[Logo for The Gabelli Utility Trust omitted]
[Mountain graphic omitted]
Annual Report
December 31, 1999
<PAGE>
[Logo for The Gabelli Utility Trust omitted]
Our cover icon represents the underpinnings of Gabelli. The Teton mountains in
Wyoming represent what we believe in in America -- that creativity, ingenuity,
hard work and a global uniqueness provide enduring values. They also stand out
in an increasingly complex, interconnected and interdependent economic world.
INVESTMENT OBJECTIVE:
The Gabelli Utility Trust is a closed-end, non-diversified management investment
company whose primary objective is long-term growth of capital and income. The
Fund will invest in companies that provide products, services or equipment for
the generation or distribution of electricity, gas and water. Additionally, the
Fund will invest in companies in telecommunications services or infrastructure
operations.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
<PAGE>
TO OUR SHAREHOLDERS,
The fourth quarter of 1999 was challenging for utility investors. Interest
rates continued to rise, with a third Fed tightening in the fourth quarter
following two rounds in the second. The 30 year Treasury bond yield rose from
6.06% on September 30 to 6.48% by December 31. Oil prices and a number of
commodity prices continued to rise, exacerbating inflationary concerns. In the
current nervous market environment, defensive issues typically do well. Looking
beyond the immediate future, electric, gas and water stocks are likely to
benefit from continuing consolidation.
[Photo of Mario J. Gabelli omitted]
[Gabelli Utility Trust logo omitteed]
Our investments in electric, gas and water utility stocks are being made
in a changing economic and regulatory environment. The issues raised from
deregulation will impact consumers as well as utility companies. These changes
provide investors with opportunity. It is our goal to strategically position our
portfolio in those utilities that will be able to take advantage of these
changes.
INVESTMENT PERFORMANCE
For the quarter ended December 31, 1999, the Gabelli Utility Trust's (the
"Trust") net asset value total return was 3.48%. The Lipper Utility Fund Average
had a total return of 11.32%, while the Standard & Poor's ("S&P") Utility Index
declined 5.38% over the same period. The S&P Utility Index is an unmanaged
indicator of electric and gas utility stock performance, while the Lipper
Average reflects the average performance of mutual funds classified in this
particular category.
OUR APPROACH
Our first spin-off from The Gabelli Equity Trust was in 1994 when we
created The Gabelli Global Multimedia Trust. Our belief that telecommunications
and entertainment stocks would benefit through globalization proved correct and
has provided excellent returns for our investors.
Our targets today include a lot of B's: banks, brokers, broadcasters, Bell
operating companies and BTU (utilities) companies. We believe a portfolio of
utility stocks composed of water, gas and electric companies will be another
area of opportunity and profit for our shareholders. We therefore look forward
to the changes that utilities face, giving us the opportunity to invest in an
established industry with a catalyst - deregulation- that will lead to higher
valuations. This is a field we are comfortable playing on with our investment
methodology, and we believe our shareholders in The Gabelli Utility Trust will
be rewarded.
MONTHLY DISTRIBUTIONS
The Gabelli Utility Trust has set a $.05 per share monthly distribution
policy for the year 2000.
<PAGE>
WHAT WE DO
The success of momentum investing in recent years and investor's desire
for instant gratification have combined to make value investing appear dull. At
the risk of being dull, we will describe the boring value approach that has seen
us through both good and bad for over 23 years at Gabelli Asset Management
Company. The accompanying graphic illustrates the interplay among the four
components of our valuation approach.
[Graphic of pyramid omitted--text as follows]
EPS
PMV
MANAGEMENT
CASH FLOW
RESEARCH
[End of Pyramid text]
Our focus is on free cash flow: earnings before interest, taxes,
depreciation and amortization (EBITDA), minus the capital expenditures necessary
to grow the business. We believe free cash flow is the best barometer of a
business value. Rising free cash flow often foreshadows net earnings
improvement. We also look at earnings per share trends. Unlike Wall Street's
ubiquitous earnings momentum players, we do not try to forecast earnings with
accounting precision and then trade stocks based on quarterly expectations and
realities. We simply try to position ourselves in front of long term earnings
uptrends. In addition, we analyze on and off balance sheet assets and
liabilities such as plant and equipment, inventories, receivables, and legal,
environmental and health care issues. We want to know everything and anything
that will add to, or detract from, our private market value (PMV) estimates.
Finally, we look for a catalyst: something happening in the company's industry
or indigenous to the company itself that will surface value. In the case of the
independent telephone stocks, the catalyst is a regulatory change. In the
agricultural equipment business, it is the increasing worldwide demand for
American food and feed crops. In other instances, it may be a change in
management, sale or spin-off of a division or the development of a profitable
new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long term
method for preserving and enhancing wealth in the U.S. equity markets. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long term economic dynamics. These include macro
trends, such as the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on
productivity-enhancing goods and services.
COMMENTARY
IMPROVING FUNDAMENTALS BUCKING AN INTEREST RATE HEADWIND
Electric utilities are in good and improving condition. Those with low
generating costs never had very many problems, while the high cost generators
have mostly restructured and are poised to recover their riskiest investments
and then move on. The biggest challenge facing most companies is how to redeploy
capital and rising free cash flow at attractive rates of return. The condition
of the gas utilities is generally stable and sound. Water companies (with few
exceptions) are doing well, and telecommunication companies continue to generate
very impressive earnings growth in the face of mounting competitive pressures.
