expiration Date. 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
4
aggregate net asset value of your
shares if you do not participate in
the Offer and you will experience a
reduction in the net asset value per
share of your shares whether or not
you 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. Assuming, for example that
all Rights are exercised, the
Subscription Price per share 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. 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.
Leveraging.......................... As provided in the 1940 Act and
subject to certain exceptions, the
Fund may issue debt or preferred
shares (such as the outstanding
Series A Preferred Shares and Series
B 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 more 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 "Risks."
Market Loss......................... Shares of closed-end funds frequently
trade at a market price that is less
than the value of the net assets
attributable to those shares,
although for most of the Fund's life
its shares have traded at a premium
over net asset value per share. The
possibility that shares of the Fund
will trade at a discount from net
asset value or at premiums that are
unsustainable over the long term are
risks separate and distinct from the
risk that the Fund's net asset value
will decrease. The risk of purchasing
shares of a closed-end fund that
might trade at a discount or
unsustainable premium is more
pronounced for investors who wish to
sell their shares in a relatively
short period of time because, for
those investors, realization of a
gain or loss on their investments is
likely to be more dependent upon the
existence of a premium or discount
than upon portfolio performance. See
"Risks" --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 October ___, 2004, this premium
was ___%. There is no guarantee that
this premium is sustainable either
during the term of the Offer or the
long term. The issuance of additional
5
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 sell 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 Common Shares are
trading at a discount of 10% or more
from net asset value. Such
repurchases are subject to the Fund
maintaining asset coverage on its
preferred shares and to certain
notice and other requirements. There
is no assurance that any action
undertaken to repurchase Common
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.
Anti-takeover 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 trustees is
elected each year, and the
affirmative vote of the holders of
75% of the outstanding voting shares
of the Fund (together with a separate
class vote by the holders of any
preferred 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, the holders of the
preferred shares 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
"Anti-Takeover 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 "Risks-- Non-Diversified Status."
Foreign Securities.................. There is no limitation on the amount
of foreign securities in which the
Fund may invest. Investing in
securities of foreign companies and
foreign governments, which generally
are denominated in foreign
currencies, may involve certain risk
and opportunity considerations not
typically associated with investing
in domestic companies and could cause
the Fund to be affected favorably or
unfavorably by changes in currency
exchange rates and revaluations of
currencies. See "Investment
Objectives and Policies" and "Risks."
6
Industry Risks...................... Under normal market conditions, the
Fund will invest 80% or more of its
total assets in companies in the
Utility Industry and, as a result,
the value of the Fund's shares will
be more susceptible to factors
affecting those particular types of
companies, including governmental
regulation, deregulation,
inflationary and other cost increases
in fuel and other operating expenses,
technological innovations that may
render existing products and
equipment obsolete and increases in
interest rates resulting in higher
interest costs on borrowings needed
for capital construction programs,
including costs associated with
compliance with environmental and
other 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 "Risks."
Lower Rated Securities.............. The Fund may invest up to 25% 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. Debt securities rated
lower than "BBB" by S&P or "Baa" by
Moody's are often referred to in the
financial press as "junk bonds." See
"Risks."
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.
7
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.................................................... 1.21% (2)
Other Expenses..................................................... 0.83%
Total Annual Operating Expenses.................................... 2.04% (2)
(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.
(2) The Investment Adviser has voluntarily agreed to waive the portion of
its investment advisory fee attributable to an amount of assets of the
Fund equal to the aggregate stated value of its outstanding Series A
Preferred Shares and/or Series B Preferred Shares for any calendar
year in which the net asset value total return of the Fund allocable
to the common shares, including distributions and the advisory fee
subject to potential waiver, is less than (i) in the case of the
Series A Preferred Shares, the stated annual dividend rate of such
series and (ii) in the case of the Series B Preferred Shares, the net
cost of capital to the Fund with respect to the Series B Preferred
Shares for such year expressed as a percentage (including, without
duplication, dividends paid by the Fund on the Series B Preferred
Shares and the net cost to the Fund of any associated swap or cap
transaction if the Fund hedges its Series B Preferred Shares dividend
obligations). This waiver will apply separately to the portion of the
Fund's assets attributable to the Series A Preferred Shares and Series
B Preferred Shares for so long as any shares of such series remain
outstanding.
EXAMPLE
The following examples illustrate the projected dollar amount of
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Fund. These amounts are based upon payment by
the Fund of expenses at levels set forth in the above table.
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return (3):
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$21 $64 $110 $237
The foregoing example is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The assumed 5% annual return is not a prediction of, and does not
represent, the projected or actual performance of the Fund's Common Shares.
ACTUAL EXPENSES AND ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
ASSUMED FOR PURPOSES OF THE EXAMPLE.
(3) Amounts are exclusive of fees discussed in Note (1) above.
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a Common Share
outstanding throughout the periods presented. The per share operating
performance and ratios for the fiscal years ended December 31, 2003, December
31, 2002, December 31, 2001, December 31, 2000 and the period ended December
31, 1999 have been audited by PricewaterhouseCoopers LLP, the Fund's
independent registered public accounting firm, as stated in their report
8
which is incorporated by reference into the SAI. The following information
should be read in conjunction with the Financial Statements and Notes thereto,
which are incorporated by reference into the SAI.
9
SELECTED DATA FOR A utility trust share of beneficial interest
OUTSTANDING THROUGHOUT EACH PERIOD
Six Months
Ended June Year Ended Year Ended Year Ended Year Ended Period Ended
30, 2004 December 31, December 31, December 31, December 31, December 31,
(unaudited) 2003 2002 2001 2000 1999(a)
----------- ---------- ----------- ------------ ----------- -------------
OPERATING PERFORMANCE:
Net asset value, beginning of
period............................$ 6.83 $ 6.27 $ 7.32 $ 8.21 $ 7.62 S 7.50
----------- ---------- ----------- ------------ ----------- -------------
Net investment income............. 0.06 0.10 0.11 0.12 0.15 0.08
Net realized and unrealized
gain(loss) on investments......... 0.18 1.17 (0.62) (0.32) 1.44 0.19
----------- ---------- ----------- ------------ ----------- -------------
Total from investment operations.. 0.24 1.27 (0.51) (0.20) 1.59 0.27
----------- ---------- ----------- ------------ ----------- -------------
DISTRIBUTIONS TO PREFERRED STOCK
SHAREHOLDERS:
Net investment income............. (0.04) (0.01) -- -- -- --
Net realized gain on investments.. -- (0.04) -- -- -- --
----------- ---------- ----------- ------------ ----------- -------------
Total distributions to
preferred stock shareholders...... (0.04) (0.05) -- -- -- --
----------- ---------- ----------- ------------ ----------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS ATTRIBUTABLE TO COMMON
STOCK SHAREHOLDERS RESULTING
FROM OPERATIONS: 0.20 1.22 (0.51) (0.20) 1.59 0.27
----------- ---------- ----------- ------------ ----------- -------------
DISTRIBUTIONS TO COMMON STOCK
SHAREHOLDERS:
Net investment income............. (0.02) (0.09) (0.11) (0.21) (0.06) (0.08)
Net realized gain on investments.. -- (0.22) (0.36) (0.49) (0.94) (0.07)
Return of capital................. (0.34) (0.41) (0.25) -- -- --
----------- ---------- ----------- ------------ ----------- -------------
Total distributions to common
stock shareholders................ (0.36) (0.72) (0.72) (0.70) (1.00) (0.15)
----------- ---------- ----------- ------------ ----------- -------------
CAPITAL SHARE TRANSACTIONS:
Increase in net asset value
from common stock share
transactions...................... 0.01 0.03 0.03 0.01 -- --
Increase in net asset value
from shares issued in rights
offering.......................... -- 0.12 0.15 -- -- --
Offering costs for preferred
shares charged to paid-in
capital........................... -- (0.09) -- -- -- --
----------- ---------- ----------- ------------ ----------- -------------
Total capital share transactions 0.01 0.06 0.18 0.01 -- --
----------- ---------- ----------- ------------ ----------- -------------
NET ASSET VALUE ATTRIBUTABLE TO
COMMON STOCK SHAREHOLDERS, END
OF PERIOD: $ 6.68 $ 6.83 $ 6.27 $ 7.32 $ 8.21 $ 7.62
----------- ---------- ----------- ------------ ----------- -------------
Market value, end of period....... $ 9.22 $ 9.60 $ 8.72 $ 9.33 $ 8.75 $ 7.63
----------- ---------- ----------- ------------ ----------- -------------
Net asset value total return +.... 3.14% 18.60% (6.79%) (3.15%) 22.01% 3.62%
----------- ---------- ----------- ------------ ----------- -------------
Total Investment Return ++........ 0.04% 19.86% 1.70% 15.82% 29.95% 3.70%
----------- ---------- ----------- ------------ ----------- -------------
10
Six Months
Ended June Year Ended Year Ended Year Ended Year Ended Period Ended
30, 2004 December 31, December 31, December 31, December 31, December 31,
(unaudited) 2003 2002 2001 2000 1999(a)
----------- ---------- ----------- ------------ ----------- -------------
RATIOS TO AVERAGE NET
ASSETS AND SUPPLEMENTAL
DATA:
Net assets including
liquidation value of
preferred shares, end of
period (in 000's)............. $ 208,663 $ 211,507 $ 95,111 $ 82,197 $ 90,669 $ 83,330
Net assets attributable to
common shares, end of
period (in 000's)............. $ 154,031 $ 156,507 $ 95,111 $ 82,197 $ 90,669 $ 83,330
Ratio of net investment income
to average net assets
attributable to common
shares (c).................... 1.87%(b) 1.52% 1.65% 1.57% 1.88% 2.27%(b)
Ratio of operating expenses to
average net assets
attributable to common
shares (c)(d)................. 1.77%(b) 2.04% 1.93% 2.00% 1.95% 1.85%(b)
Ratio of operating expenses
to average total net assets
including liquidation value
of preferred shares (d)....... 1.30%(b) 1.68% -- -- -- --
Portfolio turnover rate`........ 8% 28% 29% 41% 92% 37%
PREFERRED STOCK:
5.625% CUMULATIVE PREFERRED
STOCK
Liquidation value, end of
period (in 000's)............... $ 29,618 $ 30,000 -- -- -- --
Total shares outstanding (in
000's).......................... 1,185 1,200 -- -- -- --
Liquidation preference per
share........................... $ 25.00 $ 25.00 -- -- -- --
Average market value (e)........ $ 24.64 $ 25.12 -- -- -- --
Asset coverage per share........ $ 95.50 $ 96.14 -- -- -- --
AUCTION RATE CUMULATIVE
PREFERRED STOCK
Liquidation value, end of
period (in 000's)................ $ 25,000 $ 25,000 -- -- -- --
Total shares outstanding (in 000's) 1 1 -- -- -- --
Liquidation preference per
share........................... $ 25,000 $ 25,000 -- -- -- --
Average market value (e)........ $ 25,000 $ 25,000 -- -- -- --
Asset coverage per share........ $ 95,504 $ 96,140 -- -- -- --
ASSET COVERAGE (f).............. 382% 385% -- -- -- --
+ Based on net asset value per share, adjusted for reinvestment of
distribution, including the effect of shares issued pursuant to the
rights offering, assuming full subscription by shareholder. 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 shareholders. 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 six months ended June 30, 2004 and the
years ended December 31, 2003, 2002, 2001 and 2000, the ratio of
operating expenses to average net assets attributable to common stock
would be 1.77%, 2.04%, 1.93%, 2.00% and 1.93%, respectively, and the
ratios of operating expenses to average total net assets including
liquidation value of preferred shares would be 1.30% and 1.68%.
11
(e) Based on weekly prices.
(f) Asset coverage calculated by combining all series of preferred stock.
* Based on current earnings and subject to change and recharacterization at
fiscal year end.
12
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
four Rights held rounded up to the nearest number of Rights evenly divisible by
four. 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 four. 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 four) 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 October __, 2004 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 October __, 2004, and
ends at 5:00 p.m., New York time, on November __, 2004 (the "Subscription
Period"), unless extended by the Fund to a date not later than November __,
2004, 5:00 p.m., New York time. See "Expiration of the Offer." The Right to
acquire one additional Share for each four Rights 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
is available only to those Record Date shareholders who fully exercise all
Rights initially issued to them and only on the basis of their Record Date
holdings and 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 held of record by Cede, 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." RIGHTS ACQUIRED IN THE SECONDARY MARKET MAY NOT
PARTICIPATE IN THE OVERSUBSCRIPTION 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 (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.
13
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 and may be conducted until the
close of trading on the last NYSE trading day prior to the Expiration Date due
to normal settlement procedures. Rights that are sold will not confer any right
to acquire any Common Shares in the primary or secondary oversubscription, and
any Record Date shareholder who sells any Rights will not be eligible to
participate in the primary or secondary oversubscription. 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. Nominees should also notify holders purchasing Rights in
the secondary market that such Rights may not participate in the
over-subscription privilege. 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 $________ net of offering expenses. Three of the
Fund's Trustees, including Mario J. Gabelli, who voted to authorize the Offer
are "interested persons" of the Investment Adviser within the meaning of the
1940 Act and may benefit indirectly from the Offer because of their interest in
the Investment Adviser. See "Management of the Fund" in the SAI. In determining
that the Offer was in the best interest of shareholders, the Fund's Board of
Trustees was cognizant of this benefit as well as the possible participation of
the Affiliated Parties and Mr. Gabelli in the Offer as shareholders on the same
basis as other shareholders.
The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms which may or may not be similar to the Offer. Any such future rights
offering will be made in accordance with the 1940 Act. Under the laws of
Delaware, the state in which the Fund is organized, and the Trust's Declaration
of Trust, the Board of Trustees is authorized to make rights offerings without
14
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. RIGHTS ACQUIRED IN THE SECONDARY MARKET MAY NOT PARTICIPATE IN THE
OVERSUBSCRIPTION PRIVILEGE.
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 below 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 to satisfy over-subscription requests in these
circumstances. 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. 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 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." RIGHTS
ACQUIRED IN THE SECONDARY MARKET MAY NOT PARTICIPATE IN THE OVERSUBSCRIPTION
PRIVILEGE.
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 Record Date 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 $____.
15
The Fund announced the Offer on August 19, 2004. The net asset value
per Common Share at the close of business on August 18, 2004 (the last date
prior to the Fund's announcement of the Offer), was $6.61. The last reported
sale price of a Common Share on the NYSE on that date was $9.72, representing a
47.05% 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 November ___, 2004. 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
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.
