Opinion
on the Financial Statements
We
have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Gabelli
Utility Trust (the "Fund") as of December 31, 2021, the related statement of operations for the year ended December
31, 2021, the statement of changes in net assets attributable to common shareholders for each of the two years in the period
ended December 31, 2021, including the related notes, and the financial highlights for each of the five years in the period
ended December 31, 2021 (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2021, the results
of its operations for the year then ended, the changes in its net assets attributable to common shareholders for each of the
two years in the period ended December 31, 2021 and the financial highlights for each of the five years in the period ended
December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on
the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
Our procedures included confirmation of securities owned as of December 31, 2021 by correspondence with the custodian. We believe
that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers
LLP
New
York, New York
February
28, 2022
We
have served as the auditor of one or more investment companies in the Gabelli/GAMCO Fund Complex since 1986.
The
Gabelli Utility Trust
Additional
Fund Information (Unaudited)
The
following includes information that is incorporated by reference in the Fund’s Registration Statement and is also a summary
of certain changes during the most recent fiscal year ended December 31, 2021. This information may not reflect all of the changes
that have occurred since you purchased shares of the Fund.
During
the Fund’s most recent fiscal year, there were no material changes to the Fund’s investment objectives or policies
that have not been approved by shareholders or in the principal risk factors associated with an investment in the Fund.
Summary
of Updated Information Regarding the Fund
The
following information in this annual report is a summary of certain information about the Fund and changes since the Fund’s
last annual report to shareholders as of December 31, 2020, for the fiscal year ended December 31, 2021. This information may
not reflect all of the changes that have occurred since you invested in the Fund.
Investment
Objective and Strategies
There
have been no material changes to the Fund’s investment objective or principal investment strategies since the Fund’s
last annual report to shareholders.
Investment
Objective
The
Fund’s primary investment objective is long term growth of capital and income. The Fund will invest at least 80% of its
net assets (plus borrowings made for investment purposes), under normal market conditions, in common stocks and other securities
of foreign and domestic companies involved in providing products, services, or equipment for (i) the generation or distribution
of electricity, gas, and water and (ii) telecommunications services or infrastructure operations (collectively, the “Utility
Industry”). A company will be considered to be in the Utility Industry if it derives at least 50% of its revenues or earnings
from, or devotes at least 50% of its assets to, the indicated activities or utility-related activities. 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 at least 80% of the Fund’s net assets (plus borrowings
made for investment purposes) must be invested may be changed by the Board 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 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
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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. Among the foreign securities in which the Fund may invest are those issued by companies
located in emerging markets. 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. The
Fund may invest in securities across all market capitalization ranges.
No
assurance can be given that the Fund’s investment objective will be achieved.
Investment
Methodology of the Fund
In
selecting securities for the Fund, Gabelli Funds, LLC (the “Investment Adviser”) normally will consider the following
factors, among others:
| ● | the
Investment Adviser’s own evaluations of the private market value (as defined below),
cash flow, earn-ings per share and other fundamental aspects of the underlying assets
and business of the company; |
| ● | the
potential for capital appreciation of the securities; |
| ● | the
interest or dividend income generated by the securities; |
| ● | the
prices of the securities relative to other comparable securities; |
| ● | whether
the securities are entitled to the benefits of call protection or other protective covenants; |
| ● | the
existence of any anti-dilution protections or guarantees of the security; and |
| ● | the
diversification of the portfolio of the Fund as to issuers. |
The
Investment Adviser’s investment philosophy with respect to equity securities is to identify assets that are selling in
the public market at a discount to their private market value. The Investment Adviser defines private market value as the
value informed purchasers are willing to pay to acquire assets with similar characteristics. The Investment Adviser
also normally evaluates an issuer’s free cash flow and long term earnings trends. Finally, the Investment Adviser looks
for a catalyst, something indigenous to the company, its industry or country that will surface additional value.
Certain
Investment Practices
Corporate
Reorganizations. 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 similar reorganization
proposal has been announced if, in the judgment of the Investment Adviser, there is a reasonable prospect of capital appreciation
significantly greater than the added portfolio turnover expenses inherent in the short term nature of such transactions. The principal
risk is that such offers or proposals may not be consummated within the time and under the terms contemplated at the time of the
investment, in which case, unless such offers or proposals are replaced by equivalent or increased offers or proposals that are
consummated, the Fund may sustain a loss.
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Temporary
Defensive Investments. Subject to the Fund’s investment restrictions, when a temporary defensive period is
believed by the Investment Adviser to be warranted (“temporary defensive periods”), the Fund may, without
limitation, hold cash or invest its assets in securities of United States government sponsored instrumentalities, in
repurchase agreements in respect of those instruments, and in certain high-grade commercial paper instruments. During
temporary defensive periods, the Fund may also invest in money market mutual funds that invest primarily in securities of
United States government sponsored instrumentalities and repurchase agreements in respect of those instruments. Obligations
of certain agencies and instrumentalities of the United States government, such as the Government National Mortgage
Association, are supported by the “full faith and credit” of the United States government; others, such as those
of the Export-Import Bank of the United States, are supported by the right of the issuer to borrow from the United States
Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of
the United States 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 United States government would provide financial support to United States 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.
Non-Investment
Grade 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 Standard & Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc. (“S&P”), or
“Caa” or lower by Moody’s Investors Services, Inc. (“Moody’s”), or unrated securities of
comparable quality. These securities, which may be preferred stock or debt, are predominantly speculative and involve major
risk exposure to adverse conditions. Debt securities that are not rated or that are rated lower than “BBB” by
S&P or lower than “Baa” by Moody’s are often referred to in the financial press as “junk
bonds.”
Generally,
such non-investment grade securities and unrated securities of comparable quality offer a higher current yield than is offered
by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are predominantly
speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the
obligation. The market values of certain of these securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher quality securities. In addition, such securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is significantly greater because such non-investment grade 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 Investment Adviser, in evaluating the creditworthiness of an issue, whether rated or
unrated, will take various factors into consideration, which may include, as applicable, the issuer’s 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 non-investment grade securities is more volatile than that of higher quality securities, and the
markets in which such non-investment grade 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
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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 in response to changes in the economy or the
financial markets.
Non-investment
grade securities 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 nonconvertible bonds and preferred stocks 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 regular income streams.
As
part of its investment in non-investment grade securities, the Fund may invest in securities of issuers in default. The Fund will
make an investment in securities of issuers in default only when the Investment Adviser believes that such issuers will honor
their obligations or emerge from bankruptcy protection under a plan pursuant to which the securities received by the Fund in exchange
for its defaulted securities will have a value in excess of the Fund’s investment. 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 otherwise appreciate.
In
addition to using recognized rating agencies and other sources, the Investment 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 securities of issuers may include, among other things, current and anticipated cash flow and borrowing
requirements, value of assets in relation to historical cost, strength of management, responsiveness to business conditions, credit
standing, and current anticipated results of operations. In selecting investments for the Fund, the Investment Adviser may also
consider general business conditions, anticipated changes in interest rates, and the outlook for specific industries.
Subsequent
to its purchase by the Fund, an issuer of securities may cease to be rated or its rating may be reduced. In addition, it is possible
that statistical rating agencies may change their ratings of a particular issuer to reflect subsequent events. Moreover, such
ratings do not assess the risk of a decline in market value. None of these events will require the sale of the securities by the
Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue to hold the securities.
The
market for non-investment grade and comparable unrated securities has experienced several periods of significantly adverse price
and liquidity, particularly at or around times of economic recessions. Past market 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 or
to refinance such securities. The market for those securities may react in a similar fashion in the future.
Options.
On behalf of the Fund, the Investment Adviser may, subject to the guidelines of the Board, 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
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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.
A
call option is “covered” if the Fund owns the underlying instrument covered by the call or has an absolute and immediate
right to acquire that instrument without additional cash consideration upon conversion or exchange of another instrument held
in its portfolio (or for additional cash consideration held in a segregated account by its custodian). A call option is also covered
if the Fund holds a call on the same instrument as the call written where the exercise price of the call held is (i) equal to
or less than the exercise price of the call written or (ii) greater than the exercise price of the call written if the difference
is maintained by the Fund in cash, U.S. government obligations or other high-grade short term obligations in a segregated account
with its custodian. A put option is “covered” if the Fund maintains cash or other high-grade short term obligations
with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same instrument
as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written.
If the Fund has written an option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished
by purchasing an option of the same series as the option previously written. However, once the Fund has been assigned an exercise
notice, it 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 with the same terms
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 it received from
writing the option or is more than the premium it 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 it received from writing the option or is less than the premium it paid
to purchase the option. Since call option prices generally reflect
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increases
in the price of the underlying security, any loss resulting from the repurchase of a call option may also be wholly or partially
offset by unrealized appreciation of the underlying security. Other principal factors affecting the market value of a put or a
call option include supply and demand, interest rates, the current market price and price volatility of the underlying security
and the time remaining until the expiration date. Gains and losses on investments in options depend, in part, on the ability of
the Investment Adviser to predict correctly the effect of these factors. The use of options cannot serve as a complete hedge since
the price movement of securities underlying the options will not necessarily follow the price movements of the portfolio securities
subject to the hedge.
An
option position may be closed out only on an exchange that provides a secondary market for an option with the same terms 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 securities, the Fund may also purchase and sell call and put options on securities indices. A stock index
reflects in a single number the market value of many different stocks. Relative values are assigned to the stocks included in
an index and the index fluctuates with changes in the market values of the stocks. The options give the holder the right to receive
a cash settlement during the term of the option based on the difference between the exercise price and the value of the index.
By writing a put or call option on a securities index, the Fund is obligated, in return for the premium received, to make delivery
of this amount. The Fund may offset its position in the stock index options prior to expiration by entering into a closing transaction
on an exchange or it may let the option expire unexercised.
The
Fund may also buy or sell put and call options on foreign currencies. A put option on a foreign currency gives the purchaser of
the option the right to sell a foreign currency at the exercise price until the option expires. A call option on a foreign currency
gives the purchaser of the option the right to purchase the currency at the exercise price until the option expires. Currency
options traded on U.S. or other exchanges may be subject to position limits which may limit the ability of the Fund to reduce
foreign currency risk using such options. Over-the-counter options differ from exchange-traded options in that they are two-party
contracts with price and other terms negotiated between buyer and seller and generally do not have as much market liquidity as
exchange-traded options. Over-the-counter options are considered illiquid securities.
Use
of options on securities indices entails the risk that trading in the options may be interrupted if trading in certain
securities included in the index is interrupted. The Fund will not purchase these options unless the Investment
Adviser is satisfied with the development, depth and liquidity of the market and the Investment Adviser believes the options
can be closed out.
Price
movements in the portfolio of the Fund may not correlate precisely with the 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
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part,
on the ability of the Investment Adviser to predict correctly movements in the direction of the stock market generally or of a
particular industry. Because options on securities indices require settlement in cash, the Fund may be forced to liquidate portfolio
securities to meet settlement obligations.
Although
the Investment Adviser will attempt to take appropriate measures to minimize the risks relating to the Fund’s writing of
put and call options, there can be no assurance that the Fund will succeed in any option writing program it undertakes.
Futures
Contracts and Options on Futures. On behalf of the Fund, the Investment Adviser may, subject to the Fund’s
investment restrictions and guidelines of the Board, 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.
These futures contracts and related options may be written on debt securities, financial indices, securities indices, United
States 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. A “sale” of a futures
contract (or a “short” futures position) means the assumption of a contractual obligation to deliver the assets
underlying the contract at a specified price at a specified future time. A “purchase” of a futures contract (or a
“long” futures position) means the assumption of a contractual obligation to acquire the assets underlying the
contract at a specified price at a specified future time. Certain futures contracts, including stock and bond index futures,
are settled on a net cash payment basis rather than by the sale and delivery of the assets underlying the futures contracts.
No consideration will be paid or received by the Fund upon the purchase or sale of a futures contract. Initially, the Fund
will be required to deposit with the broker an amount of cash or cash equivalents equal to approximately 1% to 10% of the
contract amount (this amount is subject to change by the exchange or board of trade on which the contract is traded and
brokers or members of such board of trade may charge a higher amount). This amount is known as “initial margin”
and is in the nature of a performance bond or good faith deposit on the contract. Subsequent payments, known as
“variation margin,” to and from the broker will be made daily as the price of the index or security
underlying the futures contract fluctuates. At any time prior to the expiration of a futures contract, the Fund may
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 prior 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 option, or is less than, in the case of a put option, the exercise
price of the option on the futures contract. The potential loss related to the purchase of an option on a futures contract 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
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instrument,
possible lack of liquidity due to daily limits on price fluctuations, imperfect correlation between the contracts and the securities
being hedged, losses from investing in futures transactions that are potentially unlimited and the segregation requirements described
below.
In
the event the Fund sells a put option or enters into long futures contracts, under current interpretations of the Investment Company
Act of 1940, as amended (the “1940 Act”), an amount of cash, U.S. government securities or other liquid securities
equal to the market value of the contract must be deposited and maintained in a segregated account with the Fund’s custodian
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 or liquid securities that, when added to amounts deposited with a
futures commission merchant or a broker as margin, equal the market value of the instruments or currency underlying the futures
contract or call option or the market price at which the short positions were established.
The
Investment Adviser has claimed an exclusion, granted to operators of registered investment companies like the Fund, from
registration as a commodity pool operator (“CPO”) with respect to the Fund under the Commodity Exchange Act (the
“CEA”), and, therefore, is not subject to registration or regulation with respect to the Fund under the CEA. As a
result, the Fund is limited in its ability to use commodity futures (which include futures on broad-based securities indexes
and interest rate futures) or options on commodity futures, engage in certain swaps transactions or make certain other
investments (whether directly or indirectly through investments in other investment vehicles) for purposes other than
“bona fide hedging,” as defined in the rules of the Commodity Futures Trading Commission. With respect to
transactions other than for bona fide hedging purposes, either: (1) the aggregate initial margin and premiums required
to establish the Fund’s positions in such investments may not exceed 5% of the liquidation value of its portfolio
(after accounting for unrealized profits and unrealized losses on any such investments); or (2) the aggregate net notional
value of such instruments, determined at the time the most recent position was established, may not exceed 100% of the
liquidation value of its portfolio (after accounting for unrealized profits and unrealized losses on any such positions). In
addition to meeting one of the foregoing trading limitations, the Fund may not market itself as a commodity pool or otherwise
as a vehicle for trading in the futures, options or swaps markets. If the Investment Adviser were required to register as a
CPO with respect to the Fund, compliance with additional registration and regulatory requirements would increase Fund
expenses. Other potentially adverse regulatory initiatives could also develop.
Interest
Rate Futures Contracts and Options Thereon. The Fund may purchase or sell interest rate futures contracts to take advantage
of, or to protect against, fluctuations in interest rates affecting the value of debt securities which the Fund holds or intends
to acquire. For example, if interest rates are expected to increase, the Fund might sell futures contracts on debt securities,
the values of which historically have a high degree of positive correlation to the values of the Fund’s portfolio securities.
Such a sale would have an effect similar to selling an equivalent value of the Fund’s portfolio securities. If interest
rates increase, the value of the Fund’s portfolio securities will decline, but the value of the futures contracts to the
Fund will increase at approximately an equivalent rate, thereby keeping the net asset value of the Fund from declining as much
as it otherwise would have. The Fund could accomplish similar results by selling debt securities with longer maturities and investing
in debt securities with shorter maturities when interest rates are expected to increase. However, since the futures
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market
may be more liquid than the cash market, the use of futures contracts as a risk management technique allows the Fund to maintain
a defensive position without having to sell its portfolio securities.
Similarly,
the Fund may purchase interest rate futures contracts when it is expected that interest rates may decline. The purchase of futures
contracts for this purpose constitutes a hedge against increases in the price of debt securities (caused by declining interest
rates) which the Fund intends to acquire. Since fluctuations in the value of appropriately selected futures contracts should approximate
that of the debt securities that will be purchased, the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make its intended purchase of the debt securities in the cash
market and concurrently liquidate its futures position. To the extent the Fund enters into futures contracts for this purpose,
it will maintain, in a segregated asset account with the Fund’s Custodian, assets sufficient to cover the obligations of
the Fund with respect to such futures contracts, which will consist of cash or other liquid securities from its portfolio in an
amount equal to the difference between the fluctuating market value of such futures contracts and the aggregate value of the initial
margin deposited by the Fund with its Custodian with respect to such futures contracts.
The
purchase of a call option on a futures contract is similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying
debt securities. As with the purchase of futures contracts, when the Fund is not fully invested it may purchase a call option
on a futures contract to hedge against a market advance due to declining interest rates.
The
purchase of a put option on a futures contract is similar to the purchase of protective put options on portfolio securities. The
Fund will purchase a put option on a futures contract to hedge the Fund’s portfolio against the risk of rising interest
rates and a consequent reduction in the value of portfolio securities.
The
writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities that are
deliverable upon exercise of the futures contract. If the futures price at expiration of the option is below the exercise price,
the Fund will retain the full amount of the option premium, which provides a partial hedge against any decline that may have occurred
in the Fund’s portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against
increasing prices of the securities that are deliverable upon exercise of the futures contract. If the futures price at expiration
of the option is higher than the exercise price, the Fund will retain the full amount of the option premium, which provides a
partial hedge against any increase in the price of debt securities that the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the premium it received.
Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its
futures positions, losses of the Fund from options on futures it has written may to some extent be reduced or increased by changes
in the value of its portfolio securities.
Swap
Contracts. On behalf of the Fund, the Investment Adviser may, subject to the Fund’s investment restrictions and
guidelines established by the Board, enter into swap transactions, including total rate of return, credit default, interest rate
or other types of swaps and related derivatives. Swap contracts generally will be used by the Fund for the purpose of seeking
to increase the income of the Fund. The use of swaps is a highly
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specialized
activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions.
In a typical swap transaction on an equity security, a set of future cash flows is exchanged between two counterparties. One of
these cash flow streams will typically be based on a reference interest rate combined with the performance of a notional value
of shares of a stock. The other will be based on the performance of the shares of a stock. Depending on the general state of short
term interest rates and the returns on the Fund’s portfolio securities at the time an equity swap transaction reaches its
scheduled termination date, there is a risk that the Fund will not be able to obtain a replacement transaction or that the terms
of the replacement will not be as favorable as on the expiring transaction.
Securities
Index Futures Contracts and Options Thereon. Purchases or sales of securities index futures contracts are used for hedging
purposes to attempt to protect the Fund’s current or intended investments from broad fluctuations in stock or bond prices.