For the time being, the adverse impact of rising interest rates on utility stock
prices is overwhelming the underlying strong and improving fundamental outlook
for these companies.
Once rates stabilize the improving earnings and lower risk profile of
utility stocks are likely to lead to much better price performance.
There are over 80 publicly traded investor-owned electric utilities in the
U.S., and this is at least 50 more than we need. The balkanized structure of the
industry is inherently inefficient, and competitive forces are now
2
<PAGE>
punishing inefficiency. The industry has consolidated substantially already, and
would have done so even faster except for regulatory sclerosis impeding the pace
of mergers and acquisitions. We are skeptical about the claims of the
mega-utilities to be able to deliver superior returns, but we believe that the
mid-cap and smaller-cap utilities are generally doing fine on their own and over
time are likely acquisition targets. Our investments in the electric and natural
gas stocks have generally focused on fundamentally sound, reasonably priced
mid-cap and small-cap utilities that are logical acquisition targets for large
utilities that are driven to bulk up.
DEALS
As we discussed in our third quarter report, the utility industry is
consolidating. Transactions are occurring in water, gas and electric.
Deregulation has helped create this competition that is being driven by
greater cost efficiency. Scale is required in order to spread the intense fixed
capital costs, resulting in growth from regional to national to international
concerns all competing for substantial market share.
GLOBAL ENTITIES ESTABLISH U.S. PLATFORMS FOR GROWTH
Large European companies are making their presence felt as they try to
establish a platform in the United States for their further expansion and
growth. A number of water utilities have been taken over by foreign companies.
Kelda Group Plc, a U.K. company operating in Europe and North America, bought
out Aquarion, one of the 10 largest investor-owned water utilities in the U.S.
Thames Water Plc, another U.K. based company, purchased E'Town, a New Jersey
water utility. United Water Resources was bought by the Paris based Suez
Lyonnaise des Eaux. Foreign takeovers of U.S. electric utilities include
Scottish Power's acquisition of Oregon based PacifiCorp and the U.K.'s National
Grid Group's merger with New England Electric Systems and Eastern Utilities.
DOMESTIC DEALS
Domestic deals are also part of the equation. Gas utilities in particular
have been targeted as companies seek a greater geographical grasp to increase
their footprint and gain customers. During 1999 there were over 20 mergers and
acquisitions in the gas industry. The deals were both big and small. This past
quarter Keyspan (KSE) bought Eastern Enterprises to create the largest gas
utility in the Northeast. Energy East Corp. proposed an acquisition of CTG
Resources Inc. and Southern Union acquired Rhode Island's Valley Resources.
One of the more notable acquisitions in the electric industry was the
purchase of MidAmerican Energy Holdings Co. for $2.1 billion by a private group
including Berkshire Hathaway, the investment company run by famed investor
Warren Buffet. Buffet's entry into the energy sector reflects the kind of value
play we see in today's competitive, deregulated environment.
LET'S TALK STOCKS
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
CENTURYTEL INC. (CTL - $47.375 - NYSE), based in Monroe, Louisiana, is the
eighth largest local telephone company in the U.S., with over 1.2 million access
lines in the South and Midwest. Century Telephone also has over 700,000 cellular
customers. Through acquisitions, CTL has created clusters of rural telephone and
cellular
3
<PAGE>
companies within commuting distance of metropolitan areas in states including
Wisconsin, Michigan, Ohio, Louisiana and Arkansas. With the $2.2 billion
acquisition of Portland-based Pacific Telecom, CTL has added seven states, ten
cellular markets and 640,000 access lines to its business base. The acquired
operations have nearly doubled Century's revenues. The company recently
announced that it is acquiring about 460,000 access lines in 3 states for $1.5
billion. The company continues to build value through other ventures, primarily
its long distance and competitive local exchange carrier operations.
COLUMBIA ENERGY GROUP (CG - $63.25 - NYSE) is primarily engaged in all phases of
the natural gas business, including exploration, production, transmission,
storage and distribution. It services over 2.1 million customers in 34 states.
Since December, the company has received numerous indications of interest to buy
or merge, including an unsolicited proposal from NiSource Inc. (NI - $17.875 -
NYSE) Columbia's Chairman says it will continue to "consider a variety of
possible transactions, including a merger, reorganization or the disposition of
a material amount of stock or assets".
EASTERN ENTERPRISES (EFU - $57.4375 - NYSE) owns and operates Boston Gas
Company, Colonial Gas Company, Essex Gas Company, Midland Enterprises, and
ServicEdge Partners. Upon completion of the pending merger with EnergyNorth,
Eastern will serve over 800,000 residential, commercial and industrial natural
gas customers in Massachusetts and New Hampshire. Midland Enterprises,
headquartered in Cincinnati, Ohio, is the leading carrier of coal and a major
carrier of other dry bulk cargoes on the nation's inland waterways, with a fleet
of 2,399 barges and 87 towboats. ServicEdge is the largest unregulated provider
of residential HVAC equipment installation and service to customers in
Massachusetts. Eastern Enterprises has signed a definite merger agreement under
which KeySpan Energy (KSE - $23.1875 - NYSE) will acquire all the common stock
of Eastern Enterprises for $64.00 per share in cash.
MIDAMERICAN ENERGY HOLDINGS CO. (MEC - $33.6875- NYSE), headquartered in Des
Moines, Iowa, generates and distributes energy from a variety of fuel sources
including geothermal, natural gas, hydroelectric, nuclear and coal. MidAmerican
conducts business all over the world, including the U.S., U.K., the Philippines,
Poland and Australia with over 3.3 million customers. An investor group led by
renowned investor Warren Buffet of Berkshire Hathaway recently agreed to acquire
the company for $35.05 per share.