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").
16
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York time, on November ___,
2004, unless extended by the Fund to a date not later than December ___, 2004,
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 Attn: Corporate Actions, P.O. Box
859208, Braintree, MA 02185-9208. 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:
If By Mail: Equiserve
Attn: Corporate Actions
P.O. Box 859208
Braintree, MA 02185-9208
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
161 Bay State 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 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 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.
17
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.
(2) 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 payment for the shares subscribed for on Primary
Subscription and additional Common Shares subscribed for in the
Over-subscription Privilege to the Subscription Agent based on the
subscription price of $__ per Share as described above. A notice of
guaranteed delivery by telegram or otherwise from a bank, a trust
company, or a NYSE member, guaranteeing delivery of 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 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) 843-1833, extension
200).
Any payment required from a holder of Rights must be received by the
Subscription Agent on 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. Issuance and delivery of certificates for the Shares purchased
are subject to collection of checks.
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 Excess 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 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 Canada may make payment in U.S. dollars by money order or check
drawn on a bank located in Canada.
A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received payment.
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)
18
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.
Nominees 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 nominee should contact the nominee and request
the nominee to effect transactions in accordance with the beneficial owner's
instructions. Banks, broker-dealers and trust companies that hold Common Shares
for the accounts of others are advised to notify those persons that purchase
Rights in the secondary market that such Rights may not participate in the
over-subscription privilege.
The instructions accompanying the Subscription Certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
THE FUND.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT THE
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO
5:00 P.M., NEW YORK 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
DateShareholders whose addresses are within the United States and Canada
(other than an APO or FPO address). Record Date Shareholders whose addresses
are outside the United States and Canada or who have an APO or FPO address
and who wish to subscribe to the Offer
19
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. 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.
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:
o the subscription price per share,
o any servicing fee charged to you by your broker, bank or trust
company, and
o 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 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 address 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
20
other qualification rules to be violated. Benefit Plans contemplating making
additional cash contributions to exercise Rights should consult with their
counsel prior to making such contributions.
Benefit Plans and other tax exempt entities, including governmental
plans, should also be aware that if they borrow in order to finance their
exercise of Rights, they may become subject to the tax on unrelated business
taxable income ("UBTI") under Section 511 of the Code. If any portion of an IRA
is used as security for a loan, the portion so used is also treated as
distributed to the IRA depositor.
ERISA contains prudence and diversification requirements and ERISA and
the Code contain prohibited transaction rules that may impact the exercise of
Rights. Among the prohibited transaction exemptions issued by the Department of
Labor that may exempt a Benefit Plan's exercise of Rights are Prohibited
Transaction Exemption 84-24 (governing purchases of shares in investment
companies) and Prohibited Transaction Exemption 75-1 (covering sales of
securities).
Due to the complexity of these rules and the penalties for
noncompliance, Benefit Plans should consult with their counsel regarding the
consequences of their exercise of Rights under ERISA and the Code.
USE OF PROCEEDS
The net proceeds of the Offer, assuming all Primary Subscription
Shares offered hereby are sold, are estimated to be approximately
$_____________, before deducting expenses payable by the Fund estimated at
approximately $______________. The net proceeds of the Offer assuming all
Secondary Over- subscription Shares are sold in addition to all Primary
Subscription Shares, are estimated to be approximately $_____________, before
deducting expenses payable by the Fund estimated to be $___________. The net
proceeds of the Offering assuming all Secondary Over-subscription Shares and
all additional Common Shares are sold in addition to all Primary Subscription
Shares are estimated to be $______________ before deducting expenses payable by
the Fund expected to be $_______________. The Investment Adviser anticipates
that investment of the proceeds will be made in accordance with the Fund's
investment objectives and policies as appropriate investment opportunities are
identified, which is expected to be substantially completed in approximately
three months; however, the identification of appropriate investment
opportunities pursuant to the Investment Adviser's investment style or changes
in market conditions may cause the investment period to extend as long as 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 objectives of the Fund are 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, equity securities,
debt obligations and money market instruments, as well as certain derivative
instruments in the utility industry or other industries. Moreover, should
extraordinary conditions affecting such sectors or securities markets as a
whole warrant, the Fund may temporarily be primarily invested in money market
instruments. When the Fund is invested in these instruments for temporary or
defensive purposes it may not achieve its investment objective.
The investment policy of the Fund relating to the type of securities
in which 80% of the Fund's total 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 to increase in value. The Fund's
21
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:
o 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;
o the potential for capital appreciation of the securities;
o the interest or dividend income generated by the securities;
o the prices of the securities relative to other comparable
securities;
o whether the securities are entitled to the benefits of call
protection or other protective covenants;
o the existence of any anti-dilution protections or guarantees of
the security; and
o the number of issuers in the Fund's portfolio.
The Investment Adviser's investment philosophy with respect to debt
and equity securities is 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 DEFENSIVE INVESTMENTS
During temporary defensive periods and during inopportune periods to
be fully invested, the Fund may invest in U.S. government securities and in
money market mutual funds not affiliated with the Investment Adviser that
invest in those securities. Obligations of certain agencies and
instrumentalities of the U.S. government, such as the Government National
Mortgage Association, are supported by the "full faith and credit" of the U.S.
government; others, such as those of the Export-Import Bank of the U.S., are
supported by the right of the issuer to borrow from the U.S. Treasury; others,
such as those of the Federal National Mortgage Association, are supported by
the discretionary authority of the U.S. government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. government 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.
22
OPTIONS
On behalf of the Fund, the Investment Adviser may, subject to the
guidelines of the Board of Trustees, purchase or sell, i.e., write, options on
securities, securities indices and foreign currencies which are listed on a
national securities exchange or in the U.S. over-the-counter ("OTC") markets as
a means of achieving additional return or of hedging the value of the Fund's
portfolio. The Fund may write covered call options on common stocks that it
owns or has an immediate right to acquire through conversion or exchange of
other securities in an amount not to exceed 25% of total assets or invest up to
10% of its total assets in the purchase of put options on common stocks that
the Fund owns or may acquire through the conversion or exchange of other
securities that it owns.
A call option is a contract that gives the holder of the option the
right to buy from the writer (seller) of the call option, in return for a
premium paid, the security underlying the option at a specified exercise price
at any time during the term of the option. The writer of the call option has
the obligation upon exercise of the option to deliver the underlying security
upon payment of the exercise price during the option period.
A put option is a contract that gives the holder of the option the
right to sell to the writer (seller), in return for the premium, the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying
security upon exercise, at the exercise price during the option period.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. There can be no
assurance that a closing purchase transaction can be effected when the Fund so
desires.
An exchange-traded option may be closed out only on an exchange which
provides a secondary market for an option of the same series. Although the Fund
will generally purchase or write only those options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option.
FUTURES CONTRACTS AND OPTIONS THEREON
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") and the
Fund's fundamental investment restrictions. 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.
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 (such as the outstanding Series A or Series B
Preferred Shares) so long as the Fund's total assets immediately after such
issuance, less certain ordinary course liabilities,
23
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 more 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). Higher portfolio turnover may decrease the after-tax return to
individual investors to the extent it results in a decrease of the long term
capital gains portion of distributions to shareholders.
The portfolio turnover rates of the Fund for the fiscal years ended
December 31, 2003, December 31, 2002 and December 31, 2001 were 28%, 29% and
41%, respectively.
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
benefit from short-term swings in the stock market. An investment in shares of
the Fund should not be considered a complete investment program. Each
shareholder should take into account the shareholder's investment objectives as
well as the shareholder's other investments when considering the Offering.
RISKS
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.
DILUTION
If you do not exercise all of your Rights, you may own a smaller
proportional interest in the Fund when the Offer is over. In addition, you will
experience an immediate dilution of the aggregate net asset value of your shares
24
if you do not participate in the Offer and will experience a reduction in the
net asset value per share of your shares 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 because:
o the offered Common Shares are being sold at less than their
current net asset value.
o you will indirectly bear the expenses of the Offer.
o 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 (as it was on the date of this
Prospectus), you may experience an immediate accretion of the aggregate net
asset value per share of your shares even if you do not exercise your Rights
and an immediate increase in the net asset value per share of your shares
whether or not you participate in the Offer because:
o the offered Common Shares are being sold at more than their
current net asset value after deducting the expenses of the
Offer.
o 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:
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 primary 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
Under normal market conditions, the Fund will invest at least 80% of
its total assets in foreign and domestic companies involved in the Utility
Industry and, as a result, the value of the Common Shares will be more
25
susceptible to factors affecting those particular types of companies, including
governmental regulation, inflation, cost increases in fuel and other operating
expenses, technological innovations that may render existing products and
equipment obsolete and increasing interest rates resulting in high interest
costs on borrowings needed for capital construction programs, including costs
associated with compliance with environmental and other regulations.
Sector Risk. The Fund concentrates its investments in the Utility
Industry. As a result, the Fund's investments may be subject to greater risk
and market fluctuation than a fund that had securities representing a broader
range of investment alternatives. The prices of securities issued by
traditional utility companies may change in response to interest rate changes.
Traditionally, when interest rates have gone up, the value of securities issued
by traditional utility companies have gone down. Conversely, when interest
rates have gone down, the value of securities issued by utility companies have
gone up. There is no guarantee that this relationship will continue.
Government Regulation. There are substantial differences between the
regulatory practices and policies in various jurisdictions, and any given
regulatory agency may make major shifts in policy from time to time. There is
no assurance that regulatory authorities will, in the future, permit rate
increases or that such increases will be adequate to permit the payment of
dividends on common stocks by companies subject to such regulatory provisions.
Additionally, existing and possible future regulatory legislation may make it
even more difficult for these utilities to obtain adequate relief.
Various regulatory regimes also impose limitations on the percentage
of the shares of a public utility held by a fund as an investment. These
limitations may unfavorably restrict the ability of the Fund to make certain
investments.
Deregulation. Changing regulation constitutes one of the
industry-specific risks for the Fund, especially with respect to its
investments in traditionally regulated public utilities and partially regulated
utility companies. Domestic and foreign regulators monitor and control utility
revenues and costs, and therefore may limit utility profits and dividends paid
to investors, which could result in reduced income to the Fund. Regulatory
authorities also may restrict a company's access to new markets, thereby
diminishing the company's long-term prospects. The deregulation of certain
utility companies may eliminate restrictions on profits and dividends, but may
also subject these companies to greater risks of loss. Deregulation of the
utility industry could have a positive or negative impact on the Fund. The
Investment Adviser believes that certain utility companies' fundamentals should
continue to improve as the industry undergoes deregulation. Companies may seek
to strengthen their competitive positions through mergers and takeovers. The
loosening of the government regulation of utilities should encourage
convergence within the industry. Improving earnings prospects, strong cash
flows, share repurchases and takeovers from industry consolidation may tend to
boost share prices. However, as has occurred in California and elsewhere,
certain companies may be less able to meet the challenge of deregulation as
competition increases and investments in these companies would not be likely to
perform well. Individual sectors of the utility market are subject to
additional risks. These risks can apply to all utility companies - regulated or
fully or partially deregulated and unregulated. For example, telecommunications
companies have been affected by technological developments leading to increased
competition, as well as changing regulation of local and long-distance
telephone services and other telecommunications businesses. Certain
telecommunications companies have been adversely affected by the new
competitive climate.
Financing. Currently, companies in the Utility Industry have
encountered difficulties in obtaining financing for construction programs
during inflationary periods. Issuers experiencing difficulties in financing
construction programs may also experience lower profitability, which can result
in reduced income to the Fund. Historically, companies in the Utility Industry
have also encountered such financing difficulties during inflationary periods.
Equipment and Supplies. Traditional utility companies face the risk of
lengthy delays and increased costs associated with the design, construction,
licensing and operation of their facilities. Moreover, technological
innovations may render existing plants, equipment or products obsolete.
Increased costs and a reduction in the availability of fuel (such as oil, coal,
nuclear or natural gas) also may adversely affect the profitability of utility
companies.
26
Electric utilities may be burdened by unexpected increases in fuel and
other operating costs. They may also be negatively affected when long-term
interest rates rise. Long-term borrowings are used to finance most utility
investments, and rising interest rates lead to higher financing costs and
reduced earnings. There are also the considerable costs associated with
environmental compliance, nuclear waste clean-up, and safety regulation.
Increasingly, regulators are calling upon electric utilities to bear these
added costs, and there is a risk that these costs will not be fully recovered
through an increase in revenues.
Among gas companies, there has been a move to diversify into oil and
gas exploration and development, making investment returns more sensitive to
energy prices. In the case of the water utility sector, the industry is highly
fragmented, and most water supply companies find themselves in mature markets,
although upgrading of fresh water and waste water systems is an expanding
business.
RISKS TO HOLDERS OF COMMON SHARES OF LEVERAGING AND ISSUANCE OF SENIOR
SECURITIES
The Fund utilizes leverage through the issuance of preferred shares,
currently the Series A Preferred and Series B Preferred Shares. 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. These two risks 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, are
at least 300% of the amount of the debt outstanding and are at least 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 more 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, the risk to
Common Shares may be avoided through the use of mandatory redemption of the
Fund's preferred shares designed to ensure that the Fund maintains the
necessary asset coverage.
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.
27
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 October ___, 2004, 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.
LOWER RATED SECURITIES
The Fund may invest up to 25% 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. Debt securities rated lower than "BBB" by S&P or "Baa"
by Moody's 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.
28
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:
o dependence on the Investment Adviser's ability to predict
correctly movements in the direction of interest rates,
securities prices and currency markets;
o 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;
o the fact that skills needed to use these strategies are
different from those needed to select portfolio securities;
o the possible absence of a liquid secondary market for any
particular instrument at any time;
o the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences;
o 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
o 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 used for cover. For a
further description of such investments, see "Investment Objectives and
Policies -- Investment Practices" in the SAI.
DEPENDENCE ON KEY PERSONNEL
The Investment Adviser is dependent upon the expertise of Mr. Mario
J. Gabelli in providing advisory services with respect to the Fund's
investments. If the Investment Adviser were to lose the services of Mr.
Gabelli, its ability to service the Fund could be adversely affected. There
can be no assurance that a suitable replacement
29
could be found for Mr. Gabelli in the event of his death, resignation,
retirement or inability to act on behalf of the Investment Adviser.
