[X] Registration Statement under the Securities Act of 1933
[X] Pre-Effective Amendment No. 2
[ ] Post-Effective Amendment No.
and/or
One Corporate Center
Rye, New York 10580-1422
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 422-3554
Copies to:
Richard T. Prins, Esq. James McKee, Esq. Cynthia G. Cobden, Esq.
Skadden, Arps, Slate, The Gabelli Utility Trust Simpson Thacher & Bartlett LLP
Meagher & Flom LLP One Corporate Center 425 Lexington Avenue
Four Times Square Rye, New York 10580-1422 New York, New York 10017
New York, New York 10036 (914) 921-5100 (212) 455-2000
(212) 735-3000
________________________
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Approximate date of proposed public offering: As soon as practicable after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, as amended, other than securities offered in connection with a dividend reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate box) [X] When declared effective pursuant to section 8(c).
If appropriate, check the following box:
[ ] This [post-effective] amendment designates a new effective date
for a previously filed [post-effective amendment] [registration
statement].
[ ] This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is [ ].
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
===================================================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate
Amount Being Offering Price Offering Amount of
Title of Securities Registered Per Share Price (1) Registration Fee (2)
------------------- ---------- --------- --------- --------------------
___% Series A 1,200,000 Shares $25 $30,000,000 $2,335
Cumulative
Preferred Shares
Series B Auction 1000 Shares $25,000 $25,000,000 $1,792.50
Market Preferred
Shares
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $322 previously paid.
________________________
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said section 8(a),
may determine.
====================================================================================================================================
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CROSS-REFERENCE SHEET
N-2 Item Number Location in Part A (Caption)
------------------------------------------------------------------------------------------------------------------------------------
PART A
1. Outside Front Cover........................................ Outside Front Cover Page
2. Inside Front and Outside Back Cover
Page..................................................... Outside Front Cover Page; Inside Front Cover Page
3. Fee Table and Synopsis..................................... Not Applicable
4. Financial Highlights....................................... Financial Highlights
5. Plan of Distribution....................................... Outside Front Cover Page; Summary; Underwriting
6. Selling Shareholders....................................... Not Applicable
7. Use of Proceeds............................................ Use of Proceeds; Investment Objective and Policies
8. General Description of the
Registrant............................................... Outside Front Cover Page; Summary; The Fund;
Investment Objective and Policies; Risk Factors &
Special Considerations; How the Fund Manages Risk;
Description of Series A Preferred and Series B AMPS;
Anti-takeover Provisions of the Fund's Governing
Documents
9. Management................................................. Outside Front Cover Page; Summary; Management of
the Fund; Custodian, Transfer Agent, Auction Agent
and Dividend-Disbursing Agent
10. Capital Shares, Long-Term Debt,
and Other Securities..................................... Outside Front Cover Page; Summary; Investment
Objective and Policies; Description of Series A
Preferred and Series B AMPS; Description of
Capitalization; Taxation
11. Defaults and Arrears on Senior
Securities............................................... Not Applicable
12. Legal Proceedings.......................................... Not Applicable
13. Table of Contents of the Statement
of Additional Information................................ Table of Contents of the Statement of Additional
Information
PART B Location in Statement of Additional Information
------------------------------------------------------------------------------------------------------------------------------------
14. Cover Page................................................. Outside Front Cover Page
15. Table of Contents.......................................... Outside Front Cover Page
16. General Information and History............................ The Fund
17. Investment Objective and
Policies.................................................
Investment Objective and Policies; Investment
Restrictions
18. Management................................................. Management of the Fund
19. Control Persons and Principal
Holders of Securities.................................... Management of the Fund; Beneficial Owners
20. Investment Advisory and Other
Services................................................. Management of the Fund
21. Brokerage Allocation and Other
Practices................................................ Portfolio Transactions
22. Tax Status................................................. Taxation
23. Financial Statements....................................... Financial Statements
PART C
Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C to this Registration Statement.
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[flag]
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
Preliminary Prospectus dated July 24, 2003
PROSPECTUS $[__] [GABELLI LOGO]
The Gabelli Utility Trust
_________________
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[__] Shares, % Series A Cumulative Preferred Shares
(Liquidation Preference $25 per Share)
[__] Shares, Series B Auction Market Preferred Shares ("AMPS")
(Liquidation Preference $25,000 per Share)
The Gabelli Utility Trust, or the Fund, is a non-diversified,
closed-end management investment company registered under the Investment
Company Act of 1940, as amended. The Fund's investment objective is long-term
growth of capital and income, which the Fund attempts to achieve by investing
at least 80% of its total assets in common stock and other debt or equity
securities of foreign and domestic companies involved to a substantial extent
(e.g., at least 50% of the assets, gross income or net profits of a company is
committed to or derived from) in providing products, services or equipment for
(i) the generation or distribution of electricity, gas and water and (ii)
telecommunications services or infrastructure operations, such as airports,
toll roads and municipal services. Gabelli Funds, LLC serves as investment
adviser to the Fund. An investment in the Fund is not appropriate for all
investors. We cannot assure you that the Fund's objective will be achieved.
This prospectus describes shares of the Fund's [__]% Series A Cumulative Preferred Shares (the "Series A Preferred"), liquidation preference $25 per share. Dividends on shares of Series A Preferred are cumulative from such original issue date at the annual rate of [__]% of the liquidation preference of $25 per share and are payable quarterly on [ ], [__], [ ] and [ ] in each year, commencing on [__], 2003.
This prospectus also describes shares of the Fund's Series B Auction Market Preferred Shares (the "Series B AMPS"), liquidation preference $25,000 per share. The dividend rate for the Series B AMPS will vary from dividend period to dividend period. The annual dividend rate for the initial dividend period for the Series B AMPS will be [__]% of the liquidation preference of $25,000 per share. The initial dividend period is from the date of issuance through [__], 2003. For subsequent dividend periods, the Series B AMPS will pay dividends based on a rate set at auction, usually held weekly.
The Fund offers by this prospectus, in the aggregate, $[__] million of preferred shares of either Series A Preferred or Series B AMPS, or a combination of both series.
Proceeds to the Fund
Public Offering Price(1) Underwriting Discount(2) (before expenses)(3)
------------------------ ------------------------ --------------------
Series A Preferred Per Share $ $ $
Total.................................... $ $ $
Series B AMPS Per Share.................. $ $ $
Total.................................... $ $ $
(1) Plus accumulated dividends, if any, from [__], 2003.
(2) The Fund and Gabelli Funds, LLC have agreed to indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
(3) Offering expenses payable by the Fund are estimated at approximately $462,500.
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The date of this prospectus is , 2003.
The shares of Series A Preferred and/or Series B AMPS being offered by this prospectus are being offered by the underwriters listed in this prospectus, subject to prior sale, when, as and if accepted by them and subject to certain conditions. The Fund expects that delivery of any shares of Series A Preferred or Series B AMPS will be made in book-entry form through the facilities of The Depository Trust Company on or about [__], 2003.
(continued from previous page)
Application has been made to list the Series A Preferred on the New York Stock Exchange. If offered, trading of the Series A Preferred on the New York Stock Exchange is expected to commence within 30 days of the date of this prospectus. Prior to this offering, there has been no public market for the Series A Preferred. See "Underwriting."
The Series B AMPS will not be listed on an exchange. Investors may only buy or sell Series B AMPS through an order placed at an auction with or through a broker-dealer in accordance with the procedures specified in this prospectus or in a secondary market maintained by certain broker-dealers should those broker-dealers decide to maintain a secondary market. Broker-dealers are not required to maintain a secondary market in the Series B AMPS and a secondary market may not provide you with liquidity.
The net proceeds of the offering, which are expected to be [__], will be invested in accordance with the Fund's investment objective and policies. See "Investment Objective and Policies" beginning on page 21.
The Fund expects that dividends paid on the Series A Preferred and Series B AMPS will consist of (i) long-term capital gain (gain from the sale of a capital asset held longer than 12 months), (ii) qualified dividend income (income from domestic and certain foreign corporations), and (iii) investment company taxable income (other than qualified dividend income), including interest income, short-term capital gain and income from certain hedging and interest rate transactions. For individuals, the maximum federal income tax rate on long-term capital gain is currently 15%, on qualified dividend income is 15%, and on other types of income is 35%. These tax rates are scheduled to apply through 2008. We cannot assure you, however, as to what percentage of the dividends paid on the Series A Preferred or Series B AMPS will consist of long-term capital gains and qualified dividend income, which are taxed at lower rates for individuals than ordinary income. For a more detailed discussion, see "Taxation."
Neither the Series A Preferred nor the Series B AMPS may be issued unless each is rated "Aaa" by Moody's Investors Service, Inc. ("Moody's"). In addition, the Series B AMPS may not be issued unless it is also rated "AAA" by Standard and Poor's Ratings Services ("S&P"). In order to keep these ratings, the Fund will be required to maintain a minimum discounted asset coverage with respect to its outstanding Series A Preferred and Series B AMPS under guidelines established by each of Moody's and S&P. See "Description of the Series A Preferred and Series B AMPS -- Rating Agency Guidelines." The Fund is also required to maintain a minimum asset coverage by the Investment Company Act of 1940, as amended. If the Fund fails to maintain any of these minimum asset coverage requirements, the Fund can at its option (and in certain circumstances must) require, in accordance with its governing documents and the requirements of the Investment Company Act of 1940, as amended, that some or all of its outstanding preferred shares, including the Series A Preferred and/or Series B AMPS, be sold back to it (redeemed). Otherwise, prior to [__], the Series A Preferred will be redeemable at the option of the Fund only to the extent necessary for the Fund to continue to qualify for tax treatment as a regulated investment company. Subject to certain notice and other requirements (including those set forth in Section 23(c) of the Investment Company Act of 1940, as amended), the Fund at its option may redeem (i) the Series A Preferred beginning on [__], and (ii) the Series B AMPS following the initial dividend period (so long as the Fund has not designated a non-call period). In the event the Fund redeems Series A Preferred such redemption will be for cash at a redemption price equal to $25 per share plus accumulated but unpaid dividends (whether or not earned or declared). In the event the Fund redeems Series B AMPS, such redemptions will be for cash, generally at a redemption price equal to $25,000 per share plus accumulated but unpaid dividends (whether or not earned or declared), though in limited circumstances the Fund's Board of Trustees may also declare a redemption premium.
This prospectus concisely sets forth important information about the Fund that you should know before deciding whether to invest in Series A Preferred or Series B AMPS. You should read this prospectus and retain it for future reference.
The Fund has also filed with the Securities Exchange Commission a Statement of Additional Information, dated [__], 2003, which contains additional information about the Fund. The Statement of Additional Information is incorporated by reference in its entirety into this prospectus. You can review the table of contents of the Statement of Additional Information on page [__] of this prospectus. You may request a free copy of the Statement of Additional Information by writing to the Fund at its address at One Corporate Center, Rye, New York 10580-1422 or calling the Fund toll-free at (800) 422-3554. You may also obtain the Statement of Additional Information as well as reports, proxy and information statements and other information regarding registrants, including the Fund, that file electronically with the Securities and Exchange Commission on the Securities and Exchange Commission's web site (http://www.sec.gov).
Certain persons participating in the offering of Series A Preferred, in the event they are offered, may engage in transactions that stabilize, maintain or otherwise affect the market price of the Series A Preferred, including the entry of stabilizing bids, syndicate covering transactions or the imposition of penalty bids. For a description of these activities, see "Underwriting."
You should rely only on the information contained in or incorporated by reference into this prospectus. Neither the Fund nor the underwriters have authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither the Fund nor the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
TABLE OF CONTENTS
Page
SUMMARY...........................................................................................................................1
FINANCIAL HIGHLIGHTS.............................................................................................................15
USE OF PROCEEDS..................................................................................................................17
THE FUND.........................................................................................................................17
CAPITALIZATION...................................................................................................................17
INVESTMENT OBJECTIVE AND POLICIES................................................................................................19
RISK FACTORS AND SPECIAL CONSIDERATIONS..........................................................................................26
HOW THE FUND MANAGES RISK........................................................................................................32
MANAGEMENT OF THE FUND...........................................................................................................33
PORTFOLIO TRANSACTIONS...........................................................................................................35
DIVIDENDS AND DISTRIBUTIONS......................................................................................................35
DESCRIPTION OF THE SERIES A PREFERRED
AND SERIES B AMPS..........................................................................................................37
THE AUCTION OF SERIES B AMPS.....................................................................................................47
DESCRIPTION OF CAPITAL SHARES AND OTHER SECURITIES...............................................................................50
TAXATION.........................................................................................................................50
ANTI-TAKEOVER PROVISIONS OF THE FUND'S GOVERNING DOCUMENTS.......................................................................53
CUSTODIAN, TRANSFER AGENT, AUCTION AGENT AND DIVIDEND-DISBURSING AGENT...........................................................54
UNDERWRITING.....................................................................................................................55
LEGAL MATTERS....................................................................................................................58
EXPERTS..........................................................................................................................58
ADDITIONAL INFORMATION...........................................................................................................59
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS................................................................................59
TABLE OF CONTENTS OF SAI.........................................................................................................60
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SUMMARY
This is only a summary. You should review the more detailed information contained in this prospectus and the Statement of Additional Information, dated [_], 2003 (the "SAI").
The Fund....................................... The Fund is a closed-end
non-diversified management
investment company organized
under the laws of the State of
Delaware on February 25, 1999.
The Fund's outstanding common
shares, par value $.001 per
share, are listed and traded
on the New York Stock Exchange
("NYSE"). As of June 30, 2003,
the net assets of the Fund
were $101,252,405, and the
Fund had outstanding
15,282,735 common shares. The
Fund currently expects to
complete a rights offering for
its common shares on September
30, 2003. Assuming the primary
subscription of rights
offering had been completed as
of June 30, 2003, the net
assets of the Fund as of that
date would have been
approximately $134,527,249.
There can be no assurance as
to when, or if, the rights
offering will be completed.
Prior to the issuance of the
Series A Preferred and/or
Series B AMPS offered by this
prospectus, the Fund had no
preferred shares outstanding.
The Offering................................... The Fund offers by this
prospectus, in the aggregate,
$[__] million of preferred
shares of either Series A
Preferred or Series B AMPS, or
a combination of both such
series. The Series A Preferred
and/or Series B AMPS are being
offered by Merrill Lynch,
Pierce, Fenner & Smith
Incorporated ("Merrill Lynch")
and Gabelli & Company, Inc. as
underwriters. Upon issuance,
the Series A Preferred and the
Series B AMPS will have equal
seniority with respect to
dividends and liquidation
preference. See "Description
of the Series A Preferred and
Series B AMPS."
Series A Preferred. The Fund
is offering [__] shares of
[__]% Series A Cumulative
Preferred, par value $.001 per
share, liquidation preference
$25 per share, at a purchase
price of $25 per share.
Dividends on the shares of
Series A Preferred will
accumulate from the date on
which such shares are issued.
Application has been made to
list the Series A Preferred on
the NYSE and it is anticipated
that trading of the Series A
Preferred on the NYSE will
commence within 30 days from
the date of this prospectus.
Series B AMPS. The Fund is
offering [__] shares of Series
B AMPS, par value $.001 per
share, liquidation preference
$25,000 per share at a
purchase price of $25,000 per
share, plus dividends, if any,
that have accumulated from the
commencement date of the
dividend period during which
such Series B AMPS is issued.
The Fund may in the future
offer additional Series B
AMPS. The Series B AMPS will
not be listed on an exchange.
Instead, investors may buy or
sell Series B AMPS in an
auction by submitting orders
to broker-dealers that have
entered into an agreement with
the auction agent and the
Fund.
Generally, investors in Series
A Preferred or Series B AMPS
will not receive certificates
representing ownership of
their shares. The securities
depository (The Depository
Trust Company ("DTC") or any
successor) or its nominee for
the account of the investor's
broker-dealer will maintain
record ownership of the
preferred shares in book-entry
form. An investor's
broker-dealer, in turn, will
maintain records of that
investor's beneficial
ownership of preferred shares.
Investment Objective........................... The objective of the Fund is
long-term growth of capital
and income, which the Fund
attempts to achieve by
investing at least 80% of its
total assets in common stock
and other debt or equity
securities of foreign and
domestic companies involved to
a substantial extent (e.g., at
least 50% of the assets, gross
income or net profits of a
company is committed to or
derived from) in providing
products, services or
equipment for (i) the
generation or distribution of
electricity, gas and water and
(ii) telecommunications
services or infrastructure
operations, such as airports,
toll roads and municipal
services (collectively, the
"Utility Industry"). The
remaining 20% of the Fund's
assets may be invested in
other securities including
stocks, debt obligations and
money market instruments, as
well as certain derivative
instruments in the utility
industry or other industries.
No assurance can be given that
the Fund will achieve its
investment objective. See
"Investment Objective and
Policies."
Dividends and Distributions.................... Series A Preferred. Dividends
on the Series A Preferred, at
the annual rate of [__]% of
its $25 per share liquidation
preference, are cumulative
from the original issue date
and are payable, when, as and
if declared by the Board of
Trustees of the Fund, out of
funds legally available
therefor, quarterly on [ ], [
], [ ] and [ ] in each year,
commencing on [__], 2003.
Series B AMPS. The holders of
Series B AMPS are entitled to
receive cash dividends stated
at annual rates of its $25,000
per share liquidation
preference, that will vary
from dividend period to
dividend period. The table
below shows the dividend rate,
the dividend payment date and
the number of days for the
initial dividend period on the
Series B AMPS.
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Dividend
Initial Payment Date Number of
Dividend for Initial Days of Initial
Rate Dividend Period Dividend Period
---- --------------- ---------------
Series B [___]% [__], 2003 [___]
AMPS.........
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For subsequent dividend periods, the Series B AMPS will pay dividends based on a rate set at auctions, normally held weekly. In most instances, dividends are payable weekly, on the first business day following the end of the dividend period. If the day on which dividends otherwise would be paid is not a business day, then dividends will be paid on the first business day that falls after the end of the dividend period. The Fund may, subject to certain conditions, designate special dividend periods of more (or less) than seven days. The dividend payment date for any such special dividend period will be set out in the notice designating the special dividend period. Dividends on shares of Series B Auction Market Preferred will be cumulative from the date such shares are issued and will be paid out of legally available funds.
In no event will the dividend rate set at auction for the Series B AMPS exceed the then-maximum rate. The maximum applicable rate for any standard rate period will be (as set forth in the table below) the greater of (i) the applicable percentage of the reference rate or (ii) the applicable spread plus the reference rate. The reference rate is the applicable LIBOR Rate (for a dividend period or a special dividend period of fewer than 365 days), or the applicable Treasury Index Rate (for a special dividend period of 365 days or more). The applicable percentage and applicable spread will be determined based on the lower of the credit ratings assigned to the Series B AMPS by Moody's and S&P. If Moody's and S&P or both do not make such ratings available, the rate will be determined by reference to equivalent ratings issued by a substitute rating agency.
Credit Ratings for Series B AMPS
Moody's Credit S&P Credit Percentage of Applicable
Rating Rating Reference Rate Spread
------ ------ -------------- ------
Aaa AAA 125% 125 bps
Aa3 to Aa1 AA- to AA+ 150% 150 bps
A3 to A1 A- to A+ 200% 200 bps
Baa3 to Baa1 BBB- to 250% 250 bps
BBB+
Below Baa3 Below BBB- 300% 300 bps
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See "Description of the Series A Preferred and Series B AMPS -- Dividends on the Series B AMPS -- Maximum Rate." For example, calculated as of December 31, 2002 and March 31, 2003, respectively, the maximum rate for the Series B AMPS (assuming a rating of "Aaa" by Moody's and "AAA" by S&P) would have been approximately 2.63% and 2.53%, for dividend periods of 90 days, and approximately 2.84% and 2.75% for dividend periods of two years.* There is no minimum rate with respect to any dividend period.
Any designation of a special dividend period will be effective only if, among other things, proper notice has been given, the auction immediately preceding the special dividend period was not a failed auction and the Fund has confirmed that it has assets with an aggregate discounted value at least equal to the Basic Maintenance Amount (as described under "Description of the Series A Preferred and Series B Action Rate Preferred -- Rating Agency Guidelines").
See "Description of the Series
A Preferred and Series B AMPS
-- Dividends on the Series B
AMPS" and "The Auction of
Series B AMPS."
* Dividend periods presented for illustrative purposes only. Actual dividend periods may be of greater or lesser duration.
Preferred Share Dividends.
Under current law, all
preferred shares of the Fund
must have the same seniority
as to the payment of
dividends. Accordingly, no
full dividend will be declared
or paid on any series of
preferred shares of the Fund
for any dividend period, or
part thereof, unless full
cumulative dividends due
through the most recent
dividend payment dates
therefor for all series of
outstanding preferred shares
of the Fund are declared and
paid. If full cumulative
dividends due have not been
declared and paid on all
outstanding preferred shares
of the Fund ranking on a
parity with the Series A
Preferred and/or Series B AMPS
as to the payment of
dividends, any dividends being
paid on such preferred shares
(including any outstanding
Series A Preferred and Series
B AMPS) will be paid as nearly
pro rata as possible in
proportion to the respective
amounts of dividends
accumulated but unpaid on each
such series of preferred
shares on the relevant
dividend payment date.
In the event that for any
calendar year the total
distributions on the Fund's
preferred shares exceed the
Fund's ordinary income and net
capital gain allocable to
those shares, the excess
distributions will generally
be treated as a tax-free
return of capital (to the
extent of the shareholder's
tax basis in his or her
shares). The amount treated as
a tax-free return of capital
will reduce a shareholder's
adjusted basis in his or her
preferred shares, thereby
increasing the shareholder's
potential gain or reducing his
or her potential loss on the
sale of the shares.
Common Share Dividends. In
order to allow its holders of
common shares to realize a
predictable, but not assured,
level of cash flow and some
liquidity periodically on
their investment without
having to sell shares, the
Fund has adopted a policy,
which may be modified at any
time by its Board of Trustees,
of paying distributions on its
common shares of $0.06 per
share per month. For the
fiscal year ending December
31, 2002, the Fund made
distributions of $0.72 per
common share, of which $0.25
constituted a return of
capital. The Fund has made
monthly distributions with
respect to its common shares
since October 1999, none of
which has constituted a return
of capital, except for the
fiscal year ending December
31, 2002, as indicated in the
preceding sentence.
Auction Procedures............................ You may buy, sell or hold
Series B AMPS in the auction.
The following is a brief
summary of the auction
procedures, which are
described in more detail
elsewhere in this prospectus
and in the SAI. These auction
procedures are complicated,
and there are exceptions to
these procedures. Many of the
terms in this section have a
special meaning as set forth
in this prospectus or the SAI.
The auctions determine the
dividend rate for the Series B
AMPS, except that no dividend
rate will be higher than the
then-maximum rate. See
"Description of the Series A
Preferred and Series B AMPS --
Dividends on the Series B
AMPS."
If you own shares of Series B
AMPS, you may instruct your
broker-dealer to enter one of
three kinds of order in the
auction with respect to your
shares: sell, bid and hold.
If you enter a sell order, you
indicate that you want to sell
Series B AMPS at $25,000 per
share, no matter what the next
dividend period's rate will
be.
If you enter a bid (or "hold
at a rate") order, which must
specify a dividend rate, you
indicate that you want to sell
Series B AMPS only if the next
dividend period's rate is less
than the rate you specify.
If you enter a hold order you
indicate that you want to
continue to own Series B AMPS,
no matter what the next
dividend period's rate will
be.
You may enter different types
of orders for different
portions of your Series B
AMPS. You may also enter an
order to buy additional Series
B AMPS. All orders must be for
whole shares. All orders you
submit are irrevocable. There
is a fixed number of Series B
AMPS shares, and the dividend
rate likely will vary from
auction to auction depending
on the number of bidders, the
number of shares the bidders
seek to buy, the rating of the
Series B AMPS and general
economic conditions including
current interest rates. If you
own Series B AMPS and submit a
bid order specifying a rate
that is higher than the
then-maximum rate, your bid
order will be treated as a
sell order. If you do not
enter an order, the
broker-dealer will assume that
you want to continue to hold
your Series B AMPS, but if you
fail to submit an order and
the dividend period is longer
than 28 days, the
broker-dealer will treat your
failure to submit an order as
a sell order.
If you do not then own Series
B AMPS, or want to buy more
shares, you may instruct a
broker-dealer to enter a bid
order to buy shares in an
auction at $25,000 per share
at or above the dividend rate
you specify. If you bid for
shares you do not already own
at a rate higher than the
then-maximum rate, your bid
will not be considered.
Broker-dealers will submit
orders from existing and
potential holders of Series B
AMPS to the auction agent.
Neither the Fund nor the
auction agent will be
responsible for a
broker-dealer's failure to
submit orders from existing or
potential holders of Series B
AMPS. A broker-dealer's
failure to submit orders for
Series B AMPS held by it or
its customers will be treated
in the same manner as a
holder's failure to submit an
order to the broker-dealer. A
broker-dealer may submit
orders to the auction agent
for its own account. The Fund
may not submit an order in any
auction.
The auction agent after each
auction for the Series B AMPS
will pay to each
broker-dealer, from funds
provided by the Fund, a
service charge equal to, in
the case of any auction
immediately preceding a
dividend period of less than
one year, the product of (i) a
fraction, the numerator of
which is the number of days in
such dividend period and the
denominator of which is 360,
times (ii) 1/4 of 1%, times
(iii) $25,000, times (iv) the
aggregate number of Series B
AMPS shares placed by such
broker-dealer at such auction
or, in the case of any auction
immediately preceding a
dividend period of one year or
longer, a percentage of the
purchase price of the Series B
AMPS placed by the
broker-dealers at the auction
agreed to by the Fund and the
broker-dealers.
If the number of Series B AMPS
shares subject to bid orders
by potential holders with a
dividend rate equal to or
lower than the then-maximum
rate is at least equal to the
number of Series B AMPS shares
subject to sell orders, then
the dividend rate for the next
dividend period will be the
lowest rate submitted which,
taking into account that rate
and all lower rate bids
submitted from existing and
potential holders, would
result in existing and
potential holders owning all
the Series B AMPS available
for purchase in the auction.
If the number of Series B AMPS
shares subject to bid orders
by potential holders with a
dividend rate equal to or
lower than the then-maximum
rate is less than the number
of Series B AMPS shares
subject to sell orders, then
the auction is considered to
be a failed auction, and the
dividend rate will be the
maximum rate. In that event,
existing holders that have
submitted sell orders (or are
treated as having submitted
sell orders) may not be able
to sell any or all of the
Series B AMPS for which they
submitted sell orders.
The auction agent will not
consider a bid above the
then-maximum rate. The purpose
of the maximum rate is to
place an upper limit on
dividends with respect to the
Series B AMPS and in so doing
to help protect the earnings
available to pay dividends on
the Fund's common shares, and
to serve as the dividend rate
in the event of a failed
auction (that is, an auction
where there are more shares of
Series B AMPS offered for sale
than there are buyers for
those shares).
If broker-dealers submit or
are deemed to submit hold
orders for all outstanding
Series B AMPS, the auction is
considered an "all hold"
auction and the dividend rate
for the next dividend period
will be the "all hold rate,"
which is 90% of the
then-current reference rate.
The auction procedures include
a pro rata allocation of
Series B AMPS shares for
purchase and sale. This
allocation process may result
in an existing holder selling,
or a potential holder buying,
fewer shares than the number
of Series B AMPS shares in its
order. If this happens,
broker-dealers that have
designated themselves as
existing holders or potential
holders in respect of customer
orders will be required to
make appropriate pro rata
allocations among their
respective customers.
Settlement of purchases and
sales will be made through DTC
on the next business day after
the auction date (which also
is a dividend payment date).
Purchasers will pay for their
Series B AMPS through
broker-dealers in same-day
funds to DTC against delivery
to the broker-dealers. DTC
will make payment to the
sellers' broker-dealers in
accordance with its normal
procedures, which require
broker-dealers to make payment
against delivery in same-day
funds. As used in this
prospectus, a business day is
a day on which the NYSE is
open for trading, and which is
not a Saturday, Sunday or any
other day on which banks in
New York City are authorized
or obligated by law to close.
The first auction for Series B
AMPS will be held on [__],
2003, the business day
preceding the dividend payment
date for the initial dividend
period. Thereafter, except
during special dividend
periods, auctions for
Series B AMPS normally will be
held every Tuesday (or the
next preceding business day if
Tuesday is a holiday), and
each subsequent dividend
period for the Series B AMPS
normally will begin on the
following Wednesday.
If an auction is not held
because an unforeseen event or
unforeseen events cause a day
that otherwise would have been
an auction date not to be a
business day, then the length
of the then-current dividend
period will be extended by
seven days (or a multiple
thereof if necessary because
of such unforeseen event or
events), the applicable rate
for such period will be the
applicable rate for the
then-current dividend period
so extended and the dividend
payment date for such dividend
period will be the first
business day immediately
succeeding the end of such
period. See "The Auction of
Series B AMPS."
Tax Treatment of Preferred
Share Dividends................................ The Fund expects that
dividends paid on the Series A
Preferred and Series B AMPS
will consist of (i) long-term
capital gain (gain from the
sale of a capital asset held
longer than 12 months), (ii)
qualified dividend income
(income from domestic and
certain foreign corporations),
and (iii) investment company
taxable income (other than
qualified dividend income),
including interest income,
short-term capital gain and
income from certain hedging
and interest rate
transactions. For individuals,
the maximum federal income tax
rate on long-term capital gain
is currently 15%, on qualified
dividend income is 15%, and on
other types of income is 35%.
These tax rates are scheduled
to apply through 2008. We
cannot assure you, however, as
to what percentage of the
dividends paid on the Series A
Preferred or Series B AMPS
will consist of long-term
capital gains and qualified
dividend income, which are
taxed at lower rates for
individuals than ordinary
income. For a more detailed
discussion, see "Taxation."
Rating and Asset
Coverage Requirements.......................... Series A Preferred. Before any
shares can be issued, the
Series A Preferred must
receive a rating of "Aaa" from
Moody's. The Fund's Statement
of Preferences setting forth
the rights and preferences of
the Series A Preferred
contains certain tests that
the Fund must satisfy to
obtain and maintain a rating
of "Aaa" from Moody's on the
Series A Preferred. See
"Description of the Series A
Preferred and Series B AMPS --
Rating Agency Guidelines."
Series B AMPS. Before any
shares can be issued, the
Series B AMPS must receive
both a rating of "Aaa" from
Moody's and a rating of "AAA"
from S&P. As with the Series A
Preferred, the Statement of
Preferences setting forth the
rights and preferences of the
Series B AMPS contains certain
tests that the Fund must
satisfy to obtain and maintain
a rating of "Aaa" from Moody's
and "AAA" from S&P. See
"Description of the Series A
Preferred and Series B AMPS --
Rating Agency Guidelines."
Asset Coverage Requirements.
Under the asset coverage tests
to which each of the Series A
Preferred and/or Series B AMPS
is subject, the Fund is
required to maintain (i)
assets having in the aggregate
a discounted value greater
than or equal to a Basic
Maintenance Amount (as
described under "Description
of the Series A Preferred and
Series B AMPS -- Rating Agency
Guidelines") for each such
series calculated pursuant to
the applicable rating agency
guidelines and (ii) an asset
coverage of at least 200% (or
such higher or lower
percentage as may be required
at the time under the
Investment Company Act of
1940, as amended (the "1940
Act") with respect to all
outstanding preferred shares
of the Fund, including the
Series A Preferred and the
Series B AMPS. See
"Description of the Series A
Preferred and Series B AMPS --
Asset Maintenance
Requirements."
The Fund estimates that if the
shares offered hereby had been
issued and sold as of June 30,
2003, the asset coverage under
the 1940 Act would have been
approximately 281% immediately
following such issuance and
sale and 342% assuming that
the primary subscription of
the Fund's rights offering had
been completed as of that date
(in each case after giving
effect to the deduction of the
underwriting discounts and
estimated offering expenses
for such shares of $1,650,000
and in the case of the Fund's
rights offering, the deduction
of additional estimated
offering expenses of
$500,000). The asset coverage
would have been computed as
follows:
value of Fund assets less
liabilities not constituting
senior securities
($154,602,405) / senior
securities representing
indebtedness plus liquidation
preference of both classes of
preferred shares
($55,000,000), expressed as a
percentage = 281%.
value of Fund assets less
liabilities not constituting
senior securities (including
assets attributable to the
rights offering)
($187,877,249) / senior
securities representing
indebtedness plus liquidation
preference of both classes of
preferred shares
($55,000,000), expressed as a
percentage = 342%.
The Statement of Preferences
for each of the Series A
Preferred and the Series B
AMPS, which contain the
technical provisions of the
various components of the
asset coverage tests, will be
filed as exhibits to this
registration statement and may
be obtained through the web
site of the SEC
(http://www.sec.gov).
Mandatory Redemption........................... The Series A Preferred and the
Series B AMPS may be subject
to mandatory redemption by the
Fund to the extent the Fund
fails to maintain the asset
coverage requirements in
accordance with the rating
agency guidelines or the 1940
Act described above and does
not cure such failure by the
applicable cure date. If the
Fund redeems preferred shares
mandatorily, it may, but is
not required to, redeem a
sufficient number of such
shares so that after the
redemption the Fund exceeds
the asset coverage required by
the guidelines of each of the
applicable rating agencies and
the 1940 Act by 10%.
With respect to the Series A
Preferred, any such redemption
will be made for cash at a
redemption price equal to $25
per share, plus an amount
equal to accumulated and
unpaid dividends (whether or
not earned or declared) to the
redemption date.
With respect to the Series B
AMPS, any such redemption will
be made for cash at a
redemption price equal to
$25,000 per share, plus an
amount equal to accumulated
but unpaid dividends (whether
or not earned or declared) to
the redemption date, plus, in
the case of Series B AMPS
having a dividend period of
more than one year, any
applicable redemption premium
determined by the Board of
Trustees. See "Description of
the Series A Preferred and
Series B AMPS -- Redemption."
In the event of a mandatory
redemption, such redemption
will be made from the Series A
Preferred, the Series B AMPS
or other preferred shares of
the Fund in such proportions
as the Fund may determine,
subject to the limitations of
the 1940 Act and Delaware law.
Optional Redemption............................ Subject to the limitations of
the 1940 Act and Delaware law,
the Fund may, at its option,
redeem the Series A Preferred
and/or the Series B AMPS as
follows:
Series A Preferred. Commencing
[__], and at any time
thereafter, the Fund at its
option may redeem the Series A
Preferred, in whole or in
part, for cash at a redemption
price per share equal to $25,
plus an amount equal to
accumulated and unpaid
dividends (whether or not
earned or declared) to the
redemption date. If fewer than
all of the shares of the
Series A Preferred are to be
redeemed, such redemption will
be made pro rata in accordance
with the number of such shares
held. Prior to [__], the
Series A Preferred will be
subject to optional redemption
by the Fund at the redemption
price only to the extent
necessary for the Fund to
continue to qualify for tax
treatment as a regulated
investment company. See
"Description of the Series A
Preferred and Series B AMPS --
Redemption -- Optional
Redemption of the Series A
Preferred."
Series B AMPS. The Fund at its
option generally may redeem
Series B AMPS, in whole or in
part, at any time other than
during a non-call period. The
Fund may declare a non-call
period during a dividend
period of more than seven
days. If fewer than all of the
shares of the Series B AMPS
are to be redeemed, such
redemption will be made pro
rata in accordance with the
number of such shares held.
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See "Description of the Series A Preferred and Series B AMPS -- Redemption -- Optional Redemption of the Series B AMPS."
The redemption price per Series B AMPS share will equal $25,000, plus an amount equal to any accumulated but unpaid dividends thereon (whether or not earned or declared) to the redemption date, plus, in the case of Series B AMPS having a dividend period of more than one year, any redemption premium applicable during such dividend period. See "Description of the Series A Preferred and Series B AMPS -- Redemption -- Optional Redemption of the Series B AMPS."
Voting Rights.................................. At all times, holders of the
Fund's preferred shares
outstanding (including the
Series A Preferred and/or
Series B AMPS), voting as a
single class, will be entitled
to elect two members of the
Fund's Board of Trustees, and
holders of the preferred
shares and common shares,
voting as a single class, will
elect the remaining trustees.
However, upon a failure by the
Fund to pay dividends on any
of its preferred shares in an
amount equal to two full
years' dividends, holders of
the preferred shares, voting
as a single class, will have
the right to elect additional
trustees that would then
constitute a simple majority
of the trustees until all
cumulative dividends on all
preferred shares have been
paid or provided for. Holders
of outstanding Series A
Preferred, Series B AMPS and
any other preferred shares
will vote separately as a
class on certain other matters
as required under the
applicable Statement of
Preferences, the 1940 Act and
Delaware law. Except as
otherwise indicated in this
prospectus and as otherwise
required by applicable law,
holders of Series A Preferred
and/or Series B AMPS will be
entitled to one vote per share
on each matter submitted to a
vote of shareholders and will
vote together with holders of
common shares and any other
preferred shares as a single
class. See "Description of the
Series A Preferred and Series
B AMPS -- Voting Rights."
Liquidation Preference......................... The liquidation preference of
each share of Series A
Preferred is $25. The
liquidation preference of the
Series B AMPS is $25,000 per
share. Upon liquidation,
preferred shareholders will be
entitled to receive the
liquidation preference with
respect to their preferred
shares plus an amount equal to
accumulated but unpaid
dividends with respect to such
shares (whether or not earned
or declared) to the date of
distribution. See "Description
of the Series A Preferred and
Series B AMPS-- Liquidation
Rights."
Use of Proceeds................................ The Fund will use the net
proceeds from the offering to
purchase additional portfolio
securities in accordance with
its investment objective and
policies. See "Use of
Proceeds."
Listing of the Series A
Preferred...................................... Prior to this offering, there
has been no public market for
the Series A Preferred.
Following its issuance (if
issued), the Series A
Preferred is expected to be
listed on the NYSE. However,
during an initial period which
is not expected to exceed 30
days after the date of its
initial issuance, the Series A
Preferred will not be listed
on any securities exchange
and, consequently may be
illiquid during that period.
Limitation on Secondary
Market Trading of the
Series B AMPS.................................. The Series B AMPS will not be
listed on an exchange.
Broker-dealers may, but are
not obliged to, maintain a
secondary trading market in
Series B AMPS outside of
auctions. There can be no
assurance that a secondary
market will provide owners
with liquidity. You may
transfer Series B AMPS outside
of auctions only to or through
a broker-dealer that has
entered into an agreement with
the auction agent and the
Fund, or other persons as the
Fund permits.
Special Characteristics
and Risks...................................... Risk is inherent in all
investing. Therefore, before
investing in Series A
Preferred or Series B AMPS you
should consider the risks
carefully.
Series A Preferred. Primary
risks specially associated
with an investment in the
Series A Preferred include:
The market price for the
Series A Preferred will be
influenced by changes in
interest rates, the perceived
credit quality of the Series A
Preferred and other factors.
During an initial period which
is not expected to exceed 30
days after the date of its
issuance, the Series A
Preferred will not be listed
on any securities exchange.
During such period, the
underwriters intend to make a
market in the Series A
Preferred, however, they have
no obligation to do so.
Consequently, the Series A
Preferred may be illiquid
during such period. No
assurances can be provided
that listing on any securities
exchange or market making by
the underwriters will result
in the market for Series A
Preferred being liquid at any
time.
Series B AMPS. Primary risks
specially associated with an
investment in Series B AMPS
include:
If an auction fails, you may
not be able to sell some or
all of your Series B AMPS. The
Fund is not obliged to redeem
your Series B AMPS if an
auction fails. The
underwriters are not required
to make a market in the Series
B AMPS. No broker-dealer is
obligated to maintain a
secondary market for the
Series B AMPS apart from the
auctions.
You may receive less than the
price you paid for your Series
B AMPS if you sell them
outside of the auction,
especially when market
interest rates are rising.
Both the Series A Preferred
and Series B AMPS. An
investment in either the
Series A Preferred or Series B
AMPS also includes the
following primary risks:
You will have no right to
require the Fund to repurchase
or redeem your shares of
Series A Preferred or Series B
AMPS at any time.
A rating agency could
downgrade or withdraw the
rating assigned to the Series
A Preferred and/or Series B
AMPS, which would likely have
an adverse effect on the
liquidity and market value of
such preferred shares. The
present credit rating does not
eliminate or mitigate the
risks of investing in these
preferred shares.
In general, the Fund may
redeem your Series B AMPS at
any time and may redeem your
Series A Preferred at any time
after [__], and may at any
time redeem shares of either
or both series to meet
regulatory or rating agency
requirements.
The Fund may not meet the
asset coverage requirements or
earn sufficient income from
its investments to pay
dividends on the Series A
Preferred and/or Series B
AMPS.
The Series A Preferred and/or
Series B AMPS are not
obligations of the Fund.
Although unlikely, precipitous
declines in the value of the
Fund's assets could result in
the Fund having insufficient
assets to redeem all of the
Series A Preferred and/or
Series B AMPS for the full
redemption price plus
accumulated dividends.
The value of the Fund's
investment portfolio may
decline, reducing the asset
coverage for the Series A
Preferred and/or Series B
AMPS. Further, if an issuer of
a common stock in which the
Fund invests experiences
financial difficulties or if
an issuer's preferred stock or
debt security is downgraded or
defaults or if an issuer in
which the Fund invests is
affected by other adverse
market factors, there may be a
negative impact on the income
and/or asset value of the
Fund's investment portfolio.
As a non-diversified
investment company under the
1940 Act, the Fund is not
limited in the proportion of
its assets that may be
invested in securities of a
single issuer, and
accordingly, an investment in
the Fund may, under certain
circumstances, present greater
risk to an investor than an
investment in a diversified
company. See "Risk Factors and
Special Considerations --
Non-Diversified Status."
Under normal market
conditions, the Fund invests
at least 80% of its assets in
foreign and domestic companies
in the Utility Industry (as
described under "Investment
Objective and Policies") and,
as a result, the net asset
value of the Fund will be more
susceptible to factors
affecting those particular
types of companies, including
government 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. See "Risk Factors
and Special Considerations --
Industry Risks."
There is no limitation on the
amount of foreign securities
in which the Fund may invest.
Investing in securities of
foreign companies (or foreign
governments), which are
generally denominated in
foreign currencies, may
involve certain risks and
opportunities 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 revaluation of
currencies. See "Risk Factors
and Special Considerations --
Foreign Securities."
The Investment Adviser (as
hereinafter defined) is
dependent upon the expertise
of Mr. Mario J. Gabelli in
providing advisory services
with respect to the Fund's
investments. If the Investment
Adviser were to lose the
services of Mr. Gabelli, its
ability to service the Fund
could be adversely affected.
There can be no assurance that
a suitable replacement could
be found for Mr. Gabelli in
the event of his death,
resignation, retirement or
inability to act on behalf of
the Investment Adviser. See
"Risk Factors and Special
Considerations -- Dependence
on Key Personnel."
The Fund has qualified, and
intends to remain qualified,
for federal income tax
purposes as a regulated
investment company.
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. See
"Taxation" for a more complete
discussion of these and other
federal income tax
considerations.
Management and Fees............................ Gabelli Funds, LLC serves as
the Fund's investment adviser
and is compensated for its
services and its related
expenses at an annual rate of
1.00% of the Fund's average
weekly net assets. The
Investment Adviser is
responsible for administration
of the Fund and currently
utilizes and pays the fees of
a third party
sub-administrator.
Notwithstanding the foregoing,
the Investment Adviser has
voluntarily agreed to waive
the portion of its investment
advisory fee attributable to
an amount of assets of the
Fund equal to the aggregate
stated value of the Fund's
outstanding Series A Preferred
or Series B AMPS, as the case
may be, for any calendar year
in which the net asset value
total return of the Fund
allocable to the common
shares, including
distributions and the advisory
fee subject to potential
waiver, is less than (i) in
the case of the Series A
Preferred, the stated annual
dividend rate of such series
and (ii) in the case of the
Series B AMPS, the net cost of
capital to the Fund with
respect to the Series B AMPS
for such year expressed as a
percentage (including, without
duplication, dividends paid by
the Fund on the Series B AMPS
and the net cost to the Fund
of any associated swap or cap
transaction if the Fund hedges
its Series B AMPS dividend
obligations). This waiver will
apply to the portion of the
Fund's assets attributable to
the Series A Preferred and
Series B AMPS, respectively,
for so long as any shares of
such series remain
outstanding. See "Management
of the Fund."
Repurchase of Common
Shares and Anti-takeover
Provisions..................................... The Fund's Board of Trustees
has authorized the Fund to
repurchase its common shares
in the open market when the
common shares are trading at a
discount of 10% or more from
net asset value. Such
repurchases are subject to the
Fund maintaining asset
coverage on its preferred
shares and to certain notice
and other requirements under
the 1940 Act. See "Description
of Capital Shares and Other
Securities -- Common Shares."
Certain provisions of the
Fund's Agreement and
Declaration of Trust and
By-Laws (collectively, the
"Governing Documents") may be
regarded as "anti-takeover"
provisions. Pursuant to these
provisions, only one of three
classes of trustees is elected
each year, and the affirmative
vote of the holders of 75% of
the outstanding shares of the
Fund and the vote of a
majority (as defined in the
1940 Act) of the holders of
preferred shares, voting as a
single class, are necessary to
authorize the conversion of
the Fund from a closed-end to
an open-end investment
company. The overall effect of
these provisions is to render
more difficult the
accomplishment of a merger
with, or the assumption of
control by, a principal
shareholder. These provisions
may have the effect of
depriving Fund shareholders of
an opportunity to sell their
shares at a premium to the
prevailing market price. See
"Anti-takeover Provisions of
the Fund's Governing
Documents."
Custodian, Transfer Agent,
Auction Agent and
Dividend Disbursing Agent...................... State Street Bank and Trust
Company (the "Custodian"),
located at 150 Royall Street,
Canton, MA 02021, serves as
the custodian of the Fund's
assets pursuant to a custody
agreement. Under the custody
agreement, the Custodian holds
the Fund's assets in
compliance with the 1940 Act.
For its services, the
Custodian will receive a
monthly fee based upon, among
other things, the average
value of the total assets of
the Fund, plus certain charges
for securities transactions.
EquiServe Trust Company, N.A.,
located at P.O. Box 43025,
Providence, RI 02940-3025,
serves as the Fund's dividend
disbursing agent, as agent
under the Fund's automatic
dividend reinvestment and
voluntary cash purchase plan,
and as transfer agent and
registrar with respect to the
common shares of the Fund.
Series A Preferred. EquiServe
will also serve as the
transfer agent, registrar,
dividend paying agent and
redemption agent with respect
to the Series A Preferred.
Series B AMPS. The Bank of New
York will serve as the auction
agent, transfer agent,
registrar, dividend paying
agent and redemption agent
with respect to the Series B
AMPS.
Interest Rate Transactions.................... The Fund may enter into
interest rate swap or cap
transactions in relation to
all or a portion of the Series
B AMPS in order to manage the
impact on its portfolio of
changes on the dividend rate
of the Series B AMPS. Through
these transactions the Fund
may, for example, obtain the
equivalent of a fixed rate for
the Series B AMPS 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
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 the Series B
AMPS. 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, the
Fund 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 share dividends
when due in accordance with
the Statement of Preferences
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
payments on the Series B AMPS.
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 payments on
the Series B AMPS.
A sudden and dramatic decline
in interest rates may result
in a significant decline in
the asset coverage. If the
Fund fails to maintain the
required asset coverage on its
outstanding preferred shares
or fails to comply with other
covenants, the Fund may, at
its option (and in certain
circumstances mandatorily)
consistent with its Governing
Documents and the requirements
of the 1940 Act, redeem some
or all of its preferred shares
(including the Series A
Preferred or the Series B
AMPS). Such redemption likely
would result in the Fund
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seeking to terminate early all or a portion of any swap or cap transaction. Early termination of a swap could require the Fund to make a termination payment to the counterparty.
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 does not presently intend to enter into interest rate swap or cap transactions relating to the Series B AMPS in a notional amount in excess of the outstanding amount of the Series B AMPS. 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. See "How the Fund Manages Risk -- Interest Rate Transactions."
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a common share outstanding throughout the periods presented. The per share operating performance and ratios for the fiscal years ended December 31, 2002, December 31, 2001, December 31, 2000 and the period ended December 31, 1999 have been audited by PricewaterhouseCoopers LLP, the Fund's independent accountants, as stated in their report which is incorporated by reference into the SAI. The following information should be read in conjunction with the Financial Statements and Notes thereto, which are incorporated by reference into the SAI.
Selected data for a Fund common share
outstanding throughout each period: Six Months Ended Year Ended Year Ended Year Ended Period Ended
June 30, 2003 December 31, December 31, December 31, December 31,
(Unaudited) 2002 2001 2000 1999(a)
----------------- ------------- ------------ ----------- ------------
Operating performance:
Net asset value, beginning of period............... $ 6.27 $ 7.32 $ 8.21 $ 7.62 $ 7.50
Net investment income.............................. 0.05 0.11 0.12(e) 0.15 0.08
Net realized and unrealized gain (loss) on
investments........................................... 0.67 (0.62) (0.32)(e) 1.44 0.19
Total from investment operations................... 0.72 (0.20) (0.20) 1.59 0.27
Change in net asset value from transactions in
shares of beneficial interest:
Increase in net asset value from shares issued in
rightsoffering ................................. -- 0.15 -- -- --
Increase in net asset value from Trust share
transactions.......................................... -- 0.03 0.01 -- --
Distributions to shareholders:
Net investment income.............................. (0.05) (0.11) (0.21) (0.06) (0.08)
Net realized gain on investments................... -- (0.36) (0.49) (0.94) (0.07)
Return of capital.................................. ( 0.31) (0.25) -- -- --
Total distributions................................ (0.36) (0.72) (0.70) (1.00) (0.15)
Net asset value, end of period..................... $ 6.63 $ 6.27 $ 7.32 $ 8.21 $ 7.62
Net asset value total return+...................... 10.29% (6.79)% (3.15)% 22.01% 3.62%
Market value, end of period........................ $ 9.61 $ 8.72 $ 9.33 $ 8.75 $ 7.63
Total investment return++.......................... 14.95% 1.70% 15.82% 29.95% 3.70%
Ratios to average net assets and supplemental
data:
Net assets, end of period (in 000's)............... $101,252 $95,111 $82,197 $90,669 $83,330
Ratio of net investment income to average net
assets(c)............................................. 1.72%(b) 1.65% 1.57% 1.88% 2.27%(b)
Ratio of operating expenses to average net
assets(c)(d).......................................... 1.93%(b) 1.93% 2.00% 1.95% 1.85%(b)
Portfolio turnover rate............................ 3% 29% 41% 92% 37%
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+ Based on net asset value per share, adjusted for reinvestment of
distributions. Total return for the periods of less than one year is not
annualized.
++ Based on market value per share, adjusted for reinvestment of
distributions, including the effect of shares issued pursuant to the rights
offering, assuming full subscription by shareholder. Total return for the
periods of less than one year is not annualized.
(a) The Gabelli Utility Trust commenced 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
and operating expenses to average net assets would have been 1.85% and
2.17%, respectively.
(d) The ratios do not include a reduction of expenses for custodian fee
credits on cash balances maintained with the custodian. Including such
custodian fee credits for the six months ended June 30, 2003 and the year
ended December 31, 2002, 2001, and 2000, the expense ratios would be
1.93%, 1.93%, 2.00% and 1.93% , respectively.
(e) 2001's Net investment income per share and Net realized and unrealized
gain (loss) on investments were originally presented in the Financial
Highlights without regard to character of distributions paid during the
year. Amounts as previously reported of $ 0.61 and $(0.81), respectively,
have been revised to reflect reclassification of amounts based on the
character of 2001 distributions.
USE OF PROCEEDS
The net proceeds of the offering are estimated at approximately $[__], after deduction of the underwriting discounts and estimated offering expenses payable by the Fund. The Investment Adviser expects that it will initially invest the proceeds of the offering in high quality short-term debt securities and instruments. The Investment Adviser anticipates that the investment of the proceeds will be made in accordance with the Fund's investment objective and policies, as appropriate investment opportunities are identified. Investment of the proceeds will not take more than six months.
THE FUND
The Fund, formed in Delaware on February 25, 1999, is a non-diversified, closed-end management investment company registered under the 1940 Act. The Fund's common shares are traded on the NYSE under the symbol "GUT." The Fund had no operations prior to July 9, 1999, other than the sale of 7,579,739 common shares to The Gabelli Equity Trust Inc. in exchange for approximately $75 million of cash and short-term fixed income instruments.
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Fund as of June 30, 2003, and its adjusted capitalization assuming (i) the Series A Preferred and/or Series B AMPS offered in this prospectus had been issued and (ii) such shares had been issued and the Fund's rights offering had been completed. We cannot assure you as to when, or if, the rights offering will be completed.
As of June 30, 2003
As Adjusted
Assuming
Actual As adjusted Rights Offering
(Unaudited)
Preferred shares, $0.001 par value, unlimited shares authorized.
(The "Actual" column reflects the Fund's outstanding
capitalization as of June 30, 2003; the "As Adjusted"
column assumes the issuance of an additional 1,200,000
shares of Series A Preferred and 1,000 shares of Series
B AMPS, $25 and $25,000 liquidation preference,
respectively); the "As Adjusted Assuming Rights Offering"
column assumes the issuance of such shares and that the
rights offering is fully subscribed at its completion...... $0.00 $55,000,000 $55,000,000
------------------- ---------------- -------------------
Shareholders' equity applicable to common shares:
Common shares, $.001 par value per share;
15,282,735 shares outstanding.................................... $15,283 $15,283 $20,377
Paid-in surplus* 99,159,823 97,509,823 130,779,573
Accumulated net realized loss from investment
transactions..................................................... (1,055,344) (1,055,344) (1,055,344)
Net unrealized appreciation...................................... 3,132,643 3,132,643 3,132,643
------------------- ---------------- -------------------
Net assets applicable to common shares........................... $101,252,405 $99,602,405 $132,877,249
------------------- ---------------- -------------------
Net assets, plus the liquidation preference of $101,252,405 $154,602,405 $187,877,249
preferred shares
=================== ================ ===================
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* As adjusted paid-in surplus reflects a reduction for the sales load and estimated offering cost of the Series A Preferred and/or Series B AMPS issuance of $1,650,000. As Adjusted Assuming Rights Offering paid-in surplus reflects a reduction for estimated rights offering expenses of $500,000.
As used in this prospectus, unless otherwise noted, the Fund's "managed assets" include the aggregate net asset value of the common shares plus assets attributable to outstanding preferred shares, with no deduction for the liquidation preference of such preferred shares. For financial reporting purposes, however, the Fund is required to deduct the liquidation preference of its outstanding preferred shares from "managed assets," so long as the preferred shares have redemption features that are not solely within the control of the Fund. For all regulatory purposes, the Fund's preferred shares will be treated as stock (rather than as indebtedness).
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term growth of capital and income. Under normal market conditions, the Fund will invest at least 80% of its total assets in common stock and other debt or equity securities of foreign and domestic companies involved to a substantial extent (e.g., at least 50% of the assets, gross income or net profits of a company is committed to or derived from) in providing products, services or equipment for (i) the generation or distribution of electricity, gas and water and (ii) telecommunications services or infrastructure operations, such as airports, toll roads and municipal services.
Investment Methodology of the Fund
In selecting securities for the Fund, the Investment Adviser normally will consider the following factors, among others:
o the Investment Adviser's own evaluations of the private market value, cash flow, earnings per share and other fundamental aspects of the underlying assets and business of the company;
o the potential for capital appreciation of the securities;
o the interest or dividend income generated by the securities;
o the prices of the securities relative to other comparable securities;
o whether the securities are entitled to the benefits of call protection or other protective covenants;
o the existence of any anti-dilution protections or guarantees of the security; and
o the 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
Securities Subject to Reorganization. The Fund may invest without limit in securities of companies for which a tender or exchange offer has been made or announced and in securities of companies for which a merger, consolidation, liquidation or reorganization proposal has been announced if, in the judgment of the Investment Adviser, there is a reasonable prospect of high total return significantly greater than the brokerage and other transaction expenses involved.
In general, securities which are the subject of such an offer or proposal sell at a premium to their historic market price immediately prior to the announcement of the offer or may also discount what the stated or appraised value of the security would be if the contemplated transaction were approved or consummated. Such investments may be advantageous when the discount significantly overstates the risk of the contingencies involved; significantly undervalues the securities, assets or cash to be received by shareholders of the prospective portfolio company as a result of the contemplated transaction; or fails adequately to recognize the possibility that the offer or proposal may be replaced or superseded by an offer or proposal of greater value. The evaluation of such contingencies requires unusually broad knowledge and experience on the part of the Investment Adviser which must appraise not only the value of the issuer and its component businesses as well as the assets or securities to be received as a result of the contemplated transaction but also the financial resources and business motivation of the offer and/or the dynamics and business climate when the offer or proposal is in process. Since such investments are ordinarily short-term in nature, they will tend to increase the turnover ratio of the Fund, thereby increasing its brokerage and other transaction expenses. The Investment Adviser intends to select investments of the type described which, in its view, have a reasonable prospect of capital appreciation which is significant in relation to both risk involved and the potential of available alternative investments.
Temporary Defensive Investments. Although under normal market conditions at least 80% of the Fund's assets will consist of common stock and other debt or equity securities of foreign and domestic companies involved in the utility industry, when a temporary defensive posture is believed by the Investment Adviser to be warranted ("temporary defensive periods"), the Fund may without limitation hold cash or invest its assets in money market instruments and repurchase agreements in respect of those instruments. The money market instruments in which the Fund may invest are obligations of the U.S. government, its agencies or instrumentalities; commercial paper rated A-1 or higher by Standard & Poor's Ratings Services ("S&P") or Prime-1 by Moody's Investors Service, Inc. ("Moody's"); and certificates of deposit and bankers' acceptances issued by domestic branches of U.S. banks that are members of the Federal Deposit Insurance Corporation. During temporary defensive periods, the Fund may also invest to the extent permitted by applicable law in shares of money market mutual funds, which, under current law, in the absence of an exemptive order will not be affiliated with the Investment Adviser. Money market mutual funds are investment companies and the investments in those companies by the Fund are in some cases subject to certain fundamental investment restrictions and applicable law. See "Investment Restrictions." As a shareholder in a mutual fund, the Fund will bear its ratable share of its expenses, including management fees, and will remain subject to payment of the fees to the Investment Adviser, with respect to assets so invested. See "Management of the Fund -- General." The Fund may find it more difficult to achieve the long-term growth of capital component of its investment objective during temporary defensive periods.
Lower Rated Securities. The Fund may invest up to 25% of its total assets in fixed-income securities rated in the lower rating categories of recognized statistical rating agencies, such as securities rated "CCC" or lower by S&P or "Caa" or lower by Moody's, or non-rated securities of comparable quality. These debt securities are predominantly speculative and involve major risk exposure to adverse conditions. Debt securities that are not rated or rated lower than "BBB" by S&P or lower than "Baa" by Moody's are referred to in the financial press as "junk bonds."
Generally, such lower rated securities and unrated securities of comparable quality offer a higher current yield than is offered by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of the rating organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. The market values of certain of these securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher quality bonds. In addition, such lower rated securities and comparable unrated securities generally present a higher degree of credit risk. The risk of loss due to default by these issuers is significantly greater because such lower rated securities and unrated securities of comparable quality generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness. In light of these risks, the 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 securities in lower rated categories is more volatile than that of higher quality securities, and the markets in which such lower rated or unrated securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Moreover, the lack of a liquid trading market may restrict the availability of securities for the Fund to purchase and may also have the effect of limiting the ability of the Fund to sell securities at their fair value to respond to changes in the economy or the financial markets.
Lower-rated debt obligations also present risks based on payment expectations. If an issuer calls the obligation for redemption (often a feature of fixed income securities), the Fund may have to replace the security with a lower yielding security, resulting in a decreased return for investors. Also, as the principal value of bonds moves inversely with movements in interest rates, in the event of rising interest rates the value of the securities held by the Fund may decline proportionately more than a portfolio consisting of higher rated securities. Investments in zero coupon bonds may be more speculative and subject to greater fluctuations in value due to changes in interest rates than bonds that pay interest currently. Interest rates are at historical lows and, therefore, it is likely that they will rise in the future.
As part of its investments in lower rated securities, the Fund may invest up to 10% of its total assets in securities of issuers in default. The Fund will make an investment in securities of issuers in default only when the Investment Adviser believes that such issuers will honor their obligations or emerge from bankruptcy protection and the value of these securities will appreciate. By investing in securities of issuers in default, the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from bankruptcy protection or that the value of the securities will not appreciate.
In addition to using recognized rating agencies and other sources, the 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 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 issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible that statistical rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis. 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.
Fixed-income securities, including lower rated securities and comparable unrated securities, frequently have call or buy-back features that permit their issuers to call or repurchase the securities from their holders, such as the Fund. If an issuer exercises these rights during periods of declining interest rates, the Fund may have to replace the security with a lower yielding security, thus resulting in a decreased return for the Fund.
The market for certain lower rated and comparable unrated securities several years ago experienced a major economic recession. Past recessions have adversely affected the value of such securities as well as the ability of certain issuers of such securities to repay principal and pay interest thereon. The market for those securities could react in a similar fashion in the event of any future economic recession.
Options. The Fund may, from time to time, subject to guidelines of the Board of Trustees and the limitations set forth in this prospectus and applicable rating agency guidelines, 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 over- the-counter ("OTC") market, as a means of achieving additional return or of hedging the value of the Fund's portfolio. A call option is a contract that, in return for a premium, gives the holder of the option the right to buy from the writer of the call option the security or currency underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option has the obligation, upon exercise of the option, to deliver the underlying security or currency upon payment of the exercise price during the option period. A put option is the reverse of a call option, giving the holder the right, in return for a premium, to sell the underlying security to the writer, at a specified price, and obligating the writer to purchase the underlying security from the holder at that price.
A written call option is "covered" if the writer owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Fund holds a call on the same security as the call written where the exercise price of the call held is (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 securities or other high grade short-term obligations in a segregated account held with its custodian. A written put option is "covered" if the Fund maintains cash or other high grade short-term obligations with a value equal to the exercise price in a segregated account held with its custodian, or else holds a put on the same security as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written.
If the Fund has written an option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished by purchasing an option of the same series as the option previously written. However, once the Fund has been assigned an exercise notice, the Fund will be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it may liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option of the same series as the option previously purchased. There can be no assurance that either a closing purchase or sale transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price of the transaction is less than the premium received from writing the option or is more than the premium paid to purchase the option; the Fund will realize a loss from a closing transaction if the price of the transaction is more than the premium received from writing the option or is less than the premium paid to purchase the option. Since call option prices generally reflect increases in the price of the underlying security, any loss resulting from the repurchase of a call option may also be wholly or partially offset by unrealized appreciation of the underlying security. Other principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price and price volatility of the underlying security and the time remaining until the expiration date. Gains and losses on investments in options depend, in part, on the ability of the 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 which provides a secondary market for an option of the same series or in a private transaction. Although the Fund will generally purchase or write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option. In such event, it might not be possible to effect closing transactions in particular options, so that the Fund would have to exercise its options in order to realize any profit and would incur brokerage commissions upon the exercise of call options and upon the subsequent disposition of underlying securities for the exercise of put options. If the Fund, as a covered call option writer, is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise or otherwise covers the position.
In addition to options on individual securities, the Fund may also purchase and sell call and put options on securities indices. A stock index reflects in a single number the market value of many different stocks. Relative values are assigned to the stocks included in an index and the index fluctuates with changes in the market values of the stocks. The options give the holder the right to receive a cash settlement during the term of the option based on the difference between the exercise price and the value of the index. By writing a put or call option on a securities index, the Fund is obligated, in return for the premium received, to make delivery of this amount. The Fund may offset its position in stock index options prior to expiration by entering into a closing transaction on an exchange or it may let the option expire unexercised.
The Fund also may buy or sell put and call options on foreign currencies. A put option on a foreign currency gives the purchaser of the option the right to sell a foreign currency at the exercise price until the option expires. A call option on a foreign currency gives the purchaser of the option the right to purchase the currency at the exercise price until the option expires. Currency options traded on U.S. or other exchanges may be subject to position limits which may limit the ability of the Fund to reduce foreign currency risk using such options. Over-the-counter options differ from exchange-traded options in that they are two-party contracts with price and other terms negotiated between buyer and seller and generally do not have as much market liquidity as exchange-traded options. Over-the-counter options are illiquid securities.
Use of options on securities indices entails the risk that trading in the options may be interrupted if trading in certain securities included in the index is interrupted. The Fund will not purchase these options unless the 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 are unlikely to correlate precisely with movements in the level of an index and, therefore, the use of options on indices cannot serve as a complete hedge and will depend, in part, on the ability of the 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 Investment Adviser may be forced to liquidate portfolio securities to meet settlement obligations. The staff of the SEC considers over-the-counter options such as options on indices illiquid securities.
Although the 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 guidelines of the Board of Trustees, purchase and sell financial futures contracts and options thereon which are traded on a commodities exchange or board of trade for certain hedging, yield enhancement and risk management purposes, in accordance with regulations of the Commodity Futures Trading Commission ("CFTC"). These futures contracts and related options may be on debt securities, financial indices, securities indices, U.S. Government securities and foreign currencies. A financial futures contract is an agreement to purchase or sell an agreed amount of securities or currencies at a set price for delivery in the future.
Under CFTC regulations, the Investment Adviser on behalf of the Fund may purchase and sell futures contracts and options thereon for bona fide hedging purposes, as defined under CFTC regulations, without regard to the percentage of the Fund's assets committed to margin and option premiums. Other than for bona fide hedging purposes, the Fund will not enter into futures contracts or options on futures contracts unless (i) the aggregate initial margins and premiums do not exceed 5% of the fair market value of its total assets and (ii) the aggregate market value of its outstanding futures contracts and the market value of the currencies and futures contracts subject to outstanding options written by the Fund, as the case may be, do not exceed 50% of its total assets.
Forward Currency Exchange Contracts. Subject to guidelines of the Board of Trustees, the Fund may enter into forward foreign currency exchange contracts to protect the value of its portfolio against uncertainty in the level of future 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 expects to invest in forward currency contracts for hedging or currency risk management purposes and not in order to speculate on currency exchange rate movements. The Fund will only enter into forward currency contracts with parties which it believes to be creditworthy.
When Issued, Delayed Delivery Securities and Forward Commitments. The Fund may enter into forward commitments for the purchase or sale of securities, including on a "when issued" or "delayed delivery" basis, in excess of customary settlement periods for the type of security involved. In some cases, a forward commitment may be conditioned upon the occurrence of a subsequent event, such as approval and consummation of a merger, corporate reorganization or debt restructuring, i.e., a when, as and if issued security. When such transactions are negotiated, the price is fixed at the time of the commitment, with payment and delivery taking place in the future, generally a month or more after the date of the commitment. While it will only enter into a forward commitment with the intention of actually acquiring the security, the Fund may sell the security before the settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market fluctuation, and no interest (or dividends) accrues to the Fund prior to the settlement date. The Fund will segregate with its custodian cash or liquid securities in an aggregate amount at least equal to the amount of its outstanding forward commitments.
Short Sales. The Fund may make short sales of securities. A short sale is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. The market value of the securities sold short of any one issuer will not exceed either 5% of the Fund's total assets or 5% of such issuer's voting securities. The Fund also will not make a short sale, if, after giving effect to such sale, the market value of all securities sold short exceeds 25% of the value of its assets or the Fund's aggregate short sales of a particular class of securities exceeds 25% of the outstanding securities of that class. The Fund may also make short sales "against the box" without respect to such limitations. In this type of short sale, at the time of the sale, the Fund owns, or has the immediate and unconditional right to acquire at no additional cost, the identical security.
The Fund expects to make short sales both to obtain capital gains from anticipated declines in securities and as a form of hedging to offset potential declines in long positions in the same or similar securities. The short sale of a security is considered a speculative investment technique. Short sales "against the box" may be subject to special tax rules, one of the effects of which may be to accelerate income to the Fund.
When the Fund makes a short sale, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale in order to satisfy its obligation to deliver the security upon conclusion of the sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by collateral deposited with the broker-dealer, usually cash, U.S. government securities or other highly liquid debt securities. The Fund will also be required to deposit similar collateral with its custodian, State Street Bank and Trust Company ("State Street"), and, to the extent, if any, necessary so that the value of both collateral deposits in the aggregate is at all times equal to the greater of the price at which the security is sold short or 100% of the current market value of the security sold short. Depending on arrangements made with the broker-dealer from which it borrowed the security regarding payment over of any payments received by the Fund on such security, the Fund may not receive any payments (including interest) on its collateral deposited with such broker-dealer. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss will be increased, by the transaction costs described above. Although the Fund's gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited.
To secure its obligations to deliver the securities sold short, the Fund will deposit in escrow in a separate account with the custodian, an amount at least equal to the securities sold short or securities convertible into, or exchangeable for, the securities. The Fund may close out a short position by purchasing and delivering an equal amount of securities sold short, rather than by delivering securities already held by the Fund, because the Fund may want to continue to receive interest and dividend payments on securities in its portfolio that are convertible into the securities sold short.
Repurchase Agreements. The Fund may engage in repurchase agreement transactions involving money market instruments with banks, registered broker-dealers and government securities dealers approved by the Investment Adviser. The Fund will not enter into repurchase agreements with the Investment Adviser or any of its affiliates. Under the terms of a typical repurchase agreement, the Fund would acquire an underlying debt obligation for a relatively short period (usually not more than one week) subject to an obligation of the seller to repurchase, and the Fund to resell, the obligation at an agreed price and time, thereby determining the yield during its holding period. Thus, repurchase agreements may be seen to be loans by the Fund collateralized by the underlying debt obligation. This arrangement results in a fixed rate of return that is not subject to market fluctuations during the holding period. The value of the underlying securities will be at least equal to at all times to the total amount of the repurchase obligation, including interest. The Fund bears a risk of loss in the event that the other party to a repurchase agreement defaults on its obligations and the Fund is delayed in or prevented from exercising its rights to dispose of the collateral securities, including the risk of a possible decline in the value of the underlying securities during the period in which it seeks to assert these rights. The Investment Adviser, acting under the supervision of the Board of Trustees of the Fund, reviews the creditworthiness of those banks and dealers with which the Fund enters into repurchase agreements to evaluate these risks and monitors on an ongoing basis the value of the securities subject to repurchase agreements to ensure that the value is maintained at the required level.
Leveraging. As provided in the 1940 Act and subject to certain exceptions, the Fund may issue debt or preferred shares (such as the Series A Preferred or Series B AMPS) so long as its total assets, less certain ordinary course liabilities, exceed 300% of the amount of the debt outstanding and exceed 200% of the sum of the amount of preferred shares and debt outstanding. Any such debt or preferred shares may be convertible in accordance with SEC staff guidelines which may permit each fund to obtain leverage at attractive rates. Leverage entails two primary risks. The first risk is that the use of leverage magnifies the impact on the holders of common shares of changes in net asset value. For example, if the Fund were to use 33% leverage, it would show a 1.5% increase or decline in net asset value for each 1% increase or decline in the value of its total assets. The second risk is that the cost of leverage will exceed the return on the securities acquired with the proceeds of leverage, thereby diminishing rather than enhancing the return to holders of common shares. These two risks would generally make the Fund's total return to holders of common shares more volatile were it to use leverage.
So long as the Fund uses leverage it may be required to sell investments in order to meet dividend or interest payments on the debt or preferred shares when it may be disadvantageous to do so. In addition, a decline in net asset value could affect the ability of the Fund to make common share dividend payments 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 Internal Revenue Code of 1986, as amended (the "Code"). See "Taxation." Finally, if the asset coverage for preferred shares or debt securities declines to less than 200% or 300%, respectively (as a result of market fluctuations or otherwise), the Fund may be required to sell a portion of its investments to redeem the preferred shares or repay the debt when it may be disadvantageous to do so.
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). Higher portfolio turnover may decrease the after-tax return to individual investors in the Fund to the extent it results in a decrease of the long term capital gains portion of distributions to shareholders.
The portfolio turnover rates of the Fund for the fiscal years ending December 31, 2002, December 31, 2001 and December 31, 2000 were 29%, 41% and 92%, respectively.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following risk factors and special considerations associated with investing in the Fund.
Preferred Shares
General. There are a number of risks associated with an investment in the Series A Preferred or Series B AMPS. The market value for the Series A Preferred and/or Series B AMPS will be influenced by changes in interest rates, the perceived credit quality of the Series A Preferred or Series B AMPS and other factors. The Series A Preferred and/or Series B AMPS are subject to redemption under specified circumstances and investors may not be able to reinvest the proceeds of any such redemption in an investment providing the same or a better rate than that of the Series A Preferred or Series B AMPS. Subject to such circumstances, the Series A Preferred and/or Series B AMPS are perpetual.
The credit rating on the Series A Preferred or Series B AMPS could be reduced or withdrawn while an investor holds shares, and the credit rating does not eliminate or mitigate the risks of investing in the Series A Preferred or Series B AMPS. A reduction or withdrawal of the credit rating would likely have an adverse effect on the market value of the Series A Preferred or Series B AMPS.
The Series A Preferred and the Series B AMPS are not obligations of the Fund. The Series A Preferred and/or Series B AMPS would be junior in respect of dividends and liquidation preference to any indebtedness incurred by the Fund. Although unlikely, precipitous declines in the value of the Fund's assets could result in the Fund having insufficient assets to redeem all of the Series A Preferred and/or Series B AMPS for the full redemption price. In addition, the fund has adopted a policy of distributing $0.06 per share per month to common shareholders. In the event investment returns do not provide sufficient amounts to fund such distributions, the Fund may be required to 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 Series A Preferred and Series B AMPS. The Fund has made monthly distributions with respect to its common shares since October 1999, none of which have constituted a return of capital, except for the fiscal year ended December 31, 2002, when $0.25 of the monthly distributions for the year constituted a return of capital.
Leverage Risk. The Fund uses financial leverage for investment purposes by issuing preferred shares. It is currently anticipated that, taking into account the Series A Preferred and/or Series B AMPS being offered in this prospectus, the amount of leverage will represent approximately 35.6% of the Fund's managed assets (as defined below). The Fund's leveraged capital structure creates special risks not associated with unleveraged funds having a similar investment objective and policies. These include the possibility of greater loss and the likelihood of higher volatility of the net asset value of the Fund and the Series A Preferred and/or Series B AMPS's asset coverage.
Because the fee paid to the Investment Adviser will be calculated on the basis of the Fund's managed assets, which equal the aggregate net asset value of the common shares plus assets attributable to outstanding preferred shares, with no deduction for the liquidation preference of such preferred shares (rather than only on the basis of net assets attributable to the common shares), the fee may be higher when leverage is utilized, giving the Investment Adviser an incentive to utilize leverage. However, the Investment Adviser has agreed not to accept an incremental fee unless the Fund's total return at least equals the dividend rate on each series of the preferred shares.
Restrictions on Dividends and Other Distributions. Restrictions imposed on the declaration 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 (including the Series A Preferred and/or Series B AMPS) 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. See "Taxation" in the SAI.
Ratings and Asset Coverage Risk. While it is a condition to the closing of the offering that Moody's assigns a rating of "Aaa" to the Series A Preferred and/or Series B AMPS and that S&P assigns a rating of "AAA" to the Series B AMPS, the ratings do not eliminate or necessarily mitigate the risks of investing in Series A Preferred or Series B AMPS. The credit rating on the Series A Preferred or Series B AMPS could be reduced or withdrawn while an investor holds shares, which would likely have an adverse effect on the market value of the Series A Preferred or Series B AMPS. A reduction or withdrawal of the credit ratings on the Series B AMPS may also make your Series B AMPS shares less liquid at an auction or in the secondary market.
In addition, if a rating agency rating the Series B AMPS at the Fund's request downgrades the Series B AMPS, the maximum rate on the Series B AMPS will increase. See "Description of the Series A Preferred and Series B AMPS -- Rating Agency Guidelines" for a description of the asset maintenance tests the Fund must meet. In addition, should the rating on the Fund's preferred shares be lowered or withdrawn by the relevant rating agency, the Fund may also be required to redeem all or part of its outstanding preferred shares.