MONTANA POWER (MTP - 36.0625-NYSE) has performed very well as investors have
begun to focus on the value of the company's telecom services subsidiary,
TouchAmerica. The company believes that the value of TouchAmerica is still far
from fully recognized in Montana Power's share price, and we agree. The company
is likely to take TouchAmerica public in the current year and may spin it off to
shareholders, actions that we support and which we think will lead to further
price appreciation.
UNITED WATER RESOURCES (UWR - $34.1875 - NYSE) is being acquired for $35 a share
cash by Suez Lyonnaise des Eaux (LY - 152.0 euros - Paris Bourse), a
Paris-based, worldwide leader in water and wastewater service. This
international deal illustrates the consolidation and globalization of an
essential utility. United Water was the second largest investor-owned water
company in the United States. United Water, which began its operations in New
Jersey, has since expanded into 12 states and now serves over 7.5 million
people. The company performs a wide range of water related services. With this
acquisition, Suez Lyonnaise des Eaux establishes a strong presence in the
important and growing U.S. market and sets a precedent in evolving into a
powerful, international utility company.
WICOR INC. (WIC - $29.1875 - NYSE), headquartered in Milwaukee, is a diversified
holding company whose subsidiaries provide natural gas distribution and
manufactures pumps and fluid processing equipment, including filtration
equipment. Wicor is the parent company of Wisconsin Gas Company, which is the
state's largest gas
4
<PAGE>
utility serving about 530,000 customers. In June, Wicor agreed to be acquired by
Wisconsin Energy Corporation (WEC - $19.25 - NYSE) for approximately $1.275
billion plus the assumption of $230 million of Wicor debt. The combined
companies will serve over one million electric customers in Wisconsin and
Michigan's Upper Peninsula and serve more than 920,000 gas customers.
DAILY NAVS DISTRIBUTED BY NASDAQ
Since our inception, we have made the net asset value available on nightly
recordings through 1-800-GABELLI. Now, Nasdaq is also disseminating the daily
per share net asset values (NAV's) for the Gabelli Utility Trust, which is
traded on the New York Stock Exchange. The NAV ticker symbol via Nasdaq is
"XGUTX".
The NAVs are available through any stock quote lookup service and on
broker Nasdaq level one terminals. The dissemination of daily NAVs allows
investors and brokers to better track the long-term performance of the Fund's
underlying portfolio. We applaud Nasdaq's efforts in making closed-end funds'
NAVs available on a daily basis.
IN CONCLUSION
Today's utility companies are moving away from yield and more towards
operating growth. Dividend policies are being reconsidered as companies try to
extend their geographic reach and acquire companies that will add desired scale.
The asset base of utility companies is increasing and accelerating the
consolidation process. As a result, we are likely to see more deals in the
future. We intend to target companies that are candidates for these acquisitions
and provide attractive investment opportunities for our shareholders.
Sincerely,
/s/ signature
MARIO J. GABELLI
President and Chief Investment Officer
January 31, 2000
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
DECEMBER 31, 1999
-----------------
Eastern Enterprises EnergyNorth Inc.
United Water Resources Inc. Eastern Utilities Associates
Wicor Inc. Columbia Energy Group
CommNet Cellular Inc. CenturyTel Inc.
Aquarion Co. MidAmerican Energy Holdings Co.
- --------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio managers
only through the end of the period stated in this report. The managers' views
are subject to change at any time based on market and other conditions.
5
<PAGE>
THE GABELLI UTILITY TRUST
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS -- 83.0%
AGRICULTURE -- 0.1%
5,000 Cadiz Inc. ...................... $ 45,089 $ 47,500
----------- -----------
ENERGY AND UTILITIES: ELECTRIC -- 20.2%
47,000 Bangor Hydro-Electric Co. ....... 762,263 766,687
5,000 Cleco Corp. ..................... 153,250 160,313
35,000 CMP Group Inc. .................. 942,388 964,687
58,000 Conectiv Inc. ................... 1,168,863 975,125
52,000 DPL Inc. ........................ 993,351 900,250
94,000 Eastern Utilities Associates .... 2,799,912 2,849,375
210,000 El Paso Electric Co.+ ........... 1,895,082 2,060,625
40,000 Florida Progress Corp. .......... 1,861,054 1,692,500
21,000 FPL Group Inc. .................. 1,048,050 899,062
24,000 Illinova Corp. .................. 753,888 834,000
34,000 IPALCO Enterprises Inc. ......... 697,838 580,125
40,000 Maine Public Service Co. ........ 721,100 695,000
12,000 Niagara Mohawk
Holdings Inc. .................. 188,725 167,250
53,000 SCANA Corp. ..................... 1,303,625 1,424,375
11,000 TECO Energy Inc. ................ 233,613 204,187
10,000 TNP Enterprises Inc. ............ 387,163 412,500
20,000 Unisource Energy Corp. + ........ 236,625 223,750