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. Pursuant to an Investment Advisory Agreement 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 for this purpose includes the liquidation preference
of the Fund's preferred shares), which is higher than that paid by most mutual
funds. However, the Investment Adviser has voluntarily agreed to waive the
portion of its investment advisory fee attributable to an amount of assets of
the Fund equal to the aggregate stated value of, as the case may be, its
outstanding Series A Preferred Shares and/or Series B Preferred Shares for any
calendar year in which the net asset value total return of the Fund allocable
to the common shares, including distributions and the advisory fee subject to
potential waiver, is less than (i) in the case of the Series A Preferred
Shares, the stated annual dividend rate of such series and (ii) in the case of
the Series B Preferred Shares, the net cost of capital to the Fund with respect
to the Series B Preferred Shares for such year expressed as a percentage
(including, without duplication, dividends paid by the Fund on the Series B
Preferred Shares and the net cost to the Fund of any associated swap or cap
transaction if the Fund hedges its Series B Preferred Shares dividend
obligations). This waiver will apply to the portion of the Fund's assets
attributable to the Series A Preferred Shares and Series B Preferred Shares,
respectively, for so long as any shares of such series remain outstanding. 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.
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.
Gabelli Funds, LLC acts as the Fund's Investment Adviser pursuant to
an advisory agreement with the Fund. The Investment Adviser is a New York
limited liability company 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
September 30, 2004, the Investment Adviser acted as registered investment
adviser to 20 management investment companies with aggregate net assets of
approximately $11.8 billion. The Investment Adviser, together with other
affiliated investment advisers noted below had assets under management totaling
approximately $______ billion as of September 30, 2004. 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
$________billion under management as of September 30, 2004. Gabelli Fixed
Income LLC, an affiliate of the Investment Adviser, acts as investment adviser
for The Treasurer's Fund and separate accounts having aggregate assets of $__
billion under management as of September 30, 2004. Gabelli Advisers, Inc., an
affiliate of the Investment Adviser, acts as investment manager to the Gabelli
Westwood Funds having aggregate assets of approximately $417 million under
management as of September 30, 2004.
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 NYSE under the symbol "GBL." Mr. Mario J. Gabelli may be deemed a
"controlling person" of the Investment Adviser on the basis of his ownership of
a majority of the stock of 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")
30
including compensation of and office space for its officers and employees
connected with investment and economic research, trading and investment
management and administration of the Fund, as well as the fees of all trustees
of the Fund who are affiliated with the Investment Adviser.
The Advisory Agreement 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 Advisory
Agreement 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.
REGULATORY MATTERS
The Securities and Exchange Commission, the New York Attorney General
and officials of other states have been conducting inquiries into, and bringing
enforcement and other proceedings regarding, trading abuses involving open-end
investment companies. The Investment Adviser has received information requests
and subpoenas from the Securities and Exchange Commission and the New York
Attorney General in connection with these inquiries. The Investment Adviser and
its affiliates have been complying with these requests and have been
independently reviewing their mutual fund practices in a variety of areas. The
Investment Adviser has not found any information that it believes would be
material to the ability of the Investment Adviser to fulfill its obligations
under the Investment Advisory Agreement. More specifically, the Investment
Adviser has not found any evidence of facilitating trading in the Gabelli
mutual funds after the 4:00 p.m. pricing time or of improper short-term trading
in these funds by its investment professionals or senior executives. The
Investment Adviser has found that one investor, which had been engaged in short
term trading in one of the Gabelli mutual funds (the prospectus of which did
not at that time impose limits on short-term trading) and which had
subsequently made an investment in a hedge fund managed by an affiliate of the
Investment Adviser, was banned from the mutual fund only after certain other
investors were banned. The Investment Adviser believes that this relationship
was not material to the Investment Adviser. Inasmuch as both the Investment
Adviser's review of its mutual fund practices and the governmental probes of
the mutual fund industry are ongoing, no assurance can be provided that
additional facts will not come to light in the course of its review that may be
material to the Investment Adviser or that the Investment Adviser will not
become the subject of enforcement or other proceedings by the Securities and
Exchange Commission or the New York Attorney General. In light of the current
turmoil in the mutual fund industry arising from the late trading, improper
market timing and employee trading problems, there can be no assurance that any
such action could not have an adverse impact on the Investment Adviser or on
its ability to fulfill its obligations under the Investment Advisory Agreement.
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.; Vice
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.
31
NON-RESIDENT TRUSTEE
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.
SUB-ADMINISTRATOR
The Investment Adviser has entered into a 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 760 Moore Road, King of Prussia,
Pennsylvania 19406.
PORTFOLIO TRANSACTIONS
Principal transactions are not entered into with affiliates of the
Fund. However, Gabelli & Company, Inc. 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 may retain for reinvestment, and pay the resulting federal
income taxes on, its net capital gain, if any, although the Fund reserves the
authority to distribute its net capital gain in any year. The Fund has a
policy, which may be modified at any time by its Board of Trustees, of paying
distributions on its Common Shares of $0.06 per share per month. This policy
permits holders of common shares to realize a predictable, but not assured,
level of cash flow and some liquidity periodically with respect to their Common
Shares without having to sell shares. To avoid paying income tax at the
corporate level, the Fund will distribute substantially all of its investment
company taxable income and realized capital gains. In the event that the Fund's
investment company taxable income and realized capital gains exceed the total
of the Fund's monthly distributions, the Fund intends to pay such excess once a
year. If, for any calendar year, the total monthly distributions exceed
investment company taxable income and net capital gain, the excess will
generally be treated as a tax-free return of capital up to the amount of a
shareholder's tax basis in the shares. The amount treated as a tax-free return
of capital will reduce a shareholder's tax basis in the shares, thereby
increasing such shareholder's potential gain or reducing the potential loss on
the sale of the shares. Any amounts distributed to a shareholder in excess of
the basis in the shares will generally be taxable to the shareholder as capital
gain. See "Taxation" below.
In the event the Fund distributes amounts in excess of its investment
company taxable income and net capital gain, such distributions will decrease
the Fund's total assets and, therefore, have the likely effect of increasing
the Fund's expense ratio. In addition, in order to make such distributions, the
Fund might have to sell a portion of its investment portfolio at a time when
independent investment judgment might not dictate such action.
The Fund, along with other closed-end registered investment
companies advised by the Investment Adviser, has obtained an exemption from
Section 19(b) of the 1940 Act and Rule 19b-1 thereunder permitting the Fund
to make periodic distributions of long-term capital gains provided that any
distribution policy of the Fund with respect to its Common Shares calls for
periodic (e.g., quarterly or semi-annually, but in no event more frequently
than monthly) distributions in an amount equal to a fixed percentage of the
Fund's average net asset value over a
32
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. The Fund's current
policy is to make monthly distributions to holders of its Common Shares. The
exemption also permits the Fund to make distributions with respect to its
preferred shares in accordance with such shares' terms.
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 it distributes at least 90% of the sum of the Fund's
(i) investment company taxable income (which includes, among other items,
dividends, interest and the excess of any net short-term capital gains over net
long-term capital losses and other taxable income other than any net capital
gain (as defined below) reduced by deductible expenses) determined without
regard to the deduction for dividends paid and (ii) its net tax-exempt interest
(the excess of its gross tax exempt interest over certain disallowed
deductions). The Fund intends to distribute at least annually substantially all
of such income.
Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax at the Fund level. To avoid the tax, the Fund must distribute during each
calendar year an amount equal to the sum of (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (2) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for a one-year period generally ending
on October 31 of the calendar year (unless, an election is made by a fund with
a November or December year-end to use the fund's fiscal year), and (3) certain
undistributed amounts from previous years on which the fund paid no U.S.
federal income tax. While the Fund intends to distribute any income and capital
gains in the manner necessary to minimize imposition of the 4% excise tax,
there can be no assurance that sufficient amounts of the Fund's taxable income
and capital gains will be distributed to avoid entirely the imposition of the
tax. In that event, the Fund will be liable for the tax only on the amount by
which it does not meet the foregoing distribution requirement.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gains)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits.
TAXATION OF THE SHAREHOLDERS
Distributions paid to you by the Fund from its ordinary income or
from an excess of net short-term capital gains over net long-term capital
losses (together referred to hereinafter as "ordinary income dividends") are
taxable to you as ordinary income to the extent of the Fund's earning and
profits. Such dividends (if designated by the Fund) may qualify (provided
holding periods and other requirements are met) (i) for the dividends received
deduction in the case of corporate stockholders to the extent the Fund's income
consist of qualifying dividend income from U.S. corporations, and (ii) under
the Jobs and Growth Tax Relief Reconciliation Act of 2003 (effective
33
for taxable years after December 31, 2002 through December 31, 2008) ("2003
Tax Act"), as qualified dividend income eligible for a reduced rate to
individuals (maximum 15% decreasing to 5% for individuals in lower tax
brackets) to the extent that the Fund receives qualified dividend income. The
recently enacted Working Families Tax Relief Act of 2004 (the "2004 Tax Act")
clarifies that a shareholder of the Fund may include as part of qualifying
dividend income any dividends designated by the Fund as qualifying dividend
income. In order for the Fund to designate the amount as qualified dividend
income, the Fund's qualified dividend income must be at least 95 percent of
its gross income, and the aggregate amount designated as qualified dividends
may not exceed the aggregate dividends received during the year by the Fund.
Qualified dividend income is, in general, dividend income from taxable
domestic corporations and certain foreign corporations (e.g., generally,
foreign corporations incorporated in a possession of the United States or in
certain countries with a comprehensive tax treaty with the United States, or,
the stock of which is readily tradable on an established securities market in
the United States). 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. Under the 2003 Tax Act, the maximum tax rate
on net long-term capital gain of individuals is reduced generally from 20% to
15% (5% for individuals in certain lower brackets) for such gain realized
after May 6, 2003 and before January 1, 2009. 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
qualified dividend income dividends or capital gain dividends and other
distributions.
The sale or other disposition of Common Shares of the Fund will
generally result in capital gain or loss to you, and will be long-term capital
gain or loss if the shares have been held for more than one year at the time of
sale. Any loss upon the sale or exchange of Fund shares held for six months or
less will be treated as long-term capital loss to the extent of any capital
gain dividends received (including amounts credited as an undistributed capital
gain dividend) by you. A loss realized on a sale or exchange of shares of the
Fund will be disallowed if other Fund shares are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the shares are
disposed of. In such case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Present law taxes both long-term and short-term
capital gains of corporations at the rates applicable to ordinary income. For
non-corporate taxpayers, however, short-term capital gains will currently be
taxed at the rate applicable to ordinary income (maximum 35%) while long-term
capital gains generally will be taxed at the rate applicable to long-term
capital gain (maximum 15% decreasing to 5% for taxpayers in the lower brackets.
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.
Proposed legislation (the "American Jobs Creation Act of 2004" or the
"The Act"), which has been passed by the United States House or
Representatives and the United States Senate and is expected to be enacted
into law, would generally provide that certain dividends designated by the
Fund as "interest-related dividends" or "short-term capital gain dividends"
that are received by a foreign person that is a shareholder in the Fund would
be exempt from U.S. gross-basis tax. Interest-related dividends are those
dividends derived from certain interest income (including bank deposit
interest and short term original issue discount that is currently exempt from
the gross-basis tax) earned by the Fund that would not be subject to U.S. tax
if earned by a foreign person directly. Several exceptions to this general
exemption rule would apply. Moreover, the Act provides that the aggregate
amount designated as interest-related dividends for the Fund's taxable year
generally would be limited to the "qualified net interest income" of the Fund
for the taxable year. The qualified net interest income of the Fund equals the
excess of: (1) the amount of qualified interest income of the Fund; over (2)
the amount of expenses of the Fund properly allocable to such interest income.
In general, short-term capital gain dividends are those that are derived from
the Fund's short-term capital gains over net long-term capital losses. The Act
provides that these provisions will apply to dividends with respect to taxable
years beginning after December 31, 2004 and before January 1, 2008.
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.
34
CAPITALIZATION
COMMON SHARES
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.
PREFERRED SHARES
The Fund has outstanding 1,184,200 Series A Preferred Shares and 1,000
Series B Preferred Shares. The Board of Trustees reserves the right to issue
additional preferred shares, including Series A Preferred Shares or Series B
Preferred Shares, from time to time, subject to the restrictions in the Fund's
governing documents and the 1940 Act.
The Series A Preferred Shares have a liquidation preference of $25 per
share and the Series B Preferred Shares have a liquidation preference of
$25,000 per share. Upon a liquidation, each holder of Series A Preferred Shares
or Series B Preferred Shares will be entitled to receive out of the assets of
the Fund available for distribution to shareholders (after payment of claims of
the Fund's creditors but before any distributions with respect to the Fund's
common shares or any other shares of the Fund ranking junior to the Series A
Preferred Shares and Series B Preferred Shares as to liquidation payments) an
amount per share equal to such share's liquidation preference plus any
accumulated but unpaid dividends (whether or not earned or declared) to the
date of distribution. The Series A Preferred Shares and the Series B Preferred
Shares will rank on a parity with any other series of preferred shares of the
Fund as to the payment of dividends and the distribution of assets upon
liquidation. Series A Preferred Shares and Series B Preferred Shares each carry
one vote per share on all matters on which such shares are entitled to vote.
The Series A Preferred Shares and the Series B Preferred Shares are fully paid
and nonassessable and have no preemptive, exchange or conversion rights. The
Board of Trustees may by resolution classify or reclassify any authorized but
unissued capital shares of the Fund from time to time by setting or changing
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or terms or conditions of redemption. The Fund will
not issue any class of shares senior to the Series A Preferred Shares and/or
Series B Preferred Shares.
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 September ___, 2004.
Amount Held by
Fund or for its Amount
Title of Class Amount Authorized Own Account Outstanding
Common Shares........................... unlimited none ________
Preferred Shares........................ unlimited none
Series A Preferred Shares........ 1,184,200
Series B Preferred Shares........ 1,000
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, 2003 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 on such day and the
premium to 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.
35
PREMIUM OR DISCOUNT
MARKET PRICE (1) NET ASSET VALUE (2) AS % OF NAV
---------------------- --------------------- ------------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
------------- ------ ------- ------ ------- -------- --------
3/31/02 10.15 9.20 7.38 7.24 37.53% 27.07%
6/30/02 10.14 8.15 7.40 6.97 37.03 16.93
9/30/02 9.22 7.90 6.52 6.07 41.41 30.15
12/31/02 9.00 7.27 6.25 5.56 44.00 30.76
3/31/03 9.30 8.52 6.36 5.71 46.23 49.21
6/30/03 9.95 8.73 6.67 5.90 49.18 47.97
9/30/03 10.04 7.80 6.48 6.52 54.94 19.63
12/31/03 9.60 7.94 6.83 6.70 40.55 18.51
_______________________
(1) As reported on the NYSE
(2) Based on the Fund's computations and is the net asset value per share
for the business day of the respective highs and lows of the market prices.