Special Risks of the Series A Preferred
Illiquidity Prior to Exchange Listing. Prior to the offering, there has been no public market for the Series A Preferred. In the event the Series A Preferred are issued, prior application will have been made to list the Series A Preferred on the NYSE. However, during an initial period, which is not expected to exceed 30 days after the date of its initial issuance, the Series A Preferred will not be listed on any securities exchange. During such period, the underwriters intend to make a market in the Series A Preferred, though, they have no obligation to do so. Consequently, an investment in the Series A Preferred may be illiquid during such period.
Special Risks of the Series B AMPS
Interest Rate Risk. In connection with the sale of the Series B AMPS, the Fund may enter into interest rate swap or cap transactions in order to reduce the impact of changes in the dividend rate of the Series B AMPS or obtain the equivalent of a fixed rate for the Series B AMPS 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 investment techniques and risks different from those associated with ordinary portfolio security transactions. See "How the Fund Manages Risk -- Interest Rate Transactions."
Auction Risk. You may not be able to sell your Series B AMPS at an auction if the auction fails, i.e., if there is more Series B AMPS offered for sale than there are buyers for those shares. Also, if you place orders (place a hold order) at an auction to retain Series B AMPS only at a specified rate that exceeds the rate set at the auction, you will not retain your Series B AMPS. Additionally, if you place a hold order without specifying a rate below which you would not wish to continue to hold your shares and the auction sets a below-market rate, you will receive a lower rate of return on your shares than the market rate. Finally, the dividend period may be changed, subject to certain conditions and with notice to the holders of the Series B AMPS, which could also affect the liquidity of your investment. See "Description of the Series A Preferred and Series B AMPS" and "The Auction of Series B AMPS."
Secondary Market Risk. If you try to sell your Series B AMPS between auctions, you may not be able to sell them for $25,000 per share or $25,000 per share plus accumulated dividends. If the Fund has designated a special dividend period of more than seven days, changes in interest rates could affect the price you would receive if you sold your shares in the secondary market. Broker-dealers that maintain a secondary trading market for the Series B AMPS are not required to maintain this market, and the Fund is not required to redeem Series B AMPS if either an auction or an attempted secondary market sale fails because of a lack of buyers. The Series B AMPS is not registered on a stock exchange or the NASDAQ stock market. If you sell your Series B AMPS to a broker-dealer between auctions, you may receive less than the price you paid for them, especially when market interest rates have risen since the last auction or during a special dividend period.
Industry Risks
Under normal market conditions, the Fund will invest 80% or more of its assets in foreign and domestic companies involved in the Utility Industry and, as a result, the net asset value of the Fund 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 utilities industry. As a result, the Fund's investments may be subject to greater risk and market fluctuation than a fund that had securities representing a broader range of investment alternatives. The prices of securities issued by utility companies may change in response to interest rate changes. Generally, when interest rates go up, the value of securities issued by utility companies goes down. Conversely, when interest rates go down, the value of securities issued by utility companies goes up. There is no guarantee that this relationship will hold in the future.
Government Regulation. There are substantial differences between the regulatory practices and policies in various jurisdictions, and any given regulatory agency may make major shifts in policy from time to time. There is no assurance that regulatory authorities will, in the future, permit rate increases or that such increases will be adequate to permit the payment of dividends on common stocks. Additionally, existing and possible future regulatory legislation may make it even more difficult for these utilities to obtain adequate relief.
Various regulatory regimes also impose limitations on the percentage of the shares of a public utility held by a fund as an investment for its clients. These limitations may unfavorably restrict the ability of the Fund to make certain investments.
Deregulation. Changing regulation constitutes one of the key 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 utilities companies may eliminate restrictions on profits and dividends, but may also subject these companies to greater risks of loss. Deregulation of the utility industry could have a positive or negative impact on the Fund. The Investment Adviser believes that certain utility companies' fundamentals should continue to improve as the industry undergoes deregulation. Companies may seek to strengthen their competitive positions through mergers and takeovers. The loosening of the government regulation of utilities should encourage convergence within the industry. Improving earnings prospects, strong cash flows, share repurchases and takeovers from industry consolidation may tend to boost share prices. However, as has occurred in California and elsewhere, certain companies may be less able to meet the challenge of deregulation as competition increases and investments in these companies would not be likely to perform well. Individual sectors of the utility market are subject to additional risks. These risks can apply to all utility companies - regulated or fully or partially deregulated and unregulated. For example, telecommunications companies have been affected by technological developments leading to increased competition, as well as changing regulation of local and long-distance telephone services and other telecommunications businesses. Certain telecommunications companies have been adversely affected by the new competitive climate.
Financing. Currently companies in the utility industry are encountering difficulties in obtaining financing for construction programs. Issuers experiencing such difficulties may also experience lower profitability, which can result in reduced income to the Fund. Historically, companies in the utility industry have also encountered such financing difficulties during inflationary periods.
Equipment and Supplies. 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 fuel and other operating costs. They may also be negatively affected when long-term interest rates rise. Long-term borrowings are used to finance most utility investments, and rising interest rates lead to higher financing costs and reduced earnings. There are also the considerable costs associated with environmental compliance, nuclear waste clean-up, and safety regulation. Increasingly, regulators are calling upon electric utilities to bear these added costs, and there is a risk that these costs will not be fully recovered through an increase in revenues.
Among gas companies, there has been a move to diversify into oil and gas exploration and development, making investment returns more sensitive to energy prices. In the case of the water utility sector, the industry is highly fragmented, and most water supply companies find themselves in mature markets, although upgrading of fresh water and waste water systems is an expanding business.
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 play short-term swings in the stock market. An investment in shares of the Fund should not be considered a complete investment program. Each shareholder should take into account the Fund's investment objective as well as the shareholder's other investments when considering an investment in the Fund.
Non-diversified Status
The Fund is classified as a "non-diversified" investment company under the 1940 Act, which means the Fund is not limited by the 1940 Act in the proportion of its assets that may be invested in the securities of a single issuer. However, the Fund has in the past conducted and intends to conduct its operations so as to qualify as a "regulated investment company," or RIC, for purposes of the Code, which will relieve it of any liability for federal income tax to the extent its earnings are distributed to shareholders. To qualify as a "regulated investment company," among other requirements, the Fund will limit its investments so that, with certain exceptions, at the close of each quarter of the taxable year:
o not more than 25% of the market value of its total assets will be invested in the securities (other than U.S. government securities or the securities of other RICs) of a single issuer or any two or more issuers that the Fund controls and which are determined to be engaged in the same, similar or related trades or businesses; and
o at least 50% of the market value of the Fund's assets will be represented by cash, securities of other regulated investment companies, U.S. government securities and other securities, with such other securities limited in respect of any one issuer to an amount not greater than 5% of the value of the Fund's assets and not more than 10% of the outstanding voting securities of such issuer.
As a non-diversified investment company, the Fund may invest in the securities of individual issuers to a greater degree than a diversified investment company. As a result, the Fund may be more vulnerable to events affecting a single issuer and therefore, subject to greater volatility than a fund that is more broadly diversified. Accordingly, an investment in the Fund may present greater risk to an investor than an investment in a diversified company.
Lower Rated Securities
The Fund may invest up to 25% of its total assets in fixed-income securities rated in the lower rating categories of recognized statistical rating agencies. These high yield securities, also sometimes referred to as "junk bonds," generally pay a premium above the yields of U.S. government securities or debt securities of investment grade issuers because they are subject to greater risks than these securities. These risks, which reflect their speculative character, include the following:
o greater volatility;
o greater credit risk;
o potentially greater sensitivity to general economic or industry conditions;
o potential lack of attractive resale opportunities (illiquidity); and
o additional expenses to seek recovery from issuers who default.
The market value of lower-rated 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.
Ratings are relative and subjective and 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 a part of its investments in lower rated securities, the Fund may invest up to 10% of its total assets in securities of issuers in default. The Fund will invest in securities of issuers in default only when the Investment Adviser believes that such issuers will honor their obligations, emerge from bankruptcy protection and the value of these securities will appreciate. By investing in the 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 these securities will not appreciate.
For a further description of lower rated securities and the risks associated therewith, see "Investment Objective and Policies -- Investment Practices" in the SAI. For a description of the ratings categories of certain recognized statistical ratings agencies, see Appendix A to this prospectus.
Foreign Securities
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 U.S. 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.
There may be less publicly available information about a foreign company than a U.S. company. Foreign securities markets may have substantially less volume than U.S. securities markets and some foreign company securities are less liquid than securities of otherwise comparable U.S. 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-U.S. securities markets and the increased costs of maintaining the custody of foreign securities. The Fund does not have an independent limit on the amount of its assets that it may invest in the securities of foreign issuers.
The Fund also may purchase sponsored American Depository Receipts ("ADRs") or U.S. 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.
Futures Transactions
Futures and options on futures entail certain risks, including but not limited to the following:
o no assurance that futures contracts or options on futures can be offset at favorable prices;
o possible reduction of the yield of the Fund due to the use of hedging;
o possible reduction in value of both the securities hedged and the hedging instrument;
o possible lack of liquidity due to daily limits or price fluctuations;
o imperfect correlation between the contracts and the securities being hedged; and
o losses from investing in futures transactions that are potentially unlimited and the segregation requirements for such transactions.
For a further description of the Fund's investments in futures, see "Investment Objective and Policies -- Investment Practices" in the SAI.
Forward Currency Exchange Contracts
The use of forward currency contracts may involve certain risks, including the failure of the counter party to perform its obligations under the contract and that the use of forward contracts may not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the prices of the currencies hedged or used for cover. For a further description of such investments, see "Investment Objective and Policies -- Investment Practices" in the SAI.
Dependence on Key Personnel
The Investment Adviser is dependent upon the expertise of Mr. Mario J. Gabelli in providing advisory services with respect to the Fund's investments. If the Investment Adviser were to lose the services of Mr. Gabelli, its ability to service the Fund could be adversely affected. There can be no assurance that a suitable replacement could be found for Mr. Gabelli in the event of his death, resignation, retirement or inability to act on behalf of the Investment Adviser.
Current Market Uncertainties
As a result of the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001, some of the U.S. Securities Markets were closed for a four-day period. These terrorists attacks, the war in Iraq and its aftermath and other geopolitical events have led to, and may in the future lead to, increased short-term market volatility and may have long-term effects on U.S. and world economies and markets. Similar events in the future or other disruptions of financial markets could affect interest rates, securities exchanges, auctions, secondary trading, rating, credit risk, inflation and other factors relating to the Series A Preferred and/or Series B AMPS.
Anti-takeover Provisions
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. See "Anti-takeover Provisions of the Fund's Governing Documents."
HOW THE FUND MANAGES RISK
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 common shares and preferred shares voting together as a single class. See "Investment Restrictions" in the SAI for a complete list of the fundamental investment policies of the Fund. The Fund may become subject to guidelines that are more limiting than its fundamental investment restrictions in order to obtain and maintain ratings from Moody's or S&P on its preferred shares.
Interest Rate Transactions
The Fund may enter into interest rate swap or cap transactions in relation to all or a portion of the Series B AMPS in order to manage the impact on its portfolio of changes in the dividend rate of the Series B AMPS. Through these transactions the Fund may, for example, obtain the equivalent of a fixed rate for the Series B AMPS 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 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 the Series B AMPS. 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 share dividends when due in accordance with the Statement of Preferences 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 payments on the Series B AMPS. 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 payments on the Series B AMPS. 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 AMPS. A sudden and dramatic decline in interest rates may result in a significant decline in the asset coverage. Under the Statement of Preferences, if the Fund fails to maintain the required asset coverage on the outstanding preferred shares (including the Series B AMPS) or fails to comply with other covenants, the Fund may be required to redeem some or all of these shares. The Fund may also choose to redeem some or all of the Series B AMPS at any time. Such redemption would likely result in the Fund seeking to terminate early all or a portion of any swap or cap transaction. 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 does not presently intend to enter into interest rate swap or cap transactions relating to Series B AMPS in a notional amount in excess of the outstanding amount of the Series B AMPS. 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.
MANAGEMENT OF THE FUND
General
The Fund's Board of Trustees (who, with its officers, are described
in the SAI) has overall responsibility for the management of the Fund. The
Board decides upon matters of general policy and reviews the actions of the
Investment Adviser, Gabelli Funds, LLC, located at One Corporate Center, Rye,
New York 10580-1422, and the Sub-Administrator (as defined below). Pursuant to
an Investment Advisory Contract with the Fund, the Investment Adviser, under
the supervision of the Fund's Board of Trustees, provides a continuous
investment program for the Fund's portfolio; provides investment research and
makes and executes recommendations for the purchase and sale of securities;
and provides all facilities and personnel, including officers required for its
administrative management and pays the compensation of all officers and
trustees of the Fund who are its affiliates. As compensation for its services
and the related expenses borne by the Investment Adviser, the Fund pays the
Investment Adviser a fee, computed daily and payable monthly, equal, on an
annual basis, to 1.00% of the Fund's average weekly net assets. However, the
Investment Adviser has voluntarily agreed to waive the portion of its
investment advisory fee attributable to an amount of assets of the Fund equal
to the aggregate stated value of, as the case may be, its outstanding Series A
Preferred and/or Series B AMPS for any calendar year in which the net asset
value total return of the Fund allocable to the common shares, including
distributions and the advisory fee subject to potential waiver, is less than
(i) in the case of the Series A Preferred, the stated annual dividend rate of
such series and (ii) in the case of the Series B AMPS, the net cost of capital
to the Fund with respect to the Series B AMPS for such year expressed as a
percentage (including, without duplication, dividends paid by the Fund on the
Series B AMPS and the net cost to the Fund of any associated swap or cap
transaction if the Fund hedges its Series B AMPS dividend obligations). This
waiver will apply to the portion of the Fund's assets attributable to the
Series A Preferred and Series B AMPS, respectively, for so long as any shares
of such series remain outstanding. For purposes of the calculation of the fees
payable to the Investment Adviser by the Fund, average weekly net assets of
the Fund are determined at the end of each month on the basis of its average
net assets for each week during the month. The assets for each weekly period
are determined by averaging the net assets at the end of a week with the net
assets at the end of the prior week.
The Investment Adviser
Gabelli Funds, LLC acts as the Fund's Investment Adviser pursuant to an advisory agreement with the Fund. The Investment Adviser is a New York corporation with principal offices located at One Corporate Center, Rye, New York 10580. The Investment Adviser was organized in 1999 and is the successor to Gabelli Funds, Inc., which was organized in 1980. As of March 31, 2003, the Investment Adviser acted as registered investment adviser to 19 management investment companies with aggregate net assets of $8.4 billion. The Investment Adviser, together with other affiliated investment advisers noted below had assets under management totaling approximately $19.5 billion as of March 31, 2003. GAMCO Investors, Inc., an affiliate of the Investment Adviser, acts as investment adviser for individuals, pension trusts, profit sharing trusts and endowments, and as a sub-adviser to management investment companies having aggregate assets of $9.2 billion under management as of March 31, 2003. Gabelli Fixed Income LLC, an affiliate of the Investment Adviser, acts as investment adviser for The Treasurer's Fund and separate accounts having aggregate assets of $1.4 billion under management as of March 31, 2003. Gabelli Advisers, Inc., an affiliate of the Investment Adviser, acts as investment manager to the Gabelli Westwood Funds having aggregate assets of $441 million under management as of March 31, 2003.
The Investment Adviser is a wholly-owned subsidiary of Gabelli Asset Management Inc., a New York corporation, whose Class A Common Stock is traded on the NYSE under the symbol "GBL." Mr. Mario J. Gabelli may be deemed a "controlling person" of the Investment Adviser on the basis of his ownership of a majority of the stock of the Gabelli Group Capital Partners, Inc., which owns a majority of the capital stock of Gabelli Asset Management Inc.
Payment of Expenses
The Investment Adviser is obligated to pay expenses associated with providing the services contemplated by the Investment Advisory Agreement between the Fund and the Investment Adviser (the "Advisory Agreement") including compensation of and office space for its officers and employees connected with investment and economic research, trading and investment management and administration of the Fund, as well as the fees of all trustees of the Fund who are affiliated with the Investment Adviser.
In addition to the fees of the Investment Adviser, the Fund is responsible for the payment of all its other expenses incurred in the operation of the Fund, which include, among other things, expenses for legal and independent accountant's services, stock exchange listing fees, expenses relating to the offering of preferred shares, rating agency fees, costs of printing proxies, share certificates and shareholder reports, charges of State Street Bank and Trust Company ("State Street" or the "Custodian"), charges of EquiServe and The Bank of New York, SEC fees, fees and expenses of unaffiliated trustees, accounting and printing costs, the Fund's pro rata portion of membership fees in trade organizations, fidelity bond coverage for the Fund's officers and employees, interest, brokerage costs, taxes, expenses of qualifying the Fund for sale in various states, expenses of personnel performing shareholder servicing functions, litigation and other extraordinary or non-recurring expenses and other expenses properly payable by the Fund.
Selection of Securities Brokers
The Investment Advisory Contract contains provisions relating to the selection of securities brokers to effect the portfolio transactions of the Fund. Under those provisions, the Investment Adviser may (i) direct Fund portfolio brokerage to Gabelli & Company, Inc. or other broker-dealer affiliates of the Investment Adviser and (ii) pay commissions to brokers other than Gabelli & Company, Inc. 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 advisory accounts or those of any investment adviser affiliated with it. The SAI contains further information about the Investment Advisory Contract including a more complete description of the advisory and expense arrangements, exculpatory and brokerage provisions, as well as information on the brokerage practices of the Fund.
Portfolio Manager
Mario J. Gabelli is currently and has been responsible for the day-to-day management of the Fund since its formation. Mr. Gabelli has served as Chairman, President and Chief Investment Officer of the Investment Adviser since 1980. Mr. Gabelli also serves as Portfolio Manager for several other funds in the Gabelli fund family. Because of the diverse nature of Mr. Gabelli's responsibilities, he will devote less than all of his time to the day-to-day management at the Fund. Over the past five years, Mr. Gabelli has served as Chairman of the Board and Chief Executive Officer of Gabelli Asset Management Inc.; Chief Investment Officer of GAMCO Investors, Inc.; and Vice Chairman of the Board of Lynch Corporation, a diversified manufacturing company, and Vice Chairman of the Board and Chief Executive Officer of Lynch Interactive Corporation, a multimedia and communications services company.
Non-resident Trustee
Karl Otto Pohl, a trustee of the Fund, resides outside the United States and all or a significant portion of his assets are located outside the United States. Mr. Pohl does not have an authorized agent in the United States to receive service of process. As a result, it may not be possible for investors to effect service of process within the United States or to enforce against Mr. Pohl in United States courts judgments predicated upon civil liability provisions of United States securities laws. It may also not be possible to enforce against Mr. Pohl in foreign courts judgments of United States courts or liabilities in original actions predicated upon civil liability provisions of the United States securities laws.
Sub-Administrator
The Investment Adviser has entered into a sub-administration agreement with PFPC Inc. (the "Sub-Administrator") pursuant to which the Sub-Administrator provides certain administrative services necessary for the Fund's operations which do not include the investment and portfolio management services provided by the Investment Adviser. For these services and the related expenses borne by the Sub-Administrator, the Investment Adviser pays a prorated monthly fee at the annual rate of .0275% of the first $10.0 billion of the aggregate average net assets of the Fund and all other funds advised by the Investment Adviser and administered by the Sub-Administrator, .0125% of the aggregate average net assets exceeding $10 billion and .01% of the aggregate average net assets in excess of $15 billion. The Sub-Administrator has its principal office at 760 Moore Road, King of Prussia, Pennsylvania 19406.
PORTFOLIO TRANSACTIONS
Principal transactions are not entered into with affiliates of the Fund. However, Gabelli & Company, Inc., an affiliate of the Investment Adviser, may execute portfolio transactions on stock exchanges and in the over-the-counter markets on an agency basis and receive a stated commission therefor. For a more detailed discussion of the Fund's brokerage allocation practices, see "Portfolio Transactions" in the SAI.
DIVIDENDS AND DISTRIBUTIONS
The Fund may retain for reinvestment, and pay the resulting federal income taxes on, its net capital gain, if any, although the Fund reserves the authority to distribute its net capital gain in any year. The Fund has a policy, which may be modified at any time by its Board of Trustees, of paying distributions on its common shares of $0.06 per share per month. This policy permits holders of common shares to realize a predictable, but not assured, level of cash flow and some liquidity periodically with respect to their common shares without having to sell shares. To avoid paying income tax at the corporate level, the Fund will distribute substantially all of its investment company taxable income and realized capital gains. In the event that the Fund's investment company taxable income and realized capital gains exceed the total of the Fund's monthly distributions, the Fund intends to pay such excess once a year. If, for any calendar year, the total monthly distributions exceed investment company taxable income and net capital gain, the excess will generally be treated as a tax-free return of capital up to the amount of a shareholder's tax basis in the shares. The amount treated as a tax-free return of capital will reduce a shareholder's tax basis in the shares, thereby increasing such shareholder's potential gain or reducing his or her potential loss on the sale of the shares. Any amounts distributed to a shareholder in excess of the basis in the shares will generally be taxable to the shareholder as capital gain. See "Taxation" below.
In the event the Fund distributes amounts in excess of its investment company taxable income and net capital gain, such distributions will decrease the Fund's total assets and, therefore, have the likely effect of increasing the Fund's expense ratio. In addition, in order to make such distributions, the Fund might have to sell a portion of its investment portfolio at a time when independent investment judgment might not dictate such action.
The Fund, along with other closed-end registered investment
companies advised by the Investment Adviser, has obtained an exemption from
Section 19(b) of the 1940 Act and Rule 19b-1 thereunder permitting the Fund to
make periodic distributions of long-term capital gains provided that any
distribution policy of the Fund with respect to its common shares calls for
periodic (e.g., quarterly or semi-annually, but in no event more frequently
than monthly) distributions in an amount equal to a fixed percentage of the
Fund's average net asset value over a specified period of time or market price
per common share at or about the time of distribution or pay-out of a fixed
dollar amount. The Fund's current policy is to make monthly distributions to
holders of its common shares. The exemption also permits the Fund to make
distributions with respect to its preferred shares in accordance with such
shares' terms.
DESCRIPTION OF THE SERIES A PREFERRED
AND SERIES B AMPS
The Fund offers by this prospectus, in the aggregate, $[__]million of preferred shares of either Series A Preferred or Series B AMPS, or a combination of both such series. The following is a brief description of the terms of each of the Series A Preferred and the Series B AMPS. This description does not purport to be complete and is qualified by reference to the Fund's Governing Documents, including the provisions of the Statement of Preferences establishing each of the Series A Preferred and the Series B AMPS. For complete terms of the Series A Preferred or the Series B AMPS, including definitions of terms used in this prospectus, please refer to the actual terms of such series, which are set forth in the applicable Statement of Preferences.
General
The Fund is authorized to issue up to 2,000,000 preferred shares as Series A Preferred and up to 5,000 preferred shares as Series B AMPS. No fractional shares of either series will be issued. The Board of Trustees reserves the right to issue additional preferred shares, including Series A Preferred or Series B AMPS, from time to time, subject to the restrictions in the Fund's Governing Documents and the 1940 Act.
If and when issued, the Series A Preferred will have a liquidation preference of $25 per share and the Series B AMPS will have a liquidation preference of $25,000 per share. Upon a liquidation, each holder of Series A Preferred or Series B AMPS will be entitled to receive out of the assets of the Fund available for distribution to shareholders (after payment of claims of the Fund's creditors but before any distributions with respect to the Fund's common shares or any other shares of the Fund ranking junior to the Series A Preferred and Series B AMPS as to liquidation payments) an amount per share equal to such share's liquidation preference plus any accumulated but unpaid dividends (whether or not earned or declared, but excluding interest thereon) to and including the date of distribution. The Series A Preferred and the Series B AMPS will rank on a parity with any other series of preferred shares of the Fund as to the payment of dividends and the distribution of assets upon liquidation. Series A Preferred and Series B AMPS each carry one vote per share on all matters on which such shares are entitled to vote. The Series A Preferred and the Series B AMPS will, upon issuance, be fully paid and nonassessable provided that the Fund may cause its capital shares, including the Series A Preferred and the Series B AMPS, to pay directly, in advance or arrears, for charges of distribution, of the custodian or transfer, shareholder servicing or similar agent, a pro rata amount as the Fund may determine, by setting off such charges due from each shareholder from declared but unpaid dividends or distributions owed such shareholder and/or by reducing the number of shares in the account of such shareholder by that number of full and/or fractional shares which represents the outstanding amount of such charges due from such shareholder. In addition, the Series A Preferred and Series B AMPS will have no preemptive, exchange or conversion rights. The Board of Trustees may by resolution classify or reclassify any authorized but unissued capital shares of the Fund from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or terms or conditions of redemption. The Fund will not issue any class of shares senior to the Series A Preferred and/or Series B AMPS.
Rating Agency Guidelines
Upon issuance, both the Series A Preferred and the Series B AMPS will be rated "Aaa" by Moody's. In addition, the Series B AMPS will also be rated "AAA" by S&P. The Fund is required under Moody's and S&P guidelines to maintain assets having in the aggregate a discounted value at least equal to the Basic Maintenance Amount (as defined below) for its outstanding preferred shares, including any outstanding Series A Preferred or Series B AMPS, with respect to the separate guidelines Moody's and S&P has each established for determining discounted value. To the extent any particular portfolio holding does not satisfy the applicable rating agency's guidelines, all or a portion of such holding's value will not be included in the calculation of discounted value (as defined by such rating agency). The Moody's and S&P guidelines also impose certain diversification requirements and industry concentration limitations on the Fund's overall portfolio, and apply specified discounts to securities held by the Fund (except certain money market securities). The "Basic Maintenance Amount" is equal to (i) the sum of (a) the aggregate liquidation preference of the preferred shares then outstanding plus (to the extent not included in the liquidation preference of such preferred shares) an amount equal to the aggregate accumulated but unpaid dividends (whether or not earned or declared) in respect of such preferred shares, (b) the total principal of any debt (plus accrued and projected interest), (c) certain Fund expenses and (d) certain other current liabilities (excluding any unpaid dividends on the Fund's common shares) less (ii) the Fund's (a) cash and (b) assets consisting of indebtedness which (x) is to mature prior to or on the date of redemption or repurchase of the preferred shares, (y) are U.S. government obligations or evidences of indebtedness rated at least "Aaa", "P-1", "VMIG-1" or "MIG-1" by Moody's or "AAA", "SP-1+" or "A-1+" by Standard and Poor's, and (z) is held by the Fund for the payment of dividends or distributions, the amounts needed to redeem or repurchase preferred shares, or the Fund's liabilities.
If the Fund does not timely cure a failure to maintain a discounted value of its portfolio equal to the Basic Maintenance Amount in accordance with the requirements of the applicable rating agency or agencies then rating the Series A Preferred or the Series B AMPS at the request of the Fund, the Fund may, and in certain circumstances will be required to, mandatorily redeem preferred shares, including the Series A Preferred or the Series B AMPS, as described below under " -- Redemption."
The Fund may, but is not required to, adopt any modifications to the rating agency guidelines that may hereafter be established by Moody's or S&P. Failure to adopt any such modifications, however, may result in a change in the relevant rating agency's ratings or a withdrawal of such ratings altogether. In addition, any rating agency providing a rating for the Series A Preferred or the Series B AMPS at the request of the Fund may, at any time, change or withdraw any such rating. The Board of Trustees, without further action by the shareholders, may amend, alter, add to or repeal any provisions in the Fund's Statements of Preferences for the Series A Preferred and Series B AMPS, including provisions that have been adopted by the Fund pursuant to the rating agency guidelines, if the Board of Trustees determines that such amendments or modifications (i) are necessary to prevent a reduction in, or the withdrawal of, a rating of the Series A Preferred or Series B AMPS and are in the aggregate in the best interests of the holders of the Series A Preferred or Series B AMPS, as the case may be, or (ii) will not in the aggregate adversely affect the rights and preferences of the holders of Series A Preferred or Series B AMPS, provided, that in the case of clause (ii) the Fund has received advice from each applicable rating agency that such amendment or modification is not expected to adversely affect such rating agency's then-current rating of the Fund's preferred shares.
Among the modifications or amendments of the Statements of Preferences that would not be held to adversely affect the rights and preferences of the Series A Preferred or Series B AMPS would be the following:
o a modification of the definition of the maximum rate to increase the percentage amount by which the applicable LIBOR rate or treasury index rate is multiplied to determine the maximum rate or increase the spread added to the applicable LIBOR rate or treasury index rate; or
o a modification of the calculation of the adjusted value of the Fund's eligible assets or the basic maintenance amount (or of the elements and terms of each of them or the definitions of such elements or terms).
As described by Moody's and S&P, the ratings assigned to the Series A Preferred and the Series B AMPS are assessments of the capacity and willingness of the Fund to pay the obligations of each of the Series A Preferred and the Series B AMPS. The ratings on the Series A Preferred and the Series B AMPS are not recommendations to purchase, hold or sell shares of either series, inasmuch as the ratings do not comment as to market price or suitability for a particular investor. The rating agency guidelines also do not address the likelihood that an owner of Series A Preferred or Series B AMPS will be able to sell such shares on an exchange, in an auction or otherwise. The ratings are based on current information furnished to Moody's and S&P by the Fund and the Investment Adviser and information obtained from other sources. The ratings may be changed, suspended or withdrawn as a result of changes in, or the unavailability of, such information.
The rating agency guidelines will apply to the Series A Preferred and Series B AMPS, respectively, only so long as such rating agency is rating such shares at the request of the Fund. The Fund will pay fees to Moody's and S&P for rating the Series A Preferred and the Series B AMPS.
Asset Maintenance Requirements
In addition to the requirements summarized under " -- Rating Agency Guidelines" above, the Fund must also satisfy asset maintenance requirements under the 1940 Act with respect to its preferred shares. The 1940 Act requirements are summarized below.
The Fund will be required under the Statement of Preferences for each of the Series A Preferred and/or Series B AMPS to determine whether it has as of the last business day of each March, June, September and December of each year, an "asset coverage" (as defined in the 1940 Act) of at least 200% (or such higher or lower percentage as may be required at the time under the 1940 Act) with respect to all outstanding senior securities of the Fund that are stock, including any outstanding Series A Preferred and the Series B AMPS. If the Fund fails to maintain the asset coverage required under the 1940 Act on such dates and such failure is not cured within 49 days, in the case of the Series A Preferred, or 10 days, in the case of the Series B AMPS, (including the Series A Preferred or Series B AMPS) the Fund may, and in certain circumstances will be required to, mandatorily redeem preferred shares sufficient to satisfy such asset coverage. See " -- Redemption" below.
If the shares of Series A Preferred and/or Series B AMPS offered hereby had been issued and sold as of June 30, 2003, the asset coverage required under the 1940 Act immediately following such issuance and sale (after giving effect to the deduction of the underwriting discounts and estimated offering expenses for such shares of $1,650,000), would have been computed as follows:
value of Fund assets less liabilities not constituting senior securities ($154,602,405) / senior securities representing indebtedness plus liquidation preference of both classes of preferred shares ($55,000,000), expressed as a percentage = 281%.
Assuming in addition that the primary subscription of the Fund's rights offering also had been completed as of June 30, 2003 (after giving effect to the additional offering expenses for such shares estimated at $500,000), the above computation would be as follows:
value of Fund assets less liabilities not constituting senior securities ($187,877,249) / senior securities representing indebtedness plus liquidation preference of both classes of preferred shares ($50,000,000), expressed as a percentage = 342%.
We cannot assure you that the rights offering will be completed.
Dividends on the Series A Preferred
Upon issuance of the Series A Preferred (if issued), holders of shares of Series A Preferred will be entitled to receive, when, as and if declared by the Board of Trustees of the Fund out of funds legally available therefor, cumulative cash dividends, at the annual rate of [__]% (computed on the basis of a 360-day year consisting of twelve 30-day months) of the liquidation preference of $25 per share, payable quarterly on [__], [__], [__] and [__] each year or, if any such day is not a business day, the immediately succeeding business day. Such dividends will commence on [__] , 2003, and will be payable to the persons in whose names the shares of Series A Preferred are registered at the close of business on the fifth preceding business day.
Dividends on the shares of Series A Preferred will accumulate from the date on which such shares are issued.
Dividends on the Series B AMPS
General. Upon issuance of the Series B AMPS (if issued), the holders of Series B AMPS will be entitled to receive cash dividends stated at annual rates as a percentage of its $25,000 per share liquidation preference, that will vary from dividend period to dividend period. The dividend rate for the initial dividend period for any Series B AMPS offered in this prospectus will be the rate set out on the cover of this prospectus. For subsequent dividend periods, the Series B AMPS will pay dividends based on a rate set at the auction, normally held weekly, but the rates set at the auction will not exceed the maximum rate. Dividend periods generally will be seven days, and the dividend periods generally will begin on the first business day after an auction. In most instances, dividends are also paid weekly, on the business day following the end of the dividend period. The Fund, subject to some limitations, may change the length of the dividend periods, designating them as "special dividend periods," as described below.
Dividend Payments. Except as described below, the dividend payment date will be the first business day after the dividend period ends. The dividend payment dates for special dividend periods of more (or less) than seven days will be set out in the notice designating a special dividend period. See " -- Designation of Special Dividend Periods" for a discussion of payment dates for a special dividend period.
Dividends on Series B AMPS will be paid on the dividend payment date to holders of record as their names appear on the Fund's share ledger or share records on the business day next preceding the dividend payment date. If dividends are in arrears, they may be declared and paid at any time to holders of record as their names appear on the Fund's share ledger or share records on a date not more than 15 days before the payment date, as the Fund's Board of Trustees may fix.
The dividend paying agent, in accordance with its current procedures, is expected to credit in same-day funds on each dividend payment date dividends received from the Fund to the accounts of broker-dealers who act on behalf of holders of the Series B AMPS. Such broker-dealers, in turn, are expected to distribute dividend payments to the person for whom they are acting as agents. If a broker-dealer does not make dividends available to Series B AMPS holders in same-day funds, these shareholders will not have funds available until the next business day.
Dividend Rate Set at Auction. The Series B AMPS pay dividends based on a rate set at auction at which Series B AMPS may be bought and sold. The auction usually is held weekly, but may be held more or less frequently. The Bank of New York, the auction agent, reviews orders from broker-dealers on behalf of existing holders who wish to sell, hold at the auction rate, or hold only at a specified dividend rate, and on behalf of potential holders who wish to buy Series B AMPS. The auction agent then determines the lowest dividend rate that will result in all of the Series B AMPS continuing to be held. See "The Auction of Series B AMPS."
If an auction is not held because an unforeseen event, or unforeseen events cause a day that otherwise would have been an auction date not to be a business day, then the length of the then-current dividend period will be extended by seven days (or a multiple thereof if necessary because of such unforeseen event or events), the applicable rate for such period will be the applicable rate for the then-current dividend period so extended and the dividend payment date for such dividend period will be the first business day immediately succeeding the end of such period.
Determination of Dividend Rates. The Fund computes the dividends per share by multiplying the applicable rate determined at the auction by a fraction, the numerator of which normally is the number of days in such dividend period and the denominator of which is 360. This applicable rate is then multiplied by $25,000 to arrive at the dividend per share.
Maximum Rate. The dividend rate that results from an auction for the Series B AMPS will not be greater than the applicable "maximum rate." The maximum rate applicable for any standard rate period will be (as set forth in the table below) the greater of (i) the applicable percentage of the reference rate or (ii) the applicable spread plus the reference rate. The reference rate is the applicable LIBOR Rate (for a dividend period or a special dividend period of fewer than 365 days), or the applicable Treasury Index Rate (for a special dividend period of 365 days or more). The applicable percentage and applicable spread will be determined based on the lower of the credit ratings assigned to the Series B AMPS by Moody's and S&P. If Moody's and S&P or both do not make such ratings available, the rate will be determined by reference to equivalent ratings issued by a substitute rating agency.
Credit Rating for Series B AMPS
Applicable
Percentage of
Moody's S&P Reference Applicable
Credit Rating Credit Rating Rate Spread
------------- ------------- ---- ------
Aaa AAA 125% 125 bps
Aa3 to Aa1 AA- to AA+ 150% 150 bps
A3 to A1 A- to A+ 200% 200 bps
Baa3 to Baa1 BBB- to BBB+ 250% 250 bps
Below Baa3 Below BBB- 300% 300 bps
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The "Treasury Index Rate" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities having the same number of 30-day periods to maturity as the length of the applicable dividend period, determined, to the extent necessary, by linear interpolation based upon the yield for such securities having the next shorter and next longer number of 30-day periods to maturity treating all dividend periods with a length greater than the longest maturity for such securities as having a length equal to such longest maturity, in all cases based upon data set forth in the most recent weekly statistical release published by the Board of Governors of the Federal Reserve System (currently in H.15 (519)); provided, however, that if the most recent such statistical release will not have been published during the 15 days preceding the date of computation, the foregoing computations will be based upon the average of comparable data as quoted to the Fund by at least three recognized dealers in U.S. government securities selected by the Fund.
There is no minimum dividend rate in respect of any dividend period.
Effect of Failure to Pay Dividends in a Timely Manner. If the Fund fails to pay the paying agent the full amount of any dividend for the Series B AMPS in a timely manner, but the Fund cures the failure and pays any late charge before 12:00 noon, New York City time on the third business day following the date the failure occurred, no default will be deemed to have occurred and the dividend rate for the dividend period immediately following the dividend with respect to which the dividend payment default would otherwise have occurred will be the applicable rate set at the auction for such dividend period.
However, if the Fund does not effect a timely cure, the dividend rate for the Series B AMPS for such default period, and any subsequent dividend period for which such default is continuing, will be the default rate. In the event the Fund fully pays all default amounts due during a dividend period, the dividend rate for the remainder of that dividend period will be, as the case may be, the applicable rate (for the first dividend period following a dividend default) or the then-maximum rate (for any subsequent dividend period for which such default is continuing).
The default rate means 300% of the applicable LIBOR Rate for a dividend period of 364 days or fewer and 300% of the applicable Treasury Index Rate for a dividend period of longer than 364 days. Late charges are also calculated at the applicable default rate.
Designation of Special Dividend Periods. The Fund may instruct the auction agent to hold auctions more or less frequently than weekly and may designate dividend periods longer or shorter than one week. The Fund may do this if, for example, the Fund expects that short-term rates might increase or market conditions otherwise change, in an effort to optimize the effect of the Fund's leverage on holders of its common shares. The Fund does not currently expect to hold auctions less frequently than weekly or establish dividend periods longer or shorter than one week. If the Fund designates a special dividend period, changes in interest rates could affect the price received if shares of Series B AMPS are sold in the secondary market.
Any designation of a special dividend period will be effective only if (i) notice thereof will have been given as provided for in the Governing Documents, (ii) any failure to pay in a timely matter to the auction agent the full amount of any dividend on, or the redemption price of, the Series B AMPS will have been cured as provided for in the Governing Documents, (iii) the auction immediately preceding the special dividend period was not a failed auction, (iv) if the Fund will have mailed a notice of redemption with respect to Series B AMPS, the Fund will have deposited with the paying agent all funds necessary for such redemption, and (v) the Fund has confirmed that as of the auction date next preceding the first day of such special dividend period, it has assets with an aggregate discounted value at least equal to the Basic Maintenance Amount (as defined below), and the Fund has consulted with the broker-dealers for the Series B AMPS and has provided notice of such designation and a Basic Maintenance Report to each rating agency then rating the Series B AMPS at the request of the Fund.
The dividend payment date for any special dividend period will be the first business day after the end of the special dividend period. In addition, for special dividend periods of at least 91 days, dividend payment dates will occur monthly on the first business day of each calendar month and on the business day next succeeding the last day of the special dividend period.
Before the Fund designates a special dividend period: (i) at least seven business days (or two business days in the event the duration of the dividend period prior to such special dividend period is less than eight days) and not more than 30 business days before the first day of the proposed special dividend period, the Fund will issue a press release stating its intention to designate a special dividend period and inform the auction agent of the proposed special dividend period by telephonic or other means and confirm it in writing promptly thereafter and (ii) the Fund must inform the auction agent of the proposed special dividend period by 3:00 p.m., New York City time on the second business day before the first day of the proposed special dividend period.
See the SAI for more information.
Restrictions on Dividends and Other Distributions for the Series A Preferred and the Series B AMPS
So long as any Series A Preferred or Series B AMPS is outstanding, the Fund may not pay any dividend or distribution (other than a dividend or distribution paid in common shares or in options, warrants or rights to subscribe for or purchase common shares) in respect of the common shares or call for redemption, redeem, purchase or otherwise acquire for consideration any common shares (except by conversion into or exchange for shares of the Fund ranking junior to the Series A Preferred and/or Series B AMPS as to the payment of dividends and the distribution of assets upon liquidation), unless:
o the Fund has declared and paid (or provided to the relevant dividend paying agent) all cumulative dividends on the Fund's preferred shares, including the Series A Preferred and/or Series B AMPS, due on or prior to the date of such common share dividend or distribution;
o the Fund has redeemed the full number of shares of Series A Preferred and/or Series B AMPS to be redeemed pursuant to any mandatory redemption provision in the Fund's Governing Documents; and
o after paying the dividend, the Fund meets applicable asset coverage requirements described under " -- Rating Agency Guidelines" and " -- Asset Maintenance Requirements."
No full dividend will be declared or paid on the Series A Preferred or Series B AMPS for any dividend period, or part thereof, unless full cumulative dividends due through the most recent dividend payment dates therefor for all outstanding series of preferred shares of the Fund ranking on a parity with the Series A Preferred and Series B AMPS as to the payment of dividends have been or contemporaneously are declared and paid. If full cumulative dividends due have not been paid on all outstanding preferred shares of the Fund ranking on a parity with the Series A Preferred and/or Series B AMPS as to the payment of dividends, any dividends being paid on the preferred shares (including the Series A Preferred and/or Series B AMPS) will be paid as nearly pro rata as possible in proportion to the respective amounts of dividends accumulated but unpaid on each such series of preferred shares on the relevant dividend payment date.
Redemption
Mandatory Redemption Relating to Asset Coverage Requirements. The Fund may, at its option, consistent with its Governing Documents and the 1940 Act, and in certain circumstances will be required to, mandatorily redeem preferred shares (including, at its discretion, the Series A Preferred or Series B AMPS) in the event that:
o the Fund fails to maintain the asset coverage requirements specified under the 1940 Act and such failure is not cured on or before 49 days, in the case of the Series A Preferred, or 10 business days in the case of the Series B AMPS following such failure; or
o the Fund fails to maintain the asset coverage requirements as calculated in accordance with the applicable rating agency guidelines as of any monthly valuation date, and such failure is not cured on or before 10 business days after such valuation date.
The redemption price for shares of each of the Series A Preferred and Series B AMPS subject to mandatory redemption will be, respectively, $25 per share and $25,000 per share, in each case plus an amount equal to any accumulated but unpaid dividends (whether or not earned or declared) to the date fixed for redemption, plus (in the case of Series B AMPS having a dividend period of more than one year) any applicable redemption premium determined by the Board of Trustees.
The number of preferred shares that will be redeemed in the case of a mandatory redemption will equal the minimum number of outstanding preferred shares, the redemption of which, if such redemption had occurred immediately prior to the opening of business on the applicable cure date, would have resulted in the relevant asset coverage requirement having been met or, if the required asset coverage cannot be so restored, all of the preferred shares. In the event that preferred shares are redeemed due to a failure to satisfy the 1940 Act asset coverage requirements, the Fund may, but is not required to, redeem a sufficient number of preferred shares so that the Fund's assets exceed the asset coverage requirements under the 1940 Act after the redemption by 10% (that is, 220% asset coverage). In the event that preferred shares are redeemed due to a failure to satisfy applicable rating agency guidelines, the Fund may, but is not required to, redeem a sufficient number of preferred shares so that the Fund's discounted portfolio value (as determined in accordance with the applicable rating agency guidelines) after redemption exceeds the asset coverage requirements of each applicable rating agency by up to 10% (that is, 110% rating agency asset coverage). In addition, as discussed under " -- Optional Redemption" below, the Fund generally may exercise its optional redemption rights with respect to the Series B AMPS at any time.
If the Fund does not have funds legally available for the redemption of, or is otherwise unable to redeem, all the preferred shares to be redeemed on any redemption date, the Fund will redeem on such redemption date that number of shares for which it has legally available funds, or is otherwise able to redeem, from the holders whose shares are to be redeemed ratably on the basis of the redemption price of such shares, and the remainder of those shares to be redeemed will be redeemed on the earliest practicable date on which the Fund will have funds legally available for the redemption of, or is otherwise able to redeem, such shares upon written notice of redemption.
If fewer than all of the Fund's outstanding preferred shares are to be redeemed, the Fund, at its discretion and subject to the limitations of the 1940 Act and Delaware law, will select the one or more series of preferred shares from which shares will be redeemed and the amount of preferred shares to be redeemed from each such series. If less than all preferred shares of a series are to be redeemed, such redemption will be made as among the holders of that series pro rata in accordance with the respective number of shares of such series held by each such holder on the record date for such redemption (or by such other equitable method as the Fund may determine). If fewer than all the preferred shares held by any holder are to be redeemed, the notice of redemption mailed to such holder will specify the number of shares to be redeemed from such holder, which may be expressed as a percentage of shares held on the applicable record date.
Optional Redemption of the Series A Preferred. Prior to [__], the shares of Series A Preferred are not subject to optional redemption by the Fund unless such redemption is necessary, in the judgment of the Fund, to maintain the Fund's status as a regulated investment company under the Code. Commencing on [__], and thereafter, the Fund may at any time redeem shares of Series A Preferred in whole or in part for cash at a redemption price per share equal to $25 per share plus accumulated and unpaid dividends (whether or not earned or declared) to the redemption date. Such redemptions are subject to the notice requirements set forth under " -- Redemption Procedures" and the limitations of the 1940 Act and Delaware law.
Optional Redemption of the Series B AMPS. The Fund may, at its option, redeem the Series B AMPS, in whole or in part, at any time following the initial dividend period so long as the Fund has not designated a non-call period. The Fund may designate a non-call period during a dividend period of more than seven days. In the case of Series B AMPS having a dividend period of one year or less, the redemption price per share will equal $25,000 plus an amount equal to any accumulated but unpaid dividends thereon (whether or not earned or declared) to the redemption date, and in the case of Series B AMPS having a dividend period of more than one year, for the redemption price plus any redemption premium applicable during such dividend period. Such redemptions are subject to the notice requirements set forth under " -- Redemption Procedures" and the limitations of the 1940 Act and Delaware law.
Redemption Procedures. A notice of redemption with respect to an
optional redemption will be given to the holders of record of preferred shares
selected for redemption not less than 15 days (subject to NYSE requirements),
in the case of the Series A Preferred, and not less than 7 days in the case of
the Series B AMPS, nor, in both cases, more than 40 days prior to the date
fixed for redemption. Preferred shareholders may receive shorter notice in the
event of a mandatory redemption. Each notice of redemption will state (i) the
redemption date, (ii) the number or percentage of preferred shares to be
redeemed (which may be expressed as a percentage of such shares outstanding),
(iii) the CUSIP number(s) of such shares, (iv) the redemption price
(specifying the amount of accumulated dividends to be included therein), (v)
the place or places where such shares are to be redeemed, (vi) that dividends
on the shares to be redeemed will cease to accrue on such redemption date,
(vii) the provision of the Statement of Preferences under which the redemption
is being made and (viii) any conditions precedent to such redemption. No
defect in the notice of redemption or in the mailing thereof will affect the
validity of the redemption proceedings, except as required by applicable law.
The holders of Series A Preferred or Series B AMPS will not have the right to redeem their shares of the Fund at their option.
Liquidation Rights
Upon a liquidation, dissolution or winding up of the affairs of the Fund (whether voluntary or involuntary), holders of Series A Preferred or Series B AMPS then outstanding will be entitled to receive out of the assets of the Fund available for distribution to shareholders, after satisfying claims of creditors but before any distribution or payment of assets is made to holders of the common shares or any other class of shares of the Fund ranking junior to the Series A Preferred or Series B AMPS as to liquidation payments, a liquidation distribution in the amount of $25 per share, in the case of the Series A Preferred, or $25,000 per share, in the case of the Series B AMPS, in either case plus an amount equal to all unpaid dividends accrued to and including the date fixed for such distribution or payment (whether or not earned or declared by the Fund but excluding interest thereon), and such holders will be entitled to no further participation in any distribution or payment in connection with any such liquidation, dissolution or winding up. If, upon any liquidation, dissolution or winding up of the affairs of the Fund, whether voluntary or involuntary, the assets of the Fund available for distribution among the holders of all outstanding preferred shares of the Fund ranking on a parity with the Series A Preferred and/or Series B AMPS as to payment upon liquidation will be insufficient to permit the payment in full to such holders of the Series A Preferred and/or Series B AMPS and other parity preferred shares of the amounts due upon liquidation with respect to such shares, then such available assets will be distributed among the holders of the Series A Preferred, the Series B AMPS and such other parity preferred shares ratably in proportion to the respective preferential amounts to which they are entitled. Unless and until the liquidation payments due to holders of the Series A Preferred and/or Series B AMPS and such other parity preferred shares have been paid in full, no dividends or distributions will be made to holders of the common shares or any other shares of the Fund ranking junior to the Series A Preferred and/or Series B AMPS and other parity preferred shares as to liquidation.
Voting Rights
Except as otherwise stated in this prospectus, specified in the Fund's Governing Documents or resolved by the the Board of Trustees or as otherwise required by applicable law, holders of the Series A Preferred and/or Series B AMPS shall have no power to vote on any matter except matters submitted to a vote of the common shares. In any matter submitted to a vote of the holders of the common shares, each holder of the Series A Preferred and/or Series B AMPS, will be entitled to one vote per share held on each such matter and will vote together with the holders of common shares and of any other preferred shares then outstanding as a single class.
In connection with the election of the Fund's trustees, holders of the outstanding Series A Preferred, Series B AMPS and the other series of preferred shares, voting together as a single class, will be entitled at all times to elect two of the Fund's trustees, and the remaining trustees will be elected by holders of common shares and holders of the Series A Preferred, Series B AMPS and other series of preferred shares, voting together as a single class. In addition, if (i) at any time dividends on the outstanding Series A Preferred, Series B AMPS and/or any other preferred shares are unpaid in an amount equal to at least two full years' dividends thereon and sufficient cash or specified securities have not been deposited with the applicable paying agent for the payment of such accumulated dividends or (ii) at any time holders of any other series of preferred shares are entitled to elect a majority of the trustees of the Fund under the 1940 Act or the Statements of Preferences creating such shares, then the number or composition of trustees constituting the Board of Trustees will be adjusted such that, when added to the two trustees elected exclusively by the holders of the Series A Preferred, Series B AMPS and other series of preferred shares as described above, would then constitute a simple majority of the Board of Trustees as so adjusted. Such additional trustees will be elected by the holders of the Series A Preferred, Series B AMPS and the other series of preferred shares, voting together as a single class, at a special meeting of shareholders which will be called as soon as practicable and will be held not less than 10 or more than 20 days after the mailing date of the meeting notice. If the Fund fails to send such meeting notice or to call such a special meeting, the meeting may be called by any preferred shareholder on like notice. The terms of office of the persons who are trustees at the time of that election and who remain trustees following such election will continue. If the Fund thereafter pays or declares and sets apart for payment in full all dividends payable on all outstanding preferred shares for all past dividend periods or the holders of other series of preferred shares are no longer entitled to elect such additional trustees, the additional voting rights of the holders of the preferred shares as described above will cease, and the terms of office of all of the additional or replacement trustees elected by the holders of the preferred shares (but not of the trustees with respect to whose election the holders of common shares were entitled to vote or the two trustees the holders of preferred shares have the right to elect as a separate class in any event) will terminate at the earliest time permitted by law.
So long as shares of Series A Preferred or Series B AMPS are outstanding, the Fund will not, without the affirmative vote of the holders of a majority (as defined in the 1940 Act) of the preferred shares outstanding at the time (including the Series A Preferred or Series B AMPS, as applicable) and present and voting on such matter, voting separately as one class, amend, alter or repeal the provisions of the Fund's Governing Documents so as to in the aggregate adversely affect the rights and preferences of the preferred shares. Also, to the extent permitted under the 1940 Act, in the event preferred shares of more than one series are outstanding, the Fund will not effect any of the actions set forth in the preceding sentence which in the aggregate adversely affect the rights and preferences of a particular series of preferred shares (such as the Series A Preferred or Series B AMPS) differently than such rights and preferences for any other series of preferred shares without the affirmative vote of the holders of at least a majority of the preferred shares outstanding and present and voting on such matter of each series adversely affected (each such adversely affected series voting separately as a class to the extent its rights are affected differently). Unless a higher percentage is required under the Governing Documents or applicable provisions of the Delaware Statutory Trust Act or the 1940 Act, the affirmative vote of a majority of the votes entitled to be cast by holders of outstanding preferred shares (including the Series A Preferred and/or Series B AMPS), voting together as a single class, will be required to approve any plan of reorganization adversely affecting the preferred shares or any action requiring a vote of security holders under Section 13(a) of the 1940 Act, including, among other things, changes in the Fund's investment objective or changes in the investment restrictions described as fundamental policies under "Investment Objective and Policies" and "Investment Restrictions" in this prospectus and the SAI. For purposes of the preferred share voting rights described in the foregoing sentence, except as otherwise required under the 1940 Act, the phrase "vote of the holders of a majority of the outstanding preferred shares" (or any like phrase) means, in accordance with Section 2(a)(42) of the 1940 Act, the vote, at the annual or a special meeting of the shareholders of the Fund duly called (i) of 67% or more of the preferred shares present at such meeting, if the holders of more than 50% of the outstanding preferred shares are present or represented by proxy or (ii) more than 50% of the outstanding preferred shares, whichever is less. The class vote of holders of preferred shares described above in each case will be in addition to a separate vote of the requisite percentage of common shares, Series A Preferred, Series B AMPS and any other preferred shares, voting together as a single class, that may be necessary to authorize the action in question. An increase in the number of authorized preferred shares pursuant to the Governing Documents or the issuance of additional shares of any series of preferred shares pursuant to the Governing Documents shall not in and of itself be considered to adversely affect the rights and preferences of the preferred shares.
The Board of Trustees, without further action by the shareholders, may amend, alter, add to or repeal any provisions in the Fund's Statements of Preferences for the Series A Preferred and Series B AMPS, including provisions that have been adopted by the Fund pursuant to the rating agency guidelines, if the Board of Trustees determines that such amendments or modifications (i) are necessary to prevent a reduction in, or the withdrawal of, a rating of the Series A Preferred or Series B AMPS and are in the aggregate in the best interests of the holders of the Series A Preferred or Series B AMPS, as the case may be, or (ii) will not in the aggregate adversely affect the rights and preferences of the holders of Series A Preferred or Series B AMPS, provided, that in the case of clause (ii) the Fund has received advice from each applicable rating agency that such amendment or modification is not expected to adversely affect such rating agency's then-current rating of the Fund's preferred shares.
The foregoing voting provisions will not apply to any Series A Preferred or Series B AMPS that, at or prior to the time when the act with respect to which such vote otherwise would be required will be effected, have been redeemed or called for redemption and sufficient cash or cash equivalents provided to the applicable paying agent to effect such redemption. The holders of Series A Preferred and/or Series B AMPS will have no preemptive rights or rights to cumulative voting.
Limitation on Issuance of Preferred Shares
So long as any Series A Preferred or Series B AMPS is outstanding, subject to receipt of approval from Moody's and, in the case of the Series B AMPS, S&P, and subject to compliance with the Fund's investment objective, policies and restrictions, the Fund may issue and sell one of more other series of preferred shares in addition to the Series A Preferred or Series B AMPS, provided that the Fund will, immediately after giving effect to the issuance of such additional preferred shares and to its receipt and application of the proceeds thereof (including, without limitation, to the redemption of preferred shares to be redeemed out of such proceeds) have an "asset coverage" for all senior securities of the Fund which are stock, as defined in the 1940 Act, of at least 200% of the sum of the liquidation preference of the preferred shares of the Fund then outstanding and all indebtedness of the Fund constituting senior securities and no such additional preferred shares will have any preference or priority over any other preferred shares of the Fund upon the distribution of the assets of the Fund or in respect of the payment of dividends.
The Fund does not currently intend to offer additional preferred shares or senior securities representing indebtedness. However, the Fund will monitor market conditions, including, among other things, interest rates and the asset levels of the Fund, and will consider from time to time whether to offer additional preferred shares or securities representing indebtedness and may issue such additional securities if the Board of Trustees concludes that such an offering would be consistent with the Fund's Governing Documents and applicable law and in the best interest of existing common shareholders.
Repurchase of Series A Preferred and Series B AMPS
The Fund is a closed-end investment company and, as such, holders of the Series A Preferred or Series B AMPS do not and will not have the right to require the Fund to repurchase their shares. The Fund, however, may repurchase Series A Preferred or, outside of an auction, Series B AMPS when it is deemed advisable by the Board of Trustees in compliance with the requirements of the 1940 Act and regulations thereunder and other applicable requirements. Unlike a redemption of the Series A Preferred and/or the Series B AMPS, where shareholders are subject to the redemption terms, in a repurchase offer the Fund is purchasing shares on an exchange (with respect to the Series A Preferred only) or otherwise (through private transactions or tender offers ) soliciting repurchases, and shareholders may choose whether or not to sell. The Fund will not repurchase Series B AMPS at Auction. See "The Auction of Series B AMPS."
Book-Entry
Shares of Series A Preferred will initially be held in the name of Cede & Co. as nominee for DTC. The Fund will treat Cede & Co. as the holder of record of the Series A Preferred for all purposes. In accordance with the procedures of DTC, however, purchasers of Series A Preferred will be deemed the beneficial owners of shares purchased for purposes of dividends, voting and liquidation rights. Purchasers of Series A Preferred may obtain registered certificates by contacting the Transfer Agent.
Shares of Series B AMPS will initially be held by the auction agent as custodian for Cede & Co., in whose name the shares of the Series B AMPS shall be registered. The Fund will treat Cede & Co. as the holder of record of the Series B AMPS for all purposes.
THE AUCTION OF SERIES B AMPS
Summary of Auction Procedures
The following is a brief summary of the auction procedures for the Series B AMPS, which are described in more detail in the SAI. These auction procedures are complicated, and there are exceptions to these procedures. Many of the terms in this section have a special meaning. Accordingly, this description does not purport to be complete and is qualified, in its entirety, by reference to the Fund's Governing Documents, including the provisions of the Statement of Preferences establishing the Series B AMPS.
The auctions determine the dividend rate for the Series B AMPS, but each dividend rate will not be higher than the maximum rate. See "Description of the Series A Preferred and Series B AMPS -- Dividends on the Series B AMPS." If you own shares of Series B AMPS, you may instruct your broker-dealer to enter one of three kinds of order in the auction with respect to your shares: sell, bid and hold.
o If you enter a sell order, you indicate that you want to sell Series B AMPS at $25,000 per share, no matter what the next dividend period's rate will be.
o If you enter a bid (or "hold at a rate") order, which must specify a dividends rate, you indicate that you want to sell Series B AMPS only if the next dividend period's rate is less than the rate you specify.
o If you enter a hold order you indicate that you want to continue to own Series B AMPS, no matter what the next dividend period's rate will be.
You may enter different types of orders for different portions of your Series B AMPS. You may also enter an order to buy additional Series B AMPS. All orders must be for whole shares. All orders you submit are irrevocable. There is a fixed number of Series B AMPS shares, and the dividend rate likely will vary from auction to auction depending on the number of bidders, the number of shares the bidders seek to buy, the rating of the Series B AMPS and general economic conditions including current interest rates. If you own Series B AMPS and submit a bid for them higher than the then-maximum rate, your bid will be treated as a sell order. If you do not enter an order, the broker-dealer will assume that you want to continue to hold Series B AMPS, but if you fail to submit an order and the dividend period is longer than 28 days, the broker-dealer will treat your failure to submit a bid as a sell order.
If you do not then own Series B AMPS, or want to buy more shares, you may instruct a broker-dealer to enter a bid order to buy shares in an auction at $25,000 per share at or above the dividend rate you specify. If your bid for shares you do not own specifies a rate higher than the then-maximum rate, your bid will not be considered.
Broker-dealers will submit orders from existing and potential holders of Series B AMPS to the auction agent. Neither the Fund nor the auction agent will be responsible for a broker-dealer's failure to submit orders from existing or potential holders of Series B AMPS. A broker-dealer's failure to submit orders for Series B AMPS held by it or its customers will be treated in the same manner as a holder's failure to submit an order to the broker-dealer. A broker-dealer may submit orders to the auction agent for its own account. The Fund may not submit an order in any auction.
The auction agent after each auction for the Series B AMPS will pay to each broker-dealer, from funds provided by the Fund, a service charge equal to, in the case of any auction immediately preceding a dividend period of less than 365 days, the product of (i) a fraction, the numerator of which is the number of days in such dividend period and the denominator of which is 360, times (ii) 1/4 of 1%, times (iii) $25,000, times (iv) the aggregate number of Series B AMPS shares placed by such broker-dealer at such auction or, in the case of any auction immediately preceding a dividend period of one year or longer, a percentage of the purchase price of the Series B AMPS placed by the broker-dealers at the auction agreed to by the Fund and the broker-dealers.
If the number of Series B AMPS shares subject to bid orders by potential holders with a dividend rate equal to or lower than the then-maximum rate is at least equal to the number of Series B AMPS shares subject to sell orders, then the dividend rate for the next dividend period will be the lowest rate submitted which, taking into account that rate and all lower rates submitted in order from existing and potential holders, would result in existing and potential holders owning all the Series B AMPS available for purchase in the auction.
If the number of Series B AMPS shares subject to bid orders by potential holders with a dividend rate equal to or lower than the then-maximum rate is less than the number of Series B AMPS shares subject to sell orders, then the auction is considered to be a failed auction, and the dividend rate will be the maximum rate. In that event, existing holders that have submitted sell orders (or are treated as having submitted sell orders) may not be able to sell any or all of the Series B AMPS for which they submitted sell orders.
The auction agent will not consider a bid above the then-maximum rate. The purpose of the maximum rate is to place an upper limit on dividends with respect to the Series B AMPS and in so doing to help protect the earnings available to pay dividends on common shares, and to serve as the dividend rate in the event of a failed auction (that is, an auction where there are more Series B AMPS offered for sale than there are buyers for those shares).
If broker-dealers submit or are deemed to submit hold orders for all outstanding Series B AMPS, the auction is considered an "all hold" auction and the dividend rate for the next dividend period will be the "all hold rate," which is 90% of the reference rate, as determined in accordance with procedures set forth in the Statement of Preferences establishing the Series B AMPS. See "Description of the Series A Preferred and Series B AMPS -- Dividends on the Series B AMPS -- Maximum Rate."
The auction procedures include a pro rata allocation of Series B AMPS shares for purchase and sale. This allocation process may result in an existing holder continuing to hold or selling, or a potential holder buying, fewer shares than the number of Series B AMPS shares in its order. If this happens, broker-dealers will be required to make appropriate pro rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next business day (which also is a dividend payment date) after the auction date through DTC. Purchasers will pay for their Series B AMPS through broker-dealers in same-day funds to DTC against delivery to the broker-dealers. DTC will make payment to the sellers' broker-dealers in accordance with its normal procedures, which require broker-dealers to make payment against delivery in same-day funds. As used in this prospectus, a business day is a day on which the NYSE is open for trading, and which is not a Saturday, Sunday or any other day on which banks in New York City are authorized or obligated by law to close.
The first auction for Series B AMPS will be held on [__], 2003, the business day preceding the dividend payment date for the initial dividend period. Thereafter, except during special dividend periods, auctions for Series B AMPS normally will be held every Tuesday (or the next preceding business day if Tuesday is a holiday), and each subsequent dividend period for the Series B AMPS normally will begin on the following Wednesday.
If an auction is not held because an unforeseen event or unforeseen events cause a day that otherwise would have been an auction date not to be a business day, then the length of the then-current dividend period will be extended by seven days (or a multiple thereof if necessary because of such unforeseen event or events), the applicable rate for such period will be the applicable rate for the then-current dividend period so extended and the dividend payment date for such dividend period will be the first business day immediately succeeding the end of such period.
The following is a simplified example of how a typical auction works. Assume that the Fund has 1,000 outstanding Series B AMPS shares and three current holders. The three current holders and three potential holders submit orders through broker-dealers at the auction:
Current Holder A Owns 500 shares, wants to sell all Bid order at 1.6% rate for all 500
500 shares if auction rate is less shares
than 1.6%
Current Holder B Owns 300 shares, wants to hold Hold order - will take the auction
rate
Current Holder C Owns 200 shares, wants to sell all Bid order at 1.4% rate for all 200
200 shares if auction rate is less shares
than 1.4%
Potential Holder D Wants to buy 200 shares Places order to buy at or above
1.5%
Potential Holder E Wants to buy 300 shares Places order to buy at or above
1.4%
Potential Holder F Wants to buy 200 shares Places order to buy at or above
1.6%
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The lowest dividend rate that will result in all 1,000 Series B AMPS shares continuing to be held is 1.5% (the offer by D). Therefore, the dividend rate will be 1.5%. Current holders B and C will continue to own their shares. Current holder A will sell its shares because A's dividend rate bid was higher than the dividend rate. Potential holder D will buy 200 shares and potential holder E will buy 300 shares because their bid rates were at or below the dividend rate. Potential holder F will not buy any shares because its bid rate was above the dividend rate.
Secondary Market Trading and Transfer of Series B AMPS
The underwriters are not required to make a market in the Series B AMPS. The broker-dealers (including the underwriters) may maintain a secondary trading market for outside of auctions, but they are not required to do so. There can be no assurance that a secondary trading market for the Series B AMPS will develop or, if it does develop, that it will provide owners with liquidity of investment. The Series B AMPS will not be registered on any stock exchange or on the NASDAQ market. Investors who purchase Series B AMPS in an auction for a special dividend period should note that because the dividend rate on such shares will be fixed for the length of that dividend period, the value of such shares may fluctuate in response to the changes in interest rates, and may be more or less than their original cost if sold on the open market in advance of the next auction thereof, depending on market conditions.
You may sell, transfer, or otherwise dispose of the Series B AMPS only in whole shares and only pursuant to a bid or sell order placed with the auction agent in accordance with the auction procedures, to the Fund or its affiliates or to or through a broker-dealer that has been selected by the Fund or to such other persons as may be permitted by the Fund. However, if you hold your Series B AMPS in the name of a broker-dealer, a sale or transfer of your Series B AMPS to that broker-dealer, or to another customer of that broker-dealer, will not be considered a sale or transfer for purposes of the foregoing if the shares remain in the name of the broker-dealer immediately after your transaction. In addition, in the case of all transfers other than through an auction, the broker-dealer (or other person, if the Fund permits) receiving the transfer must advise the auction agent of the transfer.
Further description of the auction procedures can be found in the
SAI.
DESCRIPTION OF CAPITAL SHARES AND OTHER SECURITIES
Common Shares
The Fund is authorized to issue an unlimited number of shares of beneficial interest, par value $.001 per share, in multiple classes and series thereof as determined from time to time by the Board of Trustees. The Board of Trustees of the Fund has authorized issuance of an unlimited number of shares of two classes, the common shares and preferred shares. Each share within a particular class or series thereof has equal voting, dividend, distribution and liquidation rights. Common shares are not redeemable and have no preemptive, conversion or cumulative voting rights.
The common shares are listed and traded on the NYSE under the symbol "GUT." The average weekly trading volume of the common shares on the NYSE for the 12 months ended December 31, 2002 was 151,271 shares. The Fund's common shares have traded in the market at both a premium to and a discount from net asset value. Since the beginning of 2001, the Fund's common shares have traded at a premium to net asset value. There can be no assurance, however, that the Fund's common shares will continue to do so in the future.
The Fund is authorized, subject to maintaining required asset coverage on its preferred shares, to repurchase its common shares in the open market when the common shares are trading at a discount of 10% or more (or such other percentage as the Fund's Board of Trustees may determine from time to time) from net asset value. Such repurchases are subject to certain notice and other requirements, including those set forth in Rule 23c-1 under the 1940 Act.
Shareholders whose common shares are registered in their own name will have all distributions reinvested pursuant to the Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan. For a more detailed discussion of the Fund's reinvestment plan, see "Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan" in the SAI.
Preferred Shares
Currently, 2,005,000 of the Fund's shares have been classified by the Board of Trustees as preferred shares, par value $.001 per share. The terms of such preferred shares may be fixed by the Board of Trustees and would materially limit and/or qualify the rights of the holders of the Fund's common shares. For a description of these terms and limitations, with respect to liquidation rights, dividends, the rights of holders of the Fund's common shares to receive the monthly distributions, and selection of trustees to the board of trustees, see "Description of the Series A Preferred and Series B AMPS." As of June 30, 2003, the Fund had no preferred shares outstanding.
The following table shows the number of shares authorized, their classification and the shares outstanding for each class of authorized shares of the Fund as of June 30, 2003.
Amount Held by
Company or for
Title of Class Amount Authorized its Own Account Amount Outstanding
Common Shares............ unlimited none 15,282,735
--------------------------------- ------------------------------- ----------------------------
Preferred Shares......... unlimited** none 0*
--------------------------------- ------------------------------- ----------------------------
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* Does not include the Series A Preferred or Series B AMPS being offered pursuant to this prospectus. ** Of these authorized shares, 2,000,000 are classified as [_]% Series A Cumulative Preferred Shares and 5,000 are classified as Series B Auction Market Preferred Shares.
TAXATION
The following discussion is a brief summary of certain U.S. federal income tax considerations affecting the Fund and its shareholders. The discussion reflects applicable tax laws of the United States as of the date of this prospectus, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (the "IRS") retroactively or prospectively. No attempt is made to present a detailed explanation of all U.S. federal, state, local and foreign tax concerns affecting the Fund and its shareholders (including shareholders owning large positions in the Fund), and the discussion set forth herein does not constitute tax advice. Investors are urged to consult their own tax advisers to determine the tax consequences to them of investing in the Fund.
Taxation of the Fund
The Fund has elected to be treated and has qualified as, and intends to continue to qualify as, a regulated investment company under Subchapter M of the Code. Accordingly, the Fund must, among other things, (i) derive in each taxable year at least 90% of its gross income (including tax-exempt interest) from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including but not limited to gain from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies; and (ii) diversify its holdings so that, at the end of each quarter of each taxable year (a) at least 50% of the market value of the Fund's total assets is represented by cash and cash items, U.S. government securities, the securities of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's total assets and not more than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the market value of the Fund's total assets is invested in the securities of any issuer (other than U.S. government securities and the securities of other regulated investment companies) or of any two or more issuers that the Fund controls and that are determined to be engaged in the same business or similar or related trades or businesses.
As a regulated investment company, the Fund generally is not subject to U.S. federal income tax on income and gains that it distributes each taxable year to shareholders, if it distributes at least 90% of the sum of the Fund's (i) investment company taxable income (which includes, among other items, dividends, interest and the excess of any net short-term capital gains over net long-term capital losses and other taxable income other than any net capital gain (as defined below) reduced by deductible expenses) determined without regard to the deduction for dividends paid and (ii) its net tax-exempt interest (the excess of its gross tax-exempt interest over certain disallowed deductions). The Fund intends to distribute at least annually substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, the Fund must distribute during each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (ii) 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made to use the Fund's fiscal year), and (iii) certain undistributed amounts from previous years on which the Fund paid no U.S. federal income tax. While the Fund intends to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund's taxable income and capital gains will be distributed to avoid entirely the imposition of the tax. In that event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirement.
If for any taxable year the Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable to the shareholders as ordinary dividends to the extent of the Fund's current and accumulated earnings and profits.
Taxation of Shareholders
Distributions paid to you by the Fund from its net investment income or from an excess of net short-term capital gains over net long-term capital losses (together referred to hereinafter as "ordinary income dividends") are generally taxable to you as ordinary income to the extent of the Fund's earning and profits. Such distributions (if designated by the Fund) may, however, qualify (provided holding periods and other requirements are met) (i) for the dividends received deduction in the case of corporate shareholders to the extent that the Fund's income consists of dividend income from U.S. corporations, and (ii) under the recently enacted Jobs and Growth Tax Relief Reconciliation Act of 2003 (effective for taxable years after December 31, 2002 through December 31, 2008) ("2003 Tax Act"), as qualified dividend income eligible for the reduced maximum rate to individuals of generally 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain foreign corporations (e.g., generally, foreign corporations incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or the stock of which is readily tradable on an established securities market in the United States). Distributions made to you from an excess of net long-term capital gains over net short-term capital losses ("capital gain dividends"), including capital gain dividends credited to you but retained by the Fund, are taxable to you as long-term capital gains if they have been properly designated by the Fund, regardless of the length of time you have owned Fund shares. Under the 2003 Tax Act, the maximum tax rate on net long-term capital gain of individuals is reduced generally from 20% to 15% (5% for individuals in lower brackets) for such gain realized after May 6, 2003 and before January 1, 2009. Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of your shares and, after such adjusted tax basis is reduced to zero, will constitute capital gains to you (assuming the shares are held as a capital asset). Generally, not later than 60 days after the close of its taxable year, the Fund will provide you with a written notice designating the amount of any qualified dividend income or capital gain dividends and other distributions.
The sale or other disposition of shares of the Fund will generally result in capital gain or loss to you, and will be long-term capital gain or loss if the shares have been held for more than one year at the time of sale. Any loss upon the sale or exchange of Fund shares held for six months or less will be treated as long-term capital loss to the extent of any capital gain dividends received (including amounts credited as an undistributed capital gain dividend) by you. A loss realized on a sale or exchange of shares of the Fund will be disallowed if other substantially identical Fund shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Present law taxes both long-term and short-term capital gains of corporations at the rates applicable to ordinary income. For non-corporate taxpayers, under the 2003 Tax Act, short-term capital gains will currently be taxed at the maximum rate of 35% applicable to ordinary income while long-term capital gains generally will be taxed at a maximum rate of 15%.
Dividends and other taxable distributions are taxable to you even though they are reinvested in additional shares of the Fund. If the Fund pays you a dividend in January that was declared in the previous October, November or December to shareholders of record on a specified date in one of such months, then such dividend will be treated for tax purposes as being paid by the Fund and received by you on December 31 of the year in which the dividend was declared.
The Fund is required in certain circumstances to backup withhold on taxable dividends and certain other payments paid to non-corporate holders of the Fund's shares who do not furnish the Fund with their correct taxpayer identification number (in the case of individuals, their social security number) and certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to you may be refunded or credited against your U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.
Based in part on a lack of present intention on the part of the Fund to voluntarily redeem the Series B AMPS at any time in the future, the Fund intends to take the position that under present law the Series B AMPS will constitute stock, rather than debt of the Fund. It is possible, however, that the IRS could take a contrary position asserting, for example, that the Series B AMPS constitutes debt of the Fund. If that position were upheld, distributions on the Series B AMPS would be considered interest, taxable as ordinary income regardless of the taxable income of the Fund. The Fund believes this position, if asserted, would be unlikely to prevail.
The foregoing is a general and abbreviated summary of the provisions of the Code and the Treasury regulations in effect as they directly govern the taxation of the Fund and its shareholders. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive. A more complete discussion of the tax rules applicable to the Fund and its shareholders can be found in the Statement of Additional Information that is incorporated by reference into this prospectus. Shareholders are urged to consult their tax advisers regarding specific questions as to U.S. federal, foreign, state, local income or other taxes.