For example, the Fund may sell securities index futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of its securities portfolio that might otherwise result. If such decline occurs, the loss
in value of portfolio securities may be offset, in whole or part, by gains on the futures position. When the Fund is not fully
invested in the securities market and anticipates a significant market advance, it may purchase securities index futures contracts
in order to gain rapid market exposure that may, in part or entirely, offset increases in the cost of securities that it intends
to purchase. As such purchases are made, the corresponding positions in securities index futures contracts will be closed out.
The Fund may write put and call options on securities index futures contracts for hedging purposes.
Currency
Futures and Options Thereon. Generally, foreign currency futures contracts and options thereon are similar to the interest
rate futures contracts and options thereon discussed previously. By entering into currency futures and options thereon, the Fund
will seek to establish the rate at which it will be entitled to exchange U.S. dollars for another currency at a future time. By
selling currency futures, the Fund will seek to establish the number of dollars it will receive at delivery for a certain amount
of a foreign currency. In this way, whenever the Fund anticipates a decline in the value of a foreign currency against the U.S.
dollar, the Fund can attempt to “lock in” the U.S. dollar value of some or all of the securities held in its portfolio
that are denominated in that currency. By purchasing currency futures, the Fund can establish the number of dollars it will be
required to pay for a specified amount of a foreign currency in a future month. Thus, if the Fund intends to buy securities in
the future and expects the U.S. dollar to decline against the relevant foreign currency during the period before the purchase
is effected, the Fund can attempt to “lock in” the price in U.S. dollars of the securities it intends to acquire.
The
purchase of options on currency futures will allow the Fund, for the price of the premium and related transaction costs it
must pay for the option, to decide whether or not to buy (in the case of a call option) or to sell (in the case of a
put option) a futures contract at a specified price at any time during the period before the option expires. If the
Investment Adviser, in purchasing an option, has been correct in its judgment concerning the direction in which the price of
a foreign currency would move as against the U.S. dollar, the Fund may exercise the option and thereby take a futures
position to hedge against the risk it had correctly anticipated or close out the option position at a gain that will offset,
to some extent, currency exchange losses otherwise suffered by the Fund. If exchange rates move in a way the Fund did not
anticipate, however, the Fund will have incurred the expense of the option without obtaining the expected benefit; any such
movement in exchange rates may also thereby reduce, rather than enhance, the Fund’s profits on its underlying
securities transactions.
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Forward
Currency Exchange Contracts. Subject to guidelines of the Board, 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
generally will be limited to hedging involving either specific transactions or portfolio positions. The Fund does not have an
independent limitation on its investments in foreign currency futures contracts and options on foreign currency futures contracts.
At
or before the maturity of a forward sale contract, the Fund may either sell a portfolio security and make delivery of the currency,
or retain the security and offset its contractual obligations to deliver the currency by purchasing a second contract pursuant
to which the Fund will obtain, on the same maturity date, the same amount of the currency which it is obligated to deliver. If
the Fund retains the portfolio security and engages in an offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has occurred in forward contract prices. Should forward prices
decline during the period between entering into a forward contract by the Fund for the sale of a currency and the date it enters
into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to purchase is less than the price of the currency it has agreed to sell. Should forward prices increase, the Fund
will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Closing out forward purchase contracts involves similar offsetting transactions.
The
cost to the Fund of engaging in currency transactions varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because forward transactions in currency exchange are usually conducted on a
principal basis, no fees or commissions are involved. The use of foreign currency contracts does not eliminate fluctuations in
the underlying prices of the securities, but it does establish a rate of exchange that can be achieved in the future. In addition,
although forward currency contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit
any potential gain that might result if the value of the currency increases.
If
a decline in any currency is generally anticipated by the Investment Adviser, the Fund may not be able to contract to sell the
currency at a price above the level to which the currency is anticipated to decline.
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.
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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 Against the Box. The Fund may from time to time make short sales of securities. The market value for the securities
sold short by any one issuer will not exceed 5% of the Fund’s total assets or 5% of such issuer’s voting securities.
The Fund may not make short sales or maintain a short position if it would cause more than 25% of the Fund’s total assets,
taken at market value, to be held as collateral for such sales. The Fund may also make short sales “against the box.”
A short sale is “against the box” to the extent that the Fund contemporaneously owns or has the right to obtain at
no added cost securities identical to those sold short. In a short sale, the Fund does not immediately deliver the securities
sold or receive the proceeds from the sale.
To
secure its obligations to deliver the securities sold short, the Fund will deposit in escrow in a separate account with its custodian
an equal amount to the securities sold short or securities convertible into, or exchangeable for such securities. The Fund may
close out a short position by purchasing and delivering an equal amount of the securities sold short, rather than by delivering
securities already held by the Fund, because the Fund may want to continue to receive interest and dividend payments on securities
in its portfolio that are convertible into the securities sold short.
The
Fund may make a short sale in order to hedge against market risks when it believes that the price of a security may decline, causing
a decline in the value of a security owned by the Fund or a security convertible into, or exchangeable for, such security, or
when the Fund does not want to sell the security it owns. Such short sale transactions may be subject to special tax rules, one
of the effects of which may be to accelerate income to the Fund. Additionally, the Fund may use short sales in conjunction with
the purchase of a convertible security when it is determined that a convertible security can be bought at a small conversion premium
and has a yield advantage relative to the underlying common stock sold short.
Repurchase
Agreements. The Fund may enter into repurchase agreements with banks and non-bank dealers of United States government
securities which are listed as reporting dealers of the Federal Reserve Bank and which furnish collateral at least equal in value
or market price to the amount of their repurchase obligation. In a repurchase agreement, the Fund purchases a debt security from
a seller who undertakes to repurchase the security at a specified resale price on an agreed future date. Repurchase agreements
are generally for one business day and generally will not have a duration of longer than one week. The SEC has taken the position
that, in economic reality, a repurchase agreement is a loan by a fund to the other party to the transaction secured by securities
transferred to the fund. The resale price generally exceeds the purchase price by an amount which reflects an agreed upon market
interest rate for the term of the repurchase agreement. The Fund’s risk is primarily that, if the seller defaults, the proceeds
from the disposition of the underlying securities and other collateral for the seller’s obligation may be less than the
repurchase price. If the seller becomes insolvent, the Fund might be delayed in or prevented from selling the collateral. In the
event of a default or bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral. To the extent that the
proceeds from any sale of the collateral upon a default in the obligation to repurchase is less than the repurchase price, the
Fund will experience a loss. If the financial institution that is a party to the repurchase agreement petitions for bankruptcy
or becomes subject to the United States Bankruptcy Code, the law regarding the rights of the Fund is unsettled.
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As
a result, under extreme circumstances, there may be a restriction on the Fund’s ability to sell the collateral and the Fund
could suffer a loss.
Leverage.
As provided in the 1940 Act, and subject to compliance with the Fund’s investment limitations, the Fund may issue
senior securities representing shares, such as preferred shares, so long as immediately following such issuance of shares, its
total assets exceed 200% of the amount of such shares. The use of leverage magnifies the impact of changes in net asset value.
For example, a fund that uses 33% leverage 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. In addition, if the cost of leverage exceeds the return on the securities acquired with the
proceeds of leverage, the use of leverage will diminish, rather than enhance, the return to the Fund. The use of leverage generally
increases the volatility of returns to the Fund.
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, as defined in the 1940 Act, of the
outstanding voting securities of the Fund (voting together as a single class). The Fund’s fundamental investment
restrictions prohibit the Fund from: (1) concentrating its investments (i.e., investing more than 25% of the Fund’s
total assets) in securities of issuers in any industry other than the Utility Industry; (2) purchasing or selling commodities
or commodity contracts, except that the Fund may purchase or sell futures contracts and related options thereon if certain
conditions are met, and purchasing or selling 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) making loans of
money, except by the purchase of a portion of private or publicly distributed debt obligations or the entering into of
repurchase agreements, and 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; (4) borrowing money, except to the extent
permitted by applicable law (i.e., the Fund generally may borrow money in amounts of up to one-third of the Fund’s
total assets for any purpose, subject to the requirement that the Fund have asset coverage of at least 300% of the amount of
its borrowings at the time the borrowing is incurred, and may borrow up to 5% of the Fund’s total assets for temporary
purposes (for up to 60 days) without maintaining such 300% asset coverage); (5) issuing senior securities, except to the
extent permitted by applicable law (i.e., the Fund may issue senior securities (which may be stock, such as preferred shares,
and/or securities representing debt, such as notes), subject to the requirement that the Fund maintain asset coverage as
required by the 1940 Act); and (6) underwriting securities of other issuers except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933, as amended, in selling portfolio securities.
Portfolio
Turnover. The Fund will buy and sell securities to accomplish its investment objective. The investment policies of the
Fund may lead to frequent changes in investments, particularly in periods of rapidly fluctuating interest or currency exchange
rates. The portfolio turnover may be higher than that of other investment companies.
Portfolio
turnover generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other securities. The portfolio turnover rate is computed by dividing the
lesser of the amount of the 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). High portfolio turnover may also result in
the realization of substantial net short term capital gains and any distributions resulting from such gains will be taxable at
ordinary income rates
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for
United States federal income tax purposes. The Fund’s portfolio turnover rates for the fiscal years ended December
31, 2019 and 2020 were 23% and 19%, respectively.
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 investing in
the Fund.
Loans
of Portfolio Securities. To increase income, the Fund may lend its portfolio securities to securities broker-dealers or
financial institutions if (i) the loan is collateralized in accordance with applicable regulatory requirements and (ii) no loan
will cause the value of all loaned securities to exceed 20% of the value of its total assets.
If
the borrower fails to maintain the requisite amount of collateral, the loan automatically terminates and the Fund could use the
collateral to replace the securities while holding the borrower liable for any excess of replacement cost over the value of the
collateral. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of rights in collateral
should the borrower of the securities fail financially. While these loans of portfolio securities will be made in accordance with
guidelines approved by the Board, there can be no assurance that borrowers will not fail financially. On termination of the loan,
the borrower is required to return the securities to the Fund, and any gain or loss in the market price during the loan would
inure to the Fund. If the counterparty to the loan petitions for bankruptcy or becomes subject to the United States Bankruptcy
Code, the law regarding the Fund’s rights is unsettled. As a result, under these circumstances, there may be a restriction
on the Fund’s ability to sell the collateral and it would suffer a loss.
Borrowing.
The Fund may borrow money in accordance with its investment restrictions, including as a temporary measure for extraordinary
or emergency purposes.
Risk
Factors and Special Considerations
Investors
should consider the following risk factors and special considerations associated with investing in the Fund:
Industry
Risks
Under
normal market conditions, the Fund will invest at least 80% of its net assets (plus borrowings made for investment purposes) in
foreign and domestic companies involved in the Utility Industry and, as a result, the value of the common shares will be more
susceptible to factors affecting those particular types of companies, including governmental regulation, inflation, cost increases
in fuel and other operating expenses, 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
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range
of investment alternatives. The prices of securities issued by traditional utility companies may change in response to interest
rate changes. There is no guarantee that this relationship will continue.
Government
Regulation. Companies in certain sectors of the Utility Industry (such as power generation and distribution) are subject
to extensive governmental regulatory requirements. Certain of these regulations that are intended to limit the concentration of
ownership and control of companies in these industries may prevent companies in which the Fund invests from making certain investments
that they would otherwise make. Other regulations may cause Utility Industry companies to incur substantial additional costs or
lengthy delays in connection with the completion of capital investments or the introduction of new products or services to market.
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 companies to implement rate increases or that such increases will be adequate to permit the payment of dividends on such
issuer’s common shares. Additionally, existing and possible future regulatory legislation may make it even more difficult
for companies in the Utility Industry to obtain adequate relief from rate regulation.
Regulatory
considerations limit the percentage of the shares of a public utility held by a fund or by an adviser and its affiliates on
behalf of all their clients. Various types of ownership restrictions are imposed by the Federal Communications
Commission (“FCC”) on investment in media companies and cellular licensees. These rules limit the number of
broadcast stations both locally and nationally that a single entity is permitted to own, operate, or control and prohibit
ownership of certain competitive communications providers in the same location. The FCC also applies limited ownership
restrictions on cellular licensees serving rural areas. Attributable interests that may result from the role of the
Investment Adviser and its principals in connection with other funds, managed accounts and companies may limit the
Fund’s ability to invest in certain mass media and cellular companies. 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
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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 and historically, 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.
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.
Electric
utilities may be burdened by unexpected increases in 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,
cap and trade or other programs designed to reduce carbon dioxide and other greenhouse emissions, 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.
Long
Term Objective: Not a Complete Investment Program
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 exploit 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 Fund’s investment objective as well as the shareholder’s
other investments when considering an investment in the Fund.
Market
Value and Net Asset Value
The
Fund is a diversified, closed-end management investment company. Shares of closed-end funds are bought and sold in the securities markets
and may trade at either a premium to or discount from net asset value. Listed shares of closed-end investment companies often trade at
discounts from net asset value. This characteristic of shares of a closed-end fund is a risk separate and distinct from the risk that
its net asset value may decrease. The Fund cannot predict whether its listed shares will trade at, below or above net asset value. The
risk of holding shares of a closed-end fund that might trade at a discount is more pronounced for shareholders who wish to sell their
shares in a relatively short period of time after acquiring them because, for those investors, realization of a gain or loss on their
investments is likely to be more dependent upon the existence of a premium or discount than upon portfolio performance. The Fund’s
shares are not subject to redemption. Shortly after the inception of the Fund, the market price of the Fund exceeded the net asset value
and the premium continues
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today.
Shareholders desiring liquidity may, subject to applicable securities laws, trade their Fund shares 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. Shareholders will incur brokerage or other transaction costs to sell shares.
Non-Investment
Grade Securities
The
Fund may invest up to 25% of its total assets in fixed income securities rated below investment grade by recognized statistical
rating agencies or unrated securities of comparable quality. These securities, which may be preferred stock or debt, are predominantly
speculative and involve major risk exposure to adverse conditions. Debt securities that are not rated or that are rated lower
than “BBB” by S&P or lower than “Baa” by Moody’s are referred to in the financial press as “junk
bonds.” Such securities are subject to greater risks than investment grade securities, which reflect their speculative character,
including the following:
| ● | potentially
greater sensitivity to general economic or industry conditions; |
| ● | potential
lack of attractive resale opportunities (illiquidity); and |
| ● | additional
expenses to seek recovery from issuers who default |
Fixed
income securities purchased by the Fund may be rated as low as C by Moody’s or D by S&P or may be unrated securities
considered to be of equivalent quality. Securities that are rated C by Moody’s are the lowest rated class and can be regarded
as having extremely poor prospects of ever obtaining investment-grade standing. Debt rated D by S&P is in default or is expected
to default upon maturity of payment date.
The
market value of non-investment grade securities may be more volatile than the market value of higher rated securities and
generally tends to reflect the market’s perception of the creditworthiness of the issuer and short term market
developments to a greater extent than more highly rated securities, which primarily reflect fluctuations in general levels of
interest rates. Generally, such non-investment grade securities and unrated securities of comparable quality offer a higher
current yield than is offered by higher rated securities, but also (i) will likely have some quality and protective
characteristics that, in the judgment of the rating organizations, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (ii) are predominantly speculative with respect to the issuer’s capacity to pay
interest and repay principal in accordance with the terms of the obligation. The market values of certain of these securities
also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher quality
securities. In addition, such securities generally present a higher degree of credit risk. The risk of loss due to default by
these issuers is significantly greater because such non-investment grade 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 Investment Adviser, in evaluating the creditworthiness of an issue, whether rated or unrated, will take
various factors into consideration, which may include, as applicable, the issuer’s 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.
Non-investment
grade securities 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
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with
a lower yielding security, resulting in a decreased return for investors. Also, as the principal value of nonconvertible bonds
and preferred stocks 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 regular income streams.
Ratings
are relative and subjective, and are not absolute standards of quality. Securities ratings are based largely on the issuer’s
historical financial condition and the rating agencies’ analysis at the time of rating. Consequently, the rating assigned
to any particular security is not necessarily a reflection of the issuer’s current financial condition.
As
part of its investment in non-investment grade securities, the Fund may invest in securities of issuers in default. The Fund will
make an investment in securities of issuers in default only when the Investment Adviser believes that such issuers will honor
their obligations or emerge from bankruptcy protection under a plan pursuant to which the securities received by the Fund in exchange
for its defaulted securities will have a value in excess of the Fund’s investment. 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 otherwise appreciate.
Equity
Risk
Investing
in the Fund involves equity risk, which is the risk that the securities held by the Fund will fall in market value due to adverse
market and economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate
and the particular circumstances and performance of particular companies whose securities the Fund holds. An investment in the
Fund represents an indirect economic stake in the securities owned by the Fund, which are for the most part traded on securities
exchanges or in the over-the-counter markets. The market value of these securities, like other market investments, may move up
or down, sometimes rapidly and unpredictably. The net asset value of the Fund may at any point in time be worth less than the
amount at the time the shareholder invested in the Fund, even after taking into account any reinvestment of distributions.
Foreign
Securities
The
Fund may invest its assets in foreign securities without limitation, including securities of issuers whose primary operations
or principal trading market is in an “emerging market.” Investments in the securities of foreign issuers involve certain
considerations and risks not ordinarily associated with investments in securities of domestic issuers. Foreign companies are not
generally subject to uniform accounting, auditing and financial standards and requirements comparable to those applicable to United
States companies. Foreign securities exchanges, brokers and listed companies may be subject to less government supervision and
regulation than exists in the United States. Dividend and interest income may be subject to withholding and other foreign taxes,
which may adversely affect the net return on such investments. There may be difficulty in obtaining or enforcing a court judgment
abroad. In addition, it may be difficult to effect repatriation of capital invested in certain countries. In addition, with respect
to certain countries, there are risks of expropriation, confiscatory taxation, political or social instability or diplomatic developments
that could affect assets of the Fund held in foreign countries.
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Dividend
income that the Fund receives from foreign securities may not be eligible for the special tax treatment applicable to qualified
dividend income.
There
may be less publicly available information about a foreign company than a United States company. Foreign securities markets may
have substantially less volume than United States securities markets and some foreign company securities are less liquid than
securities of otherwise comparable United States companies. A portfolio of foreign securities may also be adversely affected by
fluctuations in the rates of exchange between the currencies of different nations and by exchange control regulations. Foreign
markets also have different clearance and settlement procedures that could cause the Fund to encounter difficulties in purchasing
and selling securities on such markets and may result in the Fund missing attractive investment opportunities or experiencing
loss. In addition, a portfolio that includes foreign securities can expect to have a higher expense ratio because of the increased
transaction costs on non-United States securities markets and the increased costs of maintaining the custody of foreign securities.