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 shareholders; 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 1,184,200 shares of Series A Preferred Shares
are issued and outstanding and 1,000 shares of Series B Preferred Shares are
issued and outstanding and that the blended dividend rate for the Fund's
preferred shares is _____%. The assumed returns appearing in the table are
hypothetical and actual returns may be greater or less than those appearing in
the table.
Assumed return on portfolio (net of expenses).............. -10.00% -5.00% 0.00% 5.00% 10.00%
Corresponding return to common shareholder................. _____% ____% ____% ____% _____%
The following factors associated with leveraging could increase the
investment risk and volatility of the price of the Common Shares:
o leveraging exaggerates any increase or decrease in the net asset
value of the Common Shares;
o the dividend requirements on the Fund's 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
Shares could result in the Fund's ceasing to qualify as a
regulated investment company under the Code; and
o if the asset coverage for the Fund's preferred shares declines to
less than two hundred percent (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
36
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.
If, as is the case 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, the "AAA" rating on the Fund's Series A and Series
B Preferred Shares does 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
outstanding preferred shares. If the Fund were required to redeem its 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 Series A Preferred Shares
and Series B Preferred Shares and any other outstanding preferred shares of the
Fund 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 Common
Shares as a single class.
In connection with the election of the Fund's trustees, holders of the
Fund's Series A Preferred Shares, Series B Preferred Shares and any other
outstanding 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 (i) at any time dividends on
the outstanding Series A Preferred Shares, Series B Preferred Shares and/or any
other preferred shares are unpaid in an amount equal to at least two full
years' dividends thereon and sufficient cash or specified securities have not
been deposited with the applicable paying agent for the payment of such
accumulated dividends or (ii) at any time holders of any other series of
preferred shares are entitled to elect a majority of the trustees of the Fund
under the 1940 Act or the Statements of Preferences creating such shares, then
the number or composition of trustees constituting the Board of Trustees will
be adjusted such that, when added to the two trustees elected exclusively by
the holders of the Series A Preferred Shares, Series B Preferred Shares and
other series of preferred shares as described above, would then constitute a
simple majority of the Board of Trustees as so adjusted. Such additional
trustees will be elected by the holders of the Series A Preferred Shares,
Series B Preferred Shares and the other series of preferred shares, voting
together as a single class, at a special meeting of shareholders which will be
called as soon as practicable and will be held not less than 10 or more than 20
days after the mailing date of the meeting notice. Such additional trustees
will be elected at a special meeting of preferred shareholders that will be
called and held as soon as practicable.
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
trustees with respect to whose election the holders 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.
37
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 thereto) (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.
The class vote of holders 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 deposited 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.
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;
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);
38
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
Mellon Trust of New England, N.A. (the "Custodian"), located at 135
Santilli Highway, Everett, Massachusetts 02149, 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 250 Royall Street, Canton,
Massachusetts 02149, serves as the Fund's dividend disbursing agent, as agent
under the Fund's Plan and as transfer agent and registrar for shares of the
Fund.
LEGAL MATTERS
Certain legal matters will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, special counsel to the Fund in
connection with the Offering.
EXPERTS
The financial statements of the Fund as of December 31, 2003 have been
incorporated by reference into the SAI in reliance on the report of
PricewaterhouseCoopers LLP, independent registered public accounting firm,
given on the authority of that firm as experts in accounting and auditing.
PricewaterhouseCoopers LLP is located at 300 Madison Avenue, New York, New York
10017.
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
39
of documents are necessarily summaries of such documents, and each statement
is qualified in its entirety by reference to the copy of the applicable
document filed with the SEC.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR THE FUND'S ADVISER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE 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.
40
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
PAGE
INVESTMENT OBJECTIVES AND POLICIES..........................................S-1
INVESTMENT RESTRICTIONS.....................................................S-9
MANAGEMENT OF THE FUND.....................................................S-11
PORTFOLIO TRANSACTIONS.....................................................S-19
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN...........S-21
TAXATION...................................................................S-22
NET ASSET VALUE............................................................S-27
GENERAL INFORMATION........................................................S-28
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..................S-28
BENEFICIAL OWNERS..........................................................S-28
FINANCIAL STATEMENTS.......................................................S-28
APPENDIX A..................................................................A-1
APPENDIX B..................................................................B-1
41
_________________________________
_________________________________
THE GABELLI UTILITY TRUST
_________ SHARES
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE TO SUCH SHARES
PROSPECTUS
October __, 2004
_________________________________
_________________________________
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 debt and equity 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
October __, 2004 (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 800-GABELLI (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 registration 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 October __, 2004.
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
PAGE
INVESTMENT OBJECTIVES AND POLICIES..........................................S-1
INVESTMENT RESTRICTIONS.....................................................S-9
MANAGEMENT OF THE FUND.....................................................S-11
PORTFOLIO TRANSACTIONS.....................................................S-19
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN...........S-21
TAXATION...................................................................S-22
NET ASSET VALUE............................................................S-27
GENERAL INFORMATION........................................................S-28
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..................S-28
BENEFICIAL OWNERS..........................................................S-28
FINANCIAL STATEMENTS.......................................................S-28
APPENDIX A..................................................................A-1
APPENDIX B..................................................................B-1
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Fund's primary investment objectives are long-term growth of
capital and income. 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 substantial extent (e.g., at least 50%
of the assets, gross income or net
S-1
profits of a company is committed to or derived from) in providing products,
services or equipment for (i) the generation or distribution of electricity,
gas and water and (ii) telecommunications services or infrastructure
operations, such as airports, toll roads and municipal services. See
"Investment Objectives and Policies" in the Prospectus.
Investment Practices
Securities Subject to Reorganization. The Fund may invest without
limit in securities 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 total assets will consist of common stock and other
securities of foreign and domestic companies involved in the utility industry,
when a temporary defensive posture is believed by the Adviser to be warranted
("temporary defensive periods"), the Fund may without limitation hold cash or
invest its assets in money market instruments and repurchase agreements in
respect of those instruments. The money market instruments in which the Fund
may invest are obligations of the United States government, its agencies or
instrumentalities ("U.S. Government Securities"); commercial paper rated A-1 or
higher by Standard & Poor's Corporation ("S&P") or Prime-1 by Moody's Investors
Service, Inc. ("Moody's"); and certificates of deposit and bankers' acceptances
issued by domestic branches of U.S. banks that are members of the Federal
Deposit Insurance Corporation. During temporary defensive periods, the Fund may
also invest to the extent permitted by applicable law in shares of money market
mutual funds. Money market mutual funds are investment companies and the
investments in those companies in some cases by the Fund are subject to certain
fundamental investment restrictions and applicable law. See "Investment
Restrictions." As a shareholder in a mutual fund, the Fund will bear its
ratable share of its expenses, including management fees, and will remain
subject to payment of the fees to Gabelli Funds, LLC (the "Adviser") 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 25% 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. Debt securities that are rated lower than
"BBB" by S&P or "Baa" by Moody's 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
S-2
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
operating history, financial resources and its sensitivity to economic
conditions and trends, the market support for the facility financed by the
issue, the perceived ability and integrity of the 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 (often a feature
of fixed income securities), the Fund may have to replace the security with a
lower-yielding security, resulting in a decreased return for investors. Also,
as the principal value of bonds moves inversely with movements in interest
rates, in the event of rising interest rates the value of the securities held
by the Fund may decline proportionately more than a portfolio consisting of
higher-rated securities. Investments in zero coupon bonds may be more
speculative and subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently. Interest rates have
recently been at the lowest levels in many years and, therefore, it is likely
that they will rise in the future.
The Fund may invest up to 10% of its total assets in securities of
issuers in default. 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. Moreover, such ratings do
not assess the risk of decline in market value. 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.
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. 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
S-3
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. Other than options on futures
contracts discussed below, the Fund may invest in options to the extent
permitted by the rules of the Commodity Futures Trading Commission and
applicable law.
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 the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the holder of an option
it may liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. There can be no assurance that either a closing purchase or sale
transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than
the premium received from writing the option or is less than the premium paid
to purchase the option. Since call option prices generally reflect increases in
the price of the underlying security, any loss resulting from the repurchase of
a call option may also be wholly or partially offset by unrealized appreciation
of the underlying security. Other principal factors affecting the market value
of a put or a call option include supply and demand, interest rates, the
current market price and price volatility of the underlying security and the
time remaining until the expiration date. Gains and losses on investments in
options depend, in part, on the ability of the Adviser to predict correctly the
effect of these factors. The use of options cannot serve as a complete hedge
since the price movement of securities underlying the options will not
necessarily follow the price movements of the portfolio securities subject to
the hedge.
An option position may be closed out only on an exchange which
provides a secondary market for an option of the same series or in a private
transaction. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option. In such event, it might not be possible to effect closing
transactions in particular options, so that the Fund would have to exercise its
options in order to realize any profit and would incur brokerage commissions
upon the exercise of call options and upon the subsequent disposition of
underlying securities for the exercise of put options. If the Fund, as a
covered call option writer, is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise
or otherwise covers the position.
In addition to options on individual securities, the Fund may also
purchase and sell call and put options on securities indices. A stock index
reflects in a single number the market value of many different stocks. Relative
values are assigned to the stocks included in an index and the index fluctuates
with changes in the market values of the stocks. The options give the holder
the right to receive a cash settlement during the term of the option based on
the difference between the exercise price and the value of the index. By
writing a put or call option on a securities index, the Fund is obligated, in
return for the premium received, to make delivery of this amount. The Fund may
offset its position in stock index options prior to expiration by entering into
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
S-4
expires. A call option on a foreign currency gives the purchaser of the
option the right to purchase the currency at the exercise price until the
option expires. Currency options traded on U.S. or other exchanges may be
subject to position limits which may limit the ability of the Fund to reduce
foreign currency risk using such options. Over-the-counter options differ from
exchange-traded options in that they are two-party contracts with price and
other terms negotiated between buyer and seller and generally do not have as
much market liquidity as exchange-traded options. Over-the-counter options are
illiquid securities.
Use of options on securities indices entails the risk that trading in
the options may be interrupted if trading in certain securities included in the
index is interrupted. The Fund will not purchase these options unless the
Adviser is satisfied with the development, depth and liquidity of the market
and the Adviser believes the options can be closed out.
Price movements in the portfolio of the Fund are unlikely to correlate
precisely with movements in the level of an index and, therefore, the use of
options on indices cannot serve as a complete hedge and will depend, in part,
on the ability of the Adviser to predict correctly movements in the direction
of the stock market generally or of a particular industry. Because options on
securities indices require settlement in cash, the Adviser may be forced to
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 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,
S-5
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 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.
S-6
The use of forward currency contracts may involve certain risks,
including the failure of the counterparty to perform its obligations under the
contract, and such use may not serve as a complete hedge because of an
imperfect correlation between movements in the prices of the contracts and the
prices of the currencies hedged or used for cover. The Fund will only enter
into forward currency contracts with parties which it believes to be
creditworthy institutions.
When Issued, Delayed Delivery Securities and Forward Commitments. The
Fund may enter into forward commitments for the purchase or sale of securities,
including on a "when issued" or "delayed delivery" basis, in excess of
customary settlement periods for the type of security involved. In some cases,
a forward commitment may be conditioned upon the occurrence of a subsequent
event, such as approval and consummation of a merger, corporate reorganization
or debt restructuring, i.e., a when, as and if issued security. When such
transactions are negotiated, the price is fixed at the time of the commitment,
with payment and delivery taking place in the future, generally a month or more
after the date of the commitment. While it will only enter into a forward
commitment with the intention of actually acquiring the security, the Fund may
sell the security before the settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate with its custodian cash or liquid
securities in an aggregate amount at least equal to the amount of its
outstanding forward commitments.
Short Sales. The Fund may make short sales of securities. A short sale
is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. The market
value of the securities sold short of any one issuer will not exceed either 5%
of the Fund's total assets or 5% of such issuer's voting securities. The Fund
also will not make a short sale, if, after giving effect to such sale, the
market value of all securities sold short exceeds 25% of the value of its total
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. Short sales
"against the box" may be subject to special tax rules, one of the effects of
which may be to accelerate income to the Fund.
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, Mellon Trust of New
England, N.A. ("Mellon"), and, to the extent, if any, necessary so that the
value of both collateral deposits in the aggregate is at all times equal to the
greater of the price at which the security is sold short or 100% of the current
market value of the security sold short. Depending on arrangements made with
the broker-dealer from which it borrowed the security regarding payment over of
any payments received by the Fund on such security, the Fund may not receive
any payments (including interest) on its collateral deposited with such
broker-dealer. If the price of the security sold short increases between the
time of the short sale and the time the Fund replaces the borrowed security,
the Fund will incur a loss; conversely, if the price declines, the Fund will
realize a capital gain. Any gain will be decreased, any loss increased, by the
transaction costs described above. Although the Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
To secure its obligations to deliver the securities sold short, the
Fund will deposit in escrow in a separate account with the custodian, an amount
at least equal to the securities sold short or securities convertible into, or
exchangeable for, the securities. The Fund may close out a short position by
purchasing and delivering an equal amount of securities sold short, rather than
by delivering securities already held by the Fund, because the Fund may
S-7
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 along with the affirmative vote of a majority of the
votes entitled to be cast by holders of outstanding preferred shares (including
the Series A Preferred Shares and/or Series B Preferred Shares), voting
together as a single class. For purposes of the preferred share voting rights
described in the foregoing sentence, except as otherwise required under the
1940 Act, the majority of the outstanding preferred shares means, in accordance
with Section 2(a)(42) of the 1940 Act, the vote of (i) 67% or more of the
preferred shares present at the shareholders meeting called for such vote, if
the holders of more than 50% of the outstanding preferred shares are present or
represented by proxy or (ii) more than 50% of the outstanding preferred shares,
whichever is less. 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:
(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.
S-8
(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.
S-9
MANAGEMENT OF THE FUND
Trustees and Officers
Overall responsibility for management and supervision of the Fund
rests with its Board of Trustees. The Board of Trustees approves all
significant agreements between the Fund and the companies that furnish the Fund
with services, including agreements with the Adviser, the Fund's custodian and
the Fund's transfer agent. The day-to-day operations of the Fund are delegated
to the Adviser.