20,000 United Illuminating Co. ......... 881,388 1,027,500
----------- -----------
17,028,178 16,837,311
----------- -----------
ENERGY AND UTILITIES: INTEGRATED -- 13.8%
10,000 CH Energy Group Inc. ............ 390,162 330,000
32,000 Cinergy Corp. ................... 883,099 772,000
80,000 Citizens Utilities Co., Cl B+ ... 930,800 1,135,000
11,000 Florida Public Utilities Co. .... 206,200 187,000
10,000 LG&E Energy Corp. ............... 214,969 174,375
85,000 MCN Energy Group Inc. ........... 2,043,562 2,018,750
80,000 MidAmerican Energy
Holdings Co.+ .................. 2,666,500 2,695,000
10,000 Montana Power Co. ............... 313,312 360,625
95,000 Northeast Utilities ............. 2,031,386 1,953,438
1 NSTAR ........................... 25 23
80,000 RGS Energy Group Inc. ........... 2,012,462 1,645,000
4,000 SIGCORP Inc. .................... 105,450 91,000
6,000 WPS Resources Corp. ............. 179,581 150,750
----------- -----------
11,977,508 11,512,961
----------- -----------
ENERGY AND UTILITIES: NATURAL GAS -- 26.7%
42,000 AGL Resources Inc. .............. 772,225 714,000
26,500 Berkshire Energy Resources ...... 698,604 927,500
45,000 Columbia Energy Group ........... 2,842,844 2,846,250
7,500 CTG Resources Inc. .............. 274,362 260,625
29,000 Delta Natural Gas Co. Inc. ...... 490,349 451,312
60,985 Eastern Enterprises ............. 2,834,841 3,502,826
52,100 EnergyNorth Inc. ................ 2,384,506 2,868,756
12,000 Fall River Gas Co. .............. 245,900 255,000
1,500 National Fuel Gas Co. ........... 71,331 69,750
10,000 Nicor Inc. ...................... 373,000 325,000
16,000 Peoples Energy Corp. ............ 593,175 536,000
20,000 Piedmont Natural
Gas Co. Inc. ................... 641,237 605,000
26,000 Providence Energy Corp. ......... 771,144 965,250
25,000 SEMCO Energy Inc. ............... 393,000 295,313
100,000 Southwest Gas Corp. ............. 2,827,925 2,300,000
110,000 WICOR Inc. ...................... 3,192,202 3,210,625
47,000 Yankee Energy System Inc. ....... 1,922,338 2,065,063
----------- -----------
21,328,983 22,198,270
----------- -----------
ENERGY AND UTILITIES: WATER -- 14.8%
3,000 American States Water Co. ....... 113,525 108,000
80,000 Aquarion Co. .................... 2,839,513 2,960,000
11,000 Artesian Resources Corp.,
Cl. A .......................... 257,250 346,500
22,000 Azurix Corp.+ ................... 313,350 196,625
MARKET
SHARES COST VALUE
------ ---- ------
17,000 Birmingham Utilities Inc. ....... $ 383,031 $ 402,688
12,000 California Water
Service Group .................. 367,269 363,750
8,500 Connecticut Water
Service Inc. ................... 254,145 272,000
4,000 Dominguez Services Corp. ........ 128,165 121,000
32,300 E'Town Corp. .................... 1,692,807 2,010,675
10,500 Middlesex Water Co. ............. 294,745 336,000
4,000 Pennichuck Corp. ................ 96,331 131,500
11,100 SJW Corp. ....................... 1,156,465 1,334,775
3,000 Southwest Water Co. ............. 41,000 45,000
14,000 Valley Resources Inc. ........... 314,375 311,500
100,000 United Water Resources Inc. ..... 3,307,603 3,418,750
----------- -----------
11,559,574 12,358,763
----------- -----------
TELECOMMUNICATIONS -- 0.2%
4,000 AT&T Canada Inc., Cl. B+ ........ 121,540 161,000
----------- -----------
WIRELESS COMMUNICATIONS -- 7.2%
60,000 CenturyTel Inc. ................. 2,370,000 2,842,500
99,000 CommNet Cellular Inc.+ .......... 3,052,561 3,180,375
----------- -----------
5,422,561 6,022,875
----------- -----------
TOTAL COMMON STOCKS 67,483,433 69,138,680
----------- -----------
PREFERRED STOCK -- 1.0%
TELECOMMUNICATIONS -- 1.0%
15,000 Citizens Utilities Co.,
5.00% Cv. Pfd. ................. 746,741 845,625
----------- -----------
PRINCIPAL
AMOUNT
------
U.S. GOVERNMENT OBLIGATIONS-- 11.9%
$10,087,000 U.S. Treasury Bills,
5.28% to 5.29%++,
due 01/20/00 to 03/30/00 ....... 9,956,724 9,962,063
----------- -----------
REPURCHASE AGREEMENT -- 4.5%
3,740,000 Agreement with State Street
Bank & Trust Co.,
3.25%, dated 12/31/99,
due 01/03/00, proceeds
at maturity $3,741,013 (b)...... 3,740,000 3,740,000
----------- -----------
TOTAL INVESTMENTS -- 100.4% ................. $81,926,898 83,686,368
===========
OTHER ASSETS AND
LIABILITIES (NET) -- (0.4)% ............................ (356,798)
-----------
NET ASSETS -- 100.0%
(10,935,846 shares outstanding) ........................ $83,329,570
===========
NET ASSET VALUE
($83,329,570 / 10,935,846 shares outstanding) .......... $7.62
=====
- --------------------
(a) For Federal tax purposes:
Aggregate cost ...................................... $79,701,518
===========
Gross unrealized appreciation ....................... $ 6,565,943
Gross unrealized depreciation ....................... (2,581,093)
-----------
Net unrealized appreciation ......................... $ 3,984,850
===========
(b) Collateralized by U.S. Treasury Note, 6.13% due 08/15/07, market value
$3,815,225.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
See accompanying notes to financial statements.