ANTI-TAKEOVER PROVISIONS OF THE FUND'S GOVERNING DOCUMENTS
The Fund presently has provisions in its Agreement and Declaration of Trust and By-Laws (together, its "Governing Documents") which could have the effect of limiting, in each case, (i) the ability of other entities or persons to acquire control of the Fund, (ii) the Fund's freedom to engage in certain transactions, or (iii) the ability of the Fund's trustees or shareholders to amend the Governing Documents or effectuate changes in the Fund's management. These provisions of the Governing Documents of the Fund may be regarded as "anti-takeover" provisions. The Board of Trustees of the Fund is divided into three classes, each having a term of no more than three years (except, to ensure that the term of a class of the Fund's trustees expires each year, one class of the Fund's trustees will serve an initial one-year term and three-year terms thereafter and another class of its trustees will serve an initial two-year term and three-year terms thereafter). Each year the term of one class of trustees will expire. Accordingly, only those trustees in one class may be changed in any one year, and it would require a minimum of two years to change a majority of the Board of Trustees. Such system of electing trustees may have the effect of maintaining the continuity of management and, thus, make it more difficult for the shareholders of the Fund to change the majority of trustees. See "Trustees and Officers." A trustee of the Fund may be removed with or without cause by two-thirds of the remaining trustees and, without cause, by 66 2/3% of the votes entitled to be cast for the election of such trustees. Special voting requirements of 75% of the outstanding voting shares (together with a separate vote by the holders of any preferred shares outstanding) apply to mergers into or a sale of all or substantially all of the Fund's assets and conversion of the Fund into an open-end fund. In addition, 80% of the holders of the outstanding voting securities of the Fund voting as a class is generally required in order to authorize any of the following transactions:
o merger or consolidation of the Fund with or into any other corporation;
o issuance of any securities of the Fund to any person or entity for cash;
o sale, lease or exchange of all or any substantial part of the assets of the Fund to any entity or person (except assets having an aggregate fair market value of less than $1,000,000);
o sale, lease or exchange to the Fund, in exchange for securities of the Fund, of any assets of any entity or person (except assets having an aggregate fair market value of less than $1,000,000); or
o the purchase of the Fund's common shares by the Fund from any other person or entity;
if such corporation, person or entity is directly, or indirectly through affiliates, the beneficial owner of more than 5% of the outstanding shares of the Fund. However, such vote would not be required when, under certain conditions, the Board of Trustees approves the transaction. Reference is made to the Governing Documents of the Fund, on file with the SEC, for the full text of these provisions.
The provisions of the Governing Documents described above could have the effect of depriving the owners of shares in the Fund of opportunities to sell their shares at a premium over prevailing market prices, by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a principal shareholder.
The Governing Documents of the Fund are on file with the SEC. For the full text of these provisions see "Additional Information."
CUSTODIAN, TRANSFER AGENT,
AUCTION AGENT AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company (the "Custodian"), located at 150 Royall Street, Canton, MA 02021, serves as the custodian of the Fund's assets pursuant to a custody agreement. Under the custody agreement, the Custodian holds the Fund's assets in compliance with the 1940 Act. For its services, the Custodian will receive a monthly fee based upon, among other things, the average value of the total assets of the Fund, plus certain charges for securities transactions.
EquiServe Trust Company, N.A., located at P.O. Box 43025, Providence, RI 02940-3025, serves as the Fund's dividend disbursing agent, as agent under the Fund's automatic dividend reinvestment and voluntary cash purchase plan and as transfer agent and registrar for the common shares of the Fund.
Series A Preferred. EquiServe will also serve as the Fund's transfer agent, registrar, dividend paying agent and redemption agent with respect to the Series A Preferred.
Series B AMPS. The Bank of New York, located at 100 Church Street, New York, NY 10286, will serve as the Fund's auction agent, transfer agent, registrar, dividend paying agent and redemption agent with respect to the Series B AMPS.
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement dated [ ], 2003, each underwriter named below has severally agreed to purchase, and the Fund has agreed to sell to such underwriters, the number of preferred shares set forth opposite the name of such underwriter.
Number of Series A Number of Series B
Underwriter Preferred Shares AMPS
----------- ---------------- ------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ................
Gabelli & Company, Inc.................
Total.................. ------------------- ------------------
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The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to the approval of certain legal matters by counsel and to certain other conditions. The underwriters are obligated to purchase all of the Series A Preferred and Series B AMPS, as applicable, if they purchase any such shares. In the underwriting agreement, the Fund and the Investment Adviser have agreed to indemnify the underwriters against certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, or to contribute to payments the underwriters may be required to make for any of those liabilities.
The expenses of the offering are estimated at approximately $462,500 and are payable by the Fund.
Offering of the Series A Preferred
The underwriters propose to initially offer some of the Series A Preferred shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the Series A Preferred shares to certain dealers at the public offering price less a concession not in excess of $[ ] per Series A Preferred share. The sales load the Fund will pay of $[ ] per Series A Preferred share is equal to [ ]% of the initial offering price. The underwriters may allow, and the dealers may reallow, a discount not in excess of $[ ] per Series A Preferred share on sales to other dealers. After the initial public offering, the public offering price, concession and discount may be changed. Investors must pay for any Series A Preferred Shares purchased in the initial public offering on or before [__], 2003.
Prior to the offering, there has been no public market for the Series A Preferred. Application has been made to list the Series A Preferred on the New York Stock Exchange. However, during an initial period that is not expected to exceed 30 days after the date of this prospectus, the Series A Preferred will not be listed on any securities exchange. During such period, the underwriters intend to make a market in the Series A Preferred; however, they have no obligation to do so. Consequently, an investment in the Series A Preferred may be illiquid during such period.
The underwriters may purchase and sell the Series A Preferred in the open market. These transactions may include short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the underwriters have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of the shares or preventing or retarding a decline in the market price of the Series A Preferred. As a result, the price of the Series A Preferred may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Series A Preferred. The underwriters do not make any representation that they will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Offering of Series B AMPS
The underwriters propose to initially offer some of the Series B AMPS directly to the public at the public offering prices set forth on the cover page of this prospectus and some of the Series B AMPS to certain dealers at the public offering price less a concession not in excess of $[_] per Series B AMPS share. The underwriting discount the Fund will pay of $[_] per Series B AMPS share is equal to [_]% of the initial offering price. After the initial public offering, the public offering price and concession may be changed. Investors must pay for any Series B AMPS purchased in the initial public offering on or before [__], 2003.
Provisions of Other Services to the Fund
The Fund anticipates that the underwriters may from time to time act as brokers or, after they have ceased to be underwriters, dealers in executing the Fund's portfolio transactions and that the underwriters, or their affiliates, may act as a counterparty in connection with the interest rate transactions described under "How the Fund Manages Risk - Interest Rate Transaction" after they have ceased to be underwriters. The underwriters are active underwriters of, and dealers in, securities and act as market markers in a number of such securities, and therefore can be expected to engage in portfolio transactions with the Fund. The Fund anticipates that the underwriters or their respective affiliates may, from time to time, act in auctions as broker-dealers and receive fees as set forth under "The Auction of the Series B AMPS" and in the SAI.
The principal business address of Merrill Lynch, Pierce, Fenner & Smith Incorporated is 4 World Financial Center, New York, New York 10080. The principal business address of Gabelli & Company, Inc. is One Corporate Center, Rye, New York 10580.
Gabelli & Company, Inc. is a wholly-owned subsidiary of Gabelli Securities, Inc., which is a majority-owned subsidiary of the parent company of the Investment Adviser which is, in turn, indirectly majority-owned by Mario J. Gabelli. As a result of these relationships, Mr. Gabelli, the Fund's President and Chief Investment Officer, may be deemed to be a "controlling person" of Gabelli & Company, Inc.
LEGAL MATTERS
Certain legal matters will be passed on by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, special counsel to the Fund in connection with the offering of the Series A Preferred and/or Series B AMPS, and by Simpson Thacher & Bartlett LLP, counsel to the underwriters.
EXPERTS
The audited financial statements of the Fund as of December 31, 2002 have been incorporated by reference into the SAI in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. The report of PricewaterhouseCoopers LLP is included in the SAI. PricewaterhouseCoopers LLP is located at 1177 Avenue of the Americas, New York, New York 10036.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the 1940 Act and in accordance therewith files reports and other information with the SEC. Reports, proxy statements and other information filed by the Fund with the SEC pursuant to the informational requirements of such Acts can be inspected and copied at the public reference facilities maintained by the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC maintains a web site at http://www.sec.gov containing reports, proxy and information statements and other information regarding registrants, including the Fund, that file electronically with the SEC.
The Fund's common shares are listed on the NYSE, and reports, proxy statements and other information concerning the Fund and filed with the SEC by the Fund can be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
This prospectus constitutes part of a Registration Statement filed by the Fund with the SEC under the Securities Act of 1933, as amended, and the 1940 Act. This prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the Registration Statement and related exhibits for further information with respect to the Fund and the Series A Preferred and Series B AMPS offered hereby. Any statements contained herein concerning the provisions of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such reference. The complete Registration Statement may be obtained from the SEC upon payment of the fee prescribed by its rules and regulations or free of charge through the SEC's web site (http://www.sec.gov).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Fund to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, those listed under "Risk Factors and Special Considerations" and elsewhere in this prospectus. As a result of the foregoing and other factors, no assurance can be given as to the future results, levels of activity or achievements, and neither the Fund nor any other person assumes responsibility for the accuracy and completeness of such statements.
TABLE OF CONTENTS OF SAI
An SAI dated as of [__], 2003, has been filed with the Securities and Exchange Commission and is incorporated by reference in this prospectus. An SAI may be obtained without charge by writing to the Fund at its address at One Corporate Center, Rye, New York 10580-1422 or by calling the Fund toll-free at (800) GABELLI (422-3554). The Table of Contents of the SAI is as follows:
PAGE
THE FUND .................................................. B-
INVESTMENT OBJECTIVE AND POLICIES ......................... B-
INVESTMENT RESTRICTIONS.................................... B-
MANAGEMENT OF THE FUND..................................... B-
PORTFOLIO TRANSACTIONS .................................... B-
REPURCHASE OF COMMON SHARES................................ B-
PORTFOLIO TURNOVER ........................................ B-
AUTOMATIC DIVIDEND REINVESTMENT AND
VOLUNTARY CASH PURCHASE PLAN............................. B-
TAXATION .................................................. B-
ADDITIONAL INFORMATION CONCERNING
AUCTIONS FOR SERIES B AMPS ............................. B-
ADDITIONAL INFORMATION CONCERNING THE SERIES
A PREFERRED AND SERIES B AMPS .......................... B-
MOODY'S AND S&P GUIDELINES ................................ B-
NET ASSET VALUE............................................ B-
BENEFICIAL OWNERS.......................................... B-
GENERAL INFORMATION........................................ B-
FINANCIAL STATEMENTS....................................... B-
GLOSSARY. . . . . . . . .. . . . . . . . . . . . . . .. . . A-
No person has been authorized to give any information or to make
any representations in connection with this offering other than those
contained in this prospectus in connection with the offer contained herein,
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and, if given or made, such other information or representations must not be relied upon as having been authorized by the Fund, the Investment Adviser or the underwriters. Neither the delivery of this prospectus nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the Fund since the date hereof or that the information contained herein is correct as of any time subsequent to its date. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities to which it relates. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy such securities in any circumstance in which such an offer or solicitation is unlawful.
APPENDIX A
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements present
that make the long-term risk appear somewhat larger than in Aaa
Securities.
A Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
Baa Bonds that are rated Baa are considered as medium-grade
obligations i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
B Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small. Moody's applies numerical
modifiers (1, 2, and 3) with respect to the bonds rated Aa
through B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that
the company ranks in the lower end of its generic rating
category.
Caa Bonds that are rated Caa are of poor standing. These issues may
be in default or there may be present elements of danger with
respect to principal or interest.
Ca Bonds that are rated Ca represent obligations that are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C Bonds that are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
AAA This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and
repay principal.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small
degree.
A Principal and interest payments on bonds in this category are
regarded as safe. Debt rated A has a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories.
BBB This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
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Speculative Grade
Debt rated BB, CCC, CC and C are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation, and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. Debt rated C 1 is reserved for income bonds on which no interest is being paid and debt rated D is in payment default.
In July 1994, S&P initiated an "r" symbol to its ratings. The "r" symbol is attached to derivatives, hybrids and certain other obligations that S&P believes may experience high variability in expected returns due to noncredit risks created by the terms of the obligations.
AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major categories.
"NR" indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.
[Gabelli Logo]
$[__]
THE GABELLI UTILITY TRUST
[__] Shares, [__]% Series A Cumulative Preferred Shares
(Liquidation Preference $25 per Share)
[__] Shares, Series B Auction Market Preferred Shares ("AMPS")
(Liquidation Preference $25,000 per Share)
Merrill Lynch & Co.
Gabelli & Company, Inc.
____, 2003
[flag]
The information in this statement of additional information is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This statement of additional information is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated [__], 2003
STATEMENT OF ADDITIONAL INFORMATION
The Gabelli Utility Trust (the "Fund") is a non-diversified, closed-end management investment company that seeks long-term growth of capital and income by investing primarily in a portfolio of equity securities selected by Gabelli Funds, LLC, the investment adviser to the Fund (the "Investment Adviser"). It is the policy of the Fund to invest at least 80% of its total assets in common stock and other debt or equity securities of foreign and domestic companies involved to a substantial extent (e.g., at least 50% of the assets, gross income or net profits of a company is committed to or derived from) in providing products, services or equipment for (i) the generation or distribution of electricity, gas and water and (ii) telecommunications services or infrastructure operations, such as airports, toll roads and municipal services.
This Statement of Additional Information ("SAI") is not a prospectus, but should be read in conjunction with the Prospectus for the Fund dated [__], 2003 (the "Prospectus"). Investors should obtain and read the Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained without charge, by calling the Fund at 1-800-GABELLI (1-800-422-3554) or (914) 921-5070. This SAI incorporates by reference the entire Prospectus.
The Prospectus and this SAI omit certain of the information contained in the registration statement filed with the Securities and Exchange Commission, Washington, D.C. The registration statement may be obtained from the Securities and Exchange Commission (the "SEC") upon payment of the fee prescribed, or inspected at the SEC's office or via its website (www.sec.gov) at no charge.
Each capitalized term used but not defined in this SAI has the meaning ascribed to it, as the case may be, in the Prospectus or in the glossary of this SAI.
This Statement of Additional Information is dated [__], 2003.
TABLE OF CONTENTS
Page
THE FUND ..............................................................B-3
INVESTMENT OBJECTIVE AND POLICIES........................................B-3
INVESTMENT RESTRICTIONS.................................................B-14
MANAGEMENT OF THE FUND..................................................B-15
PORTFOLIO TRANSACTIONS..................................................B-23
REPURCHASE OF COMMON SHARES.............................................B-24
PORTFOLIO TURNOVER......................................................B-24
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN.............................B-24
TAXATION .............................................................B-25
ADDITIONAL INFORMATION CONCERNING AUCTIONS
FOR SERIES B AMPS............................................B-30
ADDITIONAL INFORMATION CONCERNING
THE SERIES A PREFERRED AND SERIES B AMPS.....................B-37
MOODY'S AND S&P GUIDELINES..............................................B-43
NET ASSET VALUE.........................................................B-52
BENEFICIAL OWNERS.......................................................B-53
GENERAL INFORMATION.....................................................B-54
FINANCIAL STATEMENTS....................................................B-56
GLOSSARY ..............................................................A-1
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THE FUND
The Fund was formed in Delaware on February 25, 1999, and is a non-diversified, closed-end management investment company registered under the 1940 Act. The Fund's investment operations commenced on July 9, 1999. The Fund's Common Shares are traded on the New York Stock Exchange under the symbol "GUT."
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The Fund's investment objective is long-term growth of capital and income. Under normal market conditions, the Fund will invest at least 80% of its total assets in common stock and other debt or equity securities of foreign and domestic companies involved to a substantial extent (e.g., at least 50% of the assets, gross income or net profits of a company is committed to or derived from) in providing products, services or equipment for (i) the generation or distribution of electricity, gas and water and (ii) telecommunications services or infrastructure operations, such as airports, toll roads and municipal services. See "Investment Objective and Policies" in the Prospectus.
Investment Practices
Securities Subject to Reorganization. The Fund may invest without limit in securities for which a tender or exchange offer has been made or announced and in securities of companies for which a merger, consolidation, liquidation or reorganization proposal has been announced if, in the judgment of the Investment Adviser, there is a reasonable prospect of high total return significantly greater than the brokerage and other transaction expenses involved.
In general, securities which are the subject of such an offer or proposal sell at a premium to their historic market price immediately prior to the announcement of the offer or may also discount what the stated or appraised value of the security would be if the contemplated transaction were approved or consummated. Such investments may be advantageous when the discount significantly overstates the risk of the contingencies involved; significantly undervalues the securities, assets or cash to be received by shareholders of the prospective portfolio company as a result of the contemplated transaction; or fails adequately to recognize the possibility that the offer or proposal may be replaced or superseded by an offer or proposal of greater value. The evaluation of such contingencies requires unusually broad knowledge and experience on the part of the Investment Adviser which must appraise not only the value of the issuer and its component businesses as well as the assets or securities to be received as a result of the contemplated transaction but also the financial resources and business motivation of the offer and/or the dynamics and business climate when the offer or proposal is in process. Since such investments are ordinarily short term in nature, they will tend to increase the turnover ratio of the Fund, thereby increasing its brokerage and other transaction expenses. The Investment Adviser intends to select investments of the type described which, in its view, have a reasonable prospect of capital appreciation which is significant in relation to both risk involved and the potential of available alternative investments.
Temporary Defensive Investments. Although under normal market conditions at least 80% of the Fund's assets will consist of common stock and other debt or equity securities of foreign and domestic companies involved in the utility industry, when a temporary defensive posture is believed by the Investment Adviser to be warranted ("temporary defensive periods"), the Fund may hold without limitation cash or invest its assets in money market instruments and repurchase agreements in respect of those instruments. The money market instruments in which the Fund may invest are U.S. Government Obligations; commercial paper rated A-1 or higher by S&P or Prime-1 by Moody's; and certificates of deposit and bankers' acceptances issued by domestic branches of U.S. banks that are members of the Federal Deposit Insurance Corporation. For a description of such ratings, see Appendix A to the Prospectus. The Fund may also invest during temporary defensive periods to the extent permitted by applicable law in shares of money market mutual funds that invest primarily in U.S. Government Obligations and repurchase agreements in respect of those securities. Under current law, in the absence of an exemptive order, such funds will not be affiliated with the Investment Adviser. Money market mutual funds are investment companies and the investments by the Fund in those companies are subject to certain other limitations. See "Investment Restrictions." As a shareholder in a mutual fund, the Fund will bear its ratable share of the fund's expenses, including management fees, and will remain subject to payment of the fees to the Investment Adviser with respect to assets so invested.
Lower Rated Securities. The Fund may invest up to 25% of its total assets in fixed-income securities rated in the lower rating categories of recognized statistical rating agencies, such as securities rated "CCC" or lower by S&P or "Caa" or lower by Moody's, or non-rated securities of comparable quality. These debt securities are predominantly speculative and involve major risk exposure to adverse conditions. Debt securities that are not rated or 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."
Generally, such lower rated securities and unrated securities of comparable quality offer a higher current yield than is offered by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of the rating organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. The market values of certain of these securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher quality bonds. In addition, such lower rated securities and comparable unrated securities generally present a higher degree of credit risk. The risk of loss due to default by these issuers is significantly greater because such lower rated securities and unrated securities of comparable quality generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness. In light of these risks, the 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 securities in lower rated categories is more volatile than that of higher quality securities, and the markets in which such lower rated or unrated securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Moreover, the lack of a liquid trading market may restrict the availability of securities for the Fund to purchase and may also have the effect of limiting the ability of the Fund to sell securities at their fair market value to respond to changes in the economy or the financial markets.
Lower-rated debt obligations also present risks based on payment expectations. If an issuer calls the obligation for redemption (often a feature of fixed income securities), the Fund may have to replace the security with a lower yielding security, resulting in a decreased return for investors. Also, as the principal value of bonds moves inversely with movements in interest rates, in the event of rising interest rates the value of the securities held by the Fund may decline proportionately more than a portfolio consisting of higher rated securities. Investments in zero coupon bonds may be more speculative and subject to greater fluctuations in value due to changes in interest rates than bonds that pay interest currently. Interest rates are at historical lows and, therefore, it is likely that they will rise in the future.
As part of its investments in lower rated securities, the Fund may invest up to 10% of its total assets in securities of issuers in default. The Fund will invest in securities of issuers in default only when the Investment Adviser believes that such issuers will honor their obligations or emerge from bankruptcy protection and the value of these securities will appreciate. By investing in securities of issuers in default, the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from bankruptcy protection or that the value of the securities will not appreciate.
In addition to using recognized rating agencies and other sources, the Investment Adviser also performs its own analysis in seeking investments that it believes to be underrated (and thus higher-yielding) in light of the financial condition of the issuer. Its analysis of issuers may include, among other things, current and anticipated cash flow and borrowing requirements, value of assets in relation to historical cost, strength of management, responsiveness to business conditions, credit standing and current anticipated results of operations. In selecting investments for the Fund, the 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 issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible that statistical rating agencies might not change their ratings of a particular issue or reflect subsequent events on a timely basis. 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 certain lower rated and comparable unrated securities has in the past experienced a major economic recession. The recession adversely affected the value of such securities as well as the ability of certain issuers of such securities to repay principal and pay interest thereon. The market for those securities could react in a similar fashion in the event of any future economic recession.
Derivative Instruments.
Options. The Fund may, from time to time, subject to guidelines of the Board of Trustees and the limitations set forth in the Prospectus and applicable rating agency guidelines, 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 OTC market, as a means of achieving additional return or of hedging the value of the Fund's portfolio.
A call option is a contract that gives the holder of the option the right to buy from the writer of the call option, in return for a premium, the security or currency underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option has the obligation, upon exercise of the option, to deliver the underlying security or currency upon payment of the exercise price during the option period.
A put option is a contract that gives the holder of the option the right, in return for a premium, to sell to the seller the underlying security at a specified price. The seller of the put option has the obligation to buy the underlying security upon exercise at the exercise price.
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 (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other instruments held in its portfolio. 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, the Fund will be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it may liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option of the same series as the option previously purchased. There can be no assurance that either a closing purchase or sale transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price of the transaction is less than the premium received from writing the option or is more than the premium paid to purchase the option; the Fund will realize a loss from a closing transaction if the price of the transaction is more than the premium received from writing the option or is less than the premium paid to purchase the option. Since call option prices generally reflect increases in the price of the underlying security, any loss resulting from the repurchase of a call option may also be wholly or partially offset by unrealized appreciation of the underlying security. Other principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price and price volatility of the underlying security and the time remaining until the expiration date. Gains and losses on investments in options depend, in part, on the ability of the 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 which provides a secondary market for an option of the same series or in a private transaction. Although the Fund will generally purchase or write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option. In such event it might not be possible to effect closing transactions in particular options, so that the Fund would have to exercise its options in order to realize any profit and would incur brokerage commissions upon the exercise of call options and upon the subsequent disposition of underlying securities for the exercise of put options. If the Fund, as a covered call option writer, is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise or otherwise covers the position.
Options on Securities Indices. The Fund may purchase and sell securities index options. One effect of such transactions may be to hedge all or part of the Fund's securities holdings against a general decline in the securities market or a segment of the securities market. Options on securities indices are similar to options on stocks except that, rather than the right to take or make delivery of stock at a specified price, an option on a securities index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the securities index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option.
The Fund's successful use of options on indices depends upon its ability to predict the direction of the market and is subject to various additional risks. The correlation between movements in the index and the price of the securities being hedged against is imperfect and the risk from imperfect correlation increases as the composition of the Fund diverges from the composition of the relevant index. Accordingly, a decrease in the value of the securities being hedged against may not be wholly offset by a gain on the exercise or sale of a securities index put option held by the Fund.
Options on Foreign Currencies. Instead of purchasing or selling currency futures (as described below), the Fund may attempt to accomplish similar objectives by purchasing put or call options on currencies or by writing put options or call options on currencies either on exchanges or in over-the-counter ("OTC") markets. A put option gives the Fund the right to sell a currency at the exercise price until the option expires. A call option gives the Fund the right to purchase a currency at the exercise price until the option expires. Both types of options serve to insure against adverse currency price movements in the underlying portfolio assets designated in a given currency. The Fund's use of options on currencies will be subject to the same limitations as its use of options on securities, described above and in the Prospectus. Currency options may be subject to position limits which may limit the ability of the Fund to fully hedge its positions by purchasing the options.
As in the case of interest rate futures contracts and options thereon, described below, the Fund may hedge against the risk of a decrease or increase in the U.S. dollar value of a foreign currency denominated debt security which the Fund owns or intends to acquire by purchasing or selling options contracts, futures contracts or options thereon with respect to a foreign currency other than the foreign currency in which such debt security is denominated, where the values of such different currencies (vis-a-vis the U.S. dollar) historically have a high degree of positive correlation.
Futures Contracts and Options on Futures. The Fund will not enter into futures contracts or options on futures contracts unless (i) the aggregate initial margins and premiums do not exceed 5% of the fair market value of its assets and (ii) the aggregate market value of its outstanding futures contracts and the market value of the currencies and futures contracts subject to outstanding options written by the Fund, as the case may be, do not exceed 50% of its total assets. It is anticipated that these investments, if any, will be made by the Fund solely for the purpose of hedging against changes in the value of its portfolio securities and in the value of securities it intends to purchase. Such investments will only be made if they are economically appropriate to the reduction of risks involved in the management of the Fund. In this regard, the Fund may enter into futures contracts or options on futures for the purchase or sale of securities indices or other financial instruments including but not limited to U.S. Government Obligations.
A "sale" of a futures contract (or a "short" futures position) means the assumption of a contractual obligation to deliver the securities underlying the contract at a specified price at a specified future time. A "purchase" of a futures contract (or a "long" futures position) means the assumption of a contractual obligation to acquire the securities underlying the contract at a specified 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 securities underlying the futures contracts.
No consideration will be paid or received by the Fund upon the purchase or sale of a futures contract. Initially, the Fund will be required to deposit with the broker an amount of cash or cash equivalents equal to approximately 1% to 10% of the contract amount (this amount is subject to change by the exchange or board of trade on which the contract is traded and brokers or members of such board of trade may charge a higher amount). This amount is known as the "initial margin" and is in the nature of a performance bond or good faith deposit on the contract. Subsequent payments, known as "variation margin," to and from the broker will be made daily as the price of the index or security underlying the futures contract fluctuates. At any time prior to the expiration of the futures contract, the Fund may elect to close the position by taking an opposite position, which will operate to terminate its existing position in the contract.
An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at any time 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, or is less than, in the case of a put, the exercise price of the option on the futures contract. The potential loss related to the purchase of an option on futures contracts is limited to the premium paid for the option (plus transaction costs). Because the value of the option purchased is fixed at the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of the option does change daily and that change would be reflected in the net assets of the Fund.
Futures and options on futures entail certain risks, including but not limited to the following: no assurance that futures contracts or options on futures can be offset at favorable prices, possible reduction of the yield of the Fund due to the use of hedging, possible reduction in value of both the securities hedged and the hedging instrument, possible lack of liquidity due to daily limits on price fluctuations, imperfect correlation between the contracts and the securities being hedged, losses from investing in futures transactions that are potentially unlimited and the segregation requirements described below.
In the event the Fund sells a put option or enters into long futures contracts, under current interpretations of the 1940 Act, an amount of cash, U.S. Government Obligations or other liquid securities equal to the market value of the contract must be deposited and maintained in a segregated account with the custodian of the Fund to collateralize the positions, in order for the Fund to avoid being treated as having issued a senior security in the amount of its obligations. For short positions in futures contracts and sales of call options, the Fund may establish a segregated account (not with a futures commission merchant or broker) with cash, U.S. Government Obligations or other high grade debt securities that, when added to amounts deposited with a futures commission merchant or a broker as margin, equal the market value of the instruments or currency underlying the futures contracts or call options, respectively (but are no less than the stock price of the call option or the market price at which the short positions were established).
Interest Rate Futures Contracts and Options Thereon. The Fund may purchase or sell interest rate futures contracts to take advantage of or to protect the Fund 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 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 currently 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 Fund's obligations 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 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 which 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, the Fund's losses from options on futures it has written may to some extent be reduced or increased by changes in the value of its portfolio securities.
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.
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 the Fund's 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 the Fund 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.
Limitations on the Purchase and Sale of Futures Contracts and Options on Futures Contracts. Subject to the guidelines of the Board of Trustees, the Fund may engage in transactions in futures contracts and options hereon only for bona fide hedging, yield enhancement and risk management purposes, in each case in accordance with the rules and regulations of the CFTC.
Regulations of the CFTC currently applicable to the Fund permit the Fund's futures and options on futures transactions to include (i) bona fide hedging transactions without regard to the percentage of the Fund's assets committed to margin and option premiums and (ii) non-hedging transactions, provided that the Fund not enter into such non-hedging transactions if, immediately thereafter, the sum of the amount of initial margin deposits on the Fund's existing futures positions and option premiums would exceed 5% of the market value of the Fund's liquidating value, after taking into account unrealized profits and unrealized losses on any such transactions.
In addition, investment in future contracts and related options generally will be limited by the rating agency guidelines applicable to any of the Fund's outstanding Preferred Shares.
Forward Currency Exchange Contracts. Subject to guidelines of the Board of Trustees, the Fund may enter into forward foreign currency exchange contracts to protect the value of its portfolio against uncertainty in the level of future currency exchange rates between a particular foreign currency and the U.S. dollar or between foreign currencies in which its securities are or may be denominated. 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. Forward currency contracts (i) are traded in a market conducted directly between currency traders (typically, commercial banks or other financial institutions) and their customers, (ii) generally have no deposit requirements and (iii) are typically consummated without payment of any commissions. The Fund, however, may enter into forward currency contracts requiring deposits or involving the payment of commissions. To assure that its forward currency contracts are not used to achieve investment leverage, the Fund will segregate liquid assets consisting of cash, U.S. Government Obligations or other liquid securities with its custodian, or a designated sub-custodian, in an amount at all times equal to or exceeding its commitment with respect to the contracts.
The dealings of the Fund in forward foreign exchange are limited to hedging involving either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of one forward foreign currency for another currency with respect to specific receivables or payables of the Fund accruing in connection with the purchase and sale of its portfolio securities or its payment of dividends and distributions. Position hedging is the purchase or sale of one forward foreign currency for another currency with respect to portfolio security positions denominated or quoted in the foreign currency to offset the effect of an anticipated substantial appreciation or depreciation, respectively, in the value of the currency relative to the U.S. dollar. In this situation, the Fund also may, for example, enter into a forward contract to sell or purchase a different foreign currency for a fixed U.S. dollar amount where it is believed that the U.S. dollar value of the currency to be sold or bought pursuant to the forward contract will fall or rise, as the case may be, whenever there is a decline or increase, respectively, in the U.S. dollar value of the currency in which its portfolio securities are denominated (this practice being referred to as a "cross- hedge").
In hedging a specific transaction, the Fund may enter into a forward contract with respect to either the currency in which the transaction is denominated or another currency deemed appropriate by the Investment Adviser. The amount the Fund may invest in forward currency contracts is limited to the amount of its aggregate investments in foreign currencies.
The use of forward currency contracts may involve certain risks, including the failure of the counterparty to perform its obligations under the contract, and such use may not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the prices of the currencies hedged or used for cover. The Fund will only enter into forward currency contracts with parties which it believes to be creditworthy institutions.
Special Risk Considerations Relating to Futures and Options Thereon. 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 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 which reflect the rising market. The Fund may have to sell securities at a time when it is disadvantageous to do so.
Additional Risks of Foreign Options, Futures Contracts, Options on Futures Contracts and Forward Contracts. Options, futures 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 U.S., 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 U.S. of data on which to make trading decisions, (iii) delays in the Fund's ability to act upon economic events occurring in the foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S. and (v) lesser trading volume.
Exchanges on which options, futures and options on futures are traded may impose limits on the positions that the Fund may take in certain circumstances.
Risks of Currency Transactions. Currency transactions are also subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be adversely affected by government exchange controls, limitations or restrictions on repatriation of currency, and manipulation, or exchange restrictions imposed by governments. These forms of governmental action can result in losses to the Fund if it is unable to deliver or receive currency or monies in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs.
Repurchase Agreements. The Fund may engage in repurchase agreements as set forth in the Prospectus. A repurchase agreement is an instrument under which the purchaser, i.e., the Fund, acquires a debt security and the seller agrees, at the time of the sale, to repurchase the obligation at a mutually agreed upon time and price, thereby determining the yield during the purchaser's holding period. This results in a fixed rate of return insulated from market fluctuations during such period. The underlying securities are ordinarily U.S. Treasury or other government obligations or high quality money market instruments. The Fund will require that the value of such underlying securities, together with any other collateral held by the Fund, always equals or exceeds the amount of the repurchase obligations of the counter party. 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 are 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 such collateral upon a default in the obligation to repurchase are less than the repurchase price, the Fund will experience a loss.
If the financial institution which 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. As a result, under extreme circumstances, there may be a restriction on the Fund's ability to sell the collateral and the Fund would suffer a loss.
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 notice provisions described below), 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 earns 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 and no loan will cause the value of all loaned securities to exceed 20% of the value of the Fund's total assets. The Fund's ability to lend portfolio securities will be limited by the rating agency guidelines applicable to any of the Fund's outstanding Preferred Shares.
A loan may generally be terminated by the borrower on one business day notice, or by the Fund on five business days notice. If the borrower fails to deliver the loaned securities within five days after receipt of notice, the Fund could use the collateral to replace the securities while holding the borrower liable for any excess of replacement cost over collateral. As with any extensions of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower of the securities fail financially. However, these loans of portfolio securities will only be made to firms deemed by the Fund's management to be creditworthy and when the income which can be earned from such loans justifies the attendant risks. The Board of Trustees will oversee the creditworthiness of the contracting parties on an ongoing basis. Upon termination of the loan, the borrower is required to return the securities to the Fund. Any gain or loss in the market price during the loan period would inure to the Fund. The risks associated with loans of portfolio securities are substantially similar to those associated with repurchase agreements. Thus, if the counter party to the loan petitions for bankruptcy or becomes subject to the United States Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a result, under extreme circumstances, there may be a restriction on the Fund's ability to sell the collateral and the Fund would suffer a loss. When voting or consent rights which accompany loaned securities pass to the borrower, the Fund will follow the policy of calling the loaned securities, to be delivered within one day after notice, to permit the exercise of such rights if the matters involved would have a material effect on the Fund's investment in such loaned securities. The Fund will pay reasonable finder's, administrative and custodial fees in connection with a loan of its securities.
When Issued, Delayed Delivery Securities and Forward Commitments. The Fund may enter into forward commitments for the purchase or sale of securities, including on a "when issued" or "delayed delivery" basis, in excess of customary settlement periods for the type of security involved. In some cases, a forward commitment may be conditioned upon the occurrence of a subsequent event, such as approval and consummation of a merger, corporate reorganization or debt restructuring, i.e., a when, as and if issued security. When such transactions are negotiated, the price is fixed at the time of the commitment, with payment and delivery taking place in the future, generally a month or more after the date of the commitment. While it will only enter into a forward commitment with the intention of actually acquiring the security, the Fund may sell the security before the settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market fluctuation, and no interest (or dividends) accrues to the Fund prior to the settlement date. The Fund will segregate with its custodian cash or liquid high-grade debt securities in an aggregate amount at least equal to the amount of its outstanding forward commitments.
Short Sales. The Fund may make short sales of securities. A short sale is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. The market value of the securities sold short of any one issuer will not exceed either 5% of the Fund's total assets or 5% of such issuer's voting securities. The Fund will not make a short sale, if, after giving effect to such sale, the market value of all securities sold short exceeds 25% of the value of its assets or the Fund's aggregate short sales of a particular class of securities exceeds 25% of the outstanding securities of that class. The Fund may also make short sales "against the box" without respect to such limitations. In this type of short sale, at the time of the sale, the Fund owns, or has the immediate and unconditional right to acquire at no additional cost, the identical security.
The Fund expects to make short sales both to obtain capital gains from anticipated declines in securities and as a form of hedging to offset potential declines in long positions in the same or similar securities. The short sale of a security is considered a speculative investment technique. Short sales "against the box" may be subject to special tax rules, one of the effects of which may be to accelerate income to the Fund.
When the Fund makes a short sale, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale in order to satisfy its obligation to deliver the security upon conclusion of the sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by collateral deposited with the broker-dealer, usually cash, U.S. Government Obligations or other highly liquid debt securities. The Fund will also be required to deposit similar collateral with its custodian to the extent, if any, necessary so that the value of both collateral deposits in the aggregate is at all times equal to the greater of the price at which the security is sold short or 100% of the current market value of the security sold short. Depending on arrangements made with the broker-dealer from which it borrowed the security regarding payment over of any payments received by the Fund on such security, the Fund may not receive any payments (including interest) on its collateral deposited with such broker-dealer. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be decreased, any loss increased, by the transaction costs described above. Although the Fund's gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited.
To secure its obligations to deliver the securities sold short, the Fund will deposit in escrow in a separate account with its custodian, State Street Bank and Trust Company ("State Street"), an amount at least equal to the securities sold short or securities convertible into, or exchangeable for, the securities. The Fund may close out a short position by purchasing and delivering an equal amount of securities sold short, rather than by delivering securities already held by the Fund, because the Fund may want to continue to receive interest and dividend payments on securities in its portfolio that are convertible into the securities sold short.
INVESTMENT RESTRICTIONS
The Fund operates under the following restrictions that constitute fundamental policies that, except as otherwise noted, cannot be changed without the affirmative vote of the holders of a majority of the outstanding voting securities of the Fund along the affirmative vote of a majority of the votes entitled to be cast by holders of outstanding preferred shares (including the Series A Preferred and/or Series B AMPS), voting together as a single class. For purposes of the preferred share voting rights described in the foregoing sentence, except as otherwise required under the 1940 Act, the majority of the outstanding preferred shares means, in accordance with Section 2(a)(42) of the 1940 Act, the vote of (i) of 67% or more of the preferred shares present at the shareholders meeting called for such vote, if the holders of more than 50% of the outstanding preferred shares are present or represented by proxy or (ii) more than 50% of the outstanding preferred shares, whichever is less. Except as otherwise noted, all percentage limitations set forth below apply immediately after a purchase or initial investment and any subsequent change in any applicable percentage resulting from market fluctuations does not require any action. The Fund may not:
(1) invest 25% or more of its total assets, taken at market value at the time of each investment, in the securities of issuers in any particular industry other than the Utility Industry. This restriction does not apply to investments in U.S. government securities.
(2) purchase or sell commodities or commodity contracts except that the Fund may purchase or sell futures contracts and related options thereon if immediately thereafter (i) no more than 5% of its total assets are invested in margins and premiums and (ii) the aggregate market value of its outstanding futures contracts and market value of the currencies and futures contracts subject to outstanding options written by the Fund do not exceed 50% of the market value of its total assets. The Fund may not purchase or sell real estate, provided that the Fund may invest in securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein.
(3) make loans of money, except by the purchase of a portion of private or publicly distributed debt obligations or the entering into of repurchase agreements. The Fund reserves the authority to make loans of its portfolio securities to financial intermediaries in an aggregate amount not exceeding 20% of its total assets. Any such loans will only be made upon approval of, and subject to any conditions imposed by, the Board of Trustees of the Fund. Because these loans are required to be fully collateralized at all times, the risk of loss in the event of default of the borrower should be slight.
(4) borrow money except to the extent permitted by applicable law. The 1940 Act currently requires that the Fund have 300% asset coverage with respect to all borrowings other than temporary borrowings of up to 5% of the value of its total assets.
(5) issue senior securities, except to the extent permitted by applicable law.
(6) underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933, as amended (the "1933 Act") in selling portfolio securities; provided, however, this restriction shall not apply to securities of any investment company organized by the Fund that are to be distributed pro rata as a dividend to its shareholders.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
Overall responsibility for management and supervision of the Fund rests with its Board of Trustees. The Board of Trustees approves all significant agreements between the Fund and the companies that furnish the Fund with services, including agreements with the Investment Adviser, the Fund's custodian and the Fund's transfer agent. The day-to-day operations of the Fund are delegated to the Investment Adviser.
The names and business addresses of the trustees and principal officers of the Fund are set forth in the following table, together with their positions and their principal occupations during the past five years and, in the case of the trustees, their positions with certain other organizations and companies. Trustees who are "interested persons" of the Fund, as defined by the 1940 Act, are indicated by an asterisk.
Trustees
Number of
Name (and Age), Portfolios in Other
Position with the Term of Office Principal Fund Complex Directorships
Fund and and Length of Occupation During Overseen by Held by
Business Address1 Time Served2 Past Five Years Trustee Trustee
----------------- ------------ --------------- ------ -------
INTERESTED Since 1999* Chairman of the Board, Chief 22 Director of
TRUSTEES: Executive Officer of Gabelli Morgan Group
*+Mario J. Gabelli Asset Management Inc. and Holdings, Inc.
(61) Chief Investment Officer of (transportation
Trustee and Chief the Investment Adviser and services); Vice
Investment Officer GAMCO Investors, Inc; Chairman of
Director/Trustee and Chief Lynch
Investment Officer of other Corporation
registered investment (diversified
companies in the Gabelli fund manufacturing
complex. Vice Chairman and company).
CEO of Lynch Interactive
Corp.
*+John D. Gabelli Since 1999*** Senior Vice President of 9 --
(58) Gabelli & Company and
Trustee Director of Gabelli Advisers,
Inc.; Trustee of other
registered investment
companies in the Gabelli fund
complex.
*Karl Otto Pohl Since 1999*** Member of the Shareholder 32 Director of
(73) Committee of Sal. Oppenheim Gabelli Asset
Trustee Jr. & Cie, Zurich (private Management Inc.;
investment bank); Former Chairman,
President of the Deutsche Incentive Capital
Bundesbank and Chairman of and Incentive
its Central Bank Council from Asset
1980 through 1991; Management
Director/Trustee of other (Zurich); Director
registered investment at Sal.
companies in the Gabelli fund Oppenheim Jr. &
complex. Cie, Zurich
DISINTERESTED Since 1999* Director, President and 3 --
TRUSTEES: Founder, The John Dewey
Dr. Thomas E. Academy (residential college
Bratter (63) preparatory therapeutic high
Trustee school); Director/Trustee of
other registered investment
companies in the Gabelli fund
complex.
Anthony J. Colavita Since 1999** President and Attorney at law 34 --
(67) in the law firm of Anthony J.
Trustee Colavita, P.C. since 1961;
Director/Trustee of other
registered investment
companies in the Gabelli
fund complex.
James P. Conn (65) Since 1999*** Former Managing Director 11 Director of
Trustee and Chief Investment Officer LaQuinta Corp.
of Financial Security (hotels) and First
Assurance Holdings Ltd., Republic Bank
1992-1998; Trustee of other
registered investment
companies in the Gabelli fund
complex.
Vincent D. Enright Since 1999* Former Senior Vice President 12 --
(59) and Chief Financial Officer of
Trustee KeySpan Energy Corporation
through 1998; Trustee of
other registered
investment companies in
the Gabelli fund complex.
Frank J. Since 1999** President and CEO of the 3 --
Fahrenkopf, Jr. (63) American Gaming Association
Trustee since June 1995; Partner in the
law firm of Hogan &
Hartson; Chairman of
International Trade
Practice Group;
Co-Chairman of the
Commission on
Presidential Debates;
former Chairman of the
Republican National
Committee; Trustee of
other registered
investment companies in
the Gabelli fund complex.
Robert J. Morrissey Since 1999** Partner in the law firm of 9 --
(63) Morrissey, Hawkins & Lynch;
Trustee Trustee of other registered
investment companies in the
Gabelli fund complex.
Anthony R. Since 1999*** Certified Public Accountant; 17 --
Pustorino (77) Professor Emeritus, Pace
Trustee University; Trustee of other
registered investment
companies in the Gabelli fund
complex.
Salvatore J. Zizza Since 1999** Chairman of Hallmark 10 Director of
(57) Electrical Supply Corp.; Hollis Eden
Trustee Former Executive Vice Pharmaceuticals
President of FMG Group (a
healthcare provider);
Trustee of other
registered investment
companies in the Gabelli
fund complex.
Officers
Name (and Age),
Position with the Term of Office Principal
Fund and and Length of Occupation During
Business Address1 Time Served Past Five Years
----------------- ----------- ---------------
Bruce N. Alpert (51) Since 1999 Executive Vice President and Chief
President Operating Officer of the Investment
Adviser since June 1988; Director
and President of Gabelli Advisers,
Inc.; Officer of all other registered
investment companies in the Gabelli
fund complex.
Gus A. Coutsouros (40) Since 2003 Vice President and Chief Financial
Vice President and Treasurer Officer of Gabelli Funds, LLC
since 1998 and an officer of all
mutual funds advised by Gabelli
Funds, LLC and its affiliates. Chief
Financial Officer of Gabelli
Advisers, Inc. Prior to 1998,
Treasurer of Lazard Funds.
David Schachter (49) Since 1999 Vice President of the Fund since
Vice President 1999; Financial Services Research
Analyst of Gabelli & Company
from October 1, 1998 to July 9,
1999; Prior to October, 1998, Vice
President of Thomas J. Herzfeld
Advisers, Inc., a registered
investment adviser and noted
closed-end fund authority.
James E. McKee (40) Since 1999 Vice President, General Counsel
Secretary of the Fund and Secretary of the Investment
Adviser (since 1999) and
Vice President of GAMCO
Investors, Inc. (since
1993); Secretary of the
registered investment companies
in the Gabelli fund complex.
|
* "Interested person" of the Fund, as defined in the 1940 Act. Mr.
Mario Gabelli is an "interested person" of the Fund as a result of
his employment as an officer of the Fund and the Investment
Adviser. Messrs. John and Mario Gabelli are registered
representatives of an affiliated broker-dealer. Mr. Pohl is a
director of the parent company of the Investment Adviser.
+ Mr. Mario Gabelli and Mr. John Gabelli are brothers.
1 Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise
noted.
2 The Fund's Board of Trustees is divided into three classes, each
class having a term of three years. Each year the term of office of
one class expires and the successor or successors elected to such
class serve for a three year term. The three year term for each
|
class expires as follows:
* - Term expires at the Fund's 2004 Annual Meeting of Shareholders and until their successors are duly elected and qualified.
** - Term expires at the Fund's 2005 Annual Meeting of Shareholders and until their successors are duly elected and qualified.
*** - Term expires at the Fund's 2006 Annual Meeting of Shareholders and until their successors are duly elected and qualified.
The Board of Trustees of the Fund are divided into three classes, with a class having a term of three years except as described below. Each year the term of office of one class of trustees of the Fund will expire. However, to ensure that the term of a class of the Fund's trustees expires each year, one class of the Fund's trustees will serve three-year terms. The terms of Messrs. Bratter, Enright and Mario Gabelli as trustees of the Fund expire in 2004; and the terms of Messrs. Colavita, Fahrenkopf, Morrissey and Zizza as trustees of the Fund expire in 2005; the terms of Messrs. Conn, John Gabelli, Pohl and Pustorino as trustees of the Fund expire in 2006.
Name of Trustee Dollar Range of Equity Aggregate Dollar Range of
Securities in the Fund Equity Securities in all
Registered Investment
Companies Overseen by Trustees
in Family of Investment
Companies
INTERESTED TRUSTEES
Mario J. Gabelli Over $100,000 Over $100,000
John D. Gabelli None Over $100,000
Karl Otto Pohl None None
DISINTERESTED TRUSTEES
Dr. Thomas E. Bratter None Over $100,000
Anthony J. Colavita $10,001 - $50,000 Over $100,000
James P. Conn $10,001 - $50,000 Over $100,000
Vincent D. Enright None Over $100,000
Frank J. Fahrenkopf, Jr. None $1 - $10,000
Robert J. Morrissey None $10,001 - $50,000
Anthony R. Pustorino $10,001 - $50,000 Over $100,000
Salvatore J. Zizza $50,001 - $100,000 Over $100,000
|
All shares were valued as of December 31, 2002.
The Trustees serving on the Fund's Nominating Committee are Messrs. Zizza and Colavita (Chairman). The Nominating Committee is responsible for recommending qualified candidates to the Board in the event that a position is vacated or created. The Nominating Committee would consider recommendations by shareholders if a vacancy were to exist. Such recommendations should be forwarded to the Secretary of the Fund. The Nominating Committee did not meet during the year ended December 31, 2002. The Fund does not have a standing compensation committee.
Messrs. Pustorino (Chairman), Colavita and Enright, who are not "interested persons" of the Fund as defined in the 1940 Act, serve on the Fund's Audit Committee. The Audit Committee is generally responsible for reviewing and evaluating issues related to the accounting and financial reporting policies and internal controls of the Fund and, as appropriate, the internal controls of certain service providers, overseeing the quality and objectivity of the Fund's financial statements and the audit thereof and to act as a liaison between the Board of Trustees and the Fund's independent accountants. During the year ended December 31, 2002, the Audit Committee met twice.
As of June 30, 2003, the trustees and officers of the Fund as a group beneficially owned approximately 1.55% of the outstanding shares of the Fund's Common Shares.
REMUNERATION OF TRUSTEES AND OFFICERS
The Fund pays each trustee who is not affiliated with the Investment Adviser or its affiliates a fee of $3,000 per year plus $500 per meeting attended, together with each trustee's actual out-of-pocket expenses relating to attendance at such meetings.
The following table shows certain compensation information for the trustees and officers of the Fund for the fiscal year ended December 31, 2002. Mr. Schachter is employed by the Fund and his compensation is evaluated and approved by the trustees. Other officers who are employed by the Investment Adviser receive no compensation or expense reimbursement from the Fund.
COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
TOTAL COMPENSATION
FROM THE FUND AND FUND
COMPLEX PAID
NAME OF PERSON AND AGGREGATE COMPENSATION TO TRUSTEES/
POSITION FROM THE FUND* OFFICERS**
MARIO J. GABELLI Chairman of $0 $0 (22)
the Board
DR. THOMAS E. BRATTER $5,000 $31,000 (3)
Trustee
ANTHONY J. COLAVITA $6,000 $152,286 (33)
Trustee
JAMES P. CONN Trustee $5,000 $53,500 (11)
VINCENT D. ENRIGHT Trustee $6,000 $54,536 (11)
FRANK J. FAHRENKOPF, JR. $5,000 $31,000 (3)
Trustee
JOHN D. GABELLI Trustee $0 $0 (9)
ROBERT J. MORRISSEY Trustee $5,000 $45,000 (9)
KARL OTTO POHL Trustee $0 $0 (31)
ANTHONY R. PUSTORINO $6,000 $132,286 (17)
Trustee
SALVATORE J. ZIZZA Trustee $5,000 $73,750 (9)
|
* Does not include $3,126 of, among other things, out of pocket Director expenses, which would bring total director compensation/ expenses to $46,126.
** Represents the total compensation paid to such persons during the calendar year ended December 31, 2002 by investment companies (including the Fund) or portfolios thereof from which such person receives compensation that are considered part of the same fund complex as the Fund because they have common or affiliated investment advisers. The number in parenthesis represents the number of such investment companies.
For his services as Vice President of the Fund, Mr. Schachter received compensation in 2002 of $130,000.
Indemnification of Officers and Trustees; Limitations on Liability
The Governing Documents of the Fund provide that the Fund will indemnify its trustees and officers and may indemnify its employees or agents against liabilities and expenses incurred in connection with litigation in which they may be involved because of their positions with the Fund, to the fullest extent permitted by law. However, nothing in the Governing Documents of the Fund protects or indemnifies a trustee, officer, employee or agent of the Fund against any liability to which such person would otherwise be subject in the event of such person's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her position.
Investment Advisory and Administrative Arrangements
Gabelli Funds, LLC acts as the Fund's investment adviser pursuant to an advisory agreement with the Fund (the "Advisory Agreement"). The Investment Adviser is a New York corporation with principal offices located at One Corporate Center, Rye, New York 10580. The Investment Adviser was organized in 1999 and is the successor to Gabelli Funds, Inc., which was organized in 1980. As of March 31, 2003 the Investment Adviser acted as registered investment advisers to 19.5 management investment companies with aggregate net assets of $8.4 billion. The Investment Adviser, together with other affiliated investment advisers set forth below, had assets under management totaling approximately $9.2 billion, as of March 31, 2003. GAMCO Investors, Inc., an affiliate of the Investment Adviser, acts as investment adviser for individuals, pension trusts, profit sharing trusts and endowments and as a sub-adviser to management investment companies, having aggregate assets of $1.4 billion under management as of March 31, 2003. Gabelli Fixed Income LLC, an affiliate of the Investment Adviser, acts as investment adviser for The Treasurer's Fund and separate accounts having aggregate assets of $1.4 billion under management as of March 31, 2003. Gabelli Advisors, Inc., an affiliate of the Investment Adviser, acts as investment manager to the Gabelli Westwood Funds, having aggregate assets of $441 million under management as of March 31, 2003.
The Investment Adviser is a wholly-owned subsidiary of Gabelli Asset Management Inc., a New York corporation, whose Class A Common Stock is traded on the New York Stock Exchange under the symbol "GBL." Mr. Mario J. Gabelli may be deemed a "controlling person" of the Investment Adviser on the basis of his ownership of a majority of the stock of the Gabelli Group Capital Partners, Inc., which owns a majority of the capital stock of Gabelli Asset Management Inc.
Under the terms of the Advisory Agreement, the Investment Adviser manages the portfolio of the Fund in accordance with its stated investment objective and policies, makes investment decisions for the Fund, places orders to purchase and sell securities on behalf of the Fund and manages its other business and affairs, all subject to the supervision and direction of the Fund's Board of Trustees. In addition, under the Advisory Agreement, the Investment Adviser oversees the administration of all aspects of the Fund's business and affairs and provides, or arranges for others to provide, at the Investment Adviser's expense, certain enumerated services, including maintaining the Fund's books and records, preparing reports to the Fund's shareholders and supervising the calculation of the net asset value of its shares. All expenses of computing the net asset value of the Fund, including any equipment or services obtained solely for the purpose of pricing shares or valuing its investment portfolio, will be an expense of the Fund under its Advisory Agreement unless the Investment Adviser voluntarily assumes responsibility for such expense.
The Advisory Agreement combines investment advisory and administrative responsibilities in one agreement. For services rendered by the Investment Adviser on behalf of the Fund under the Advisory Agreement, the Fund pays the Investment Adviser a fee computed daily and paid monthly at the annual rate of 1.00% of the average weekly net assets of the Fund. Notwithstanding the foregoing, the Investment Adviser has voluntarily agreed to waive the portion of its investment advisory fee attributable to an amount of assets of the Fund equal to the aggregate stated value of the applicable series of its Preferred Shares for any calendar year in which the net asset value total return of the Fund allocable to the Common Shares, including distributions and the advisory fee subject to potential waiver, is less than the stated annual dividend rate of such series, prorated during the year such series is issued and the final year such series is outstanding. This waiver will apply to the portion of the Fund's assets attributable to the Series A Preferred and Series B AMPS, respectively, for so long as any shares of such series remain outstanding.
The Advisory Agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard for its obligations and duties thereunder, the Investment Adviser is not liable for any error or judgment or mistake of law or for any loss suffered by the Fund. As part of the Advisory Agreement, the Fund has agreed that the name "Gabelli" is the Investment Adviser's property, and that in the event the Investment Adviser ceases to act as an investment adviser to the Fund, the Fund will change its name to one not including "Gabelli."
Pursuant to its terms, the Advisory Agreement will remain in effect with respect to the Fund until the second anniversary of shareholder approval of such Agreement, and from year to year thereafter if approved annually (i) by the Fund's Board of Trustees or by the holders of a majority of its outstanding voting securities and (ii) by a majority of the trustees who are not "interested persons" (as defined in the 1940 Act) of any party to the Advisory Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement was approved most recently by the Board of Trustees on February 19, 2003.
In considering whether to approve the Advisory Agreement, the Fund's non-interested trustees considered, among other factors, (i) the services provided to the Fund by the Investment Adviser and the sub-administrator, (ii) the Fund's absolute and comparative investment performance, (iii) the Fund's fee and expense data as compared to various benchmarks and a peer group of closed-end funds in the same asset range as the Fund and (iv) the Investment Adviser's profitability with respect to its management of the Fund. The non-interested trustees indicated that the primary factors in their determination to approve the Advisory Agreement were the high quality of service provided by the Investment Adviser, based in large part upon the experience of the Fund's portfolio manager, and the Fund's comparative investment performance.
The Advisory Agreement terminates automatically on its assignment and may be terminated without penalty on 60 days written notice at the option of either party thereto or by a vote of a majority (as defined in the 1940 Act) of the Fund's outstanding shares.
For each of the years ended December 31, 2000, December 31, 2001 and December 31, 2002, the Investment Adviser was paid $861,678, $855,435 and $878,549, respectively, for advisory and administrative services rendered to the Fund.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Trustees of the Fund, the Investment Adviser is responsible for placing purchase and sale orders and the allocation of brokerage on behalf of the Fund. Transactions in equity securities are in most cases effected on U.S. stock exchanges and involve the payment of negotiated brokerage commissions. In general, there may be no stated commission in the case of securities traded in over-the-counter markets, but the prices of those securities may include undisclosed commissions or mark-ups. Principal transactions are not entered into with affiliates of the Fund. However, Gabelli & Company, Inc. may execute transactions in the over-the-counter markets on an agency basis and receive a stated commission therefrom. To the extent consistent with applicable provisions of the 1940 Act and the rules and exemptions adopted by the SEC thereunder, as well as other regulatory requirements, the Fund's Board of Trustees have determined that portfolio transactions may be executed through Gabelli & Company, Inc. and its broker-dealer affiliates if, in the judgment of the Investment Adviser, the use of those broker-dealers is likely to result in price and execution at least as favorable as those of other qualified broker-dealers, and if, in particular transactions, those broker-dealers charge the Fund a rate consistent with that charged to comparable unaffiliated customers in similar transactions. The Fund has no obligations to deal with any broker or group of brokers in executing transactions in portfolio securities. In executing transactions, the Investment Adviser seeks to obtain the best price and execution for the Fund, taking into account such factors as price, size of order, difficulty of execution and operational facilities of the firm involved and the firm's risk in positioning a block of securities. While the Investment Adviser generally seeks reasonably competitive commission rates, the Fund does not necessarily pay the lowest commission available.
Subject to obtaining the best price and execution, brokers who provide supplemental research, market and statistical information to the Investment Adviser or its affiliates may receive orders for transactions by the Fund. The term "research, market and statistical information" includes advice as to the value of securities, and advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities, and furnishing analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts. Information so received will be in addition to and not in lieu of the services required to be performed by the Investment Adviser under the Advisory Agreement and the expenses of the Investment Adviser will not necessarily be reduced as a result of the receipt of such supplemental information. Such information may be useful to the Investment Adviser and its affiliates in providing services to clients other than the Fund, and not all such information is used by the Investment Adviser in connection with the Fund. Conversely, such information provided to the Investment Adviser and its affiliates by brokers and dealers through whom other clients of the Investment Adviser and its affiliates effect securities transactions may be useful to the Investment Adviser in providing services to the Fund.
Although investment decisions for the Fund are made independently from those of the other accounts managed by the Investment Adviser and its affiliates, investments of the kind made by the Fund may also be made by those other accounts. When the same securities are purchased for or sold by the Fund and any of such other accounts, it is the policy of the Investment Adviser and its affiliates to allocate such purchases and sales in the manner deemed fair and equitable to all of the accounts, including the Fund.
For the fiscal years ended December 31, 2000, December 31, 2001 and December 31, 2002, the Fund paid a total of $125,729, $81,313, and $140,917, respectively, in brokerage commissions, of which Gabelli & Company, Inc. and its affiliates received $116,973, $70,203, and $123,636, respectively. The amount received by Gabelli & Company, Inc. and its affiliates from the Fund in respect of brokerage commissions for the fiscal year ended December 31, 2002 represented approximately 87.74% of the aggregate dollar amount of brokerage commissions paid by the Fund for such period and approximately 75.29% of the aggregate dollar amount of transactions by the Fund for such period. The increased brokerage commissions in 2002 reflect, in part, the Fund's investment of proceeds from its rights offering, completed in June, 2002. The variance between the percentage of brokerage commissions received by Gabelli & Company, Inc. and the percentage of transactions executed by Gabelli & Company, Inc. reflects the Fund's practice of generally directing bulk trades to unaffiliated broker-dealers.
REPURCHASE OF COMMON SHARES
The Fund is a closed-end, non-diversified, management investment company and as such its shareholders do not, and will not, have the right to require the Fund to repurchase their shares. The Fund, however, may repurchase its Common Shares from time to time as and when it deems such a repurchase advisable. Such repurchases will be made when the Fund's Common Shares are trading at a discount of 10% or more (or such other percentage as the Board of Trustees of the Fund may determine from time to time) from net asset value. Pursuant to the 1940 Act, the Fund may repurchase its Common Shares on a securities exchange (provided that the Fund has informed its shareholders within the preceding six months of its intention to repurchase such shares) or pursuant to tenders or as otherwise permitted in accordance with Rule 23c-1 under the 1940 Act. Under that Rule, certain conditions must be met regarding, among other things, distribution of net income for the preceding fiscal year, status of the seller, price paid, brokerage commissions, prior notice to shareholders of an intention to purchase shares and purchasing in a manner and on a basis that does not discriminate unfairly against the other shareholders through their interest in the Fund.
When the Fund repurchases its Common Shares for a price below net asset value, the net asset value of the Common Shares that remain outstanding will be enhanced, but this does not necessarily mean that the market price of the outstanding Common Shares will be affected, either positively or negatively.
PORTFOLIO TURNOVER
The portfolio turnover rates of the Fund for the fiscal years ending December 31, 2002, December 31, 2001 and December 31, 2000 were 29%, 41% and 92%, respectively. Portfolio turnover rate is calculated by dividing the lesser of an investment company's annual sales or purchases of portfolio securities by the monthly average value of securities in its portfolio during the year, excluding portfolio securities the maturities of which at the time of acquisition were one year or less. A high rate of portfolio turnover involves correspondingly greater brokerage commission expense than a lower rate, which expense must be borne by the Fund and indirectly by its shareholders. A higher rate of portfolio turnover may also result in taxable gains being passed to shareholders sooner than would otherwise be the case.
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
Under the Fund's Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan (the "Plan"), a shareholder whose Common Shares are registered in his or her own name will have all distributions reinvested automatically by EquiServe, which is agent under the Plan, unless the shareholder elects to receive cash. Distributions with respect to shares registered in the name of a broker-dealer or other nominee (that is, in "street name") will be reinvested by the broker or nominee in additional shares under the Plan, unless the service is not provided by the broker or nominee or the shareholder elects to receive distributions in cash. Investors who own Common Shares registered in street name should consult their broker-dealers for details regarding reinvestment. All distributions to investors who do not participate in the Plan will be paid by check mailed directly to the record holder by EquiServe as dividend disbursing agent.
Under the Plan, whenever the market price of the Common Shares is equal to or exceeds net asset value at the time shares are valued for purposes of determining the number of shares equivalent to the cash dividend or capital gains distribution, participants in the Plan are issued Common Shares, valued at the greater of (i) the net asset value as most recently determined or (ii) 95% of the then-current market price of the Common Shares. The valuation date is the dividend or distribution payment date or, if that date is not a New York Stock Exchange trading day, the next preceding trading day. If the net asset value of the Common Shares at the time of valuation exceeds the market price of the Common Shares, participants will receive shares from the Fund, valued at market price. If the Fund should declare a dividend or capital gains distribution payable only in cash, EquiServe will buy the Common Shares for such Plan in the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts, except that EquiServe will endeavor to terminate purchases in the open market and cause the Fund to issue shares at the greater of net asset value or 95% of market value if, following the commencement of such purchases, the market value of the Common Shares exceeds net asset value.
Participants in the Plan have the option of making additional cash payments to EquiServe, monthly, for investment in the shares as applicable. Such payments may be made in any amount from $250 to $10,000. EquiServe will use all funds received from participants to purchase shares of the Fund in the open market on or about the 15th of each month. EquiServe will charge each shareholder who participates $0.75, plus a pro rata share of the brokerage commissions. Brokerage charges for such purchases are expected to be less than the usual brokerage charge for such transactions. It is suggested that participants send voluntary cash payments to EquiServe in a manner that ensures that EquiServe will receive these payments approximately 10 days before the 15th of the month. A participant may without charge withdraw a voluntary cash payment by written notice, if the notice is received by EquiServe at least 48 hours before such payment is to be invested.
EquiServe maintains all shareholder accounts in the Plan and furnishes written confirmations of all transactions in the account, including information needed by shareholders for personal and tax records. Shares in the account of each Plan participant will be held by EquiServe in noncertificated form in the name of the participant. A Plan participant may send its share certificates to EquiServe so that the shares represented by such certificates will be held by EquiServe in the participant's shareholder account under the Plan.
In the case of shareholders such as banks, brokers or nominees, which hold shares for others who are the beneficial owners, EquiServe will administer the Plan on the basis of the number of shares certified from time to time by the shareholder as representing the total amount registered in the shareholder's name and held for the account of beneficial owners who participate in the Plan.
Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate its Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to written notice of the change sent to the members of such Plan at least 90 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by EquiServe on at least 90 days written notice to the participants in such Plan. All correspondence concerning the Plan should be directed to EquiServe at P.O. Box 43025, Providence, RI 02940-3025.
TAXATION
The following discussion is a brief summary of certain United States federal income tax considerations affecting the Fund and its shareholders. No attempt is made to present a detailed explanation of all federal, state, local and foreign tax concerns affecting the Fund and its shareholders (including shareholders owning a large position in the Fund), and the discussions set forth here and in the Prospectus do not constitute tax advice. Investors are urged to consult their own tax advisers with any specific questions relating to federal, state, local and foreign taxes. The discussion reflects applicable tax laws of the United States as of the date of this SAI, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (the "IRS") retroactively or prospectively.
Taxation of the Fund
The Fund has qualified as and intends to continue to qualify as a regulated investment company (a "RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If it so qualifies, the Fund will not be subject to U.S. federal income tax on the portion of its investment company taxable income (as defined in the Code without regard to the deduction for dividends paid) and on its net capital gain (i.e., the excess of its net realized long-term capital gain over its net realized short-term capital loss), if any, which it distributes to its shareholders in each taxable year, provided that an amount equal to at least 90% of the sum of its investment company taxable income and any net tax-exempt interest income for the taxable year is distributed to its shareholders.
Qualification as a RIC requires, among other things, that the Fund:
(i) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies or other
income (including gains from options, futures or forward contracts) derived
with respect to its business of investing in stock, securities or currencies
and (ii) diversify its holdings so that, at the end of each quarter of each
taxable year, subject to certain exceptions, (a) at least 50% of the market
value of the Fund's assets is represented by cash, cash items, U.S. government
securities, securities of other RICs and other securities with such other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of its
assets is invested in the securities (other than U.S. government securities or
the securities of other RICs) of any one issuer or any two or more issuers
that the Fund controls and which are determined to be engaged in the same or
similar trades or businesses or related trades or businesses.
If the Fund were unable to satisfy the 90% distribution requirement or otherwise were to fail to qualify as a RIC in any year, it would be taxed in the same manner as an ordinary corporation and distributions to the Fund's shareholders would not be deductible by the Fund in computing its taxable income. To qualify again to be taxed as a RIC in a subsequent year, the Fund would be required to distribute to preferred shareholders and common shareholders its earnings and profits attributable to non-RIC years reduced by an interest charge on 50% of such earnings and profits payable by the Fund to the IRS. In addition, if the Fund failed to qualify as a RIC for a period greater than one taxable year, then the Fund would be required to recognize and pay tax on any net built-in gains (the excess of aggregate gains, including items of income, over aggregate losses that would have been realized if the Fund had been liquidated) or, alternatively, to elect to be subject to taxation on such built-in gains recognized for a period of ten years, in order to qualify as a RIC in a subsequent year.
Under the Code, amounts not distributed by a RIC on a timely basis in accordance with a calendar year distribution requirement are subject to a 4% excise tax. To avoid the tax, the Fund must distribute during each calendar year, an amount at least equal to the sum of (i) 98% of its ordinary income for the calendar year, (ii) 98% of its capital gain net income (both long-term and short-term) for the one year period ending on October 31 of such year (unless an election is made to use the Fund's fiscal year), and (iii) all ordinary income and capital gain net income for previous years that were not previously distributed or subject to tax under Subchapter M. A distribution will be treated as paid during the calendar year if it is paid during the calendar year or declared by the Fund in October, November or December of the year, payable to shareholders of record on a date during such a month and paid by the Fund during January of the following year. Any such distributions paid during January of the following year will be deemed to be received on December 31 of the year the distributions are declared, rather than when the distributions are received. While the Fund intends to distribute its ordinary income and capital gain net income in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund's ordinary income and capital gain net income will be distributed to avoid entirely the imposition of the tax. In such event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirements.
Gain or loss on the sales of securities by the Fund will be long-term capital gain or loss if the securities have been held by the Fund for more than one year. Gain or loss on the sale of securities held for one year or less will be short-term capital gain or loss.
Foreign currency gain or loss on non-U.S. dollar denominated bonds and other similar debt instruments and on any non-U.S. dollar denominated futures contracts, options and forward contracts that are not section 1256 contracts (as defined below) generally will be treated as ordinary income and loss.
Investments by the Fund in certain "passive foreign investment companies" ("PFICs") could subject the Fund to federal income tax (including interest charges) on certain distributions or dispositions with respect to those investments which cannot be eliminated by making distributions to shareholders. Elections may be available to the Fund to mitigate the effect of this tax, but such elections generally accelerate the recognition of income without the receipt of cash. Dividends paid by PFICs will not qualify for the reduced tax rates discussed below under "Taxation of Shareholders."
The Fund may invest in debt obligations purchased at a discount with the result that the Fund may be required to accrue income for federal income tax purposes before amounts due under the obligations are paid. The Fund may also invest in securities rated in the medium to lower rating categories of nationally recognized rating organizations, and in unrated securities ("high yield securities"). A portion of the interest payments on such high yield securities may be treated as dividends for federal income tax purposes.
As a result of investing in stock of PFICs or securities purchased at a discount or any other investment that produces income that is not matched by a corresponding cash distribution to the Fund, the Fund could be required to include, in current income, income it has not yet received. Any such income would be treated as income earned by the Fund and therefore would be subject to the distribution requirements of the Code. This might prevent the Fund from distributing 90% of its net investment income as is required in order to avoid Fund-level federal income taxation on all of its income, or might prevent the Fund from distributing enough ordinary income and capital gain net income to avoid completely the imposition of the excise tax. To avoid this result, the Fund may be required to borrow money or dispose of other securities to be able to make distributions to its shareholders.
If the Fund does not meet the asset coverage requirements of the 1940 Act and the Statements of Preferences, the Fund will be required to suspend distributions to the holders of the Common Shares until the asset coverage is restored. Such a suspension of distributions might prevent the Fund from distributing 90% of its investment company taxable income as is required in order to avoid Fund-level federal income taxation on all of its income, or might prevent the Fund from distributing enough income and capital gain net income to avoid completely imposition of the excise tax. Upon any failure to meet the asset coverage requirements of the 1940 Act or the Statements of Preferences, the Fund may, and in certain circumstances will be required to, partially redeem Preferred Shares in order to restore the requisite asset coverage and avoid the adverse consequences to the Fund and its shareholders of failing to qualify as a RIC. If asset coverage were restored, the Fund would again be able to pay dividends and would generally be able to avoid Fund-level federal income taxation on the income that it distributes.
Hedging Transactions
Certain options, futures contracts and options on futures contracts are "section 1256 contracts." Any gains or losses on section 1256 contracts are generally considered 60% long-term and 40% short-term capital gains or losses ("60/40"). Also, section 1256 contracts held by the Fund at the end of each taxable year are "marked-to-market" with the result that unrealized gains or losses are treated as though they were realized and the resulting gain or loss is treated as 60/40 gain or loss.
Hedging transactions undertaken by the Fund may result in "straddles" for federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Fund. In addition, losses realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such losses are realized. Further, the Fund may be required to capitalize, rather than deduct currently, any interest expense on indebtedness incurred or continued to purchase or carry any positions that are part of a straddle.
The Fund may make one or more of the elections available under the Code which are applicable to straddles. If the Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions may be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections accelerate the recognition of gain or loss from the affected straddle positions.
Because application of the straddle rules may affect the character and timing of the Fund's gains, losses and deductions, the amount which must be distributed to shareholders, and which will be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not engage in such hedging transactions.
Foreign Taxes
Since the Fund may invest in foreign securities, its income from such securities may be subject to non-U.S. taxes. The Fund historically has invested less than 50% of its total assets in foreign securities. As long as the Fund continues to invest less than 50% of its assets in foreign securities it will not be eligible to elect to "pass-through" to shareholders of the Fund the ability to use the foreign tax deduction or foreign tax credit for foreign taxes paid with respect to qualifying taxes.
Taxation of Shareholders
The Fund will determine either to distribute or to retain for reinvestment all or part of its net capital gain. If any such gains are retained, the Fund will be subject to a tax of 35% of such amount. In that event, the Fund expects to designate the retained amount as undistributed capital gains in a notice to its shareholders, each of whom (i) will be required to include in income for tax purposes as long-term capital gains its share of such undistributed amounts, (ii) will be entitled to credit its proportionate share of the tax paid by the Fund against its federal income tax liability and to claim refunds to the extent that the credit exceeds such liability and (iii) will increase its basis in its shares of the Fund by an amount equal to 65% of the amount of undistributed capital gains included in such shareholder's gross income.
Distributions paid by the Fund from its net investment income or from an excess of net short-term capital gains over net-long term capital losses generally are taxable as ordinary income to the extent of the Fund's earnings and profits. Such distributions (if designated by the Fund) may, however, qualify (provided holding periods and other requirements are met) (i) for the dividends received deduction available to corporations, but only to the extent that the Fund's income consists of dividends received from U.S. corporations and (ii) under the recently enacted Jobs and Growth Tax Relief Reconciliation Act of 2003 (effective for taxable years after December 31, 2002 through December 31, 2008) ("2003 Tax Act"), as qualified dividend income eligible for the reduced maximum rate to individuals of generally 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain foreign corporations (e.g., generally, foreign corporations incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or the stock of which is readily tradable on an established securities market in the United States). Distributions of net capital gain designated as capital gain dividends, if any, are taxable to shareholders at rates applicable to long-term capital gains, whether paid in cash or in shares, and regardless of how long the shareholder has held the Fund's shares. Capital gain dividends are not eligible for the dividends received deduction. Under the 2003 Tax Act, the maximum tax rate on net long-term capital gain of individuals is reduced generally from 20% to 15% (5% for individuals in lower brackets) for such gain realized after May 6, 2003 and before January 1, 2009. Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of a holder's shares and, after such adjusted tax basis is reduced to zero, will constitute capital gain to such holder (assuming the shares are held as a capital asset). For non-corporate taxpayers, under the 2003 Tax Act, investment company taxable income (other than qualified dividend income) will currently be taxed at a maximum rate of 35%, while net capital gain generally will be taxed at a maximum rate of 15%. For corporate taxpayers, both investment company taxable income and net capital gain are taxed at a maximum rate of 35%.
Shareholders may be entitled to offset their capital gain dividends with capital losses. There are a number of statutory provisions affecting when capital losses may be offset against capital gains, and limiting the use of losses from certain investments and activities. Accordingly, shareholders with capital losses are urged to consult their tax advisers.
The price of shares purchased at any time may reflect the amount of a forthcoming distribution. Those purchasing shares just prior to a distribution will receive a distribution which will be taxable to them even though it represents in part a return of invested capital.
Upon a sale or exchange of shares, a shareholder will realize a taxable gain or loss depending upon his or her basis in the shares. Such gain or loss will be treated as long-term capital gain or loss if the shares have been held for more than one year. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six months or less will be treated for tax purposes as a long-term capital loss to the extent of any capital gain dividends received by the shareholder (or amounts credited to the shareholder as an undistributed capital gain) with respect to such shares.
Ordinary income dividends and capital gain dividends also may be subject to state and local taxes. Shareholders are urged to consult their own tax advisers regarding specific questions about the U.S. federal (including the application of the alternative minimum tax rules), state, local or foreign tax consequences to them of investing in the Fund.
Ordinary income dividends (but not capital gain dividends) paid to shareholders who are non-resident aliens or foreign entities will be subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities, unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Non-resident shareholders are urged to consult their own tax advisers concerning the applicability of the United States withholding tax.
Based in part on a lack of present intention on the part of the Fund to voluntarily redeem the Series B AMPS at any time in the future, the Fund intends to take the position that under present law the Series B AMPS will constitute stock, rather than debt of the Fund. It is possible, however, that the IRS could take a contrary position asserting, for example, that the Series B AMPS constitute debt of the Fund. If that position were upheld,
distributions on the Series B AMPS would be considered interest, taxable as ordinary income regardless of the taxable income of the Fund. The Fund believes this position, if asserted, would be unlikely to prevail.