The names and business addresses of the trustees and principal
officers of the Fund are set forth in the following table, together with their
positions and their principal occupations during the past five years and, in
the case of the trustees, their positions with certain other organizations and
companies. Trustees who are "interested persons" of the Fund, as defined by the
1940 Act, are indicated by an asterisk.
Trustees
Name (And Age), Term of Office and Number of Portfolios
Position with the Fund Length of Time Principal Occupation in Fund Complex Other Directorships
and Business Address(1) Served (2) During Past Five Years Overseen by Trustee Held by Trustee
----------------------- ------------------ ---------------------- --------------------- --------------------
INTERESTED
TRUSTEES:
+Mario J. Gabelli (62) Since 1999*** Chairman of the 24 Director of Morgan
Trustee and Chief Board, Chief Group Holdings, Inc.
Investment Officer Executive Officer of (transportation
Gabelli Asset services); Vice
Management Inc. and Chairman of Lynch
Chief Investment Corporation
Officer of the (diversified
Investment Adviser manufacturing
and GAMCO Investors, company) and Lynch
Inc. Interactive
Corporation
(multimedia).
+John D. Gabelli (60) Since 1999** Senior Vice President 10 --
Trustee of Gabelli & Company,
Inc. and Director of
Gabelli Advisers, Inc.
+Karl Otto Pohl (74) Since 1999** Member of the 34 Director of Gabelli
Trustee Shareholder Committee Asset Management
of Sal Oppenheim Jr. Inc.; Chairman,
& Cie, Zurich Incentive Capital
(private investment and Incentive Asset
bank); Former Management (Zurich);
President of the Director of Sal
Deutsche Bundesbank Oppenheim Jr. & Cie,
and Chairman of its Zurich
Central Bank Council
from 1980 through 1991.
DISINTERESTED
TRUSTEES:
Dr. Thomas E. Bratter Since 1999*** Director, President 3 ??
(65) and Founder, The John
Dewey Academy (residential
college preparatory
therapeutic high school).
Anthony J. Colavita Since 1999* President and 36 ??
(68) Trustee Attorney-at-law in
the law firm of
Anthony J. Colavita,
P.C. since 1961.
James P. Conn (66) Since 1999** Former Managing 13 Director of LaQuinta
Trustee Director and Chief Corp. (hotels) and
Investment Officer of The First Republic
Financial Security Bank
Assurance Holdings
Ltd., 1992-1998.
S-10
Vincent D. Enright Since 1999*** Former Senior Vice 13 Director of Aphton
(60) Trustee President and Chief Corporation
Financial Officer of
KeySpan Energy
Corporation through 1998.
Frank J. Fahrenkopf, Since 1999* President and CEO of 4 Director of The
Jr. (65) Trustee the American Gaming First Republic Bank
Association since June 1995;
Partner in the law firm of
Hogan & Hartson; Chairman of
International Trade Practice
Group; Co-Chairman of the
Commission on Presidential
Debates; Former Chairman of
the Republican National
Committee.
Robert J. Morrissey Since 1999* Partner in the law 10 ??
(65) Trustee firm of Morrissey,
Hawkins & Lynch.
Anthony R. Pustorino Since 1999** Certified Public 17 Director of Lynch
(79) Trustee Accountant; Professor Corporation
Emeritus, Pace (Diversified
University. Manufacturing)
Salvatore J. Zizza (58) Since 1999* Chairman of Hallmark 24 Director of
Trustee Electrical Supplies Hollis Eden
Corp.; Former Pharmaceuticals;
Executive Vice Director of Earl
President of FMG Scheib Inc.
Group (a healthcare (automotive services)
provider).
Officers
Name (And Age), Position with the Fund Term of Office and Principal Occupation During
and Business Address(1) Length of Time Served Past Five Years
--------------------------------------- --------------------------- ----------------------------------------
Bruce N. Alpert (52) Since 2003 Executive Vice President and
President President and 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
David I. Schachter (51) Since 1999 Vice President of the Fund since
Vice President 1999; Research Analyst of Gabelli &
Company Inc. from October 1998 to
July 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 (41) Since 1999 Vice President, General Counsel and
Secretary Secretary of Gabelli Asset
Management, Inc. (since 1999) and
GAMCO Investors, Inc. (since 1993);
Secretary of all other 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 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. Mr. Mario Gabelli and Mr. John Gabelli are brothers.
(1) Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted.
S-11
(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 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.
***-- Term expires at the Fund's 2007 Annual Meeting of Shareholders
and until their successors are duly elected and qualified.
The Board of Trustees of the Fund is divided into three classes, with
each class having a term of three years. 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; and the terms of Messrs. Bratter, Enright and Mario Gabelli as
trustees of the Fund expire in 2007.
Name of Trustee Dollar Range of Equity Aggregate Dollar Range of Equity
Securities in the Fund Securities in all Registered
Investment Companies Overseen by
Trustees in Family of Investment
Companies
----------------------------------- --------------------------------- ----------------------------------
Interested Trustees
-------------------
Mario J. Gabelli Over $100,000 Over $100,000
John D. Gabelli None Over $100,000
Karl Otto Pohl None None
Disinterested Trustees
----------------------
Dr. Thomas E. Bratter None Over $100,000
Anthony J. Colavita $10,001-$50,000 Over $100,000
James P. Conn $10,001 - $50,000 Over $100,000
Vincent D. Enright None Over $100,000
Frank J. Fahrenkopf, Jr. None $1 - $10,000
Robert J. Morrissey None $50,001 - $100,000
Anthony R. Pustonino $10,001 - $50,000 Over $100,000
Salvatore J. Zizza Over $100,000 Over $100,000
All shares were valued as of December 31, 2003.
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, 2003. The Fund does not have a standing
compensation committee.
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 generally is responsible for
reviewing and evaluating issues related to the accounting and financial
reporting policies and, as appropriate, 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, 2003, the Audit Committee met
twice.
S-12
As of September __, 2004, the trustees and officers of the Fund as a
group beneficially owned approximately ____% 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 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, 2003.
Mr. Schachter is employed by the Fund and his compensation is evaluated and
approved by the trustees. Other officers who are employed by the Adviser
receive no compensation or expense reimbursement from the Fund.
-----------------------------------------------------------------------------------------------
COMPENSATION TABLE FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
-----------------------------------------------------------------------------------------------
------------------------------------------ ------------------------- --------------------------
NAME OF PERSON AGGREGATE TOTAL COMPENSATION
FROM THE FUND AND FUND
COMPENSATION FROM COMPLEX PAID TO TRUSTEES/
AND POSITION THE FUND OFFICERS*
------------------------------------------ ------------------------- --------------------------
------------------------------------------ ------------------------- --------------------------
MARIO J. GABELLI Chairman of the Board $0 $0 (24)
------------------------------------------ ------------------------- --------------------------
DR. THOMAS E. BRATTER Trustee $5,000 $31,000 (3)
------------------------------------------ ------------------------- --------------------------
ANTHONY J. COLAVITA Trustee $6,500 $160,543 (35)
------------------------------------------ ------------------------- --------------------------
JAMES P. CONN Trustee $7,500 $58,451 (12)
------------------------------------------ ------------------------- --------------------------
VINCENT D. ENRIGHT Trustee $6,500 $61,592 (12)
------------------------------------------ ------------------------- --------------------------
FRANK J. FAHRENKOPF, JR. Trustee $5,500 $34,951 (4)
------------------------------------------ ------------------------- --------------------------
JOHN D. GABELLI Trustee $0 $0 (10)
------------------------------------------ ------------------------- --------------------------
ROBERT J. MORRISSEY Trustee $5,000 $48,342 (10)
------------------------------------------ ------------------------- --------------------------
KARL OTTO POHL Trustee $0 $0 (33)
------------------------------------------ ------------------------- --------------------------
ANTHONY R. PUSTORINO Trustee $6,500 $136,000 (17)
------------------------------------------ ------------------------- --------------------------
SALVATORE J. ZIZZA Trustee $7,500 $82,043 (24)
------------------------------------------ ------------------------- --------------------------
* Represents the total compensation paid to such persons during the calendar
year ended December 31, 2003 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 and portfolios.
For his services as Vice President of the Fund, Mr. Schachter received
compensation in 2003 of $120,000.
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 Adviser
is a New York limited liability company with principal offices located at One
Corporate Center, Rye, New York 10580-1422. The Adviser was organized in 1999
and is the successor to Gabelli Funds, Inc., which was organized in 1980. As
of September 30, 2004, the Adviser acted as registered
S-13
investment adviser to 20 management investment companies with aggregate net
assets of approximately $11.8 billion. The Adviser, together with other
affiliated investment advisers set forth below, had assets under management
totaling approximately $_____billion, as of September 30, 2004. GAMCO
Investors, Inc., an affiliate of the Adviser, acts as investment adviser for
individuals, pension trusts, profit sharing trusts and endowments and as a
sub-adviser to management investment companies, having aggregate assets of
$_____ billion under management as of September 30, 2004. Gabelli Fixed
Income LLC, an affiliate of the Adviser, acts as investment adviser for The
Treasurer's Fund and separate accounts having aggregate assets of $_____
billion under management as of September 30, 2004. Gabelli Advisers, Inc., an
affiliate of the Adviser, acts as investment manager to the Gabelli Westwood
Funds, having aggregate assets of approximately $417 million under management
as of September 30, 2004.
The Adviser is a wholly-owned subsidiary of Gabelli Asset Management
Inc., a New York corporation, whose Class A Common Stock is traded on the New
York Stock Exchange under the symbol "GBL." Mr. Mario J. Gabelli may be deemed
a "controlling person" of the Adviser on the basis of his ownership of a
majority of the stock of 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 Adviser manages the
portfolio of the Fund in accordance with its stated investment objectives and
policies, makes investment decisions for the Fund, places orders to purchase
and sell securities on behalf of the Fund and manages its other business and
affairs, all subject to the supervision and direction of the Fund's Board of
Trustees. In addition, under the Advisory Agreement, the Adviser oversees the
administration of all aspects of the Fund's business and affairs and provides,
or arranges for others to provide, at the Adviser's expense, certain enumerated
services, including 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 Adviser voluntarily assumes
responsibility for such expense.
The Advisory Agreement was most recently approved by the Trustees,
including a majority of the Trustees who are not parties to the Advisory
Agreement or "interested persons" (as such term is defined in the 1940 Act) of
any party thereto on February 25, 2004. At that meeting, the Board of Trustees
reviewed the written and oral presentations provided by the Adviser in
connection with the Trustees' consideration of the Advisory Agreement. The
Trustees also reviewed their responsibilities under applicable law. The
Trustees considered, in particular, the level of the Fund's contractual
advisory fee rate and the actual total expense ratio borne by the Fund and
compared the information on these matters to similar information for unrelated
funds of a comparable size and investment program. The Board also reviewed the
profitability of the Advisory Agreement and other sources of revenue received
from the Fund to the Investment Adviser, the Fund's absolute and comparative
investment performance and the nature and quality of the services provided to
the Fund by the Investment Adviser and its affiliates. The independent Trustees
met separately to discuss this information. Based on their consideration of all
of the above factors, the independent Trustees recommended to the full Board,
and each of the Trustees present at the meeting determined, that renewal of the
Advisory Agreement was in the best interest of the Fund and their respective
shareholders. In the course of arriving at such determination, the independent
Trustees noted in particular the comparative investment performance of the
Fund, the experience of the Fund's portfolio manager and the level of services
provided by the Investment Adviser.
The Advisory Agreement combines investment advisory and administrative
responsibilities in one agreement. For services rendered by the Adviser on
behalf of the Fund under the Advisory Agreement, the Fund pays the Adviser a
fee computed daily and paid monthly at the annual rate of 1.00% of the average
weekly net assets of the Fund (which for this purpose includes the liquidation
preference of the Fund's outstanding preferred shares). The Adviser has
voluntarily agreed to waive the portion of its investment advisory fee
attributable to an amount of assets of the Fund equal to the aggregate stated
value of the applicable series of its preferred shares for any calendar year in
which the net asset value total return of the Fund allocable to the Common
Shares, including distributions and the advisory fee subject to potential
waiver, is less than the stated annual dividend rate of such series, prorated
during the year such series is issued and the final year such series is
outstanding. This waiver will apply separately to the portion of the Fund's
assets attributable to the Series A Preferred Shares and Series B Preferred
Shares, respectively, for so long as any shares of such series remain
outstanding.
S-14
For each of the years ended December 31, 2001, December 31, 2002, and
December 31, 2003, the Adviser was paid $855,435, $878,549, and $1,325,309,
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 Adviser is not liable for any error or
judgment or mistake of law or for any loss suffered by the Fund. As part of the
Advisory Agreement, the Fund has agreed that the name "Gabelli" is the
Adviser's property, and that in the event the Adviser ceases to act as an
investment adviser to the Fund, the Fund will change its name to one not
including "Gabelli."
Pursuant to its terms, the Advisory Agreement will remain in effect
with respect to the Fund until the second anniversary of shareholder approval
of such Agreement, and from year to year thereafter if approved annually (i) by
the Fund's Board of Trustees or by the holders of a majority of its outstanding
voting securities and (ii) by a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of any party to the Advisory
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. The Advisory Agreement terminates automatically on its
assignment and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by a vote of a majority (as defined in
the 1940 Act) of the Fund's outstanding shares.
Proxy Voting Procedures
The Fund has adopted the proxy voting procedures of the Adviser and
has directed the Adviser to vote all proxies relating to the Fund's voting
securities in accordance with such procedures. The proxy voting procedures are
set forth below as Appendix B to this SAI.
Information on how proxies relating to the Fund's voting securities
were voted by the Adviser during the most recent 12 month period ended June
30th is available, upon request, by calling (800) 422-3554 or on the website of
the Commission at http://www.sec.gov.
Code of Ethics
The Fund and the 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 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, Inc. 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, Inc. and its broker-dealer affiliates if, in the judgment
of the Adviser, the use of those broker-dealers is likely to result in price
and execution at least as favorable as those of other qualified broker-dealers,
S-15
and if, in particular transactions, those broker-dealers charge the Fund a
rate consistent with that charged to comparable unaffiliated customers in
similar transactions. The Fund has no obligations to deal with any broker or
group of brokers in executing transactions in portfolio securities. In
executing transactions, the Adviser seeks to obtain the best price and
execution for the Fund, taking into account such factors as price, size of
order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Adviser generally seeks reasonably competitive commission rates, the Fund
does not necessarily pay the lowest commission available.