6
<PAGE>
THE GABELLI UTILITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS:
Investments, at value (Cost $81,926,898) .. $83,686,368
Cash ...................................... 181
Dividends and interest receivable ......... 179,841
Receivable for investments sold ........... 136,595
Other receivables ......................... 162,333
-----------
TOTAL ASSETS ............................. 84,165,318
-----------
LIABILITIES:
Payable for investments purchased ......... 389,767
Payable for investment advisory fees ...... 70,499
Payable for shareholder services fees ..... 60,000
Payable to custodian ...................... 12,800
Other accrued expenses .................... 302,682
-----------
TOTAL LIABILITIES ......................... 835,748
-----------
NET ASSETS applicable to 10,935,846
shares outstanding .................... $83,329,570
===========
NET ASSETS CONSIST OF:
Shares of beneficial interest, at par value $ 10,935
Additional paid-in capital ................ 74,520,936
Accumulated net realized gain on
investments ............................. 7,038,229
Net unrealized appreciation on investments 1,759,470
-----------
TOTAL NET ASSETS ......................... $83,329,570
===========
NET ASSET VALUE ($83,329,570 / 10,935,846
shares outstanding; unlimited number of shares
authorized of $0.001 par value) ....... $7.62
=====
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1999 (A)
INVESTMENT INCOME:
Dividends ................................. $ 765,793
Interest .................................. 788,509
----------
TOTAL INVESTMENT INCOME ................... 1,554,302
----------
EXPENSES:
Investment advisory fees .................. 384,080
Shareholder communications expenses ....... 72,000
Shareholder services fees ................. 60,000
Legal and audit fees ...................... 33,000
Custodian fees ............................ 27,016
Trustees' fees ............................ 18,950
Miscellaneous expenses .................... 81,826
Taxes ..................................... 162,333
Reimbursement for taxes ................... (162,333)
----------
NET EXPENSES .............................. 676,872
----------
NET INVESTMENT INCOME ..................... 877,430
----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments .......... 309,282
Net change in unrealized appreciation
on investments .......................... 1,759,470
----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS .......................... 2,068,752
----------
Net Increase in Net Assets Resulting
from Operations ......................... $2,946,182
==========
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED
DECEMBER 31, 1999 (A)
--------------------
OPERATIONS:
Net investment income .................................. $ 877,430
Net realized gain on investments ....................... 309,282
Net change in unrealized appreciation on investments ... 1,759,470
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . 2,946,182
-----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income .................................. (877,430)
Net realized gain on investments ....................... (309,282)
In excess of net realized gain on investments .......... (448,378)
-----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS .................. (1,635,090)
-----------
Net increase in net assets from
Utility Trust share transactions ....................... 81,918,478
-----------
NET INCREASE IN NET ASSETS ........................... 83,229,570
NET ASSETS:
Beginning of period .................................... 100,000
-----------
End of period .......................................... $83,329,570
===========
- --------------------
(a) The Gabelli Utility Trust commenced operations on July 9, 1999.
See accompanying notes to financial statements.
7
<PAGE>
THE GABELLI UTILITY TRUST
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION. The Gabelli Utility Trust ("Utility Trust") is a closed-end,
non-diversified management investment company organized on February 25, 1999 as
a Delaware corporation and registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), whose primary objective is long-term growth of
capital and income. Investment operations commenced on July 9, 1999. The Utility
Trust had no operations prior to July 9, 1999, other than the sale of 10,000
shares of common stock for $100,000 to The Gabelli Equity Trust Inc. (the
"Equity Trust") at $10.00 per share. On July 9, 1999, the Utility Trust had a 4
for 3 stock split making the balance of Utility Trust shares held by Equity
Trust 13,333. On July 9, 1999, the Equity Trust contributed $79,487,260 in cash
and securities in exchange for shares of the Utility Trust, and on the same date
distributed such shares to holders of record on July 1, 1999 at the rate of one
share of the UtilityTrust for every ten shares of the EquityTrust.
2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Utility Trust in the preparation of its financial statements.
SECURITY VALUATION. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange 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 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). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, LLC
(the "Adviser"). Securities and assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Trustees. Short term debt securities with remaining maturities of 60 days or
less are valued at amortized cost, unless the Trustees determine such does not
reflect the securities' fair value, in which case these securities will be
valued at their fair value as determined by the Trustees. Debt instruments
having a greater maturity are valued at the highest bid price obtained from a
dealer maintaining an active market in those securities.
REPURCHASE AGREEMENTS. The Utility Trust may enter into repurchase
agreements with government securities dealers recognized by the Federal Reserve
Board, with member banks of the Federal Reserve System or with other brokers or
dealers that meet credit guidelines established by the Trustees. Under the terms
of a typical repurchase agreement, the Utility Trust takes possession of an
underlying debt obligation subject to an obligation of the seller to repurchase,
and the Utility Trust to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Utility Trust's holding period.
The Utility Trust will always receive and maintain securities as collateral
whose market value, including accrued interest, will be at least equal to 100%
of the dollar amount invested by the Utility Trust in each agreement. The
Utility Trust will make payment for such securities only upon physical delivery
or upon evidence of book entry transfer of the collateral to the account of the
custodian. To the extent that any repurchase transaction exceeds one business
day, the value of the collateral is marked-to-market on a daily basis to
maintain the adequacy of the collateral. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Utility
Trust may be delayed or limited.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for as of the trade date with realized gain or loss on investments
determined using specific identification as the cost method. Interest income
(including amortization of premium and accretion of discount) is recorded as
earned. Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Distributions to shareholders
are recorded on the ex-dividend date. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments of income and gains on various investment
securities held by the Utility Trust, timing differences and differing
characterization of distributions made by the Utility Trust.