The IRS has taken the position that if a RIC has two classes of shares, it may designate distributions made to each class in any year as consisting of no more than such class's proportionate share of particular types of income, such as long-term capital gain. A class's proportionate share of a particular type of income is determined according to the percentage of total dividends paid by the RIC during such year that was paid to such class. Consequently, the Fund will designate distributions made to the common shareholders and preferred shareholders as consisting of particular types of income in accordance with the classes' proportionate shares of such income. Because of this rule, the Fund is required to allocate a portion of its net capital gain, qualified dividend income and dividends qualifying for the dividends received deduction to common shareholders and preferred shareholders. The amount of net capital gain, qualified dividend income and dividends qualifying for the dividends received deduction allocable among common shareholders and the preferred shareholders will depend upon the amount of such net capital gain, and qualified dividend income and dividends qualifying for the dividends received deduction realized by the Fund and the total dividends paid by the Fund on the Common Shares and the Preferred Shares during a taxable year.
Backup Withholding
The Fund may be required to withhold federal income tax on all taxable distributions and redemption proceeds payable to non-corporate shareholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications, or who have been notified by the IRS that they are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be refunded or credited against such shareholder's federal income tax liability, if any, provided that the required information is furnished to the IRS.
The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and the Treasury regulations are subject to change by legislative, judicial or administrative action, either prospectively or retroactively. Persons considering an investment in Series A Preferred or Series B AMPS should consult their own tax advisers regarding the purchase, ownership and disposition of Series A Preferred or Series B AMPS.
ADDITIONAL INFORMATION CONCERNING AUCTIONS
FOR SERIES B AMPS
General
The Statement of Preferences provides that the Applicable Rate for each Dividend Period of the Series B AMPS will be equal to the rate per annum that the Auction Agent advises has resulted on the Business Day preceding the first day of a Dividend Period (an "Auction Date") from implementation of the Auction Procedures set forth in the Statement of Preferences, and summarized below, in which persons determine to hold or offer to sell or, based on dividend rates bid by them, offer to purchase or sell shares of such Series. Each periodic implementation of the Auction Procedures is referred to herein as an "Auction." The following summary is qualified by reference to the Auction Procedures set forth in the Statements of Preferences.
Auction Agency Agreement. The Fund has entered into an Auction Agency Agreement (the "Auction Agency Agreement") with the Auction Agent (currently, The Bank of New York), which provides, among other things, that the Auction Agent will follow the Auction Procedures for purposes of determining the Applicable Rate for Series B AMPS so long as the Applicable Rate is to be based on the results of the Auction.
Broker-Dealer Agreements. Each Auction requires the participation of one or more Broker-Dealers. The Auction Agent has entered into agreements (collectively, the "Broker-Dealer Agreements") with several Broker-Dealers selected by the Fund, which provide for the participation of those Broker-Dealers in Auctions for Series B AMPS. See "Broker-Dealers" below.
Securities Depository. DTC will act as the Securities Depository for the Agent Members with respect to the Series B AMPS. One certificate for all of the Series B AMPS shares will be registered in the name of Cede & Co., as nominee of the Securities Depository.
Such certificate will bear a legend to the effect that such certificate is issued subject to the provisions restricting transfers of Series B AMPS contained in the Statement of Preferences. The Fund will also issue stop-transfer instructions to the transfer agent for the Series B AMPS. Prior to the commencement of the right of Holders of the Preferred Shares to elect a majority of the Fund's trustees, as described under "Description of the Series A Preferred and Series B AMPS -- Voting Rights" in the Prospectus, Cede & Co. will be the Holder of all the Series B AMPS and owners of such shares will not be entitled to receive certificates representing their ownership interest in such shares.
DTC, a New York chartered limited purpose trust company, performs services for its participants (including Agent Members), some of whom (and/or their representatives) own DTC. DTC maintains lists of its participants and will maintain the positions (ownership interests) held by each such Agent Member in Series B AMPS, whether for its own account or as a nominee for another person.
Orders by Existing Holders and Potential Holders
On or prior to the Submission Deadline on each Auction Date for the Series B AMPS:
(i) each Beneficial Owner of Series B AMPS may submit to its Broker-Dealer by telephone or otherwise a:
(a) "Hold Order" - indicating the number of Outstanding Series B AMPS shares, if any, that such Beneficial Owner desires to continue to hold without regard to the Applicable Rate for such shares for the next succeeding Dividend Period of such shares;
(b) "Bid" - indicating the number of Outstanding Series B AMPS shares, if any, that such Beneficial Owner offers to sell if the Applicable Rate for such Series B AMPS for the next succeeding Dividend Period is less than the rate per annum specified by such Beneficial Owner in such Bid; and/or
(c) "Sell Order" - indicating the number of Outstanding Series B AMPS shares, if any, that such Beneficial Owner offers to sell without regard to the Applicable Rate for such Series B AMPS for the next succeeding Dividend Period; and
(ii) Broker-Dealers will contact customers who are Potential Beneficial Owners by telephone or otherwise to determine whether such customers desire to submit Bids, in which case they will indicate the number of Series B AMPS shares that they offer to purchase if the Applicable Rate for Series B AMPS for the next succeeding Dividend Period is not less than the rate per annum specified in such Bids.
The communication to a Broker-Dealer of the foregoing information is herein referred to as an "Order" and collectively as "Orders." A Beneficial Owner or a Potential Beneficial Owner placing an Order with its Broker-Dealer is herein referred to as a "Bidder" and collectively as "Bidders." The submission by a Broker-Dealer of an Order to the Auction Agent is referred to herein as an "Order" and collectively as "Orders," and an Existing Holder or Potential Holder who places an Order with the Auction Agent or on whose behalf an Order is placed with the Auction Agent is referred to herein as a "Bidder" and collectively as "Bidders."
A Bid placed by a Beneficial Owner specifying a rate higher than the Applicable Rate determined in the Auction will constitute an irrevocable offer to sell the shares subject thereto. A Beneficial Owner that submits a Bid to its Broker-Dealer having a rate higher than the Maximum Rate on the Auction Date thereof will be treated as having submitted a Sell Order to its Broker-Dealer. A Sell Order will constitute an irrevocable offer to sell Series B AMPS subject thereto at a price per share equal to $25,000.
A Beneficial Owner that fails to submit to its Broker-Dealer prior to the Submission Deadline for the Series B AMPS an Order or Orders covering all the Outstanding Series B AMPS held by such Beneficial Owner will be deemed to have submitted a Hold Order to its Broker-Dealer covering the number of Outstanding Series B AMPS shares held by such Beneficial Owner and not subject to Orders submitted to its Broker-Dealer; provided, however, that if a Beneficial Owner fails to submit to its Broker-Dealer prior to the Submission Deadline for the Series B AMPS an Order or Orders covering all of the Outstanding Series B AMPS held by such Beneficial Owner for an Auction relating to a Special Dividend Period consisting of more than 28 Dividend Period days, such Beneficial Owner will be deemed to have submitted a Sell Order to its Broker-Dealer covering the number of Outstanding Series B AMPS shares held by such Beneficial Owner and not subject to Orders submitted to its Broker-Dealer.
A Potential Beneficial Owner of Series B AMPS may submit to its Broker-Dealer Bids in which it offers to purchase Series B AMPS if the Applicable Rate for the next Dividend Period is not less than the rate specified in such Bid. A Bid placed by a Potential Beneficial Owner specifying a rate not higher than the Maximum Rate will constitute an irrevocable offer to purchase the number of Series B AMPS shares specified in such Bid if the rate determined in the Auction is equal to or greater than the rate specified in such Bid. A Beneficial Owner of Series B AMPS that offers to become the Beneficial Owner of additional Series B AMPS is, for purposes of such offer, a Potential Beneficial Owner.
As described more fully below under "-- Submission of Orders by Broker-Dealers to Auction Agent," the Broker-Dealers will submit the Orders of their respective customers who are Beneficial Owners and Potential Beneficial Owners to the Auction Agent, designating themselves (unless otherwise permitted by the Fund) as Existing Holders in respect of Series B AMPS subject to Orders submitted or deemed submitted to them by Beneficial Owners and as Potential Holders in respect of Series B AMPS subject to Orders submitted to them by Potential Beneficial Owners. However, neither the Fund nor the Auction Agent will be responsible for a Broker-Dealer's failure to comply with the foregoing. Any Order placed with the Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder or a Potential Holder will be treated in the same manner as an Order placed with a Broker-Dealer by a Beneficial Owner or a Potential Beneficial Owner, as described above. Similarly, any failure by a Broker-Dealer to submit to the Auction Agent an Order in respect of any Series B AMPS held by it or its customers who are Beneficial Owners will be treated in the same manner as a Beneficial Owner's failure to submit to its Broker-Dealer an Order in respect of Series B AMPS held by it, as described in the second preceding paragraph. For information concerning the priority given to different types of Orders placed by Existing Holders, see "-- Submission of Orders by Broker-Dealers to Auction Agent" below.
The Fund may not submit an Order in any Auction.
The Auction Procedures include a pro rata allocation of shares for purchase and sale, which may result in an Existing Holder continuing to hold or selling, or a Potential Holder purchasing, a number of Series B AMPS shares that is fewer than the number of Series B AMPS shares specified in its Order. See "-- Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares" below. To the extent the allocation procedures have that result, Broker-Dealers that have designated themselves as Existing Holders or Potential Holders in respect of customer Orders will be required to make appropriate pro rata allocations among their respective customers. Each purchase or sale will be made for settlement on the Business Day next succeeding the Auction Date at a price per share equal to $25,000. See "-- Notification of Results; Settlement" below.
As described above, any Bid specifying a rate higher than the Maximum Rate will (i) be treated as a Sell Order if submitted by a Beneficial Owner or an Existing Holder and (ii) not be accepted if submitted by a Potential Beneficial Owner or a Potential Holder. Accordingly, the Auction Procedures establish the Maximum Rate as a maximum rate per annum that can result from an Auction up to the Maximum Rate. See "Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares" below.
Concerning the Auction Agent
The Auction Agent is acting as agent for the Fund in connection with Auctions. In the absence of willful misconduct or gross negligence on its part, the Auction Agent will not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under the Auction Agency Agreement and will not be liable for any error of judgment resulting from the use or reliance on a source of information used in good faith unless the Auction Agent will have been grossly negligent in the determination, calculation or declaration thereunder.
The Auction Agent may rely upon, as evidence of the identities of the Existing Holders of Series B AMPS, the Auction Agent's registry of Existing Holders, the results of Auctions and notices from any Broker-Dealer (or other person, if permitted by the Fund) with respect to transfers described under "The Auction of Series B AMPS -- Secondary Market Trading and Transfer of Series B AMPS" in the Prospectus and notices from the Fund. The Auction Agent is not required to accept any such notice for an Auction unless it is received by the Auction Agent by 3:00 p.m., New York City time, on the Business Day preceding such Auction.
The Auction Agent may terminate the Auction Agency Agreement upon written notice to the Fund on a date no earlier than 30 days after the date of delivery of such notice. If the Auction Agent should resign or for any reason its appointment is terminated during any period when the Series B AMPS are outstanding, the Fund will use its best efforts promptly thereafter to enter into an agreement with a successor Auction Agent containing substantially the same terms and conditions as the Auction Agency Agreement. The Fund may remove the Auction Agent, provided that prior to such removal, the Fund has entered into such an agreement in substantially the form of the Auction Agency Agreement with a successor Auction Agent.
Broker-Dealers
The Auction Agent after each Auction for Series B AMPS will pay to
each Broker-Dealer, from funds provided by the Fund, a service charge equal
to, in the case of any auction immediately preceding a dividend period of less
than 365 days the product of (i) a fraction, the numerator of which is the
number of days in such dividend period and the denominator of which is 360,
times (ii) 1/4 of 1%, times (iii) $25,000, times (iv) the aggregate number of
Series B AMPS shares placed by such broker-dealer at such auction or, in the
case of any auction immediately preceding a dividend period of one year or
longer, a percentage of the purchase price of the Series B AMPS placed by the
broker-dealers at the auction agreed to by the Fund and the broker-dealers.
For the purposes of the preceding sentence, Series B AMPS will be placed by a
Broker-Dealer if such shares were (i) the subject of Hold Orders deemed to
have been submitted to the Auction Agent by the Broker-Dealer and were
acquired by such Broker-Dealer for its customers who are Beneficial Owners or
(ii) the subject of an Order submitted by such Broker-Dealer that is (a) a
Submitted Bid of an Existing Holder that resulted in such Existing Holder
continuing to hold such shares as a result of the Auction, (b) a Submitted Bid
of a Potential Holder that resulted in such Potential Holder purchasing such
shares as a result of the Auction or (c) a valid Hold Order.
The Fund may request the Auction Agent to terminate one or more Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer Agreement is in effect after such termination.
The Broker-Dealer Agreement provides that a Broker-Dealer may submit Orders in Auctions for its own account, unless the Fund notifies all Broker-Dealers that they may no longer do so, in which case Broker-Dealers may continue to submit Hold Orders and Sell Orders for their own accounts. If a Broker-Dealer submits an Order for its own account in any Auction, it might have an advantage over other Bidders because it would have knowledge of all Orders submitted by it in that Auction. Such Broker-Dealer, however, would not have knowledge of Orders submitted by other Broker-Dealers in that Auction.
Submission of Orders by Broker-Dealers to Auction Agent
Prior to 1:30 p.m., New York City time, on each Auction Date, or such other time on the Auction Date specified by the Auction Agent (i.e., the Submission Deadline), each Broker-Dealer will submit to the Auction Agent in writing all Orders obtained by it for the Auction to be conducted on such Auction Date, designating itself (unless otherwise permitted by the Fund) as the Existing Holder or Potential Holder, as the case may be, in respect of Series B AMPS subject to such Orders. Any Order submitted by a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any Auction Date, will be irrevocable.
If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent will round such rate to the next highest one-thousandth (0.001) of 1%.
If one or more Orders of an Existing Holder is submitted to the Auction Agent covering in the aggregate more than the number of Outstanding Series B AMPS shares subject to an Auction held by such Existing Holder, such Orders will be considered valid in the following order of priority:
(i) all Hold Orders for Series B AMPS will be considered valid, but only up to and including in the aggregate the number of Outstanding shares of Series B AMPS held by such Existing Holder, and, if the number of Series B AMPS shares subject to such Hold Orders exceeds the number of shares of Outstanding Series B AMPS held by such Existing Holder, the number of shares subject to each such Hold Order will be reduced pro rata to cover the number of Outstanding shares held by such Existing Holder;
(ii) (a) any Bid for Series B AMPS will be considered valid up to and including the excess of the number of Outstanding shares of Series B AMPS held by such Existing Holder over the number of Series B AMPS shares subject to any Hold Orders referred to in clause (i) above;
(b) subject to subclause (a), if more than one Bid of an Existing Holder for Series B AMPS is submitted to the Auction Agent with the same rate and the number of Outstanding shares of Series B AMPS subject to such Bids is greater than such excess, such Bids will be considered valid up to and including the amount of such excess, and the number of shares of Series B AMPS subject to each Bid with the same rate will be reduced pro rata to cover the number of shares of Series B AMPS equal to such excess;
(c) subject to subclauses (a) and (b), if more than one Bid of an Existing Holder for Series B AMPS is submitted to the Auction Agent with different rates, such Bids will be considered valid in the ascending order of their respective rates up to and including the amount of such excess; and
(d) in any such event, the number, if any, of such Outstanding shares of Series B AMPS subject to any portion of Bids considered not valid in whole or in part under this clause (ii) will be treated as the subject of a Bid for Series B AMPS by or on behalf of a Potential Holder at the rate specified therein; and
(iii) all Sell Orders for Series B AMPS will be considered valid
up to and including the excess of the number of Outstanding
shares of Series B AMPS held by such Existing Holder over
the sum of shares subject to valid Hold Orders referred to
in clause (i) above and valid Bids referred to in clause
(ii) above.
If more than one Bid of a Potential Holder for Series B AMPS is submitted to the Auction Agent by or on behalf of any Potential Holder, each such Bid submitted will be a separate Bid with the rate and number of Series B AMPS shares specified therein.
Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate
Not earlier than the Submission Deadline on each Auction Date for Series B AMPS, the Auction Agent will assemble all valid Orders submitted or deemed submitted to it by the Broker-Dealers (each such Hold Order, Bid or Sell Order as submitted or deemed submitted by a Broker-Dealer being herein referred to as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and will determine the excess of the number of Outstanding shares of Series B AMPS over the number of Outstanding shares of Series B AMPS subject to Submitted Hold Orders (such excess being herein referred to as the "Available Series B AMPS") and whether Sufficient Clearing Bids have been made in the Auction. "Sufficient Clearing Bids" will have been made if the number of Outstanding shares of Series B AMPS that are the subject of Submitted Bids of Potential Holders specifying rates not higher than the Maximum Rate equals or exceeds the number of Outstanding shares of Series B AMPS that are the subject of Submitted Sell Orders (including the number of Series B AMPS shares subject to Bids of Existing Holders specifying rates higher than the Maximum Rate).
If Sufficient Clearing Bids for Series B AMPS have been made, the Auction Agent will determine the lowest rate specified in such Submitted Bids (the Winning Bid Rate for shares of such Series) which, taking into account the rates in the Submitted Bids of Existing Holders, would result in Existing Holders continuing to hold an aggregate number of Outstanding Series B AMPS shares which, when added to the number of Outstanding Series B AMPS shares to be purchased by Potential Holders, based on the rates in their Submitted Bids, would equal not less than the Available Series B AMPS. In such event, the Winning Bid Rate will be the Applicable Rate for the next Dividend Period for all shares of such Series.
If Sufficient Clearing Bids have not been made (other than because all of the Outstanding Series B AMPS is subject to Submitted Hold Orders), the Applicable Rate for the next Dividend Period for all Series B AMPS will be equal to the Maximum Rate. In such a case, Beneficial Owners that have submitted or that are deemed to have submitted Sell Orders may not be able to sell in the Auction all Series B AMPS subject to such Sell Orders but will continue to own Series B AMPS for the next Dividend Period. See "-- Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares" below.
If all of the Outstanding Series B AMPS is subject to Submitted Hold Orders, the Applicable Rate for all Series B AMPS for the next succeeding Dividend Period will be the All Hold Rate.
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares
Based on the determinations made under "-- Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate" above and, subject to the discretion of the Auction Agent to round and allocate certain shares as described below, Submitted Bids and Submitted Sell Orders will be accepted or rejected in the order of priority set forth in the Auction Procedures, with the result that Existing Holders and Potential Holders of Series B AMPS will sell, continue to hold and/or purchase such shares as set forth below. Existing Holders that submitted or were deemed to have submitted Hold Orders (or on whose behalf Hold Orders were submitted or deemed to have been submitted) will continue to hold the Series B AMPS subject to such Hold Orders.
If Sufficient Clearing Bids for Series B AMPS shares have been made:
(i) Each Existing Holder that placed or on whose behalf was placed a Submitted Sell Order or Submitted Bid specifying any rate higher than the Winning Bid Rate will sell the Outstanding Series B AMPS subject to such Submitted Sell Order or Submitted Bid;
(ii) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate lower than the Winning Bid Rate will continue to hold the Outstanding Series B AMPS subject to such Submitted Bid;
(iii) Each Potential Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate lower than the Winning Bid Rate will purchase the number of Outstanding Series B AMPS shares subject to such Submitted Bid;
(iv) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to the Winning Bid Rate will continue to hold Series B AMPS subject to such Submitted Bid, unless the number of Outstanding Series B AMPS shares subject to all such Submitted Bids is greater than the number of Series B AMPS shares ("remaining shares") in excess of the Available Series B AMPS over the number of Series B AMPS shares accounted for in clauses (ii) and (iii) above, in which event each Existing Holder with such a Submitted Bid will continue to hold Series B AMPS subject to such Submitted Bid determined on a pro rata basis based on the number of Outstanding Series B AMPS shares subject to all such Submitted Bids of such Existing Holders; and
(v) Each Potential Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to the Winning Bid Rate for Series B AMPS will purchase any Available Series B AMPS not accounted for in clauses (ii) through (iv) above on a pro rata basis based on the Outstanding Series B AMPS shares subject to all such Submitted Bids.
If Sufficient Clearing Bids for Series B AMPS shares have not been made (unless this results because all Outstanding Series B AMPS shares are subject to Submitted Hold Orders):
(i) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to or lower than the Maximum Rate will continue to hold the Series B AMPS subject to such Submitted Bid;
(ii) Each Potential Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate equal to or lower than the Maximum Rate will purchase the number of Series B AMPS shares subject to such Submitted Bid; and
(iii) Each Existing Holder that placed or on whose behalf was placed a Submitted Bid specifying a rate higher than the Maximum Rate or a Submitted Sell Order will sell a number of Series B AMPS shares subject to such Submitted Bid or Submitted Sell Order determined on a pro rata basis based on the number of Outstanding Series B AMPS shares subject to all such Submitted Bids and Submitted Sell Orders.
If, as a result of the pro rata allocation described in clauses
(iv) or (v) of the second preceding paragraph or clause (iii) of the next
preceding paragraph, any Existing Holder would be entitled or required to
sell, or any Potential Holder would be entitled or required to purchase, a
fraction of a Series B AMPS share, the Auction Agent will, in such manner as,
in its sole discretion, it determines, round up or down to the nearest whole
share the number of Series B AMPS shares being sold or purchased on such
Auction Date so that the number of Series B AMPS shares sold or purchased by
each Existing Holder or Potential Holder will be whole shares of such Series.
If as a result of the pro rata allocation described in clause (v) of the
second preceding paragraph, any Potential Holder would be entitled or required
to purchase less than a whole Series B AMPS share, the Auction Agent will, in
such manner as, in its sole discretion, it will determine, allocate Series B
AMPS for purchase among Potential Holders so that only whole Series B AMPS
shares are purchased by any such Potential Holder, even if such allocation
results in one or more of such Potential Holders not purchasing shares of such
Series.
Notification of Results; Settlement
The Auction Agent will be required to advise each Broker-Dealer
that submitted an Order of the Applicable Rate for the next Dividend Period
and, if the Order was a Bid or Sell Order, whether such Bid or Sell Order was
accepted or rejected, in whole or in part, by telephone by approximately 3:00
p.m., New York City time, on each Auction Date. Each Broker-Dealer that
submitted an Order for the account of a customer will then be required to
advise such customer of the Applicable Rate for the next Dividend Period and,
if such Order was a Bid or a Sell Order, whether such Bid or Sell Order was
accepted or rejected, in whole or in part, will be required to confirm
purchases and sales with each customer purchasing or selling Series B AMPS as
a result of the Auction and will be required to advise each customer
purchasing or selling Series B AMPS as a result of the Auction to give
instructions to its Agent Member of the Securities Depository to pay the
purchase price against delivery of such shares or to deliver such shares
against payment therefor, as appropriate. The Auction Agent will be required
to record each transfer of Series B AMPS shares on the registry of Existing
Holders to be maintained by the Auction Agent.
In accordance with the Securities Depository's normal procedures, on the Business Day after the Auction Date, the transactions described above will be executed through the Securities Depository and the accounts of the respective Agent Members at the Securities Depository will be debited and credited and shares delivered as necessary to effect the purchases and sales of Series B AMPS as determined in the Auction. Purchasers will make payment through their Agent Members in same-day funds to the Securities Depository against delivery through their Agent Members; the Securities Depository will make payment in accordance with its normal procedures, which now provide for payment against delivery by their Agent Members in same-day funds.
If any Existing Holder selling Series B AMPS in an Auction fails to deliver such shares, the Broker-Dealer of any person that was to have purchased such shares in such Auction may deliver to such person a number of whole Series B AMPS shares that is less than the number of Series B AMPS shares that otherwise was to be purchased by such person. In such event, the number of Series B AMPS shares to be so delivered will be determined by the Broker-Dealer. Delivery of such lesser number of Series B AMPS shares will constitute good delivery.
ADDITIONAL INFORMATION CONCERNING
THE SERIES A PREFERRED AND SERIES B AMPS
The additional information concerning the Series A Preferred and Series B AMPS contained in this SAI does not purport to be complete a complete description of those Series and should be read in conjunction with the description of the Series A Preferred and Series B AMPS contained in the Prospectus under "Description of the Series A Preferred and Series B AMPS." This description is subject to and qualified in its entirety by reference to the Fund's Governing Documents, including the provisions of the Statements of Preferences establishing, respectively, the Series A Preferred and the Series B AMPS. Copies of these Statements of Preferences are filed as exhibits to the registration statement of which the Prospectus and this SAI are a part and may be inspected, and a copy thereof may be obtained, as described under "Additional Information" in the Prospectus.
Dividends and Dividend Periods For the Series B AMPS
Holders of Series B AMPS will be entitled to receive, when, as and if declared by the Board of Trustees, out of funds legally available therefor, cumulative cash dividends on their shares, at the Applicable Rate determined as described under " -- Determination of Dividend Rate," payable as and when set forth below. Dividends so declared and payable will be paid to the extent permitted under the Code, and to the extent available and in preference to and priority over any dividend declared and payable on the Fund's Common Shares.
By 12:00 noon, New York City time, on the Business Day immediately preceding each Dividend Payment Date, the Fund is required to deposit with the Paying Agent sufficient same-day funds for the payment of declared dividends. The Fund does not intend to establish any reserves for the payment of dividends.
Each dividend will be paid by the Paying Agent to the Holder, which Holder is expected to be the nominee of the Securities Depository. The Securities Depository will credit the accounts of the Agent Members of the beneficial owners in accordance with the Securities Depository's normal procedures. The Securities Depository's current procedures provide for it to distribute dividends in same-day funds to Agent Members who are in turn expected to distribute such dividends to the persons for whom they are acting as agents. The Agent Member of a beneficial owner will be responsible for holding or disbursing such payments on the applicable Dividend Payment Date to such beneficial owner in accordance with the instructions of such beneficial owner.
Holders of Series B AMPS will not be entitled to any dividends, whether payable in cash, property or shares, in excess of full cumulative dividends. No interest will be payable in respect of any dividend payment or payments that may be in arrears. See "-- Default Period."
The amount of dividends per Outstanding Series B AMPS share payable (if declared) on each Dividend Payment Date of each Dividend Period of less than one year (or in respect of dividends on another date in connection with a redemption during such Dividend Period) will be computed by multiplying the Applicable Rate (or the Default Rate) for such Dividend Period (or a portion thereof) by a fraction, the numerator of which will be the number of days in such Dividend Period (or portion thereof) such share was Outstanding and for which the Applicable Rate or the Default Rate was applicable (but in no event will the numerator exceed 360) and the denominator of which will be 360, multiplying the amount so obtained by the $25,000, and rounding the amount so obtained to the nearest cent. During any Dividend Period of one year or more, the amount of dividends per Series B AMPS share payable on any Dividend Payment Date (or in respect of dividends on another date in connection with a redemption during such Dividend Period) will be computed as described in the preceding sentence except that the numerator, with respect to any full twelve month period, will be 360.
Determination of Dividend Rate. The dividend rate for the initial Dividend Period (i.e., the period from and including the Date of Original Issue to and including the initial Auction Date) and the initial Auction Date for the Series B AMPS is set forth in the Prospectus. See "The Auction of Series B AMPS -- Summary of Auction Procedures" in the Prospectus. For each subsequent Dividend Period, subject to certain exceptions, the dividend rate will be the Applicable Rate that the Auction Agent advises the Fund has resulted from an Auction.
Dividend Periods after the initial Dividend Period will either be Standard Dividend Periods (generally seven days) or, subject to certain conditions and with notice to Holders, Special Dividend Periods.
A Special Dividend Period will not be effective unless Sufficient Clearing Bids exist at the Auction in respect of such Special Dividend Period (that is, in general, the number of shares subject to Bids by Potential Beneficial Owners is at least equal to the number of shares subject to Sell Orders by Existing Holders). If Sufficient Clearing Bids do not exist at any Auction in respect of a Special Dividend Period, the Dividend Period commencing on the Business Day succeeding such Auction will be the Standard Dividend Period, and the Holders of the Series B AMPS will be required to continue to hold such shares for such Standard Dividend Period. The designation of a Special Dividend Period is also subject to additional conditions. See "-- Notification of Dividend Period" below.
Dividends will accumulate at the Applicable Rate from the Date of Original Issue and will be payable on each Dividend Payment Date thereafter. Dividends will be paid through the Securities Depository on each Dividend Payment Date. The Applicable Rate resulting from an Auction will not be greater than the Maximum Rate. The Maximum Rate is subject to upward, but not downward, adjustment in the discretion of the Board of Trustees after consultation with the Broker-Dealers, provided that immediately following any such increase the Fund would be in compliance with the Series B AMPS Basic Maintenance Amount.
The Maximum Rate will apply automatically following an Auction for Series B AMPS in which Sufficient Clearing Bids have not been made (other than because all Series B AMPS were subject to Submitted Hold Orders) or following the failure to hold an Auction for any reason on the Auction Date scheduled to occur (except for (i) circumstances in which the Dividend Rate is the Default Rate, as described below or (ii) in the event an auction is not held because an unforeseen event or unforeseen events cause a day that otherwise would have been an Auction Date not to be a Business Day, in which case the length of the then-current dividend period will be extended by seven days, or a multiple thereof if necessary because of such unforeseen event or events, the applicable rate for such period will be the applicable rate for the then-current dividend period so extended and the dividend payment date for such dividend period will be the first business day next succeeding the end of such period). The All Hold Rate will apply automatically following an Auction in which all of the Outstanding Series B AMPS shares are subject (or are deemed to be subject) to Hold Orders.
Prior to each Auction, Broker-Dealers will notify Holders of the term of the next succeeding Dividend Period as soon as practicable after the Broker-Dealers have been so advised by the Fund. After each Auction, on the Auction Date, Broker-Dealers will notify Holders of the Applicable Rate for the next succeeding Dividend Period and of the Auction Date of the next succeeding Auction.
Notification of Dividend Period. The Fund will designate the duration of Dividend Periods of the Series B AMPS; provided, however, that no such designation is necessary for a Standard Dividend Period and that any designation of a Special Dividend Period will be effective only if (i) notice thereof has been given as provided herein, (ii) any failure to pay in the timely manner to the Auction Agent the full amount of any dividend on, or the redemption price of, the Series B AMPS has been cured as set forth under "-- Default Period," (iii) Sufficient Clearing Orders existed in an Auction held on the Auction Date immediately preceding the first day of such proposed Special Dividend Period, (iv) if the Fund mailed a notice of redemption with respect to any shares, the Redemption Price with respect to such shares has been deposited with the Paying Agent, and (v) the Fund has confirmed that, as of the Auction Date next preceding the first day of such Special Dividend Period, it has Eligible Assets with an aggregate Discounted Value at least equal to the Series B AMPS Basic Maintenance Amount and has consulted with the Broker-Dealers and has provided notice and a Series B AMPS Basic Maintenance Report to each Rating Agency which is then rating the Series B AMPS and so requires.
If the Fund proposes to designate any Special Dividend Period, not fewer than seven Business Days (or two Business Days in the event the duration of the Special Dividend Period is fewer than ten days) nor more than 30 Business Days prior to the first day of such Special Dividend Period, notice will be made by press release and communicated by the Fund by telephonic or other means to the Auction Agent and confirmed in writing promptly thereafter. Each such notice will state (x) that the Fund proposes to exercise its option to designate a succeeding Special Dividend Period, specifying the first and last days thereof and (y) that the Fund will, by 3:00 p.m., New York City time, on the second Business Day next preceding the first day of such Special Dividend Period, notify the Auction Agent, who will promptly notify the Broker-Dealers, of either its determination, subject to certain conditions, to proceed with such Special Dividend Period, in which case the Fund may specify the terms of any Specific Redemption Provisions, or its determination not to proceed with such Special Dividend Period, in which case the succeeding Dividend Period will be a Standard Dividend Period.
No later than 3:00 p.m., New York City time, on the second Business Day next preceding the first day of any proposed Special Dividend Period, the Fund will deliver to the Auction Agent, who will promptly deliver to the Broker-Dealers and Existing Holders, either:
(a) a notice stating (i) that the Fund has determined to designate the immediately succeeding Dividend Period as a Special Dividend Period, specifying the first and last days thereof and (ii) the terms of the Specific Redemption Provisions, if any; or
(b) a notice stating that the Fund has determined not to exercise its option to designate a Special Dividend Period.
If the Fund fails to deliver either such notice with respect to any designation of any proposed Special Dividend Period to the Auction Agent or is unable to make the confirmation described above by 3:00 p.m., New York City time, on the second Business Day next preceding the first day of such proposed Special Dividend Period, the Fund will be deemed to have delivered a notice to the Auction Agent with respect to such Dividend Period to the effect set forth in clause (b) above, thereby resulting in a Standard Dividend Period.
Default Period. A "Default Period" with respect to the Outstanding Series B AMPS will commence on any date upon which the Fund fails to deposit irrevocably in trust in same-day funds with the Paying Agent by 12:00 noon, New York City time, on the Business Day immediately preceding the relevant Dividend Payment Date or Redemption Date (or such later date as the Paying Agent may authorize), as the case may be, (i) the full amount of any declared dividend on the Outstanding Series B AMPS payable on such Dividend Payment Date (a "Dividend Default") or (ii) the full amount of any redemption price (the "Redemption Price") payable on the Series B AMPS being redeemed on such Redemption Date (a "Redemption Default" and, together with a Dividend Default, a "Default").
A Default Period with respect to a Dividend Default or a Redemption Default will end by 12:00 noon, New York City time, on the Business Day on which all unpaid dividends and any unpaid Redemption Price will have been deposited irrevocably in trust in same-day funds with the Paying Agent.
In the case of a Dividend Default, no Auction will be held during a Default Period applicable to the Series B AMPS, and the dividend rate for each Dividend Period commencing during a Default Period will be equal to the Default Rate; provided, however, that if a Default Period is deemed not to have occurred because the Default has been cured, then the dividend rate for the period shall be the Applicable Rate set at the auction for such period.
Each subsequent Dividend Period commencing after the beginning of a Default Period will be a Standard Dividend Period; provided, however, that the commencement of a Default Period will not by itself cause the commencement of a new Dividend Period. No Auction will be held during a Default Period applicable to such Series; provided, however, that if a Default Period shall end prior to the end of Standard Dividend Period that had commenced during the Default Period, an Auction shall be held on the last day of such Standard Dividend Period.
In the event the Fund fully pays all default amounts due during a Dividend Period, the dividend rate for the remainder of that Dividend Period will be, as the case may be, the Applicable Rate (for the first Dividend Period following a Dividend Default) or the Maximum Rate (for any subsequent Dividend Period for which such Default is continuing).
No Default Period with respect to a Dividend Default or Redemption Default will be deemed to commence if the amount of any dividend or any Redemption Price due (if such Default is not solely due to the willful failure of the Fund) is deposited irrevocably in trust, in same-day funds with the Paying Agent by 12:00 noon, New York City time, within three Business Days after the applicable Dividend Payment Date or Redemption Date, together with an amount equal to the Default Rate applied to the amount of such non-payment based on the actual number of days comprising such period divided by 360. The Default Rate will be equal to the Reference Rate multiplied by three.
Restrictions on Dividends, Redemption and Other Payments
Under the 1940 Act, the Fund may not (i) declare any dividend (except a dividend payable in shares of the issuer) or other distributions upon any of its outstanding Common Shares, or purchase any such Common Shares, if at the time of the declaration, distribution or purchase, as applicable (and after giving effect thereto), asset coverage with respect to the Fund's outstanding senior securities representing stock, including the Series A Preferred or Series B AMPS, would be less than 200% (or such higher percentage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities representing indebtedness of a closed-end investment company as a condition of declaring distributions, purchases or redemptions of its capital shares), or (ii) declare any dividend (except a dividend payable in shares of the issuer) or other distributions upon any of its outstanding capital shares, including the Series A Preferred or Series B AMPS, or purchase any such capital shares if, at the time of such declaration, distribution or purchase, as applicable (and after giving effect thereto), asset coverage with respect to the senior securities representing indebtedness would be less than 300% (or such other percentage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities representing stock of a closed-end investment company as a condition of declaring dividends on its Preferred Shares), except that dividends may be declared upon any Preferred Shares, including the Series A Preferred or Series B AMPS, if, at the time of such declaration (and after giving effect thereto), asset coverage with respect to the senior securities representing indebtedness would be equal to or greater than 200% (or such other percentage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities representing stock of a closed-end investment company as a condition of declaring dividends on its Preferred Shares). A declaration of a dividend or other distribution on or purchase or redemption of Series A Preferred or Series B AMPS is prohibited, unless there is no event of default under indebtedness senior to the Series A Preferred and/or Series B AMPS and, immediately after such transaction, the Fund would have Eligible Assets with an aggregated Discounted Value at least equal to the asset coverage requirements under indebtedness senior to its Preferred Shares (including the Series A Preferred and/or Series B AMPS).
For so long as the Series A Preferred or Series B AMPS is Outstanding, except as otherwise provided in the Statement of Preferences, the Fund will not pay any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, Common Shares or other shares, if any, ranking junior to the Series A Preferred and/or Series B AMPS as to dividends or upon liquidation) with respect to Common Shares or any other shares of the Fund ranking junior to the Series A Preferred and/or Series B AMPS as to dividends or upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any Common Shares or other shares ranking junior to the Series A Preferred and/or Series B AMPS (except by conversion into or exchange for shares of the Fund ranking junior to the Series A Preferred and/or Series B AMPS as to dividends and upon liquidation), unless, in each case, (x) immediately after such transaction, the Fund would have Eligible Assets with an aggregate Discounted Value at least equal to the Basic Maintenance Amount applicable to, as the case may be, the Series A Preferred or Series B AMPS and the 1940 Act Asset Coverage with respect to the Fund's Outstanding Preferred Shares, including the Series A Preferred and/or Series B AMPS, would be achieved, (y) all cumulative and unpaid dividends due on or prior to the date of the transaction have been declared and paid in full with respect to the Preferred Shares, including the Series A Preferred and/or Series B AMPS (or will have been declared and sufficient funds for the full payment thereof will have been deposited with the Paying Agent or the dividend-disbursement agent, as applicable) and (z) the Fund has redeemed the full number of Preferred Shares to be redeemed pursuant to any provision for mandatory redemption contained in the Statements of Preferences, including any Series A Preferred and/or Series B AMPS required or determined to be redeemed pursuant to any such provision.
No full dividend will be declared or paid on the Series A Preferred or Series B AMPS for any Dividend Period or part thereof, unless full cumulative dividends due through the most recent Dividend Payment Dates of the Outstanding Preferred Shares (including the Series A Preferred and/or Series B AMPS) have been or contemporaneously are declared and paid. If full cumulative dividends due have not been paid on all such Preferred Shares, any dividends being paid on such Preferred Shares (including the Series A Preferred and/or Series B AMPS) will be paid as nearly pro rata as possible in proportion to the respective amounts of dividends accumulated but unpaid on each such series of Preferred Shares on the relevant Dividend Payment Date.
Asset Maintenance
The Fund is required to satisfy two separate asset maintenance
requirements in respect of its Preferred Shares, including the Series A
Preferred and/or Series B AMPS: (i) the Fund must maintain assets in its
portfolio that have a value, discounted in accordance with the Rating Agency
Guidelines, at least equal to the aggregate liquidation preference of each of
the series of Preferred Shares, including Series A Preferred and/or Series B
AMPS, plus specified liabilities, payment obligations and other amounts; and
(ii) the Fund must maintain asset coverage for its Outstanding Preferred
Shares, including for the Series A Preferred and/or Series B AMPS, of at least
200%.
Basic Maintenance Amount. The Fund is required to maintain, as of each Valuation Date, Eligible Assets having in the aggregate a Discounted Value at least equal to the Basic Maintenance Amount, calculated separately for Moody's (if Moody's is then rating the Series A Preferred or Series B AMPS at the request of the Fund) and S&P (if S&P is then rating the Series A Preferred or Series B AMPS at the request of the Fund). For this purpose, the value of the Fund's portfolio securities will be the Market Value. If the Fund fails to meet such requirement on any Valuation Date and such failure is not cured by the related Cure Date, the Fund will be required under certain circumstances to redeem some or all of the Series A Preferred or Series B AMPS.
The "Basic Maintenance Amount" means, as of any Valuation Date, the
dollar amount equal to (i) the sum of (a) the product of the number of shares
of each class or series of Preferred Shares Outstanding on such Valuation Date
multiplied by the Liquidation Preference per share; (b) to the extent not
included in (a) the aggregate amount of cash dividends (whether or not earned
or declared) that will have accumulated for each Outstanding Preferred Share
from the most recent Dividend Payment Date to which dividends have been paid
or duly provided for (or, in the event the Basic Maintenance Amount is
calculated on a date prior to the initial Dividend Payment Date with respect
to a class or series of the Preferred Shares, then from the date of original
issue) through the Valuation Date plus all dividends to accumulate on the
Preferred Shares then Outstanding during the 31 days following such Valuation
Date or, if less, during the number of days following such Valuation Date that
Preferred Shares called for redemption are scheduled to remain Outstanding;
(c) the Fund's other liabilities due and payable as of such Valuation Date
(except that dividends and other distributions payable by the Fund on Common
Shares will not be included as a liability) and such liabilities projected to
become due and payable by the Fund during the 90 days following such Valuation
Date (excluding liabilities for investments to be purchased and for dividends
and other distributions not declared as of such Valuation Date); and (d) any
current liabilities of the Fund as of such Valuation Date to the extent not
reflected in (or specifically excluded by) any of (i)(a) through (i)(c)
(including, without limitation, and immediately upon determination, any
amounts due and payable by the Fund pursuant to reverse repurchase agreements
and any payables for assets purchased as of such Valuation Date) less (ii) (a)
the adjusted value of any of the Fund's assets or (b) the face value of any of
the Fund's assets if, in the case of both (ii)(a) and (ii)(b), such assets are
either cash or evidences of indebtedness which mature prior to or on the date
of redemption or repurchase of Preferred Shares or payment of another
liability and are either U.S. Government Obligations or evidences of
indebtedness which have a rating assigned by Moody's of at least "Aaa", "P-1",
"VMIG-1" or "MIG-1" or by S&P of at least "AAA", "SP-1+" or "A-1+", and are
irrevocably held by the Fund's custodian bank in a segregated account or
deposited by the Fund with the dividend-disbursing agent or Paying Agent, as
the case may be, for the payment of the amounts needed to redeem or repurchase
Preferred Shares subject to redemption or repurchase or any of (i)(b) through
(i)(d); and provided that in the event the Fund has repurchased Preferred
Shares and irrevocably segregated or deposited assets as described above with
its custodian bank or the dividend-disbursing agent or Paying Agent for the
payment of the repurchase price the Fund may deduct 100% of the Liquidation
Preference of such Preferred Shares to be repurchased from (i) above.
The Discount Factors - the criteria used to determine the Discounted Value of the Fund's portfolio holdings for purposes of determining compliance with the Basic Maintenance Amount - are based on the criteria established by each Rating Agency in connection with rating, as the case may be, the Series A Preferred or Series B AMPS. These factors include, but are not limited to, the sensitivity of the market value of the relevant asset to changes in interest rates, the liquidity and depth of the market for the relevant asset, the credit quality of the relevant asset (for example, the lower the rating of a debt obligation, the higher the related discount factor) and the frequency with which the relevant asset is marked to market. In no event will the Discounted Value of any asset of the Fund exceed its unpaid principal balance or face amount as of the date of calculation. Upon any failure to maintain the required Discounted Value of the Fund's Eligible Assets, the Fund may seek to alter the composition of its portfolio to re-attain the Basic Maintenance Amount on or prior to the applicable Cure Date, thereby incurring additional transaction costs and possible losses and/or gains on dispositions of portfolio securities.
The Fund may, but is not required to, adopt any modifications to the rating agency guidelines that may hereafter be established by Moody's or S&P. Failure to adopt any such modifications, however, may result in a change in the relevant rating agency's ratings or a withdrawal of such ratings altogether. In addition, any rating agency providing a rating for the Series A Preferred or the Series B AMPS at the request of the Fund may, at any time, change or withdraw any such rating. The Board of Trustees, without further action by the shareholders, may amend, alter, add to or repeal any provisions in the Fund's Statements of Preferences for the Series A Preferred and Series B AMPS, including provisions that have been adopted by the Fund pursuant to the rating agency guidelines, if the Board of Trustees determines that such amendments or modifications (i) are necessary to prevent a reduction in, or the withdrawal of, a rating of the Series A Preferred or Series B AMPS and are in the aggregate in the best interests of the holders of the Series A Preferred or Series B AMPS, as the case may be, or (ii) will not in the aggregate adversely affect the rights and preferences of the holders of Series A Preferred or Series B AMPS, provided, that in the case of clause (ii) the Fund has received advice from each applicable rating agency that such amendment or modification is not expected to adversely affect such rating agency's then-current rating of the Fund's preferred shares.
Among the modifications or amendments of the Statements of Preferences that would not be held to adversely affect the rights and preferences of the Series A Preferred or Series B AMPS would be the following:
o a modification of the definition of the maximum rate to increase the percentage amount by which the applicable LIBOR rate or treasury index rate is multiplied to determine the maximum rate or increase the spread added to the applicable LIBOR rate or treasury index rate; or
o a modification of the calculation of the adjusted value of the Fund's eligible assets or the basic maintenance amount (or of the elements and terms of each of them or the definitions of such elements or terms).
1940 Act Asset Coverage. As of each Valuation Date, the Fund will determine whether the 1940 Act Asset Coverage is met as of that date. The Fund will deliver to the Auction Agent and each Rating Agency a 1940 Act Asset Coverage Certificate which sets forth the determination of the preceding sentence (i) as of the Date of Original Issue and, thereafter, (ii) as of (x) the last Business Day of each March, June, September and December and (y) a Business Day on or before any 1940 Act Asset Coverage Cure Date following a failure to meet 1940 Act Asset Coverage. Such 1940 Act Asset Coverage Certificate will be delivered in the case of clause (i) on the Date of Original Issue and in the case of clause (ii) on or before the seventh Business Day after the last Business Day of such March, June, September and December, as the case may be, or the relevant Cure Date.
Notices. The Fund must deliver a Basic Maintenance Report to each applicable Rating Agency and the Auction Agent, if any, which sets forth, as of the related Monthly Valuation Date, Eligible Assets sufficient to meet or exceed the applicable Basic Maintenance Amount, the Market Value and Discounted Value thereof (in a series and in the aggregate) and the applicable Basic Maintenance Amount. Such Basic Maintenance Reports must be delivered as of the applicable Date of Original Issue and thereafter upon the occurrence of specified events on or before the fifth Business Day after the relevant Monthly Valuation Date or Cure Date.
As for any Valuation Date for which the Fund's ratio of the Discounted Value of Eligible Assets in respect of any Rating Agency to the Basic Maintenance Amount is less than or equal to 110%, the Fund shall deliver, by fax or email before 5:00 p.m. New York City time on the first Business Day following such Valuation Date, notice of such ratio to each Rating Agency.
Deposit Assets Requirements Relating to the Series B AMPS
The Fund is obligated to deposit in a segregated custodial account a specified amount of Deposit Assets not later than 12:00 noon, New York City time, on each Dividend Payment Date and each Redemption Date relating to the Series B AMPS. These Deposit Assets, in all cases, will have an initial combined value greater than or equal to the cash amounts payable on the applicable Dividend Payment Date or Redemption Date, and will mature prior to such date.
Restrictions on Transfer Relating to the Series B AMPS
Series B AMPS may be transferred only (i) pursuant to an Order placed in an Auction, (ii) to or through a Broker-Dealer, or (iii) to the Fund or any Affiliate. Notwithstanding the foregoing, a transfer other than pursuant to an Auction will not be effective unless the selling Existing Holder or the Agent Member of such Existing Holder, in the case of an Existing Holder whose shares are listed in its own name on the books of the Auction Agent, or the Broker-Dealer or Agent Member of such Broker-Dealer, in the case of a transfer between persons holding Series B AMPS through different Broker-Dealers, advises the Auction Agent of such transfer. Any certificates representing the Series B AMPS shares issued to the Securities Depository will bear legends with respect to the restrictions described above and stop-transfer instructions will be issued to the Transfer Agent and/or Registrar.
MOODY'S AND S&P GUIDELINES
The descriptions of the Moody's and S&P Guidelines contained in this SAI do not purport to be complete and are subject to and qualified in their entireties by reference to the applicable Statement of Preferences. Copies of the Statements of Preferences are filed as an exhibit to the registration statement of which the Prospectus and this SAI are a part and may be inspected, and copies thereof may be obtained, as described under "Additional Information" in the Prospectus.
The composition of the Fund's portfolio reflects guidelines (referred to herein as the "Rating Agency Guidelines") established by Moody's and S&P, each a Rating Agency, in connection with the Fund's receipt of a rating of "Aaa" from Moody's and "AAA" from S&P, respectively, for the Series B AMPS and a rating of "Aaa" from Moody's for the Series A Preferred. These Rating Agency Guidelines relate, among other things, to industry and credit quality characteristics of issuers and diversification requirements and specify various Discount Factors for different types of securities (with the level of discount greater as the rating of a security becomes lower). Under the Rating Agency Guidelines, certain types of securities in which the Fund may otherwise invest consistent with its investment strategy are not eligible for inclusion in the calculation of the Discounted Value of the Fund's portfolio. Such instruments include, for example, private placements (other than Rule 144A Securities) and other securities not within the Rating Agency Guidelines. Accordingly, although the Fund reserves the right to invest in such securities to the extent set forth herein, such securities have not and it is anticipated that they will not constitute a significant portion of the Fund's portfolio.
The Rating Agency Guidelines require that the Fund maintain assets having an aggregate Discounted Value, determined on the basis of the such guidelines, greater than the aggregate liquidation preference of the Outstanding Series A Preferred, Series B AMPS and other Preferred Shares plus specified liabilities, payment obligations and other amounts, as of periodic Valuation Dates. The Rating Agency Guidelines also require the Fund to maintain asset coverage for the Outstanding Series A Preferred, Series B AMPS and other Preferred Shares on a non-discounted basis of at least 200% as of the end of each month, and the 1940 Act requires this asset coverage as a condition to paying dividends or other distributions on its Common Shares. See "Additional Information Concerning The Series A Preferred and Series B AMPS -- Asset Maintenance." The effect of compliance with the Rating Agency Guidelines may be to cause the Fund to invest in higher quality assets and/or to maintain relatively substantial balances of highly liquid assets or to restrict the Fund's ability to make certain investments that would otherwise be deemed potentially desirable by the Investment Adviser, including private placements of other than Rule 144A Securities (as defined herein). The Rating Agency Guidelines are subject to change from time to time with the consent of the relevant Rating Agency and will apply to the Series A Preferred or Series B AMPS only so long as the relevant Rating Agency is rating such shares at the request of the Fund. If in the future the Fund elected to issue senior securities rated by a rating agency other than Moody's or S&P, other similar arrangements might apply with respect to those securities.
The Fund intends to maintain, at specified times, a Discounted Value for its portfolio at least equal to the amount specified by each Rating Agency (the "Basic Maintenance Amount"), the determination of which is as set forth under "Additional Information Concerning The Series A Preferred and Series B AMPS -- Asset Maintenance." Moody's and S&P have each established separate guidelines for determining Discounted Value. To the extent any particular portfolio holding does not satisfy the applicable Rating Agency's Guidelines, all or a portion of such holding's value will not be included in the calculation of Discounted Value (as defined by such Rating Agency). Upon any failure to maintain the required Discounted Value, the Fund may seek to alter the composition of its portfolio to reestablish required asset coverage within the specified ten Business Day cure period, thereby incurring additional transaction costs and possible losses and/or gains on dispositions of portfolio securities.
The Rating Agency Guidelines do not impose any limitations on the percentage of Fund assets that may be invested in holdings not eligible for inclusion in the calculation of the Discounted Value of the Fund's portfolio. The amount of such assets included in the portfolio at any time may vary depending upon the rating, diversification and other characteristics of the assets included in the portfolio which are eligible for inclusion in the Discounted Value of the portfolio under the Rating Agency Guidelines.
A rating of preferred shares as "Aaa" (as described by Moody's) or "AAA" (as described by S&P) indicates strong asset protection, conservative balance sheet ratios and positive indications of continued protection of preferred dividend requirements. A Moody's or S&P credit rating of preferred shares does not address the likelihood that a resale mechanism (such as the Auction) will be successful. As described respectively by Moody's and S&P, an issue of preferred shares which is rated "Aaa" or "AAA" is considered to be top-quality preferred shares with good asset protection and the least risk of dividend impairment within the universe of preferred shares.
The Fund will pay certain fees to Moody's and S&P for rating, as the case may be, the Series A Preferred and/or Series B AMPS. Such ratings may be subject to revision or withdrawal by the assigning Rating Agency at any time. Any rating of the Series A Preferred or Series B AMPS should be evaluated independently of any other rating. Ratings are not recommendations to purchase, hold or sell Series A Preferred or Series B AMPS, inasmuch as the rating does not comment as to market price or suitability for a particular investor. The rating is based on current information furnished to Moody's and S&P by the Fund and obtained by Moody's and S&P from other sources. The rating may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information. The Fund has no current intention to file a voluntary application for relief under federal bankruptcy law or any similar application under state law for so long as the Fund is solvent and does not foresee becoming insolvent.
MOODY'S GUIDELINES
Under the Moody's guidelines, the Fund is required to maintain specified discounted asset values for its portfolio representing the Preferred Basic Maintenance Amount. To the extent any particular portfolio holding does not meet the applicable guidelines, it is not included for purposes of calculating the Discounted Value of the Fund's portfolio.
The following Discount Factors apply to portfolio holdings as described below, subject to diversification, issuer size and other requirements, in order to constitute Moody's Eligible Assets includable within the calculation of Discounted Value:
Moody's
Type of Moody's Eligible Asset: Discount Factor:
Short Term Money Market Instruments (other than U.S. Government Obligations set forth
below) and other commercial paper:
U.S. Treasury Securities with final maturities that are less than or equal to 60 days.................... 1.00
Demand or time deposits, certificates of deposit and bankers' acceptances includable in
Moody's Short Term Money Market Instruments............................................................ 1.00
Commercial paper rated P-1 by Moody's maturing in 30 days or less........................................ 1.00
Commercial paper rated P-1 by Moody's maturing in more than 30 days but in 270 days
or less................................................................................................ 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days or less.......................................... 1.25
Repurchase obligations includable in Moody's Short Term Money Market Instruments if
term is less than 30 days and counterparty is rated at least A2........................................ 1.00
Other repurchase obligations............................................................................. **
U.S. Common Stock and Common Stock of foreign issuers for which ADRs are
traded
Utility................................................................................................. 1.70
Industrial............................................................................................... 2.64
Financial................................................................................................ 2.41
Common Stock of foreign issuers (in existence for at least five years) for which no ADRs are
traded......................................................................................................... 4.00
Convertible preferred stocks................................................................................... 3.00
Preferred stocks:
Auction rate preferred stocks............................................................................ 3.50
Other preferred stocks issued by issuers in the financial and industrial industries...................... 2.09
--------
** Discount factor applicable to the underlying assets.
Other preferred stocks issued by issuers in the utilities industry....................................... 1.55
U.S. Government Obligations (other than U.S. Treasury Securities set forth above or U.S.
Treasury Securities Strips set forth below)................................................................. 1.04-1.26
U.S. Treasury Securities Strips................................................................................ 1.04-1.66
Corporate Debt:
Non-convertible corporate debt rated Aaa.................................................................... 1.09-1.50
Non-convertible corporate debt rated at least Aa3........................................................... 1.12-1.55
Non-convertible corporate debt rated at least A3............................................................ 1.15-1.60
Non-convertible corporate debt rated at least Baa3.......................................................... 1.18-1.65
Non-convertible corporate debt rated at least Ba3........................................................... 1.37-1.96
Non-convertible corporate debt rated at least B1and B2...................................................... 1.50-2.29
Non-convertible unrated corporate debt...................................................................... 2.50
Convertible corporate debt rated at least Aa3 issued by the following type of issuers:
Utility.................................................................................................. 1.62-1.67
Industrial............................................................................................... 2.56-2.61
Financial................................................................................................ 2.33-2.38
Transportation........................................................................................... 2.50-2.65
Convertible corporate debt rated at least A3 issued by the following type
of issuers:
Utility.................................................................................................. 1.72
Industrial............................................................................................... 2.66
Financial................................................................................................ 2.43
Transportation........................................................................................... 2.75
Convertible corporate debt rated at least Baa3 issued by the following type
of issuers:
Utility.................................................................................................. 1.88
Industrial............................................................................................... 2.82
Financial................................................................................................ 2.59
Transportation........................................................................................... 2.85
Convertible corporate debt rated at least Ba3 issued by the following type
of issuers:
Utility.................................................................................................. 1.95
Industrial............................................................................................... 2.90
Financial................................................................................................ 2.65
Transportation........................................................................................... 2.90
Convertible corporate debt rated at least B2 issued by the following type
of issuers:
Utility.................................................................................................. 1.99
Industrial............................................................................................... 2.93
Financial................................................................................................ 2.70
Transportation........................................................................................... 2.95
|
"Moody's Eligible Assets" means:
(a) cash (including, for this purpose, receivables for investments sold to a counterparty whose senior debt securities are rated at least "Baa3" by Moody's or a counterparty approved by Moody's and payable within five Business Days following such Valuation Date and dividends and interest receivable within 49 days on investments);
(b) Short-Term Money Market Instruments;
(c) commercial paper that is not includable as a Short-Term Money Market Instrument having on the Valuation Date a rating from Moody's of at least "P-1" and maturing within 270 days;
(d) preferred stocks (i) which either (A) are issued by
issuers whose senior debt securities are rated at least "Baa1" by Moody's or
(B) are rated at least "Baa3" by Moody's or (C) in the event an issuer's
senior debt securities or preferred stock is not rated by Moody's, which
either (1) are issued by an issuer whose senior debt securities are rated at
least "A-" by S&P or (2) are rated at least "A-" by S&P and for this purpose
have been assigned a Moody's equivalent rating of at least "Baa3", (ii) of
issuers which have (or, in the case of issuers which are special purpose
corporations, whose parent companies have) common stock listed on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market
System, (iii) which have a minimum issue size (when taken together with other
of the issuer's issues of similar tenor) of $50,000,000, (iv) which have paid
cash dividends consistently during the preceding three-year period (or, in the
case of new issues without a dividend history, are rated at least "A1" by
Moody's or, if not rated by Moody's, are rated at least "AA-" by S&P), (v)
which pay cumulative cash dividends in U.S. dollars, (vi) which are not
convertible into any other class of stock and do not have warrants attached,
(vii) which are not issued by issuers in the transportation industry and
(viii) in the case of auction rate preferred stocks, which are rated at least
"Aa3" by Moody's, or if not rated by Moody's, "AAA" by S&P, AAA by Fitch or
are otherwise approved in writing by Moody's and have never had a failed
auction; provided, however, that for this purpose the aggregate Market Value
of the Fund's holdings of any single issue of auction rate preferred stock
shall not be more than 1% of the Fund's total assets;
(e) common stocks (i) (A) which are traded on a nationally recognized stock exchange or in the over-the-counter market, (B) if cash dividend paying, pay cash dividends in U.S. dollars and (C) which may be sold without restriction by the Fund; provided, however, that (y) common stock which, while a Moody's Eligible Asset owned by the Fund, ceases paying any regular cash dividend will no longer be considered a Moody's Eligible Asset until 71 days after the date of the announcement of such cessation, unless the issuer of the common stock has senior debt securities rated at least A3 by Moody's and (z) the aggregate Market Value of the Fund's holdings of the common stock of any issuer in excess of 4% in the case of utility common stock and 6% in the case of non-utility common stock of the aggregate Market Value of the Fund's holdings shall not be Moody's Eligible Assets, (ii) which are securities denominated in any currency other than the U.S. dollar or securities of issuers formed under the laws of jurisdictions other than the United States, its states and the District of Columbia for which there are dollar- denominated American Depository Receipts ("ADRs") or their equivalents which are traded in the United States on exchanges or over-the-counter and are issued by banks formed under the laws of the United States, its states or the District of Columbia or (iii) which are securities of issuers formed under the laws of jurisdictions other than the United States (and in existence for at least five years) for which no ADRs are traded; provided, however, that the aggregate Market Value of the Fund's holdings of securities denominated in currencies other than the U.S. dollar and ADRs in excess of (A) 6% of the aggregate Market Value of the outstanding shares of common stock of such issuer thereof or (B) 10% of the Market Value of the Fund's Moody's Eligible Assets with respect to issuers formed under the laws of any single such non-U.S. jurisdiction other than Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and the United Kingdom, shall not be a Moody's Eligible Asset;
(f) ADR securities, based on the following guidelines:
(i) Sponsored ADR program or (ii) Level II or Level III ADRs. Private
placement Rule 144A ADRs are not eligible for collateral consideration. Global
GDR programs will be evaluated on a case by case basis;
(g) U.S. Government Obligations;
(h) corporate evidences of indebtedness (i) which may be sold without restriction by the Fund which are rated at least "B3" ("Caa" subordinate) by Moody's (or, in the event the security is not rated by Moody's, the security is rated at least "BB-" by S&P and which for this purpose is assigned a Moody's equivalent rating of one full rating category lower), with such rating confirmed on each Valuation Date, (ii) which have a minimum issue size of at least (A) $100,000,000 if rated at least "Baa3" or (B) $50,000,000 if rated "B" or "Ba3", (iii) which are not convertible or exchangeable into equity of the issuing corporation and have a maturity of not more than 30 years and (iv) for which, if rated below "Baa3" or not rated, the aggregate Market Value of the Fund's holdings do not exceed 10% of the aggregate Market Value of any individual issue of corporate evidences of indebtedness calculated at the time of original issuance;
(i) convertible corporate evidences of indebtedness (i) which are issued by issuers whose senior debt securities are rated at least "B2" by Moody's (or, in the event an issuer's senior debt securities are not rated by Moody's, which are issued by issuers whose senior debt securities are rated at least "BB" by S&P and which for this purpose is assigned a Moody's equivalent rating of one full rating category lower), (ii) which are convertible into common stocks which are traded on the New York Stock Exchange or the American Stock Exchange or are quoted on the Nasdaq National Market System and (iii) which, if cash dividend paying, pay cash dividends in U.S. dollars; provided, however, that once convertible corporate evidences of indebtedness have been converted into common stock, the common stock issued upon conversion must satisfy the criteria set forth in clause (e) above and other relevant criteria set forth in this definition in order to be a Moody's Eligible Asset; provided, however, that the Fund's investments in auction rate preferred stocks described in clause (d) above shall be included in Moody's Eligible Assets only to the extent that the aggregate Market Value of such stocks does not exceed 10% of the aggregate Market Value of all of the Fund's investments meeting the criteria set forth in clauses (a) through (g) above less the aggregate Market Value of those investments excluded from Moody's Eligible Assets pursuant to the proviso appearing after clause (j) below; and
(j) no assets which are subject to any lien or irrevocably deposited by the Fund for the payment of amounts needed to meet the following obligations may be includable in Moody's Eligible Assets.
Notwithstanding anything to the contrary in the preceding clauses
(a)-(j), the Fund's investment in preferred stock, common stock, corporate
evidences of indebtedness and convertible corporate evidences of indebtedness
shall not be treated as Moody's Eligible Assets except to the extent they
satisfy the following diversification requirements (utilizing Moody's Industry
and Sub-industry Categories) with respect to the Market Value of the Fund's
holdings: Issuer:
Non-Utility Utility
Maximum Single Maximum Single
Moody's Rating(1)(2) Issuer(3)(4) Issuer(3)(4)
-------------------- ------------ ------------
Aaa 100% 100%
Aa 20% 20%
A 10% 10%
CS/CB, "Baa", Baa(5) 6% 4%
Ba 4% 4%
B1/B2 3% 3%
B3 or below 2% 2%
|
Industry and State:
Utility Utility
Non-Utility Maximum Maximum
Maximum Single Single Sub- Single
Moody's Rating(1) Industry(3) Industry(3)(6) State(3)
----------------- ----------- -------------- --------
Aaa 100% 100% 100%
Aa 60% 60% 20%
A 40% 50% 10%(7)
CS/CB, "Baa", Baa(5) 20% 50% 7%(7)
Ba 12% 12% 0%
B1/B2 8% 8% 0%
B3 or below 5% 5% 0%
|
(1) Unless conclusions regarding liquidity risk as well as estimates of both the probability and severity of default for the Fund's assets can be derived from other sources, securities rated below B by Moody's and unrated securities, which are securities rated by neither Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible Assets. If a corporate, municipal or other debt security is unrated by Moody's, S&P or Fitch, the Fund will use the percentage set forth under "Below B and Unrated" in this table. Ratings assigned by S&P or Fitch are generally accepted by Moody's at face value. However, adjustments to face value may be made to particular categories of credits for which the S&P and/or Fitch rating does not seem to approximate a Moody's rating equivalent.
(2) Corporate evidences of indebtedness from issues ranging from $50,000,000 to $100,000,000 are limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for the related Moody's rating category and each lower Moody's rating category.
(4) Issuers subject to common ownership of 25% or more are considered as one name.
(5) CS/CB refers to common stock and convertible corporate evidences of indebtedness, which are diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility evidences of indebtedness and utility convertible evidences of indebtedness, the definition of industry refers to sub-industries (electric, water, hydro power, gas, diversified). Investments in other sub-industries are eligible only to the extent that the combined sum represents a percentage position of the Moody's Eligible Assets less than or equal to the percentage limits in the diversification tables above.
(7) Such percentage shall be 15% in the case of utilities regulated by California, New York and Texas.
S&P GUIDELINES
Under the S&P guidelines, the Fund is required to maintain specified discounted asset values for its portfolio representing the Series B Preferred Basic Maintenance Amount (as defined below). To the extent any particular portfolio holding does not meet the applicable guidelines, it is not included for purposes of calculating the Discounted Value of the Fund's portfolio.
The following Discount Factors apply to portfolio holdings as described below in order to constitute S&P Eligible Assets includable within the calculation of Discounted Value:
Asset Class Obligor Discount Factors (1)
(Collateral) --------------------
------------
Common Stock 230.4%
30-yr treasury notes 126.7%
10-yr treasury notes 121.6%
5-yr treasury notes 115.1%
2-yr treasury notes 109.4%
52 week treasury bills 105.8%
STMMI with maturities 112.7%
from 181 to 360 days
STMMI with maturities 104%
from 1 to 180
Non-rated 2a-7 eligible 111%
money market funds used
as sweep accounts
Cash, receivables due 100%
within 5 business days of
a Valuation Date, demand
deposits and STMMI with
next day maturities held
in 'A-1+' rated institutions,
'AAAm' rated money
market funds & 'A-1+'
commercial paper with
maturities of 30 days or
less
___________________
|
(1) For an S&P rating of "AAA".
"S&P Eligible Assets" means:
(a) Deposit Securities; and
(b) common stocks that satisfy all of the following conditions:
(i) such common stock (including the common stock of any predecessor or constituent issuer) has been traded on a recognized national securities exchange or quoted on the National Market System (or any equivalent or successor thereto) of Nasdaq for at least 450 days,
(ii) the Market Capitalization of such issuer of common stock exceeds $100 million,
(iii) the issuer of such common stock is not an entity that is treated as a partnership for federal income tax purposes,
(iv) if such issuer is organized under the laws of any jurisdiction other than the United States, any state thereof, any possession or territory thereof or the District of Columbia, the common stock of such issuer held by the Fund is traded on a recognized national securities exchange or quoted on the National Market System of Nasdaq either directly or in the form of depository receipts, and
(v) if such issuer is registered as an investment company under the 1940 Act, such issuer does not invest more than 25% of the value of its gross assets in securities that are not S&P Eligible Assets by reason of clause (iv) above;
provided, however, that the Fund's holdings of the common stock of any single issuer that satisfies the conditions set forth in clauses (i) through (v) above shall be included in S&P Eligible Assets only to the extent that:
(1) restricted stocks (144a securities)
or any pink sheet stocks (generally,
stock that are not carried in daily
over-the-counter newspaper listings)
are ineligible; and
(2) the aggregate Market Value of the
Fund's holdings of any single
issuer is not in excess of 4% of the
aggregate Market Value of the
Fund's S&P Eligible Assets.
|
(c) Preferred stocks on such basis as S&P may determine in response to a request from the Fund.
Notwithstanding the foregoing, an asset will not be considered an S&P Eligible Asset if it is held in a margin account, is subject to any material lien, mortgage, pledge, security interest or security agreement of any kind or has been deposited irrevocably for the payment of dividends, redemption payments or any other payment or obligation under the Fund's Statement of Preferences.
In addition, so long as any Series B AMPS are Outstanding and S&P is rating such Series B AMPS at the Fund's request, the Fund will not, unless it has received written confirmation that any such transaction would not impair the rating then assigned by S&P to the Series B AMPS, engage in any one or more of the following transactions:
(a) purchase or sell futures contracts; write, purchase or sell options on futures contracts; or write put options (except covered put options) or call options (except covered call options) on securities owned by the Fund (collectively, "S&P Hedging Transactions"), except subject to the following limitations:
(i) for each net long or short position in S&P Hedging Transactions, the Fund will maintain in a segregated account with the Fund's custodian an amount of cash or readily marketable securities having a value, when added to any amounts on deposit with the Fund's futures commission merchants or brokers as margin or premium for such position, at least equal to the market value of the Fund's potential obligations on such position, marked-to-market on a daily basis, in each case as and to the extent required by the applicable rules or orders of the SEC or by interpretations of the SEC's staff;
(ii) the Fund will not engage in any S&P Hedging Transaction which would cause the Fund at the time of such transaction to own or have sold the lesser of (A) outstanding futures contracts, in aggregate, based on the Standard & Poor's 500 Index, the Dow Jones Industrial Average, the Russell 2000 Index, the Wilshire 5000 Index, the Nasdaq Composite Index and the New York Stock Exchange Composite Index (or any component of any of the forgoing) exceeding in number 50% of the market value of the Fund's total assets or (B) outstanding futures contracts based on any of the aforementioned indices exceeding in number 10% of the average number of daily traded futures contracts based on such index in the 30 days preceding the time of effecting such transaction as reported by The Wall Street Journal;
(iii) the Fund will engage in closing transactions to close out any outstanding futures contract which the Fund owns or has sold or any outstanding option thereon owned by the Fund in the event (A) the Fund does not have S&P Eligible Assets with an aggregate Discounted Value equal to or greater than the Series B AMPS Basic Maintenance Amount on two consecutive Valuation Dates and (B) the Fund is required to pay variation margin on the second such Valuation Date;
(iv) the Fund will engage in a closing transaction to close out any outstanding futures contract or option thereon at least one week prior to the delivery date under the terms of the futures contract or option thereon unless the corporation holds the securities deliverable under such terms; and
(v) when the Fund writes a futures contract or option thereon, either the amount of margin posted by the Fund (in the case of a futures contract) or the marked-to-market value of the Fund's obligation (in the case of a put option written by the Fund) shall be treated as a liability of the Fund for purposes of calculating the Series B AMPS Basic Maintenance Amount, or, in the event the Fund writes a futures contract or option thereon which requires delivery of an underlying security and the Fund does not wish to treat its obligations with respect thereto as a liability for purposes of calculating the Series B AMPS Basic Maintenance Amount, it shall hold such underlying security in its portfolio and shall not include such security to the extent of such contract or option as an S&P Eligible Asset.
(b) borrow money, except for the purpose of clearing securities transactions if (i) the Series B AMPS Basic Maintenance Amount would continue to be satisfied after giving effect to such borrowing and (ii) such borrowing (A) is privately arranged with a bank or other person and is not intended to be publicly distributed or (B) is for "temporary purposes," and is in an amount not exceeding 5 percent of the market value of the total assets of the Fund at the time of the borrowing; for purposes of the foregoing, "temporary purposes" means that the borrowing is to be repaid within sixty days and is not to be extended or renewed;
(c) engage in any short sales of equity securities (other than short sales against the box) unless the Fund maintains in a segregated account with the Fund's custodian an amount of cash or other readily marketable securities having a market value, when added to any amounts on deposit with the Fund's broker as collateral for its obligation to replace the securities borrowed and sold short, at least equal to the current market value of securities sold short, marked-to-market on a daily basis;
(d) utilize any pricing service other than FT Interactive Data, Reuters, Telekurs, Bloomberg Financial Markets, J.J. Kenney Pricing Service, Merrill Lynch Securities Pricing Service or Bridge Data Corp., and any pricing service then permitted by S&P; or
(e) enter into any reverse repurchase agreement, other than with a counterparty that is rated at least "A-1+" by S&P.
NET ASSET VALUE
The net asset value of the Fund's shares will be computed based on the market value of the securities it holds and will generally be determined daily as of the close of regular trading on the New York Stock Exchange.
Portfolio instruments of the Fund which are traded in a market subject to government regulation on which trades are reported contemporaneously generally will be valued at the last sale price on the principal market for such instruments as of the close of regular trading on the day the instruments are being valued, or lacking any sales, at the average of the bid and asked price on the principal market for such instruments on the most recent date on which bid and asked prices are available. Initial public offering securities are initially valued at cost, and thereafter as any other equity security. Other readily marketable assets will be valued at the average of quotations provided by dealers maintaining an active market in such instruments. Short-term debt instruments that are credit impaired or mature in more than 60 days for which market quotations are available are valued at the latest average of the bid and asked prices obtained from a dealer maintaining an active market in that security. Short-term investments that are not credit impaired and mature in 60 days or fewer are valued at amortized cost from purchase price or value on the 61st day prior to maturity. Securities and other assets for which market quotations are not readily available will be valued at fair value as determined in good faith by or under the direction of the Investment Adviser in accordance with guidelines adopted by the Fund. The Fund may employ recognized pricing services from time to time for the purpose of pricing portfolio instruments (including non-U.S. dollar denominated assets and futures and options).
Trading takes place in various foreign markets on days which are not Business Days and on which therefore the Fund's net asset value per share is not calculated. The calculation of the Fund's net asset value may not take place contemporaneously with the determination of the prices of portfolio securities held by the Fund. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the NYSE will not be reflected in the Fund's calculation of net asset value unless the Board of Trustees deems that the particular event would materially affect the net asset value, in which case the fair value of those securities will be determined by consideration of other factors by or under the direction of the Board of Trustees.
Net asset value per share is calculated by dividing the value of the securities held plus any cash or other assets minus all liabilities, including accrued expenses, by the total number of shares outstanding at such time.
BENEFICIAL OWNERS
As of June 30, 2003, there were no persons known to the Fund to be beneficial owners of more than 5% of the Fund's outstanding Common Shares.
As of June 30, 2003, the trustees and officers of the Fund as a group beneficially owned approximately 1.55% of the Fund's outstanding Common Shares.
GENERAL INFORMATION
Book-Entry-Only Issuance
DTC will act as securities depository for the shares of Series A Preferred and/or Series B AMPS offered pursuant to the Prospectus. The information in this section concerning DTC and DTC's book-entry system is based upon information obtained from DTC. The securities offered hereby initially will be issued only as fully-registered securities registered in the name of Cede & Co. (as nominee for DTC). One or more fully-registered global security certificates initially will be issued, representing in the aggregate the total number of securities, and deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds securities that its participants deposit with DTC. DTC also facilities the settlement among participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct DTC participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly through other entities.
Purchases of securities within the DTC system must be made by or through direct participants, which will receive a credit for the securities on DTC's records. The ownership interest of each actual purchaser of a security, a beneficial owner, is in turn to be recorded on the direct or indirect participants' records. Beneficial owners will not receive written confirmation from DTC of their purchases, but beneficial owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the direct or indirect participants through which the beneficial owners purchased securities. Transfers of ownership interests in securities are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in securities, except as provided herein.
DTC has no knowledge of the actual beneficial owners of the securities being offered pursuant to this Prospectus; DTC's records reflect only the identity of the direct participants to whose accounts such securities are credited, which may or may not be the beneficial owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by direct participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Payments on the securities will be made to DTC. DTC's practice is to credit direct participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices and will be the responsibility of such participant and not of DTC or the Fund, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of dividends to DTC is the responsibility of the Fund, disbursement of such payments to direct participants is the responsibility of DTC, and disbursement of such payments to the beneficial owners is the responsibility of direct and indirect participants. Furthermore each beneficial owner must rely on the procedures of DTC to exercise any rights under the Securities.