Subject to obtaining the best price and execution, brokers who provide
supplemental research, market and statistical information to the Adviser or its
affiliates may receive orders for transactions by the Fund. The term "research,
market and statistical information" includes advice as to the value of
securities, and advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities, and
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts. Information so received will be in addition to and not in lieu of the
services required to be performed by the Adviser under the Advisory Agreement
and the expenses of the Adviser will not necessarily be reduced as a result of
the receipt of such supplemental information. Such information may be useful to
the Adviser and its affiliates in providing services to clients other than the
Fund, and not all such information is used by the Adviser in connection with
the Fund. Conversely, such information provided to the Adviser and its
affiliates by brokers and dealers through whom other clients of the Adviser and
its affiliates effect securities transactions may be useful to the Adviser in
providing services to the Fund.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser and its affiliates,
investments of the kind made by the Fund may also be made by those other
accounts. When the same securities are purchased for or sold by the Fund and
any of such other accounts, it is the policy of the Adviser and its affiliates
to allocate such purchases and sales in the manner deemed fair and equitable to
all of the accounts, including the Fund.
For the fiscal years ended December 31, 2001, December 31, 2002 and
December 31, 2003, the Fund paid a total of $81,313, $140,917 and 187,468
respectively, in brokerage commissions, of which Gabelli & Company, Inc. and
its affiliates received and $70,203, $123,636 and 150,468 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, 2003
represented approximately 80% 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. The
brokerage commissions in 2003 reflect, in part, the Fund's investment of
proceeds from its rights offering, completed in September, 2003. The variance
between the percentage of brokerage commissions received by Gabelli & Company,
Inc. and the percentage of transactions executed by Gabelli & Company, Inc.
reflects the Fund's practice of generally directing bulk trades to unaffiliated
broker-dealers.
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.
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Portfolio Turnover
The portfolio turnover rates of the Fund for the fiscal years ending
December 31, 2003 and 2002 were 28% and 29%, respectively. Portfolio turnover
rate is calculated by dividing the lesser of an investment company's annual
sales or purchases of long-term 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, indirectly, by its shareholders. A higher rate of portfolio
turnover may also result in taxable gains being passed to shareholders sooner
than would otherwise be the case.
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, N.A. ("Equiserve"), which is agent under the Plan, unless the
shareholder elects to receive cash. Distributions with respect to shares
registered in the name of a broker-dealer or other nominee (that is, in "street
name") will be reinvested by the broker or nominee in additional shares under
the Plan, unless the service is not provided by the broker or nominee or the
shareholder elects to receive distributions in cash. Investors who own Common
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 the greater of (i) net asset value or
(ii) 95% of the market price of the Common Shares 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 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 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 who
participate in the Plan. There is no charge to participants for reinvesting
dividends or capital gains distributions payable in either stock or cash.
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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 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 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
The following discussion is a brief summary of certain United States
federal income tax considerations affecting the Fund and its shareholders. No
attempt is made to present a detailed explanation of all federal, state, local
and foreign tax concerns affecting the Fund and its Shareholders (including
Shareholders who own large positions in the Fund), and the discussions set
forth here and in the Prospectus do not constitute tax advice. Investors are
urged to consult their own tax advisers with any specific questions relating to
federal, state, local and foreign taxes. The discussion reflects applicable tax
laws of the United States as of the date of this SAI, which tax laws may be
changed or subject to new interpretations by the courts or the Internal Revenue
Service (the "IRS") retroactively or prospectively.
Taxation of the Fund
The Fund has elected to be treated and has qualified as and intends to
continue to qualify as a regulated investment company (a "RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If
it so qualifies, the Fund will not be subject to U.S. federal income tax on the
portion of its net investment income (i.e., its investment company taxable
income as defined in the Code without regard to the deduction for dividends
paid) and on its net capital gain (i.e., the excess of its net realized
long-term capital gain over its net realized short-term capital loss), if any,
which it distributes to its shareholders in each taxable year, provided that an
amount equal to at least 90% of the sum of its net investment income and any
net tax-exempt income for the taxable year is distributed to its shareholders.
Qualification as a RIC requires, among other things, that the Fund:
(i) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currencies or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in stock, securities or
currencies and (ii) diversify its holdings so that, at the end of each
quarter of each taxable year, subject to certain exceptions, (a) at least 50%
of the market value of the Fund's total assets is represented by cash, cash
items, U.S. government securities, securities of other RICs and other
securities with such other securities limited, in respect of any one issuer,
to an amount not greater than 5% of the value of the Fund's total assets or
more than 10% of the outstanding voting securities of such issuer, and (b)
not more than 25% of the value of its total assets is invested in the
securities (other than U.S. government securities or the securities of other
RICs) of any one issuer or any two or more issuers that the Fund controls and
which are determined to be engaged in the same or related trades or businesses.
If the Fund were unable to satisfy the 90% distribution requirement or
otherwise were to fail to qualify as a RIC in any year, it would
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be taxed in the same manner as an ordinary corporation with no deduction for
dividends paid. In addition, distributions would be taxed to its shareholders
as ordinary income.
The IRS has taken the position that if a regulated investment company
has two classes of shares, it may designate distributions made to each class in
any year as consisting of no more than such class's proportionate share of
particular types of income, such as long-term capital gain. A class's
proportionate share of a particular type of income is determined according to
the percentage of total dividends paid by the regulated investment company
during such year that was paid to such class. Consequently, the Fund will
designate distributions made to the common shareholders and preferred
shareholders as consisting of particular types of income in accordance with the
classes' proportionate shares of such income. Because of this rule, the Fund is
required to allocate a portion of its net capital gain, qualified dividend
income and dividends qualifying for the dividends received deduction to common
shareholders and preferred shareholders. The amount of net capital gain and
qualified dividend income and dividends qualifying for the dividends received
deduction allocable among common shareholders and the preferred shareholders
will depend upon the amount of such net capital gain and qualified dividend
income and dividends qualifying for the dividends received deduction realized
by the Fund and the total dividends paid by the Fund on the Common Shares and
the Preferred Shares during a taxable year.
Under the Code, amounts not distributed by a RIC on a timely basis in
accordance with a calendar year distribution requirement are subject to a 4%
excise tax. To avoid the tax, the Fund must distribute during each calendar
year, an amount at least equal to the sum of (i) 98% of its ordinary income for
the calendar year, (ii) 98% of its capital gain net income (both long-term and
short-term) for the one year period ending on October 31 of such year, (unless
an election is made to use the Fund's fiscal year), and (iii) all ordinary
income and capital gain net income for previous years that were not previously
distributed or subject to tax under Subchapter M. A distribution will be
treated as paid during the calendar year if it is paid during the calendar year
or declared by the Fund in October, November or December of the year, payable
to shareholders of record on a date during such a month and paid by the Fund
during January of the following year. Any such distributions paid during
January of the following year will be deemed to be received on December 31 of
the year the distributions are declared, rather than when the distributions are
received. While the Fund intends to distribute its ordinary income and capital
gain net income in the manner necessary to minimize imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's ordinary
income and capital gain net income will be distributed to avoid entirely the
imposition of the tax. In such event, the Fund will be liable for the tax only
on the amount by which it does not meet the foregoing distribution
requirements.
Gain or loss on the sales of securities by the Fund will be long-term
capital gain or loss if the securities have been held by the Fund for more than
one year. Gain or loss on the sale of securities held for one year or less will
be short-term capital gain or loss.
Foreign currency gain or loss on non-U.S. dollar denominated bonds and
other similar debt instruments and on any non-U.S. dollar denominated futures
contracts, options and forward contracts that are not section 1256 contracts
(as defined below) generally will be treated as net investment income and loss.
Investments by the Fund in certain "passive foreign investment
companies" ("PFICs") could subject the Fund to federal income tax (including
interest charges) on certain distributions or dispositions with respect to
those investments which cannot be eliminated by making distributions to
stockholders. An election may be available to the Fund to mitigate the effect
of this provision but the election generally accelerates the recognition of
income without the receipt of cash. Dividends paid by PFICs will not qualify
for the reduced tax rates discussed below under "Taxation of Shareholders."
The Fund may invest in debt obligations purchased at a discount with
the result that the Fund may be required to accrue income for federal income
tax purposes before amounts due under the obligations are paid. The Fund may
also invest in securities rated in the medium to lower rating categories of
nationally recognized rating organizations, and in unrated securities ("high
yield securities"). A portion of the interest payments on such high yield
securities may be treated as dividends for federal income tax purposes.
As a result of investing in stock of PFICs or securities purchased at
a discount or any other investment that produces income that is not matched by
a corresponding cash distribution to the Fund, the Fund could be required to
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include in current income, income it has not yet received. Any such income
would be treated as income earned by the Fund and therefore would be subject to
the distribution requirements of the Code. This might prevent the Fund from
distributing 90% of its net investment income as is required in order to avoid
Fund-level federal income taxation on all of its income, or might prevent the
Fund from distributing enough ordinary income and capital gain net income to
avoid completely the imposition of the excise tax. To avoid this result, the
Fund may be required to borrow money or dispose of other securities to be able
to make distributions to its shareholders.
If the Fund does not meet the asset coverage requirements of the 1940
Act and the Statements of Preferences, the Fund will be required to suspend
distributions to the holders of the Common Shares until the asset coverage is
restored. Such a suspension of distributions might prevent the Fund from
distributing 90% of its net investment income as is required in order to avoid
Fund-level federal income taxation on all of its income, or might prevent the
Fund from distributing enough income and capital gain net income to avoid
completely imposition of the excise tax. Upon any failure to meet the asset
coverage requirements of the 1940 Act or the Statements of Preferences, the
Fund may, and in certain circumstances will, be required to partially redeem
Preferred Shares in order to restore the requisite asset coverage and avoid the
adverse consequences to the Fund and its shareholders of failing to qualify as
a RIC. If asset coverage were restored, the Fund would again be able to pay
dividends and would generally be able to avoid Fund-level federal income
taxation on the income that it distributes.
Hedging Transactions
Certain of the Fund's investment practices are subject to special and
complex U.S. federal income tax provisions that may, among other things, (i)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (ii) convert lower taxed long-term capital gains into higher taxed
short-term capital 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 Fund will monitor its transactions
and may make certain tax elections to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
Foreign Taxes
Since the Fund may invest in foreign securities, its income from such
securities may be subject to non-U.S. taxes. The Fund historically has invested
less than 50% of its total assets in foreign securities. As long as the Fund
continues to invest less than 50% of its assets in foreign securities it will
not be eligible to elect to "pass-through" to shareholders of the Fund the
ability to use the foreign tax deduction or foreign tax credit for foreign
taxes paid with respect to qualifying taxes.
Taxation of Shareholders
The Fund will determine either to distribute or to retain for
reinvestment all or part of its net capital gain. If any such gains are
retained, the Fund will be subject to a tax of 35% of such amount. In that
event, the Fund expects to designate the retained amount as undistributed
capital gains in a notice to its shareholders, each of whom (i) will be
required to include in income for tax purposes as long-term capital gains its
share of such undistributed amounts, (ii) will be entitled to credit its
proportionate share of the tax paid by the Fund against its federal income tax
liability and to claim refunds to the extent that the credit exceeds such
liability and (iii) will increase its basis in its shares of the Fund by an
amount equal to 65% of the amount of undistributed capital gains included in
such shareholder's gross income.
Distributions of ordinary income are taxable to a U.S. shareholder as
ordinary income, whether paid in cash or shares. Such dividends (if designated
by the Fund) may qualify (provided holding periods and other requirements are
met) (i) for the dividends received deduction available to corporations, but
only to the extent that the Fund's income consists of qualified dividends
received from U.S. corporations and (ii) under the Jobs and Growth Tax Relief
Reconciliation Act of 2003 (effective for taxable years after December 31, 2002
through December 31, 2008) ("2003 Tax Act"), as qualified dividend income
eligible for the reduced maximum rate to individuals of generally 15% (5% for
individuals in lower tax brackets) to the extent that the Fund receives
qualified dividend income. Qualified dividend income is, in general, dividend
income from taxable domestic corporations and certain foreign
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corporations (e.g., generally, foreign corporations incorporated in a
possession of the United States or in certain countries with a comprehensive
tax treaty with the United States, or the stock of which is readily tradable
on an established securities market in the United States). Distributions of
net capital gain designated as capital gain dividends, if any, are taxable to
shareholders at rates applicable to long-term capital gains, whether paid in
cash or in shares, regardless of how long the shareholder has held the Fund's
shares, and are not eligible for the dividends received deduction. Under the
2003 Tax Act, the maximum tax rate on net long-term capital gain of
individuals is reduced generally from 20% to 15% (5% for individuals in lower
brackets) for such gain realized after May 6, 2003 and before January 1,
2009. 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 gain to such holder
(assuming the shares are held as a capital asset). For non-corporate
taxpayers, under the 2003 Tax Act, net investment income (other than
qualified dividend income) will currently be taxed at a maximum rate of 35%,
while net capital gain generally will be taxed at a maximum rate of 15%. For
corporate taxpayers, both net investment income and net capital gain are
taxed at a maximum rate of 35%.
Shareholders may be entitled to offset their capital gain dividends
with capital losses. There are a number of statutory provisions affecting when
capital losses may be offset against capital gains, and limiting the use of
losses from certain investments and activities. Accordingly, shareholders with
capital losses are urged to consult their tax advisers.
The price of shares purchased at any time may reflect the amount of a
forthcoming distribution. Those purchasing shares just prior to a distribution
will receive a distribution which will be taxable to them even though it
represents in part a return of invested capital.
Upon a sale or exchange of shares, a shareholder will realize a
taxable gain or loss depending upon his or her basis in the shares. Such gain
or loss will be treated as long-term capital gain or loss if the shares have
been held for more than one year. Any loss realized on a sale or exchange will
be disallowed to the extent the shares disposed of are replaced within a 61-day
period beginning 30 days before and ending 30 days after the date that the
shares are disposed of. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by
the shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any capital gain dividends received by
the shareholder (or amounts credited to the shareholder as an undistributed
capital gain) with respect to such shares.
Ordinary income dividends and capital gain dividends also may be
subject to state and local taxes. Shareholders are urged to consult their own
tax advisers regarding specific questions about the U.S. federal (including the
application of the alternative minimum tax rules), state, local or foreign tax
consequences to them of investing in the Fund.