For the year ended December 31, 1999, reclassifications were made to
increase accumulated undistributed net realized gain on investments for
$7,486,607 with an offsetting adjustment to additional paid-in capital.
8
<PAGE>
THE GABELLI UTILITY TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PROVISION FOR INCOME TAXES. The Utility Trust intends to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a result, a Federal income tax provision is
not required.
A 4% excise tax is imposed on a regulated investment company to the extent
it does not distribute 98% of its taxable income prior to December 31, 1999. For
the year ended December 31, 1999, the Utility Trust incurred excise tax of
$162,333. The Utility Trust's administrator has agreed to reimburse the Utility
Trust for the amount of the excise tax due. Therefore, none of the excise tax
liability will be borne by the shareholders of the Utility Trust.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES. The Utility Trust has entered
into an investment advisory agreement (the "Advisory Agreement") with the
Adviser which provides that the Utility Trust will pay the Adviser on the first
business day of each month a fee for the previous month at the annual rate of
1.00% of the Utility Trust's average daily net assets. In accordance with the
Advisory Agreement, the Adviser manages the Utility Trust's portfolio, makes
investment decisions for the Utility Trust, places orders to purchase and sell
securities of the Utility Trust and oversees the administration of all aspects
of the Utility Trust's business and affairs.
During the period ended December 31, 1999, Gabelli & Company, Inc.
("Gabelli & Company") and its affiliates received $49,864 in brokerage
commissions as a result of executing agency transactions in portfolio securities
on behalf of the Utility Trust.
4. PORTFOLIO SECURITIES. Cost of purchases and proceeds from sales of
securities, other than short-term securities, aggregated $78,693,414 and
$18,775,001, respectively, for the period ended December 31, 1999.
5. CAPITAL. The Board of Trustees of the Utility Trust has authorized the
repurchase of its shares on the open market when the shares are trading at a
discount of 10% or more (or such other percentage as its Board of Trustees may
determine from time to time) from the net asset value. For the period ended
December 31, 1999, the Utility Trust did not repurchase any shares of its common
stock in the open market.
Transactions from shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
12/31/1999
--------------------------
Shares Amount
------ ------
<S> <C> <C>
Balance at July 9, 1999 (See Note 1) ..................................................... 13,333 $ 100,000
---------- -----------
Shares issued immediately prior to the spin-off from the Equity Trust .................... 10,598,302 79,487,260
Shares issued by the Utility Trust ....................................................... 301,809 2,262,562
Shares issued upon reinvestment
of dividends and distributions ......................................................... 22,402 168,656
---------- -----------
Net increase ............................................................................. 10,922,513 81,918,478
---------- -----------
Balance at December 31, 1999 ............................................................. 10,935,846 $82,018,478
========== ===========
</TABLE>
6. INDUSTRY CONCENTRATION. Because the Utility Trust primarily invests in common
stocks and other securities of foreign and domestic companies in the utility
industry, its portfolio may be subject to greater risk and market fluctuations
than a portfolio of securities representing a broad range of investments.
9
<PAGE>
THE GABELLI UTILITY TRUST
FINANCIAL HIGHLIGHTS
PER SHARE AMOUNTS FOR A UTILITY TRUST SHARE
OUTSTANDING THROUGHOUT THE PERIOD.
PERIOD ENDED
DECEMBER 31,
1999 (A)
------------
OPERATING PERFORMANCE:
Net asset value, beginning of period ....................... $ 7.50
-------
Net investment income ...................................... 0.08
Net realized and unrealized gain on investments ............ 0.19
-------
Total from investment operations ........................... 0.27
-------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ...................................... (0.08)
Net realized gain on investments ........................... (0.03)
In excess of net realized gain on investments .............. (0.04)
-------
Total distributions ........................................ (0.15)
-------
NET ASSET VALUE, END OF PERIOD ............................. $ 7.62
=======
Market Value, end of period ................................ $ 7.63
=======
Net Asset Value Total Return+ .............................. 3.62%
=======
Total Investment Return+ ................................... 3.70%
=======
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ....................... $83,330
Ratio of net investment income to average net assets (c) ... 2.27%(b)
Ratio of operating expenses to average net assets (c) ...... 1.75%(b)
Portfolio turnover rate .................................... 37%
--------------------------
+ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends. Total return for the period of less
than one year is not annualized.
(a) The Gabelli Utility Trust commenced investment operations on July 9, 1999.
(b) Annualized.
(c) During the period ended December 31, 1999, the Utility Trust's administrator
voluntarily reimbursed certain expenses. If such reimbursement had not
occurred, the annualized ratios of net investment income and operating
expenses to average net assets would have been 1.85% and 2.17%,
respectively.
See accompanying notes to financial statements.