DTC may discontinue providing its services as securities depository with respect to the securities at any time by giving reasonable notice to the Fund. Under such circumstances, in the event that a successor securities depository is not obtained, certificates representing the Securities will be printed and delivered.
Counsel and Independent Accountants
Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036 is special counsel to the Fund in connection with the issuance of Series A Preferred and/or Series B AMPS.
PricewaterhouseCoopers LLP, independent accountants, 1177 Avenue of the Americas, New York, New York 10036, serve as auditors of the Fund and will annually render an opinion on the financial statements of the Fund.
FINANCIAL STATEMENTS
The audited financial statements included in the Annual Report to the Fund's Shareholders for the fiscal year ended December 31, 2002, together with the report of PricewaterhouseCoopers LLP thereon, are also incorporated herein by reference from the Fund's Annual Report to Shareholders. All other portions of the Annual Report to Shareholders are not incorporated herein by reference and are not part of the Registration Statement. A copy of the Annual Report to Shareholders may be obtained without charge by writing to the Fund at its address at One Corporate Center, Rye, New York 10580-1422 or by calling the Fund toll-free at 800-GABELLI (422-3554). The unaudited financial statements dated June 30, 2003, follow.
PORTFOLIO OF INVESTMENTS
June 30, 2003 (Unaudited)
Market
Shares Cost Value
COMMON STOCKS - 87.9%
Agriculture - 0.0%
20,000 Cadiz Inc.+............. $ 3,000 $ 2,700
--------- ----------
Communications Equipment - 0.2%
60,000 Furukawa Electric Co. Ltd. 419,016 195,877
--------- ----------
Energy and Utilities: Electric - 21.0%
220,000 AES Corp.+.............. 1,072,514 1,397,000
20,000 Calpine Corp.+ 52,600 132,000
55,000 Cinergy Corp............ 1,727,502 2,023,450
20,000 Cleco Corp.............. 364,947 346,400
80,0000 DPL Inc. 1,547,470 1,275,200
19,000 DTE Energy Co........... 807,570 734,160
90,000 Edison International +.. 1,037,120 1,478,700
160,000 El Paso Electric Co.+... 1,462,191 1,972,800
22,000 FPL Group Inc........... 1,192,215 1,470,700
44,000 Great Plains Energy Inc. 919,607 1,270,720
55,000 Maine Public Service Co. 1,750,455 1,788,050
170,000 Northeast Utilites...... 3,354,147 2,845,800
55,000 SCANA Corp.............. 1,694,645 1,885,400
118,000 TECO Energy Inc......... 1,863,891 1,414,820
22,000 UIL Holdings Corp....... 966,711 892,100
20,000 Unisource Energy Corp... 236,625 376,00
---------- ----------
20,050,210 21,303,300
---------- ----------
Energy and Utilities: Integrated - 35.6%
162,000 Allegheny Energy Inc.... 1,462,197 1,368,900
13,000 ALLETE Inc.............. 222,463 345,150
75,000 Alliant Energy Corp..... 1,256,310 1,427,250
150,000 Aquila Inc.............. 423,832 387,000
500 Avista Corp............. 5,575 7,075
18,000 Central Vermont Public
Service Corp........ 327,361 351,900
48,000 CH Energy Group Inc..... 2,186,400 2,160,000
165,000 CMS Energy Corp......... 1,334,352 1,336,500
75,000 Constellation Energy
Group Inc........... 2,109,100 2,572,500
2,000 Dominion Resources Inc.. 80,310 128,540
180,000 DQE Inc................. 3,128,555 2,712,600
150,000 Duke Energy Corp........ 2,884,145 2,992,500
100,000 El Paso Corp............ 1,049,809 808,000
13,000 Empire District Electric
Co................... 259,961 282,750
32,000 Energy East Corp........ 595,433 664,320
5,000 Entergy Corp............ 140,415 263,900
8,979 FirstEntergy Corp....... 287,099 345,243
83,666 Florida Public Utilities
Co................... 1,051,557 1,367,939
20,000 Green Mountain Power Corp. 416,731 400,000
30,000 MGE Energy Inc.......... 816,100 941,400
110,000 Mirant Corp.+........... 900,482 319,000
5,000 NiSource Inc............ 103,120 95,000
Market
Shares Cost Value
------ ---- ------
45,000 NiSource Inc. (Sails)+..... $ 90,000 99,900
64,000 NSTAR...................... 2,729,958 2,915,200
6,000 Otter Tail Corp............ 167,121 161,880
50,000 PG&E Corp.+................ 625,746 1,057,500
10,000 PNM Resources Inc.......... 185,900 267,500
45,000 Progress Energy Inc. 1,959,850 1,975,500
40,000 Progress Energy Inc., CVO+. 20,800 4,200
12,000 Puget Energy Inc........... 266,242 286,440
30,000 Sierra Pacific Resources+.. 227,798 178,200
30,000 TXU Corp................... 483,015 673,500
10,000 Unitil Corp................ 271,147 241,000
10,000 Vectren Corp............... 245,531 250,500
215,000 Westar Energy Inc.......... 3,192,547 3,489,450
10,000 Wisconsin Energy Corp...... 257,794 290,000
7,000 WPS Resources Corp......... 204,319 281,400
175,000 Xcel Energy Inc............ 3,004,875 2,632,000
---------- ----------
34,973,950 36,081,637
---------- ----------
|
Energy and Utilities: Natural Gas - 14.9%
33,000 AGL Resources Inc.......... 805,954 839,520
3,000 Atmos Energy Corp.......... 66,880 74,400
13,800 Cascade Natural Gas Corp... 295,987 263,580
3,000 Chesapeake Utilities Corp.. 55,515 67,800
29,800 Delta Natural Gas Co. Inc.. 496,324 700,002
40,000 Dynegy Inc., Cl. A +....... 250,000 168,000
1,000 EnergySouth Inc............ 26,780 32,800
38,000 National Fuel Gas Co....... 890,728 989,900
90,000 Nicor Inc.................. 1,982,877 3,339,900
15,000 NUI Corp................... 174,468 232,800
65,000 ONEOK Inc.................. 1,121,404 1,275,950
19,000 Peoples Energy Corp........ 665,481 814,910
20,000 Piedmont Natural Gas Co.
Inc...................... 588,123 776,200
3,000 RGC Resources, Inc......... 59,164 70,020
115,000 SEMCO Energy Inc........... 1,528,444 669,300
102,566 Southern Union Co.+........ 1,458,095 1,737,468
145,000 Southwest Gas Corp......... 3,596,118 3,071,100
---------- ----------
14,062,342 15,123,650
---------- ----------
|
Energy and Utilites: Water - 5.3%
12,000 American States Water Co... 266,173 327,600
11,000 Artesian Resources Corp.,
C1.A................... l.257,250 395,989
20,500 BIW Ltd.................... 385,069 372,075
20,520 California Water
Service Group.......... 566,928 577,022
7,500 Connecticut Water
Service Inc............ 146,455 191,625
38,500 Middlesex Water Co......... 801,886 948,640
20,066 Pennichuck Corp............ 489,727 495,630
12,000 Philadelphia Suburban Corp. 183,101 292,560
18,300 SJW Corp................... 1,768,527 1,560,075
|
See accompanying notes to financial statements.
PORTFOLIO OF INVESTMENTS (Continued)
June 30, 2003 (Unaudited)
Market
Shares Cost Value
------ ---- ------
|
5,512 Southwest Water Co. $ 52,058 $ 77,003
6,000 York Water Co. 108,629 98,520
------------ ------------
5,025,983 5,336,739
------------ ------------
Environmental Services - 0.1%
18,000 Catalytica Energy
Systems Inc.+........... 179,986 48,600
Equipment and Supplies - 0.0%
-
10,000 Capstone Turbine Corp.+ 13,980 10,900
------------ ------------
Exchange Traded Funds - 2.1%
28,000 Utilities HOLDRs Trust 2,015,370 2,088,800
------------ ------------
Metals and Mining - 0.5%
6,168 Fording Canadian Coal 132,561 111,764
Trust (New York)
19,532 Fording Canadian Coal
Trust (Toronto) 389,730 350,750
------------ ------------
522,291 462,514
------------ ------------
Satellite - 0.6%
50,000 General Motors Corp., Cl. H+ 870,553 640,500
------------ ------------
Telecommunications - 6.6%
45,000 BellSouth Corp. 1,411,141 1,198,350
30,000 BT Group plc, ADR 1,094,015 1,009,800
24,000 CenturyTel Inc. 910,440 836,400
140,000 Cincinnati Bell Inc.+ 953,620 938,000
18,000 Citizens Communications
Co.+ 132,130 232,020
2,000 Commonwealth Telephone
Enterprises Inc.+ 65,002 87,940
19,788 D&E Communications Inc. 231,091 226,573
9,000 Deutsche Telekom AG, ADR + 162,149 136,800
2,000 France Telecom SA, ADR 22,799 49,300
40,000 Touch America Holdings Inc.+ 38,488 2,680
49,000 Verizon Communications Inc. 1,876,164 1,933,050
2,045 WilTel Communications Inc.+ 53,526 30,143
------------ ------------
6,950,295 6,681,056
------------ ------------
Wireless Communications - 1.0%
39,000 mm02 plc, ADR+ 405,354 359,970
35,000 Nextel Communications Inc.,
Cl. A+ 460,343 632,800
------------ ------------
865,697 992,770
------------ ------------
TOTAL COMMON STOCKS 85,952,673 88,969,043
------------ ------------
Market
Shares Cost Value
------ ---- ------
PREFERRED STOCKS - 1.2%
Telecommunications - 1.2%
23,000 Citizens Communications Co.,
5.00% Cv. Pfd............ $ 1,094,616 $ 1,219,000
------------- -------------
Principal
Amount
--------
CORPORATE BONDS - 0.8%
Energy and Utilities: Integrated - 0.8%
$ 1,100,000 Mirant Corp., Sub. Deb. Cv.,
2.500%, 06/15/21+........ 833,029 825,000
------------- -------------
REPURCHASE AGREEMENT - 10.0%
10,089,000 Agreement with State Street
Bank and Trust Co.,
1.080%, dated 06/30/03,
due 07/01/03, proceeds at
maturity, $10,089,303(a). 10,089,000 10,089,00
------------- -------------
TOTAL INVESTMENTS - 99.9%................. $ 97,969,318 $ 101,102,043
============= -------------
Other Assets in Excess of Liabilities - 0.1%.............. 150,362
-------------
NET ASSETS - 100.0%
(15,282,735 shares outstanding).......................... $ 101,252,405
=============
NET ASSET VALUE
($101,252,405 / 15,282,735 shares outstanding)........... $6.63
=============
-------------
For Federal tax purposes:
Aggregate cost.............................. $ 97,227,406
=============
Gross unrealized appreciation............... $ 10,072,345
Gross unrealized depreciation............... (6,197,708)
-------------
Net unrealized appreciation................. $ 3,874,637
=============
-------------
(a) Collateralized by U.S. Treasury Note, 3.375%, due
04/30/04, market value $10,293,821.
+ Non-income producing security.
ADR - American Depository Receipt.
CVO - Contingent Value Obligation.
|
See accompanying notes to financial statements.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (Unaudited)
Assets:
Investments, at value (Cost $97,969,318).... $101,102,043
Cash........................................ 757
Dividends and interest receivable........... 308,141
Receivable for investments sold............. 489,920
Other assets................................ 3,465
Total Assets................................ 101,904,326
----------------
Liabilities:
Payable for investments purchased........... 182,918
Payable for investment advisory fees........ 83,812
Payable for audit and legal fees............ 19,118
Other accrued expenses...................... 366,073
Total Liabilities........................... 651,921
Net Assets applicable to 15,282,735 shares
outstanding................................. $101,252,405
================
Net Assets consist of:
Shares of beneficial interest, at par value. $15,283
Additional paid-in capital.................. 99,159,823
Accumulated net realized loss on investments (1,055,344)
Net unrealized appreciation on investments.. 3,132,643
Total Net Assets............................ $101,252,405
================
Net Asset Value
($101,252,405 / 15,282,735 shares $6.63
outstanding; unlimited number of shares
authorized of $0.001 par value)..........
================
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STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2003 (Unaudited)
Investment Income:
Dividends (net of foreign taxes $4,647)........ $1,582,099
Interest....................................... 106,091
-------------
Total Investment Income........................ 1,688,190
-------------
Expenses:
Investment advisory fees....................... 462,568
Shareholder communications expenses............ 146,113
Shareholder services fees...................... 123,155
Payroll........................................ 66,335
Trustees' fees................................. 22,582
Legal and audit fees........................... 17,718
Custodian fees................................. 7,448
Miscellaneous expenses......................... 48,770
-------------
Total Expenses................................. 894,689
-------------
Less: Custodian fee credit.................... (147)
-------------
Net Expenses................................... 894,542
-------------
Net Investment Income.......................... 793,648
-------------
Net Realized and Unrealized Gain (Loss) on
Investments
Net realized loss in investments............... (1,635,388)
Net change in unrealized appreciation on
investments................................. 11,593,255
-------------
Net Realized and Unrealized Gain (Loss) on
Investments................................. 9,957,867
-------------
Net Increase in Net Assets Resulting
from Operations............................ $10,751,515
=============
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STATEMENT OF CHANGES IN NET ASSETS
June 30, 2003 Year Ended
(Unaudited) December 31, 2002
--------------------- ---------------------
Operations:
Net investment income.................................................... $ 793,648 $ 1,448,624
Net realized loss on investments......................................... (1,635,388) 3,644,126
Net change in unrealized appreciations/depreciation on investments....... 11,593,255 (11,989,550)
Net Increase (Decrease) in Net Assets resulting from operations.......... 10,751,515 (6,896,800)
Distributions to Common Stock Shareholders:
Net investment income.................................................... (793,648) (1,475,143)
Net realized gain on investments......................................... -- (4,760,629)
Return of capital........................................................ (4,686,805) (3,261,058)
Total Distributions to Common Stock Shareholders......................... (5,480,453) (9,496,830)
Trust Share Transactions:
Net increase in net assets from common shares issued in rights offering.. -- 27,737,238
Net increase in net assets from common shares issued upon
reinvestment of dividends and distributions............................ 870,263 1,570,082
Net Increase in Net Assets from Trust Share Transactions................. 870,263 29,307,320
Net Increase in Net Assets............................................... 6,141,325 12,913,690
Net Assets:
Beginning of period...................................................... 95,111,080 82,197,390
End of period............................................................ $101,252,405 $ 95,111,080
See accompanying notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. Organization. The Gabelli Utility Trust (the "Utility Trust") is a closed-end, non-diversified management investment company organized as a Delaware business trust on February 25, 1999 and registered under the Investment Company Act of 1940, as amended (the "1940 Act"), whose primary objective is long-term growth of capital and income. The Utility Trust had no operations prior to July 9, 1999, other than the sale of 10,000 shares of beneficial interest for $100,000 to The Gabelli Equity Trust Inc. (the "Equity Trust") at $10.00 per share. On July 9, 1999, the Utility Trust had a 4 for 3 stock split making the balance of Utility Trust shares held by the Equity Trust as 13,333. On July 9, 1999, the Equity Trust contributed $79,487,260 in cash and securities in exchange for shares of the Utility Trust, and on the same date distributed such shares to Equity Trust shareholders of record on July 1, 1999 at the rate of one share of the Utility Trust for every ten shares of the Equity Trust. Investment operations commenced on July 9, 1999.
Effective August 1, 2002, the Fund modified its non-fundamental investment policy to increase, from 65% to 80%, the portion of its assets that it will invest, 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 (the "80% Policy").
The 80% Policy may be changed without shareholder approval. However, the Fund has adopted a policy to provide shareholders with at least 60 days' notice of the implementation of any change in the 80% Policy.
2. Significant Accounting Policies. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Utility Trust in the preparation of its financial statements.
Security Valuation. Portfolio securities listed or traded on a nationally recognized securities exchange, quoted by the National Association of Securities Dealers Automated Quotations, Inc. ("Nasdaq") or traded in the U.S. over-the-counter market for which market quotations are readily available are valued at the last quoted sale price on that exchange or market as of the close of business on the day the securities are being valued. If there were no sales that day, the security is valued at the average of the closing bid and asked prices or, if there were no asked prices quoted on that day, then the security is valued at the closing bid price on that day. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or, if the Board of Trustees so determines, by such other method as the Board of Trustees shall determine in good faith, to reflect its fair market value. Portfolio securities traded on more than one national securities exchange or market are valued according to the broadest and most representative market, as determined by Gabelli Funds, LLC (the "Adviser"). Portfolio securities primarily traded in foreign markets are generally valued at the preceding closing values of such securities on their respective exchanges or markets. Securities and assets for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Board of Trustees. Short term debt securities with remaining maturities of 60 days or less are valued at amortized cost, unless the Board of Trustees determines such does not reflect the securities fair value, in which case these securities will be valued at their fair value as determined by the Board of Trustees. Debt instruments having a maturity greater than 60 days for which market quotations are readily available are valued at the latest average of the bid and asked prices. If there were no asked prices quoted on such day, the security is valued using the closing bid price on that day. Options are valued at the last sale price on the exchange on which they are listed. If no sales of such options have taken place that day, they will be valued at the mean between their closing bid and asked prices.
Repurchase Agreements. The Utility Trust may enter into repurchase agreements with primary government securities dealers recognized by the Federal Reserve Bank of New York, with member banks of the Federal Reserve System or with other brokers or dealers that meet credit guidelines established by the Adviser and reviewed by the Board of Trustees. Under the terms of a typical repurchase agreement, the Utility Trust takes possession of an underlying debt obligation subject to an obligation of the seller to repurchase, and the Utility Trust to resell, the obligation at an agreed-upon price and time, thereby determining the yield during the Utility Trust's holding period. The Utility Trust will always receive and maintain securities as collateral whose market value, including accrued interest, will be at least equal to 102% of the dollar amount invested by the Utility Trust in each agreement. The Utility Trust will make payment for such securities only upon physical delivery or upon evidence of book entry transfer of the collateral to the account of the custodian. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked- to-market on a daily basis to maintain the adequacy of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Utility Trust may be delayed or limited.
Securities Sold Short. A short sale involves selling a security which the Utility Trust does not own. The proceeds received for short sales are recorded as liabilities and the Utility Trust records an unrealized gain or loss to the extent of the difference between the proceeds received and the value of the open short position on the day of determination. The Utility Trust records a realized gain or loss when the short position is closed out. By entering into a short sale, the Utility Trust bears the market risk of an unfavorable change in the price of the security sold short. Dividends on short sales are recorded as an expense by the Utility Trust on the ex- dividend date and interest expense is recorded on the accrual basis.
Foreign Currency Translation. The books and records of the Utility Trust are maintained in United States (U.S.) dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the exchange rates prevailing at the end of the period, and purchases and sales of investment securities, income and expenses are translated at the exchange rate prevailing on the respective dates of such transactions. Unrealized gains and losses, which result from changes in foreign exchange rates and/or changes in market prices of securities, have been included in unrealized appreciation/depreciation on investments and foreign currency transactions. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date on investment securities transactions, foreign currency transactions and the difference between the amounts of interest and dividends recorded on the books of the Utility Trust and the amounts actually received. The portion of foreign currency gains and losses related to fluctuation in exchange rates between the initial trade date and subsequent sale trade date is included in realized gain/(loss) on investments.
Securities Transactions and Investment Income. Securities transactions are accounted for as of the trade date with realized gain or loss on investments determined by using the identified cost method. Interest income (including amortization of premium and accretion of discount) is recorded as earned. Dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders. Distributions to shareholders are recorded on the ex-dividend date. Income distributions and capital gain distributions are determined in accordance with Federal income tax regulations, which may differ from accounting principles generally accepted in the United States.
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.
Dividends and interest from non-U.S. sources received by the Utility Trust are generally subject to non-U.S. withholding taxes at rates ranging up to 30%. Such withholding taxes may be reduced or eliminated under the terms of applicable U.S. income tax treaties, and the Utility Trust intends to undertake any procedural steps required to claim the benefits of such treaties.
3. Agreements and Transactions with Affiliates. The Utility Trust has entered into an investment advisory agreement (the "Advisory Agreement") with the Adviser which provides that the Utility Trust will pay the Adviser on the first business day of each month a fee for the previous month equal on an annual basis to 1.00% of the value of the Utility Trust's average daily net assets. In accordance with the Advisory Agreement, the Adviser provides a continuous investment program for the Utility Trust's portfolio and oversees the administration of all aspects of the Utility Trust's business and affairs.
During the six months ended June 30, 2003, Gabelli & Company, Inc. and its affiliates received $26,975 in brokerage commissions as a result of executing agency transactions in portfolio securities on behalf of the Utility Trust.
The cost of calculating the Trust's net asset value per share is a Trust expense pursuant to the Investment Advisory Agreement between the Trust and the Adviser. During the six months ended June 30, 2003, the Gabelli Utility Trust reimbursed the Adviser $17,400 in connection with the cost of computing the Trust's net asset value.
4. Portfolio Securities. Cost of purchases and proceeds from sales of securities, other than short-term securities, for the six months ended June 30, 2003 aggregated $13,736,614 and $2,710,040, respectively.
5. Capital. The Board of Trustees of the Utility Trust has authorized the repurchase of its shares on the open market when the shares are trading at a discount of 10% or more (or such other percentage as the Board of Trustees may determine from time to time) from the net asset value of the shares. During the six months ended June 30, 2003, the Utility Trust did not repurchase any shares of beneficial interest in the open market.
On May 22, 2002, the Utility Trust distributed one transferable right for each of the 11,294,893 common shares outstanding to shareholders of record on that date. Three rights were required to purchase one additional common share at the subscription price of $7.50 per share. The subscription period expired on June 27, 2002. The rights offering was fully subscribed resulting in the issuance of 3,764,965 common shares and proceeds of $28,237,239 to the Utility Trust, prior to the deduction of estimated expenses of $500,000. The net asset value per share of the Utility Trust common shareholders was enhanced by approximately $0.15 per share as a result of the issuance of shares above net asset value.
Transactions in shares of beneficial interest were as follows:
Six Months Ended
June 30, 2003 Year Ended
(Unaudited) December 31, 2002
------------------------------- -------------------------------
Shares Amount Shares Amount
-------------- -------------- -------------- --------------
Shares issued in rights offering............. -- -- 3,764,965 $27,737,239
Shares issued upon reinvestment
of dividends and distributions........... 102,243 $870,263 185,730 1,570,081
-------------- -------------- -------------- --------------
Net increase................................. 102,243 $870,263 3,950,695 $29,307,320
============== ============== ============== ==============
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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.
FINANCIAL HIGHLIGHTS
The Financial Highlights are included in their entirety on page 18 of the Prospectus.
CODE OF ETHICS
The Fund and the Investment Adviser have adopted a code of ethics. This code of ethics sets forth restrictions on the trading activities of trustees/directors, officers and employees of the Fund, the Investment Adviser and their affiliates. For example, such persons may not purchase any security for which the Fund has a purchase or sale order pending, or for which such trade is under consideration. In addition, those trustees/directors, officers and employees that are principally involved in investment decisions for client accounts are prohibited from purchasing or selling for their own account for a period of seven days a security that has been traded for a client's account, unless such trade is executed on more favorable terms for the client's account and it is determined that such trade will not adversely affect the client's account. Short-term trading by such trustee/directors, officers and employees for their own accounts in securities held by a Fund client's account is also restricted. The above examples are subject to certain exceptions and they do not represent all of the trading restrictions and policies set forth by the code of ethics. The code of ethics is on file with the SEC and can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C., that information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The code of ethics is also available on the EDGAR Database on the SEC's Internet site at http:// www.sec.gov, and copies of the code of ethics may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. The code of ethics was filed with the SEC as Exhibit 99-Q to the Fund's registration statement on Form N-2, filed on May 10, 2002.
GLOSSARY
"Adjusted Value" of each Eligible Asset shall be computed as follows:
(i) cash shall be valued at 100% of the face value thereof; and
(ii) all other Eligible Assets shall be valued at the applicable Discounted Value thereof; and
(iii) each asset that is not an Eligible Asset shall be valued at zero.
"Administrator" means the other party to the Administration Agreement with the Fund which shall initially be Gabelli Funds, LLC, a New York limited liability company, and will include, as appropriate, any sub-administrator appointed by the Administrator.
"Affiliate" means, with respect to the Auction Agent, any person known to the Auction Agent to be controlled by, in control of or under common control with the Fund; provided, however, that no Broker-Dealer controlled by, in control of or under common control with the Fund will be deemed to be an Affiliate nor will any corporation or any Person controlled by, in control of or under common control with such corporation one of the directors or executive officers of which is a trustee of the Fund be deemed to be an Affiliate solely because such director or executive officer is also a trustee of the Fund.
"Agent Member" means a member of or a participant in the Securities Depository that will act on behalf of a Bidder.
"All Hold Rate" means 90% of the Reference Rate.
"Applicable Rate" means, with respect to the Series B AMPS, for each Dividend Period (i) if Sufficient Clearing Bids exist for the Auction in respect thereof, the Winning Bid Rate, (ii) if Sufficient Clearing Orders do not exist for the Auction in respect thereof or an Auction does not take place with respect to such Dividend Period because of the commencement of a Default Period that ends prior to an Auction Date, the Maximum Rate and (iii) if all Series B AMPS are the subject of Submitted Hold Orders for the Auction in respect thereof, the All Hold Rate.
"Auction" means each periodic operation of the Auction Procedures.
"Auction Agent" means The Bank of New York unless and until another commercial bank, trust company, or other financial institution appointed by a resolution of the Board of Trustees enters into an agreement with the Fund to follow the Auction Procedures for the purpose of determining the Applicable Rate.
"Auction Date" means the last day of the initial Dividend Period and each seventh day after the immediately preceding Auction Date; provided, however, that if any such seventh day is not a Business Day, such Auction Date shall be the first preceding day that is a Business Day and the next Auction Date, if for a Standard Dividend Period, shall (subject to the same advancement procedure) be the seventh day after the date that the preceding Auction Date would have been if not for the advancement procedure; provided further, however, that the Auction Date for the Auction at the conclusion of any Special Dividend Period shall be the last Business Day in such Special Dividend Period and that no more than one Auction shall be held during any Dividend Period; provided, further, however, that the Auction Date following a Default Period shall be the last Business Day in the Standard Dividend Period that commenced during such Default Period. Notwithstanding the foregoing, in the event an auction is not held because an unforeseen event or unforeseen events cause a day that otherwise would have been an Auction Date not to be a Business Day, then the length of the then-current dividend period will be extended by seven days (or a multiple thereof if necessary because of such unforeseen event or events).
"Auction Procedures" means the procedures for conducting Auctions described in "Additional Information Concerning the Auction for Series B AMPS."
"Available Series B AMPS" has the meaning set forth in "Additional Information Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate."
"Basic Maintenance Amount" has the meaning set forth in "Additional Information Concerning The Series A Preferred and Series B AMPS -- Asset Maintenance."
"Basic Maintenance Report" means a report prepared by the Administrator which
sets forth, as of the related Monthly Valuation Date, (i) Moody's Eligible
Assets and S&P Eligible Assets sufficient to meet or exceed the Basic
Maintenance Amount, (ii) the Market Value and Discounted Value thereof
(seriatim and in the aggregate), (iii) the Basic Maintenance Amount, and (iv)
the net asset value of the Fund. Such report will also include (A) the
month-end closing price for the Common Shares of the Trust (B) the monthly
total-return per Common Shares, which will be determined based upon month-end
closing share prices, assuming reinvestment of all dividends paid during such
month and (C) the total leverage positions of the Trust. For the purposes of
this Statement of Preferences, "Basic Maintenance Report" or "Report" shall
have a correlative meaning with respect to any other class or series of
Preferred Shares.
"Beneficial Owner" with respect to Series B AMPS, means a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of such shares of such series.
"Bid" has the meaning set forth in "Additional Information Concerning the Auction for the Series B AMPS -- Orders by Existing Holders and Potential Holders."
"Bidder" has the meaning set forth in "Additional Information Concerning the Auction for Series B AMPS -- Orders by Existing Holders and Potential Holders."
"Board of Trustees" or "Board" means the Board of Trustees of the Fund or any duly authorized committee thereof as permitted by applicable law.
"Broker-Dealer" means any broker-dealer or broker-dealers, or other entity permitted by law to perform the functions required of a Broker-Dealer by the Auction Procedures, that has been selected by the Fund and has entered into a Broker-Dealer Agreement that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent and a Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow the Auction Procedures.
"Business Day" means a day on which the New York Stock Exchange is open for trading and which is not a Saturday, Sunday or other day on which banks in The City of New York, New York are authorized or obligated by law to close.
"By-Laws" means the By-Laws of the Fund, as amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the shares of the Fund's common beneficial interest, par value $.001 per share.
"Cure Date" has the meaning set forth in paragraph 3(a) of Part II of the Statement of Preferences for the Series A Preferred and paragraph 3(a)(ii) of
Part I of the Statement of Preferences for the Series B AMPS.
"Date of Original Issue" means the date on which the Series A Preferred or Series B AMPS, as the case may be, is originally issued by the Fund.
"Declaration" means the Agreement and Declaration of Trust of the Fund, dated as of February 25, 1999, as amended, supplemented or restated from time to time (including by the Statements of Preferences or by way of any other supplement or Statement of Preferences authorizing or creating a class of shares of beneficial interest in the Fund).
"Default Period" has the meaning set forth in "Additional Information Concerning the Series A Preferred and Series B AMPS -- Dividends and Dividend Periods for the Series B AMPS."
"Default Rate" means the Reference Rate multiplied by three (3).
"Deposit Assets" means cash, Short-Term Money Market Instruments and U.S. Government Obligations. Except for determining whether the Fund has Eligible Assets with an Adjusted Value equal to or greater than the Basic Maintenance Amount, each Deposit Asset shall be deemed to have a value equal to its principal or face amount payable at maturity plus any interest payable thereon after delivery of such Deposit Asset but only if payable on or prior to the applicable payment date in advance of which the relevant deposit is made.
"Discount Factor" means (i) so long as Moody's is rating the Series A
Preferred or Series B AMPS at the Fund's request, the Moody's Discount Factor,
(ii) so long as S&P is rating the Series B AMPS, the S&P Discount Factor,
and/or (iii) any applicable discount factor established by any Other Rating
Agency, whichever is applicable.
"Discounted Value" means, as applicable, (i) the quotient of the Market Value of an Eligible Asset divided by the applicable Discount Factor, or (ii) such other formula for determining the discounted value of an Eligible Asset as may be established by an applicable Rating Agency, provided that with respect to an Eligible Asset that is currently callable, Discounted Value will be equal to the applicable quotient or product as calculated above or the call price, whichever is lower, and that with respect to an Eligible Asset that is prepayable, Discounted Value will be equal to the applicable quotient or product as calculated above or the par value, whichever is lower.
"Dividend Default" has the meaning set forth in "Additional Information Concerning the Series A Preferred and Series B AMPS -- Dividends and Dividend Period."
"Dividend Payment Date" means, with respect to the Series A Preferred, any date on which dividends declared by the Board of Trustees thereon are payable pursuant to the provisions of paragraph 1(a) of Part II of the Statement of Preferences of the Series A Preferred, and, with respect to the Series B AMPS, any date on which dividends declared by the Board of Trustees thereon are payable pursuant to the provisions of paragraph 2(b) of Part I of the Statement of Preferences, for the Series B AMPS, and shall have a correlative meaning with respect to any other class or series of Preferred Shares.
"Dividend Period" means, with respect to the Series A Preferred, the quarterly dividend specified in paragraph 1(a) of Part II of the Statement of Preferences for the Series A Preferred and, with respect to Series B AMPS, the initial period determined in the manner set forth under "Designation" in the Statement of Preferences of the Series B AMPS, and thereafter, the period commencing on the Business Day following each Auction Date and ending on the next Auction Date or, if such next Auction Date is not immediately followed by a Business Day, on the latest day prior to the next succeeding Business Day.
"Eligible Assets" means Moody's Eligible Assets (if Moody's is then rating the Series A Preferred or Series B AMPS at the request of the Fund), S&P Eligible Assets (if S&P is then rating the Series B AMPS at the request of the Fund), and/or Other Rating Agency Eligible Assets if any Other Rating Agency is then rating the Series A Preferred or Series B AMPS, whichever is applicable.
"Existing Holder" means (i) a person who beneficially owns those shares of Series B AMPS listed in that person's name in the records of the Fund or the Auction Agent or (ii) the beneficial owner of those shares of Series B AMPS which are listed under such person's Broker-Dealer's name in the records of the Auction Agent, which Broker-Dealer will have signed a master purchaser's letter.
"Governing Documents" means the Declaration, and the By-Laws.
"Hold Order" has the meaning set forth in "Additional Information Concerning the Auction for Series B AMPS -- Orders By Existing Holders and Potential Holders."
"Holder" means, with respect to the Series B AMPS, the registered holder of Series B AMPS shares as the same appears on the share ledger or share records of the Fund or records of the Auction Agent, as the case may be.
"Industry Classification" means a six-digit industry classification in the Standard Industry Classification system published by the United States.
"LIBOR Dealers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated and such other dealer or dealers as the Fund may from time to time appoint, or, in lieu of any thereof, their respective affiliates or successors.
"LIBOR Rate" on any Auction Date, means (i) the rate for deposits in U.S. dollars for the designated Dividend Period, which appears on display page 3750 of Moneyline's Telerate Service ("Telerate Page 3750") (or such other page as may replace that page on that service, or such other service as may be selected by the LIBOR Dealer or its successors that are LIBOR Dealers) as of 11:00 a.m., London time, on the day that is the London Business Day preceding the Auction Date (the "LIBOR Determination Date"), or (ii) if such rate does not appear on Telerate Page 3750 or such other page as may replace such Telerate Page 3750, (A) the LIBOR Dealer shall determine the arithmetic mean of the offered quotations of the Reference Banks to leading banks in the London interbank market for deposits in U.S. dollars for the designated Dividend Period in an amount determined by such LIBOR Dealer by reference to requests for quotations as of approximately 11:00 a.m. (London time) on such date made by such LIBOR Dealer to the Reference Banks, (B) if at least two of the Reference Banks provide such quotations, LIBOR Rate shall equal such arithmetic mean of such quotations, (C) if only one or none of the Reference Banks provide such quotations, LIBOR Rate shall be deemed to be the arithmetic mean of the offered quotations that leading banks in The City of New York selected by the LIBOR Dealer (after obtaining the Fund's approval) are quoting on the relevant LIBOR Determination Date for deposits in U.S. dollars for the designated Dividend Period in an amount determined by the LIBOR Dealer (after obtaining the Fund's approval) that is representative of a single transaction in such market at such time by reference to the principal London offices of leading banks in the London interbank market; provided, however, that if one of the LIBOR Dealers does not quote a rate required to determine the LIBOR Rate, the LIBOR Rate will be determined on the basis of the quotation or quotations furnished by any Substitute LIBOR Dealer or Substitute LIBOR Dealers selected by the Fund to provide such rate or rates not being supplied by the LIBOR Dealer; provided further, that if the LIBOR Dealer and Substitute LIBOR Dealers are required but unable to determine a rate in accordance with at least one of the procedures provided above, LIBOR Rate shall be LIBOR Rate as determined on the previous Auction Date. If the number of Dividend Period days shall be (1) 7 or more but fewer than 21 days, such rate shall be the seven-day LIBOR rate; (2) more than 21 but fewer than 49 days, such rate shall be the one-month LIBOR rate; (3) 49 or more but fewer than 77 days, such rate shall be the two-month LIBOR rate; (4) 77 or more but fewer than 112 days, such rate shall be the three-month LIBOR rate; (5) 112 or more but fewer than 140 days, such rate shall be the four-month LIBOR rate; (6) 140 or more but fewer than 168 days, such rate shall be the five-month LIBOR rate; (7) 168 or more but fewer than 189 days, such rate shall be the six-month LIBOR rate; (8) 189 or more but fewer than 217 days, such rate shall be the seven-month LIBOR rate; (9) 217 or more but fewer than 252 days, such rate shall be the eight-month LIBOR rate; (10) 252 or more but fewer than 287 days, such rate shall be the nine-month LIBOR rate; (11) 287 or more but fewer than 315 days, such rate shall be the ten-month LIBOR rate; (12) 315 or more but fewer than 343 days, such rate shall be the eleven-month LIBOR rate; and (13) 343 or more but fewer than 365 days, such rate shall be the twelve-month LIBOR rate.
"Liquidation Preference" means $25 per share of Series A Preferred and $25,000 per share of Series B AMPS and will have a correlative meaning with respect to shares of any other class or series of Preferred Shares.
"London Business Day" means any day on which commercial banks are generally open for business in London.
"Market Capitalization" means, with respect to any issue of common stock, as of any date, the product of (i) the number of shares of such common stock issued and outstanding as of the close of business on the date of determination thereof and (ii) the Market Value per share of such common stock as of the close of business on the date of determination thereof.
"Market Value" means the amount determined by the Fund with respect to specific Eligible Assets in accordance with valuation policies adopted from time to time by the Board of Trustees as being in compliance with the requirements of the 1940 Act.
Notwithstanding the foregoing, "Market Value" may, at the option of the Fund with respect to any of its assets, mean the amount determined with respect to specific Eligible Assets of the Fund in the manner set forth below:
(i) as to any common or preferred stock which is an Eligible
Asset, (a) if the stock is traded on a national securities
exchange or quoted on the Nasdaq System, the last sales
price reported on the Valuation Date or (b) if there was no
reported sales price on the Valuation Date, the price
obtained from a Pricing Service as of the Valuation Date, or
(c) if there was no reported sales price on the Valuation
Date or price available from a Pricing Service, the lower of
two bid prices for such stock provided to the Administrator
by two recognized securities dealers with a minimum
capitalization of $25,000,000 (or otherwise approved for
such purpose by Moody's and S&P) at least one of which will
be provided in writing or by telecopy, telex, other
electronic transcription, computer obtained quotation
reducible to written form or similar means, and in turn
provided to the Fund by any such means by such
administrator, or, if two bid prices cannot be obtained,
such Eligible Asset will have a Market Value of zero;
(ii) as to any U.S. Government Obligation, Short-Term Money Market Instrument (other than demand deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements) and commercial paper, with a maturity of greater than 60 days, the product of (a) the principal amount (accreted principal to the extent such instrument accretes interest) of such instrument and (b) [the price provided by a Pricing Service or, if not obtainable through a Pricing Service,] the lower of the bid prices for the same kind of instruments having, as nearly as practicable, comparable interest rates and maturities provided by two recognized securities dealers having minimum capitalization of $25,000,000 (or otherwise approved for such purpose by Moody's and S&P) to the administrator, at least one of which will be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Fund by any such means by such administrator, or, if two bid prices cannot be obtained, such Eligible Asset will have a Market Value of zero;
(iii) as to cash, demand and timed deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements included in Short-Term Money Market Instruments, the face value thereof;
(iv) as to any U.S. Government Obligation, Short-Term Money Market Instrument or commercial paper with a maturity of 60 days or fewer, amortized cost unless the Board of Trustees determines that such value does not constitute fair value; or
(v) as to any other evidence of indebtedness which is an
Eligible Asset, (a) the product of (1) the unpaid principal
balance of such indebtedness as of the Valuation Date and
(2)(A) if such indebtedness is traded on a national
securities exchange or quoted on the Nasdaq System, the last
sales price reported on the Valuation Date or (B) if there
was no reported sales price on the Valuation Date and if
such indebtedness is not traded on a national securities
exchange or quoted on the Nasdaq System, the price obtained
from a Pricing Service as of the Valuation Date or (C) if
there was no reported sales price on the Valuation Date or
if such indebtedness is not traded on a national securities
exchange or quoted on the Nasdaq System, and a price was not
obtainable from a Pricing Service as of the Valuation Date,
the lower of two bid prices for such indebtedness provided
by two recognized dealers with a minimum capitalization of
$25,000,000 (or otherwise approved for such purpose by
Moody's and S&P) to the administrator of the Fund's assets,
at least one of which will be provided in writing or by
telecopy, telex, other electronic transcription, computer
obtained quotation reducible to written form or similar
means, and in turn provided to the Fund by any such means by
such administrator, plus (b) accrued interest on such
indebtedness.
Notwithstanding the foregoing, in the case of Preferred Shares that are rated by a single Rating Agency, "Market Value" shall have the meaning set forth in the Statement of Preferences of such Preferred Shares.
"Maximum Rate" means, on any day on which the Applicable Rate is determined, the greater of (as set forth in the table below) (i) the applicable percentage of the Reference Rate or (ii) the applicable spread plus the Reference Rate. The reference rate is the applicable LIBOR Rate (for a dividend period or a special dividend period of fewer than 365 days), or the applicable Treasury Index Rate (for a special dividend period of 365 days or more). The applicable percentage and applicable spread will be determined based on the lower of the credit ratings assigned to the Series B AMPS by Moody's and S&P. If Moody's and S&P or both do not make such ratings available, the rate will be determined by reference to equivalent ratings issued by a substitute rating agency.
Credit Ratings for Series B AMPS
Applicable
Percentage of Applicable
Moody's Credit Rating S&P Credit Rating Reference Rate Spread
--------------------- ----------------- -------------- ----------
Aaa AAA 125% 125 bps
Aa3 to Aa1 AA- to AA+ 150% 150 bps
A3 to A1 A- to A+ 200% 200 bps
Baa3 to Baa1 BBB- to BBB+ 250% 250 bps
Below Baa3 Below BBB- 300% 300 bps
|
"Monthly Valuation Date" means the last Valuation Date of any calendar month.
"Moody's" means Moody's Investors Service, Inc. and its successors at law.
"Moody's Discount Factor" has the meaning ascribed to it in "Moody's and S&P Guidelines -- Moody's Guidelines."
"Moody's Eligible Assets" has the meaning ascribed to it in "Moody's and S&P Guidelines -- Moody's Guidelines."
"1940 Act" means the Investment Company Act of 1940, as amended, or any successor statute.
"1940 Act Asset Coverage" means asset coverage, as determined in accordance with Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Fund which are stock, including all Outstanding shares of Series A Preferred and Series B AMPS (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of declaring dividends on its common stock), determined on the basis of values calculated as of a time within 48 hours (not including Saturdays, Sundays or holidays) next preceding the time of such determination.
"1940 Act Asset Coverage Certificate" means the certificate required to be delivered by the Fund pursuant to paragraph 9(a)(i)(B) of the Statement of Preferences of the Series B AMPS.
"Non-Call Period" means a period determined by the Board of Trustees after consultation with the Broker-Dealers, during which the Series B AMPS subject to such Special Dividend Period is not subject to redemption at the option of the Fund but only to mandatory redemption.
"NRSRO" means a Nationally Recognized Statistical Ratings Organization.
"Order" has the meaning set forth in "Additional Information Concerning the Auction for Series B AMPS -- Orders By Existing Holders and Potential Holders."
"Other Rating Agency" means any rating agency other than Moody's or S&P then providing a rating for the Series B AMPS pursuant to the request of the Fund.
"Other Rating Agency Eligible Assets" means assets of the Fund designated by any Other Rating Agency as eligible for inclusion in calculating the discounted value of the Fund's assets in connection with such Other Rating Agency's rating of the Series B AMPS.
"Outstanding" means, as of any date, Preferred Shares theretofore issued by the Fund except:
(i) any such Preferred Share theretofore cancelled by the Fund or delivered to the Fund for cancellation;
(ii) any such Preferred Share other than an auction market Preferred Share as to which a notice of redemption will have been given and for whose payment at the redemption thereof Deposit Assets in the necessary amount are held by the Fund in trust for, or have been irrevocably deposited with the relevant disbursing agent for payment to the holder of such share pursuant to the Statement of Preferences with respect thereto;
(iii) in the case of an auction market Preferred Share, any such shares theretofore delivered to the applicable auction agent for cancellation or with respect to which the Fund has given notice of redemption and irrevocably deposited with the applicable paying agent sufficient funds to redeem such shares; and
(iv) any such Preferred Share in exchange for or in lieu of which other shares have been issued and delivered.
Notwithstanding the foregoing, (x) for purposes of voting rights (including the determination of the number of shares required to constitute a quorum), any Preferred Shares as to which the Fund or any subsidiary is the holder or Existing Holder, as applicable, will be disregarded and deemed not Outstanding; (y) in connection with any auction, any AMPS Shares as to which the Fund or any Person known to the auction agent to be an subsidiary is the holder or Existing Holder, as applicable, will be disregarded and not deemed Outstanding; and (z) for purposes of determining the Basic Maintenance Amount, Series B AMPS held by the Fund will be disregarded and deemed not Outstanding.
"Paying Agent" means with respect to Series B AMPS, The Bank of New York unless and until another entity appointed by a resolution of the Board of Trustees enters into an agreement with the Fund to serve as paying agent, which paying agent may be the same as the Auction Agent and, with respect to any other class or series of Preferred Shares, the Person appointed by the Fund as dividend disbursing or paying agent with respect to such class or series.
"Person" means and includes an individual, a partnership, the Fund, a trust, a corporation, a limited liability company, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
"Potential Beneficial Owner or Holder" means (i) any Existing Holder who may be interested in acquiring additional shares of Series B AMPS or (ii) any other person who may be interested in acquiring shares of Series B AMPS and who has signed a master purchaser's letter or whose shares will be listed under such person's Broker-Dealer's name on the records of the Auction Agent which Broker-Dealer will have executed a master purchaser's letter.
"Preferred Shares" means the preferred shares, par value $.001 per share, of the Fund, and includes the Series A Preferred and Series B AMPS.
"Premium Call Period" means a period consisting of a number of whole years as determined by the Board of Trustees after consultation with the Broker-Dealers, during each year of which the shares subject to such Special Dividend Period will be redeemable at the Fund's option at a price per share equal to the Liquidation Preference plus accumulated but unpaid dividends (whether or not earned or declared) plus a premium expressed as a percentage or percentages of the Liquidation Preference or expressed as a formula using specified variables as determined by the Board of Trustees after consultation with the Broker-Dealers.
"Pricing Service" means any of the following: Bloomberg Financial Service, Bridge Information Services, Data Resources Inc., FT Interactive, International Securities Market Association, Merrill Lynch Securities Pricing Service, Muller Data Corp., Reuters, S&P/J.J. Kenny, Telerate, Trepp Pricing and Wood Gundy.
"Rating Agency" means Moody's and S&P as long as such rating agency is then rating the Series A Preferred or the Series B AMPS at the request of the Fund, or any other rating agency then rating the Series A Preferred or the Series B Preferred at the request of the Fund.
"Rating Agency Guidelines" has the meaning set forth in set forth in "Moody's and S&P Guidelines."
"Redemption Date" means, with respect to the Fund's Outstanding Preferred Shares, the date fixed by the Fund for the redemption of such shares.
"Redemption Default" has the meaning set forth in "Additional Information Concerning the Series A Preferred and Series B AMPS -- Dividends and Dividend Period."
"Redemption Price" means, with respect to the Series A Preferred, the price set forth in paragraph 3(a) of Part II of the Statement of Preferences for the Series A Preferred and, with respect to the Series B AMPS, as defined in paragraph 13 of Part I of the Statement of Preferences for the Series B Preferred.
"Reference Banks" means four major banks in the London interbank market selected by Merrill Lynch, Pierce, Fenner & Smith Incorporated or its affiliates or successors or such other party as the Fund may from time to time appoint.
"Reference Rate" means, with respect to the determination of the Default Rate, the applicable LIBOR Rate for a Dividend Period of 364 days or fewer or the applicable Treasury Index Rate for a Dividend Period of longer than 364 days and, with respect to the determination of the Maximum Rate, the LIBOR Rate or the Treasury Index Rate, as appropriate.
"S&P" means Standard & Poor's Ratings Services, or its successors at law.
"S&P Discount Factor" has the meaning set forth in "Moody's and S&P Guidelines
- S&P Guidelines."
"S&P Eligible Assets" has the meaning set forth in "Moody's and S&P Guidelines
- S&P Guidelines."
"S&P Hedging Transactions" has the meaning set forth in "Moody's and S&P Guidelines - S&P Guidelines."
"SEC" means the Securities and Exchange Commission.
"Securities Act" means The Securities Act of 1933, as amended, or any successor statute.
"Securities Depository" means The Depository Trust Company and its successors and assigns or any successor securities depository selected by the Fund that agrees to follow the procedures required to be followed by such securities depository in connection with the shares of Series A Preferred or Series B AMPS.
"Sell Order" has the meaning set forth in "Additional Information Concerning the Auction for Series B AMPS -- Orders by Existing Holders and Potential Holders."
"Series A Preferred" means the Fund's [__]% Series A Cumulative Preferred Shares, $.001 par value per share and liquidation preference $25 per share.
"Series A Preferred Basic Maintenance Amount Test" means a test which is met if the lower of the aggregate Discounted Values of the Moody's Eligible Assets or the S&P Eligible Assets if both Moody's and S&P are then rating the Series A Preferred at the request of the Fund, or the Eligible Assets of whichever of Moody's or S&P is then doing so if only one of Moody's or S&P is then rating the Series A Preferred at the request of the Fund, meets or exceeds the Basic Maintenance Amount with respect to the Series A Preferred.
"Series B AMPS" means the Fund's Series B Auction Market Preferred Shares, $.001 par value per share and liquidation preference $25,000 per share.
"Series B AMPS Basic Maintenance Amount Test" means a test which is met if the lower of the aggregate Discounted Values of the Moody's Eligible Assets or the S&P Eligible Assets if both Moody's and S&P are then rating the Series B AMPS at the request of the Fund, or the Eligible Assets of whichever of Moody's or S&P is then doing so if only one of Moody's or S&P is then rating the Series B AMPS at the request of the Fund, meets or exceeds the Basic Maintenance Amount with respect to the Series B AMPS.
"Short-Term Money Market Instruments" means the following types of instruments if, on the date of purchase or other acquisition thereof by the Fund, the remaining term to maturity thereof is not in excess of 180 days:
(i) commercial paper rated A-1 if such commercial paper matures in 30 days, or A-1+ if such commercial paper matures in over 30 days;
(ii) AAAm rated money market funds;
(iii) demand or time deposits in, and banker's acceptances and certificates of deposit of (A) a depository institution or trust company incorporated under the laws of the United States of America or any state thereof or the District of Columbia (B) a United States branch office or agency of a foreign depository institution (provided that such branch office or agency is subject to banking regulation under the laws of the United States, any state thereof or the District of Columbia), or (C) A-1+ rated institutions;
(iv) overnight funds; and
(v) U.S. Government Obligations.
Notwithstanding the foregoing, in the case of Preferred Shares that are rated by a single Rating Agency, "Short-Term Money Market Instruments" shall have the meaning set forth in the Statement of Preferences of such Preferred Shares.
"Special Dividend Period" means a Dividend Period that is not a Standard Dividend Period.
"Specific Redemption Provisions" means, with respect to any Special Dividend Period of more than one year, either, or any combination of (i) a Non-Call Period and (ii) a Premium Call Period.
"Standard Dividend Period" means a Dividend Period of seven days, subject to increase or decrease to the extent necessary for the next Auction Date and Dividend Payment Date to each be Business Days.
"Statement of Preferences" means the Statement of Preferences of the Fund establishing, as the case may be, the Series A Preferred or the Series B AMPS.
"Submission Deadline" means 1:30 p.m., New York City time, on any Auction Date or such other time on any Auction Date by which Broker-Dealers are required to submit Orders to the Auction Agent as specified by the Auction Agent from time to time.
"Submitted Bid" has the meaning set forth in "Additional Information Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Hold Order" has the meaning set forth in "Additional Information Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Order" has the meaning set forth in "Additional Information Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Sell Order" has the meaning set forth in "Additional Information Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Sufficient Clearing Bids" has the meaning set forth in "Additional Information Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Sufficient Clearing Orders" means that all shares of Series B AMPS are the
subject of Submitted Hold Orders or that the number of shares of Series B AMPS
that are the subject of Submitted Bids by Potential Holders specifying one or
more rates equal to or less than the Maximum Rate exceeds or equals the sum of
(i) the number of shares of Series B AMPS that are subject of Submitted Bids
by Existing Holders specifying one or more rates higher than the Maximum Rate
and (ii) the number of shares of Series B AMPS that are subject to Submitted
Sell Orders.
"Treasury Index Rate" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities having the same number of 30-day periods to maturity as the length of the applicable Dividend Period, determined, to the extent necessary, by linear interpolation based upon the yield for such securities having the next shorter and next longer number of 30-day periods to maturity treating all Dividend Periods with a length greater than the longest maturity for such securities as having a length equal to such longest maturity, in all cases based upon data set forth in the most recent weekly statistical release published by the Board of Governors of the Federal Reserve System (currently in H.15 (519)); provided, however, if the most recent such statistical release will not have been published during the 15 days preceding the date of computation, the foregoing computations will be based upon the average of comparable data as quoted to the Fund by at least three recognized dealers in U.S. Government Obligations selected by the Fund.
"U.S. Government Obligations" means direct obligations of the United States or
by its agencies or
instrumentalities that are entitled to the full faith and credit of the United
States and that, other than United States Treasury Bills, provide for the
periodic payment of interest and the full payment of principal at maturity or
call for redemption.
"Utility Industry" means foreign and domestic companies involved to a substantial extent (e.g., at least 50% of the assets, gross income or net profits of a company is committed to or derived from) in providing products, services or Equipment for (i) the generation or distribution of electricity, gas and water and (ii) telecommunications services or infrastructure operations, such as airports, toll roads and municipal services.
"Valuation Date" means the last Business Day of each week, or such other date as the Fund and Rating Agencies may agree to for purposes of determining the Basic Maintenance Amount. Notwithstanding the foregoing, in the case of Preferred Shares that are rated by a single Rating Agency, "Valuation Date" shall have the meaning set forth in the Statement of Preferences of such Preferred Shares.
"Winning Bid Rate" means the lowest rate specified in the Submitted Bids which if:
(i) (a) each such Submitted Bid of Existing Holders specifying such lowest rate and
(b) all other such Submitted Bids of Existing Holders specifying lower rates were rejected, thus entitling such Existing Holders to continue to hold the shares of such series that are subject to such Submitted Bids; and
(ii) (a) each such Submitted Bid of Potential Holders specifying such lowest rate and
(b) all other such Submitted Bids of Potential Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (i) above continuing to hold an aggregate number of Outstanding Series B AMPS shares which, when added to the number of Outstanding Series B AMPS shares to be purchased by such Potential Holders described in subclause (ii) above, would equal not less than the Available Series B AMPS shares.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Part A
Financial highlights (audited) for a share outstanding throughout the periods ended December 31, 2002, 2001, 2000 and 1999. Financial highlights unaudited for a share outstanding for the six months ended June 30, 2003.
Part B
Financial Statements (audited) for the fiscal year 2002(1)
(i) Portfolio of Investments as of December 31, 2002
(ii) Statement of Assets and Liabilities as of December 31, 2002
(iii) Statement of Operations for the year ended December 31, 2002
(iv) Statement of Changes in Net Assets for the year ended December
31, 2002
(v) Financial highlights for a share outstanding throughout the
periods 2002, 2001, 2000 and 1999.
(vi) Notes to Financial Statements
(vii) Report of Independent Accountants
Financial Statements (unaudited) for the six months ended
June 30, 2003
(i) Portfolio of Investments as of June 30, 2003
(ii) Statement of Assets and Liabilities as of June 30, 2003
(iii) Statement of Operations for the six months ended June 30, 2003
(iv) Statement of Changes in Net Assets for the six months ended
June 30, 2003 and year ended December 31, 2002 (audited)
(v) Notes to Financial Statements
(2) Exhibits
(a) (i) Amended and Restated Agreement and Declaration of Trust
of Registrant(4)
(ii) Form of Statement of Preferences for the __%
Series A Cumulative Preferred Shares(7)
(iii) Form of Statement of Preferences for the Series B
Auction Market Preferred Shares(7)
(b) Amended and Restated By-Laws of Registrant(5)
(c) Not applicable
(d) (i) Specimen Share Certificate for the ___% Series A
Cumulative Preferred Shares(7)
(ii) Specimen Share Certificate for the Series B Auction
Market Preferred Shares(7)
(e) Automatic Dividend Reinvestment and Voluntary Cash Purchase
Plan of Registrant(3)
(f) Not applicable
(g) Form of Investment Advisory Agreement between Registrant and
Gabelli Funds, LLC(3)
(h) Form of Underwriting Agreement(7)
(i) Not applicable
(j) (i) Form of Custodian Contract between Registrant and
Boston Safe Deposit and Trust Company(3) (8)
(ii) Form of Custodian Fee Schedule between Registrant and
Boston Safe Deposit and Trust Company(3) (8)
(k) (i) Form of Registrar, Transfer Agency and Service Agreement
between Registrant and EquiServe Trust Company(3)
(ii) Form of Auction Agency Agreement(7)
(iii) Form of Broker-Dealer Agreement(7)
(iv) Form of DTC Agreement(7)
(l) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP
with respect to legality(7)
(m) Not applicable
(n) (i) Consent of PricewaterhouseCoopers LLP(7)
(ii) Powers of Attorney(9)
(o) Not applicable
(p) Not applicable
(q) Not applicable
(r) Codes of Ethics of the Fund and the Investment Adviser(2)
(1) Incorporated by reference to the Fund's annual report filed on March 10,
2003. (
2) Incorporated by reference from the Registrant's Registration Statement on
Form N-2, filed with the
Securities and Exchange Commission on May 10, 2002.
(3) Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-14, filed with the
Securities and Exchange Commission on March 31, 1999.
(4) Incorporated by reference from the Registrant's Registration
Statement on Form N-2, filed with the Securities and Exchange
Commission on May 21, 1999.
(5) Incorporated by reference from the Registrant's Registration
Statement on Form N-2, filed with the Securities and Exchange
Commission on August 19, 1999.
(6) To be filed by Amendment.
(7) Filed Herewith.
(8) Subsequently assigned to State Street Bank and Trust Company.
(9) Incorporated by reference from the Registrant's Registration
Statement on Form N-2, filed with the Securities and Exchange
Commission on July 18, 2003.
Item 25. Marketing Arrangements
See Exhibit 2(h) to this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration Statement:
Fixed Rate Auction Rate
------------------- -------------------
NYSE listing fee............................ 17,700 N/A
SEC Registration fees....................... 2,427 2,023
Rating agency fee........................... 12,500 37,500
Printing/engraving expenses................. 50,000 50,000
Accounting fees............................. 25,000 25,000
Legal fees.................................. 75,000 75,000
Blue Sky fees............................... 20,000 20,000
Miscellaneous............................... 8,623 34,227
------------------- -------------------
Total............................ 211,250 243,250
=================== ===================
|
Item 27. Persons Controlled by or Under Common Control with Registrant
NONE
Item 28. Number of Holders of Securities as of June 30, 2003
Number of Record
Title of Class Holders
-------------- ----------------
Common Shares, par value $.001 per share 48,259
|
Item 29. Indemnification
The response of this Item is incorporated by reference to the caption "Limitation of Officers' and Trustees' Liability" in the Part B of this Registration Statement.
Insofar as indemnification for liability arising under the 1933 Act may be permitted to trustees, officers and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that, in the opinion of the Commission, such indemnification is against public policy as expressed in the 1933 Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered. Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
The Investment Adviser, a limited liability company organized under the laws of the State of New York, acts as investment adviser to the Registrant. The Registrant is fulfilling the requirement of this Item 30 to provide a list of the officers and trustees of the Investment Adviser, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by the Investment Adviser or those officers and trustees during the past two years, by incorporating by reference the information contained in the Form ADV of the Investment Adviser filed with the commission pursuant to the Investment Advisers Act of 1940 (Commission File No. 801-26202).
Item 31. Location of Accounts and Records
The accounts and records of the Registrant are maintained in part at the office of the Investment Adviser at One Corporate Center, Rye, New York 10580-1422, in part at the offices of the Custodian, State Street Bank and Trust Company, 150 Royall Street, Canton, Massachusetts 02021, at the offices of the Fund's Administrator, PFPC, Inc, 3200 Horizon Drive, King of Prussia, Pennsylvania 19406, and in part at the offices of EquiServe Trust Company, N.A., PO Box 43025, Providence, RI 02940-3025.
Item 32. Management Services
Not applicable.
Item 33. Undertakings
1. Registrant undertakes to suspend the offering of shares until the prospectus is amended, if subsequent to the effective date of this registration statement, its net asset value declines more than ten percent from its net asset value, as of the effective date of the registration statement or its net asset value increases to an amount greater than its net proceeds as stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. Registrant undertakes that, for the purpose of determining any liability under the 1933 Act the information omitted from the form of prospectus filed as part of the Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 497(h) will be deemed to be a part of the Registration Statement as of the time it was declared effective.
Registrant undertakes that, for the purpose of determining any liability under the 1933 Act, each post-effective amendment that contains a form of prospectus will be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof.
6. Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information constituting Part B of this Registration Statement.
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registrant's Registration Statement has been signed on behalf of the Registrant, in the City of Rye, State of New York, on the 24th day of July, 2003.
THE GABELLI UTILITY TRUST
/s/ Bruce N. Alpert
By: ______________________
Bruce N. Alpert
President
|
As required by the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date
*
-------------------------------- Chairman of the Board, Chief Investment July 24, 2003
Mario J. Gabelli Officer and Trustee
*
-------------------------------- Trustee July 24, 2003
Thomas E. Bratter
*
-------------------------------- Trustee July 24, 2003
Anthony J. Colavita
*
-------------------------------- Trustee July 24, 2003
James P. Conn
*
-------------------------------- Trustee July 24, 2003
Vincent D. Enright
*
-------------------------------- Trustee July 24, 2003
Frank J. Fahrenkopf, Jr.
*
-------------------------------- Trustee July 24, 2003
John D. Gabelli
*
-------------------------------- Trustee July 24, 2003
Robert J. Morrissey
*
-------------------------------- Trustee July 24, 2003
Karl Otto Pohl
*
-------------------------------- Trustee July 24, 2003
Anthony R. Pustorino
*
-------------------------------- Trustee July 24, 2003
Salvatore J. Zizza
/s/ Bruce N. Alpert
-------------------------------- President July 24, 2003
Bruce N. Alpert,
Attorney-in-Fact
* Pursuant to Power of Attorney
|
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-99 (a) (i) Amended and Restated Agreement and Declaration of Trust
of Registrant*
EX-99 (a) (ii) Form of Statement of Preferences for the __% Series A
Cumulative Preferred Shares
EX-99 (a) (iii) Form of Statement of Preferences for the Series B Auction
Market Preferred Shares
EX-99 (b) Amended and Restated By-Laws of Registrant*
EX-99 (d) (i) Specimen Share Certificate, __% Series A Cumulative
Preferred Shares
EX-99 (d) (ii) Specimen Share Certificate, Series B Auction Market
Preferred Shares
EX-99 (e) Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan of Registrant*
EX-99 (g) Form of Investment Advisory Agreement between Registrant
and Gabelli Funds, LLC*
EX-99 (h) Form of Underwriting Agreement
EX-99 (j)(i) Form of Custodian Contract between Registrant and Boston
Safe Deposit and Trust Company (subsequently assigned to
State Street Bank and Trust Company)*
EX-99(j)(ii) Form of Custodian fee Schedule between Registrant and
Boston Safe Deposit and Trust Company (subsequently
assigned to State Street Bank and Trust Company)*
EX-99 (k) (i) Form of Registrar, Transfer Agency and Service
Agreement between Registrant and EquiServe Trust
Company relating to the common stock*
EX-99 (k) (ii) Form of Auction Agency Agreement
EX-99 (k) (iii) Form of Broker-Dealer Agreement
EX-99 (k) (iv) Form of DTC Agreement
EX-99 (l) Opinion and Consent of Skadden, Arps, Slate, Meagher
& Flom LLP
EX-99 (n) (i) Consent of PricewaterhouseCoopers LLP
EX-99 (n) (ii) Powers of Attorney*
EX-99 (r) Code of Ethics of the Fund and the Investment Adviser*
|
* Previously filed and incorporated by reference. ** To be filed by amendment.
THE GABELLI UTILITY TRUST
STATEMENT OF PREFERENCES
OF
[ ]% SERIES A CUMULATIVE PREFERRED SHARES
The Gabelli Utility Trust, a Delaware statutory trust (hereinafter called the "Trust"), hereby certifies that:
FIRST: The Board of Trustees of the Trust, at a meeting duly convened and held on February 19, 2003, pursuant to authority expressly vested in it by Article III of the Agreement and Declaration of Trust, adopted resolutions classifying and designating 2,000,000 authorized but unissued capital shares of the Trust, par value $.001 per share, as "[ ]% Series A Cumulative Preferred Shares" and authorizing the issuance of up to 2,000,000 shares of [ ]% Series A Cumulative Preferred Shares at such times as the Pricing Committee should determine.
SECOND: The Pricing Committee, at a meeting duly convened and held on July [ ], 2003, pursuant to authority granted it by the Board of Trustees of the Trust at its February 19, 2003 meeting, approved the issuance by the Trust of [ ] [ ]% Series A Cumulative Preferred Shares.
THIRD: The preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the [ ]% Series A Cumulative Preferred Shares, par value $.001 per share, as set by the Board of Trustees are as follows:
PART I
DEFINITIONS
Unless the context or use indicates another or different meaning or intent, each of the following terms when used in this Statement of Preferences shall have the meaning ascribed to it below, whether such term is used in the singular or plural and regardless of tense:
"Accountant's Confirmation" means a letter from an Independent Accountant delivered to Moody's with respect to certain Basic Maintenance Reports substantially to the effect that:
(a) the Independent Accountant has read the Basic Maintenance Report or Reports prepared by the Administrator during the referenced calendar year that are referred to in such letter;
(b) with respect to the issue size compliance, issuer diversification and industry diversification calculations, such calculations and the resulting Market Value of the Moody's Eligible Assets included in the Reports and the Adjusted Value of the Moody's Eligible Assets included in the Reports are numerically correct;
(c) with respect to the excess or deficiency of the Adjusted Value of the Moody's Eligible Assets included in the Reports when compared to the Basic Maintenance Amount calculated for Moody's, the results of the calculation set forth in the Reports have been recalculated and are numerically correct;
(d) with respect to the Moody's and S&P ratings on corporate evidences of indebtedness, convertible corporate evidences of indebtedness and preferred stock listed in the Reports, that information has been traced and agrees with the information provided directly or indirectly by the respective rating agencies (in the event such information does not agree or such information is not listed in the accounting records of the Trust, the Independent Accountants will inquire of the rating agencies what such information is and provide a listing in their letter of such differences, if any);
(e) with respect to issuer name and coupon or dividend rate listed in the Reports, that information has been traced and agrees with information listed in the accounting records of the Trust;
(f) with respect to issue size listed in the Reports, that information has been traced and agrees with information provided by a Pricing Service or such other services as Moody's may authorize from time to time;
(g) with respect to the prices (or alternative permissible factors used in calculating the Market Value as provided by this Statement of Preferences) provided by the Administrator of the Trust's assets for purposes of valuing securities in the portfolio, the Independent Accountant has traced the price used in the Reports to the price provided by such Administrator (in accordance with the procedures provided in this Statement of Preferences) and verified that such information agrees (in the event such information does not agree, the Independent Accountants will provide a listing in their letter of such differences); and
(h) with respect to the description of each security included in the Reports, the description of Moody's Eligible Assets has been compared to the definition of Moody's Eligible Assets contained in this Statement of Preferences, and the description as appearing in the Reports agrees with the definition of Moody's Eligible Assets as described in this Statement of Preferences.
Each such letter may state that: (i) such Independent Accountant has
made no independent verification of the accuracy of the description of the
investment securities listed in the Reports or the Market Value of those
securities nor has it performed any procedures other than those specifically
outlined above for the purposes of issuing such letter; (ii) unless otherwise
stated in the letter, the procedures specified therein were limited to a
comparison of numbers or a verification of specified computations applicable
to numbers appearing in the Reports and the schedule(s) thereto; (iii) the
foregoing procedures do not constitute an examination in accordance with
generally accepted auditing standards and the Reports contained in the letter
do not extend to any of the Trust's financial statements taken as a whole;
(iv) such Independent Accountant does not express an opinion as to whether
such procedures would enable such Independent Accountant to determine that the
methods followed in the preparation of the Reports would correctly determine
the Market Value or Discounted Value of the investment portfolio; and (v)
accordingly, such Independent Accountant expresses no opinion as to the
information set forth in the Reports or in the schedule(s) thereto and makes
no representation as to the sufficiency of the procedures performed for the
purposes of this Statement of Preferences.
Such letter shall also state that the Independent Accountant is an "independent accountant" with respect to the Trust within the meaning of the Securities Act of 1933, as amended, and the related published rules and regulations thereunder.
"Adjusted Value" of each Moody's Eligible Asset shall be computed as follows:
(a) cash shall be valued at 100% of the face value thereof; and
(b) all other Moody's Eligible Assets shall be valued at the Discounted Value thereof; and
(c) each asset that is not a Moody's Eligible Asset shall be valued at zero.
"Administrator" means the other party to the Administration Agreement with the Trust which shall initially be Gabelli Funds, LLC, a New York limited liability company, and will include, as appropriate, any sub-administrator appointed by the Administrator.
"ADRs" means U.S. dollar-denominated American Depository Receipts.
"Adviser" means Gabelli Funds, LLC, a New York limited liability company, or such other person as shall be serving as the investment adviser of the Trust.
"Annual Valuation Date" means the Valuation Date each calendar year so designated by the Trust, commencing in the calendar year 2003.
"Asset Coverage" means asset coverage, as determined in accordance with Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Trust which are stock, including all Outstanding Series A Preferred Shares (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of declaring dividends on its common stock), determined on the basis of values calculated as of a time within 48 hours (not including Saturdays, Sundays or holidays) next preceding the time of such determination.
"Basic Maintenance Amount" means, as of any Valuation Date, the
dollar amount equal to (a) the sum of (i) the product of the number of shares
of each class or series of Preferred Shares Outstanding on such Valuation Date
multiplied by the Liquidation Preference per share; (ii) to the extent not
included in (i) the aggregate amount of cash dividends (whether or not earned
or declared) that will have accumulated for each Outstanding Preferred Share
from the most recent Dividend Payment Date to which dividends have been paid
or duly provided for (or, in the event the Basic Maintenance Amount is
calculated on a date prior to the initial Dividend Payment Date with respect
to a class or series of the Preferred Shares, then from the Date of Original
Issue) through the Valuation Date plus all dividends to accumulate on the
Preferred Shares then Outstanding during the 70 days following such Valuation
Date or, if less, during the number of days following such Valuation Date that
Preferred Shares called for redemption are scheduled to remain Outstanding;
(iii) the Trust's other liabilities due and payable as of such Valuation Date
(except that dividends and other distributions payable by the Trust on Common
Shares shall not be included as a liability) and such liabilities projected to
become due and payable by the Trust during the 90 days following such
Valuation Date (excluding liabilities for investments to be purchased and for
dividends and other distributions not declared as of such Valuation Date); and
(iv) any current liabilities of the Trust as of such Valuation Date to the
extent not reflected in (or specifically excluded by) any of (a)(i) through
(a)(iii) (including, without limitation, and immediately upon determination,
any amounts due and payable by the Trust pursuant to reverse repurchase
agreements and any payables for assets purchased as of such Valuation Date)
less (b)(i) the Adjusted Value of any of the Trust's assets or (ii) the face
value of any of the Trust's assets if, in the case of both (b)(i) and (b)(ii),
such assets are either cash or evidences of indebtedness which mature prior to
or on the date of redemption or repurchase of Preferred Shares or payment of
another liability and are either U.S. Government Obligations or evidences of
indebtedness which have a rating assigned by Moody's of at least Aaa, P-1,
VMIG-1 or MIG-1 or by S&P of at least AAA, SP-1+ or A-1+, and are irrevocably
held by the Trust's custodian bank in a segregated account or deposited by the
Trust with the Dividend-Disbursing Agent for the payment of the amounts needed
to redeem or repurchase Preferred Shares subject to redemption or repurchase
or any of (a)(ii) through (a)(iv); and provided that in the event the Trust
has repurchased Preferred Shares and irrevocably segregated or deposited
assets as described above with its custodian bank or the Dividend-Disbursing
Agent for the payment of the repurchase price the Trust may deduct 100% of the
Liquidation Preference of such Preferred Shares to be repurchased from (a)
above. Basic Maintenance Amount shall, for purposes of this Statement of
Preferences, have a correlative meaning with respect to any other class or
series of Preferred Shares.
"Basic Maintenance Amount Cure Date" means, with respect to the Series A Preferred Shares, 10 Business Days following a Valuation Date, such date being the last day upon which the Trust's failure to comply with paragraph 5(a)(ii)(A) of Part II hereof could be cured, and for the purposes of this Statement of Preferences shall have a correlative meaning with respect to any other class or series of Preferred Shares.
"Basic Maintenance Report" or "Report" means, with respect to the Series A Preferred Shares, a report prepared by the Administrator which sets forth, as of the related Valuation Date, Moody's Eligible Assets sufficient to meet or exceed the Basic Maintenance Amount, the Market Value and Discounted Value thereof (seriatim and in the aggregate), and the Basic Maintenance Amount, and for the purposes of this Statement of Preferences shall have a correlative meaning with respect to any other class or series of Preferred Shares.
"Board of Trustees" means the Board of Trustees of the Trust or any duly authorized committee thereof as permitted by applicable law.
"Business Day" means a day on which the New York Stock Exchange is open for trading and that is neither a Saturday, Sunday nor any other day on which banks in The City of New York, New York are authorized or obligated by law to close.
"By-Laws" means the By-Laws of the Trust as amended from time to time.
"Common Shares" means the common shares, par value $.001 per share, of the Trust.
"Cure Date" shall have the meaning set forth in paragraph 3(a) of Part II hereof.
"Date of Original Issue" means [ ], and for the purposes of this Statement of Preferences shall have a correlative meaning with respect to any other class or series of Preferred Shares.
"Declaration" means the Agreement and Declaration of Trust of the Trust, dated as of February 25, 1999, as amended, supplemented or restated from time to time (including by this Statement of Preferences or by way of any other supplement or Statement of Preferences authorizing or creating a class of shares of beneficial interest in the Trust).
"Deposit Assets" means cash, Short-Term Money Market Instruments and U.S. Government Obligations. Except for determining whether the Trust has Moody's Eligible Assets with an Adjusted Value equal to or greater than the Basic Maintenance Amount, each Deposit Asset shall be deemed to have a value equal to its principal or face amount payable at maturity plus any interest payable thereon after delivery of such Deposit Asset but only if payable on or prior to the applicable payment date in advance of which the relevant deposit is made.
"Discounted Value" means, as applicable, (a) the quotient of the
Market Value of an Eligible Asset divided by the applicable Discount Factor or
(b) such other formula for determining the discounted value of an Eligible
Asset as may be established by an applicable Rating Agency, provided, in
either case that with respect to an Eligible Asset that is currently callable,
Discounted Value will be equal to the applicable quotient or product as
calculated above or the call price, whichever is lower, and that with respect
to an Eligible Asset that is prepayable, Discounted Value will be equal to the
applicable quotient or product as calculated above or the par value, whichever
is lower.
"Dividend-Disbursing Agent" means, with respect to the Series A Preferred Shares, EquiServe Trust Company, N.A. and its successors or any other dividend-disbursing agent appointed by the Trust and, with respect to any other class or series of Preferred Shares, the Person appointed by the Trust as dividend-disbursing or paying agent with respect to such class or series.
"Dividend Payment Date" means with respect to the Series A Preferred Shares, any date on which dividends declared by the Board of Trustees thereon are payable pursuant to the provisions of paragraph 1(a) of Part II of this Statement of Preferences and shall for the purposes of this Statement of Preferences have a correlative meaning with respect to any other class or series of Preferred Shares.
"Dividend Period" shall have the meaning set forth in paragraph 1(a) of Part II hereof, and for the purposes of this Statement of Preferences shall have a correlative meaning with respect to any other class or series of Preferred Shares.
"Governing Documents" means the Declaration and the By-Laws.
"Independent Accountant" means a nationally recognized accountant, or firm of accountants, that is with respect to the Trust an independent public accountant or firm of independent public accountants under the Securities Act of 1933, as amended.