Ordinary income dividends (but not capital gain dividends) paid to
shareholders who are non-resident aliens or foreign entities will be subject to
a 30% United States withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Non-resident shareholders are urged to consult their own tax advisers
concerning the applicability of the United States withholding tax.
Backup Withholding
The Fund may be required to withhold federal income tax on all taxable
distributions and redemption proceeds payable to non-corporate shareholders who
fail to provide the Fund with their correct taxpayer identification number or
to make required certifications, or who have been notified by the IRS that they
are subject to backup withholding. Backup withholding is not an additional tax.
Any amounts withheld may be refunded or credited against such shareholder's
federal income tax liability, if any, provided that the required information is
furnished to the IRS.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
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and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or administrative
action, either prospectively or retroactively. Persons considering an
investment in Common Shares of the Fund should consult their own tax advisers
regarding the purchase, ownership and disposition of Common Shares of the Fund.
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
prices on the principal market for such instruments on the most recent date on
which bid and asked prices are available. Other readily marketable assets will
be valued at the average of quotations provided by dealers maintaining an
active market in such instruments. Securities and other assets for which market
quotations are not readily available will be valued at fair value as determined
in good faith by or under the direction of the Board of Trustees. Short-term
investments that mature in more than 60 days are valued at the latest average
of the bid and asked prices or if there were no asked prices on such day at the
closing 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 are not
credit-impaired that mature in 60 days or less 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. Futures contracts are valued
at the official closing settlement price of the exchange or board of trade on
which the applicable contract is traded.
Trading takes place in various foreign markets on days which are not
days on which the New York Stock Exchange is open and therefore the Fund's 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 common share is calculated by dividing the value
of the securities held plus any cash or other assets minus all liabilities and
preferred shares, including accrued expenses, by the total number of Common
Shares outstanding at such time.
GENERAL INFORMATION
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 registered public accounting
firm, 300 Madison Avenue, New York, New York 10017, serve as auditors of the
Fund and will annually render an opinion on the financial statements of the
Fund.
BENEFICIAL OWNERS
As of September ___, 2004, 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.
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FINANCIAL STATEMENTS
The unaudited financial statements included in the Semi-Annual Report
to the Fund's Shareholders for the fiscal period ended June 30, 2004 are
incorporated by reference from the Fund's Semi-Annual Report to Shareholders.
The audited financial statements included in the Annual Report to the Fund's
Shareholders for the fiscal year ended December 31, 2003, together with the
report of PricewaterhouseCoopers LLP thereon, are incorporated herein by
reference from the 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).
The Fund files its complete schedule of portfolio holdings for the first and
third quarters of their respective fiscal years with the Commission on Form
N-Q. The Fund's Form N-Q is available on the Commission's website at
http://www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, D.C.. Information regarding
the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
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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.
A-1
STANDARD & POOR'S RATINGS SERVICES
----------------------------------
AAA This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to
pay interest and repay principal.
AA Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from AAA issues only in
small degree. Principal and interest payments on bonds in
this category are regarded as safe.
A Debt rated A has a strong capacity to pay interest and
repay principal although they are somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher
rated categories.
BBB This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in
this category than in higher rated categories.
Speculative Grade
-----------------
Debt rated BB, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation, and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated C1 is reserved for income bonds on which no interest is being paid
and debt rated D is in payment default.
In July 1994, S&P initiated an "r" symbol to its ratings. The "r"
symbol is attached to derivatives, hybrids and certain other obligations that
S&P believes may experience high variability in expected returns due to
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
APPENDIX B
GABELLI ASSET MANAGEMENT INC. and AFFILIATES
The Voting of Proxies on Behalf of Clients
Rules 204(4)-2 and 204-2 under the Investment Advisers Act of 1940 and Rule
30b1-4 under the Investment Company Act of 1940 require investment advisers to
adopt written policies and procedures governing the voting of proxies on behalf
of their clients. These procedures will be used by GAMCO Investors, Inc.,
Gabelli Funds, LLC and Gabelli Advisers, Inc. (collectively, the "Advisers") to
determine how to vote proxies relating to portfolio securities held by their
clients, including the procedures that the Advisers use when a vote presents a
conflict between the interests of the shareholders of an investment company
managed by one of the Advisers, on the one hand, and those of the Advisers; the
principal underwriter; or any affiliated person of the investment company, the
Advisers, or the principal underwriter. These procedures will not apply where
the Advisers do not have voting discretion or where the Advisers have agreed to
with a client to vote the client's proxies in accordance with specific
guidelines or procedures supplied by the client (to the extent permitted by
ERISA).
I. Proxy Voting Committee
The Proxy Voting Committee was originally formed in April 1989 for the
purpose of formulating guidelines and reviewing proxy statements within the
parameters set by the substantive proxy voting guidelines originally
published by GAMCO Investors, Inc. in 1988 and updated periodically, a copy
of which are appended as Exhibit A. The Committee will include
representatives of Research, Administration, Legal, and the Advisers.
Additional or replacement members of the Committee will be nominated by the
Chairman and voted upon by the entire Committee. As of June 30, 2003, the
members are: Bruce N. Alpert, Chief Operating Officer of Gabelli Funds, LLC
Ivan Arteaga, Research Analyst Caesar M. P. Bryan, Portfolio Manager Stephen
DeTore, Deputy General Counsel Joshua Fenton, Director of Research Douglas R.
Jamieson, Chief Operating Officer of GAMCO James E. McKee, General Counsel
Karyn M. Nappi, Director of Proxy Voting Services William S. Selby, Managing
Director of GAMCO Howard F. Ward, Portfolio Manager Peter D. Zaglio, Senior
Vice President Peter D. Zaglio currently chairs the Committee. In his
absence, the Director of Research will chair the Committee. Meetings are held
as needed basis to form views on the manner in which the Advisers should vote
proxies on behalf of their clients. In general, the Director of Proxy Voting
Services, using the Proxy Guidelines, recommendations of Institutional
Shareholder Corporate Governance Service ("ISS"), other third-party services
and the analysts of Gabelli & Company, Inc., will determine how to vote on
each issue. For non-controversial matters, the Director of Proxy Voting
Services may vote the proxy if the vote is (1) consistent with the
recommendations of the issuer's Board of Directors and not contrary to the
Proxy Guidelines; (2) consistent with the recommendations of the issuer's
Board of Directors and is a non-controversial issue not covered by the Proxy
Guidelines; or (3) the vote is contrary to the recommendations of the Board
of Directors but is consistent with the Proxy Guidelines. In those instances,
the Director of Proxy Voting Services or the Chairman of the Committee may
sign and date the proxy statement indicating how each issue will be voted.
All matters identified by the Chairman of the Committee, the Director of
Proxy Voting Services or the Legal Department as controversial, taking into
account the recommendations of ISS or other third party services and the
analysts of Gabelli & Company, Inc., will be presented to the Proxy Voting
Committee. If the Chairman of the Committee, the Director of Proxy Voting
Services or the Legal Department has identified the matter as one that (1) is
controversial; (2) would benefit from deliberation by the Proxy Voting
Committee; or (3) may give rise to a conflict of interest between the
Advisers and their clients, the Chairman of the Committee will initially
determine what vote to recommend that the Advisers should cast and the matter
will go before the Committee. For matters submitted to the Committee, each
member of the Committee will receive, prior to the meeting, a copy of the
proxy statement, any relevant third party research, a summary of any views
provided by the Chief Investment Officer and any recommendations by Gabelli &
Company, Inc. analysts. The Chief Investment Officer or the Gabelli &
Company, Inc. analysts may be invited to present their viewpoints. If the
Legal Department believes that the matter before the committee is one with
respect to which a conflict of interest may exist between the Advisers and
their clients, counsel will provide an opinion to the Committee concerning
the conflict. If the matter is one in which the interests of the clients of
one or more of Advisers may diverge, counsel will so advise and the Committee
may make different recommendations as to different clients. For any matters
where the recommendation may trigger appraisal rights, counsel will provide
an opinion concerning the likely risks and merits of such an appraisal
action. Each matter submitted to the Committee will be determined by the vote
of a majority of the members present at the meeting. Should the vote
concerning one or more recommendations be tied in a vote of
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the Committee, the Chairman of the Committee will cast the deciding
vote. The Committee will notify the proxy department of its decisions and the
proxies will be voted accordingly. Although the Proxy Guidelines express the
normal preferences for the voting of any shares not covered by a contrary
investment guideline provided by the client, the Committee is not bound by the
preferences set forth in the Proxy Guidelines and will review each matter on
its own merits. Written minutes of all Proxy Voting Committee meetings will be
maintained. The Advisers subscribe to ISS, which supplies current information
on companies, matters being voted on, regulations, trends in proxy voting and
information on corporate governance issues. If the vote cast either by the
analyst or as a result of the deliberations of the Proxy Voting Committee runs
contrary to the recommendation of the Board of Directors of the issuer, the
matter will be referred to legal counsel to determine whether an amendment to
the most recently filed Schedule 13D is appropriate.
II. Social Issues and Other Client Guidelines
If a client has provided special instructions relating to the voting of
proxies, they should be noted in the client's account file and forwarded to the
proxy department. This is the responsibility of the investment professional or
sales assistant for the client. In accordance with Department of Labor
guidelines, the Advisers' policy is to vote on behalf of ERISA accounts in the
best interest of the plan participants with regard to social issues that carry
an economic impact. Where an account is not governed by ERISA, the Advisers
will vote shares held on behalf of the client in a manner consistent with any
individual investment/voting guidelines provided by the client. Otherwise the
Advisers will abstain with respect to those shares.
III. Client Retention of Voting Rights
If a client chooses to retain the right to vote proxies or if there is any
change in voting authority, the following should be notified by the investment
professional or sales assistant for the client. - Operations - Legal Department
- Proxy Department - Investment professional assigned to the account In the
event that the Board of Directors (or a Committee thereof) of one or more of
the investment companies managed by one of the Advisers has retained direct
voting control over any security, the Proxy Voting Department will provide each
Board Member (or Committee member) with a copy of the proxy statement together
with any other relevant information including recommendations of ISS or other
third-party services.
IV. Voting Records
The Proxy Voting Department will retain a record of matters voted upon by the
Advisers for their clients. The Advisers' staff may request proxy-voting
records for use in presentations to current or prospective clients. Requests
for proxy voting records should be made at least ten days prior to client
meetings. If a client wishes to receive a proxy voting record on a quarterly,
semi-annual or annual basis, please notify the Proxy Voting Department. The
reports will be available for mailing approximately ten days after the quarter
end of the period. First quarter reports may be delayed since the end of the
quarter falls during the height of the proxy season. A letter is sent to the
custodians for all clients for which the Advisers have voting responsibility
instructing them to forward all proxy materials to: [Adviser name] Attn: Proxy
Voting Department One Corporate Center Rye, New York 10580-1433 The sales
assistant sends the letters to the custodians along with the trading/DTC
instructions. Proxy voting records will be retained in compliance with Rule
204-2 under the Investment Advisers Act.
V. Voting Procedures
1. Custodian banks, outside brokerage firms and Wexford Clearing Services
Corporation are responsible for forwarding proxies directly to GAMCO. Proxies
are received in one of two forms: o Shareholder Vote Authorization Forms (VAFs)
- Issued by ADP. VAFs must be voted through the issuing institution causing a
time lag. ADP is an outside service contracted by the various institutions to
issue proxy materials. o Proxy cards which may be voted directly.
2. Upon receipt of the proxy, the number of shares each form represents is
logged into the proxy system according to security.
B-2
3. In the case of a discrepancy such as an incorrect number of shares, an
improperly signed or dated card, wrong class of security, etc., the issuing
custodian is notified by phone. A corrected proxy is requested. Any
arrangements are made to insure that a proper proxy is received in time to be
voted (overnight delivery, fax, etc.). When securities are out on loan on
record date, the custodian is requested to supply written verification.
4. Upon receipt of instructions from the proxy committee (see Administrative),
the votes are cast and recorded for each account on an individual basis. Since
January 1, 1992, records have been maintained on the Proxy Edge system. The
system is backed up regularly. From 1990 through 1991, records were maintained
on the PROXY VOTER system and in hardcopy format. Prior to 1990, records were
maintained on diskette and in hardcopy format. PROXY EDGE records include:
Security Name and Cusip Number Date and Type of Meeting (Annual, Special,
Contest) Client Name Adviser or Fund Account Number Directors' Recommendation
How GAMCO voted for the client on each issue The rationale for the vote when it
appropriate Records prior to the institution of the PROXY EDGE system include:
Security name Type of Meeting (Annual, Special, Contest) Date of Meeting Name
of Custodian Name of Client Custodian Account Number Adviser or Fund Account
Number Directors' recommendation How the Adviser voted for the client on each
issue Date the proxy statement was received and by whom Name of person posting
the vote Date and method by which the vote was cast o From these records
individual client proxy voting records are compiled. It is our policy to
provide institutional clients with a proxy voting record during client reviews.
In addition, we will supply a proxy voting record at the request of the client
on a quarterly, semi-annual or annual basis.
5. VAFs are kept alphabetically by security. Records for the current proxy
season are located in the Proxy Voting Department office. In preparation for
the upcoming season, files are transferred to an offsite storage facility
during January/February.
6. Shareholder Vote Authorization Forms issued by ADP are always sent directly
to a specific individual at ADP.
7. If a proxy card or VAF is received too late to be voted in the conventional
matter, every attempt is made to vote on one of the following manners:
o VAFs can be faxed to ADP up until the time of the meeting. This is
followed up by mailing the original form
o When a solicitor has been retained, the solicitor is called. At the
solicitor's direction, the proxy is faxed.
8. In the case of a proxy contest, records are maintained for each opposing
entity.
9. Voting in Person
a) At times it may be necessary to vote the shares in person. In this case, a
"legal proxy" is obtained in the following manner:
o Banks and brokerage firms using the services at ADP: A call is placed to
ADP requesting legal proxies. The VAFs are then sent overnight to ADP.
ADP issues individual legal proxies and sends them back via overnight. A
lead-time of at least two weeks prior to the meeting is needed to do
this. Alternatively, the procedures detailed below for banks not using
ADP may be implemented.
o Banks and brokerage firms issuing proxies directly: The bank is called
and/or faxed and a legal proxy is requested. All legal proxies should
appoint: "Representative of [Adviser name] with full power of substitution."
b) The legal proxies are given to the person attending the meeting along with
the following supplemental material:
o A limited Power of Attorney appointing the attendee an Adviser
representative.