The
Fund also may purchase sponsored American Depositary Receipts (“ADRs”) or United States dollar denominated securities
of foreign issuers. ADRs are receipts issued by United States banks or trust companies in respect of securities of foreign issuers
held on deposit for use in the United States securities markets. While ADRs may not necessarily be denominated in the same currency
as the securities into which they may be converted, many of the risks associated with foreign securities may also apply to ADRs.
In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts,
are under no obligation to distribute shareholder communications to the holders of such receipts, or to pass through to them any
voting rights with respect to the deposited securities.
Emerging
Markets
An
“emerging market” country is any country that is considered to be an emerging or developing country by the
International Bank for Reconstruction and Development (the “World Bank”). Investing in securities of companies in
emerging markets may entail special risks relating to potential political and economic instability and the risks of
expropriation, nationalization, confiscation or the imposition of restrictions on foreign investment, the lack of hedging
instruments and restrictions on repatriation of capital invested. Emerging securities markets are substantially smaller, less
developed, less liquid and more volatile than the major securities markets. The limited size of emerging securities markets
and limited trading value compared to the volume of trading in U.S. securities could cause prices to be erratic for reasons
apart from factors that affect the quality of the securities. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and investors’ perceptions, whether or not
based on fundamental analysis, may decrease the value and liquidity of portfolio securities, especially in these markets.
Other risks include high concentration of market capitalization and trading volume in a small number of issuers representing
a limited number of industries, as well as a high concentration of investors and financial intermediaries; overdependence on
exports, including gold and natural resources exports, making these economies vulnerable to changes in commodity prices;
overburdened infrastructure and obsolete or unseasoned financial systems; environmental problems; less developed legal
systems, and deficiencies in regulatory oversight, market infrastructure, shareholder protections; differences in regulatory,
accounting, auditing and financial reporting and recordkeeping standards; and less reliable securities custodial services and
settlement practices.
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Small
and Mid-Cap Stock Risk
The
Fund may invest in companies with small or medium capitalizations. Smaller and medium company stocks can be more volatile than,
and perform differently from, larger company stocks. There may be less trading in a smaller or medium company’s stock, which
means that buy and sell transactions in that stock could have a larger impact on the stock’s price than is the case with
larger company stocks. Smaller and medium company stocks may be particularly sensitive to changes in interest rates, borrowing
costs and earnings. Smaller and medium companies may have fewer business lines; changes in any one line of business, therefore,
may have a greater impact on a smaller and medium company’s stock price than is the case for a larger company. As a result,
the purchase or sale of more than a limited number of shares of a small and medium company may affect its market price. The Fund
may need a considerable amount of time to purchase or sell its positions in these securities. In addition, smaller or medium company
stocks may not be well known to the investing public.
Special
Risks of Derivative Transactions
The
Fund may participate in derivative transactions. Such transactions entail certain execution, market, liquidity, hedging and tax
risks. Participation in the options, futures or swaps markets and in currency exchange transactions involves investment risks
and transaction costs to which the Fund would not be subject absent the use of these strategies. If the Investment Adviser’s
prediction of movements in the direction of the securities, foreign currency and interest rate markets are inaccurate, the consequences
to the Fund may leave the Fund in a worse position than if such strategies were not used. Risks inherent in the use of options,
foreign currency, futures contracts and options on futures contracts, securities indices and foreign currencies include:
| ● | dependence
on the Investment Adviser’s ability to predict correctly movements in the direction
of interest rates, securities prices and currency markets; |
| ● | imperfect
correlation between the price of options and futures contracts and options thereon and
move-ments in the prices of the securities or currencies being hedged; |
| ● | the
fact that skills needed to use these strategies are different from those needed to select
portfolio securities; |
| ● | the
possible absence of a liquid secondary market for any particular instrument at any time; |
| ● | the
possible need to defer closing out certain hedged positions to avoid adverse tax consequences; |
| ● | 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 |
| ● | the
creditworthiness of counterparties. |
Options,
futures contracts, swaps contracts, and options thereon and forward contracts on securities and currencies may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States, may not involve
a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be adversely affected by (i) other complex foreign political,
legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii)
delays in the ability of the Fund to act upon economic events occurring in the foreign markets during non-business hours in the
United States, (iv) the imposition of different exercise and settlement terms and procedures and margin
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requirements
than in the United States and (v) less trading volume. Exchanges on which options, futures, swaps, and options on futures or swaps
are traded may impose limits on the positions that the Fund may take in certain circumstances.
In
October 2020, the Securities and Exchange Commission adopted new regulations governing the use of derivatives by registered investment
companies (“Rule 18f-4”). The Fund will be required to implement and comply with new Rule 18f-4 by August 19, 2022.
Once implemented, Rule 18f-4 will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation
framework currently used by funds to comply with Section 18 of the Investment Company Act, treat derivatives as senior securities
so that a failure to comply with the limits would result in a statutory violation and require funds whose use of derivatives is
more than a limited specified exposure to establish and maintain a comprehensive derivatives risk management program and appoint
a derivatives risk manager.
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 or price fluctuations; |
| ● | imperfect
correlation between the contracts and the securities being hedged; and |
| ● | losses
from investing in futures transactions that are potentially unlimited and the segregation
require-ments for such transactions. |
The
Fund’s ability to establish and close out positions in futures contracts and options thereon will be subject to the development
and maintenance of liquid markets. Although the Fund generally will purchase or sell only those futures contracts and options
thereon for which there appears to be a liquid market, there is no assurance that a liquid market on an exchange will exist for
any particular futures contract or option thereon at any particular time.
In
the event no liquid market exists for a particular futures contract or option thereon in which the Fund maintains a position,
it will not be possible to effect a closing transaction in that contract or to do so at a satisfactory price and the Fund would
have to either make or take delivery under the futures contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a purchased option, exercise the option. In the case of
a futures contract or an option thereon which the Fund has written and which the Fund is unable to close, the Fund would be required
to maintain margin deposits on the futures contract or option thereon and to make variation margin payments until the contract
is closed.
Successful
use of futures contracts and options thereon and forward contracts by the Fund is subject to the ability of the Investment Adviser
to predict correctly movements in the direction of interest and foreign currency rates. If the Investment Adviser’s expectations
are not met, the Fund will be in a worse position than if a hedging strategy had not been pursued. For example, if the Fund has
hedged against the possibility of an increase in interest rates that would adversely affect the price of securities in its portfolio
and the price of such securities increases instead, the Fund will lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient
cash
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to
meet daily variation margin requirements, it may have to sell securities to meet the requirements. These sales may be, but will
not necessarily be, at increased prices that reflect the rising market. The Fund may have to sell securities at a time when it
is disadvantageous to do so.
Swap
Agreements
Swap
agreements involve the risk that the party with whom the Fund has entered into the swap will default on its obligation to pay
the Fund and the risk that the Fund will not be able to meet its obligations to pay the other party to the agreement. Whether
the Fund’s use of swap agreements will be successful in furthering its investment objective will depend on the Investment
Adviser’s ability to correctly predict whether certain types of investments are likely to produce greater returns than other
investments. Because they are two party contracts and because they may have terms of greater than seven days, some swap agreements
may be considered by the Fund to be illiquid. Restrictions imposed by the tax rules applicable to regulated investment companies
may limit the Fund’s ability to use swap agreements. The swap market currently is largely unregulated. It is possible that
developments in the swap market, including potential significant government regulation as a result of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) or otherwise, could adversely affect the Fund’s
ability to enter into or terminate swap agreements or to realize amounts to be received under these agreements. Swap transactions
may involve substantial leverage.
Forward
Currency Exchange Contracts
The
use of forward currency exchange contracts may involve certain risks, including the failure of the counterparty 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.
Asset
Segregation Risk
The
Fund will comply with guidelines established by the SEC with respect to coverage of derivative instruments. These guidelines may,
in certain instances, require segregation by the Fund of cash or liquid securities with its custodian or a designated sub-custodian
to the extent the Fund’s obligations with respect to these strategies are not otherwise “covered” through ownership
of the underlying security, financial instrument or currency or by other portfolio positions or by other means consistent with
applicable regulatory policies. Segregated assets cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. Assets segregated by the Fund for these purposes are identified on the books
of its custodian or a designated sub-custodian, but are not physically separate from other assets of the Fund.
By
August 19, 2022, the Fund will be required to implement and comply with new Rule 18f-4 under the 1940 Act, which,
once implemented, will eliminate the asset segregation framework currently used by funds to comply with Section 18 of the
1940 Act with respect to funds’ use of derivatives, among other things. See “ — Special Risks of Derivative
Transactions” above.
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
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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.
Market
Disruption and Geopolitical Risk
The
occurrence of events similar to those in recent years, such as localized wars, instability, new and ongoing epidemics and
pandemics of infectious diseases and other global health events, natural/environmental disasters, terrorist attacks in the
United States and around the world, social and political discord, debt crises, sovereign debt downgrades, increasingly
strained relations between the United States and a number of foreign countries, new and continued political unrest in various
countries, the exit or potential exit of one or more countries from the EU or the EMU, continued changes in the balance of
political power among and within the branches of the U.S. government, government shutdowns, among others, may result in
market volatility, may have long term effects on the U.S. and worldwide financial markets, and may cause further economic
uncertainties in the United States and worldwide.
China
and the United States have each recently imposed tariffs on the other country’s products. These actions may trigger a significant
reduction in international trade, the oversupply of certain manufactured goods, substantial price reductions of goods and possible
failure of individual companies and/or large segments of China’s export industry, which could have a negative impact on
the Fund’s performance. U.S. companies that source material and goods from China and those that make large amounts of sales
in China would be particularly vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions
and the potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen
and the euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs may
be imposed or other escalating actions may be taken in the future.
The
decision made in the British referendum of June 23, 2016 to leave the EU, an event widely referred to as “Brexit,”
has led to volatility in the financial markets of the United Kingdom (“UK”) and more broadly across Europe and
may also lead to weakening in consumer, corporate and financial confidence in such markets. Pursuant to an agreement between
the UK and the EU, the UK left the EU on January 31, 2020. The UK and EU have reached an agreement effective January 1, 2021
on the terms of their future trading relationship relating principally to the trading of goods; however, negotiations are
ongoing for matters not covered by the agreement, such as the trade of financial services. The longer term economic, legal,
political and social framework to be put in place between the UK and the EU remains unclear at this stage and ongoing
political and economic uncertainty and periods of exacerbated volatility in both the UK and in wider European markets may
continue for some time. In particular, the decision made in the British referendum may lead to a call for similar referendums
in other European jurisdictions which may cause increased economic volatility in the European and global markets. This
uncertainty may have an adverse effect on the economy generally and on the ability of the Fund and its investments to execute
their respective strategies and to receive attractive returns. In particular, currency volatility may mean that the returns
of the Fund and its investments are adversely affected by market movements and may make it more difficult, or more expensive,
if the Fund elects to execute currency hedges. Potential decline in the value of the British Pound and/or the Euro against
other currencies, along with the potential downgrading of the UK’s sovereign credit rating, may also have an impact on
the performance of portfolio companies or investments located in the UK or Europe. In light of the above, no definitive
assessment
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can
currently be made regarding the impact that Brexit will have on the Fund, its investments or its organization more generally.
Cybersecurity
incidents affecting particular companies or industries may adversely affect the economies of particular countries, regions or
parts of the work in which the Fund invests.
An
outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 2019 and has developed into
a global pandemic. This pandemic has resulted in closing borders, enhanced health screenings, healthcare service preparation and
delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general concern and uncertainty.
Disruptions in markets can adversely impact the Fund and its investments. Further, certain local markets have been or may be subject
to closures, and there can be no certainty regarding whether trading will continue in any local markets in which the Fund may
invest, when any resumption of trading will occur or, once such markets resume trading, whether they will face further closures.
Any suspension of trading in markets in which the Fund invests will have an impact on the Fund and its investments and will impact
the Fund’s ability to purchase or sell securities in such market. The outbreak could also impair the information technology
and other operational systems upon which the Fund’s service providers, including the Investment Adviser, rely, and could
otherwise disrupt the ability of employees of the Fund’s service providers to perform critical tasks relating to the Fund.
The impact of this outbreak has adversely affected the economies of many nations and the entire global economy and may impact
individual issuers and capital markets in ways that cannot be foreseen. In the past, governmental and quasi-governmental authorities
and regulators through the world have at times responded to major economic disruptions with a variety of fiscal and monetary policy
changes, including direct capital infusions into companies and other issuers, new monetary policy tools, and lower interest rates.
An unexpected or sudden reversal of these policies, or the ineffectiveness of such policies, is likely to increase market volatility,
which could adversely affect the Fund’s investments. Public health crises caused by the outbreak may exacerbate other preexisting
political, social and economic risks in certain countries or globally. Other infectious illness outbreaks that may arise in the
future could have similar or other unforeseen effects.
The
occurrence of any of these above events could have a significant adverse impact on the value and risk profile of the Fund’s
portfolio. The Fund does not know how long the securities markets may be affected by similar events and cannot predict the effects
of similar events in the future on the U.S. economy and securities markets. There can be no assurance that similar events and
other market disruptions will not have other material and adverse implications.
Economic
Events and Market Risk
Periods
of market volatility may continue to occur in the future, in response to various political, social and economic events both within
and outside of the United States. These conditions have resulted in, and in many cases continue to result in, greater price volatility,
less liquidity, widening credit spreads and a lack of price transparency, with many securities remaining illiquid and of uncertain
value. Such market conditions may adversely affect the Fund, including by making valuation of some of the Fund’s securities
uncertain and/or result in sudden and significant valuation increases or declines in the Fund’s holdings. If there is a
significant decline in the value of the Fund’s portfolio, this may impact the asset coverage levels for the Fund’s
outstanding leverage.
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Risks
resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic recovery,
the financial condition of financial institutions and our business, financial condition and results of operation. Market and economic
disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels
of incurrence and default on consumer debt and home prices, among other factors. To the extent uncertainty regarding the U.S.
or global economy negatively impacts consumer confidence and consumer credit factors, our business, financial condition and results
of operations could be significantly and adversely affected. Downgrades to the credit ratings of major banks could result in increased
borrowing costs for such banks and negatively affect the broader economy. Moreover, Federal Reserve policy, including with respect
to certain interest rates, may also adversely affect the value, volatility and liquidity of dividend- and interest-paying securities.
Market volatility, rising interest rates and/ or a return to unfavorable economic conditions could impair the Fund’s ability
to achieve its investment objective.
Regulation
and Government Intervention Risk
The
U.S. Government and the Federal Reserve, as well as certain foreign governments, recently have taken unprecedented actions designed
to support certain financial institutions and segments of the financial markets that experienced extreme volatility, such as implementing
stimulus packages, providing liquidity in fixed-income, commercial paper and other markets and providing tax breaks, among other
actions. Such actions may have unintended and adverse consequences, such as causing or contributing to an increased risk of inflation.
The reduction or withdrawal of Federal Reserve or other U.S. or non-U.S. governmental support could negatively affect financial
markets generally and reduce the value and liquidity of certain securities. Additionally, with the cessation of certain market
support activities, the Fund may face a heightened level of interest rate risk as a result of a rise or increased volatility in
interest rates.
Federal,
state, and other governments, their regulatory agencies or self-regulatory organizations may take actions that affect the regulation
of the issuers in which the Fund invests in ways that are unforeseeable. Legislation or regulation may also change the way in
which the Fund is regulated. Such legislation or regulation could limit or preclude the Fund’s ability to achieve its investment
objective.
The
SEC and its staff are engaged in various rulemaking initiatives. Any new rules, guidance or regulatory initiatives resulting from
these efforts could increase the Fund’s expenses and impact its returns to shareholders or, in the extreme case, impact
or limit the Fund’s use of various portfolio management strategies or techniques and adversely impact the Fund.
In
the aftermath of the global financial crisis, there appears to be a renewed popular, political and judicial focus on finance related
consumer protection. Financial institution practices are also subject to greater scrutiny and criticism generally. In the case
of transactions between financial institutions and the general public, there may be a greater tendency toward strict interpretation
of terms and legal rights in favor of the consuming public, particularly where there is a real or perceived disparity in risk
allocation and/or where consumers are perceived as not having had an opportunity to exercise informed consent to the transaction.
In the event of conflicting interests between retail investors holding common shares of a closed-end investment company such as
the Fund and a large financial institution, a court may similarly seek to strictly interpret terms and legal rights in favor of
retail investors.
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Additional
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The
Fund may be affected by governmental action in ways that are not foreseeable, and there is a possibility that such actions could
have a significant adverse effect on the Fund and its ability to achieve its investment objective.
Inflation
Risk
Inflation
risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the
value of money. As inflation increases, the real value of the Fund’s shares and distributions therefore may decline. In
addition, during any periods of rising inflation, dividend rates of any debt securities issued by the Fund would likely increase,
which would tend to further reduce returns to common shareholders.
Deflation
Risk
Deflation
risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market valuation
of companies, their assets and their revenues. In addition, deflation may have an adverse effect on the creditworthiness of issuers
and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio.
Anti-Takeover
Provisions of the Fund’s Governing Documents
The
Fund’s Governing Documents include provisions that could limit the ability of other entities or persons to acquire control
of the Fund or convert the Fund to an open-end fund.
Special
Risks Related to Fund Investments in Preferred Securities
There
are special risks associated with the Fund’s investing in preferred securities, including:
| ● | Deferral.
Preferred securities may include provisions that permit the issuer, at its discretion,
to defer div-idends or distributions for a stated period without any adverse consequences
to the issuer. If the Fund owns a preferred security that is deferring its dividends
or distributions, the Fund may be required to report income for tax purposes although
it has not yet received such income. |
| ● | Non-Cumulative
Dividends. Some preferred securities are non-cumulative, meaning that the dividends
do not accumulate and need not ever be paid. A portion of the portfolio may include investments
in non-cumulative preferred securities, whereby the issuer does not have an obligation
to make up any arrearages to its shareholders. Should an issuer of a non-cumulative preferred
security held by the Fund determine not to pay dividends or distributions on such security,
the Fund’s return from that security may be adversely affected. There is no assurance
that dividends or distributions on non-cumulative preferred securities in which the Fund
invests will be declared or otherwise made payable. |
| ● | Subordination.
Preferred securities are subordinated to bonds and other debt instruments in an issuer’s
capital structure in terms of priority to corporate income and liquidation payments,
and therefore will be subject to greater credit risk than more senior debt security instruments. |
| ● | Liquidity.