"Liquidation Preference" shall, with respect to the Series A Preferred Shares, have the meaning set forth in paragraph 2(a) of Part II hereof, and for the purposes of this Statement of Preferences shall have a correlative meaning with respect to any other class or series of Preferred Shares.
"Market Value" means the amount determined by the Trust with respect to Moody's Eligible Assets in accordance with valuation policies adopted from time to time by the Board of Trustees as being in compliance with the requirements of the 1940 Act.
Notwithstanding the foregoing, "Market Value" may, at the option of the Trust with respect to any of its assets, mean the amount determined with respect to specific Moody's Eligible Assets of the Trust in the manner set forth below:
(a) as to any common or preferred stock which is a Moody's Eligible Asset, (i) if the stock is traded on a national securities exchange or quoted on the Nasdaq System, the last sales price reported on the Valuation Date or (ii) if there was no reported sales price on the Valuation Date, the lower of two bid prices for such stock provided to the Administrator by two recognized securities dealers with minimum capitalizations of $25,000,000 (or otherwise approved for such purpose by Moody's) or by one such securities dealer and any other source (provided that the utilization of such source would not adversely affect Moody's then-current rating of the Series A Preferred Shares), at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Trust by any such means by such Administrator, or, if two bid prices cannot be obtained, such Moody's Eligible Asset shall have a Market Value of zero;
(b) as to any U.S. Government Obligation, Short Term Money Market Instrument (other than demand deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements) and commercial paper with a maturity of greater than 60 days, the product of (i) the principal amount (accreted principal to the extent such instrument accretes interest) of such instrument, and (ii) the lower of the bid prices for the same kind of instruments having, as nearly as practicable, comparable interest rates and maturities provided by two recognized securities dealers having a minimum capitalization of $25,000,000 (or otherwise approved for such purpose by Moody's) or by one such dealer and any other source (provided that the utilization of such source would not adversely affect Moody's then-current rating of the Series A Preferred Shares) to the Administrator, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Trust by any such means by such Administrator, or, if two bid prices cannot be obtained, such Moody's Eligible Asset will have a Market Value of zero;
(c) as to cash, demand deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements included in Short-Term Money Market Instruments, the face value thereof;
(d) as to any U.S. Government Obligation, Short-Term Money Market Instrument or commercial paper with a maturity of 60 days or fewer, amortized cost unless the Board of Trustees determines that such value does not constitute fair value;
(e) as to any other evidence of indebtedness which is a Moody's Eligible Asset, (i) the product of (A) the unpaid principal balance of such indebtedness as of the Valuation Date and (B)(1) if such indebtedness is traded on a national securities exchange or quoted on the Nasdaq System, the last sales price reported on the Valuation Date or (2) if there was no reported sales price on the Valuation Date or if such indebtedness is not traded on a national securities exchange or quoted on the Nasdaq System, the lower of two bid prices for such indebtedness provided by two recognized dealers with a minimum capitalization of $25,000,000 (or otherwise approved for such purpose by Moody's) or by one such dealer and any other source (provided that the utilization of such source would not adversely affect Moody's then-current rating of the Series A Preferred Shares) to the Administrator, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Trust by any such means by such Administrator, plus (ii) accrued interest on such indebtedness.
"Moody's" means Moody's Investors Service, Inc., or its successors at law. In the event that Moody's is no longer rating the Series A Preferred Shares at the request of the Trust, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Trust.
"Moody's Discount Factor" means, with respect to a Moody's Eligible Asset specified below, the following applicable number:
Moody's
Type of Moody's Eligible Asset: Discount Factor:
------------------------------ ---------------
Short Term Money Market Instruments (other than U.S. Government Obligations
set forth below) and other commercial paper:
U.S. Treasury Securities with final maturities that are less than or
equal to 60 days.....................................
1.00
Demand or time deposits, certificates of deposit and bankers'
acceptances includible in Short Term Money Market Instruments 1.00
Commercial paper rated P-1 by Moody's maturing in 30 days or
less......................................................... 1.00
Commercial paper rated P-1 by Moody's maturing in more than 30
days but in 270 days or less................................. 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days or less 1.25
Repurchase obligations includible in Short Term Money Market
Instruments if term is less than 30 days and counterparty is 1.00
rated at least A2............................................
Other repurchase obligations................................. Discount Factor applicable to
underlying assets
U.S. Common Stocks and Common Stocks of foreign issuers for which ADR's are
traded:
1.70
Utility ..................................................
2.64
Industrial ...............................................
2.41
Financial ................................................
Common Stocks of foreign issuers (in existence for at least five
years) for which no ADR's are traded.............................. 4.00
Convertible Preferred Stocks...................................... 3.00
Preferred stocks:
Auction rate preferred stocks................................ 3.50
Other preferred stocks issued by issuers in the financial and
industrial industries........................................ 2.09
Other preferred stocks issued by issuers in the utilities
industry..................................................... 1.55
U.S. Government Obligations (other than U.S. Treasury Securities Strips set
forth below) with remaining terms to maturity of:
1 year or less............................................... 1.04
2 years or less.............................................. 1.09
3 years or less.............................................. 1.12
4 years or less.............................................. 1.15
5 years or less.............................................. 1.18
7 years of less.............................................. 1.21
10 years or less............................................. 1.24
15 years or less............................................. 1.25
20 years or less............................................. 1.26
30 years or less............................................. 1.26
U.S. Treasury Securities Strips with remaining terms to maturity of:
1 year or less............................................... 1.04
2 years or less.............................................. 1.10
3 years or less.............................................. 1.14
4 years or less.............................................. 1.18
5 years or less.............................................. 1.21
7 years or less.............................................. 1.27
10 years or less............................................. 1.34
15 years or less............................................. 1.45
20 years or less............................................. 1.54
30 years or less............................................. 1.66
Corporate Debt:
Non-convertible corporate debt rated Aaa with remaining terms to maturity
of:
1 year or less........................................... 1.09
2 years or less.......................................... 1.15
3 years or less.......................................... 1.20
4 years or less.......................................... 1.26
5 years or less.......................................... 1.32
7 years or less.......................................... 1.39
10 years or less......................................... 1.45
15 years or less......................................... 1.50
20 years or less......................................... 1.50
30 years or less......................................... 1.50
Non-convertible corporate debt rated at least Aa3 with remaining terms to
maturity of:
1 year or less........................................... 1.12
2 years of less.......................................... 1.18
3 years or less.......................................... 1.23
4 years or less.......................................... 1.29
5 years or less.......................................... 1.35
7 years or less.......................................... 1.43
10 years or less......................................... 1.50
15 years or less......................................... 1.55
20 years or less......................................... 1.55
30 years or less......................................... 1.55
Non-convertible corporate debt rated at least A3 with remaining terms to
maturity of:
1 year or less........................................... 1.15
2 years or less.......................................... 1.22
3 years or less.......................................... 1.27
4 years or less.......................................... 1.33
5 years or less.......................................... 1.39
7 years or less.......................................... 1.47
10 years or less......................................... 1.55
15 years or less......................................... 1.60
20 years or less......................................... 1.60
30 years or less......................................... 1.60
Non-convertible corporate debt rated at least Baa3 with remaining terms
of maturity of:
1 year or less........................................... 1.18
2 years or less.......................................... 1.25
3 years or less.......................................... 1.31
4 years or less.......................................... 1.38
5 years or less.......................................... 1.44
7 years or less.......................................... 1.52
10 years or less......................................... 1.60
15 years or less......................................... 1.65
20 years or less......................................... 1.65
30 years or less......................................... 1.65
Non-convertible corporate debt rated at least Ba3 with remaining terms of
maturity of:
1 year or less........................................... 1.37
2 years or less.......................................... 1.46
3 years or less.......................................... 1.56
4 years or less.......................................... 1.61
5 years or less.......................................... 1.68
7 years or less.......................................... 1.79
10 years or less......................................... 1.89
15 years or less......................................... 1.96
20 years or less......................................... 1.96
30 years or less......................................... 1.96
Non-convertible corporate debt rated at least B1 and B2 with remaining
terms of maturity of:
1 year or less........................................... 1.50
2 years or less.......................................... 1.60
3 years or less.......................................... 1.68
4 years or less.......................................... 1.76
5 years or less.......................................... 1.86
7 years or less.......................................... 1.97
10 years or less......................................... 2.08
15 years or less......................................... 2.16
20 years or less......................................... 2.28
30 years or less......................................... 2.29
Non-convertible unrated corporate debt of any maturity .. 2.50
Convertible corporate debt securities rated at least Aa3 issued by the
following type of issuers:
Utility...................................................... 1.62-1.67
Industrial................................................... 2.56-2.61
Financial.................................................... 2.33-2.38
Transportation............................................... 2.50-2.65
Convertible corporate debt securities rated at least A3 issued by the
following type of issuers:
Utility...................................................... 1.72
Industrial................................................... 2.66
Financial.................................................... 2.43
Transportation............................................... 2.75
Convertible corporate debt securities rated at least Baa3 issued by the
following type of issuers:
Utility...................................................... 1.88
Industrial................................................... 2.82
Financial.................................................... 2.59
Transportation............................................... 2.85
Convertible corporate debt securities rated at least Ba3 issued by the
following type of issuers:
Utility...................................................... 1.95
Industrial................................................... 2.90
Financial.................................................... 2.65
Transportation............................................... 2.90
Convertible corporate debt securities rated at least B2 issued by the
following type of issuers:
Utility...................................................... 1.99
Industrial................................................... 2.93
Financial.................................................... 2.70
Transportation............................................... 2.95
|
"Moody's Eligible Assets" means:
(a) cash (including, for this purpose, receivables for investments sold to a counterparty whose senior debt securities are rated at least Baa3 by Moody's or a counterparty approved by Moody's and payable within five Business Days following such Valuation Date and dividends and interest receivable within 49 days on investments);
(b) Short-Term Money Market Instruments;
(c) commercial paper that is not includible as a Short-Term Money Market Instrument having on the Valuation Date a rating from Moody's of at least P-1 and maturing within 270 days;
(d) preferred stocks (i) which either (A) are issued by issuers whose senior debt securities are rated at least Baa1 by Moody's or (B) are rated at least Baa3 by Moody's or (C) in the event an issuer's senior debt securities or preferred stock is not rated by Moody's, which either (1) are issued by an issuer whose senior debt securities are rated at least A- by S&P or (2) are rated at least A- by S&P and for this purpose have been assigned a Moody's equivalent rating of at least Baa3, (ii) of issuers which have (or, in the case of issuers which are special purpose corporations, whose parent companies have) common stock listed on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market System, (iii) which have a minimum issue size (when taken together with other of the issuer's issues of similar tenor) of $50,000,000, (iv) which have paid cash dividends consistently during the preceding three-year period (or, in the case of new issues without a dividend history, are rated at least A1 by Moody's or, if not rated by Moody's, are rated at least AA- by S&P), (v) which pay cumulative cash dividends in U.S. dollars, (vi) which are not convertible into any other class of stock and do not have warrants attached, (vii) which are not issued by issuers in the transportation industry and (viii) in the case of auction rate preferred stocks, which are rated at least Aa3 by Moody's, or if not rated by Moody's, AAA by S&P, AAA by Fitch or are otherwise approved in writing by Moody's and have never had a failed auction; provided, however, that for this purpose the aggregate Market Value of the Trust's holdings of any single issue of auction rate preferred stock shall not be more than 1% of the Trust's total assets.
(e) common stocks (i) (A) which are traded on a nationally
recognized stock exchange or in the over-the-counter market,
(B) if cash dividend paying, pay cash dividends in U.S.
dollars and (C) which may be sold without restriction by the
Trust; provided, however, that (y) common stock which, while
a Moody's Eligible Asset owned by the Trust, ceases paying
any regular cash dividend will no longer be considered a
Moody's Eligible Asset until 71 days after the date of the
announcement of such cessation, unless the issuer of the
common stock has senior debt securities rated at least A3 by
Moody's and (z) the aggregate Market Value of the Trust's
holdings of the common stock of any issuer in excess of 4%
in the case of utility common stock and 6% in the case of
non-utility common stock of the aggregate Market Value of
the Trust's holdings shall not be Moody's Eligible Assets,
(ii) which are securities denominated in any currency other
than the U.S. dollar or securities of issuers formed under
the laws of jurisdictions other than the United States, its
states and the District of Columbia for which there are
dollar-denominated ADRs or their equivalents which are
traded in the United States on exchanges or over-the-counter
and are issued by banks formed under the laws of the United
States, its states or the District of Columbia or (iii)
which are securities of issuers formed under the laws of
jurisdictions other than the United States (and in existence
for at least five years) for which no ADRs are traded;
provided, however, that the aggregate Market Value of the
Trust's holdings of securities denominated in currencies
other than the U.S. dollar and ADRs in excess of (A) 6% of
the aggregate Market Value of the outstanding shares of
common stock of such issuer thereof or (B) 10% of the Market
Value of the Trust's Moody's Eligible Assets with respect to
issuers formed under the laws of any single such non-U.S.
jurisdiction other than Australia, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland
and the United Kingdom, shall not be a Moody's Eligible
Asset;
(f) ADR securities, based on the following guidelines: (i) Sponsored ADR program or (ii) Level II or Level III ADRs. Private placement Rule 144A ADRs are not eligible for collateral consideration. Global GDR programs will be evaluated on a case by case basis;
(g) U.S. Government Obligations;
(h) corporate evidences of indebtedness (i) which may be sold
without restriction by the Trust which are rated at least B3
(Caa subordinate) by Moody's (or, in the event the security
is not rated by Moody's, the security is rated at least BB-
by S&P and which for this purpose is assigned a Moody's
equivalent rating of one full rating category lower), with
such rating confirmed on each Valuation Date, (ii) which
have a minimum issue size of at least (A) $100,000,000 if
rated at least Baa3 or (B) $50,000,000 if rated B or Ba3,
(iii) which are not convertible or exchangeable into equity
of the issuing corporation and have a maturity of not more
than 30 years, and (iv) for which, if rated below Baa3 or
not rated, the aggregate Market Value of the Trust's
holdings do not exceed 10% of the aggregate Market Value of
any individual issue of corporate evidences of indebtedness
calculated at the time of original issuance; and
(i) convertible corporate evidences of indebtedness (i) which
are issued by issuers whose senior debt securities are rated
at least B2 by Moody's (or, in the event an issuer's senior
debt securities are not rated by Moody's, which are issued
by issuers whose senior debt securities are rated at least
BB by S&P and which for this purpose is assigned a Moody's
equivalent rating of one full rating category lower), (ii)
which are convertible into common stocks which are traded on
the New York Stock Exchange or the American Stock Exchange
or are quoted on the Nasdaq National Market System, and
(iii) which, if cash dividend paying, pay cash dividends in
U.S. dollars; provided, however, that once convertible
corporate evidences of indebtedness have been converted into
common stock, the common stock issued upon conversion must
satisfy the criteria set forth in clause (e) above and other
relevant criteria set forth in this definition in order to
be a Moody's Eligible Asset;
provided, however, that the Trust's investments in auction rate preferred stocks described in clause (d) above shall be included in Moody's Eligible Assets only to the extent that the aggregate Market Value of such stocks does not exceed 10% of the aggregate Market Value of all of the Trust's investments meeting the criteria set forth in clauses (a) through (g) above less the aggregate Market Value of those investments excluded from Moody's Eligible Assets pursuant to the paragraph appearing after clause (j) below; and
(j) no assets which are subject to any lien or irrevocably
deposited by the Trust for the payment of amounts needed to
meet the obligations described in clauses (a)(i) through
(a)(iv) of the definition of "Basic Maintenance Amount" may
be includible in Moody's Eligible Assets.
Notwithstanding anything to the contrary in the preceding clauses
(a)-(j), the Trust's investment in preferred stock, common stock, corporate
evidences of indebtedness and convertible corporate evidences of indebtedness
shall not be treated as Moody's Eligible Assets except to the extent they
satisfy the following diversification requirements (utilizing Moody's Industry
and Sub-industry Categories) with respect to the Market Value of the Trust's
holdings:
Issuer:
Non-Utility Utility
Maximum Single Maximum Single
Issuer(3)(4) Issuer(3)(4)
----------- ------------
Moody's Rating(1)(2)
Aaa 100% 100%
Aa 20% 20%
A 10% 10%
CS/CB, Baa(5) 6% 4%
Ba 4% 4%
B1/B2 3% 3%
B3 or below 2% 2%
|
Industry and State:
Utility
Non-Utility Maximum Utility
Maximum Single Single Sub- Maximum Single
Moody's Rating(1) Industry(3) Industry(3)(6) State(3)
----------------- ----------- -------------- --------
Aaa 100% 100% 100%
Aa 60% 60% 20%
A 40% 50% 10%(7)
CS/CB, Baa(5) 20% 50% 7%(7)
Ba 12% 12% 0%
B1/B2 8% 8% 0%
B3 or below 5% 5% 0%
|
(1) Unless conclusions regarding liquidity risk as well as estimates of both the probability and severity of default for the Trust's assets can be derived from other sources, securities rated below B by Moody's and unrated securities, which are securities rated by neither Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible Assets. If a corporate, municipal or other debt security is unrated by Moody's, S&P or Fitch, the Trust will use the percentage set forth under "Below B and Unrated" in this table. Ratings assigned by S&P or Fitch are generally accepted by Moody's at face value. However, adjustments to face value may be made to particular categories of credits for which the S&P and/or Fitch rating does not seem to approximate a Moody's rating equivalent.
(2) Corporate evidences of indebtedness from issues ranging from $50,000,000 to $100,000,000 are limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for the related Moody's rating category and each lower Moody's rating category.
(4) Issuers subject to common ownership of 25% or more are considered as one name.
(5) CS/CB refers to common stock and convertible corporate evidences of indebtedness, which are diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility evidences of indebtedness and utility convertible evidences of indebtedness, the definition of industry refers to sub-industries (electric, water, hydro power, gas, diversified). Investments in other sub-industries are eligible only to the extent that the combined sum represents a percentage position of the Moody's Eligible Assets less than or equal to the percentage limits in the diversification tables above.
(7) Such percentage shall be 15% in the case of utilities regulated by California, New York and Texas.
"Moody's Industry Classifications" means for the purposes of determining Moody's Eligible Assets, each of the following industry classifications (or such other classifications as Moody's may from time to time approve for application to the Series A Preferred Shares).
1. Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft Manufacturing, Arms, Ammunition.
2. Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts Manufacturing, Personal Use Trailers, Motor Homes, Dealers.
3. Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan, Agency, Factoring, Receivables.
4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods, Corn Refiners, Dairy Products, Meat Products, Poultry Products, Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil.
5. Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting, Engineering, Construction, Hardware, Forest Products (building-related only), Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development, REITs, Land Development.
6. Chemicals, Plastics and Rubber: Chemicals (non-agricultural), Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings, Paints, Varnish, Fabricating Containers.
7. Packaging and Glass: Glass, Fiberglass, Containers made of: Glass, Metal, Paper, Plastic, Wood or Fiberglass.
8. Personal and Non-Durable Consumer Products (Manufacturing Only): Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies.
9. Diversified/Conglomerate Manufacturing.
10. Diversified/Conglomerate Service.
11. Diversified Natural Resources, Precious Metals and Minerals: Fabricating, Distribution.
12. Ecological: Pollution Control, Waste Removal, Waste Treatment and Waste Disposal.
13. Electronics: Computer Hardware, Electric Equipment, Components, Controllers, Motors, Household Appliances, Information Service Communication Systems, Radios, TVs, Tape Machines, Speakers, Printers, Drivers, Technology.
14. Finance: Investment Brokerage, Leasing, Syndication, Securities.
15. Farming and Agriculture: Livestock, Grains, Produce, Agriculture Chemicals, Agricultural Equipment, Fertilizers.
16. Grocery: Grocery Stores, Convenience Food Stores.
17. Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs, Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital Supplies, Medical Equipment.
18. Home and Office Furnishings, Housewares, and Durable Consumer Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges.
19. Hotels, Motels, Inns and Gaming.
20. Insurance: Life, Property and Casualty, Broker, Agent, Surety.
21. Leisure, Amusement, Motion Pictures, Entertainment:
Boating, Bowling, Billiards, Musical Instruments,
Fishing, Photo Equipment, Records, Tapes, Sports,
Outdoor Equipment (Camping), Tourism, Resorts, Games,
Toy Manufacturing, Motion Picture Production Theaters,
Motion Picture Distribution.
22. Machinery (Non-Agricultural, Non-Construction, Non-Electronic): Industrial, Machine Tools, Steam Generators.
23. Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead, Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore Production, Refractories, Steel Mill Machinery, Mini-Mills, Fabricating, Distribution and Sales of the foregoing.
24. Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling.
25. Printing, Publishing, and Broadcasting: Graphic Arts, Paper, Paper Products, Business Forms, Magazines, Books, Periodicals, Newspapers, Textbooks, Radio, T.V., Cable Broadcasting Equipment.
26. Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders, Ship Builders, Containers, Container Builders, Parts, Overnight Mail, Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo, Transport.
27. Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order Catalog, Showroom.
28. Telecommunications: Local, Long Distance, Independent, Telephone, Telegraph, Satellite, Equipment, Research, Cellular.
29. Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer, Leather Shoes.
30. Personal Transportation: Air, Bus, Rail, Car Rental.
31. Utilities: Electric, Water, Hydro Power, Gas.
32. Diversified Sovereigns: Semi-sovereigns, Canadian Provinces, Supra-national Agencies.
The Trust will use SIC codes in determining which industry classification is applicable to a particular investment in consultation with the Independent Accountant and Moody's, to the extent the Trust considers necessary.
"1933 Act" means the Securities Act of 1933, as amended, or any successor statute.
"1940 Act" means the Investment Company Act of 1940, as amended, or any successor statute.
"Notice of Redemption" shall have the meaning set forth in paragraph 3(c)(i) of Part II hereof.
"Outstanding" means, as of any date, Preferred Shares theretofore issued by the Trust except:
(a) any such Preferred Share theretofore cancelled by the Trust or delivered to the Trust for cancellation;
(b) any such Preferred Share, other than an auction rate Preferred Share, as to which a notice of redemption shall have been given and for whose payment at the redemption thereof Deposit Assets in the necessary amount are held by the Trust in trust for, or have been irrevocably deposited with the relevant disbursing agent for payment to, the holder of such share pursuant to the Statement of Preferences with respect thereto;
(c) in the case of an auction rate Preferred Share, any such share theretofore delivered to the auction agent for cancellation or with respect to which the Trust has given notice of redemption and irrevocably deposited with the paying agent sufficient funds to redeem such share; and
(d) any such Preferred Share in exchange for or in lieu of which other shares have been issued and delivered.
Notwithstanding the foregoing, (i) for purposes of voting rights (including the determination of the number of shares required to constitute a quorum), any Preferred Shares as to which the Trust or any subsidiary of the Trust is the holder will be disregarded and deemed not Outstanding, and (ii) in connection with any auction of Auction Market Preferred Shares as to which the Trust or any Person known to the auction agent to be a subsidiary of the Trust is the holder will be disregarded and not deemed Outstanding.
"Person" means and includes an individual, a partnership, the Trust, a trust, a corporation, a limited liability company, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
"Preferred Shares" means the preferred shares, par value $.001 per share, of the Trust, and includes the Series A Preferred Shares.
"Pricing Service" means any of the following: Bloomberg Financial Service, Bridge Information Services, Data Resources Inc., FT Interactive, International Securities Market Association, Merrill Lynch Securities Pricing Service, Muller Data Corp., Reuters, S&P/J.J. Kenny, Telerate, Trepp Pricing and Wood Gundy.
"Redemption Price" has the meaning set forth in paragraph 3(a) of Part II hereof, and for the purposes of this Statement of Preferences shall have a correlative meaning with respect to any other class or series of Preferred Shares.
"S&P" means Standard & Poor's Ratings Services, or its successors at law.
"Series A Preferred Shares" means the [ ]% Series A Cumulative Preferred Shares, par value $.001 per share, of the Trust.
"Series A Asset Coverage Cure Date" means, with respect to the failure by the Trust to maintain Asset Coverage (as required by paragraph 5(a)(i) of Part II hereof) as of the last Business Day of each March, June, September and December of each year, 49 days following such Business Day.
"Short-Term Money Market Instruments" means the following types of instruments if, on the date of purchase or other acquisition thereof by the Trust, the remaining term to maturity thereof is not in excess of 180 days:
(i) commercial paper rated A-1 if such commercial paper matures in 30 days or A-1+ if such commercial paper matures in over 30 days;
(ii) demand or time deposits in, and banker's acceptances and certificates of deposit of (A) a depository institution or trust company incorporated under the laws of the United States of America or any state thereof or the District of Columbia or (B) a United States branch office or agency of a foreign depository institution (provided that such branch office or agency is subject to banking regulation under the laws of the United States, any state thereof or the District of Columbia);
(iii) overnight funds; and
(iv) U.S. Government Obligations.
"Trust" means The Gabelli Utility Trust, a Delaware statutory trust.
"U.S. Government Obligations" means direct obligations of the United States or by its agencies or instrumentalities that are entitled to the full faith and credit of the United States and that, other than United States Treasury Bills, provide for the periodic payment of interest and the full payment of principal at maturity or call for redemption.
"Valuation Date" means the last Business Day of each month, or such other date as the Trust and Moody's may agree to for purposes of determining the Basic Maintenance Amount.
"Voting Period" shall have the meaning set forth in paragraph 4(b) of Part II hereof.
PART II
SERIES A PREFERRED SHARES
1. Dividends.
(a) Holders of Series A Preferred Shares shall be entitled to receive, when, as and if declared by the Board of Trustees, out of funds legally available therefor, cumulative cash dividends at the rate of [ ] per annum (computed on the basis of a 360-day year consisting of twelve 30-day months) of the Liquidation Preference on the Series A Preferred Shares and no more, payable quarterly on [____ __], [____ __], [____ __] and [____ __] in each year (each, a Dividend Payment Date) commencing [ ], 2003 (or, if any such day is not a Business Day, then on the next succeeding Business Day) to holders of record of Series A Preferred Shares as they appear on the stock register of the Trust at the close of business on the fifth preceding Business Day in preference to dividends on Common Shares and any other capital shares of the Trust ranking junior to the Series A Preferred Shares in payment of dividends. Dividends on Series A Preferred Shares shall accumulate from the date on which such shares are originally issued. Each period beginning on and including a Dividend Payment Date (or the Date of Original Issue, in the case of the first dividend period after issuance of such shares) and ending on but excluding the next succeeding Dividend Payment Date is referred to herein as a "Dividend Period." Dividends on account of arrears for any past Dividend Period or in connection with the redemption of Series A Preferred Shares may be declared and paid at any time, without reference to any Dividend Payment Date, to holders of record on such date not exceeding 30 days preceding the payment date thereof as shall be fixed by the Board of Trustees.
(b) (i) No full dividends shall be declared or paid on Series A Preferred Shares for any Dividend Period or part thereof unless full cumulative dividends due through the most recent Dividend Payment Dates therefor for all series of Preferred Shares of the Trust ranking on a parity with the Series A Preferred Shares as to the payment of dividends have been or contemporaneously are declared and paid through the most recent Dividend Payment Dates therefor. If full cumulative dividends due have not been paid on all such Outstanding Preferred Shares, any dividends being paid on such Preferred Shares (including the Series A Preferred Shares) will be paid as nearly pro rata as possible in proportion to the respective amounts of dividends accumulated but unpaid on each such series of Preferred Shares on the relevant Dividend Payment Date. No holders of Series A Preferred Shares shall be entitled to any dividends, whether payable in cash, property or shares, in excess of full cumulative dividends as provided in this paragraph 1(b)(i) on Series A Preferred Shares. No interest or sum of money in lieu of interest shall be payable in respect of any dividend payments on any Series A Preferred Shares that may be in arrears.
(ii) For so long as Series A Preferred Shares are Outstanding, the Trust shall not pay any dividend or other distribution (other than a dividend or distribution paid in Common Shares, or options, warrants or rights to subscribe for or purchase Common Shares or other shares, if any, ranking junior to the Series A Preferred Shares as to dividends and upon liquidation) in respect of the Common Shares or any other shares of the Trust ranking junior to the Series A Preferred Shares as to the payment of dividends and the distribution of assets upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any Common Shares or any other shares of the Trust ranking junior to the Series A Preferred Shares as to the payment of dividends and the distribution of assets upon liquidation (except by conversion into or exchange for shares of the Trust ranking junior to the Series A Preferred Shares as to dividends and upon liquidation), unless, in each case, (A) immediately thereafter, the aggregate Adjusted Value of the Trust's Moody's Eligible Assets shall equal or exceed the Basic Maintenance Amount and the Trust shall have Asset Coverage, (B) all cumulative dividends on all Series A Preferred Shares due on or prior to the date of the transaction have been declared and paid (or shall have been declared and sufficient funds for the payment thereof deposited with the applicable Dividend-Disbursing Agent) and (C) the Trust has redeemed the full number of Series A Preferred Shares to be redeemed mandatorily pursuant to any provision contained herein for mandatory redemption.
(iii) Any dividend payment made on the Series A Preferred Shares shall first be credited against the dividends accumulated with respect to the earliest Dividend Period for which dividends have not been paid.
(c) Not later than the Business Day immediately preceding each Dividend Payment Date, the Trust shall deposit with the Dividend-Disbursing Agent Deposit Assets having an initial combined value sufficient to pay the dividends that are payable on such Dividend Payment Date, which Deposit Assets shall mature on or prior to such Dividend Payment Date. The Trust may direct the Dividend-Disbursing Agent with respect to the investment of any such Deposit Assets, provided that such investment consists exclusively of Deposit Assets and provided further that the proceeds of any such investment will be available at the opening of business on such Dividend Payment Date.
2. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the affairs of the Trust, whether voluntary or involuntary, the holders of Series A Preferred Shares shall be entitled to receive out of the assets of the Trust available for distribution to shareholders, after satisfying claims of creditors but before any distribution or payment shall be made in respect of the Common Shares or any other shares of the Trust ranking junior to the Series A Preferred Shares as to liquidation payments, a liquidation distribution in the amount of $25.00 per share (the "Liquidation Preference"), plus an amount equal to all unpaid dividends accumulated to and including the date fixed for such distribution or payment (whether or not earned or declared by the Trust, but excluding interest thereon), and such holders shall be entitled to no further participation in any distribution or payment in connection with any such liquidation, dissolution or winding up.
(b) If, upon any liquidation, dissolution or winding up of the affairs of the Trust, whether voluntary or involuntary, the assets of the Trust available for distribution among the holders of all Outstanding Series A Preferred Shares, and any other Outstanding class or series of Preferred Shares of the Trust ranking on a parity with the Series A Preferred Shares as to payment upon liquidation, shall be insufficient to permit the payment in full to such holders of Series A Preferred Shares of the Liquidation Preference plus accumulated and unpaid dividends and the amounts due upon liquidation with respect to such other Preferred Shares, then such available assets shall be distributed among the holders of Series A Preferred Shares and such other Preferred Shares ratably in proportion to the respective preferential liquidation amounts to which they are entitled. Unless and until the Liquidation Preference plus accumulated and unpaid dividends has been paid in full to the holders of Series A Preferred Shares, no dividends or distributions will be made to holders of the Common Shares or any other shares of the Trust ranking junior to the Series A Preferred Shares as to liquidation.
3. Redemption.
The Series A Preferred Shares shall be redeemed by the Trust as provided below:
(a) Mandatory Redemptions.
If the Trust is required to redeem any Preferred Shares (which may include Series A Preferred Shares) pursuant to paragraphs 5(b) or 5(c) of Part II hereof, then the Trust shall, to the extent permitted by the 1940 Act and Delaware law, by the close of business on such Series A Asset Coverage Cure Date or Basic Maintenance Amount Cure Date (herein collectively referred to as a "Cure Date"), as the case may be, fix a redemption date and proceed to redeem shares as set forth in paragraph 3(c) hereof. On such redemption date, the Trust shall redeem, out of funds legally available therefor, the number of Preferred Shares, which, to the extent permitted by the 1940 Act and Delaware law, at the option of the Trust may include any proportion of Series A Preferred Shares or any other series of Preferred Shares, equal to the minimum number of shares the redemption of which, if such redemption had occurred immediately prior to the opening of business on such Cure Date, would have resulted in the Trust having Asset Coverage or an Adjusted Value of its Moody's Eligible Assets equal to or greater than the Basic Maintenance Amount, as the case may be, immediately prior to the opening of business on such Cure Date or, if Asset Coverage or an Adjusted Value of its Eligible Assets equal to or greater than the Basic Maintenance Amount, as the case may be, cannot be so restored, all of the Outstanding Series A Preferred Shares, at a price equal to $25.00 per share plus accumulated but unpaid dividends (whether or not earned or declared by the Trust) through the date of redemption (the "Redemption Price"). In the event that Preferred Shares are redeemed pursuant to paragraphs 5(b) or 5(c) of Part II hereof, the Trust may, but is not required to, redeem a sufficient number of Series A Preferred Shares pursuant to this paragraph 3(a) which, when aggregated with other Preferred Shares redeemed by the Trust, permits the Trust to have with respect to the Preferred Shares (including the Series A Preferred Shares) remaining Outstanding after such redemption (i) Asset Coverage of as much as 220% and (ii) Moody's Eligible Assets with Adjusted Value of as great as 110% of the Basic Maintenance Amount. In the event that all of the Series A Preferred Shares then Outstanding are required to be redeemed pursuant to paragraph 5 of Part II hereof, the Trust shall redeem such shares at the Redemption Price and proceed to do so as set forth in paragraph 3(c) hereof.
(b) Optional Redemptions.
Prior to [ ], [__], the Series A Preferred Shares are not subject to optional redemption by the Trust unless such redemption is necessary, in the judgment of the Board of Trustees, to maintain the Trust's status as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. Commencing [ ], [__] and thereafter, and prior thereto to the extent necessary to maintain the Trust's status as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, to the extent permitted by the 1940 Act and Delaware law, the Trust may at any time upon Notice of Redemption redeem the Series A Preferred Shares in whole or in part at the Redemption Price per share, which notice shall specify a redemption date of not fewer than 15 days nor more than 40 days after the date of such notice.
(c) Procedures for Redemption.
(i) If the Trust shall determine or be required to redeem Series A Preferred Shares pursuant to this paragraph 3, it shall mail a written notice of redemption ("Notice of Redemption") with respect to such redemption by first class mail, postage prepaid, to each holder of the shares to be redeemed at such holder's address as the same appears on the stock books of the Trust on the close of business on such date as the Board of Trustees may determine, which date shall not be earlier than the second Business Day prior to the date upon which such Notice of Redemption is mailed to the holders of Series A Preferred Shares. Each such Notice of Redemption shall state: (A) the redemption date as established by the Board of Trustees; (B) the number of Series A Preferred Shares to be redeemed; (C) the CUSIP number(s) of such shares; (D) the Redemption Price; (E) the place or places where the certificate(s) for such shares (properly endorsed or assigned for transfer, if the Board of Trustees shall so require and the Notice of Redemption shall so state) are to be surrendered for payment in respect of such redemption; (F) that dividends on the shares to be redeemed will cease to accrue on such redemption date; (G) the provisions of this paragraph 3 under which such redemption is made; and (H) in the case of a redemption pursuant to paragraph 3(b), any conditions precedent to such redemption. If fewer than all Series A Preferred Shares held by any holder are to be redeemed, the Notice of Redemption mailed to such holder also shall specify the number or percentage of shares to be redeemed from such holder. No defect in the Notice of Redemption or the mailing thereof shall affect the validity of the redemption proceedings, except as required by applicable law.
(ii) If the Trust shall give a Notice of Redemption, then by the close of business on the Business Day preceding the redemption date specified in the Notice of Redemption (so long as any conditions precedent to such redemption have been met) or, if the Dividend-Disbursing Agent so agrees, another date not later than the redemption date, the Trust shall (A) deposit with the Dividend-Disbursing Agent Deposit Assets that shall mature on or prior to such redemption date having an initial combined value sufficient to effect the redemption of the Series A Preferred Shares to be redeemed and (B) give the Dividend-Disbursing Agent irrevocable instructions and authority to pay the Redemption Price to the holders of the Series A Preferred Shares called for redemption on the redemption date. The Trust may direct the Dividend-Disbursing Agent with respect to the investment of any Deposit Assets so deposited provided that the proceeds of any such investment will be available at the opening of business on such redemption date. Upon the date of such deposit (unless the Trust shall default in making payment of the Redemption Price), all rights of the holders of the Series A Preferred Shares so called for redemption shall cease and terminate except the right of the holders thereof to receive the Redemption Price thereof and such shares shall no longer be deemed Outstanding for any purpose. The Trust shall be entitled to receive, promptly after the date fixed for redemption any cash in excess of the aggregate Redemption Price of the Series A Preferred Shares called for redemption on such date and any remaining Deposit Assets. Any assets so deposited that are unclaimed at the end of two years from such redemption date shall, to the extent permitted by law, be repaid to the Trust, after which the holders of the Series A Preferred Shares so called for redemption shall look only to the Trust for payment of the Redemption Price thereof. The Trust shall be entitled to receive, from time to time after the date fixed for redemption, any interest on the Deposit Assets so deposited.
(iii) On or after the redemption date, each holder of Series A Preferred Shares that are subject to redemption shall surrender the certificate evidencing such shares to the Trust at the place designated in the Notice of Redemption and shall then be entitled to receive the cash Redemption Price, without interest.
(iv) In the case of any redemption of less than all of the Series A Preferred Shares pursuant to this Statement of Preferences, such redemption shall be made pro rata from each holder of Series A Preferred Shares in accordance with the respective number of shares held by each such holder on the record date for such redemption.
(v) Notwithstanding the other provisions of this paragraph 3, the Trust shall not redeem Series A Preferred Shares unless all accumulated and unpaid dividends on all Outstanding Series A Preferred Shares and other Preferred Shares ranking on a parity with the Series A Preferred Shares with respect to dividends for all applicable past Dividend Periods (whether or not earned or declared by the Trust) shall have been or are contemporaneously paid or declared and Deposit Assets for the payment of such dividends shall have been deposited with the Dividend-Disbursing Agent as set forth in paragraph 1(c) of Part II hereof, provided, however, that the foregoing shall not prevent the purchase or acquisition of outstanding Preferred Shares pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to holders of all Outstanding Series A Preferred Shares.
If the Trust shall not have funds legally available for the redemption of, or is otherwise unable to redeem, all the Series A Preferred Shares or other Preferred Shares designated to be redeemed on any redemption date, the Trust shall redeem on such redemption date the number of Series A Preferred Shares and other Preferred Shares so designated as it shall have legally available funds, or is otherwise able, to redeem ratably on the basis of the Redemption Price from each holder whose shares are to be redeemed, and the remainder of the Series A Preferred Shares and other Preferred Shares designated to be redeemed shall be redeemed on the earliest practicable date on which the Trust shall have funds legally available for the redemption of, or is otherwise able to redeem, such shares upon Notice of Redemption.
4. Voting Rights.
(a) General.
Except as otherwise provided in the Governing Documents or a resolution of the Board of Trustees, or as required by applicable law, holders of Series A Preferred Shares shall have no power to vote on any matter except matters submitted to a vote of the Common Shares. In any matter submitted to a vote of the holders of the Common Shares, each holder of Series A Preferred Shares shall be entitled to one vote for each Series A Preferred Share held and the holders of the Outstanding Preferred Shares, including Series A Preferred Shares, and the Common Shares shall vote together as a single class; provided, however, that at any meeting of the shareholders of the Trust held for the election of trustees, the holders of the Outstanding Preferred Shares, including Series A Preferred Shares, shall be entitled, as a class, to the exclusion of the holders of all other securities and classes of capital shares of the Trust, to elect a number of Trust's trustees, such that following the election of trustees at the meeting of the shareholders, the Trust's Board of Trustees shall contain two trustees elected by the holders of the Outstanding Preferred Shares, including the Series A Preferred Shares. Subject to paragraph 4(b) of Part II hereof, the holders of the outstanding capital shares of the Trust, including the holders of Outstanding Preferred Shares, including the Series A Preferred Shares, voting as a single class, shall elect the balance of the trustees.
(b) Right to Elect Majority of Board of Trustees.
During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a "Voting Period"), the number and/or composition of trustees constituting the Board of Trustees shall be adjusted as necessary to permit the holders of Outstanding Preferred Shares, including the Series A Preferred Shares, voting separately as one class (to the exclusion of the holders of all other securities and classes of capital shares of the Trust) to elect the number of trustees that, when added to the two trustees elected exclusively by the holders of Preferred Shares pursuant to paragraph 4(a) above, would constitute a simple majority of the Board of Trustees as so adjusted. The Trust and the Board of Trustees shall take all necessary actions, including effecting the removal of trustees or amendment of the Trust's Declaration, to effect an adjustment of the number and/or composition of trustees as described in the preceding sentence. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or declared, and whether or not funds are then legally available in an amount sufficient therefor) on the Outstanding Series A Preferred Shares equal to at least two full years' dividends shall be due and unpaid and sufficient cash or specified securities shall not have been deposited with the Dividend-Disbursing Agent for the payment of such accumulated dividends; or
(ii) if at any time Holders of any other Preferred Shares are entitled to elect a majority of the trustees of the Trust under the 1940 Act or Statement of Preferences creating such shares.
Upon the termination of a Voting Period, the voting rights described in this paragraph 4(b) shall cease, subject always, however, to the reverting of such voting rights in the holders of Preferred Shares upon the further occurrence of any of the events described in this paragraph 4(b).
(c) Right to Vote with Respect to Certain Other Matters.
Subject to paragraph 1 of Part III of this Statement of Preferences, so long as any Series A Preferred Shares are Outstanding, the Trust shall not, without the affirmative vote of the holders of a majority (as defined in the 1940 Act) of the Preferred Shares Outstanding at the time and present and voting on such matter, voting separately as one class, amend, alter or repeal the provisions of this Statement of Preferences so as to in the aggregate adversely affect the rights and preferences set forth in any Statement of Preferences, including the Series A Preferred Shares. To the extent permitted under the 1940 Act, in the event that more than one series of Preferred Shares are Outstanding, the Trust shall not effect any of the actions set forth in the preceding sentence which in the aggregate adversely affects the rights and preferences set forth in the Statement of Preferences for a series of Preferred Shares differently than such rights and preferences for any other series of Preferred Shares without the affirmative vote of the holders of at least a majority of the Preferred Shares Outstanding and present and voting on such matter of each series adversely affected (each such adversely affected series voting separately as a class to the extent its rights are affected differently). The holders of the Series A Preferred Shares shall not be entitled to vote on any matter that affects the rights or interests of only one or more other series of Preferred Shares. The Trust shall notify Moody's ten Business Days prior to any such vote described above. Unless a higher percentage is required under the Governing Documents or applicable provisions of the Delaware Statutory Trust Act or the 1940 Act, the affirmative vote of the holders of a majority of the Outstanding Preferred Shares, including Series A Preferred Shares, voting together as a single class, will be required to approve any plan of reorganization adversely affecting the Preferred Shares or any action requiring a vote of security holders under Section 13(a) of the 1940 Act. For purposes of this paragraph 4(c), the phrase "vote of the holders of a majority of the Outstanding Preferred Shares" (or any like phrase) shall mean, in accordance with Section 2(a)(42) of the 1940 Act, the vote, at the annual or a special meeting of the shareholders of the Trust duly called (i) of 67 percent or more of the Preferred Shares present at such meeting, if the holders of more than 50 percent of the Outstanding Preferred Shares are present or represented by proxy; or (ii) of more than 50 percent of the Outstanding Preferred Shares, whichever is less. The class vote of holders of Preferred Shares described above will in each case be in addition to a separate vote of the requisite percentage of Common Shares and Preferred Shares, including Series A Preferred Shares, voting together as a single class, necessary to authorize the action in question. An increase in the number of authorized Preferred Shares pursuant to the Governing Documents or the issuance of additional shares of any series of Preferred Shares (including Series A Preferred Shares) pursuant to the Governing Documents shall not in and of itself be considered to adversely affect the rights and preferences of the Preferred Shares.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the holders of Preferred Shares to elect additional trustees as described in paragraph 4(b) above, the Trust shall call a special meeting of such holders and instruct the Dividend-Disbursing Agent to mail a notice of such special meeting to such holders, such meeting to be held not less than 10 nor more than 20 days after the date of mailing of such notice. If the Trust fails to send such notice to the Dividend-Disbursing Agent or if the Trust does not call such a special meeting, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the day on which such notice is mailed or such other date as the Board of Trustees shall determine. At any such special meeting and at each meeting held during a Voting Period, such holders of Preferred Shares, voting together as a class (to the exclusion of the holders of all other securities and classes of capital shares of the Trust), shall be entitled to elect the number of trustees prescribed in paragraph 4(b) above on a one-vote-per-share basis. At any such meeting, or adjournment thereof in the absence of a quorum, a majority of such holders present in person or by proxy shall have the power to adjourn the meeting without notice, other than by an announcement at the meeting, to a date not more than 120 days after the original record date.
(ii) For purposes of determining any rights of the holders of Series A Preferred Shares to vote on any matter or the number of shares required to constitute a quorum, whether such right is created by this Statement of Preferences, by the other provisions of the Governing Documents, by statute or otherwise, any Series A Preferred Share which is not Outstanding shall not be counted.
(iii) The terms of office of all persons who are trustees of the Trust at the time of a special meeting of holders of Preferred Shares to elect trustees and who remain trustees following such meeting shall continue, notwithstanding the election at such meeting by such holders of the number of trustees that they are entitled to elect, and the persons so elected by such holders, together with the two incumbent trustees elected by the holders of Preferred Shares, and the remaining incumbent trustees elected by the holders of the Common Shares and Preferred Shares, shall constitute the duly elected trustees of the Trust.
(iv) Upon the expiration of a Voting Period, the terms of
office of the additional trustees elected by the holders of Preferred Shares
pursuant to paragraph 4(b) above shall expire at the earliest time permitted
by law, and the remaining trustees shall constitute the trustees of the Trust
and the voting rights of such holders of Preferred Shares, including Series A
Preferred Shares, to elect additional trustees pursuant to paragraph 4(b)
above shall cease, subject to the provisions of the last sentence of paragraph
4(b). Upon the expiration of the terms of the trustees elected by the holders
of Preferred Shares pursuant to paragraph 4(b) above, the number of trustees
shall be automatically reduced to the number of trustees on the Board
immediately preceding such Voting Period.
(e) Exclusive Remedy.
Unless otherwise required by law, the holders of Series A Preferred Shares shall not have any rights or preferences other than those specifically set forth herein. The holders of Series A Preferred Shares shall have no preemptive rights or rights to cumulative voting. In the event that the Trust fails to pay any dividends on the Series A Preferred Shares, the exclusive remedy of the holders shall be the right to vote for trustees pursuant to the provisions of this paragraph 4.
(f) Notification to Moody's.
In the event a vote of holders of Series A Preferred Shares is required pursuant to the provisions of Section 13(a) of the 1940 Act, as long as the Series A Preferred Shares are rated by Moody's at the Trust's request, the Trust shall, not later than ten Business Days prior to the date on which such vote is to be taken, notify Moody's that such vote is to be taken and the nature of the action with respect to which such vote is to be taken and, not later than ten Business Days after the date on which such vote is taken, notify Moody's of the result of such vote.
5. Coverage Tests.
(a) Determination of Compliance.
For so long as any Series A Preferred Shares are Outstanding, the Trust shall make the following determinations:
(i) Asset Coverage. The Trust shall have Asset Coverage as of the last Business Day of each March, June, September and December of each year in which any Series A Preferred Shares are Outstanding.
(ii) Basic Maintenance Amount Requirement.
(A) For so long as any Series A Preferred Shares are Outstanding and are rated by Moody's at the Trust's request, the Trust shall maintain, on each Valuation Date, Moody's Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount, each as of such Valuation Date. Upon any failure to maintain Moody's Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount, the Trust shall use all commercially reasonable efforts to retain Moody's Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount on or prior to the Basic Maintenance Amount Cure Date, by altering the composition of its portfolio or otherwise.
(B) The Administrator shall prepare a Basic Maintenance Report relating to each Valuation Date. On or before 5:00 P.M., New York City time, on the fifth Business Day after the first Valuation Date following the Date of Original Issue of the Series A Preferred Shares and after each (1) Annual Valuation Date, (2) Valuation Date on which the Trust fails to satisfy the requirements of paragraph 5(a)(ii)(A) above, (3) Basic Maintenance Amount Cure Date following a Valuation Date on which the Trust fails to satisfy the requirements of paragraph 5(a)(ii)(A) above and (4) Valuation Date and any immediately succeeding Business Day on which the Adjusted Value of the Trust's Moody's Eligible Assets exceeds the Basic Maintenance Amount by 5% or less, the Trust shall complete and deliver to Moody's a Basic Maintenance Report, which will be deemed to have been delivered to Moody's if Moody's receives a copy or telecopy, telex or other electronic transcription or transmission of the Basic Maintenance Report and on the same day the Trust mails to Moody's for delivery on the next Business Day the Basic Maintenance Report. A failure by the Trust to deliver a Basic Maintenance Report under this paragraph 5(a)(ii)(B) shall be deemed to be delivery of a Basic Maintenance Report indicating an Adjusted Value of the Trust's Moody's Eligible Assets less than the Basic Maintenance Amount, as of the relevant Valuation Date.
(C) Within ten Business Days after the date of delivery to Moody's of a Basic Maintenance Report in accordance with paragraph 5(a)(ii)(B) above relating to an Annual Valuation Date, the Trust shall deliver to Moody's an Accountant's Confirmation relating to such Basic Maintenance Report that was prepared by the Trust during the quarter ending on such Annual Valuation Date. Also, within ten Business Days after the date of delivery to Moody's of a Basic Maintenance Report in accordance with paragraph 5(a)(ii)(B) above relating to a Valuation Date on which the Trust fails to satisfy the requirements of paragraph 5(a)(ii)(A) and any Basic Maintenance Amount Cure Date, the Trust shall deliver to Moody's an Accountant's Confirmation relating to such Basic Maintenance Report.
(D) In the event the Adjusted Value of the Trust's Moody's Eligible Assets shown in any Basic Maintenance Report prepared pursuant to paragraph 5(a)(ii)(B) above is less than the applicable Basic Maintenance Amount, the Trust shall have until the Basic Maintenance Amount Cure Date to achieve an Adjusted Value of the Trust's Moody's Eligible Assets at least equal to the Basic Maintenance Amount, and upon such achievement (and not later than such Basic Maintenance Amount Cure Date) the Trust shall inform Moody's of such achievement in writing by delivery of a revised Basic Maintenance Report showing an Adjusted Value of the Trust's Moody's Eligible Assets at least equal to the Basic Maintenance Amount as of the date of such revised Basic Maintenance Report.
(E) On or before 5:00 P.M., New York City time, on no later than the fifth Business Day after the next Valuation Date following each date on which the Trust has repurchased more than 1% of its Common Shares since the most recent date of delivery of a Basic Maintenance Report, the Trust shall complete and deliver to Moody's a Basic Maintenance Report. A Basic Maintenance Report delivered as provided in paragraph 5(a)(ii)(B) above also shall be deemed to have been delivered pursuant to this paragraph 5(a)(ii)(E).
(b) Failure to Meet Asset Coverage.
If the Trust fails to have Asset Coverage as provided in paragraph 5(a)(i) hereof and such failure is not cured as of the related Series A Asset Coverage Cure Date, (i) the Trust shall give a Notice of Redemption as described in paragraph 3 of Part II hereof with respect to the redemption of a sufficient number of Preferred Shares, which at the Trust's determination (to the extent permitted by the 1940 Act and Delaware law) may include any proportion of Series A Preferred Shares, to enable it to meet the requirements of paragraph 5(a)(i) above, and, at the Trust's discretion, such additional number of Series A Preferred Shares or other Preferred Shares in order that the Trust have Asset Coverage with respect to the Series A Preferred Shares and any other Preferred Shares remaining Outstanding after such redemption as great as 220%, and (ii) deposit with the Dividend-Disbursing Agent Deposit Securities having an initial combined value sufficient to effect the redemption of the Series A Preferred Shares or other Preferred Shares to be redeemed, as contemplated by paragraph 3 of Part II hereof.
(c) Failure to Maintain Moody's Eligible Assets having an Adjusted Value at Least Equal to the Basic Maintenance Amount.
If the Trust fails to have Moody's Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount as provided in paragraph 5(a)(ii)(A) above and such failure is not cured, the Trust shall, on or prior to the Basic Maintenance Amount Cure Date, (i) give a Notice of Redemption as described in paragraph 3 of Part II hereof with respect to the redemption of a sufficient number of Series A Preferred Shares or other Preferred Shares to enable it to meet the requirements of paragraph 5(a)(ii)(A) above, and, at the Trust's discretion, such additional number of Series A Preferred Shares or other Preferred Shares in order that the Trust have Adjusted Assets with respect to the remaining Series A Preferred Shares and any other Preferred Shares remaining Outstanding after such redemption as great as 110% of the Basic Maintenance Amount, and (ii) deposit with the Dividend-Disbursing Agent Deposit Assets having an initial combined value sufficient to effect the redemption of the Series A Preferred Shares or other Preferred Shares to be redeemed, as contemplated by paragraph 3 of Part II hereof.
(d) Status of Shares Called for Redemption.
For purposes of determining whether the requirements of paragraphs 5(a)(i) and 5(a)(ii)(A) hereof are satisfied, (i) no Series A Preferred Share shall be deemed to be Outstanding for purposes of any computation if, prior to or concurrently with such determination, sufficient Deposit Assets to pay the full Redemption Price for such share shall have been deposited in trust with the Dividend-Disbursing Agent (or applicable paying agent) and the requisite Notice of Redemption shall have been given, and (ii) such Deposit Assets deposited with the Dividend-Disbursing Agent (or paying agent) shall not be included.
6. Certain Other Restrictions.
(a) For so long as the Series A Preferred Shares are rated by Moody's at the request of the Trust, the Trust will not, and will cause the Adviser not to, (i) knowingly and willfully purchase or sell any asset for the specific purpose of causing, and with the actual knowledge that the effect of such purchase or sale will be to cause, the Trust to have Moody's Eligible Assets having an Adjusted Value as of the date of such purchase or sale to be less than the Basic Maintenance Amount as of such date, (ii) in the event that, as of the immediately preceding Valuation Date, the Adjusted Value of the Trust's Moody's Eligible Assets exceeded the Basic Maintenance Amount by 5% or less, alter the composition of the Trust's assets in a manner reasonably expected to reduce the Adjusted Value of the Trust's Moody's Eligible Assets, unless the Trust shall have confirmed that, after giving effect to such alteration, the Adjusted Value of the Trust's Moody's Eligible Assets exceeded the Basic Maintenance Amount or (iii) declare or pay any dividend or other distribution on any Common Shares or repurchase any Common Shares, unless the Trust shall have confirmed that, after giving effect to such declaration, other distribution or repurchase, the Trust continued to satisfy the requirements of paragraph 5(a)(ii)(A) of Part II hereof.
(b) For so long as the Series A Preferred Shares are rated by Moody's at the request of the Trust, unless the Trust shall have received written confirmation from Moody's, the Trust may engage in the lending of its portfolio securities only in an amount of up to 5% of the Trust's total assets, provided that the Trust receives cash collateral for such loaned securities which is maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities and, if invested, is invested only in Short-Term Money Market Investments or in money market mutual funds meeting the requirements of Rule 2a-7 under the 1940 Act that maintain a constant $1.00 per share net asset value and treat the loaned securities rather than the collateral as the assets of the Trust for purposes of determining compliance with paragraph 5 of Part II hereof.
(c) For so long as the Series A Preferred Shares are rated by Moody's at the request of the Trust, the Trust shall not consolidate the Trust with, merge the Trust into, sell or otherwise transfer all or substantially all of the Trust's assets to another Person or adopt a plan of liquidation of the Trust, in each case without providing prior written notification to Moody's.
7. Limitation on Incurrence of Additional Indebtedness and Issuance of Additional Preferred Shares
(a) So long as any Series A Preferred Shares are Outstanding the Trust may issue and sell one or more series of a class of senior securities of the Trust representing indebtedness under Section 18 of the 1940 Act and/or otherwise create or incur indebtedness, provided that immediately after giving effect to the incurrence of such indebtedness and to its receipt and application of the proceeds thereof, the Trust shall have an "asset coverage" for all senior securities representing indebtedness, as defined in Section 18(h) of the 1940 Act, of at least 300% of the amount of all indebtedness of the Trust then outstanding and no such additional indebtedness shall have any preference or priority over any other indebtedness of the Trust upon the distribution of the assets of the Trust or in respect of the payment of interest. Any possible liability resulting from lending and/or borrowing portfolio securities, entering into reverse repurchase agreements, entering into futures contracts and writing options, to the extent such transactions are made in accordance with the investment restrictions of the Trust then in effect, shall not be considered to be indebtedness limited by this paragraph 7(a).
(b) So long as any Series A Preferred Shares are Outstanding, the Trust may issue and sell shares of one or more other series of Preferred Shares constituting a series of a class of senior securities of the Trust representing stock under Section 18 of the 1940 Act in addition to the Series A Preferred Shares, provided that (i) the Trust shall, immediately after giving effect to the issuance of such additional Preferred Shares and to its receipt and application of the proceeds thereof, including, without limitation, to the redemption of Preferred Shares for which a Redemption Notice has been mailed prior to such issuance, have an "asset coverage" for all senior securities which are stock, as defined in Section 18(h) of the 1940 Act, of at least 200% of the sum of the liquidation preference of the Series A Preferred Shares and all other Preferred Shares of the Trust then Outstanding, and (ii) no such additional Preferred Shares shall have any preference or priority over any other Preferred Shares of the Trust upon the distribution of the assets of the Trust or in respect of the payment of dividends.
PART III
ABILITY OF BOARD OF TRUSTEES TO MODIFY THE STATEMENT OF
PREFERENCES
1. Modification to Prevent Ratings Reduction or Withdrawal.
The Board of Trustees, without further action by the shareholders, may amend, alter, add to or repeal any provision of this Statement of Preferences including provisions that have been adopted by the Trust pursuant to the Rating Agency guidelines, if the Board of Trustees determines that such amendments or modifications are necessary to prevent a reduction in, or the withdrawal of, a rating of the Preferred Shares and are in the aggregate in the best interests of the holders of the Preferred Shares.
2. Other Modification.
The Board of Trustees, without further action by the shareholders, may amend, alter, add to or repeal any provision of this Statement of Preferences including provisions that have been adopted by the Trust pursuant to the rating agency guidelines, if the Board of Trustees determines that such amendments or modifications will not in the aggregate adversely affect the rights and preferences of the holders of any series of the Preferred Shares, provided, that the Trust has received advice from each applicable Rating Agency that such amendment or modification is not expected to adversely affect such Rating Agency's then-current rating of such series of the Trust's Preferred Shares.
Notwithstanding the provisions of the preceding paragraph, to the extent permitted by law, the Board of Trustees, without the vote of the holders of the Series A Preferred Shares or any other capital shares of the Trust, may amend the provisions of this Statement of Preferences to resolve any inconsistency or ambiguity or to remedy any formal defect so long as the amendment does not in the aggregate adversely affect the rights and preferences of the Series A Preferred Shares.
WHEREOF, The Gabelli Utility Trust has caused these presents to be signed in its name and on its behalf by a duly authorized officer, and its corporate seal to be hereunto affixed and attested by its Secretary, and the said officers of the Trust further acknowledge said instrument to be the corporate act of the Trust, and state that to the best of their knowledge, information and belief under penalty of perjury the matters and facts herein set forth with respect to approval are true in all material respects, all on July [ ], 2003.
By____________________
Name: Bruce Alpert
Title: President
Attest:
_______________________
Name: James E. McKee
Title: Secretary
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THE GABELLI UTILITY TRUST
STATEMENT OF PREFERENCES
OF
SERIES B AUCTION MARKET PREFERRED SHARES
The Gabelli Utility Trust, a Delaware statutory trust, (the "Trust"), hereby certifies that:
FIRST: The Board of Trustees of the Trust, at a meeting duly convened and held on February 19, 2003, pursuant to authority expressly vested in it by Article III of the Agreement and Declaration of Trust, adopted resolutions classifying and designating 5,000 authorized but unissued capital shares of the Trust, par value $.001 per share, as "Series B Auction Market Preferred Shares" and authorizing the issuance of up to 5,000 Series B Auction Market Preferred Shares at such times as the Pricing Committee should determine.
SECOND: The Pricing Committee, at a meeting duly convened and held on [ ] 2003, pursuant to authority granted it by the Board of Trustees of the Trust at its February 19, 2003 meeting, approved the issuance by the Trust of [ ] Series B Auction Market Preferred Shares.
THIRD: The preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the Series B Auction Market Preferred Shares, par value $.001 per share, as set by the Board of Trustees are as follows:
DESIGNATION
Series B Preferred Shares: A series of 5,000 preferred shares, par value $0.001 per share, liquidation preference $25,000 per share, is hereby designated "Series B Auction Market Preferred Shares" (the "Series B Preferred Shares"). Each share of Series B Preferred Shares may be issued on a date to be determined by the Board of Trustees of the Trust; have an initial dividend rate stated as a rate per annum, an initial Dividend Period and an initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Trustees of the Trust; and have such other preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption, in addition to those required by applicable law or set forth in the Governing Documents applicable to Preferred Shares of the Trust, as are set forth in this Statement of Preferences. The Series B Preferred Shares shall constitute a separate series of Preferred Shares.
As used in this Statement of Preferences, unless the context requires otherwise, each capitalized term shall have the meaning ascribed to it in paragraph 13 of Part I and paragraph 1 of Part II of this Statement of Preferences.
Part I: Series B Preferred Shares Terms
1. Number of Shares; Ranking.
(a) The initial number of authorized and classified shares constituting the Series B Preferred Shares to be issued is [__]. Additional authorized and classified Series B Preferred Shares may be issued at any time upon resolution by the Board of Trustees. No fractional Series B Preferred Shares shall be issued.
(b) Series B Preferred Shares which at any time have been redeemed or purchased by the Trust shall, after such redemption or purchase, have the status of authorized but unissued Preferred Shares.
(c) The Series B Preferred Shares shall rank on a parity with any other series of Preferred Shares as to the payment of dividends to which such share is entitled.
(d) No Holder of Series B Preferred Shares shall have, solely by reason of being such a holder, any preemptive or other right to acquire, purchase or subscribe for any Preferred Shares or Common Shares or other securities of the Trust which it may hereafter issue or sell.
2. Dividends.
(a) The Holders of Series B Preferred Shares shall be
entitled to receive, when, as and if declared by the Board of Trustees, out of
funds legally available therefor, cumulative cash dividends on their Series B
Preferred Shares at the dividend rate determined by the Board of Trustees in
the manner described under "Designation" above during the period from and
after the date on which the initial Series B Preferred Shares are originally
issued up to and including the last day of the initial Dividend Period and,
thereafter, at the rate, determined as set forth in paragraph 2(c), and no
more, payable on the respective dates determined as set forth in paragraph
2(b). Dividends on the Outstanding Series B Preferred Shares shall accumulate
from the date on which such shares are originally issued.
(b) (i) Dividends shall be payable on the Series B Preferred Shares when, as and if declared by the Board of Trustees following the initial Dividend Payment Date, subject to paragraph 2(b)(ii), with respect to any Dividend Period of 91 days or less, on the first Business Day following the last day of such Dividend Period; provided, however, if the Dividend Period is more than 91 days then monthly on the first Business Day of each calendar month and on the first Business Day following the last day of such Dividend Period.
(ii) If a day for payment of dividends resulting from the application of paragraph 2(b)(i) above is not a Business Day, then the Dividend Payment Date shall be the first Business Day following such day for payment of dividends.
(iii) The Trust shall pay to the Paying Agent not later than 12:00 noon, New York City time, on the Business Day immediately preceding each Dividend Payment Date for Series B Preferred Shares, an aggregate amount of immediately available funds equal to the dividends to be paid to all Holders of such Series B Preferred Shares on such Dividend Payment Date. The Trust shall not be required to establish any reserves for the payment of dividends.
(iv) All moneys paid to the Paying Agent for the
payment of dividends shall be held in trust for the payment of such dividends
by the Paying Agent for the benefit of the Holders specified in paragraph
2(b)(v). Unless instructed by the Trust in writing the Paying Agent will hold
such moneys uninvested. Any moneys paid to the Paying Agent in accordance with
the foregoing but not applied by the Paying Agent to the payment of dividends,
including interest earned, if any, on such moneys, will, to the extent
permitted by law, be repaid to the Trust at the end of 90 days from the date
on which such moneys were to have been so applied.
(v) Each dividend on Series B Preferred Shares shall be paid on the Dividend Payment Date therefor to the Holders of Series B Preferred Shares as their names appear on the stock ledger or ownership records of the Trust on the Business Day immediately preceding such Dividend Payment Date; provided, however, that if dividends are in arrears, they may be declared and paid at any time to Holders as their names appear on the stock ledger or ownership records of the Trust on such date not exceeding 15 days preceding the payment date thereof, as may be fixed by the Board of Trustees. No interest will be payable in respect of any dividend payment or payments which may be in arrears.
(c) (i) For each Dividend Period after the initial Dividend Period for the Outstanding Series B Preferred Shares, the dividend rate shall be equal to the rate (stated as a rate per annum) that results from an Auction (but the rate set at the Auction will not exceed the Maximum Rate); provided, however, that if an Auction for any subsequent Dividend Period is not held for any reason (other than as provided in the immediately following sentence) or if Sufficient Clearing Bids have not been made in an Auction (other than as a result of all Series B Preferred Shares being the subject of Submitted Hold Orders), then the dividend rate on each Outstanding share of 19ries B Preferred Shares for any such Dividend Period shall be the Maximum Rate, except as provided in 2(c)(ii) below. If an Auction is not held because an unforeseen event or unforeseen events cause a day that otherwise would have been an Auction Date not to be a Business Day, then the length of the then-current Dividend Period shall be extended by seven days (or a multiple thereof if necessary because of such unforeseen event or events), the Applicable Rate for such period shall be the Applicable Rate for the Dividend Period so extended and the Dividend Payment Date for such Dividend Period shall be the first Business Day immediately succeeding the end of such period.
(ii) Subject to the cure provisions in paragraph 2(c)(iii) below, a Default Period with respect to the Outstanding Series B Preferred Shares will commence if the Trust fails to deposit irrevocably in trust in same-day funds, with the Paying Ageby 12;00 noonrk City time on the Business Day immediately preceding the relevant Dividend Payment Date, the full amount of any declared dividend on the Outstanding Series B Preferred Shares then payable on that Dividend Payment Date (a "Dividend Default").
Subject to the cure provisions of paragraph 2(c)(iii) below, a Default Period with respect to a Dividend Default or a Redemption Default shall end on the Business Day on which, by 12:00 noon, New York City time, all unpaid dividends and any unpaid Redemption Price in respect of such Series B Preferred Shares shall have been deposited irrevocably in trust in same-day funds with the Paying Agent. In the case of a Default Period, the following shall apply:
A. Each Dividend Period that commences during a Default Period will be a Standard Dividend Period.
B. The dividend rate for each Dividend Period that commences and concludes during a Default Period will be equal to the Default Rate.
C. In the event a Holder sells Series B Preferred Shares at an Auction that takes place on the day a Dividend Default occurs and the Default is not cured in accordance with paragraph 2(c)(iii) below, such former Holder shall be entitled to receive the Default Rate with respect to the Series B Preferred Shares such Holder sold at the Auction for the Dividend Period with respect to which the Default occurred.
D. In the event a Dividend Period commences during a Default Period and such Dividend Period continues after such Default Period has ended, (a) the dividend rate for the portion of such Dividend Period that occurs during the Default Period will be the Default Rate and (b) the dividend rate for the portion of such Dividend Period that falls outside the Default Period will be (i) the Applicable Rate, in the case of the first Dividend Period following a Default, or (ii) the Maximum Rate, in the case of any other Dividend Period commencing during a Default Period.
E. The commencement of a Default Period will not by itself cause the commencement of a new Dividend Period.
F. No Auction will be held during an applicable Default Period; provided, however, that if a Default Period shall end prior to the end of a Standard Dividend Period that had commenced during such Default Period, an Auction will be held on the last day of such Standard Dividend Period.
(iii) No Default Period with respect to a Dividend Default or Redemption Default shall be deemed to have commenced, unless such default is due solely to the willful failure of the Trust, if the amount of any dividend or any Redemption Price due is deposited irrevocably in trust in same-day funds with the Paying Agent by 12:00 noon, New York City time within three Business Days after the applicable Dividend Payment Date or Redemption Date, together with an amount in respect of such Series B Preferred Shares equal to the Default Rate applied to the amount of such non-payment based on the actual number of days that would otherwise have comprised the Default Period divided by 360. The "Default Rate" shall be equal to the Reference Rate multiplied by three (3).
(iv) The amount of dividends per Series B Preferred Share payable (if declared) on each Dividend Payment Date of each Dividend Period of less than one year (or in respect of dividends on another date in connection with a redemption during such Dividend Period) shall be computed by multiplying the relevant Applicable Rate, Default Rate or Maximum Rate, as the case may be, for such Dividend Period (or a portion thereof) by a fraction, the numerator of which will be the number of days in such Dividend Period (or portion thereof) that such Series B Preferred Share was Outstanding and for which the Applicable Rate, Maximum Rate or the Default Rate was applicable (but in no event shall the numerator exceed 360) and the denominator of which will be 360, multiplying the amount so obtained by $25,000, and rounding the amount so obtained to the nearest cent. During any Dividend Period of one year or more, the amount of dividends per Series B Preferred Share payable on any Dividend Payment Date (or in respect of dividends on another date in connection with a redemption during such Dividend Period) will be computed as described in the preceding sentence except that the numerator, with respect to any full twelve month period, will be 360.
(d) Any dividend payment made on Series B Preferred Shares shall first be credited against the earliest accumulated but unpaid dividends due with respect to such shares.
(e) For so long as the Series B Preferred Shares are Outstanding, except as otherwise contemplated by Part I of this Statement of Preferences, the Trust shall not pay any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, Common Shares or other shares, if any, ranking junior to the Series B Preferred Shares as to dividends and upon liquidation) with respect to Common Shares or any other capital shares of the Trust ranking junior to the Series B Preferred Shares as to dividends or upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any Common Shares or other capital shares ranking junior to the Series B Preferred Shares (except by conversion into or exchange for shares of the Trust ranking junior to the Series B Preferred Shares as to dividends and upon liquidation), unless, in each case, (i) immediately after such transaction, the Trust would have Eligible Assets with an aggregate Discounted Value at least equal to the Basic Maintenance Amount and Asset Coverage would be achieved, (ii) all cumulative and unpaid dividends due on or prior to the date of the transaction have been declared and paid in full with respect to the Trust's Preferred Shares, including the Series B Preferred Shares (or shall have been declared and sufficient funds for the payment thereof deposited with the applicable Paying Agent) and (iii) the Trust has redeemed the full number of Preferred Shares to be redeemed mandatorily pursuant to any provision for mandatory redemption contained herein, including, without limitation, any such provision contained in paragraph 3(a)(ii).
(f) No full dividends shall be declared or paid on the Series B Preferred Shares for any Dividend Period or part thereof, unless full cumulative dividends due through the most recent Dividend Payment Dates therefor for all Outstanding series of Preferred Shares of the Trust ranking on a parity with the Series B Preferred Shares as to the payment of dividends have been or contemporaneously are declared and paid through the most recent Dividend Payment Dates therefor. If full cumulative dividends due have not been paid on all Outstanding Preferred Shares, any dividends being paid on such Preferred Shares (including the Series B Preferred Shares) will be paid as nearly pro rata as possible in proportion to the respective amounts of dividends accumulated but unpaid on each such series of Preferred Shares then Outstanding on the relevant Dividend Payment Date.
3. Redemption.
(a) (i) Optional Redemption. After the initial Dividend Period, subject to any Non-Call Period and the provisions of this paragraph 3, and to the extent permitted under the 1940 Act and Delaware law, the Trust may, at its option, redeem in whole or in part out of funds legally available therefor, Series B Preferred Shares by delivering a notice of redemption not less than 7 calendar days and not more than 40 calendar days prior to the Redemption Date at the applicable Redemption Price. Notwithstanding the foregoing, the Trust shall not give a notice of any redemption pursuant to this paragraph 3(a)(i) unless, on the date on which the Trust gives such notice (x) the Trust reasonably believes that, assuming the fulfillment of any conditions precedent specified in such notice, it will be able to deposit with the Paying Agent when due Deposit Assets with maturity or tender dates not later than the day preceding the applicable Redemption Date and having a value not less than the Redemption Price due to Holders of the Series B Preferred Shares to be redeemed on the Redemption Date and (y) the Trust would have Eligible Assets with an aggregate Discounted Value at least equal to the Basic Maintenance Amount and Asset Coverage immediately subsequent to such redemption, if such redemption were to occur on such date, it being understood that the provisions of paragraph 3(d) shall be applicable in such circumstances in the event the Trust makes the deposit and takes the other action required thereby.
(ii) Mandatory Redemption. So long as Series B
Preferred Shares are Outstanding, if the Trust fails (A) as of any Valuation
Date to meet the Basic Maintenance Test and such failure is not cured by the
Basic Maintenance Amount Cure Date or (B) as of any Quarterly Valuation Date
to meet Asset Coverage and such failure is not cured by the Series B Asset
Coverage Cure Date or (C) as of any valuation or measuring date applicable to
any other series of Preferred Shares to meet any applicable maintenance amount
test and such failure is not cured by the relevant cure date (any such cure
date, together with any Basic Maintenance Amount Cure Date or Series B Asset
Coverage Cure Date, a "Cure Date"), Preferred Shares, which at the Trust's
determination may include Series B Preferred Shares, will be subject to
mandatory redemption out of funds legally available therefor. The series and
number of Preferred Shares to be redeemed in such circumstances will be
determined by the Trust, subject to the limitations of the 1940 Act and
Delaware law, from among all series of Preferred Shares then Outstanding and
may include any proportion of Series B Preferred Shares (or any other series
of Preferred Shares). The amount of Preferred Shares to be mandatorily
redeemed under such circumstances shall, in the aggregate, equal the lesser of
(1) the minimum amount of Preferred Shares (including the Series B Preferred
Shares if so determined by the Trust) the redemption of which, if deemed to
have occurred immediately prior to the opening of business on the relevant
Cure Date, would result in the Trust meeting, as the case may be, the Basic
Maintenance Test, Asset Coverage and any other then applicable maintenance
amount test, in each case as of the relevant Cure Date (provided that, if
there is no such minimum amount of Preferred Shares the redemption of which
would have such result, all Series B Preferred Shares then Outstanding will be
redeemed), and (2) the maximum amount of Preferred Shares that can be redeemed
out of funds expected to be available therefor on the Mandatory Redemption
Date at the applicable Redemption Price; provided, that in the event that
Preferred Shares are redeemed mandatorily pursuant to this paragraph 3, the
Trust may, but is not required to, redeem a sufficient amount of additional
Series B Preferred Shares, which when aggregated with other Preferred Shares
redeemed by the Trust, permits the Trust to have (x) Eligible Assets with
Adjusted Value with re spect to the Preferred Shares remaining Outstanding of
as great as 110% of the Basic Maintenance Amount and (y) Asset Coverage with
respect to the Preferred Shares remaining Outstanding of as much as 220%.