B-3
o A list of all shares being voted by custodian only. Client names and
account numbers are not included. This list must be presented, along with
the proxies, to the Inspectors of Elections and/or tabulator at least
one-half hour prior to the scheduled start of the meeting. The tabulator
must "qualify" the votes (i.e. determine if the vote have previously been
cast, if the votes have been rescinded, etc. vote have previously been
cast, etc.).
o A sample ERISA and Individual contract.
o A sample of the annual authorization to vote proxies form.
o A copy of our most recent Schedule 13D filing (if applicable).
------------------------ PROXY VOTING GUIDELINES ------------------------
GENERAL POLICY STATEMENT It is the policy of Gabelli Asset Management Inc. to
vote in the best economic interests of our clients. As we state in our Magna
Carta of Shareholders Rights, established in May 1988, we are neither for nor
against management. We are for shareholders. At our first proxy committee
meeting in 1989, it was decided that each proxy statement should be evaluated
on its own merits within the framework first established by our Magna Carta of
Shareholders Rights. The attached guidelines serve to enhance that broad
framework. We do not consider any issue routine. We take into consideration all
of our research on the company, its directors, and their short and long-term
goals for the company. In cases where issues that we generally do not approve
of are combined with other issues, the negative aspects of the issues will be
factored into the evaluation of the overall proposals but will not necessitate
a vote in opposition to the overall proposals.
BOARD OF DIRECTORS The advisers do not consider the election of the Board of
Directors a routine issue. Each slate of directors is evaluated on a
case-by-case basis. Factors taken into consideration include: o Historical
responsiveness to shareholders This may include such areas as: -Paying
greenmail -Failure to adopt shareholder resolutions receiving a majority of
shareholder votes o Qualifications o Nominating committee in place o Number of
outside directors on the board o Attendance at meetings o Overall performance
SELECTION OF AUDITORS In general, we support the Board of Directors'
recommendation for auditors.
BLANK CHECK PREFERRED STOCK We oppose the issuance of blank check preferred
stock. Blank check preferred stock allows the company to issue stock and
establish dividends, voting rights, etc. without further shareholder approval.
CLASSIFIED BOARD A classified board is one where the directors are divided into
classes with overlapping terms. A different class is elected at each annual
meeting. While a classified board promotes continuity of directors facilitating
long range planning, we feel directors should be accountable to shareholders on
an annual basis. We will look at this proposal on a case-by-case basis taking
into consideration the board's historical responsiveness to the rights of
shareholders. Where a classified board is in place we will generally not
support attempts to change to an annually elected board. When an annually
elected board is in place, we generally will not support attempts to classify
the board.
INCREASE AUTHORIZED COMMON STOCK The request to increase the amount of
outstanding shares is considered on a case-by-case basis. Factors taken into
consideration include: o Future use of additional shares -Stock split -Stock
option or other executive compensation plan -Finance growth of
company/strengthen balance sheet -Aid in restructuring -Improve credit rating
-Implement a poison pill or other takeover defense o Amount of stock currently
authorized but not yet issued or reserved for stock option plans o Amount of
additional stock to be authorized and its dilutive effect We will support this
proposal if a detailed and verifiable plan for the use of the additional shares
is contained in the proxy statement.
B-4
CONFIDENTIAL BALLOT We support the idea that a shareholder's identity and vote
should be treated with confidentiality. However, we look at this issue on a
case-by-case basis. In order to promote confidentiality in the voting process,
we endorse the use of independent Inspectors of Election.
CUMULATIVE VOTING In general, we support cumulative voting. Cumulative voting
is a process by which a shareholder may multiply the number of directors being
elected by the number of shares held on record date and cast the total number
for one candidate or allocate the voting among two or more candidates. Where
cumulative voting is in place, we will vote against any proposal to rescind
this shareholder right. Cumulative voting may result in a minority block of
stock gaining representation on the board. When a proposal is made to institute
cumulative voting, the proposal will be reviewed on a case-by-case basis. While
we feel that each board member should represent all shareholders, cumulative
voting provides minority shareholders an opportunity to have their views
represented.
DIRECTOR LIABILITY AND INDEMNIFICATION We support efforts to attract the best
possible directors by limiting the liability and increasing the indemnification
of directors, except in the case of insider dealing.
EQUAL ACCESS TO THE PROXY The SEC's rules provide for shareholder resolutions.
However, the resolutions are limited in scope and there is a 500 word limit on
proponents' written arguments. Management has no such limitations. While we
support equal access to the proxy, we would look at such variables as length of
time required to respond, percentage of ownership, etc.
FAIR PRICE PROVISIONS Charter provisions requiring a bidder to pay all
shareholders a fair price are intended to prevent two-tier tender offers that
may be abusive. Typically, these provisions do not apply to board-approved
transactions. We support fair price provisions because we feel all shareholders
should be entitled to receive the same benefits. Reviewed on a case-by-case
basis.
GOLDEN PARACHUTES Golden parachutes are severance payments to top executives
who are terminated or demoted after a takeover. We support any proposal that
would assure management of its own welfare so that they may continue to make
decisions in the best interest of the company and shareholders even if the
decision results in them losing their job. We do not, however, support
excessive golden parachutes. Therefore, each proposal will be decided on a
case-by- case basis. Note: Congress has imposed a tax on any parachute that is
more than three times the executive's average annual compensation.
ANTI-GREENMAIL PROPOSALS We do not support greenmail. An offer extended to one
shareholder should be extended to all shareholders equally across the board.
LIMIT SHAREHOLDERS' RIGHTS TO CALL SPECIAL MEETINGS We support the right of
shareholders to call a special meeting.
CONSIDERATION OF NONFINANCIAL EFFECTS OF A MERGER This proposal releases the
directors from only looking at the financial effects of a merger and allows
them the opportunity to consider the merger's effects on employees, the
community, and consumers. As a fiduciary, we are obligated to vote in the best
economic interests of our clients. In general, this proposal does not allow us
to do that. Therefore, we generally cannot support this proposal. Reviewed on a
case-by-case basis.
MERGERS, BUYOUTS, SPIN-OFFS, RESTRUCTURINGS Each of the above is considered on
a case-by-case basis. According to the Department of Labor, we are not required
to vote for a proposal simply because the offering price is at a premium to the
current market price. We may take into consideration the long term interests of
the shareholders.
MILITARY ISSUES Shareholder proposals regarding military production must be
evaluated on a purely economic set of criteria for our ERISA clients. As such,
decisions will be made on a case-by-case basis. In voting on this proposal for
our non-ERISA clients, we will vote according to the client's direction when
applicable. Where no direction has been given, we will vote in the best
economic interests of our clients. It is not our duty to impose our social
judgment on others.
B-5
NORTHERN IRELAND Shareholder proposals requesting the signing of the MacBride
principles for the purpose of countering the discrimination of Catholics in
hiring practices must be evaluated on a purely economic set of criteria for our
ERISA clients. As such, decisions will be made on a case-by-case basis. In
voting on this proposal for our non-ERISA clients, we will vote according to
client direction when applicable. Where no direction has been given, we will
vote in the best economic interests of our clients. It is not our duty to
impose our social judgment on others
.OPT OUT OF STATE ANTI-TAKEOVER LAW This shareholder proposal requests that a
company opt out of the coverage of the state's takeover statutes. Example:
Delaware law requires that a buyer must acquire at least 85% of the company's
stock before the buyer can exercise control unless the board approves. We
consider this on a case-by-case basis. Our decision will be based on the
following: o State of Incorporation o Management history of responsiveness to
shareholders o Other mitigating factors
POISON PILL In general, we do not endorse poison pills. In certain cases where
management has a history of being responsive to the needs of shareholders and
the stock is very liquid, we will reconsider this position.
REINCORPORATION Generally, we support reincorporation for well-defined business
reasons. We oppose reincorporation if proposed solely for the purpose of
reincorporating in a state with more stringent anti-takeover statutes that may
negatively impact the value of the stock.
STOCK OPTION PLANS Stock option plans are an excellent way to attract, hold and
motivate directors and employees. However, each stock option plan must be
evaluated on its own merits, taking into consideration the following: o
Dilution of voting power or earnings per share by more than 10% o Kind of stock
to be awarded, to whom, when and how much o Method of payment o Amount of stock
already authorized but not yet issued under existing stock option plans
SUPERMAJORITY VOTE REQUIREMENTS Supermajority vote requirements in a company's
charter or bylaws require a level of voting approval in excess of a simple
majority of the outstanding shares. In general, we oppose supermajority-voting
requirements. Supermajority requirements often exceed the average level of
shareholder participation. We support proposals' approvals by a simple majority
of the shares voting.
LIMIT SHAREHOLDERS RIGHT TO ACT BY WRITTEN CONSENT Written consent allows
shareholders to initiate and carry on a shareholder action without having to
wait until the next annual meeting or to call a special meeting. It permits
action to be taken by the written consent of the same percentage of the shares
that would be required to effect proposed action at a shareholder meeting.
Reviewed on a case-by-case basis.
B-6
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Part A
Financial highlights for a share outstanding throughout the
periods ended June 30, 2004 (unaudited) and December 31, 2003
December 31, 2002, 2001, 2000 and 1999 (audited).
Part B
Financial Statements (unaudited) for the fiscal period ended June
30, 2004(1)
(i) Portfolio of Investments as of June 30, 2004
(ii) Statement of Assets and Liabilities as of June 30, 2004
(iii) Statement of Operations for the period ended June 30, 2004
(iv) Statement of Changes in Net Assets for the period ended
June 30, 2004
(v) Financial highlights for a share outstanding throughout the
periods ended June 30, 2004 and December 31, 2002, 2001,
2000 and 1999.
(vi) Notes to Financial Statements
Financial Statements (audited) for the fiscal year 2003(2)
(i) Portfolio of Investments as of December 31, 2003
(ii) Statement of Assets and Liabilities as of December 31, 2003
(iii) Statement of Operations for the year ended December 31,
2003
(iv) Statement of Changes in Net Assets for the year ended
December 31, 2003
(v) Financial highlights for a share outstanding throughout the
periods 2003, 2002, and 2001.
(vi) Notes to Financial Statements
(vii) Report of Independent Accountants
(2) Exhibits
(a) (1) Amended and Restated Agreement and Declaration of Trust
of Registrant(3)
(2) Statement of Preferences with respect to the 5.625% Series
A Cumulative Preferred Shares(3)
(3) Statement of Preferences with respect to the Series B
Auction Rate Cumulative Preferred Shares(3)
(b) Amended and Restated By-Laws of Registrant(3)
(c) Not applicable
(d) (1) Form of Registrant's Common Share Certificate(3)
(2) Form of Registrants' 5.625% Series A Cumulative Preferred
Share Certificate(3)
(3) Form of Registrant's Series B Auction Market Preferred
Share Certificate(3)
(4) Form of Subscription Certificate(4)
(5) Form of Notice of Guaranteed Delivery (4)
(6) Form of Subscription, Distribution and Escrow Agency
Agreement(4)
(e) Automatic Dividend Reinvestment and Voluntary Cash Purchase
Plan of Registrant(3)
(f) Not applicable
(g) Form of Investment Advisory Agreement between Registrant
and Gabelli Funds, LLC(3)
(h) Not applicable
(i) Not applicable
C-1
(j)(1) Form of Custodian Contract between
Registrant and Boston Safe Deposit and Trust Company (later
assigned to State Street Bank & Trust Company)(3)
(2) Form of Custodian Fee Schedule between Registrant and Boston
Safe Deposit and Trust Company(3)
(k) Form of Registrar, Transfer Agency and Service Agreement between
Registrant and Equiserve Trust Company, N.A. (3)
(l) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP
with respect to legality(4)
(m) Not applicable
(n) (1) Consent of PricewaterhouseCoopers LLP(4)
(2) 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 Semi-Annual Report filed on
September 8, 2004
(2) Incorporated by reference to the Fund's annual report filed on March 10,
2004.
(3) Filed previously.
(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........................................... $9,398
New York Stock Exchange listing fee............................. $20,000
Printing and engraving expenses................................. $75,000
Auditing fees and expenses...................................... $10,000
Legal fees and expenses......................................... $125,000
Blue Sky fees and expenses...................................... $0
Miscellaneous................................................... $235,602
Total.................................................. $475,000
Item 27. Persons Controlled by or Under Common Control with Registrant
NONE
Item 28. Number of Holders of Securities as of October 13, 2004
Number of Record Title
of Class Holders
Common Shares of Beneficial Interest 42,342
Series A 5.625% Cumulative 1,476
Preferred Shares of Beneficial Interest
Series B Auction Rate Cumulative 16
Preferred Shares of Beneficial Interest
C-2
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 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.
801-37706).
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, Mellon Trust of New England, N.A., 135
Santilli Highway, Massachusetts 02149, at the offices of the Fund's
Administrator, PFPC, Inc, 760 Moore Road, King of Prussia, Pennsylvania 19406,
and in part at the offices of EquiServe Trust Company, N.A., 250 Royall Street,
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.
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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.
C-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 14th day of October, 2004.
THE GABELLI UTILITY TRUST
By: /s/ Bruce N. Alpert
--------------------------------
Bruce N. Alpert
President
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, 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 October 14, 2004
--------------------------- and Trustee
Mario J. Gabelli
/s/ Bruce N. Alpert President October 14, 2004
--------------------------
Bruce N. Alpert
* Trustee October 14, 2004
--------------------------
Thomas E. Bratter
* Trustee October 14, 2004
--------------------------
Anthony J. Colavita
* Trustee October 14, 2004
--------------------------
James P. Conn
* Trustee October 14, 2004
--------------------------
Vincent D. Enright
* Trustee October 14, 2004
--------------------------
Frank J. Fahrenkopf, Jr.
* Trustee October 14, 2004
--------------------------
John D. Gabelli
* Trustee October 14, 2004
--------------------------
Robert J. Morrissey
* Trustee October 14, 2004
--------------------------
Karl Otto Pohl
* Trustee October 14, 2004
--------------------------
Anthony R. Pustorino
C-5
Signature Title Date
* Trustee October 14, 2004
--------------------------
Salvatore J. Zizza
*By: Bruce N. Alpert,
--------------------------
Attorney-in-Fact
C-6
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-99 (d) (4) Form of Subscription Certificate
EX-99 (d) (5) Form of Notice of Guaranteed Delivery
EX-99 (d) (6) Form of Subscription, Distribution and
Escrow Agency Agreement
EX-99 (v) Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
EX-99 (n) (1) Consent of PricewaterhouseCoopers LLP
C-7