Preferred securities may be substantially less liquid than many other securities,
such as com-mon stocks or U.S. government securities. |
| ● | Limited
Voting Rights. Generally, preferred security holders (such as the Fund) have no voting
rights with respect to the issuing company unless preferred dividends have been in arrears
for a specified number |
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of
periods, at which time the preferred security holders may be entitled to elect a number of directors to the issuer’s board.
Generally, once all the arrearages have been paid, the preferred security holders no longer have voting rights.
| ● | Special
Redemption Rights. In certain varying circumstances, an issuer of preferred securities
may redeem the securities prior to a specified date. For instance, for certain types
of preferred securities, a redemption may be triggered by a change in federal income
tax or securities laws. A redemption by the issuer may negatively impact the return of
the security held by the Fund. |
| ● | Phantom
Income. Some preferred securities are classified as debt for U.S. federal income
tax purposes. |
Special
Risks to Holders of Notes
There
may not be an established market for our notes. To the extent that our notes trade, they may trade at a price either higher or
lower than their principal amount depending on interest rates, the rating (if any) on such notes and other factors.
Special
Risks of Notes to Holders of Common Shares
If
the interest rate on the notes approaches the net rate of return on the Fund’s investment portfolio, the benefit of leverage
to the holders of the common shares would be reduced. Any decline in the net asset value of the Fund’s investments would
be borne entirely by the holders of common shares. Therefore, if the market value of the Fund’s portfolio declines, the
leverage will result in a greater decrease in net asset value to the holders of common shares than if the Fund were not leveraged.
This greater net asset value decrease will also tend to cause a greater decline in the market price for the common shares. The
Fund might be in danger of failing to maintain the required asset coverage of the notes. Holders of notes may have different interests
than holders of common shares and at times may have disproportionate influence over the Fund’s affairs. In the event the
Fund fails to maintain the specified level of asset coverage of any notes outstanding, the holders of the notes will have the
right to elect a majority of the Fund’s trustees.
Special
Risks for Holders of Subscription Rights
The
issuance of subscription rights to purchase our common shares may substantially dilute the aggregate net asset value of the common
shares owned by shareholders who do not fully exercise their rights in the offering. Shareholders who do not exercise their rights
to purchase common shares will own a smaller proportional interest in the Fund than they did before the offering. In the case
of subscription rights for preferred shares, there is a risk that changes in yield or changes in the credit quality of the Fund
may result in the underlying preferred shares purchasable upon exercise of the subscription rights being less attractive to investors
at the conclusion of the subscription period. This may reduce or eliminate the value of the subscription rights for the preferred
shares. Investors who receive subscription rights may find that there is no market to sell rights they do not wish to exercise.
If investors exercise only a portion of the rights, the number of preferred shares or common shares issued may be reduced, and
the preferred shares or common shares may trade at less favorable prices than larger offerings for similar securities.
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Investment
Companies
The
Fund may invest in the securities of other investment companies to the extent permitted by law. To the extent the Fund invests
in the common equity of investment companies, the Fund will bear its ratable share of any such investment company’s expenses,
including management fees. The Fund will also remain obligated to pay management fees to the Investment Adviser with respect to
the assets invested in the securities of other investment companies. In these circumstances holders of the Fund’s common
shares will be subject to duplicative investment expenses.
Counterparty
Risk
The
Fund will be subject to credit risk with respect to the counterparties to the derivative contracts purchased by the Fund. If a
counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties,
the Fund may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization
proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances.
Loans
of Portfolio Securities
Consistent
with applicable regulatory requirements and the Fund’s investment restrictions, the Fund may lend its portfolio securities
to securities broker-dealers or financial institutions, provided that such loans are callable at any time by the Fund (subject
to certain notice provisions) and are at all times secured by cash or cash equivalents, which are maintained in a segregated account
pursuant to applicable regulations and that are at least equal to the market value, determined daily, of the loaned securities.
The advantage of such loans is that the Fund continues to receive the income on the loaned securities while at the same time earning
interest on the cash amounts deposited as collateral, which will be invested in short term obligations. The Fund will not lend
its portfolio securities if such loans are not permitted by the laws or regulations of any state in which its shares are qualified
for sale. The Fund’s loans of portfolio securities will be collateralized in accordance with applicable regulatory requirements.
Management
Risk
The
Fund is subject to management risk because it is an actively managed portfolio. The Investment Adviser applies investment techniques
and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired
results.
Status
as a Regulated Investment Company
The
Fund has qualified, and intends to remain qualified, for federal income tax purposes as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the “Code”). Qualification requires, among other things, compliance
by the Fund with certain distribution requirements. Statutory limitations on distributions on the common shares if the Fund fails
to satisfy the 1940 Act’s asset coverage requirements could jeopardize the Fund’s ability to meet such distribution
requirements. The Fund presently intends, however, to purchase or redeem preferred shares to the extent necessary in order to
maintain compliance with such asset coverage requirements.
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Leverage
Risk
The
Fund’s leveraged capital structure creates special risks not associated with unleveraged funds having similar investment
objectives and policies. The Fund uses financial leverage for investment purposes by issuing preferred shares. As of December
31, 2021, the amount of leverage represented approximately 27% of the Fund’s total net assets. All series of the Fund’s
preferred shares have the same seniority with respect to distributions and liquidation preference. Preferred shares have seniority
over common shares with respect to distributions and upon liquidation of the Fund.
The
Fund’s use of leverage, which can be described as exposure to changes in price at a ratio greater than the amount of equity
invested, either through the issuance of preferred shares, borrowing or other forms of market exposure, magnifies both the favorable
and unfavorable effects of price movements in the investments made by the Fund. The Fund’s leveraged capital structure creates
special risks not associated with unleveraged funds having similar investment objectives and policies. The Fund cannot assure
that the issuance of preferred shares will result in a higher yield or return to the holders of the common shares. Also, as the
Fund is utilizing leverage, a decline in net asset value could affect the ability of the Fund to make common share distributions
and such a failure to pay dividends or make distributions could result in the Fund ceasing to qualify as a regulated investment
company under the Code.
| ● | Preferred
Share Risk. The issuance of preferred shares causes the net asset value and market
value of the common shares to become more volatile. If the dividend rate on the preferred
shares approaches the net rate of return on the Fund’s investment portfolio, the
benefit of leverage to the holders of the common shares would be reduced. If the dividend
rate on the preferred shares plus the management fee annual rate of 1.00% (as applicable)
exceeds the net rate of return on the Fund’s portfolio, the lever-age will result
in a lower rate of return to the holders of common shares than if the Fund had not issued
preferred shares. |
Any
decline in the net asset value of the Fund’s investments would be borne entirely by the holders of common shares. Therefore,
if the market value of the Fund’s portfolio declines, the leverage will result in a greater decrease in net asset value
to the holders of common shares than if the Fund were not leveraged. This greater net asset value decrease will also tend to cause
a greater decline in the market price for the common shares. The Fund might be in danger of failing to maintain the required asset
coverage of the preferred shares or of losing its ratings on the preferred shares or, in an extreme case, the Fund’s current
investment income might not be sufficient to meet the dividend requirements on the preferred shares. In order to counteract such
an event, the Fund might need to liquidate investments in order to fund a redemption of some or all of the preferred shares.
In
addition, the Fund would pay (and the holders of common shares will bear) all costs and expenses relating to the issuance and
ongoing maintenance of the preferred shares, including the advisory fees on the incremental assets attributable to such shares.
Holders
of preferred shares may have different interests than holders of common shares and may at times have disproportionate influence
over the Fund’s affairs. Holders of preferred shares, voting separately as a single class, would have the right to elect
two members of the Board at all times and in the event dividends become two full years in arrears would have the right to elect
a majority of the Trustees until such arrearage is completely
The
Gabelli Utility Trust
Additional Fund Information (Continued) (Unaudited)
eliminated.
In addition, preferred shareholders have class voting rights on certain matters, including changes in fundamental investment restrictions
and conversion of the Fund to open-end status, and accordingly can veto any such changes.
Restrictions
imposed on the declarations and payment of dividends or other distributions to the holders of the Fund’s common shares and
preferred shares, both by the 1940 Act and by requirements imposed by rating agencies, might impair the Fund’s ability to
maintain its qualification as a regulated investment company for federal income tax purposes. While the Fund intends to redeem
its preferred shares to the extent necessary to enable the Fund to distribute its income as required to maintain its qualification
as a regulated investment company under the Code, there can be no assurance that such actions can be effected in time to meet
the Code requirements.
| ● | Portfolio
Guidelines of Rating Agencies for Preferred Shares and/or Credit Facility. In order
to ob-tain and maintain attractive credit quality ratings for preferred shares or borrowings,
the Fund must com-ply with investment quality, diversification and other guidelines established
by the relevant rating agen-cies. These tests tend to require over-collateralization
and may be more difficult to satisfy to the extent the Fund’s portfolio securities
are of lower credit quality, longer maturity or not diversified by issuer and industry
within the meaning of such rating agencies’ collateralization tests. These guidelines
could affect portfolio decisions and may be more stringent than those imposed by the
1940 Act. In the event that a rating on the Fund’s preferred shares or notes is
lowered or withdrawn by the relevant rating agency, the Fund may also be required to
redeem all or part of its outstanding preferred shares or notes, and the common shares
of the Fund will lose the potential benefits associated with a leveraged capital structure. |
| ● | Impact
on Common Shares. Assuming that leverage will (1) be equal in amount to approximately
27% of the Fund’s total net assets, and (2) charge interest or involve dividend
payments at a projected blended annual average leverage dividend or interest rate of
4.71%, then the annual return generated by the Fund’s portfolio (net of estimated
expenses) must exceed approximately 1.28% of the Fund’s total net assets in order
to cover such interest or dividend payments and other expenses specifically related to
leverage. These numbers are merely estimates, used for illustration. Actual dividend
rates, interest or payment rates may vary frequently and may be significantly higher
or lower than the rate estimated above. The following table is furnished in response
to requirements of the SEC. It is designed to illustrate the effect of leverage on common
share total return, assuming investment portfolio total returns (comprised of net investment
income of the Fund, realized gains or losses of the Fund and changes in the value of
the securities held in the Fund’s portfolio) of –10%, –5%, 0%, 5% and
10%. These assumed investment portfolio returns are hypothetical figures and are not
necessarily indicative of the investment portfolio returns experienced or expected to
be experienced by the Fund. See “Risks.” The table further reflects leverage
representing 27% of the Fund’s total assets, the Fund’s current projected
blended annual average leverage dividend or interest rate of 4.71%, a management fee
at an annual rate of 1.00% of the liquidation preference of any outstanding preferred
shares and estimated annual incremental expenses attributable to any outstanding preferred
shares of 0.02% of the Fund’s net assets attributable to common shares. |
The
Gabelli Utility Trust
Additional Fund Information (Continued) (Unaudited)
| Assumed
Return on Portfolio (Net of Expenses) |
(10.00)% |
(5.00)% |
0.00% |
5.00% |
10.00% |
| Corresponding
Return to Common Shareholder |
(15.88)% |
(9.06)% |
(2.23)% |
4.60% |
11.42% |
Common
share total return is composed of two elements — the common share distributions paid by the Fund (the amount of which is
largely determined by the taxable income of the Fund (including realized gains or losses) after paying interest on any debt and/or
dividends on any preferred shares) and unrealized gains or losses on the value of the securities the Fund owns. As required by
SEC rules, the table assumes that the Fund is more likely to suffer capital losses than to enjoy total return. For example, to
assume a total return of 0% the Fund must assume that the income it receives on its investments is entirely offset by expenses
and losses in the value of those investments. The Fund’s shares are leveraged and the risks and special considerations related
to leverage described in this prospectus apply. Such leveraging of the shares cannot be fully achieved until the proceeds resulting
from the use of leverage have been invested in accordance with the Fund’s investment objectives and policies.
Special
Risks to Holders of Fixed Rate Preferred Shares
| ● | Illiquidity
Prior to Exchange Listing. Prior to the offering, there will be no public market
for any addi-tional series of Fixed Rate Preferred Shares. In the event any additional
series of Fixed Rate Preferred Shares are issued, prior application will have been made
to list such shares on a national securities ex-change, which will likely be the NYSE.
However, during an initial period, which is not expected to exceed 30 days after the
date of its initial issuance, such shares may not be listed on any securities exchange.
During such period, the underwriters may make a market in such shares, though, they will
have no obli-gation to do so. Consequently, an investment in such shares may be illiquid
during such period. |
| ● | Market
Price Fluctuation. Fixed Rate Preferred Shares may trade at a premium to or discount
from liquidation value for various reasons, including changes in interest rates. |
Common
Share Distribution Policy Risk
The
Fund has adopted a policy, which may be changed at any time by the Board, of paying distributions on its common shares of $0.05
per share per month. In the event the Fund does not generate a total return from dividends and interest received and net realized
capital gains in an amount equal to or in excess of its stated distribution in a given year, the Fund may return capital as part
of such distribution, which may have the effect of decreasing the asset coverage per share with respect to the Fund’s preferred
shares. Any return of capital should not be considered by investors as yield or total return on their investment in the Fund.
Shareholders should not assume that a distribution from the Fund is comprised exclusively of net profits. For the fiscal year
ended December 31, 2021, the Fund made distributions of $0.60 per common share, of which approximately $0.50 per share is deemed
a return of capital. The Fund has made monthly distributions with respect to its common shares since October 1999. A portion of
the distributions to holders of common shares during sixteen of the twenty-one fiscal years since the Fund’s inception has
constituted a return of capital. The composition of each distribution is estimated based on the earnings of the Fund as of the
record date for each distribution.
The
Gabelli Utility Trust
Additional Fund Information (Continued) (Unaudited)
The
actual composition of each of the current year’s distributions will be based on the Fund’s investment activity through
the end of the calendar year.
Investment
Restrictions
The
Fund has adopted certain investment limitations designed to limit investment risk and maintain portfolio diversification. These
limitations are fundamental and may not be changed without the approval of the holders of a majority, as defined in the 1940 Act,
of the outstanding shares of common shares and preferred shares voting together as a single class. The Fund may become subject
to guidelines that are more limiting than the investment restrictions set forth above in order to obtain and maintain ratings
from Moody’s or Fitch Ratings Inc. on its preferred shares. See “Leverage Risk — Portfolio Guidelines of Rating
Agencies for Preferred Shares and/or Credit Facility.
Interest
Rate Transactions
The
Fund may enter into interest rate swap or cap transactions in relation to all or a portion of the Fund’s Series B Auction
Market Preferred Shares (the “Series B Preferred”) in order to manage the impact on its portfolio of changes in the
dividend rate of such shares. At present, the Fund has not entered into an interest rate swap on a percentage of its outstanding
Series B Preferred. Through these transactions the Fund may, for example, obtain the equivalent of a fixed rate for the Series
B Preferred that is lower than the Fund would have to pay if it issued Fixed Rate Preferred Shares. The use of interest rate swaps
and caps is a highly specialized activity that involves certain risks to the Fund including, among others, counterparty risk and
early termination risk.
The
use of interest rate swaps and caps is a highly specialized activity that involves investment techniques and risks different from
those associated with ordinary portfolio security transactions. In an interest rate swap, the Fund would agree to pay to the other
party to the interest rate swap (which is known as the “counterparty”) periodically a fixed rate payment in exchange
for the counterparty agreeing to pay to the Fund periodically a variable rate payment that is intended to approximate the Fund’s
variable rate payment obligation on its Series B Preferred. In an interest rate cap, the Fund would pay a premium to the counterparty
to the interest rate cap and, to the extent that a specified variable rate index exceeds a predetermined fixed rate, would receive
from the counterparty payments of the difference based on the notional amount of such cap. Interest rate swap and cap transactions
introduce additional risk because the Fund would remain obligated to pay preferred shares dividends or distributions when due
in accordance with the statement of preferences of the Series B Preferred even if the counterparty defaulted. Depending on the
general state of short term interest rates and the returns on the Fund’s portfolio securities at that point in time, such
a default could negatively affect the Fund’s ability to make dividend or distribution payments on the Series B Preferred.
In addition, at the time an interest rate swap or cap transaction reaches its scheduled termination date, there is a risk that
the Fund will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable as
on the expiring transaction. If this occurs, it could have a negative impact on the Fund’s ability to make dividend or distribution
payments on the Series B Preferred. To the extent there is a decline in interest rates, the value of the interest rate swap or
cap could decline, resulting in a decline in the asset coverage for the Series B Preferred. A sudden and dramatic decline in interest
rates may result in a significant decline in the asset coverage. Under the statement of preferences for each series of the preferred
shares, if the Fund fails to maintain the required asset coverage on the outstanding preferred shares or fails to comply with
other covenants, the Fund may be
The
Gabelli Utility Trust
Additional Fund Information (Continued) (Unaudited)
required
to redeem some or all of these shares. The Fund generally may redeem the Series B Preferred, in whole or in part, at its option
at any time (usually on a dividend or distribution payment date), other than during a non-call period. Such redemption would likely
result in the Fund seeking to terminate early all or a portion of any swap or cap transactions. Early termination of a swap could
result in a termination payment by the Fund to the counterparty, while early termination of a cap could result in a termination
payment to the Fund.
The
Fund will usually enter into swaps or caps on a net basis; that is, the two payment streams will be netted out in a cash settlement
on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. The Fund intends to segregate cash or liquid securities having a value at least equal to the value
of the Fund’s net payment obligations under any swap transaction, marked to market daily. The Fund will monitor any such
swap with a view to ensuring that the Fund remains in compliance with all applicable regulatory investment policy and tax requirements.
Legislation
Risk
At
any time after the date of this report, legislation may be enacted that could negatively affect the assets of the Fund. Legislation
or regulation may change the way in which the Fund itself is regulated. The Investment Adviser cannot predict the effects of any
new governmental regulation that may be implemented and there can be no assurance that any new governmental regulation will not
adversely affect the Fund’s ability to achieve its investment objective.
Reliance
on Service Providers Risk
The
Fund must rely upon the performance of service providers to perform certain functions, which may include functions that are integral
to the Fund’s operations and financial performance. Failure by any service provider to carry out its obligations to the
Fund in accordance with the terms of its appointment, to exercise due care and skill or to perform its obligations to the Fund
at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Fund’s performance
and returns to shareholders. The termination of the Fund’s relationship with any service provider, or any delay in appointing
a replacement for such service provider, could materially disrupt the business of the Fund and could have a material adverse effect
on the Fund’s performance and returns to shareholders.