(iii) Subject to the Statement of Preferences establishing each series of Preferred Shares and the 1940 Act, the Trust may determine the shares and series of Preferred Shares to be redeemed in accordance with the paragraph 3(a)(ii) above, subject to the further provisions of this paragraph 3(a)(iii). The Trust shall effect any mandatory redemption of Series B Preferred Shares relating to: (A) a failure to meet the Basic Maintenance Test or a failure to meet Asset Coverage, no later than 8 days following such Cure Date, provided, that if such 8th day is not a Business Day, such redemption will occur not later than the close of business on the next Business Day or (B) a failure to meet any other then applicable maintenance amount test in accordance with the requirements of such test (in each case the date specified for such redemption being, the "Mandatory Redemption Date"), except that if the Trust does not have funds legally available for the redemption of, or is not otherwise legally permitted to redeem, the amount of Preferred Shares which would be mandatorily redeemed by the Trust under subparagraph 3(a)(ii) if sufficient funds were available, or the Trust otherwise is unable to effect such redemption on or prior to the applicable Mandatory Redemption Date, the Trust shall redeem on such redemption date the number of Series B Preferred Shares and other Preferred Shares with respect to which it has given notice of redemption as it shall have legally available funds, or is otherwise able, to redeem ratably on the basis of Redemption Price from each holder whose shares are to be redeemed, and the remainder of the Series B Preferred Shares and other Preferred Shares which it was unable to redeem on the earliest practicable date on which the Trust will have such funds available upon notice, in the case of Series B Preferred Shares, pursuant to paragraph 3(b) to Holders of the Series B Preferred Shares to be redeemed. The Trust will deposit with the Paying Agent funds sufficient to redeem the specified number of Series B Preferred Shares subject to a redemption under this paragraph 3(a) by 12:00 noon, New York City time, of the Business Day immediately preceding the redemption date. If fewer than all of the Outstanding Series B Preferred Shares are to be redeemed, the number of Series B Preferred Shares to be redeemed shall be redeemed pro rata from the Holders of such shares in proportion to the number of Series B Preferred Shares held by such Holders, by lot or by such other method as the Trust shall deem fair and equitable, subject, however, to the terms of any applicable Specific Redemption Provisions.
(b) In the event of a redemption of Series B Preferred Shares pursuant to paragraph 3(a) above, the Trust will have filed or will file a notice of its intention to redeem with the Commission, in either case so as to provide at least the minimum notice required under Rule 23c-2 under the 1940 Act or any successor provision. In addition, the Trust shall deliver a notice of redemption to the Auction Agent (the "Notice of Redemption") containing the information set forth below (i) in the case of an optional redemption pursuant to paragraph 3(a)(i) above, one Business Day prior to the giving of notice to the Holders and (ii) in the case of a mandatory redemption pursuant to paragraph 3(a)(ii) above, on or prior to the 7th day preceding the Mandatory Redemption Date. The Auction Agent will use its reasonable efforts to provide telephonic, electronic or written notice to each Holder of any Series B Preferred Shares called for redemption not later than the close of business on the Business Day immediately following the day on which the Trust determines the shares to be redeemed (or, during a Default Period with respect to such shares, not later than the close of business on the Business Day immediately following the day on which the Auction Agent receives Notice of Redemption from the Trust). The Auction Agent shall confirm a telephonic notice in writing not later than the close of business on the third Business Day preceding the date fixed for redemption by providing the Notice of Redemption to each Holder of shares called for redemption, the Paying Agent (if different from the Auction Agent) and the Securities Depository. The Notice of Redemption will be addressed to the Holders of Series B Preferred Shares at their addresses appearing on the share records of the Trust. Such Notice of Redemption will set forth (s) the date fixed for redemption, (t) the number or percentage of Series B Preferred Shares to be redeemed, (u) the CUSIP number(s) of such shares, (v) the Redemption Price (specifying the amount of accumulated dividends and any applicable redemption premium to be included therein), (w) the place or places where such shares are to be redeemed, (x) that dividends on the shares to be redeemed will cease to accumulate on such date fixed for redemption, (y) the provision of this Statement of Preferences under which redemption shall be made, and (z) in the case of a redemption pursuant to paragraph 3(a)(i), any conditions precedent to such redemption. If fewer than all the Outstanding Series B Preferred Shares held by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder shall also specify the number or percentage of Series B Preferred Shares to be redeemed from such Holder. No defect in the Notice of Redemption or in the transmittal or mailing thereof will affect the validity of the redemption proceedings, except as required by applicable law.
(c) Notwithstanding the provisions of paragraph 3(a), the Trust shall not redeem Preferred Shares unless all accumulated and unpaid dividends on all Outstanding Series B Preferred Shares and other Preferred Shares ranking on a parity with the Series B Preferred Shares with respect to dividends for all applicable past Dividend Periods (whether or not earned or declared by the Trust) have been or are contemporaneously paid or declared and Deposit Assets for the payment of such dividends have been deposited with the Paying Agent; provided, however, that the foregoing shall not prevent the purchase or acquisition of outstanding Preferred Shares pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to holders of all Outstanding Series B Preferred Shares.
(d) Upon the deposit of funds sufficient to redeem Series B Preferred Shares with the Paying Agent and the giving of the Notice of Redemption to the Auction Agent under paragraph 3(b) above, such shares shall no longer be deemed to be Outstanding for any purpose (including, without limitation, for purposes of calculating whether the Trust has met the Basic Maintenance Test or Asset Coverage), and all rights of the Holders of the Series B Preferred Shares so called for redemption shall cease and terminate, except the right of such Holder to receive the applicable Redemption Price, but without any interest or other additional amount. Such Redemption Price shall be paid by the Paying Agent to the nominee of the Securities Depository. The Trust shall be entitled to receive from the Paying Agent, promptly after the date fixed for redemption, any cash deposited with the Paying Agent in excess of (i) the aggregate Redemption Price of the Series B Preferred Shares called for redemption on such date and (ii) such other amounts, if any, to which Holders of the Series B Preferred Shares called for redemption may be entitled. Any funds so deposited that are unclaimed at the end of two years from such redemption date shall, to the extent permitted by law, be paid to the Trust, after which time the Holders of Series B Preferred Shares so called for redemption may look only to the Trust for payment of the Redemption Price and all other amounts, if any, to which they may be entitled; provided, however, that the Paying Agent shall notify all Holders whose funds are unclaimed by placing a notice in The Wall Street Journal concerning the availability of such funds for three consecutive weeks. The Trust shall be entitled to receive, from time to time after the date fixed for redemption, any interest earned on the funds so deposited.
(e) A Default Period with respect to the Outstanding Series B Preferred Shares will commence if the Trust fails to deposit irrevocably in trust in same-day funds, with the Paying Agent by 12:00 noon, New York City time on the Business Day preceding the redemption date specified in the Notice of Redemption (the "Redemption Date") or on such later date as the Paying Agent shall authorize, the full amount of any Redemption Price payable on such Redemption Date (a "Redemption Default"); provided, that no Redemption Default shall be deemed to have occurred in respect of Series B Preferred Shares when the related redemption notice provides that the redemption of such Series B Preferred Shares is subject to one or more conditions precedent and each such condition precedent shall not have been satisfied at the time or times or in the manner specified in such Notice of Redemption. To the extent a Redemption Default occurs with respect to Series B Preferred Shares or that any redemption for which Notice of Redemption has been given is otherwise prohibited, such redemption shall be made as soon as practicable to the extent such funds become legally available or such redemption is no longer otherwise prohibited. Notwithstanding the fact that a Redemption Default has occurred and is continuing or that the Trust has otherwise failed to redeem Series B Preferred Shares for which a Notice of Redemption has been given, dividends may be declared and if so declared will be paid on Series B Preferred Shares, which shall include those Series B Preferred Shares for which Notice of Redemption has been given but for which deposit of funds has not been made.
(f) All moneys paid to the Paying Agent for payment of the Redemption Price of Series B Preferred Shares called for redemption shall be held in trust by the Paying Agent for the benefit of Holders of the Series B Preferred Shares so to be redeemed. A Redemption Default will occur on account of the Trust's failure to timely deposit any required Redemption Price with the Paying Agent and any resulting Default Period will end in accordance with paragraph 2(c)(ii).
(g) So long as the Series B Preferred Shares are held of record by the nominee of the Securities Depository, the Redemption Price for such shares will be paid on the date fixed for redemption to the nominee of the Securities Depository for distribution to agent members for distribution to the Persons for whom they are acting as agent.
(h) Except for the provisions described above, nothing contained in this Statement of Preferences limits any right of the Trust to purchase or otherwise acquire Series B Preferred Shares outside of an Auction at any price, whether higher or lower than the price that would be paid in connection with an optional or mandatory redemption, so long as, at the time of any such purchase, there is no arrearage in the payment of dividends on, or the Redemption Price with respect to, any Series B Preferred Shares for which Notice of Redemption has been given, and the Trust meets Asset Coverage and the Basic Maintenance Test after giving effect to such purchase or acquisition on the date thereof. Any Series B Preferred Shares which are purchased, redeemed or otherwise acquired by the Trust shall have no voting rights. If fewer than all the Outstanding Series B Preferred Shares are redeemed or otherwise acquired by the Trust, the Trust shall give notice of such transaction to the Auction Agent.
(i) In the case of any redemption pursuant to this paragraph 3, only whole Series B Preferred Shares shall be redeemed, and in the event that any provision of the Governing Documents would require redemption of a fractional share, the Auction Agent shall be authorized to round up so that only whole shares are redeemed.
(j) Notwithstanding anything herein to the contrary, the Board of Trustees may authorize, create or issue other series of Preferred Shares ranking on a parity with the Series B Preferred Shares with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Trust, to the extent permitted by the 1940 Act, if upon issuance of any such series, either (i) the net proceeds from the sale of such shares (or such portion thereof needed to redeem or repurchase the Outstanding Series B Preferred Shares) are deposited with the Auction Agent, Notice of Redemption as contemplated by paragraph 3(b) has been delivered prior thereto or is sent promptly thereafter, and such proceeds are used to redeem all Outstanding Series B Preferred Shares or (ii) the Trust would meet Asset Coverage, the Basic Maintenance Test and the requirements of paragraph 9 immediately following such issuance and any redemption of Preferred Shares (which may include a portion of the Series B Preferred Shares) to be effected with the proceeds of such issuance.
4. Designation of Dividend Period.
(a) The initial Dividend Period for the Series B Preferred
Shares shall be as determined in the manner under "Designation" above. The
Trust shall designate the duration of subsequent Dividend Periods of the
Series B Preferred Shares; provided, however, that no such designation shall
be necessary for a Standard Dividend Period and, provided further, that any
designation of a Special Dividend Period for the Series B Preferred shall be
effective only if (i) notice thereof shall have been given as provided herein,
(ii) any failure to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the Redemption Price of, the Series B Preferred
Shares shall have been cured as provided for herein, (iii) Sufficient Clearing
Orders shall have existed in an Auction held for the Series B Preferred Shares
on the Auction Date immediately preceding the first day of such proposed
Special Dividend Period, (iv) if the Trust shall have mailed a Notice of
Redemption with respect to any Series B Preferred Shares, the Redemption Price
with respect to such shares shall have been deposited with the Paying Agent,
and (v) the Trust has confirmed that as of the Auction Date next preceding the
first day of such Special Dividend Period, it has Eligible Assets with an
aggregate Discounted Value at least equal to the Basic Maintenance Amount, and
the Trust has consulted with the Broker-Dealers and has provided notice of
such designation and a Basic Maintenance Report for the most recent Valuation
Date to each Rating Agency.
(b) If the Trust proposes to designate any Special Dividend Period, not fewer than seven Business Days (or two Business Days in the event the duration of the Dividend Period prior to such Special Dividend Period is fewer than ten Business Days) nor more than 30 Business Days prior to the first day of such Special Dividend Period, notice shall be (i) made by press release and (ii) communicated by the Trust by telephonic or other means to the Auction Agent and confirmed in writing promptly thereafter. Each such notice shall state (x) that the Trust proposes to exercise its option to designate a succeeding Special Dividend Period, specifying the first and last days thereof and (y) that the Trust will by 3:00 P.M., New York City time, on the second Business Day next preceding the first day of such Special Dividend Period, notify the Auction Agent, who will promptly notify the Broker-Dealers, of either (A) its determination, subject to certain conditions, to proceed with such Special Dividend Period, subject to the terms of any Specific Redemption Provisions, or (B) its determination not to proceed with such Special Dividend Period, in which latter event the succeeding Dividend Period shall be a Standard Dividend Period. No later than 3:00 P.M., New York City time, on the second Business Day next preceding the first day of any proposed Special Dividend Period, the Trust shall deliver to the Auction Agent, who will promptly deliver to the Broker-Dealers and Existing Holders, either:
(1) a notice stating (a) that the Trust has determined to designate the next succeeding Dividend Period as a Special Dividend Period, (b) the first and last days thereof and (c) the terms of any Specific Redemption Provisions; or
(2) a notice stating that the Trust has determined not to exercise its option to designate a Special Dividend Period.
If the Trust fails to deliver either such notice with respect to the designation of any proposed Special Dividend Period to the Auction Agent or is unable to make the confirmation provided in paragraph 4(a)(v) by 3:00 P.M., New York City time, on the second Business Day next preceding the first day of such proposed Special Dividend Period, the Trust shall be deemed to have delivered a notice to the Auction Agent with respect to such Dividend Period to the effect set forth in clause (2) above, thereby resulting in a Standard Dividend Period.
5. Restrictions on Transfer.
Series B Preferred Shares may be transferred only (a) pursuant to an Order placed in an Auction, (b) to or through a Broker-Dealer or (c) to the Trust or any Affiliate. Notwithstanding the foregoing, a transfer other than pursuant to an Auction will not be effective unless the selling Existing Holder or the Agent Member of such Existing Holder (in the case of an Existing Holder whose shares are listed in its own name on the books of the Auction Agent), or the Broker-Dealer or Agent Member of such Broker-Dealer (in the case of a transfer between persons holding any Series B Preferred Shares through different Broker-Dealers), advises the Auction Agent of such transfer. Any certificates representing Series B Preferred Shares issued to the Securities Depository will bear legends with respect to the restrictions described above and stop-transfer instructions will be issued to the Transfer Agent and/or Registrar.
6. Voting Rights.
(a) General.
Except as otherwise provided in the Governing Documents or a resolution of the Board of Trustees, or as required by applicable law, Holders of Series B Preferred Shares shall have no power to vote on any matter except matters submitted to a vote of the Common Shares. In any matter submitted to a vote of the holders of the Common Shares, each Holder of Series B Preferred Shares shall be entitled to one vote for each Series B Preferred Share held and the Holders of Outstanding Preferred Shares and Common Shares shall vote together as a single class; provided, however, that at any meeting of the shareholders of the Trust held for the election of trustees, the Holders of Outstanding Preferred Shares, including the Series B Preferred Shares, shall be entitled, as a class, to the exclusion of the holders of all other securities and classes of capital shares of the Trust, to elect a number of the Trust's trustees, such that following the election of trustees at the meeting of the shareholders, the Trust's Board of Trustees shall contain two trustees elected by the Holders of the Outstanding Preferred Shares as a class. Subject to paragraph 6(b), the holders of outstanding capital shares of the Trust, including the Holders of Outstanding Preferred Shares, including the Series B Preferred Shares, voting as a single class, shall elect the balance of the trustees.
(b) Right to Elect Majority of Board of Trustees.
During any period in which any one or more of the conditions described below shall exist (such period being referred to herein as a "Voting Period"), the number and/or composition of trustees constituting the Board of Trustees shall be adjusted as necessary to permit the Holders of the Outstanding Preferred Shares, including the Series B Preferred Shares, voting separately as one class (to the exclusion of the holders of all other securities and classes of capital shares of the Trust) to elect the number of trustees that, when added to the two trustees elected exclusively by the Holders of Preferred Shares pursuant to paragraph 6(a) above, would constitute a simple majority of the Board of Trustees as so adjusted. The Trust and the Board of Trustees shall take all necessary actions, including effecting the removal of trustees or the amendment of the Trust's Declaration, to effect an adjustment of the number and/or composition of trustees as described in the preceding sentence. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or declared, and whether or not funds are then legally available in an amount sufficient therefor) on the Outstanding Series B Preferred Shares equal to at least two full years' dividends shall have become due and unpaid and sufficient cash or specified securities shall not have been deposited with the Paying Agent for the payment in full of such accumulated dividends; or
(ii) if at any time Holders of any other Preferred Shares are entitled to elect a majority of the trustees of the Trust under the 1940 Act or the Statement of Preferences creating such shares.
Upon the termination of a Voting Period, the voting rights described in this paragraph 6(b) shall cease, subject always, however, to the reverting of such voting rights in the holders of Preferred Shares upon the further occurrence of any of the events described in this paragraph 6(b).
(c) Right to Vote with Respect to Certain Other Matters.
Subject to paragraph 1 of Part III of this Statement of Preferences, so long as the Series B Preferred Shares are Outstanding, the Trust shall not, without the affirmative vote of the Holders of a majority (as defined in the 1940 Act) of the Preferred Shares Outstanding at the time and present and voting on such matter, voting separately as one class, amend, alter or repeal the provisions of the Governing Documents so as to in the aggregate adversely affect the rights and preferences set forth in any Statement of Preferences, including the Series B Preferred Shares. To the extent permitted under the 1940 Act, in the event more than one series of Preferred Shares are Outstanding, the Trust shall not effect any of the actions set forth in the preceding sentence which in the aggregate adversely affects the rights and preferences set forth in the Statement of Preferences for a series of Preferred Shares differently than such rights and preferences for any other series of Preferred Shares without the affirmative vote of the Holders of at least a majority of the Preferred Shares Outstanding and present and voting on such matter of each series adversely affected (each such adversely affected series voting separately as a class to the extent its rights are affected differently). The Holders of the Series B Preferred Shares shall not be entitled to vote on any matter that affects the rights or interests of only one or more other series of Preferred Shares. The Trust shall notify each Rating Agency ten Business Days prior to any such vote described above. Unless a higher percentage is required under the Governing Documents or applicable provisions of the Delaware Statutory Trust Act or the 1940 Act, the affirmative vote of the Holders of a majority of the Outstanding Preferred Shares, including the Series B Preferred Shares, voting together as a single class, will be required to approve any plan of reorganization adversely affecting the Preferred Shares or any action requiring a vote of security holders under Section 13(a) of the 1940 Act. For purposes of this paragraph 6(c), the phrase "vote of the Holders of a majority of the Outstanding Preferred Shares" (or any like phrase) shall mean, in accordance with Section 2(a)(42) of the 1940 Act, the vote, at the annual or a special meeting of the shareholders of the Trust duly called (i) of 67 percent or more of the Preferred Shares present at such meeting, if the Holders of more than 50 percent of the Outstanding Preferred Shares are present or represented by proxy; or (ii) of more than 50 percent of the Outstanding Preferred Shares, whichever is less. The class vote of Holders of Preferred Shares described above will in each case be in addition to a separate vote of the requisite percentage of Common Shares and Preferred Shares, including the Series B Preferred Shares, voting together as a single class, necessary to authorize the action in question. An increase in the number of authorized Preferred Shares pursuant to the Governing Documents or the issuance of additional shares of any series of Preferred Shares (including the Series B Preferred Shares) pursuant to the Governing Documents shall not in and of itself be considered to adversely affect the rights and preferences of the Holders of Preferred Shares.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the Holders of Preferred Shares, including the Series B Preferred Shares, to elect additional trustees as described in paragraph 6(b), the Trust shall call a special meeting of such Holders and instruct the Auction Agent to mail a notice of such special meeting to the Holders of Series B Preferred Shares, such meeting to be held not less than 10 nor more than 20 days after the date of mailing of such notice. If the Trust fails to send such notice to the Auction Agent or if the Trust does not call such a special meeting, it may be called by any such Holder on like notice. The record date for determining the Holders entitled to notice of and to vote at such special meeting shall be the close of business on the day on which such notice is mailed or such other day as the Board of Trustees shall determine. At any such special meeting and at each meeting held during a Voting Period, such Holders of Preferred Shares, voting together as a class (to the exclusion of the holders of all other securities and classes of capital shares of the Trust), shall be entitled to elect the number of trustees prescribed in paragraph 6(b) on a one-vote-per-share basis. At any such meeting, or adjournment thereof in the absence of a quorum, a majority of the Holders of Preferred Shares, including the Series B Preferred Shares, present in person or by proxy shall have the power to adjourn the meeting without notice, other than an announcement at the meeting, until a date not more than 120 days after the original record date.
(ii) For purposes of determining any rights of the Holders of the Preferred Shares, including the Series B Preferred Shares, to vote on any matter, whether such right is created by this Statement of Preferences, by the other provisions of the Governing Documents, by statute or otherwise, a share of Series B Preferred Shares which is not Outstanding shall not be counted.
(iii) The terms of office of all persons who are trustees of the Trust at the time of a special meeting of Holders of Preferred Shares to elect trustees and who remain trustees following such meeting shall continue, notwithstanding the election at such meeting by such Holders of the number of trustees that they are entitled to elect, and the persons so elected by such Holders, together with the two incumbent trustees elected by the Holders of Preferred Shares and the remaining incumbent trustees elected by the holders of the Common Shares and Preferred Shares, shall constitute the duly elected trustees of the Trust.
(iv) Upon the expiration of a Voting Period, the terms of office of the additional trustees elected by the Holders of Preferred Shares pursuant to paragraph 6(b) above shall expire, and the remaining trustees shall constitute the trustees of the Trust and the voting rights of such Holders of Preferred Shares, including Series B Preferred Shares, to elect additional trustees pursuant to paragraph 6(b) above shall cease, subject to the provisions of the last sentence of paragraph 6(b). Upon the expiration of the terms of the trustees elected by the holders of Preferred Shares pursuant to paragraph 6(b) above, the number of trustees shall be automatically reduced to the number of trustees on the Board immediately preceding such Voting Period.
(e) Exclusive Remedy.
Unless otherwise required by law, the Holders of Series B Preferred Shares shall not have any rights or preferences other than those specifically set forth herein. The Holders of Series B Preferred Shares shall have no preemptive rights or rights to cumulative voting. In the event that the Trust fails to pay any dividends on the Series B Preferred Shares, the exclusive remedy of the Holders shall be the right to vote for trustees pursuant to the provisions of this paragraph 6.
(f) Notification to Rating Agency.
In the event a vote of Holders of Preferred Shares is required pursuant to the provisions of Section 13(a) of the 1940 Act, as long as the Series B Preferred Shares are rated by a Rating Agency at the request of the Trust, the Trust shall, not later than ten Business Days prior to the date on which such vote is to be taken, notify each Rating Agency that such vote is to be taken and the nature of the action with respect to which such vote is to be taken and, not later than ten Business Days after the date on which such vote is taken, notify each Rating Agency of the result of such vote.
7. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the affairs of the Trust, whether voluntary or involuntary, the Holders of Series B Preferred Shares shall be entitled to receive out of the assets of the Trust available for distribution to shareholders, after claims of creditors but before any distribution or payment shall be made in respect of the Common Shares or any other shares of the Trust ranking junior to the Series B Preferred Shares as to liquidation payments, a liquidation distribution in the amount of $25,000.00 per share (the "Liquidation Preference"), plus an amount equal to all unpaid dividends accumulated to and including the date fixed for such distribution or payment (whether or not earned or declared by the Trust, but excluding interest thereon), and such Holders shall be enti tled to no further participation in any distribution or payment in connection with any such liquidation, dissolution or winding up.
(b) If, upon any liquidation, dissolution or winding up of the affairs of the Trust, whether voluntary or involuntary, the assets of the Trust available for distribution among the Holders of all Outstanding Series B Preferred Shares, and any other Outstanding class or series of Preferred Shares ranking on a parity with the Series B Preferred Shares as to payment upon liquidation, shall be insufficient to permit the payment in full to such Holders of Series B Preferred Shares of the Liquidation Preference plus accumulated and unpaid dividends and the amounts due upon liquidation with respect to such other Preferred Shares, then such available assets shall be distributed among the Holders of Series B Preferred Shares and such other Preferred Shares ratably in proportion to the respective preferential liquidation amounts to which they are entitled. Unless and until the Liquidation Preference plus accumulated and unpaid dividends has been paid in full to the Holders of Series B Preferred Shares, no dividends or distributions will be made to holders of Common Shares or any other shares of the Trust ranking junior to the Series B Preferred Shares as to liquidation.
8. Auction Agent.
For so long as the Series B Preferred Shares are Outstanding, the Auction Agent, duly appointed by the Trust to so act, shall be in each case a commercial bank, trust company or other financial institution independent of the Trust and its Affiliates (which, however, may engage or have engaged in business transactions with the Trust or its Affiliates) and at no time shall the Trust or any of its Affiliates act as the Auction Agent in connection with the Auction Procedures. If the Auction Agent resigns or for any reason its appointment is terminated during any period that any Series B Preferred Shares are Outstanding, the Trust shall use its best efforts promptly thereafter to appoint another qualified commercial bank, trust company or financial institution to act as the Auction Agent.
9. Coverage Tests.
(a) Determination of Compliance.
For so long as the Series B Preferred Shares are Outstanding, the Trust shall make the following determinations:
(i) Asset Coverage as follows:
(A) As of each Quarterly Valuation Date, the Trust shall determine whether Asset Coverage is met as of that date. In the event the Trust determines that it has failed to meet Asset Coverage as of such Quarterly Valuation date, the Trust will notify each Rating Agency of such failure in writing (which notification may be by facsimile or other electronic means) on or before 5:00 P.M., New York City time, on the fifth Business Day following the date of such determination.
(B) The Trust shall deliver to each Rating Agency an "Asset Coverage Certificate" which sets forth the determination of paragraph 9(a)(i)(A) above (1) as of the Date of Original Issue and, thereafter, (2) as of (x) each Quarterly Valuation Date and (y) a Business Day on or before any Series B Asset Coverage Cure Date following a failure to meet Asset Coverage. Such Asset Coverage Certificate shall be delivered in the case of clause (1) on the Date of Original Issue and in the case of clause (2) on or before the seventh Business Day following such Quarterly Valuation Date or the relevant Cure Date, as the case may be.
(ii) Basic Maintenance Amount as follows:
(A) For so long as the Series B Preferred Shares are rated by Moody's and/or S&P at the Trust's request, the Trust shall maintain, on each Valuation Date, Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount, as of such Valuation Date. Upon any failure to maintain Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount, the Trust shall use all commercially reasonable efforts to re-attain Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount on or prior to the Basic Maintenance Amount Cure Date, by altering the composition of its portfolio or otherwise.
(B) On or before 5:00 P.M., New York City time, on the fifth Business Day after a Valuation Date on which the Trust fails to satisfy the Basic Maintenance Amount, and on the fifth Business Day after the Basic Maintenance Amount Cure Date with respect to such Valuation Date, the Trust shall complete and deliver to each Rating Agency a Basic Maintenance Report as of the date of such failure or such Basic Maintenance Amount Cure Date, as the case may be, which will be deemed to have been delivered to such Rating Agency if such Rating Agency receives a copy or facsimile or other electronic transcription or transmission thereof and on the same day the Trust mails or sends to such Rating Agency for delivery on the next Business Day the full Basic Maintenance Report. The Trust shall also deliver a Basic Maintenance Report to each Rating Agency as of each Monthly Valuation Date, in each case on or before the fifth Business Day after such day. A failure by the Trust to deliver a Basic Maintenance Report pursuant to the preceding sentence shall be deemed to be delivery of a Basic Maintenance Report indicating the Discounted Value for all assets of the Trust is less than the Basic Maintenance Amount, as of the relevant Valuation Date.
(C) Within ten Business Days after the date of delivery of a Basic Maintenance Report in accordance with paragraph 9(a)(ii)(B) relating to any Annual Valuation Date, the Trust shall cause the Independent Accountant to send an Accountant's Confirmation to each Rating Agency with respect to such Basic Maintenance Report.
(D) Within ten Business Days after the date of delivery of a Basic Maintenance Report in accordance with paragraph 9(a)(ii)(B) relating to each, if any, Valuation Date on which the Trust failed to satisfy the Basic Maintenance Amount and the Basic Maintenance Amount Cure Date with respect to such failure to satisfy the Basic Maintenance Amount, the Trust shall cause the Independent Accountant to provide to each Rating Agency an Accountant's Confirmation as to such Basic Maintenance Report.
(E) If any Accountant's Confirmation delivered pursuant to paragraph (C) or (D) of this paragraph 9(a)(ii) does not agree with the Trust's calculation of the Basic Maintenance Report for a particular Valuation Date for which such Accountant's Confirmation was required to be delivered, or shows that a lower aggregate Discounted Value for the aggregate Eligible Assets in respect of any Rating Agency than was determined by the Trust, the calculation or determination made by such Independent Accountant shall be final and conclusive and shall be binding on the Trust, and the Trust shall accordingly amend and deliver the Basic Maintenance Report to the relevant Rating Agency promptly following receipt by the Trust of such Accountant's Confirmation.
(F) On or before 5:00 p.m., New York City time, on the fifth Business Day after the Date of Original Issue of Series B Preferred Shares, the Trust shall complete and deliver to each Rating Agency a Basic Maintenance Report as of the close of business on such Date of Original Issue.
(G) On or before 5:00 p.m., New York City time, on the fifth Business Day after either (1) the Trust shall have redeemed Series B Preferred Shares or (2) the ratio of the Discounted Value of Eligible Assets in respect of any Rating Agency to the Basic Maintenance Amount is less than or equal to 110%, the Trust shall complete and deliver to each Rating Agency, a Basic Maintenance Report as of the date of either such event.
(H) As for any Valuation Date for which the Trust's ratio of the Discounted Value of Eligible Assets in respect of any Rating Agency to the Basic Maintenance Amount is less than or equal to 110%, the Trust shall deliver, by fax or email before 5:00 p.m. New York City time on the first Business Day following such Valuation Date, notice of such ratio to each Rating Agency.
(b) Failure to Meet Asset Coverage Requirements.
If the Trust fails to have Asset Coverage as provided in paragraph 9(a)(i)(A) or to have Eligible Assets having an Adjusted Value at least equal to the Basic Maintenance Amount as provided in paragraph 9(a)(ii)(A) and such failure is not cured by the applicable Cure Date, Preferred Shares, which at the Trust's determination (to the extent permitted by the 1940 Act and Delaware law) may include any proportion of Series B Preferred Shares, will be subject to mandatory redemption as set forth in paragraph 3.
(c) Status of Series B Preferred Shares Called for Redemption.
For purposes of determining whether the requirements of paragraphs 9(a)(i)(A) and 9(a)(ii)(A) hereof are satisfied, (i) no Series B Preferred Share or other Preferred Share shall be deemed to be Outstanding for purposes of any computation if, prior to or concurrently with such determination, sufficient Deposit Assets to pay the full Redemption Price for such share shall have been deposited in trust with the Paying Agent (or applicable dividend-disbursing agent) and the requisite Notice of Redemption shall have been given, and (ii) such Deposit Assets deposited with the Paying Agent (or dividend-disbursing agent) shall not be included.
(d) Certain Notifications Relating to Market Value.
In the event the Market Value of an Eligible Asset is determined pursuant to clause (a)(iii) of the definition of Market Value set forth in paragraph 13, the Trust shall promptly inform each Rating Agency in writing (which notice may be by facsimile or other electronic means) of the basis upon which the Market Value of such Eligible Asset was determined.
10. Certain Other Restrictions.
(a) For so long as the Series B Preferred are rated by a Rating Agency at the Trust's request, the Trust will not, and will cause the Adviser not to, (i) knowingly and willfully purchase or sell any asset for the specific purpose of causing, and with the actual knowledge that the effect of such purchase or sale will be to cause, the Trust to have Eligible Assets having an Adjusted Value as of the date of such purchase or sale to be less than the Basic Maintenance Amount as of such date, (ii) in the event that, as of the immediately preceding Valuation Date, the Adjusted Value of the Trust's Eligible Assets exceeded the Basic Maintenance Amount by 5% or less, alter the composition of the Trust's assets in a manner rea sonably expected to reduce the Adjusted Value of the Trust's Eligible Assets, unless the Trust shall have confirmed that, after giving effect to such alteration, the Adjusted Value of the Trust's Eligible Assets exceeded the Basic Maintenance Amount or (iii) declare or pay any dividend or other distribution on any Common Shares or repurchase any Common Shares, unless the Trust shall have confirmed that, after giving effect to such declaration, other distribution or repurchase, the Trust continued to satisfy the requirements of paragraph 9(a)(ii).
(b) For so long as the Series B Preferred Shares are rated by any Rating Agency at the Trust's request, unless the Trust shall have received written confirmation from each such Rating Agency, the Trust may engage in the lending of its portfolio securities only in an amount of up to 20% of the Trust's total assets, provided that the Trust receives cash collateral for such loaned securities that is maintained at all times in an amount equal to at least 100% of the then current market value of the loaned securities and, if invested, is invested only in Short-Term Money Market Instruments or in money market mutual funds meeting the require ments of Rule 2a-7 under the 1940 Act that maintain a constant $1.00 per share net asset value and treat the loaned securities rather than the collateral as the assets of the Trust for purposes of determining compliance with paragraph 9.
(c) For so long as the Series B Preferred Shares are rated by any Rating Agency at the Trust's request, the Trust shall not consolidate with, merge into, sell or otherwise transfer all or substantially all of its assets to another Person or adopt a plan of liquidation of the Trust, in each case without providing prior written notification to each Rating Agency.
11. Limitation on Incurrence of Additional Indebtedness, Certain Transactions and Issuance of Additional Preferred Shares
(a) So long as the Series B Preferred Shares are Outstanding, the Trust may issue and sell one or more series of a class of senior securities of the Trust representing indebtedness under Section 18 of the 1940 Act and/or otherwise create or incur indebtedness, provided that immediately after giving effect to the incurrence of such indebtedness and to its receipt and application of the proceeds thereof, the Trust shall have an "asset coverage" for all senior securities representing indebtedness, as defined in Section 18(h) of the1940 Act, of at least 300% of the amount of all indebtedness of the Trust then Outstanding and no such additional indebtedness shall have any preference or priority over any other indebtedness of the Trust upon the distribution of the assets of the Trust upon the distribution of the assets of the Trust or in respect of the payment of interest. Any possible liability resulting from lending and/or borrowing portfolio securities, entering into reverse repurchase agreements, entering into futures contracts and writing options, to the extent such transactions are made in accordance with the investment restrictions of the Trust then in effect, shall not be considered to be indebtedness limited by this paragraph 11(a).
(b) So long as any Series B Preferred Shares are Outstanding and S&P is rating such Series B Preferred Shares at the Trust's request, the Trust will not, unless it has received written confirmation that any such transaction would not impair the rating then assigned by S&P to such Series B Preferred Shares, engage in any one or more of the following transactions:
(i) purchase or sell futures contracts; write, purchase or sell options on futures contracts; or write put options (except covered put options) or call options (except covered call options) on securities owned by the Trust (collectively, "S&P Hedging Transactions"), except subject to the following limitations:
(A) for each net long or short position in S&P Hedging Transactions, the Trust will maintain in a segregated account with the Trust's custodian or with the counterparty to such S&P Hedging Transaction an amount of cash or readily marketable securities having a value, when added to any amounts on deposit with the Trust's futures commission merchants or brokers as margin or premium for such position, at least equal to the market value of the Trust's potential obligations on such position, marked-to-market on a daily basis, in each case as and to the extent required by the applicable rules or orders of the Commission or by interpretations of the Commission's staff;
(B) the Trust will not engage in any S&P Hedging Transaction which would cause the Trust at the time of such transaction to own or have sold the lesser of (1) outstanding futures contracts, in aggregate, based on the Standard & Poor's 500 Index, the Dow Jones Industrial Average, the Russell 2000 Index, the Wilshire 5000 Index, the Nasdaq Composite Index and the New York Stock Exchange Composite Index (or any component of any of the forgoing) exceeding in number 50% of the market value of the Trust's total assets or (2) outstanding futures contracts based on any of the aforementioned indices exceeding in number 10% of the average number of daily traded futures contracts based on such index in the 30 days preceding the time of effecting such transaction as reported by The Wall Street Journal;
(C) the Trust will engage in closing transactions to close out any outstanding futures contract which the Trust owns or has sold or any outstanding option thereon owned by the Trust in the event (1) the Trust does not have S&P Eligible Assets with an aggregate Discounted Value equal to or greater than the Series B Preferred Basic Maintenance Amount on two consecutive Valuation Dates and (2) the Trust is required to pay variation margin on the second such Valuation Date;
(D) the Trust will engage in a closing transaction to close out any outstanding futures contract or option thereon at least one week prior to the delivery date under the terms of the futures contract or option thereon unless the Trust holds the securities deliverable under such terms; and
(E) when the Trust writes a futures contract or option thereon, either the amount of margin posted by the Trust (in the case of a futures contract) or the marked-to-market value of the Trust's obligation (in the case of a put option written by the Trust) shall be treated as a liability of the Trust for purposes of calculating the Series B Preferred Basic Maintenance Amount, or, in the event the Trust writes a futures contract or option thereon which requires delivery of an underlying security and the Trust does not wish to treat its obligations with respect thereto as a liability for purposes of calculating the Series B Preferred Basic Maintenance Amount, it shall hold such underlying security in its portfolio and shall not include such security to the extent of such contract or option as an S&P Eligible Asset.
(ii) borrow money, except for the purpose of clearing securities transactions if (A) the Series B Preferred Basic Maintenance Amount would continue to be satisfied after giving effect to such borrowing and (B) such borrowing (1) is privately arranged with a bank or other person and is not intended to be publicly distributed or (2) is for "temporary purposes," and is in an amount not exceeding 5 percent of the market value of the total assets of the Trust at the time of the borrowing; for purposes of the foregoing, "temporary purposes" means that the borrowing is to be repaid within sixty days and is not to be extended or renewed;
(iii) engage in any short sales of equity securities (other than short sales against the box) unless the Trust maintains in a segregated account with the Trust's custodian an amount of cash or other readily marketable securities having a market value, when added to any amounts on deposit with the Trust's broker as collateral for its obligation to replace the securities borrowed and sold short, at least equal to the current market value of securities sold short, marked-to-market on a daily basis;
(iv) utilize any pricing service other than a Pricing Service or such other pricing service then permitted by S&P; or
(v) enter into any reverse repurchase agreement, other than with a counterparty that is rated at least A-1+ by S&P.
(c) So long as any Series B Preferred Shares are Outstanding, the Trust may issue and sell shares of one or more other series of Preferred Stock constituting a series of a class of senior securities of the Trust representing stock under Section 18 of the 1940 Act in addition to the Series B Preferred Shares and other Preferred Stock then Outstanding, provided that (i) the Trust shall, immediately after giving effect to the issuance of such additional Preferred Stock and to its receipt and application of the proceeds thereof, have an "asset coverage" for all senior securities which are stock, as defined in Section 18(h) of the 1940 Act, of at least 200% of the Series B Preferred Shares and all other Preferred Stock of the Trust then Outstanding, and (ii) no such additional Preferred Stock (including any additional Series B Preferred Shares) shall have any preference or priority over any other Preferred Stock of the Trust upon the distribution of the assets of the Trust or in respect of the payment of dividends.
12. Termination.
In the event that no Series B Preferred Shares are Outstanding, all rights and preferences of such shares established and designated hereunder shall cease and terminate, and all obligations of the Trust under this Statement of Preferences shall terminate.
13. Definitions.
Unless the context or use indicates another or different meaning or intent, each of the following terms when used in this Statement of Preferences shall have the meaning ascribed to it below, whether such term is used in the singular or plural and regardless of tense:
"Accountant's Confirmation" means a letter from an Independent Accountant delivered to each Rating Agency with respect to certain Basic Maintenance Reports substantially to the effect that:
(a) the Independent Accountant has read the Basic Maintenance Report or Reports prepared by the Administrator during the referenced calendar year that are referred to in such letter;
(b) with respect to the issue size compliance, issuer diversification and industry diversification calculations, such calculations and the resulting Market Value of the relevant Eligible Assets included in the Reports and the Adjusted Value of the such Eligible Assets included in the Reports are numerically correct;
(c) with respect to the excess or deficiency of the Adjusted Value of the relevant Eligible Assets included in the Reports when compared to the Basic Maintenance Amount calculated for such Rating Agency the results of the calculation set forth in the Reports have been recalculated and are numerically correct;
(d) with respect to the Rating Agency ratings on corporate evidences of indebtedness, convertible corporate evidences of indebtedness and preferred stock listed in the Reports, that information has been traced and agrees with the information provided directly or indirectly by the respective Rating Agencies (in the event such information does not agree or such information is not listed in the accounting records of the Trust, the Independent Accountants will inquire of the Rating Agencies what such information is and provide a listing in their letter of such differences, if any);
(e) with respect to issuer name and coupon or dividend rate listed in the Reports, that information has been traced and agrees with information listed in the accounting records of the Trust;
(f) with respect to issue size listed in the Reports, that information has been traced and agrees with information provided by a Pricing Service or such other services as the relevant Rating Agency may authorize from time to time;
(g) with respect to the prices (or alternative permissible factors used in calculating the Market Value as provided by this Statement of Preferences) provided by the Administrator of the Trust's assets for purposes of valuing securities in the portfolio, the Independent Accountant has traced the price used in the Reports to the price provided by such Administrator (in accordance with the procedures provided in this Statement of Preferences) and verified that such information agrees (in the event such information does not agree, the Independent Accountants will provide a listing in their letter of such differences); and
(h) with respect to the description of each security included in the Reports, the description of the relevant Eligible Assets has been compared to the definition of such Rating Agency's Eligible Assets contained in this Statement of Preferences, and the description as appearing in the Reports agrees with the definition of such Rating Agency's Eligible Assets as described in this Statement of Preferences.
Each such letter may state that: (i) such Independent Accountant has
made no independent verification of the accuracy of the description of the
investment securities listed in the Reports or the Market Value of those
securities nor has it performed any procedures other than those specifically
outlined above for the purposes of issuing such letter; (ii) unless otherwise
stated in the letter, the procedures specified therein were limited to a
comparison of numbers or a verification of specified computations applicable
to numbers appearing in the Reports and the schedule(s) thereto; (iii) the
foregoing procedures do not constitute an examination in accordance with
generally accepted auditing standards and the Reports contained in the letter
do not extend to any of the Trust's financial statements taken as a whole;
(iv) such Independent Accountant does not express an opinion as to whether
such procedures would enable such Independent Accountant to determine that the
methods followed in the preparation of the Reports would correctly determine
the Market Value or Discounted Value of the investment portfolio; and (v)
accordingly, such Independent Accountant expresses no opinion as to the
information set forth in the Reports or in the schedule(s) thereto and makes
no representation as to the sufficiency of the procedures performed for the
purposes of this Statement of Preferences; and such other statements as are
acceptable to the Rating Agencies.
Such letter shall also state that the Independent Accountant is an "independent accountant" with respect to the Trust within the meaning of the 1933 Act and the related published rules and regulations thereunder.
"Adjusted Value" of each Eligible Asset shall be computed as follows:
(a) cash shall be valued at 100% of the face value thereof; and
(b) all other Eligible Assets shall be valued at the applicable Discounted Value thereof; and
(c) each asset that is not an Eligible Asset shall be valued at zero.
"Administrator" means the other party to the Administration Agreement with the Trust which shall initially be Gabelli Funds, LLC, a New York limited liability company, and will include, as appropriate, any sub-administrator appointed by the Administrator.
"ADRs" means U.S. dollar-denominated American Depository Receipts.
"Adviser" means Gabelli Funds, LLC, a New York limited liability company, or such other Person that is then serving as the investment adviser of the Trust.
"Affiliate" means, with respect to the Auction Agent, any person known to the Auction Agent to be controlled by, in control of or under common control with the Trust; provided, however, that no Broker-Dealer controlled by, in control of or under common control with the Trust shall be deemed to be an Affiliate nor shall any corporation or any Person controlled by, in control of or under common control with such corporation, one of the directors or executive officers of which is a trustee of the Trust be deemed to be an Affiliate solely because such trustee or executive officer is also a trustee of the Trust.
"All Hold Rate" means 90% of the Reference Rate.
"Annual Valuation Date" means the Valuation Date each calendar year so designated by the Trust, commencing in the calendar year 2003.
"Applicable Rate" means, with respect to the Series B Preferred Shares, for each Dividend Period (i) if Sufficient Clearing Bids exist for the Auction in respect thereof, the Winning Bid Rate, (ii) if Sufficient Clearing Orders do not exist for the Auction in respect thereof, or an Auction does not take place with respect to such Dividend Period because of the commencement of a Default Period, the Maximum Rate and (iii) if all Series B Preferred Shares are the subject of Submitted Hold Orders for the Auction in respect thereof, the All Hold Rate.
"Asset Coverage" means asset coverage, as determined in accordance with Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Trust which are stock, including all Outstanding Series B Preferred Shares (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of declaring dividends on its common stock), determined on the basis of values calculated as of a time within 48 hours (not including Saturdays, Sundays or holidays) next preceding the time of such determination.
"Asset Coverage Certificate" means the certificate required to be delivered by the Trust pursuant to paragraph 9(a)(i)(B) of Part I of this Statement of Preferences.
"Auction" means each periodic operation of the Auction Procedures.
"Auction Agent" means The Bank of New York unless and until another commercial bank, trust company, or other financial institution appointed by a resolution of the Board of Trustees enters into an agreement with the Trust to follow the Auction Procedures for the purpose of determining the Applicable Rate.
"Auction Date" means the last day of the initial Dividend Period and each seventh day after the immediately preceding Auction Date; provided, however, that if any such seventh day is not a Business Day, such Auction Date shall be the first preceding day that is a Business Day and the next Auction Date, if for a Standard Dividend Period, shall (subject to the same advancement procedure) be the seventh day after the date that the preceding Auction Date would have been if not for the advancement procedure; provided further, however, that the Auction Date for the Auction at the conclusion of any Special Dividend Period shall be the last Business Day in such Special Dividend Period and that no more than one Auction shall be held during any Dividend Period; provided further, however, that the Auction Date following a Default Period shall be the last Business Day in the Standard Dividend Period that commenced during such Default Period. Notwithstanding the foregoing, in the event an auction is not held because an unforeseen event or unforeseen events cause a day that otherwise would have been an Auction Date not to be a Business Day, then the length of the then current dividend period will be extended by seven days (or a multiple thereof if necessary because of such unforeseen event or events).
"Auction Procedures" means the procedures for conducting Auctions as set forth in Part II of this Statement of Preferences.
"Basic Maintenance Amount" means, with respect to the Series B
Preferred Shares, as of any Valuation Date, the dollar amount equal to (a) the
sum of (i) the product of the number of shares of each class or series of
Preferred Shares Outstand ing on such Valuation Date multiplied, in the case
of each such series or class, by the per share Liquidation Preference
applicable to each such series or class; (ii) to the extent not included in
(i) the aggregate amount of cash dividends (whether or not earned or declared)
that will have accumulated for each Outstanding Preferred Share from the most
recent applicable dividend payment date to which dividends have been paid or
duly provided for (or, in the event the Basic Maintenance Amount is calcu
lated on a date prior to the initial Dividend Payment Date with respect to a
class or series of the Preferred Shares, then from the Date of Original Issue
of such shares) through the Valuation Date plus all dividends to accumulate on
the Preferred Shares then Outstanding during the 31 days following such
Valuation Date or, if less, during the number of days following such Valuation
Date that the Preferred Shares called for redemption are scheduled to remain
Outstanding at the applicable rate or default rate then in effect with respect
to such shares; (iii) the Trust's other liabilities due and payable as of such
Valuation Date (except that dividends and other distributions payable by the
Trust on Common Shares shall not be included as a liability) and such
liabilities projected to become due and payable by the Trust during the 90
days following such Valuation Date (excluding liabilities for investments to
be purchased and for dividends and other distributions not declared as of such
Valuation Date); and (iv) any current liabilities of the Trust as of such
Valuation Date to the extent not reflected in (or specifically excluded by)
any of (a)(i) through (a)(iii) (including, without limitation, and immediately
upon determination, any amounts due and payable by the Trust pursuant to
reverse repurchase agreements and any payables for assets purchased as of such
Valuation Date) less (b) (i) the Adjusted Value of any of the Trust's assets
or (ii) the face value of any of the Trust's assets if, in the case of both
(b)(i) and (b)(ii), such assets are either cash or evidences of indebtedness
which mature prior to or on the date of redemption or repurchase of Preferred
Shares or payment of another liability and are either U.S. Government
Obligations or evidences of indebtedness which have a rating assigned by
Moody's of at least Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at least AAA, SP-1+
or A-1+, and are irrevocably held by the Trust's custodian bank in a
segregated account or deposited by the Trust with the dividend-disbursing
agent or Paying Agent, as the case may be, for the payment of the amounts
needed to redeem or repurchase Preferred Shares subject to redemption or
repurchase or any of (a)(ii) through (a)(iv); and provided that in the event
the Trust has repurchased Preferred Shares and irrevocably segregated or
deposited assets as described above with its custodian bank, the
dividend-disbursing agent or Paying Agent for the payment of the repurchase
price the Trust may deduct 100% of the Liquidation Preference of such
Preferred Shares to be repurchased from (a) above. Basic Maintenance Amount
shall, for the purposes of this Statement of Preferences, have a correlative
meaning with respect to any other class or series of Preferred Shares.
"Basic Maintenance Amount Cure Date" means, with respect to the Series B Preferred Shares, 10 Business Days following a Valuation Date, such date being the last day upon which the Trust's failure to comply with paragraph 9(a)(ii)(A) of Part I of this Statement of Preferences could be cured, and shall, for the purposes of this Statement of Preferences, have a correlative meaning with respect to any other class or series of Preferred Shares.
"Basic Maintenance Test" means, with respect to the Series B Preferred Shares, a test which is met if the lower of the aggregate Discounted Values of the Moody's Eligible Assets or the S&P Eligible Assets if both Moody's and S&P are then rating the Series B Preferred Shares at the request of the Trust, or the Eligible Assets of whichever of Moody's or S&P is then doing so if only one of Moody's or S&P is then rating the Series B Preferred Shares at the request of the Trust, meets or exceeds the Basic Maintenance Amount.
"Basic Maintenance Report" or "Report" means, with respect to the Series B Preferred Shares, a report prepared by the Administrator which sets forth, as of the related Monthly Valuation Date, (i) Moody's Eligible Assets and S&P Eligible Assets sufficient to meet or exceed the Basic Maintenance Amount, (ii) the Market Value and Discounted Value thereof (seriatim and in the aggregate), (iii) the Basic Maintenance Amount, and (iv) the net asset value of the Trust. Such report will also include (A) the month-end closing price for the Common Shares of the Trust (B) the monthly total-return per Common Shares, which will be determined based upon month-end closing share prices, assuming reinvestment of all dividends paid during such month and (C) the total leverage position of the Trust. For the purposes of this Statement of Preferences, "Basic Maintenance Report" or "Report" shall have a correlative meaning with respect to any other class or series of Preferred Shares.
"Beneficial Owner," with respect to the Series B Preferred Shares, means a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of Series B Preferred Shares.
"Bid" has the meaning set forth in paragraph 2(a) of Part II of this Statement of Preferences.
"Bidder" has the meaning set forth in paragraph 2(a) of Part II of this Statement of Preferences, provided however that neither the Trust nor any Affiliate shall be permitted to be Bidder in an Auction.
"Board of Trustees" or "Board" means the Board of Trustees of the Trust or any duly authorized committee thereof as permitted by applicable law.
"Broker-Dealer" means any broker-dealer or broker-dealers, or other entity permitted by law to perform the functions required of a Broker-Dealer by the Auction Procedures, that has been selected by the Trust and has entered into a Broker-Dealer Agreement that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent and a Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow the Auction Procedures.
"Business Day" means a day on which the New York Stock Exchange is open for trading and which is not a Saturday, Sunday or other day on which banks in The City of New York, New York are authorized or obligated by law to close.
"By-Laws" means the By-Laws of the Trust, as amended from time to time.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the Trust's common shares, par value $.001 per share.
"Cure Date" has the meaning set forth in paragraph 3(a)(ii) of Part I of this Statement of Preferences.
"Date of Original Issue" means [ ], and, for the purposes of this Statement of Preferences, shall have a correlative meaning with respect to any other class or series of Preferred Shares.
"Declaration" means the Agreement and Declaration of Trust of the Trust, dated February 25, 1999, as amended and restated from time to time (including by this Statement of Preferences or by way of any other supplement or Statement of Preferences authorizing or creating a class of shares of beneficial interest in the Trust).
"Default" means a Dividend Default or a Redemption Default.
"Default Period" means a Dividend Default or a Redemption Default.
"Default Rate" has the meaning set forth in paragraph 2(c)(iii) of
Part I of this Statement of Preferences.
"Deposit Assets" means cash, Short-Term Money Market Instruments and U.S. Government Obligations. Except for determining whether the Trust has Eligible Assets with an Adjusted Value equal to or greater than the Basic Maintenance Amount, each Deposit Asset shall be deemed to have a value equal to its principal or face amount payable at maturity plus any interest payable thereon after delivery of such Deposit Asset but only if payable on or prior to the applicable payment date in advance of which the relevant deposit is made.
"Discount Factor" means (a) so long as Moody's is rating the Series B Preferred Shares at the Trust's request, the Moody's Discount Factor, (b) so long as S&P is rating the Series B Preferred Shares at the Trust's request, the S&P Discount Factor, and/or (c) any applicable discount factor established by any Other Rating Agency, whichever is applicable.
"Discounted Value" means, as applicable, (a) the quotient of the
Market Value of an Eligible Asset divided by the applicable Discount Factor or
(b) such other formula for determining the discounted value of an Eligible
Asset as may be established by an applicable Rating Agency, provided, in
either case that with respect to an Eligible Asset that is currently callable,
Discounted Value will be equal to the applicable quotient or product as
calculated above or the call price, whichever is lower, and that with respect
to an Eligible Asset that is prepayable, Discounted Value will be equal to the
applicable quotient or product as calculated above or the par value, whichever
is lower.
"Dividend Default" has the meaning set forth in paragraph 2(c)(ii) of
Part I of this Statement of Preferences.
"Dividend Payment Date" means with respect to the Series B Preferred Shares, any date on which dividends declared by the Board of Trustees thereon are payable pursuant to the provisions of paragraph 2(b) of Part I of this Statement of Preferences and shall for the purposes of this Statement of Preferences have a correlative meaning with respect to any other class or series of Preferred Shares.
"Dividend Period" means, with respect to Series B Preferred Shares, the initial period determined in the manner set forth under "Designation" above, and thereafter, the period commencing on the Business Day following each Auction Date and ending on the next Auction Date or, if such next Auction Date is not immediately followed by a Business Day, on the latest day prior to the next succeeding Business Day, and shall, for the purposes of this Statement of Preferences, have a correlative meaning with respect to any other class or series of Preferred Shares.
"Eligible Assets" means Moody's Eligible Assets (if Moody's is then rating the Series B Preferred Shares at the request of the Trust), S&P Eligible Assets (if S&P is then rating the Series B Preferred Shares at the request of the Trust), and/or Other Rating Agency Eligible Assets if any Other Rating Agency is then rating the Series A Preferred or Series B AMPS, whichever is applicable.
"Governing Documents" means the Declaration and the By-Laws.
"Holder" means, with respect to the Preferred Shares, including the Series B Preferred Shares, the registered holder of such shares as the same appears on the stock ledger or ownership records of the Trust or records of the Auction Agent, as the case may be.
"Independent Accountant" means a nationally recognized accountant, or firm of accountants, that is with respect to the Trust an independent public accountant or firm of independent public accountants under the 1933 Act.
"Industry Classification" means a six-digit industry classification in the Standard Industry Classification system published by the United States.
"LIBOR Dealers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated and such other dealer or dealers as the Trust may from time to time appoint, or, in lieu of any thereof, their respective affiliates or successors.
"LIBOR Rate," on any Auction Date, means (i) the rate for deposits in
U.S. dollars for the designated Dividend Period, which appears on display page
3750 of Moneyline's Telerate Service ("Telerate Page 3750") (or such other
page as may replace that page on that service, or such other service as may be
selected by the LIBOR Dealer or its successors that are LIBOR Dealers) as of
11:00 a.m., London time, on the day that is the London Business Day preceding
the Auction Date (the "LIBOR Determination Date"), or (ii) if such rate does
not appear on Telerate Page 3750 or such other page as may replace such
Telerate Page 3750, (A) the LIBOR Dealer shall determine the arithmetic mean
of the offered quotations of the Reference Banks to leading banks in the
London interbank market for deposits in U.S. dollars for the designated
Dividend Period in an amount determined by such LIBOR Dealer by reference to
requests for quotations as of approximately 11:00 a.m. (London time) on such
date made by such LIBOR Dealer to the Reference Banks, (B) if at least two of
the Reference Banks provide such quotations, LIBOR Rate shall equal such
arithmetic mean of such quotations, (C) if only one or none of the Reference
Banks provide such quotations, LIBOR Rate shall be deemed to be the arithmetic
mean of the offered quotations that leading banks in The City of New York
selected by the LIBOR Dealer (after obtaining the Trust's approval) are
quoting on the relevant LIBOR Determination Date for deposits in U.S. dollars
for the designated Dividend Period in an amount determined by the LIBOR Dealer
(after obtaining the Trust's approval) that is representative of a single
transaction in such market at such time by reference to the principal London
offices of leading banks in the London interbank market; provided, however,
that if one of the LIBOR Dealers does not quote a rate required to determine
the LIBOR Rate, the LIBOR Rate will be determined on the basis of the
quotation or quotations furnished by any Substitute LIBOR Dealer or Substitute
LIBOR Dealers selected by the Trust to provide such rate or rates not being
supplied by the LIBOR Dealer; provided further, that if the LIBOR Dealer and
Substitute LIBOR Dealers are required but unable to determine a rate in
accordance with at least one of the procedures provided above, LIBOR Rate
shall be LIBOR Rate as determined on the previous Auction Date. If the number
of Dividend Period days shall be (1) 7 or more but fewer than 21 days, such
rate shall be the seven-day LIBOR rate; (2) more than 21 but fewer than 49
days, such rate shall be one-month LIBOR rate; (3) 49 or more but fewer than
77 days, such rate shall be the two-month LIBOR rate; (4) 77 or more but fewer
than 112 days, such rate shall be the three-month LIBOR rate; (5) 112 or more
but fewer than 140 days, such rate shall be the four-month LIBOR rate; (6) 140
or more but fewer than 168 days, such rate shall be the five-month LIBOR rate;
(7) 168 or more but fewer than 189 days, such rate shall be the six-month
LIBOR rate; (8) 189 or more but fewer than 217 days, such rate shall be the
seven-month LIBOR rate; (9) 217 or more but fewer than 252 days, such rate
shall be the eight-month LIBOR rate; (10) 252 or more but fewer than 287 days,
such rate shall be the nine-month LIBOR rate; (11) 287 or more but fewer than
315 days, such rate shall be the ten-month LIBOR rate; (12) 315 or more but
fewer than 343 days, such rate shall be the eleven-month LIBOR rate; and (13)
343 or more but fewer than 365 days, such rate shall be the twelve-month LIBOR
rate.
"Liquidation Preference" shall, with respect to each share of Series B Preferred Shares, have the meaning set forth in paragraph 7(a) of Part I of this Statement of Preferences and shall, for the purposes of this Statement of Preferences, have a correlative meaning with respect to any other class or series of Preferred Shares.
"London Business Day" means any day on which commercial banks are generally open for business in London.
"Mandatory Redemption Date" has the meaning set forth in paragraph 3(a)(iii) of Part I of this Statement of Preferences.
"Market Value" means the amount determined by the Trust with respect to specific Eligible Assets in accordance with valuation policies adopted from time to time by the Board of Trustees as being in compliance with the requirements of the 1940 Act.
Notwithstanding the foregoing, "Market Value" may, at the option of the Trust with respect to any of its assets, mean the amount determined with respect to specific Eligible Assets of the Trust in the manner set forth below:
(a) as to any common or preferred stock which is an Eligible
Asset, (i) if the stock is traded on a national securities exchange or quoted
on the Nasdaq System, the last sales price reported on the Valuation Date,
(ii) if there was no such reported sales price, the price reported by a
recognized pricing service or (iii) if there was no such pricing service
report, the lower of two bid prices for such stock provided to the
Administrator by two recognized securities dealers with minimum
capitalizations of $25,000,000 (or otherwise approved for such purpose by
Moody's and S&P), at least one of which shall be provided in writing or by
telecopy, telex, other electronic transcription, computer obtained quotation
reducible to written form or similar means, and in turn provided to the Trust
by any such means by such Administrator, or, if two bid prices cannot be
obtained, such Eligible Asset shall have a Market Value of zero;
(b) as to any U.S. Government Obligation, Short-Term Money Market Instrument (other than demand deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements) and commercial paper, with a matu rity of greater than 60 days, the product of (i) the principal amount (accreted princi pal to the extent such instrument accretes interest) of such instrument and (ii) the lower of the bid prices for the same kind of instruments having, as nearly as practica ble, comparable interest rates and maturities provided by two recognized securities dealers having minimum capitalization of $25,000,000 (or otherwise approved for such purpose by Moody's and S&P) to the Administrator, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcription, computer obtained quotation reducible to written form or similar means, and in turn provided to the Trust by any such means by such Administrator, or, if two bid prices cannot be obtained, such Eligible Asset will have a Market Value of zero;
(c) as to cash, demand or time deposits, federal funds, bankers' acceptances and next Business Day repurchase agreements included in Short-Term Money Market Instruments, the face value thereof;
(d) as to any U.S. Government Obligation, Short-Term Money Market Instrument or commercial paper with a maturity of 60 days or fewer, amortized cost unless the Board of Trustees determines that such value does not constitute fair value;
(e) as to any other evidence of indebtedness which is an Eligible Asset, (i) the product of (A) the unpaid principal balance of such indebtedness as of the Valuation Date and (B)(1) if such indebtedness is traded on a national securities exchange or quoted on the Nasdaq System, the last sales price reported on the Valuation Date or (2) if there was no reported sales price on the Valuation Date or if such indebtedness is not traded on a national securities exchange or quoted on the Nasdaq System, the lower of two bid prices for such indebtedness provided by two recognized dealers with a minimum capitalization of $25,000,000 (or otherwise approved for such purpose by Moody's and S&P) to the Administrator, at least one of which shall be provided in writing or by telecopy, telex, other electronic transcrip tion, computer obtained quotation reducible to written form or similar means, and in turn provided to the Trust by any such means by such Administrator, plus (ii) accrued interest on such indebtedness.
"Maximum Rate" means, on any day on which the Applicable Rate is determined, the greater of (as set forth in the table below) (i) the applicable percentage of the Reference Rate or (ii) the applicable spread plus the Reference Rate. The reference rate is the applicable LIBOR Rate (for a dividend period or a special dividend period of fewer than 364 days), or the applicable Treasury Index Rate (for a special dividend period of 364 days or more). The applicable percentage and applicable spread will be determined based on the lower of the credit ratings assigned to the Series B AMPS by Moody's and S&P. If Moody's and S&P or both do not make such ratings available, the rate will be determined by reference to equivalent ratings issued by a substitute rating agency.
Applicable Applicable
Moody's Credit Rating S&P Credit Rating Percentage Spread
--------------------- ----------------- ---------- ------
Aaa AAA 125% 125 bps
Aa3 to Aa1 AA- to AA+ 150% 150 bps
A3 to A1 A- to A+ 200% 200 bps
Baa3 to Baa1 BBB- to BBB+ 250% 250 bps
Below Baa3 Below BBB- 300% 300 bps
|
"Monthly Valuation Date" means the last Valuation Date of each calendar month.
"Moody's" means Moody's Investors Service, Inc. and its successors at law.
"Moody's Discount Factor" means, with respect to a Moody's Eligible Asset specified below, the following applicable number:
Moody's
Type of Moody's Eligible Asset: Discount Factor:
------------------------------- ----------------
Short Term Money Market Instruments (other than U.S. Government Obligations
set forth below) and other commercial paper:
U.S. Treasury Securities with final maturities that are less
than or equal to 60 days........................................ 1.00
Demand or time deposits, certificates of deposit and bankers'
acceptances includible in Moody's Short Term Money Market
Instruments..................................................... 1.00
Commercial paper rated P-1 by Moody's maturing in 30 days
or less......................................................... 1.00
Commercial paper rated P-1 by Moody's maturing in more
than 30 days but in 270 days or less............................ 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days
or less......................................................... 1.25
Repurchase obligations includible in Moody's Short Term
Money Market Instruments if term is less than 30 days and
counterparty is rated at least A2............................... 1.00
Other repurchase obligations.................................... Discount Factor applicable to
the underlying assets
U.S. Common Stocks and Common Stocks of foreign issuers for
which ADRs are traded................................................
Utility......................... 1.70
Industrial...................... 2.64
Financial ..................... 2.41
Common Stocks of foreign issuers (in existence for at least five
years) for which no ADRs are traded.................................. 4.00
Convertible Preferred Stocks......................................... 3.00
Preferred stocks:
Auction Market preferred stocks................................. 3.50
Other preferred stocks issued by issuers in the financial and
industrial industries........................................... 2.09
Other preferred stocks issued by issuers in the utilities
industry........................................................ 1.55
U.S. Government Obligations (other than U.S. Treasury Securities Strips set
forth below) with remaining terms to maturity of:
1 year or less........................................... 1.04
2 years or less.......................................... 1.09
3 years or less.......................................... 1.12
4 years or less.......................................... 1.15
5 years or less.......................................... 1.18
7 years of less.......................................... 1.21
10 years or less......................................... 1.24
15 years or less......................................... 1.25
20 years or less......................................... 1.26
30 years or less......................................... 1.26
U.S. Treasury Securities Strips with remaining terms to maturity of:
1 year or less........................................... 1.04
2 years or less.......................................... 1.10
3 years or less.......................................... 1.14
4 years or less.......................................... 1.18
5 years or less.......................................... 1.21
7 years or less.......................................... 1.27
10 years or less......................................... 1.34
15 years or less......................................... 1.45
20 years or less......................................... 1.54
30 years or less......................................... 1.66
Corporate Debt:
Non-convertible corporate debt rated Aaa with remaining terms to maturity
of:
1 year or less.............................................. 1.09
2 years or less............................................. 1.15
3 years or less............................................. 1.20
4 years or less............................................. 1.26
5 years or less............................................. 1.32
7 years or less............................................. 1.39
10 years or less............................................ 1.45
15 years or less............................................ 1.50
20 years or less............................................ 1.50
30 years or less............................................ 1.50
Non-convertible corporate debt rated at least Aa3 with remaining terms
to maturity of:
1 year or less.............................................. 1.12
2 years of less............................................. 1.18
3 years or less............................................. 1.23
4 years or less............................................. 1.29
5 years or less............................................. 1.35
7 years or less............................................. 1.43
10 years or less............................................ 1.50
15 years or less............................................ 1.55
20 years or less............................................ 1.55
30 years or less............................................ 1.55
Non-convertible corporate debt rated at least A3 with remaining terms to
maturity of:
1 year or less.............................................. 1.15
2 years or less............................................. 1.22
3 years or less............................................. 1.27
4 years or less............................................. 1.33
5 years or less............................................. 1.39
7 years or less............................................. 1.47
10 years or less............................................ 1.55
15 years or less............................................ 1.60
20 years or less............................................ 1.60
30 years or less............................................ 1.60
Non-convertible corporate debt rated at least Baa3 with remaining terms
of maturity of:
1 year or less.............................................. 1.18
2 years or less............................................. 1.25
3 years or less............................................. 1.31
4 years or less............................................. 1.38
5 years or less............................................. 1.44
7 years or less............................................. 1.52
10 years or less............................................ 1.60
15 years or less............................................ 1.65
20 years or less............................................ 1.65
30 years or less............................................ 1.65
Non-convertible corporate debt rated at least Ba3 with remaining terms of
maturity of:
1 year or less.............................................. 1.37
2 years or less............................................. 1.46
3 years or less............................................. 1.56
4 years or less............................................. 1.61
5 years or less............................................. 1.68
7 years or less............................................. 1.79
10 years or less............................................ 1.89
15 years or less............................................ 1.96
20 years or less............................................ 1.96
30 years or less............................................ 1.96
Non-convertible corporate debt rated at least B1 and B2 with remaining
terms of maturity of:
1 year or less.............................................. 1.50
2 years or less............................................. 1.60
3 years or less............................................. 1.68
4 years or less............................................. 1.76
5 years or less............................................. 1.86
7 years or less............................................. 1.97
10 years or less............................................ 2.08
15 years or less............................................ 2.16
20 years or less............................................ 2.28
30 years or less............................................ 2.29
Non-convertible unrated corporate debt of any maturity.......... 2.50
Convertible corporate debt securities rated at least Aa3 issued by the
following type of issuers:
Utility......................................................... 1.62-1.67
Industrial...................................................... 2.56-2.61
Financial....................................................... 2.33-2.38
Transportation.................................................. 2.50-2.65
Convertible corporate debt securities rated at least A3 issued by the
following type of issuers:
Utility......................................................... 1.72
Industrial...................................................... 2.66
Financial....................................................... 2.43
Transportation.................................................. 2.75
Convertible corporate debt securities rated at least Baa3 issued by the
following type of issuers:
Utility......................................................... 1.88
Industrial...................................................... 2.82
Financial....................................................... 2.59
Transportation.................................................. 2.85
Convertible corporate debt securities rated at least Ba3 issued by the
following type of issuers:
Utility......................................................... 1.95
Industrial...................................................... 2.90
Financial....................................................... 2.65
Transportation.................................................. 2.90
Convertible corporate debt securities rated at least B2 issued by the
following type of issuers:
Utility......................................................... 1.99
Industrial...................................................... 2.93
Financial....................................................... 2.70
Transportation.................................................. 2.95
|
"Moody's Eligible Assets" means:
(a) cash (including, for this purpose, receivables for investments sold to a counterparty whose senior debt securities are rated at least Baa3 by Moody's or a counterparty approved by Moody's and payable within five Business Days following such Valuation Date and dividends and interest receivable within 49 days on investments);
(b) Short-Term Money Market Instruments;
(c) commercial paper that is not includible as a Short-Term Money Market Instrument having on the Valuation Date a rating from Moody's of at least P-1 and maturing within 270 days;
(d) preferred stocks (i) which either (A) are issued by issuers whose senior debt securities are rated at least Baa1 by Moody's or (B) are rated at least Baa3 by Moody's or (C) in the event an issuer's senior debt securities or preferred stock is not rated by Moody's, which either (1) are issued by an issuer whose senior debt securities are rated at least A- by S&P or (2) are rated at least A- by S&P and for this purpose have been assigned a Moody's equivalent rating of at least Baa3, (ii) of issuers which have (or, in the case of issuers which are special purpose corporations, whose parent companies have) common stock listed on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market System, (iii) which have a minimum issue size (when taken together with other of the issuer's issues of similar tenor) of $50,000,000, (iv) which have paid cash dividends consistently during the preceding three-year period (or, in the case of new issues without a dividend history, are rated at least A1 by Moody's or, if not rated by Moody's, are rated at least AA- by S&P), (v) which pay cumulative cash dividends in U.S. dollars, (vi) which are not convertible into any other class of stock and do not have warrants attached, (vii) which are not issued by issuers in the trans portation industry and (viii) in the case of auction rate preferred stocks, which are rated at least Aa3 by Moody's, or if not rated by Moody's, AAA by S&P, AAA by Fitch or are otherwise approved in writing by Moody's and have never had a failed auction; provided, however, that for this purpose the aggregate Market Value of the Trust's holdings of any single issue of auction rate preferred stock shall not be more than 1% of the Trust's total assets.
(e) common stocks (i) (A) which are traded on a nationally
recognized stock exchange or in the over-the-counter market,
(B) if cash dividend paying, pay cash dividends in U.S.
dollars and (C) which may be sold without restriction by the
Trust; provided, however, that (y) common stock which, while
a Moody's Eligible Asset owned by the Trust, ceases paying
any regular cash dividend will no longer be considered a
Moody's Eligible Asset until 71 days after the date of the
an nouncement of such cessation, unless the issuer of the
common stock has senior debt securities rated at least A3 by
Moody's and (z) the aggregate Market Value of the Trust's
holdings of the common stock of any issuer in excess of 4%
in the case of utility common stock and 6% in the case of
non-utility common stock of the aggregate Market Value of
the Trust's holdings shall not be Moody's Eligible Assets,
(ii) which are securities denominated in any currency other
than the U.S. dollar or securities of issuers formed under
the laws of jurisdictions other than the United States, its
states and the District of Columbia for which there are ADRs
or their equivalents which are traded in the United States
on exchanges or over-the-counter and are issued by banks
formed under the laws of the United States, its states or
the District of Columbia or (iii) which are securities of
issuers formed under the laws of jurisdictions other than
the United States (and in existence for at least five years)
for which no ADRs are traded; pro vided, however, that the
aggregate Market Value of the Trust's hold ings of
securities denominated in currencies other than the U.S.
dollar and ADRs in excess of (A) 6% of the aggregate Market
Value of the Outstanding shares of common stock of such
issuer thereof or (B) in excess of 10% of the Market Value
of the Trust's Moody's Eligible Assets with respect to
issuers formed under the laws of any single such non-U.S.
jurisdiction other than Australia, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland
and the United Kingdom, shall not be a Moody's Eligible
Asset;
(f) ADR securities, based on the following guidelines: (i) Sponsored ADR program or (ii) Level II or Level III ADRs. Private placement Rule 144A ADRs are not eligible for collateral consideration. Global GDR programs will be evaluated on a case by case basis;
(g) U.S. Government Obligations;
(h) corporate evidences of indebtedness (i) which may be sold
without restriction by the Trust which are rated at least B3
(Caa subordinate) by Moody's (or, in the event the security
is not rated by Moody's, the security is rated at least BB-
by S&P and which for this purpose is as signed a Moody's
equivalent rating of one full rating category lower), with
such rating confirmed on each Valuation Date, (ii) which
have a minimum issue size of at least (A) $100,000,000 if
rated at least Baa3 or (B) $50,000,000 if rated B or Ba3,
(iii) which are not convertible or exchangeable into equity
of the issuing corporation and have a maturi ty of not more
than 30 years and (iv) for which, if rated below Baa3 or not
rated, the aggregate Market Value of the Trust's holdings do
not exceed 10% of the aggregate Market Value of any
individual issue of corporate evidences of indebtedness
calculated at the time of original issuance; and
(i) convertible corporate evidences of indebtedness (i) which are issued by issuers whose senior debt securities are rated at least B2 by Moody's (or, in the event an issuer's senior debt securities are not rated by Moody's, which are issued by issuers whose senior debt securities are rated at least BB by S&P and which for this purpose is assigned a Moody's equivalent rating of one full rating category lower), (ii) which are convertible into common stocks which are traded on the New York Stock Exchange or the American Stock Exchange or are quoted on the Nasdaq National Market System and (iii) which, if cash dividend paying, pay cash dividends in U.S. dollars; provided, however, that once convertible corporate evidences of indebtedness have been converted into common stock, the common stock issued upon conversion must satisfy the criteria set forth in clause (e) above and other relevant criteria set forth in this definition in order to be a Moody's Eligible Asset; provided, however, that the Trust's investments in auction rate preferred stocks described in clause (d) above shall be included in Moody's Eligible Assets only to the extent that the aggregate Market Value of such stocks does not exceed 10% of the aggregate Market Value of all of the Trust's investments meeting the criteria set forth in clauses (a) through (g) above less the aggregate Market Value of those investments excluded from Moody's Eligible Assets pursuant to the paragraph appearing after clause (i) below; and
(j) no assets which are subject to any lien or irrevocably
deposited by the Trust for the payment of amounts needed to
meet the obligations de scribed in clauses (a)(i) through
(a)(iv) of the definition of "Basic Maintenance Amount" may
be includible in Moody's Eligible Assets.
Notwithstanding anything to the contrary in the preceding clauses
(a)-(j), the Trust's investment in preferred stock, common stock, corporate
evidences of in debtedness and convertible corporate evidences of indebtedness
shall not be treated as Moody's Eligible Assets except to the extent they
satisfy the following diversifica tion requirements (utilizing Moody's
Industry and Sub-industry Categories) with respect to the Market Value of the
Trust's holdings:
Issuer:
Non-Utility Utility
Maximum Single Maximum Single
Moody's Rating(1)(2) Issuer(3)(4) Issuer(3)(4)
-------------- ------------ ------------
Aaa 100% 100%
Aa 20% 20%
A 10% 10%
CS/CB, Baa(5) 6% 4%
Ba 4% 4%
B1/B2 3% 3%
B3 or below 2% 2%
|
Industry and State:
Utility
Non-Utility Maximum Utility
Maximum Single Single Sub- Maximum Single
Moody's Rating(1) Industry(3) Industry(3)(6) State(3)
----------------- ----------- -------------- --------
Aaa 100% 100% 100%
Aa 60% 60% 20%
A 40% 50% 10%(7)
CS/CB, Baa(5) 20% 50% 7%(7)
Ba 12% 12% 0%
B1/B2 8% 8% 0%
B3 or below 5% 5% 0%
|
(1) Unless conclusions regarding liquidity risk as well as estimates of both theprobability and severity of default for the Trust's assets can be derived from other sources, securities rated below B by Moody's and unrated securities, which are securities rated by neither Moody's, S&P nor Fitch, are limited to 10% of Moody's Eligible Assets. If a corporate, municipal or other debt security is unrated by Moody's, S&P or Fitch, the Trust will use the percentage set forth under "Below B and Unrated" in this table. Ratings assigned by S&P or Fitch are generally accepted by Moody's at face value. However, adjustments to face value may be made to particular categories of credits for which the S&P and/or Fitch rating does not seem to approximate a Moody's rating equivalent
(2) Corporate evidences of indebtedness from issues ranging $50,000,000 to $100,000,000 are limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for the related Moody's rating category and each lower Moody's rating category.