10
<PAGE>
THE GABELLI UTILITY TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
The Gabelli Utility Trust
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Utility Trust (the
"Trust") at December 31, 1999, and the results of its operations, the changes in
its net assets and the financial highlights for the period July 9, 1999
(commencement of operations) through December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
THE GABELLI UTILITY TRUST
INCOME TAX INFORMATION (UNAUDITED)
DECEMBER 31, 1999
CASH DIVIDENDS AND DISTRIBUTIONS
<TABLE>
<CAPTION>
TOTAL AMOUNT ORDINARY NON-TAXABLE LONG-TERM DIVIDEND
PAYABLE RECORD PAID INVESTMENT RETURN CAPITAL REINVESTMENT
DATE DATE PER SHARE INCOME OF CAPITAL GAINS PRICE
------- -------- ------------ ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON SHARES
10/29/99 10/19/99 $0.05000 $0.02713 -- $0.02287 $7.560000
11/30/99 11/19/99 0.05000 0.02713 -- 0.02287 7.621737
12/27/99 12/17/99 0.05000 0.02713 -- 0.02287 7.610000
-------- -------- --------- --------
$0.15000 $0.08139 -- $0.06861
</TABLE>
A Form 1099-DIV has been mailed to all shareholders of record for the
distributions mentioned above, setting forth specific amounts to be included in
the 1999 tax returns. Ordinary income distributions include net investment
income and realized net short-term capital gains. 100% of the long-term capital
gains paid by the Utility Trust in 1999 was classified as "20% Rate Gains"
subject to a maximum tax rate of 20% (or 10% depending on an individual's tax
bracket). Capital gain distributions are reported in box 2a of Form 1099-DIV.
INITIAL COST BASIS
On July 9, 1999, shares of the Gabelli Utility Trust were spun-off from the
Gabelli Equity Trust at the rate of one Utility Trust share for every ten Equity
Trust common shares owned as of July 1, 1999. The initial cost basis for these
shares is $9.8125 per share, the fair market value on the distribution date,
determined by averaging the high and low trading price on the distribution date.
The holding period for the Utility Trust begins on July 12, 1999.
CORPORATE DIVIDENDS RECEIVED DEDUCTION AND U.S. TREASURY SECURITIES INCOME
The Utility Trust paid to common shareholders an ordinary income dividend of
$0.08139 per share in 1999. The percentage of such dividends that qualifies for
the dividends received deduction available to corporations is 84.43% for all
such dividends paid in 1999. The percentage of the ordinary income dividends
paid by the Utility Trust during 1999 derived from U.S. Treasury Securities was
41.94%. However, it should be noted that the Utility Trust did not hold more
than 50% of its assets in U.S. Treasury Securities at the end of each calendar
quarter during 1999.
HISTORICAL DISTRIBUTION SUMMARY - COMMON STOCK
<TABLE>
<CAPTION>
SHORT- LONG- UNDISTRIBUTED TAXES PAID ON
TERM TERM NON-TAXABLE LONG-TERM UNDISTRIBUTED ADJUSTMENT
INVESTMENT CAPITAL CAPITAL RETURN OF CAPITAL CAPITAL TOTAL TO
INCOME GAINS GAINS CAPITAL GAINS GAINS DISTRIBUTIONS COST BASIS
---------- -------- -------- ----------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $0.08049 $0.00090 $0.06861 -- -- -- $0.15000 --
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
ENROLLMENT IN THE PLAN
It is the policy of The Gabelli Utility Trust ("Utility Trust") to
automatically reinvest dividends. As a "registered" shareholder you
automatically become a participant in the Utility Trust's Automatic Dividend
Reinvestment Plan (the "Plan"). The Plan authorizes the Utility Trust to issue
shares to participants upon an income dividend or a capital gains distribution
regardless of whether the shares are trading at a discount or a premium to net
asset value. All distributions to shareholders whose shares are registered in
their own names will be automatically reinvested pursuant to the Plan in
additional shares of the Utility Trust. Plan participants may send their stock
certificates to State Street Bank and Trust Company ("State Street") to be held
in their dividend reinvestment account. Registered shareholders wishing to
receive their distribution in cash must submit this request in writing to:
The Gabelli Utility Trust
c/o State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Shareholders requesting this cash election must include the shareholder's
name and address as they appear on the share certificate. Shareholders with
additional questions regarding the Plan may contact State Street at 1 (800)
336-6983.
SHAREHOLDERS WISHING TO LIQUIDATE REINVESTED SHARES held at State Street Bank
must do so in writing or by telephone. Please submit your request to the above
mentioned address or telephone number. Include in your request your name,
address and account number. The cost to liquidate shares is $2.50 per
transaction as well as the brokerage commission incurred. Brokerage charges are
expected to be less than the usual brokerage charge for such transactions.
If your shares are held in the name of a broker, bank or nominee, you should
contact such institution. If such institution is not participating in the Plan,
your account will be credited with a cash dividend. In order to participate in
the Plan through such institution, it may be necessary for you to have your
shares taken out of "street name" and re-registered in your own name. Once
registered in your own name your dividends will be automatically reinvested.
Certain brokers participate in the Plan. Shareholders holding shares in "street
name" at participating institutions will have dividends automatically
reinvested. Shareholders wishing a cash dividend at such institution must
contact their broker to make this change.
The number of shares of Common Stock distributed to participants in the Plan
in lieu of cash dividends is determined in the following manner. Under the Plan,
whenever the market price of the Utility Trust's Common Stock is equal to or
exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividends or capital
gains distribution, participants are issued shares of Common Stock valued at the
greater of (i) the net asset value as most recently determined or (ii) 95% of
the then current market price of the Utility Trust's Common Stock. The valuation
date is the dividend or distribution payment date or, if that date is not a New
York Stock Exchange trading day, the next trading day. If the net asset value of
the Common Stock at the time of valuation exceeds the market price of the Common
Stock, participants will receive shares from the Utility Trust valued at market
price. If the Utility Trust should declare a dividend or capital gains
distribution payable only in cash, State Street will buy Common Stock in the
open market, or on the New York Stock Exchange or elsewhere, for the
participants' accounts, except that State Street will endeavor to terminate
purchases in the open market and cause the Utility Trust to issue shares at net
asset value if, following the commencement of such purchases, the market value
of the Common Stock exceeds the then current net asset value.