Cyber
Security Risk
The
Fund and its service providers are susceptible to cyber security risks that include, among other things, theft, unauthorized monitoring,
release, misuse, loss, destruction or corruption of confidential and highly restricted data; denial of service attacks; unauthorized
access to relevant systems, compromises to networks or devices that the Fund and its service providers use to service the Fund’s
operations; or operational disruption or failures in the physical infrastructure or operating systems that support the Fund and
its service providers. Cyber attacks against or security breakdowns of the Fund or its service providers may adversely impact
the Fund and its shareholders, potentially resulting in, among other things, financial losses; the inability of Fund shareholders
to transact business and the Fund to process transactions; inability to calculate the Fund’s net asset value; violations
of applicable privacy and other laws; regulatory fines, penalties, reputational damage, reimbursement or other compensation costs;
and/or additional compliance costs. The Fund may incur additional costs for cyber security risk management and remediation purposes.
In addition, cyber security risks may also impact issuers
The
Gabelli Utility Trust
Additional
Fund Information (Continued) (Unaudited)
of
securities in which the Fund invests, which may cause the Fund’s investment in such issuers to lose value. There can be
no assurance that the Fund or its service providers will not suffer losses relating to cyber attacks or other information security
breaches in the future.
Misconduct
of Employees and of Service Providers Risk
Misconduct
or misrepresentations by employees of the Investment Adviser or the Fund’s service providers could cause significant losses
to the Fund. Employee misconduct may include binding the Fund to transactions that exceed authorized limits or present unacceptable
risks and unauthorized trading activities, concealing unsuccessful trading activities (which, in any case, may result in unknown
and unmanaged risks or losses) or making misrepresentations regarding any of the foregoing. Losses could also result from actions
by the Fund’s service providers, including, without limitation, failing to recognize trades and misappropriating assets.
In addition, employees and service providers may improperly use or disclose confidential information, which could result in litigation
or serious financial harm, including limiting the Fund’s business prospects or future marketing activities. Despite the
Investment Adviser’s due diligence efforts, misconduct and intentional misrepresentations may be undetected or not fully
comprehended, thereby potentially undermining the Investment Adviser’s due diligence efforts. As a result, no assurances
can be given that the due diligence performed by the Investment Adviser will identify or prevent any such misconduct.
Senior
Securities / leverage
As
of December 31, 2021, the Fund uses leverage through the issuance of preferred Shares.
Effects
of Leverage
The
following information is furnished in response to requirements of the SEC. It is designed to, among other things, illustrate the
effects of leverage through the use of senior securities, as that term is defined under Section 18 of the 1940 Act, on Common
Share total return, assuming investment portfolio total returns (consisting of income and changes in the value of investments
held in a Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. The table below reflects the Fund’s continued use of Preferred
Shares, as of December 31, 2021 as a percentage of total managed assets (including assets attributable to such leverage), the
estimated annual effective Preferred Shares dividend rate and interest expense rate payable by the Fund on such instruments (based
on market conditions as of December 31, 2021), and the annual return that the Fund’s portfolio must experience (net of expenses)
in order to cover such costs. The information below does not reflect the Fund’s use of certain other forms of economic leverage
achieved through the use of other instruments or transactions not considered to be senior securities under the 1940 Act, such
as derivative instruments.
The
Gabelli Utility Trust
Additional Fund Information (Continued) (Unaudited)
| Preferred
Shares as a Percentage of Total Managed Assets (Including Assets Attributable to Preferred Shares and Reverse Repurchase Agreements) |
27% |
| Estimated
Annual Effective Preferred Share Dividend Rate |
4.71% |
| Annual
Return Fund Portfolio Must Experience (net of expenses) to Cover Estimated Annual Effective Preferred Share Dividend Rate |
1.28% |
| Common
Share Total Return for (10.00)% Assumed Portfolio Total Return |
|
| Common
Share Total Return for (5.00)% Assumed Portfolio Total Return |
(9.06)% |
| Common
Share Total Return for 0.00% Assumed Portfolio Total Return |
(2.23)% |
| Common
Share Total Return for 5.00% Assumed Portfolio Total Return |
4.60% |
| Common
Share Total Return for 10.00% Assumed Portfolio Total Return |
11.42% |
Common
Shares total return is composed of two elements — the distributions paid by a Fund to holders of Common Shares (the amount
of which is largely determined by the net investment income of the Fund after paying dividend payments on any preferred Shares
issued by the Fund and expenses on any forms of leverage outstanding) and gains or losses on the value of the securities and other
instruments the Fund owns. As required by SEC rules, the table assumes that a Fund is more likely to suffer capital losses than
to enjoy capital appreciation. For example, to assume a total return of 0%, a Fund must assume that the income it receives on
its investments is entirely offset by losses in the value of those investments. This table reflects hypothetical performance of
the Fund’s portfolio and not the actual performance of the Fund’s Common Shares, the value of which is determined
by market forces and other factors. Should the Fund elect to add additional leverage to its portfolio, any benefits of such additional
leverage cannot be fully achieved until the proceeds resulting from the use of such leverage have been received by the Fund and
invested in accordance with the Fund’s investment objectives and policies. As noted above, the Fund’s willingness
to use additional leverage, and the extent to which leverage is used at any time, will depend on many factors, including, among
other things, the Fund’s assessment of the yield curve environment, interest rate trends, market conditions and other factors.
SUMMARY
OF FUND EXPENSES
The
following table is intended to assist you in understanding the various costs and expenses directly or indirectly associated with
investing in shares of common Shares, as a percentage of net assets attributable to common Shares. All expenses of the Fund will
be borne, directly or indirectly, by the common Shareholders. Amounts are for the current fiscal year.
| Annual
Expenses |
Percentages
of Net Assets
Attributable to Common Shares |
| Management
Fees(a) |
1.37% |
| Other
Expense(b) |
0.35% |
| Total
Annual Expenses |
1.72% |
| Dividends
on Preferred Shares(c) |
1.19% |
| Total
Annual Expenses and Dividends on Preferred |
2.91% |
The
Gabelli Utility Trust
Additional Fund Information (Continued) (Unaudited)
| (a) | The
Investment Adviser’s fee is 1.00% annually of the Fund’s average weekly net
assets. The Fund’s average weekly net assets will be deemed to be the average weekly
value of the Fund’s total assets minus the sum of the Fund’s liabilities
(such liabilities exclude (i) the aggregate liquidation preference of outstanding shares
of preferred Shares and accumulated dividends, if any, on those shares and (ii) the liabilities
for any money borrowed). Consequently, because the Fund has preferred Shares outstanding,
the investment management fees and other expenses as a percentage of net assets attributable
to common Shares will be higher than if the Fund did not utilize a leveraged capital
structure. |
| (b) | “Other
Expenses” are based on the amounts for the year ended December 31, 2021. |
| (c) | Dividends
on Preferred Stock represent the estimated annual distributions on the existing preferred
stock outstanding. |
The
following example illustrates the expenses you would pay on a $1,000 investment in common Shares, assuming a 5% annual portfolio
total return.*
| |
1
Year |
3
Year |
5
Year |
10
Year |
| Total Expenses Incurred |
$29 |
$90 |
$153 |
$322 |
| * | The
example should not be considered a representation of future expenses. The example is
based on Total Annual Expenses and Dividends on Preferred Shares shown in the table above
and assumes that the amounts set forth in the table do not change and that all distributions
are reinvested at net asset value. Actual expenses may be greater or less than those
assumed. Moreover, the Fund’s actual rate of return may be greater or less than
the hypothetical 5% return shown in the example. |
The
above example includes Dividends on Preferred Shares. If Dividends on Preferred Shares were not included in the example calculation,
the expenses would be as follows (based on the same assumptions as above).
| |
1
Year |
3
Year |
5
Year |
10
Year |
| Total
Expenses Incurred |
$17 |
$54 |
$93 |
$202 |
Share
Price Data The following table sets forth for the quarters indicated, the high and low closing prices on the NYSE per share
of the Fund’s common Shares and the net asset value and the premium or discount from net asset value at which the common
Shares was trading, expressed as a percentage of net asset value, at each of the high and low NYSE closing prices provided.
The
Gabelli Utility Trust
Additional Fund Information (Continued) (Unaudited)
| |
|
|
|
|
Corresponding |
|
|
|
|
| |
|
|
|
|
Net
Asset |
|
Corresponding |
| |
|
|
|
|
Value |
|
Premium
or |
| |
Common
Share |
|
(“NAV”)
Per |
|
Discount
as a % |
| |
Market
Price |
|
Share |
|
of
NAV |
| Quarter
Ended |
High |
|
Low |
|
High |
|
Low |
|
High |
|
Low |
| March
31, 2020 |
$8.15 |
$4.67 |
$5.16 |
$3.11 |
57.94% |
50.16% |
| June
30, 2020 |
$7.58 |
$5.30 |
$4.23 |
$3.58 |
79.19% |
48.04% |
| September
30, 2020 |
$8.24 |
$7.22 |
$4.07 |
$3.93 |
102.58% |
83.71% |
| December
31, 2020 |
$8.12 |
$7.55 |
$4.12 |
$3.98 |
97.08% |
89.69% |
| March
31, 2021 |
$8.00 |
$6.64 |
$4.23 |
$3.79 |
89.12% |
75.12% |
| June
30, 2021 |
$8.02 |
$6.81 |
$4.36 |
$4.53 |
83.94% |
50.33% |
| September
30, 2021 |
$8.28 |
$7.58 |
$4.36 |
$4.28 |
89.90% |
77.10% |
| December
30, 2021 |
$8.25 |
$7.82 |
$4.28 |
$4.15 |
92.75% |
88.43% |
Portfolio
Managers
During
the year ended December 31, 2021, Jose Garza left the portfolio management team of the fund.
Brett Kearney and Justin Bergner
joined the portfolio management team of the Fund July 1, 2021.
Brett
Kearney, CFA, joined GAMCO Investors, Inc. as a research analyst in 2017. He also is a member of the portfolio management team
of the Gabelli Utilities Fund. Mr. Kearney graduated from Washington and Lee University with a BS in Business Administration,
and received an MBA from the Value Investing Program at Columbia Business School.
Justin
Bergner, CFA, is currently a portfolio manager for the Adviser and a Vice President at Gabelli & Company, having
rejoined Gabelli & Company in June 2013 as a research analyst covering Diversified Industrials, Home Improvement,
and Transport companies. He began his investment career at Gabelli & Company in 2005 as a metals and mining analyst, and
subsequently spent five years at Axiom International Investors as a senior analyst focused on industrial and healthcare
stocks. Before entering the investment profession, Justin worked in management consulting at both Bain & Company and Dean & Company. Justin graduated cum laude from Yale University with a BA in Economics & Mathematics and received an MBA
in Finance and Accounting from Wharton Business School.
Unresolved
Staff Comments
The
Fund does not believe that there are any material unresolved written comments, received 180 days or more before December 31, 2021
from the Staff of the SEC regarding any of the Fund’s periodic or current reports under the Securities Exchange Act or the
Investment Company Act, or its registration statement.
AUTOMATIC
DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLANS
Under
the Fund’s Automatic Dividend Reinvestment Plan and Voluntary Cash Purchase Plan (the “Plan”), a shareholder
whose shares of common stock are registered in his or her own name will have all distributions reinvested automatically by Computershare
Trust Company, N.A. (“Computershare”), which is an agent under the Plan, unless the shareholder elects to receive
cash. Distributions with respect to shares registered in the
The
Gabelli Utility Trust
Additional Fund Information (Continued) (Unaudited)
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 shares of common stock registered in street name should consult their broker-dealers for details regarding
reinvestment. All distributions to investors who do not participate in the Plan will be paid by check mailed directly to the record
holder by Computershare as dividend-disbursing agent.
Enrollment
in the Plan
It
is the policy of The Gabelli Utility Trust (the “Fund”) to automatically reinvest dividends payable to common shareholders.
As a “registered” shareholder you automatically become a participant in the Fund’s Automatic Dividend Reinvestment
Plan (the “Plan”). The Plan authorizes the Fund to credit common shares to participants upon an income dividend or
a capital gains distribution regardless of whether the shares are trading at a discount or a premium to net asset value.
Be
advised that the common shares of The Gabelli Utility Trust have traded at excessive premiums (whereby the market price is much
greater than the underlying net asset value.) Dividend reinvestment may be made at an excessive premium, which is not likely to
be sustainable.
All
distributions to shareholders whose shares are registered in their own names will be automatically reinvested pursuant to
the Plan in additional shares of the Fund. Plan participants may send their share certificates to Computershare Trust
Company, N.A. (“Computershare”) to be held in their dividend reinvestment account. Registered shareholders
wishing to receive their distributions in cash may submit this request through the Internet, by telephone or in writing
to:
The
Gabelli Utility Trust
P.O. Box 505000
Louisville,
KY 40233-5000
Telephone: (800) 336-6983
Website: www.computershare.com/investor
Shareholders
requesting this cash election must include the shareholder’s name and address as they appear on the Fund’s records.
Shareholders with additional questions regarding the Plan or requesting a copy of the terms of the Plan, may contact Computershare
at the website or telephone number above.
If
your shares are held in the name of a broker, bank, or nominee, you should contact such institution. If such institution is
not participating in the Plan, your account will be credited with a cash dividend. In order to participate in the Plan
through such institution, it may be necessary for you to have your shares taken out of “street name” and
re-registered in your own name. Once registered in your own name, your distributions will be automatically reinvested.
Certain brokers participate in the Plan. Shareholders holding shares in “street name” at participating
institutions will have dividends automatically reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
The
number of common shares distributed to participants in the Plan in lieu of cash dividends is determined in the following manner.
Under the Plan, whenever the market price of the Fund’s common shares is equal to
The
Gabelli Utility Trust
Additional Fund Information (Continued) (Unaudited)
or
exceeds net asset value at the time shares are valued for purposes of determining the number of shares equivalent to the cash
dividends or capital gains distribution, participants are issued 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 Fund’s common shares. The valuation date
is the dividend or distribution payment date or, if that date is not a New York Stock Exchange (“NYSE”) trading day,
the next 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 common shares from the Fund valued at market price. If the Fund should declare a dividend or
capital gains distribution payable only in cash, Computershare will buy common shares in the open market, or on the NYSE or elsewhere,
for the participants’ accounts, except that Computershare will endeavor to terminate purchases in the open market and cause
the Fund to issue shares at net asset value if, following the commencement of such purchases, the market value of the common shares
exceeds the then current net asset value.
The
automatic reinvestment of dividends and capital gains distributions will not relieve participants of any income tax which may
be payable on such distributions. A participant in the Plan will be treated for federal income tax purposes as having received,
on a dividend payment date, a dividend or distribution in an amount equal to the cash the participant could have received instead
of shares.
Voluntary
Cash Purchase Plan
The
Voluntary Cash Purchase Plan is yet another vehicle for our shareholders to increase their investment in the Fund. In order to
participate in the Voluntary Cash Purchase Plan, shareholders must have their shares registered in their own name.
Participants
in the Voluntary Cash Purchase Plan have the option of making additional cash payments to Computershare for investments in
the Fund’s shares at the then current market price. Shareholders may send an amount from $250 to $10,000. Computershare
will use these funds to purchase shares in the open market on or about the 1st and 15th of each month. Computershare will
charge each shareholder who participates $0.75, plus a per share fee (currently $0.02 per share). Per share fees include any
applicable brokerage commissions Computershare is required to pay and fees for such purchases are expected to be less than
the usual fees for such transactions. It is suggested that any voluntary cash payments be sent to Computershare, P.O. Box
6006, Carol Stream, IL 60197-6006 such that Computershare receives such payments approximately two business days
before the 1st and 15th of the month. Funds not received at least two business days before the investment date shall be held
for investment until the next purchase date. A payment may be withdrawn without charge if notice is received by Computershare
at least two business days before such payment is to be invested.
Shareholders
wishing to liquidate shares held at Computershare may do so through the Internet, in writing or by telephone to the
above-mentioned website, address or telephone number. Include in your request your name, address, and account number.
Computershare will sell such shares through a broker-dealer selected by Computershare within 5 business days of
receipt of the request. The sale price will equal the weighted average price of all shares sold through the Plan on the day
of the sale, less applicable fees. Participants should note that Computershare is unable to accept instructions to sell on a
specific date or at a specific price. The cost to liquidate shares is $2.50 per transaction as well as the per share fee
(currently $0.10 per share) Per share fees include any applicable brokerage commissions Computershare is required to pay and
are expected to be less than the usual fees for such transactions.
The
Gabelli Utility Trust
Additional Fund Information (Continued) (Unaudited)
For
more information regarding the Automatic Dividend Reinvestment Plan and Voluntary Cash Purchase Plan, brochures are available
by calling (914) 921-5070 or by writing directly to the Fund.
The
Fund reserves the right to amend or terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the members of the Plan at least 30 days before the record date for such
dividend or distribution. The Plan also may be amended or terminated by Computershare on at least 30 days written notice to participants
in the Plan.
The
Gabelli Utility Trust
Financial Highlights
Selected
data for a share of beneficial interest outstanding throughout each year:
| | |
Year
Ended December 31, | |
| | |
2016 | | |
2015 | | |
2014 | | |
2013 | | |
2012 | |
| Operating
Performance: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
asset value, beginning of year | |
$ | 5.13 | | |
$ | 6.16 | | |
$ | 5.98 | | |
$ | 5.48 | | |
$ | 5.69 | |
| Net
investment income (a) | |
| 0.11 | | |
| 0.13 | | |
| 0.13 | | |
| 0.14 | | |
| 0.15 | |
| Net
realized and unrealized gain/(loss) on investments, swap contracts, and foreign currency transactions | |
| 0.92 | | |
| (0.53 | ) | |
| 0.69 | | |
| 1.01 | | |
| 0.19 | |
| Total
from investment operations | |
| 1.03 | | |
| (0.40 | ) | |
| 0.82 | | |
| 1.15 | | |
| 0.34 | |
| Distributions
to Preferred Shareholders: (a) | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
investment income | |
| (0.01 | ) | |
| (0.01 | ) | |
| (0.01 | ) | |
| (0.04 | ) | |
| (0.02 | ) |
| Net
realized gain | |
| (0.07 | ) | |
| (0.03 | ) | |
| (0.04 | ) | |
| (0.01 | ) | |
| (0.04 | ) |
| Total
distributions to preferred shareholders | |
| (0.08 | ) | |
| (0.04 | ) | |
| (0.05 | ) | |
| (0.05 | ) | |
| (0.06 | ) |
| Net
Increase/(Decrease) in Net Assets Attributable to Common Shareholders Resulting from Operations | |
| 0.95 | | |
| (0.44 | ) | |
| 0.77 | | |
| 1.10 | | |
| 0.28 | |
| Distributions
to Common Shareholders: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
investment income | |
| (0.09 | ) | |
| (0.11 | ) | |
| (0.11 | ) | |
| (0.12 | ) | |
| (0.14 | ) |
| Net
realized gain | |
| (0.48 | ) | |
| (0.27 | ) | |
| (0.40 | ) | |
| (0.42 | ) | |
| (0.26 | ) |
| Return
of capital | |
| (0.03 | ) | |
| (0.22 | ) | |
| (0.09 | ) | |
| (0.06 | ) | |
| (0.20 | ) |
| Total
distributions to common shareholders | |
| (0.60 | ) | |
| (0.60 | ) | |
| (0.60 | ) | |
| (0.60 | ) | |
| (0.60 | ) |
| Fund
Share Transactions: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Increase
in net asset value from common share transactions | |
| 0.01 | | |
| 0.01 | | |
| 0.01 | | |
| 0.00 | (b) | |
| 0.02 | |
| Increase
in net asset value from common shares issued in rights offering | |
| — | | |
| — | | |
| — | | |
| — | | |
| 0.11 | |
| Offering
costs for issuance of rights charged to paid-in capital | |
| — | | |
| — | | |
| — | | |
| 0.00 | (b) | |
| (0.02 | ) |
| Offering
costs for preferred shares charged to paid-in capital | |
| (0.04 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
| Total
Fund share transactions | |
| (0.03 | ) | |
| 0.01 | | |
| 0.01 | | |
| 0.00 | (b) | |
| 0.11 | |
| Net
Asset Value Attributable to Common Shareholders, End of Year | |
$ | 5.45 | | |
$ | 5.13 | | |
$ | 6.16 | | |
$ | 5.98 | | |
$ | 5.48 | |
| NAV
total return† | |
| 18.62 | % | |
| (7.12 | )% | |
| 13.87 | % | |
| 20.99 | % | |
| 4.56 | % |
| Market
value, end of year | |
$ | 6.30 | | |
$ | 5.70 | | |
$ | 7.32 | | |
$ | 6.39 | | |
$ | 6.16 | |
| Investment
total return†† | |
| 22.08 | % | |
| (14.15 | )% | |
| 25.32 | % | |
| 14.13 | % | |
| (14.26 | )% |
The
Gabelli Utility Trust
Additional Fund Information (Continued) (Unaudited)
The
Gabelli Utility Trust
Financial
Highlights (Continued)
Selected
data for a share of beneficial interest outstanding throughout each year:
| | |
Year
Ended December 31, | |
| | |
2016 | | |
2015 | | |
2014 | | |
2013 | | |
2012 | |
| Ratios
to Average Net Assets and Supplemental Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
assets including liquidation value of preferred shares, | |
| | | |
| | | |
| | | |
| | | |
| | |
| end
of year (in 000’s) | |
$ | 337,831 | | |
$ | 270,508 | | |
$ | 311,044 | | |
$ | 300,389 | | |
$ | 277,069 | |
| Net
assets attributable to common shares, end of year (in 000’s) | |
$ | 236,498 | | |
$ | 219,176 | | |
$ | 259,711 | | |
$ | 249,057 | | |
$ | 225,737 | |
| Ratio
of net investment income to average net assets attributable to common shares before preferred share distributions | |
| 2.02 | % | |
| 2.41 | % | |
| 2.06 | % | |
| 2.36 | % | |
| 2.84 | % |
| Ratio of operating expenses to average net assets attributable to common shares
before fee waived | |
| 1.71 | %(c) | |
| 1.57 | %(c) | |
| 1.59 | % | |
| 1.55 | % | |
| 1.75 | % |
| Ratio
of operating expenses to average net assets attributable to common shares
net of advisory fee reduction, if any | |
| 1.71 | %(c) | |
| 1.35 | %(c) | |
| 1.59 | % | |
| 1.55 | % | |
| 1.59 | % |
| Ratio of
operating expenses to average net assets including liquidation value of preferred
shares before fee waived | |
| 1.27 | %(c) | |
| 1.29 | %(c) | |
| 1.32 | % | |
| 1.28 | % | |
| 1.36 | % |
| Ratio
of operating expenses to average net assets including liquidation value
of preferred shares net of advisory fee reduction, if any | |
| 1.27 | %(c) | |
| 1.11 | %(c) | |
| 1.32 | % | |
| 1.28 | % | |
| 1.23 | % |
| Portfolio
turnover rate | |
| 22 | % | |
| 9 | % | |
| 17 | % | |
| 16 | % | |
| 3 | % |
| Preferred
Shares: | |
| | | |
| | | |
| | | |
| | | |
| | |
| 5.625%
Series A Cumulative Preferred Shares | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation
value, end of year (in 000’s) | |
$ | 28,832 | | |
$ | 28,832 | | |
$ | 28,832 | | |
$ | 28,832 | | |
$ | 28,832 | |
| Total
shares outstanding (in 000’s) | |
| 1,153 | | |
| 1,153 | | |
| 1,153 | | |
| 1,153 | | |
| 1,153 | |
| Liquidation preference
per share. | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | |
| Average market value
(d) | |
$ | 25.88 | | |
$ | 25.55 | | |
$ | 25.14 | | |
$ | 25.25 | | |
$ | 26.00 | |
| Asset coverage per
share (e) | |
$ | 83.35 | | |
$ | 131.74 | | |
$ | 151.49 | | |
$ | 146.30 | | |
$ | 134.94 | |
| Series
B Auction Rate Cumulative Preferred Shares | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation
value, end of year (in 000’s) | |
$ | 22,500 | | |
$ | 22,500 | | |
$ | 22,500 | | |
$ | 22,500 | | |
$ | 22,500 | |
| Total
shares outstanding (in 000’s) | |
| 1 | | |
| 1 | | |
| 1 | | |
| 1 | | |
| 1 | |
| Liquidation preference
per share | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | |
| Liquidation value
(f) | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | |
| Asset coverage per
share (e) | |
$ | 83,347 | | |
$ | 131,744 | | |
$ | 151,486 | | |
$ | 146,297 | | |
$ | 134,939 | |
| 5.375%
Series C Cumulative Preferred Shares | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation
value, end of year (in 000’s) | |
$ | 50,000 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| Total
shares outstanding (in 000’s) | |
| 2,000 | | |
| — | | |
| — | | |
| — | | |
| — | |
| Liquidation preference
per share. | |
$ | 25.00 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| Average market value
(d) | |
$ | 25.28 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| Asset coverage per
share (e) | |
$ | 83.35 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| Asset
Coverage (g) | |
| 333 | % | |
| 527 | % | |
| 606 | % | |
| 585 | % | |
| 540 | % |
| † | For
the years ended December 31, 2016, 2015, 2014, and 2013 based on net asset value per
share, adjusted for reinvestment of distributions at NAV on the ex-dividend date. The
year ended 2012 was based on net asset value per share, adjusted for reinvestment of
distributions at prices determined under the Fund’s dividend reinvestment plan,
and adjustments for rights offerings. |
| †† | Based
on market value per share, adjusted for reinvestment of distributions at prices determined
under the Fund’s dividend reinvestment plan. |
| (a) | Calculated
based upon average common shares outstanding on the record dates throughout the year.
|
| (b) | Amount
represents less than $0.005 per share. |
| (c) | The
Fund received credits from a designated broker who agreed to pay certain Fund operating
expenses. For the years ended December 31, 2016 and 2015, there was no impact on the
expense ratios. |
| (d) | Based
on weekly prices. |
| (e) | Asset
coverage per share is calculated by combining all series of preferred shares. |
| (f) | Since
February 2008, the weekly auctions have failed. Holders that have submitted orders have
not been able to sell any or all of their shares in the auction. |
| (g) | Asset
coverage is calculated by combining all series of preferred shares. |
The
Gabelli Utility Trust
Additional
Fund Information (Continued) (Unaudited)
MANAGEMENT
OF THE FUND
Trustees
and Officers
The
business and affairs of the Fund are managed under the direction of the Fund’s Board of Trustees. Information pertaining
to the Trustees and officers of the Fund is set forth below. The Fund’s Statement of Additional Information includes additional
information about the Fund’s Trustees and is available without charge, upon request, by calling 800-GABELLI (800-422-3554)
or by writing to The Gabelli Utility Trust at One Corporate Center, Rye, NY 10580-1422.
Name,
Position(s) Address1 and
Age | |
Term
of Office and
Length of Time
Served2 | |
Number
of Funds in
Fund Complex Overseen
by Trustee | |
Principal
Occupation(s) During
Past Five Years | |
Other
Directorships Held
by Trustee3 |
| INTERESTED TRUSTEES4: | |
| |
| |
| |
|
Mario
J. Gabelli, CFA Chairman
and Chief Investment
Officer Age:
79 | |
Since
1999* | |
31 | |
Chairman,
Chief Executive Officer, and Chief Investment Officer– Value Portfolios of GAMCO Investors, Inc. and Chief Investment
Officer – Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management, Inc.; Director/Trustee or Chief Investment
Officer of other registered investment companies within the Fund Complex; Chief Executive Officer of GGCP, Inc.; Executive
Chairman of Associated Capital Group, Inc. | |
Director of
Morgan Group Holdings, Inc. (holding company); Chairman of the Board and Chief Executive Officer of LICT Corp.
(multimedia and communication services company); Director of CIBL, Inc. (broadcasting and wireless communications); Director
of ICTC Group Inc. (communications) (2013-2018) |
| | |
| |
| |
| |
|
John
D. Gabelli
Trustee Age:
77 | |
Since
1999*** | |
12 | |
Former
Senior Vice President of G.research,
LLC | |
— |
| | |
| |
| |
| |
|
| INDEPENDENT
TRUSTEES5: | |
| |
| |
| |
|
John
Birch6,7
Trustee Age:
70 | |
Since
2018** | |
6 | |
Partner,
The Cardinal Partners Global; Chief Operating Officer of Sentinel Asset Management and
Chief Financial Officer and Chief Risk Officer of Sentinel Group Funds (2005-2015) | |
— |
| | |
| |
| |
| |
|
Elizabeth
C. Bogan
Trustee Age:
77 | |
Since
2018* | |
12 | |
Senior
Lecturer in Economics at Princeton University | |
— |
| | |
| |
| |
| |
|
James
P. Conn6
Trustee Age:
83 | |
Since
1999*** | |
23 | |
Former
Managing Director and Chief Investment Officer of Financial Security Assurance Holdings,
Ltd. (1992-1998) | |
— |
| | |
| |
| |
| |
|
Vincent
D. Enright8
Trustee Age:
78 | |
Since
1999* | |
17 | |
Former Senior
Vice President and Chief Financial Officer of KeySpan Corp. (public utility) (1994-1998) | |
Director
of Echo Therapeutics, Inc. (therapeutics and diagnostics) (2008-2014); Director of The
LGL Group, Inc. (diversified manufacturing) (2011-2014) |
The
Gabelli Utility Trust
Additional
Fund Information (Continued) (Unaudited)
Name,
Position(s)
Address1
and Age |
|
Term
of Office
and Length of
Time Served2 |
|
Number
of
Funds
in Fund
Complex
Overseen by
Trustee |
|
Principal
Occupation(s)
During Past Five Years |
|
Other
Directorships
Held by Trustee3 |
| |
|
|
|
|
|
|
|
|
Frank
Fahrenkopf Jr. 7
Trustee
Age: 82
|
|
Since
1999** |
|
12 |
|
Co-Chairman
of the Commission on Presidential Debates; Former President and Chief Executive Officer of the American Gaming Association (1995-2013);
Former Chairman of the Republican National Committee (1983-1989) |
|
Director
of First Republic Bank (banking); Director of
Eldorado
Resorts, Inc. (casino entertainment company) |
| |
|
|
|
|
|
|
|
|
Michael
Ferrantino9
Trustee
Age:50
|
|
Since
2017*** |
|
4 |
|
Chief
Executive Officer of InterEx Inc. |
|
President,
CEO, and Director of The LGL Group, Inc.; Director of LGL Systems Acquisition Corp. (Aerospace and Defense
Communications) |
| |
|
|
|
|
|
|
|
|
Leslie
F. Foley7
Trustee
Age: 53
|
|
Since
2021*** |
|
13 |
|
Attorney;
Serves on the Board of the Addison Gallery of American Art at Phillips Academy Andover; Vice President, Global Ethics & Compliance
and Associate General Counsel for News Corporation (2008-2010) |
|
— |
| |
|
|
|
|
|
|
|
|
Michael
J. Melarkey
Trustee
Age: 72
|
|
Since
2016*** |
|
22 |
|
Of
Counsel in the law firm of McDonald Carano Wilson LLP; Partner in the law firm of Avansino, Melarkey, Knobel, Mulligan &
McKenzie (1980-2015) |
|
Chairman
of Southwest Gas Corporation (natural gas utility) |
| |
|
|
|
|
|
|
|
|
Robert
J. Morrissey
Trustee
Age: 82
|
|
Since
1999** |
|
7 |
|
Partner
in the law firm of Morrissey, Hawkins & Lynch |
|
Chairman
of the Board of Directors, Belmont Savings Bank |
| |
|
|
|
|
|
|
|
|
Kuni
Nakamura
Trustee
Age: 53
|
|
Since
2012* |
|
34 |
|
President
of Advanced Polymer, Inc. (chemical manufacturing company); President of KEN Enterprises, Inc. (real estate); Trustee on Long
Island University Board of Trustees |
|
— |
| |
|
|
|
|
|
|
|
|
Salvatore
J. Zizza10
Trustee
Age: 76
|
|
Since
1999** |
|
32 |
|
President,
Zizza & Associates Corp. (private holding company); Chairman of Bergen Cove Realty Inc. (residential real
estate) |
|
Director
and Chairman of Trans-Lux Corporation (business services); Director and Chairman
of
Harbor Diversified Inc. (pharmaceuticals) (2009-2018); Retired Chairman of BAM (semiconductor and aerospace
manufacturing) |
The
Gabelli Utility Trust
Additional
Fund Information (Continued) (Unaudited)
Name,
Position(s)
Address1
and Age |
|
Term
of Office
and Length of
Time Served2 |
|
Principal
Occupation(s)
During Past Five Years |
|
| |
|
|
| |
|
|
| OFFICERS: |
|
|
|
|
|
Bruce
N. Alpert
President
Age: 70 |
|
Since
1999 |
|
Executive
Vice President and Chief Operating Officer of Gabelli Funds, LLC since 1988; Officer of registered investment companies within
the Fund Complex; Senior Vice President of GAMCO Investors, Inc. since 2008; Vice President – Mutual Funds, G.research,
LLC |
|
| |
|
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
John
C. Ball
Treasurer
Age: 45 |
|
Since
2017 |
|
Treasurer
of registered investment companies within the Fund Complex since 2017; Vice President and Assistant Treasurer of AMG Funds,
2014-2017; Chief Executive Officer, G.distributors, LLC since December 2020 |
|
| |
|
|
|
|
|
| |
|
|
| |
|
|
Peter
Goldstein
Secretary and Vice
President
Age: 68 |
|
Since
2020 |
|
General
Counsel, Gabelli Funds, LLC since July 2020; General Counsel and Chief Compliance Officer, Buckingham Capital Management,
Inc. (2012-2020); Chief Legal Officer and Chief Compliance Officer, The Buckingham Research Group, Inc. (2012-2020) |
|
| |
|
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
Richard
J. Walz
Chief Compliance
officer
Age: 62 |
|
Since
2013 |
|
Chief
Compliance Officer of registered investment companies within the Fund Complex since 2013; Chief Compliance Officer for Gabelli
Funds, LLC since 2015 |
|
| |
|
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
Daniel
Plourde
Vice President
Age: 41 |
|
Since
2021 |
|
Vice
President of registered investment companies within the Fund Complex since 2021; Assistant Treasurer of the North American
SPDR ETFs and State Street Global Advisors Mutual Funds (2017-2021); Fund Administration at State Street Bank (2009-2017) |
|
| |
|
|
|
|
|
| |
|
|
| |
|
|
| |
|
|
David
I. Schachter
Vice President and
Ombudsman
Age: 68 |
|
Since
1999 |
|
Vice
President and/or Ombudsman of closed-end funds within the Fund Complex; Senior Vice President (since 2015) and Vice President
(1999-2015) of G.research, LLC |
|
| |
|
|
| |
|
|
| |
|
|
| 1 | Address:
One Corporate Center, Rye, NY 10580-1422, unless otherwise noted. |
| 2 | The
Fund’s Board of Trustees is divided into three classes, each class having a term
of three years. Each year the term of office of one class expires and the successor or
successors elected to such class serve for a three year term. The three year term for
each class expires as follows: |
| * | Term
expires at the Fund’s 2022 Annual Meeting of Shareholders or until their successors
are duly elected and qualified. |
| ** | Term
expires at the Fund’s 2023 Annual Meeting of Shareholders or until their successors
are duly elected and qualified. |
| *** | Term
expires at the Fund’s 2024 Annual Meeting of Shareholders or until their successors
are duly elected and qualified. |
| Each | officer
will hold office for an indefinite term until the date he or she resigns or retires or
until his or her successor is elected and qualified. |
| 3 | This
column includes directorships of companies required to report to the SEC under the Securities
Exchange Act of 1934, as amended, i.e., public companies, or other investment companies
registered under the 1940 Act, and other noteworthy directorships. |
| 4 | “Interested
person” of the Fund as defined in the 1940 Act. Messrs. Mario J. Gabelli and John
D. Gabelli, who are brothers, are each considered an “interested person”
because of their affiliation with Gabelli Funds, LLC, which acts as the Fund’s
investment adviser. |
| 5 | Trustees
who are not interested persons are considered “Independent” Trustees. |
| 6 | This
Trustee is elected solely by and represents the stockholders of the preferred stock issued
by the Fund. |
| 7 | Mr.
Fahrenkopf’s daughter, Leslie F. Foley, serves as a director of other funds in
the Fund Complex. Mr. Birch is a director of Gabelli Merger |
The
Gabelli Utility Trust
Additional
Fund Information (Continued) (Unaudited)
| Plus+ Trust
Plc and GAMCO International SICAV, which may be deemed to be controlled by Mario Gabelli
and/or affiliates and, in that event, would be deemed to be under common control with
the Fund’s Advisor. |
| 8 | Mr.
Enright is a Director of The LGL Group, Inc., which may be deemed to be controlled by
Mario J. Gabelli and/or affiliates and, in that event, would be deemed to be under common
control with the Fund’s Adviser. |
| 9 | Mr.
Ferrantino is the President, CEO and a Director of The LGL Group, Inc. and a Director
of LGL Systems Acquisition Corp., all of which may be deemed to be controlled by Mario
J. Gabelli and/or affiliates and, in that event, would be deemed to be under common control
with the Fund’s Adviser. |
| 10 | Mr.