The automatic reinvestment of dividends and capital gains distributions will
not relieve participants of any income tax which may be payable on such
distributions. A participant in the Plan will be treated for Federal income tax
purposes as having received, on a dividend payment date, a dividend or
distribution in an amount equal to the cash the participant could have received
instead of shares.
The Utility Trust reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the members of the Plan
at least 90 days before the record date for such dividend or distribution. The
Plan also may be amended or terminated by State Street on at least 90 days'
written notice to participants in the Plan.
VOLUNTARY CASH PURCHASE PLAN
The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders
to increase their investment in the Utility Trust. In order to participate in
the Voluntary Cash Purchase Plan, shareholders must have their shares registered
in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making
additional cash payments to State Street for investments in the Utility Trust's
shares at the then current market price. Shareholders may send an amount from
$250 to $10,000. State Street will use these funds to purchase shares in the
open market on or about the 15th of each month. State Street will charge each
shareholder who participates $0.75, plus a pro rata share of the brokerage
commissions. Brokerage charges for such purchases are expected to be less than
the usual brokerage charge for such transactions. It is suggested that any
voluntary cash payments be sent to State Street Bank and Trust Company, P.O. Box
8200, Boston, MA 02266-8200 such that State Street receives such payments
approximately 10 days before the 15th of the month. Funds not received at least
five days before the investment date shall be held for investment in the
following month. A payment may be withdrawn without charge if notice is received
by State Street at least 48 hours before such payment is to be invested.
For more information regarding the Dividend Reinvestment Plan and Voluntary
Cash Purchase Plan, brochures are available by calling (914) 921-5070 or by
writing directly to the Utility Trust.
- --------------------------------------------------------------------------------
The Annual Meeting of the Utility Trust's stockholders will be held at 11:00
A.M. on Monday, May 15, 2000, at the Greenwich Public Library, 101 West Putnam
Avenue in Greenwich, Connecticut.
- --------------------------------------------------------------------------------
12
<PAGE>
DIRECTORS AND OFFICERS
THE GABELLI UTILITY TRUST
ONE CORPORATE CENTER, RYE, NY 10580-1434
DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN AND CHIEF INVESTMENT OFFICER
GABELLI ASSET MANAGEMENT INC.
Dr. Thomas E. Bratter
PRESIDENT, JOHN DEWEY ACADEMY
Felix J. Christiana
FORMER SENIOR VICE PRESIDENT
DOLLAR DRY DOCK SAVINGS BANK
Anthony J. Colavita
ATTORNEY-AT-LAW
ANTHONY J. COLAVITA, P.C.
James P. Conn
FORMER MANAGING DIRECTOR AND CHIEF INVESTMENT OFFICER,
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
Vincent D. Enright
FORMER SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
KEYSPAN ENERGY CORP.
Frank J. Fahrenkopf, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
AMERICAN GAMING ASSOCIATION
John D. Gabelli
SENIOR VICE PRESIDENT
GABELLI & COMPANY, INC.
Karl Otto Pohl
FORMER PRESIDENT
DEUTSCHE BUNDESBANK
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT
PROFESSOR, PACE UNIVERSITY
Salvatore J. Zizza
CHAIRMAN,
THE BETHLEHEM CORP.
OFFICERS
Mario J. Gabelli, CFA
PRESIDENT & CHIEF INVESTMENT OFFICER
Bruce N. Alpert
VICE PRESIDENT & TREASURER
James E. McKee
SECRETARY
David I. Schachter
VICE PRESIDENT & OMBUDSMAN
INVESTMENT ADVISOR
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1434
CUSTODIAN
Boston Safe Deposit and Trust Company
COUNSEL
Skadden, Arps, Slate, Mengher & Flom
TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company
STOCK EXCHANGE LISTING
Common
------
NYSE-Symbol: GUT
Shares Outstanding: 10,935,846
The Net Asset Value appears in the Publicly Traded
Funds column, under the heading "Specialized Equity Funds," in Sunday's The New
York Times and in Monday's The Wall Street Journal. It is also
listed in Barron's Mutual Funds/Closed End Funds
section under the heading "Specialized Equity Funds."
The Net Asset Value may be obtained each day by calling (914) 921-5071.
- --------------------------------------------------------------------------------
For general information about the Gabelli Funds, call 1-800-GABELLI
(1-800-422-3554), fax us at 914-921-5118, visit Gabelli Funds' Internet
homepage at: HTTP://WWW.GABELLI.COM or e-mail us at: [email protected]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that the Utility Trust may, from time to
time, purchase its shares in the open market when the Utility Trust shares are
trading at a discount of 10% or more from the net asset value of the shares.
- --------------------------------------------------------------------------------
<PAGE>
THE GABELLI UTILITY TRUST
One Corporate Center, Rye, NY 10580-1434
Phone: 1-800-GABELLI (1-800-422-3554)
Fax: 1-914-921-5118 Internet: www.gabelli.com
e-mail: [email protected]
GBFUF-AR-12/99