Zizza is an independent director of Gabelli International Ltd., which may be deemed to
be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed
to be under common control with the Fund’s Adviser. On September 9, 2015, Mr. Zizza
entered into a settlement with the SEC to resolve an inquiry relating to an alleged violation
regarding the making of false statements or omissions to the accountants of a company
concerning a related party transaction. The company in question is not an affiliate of,
nor has any connection to, the Fund. Under the terms of the settlement, Mr. Zizza, without
admitting or denying the SEC’s findings and allegation, paid $150,000 and agreed
to cease and desist committing or causing any future violations of Rule 13b2-2 of the
Securities Exchange Act of 1934, as amended. |
| The | Board
has discussed this matter and has determined that it does not disqualify Mr. Zizza from
serving as an independent director. |
The
Gabelli Utility Trust
Additional
Fund Information (Continued) (Unaudited)
General
The
Fund’s Board has overall responsibility for the management of the Fund. The Board decides upon matters of general policy
and reviews the actions of the Investment Adviser, Gabelli Funds, LLC, One Corporate Center, Rye, New York 10580-1422, and the
Sub-Administrator (as defined below). Pursuant to an investment advisory agreement between the Fund and the Investment Adviser
(the “Investment Advisory Agreement”), the Investment Adviser, under the supervision of the Board, 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 Trustees of the Fund who are officers or employees of the Investment Adviser or its affiliates.
As compensation for its services rendered and the related expenses borne by the Investment Adviser, the Fund pays the Investment
Adviser a monthly fee, computed an annual rate of 0.80% of the first $100,000,000 of the Fund’s average weekly net assets
and 0.55% of the Fund’s average weekly net assets in excess of $100,000,000. The Fund’s average weekly net assets
shall be determined at the end of each month on the basis of the Fund’s average net assets for each week during the month.
The assets for each weekly period shall be determined by averaging the net assets at the end of a week with the net assets at
the end of the prior week. The value of the Fund’s average weekly net assets shall be deemed to be the average weekly value
of the Fund’s total assets minus the sum of the Fund’s liabilities (such liabilities do not include the aggregate
liquidation preference of any outstanding preferred shares and accumulated dividends, if any, on those shares). Therefore, the
Fund will pay an advisory fee on any assets attributable to certain types of leverage it uses. Consequently, if the Fund has preferred
shares outstanding, the investment management fees and other expenses as a percentage of net assets attributable to common shares
may be higher than if the Fund does not utilize a capital structure leveraged with preferred equity.
Because
the investment advisory fee is based on a percentage of the Fund’s net assets without deduction for the liquidation preference
of any outstanding preferred shares, the Investment Adviser may have a conflict of interest in the input it provides to the Board
regarding whether to use or increase the Fund’s use of preferred share leverage. The Board bases its decision, with input
from the Investment Adviser, regarding whether and how much preferred share leverage to use for the Fund on its assessment of
whether such use of leverage is in the best interests of the Fund, and the Board seeks to manage the Investment Adviser’s
potential conflict of interest by retaining the final decision on these matters and by periodically reviewing the Fund’s
performance and use of leverage.
The
Investment Adviser
The
Investment Adviser is a New York limited liability company which serves as an investment adviser to registered investment companies
with combined aggregate net assets of approximately $21.2 billion as of September 30, 2021. The Investment Adviser is a registered
investment adviser under the Investment Advisers Act of 1940, as amended, and is a wholly owned subsidiary of GAMCO Investors,
Inc. (“GBL”). Mr. Gabelli owns a majority of the stock of GGCP, Inc. (“GGCP”) which holds a majority of
the capital stock and voting power of GBL. The Investment Adviser has several affiliates that provide investment advisory services:
GAMCO Asset Management Inc., a wholly owned subsidiary of GBL, acts as investment adviser for individuals, pension trusts, profit
sharing trusts, and endowments, and as a sub-adviser to certain third party investment funds, which include registered investment
companies, having assets under management of approximately of $12.3 billion as
The
Gabelli Utility Trust
Additional
Fund Information (Continued) (Unaudited)
of
September 30, 2021; Teton Advisors, Inc., and its wholly owned investment adviser, Keeley Teton Advisers, LLC, with assets under
management of approximately $2 billion as of September 30, 2021, acts as investment adviser to The TETON Westwood Funds, the KEELEY
Funds, and separately managed accounts; and Gabelli & Company Investment Advisers, Inc. (formerly, Gabelli Securities, Inc.),
a wholly owned subsidiary of Associated Capital Group, Inc. (“Associated Capital”), acts as investment adviser for
certain alternative investment products, consisting primarily of risk arbitrage and merchant banking limited partnerships and
offshore companies, with assets under management of approximately $1.68 billion as of September 30, 2021. Teton Advisors, Inc.,
was spun off by GBL in March 2009 and is an affiliate of GBL by virtue of Mr. Gabelli’s ownership of GGCP, the principal
shareholder of Teton Advisors, Inc., as of September 30, 2021. Associated Capital was spun off from GBL on November 30, 2015,
and is an affiliate of GBL by virtue of Mr. Gabelli’s ownership of GGCP, the principal shareholder of Associated Capital.
A
discussion regarding the basis for the Fund’s Board approval of the Investment Advisory Agreement with the Investment Adviser
is available in this Annual Report.
Payment
of Expenses
The
Investment Adviser is obligated to pay expenses associated with providing the services contemplated by the Investment Advisory
Agreement including compensation of and office space for its officers and employees connected with investment and economic research,
trading and investment management and administration of the Fund (but excluding costs associated with the calculation of the net
asset value and allocated costs of the chief compliance officer function and officers of the Fund who are employed by the Fund
and are not employed by the Investment Adviser although such officers may receive incentive based variable compensation from affiliates
of the Investment Adviser), as well as the fees of all Trustees of the Fund who are officers or employees of the Investment Adviser
or its affiliates.
In
addition to the fees of the Investment Adviser, the Fund, and indirectly the holders of its common shares, is responsible
for the payment of all its other expenses incurred in the operation of the Fund, which include, among other things,
underwriting compensation and reimbursements in connection with sales of the Fund’s securities, expenses for legal and
the Fund’s independent registered public accounting firm’s services, stock exchange listing fees and expenses,
costs of printing proxies, share certificates and shareholder reports, charges of the Fund’s Custodian, any
sub-custodian and any transfer agent and distribution disbursing agent, expenses in connection with the Automatic Dividend
Reinvestment Plan and the Voluntary Cash Purchase Plan, SEC fees and preparation of filings with the SEC, fees and
expenses of Trustees who are not officers or employees of the Investment Adviser or its affiliates, accounting and printing
costs, the Fund’s pro rata portion of membership fees in trade organizations, compensation and other expenses of
officers and employees of the Fund (including, but not limited to, the Chief Compliance Officer, Vice President and
Ombudsman) as approved by the Fund’s Trustees, fidelity bond coverage for the Fund’s officers and employees,
Trustees’ and officers’ errors and omissions insurance coverage, interest, brokerage costs, taxes, expenses of
qualifying the Fund’s shares for sale in various states, expenses of personnel performing shareholder servicing
functions, rating agency fees, organizational expenses, litigation and other extraordinary or non-recurring expenses and
other expenses properly payable by the Fund.
The
Gabelli Utility Trust
Additional
Fund Information (Continued) (Unaudited)
Selection
of Securities Brokers
The
Investment 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 (i) direct Fund portfolio brokerage to G.research, LLC (“G.research”),
an affiliate of the Investment Adviser, or to other broker-dealer affiliates of the Investment Adviser and (ii) pay commissions
to brokers other than G.research that 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 investment advisory accounts or those of any investment adviser affiliated with it. The SAI contains further information
about the Investment Advisory Agreement, including a more complete description of the investment advisory and expense arrangements,
exculpatory and brokerage provisions, as well as information on the brokerage practices of the Fund.
Portfolio
Managers
Thomas
Dinsmore, CFA, joined Gabelli Funds, LLC in 2015. He currently serves as a portfolio manager of Gabelli Funds, LLC and manages
several funds within the Gabelli/GAMCO/Teton Fund Complex. From 1996 to 2015, Mr. Dinsmore was Chairman and CEO of Dinsmore Capital
Management; CEO and Portfolio Manager of Bancroft Fund Ltd; and CEO, Portfolio Manager, and co-founder of Ellsworth Growth and
Income Fund Ltd. He received a BS in Economics from the Wharton School of Business and an MA in Economics from Fairleigh Dickinson
University.
James
Dinsmore, CFA, joined Gabelli Funds, LLC in 2015. He currently serves as a portfolio manager of Gabelli Funds, LLC and manages
several other funds within the Gabelli/GAMCO/Teton Fund Complex. Mr. Dinsmore received a BA in Economics from Cornell University
and an MBA degree from Rutgers University.
Thomas
Dinsmore and James Dinsmore function as a team and are jointly and primarily responsible for day-to-day management of the Fund.
Effective
April 30, 2021, Ms. Jane D. O’Keeffe retired as a portfolio manager of the Fund. Ms. O’Keeffe will be a consultant
to the portfolio management team of Mr. Thomas Dinsmore, CFA, and Mr. James Dinsmore, CFA.
Non-Resident
Trustee
Anthonie
C. van Ekris is not a U.S. resident and substantially all of his assets may be located outside of the United States. Mr. van Ekris
does not have an agent for service of process in the United States. As a result, it may be difficult for U.S. investors to effect
service of process upon Mr. van Ekris within the United States or to realize judgments of courts of the United States predicated
upon civil liabilities under the federal securities laws of the United States. In addition, it is not certain that civil liabilities
predicated upon the federal securities laws on which a valid judgment of a court in the United States is obtained would be enforceable
in the courts of the jurisdictions in which Mr. van Ekris resides. Further, it is not certain that such courts would enforce,
in an original action, liabilities against Mr. van Ekris predicated solely on U.S. federal securities laws.
Sub-Administrator
The
Investment Adviser has entered into a sub-administration agreement with BNY Mellon Investment Servicing (US) Inc. (the “Sub-Administrator”)
pursuant to which the Sub-Administrator provides certain administrative
The
Gabelli Utility Trust
Additional
Fund Information (Continued) (Unaudited)
services
necessary for the Fund’s operations which do not include the investment 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 an
annual fee based on the value of the aggregate average daily net assets of all funds under its administration managed by the Investment
Adviser, GAMCO and Teton Advisors, Inc. as follows: 0.0275%—first $10 billion, 0.0125%—exceeding $10 billion but less
than $15 billion, 0.01%— over $15 billion but less than $20 billion and 0.008% over $20 billion. The Sub-Administrator has
its principal office at 301 Bellevue Parkway, Wilmington, Delaware 19809.
NET
ASSET VALUE
The
net asset value of the Fund’s shares is computed based on the market value of the securities it holds and is determined
daily as of the close of the regular trading day on the NYSE. For purposes of determining the Fund’s net asset value per
share, portfolio securities listed or traded on a nationally recognized securities exchange or traded in the U.S. over-the-counter
market for which market quotations are readily available are valued at the last quoted sale price or a market’s official
closing price as of the close of business on the day the securities are being valued. If there were no sales that day, the security
is valued at the average of the closing bid and asked prices, or, if there were no asked prices quoted on that day, then the security
is valued at the closing bid price on that day. If no bid or asked prices are quoted on such day, the security is valued at the
most recently available price or if the Board so determines, by such other method as the Board shall determine in good faith to
reflect its fair market value. Portfolio securities traded on more than one national securities exchange or market are valued
according to the broadest and most representative market, as determined by the Investment Adviser.
Portfolio
securities primarily traded on a foreign market are generally valued at the preceding closing values of such securities on the
relevant market, but may be fair valued pursuant to procedures established by the Board if market conditions change significantly
after the close of the foreign market but prior to the close of business on the day the securities are being valued. Debt instruments
with remaining maturities of 60 days or less that are not credit impaired are valued at amortized cost, unless the Board determines
such amount does not reflect the securities’ fair value, in which case these securities will be fair valued as determined
by the Board. Debt instruments having a maturity greater than 60 days for which market quotations are readily available are valued
at the average of the latest bid and asked prices. If there were no asked prices quoted on such day, the security is valued using
the closing bid price. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which
the applicable contract is traded.
Options
are valued using market quotations. When market quotations are not readily available, options are valued from broker quotes. In
limited circumstances when neither market quotations nor broker quotes are readily available, options are valued using a Black
Scholes model.
Securities
and assets for which market quotations are not readily available are fair valued as determined by the Board. Fair valuation methodologies
and procedures may include, but are not limited to: analysis and review of available financial and non-financial information about
the company; comparisons to the valuation and changes in valuation of similar securities, including a comparison of foreign securities
to the equivalent U.S. dollar value ADR securities at the close of the U.S. exchange; and evaluation of any other information
that could be indicative of the value of the security.
The
Gabelli Utility Trust
Additional
Fund Information (Continued) (Unaudited)
The
Fund obtains valuations on the basis of prices provided by a pricing service approved by the Board. All other investment assets,
including restricted and not readily marketable securities, are valued in good faith at fair value under procedures established
by and under the general supervision and responsibility of the Fund’s Board.
In
addition, whenever developments in one or more securities markets after the close of the principal markets for one or more portfolio
securities and before the time as of which the Fund determines its net asset value would, if such developments had been reflected
in such principal markets, likely have more than a minimal effect on the Fund’s net asset value per share, the Fund may
fair value such portfolio securities based on available market information as of the time the Fund determines its net asset value.
NYSE
American Closings. The holidays (as observed) on which the NYSE American is closed, and therefore days upon which shareholders
will not be able to purchase or sell common shares currently are: New Year’s Day, Martin Luther King, Jr. Day, Presidents’
Day, Good Friday, Memorial Day, Juneteenth Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day, and on the preceding
Friday or subsequent Monday when a holiday falls on a Saturday or Sunday, respectively.
The
Gabelli Utility Trust
Board
Consideration and Re-Approval of Investment Advisory Agreement (Unaudited)
At
its meeting on November 10, 2021, the Board of Trustees (Board) of the Fund approved the continuation of the investment advisory
agreement with the Adviser for the Fund on the basis of the recommendation by the trustees who are not interested persons of the
Fund (the Independent Board Members). The following paragraphs summarize the material information and factors considered by the
Independent Board Members as well as their conclusions relative to such factors.
Nature,
Extent, and Quality of Services. The Independent Board Members considered information regarding the portfolio managers, the
depth of the analyst pool available to the Adviser and the portfolio managers, the nature, quality and extent of administrative
and shareholder services supervised or provided by the Adviser, including portfolio management, supervision of Fund operations,
and compliance and regulatory filings and disclosures to shareholders, general oversight of other service providers, review of
Fund legal issues, assisting the Independent Board Members in their capacity as directors, and other services, and the absence
of significant service problems reported to the Board. The Independent Board Members concluded that the services are extensive
in nature and that the Adviser consistently delivered a high level of service.
Investment
Performance of the Fund and Adviser. The Independent Board Members considered short term and long term investment performance
for the Fund over various periods of time as compared with relevant equity indices and the performance of other closed-end funds
included in the Broadridge peer category. The Board noted that the Fund’s total return performance was above the average
and the median of a select group of peers for the one-year period, modestly below the average and median of a select group of
peers for the three and five year periods, and modestly above the average but below the median of a select group of peers for
the ten year period ended September 30, 2021. The Board also noted that the Fund’s common shares consistently trade at a
meaningful premium to NAV. The Independent Board Members concluded that the Adviser was delivering satisfactory performance results
consistent with the investment strategies being pursued by the Fund and disclosed to investors.
Costs
of Services and Profits Realized by the Adviser. (a) Costs of Services to Fund: Fees and Expenses. The Independent Board Members
considered the Fund’s advisory fee rate and expense ratio relative to industry averages for the Fund’s Broadridge
peer group category and the advisory fees charged by the Adviser and its affiliates to other fund and non-fund clients. The Independent
Board Members considered the Adviser’s fee structure as compared to that of the Adviser’s affiliate, GAMCO Asset Management
Inc. (“GAMCO”), for services provided to institutional and high net worth accounts and in connection with sub-advisory
arrangements, noting that the service level for GAMCO accounts and sub-advisory relationships is materially different than the
services provided by the Adviser to its registered funds and investors in such funds, which is reflected in the difference in
fee structure. The Independent Board Members noted that the mix of services under the Advisory Agreement is more extensive than
those under the advisory agreements for non-fund clients. The Independent Board Members noted that the management and gross advisory
fees, other non-management expenses, and total expenses paid by the Fund are each above the average and median for the Fund’s
select group of peers. They took note of the fact that the use of leverage impacts comparative expenses to peer funds, not all
of which utilize leverage and certain of which are open-end funds. The Independent Board Members were aware that the Adviser has
agreed to waive its management fee on the incremental assets attributable to the Fund’s Series A and Series B Preferred
Shares during a fiscal year if the total return on NAV of the Fund’s common shares, including distributions and advisory
fees subject to reduction for that year, does not exceed the stated
The
Gabelli Utility Trust
Board
Consideration and Re-Approval of Investment Advisory Agreement (Unaudited) (Continued)
dividend
rate of the Series A Preferred Shares or corresponding swap rate for the Series B Preferred Shares, as applicable, for the year
and that the comparative total expense ratio and other non-management expense information reflected these waivers, if applicable.
The Independent Board Members concluded that the advisory fee is not excessive based upon the qualifications, experience, reputation,
and performance of the Adviser and the other factors considered. (b) Profitability and Costs of Services to Adviser. The Independent
Board Members considered the Adviser’s overall profitability and costs. The Independent Board Members referred to the Board
Materials for the pro forma income statements for the Adviser and the Fund for the period ended December 31, 2020. They noted
the pro forma estimates of the Adviser’s profitability and costs attributable to the Fund. The Independent Board Members
also considered whether the amount of profit is a fair entrepreneurial profit for the management of the Fund and noted that the
Adviser has continued to increase its resources devoted to Fund matters, including portfolio management resources, in response
to regulatory requirements and new or enhanced Fund policies and procedures. The Independent Board Members concluded that the
profitability to the Adviser of managing the Fund was not excessive.
Extent
of Economies of Scale as Fund Grows. The Independent Board Members considered whether there have been economies of scale with
respect to the management of the Fund and whether the Fund has appropriately benefited from any economies of scale, noting that
assets under management for the Fund were below $400 million for the period. The Independent Board Members noted that, although
the ability of the Fund to realize economies of scale through growth is more limited than for an open-end fund, economies of scale
may develop for certain funds as their assets increase and their fund-level expenses decline as a percentage of assets, but that
fund-level economies of scale may not necessarily result in Adviser-level economies of scale. The Independent Board Members were
aware that economies can be shared through an adviser’s investment in its fund advisory business and noted the Adviser’s
increase in personnel and resources devoted to the Gabelli/ GAMCO fund complex in recent years, which could benefit the Fund.
Whether
Fee Levels Reflect Economies of Scale. The Independent Board Members also considered whether the advisory fee rate is reasonable
in relation to the asset size of the Fund and any economies of scale that may exist, and concluded that the Fund’s current
fee schedule (without breakpoints) was considered reasonable, particularly in light of the Fund’s performance over time.
Other
Relevant Considerations. (a) Adviser Personnel and Methods. The Independent Board Members considered the size, education,
and experience of the Adviser's staff, the Adviser’s fundamental research capabilities, and the Adviser’s approach
to recruiting, training, and retaining portfolio managers and other research and management personnel, and concluded that, in
each of these areas, the Adviser was structured in such a way to support the high level of services being provided to the Fund.
(b) Other Benefits to the Adviser. The Independent Board Members also considered the character and amount of other incidental
benefits received by the Adviser and its affiliates from its association with the Fund. The Independent Board Members considered
the brokerage commissions paid to an affiliate of the Adviser. The Independent Board Members concluded that potential “fall-out”
benefits that the Adviser and its affiliates may receive, such as brokerage commissions paid to an affiliated broker, greater
name recognition, or increased ability to obtain research services, appear to be reasonable and may in some cases benefit the
Fund.
Conclusions.
In considering the Advisory Agreement, the Independent Board Members did not identify any factor as all important or all controlling,
and instead considered these factors collectively in light of the Fund’s
The
Gabelli Utility Trust
Board
Consideration and Re-Approval of Investment Advisory Agreement (Unaudited) (Continued)
surrounding
circumstances. Based on this review, it was the judgment of the Independent Board Members that shareholders had received satisfactory
absolute and relative performance over time consistent with the investment strategies being pursued by the Fund at reasonable
fees and, therefore, continuation of the Advisory Agreement was in the best interests of the Fund and its shareholders. As a part
of its decision making process, the Independent Board Members noted that the Adviser has managed the Fund since its inception,
and the Independent Board Members believe that a long term relationship with a capable, conscientious adviser is in the best interests
of the Fund. The Independent Board Members considered, generally, that shareholders invested in the Fund knowing that the Adviser
managed the Fund and knowing its investment advisory fee. As such, the Independent Board Members considered, in particular, whether
the Adviser managed the Fund in accordance with its investment objectives and policies as disclosed to shareholders. The Independent
Board Members concluded that the Fund was managed by the Adviser in a manner consistent with its investment objectives and policies.
The Independent Board Members also confirmed that they were satisfied with the information provided by the Adviser, that it included
all information the Independent Board Members believed was necessary to evaluate the terms of the Advisory Agreement, and that
the Independent Board Members were satisfied that any questions they had were appropriately addressed. On the basis of the foregoing
and without assigning particular weight to any single conclusion, the Independent Board Members determined to recommend continuation
of the Advisory Agreement to the full Board.
Based
on a consideration of all these factors in their totality, the Board Members, including all of the Independent Board Members,
determined that the Fund’s advisory fee was fair and reasonable with respect to the nature and quality of services provided
and in light of the other factors described above that the Board deemed relevant. Accordingly, the Board Members determined to
approve the continuation of the Fund’s Advisory Agreement.
THE
GABELLI UTILITY TRUST
INCOME
TAX INFORMATION (Unaudited)
December
31, 2021
Cash
Dividends and Distributions
| |
Payable
Date |
|
Record
Date |
|
Ordinary
Investment
Income
(a) |
|
Long
Term
Capital
Gains |
|
Return
of
Capital
(b) |
|
Total
Amount
Paid
Per
Share (c) |
|
Dividend
Reinvestment
Price |
| Common Stock |
|
|
|
|
|
|
|
|
| |
01/22/21 |
|
01/14/21 |
|
$0.00410 |
|
$0.00370 |
|
$0.04220 |
|
$0.05000 |
|
$7.63800 |
| |
02/19/21 |
|
02/11/21 |
|
0.00410 |
|
0.00370 |
|
0.04220 |
|
0.05000 |
|
7.64750 |
| |
03/24/21 |
|
03/17/21 |
|
0.00410 |
|
0.00370 |
|
0.04220 |
|
0.05000 |
|
6.50750 |
| |
04/23/21 |
|
04/16/21 |
|
0.00410 |
|
0.00370 |
|
0.04220 |
|
0.05000 |
|
6.60250 |
| |
05/21/21 |
|
05/14/21 |
|
0.00410 |
|
0.00370 |
|
0.04220 |
|
0.05000 |
|
7.03000 |
| |
06/23/21 |
|
06/16/21 |
|
0.00410 |
|
0.00370 |
|
0.04220 |
|
0.05000 |
|
7.48600 |
| |
07/23/21 |
|
07/16/21 |
|
0.00410 |
|
0.00370 |
|
0.04220 |
|
0.05000 |
|
7.67600 |
| |
08/24/21 |
|
08/17/21 |
|
0.00410 |
|
0.00370 |
|
0.04220 |
|
0.05000 |
|
7.76150 |
| |
09/23/21 |
|
09/16/21 |
|
0.00410 |
|
0.00370 |
|
0.04220 |
|
0.05000 |
|
7.55250 |
| |
10/22/21 |
|
10/15/21 |
|
0.00410 |
|
0.00370 |
|
0.04220 |
|
0.05000 |
|
7.64750 |
| |
11/22/21 |
|
11/15/21 |
|
0.00410 |
|
0.00370 |
|
0.04220 |
|
0.05000 |
|
7.74250 |
| |
12/17/21 |
|
12/10/21 |
|
0.00410 |
|
0.00370 |
|
0.04220 |
|
0.05000 |
|
7.59050 |
| |
|
|
|
|
$0.04920 |
|
$0.04440 |
|
$0.50640 |
|
$0.60000 |
|
|
| 5.625% Series A Cumulative Preferred Shares |
|
|
|
|
|
|
|
|
| |
03/26/21 |
|
03/19/21 |
|
$0.1853666 |
|
$0.1661959 |
|
— |
|
$0.3515625 |
|
|
| |
06/28/21 |
|
06/21/21 |
|
0.1853666 |
|
0.1661959 |
|
— |
|
0.3515625 |
|
|
| |
09/27/21 |
|
09/20/21 |
|
0.1853666 |
|
0.1661959 |
|
— |
|
0.3515625 |
|
|
| |
12/27/21 |
|
12/17/21 |
|
0.1853666 |
|
0.1661959 |
|
— |
|
0.3515625 |
|
|
| |
|
|
|
|
$0.7414664 |
|
$0.6647836 |
|
— |
|
$1.4062500 |
|
|
| 5.375% Series C Cumulative Preferred Shares |
|
|
|
|
|
|
|
|
| |
03/26/21 |
|
03/19/21 |
|
$0.1771281 |
|
$0.1588094 |
|
— |
|
$0.3359375 |
|
|
| |
06/28/21 |
|
06/21/21 |
|
0.1771281 |
|
0.1588094 |
|
— |
|
0.3359375 |
|
|
| |
09/27/21 |
|
09/20/21 |
|
0.1771281 |
|
0.1588094 |
|
— |
|
0.3359375 |
|
|
| |
12/27/21 |
|
12/17/21 |
|
0.1771281 |
|
0.1588094 |
|
— |
|
0.3359375 |
|
|
| |
|
|
|
|
$0.7085124 |
|
$0.6352376 |
|
— |
|
$1.3437500 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
B Auction Rate Cumulative Preferred Shares
Auction
Rate Preferred Stocks pay dividends weekly based on the maximum rate.
A
Form 1099-DIV has been mailed to all shareholders of record which sets forth specific amounts to be included in your 2021 tax
returns. Ordinary distributions include net investment income and realized net short term capital gains. Ordinary income is reported
in box 1a of Form 1099-DIV. Capital gain distributions are reported in box 2a of Form 1099-DIV.
Corporate
Dividends Received Deduction, Qualified Dividend Income, and U.S. Government Securities Income
In
2021, the Fund paid to common, 5.625% Series A Cumulative Preferred, and 5.375% Series C Cumulative Preferred shareholders ordinary
income dividends of $0.04920, $0.74115, and $0.70851 per share, respectively. The Fund paid weekly distributions to Series B Auction
Rate Cumulative Preferred shareholders at varying rates throughout the year, including an ordinary income dividend totaling $277.32554
per share in 2021. For 2021, 100% of the ordinary dividend qualified for the dividend received deduction available to corporations,
100% of the ordinary income distribution was deemed qualified dividend income, and 0.38% of ordinary income distribution was qualified
interest income and 100% of the ordinary income distribution was qualified short term capital gain. The percentage of ordinary
income dividends paid by the Fund during 2021 derived from U.S. Government securities was 0.29%. Such income is exempt from state
and local taxes in all states. However, many states,
THE
GABELLI UTILITY TRUST
INCOME
TAX INFORMATION (Unaudited) (Continued)
December
31, 2021
including
New York and California, allow a tax exemption for a portion of the income earned only if a mutual fund has invested at least
50% of its assets at the end of each quarter of its year in U.S. Government securities. The Fund did not meet this strict requirement
in 2021. The percentage of U.S. Government securities held as of December 31, 2021 was 17.71% of total investments.
THE
GABELLI UTILITY TRUST
INCOME
TAX INFORMATION (Unaudited) (Continued)
December
31, 2021
Historical
Distribution Summary
| |
|
Investment
Income (a) |
|
Short
Term
Capital
Gains (a) |
|
Long
Term
Capital
Gains |
|
Return
of
Capital (b) |
|
Total
Distributions (c) |
|
Adjustment
to Cost
Basis (d) |
| Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 (e) |
|
$0.04440 |
|
$0.00480 |
|
$0.04440 |
|
$0.50640 |
|
$0.60000 |
|
$0.49680 |
| 2020 |
|
0.00120 |
|
– |
|
– |
|
0.59880 |
|
0.60000 |
|
0.59880 |
| 2019 |
|
0.10080 |
|
0.02520 |
|
0.36720 |
|
0.10680 |
|
0.60000 |
|
0.10680 |
| 2018 (f) |
|
0.10440 |
|
0.02880 |
|
0.45000 |
|
0.01680 |
|
0.60000 |
|
0.01680 |
| 2017 |
|
0.09960 |
|
– |
|
0.49200 |
|
0.00840 |
|
0.60000 |
|
0.00840 |
| 2016 |
|
0.09360 |
|
0.01320 |
|
0.46440 |
|
0.02880 |
|
0.60000 |
|
0.02880 |
| 2015 |
|
0.10800 |
|
0.02160 |
|
0.25200 |
|
0.21840 |
|
0.60000 |
|
0.21840 |
| 2014 |
|
0.09960 |
|
0.00804 |
|
0.40104 |
|
0.09132 |
|
0.60000 |
|
0.09132 |
| 2013 |
|
0.14232 |
|
0.00576 |
|
0.39180 |
|
0.06012 |
|
0.60000 |
|
0.06012 |
| 2012 (g) |
|
0.13920 |
|
– |
|
0.26520 |
|
0.19560 |
|
0.60000 |
|
0.19560 |
| 5.625% Series A
Cumulative Preferred Shares |
|
|
|
|
|
|
|
|
| 2021 |
|
$0.66492 |
|
$0.07655 |
|
$0.66478 |
|
– |
|
$1.40625 |
|
– |
| 2020 |
|
1.40625 |
|
– |
|
– |
|
– |
|
1.40625 |
|
– |
| 2019 |
|
0.28623 |
|
0.07260 |
|
1.04742 |
|
– |
|
1.40625 |
|
– |
| 2018 |
|
0.25125 |
|
0.06991 |
|
1.08509 |
|
– |
|
1.40625 |
|
– |
| 2017 |
|
0.23774 |
|
– |
|
1.16851 |
|
– |
|
1.40625 |
|
– |
| 2016 |
|
0.23026 |
|
0.03347 |
|
1.14252 |
|
– |
|
1.40625 |
|
– |
| 2015 |
|
0.39725 |
|
0.07765 |
|
0.93135 |
|
– |
|
1.40625 |
|
– |
| 2014 |
|
0.27528 |
|
0.02227 |
|
1.10870 |
|
– |
|
1.40625 |
|
– |
| 2013 |
|
0.37067 |
|
0.01489 |
|
1.02069 |
|
– |
|
1.40625 |
|
– |
| 2012 |
|
0.48293 |
|
– |
|
0.92332 |
|
– |
|
1.40625 |
|
– |
| Series B Auction
Market Cumulative Preferred |
|
|
|
|
|
|
|
|
| Shares |
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
|
$248.69508 |
|
$28.63046 |
|
$248.64445 |
|
– |
|
$525.96999 |
|
– |
| 2020 |
|
527.67000 |
|
– |
|
– |
|
– |
|
527.67000 |
|
– |
| 2019 |
|
186.42761 |
|
47.28547 |
|
682.19692 |
|
– |
|
915.91000 |
|
– |
| 2018 |
|
156.15811 |
|
43.44635 |
|
674.40554 |
|
– |
|
874.01000 |
|
– |
| 2017 |
|
109.26415 |
|
– |
|
537.03585 |
|
– |
|
646.30000 |
|
– |
| 2016 |
|
80.27810 |
|
11.66970 |
|
398.32200 |
|
– |
|
490.26980 |
|
– |
| 2015 |
|
118.61073 |
|
23.18474 |
|
278.08453 |
|
– |
|
419.88000 |
|
– |
| 2014 |
|
80.26781 |
|
6.49443 |
|
323.28776 |
|
– |
|
410.05000 |
|
– |
| 2013 |
|
110.25405 |
|
4.42978 |
|
303.60617 |
|
– |
|
418.29000 |
|
– |
| 2012 |
|
137.82644 |
|
– |
|
263.51356 |
|
– |
|
401.34000 |
|
– |
| 5.375% Series C
Cumulative Preferred Shares |
|
|
|
|
|
|
|
|
| 2021 |
|
$0.63537 |
|
$0.07314 |
|
$0.63524 |
|
– |
|
$1.34375 |
|
– |
| 2020 |
|
1.34375 |
|
– |
|
– |
|
– |
|
1.34375 |
|
– |
| 2019 |
|
0.27351 |
|
0.06937 |
|
1.00086 |
|
– |
|
1.34375 |
|
– |
| 2018 |
|
0.24009 |
|
0.06680 |
|
1.03686 |
|
– |
|
1.34375 |
|
– |
| 2017 |
|
0.22718 |
|
– |
|
1.11657 |
|
– |
|
1.34375 |
|
– |
| 2016 |
|
0.12591 |
|
0.01830 |
|
0.62471 |
|
– |
|
0.76892 |
|
– |
(a)
Taxable as ordinary income for Federal tax purposes.
THE
GABELLI UTILITY TRUST
INCOME
TAX INFORMATION (Unaudited) (Continued)
December
31, 2021
| (c) | Total
amounts may differ due to rounding. |
| (d) | Decrease
in cost basis. |
| (e) | On
March 11, 2021, the Fund also distributed rights equivalent to $0.27 per share based
upon full subscription of all issued common shares. |
| (f) | On
March 29, 2018, the Fund also distributed rights equivalent to $0.18 per share based
upon full subscription of all issued common shares. |
| (g) | On
March 29, 2012, the Fund also distributed rights equivalent to $0.18 per share based
upon full subscription of all issued common shares. |
All
designations are based on financial information available as of the date of this annual report and, accordingly, are subject to
change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code
and the regulations thereunder.
THE
GABELLI UTILITY TRUST
One
Corporate Center
Rye,
NY 10580-1422
Portfolio
Manager Biography
Mario
J. Gabelli, CFA,
is Chairman, Chief Executive Officer, and Chief Investment Officer - Value Portfolios of GAMCO Investors, Inc. that he founded
in 1977, and Chief Investment Officer - Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc. He is also Executive
Chairman of Associated Capital Group, Inc. Mr. Gabelli is a summa cum laude graduate of Fordham University and holds an MBA degree
from Columbia Business School and Honorary Doctorates from Fordham University and Roger Williams University.
Timothy
M. Winter, CFA,
joined Gabelli in 2009 and covers the utility industry. He has over 25 years of experience as an equity research analyst covering
the industry. Currently, he continues to specialize in the utility industry and also serves as a portfolio manager of Gabelli
Funds, LLC. Mr. Winter received his BA in Economics from Rollins College and MBA in Finance from Notre Dame.
Justin
Bergner, CFA, is
a Vice President at Gabelli & Company and a portfolio manager for Gabelli Funds LLC, the Adviser. Justin rejoined Gabelli & Company in 2013 as a research analyst covering Diversified Industrials, Home Improvement, and Transport companies. He began
his investment career at Gabelli & Company in 2005 as a metals and mining analyst, and subsequently spent five years at Axiom
International Investors as a senior analyst focused on industrial and healthcare stocks. Prior to business school, Mr. Bergner
worked in management consulting at both Bain & Company and Dean & Company. Mr. Bergner graduated cum laude from Yale University
with a BA in Economics & Mathematics and received an MBA in Finance and Accounting from the Wharton School at the University
of Pennsylvania.
Brett
Kearney, CFA, is a portfolio
manager covering industrials with a focus on the flow control and other niche manufacturing sectors. He joined the firm in 2017.
Previously he was an analyst at Schultze Asset Management, an analyst at Fidus Mezzanine Capital, and an investment analyst at
the Bond & Corporate Finance Group of John Hancock Financial Services. Brett graduated cum laude with a BS in business administration
from Washington and Lee University and holds an MBA from Columbia Business School, where he participated in the school’s
Value Investing Program.
| We
have separated the portfolio managers’ commentary from the financial statements and investment portfolio due to corporate
governance regulations stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that the contents of the
portfolio managers’ commentary are unrestricted. Both the commentary and the financial statements, including the portfolio
of investments, will be available on our website at www.gabelli.com. |
The
Net Asset Value per share appears in the Publicly Traded Funds column, under the heading “Specialized Equity Funds,”
in Monday’s The Wall Street Journal. It is also listed in Barron’s Mutual Funds/Closed End Funds section under the
heading “Specialized Equity Funds.”
The
Net Asset Value per share may be obtained each day by calling (914) 921-5070 or visiting www.gabelli.com.
The
NASDAQ symbol for the Net Asset Value is “XGUTX.”
| Notice
is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Fund may from
time to time purchase its common shares in the open market when the Fund’s shares are trading at a discount of 10% or
more from the net asset value of the shares. The Fund may also, from time to time, purchase its preferred shares in the open
market when the preferred shares are trading at a discount to the liquidation value. |