(4) Issuers subject to common ownership of 25% or more are considered as one name.
(5) CS/CB refers to common stock and convertible corporate evidences of indebtedness, which are diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility evidences of indebtedness and utility convertible evidences of indebtedness, the definition of industry refers to sub-industries (electric, water, hydro power, gas, diversified). Investments in other sub-industries are eligible only to the extent that the combined sum represents a percentage position of the Moody's Eligible Assets less than or equal to the percentage limits in the diversification tables above.
(7) Such percentage shall be 15% in the case of utilities regulated by California, New York and Texas.
"Moody's Hedging Transactions" means purchases or sales of exchange-traded financial futures contracts based on any index approved by Moody's or Treasury Bonds, and purchases, writings or sales of exchange-traded put options on such financial futures contracts, any index approved by Moody's or Treasury Bonds, and purchases, writings or sales of exchange-traded call options on such financial futures contracts, any index approved by Moody's or Treasury Bonds, subject to the following limitations:
(a) the Trust will not engage in any Moody's Hedging Transaction based on any index approved by Moody's (other than Closing Transactions) that would cause the Trust at the time of such transaction to own or have sold:
(i) outstanding financial futures contracts based on such index exceeding in number 10% of the average number of daily traded financial futures contracts based on such index in the 30 days preceding the time of effecting such transaction as reported by The Wall Street Journal; or
(ii) outstanding financial futures contracts based on any index approved by Moody's having a Market Value exceeding 50% of the Market Value of all portfolio securities of the Trust constituting Moody's Eligible Assets owned by the Trust;
(b) The Trust will not engage in any Moody's Hedging Transaction based on Treasury Bonds (other than Closing Transactions) that would cause the Trust at the time of such transaction to own or have sold:
(i) outstanding financial futures contracts based on Treasury Bonds with such contracts having an aggregate Market Value exceeding 20% of the aggregate Market Value of Moody's Eligible Assets owned by the Trust and rated Aa by Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by S&P); or
(ii) outstanding financial futures contracts based on Treasury Bonds with such contracts having an aggregate Market Value exceeding 50% of the aggregate Market Value of all portfolio securities of the Trust constituting Moody's Eligible Assets owned by the Trust (other than Moody's Eligible Assets already subject to a Moody's Hedging Transaction) and rated Baa or A by Moody's (or, if not rated by Moody's but rated by S&P, rated A or AA by S&P);
(c) The Trust will engage in Closing Transactions to close out any outstanding financial futures contract based on any index approved by Moody's if the amount of open interest in such index as reported by The Wall Street Journal is less than an amount to be mutually determined by Moody's and the Trust;
(d) The Trust will engage in a Closing Transaction to close out any outstanding financial futures contract by no later than the fifth Business Day of the month in which such contract expires and will engage in a Closing Transaction to close out any outstanding option on a financial futures contract by no later than the first Business Day of the month in which such option expires;
(e) The Trust will engage in Moody's Hedging Transactions only with respect to financial futures contracts or options thereon having the next settlement date or the settlement date immediately thereafter;
(f) The Trust (i) will not engage in options and futures transactions for leveraging or speculative purposes, except that an option or futures transaction shall not for these purposes be considered a leveraged position or speculative and (ii) will not write any call options or sell any financial futures contracts for the purpose of hedging the anticipated purchase of an asset prior to completion of such purchase; and
(g) The Trust will not enter into an option or futures transaction unless, after giving effect thereto, the Trust would continue to have Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the Basic Maintenance Amount.
"Moody's Industry Classifications" means, for the purposes of determining Moody's Eligible Assets, each of the following industry classifications (or such other classifications as Moody's may from time to time approve for application to the Series B Preferred Shares).
1. Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft Manufacturing, Arms, Ammunition.
2. Automobile: Automobile Equipment, Auto-Manufacturing, Auto Parts Manufacturing, Personal Use Trailers, Motor Homes, Dealers.
3. Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan, Agency, Factoring, Receivables.
4. Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned Foods, Corn Refiners, Dairy Products, Meat Products, Poultry Products, Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood, Frozen Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil.
5. Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting, Engineering, Construction, Hardware, Forest Products (building-related only), Plumbing, Roofing, Wallboard, Real Estate, Real Estate Development, REITs, Land Development.
6. Chemicals, Plastics and Rubber: Chemicals (non-agricultural), Industrial Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings, Paints, Varnish, Fabricating Containers.
7. Packaging and Glass: Glass, Fiberglass, Containers made of:
Glass, Metal, Paper, Plastic, Wood or Fiberglass.
8. Personal and Non-Durable Consumer Products (Manufacturing Only): Soaps, Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies.
9. Diversified/Conglomerate Manufacturing.
10. Diversified/Conglomerate Service.
11. Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution.
12. Ecological: Pollution Control, Waste Removal, Waste Treatment and Waste Disposal.
13. Electronics: Computer Hardware, Electric Equipment, Components, Controllers, Motors, Household Appliances, Information Service Communication Systems, Radios, TVs, Tape Machines, Speakers, Printers, Drivers, Technology.
14. Finance: Investment Brokerage, Leasing, Syndication, Securities.
15. Farming and Agriculture: Livestock, Grains, Produce, Agriculture Chemicals, Agricultural Equipment, Fertilizers.
16. Grocery: Grocery Stores, Convenience Food Stores.
17. Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs, Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital Supplies, Medical Equipment.
18. Home and Office Furnishings, Housewares, and Durable Consumer Products: Carpets, Floor Coverings, Furniture, Cooking, Ranges.
19. Hotels, Motels, Inns and Gaming.
20. Insurance: Life, Property and Casualty, Broker, Agent, Surety.
21. Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling, Billiards, Musical Instruments, Fishing, Photo Equipment, Records, Tapes, Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games, Toy Manufacturing, Motion Picture Production Theaters, Motion Picture Distribution.
22. Machinery (Non-Agricultural, Non-Construction, Non-Electronic): Industrial, Machine Tools, Steam Generators.
23. Mining, Steel, Iron and Non-Precious Metals: Coal, Copper, Lead, Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore Production, Refractories, Steel Mill Machinery, Mini-Mills, Fabricating, Distribution and Sales of the foregoing.
24. Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling.
25. Printing, Publishing, and Broadcasting: Graphic Arts, Paper, Paper Products, Business Forms, Magazines, Books, Periodicals, Newspapers, Textbooks, Radio, T.V., Cable Broadcasting Equipment.
26. Cargo Transport: Rail, Shipping, Railroads, Rail-car Builders, Ship Builders, Containers, Container Builders, Parts, Overnight Mail, Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo, Transport.
27. Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order Catalog, Showroom.
28. Telecommunications: Local, Long Distance, Independent, Telephone, Telegraph, Satellite, Equipment, Research, Cellular.
29. Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer, Leather Shoes.
30. Personal Transportation: Air, Bus, Rail, Car Rental.
31. Utilities: Electric, Water, Hydro Power, Gas.
32. Diversified Sovereigns: Semi-sovereigns, Canadian Provinces, Supra- national Agencies.
The Trust will use SIC codes in determining which industry classification is applicable to a particular investment in consultation with the Independent Accountant and Moody's, to the extent the Trust considers necessary.
"1933 Act" means the Securities Act of 1933, as amended, or any successor statute.
"1940 Act" means the Investment Company Act of 1940, as amended, or any successor statute.
"Non-Call Period" means a period determined by the Board of Trustees after consultation with the Broker-Dealers, during which the Series B Preferred Shares subject to such Special Dividend Period is not subject to redemption at the option of the Trust but only to mandatory redemption.
"Notice of Redemption" means any notice with respect to the redemption of Series B Preferred Shares pursuant to paragraph 3 of Part I of this Statement of Preferences.
"Other Rating Agency" means any rating agency other than Moody's or S&P then providing a rating for the Series B Preferred Shares at the request of the Trust.
"Other Rating Agency Eligible Assets" means assets of the Trust designated by any Other Rating Agency as eligible for inclusion in calculating the discounted value of the Trust's assets in connection with such Other Rating Agency's rating of the Series B Preferred Shares.
"Outstanding" means, as of any date, Preferred Shares theretofore issued by the Trust except:
(a) any such Preferred Share theretofore cancelled by the Trust or deliv ered to the Trust for cancellation;
(b) any such Preferred Share other than an auction market Preferred Share as to which a notice of redemption shall have been given and for whose payment at the redemption thereof Deposit Assets in the necessary amount are held by the Trust in trust for, or have been irrevocably deposited with the relevant disbursing agent for payment to, the holder of such share pursuant to the Statement of Preferences with respect thereto;
(c) in the case of an auction market Preferred Share, including the Series B Preferred Shares, any such shares theretofore delivered to the applicable auction agent for cancellation or with respect to which the Trust has given notice of redemption and irrevocably deposited with the applicable paying agent sufficient funds to redeem such shares; and
(d) any such Preferred Share in exchange for or in lieu of which other shares have been issued and delivered.
Notwithstanding the foregoing, (i) for purposes of voting rights (including the determination of the number of shares required to constitute a quorum), any Preferred Shares as to which the Trust or any subsidiary of the Trust is the holder or Existing Holder, as applicable, will be disregarded and deemed not Outstanding and (ii) in connection with any auction, any auction market Preferred Shares as to which the Trust or any Person known to the auction agent to be a subsidiary of the Trust is the holder or Existing Holder, as applicable, will be disregarded and not deemed Outstanding.
"Paying Agent" means The Bank of New York unless and until another entity appointed by a resolution of the Board of Trustees enters into an agreement with the Trust to serve as paying agent, which paying agent may be the same as the Auction Agent and, with respect to any other class or series of Preferred Shares, the Person appointed by the Trust as dividend-disbursing or paying agent with respect to such class or series.
"Person" means and includes an individual, a partnership, the Trust, a trust, a corporation, a limited liability company, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
"Preferred Shares" means the preferred shares, par value $.001 per share, of the Trust, and includes the Series B Preferred Shares.
"Premium Call Period" means a period consisting of a number of whole years as determined by the Board of Trustees after consultation with the Broker-Dealers, during each year of which the shares subject to such Special Dividend Period will be redeemable at the Trust's option at a price per share equal to the Liquidation Preference plus accumulated but unpaid dividends (whether or not earned or declared) plus a premium expressed as a percentage or percentages of the Liquidation Preference or expressed as a formula using specified variables as determined by the Board of Trustees after consultation with the Broker-Dealers.
"Pricing Service" means any of the following: Bloomberg Financial Service, Bridge Information Services, Data Resources Inc., FT Interactive, International Securities Market Association, Merrill Lynch Securities Pricing Service, Muller Data Corp., Reuters, S&P/J.J. Kenny, Telerate, Trepp Pricing and Wood Gundy.
"Quarterly Valuation Date" means the last Business Day of each March, June, September and December of each year.
"Rating Agency" means Moody's and S&P as long as such rating agency is then rating the Series B Preferred Shares at the Trust's request or any other rating agency then rating the Series B Preferred Shares at the Trust's request.
"Redemption Date" has the meaning set forth in paragraph 3(e) of Part I of this Statement of Preferences.
"Redemption Default" has the meaning set forth in paragraph 3(e) of Part I of this Statement of Preferences.
"Redemption Price" shall mean, (a) with respect to a Dividend Period that is not a Premium Call Period, the Liquidation Preference plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to the Redemption Date, or, (b) with respect to a Dividend Period that is a Premium Call Period, the Liquidation Preference plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to the Redemption Date plus a redemption premium, if any, determined by the Board of Trustees after consultation with the Broker-Dealers and set forth in the notice describing any applicable Specific Redemption Provisions. For the purposes of this Statement of Preferences, "Redemption Price" shall have a correlative meaning with respect to any other class or series of Preferred Shares.
"Reference Banks" means four major banks in the London interbank market selected by Merrill Lynch, Pierce, Fenner & Smith Incorporated or its affiliates or successors or such other party as the Trust may from time to time appoint.
"Reference Rate" means, with respect to the determination of the Default Rate, the applicable LIBOR Rate for a Dividend Period of 364 days or fewer or the applicable Treasury Index Rate for a Dividend Period of longer than 364 days and, with respect to the determination of the Maximum Rate, the LIBOR Rate or the Treasury Index Rate, as appropriate.
"Registrar" means The Bank of New York, unless and until another entity appointed by a resolution of the Board of Trustees enters into an agreement with the Trust to serve as registrar.
"S&P" means Standard & Poor's Ratings Services, or its successors at law.
"S&P Discount Factor" means, with respect to a S&P Eligible Asset specified below, the following applicable number:
Asset Class Obligor
(Collateral) Discount Factors (1)
------------ --------------------
Common Stock 230.4%
30-yr treasury notes 126.7%
10-yr treasury notes 121.6%
5-yr treasury notes 115.1%
2-yr treasury notes 109.4%
52 week treasury bills 105.8%
STMMI with maturities 112.7%
from 181 to 360 days
STMMI with maturities 104%
from 1 to 180
Non-rated 2a-7 eligible 111%
money market funds used
as sweep accounts
Cash, receivables due 100%
within 5 business days
of a Valuation Date,
demand deposits and
STMMI with next day
maturities held in
'A-1+' rated institutions,
'AAAm' rated money
market funds & 'A-1+'
commercial paper with
maturities of 30 days
or less
______________
(1) For an S&P rating of AAA.
|
"S&P Eligible Assets" means:
(a) Deposit Assets;
(b) common stocks that satisfy all of the following conditions:
(i) such common stock (including the common stock of any predecessor or constituent issuer) has been traded on a recognized national securities exchange or quoted on the National Market System (or any equivalent or successor thereto) of Nasdaq for at least 450 days,
(ii) the Market Capitalization of such issuer of common stock exceeds $100 million,
(iii) the issuer of such common stock is not an entity that is treated as a partnership for federal income tax purposes,
(iv) if such issuer is organized under the laws of any jurisdiction other than the United States, any state thereof, any possession or territory thereof or the District of Columbia, the common stock of such issuer held by the Corporation is traded on a recognized national securities exchange or quoted on the National Market System of Nasdaq either directly or in the form of depository receipts, and
(v) if such issuer is registered as an investment company under the 1940 Act, such issuer does not invest more than 25% of the value of its gross assets in securities that are not S&P Eligible Assets by reason of clause (iv) above;
provided, however, that the Trust's holdings of the common stock of
any single issuer that satisfies the conditions set forth in clauses
(i) through (v) above shall be included in S&P Eligible Assets only
to the extent that
(1) restricted stocks (144a securities) or any pink sheet stocks (generally, stock that are not carried in daily over-the-counter newspaper listings) are ineligible; and
(2) the aggregate Market Value of the Trust's holdings of any single issuer is not in excess of 4% of the aggregate Market Value of the Trust's S&P Eligible Assets.
(c) preferred stocks, on such basis as S&P may determine in response to a request from the Trust.
Notwithstanding the foregoing, an asset will not be considered an S&P Eligible Asset if it is held in a margin account, is subject to any material lien, mortgage, pledge, security interest or security agreement of any kind or has been deposited irrevocably for the payment of dividends, redemption payments or any other payment or obligation under the Trust's Statement of Preferences.
"S&P Hedging Transactions" has the meaning set forth in paragraph 11(b)(i) of Part I of this Statement of Preferences.
"Securities Depository" means The Depository Trust Company and its successors and assigns or any successor securities depository selected by the Trust that agrees to follow the procedures required to be followed by such securities depository in connection with the Series B Preferred Shares.
"Series B Asset Coverage Cure Date" means, with respect to the failure by the Trust to maintain Asset Coverage (as required by paragraph 9(a)(i)(A) of Part I of this Statement of Preferences) as of an applicable Quarterly Valuation Date, 10 Business Days following such Quarterly Valuation Date, and shall, for the purposes of this Statement of Preferences, have a correlative meaning with respect to any other class or series of Preferred Shares.
"Series B Preferred Shares" means the Trust's Series B Auction Market Preferred Shares, par value $.001 per share, liquidation preference $25,000 per share.
"Short-Term Money Market Instruments" means the following types of instruments if, on the date of purchase or other acquisition thereof by the Trust, the remaining term to maturity thereof is not in excess of 180 days:
(i) commercial paper rated A-1 if such commercial paper matures in 30 days, or A-1+ if such commercial paper matures in over 30 days;
(ii) AAAm rated money market funds;
(iii) demand or time deposits in, and banker's
acceptances and certificates of deposit of
(A) a depository institution or trust
company incorporated under the laws of the
United States of America or any state
thereof or the District of Columbia (B) a
United States branch office or agency of a
foreign depository institution (provided
that such branch office or agency is
subject to banking regulation under the
laws of the United States, any state
thereof or the District of Columbia), or
(C) A-1+ rated institutions;
(iv) overnight funds; and
(v) U.S. Government Obligations.
"Special Dividend Period" means a Dividend Period that is not a Standard Dividend Period.
"Specific Redemption Provisions" means, with respect to any Special Dividend Period of more than one year, either, or any combination of (i) a Non-Call Period and (ii) a Premium Call Period.
"Standard Dividend Period" means a Dividend Period of seven days, subject to increase or decrease to the extent necessary for the next Auction Date and Dividend Payment Date to each be Business Days.
"Submission Deadline" means 1:30 p.m., New York City time, on any Auction Date or such other time on any Auction Date by which Broker-Dealers are required to submit Orders to the Auction Agent as specified by the Auction Agent from time to time.
"Transfer Agent" means The Bank of New York, unless and until another entity appointed by a resolution of the Board of Trustees enters into an agreement with the Trust to serve as transfer agent.
"Treasury Index Rate" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities having the same number of 30-day periods to maturity as the length of the applicable Dividend Period, determined, to the extent necessary, by linear interpolation based upon the yield for such securities having the next shorter and next longer number of 30-day periods to maturity treating all Dividend Periods with a length greater than the longest maturity for such securities as having a length equal to such longest maturity, in all cases based upon data set forth in the most recent weekly statistical release published by the Board of Governors of the Federal Reserve System (currently in H.15 (519)); provided, however, if the most recent such statistical release shall not have been published during the 15 days preceding the date of computation, the foregoing computations shall be based upon the average of comparable data as quoted to the Trust by at least three recognized dealers in U.S. Government Obligations selected by the Trust.
"Trust" means The Gabelli Utility Trust, a Delaware statutory trust.
"U.S. Government Obligations" means direct obligations of the United States or by its agencies or instrumentalities that are entitled to the full faith and credit of the United States and that, other than United States Treasury Bills, provide for the periodic payment of interest and the full payment of principal at maturity or call for redemption.
"Valuation Date" means the last Business Day of each week, or such other date as the Trust and Rating Agencies may agree to for purposes of determining the Basic Maintenance Amount.
"Voting Period" has the meaning set forth in paragraph 6(b) of Part I of this Statement of Preferences.
14. Interpretation. References to sections, subsections, clauses, sub-clauses, paragraphs and subparagraphs that do not reference a specific Part of this Statement of Preferences or another document shall refer to the Part of this Statement of Preferences in which the reference occurs, unless the context otherwise requires.
Part II: Auction Procedures
1. Certain Definitions. Unless the context or use indicates another or different meaning or intent, each of the following terms when used in this Statement of Preferences shall have the meaning ascribed to it below, whether such term is used in the singular or plural and regardless of tense:
"Agent Member" means a member of or participant in the Securities Depository that will act on behalf of a Bidder.
"Available Preferred Shares" has the meaning set forth in paragraph 4(a)(i) of Part II of this Statement of Preferences.
"Existing Holder" means (a) a Person who beneficially owns those Preferred Shares, including Series B Preferred Shares, listed in that Person's name in the records of the Trust or Auction Agent, as the case may be, or (b) the beneficial owner of those Series B Preferred Shares which are listed under such person's Broker-Dealer's name in the records of the Auction Agent, which Broker-Dealer shall have signed a Master Purchaser's Letter.
"Hold Order" has the meaning set forth in paragraph 2(a) of Part II of this Statement of Preferences.
"Master Purchaser's Letter" means the letter which is required to be executed by each prospective purchaser of Series B Preferred Shares or by the Broker-Dealer through whom the shares will be held.
"Order" has the meaning set forth in paragraph 2(a) of Part II of this Statement of Preferences.
"Potential Holder" means (a) any Existing Holder who may be interested in acquiring additional Series B Preferred Shares or (b) any other Person who may be interested in acquiring Series B Preferred Shares and who has signed a Master Purchaser's Letter or whose shares will be listed under such person's Broker-Dealer's name on the records of the Auction Agent which Broker-Dealer shall have executed a Master Purchaser's Letter.
"Sell Order" has the meaning set forth in paragraph 2(a) of Part II of this Statement of Preferences.
"Submitted Bid" has the meaning set forth in paragraph 4(a) of Part II of this Statement of Preferences.
"Submitted Hold Order" has the meaning set forth in paragraph 4(a) of
Part II of this Statement of Preferences.
"Submitted Order" has the meaning set forth in paragraph 4(a) of Part II of this Statement of Preferences.
"Submitted Sell Order" has the meaning set forth in paragraph 4(a) of
Part II of this Statement of Preferences.
"Sufficient Clearing Bids" has the meaning set forth in paragraph 4(a)(ii) of Part II of this Statement of Preferences.
"Sufficient Clearing Orders" means that all Series B Preferred Shares are the subject of Submitted Hold Orders or that the number of Series B Preferred Shares that are the subject of Submitted Bids by Potential Holders specifying one or more rates equal to or less than the Maximum Rate exceeds or equals the sum of (a) the number of Series B Preferred Shares that are subject of Submitted Bids by Existing Holders specifying one or more rates higher than the Maximum Rate and (b) the number of Series B Preferred Shares that are subject to Submitted Sell Orders.
"Winning Bid Rate" means the lowest rate specified in the Submitted Bids which if:
(a) (i) each such Submitted Bid of Existing Holders specifying such lowest rate and
(ii) all other such Submitted Bids of Existing Holders specifying lower rates were rejected, thus entitling such Existing Holders to continue to hold the shares of such series that are subject to such Submitted Bids; and
(b) (i) each such Submitted Bid of Potential Holders specifying such lowest rate and
(ii) all other such Submitted Bids of Potential Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (a) above continuing to hold an aggregate number of Outstanding Series B Preferred Shares which, when added to the number of Outstanding Series B Preferred Shares to be purchased by such Potential Holders described in subclause (b) above, would equal not less than the Available Preferred Shares.
2. Orders.
(a) On or prior to the Submission Deadline on each Auction Date for Series B Preferred Shares:
(i) each Beneficial Owner of Series B Preferred Shares may submit to its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding Series B Preferred Shares, if any, held by such Beneficial Owner which such Beneficial Owner desires to continue to hold without regard to the Applicable Rate for the next succeeding Dividend Period;
(B) the number of Outstanding Series B Preferred Shares, if any, held by such Beneficial Owner which such Beneficial Owner offers to sell if the Applicable Rate for the next succeeding Dividend Period shall be less than the rate per annum specified by such Beneficial Owner; and/or
(C) the number of Outstanding Series B Preferred Shares, if any, held by such Beneficial Owner which such Beneficial Owner offers to sell without regard to the Applicable Rate for the next succeeding Dividend Period; and
(ii) each Broker-Dealer, using lists of potential Beneficial Owners, shall in good faith for the purpose of conducting a competitive Auction in a commercially reasonable manner, contact potential Beneficial Owners (by telephone or otherwise), including Persons that are not Beneficial Owners, on such lists to determine the number of Series B Preferred Shares, if any, that each such potential Beneficial Owner offers to purchase if the Applicable Rate for the next succeeding Dividend Period shall not be less than the rate per annum specified by such potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, of information referred to in clauses (a)(i) or (a)(ii) of this
paragraph (2) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with
the Auction Agent, is hereinafter referred to as a "Bidder" and collectively
as "Bidders;" an Order containing the information referred to in clause
(a)(i)(A) of this paragraph (2) is hereinafter referred to as a d Order" and
collectively as "Hold Orders;" an Order containing the information referred to
in clauses (a)(i)(B) or (a)(ii) of this paragraph (2) is hereinafter referred
to as a "Bid" and collectively as "Bids;" and an Order containing the
information referred to in clause (a)(i)(C) of this paragraph (2) is
hereinafter referred to as a "Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of Series B Preferred Shares subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding Series B Preferred Shares specified in such Bid if the Applicable Rate determined on such Auction Date shall be less than the rate specified therein;
(B) such number or a lesser number of Outstanding Series B Preferred Shares to be determined as set forth in paragraph 5(a)(iv) if the Applicable Rate for Series B Preferred Shares determined on such Auction Date shall be equal to the rate specified therein; or
(C) the number of Outstanding Series B Preferred Shares specified in such Bid if the rate specified therein shall be higher than the Maximum Rate, or such number or a lesser number of Outstanding Series B Preferred Shares to be determined as set forth in paragraph 5(b)(iii) if the rate specified therein shall be higher than the Maximum Rate and Sufficient Clearing Bids do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of Series B Preferred Shares subject to an Auction on any Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding Series B Preferred Shares specified in such Sell Order; or
(B) such number or a lesser number of Outstanding Series B Preferred Shares as set forth in paragraph 5(b)(iii) if Sufficient Clearing Bids do not exist; provided, however, that a Broker-Dealer that is an Existing Holder with respect to Series B Preferred Shares shall not be liable to any Person for failing to sell such shares pursuant to a Sell Order described in the proviso to paragraph 3(c) if (1) such shares were transferred by the Beneficial Owner thereof without compliance by such Beneficial Owner or its transferee Broker-Dealer (or other transferee Person, if permitted by the Trust) with the provisions of paragraph 6 or (2) such Broker- Dealer has informed the Auction Agent pursuant to the terms of its Broker-Dealer Agreement that, according to such Broker-Dealer's records, such Broker-Dealer believes it is not the Existing Holder of such shares.
(iii) A Bid by a Potential Holder of Series B Preferred Shares subject to an Auction on any Auction Date shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding Series B Preferred Shares specified in such Bid if the Applicable Rate determined on such Auction Date shall be higher than the rate specified therein; or
(B) such number or a lesser number of Outstanding Series B Preferred Shares as set forth in paragraph 5(a)(v) if the Applicable Rate determined on such Auction Date shall be equal to the rate specified therein.
(c) No Order for any number of Series B Preferred Shares other than whole shares shall be valid.
3. Submission of Orders by Broker-Dealers to Auction Agent.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to the Submission Deadline on each Auction Date all Orders for Series B Preferred Shares subject to an Auction on such Auction Date obtained by such Broker-Dealer, designating itself (unless otherwise permitted by the Trust) as an Existing Holder in respect of shares subject to Orders submitted or deemed submitted to it by Beneficial Owners and as a Potential Holder in respect of shares subject to Orders submitted to it by potential Beneficial Owners, and shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be the Broker-Dealer unless otherwise permitted by the Trust);
(ii) the aggregate number of Series B Preferred Shares that are the subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of Series B Preferred Shares:
(A) the number of Series B Preferred Shares, if any, subject to any Hold Order of such Existing Holder;
(B) the number of Series B Preferred Shares, if any, subject to any Bid of such Existing Holder and the rate specified in such Bid; and
(C) the number of Series B Preferred Shares, if any, subject to any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of Series B Preferred Shares, the rate and number of Series B Preferred Shares specified in such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding Series B Preferred Shares held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a Hold Order to have been submitted by or on behalf of such Existing Holder covering the number of Outstanding Series B Preferred Shares held by such Existing Holder and not subject to Orders submitted to the Auction Agent; provided, however, that if an Order or Orders covering all of the Outstanding Series B Preferred Shares held by any Existing Holder is not submitted to the Auction Agent prior to the Submission Deadline for an Auction relating to a Special Dividend Period consisting of more than 28 calendar days, the Auction Agent shall deem a Sell Order to have been submitted by or on behalf of such Existing Holder covering the number of Outstanding Series B Preferred Shares held by such Existing Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the Auction Agent covering in the aggregate more than the number of Outstanding Series B Preferred Shares subject to an Auction held by such Existing Holder, such Orders shall be considered valid in the following order of priority:
(i) all Hold Orders shall be considered valid, but only up to and including in the aggregate the number of Outstanding Series B Preferred Shares held by such Existing Holder, and if the number of shares subject to such Hold Orders exceeds the number of Outstanding Series B Preferred Shares held by such Existing Holder, the number of shares subject to each such Hold Order shall be reduced pro rata to cover the number of Outstanding Series B Preferred Shares held by such Existing Holder;
(ii)(A) any Bid for Series B Preferred Shares shall be considered valid up to and including the excess of the number of Outstanding Series B Preferred Shares held by such Existing Holder over the number of Series B Preferred Shares subject to any Hold Orders referred to in clause (d)(i) above;
(B) subject to subclause (d)(ii)(A), if more than one Bid of an Existing Holder for Series B Preferred Shares is submitted to the Auction Agent with the same rate and the number of Outstanding Series B Preferred Shares subject to such Bids is greater than such excess, such Bids shall be considered valid up to and including the amount of such excess, and the number of Series B Preferred Stock subject to each Bid with the same rate shall be reduced pro rata to cover the number of shares equal to such excess;
(C) subject to subclauses (d)(ii)(A) and (B), if more than one Bid of an Existing Holder for Series B Preferred Shares is submitted to the Auction Agent with different rates, such Bids shall be considered valid in the ascending order of their respective rates up to and including the amount of such excess; and
(D) in any such event, the number, if any, of such Outstanding Series B Preferred Shares subject to any portion of Bids considered not valid in whole or in part under this paragraph 3(d)(ii) shall be treated as the subject of a Bid by or on behalf of a Potential Holder at the rate specified therein; and
(iii) all Sell Orders for Series B Preferred Shares shall be considered valid up to and including the excess of the number of Outstanding Series B Preferred Shares held by such Existing Holder over the sum of Outstanding Series B Preferred Shares subject to valid Hold Orders referred to in paragraph 3(d)(i) above and valid Bids referred to in paragraph 3(d)(ii) above.
(e) If more than one Bid for Series B Preferred Shares is submitted to the Auction Agent by or on behalf of any Potential Holder, each such Bid submitted shall be a separate Bid with the rate and number of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any Auction Date, shall be irrevocable.
4. Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate.
(a) Not earlier than the Submission Deadline on each Auction Date for Series B Preferred Shares, the Auction Agent shall assemble all valid Orders submitted or deemed submitted to it by the Broker-Dealers (each such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter referred to individually as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as a "Submitted Order" and collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders") and shall determine:
(i) the excess of the number of Outstanding Series B Preferred Shares over the number of Outstanding Series B Preferred Shares subject to Submitted Hold Orders (such excess being hereinafter referred to as the "Available Preferred Shares");
(ii) from the Submitted Orders for Series B Preferred Shares whether:
(A) the number of Outstanding Series B Preferred Shares subject to Submitted Bids of Potential Holders specifying one or more rates equal to or lower than the Maximum Rate exceeds or is equal to the sum of
(B) the number of Outstanding Series B Preferred Shares subject to Submitted Bids of Existing Holders specifying one or more rates higher than the Maximum Rate; and
(C) the number of Outstanding Series B
Preferred Shares subject to Submitted Sell Orders (in the
event such excess or such equality exists (other than
because the number of Series B Preferred Shares in clauses
(a)(ii)(A) and (B) above is zero because all of the
Outstanding Series B Preferred Shares are subject to
Submitted Hold Orders), such Submitted Bids in clause
(a)(ii)(A) above being hereinafter referred to collectively
as "Sufficient Clearing Bids"); and
(iii) if Sufficient Clearing Bids exist, the Winning Bid Rate.
(b) Not later than 9:30 A.M., New York City time, on each Auction Date, the Auction Agent shall advise the Trust of the Maximum Rate for the Series B Preferred Shares for which an Auction is being held on the Auction Date and, based on such determination, promptly after the Auction Agent has made the determinations pursuant to paragraph 4(a), the Auction Agent shall advise the Trust of the Applicable Rate for the next succeeding Dividend Period thereof as follows:
(i) if Sufficient Clearing Bids exist, that the Applicable Rate for the next succeeding Dividend Period thereof shall be equal to the Winning Bid Rate so determined;
(ii) if Sufficient Clearing Bids do not exist (other than because all of the Outstanding shares of such series are subject to Submitted Hold Orders), that the Applicable Rate for the next succeeding Dividend Period thereof shall be equal to the Maximum Rate; or
(iii) if all of the Outstanding Series B Preferred Shares are subject to Submitted Hold Orders, that the Applicable Rate for the next succeeding Dividend Period thereof shall be the All Hold Rate.
5. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation.
Existing Holders shall continue to hold the Series B Preferred Shares that are subject to Submitted Hold Orders, and, based on the determinations made pursuant to paragraph 4(a), the Submitted Bids and Submitted Sell Orders shall be accepted or rejected by the Auction Agent and the Auction Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for Series B Preferred Shares have been made, all Submitted Sell Orders shall be accepted and, subject to the provisions of paragraphs 5(d) and 5(e), Submitted Bids shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids shall be rejected:
(i) Existing Holders' Submitted Bids for Series B Preferred Shares specifying any rate that is higher than the Winning Bid Rate shall be accepted, thus requiring each such Existing Holder to sell the Series B Preferred Shares subject to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares Series B Preferred Shares specifying any rate that is lower than the Winning Bid Rate shall be rejected, thus entitling each such Existing Holder to continue to hold the Series B Preferred Shares subject to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for Series B Preferred Shares specifying any rate that is lower than the Winning Bid Rate shall be accepted;
(iv) each Existing Holder's Submitted Bid for Series B Preferred Shares specifying a rate that is equal to the Winning Bid Rate shall be rejected, thus entitling such Existing Holder to continue to hold the Series B Preferred Shares subject to such Submitted Bid, unless the number of Outstanding Series B Preferred Shares subject to all such Submitted Bids shall be greater than the number of Series B Preferred Shares ("remaining shares") in the excess of the Available Preferred Shares over the number of Series B Preferred Shares subject to Submitted Bids described in paragraphs 5(a)(ii) and 5(a)(iii), in which event such Submitted Bid of such Existing Holder shall be rejected in part, and such Existing Holder shall be entitled to continue to hold Series B Preferred Shares subject to such Submitted Bid, but only in an amount equal to the Series B Preferred Shares obtained by multiplying the number of remaining shares by a fraction, the numerator of which shall be the number of Outstanding Series B Preferred Shares held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding Series B Preferred Shares subject to such Submitted Bids made by all such Existing Holders that specified a rate equal to the Winning Bid Rate; and
(v) each Potential Holder's Submitted Bid for Series B Preferred Shares specifying a rate that is equal to the Winning Bid Rate shall be accepted but only in an amount equal to the number of shares obtained by multiplying the number of Series B Preferred Shares in the excess of the Available Preferred Shares over the number of Series B Preferred Shares subject to Submitted Bids described in paragraph 5(a)(ii) through (iv) by a fraction, the numerator of which shall be the number of Outstanding Series B Preferred Shares subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding Series B Preferred Shares subject to such Submitted Bids made by all such Potential Holders that specified a rate equal to the Winning Bid Rate.
(b) If Sufficient Clearing Bids for Series B Preferred Shares have not been made (other than because all of the Outstanding shares are subject to Submitted Hold Orders), subject to the provisions of paragraph 5(d), Submitted Orders shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids for Series B Preferred Shares shall be rejected:
(i) Existing Holders' Submitted Bids for Series B Preferred Shares specifying any rate that is equal to or lower than the Maximum Rate shall be rejected, thus entitling such Existing Holders to continue to hold the Series B Preferred Shares subject to such Submitted Bids;
(ii) Potential Holders' Submitted Bids for Series B Preferred Shares specifying any rate that is equal to or lower than the Maximum Rate shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for Series B Preferred Shares specifying any rate that is higher than the Maximum Rate and the Submitted Sell Orders of each Existing Holder shall be accepted, thus entitling each Existing Holder that submitted or on whose behalf was submitted any such Submitted Bid or Submitted Sell Order to sell Series B Preferred Shares subject to such Submitted Bid or Submitted Sell Order, but in both cases only in an amount equal to the number of Series B Preferred Shares obtained by multiplying the number of Series B Preferred Shares subject to Submitted Bids described in paragraph 5(b)(ii) by a fraction, the numerator of which shall be the number of Outstanding Series B Preferred Shares held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the aggregate number of Outstanding Series B Preferred Shares subject to all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding Series B Preferred Shares are subject to Submitted Hold Orders, all Submitted Bids for such shares shall be rejected.
(d) If, as a result of the procedures described in paragraph 5(a)(iv) or (v) or paragraph 5(b)(iii), any Existing Holder would be entitled or required to sell, or any Potential Holder would be entitled or required to purchase, a fraction of a share of Series B Preferred Shares on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, round up or down the number of Series B Preferred Shares to be purchased or sold by any Existing Holder or Potential Holder on such Auction Date as a result of such procedures so that the number of shares so purchased or sold by each Existing Holder or Potential Holder on such Auction Date shall be whole shares.
(e) If, as a result of the procedures described in paragraph 5(a)(v) any Potential Holder would be entitled or required to purchase less than a whole share of Series B Preferred Shares on any Auction Date, the Auction Agent shall, in such manner as it shall determine in its sole discretion, allocate Series B Preferred Shares for purchase among Potential Holders so that only whole shares are purchased on such Auction Date as a result of such procedures by any Potential Holder, even if such allocation results in one or more Potential Holders not purchasing Series B Preferred Shares on such Auction Date.
(f) Based on the results of each Auction for Series B Preferred Shares, the Auction Agent shall determine the aggregate number of such shares to be purchased and the aggregate number of such shares to be sold by Potential Holders and Existing Holders and, with respect to each Potential Holder and Existing Holder, to the extent that such aggregate number of shares to be purchased and such aggregate number of shares to be sold differ, determine to which other Potential Holder(s) or Existing Holder(s) they shall deliver, or from which other Potential Holder(s) or Existing Holder(s) they shall receive, as the case may be, Series B Preferred Shares. Notwithstanding any provision of the Auction Procedures to the contrary, in the event an Existing Holder or Beneficial Owner of Series B Preferred Shares with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that was accepted in whole or in part, or submitted or is deemed to have submitted a Sell Order for such shares that was accepted in whole or in part, fails to instruct its Agent Member to deliver such shares against payment therefor, partial deliveries of Series B Preferred Shares that have been made in respect of Potential Holders' or Potential Beneficial Owners' Submitted Bids for Series B Preferred Shares that have been accepted in whole or in part shall constitute good delivery to such Potential Holders and Potential Beneficial Owners.
(g) Neither the Trust nor the Auction Agent nor any affiliate of either shall have any responsibility or liability with respect to the failure of an Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial Owner or its respective Agent Member to deliver Series B Preferred Shares or to pay for Series B Preferred Shares sold or purchased pursuant to the Auction Procedures or otherwise.
6. Transfer of Series B Preferred Shares.
Unless otherwise permitted by the Trust, a Beneficial Owner or an Existing Holder may sell, transfer or otherwise dispose of Series B Preferred Shares only in whole shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in accordance with the procedures described in this Part II or to a Broker-Dealer; provided, however, that (a) a sale, transfer or other disposition of Series B Preferred Shares from a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer as the Holder of such shares to that Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to be a sale, transfer or other disposition for purposes of this paragraph 6 if such Broker-Dealer remains the Existing Holder of the shares so sold, transferred or disposed of immediately after such sale, transfer or disposition and (b) in the case of all transfers other than pursuant to Auctions, the Broker-Dealer (or other Person, if permitted by the Trust) to whom such transfer is made shall advise the Auction Agent of such transfer.
PART III
ABILITY OF BOARD OF TRUSTEES TO MODIFY THE STATEMENT OF
PREFERENCES
1. Modification to Prevent Ratings Reduction or Withdrawal.
The Board of Trustees, without further action by the shareholders, may amend, alter, add to or repeal any provision of this Statement of Preferences including provisions that have been adopted by the Trust pursuant to Rating Agency guidelines, if the Board of Trustees determines that such amendments or modifications are necessary to prevent a reduction in, or the withdrawal of, a rating of the Preferred Shares and are in the aggregate in the best interests of the Holders of the Preferred Shares.
2. Other Modification.
The Board of Trustees, without further action by the shareholders, may amend, alter, add to or repeal any provision of this Statement of Preferences including, without limitation, provisions that have been adopted by the Trust pursuant to any rating agency guidelines, if the Board of Trustees determines that such amendments or modifications will not in the aggregate adversely affect the rights and preferences of any series of the Preferred Shares, provided, that the Trust has received advice from each applicable Rating Agency that such amendment or modification is not expected to adversely affect such Rating Agency's then-current rating of such series of the Trust's Preferred Shares.
Notwithstanding the provisions of the preceding paragraph, to the extent permitted by law, the Board of Trustees, without the vote of the Holders of the Series B Preferred Shares or any other capital shares of the Trust, may amend the provisions of this Statement of Preferences to resolve any inconsistency or ambiguity or to remedy any formal defect so long as the amendment does not in the aggregate adversely affect the rights and preferences of the Series B Preferred Shares.
IN WITNESS WHEREOF, The Gabelli Utility Trust has caused these presents to be signed in its name and on its behalf by a duly authorized officer, and its corporate seal to be hereunto affixed and attested by its Secretary, and the said officers of the Trust further acknowledge said instrument to be the corporate act of the Trust, and state that to the best of their knowledge, information and belief under penalty of perjury the matters and facts herein set forth with respect to approval are true in all material respects, all on [ ], 2003.
By____________________
Name: Bruce Alpert
Title: President
Attest:
_______________________
Name: James E. McKee
Title: Secretary
|
Exhibit 99(d)(i)
CERTIFICATE NO. SHARES
GABELLI UTILITY TRUST
Organized Under the Laws of The State of Delaware
[_]% Series A Cumulative Preferred Shares
$.001 Par Value Per Share
$25.00 Liquidation Preference Per Share
Cusip No.
This certifies that Cede & Co. is the owner of [1,000,000] fully paid and non-assessable shares of [__]% Series A Cumulative Preferred Shares, $.001 par value per share, $25.00 liquidation preference per share, of the Gabelli Utility Trust (the "Trust") transferable only on the books of the Trust by the holder thereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences, qualifications, limitations, restrictions and special or relative rights of the shares of each class authorized to be issued, will be furnished by the Trust to any shareholders upon request and without charge.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed by its duly authorized officers this __ day of July 2003.
EQUISERVE TRUST COMPANY N.A. GABELLI UTILITY TRUST
As Transfer Agent and Registrar
By: By:
----------------------------- ----------------------
Authorized Signature President
Attest:
----------------------
Secretary
|
FOR VALUE RECEIVED, ___________________________________ hereby sells, assigns
and transfers unto____________________________________________________________
Shares represented by this Certificate, and do hereby irrevocably constitute
and appoint _______________________ Attorney to transfer the said Shares on
the books of the within named Trust with full power of substitution in the
premises.
Dated _______________, _____
In presence of
The Trust will furnish to any shareholder, upon request and without charge, the Trust's Amended and Restated Agreement and Declaration of Trust and a full statement of the designations, preferences, limitations and relative rights of the shares of each class or series of capital stock of the Trust authorized to be issued, so far as they have been determined, and the authority of the Board of Trustees to determine the relative rights and preferences of subsequent classes or series. Any such request should be addressed to the Secretary of the Trust.
Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
Exhibit 99(d)(ii)
CERTIFICATE NO. SHARES
GABELLI UTILITY TRUST
Organized Under the Laws of The State of Delaware Auction Market Preferred Shares $.001 Par Value Per Share $25,000 Liquidation Preference Per Share
Cusip No.
This certifies that Cede & Co. is the owner of [1,000] fully paid and non-assessable shares of Series B Auction Market Preferred Shares, $.001 par value per share, $25,000 liquidation preference per share, of the Gabelli Utility Trust (the "Trust") transferable only on the books of the Trust by the holder thereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences, qualifications, limitations, restrictions and special or relative rights of the shares of each class authorized to be issued, will be furnished by the Trust to any shareholders upon request and without charge.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed by its duly authorized officers this __ day of July 2003.
THE BANK OF NEW YORK GABELLI UTILITY TRUST
As Transfer Agent and Registrar
By: By:
----------------------------- -------------------
Authorized Signature President
Attest:
-------------------
Secretary
|
SERIES B AUCTION MARKET PREFERRED SHARES MAY BE TRANSFERRED ONLY (A) PURSUANT TO AN ORDER PLACED IN AN AUCTION, (B) TO OR THROUGH A BROKER-DEALER OR (C) TO THE FUND OR ANY AFFILIATE. NOTWITHSTANDING THE FOREGOING, A TRANSFER OTHER THAN PURSUANT TO AN AUCTION WILL NOT BE EFFECTIVE UNLESS THE SELLING EXISTING HOLDER OR THE AGENT MEMBER OF SUCH EXISTING HOLDER (IN THE CASE OF AN EXISTING HOLDER WHOSE SHARES ARE LISTED IN ITS OWN NAME ON THE BOOKS OF THE AUCTION AGENT), OR THE BROKER-DEALER OR AGENT MEMBER OF SUCH BROKER-DEALER (IN THE CASE OF A TRANSFER BETWEEN PERSONS HOLDING SHARES THROUGH DIFFERENT BROKER-DEALERS), ADVISES THE AUCTION AGENT OF SUCH TRANSFER
Transfer Form
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns and
transfers unto ________________________________________________________________
Shares represented by this Certificate, and do hereby irrevocably constitute and
appoint _______________ Attorney to transfer the said Shares on the books of
the within named Trust with full power of substitution in the premises.
Dated ___________________, ________
In presence of
Shares of Auction Market Cumulative Preferred Shares evidenced by this Certificate may be sold, transferred, or otherwise disposed of only pursuant to the provisions of the Trust's Amended and Restated Agreement and Declaration of Trust and the Trust's Statement of Preferences.
The Trust will furnish to any shareholder, upon request and without charge, the Trust's Amended and Restated Agreement and Declaration of Trust and a full statement of the designations, preferences, limitations and relative rights of the shares of each class or series of capital stock of the Trust authorized to be issued, so far as they have been determined, and the authority of the Board of Trustees to determine the relative rights and preferences of subsequent classes or series. Any such request should be addressed to the Secretary of the Trust.
Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
THE GABELLI UTILITY TRUST
2,000,000 Shares [ ]% Series A Cumulative Preferred Stock, Liquidation Preference $25 Per Share
5,000 Shares Series B Auction Market Preferred Stock Liquidation Preference $25,000 Per Share
UNDERWRITING AGREEMENT
July [ ], 2003
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
GABELLI & COMPANY, INC.
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, New York 10080
Dear Ladies and Gentleman:
The Gabelli Utility Trust, a Delaware statutory trust (the "Fund"), proposes, upon the terms and conditions set forth herein, to issue and sell an aggregate of 2,000,000 shares (the "Series A Shares") of its [ ]% Series A Cumulative Preferred Stock, liquidation preference $25 per share, $0.001 par value per share (the "Series A Preferred") and an aggregate of 2,000 shares (the "Series B Shares" and together with the Series A Shares, the "Shares") of its Series B Auction Market Preferred Stock, liquidation preference $25,000 per share, $0.001 par value per share (the "Series B AMPS"), to the several Underwriters named in Schedule I hereto (the "Underwriters"). The Shares will be authorized by, and subject to the terms and conditions of, the Statement of Preferences of each of the Series A Shares and Series B Shares to be adopted in connection with the issuance of the Shares (collectively, the "Statement of Preferences").
The Fund and its investment adviser, Gabelli Funds, LLC, a New York limited liability company (the "Adviser"), wish to confirm as follows their agreement with you in connection with the several purchases of the Shares by the Underwriters.
The Fund has entered into an investment advisory agreement with the Adviser, a custodian agreement with State Street Bank and Trust Company, a registrar, transfer agency and dividend reinvestment plan with Equiserve Trust Company, N.A., and an auction agency agreement with The Bank of New York. Such agreements are hereinafter referred to as the "Investment Advisory Agreement", the "Custodian Agreement", the "Transfer Agency Agreement" and the "Auction Agency Agreement", respectively. Collectively, the Investment Advisory Agreement, the Custodian Agreement, the Transfer Agency Agreement and the Auction Agency Agreement are hereinafter referred to as the "Fund Agreements". This Underwriting Agreement is hereinafter referred to as the "Agreement".
1. Registration Statement and Prospectus. The Fund has prepared in conformity with the provisions of the Securities Act of 1933, as amended (the "1933 Act"), the Investment Company Act of 1940, as amended (the "1940 Act") and the rules and regulations of the Securities and Exchange Commission (the "Commission") promulgated under the 1933 Act (the "1933 Act Rules and Regulations") and the 1940 Act (the "1940 Act Rules and Regulations" and, together with the 1933 Act Rules and Regulations, the "Rules and Regulations") a registration statement on Form N-2 (File Nos. 333-105500 and 811-09243) under the 1933 Act and the 1940 Act (the "registration statement"), including a prospectus relating to the Shares, and has filed the registration statement and prospectus in accordance with the 1933 Act and the 1940 Act. The Fund also has filed a notification of registration of the Fund as an investment company under the 1940 Act on Form N-8A (the "1940 Act Notification"). The term "Registration Statement" as used in this Agreement means the registration statement (including all financial schedules and exhibits), as amended at the time it becomes effective under the 1933 Act or, if the registration statement became effective under the 1933 Act prior to the execution of this Agreement, as amended or supplemented at the time it became effective, prior to the execution of this Agreement. If it is contemplated, at the time this Agreement is executed, that a post-effective amendment to the registration statement will be filed under the 1933 Act and must be declared effective before the offering of the Shares may commence, the term "Registration Statement" as used in this Agreement means the registration statement as amended by said post-effective amendment. If the Fund has filed an abbreviated registration statement to register an additional amount of Shares pursuant to Rule 462(b) under the 1933 Act (the "Rule 462 Registration Statement"), then any reference herein to the term "Registration Statement" shall include such Rule 462 Registration Statement. The term "Prospectus" as used in this Agreement means the prospectus and statement of additional information in the forms included in the Registration Statement or, if the prospectus and statement of additional information included in the Registration Statement omits information in reliance on Rule 430A under the 1933 Act Rules and Regulations and such information is included in a prospectus and statement of additional information filed with the Commission pursuant to Rule 497(h) under the 1933 Act Rules and Regulations, the term "Prospectus" as used in this Agreement means the prospectus and statement of additional information in the form included in the Registration Statement as supplemented by the addition of the information contained in the prospectus filed with the Commission pursuant to Rule 497(h). The term "Prepricing Prospectus" as used in this Agreement means the prospectus and statement of additional information subject to completion in the form included in the registration statement at the time of filing of Amendment No. [ ] to the registration statement with the Commission on [ ], 2003 and as such prospectus and statement of additional information shall have been amended from time to time prior to the date of the Prospectus, together with any other prospectus and statement of additional information relating to the Fund other than the Prospectus, approved in writing by or directly or indirectly prepared by the Fund or the Adviser; it being understood that the definition of Prepricing Prospectus above shall not include any Prepricing Prospectus prepared by any Underwriter unless approved in writing by the Fund or Adviser. The terms "Registration Statement", "Prospectus" and "Prepricing Prospectus" shall also include any financial statements incorporated by reference therein.
The Fund has furnished you with copies of such Registration Statement, each amendment to such Registration Statement filed with the Commission and each Prepricing Prospectus.
2. Agreements to Sell and Purchase. The Fund hereby agrees, subject to all the terms and conditions set forth herein, to issue and sell to each Underwriter and, upon the basis of the representations, warranties and agreements of the Fund and the Adviser herein contained and subject to all the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Fund, at a purchase price of $[ ] per Series A Share and a purchase price of $[ ] per Series B Share, the number of Shares set forth opposite the name of such Underwriter in Schedule I hereto.
3. Terms of Public Offering. The Fund and the Adviser have been advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable and initially to offer the Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the Underwriters of and payment for the Shares shall be made at the office of Merrill Lynch, Pierce, Fenner & Smith Incorporated, 4 World Financial Center, New York, New York 10080, at 10:00 A.M., New York City time, on [ ], 2003 (the "Closing Date"). The place of closing for the Shares and the Closing Date may be varied by agreement between you and the Fund.
Certificates for the Shares shall be registered in such names and in such denominations as you shall request prior to 9:30 A.M., New York City time, on the second business day preceding the Closing Date. Such certificates shall be made available to you in New York City for inspection and packaging not later than 9:30 A.M., New York City time, on the business day next preceding the Closing Date. The certificates evidencing the Shares shall be delivered to you on the Closing Date against payment of the purchase price therefor in immediately available funds.
5. Agreements of the Fund and the Adviser. The Fund and the Adviser, jointly and severally, agree with the several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective under the 1933 Act before the offering of the Shares may commence, the Fund will endeavor to cause the Registration Statement or such post-effective amendment to become effective under the 1933 Act as soon as possible and will advise you promptly and, if requested by you, will confirm such advice in writing when the Registration Statement or such post-effective amendment has become effective.
(b) The Fund will advise you promptly and, if requested by you, will confirm such advice in writing: (i) of any request made by the Commission for amendment of or a supplement to the Registration Statement, any Prepricing Prospectus or the Prospectus (or any amendment or supplement to any of the foregoing) or for additional information, (ii) of the issuance by the Commission, the National Association of Securities Dealers, Inc. (the "NASD"), any state securities commission, any national securities exchange, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative agency or any official of any order suspending the effectiveness of the Registration Statement, prohibiting or suspending the use of the Prospectus, any Prepricing Prospectus or any sales material (as hereinafter defined), of any notice pursuant to Section 8(e) of the 1940 Act, of the suspension of qualification of the Shares for offering or sale in any jurisdiction, or the initiation or contemplated initiation of any proceeding for any such purposes, (iii) of receipt by the Fund, the Adviser, any affiliate of the Fund or the Adviser or any representative or attorney of the Fund or the Adviser of any other material communication from the Commission, the NASD, any state securities commission, any national securities exchange, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative agency or any official relating to the Fund (if such communication relating to the Fund is received by such person within three years after the date of this Agreement), the Registration Statement, the 1940 Act Notification, the Prospectus, any Prepricing Prospectus, any sales material (as hereinafter defined) (or any amendment or supplement to any of the foregoing), this Agreement or any of the Fund Agreements and (iv) within the period of time referred to in paragraph (f) below, of any material adverse change in the condition (financial or other), business, prospects, properties, net assets or results of operations of the Fund or the Adviser or of the happening of any event which makes any statement of a material fact made in the Registration Statement, the Prospectus, any Prepricing Prospectus or any sales material (as hereinafter defined) (or any amendment or supplement to any of the foregoing) untrue or which requires the making of any additions to or changes in the Registration Statement, the Prospectus, any Prepricing Prospectus or any sales materials (as herein defined) (or any amendment or supplement to any of the foregoing) in order to state a material fact required by the 1933 Act, the 1940 Act or the Rules and Regulations to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or of the necessity to amend or supplement the Registration Statement, the Prospectus, any Prepricing Prospectus or any sales material (as herein defined) (or any amendment or supplement to any of the foregoing) to comply with the 1933 Act, the 1940 Act, the Rules and Regulations or any other law or order of any court or regulatory body. If at any time the Commission, the NASD, any state securities commission, any national securities exchange, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative agency or any official shall issue any order suspending the effectiveness of the Registration Statement, prohibiting or suspending the use of the Prospectus or any sales material (as hereinafter defined) (or any amendment or supplement to any of the foregoing) or suspending the qualification of the Shares for offering or sale in any jurisdiction, the Fund will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time.
(c) The Fund will furnish to you, without charge, three signed copies of the registration statement and the 1940 Act Notification as originally filed with the Commission and of each amendment thereto, including financial statements and all exhibits thereto and will also furnish to you, without charge, such number of additional copies of the registration statement and of each amendment thereto, but without exhibits, as you may request.
(d) The Fund will not (i) file any amendment to the Registration Statement or make any amendment or supplement to the Prospectus, any Prepricing Prospectus or any sales material (as hereinafter defined) of which you shall not previously have been advised or to which you shall object after being so advised or (ii) so long as, in the opinion of counsel for the Underwriters, a Prospectus is required by the 1933 Act to be delivered in connection with sales by any Underwriter or dealer, file any information, documents or reports pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"), without delivering a copy of such information, documents or reports to you prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the Fund has delivered to you, without charge, in such quantities as you have requested, copies of the form of the Prepricing Prospectus. The Fund consents to the use, in accordance with the provisions of the 1933 Act and with the state securities or blue sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Fund.
(f) As soon after the execution and delivery of this Agreement as possible and thereafter from time to time for such period as in the opinion of counsel for the Underwriters a prospectus is required by the 1933 Act to be delivered in connection with sales by any Underwriter or dealer, the Fund will expeditiously deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendments or supplements thereto) as you may request. The Fund consents to the use of the Prospectus (and of any amendment or supplement thereto) in accordance with the provisions of the 1933 Act and with the state securities or blue sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering and sale of the Shares and for such period of time thereafter as the Prospectus is required by law to be delivered in connection with sales by any Underwriter or dealer. If during such period of time any event shall occur that in the judgment of the Fund or in the opinion of counsel for the Underwriters is required to be set forth in the Registration Statement or the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Registration Statement or the Prospectus to comply with the 1933 Act, the 1940 Act, the Rules and Regulations or any other federal law, rule or regulation, or any state securities or blue sky disclosure laws, rules or regulations, the Fund will forthwith prepare and, subject to the provisions of paragraph (d) above, promptly file with the Commission an appropriate supplement or amendment thereto, and will expeditiously furnish to the Underwriters and dealers, without charge, a reasonable number of copies thereof. In the event that the Fund and you agree that the Registration Statement or the Prospectus is to be amended or supplemented, the Fund, if requested by you, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement.
(g) The Fund and the Adviser will cooperate with you and with counsel for the Underwriters in connection with the registration or qualification, if necessary, of the Shares for offering and sale by the several Underwriters and by dealers under the securities or blue sky laws of such jurisdictions as you may designate and will file such consents to service of process or other documents, if any, necessary or appropriate in order to effect such registration or qualification.
(h) The Fund will make generally available to its security holders an earnings statement, which need not be audited, covering a twelve-month period ending not later than 15 months after the effective date of the Registration Statement, as soon as practicable after the end of such period, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 of the 1933 Act Rules and Regulations.
(i) During the period of five years hereafter, the Fund will furnish to you (i) as soon as available, a copy of each report of the Fund mailed to stockholders or filed with the Commission or furnished to the New York Stock Exchange (the "NYSE") other than reports on Form N-SAR, and (ii) from time to time such other information concerning the Fund as you may request.
(j) If this Agreement shall terminate or shall be terminated after execution pursuant to any provisions hereof (otherwise than pursuant to the second paragraph of Section 11 hereof or by notice given by you terminating this Agreement pursuant to Section 11 or Section 12 hereof) or if this Agreement shall be terminated by the Underwriters because of any failure or refusal on the part of the Fund or the Adviser to comply with the terms or fulfill any of the conditions of this Agreement required to be complied with or fulfilled by them, the Fund or, in the case of a failure or refusal by the Fund, the Adviser, agrees to reimburse you for all out-of-pocket expenses (including fees and expenses of counsel for the Underwriters) incurred by you in connection herewith.
(k) The Fund will apply the net proceeds from the sale of the Shares in accordance with the description set forth in the Prospectus and in such a manner as to comply with the investment objective, policies and restrictions of the Fund as described in the Prospectus.
(l) The Fund will timely file the requisite copies of the Prospectus with the Commission pursuant to Rule 497(c) or Rule 497(h) of the 1933 Act Rules and Regulations, whichever is applicable or, if applicable, will timely file the certification permitted by Rule 497(j) of the 1933 Act Rules and Regulations and will advise you of the time and manner of such filing.
(m) Except as provided in this Agreement and except to the extent any hedging activities disclosed in the Prospectus may be considered senior securities, the Fund will not sell, contract to sell, or otherwise dispose of any senior securities of the Fund, or grant any options or warrants to purchase senior securities of the Fund, for a period of 180 days after the date of the Prospectus, without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
(n) Except as stated in this Agreement and in the Prepricing Prospectus and Prospectus, neither the Fund nor the Adviser has taken, nor will it take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of any securities issued by the Fund to facilitate the sale or resale of the Shares; it being understood that the Underwriters include certain affiliates of the Adviser and that stabilization or other activity by you on behalf of the Underwriters shall not be deemed to be violative of this representation.
(o) The Fund will use its best efforts to cause the Series A Preferred, prior to the Closing Date, to be assigned a rating of Aaa by Moody's Investors Service, Inc. ("Moody's") and the Series B AMPS, prior to the Closing Date, to be assigned a rating of Aaa by Moody's and a rating of AAA by Standard & Poor's Ratings Services ("S&P", and together with Moody's, the "Rating Agencies").
(p) The Fund will use its best efforts to have the Series A Shares listed, subject to notice of issuance, on the NYSE on or before [ ], 2003.
(q) The Fund's registration statement on Form 8-A, under the 1934 Act, has become effective.
(r) The Fund and the Adviser will use their best efforts to perform all of the agreements required of them and discharge all conditions to closing as set forth in this Agreement.
(s) The Fund will furnish to you, on the date on which delivery is made to the Rating Agencies, the Accountant's Confirmation (as defined in the Statement of Preferences) corresponding to the Basic Maintenance Report (as defined in the Statement of Preferences) for the first Valuation Date (as defined in the Statement of Preferences) following the Closing Date.
6. Representations and Warranties of the Fund and the Adviser. The Fund and the Adviser, jointly and severally, represent and warrant to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 497 of the 1933 Act Rules and Regulations, complied when so filed in all material respects with the provisions of the 1933 Act, the 1940 Act and the Rules and Regulations. The Commission has not issued any order preventing or suspending the use of any Prepricing Prospectus.
(b) The Registration Statement in the form in which it became or becomes effective and also in such form as it may be when any post-effective amendment thereto shall become effective and the Prospectus and any amendment or supplement thereto when filed with the Commission under Rule 497 of the 1933 Act Rules and Regulations and the 1940 Act Notification when originally filed with the Commission and any amendment or supplement thereto when filed with the Commission, complied or will comply in all material respects with the provisions of the 1933 Act, the 1940 Act and the Rules and Regulations and did not or will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except that this representation and warranty does not apply to statements in or omissions from the Registration Statement or the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with information relating to any Underwriter furnished to the Fund in writing by or on behalf of any Underwriter through you expressly for use therein.
(c) All the outstanding shares of capital stock of the Fund have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; the Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights and will conform to the description thereof in the Registration Statement and the Prospectus (and any amendment or supplement to either of them). The capital stock of the Fund conforms to the description thereof in the Registration Statement and the Prospectus (and any amendment or supplement to either of them).
(d) The Fund is a statutory trust duly organized and validly existing in good standing under the laws of the State of Delaware, with full trust power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a material adverse effect on the condition (financial or other), business, prospects, properties, net assets or results of operations of the Fund. The Fund has no subsidiaries.
(e) There are no legal or governmental proceedings pending or threatened, against the Fund, or to which the Fund or any of its properties is subject, that are required to be described in the Registration Statement or the Prospectus (and any amendment or supplement to either of them) but are not described as required, and there are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus (and any amendment or supplement to either of them) or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the 1933 Act, the 1940 Act or the Rules and Regulations.
(f) The Fund is not in violation of its Agreement and Declaration of Trust or by-laws, or other organizational documents, or of any law, ordinance, administrative or governmental rule or regulation applicable to the Fund or of any decree of the Commission, the NASD, any state securities commission, any national securities exchange, any arbitrator, any court or governmental agency, body or official having jurisdiction over the Fund, or in default in any material respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any contract required to be included as an exhibit to the Registration Statement (each, a "Material Fund Agreement").
(g) Neither the issuance and sale of the Shares, the execution, delivery or performance of this Agreement or any of the Fund Agreements by the Fund, nor the consummation by the Fund of the transactions contemplated hereby or thereby (A) requires any consent, approval, authorization or other order of or registration or filing with, the Commission, the NASD, any state securities commission, any national securities exchange, any arbitrator, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may have been obtained prior to the date hereof and such as may be required for compliance with the state securities or blue sky laws of various jurisdictions which have been or will be effected in accordance with this Agreement) or conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the Agreement and Declaration of Trust, including the Statement of Preferences, or by-laws, or other organizational documents, of the Fund or (B) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, any agreement, indenture, lease or other instrument to which the Fund is a party or by which it or any of its properties may be bound, or violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Fund or any of its properties, or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to the terms of any agreement or instrument to which it is a party or by which it may be bound or to which any of its property or assets is subject. The Fund is not subject to any order of any court or of any arbitrator, governmental authority or administrative agency.
(h) The accountants, PricewaterhouseCoopers LLP, who have audited and certified or shall audit and certify the financial statements included or incorporated by reference in the Registration Statement and the Prospectus (or any amendment or supplement to either of them) are independent public accountants as required by the 1933 Act, the 1940 Act and the Rules and Regulations.
(i) The financial statements, together with related schedules and notes, included or incorporated by reference in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), present fairly the financial position, results of operations and changes in financial position of the Fund on the basis stated or incorporated by reference in the Registration Statement and the Prospectus at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data included in the Registration Statement and the Prospectus (and any amendment or supplement to either of them) are accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Fund.
(j) The execution and delivery of, and the performance by the Fund of its obligations under, this Agreement and the Fund Agreements have been duly and validly authorized by the Fund, and this Agreement and the Fund Agreements have been duly executed and delivered by the Fund and constitute the valid and legally binding agreements of the Fund, enforceable against the Fund in accordance with their terms, except as rights to indemnity and contribution hereunder and thereunder may be limited by federal or state securities laws.
(k) Except as disclosed in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), the Fund has not incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Fund, and there has not been any change in the capital stock, or material increase in the short-term debt or long-term debt, of the Fund, or any material adverse change, or any development involving or which may reasonably be expected to involve, a prospective material adverse change, in the condition (financial or other), business, prospects, properties, net assets or results of operations of the Fund, whether or not arising in the ordinary course of business, it being understood that a change of up to 15% of the aggregate market value of the Fund's assets shall not cause this representation to be untrue.
(l) The Fund has not distributed and, prior to the later to occur of (i) the Closing Date and (ii) completion of the distribution of the Shares, will not distribute any offering material in connection with the offering and sale of the Shares other than the Registration Statement, the Prepricing Prospectus, the Prospectus or other materials, if any, permitted by the 1933 Act, the 1940 Act or the Rules and Regulations.
(m) The Fund has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its properties and to conduct its business in the manner described in the Prospectus (and any amendment or supplement thereto), subject to such qualifications as may be set forth in the Prospectus; the Fund has fulfilled and performed all its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the Fund under any such permit, subject in each case to such qualification as may be set forth in the Prospectus (and any amendment or supplement thereto); and, except as described in the Prospectus (and any amendment or supplement thereto), none of such permits contains any restriction that is materially burdensome to the Fund.
(n) The Fund maintains and will maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization and with the investment policies and restrictions of
the Fund and with the applicable requirements of the 1940 Act, the 1940 Act
Rules and Regulations and the Internal Revenue Code of 1986, as amended (the
"Code"); (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles, to calculate net asset value, and to maintain accountability for
assets and to maintain compliance with the books and records requirements
under the 1940 Act and the 1940 Act Rules and Regulations; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(o) To the Fund's knowledge, except as disclosed in the Prospectus, neither the Fund nor any employee or agent of the Fund has made any payment of funds of the Fund or received or retained any funds, which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus.
(p) The Fund has filed all tax returns required to be filed, which returns are complete and correct, and the Fund is not in material default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto.
(q) No holder of any security of the Fund has any right to require registration of any shares of capital stock or any other security of the Fund because of the filing of the Registration Statement or consummation of the transactions contemplated by this Agreement.
(r) The Fund, subject to the Registration Statement having been declared effective and the filing of the Prospectus under Rule 497 under the Rules and Regulations, has taken all required action under the 1933 Act, the 1940 Act and the Rules and Regulations to make the public offering and consummate the sale of the Shares as contemplated by this Agreement.
(s) The conduct by the Fund of its business (as described in the Prospectus) does not require it to be the owner, possessor or licensee of any patents, patent licenses, trademarks, service marks or trade names which it does not own, possess or license.
(t) The Fund is duly registered under the 1940 Act as a closed-end non-diversified management investment company and the 1940 Act Notification has been duly filed with the Commission and, at the time of filing thereof and any amendment or supplement thereto, conformed in all material respects with all applicable provisions of the 1940 Act and the Rules and Regulations. The Fund is, and at all times through the completion of the transactions contemplated hereby, will be, in compliance in all material respects with the terms and conditions of the 1933 Act and the 1940 Act. No person is serving or acting as an officer, trustee or investment adviser of the Fund except in accordance with the provisions of the 1940 Act and the 1940 Act Rules and Regulations and the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the rules and regulations of the Commission promulgated under the Advisers Act (the "Advisers Act Rules and Regulations").
(u) Except as stated in this Agreement and in the Prospectus (and any amendment or supplement thereto), the Fund has not taken, nor will it take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any securities issued by the Fund to facilitate the sale or resale of the Shares, and the Fund is not aware of any such action taken or to be taken by any affiliates of the Fund.
(v) The Fund has filed in a timely manner each document or report required to be filed by it pursuant to the 1934 Act and the rules and regulations of Commission promulgated thereunder (the "1934 Act Rules and Regulations"); each such document or report at the time it was filed conformed to the requirements of the 1934 Act and the 1934 Act Rules and Regulations; and none of such documents or reports contained an untrue statement of any material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading.
(w) All advertising, sales literature or other promotional material (including "prospectus wrappers," "broker kits," "road show slides" and "road show scripts"), whether in printed or electronic form, authorized in writing by or prepared by the Fund or the Adviser for use in connection with the offering and sale of the Shares (collectively, "sales material") complied and comply in all material respects with the applicable requirements of the 1933 Act, the 1940 Act, the Rules and Regulations and the rules and interpretations of the NASD and no such sales material contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(x) Each of the Fund Agreements and the Fund's and the Adviser's obligations under this Agreement and each of the Fund Agreements comply in all material respects with all applicable provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act the Advisers Act Rules and Regulations.
(y) At all times since its inception, as required by Subchapter M of the Code, the Fund has complied with the requirements to qualify as a regulated investment company under the Code.
(z) To the best knowledge of such counsel, no person is serving as an officer, trustee or investment adviser of the Fund except in accordance with the 1940 Act and the Rules and Regulations and the Advisers Act and the Advisers Act Rules and Regulations. Except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement to either of them), no trustee of the Fund is an "interested person" (as defined in the 1940 Act) of the Fund or an "affiliated person" (as defined in the 1940 Act) of any Underwriter.
(aa) The Fund has no liability for borrowed money, including under any reverse repurchase agreement.
7. Representations and Warranties of the Adviser. The Adviser represents and warrants to each Underwriter as follows:
(a) The Adviser is a limited liability company duly organized and validly existing in good standing under the laws of the State of New York, with full limited liability company power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or to qualify does not have a material adverse effect on the condition (financial or other), business, prospects, properties, net assets or results of operations of the Adviser and its subsidiaries, taken as a whole, or on the ability of the Adviser to perform its obligations under this Agreement and the Investment Advisory Agreement.
(b) The Adviser is duly registered with the Commission as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules and Regulations from acting under the Investment Advisory Agreement for the Fund as contemplated by the Prospectus (or any amendment or supplement thereto). There does not exist any proceeding or any facts or circumstances the existence of which could lead to any proceeding which might adversely affect the registration of the Adviser with the Commission.
(c) There are no legal or governmental proceedings pending or, to the knowledge of the Adviser, threatened against the Adviser, or to which the Adviser or any of its properties is subject, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) but are not described as required or that may reasonably be expected to involve a prospective material adverse change, in the condition (financial or other), business, prospects, properties, net assets or results of operations of the Adviser and its subsidiaries, taken as a whole, or on the ability of the Adviser to perform its obligations under this Agreement and the Investment Advisory Agreement.
(d) Neither the execution, delivery or performance of this Agreement or the Investment Advisory Agreement by the Adviser, nor the consummation by the Adviser of the transactions contemplated hereby or thereby (A) requires the Adviser to obtain any consent, approval, authorization or other order of or registration or filing with, the Commission, the NASD, any state securities commission, any national securities exchange, any arbitrator, any court, regulatory body, administrative agency or other governmental body, agency or official or conflicts or will conflict with or constitutes or will constitute a breach of or a default under the certificate of incorporation or by-laws, or other organizational documents of the Adviser or (B) conflicts or will conflict with or constitutes or will constitute a breach of or a default under, any agreement, indenture, lease or other instrument to which the Adviser is a party or by which it or any of its properties may be bound, or violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Adviser or any of its properties or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Adviser pursuant to the terms of any agreement or instrument to which it is a party or by which it may be bound or to which any of the property or assets of the Adviser is subject. The Adviser is not subject to any order of any court or of any arbitrator, governmental authority or administrative agency except for (a) an Order of the Securities and Exchange Commission, dated August 17, 1988 and (b) an Order of the Federal Communications Commission, dated August 21, 1992.
(e) The execution and delivery of, and the performance by the Adviser of its obligations under, this Agreement and the Investment Advisory Agreement have been duly and validly authorized by the Adviser, and this Agreement and the Investment Advisory Agreement have been duly executed and delivered by the Adviser and each constitutes the valid and legally binding agreement of the Adviser, enforceable against the Adviser in accordance with its terms except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws.
(f) The Adviser has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Prospectus (or any amendment or supplement thereto) and under this Agreement and the Investment Advisory Agreement.
(g) The description of the Adviser in the Registration Statement and the Prospectus (and any amendment or supplement thereto) complied and comply in all material respects with the provisions the 1933 Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(h) Except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement to either of them), subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (or any amendment or supplement to either of them), the Adviser has not incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Adviser and its subsidiaries, taken as a whole, and that is required to be disclosed in the Registration Statement or in the Prospectus and there has not been any material adverse change, or any development involving or which may reasonably be expected to involve, a prospective material adverse change, in the condition (financial or other), business, prospects, properties, net assets or results of operations of the Adviser and its subsidiaries, taken as a whole, whether or not arising in the ordinary course of business, or which, in each case, could have a material adverse effect on the ability of the Adviser to perform its obligations under this Agreement and the Investment Advisory Agreement.
(i) The Adviser has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its properties and to conduct its business in the manner described in the Prospectus (and any amendment or supplement thereto); the Adviser has fulfilled and performed all its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the Adviser under any such permit; and, except as described in the Prospectus (and any amendment or supplement thereto), none of such permits contains any restriction that is materially burdensome to the Adviser.
(j) Except as stated in this Agreement and in the Prospectus (and in any amendment or supplement thereto), the Adviser has not taken, nor will it take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities issued by the Fund to facilitate the sale or resale of the Shares, and the Adviser is not aware of any such action taken or to be taken by any affiliates of the Adviser; it being understood that the Underwriters include certain affiliates of the Adviser and that stabilization or other activity by you shall not be deemed to be violative of this representation.
(k) Mario J. Gabelli is the validly appointed Chief Investment Officer of the Adviser and the portfolio manager of the Fund; Mr. Gabelli has not given notice nor made known an intention to give notice of termination of his employment and the Adviser knows of no reason why Mr. Gabelli should be unable to serve as portfolio manager to the Fund.
(l) In the event that the Fund or the Adviser makes available any promotional materials intended for use only by qualified broker-dealers and registered representatives thereof by means of a proprietary Internet web site administered by such party or similar electronic means, the Fund or the Adviser will install and maintain pre-qualification and password- protection or similar procedures which are reasonably designed to restrict access to such promotional materials by persons other than qualified broker-dealers and representatives thereof.
(m) The Adviser is not in violation of its articles of organization, by-laws or other organizational documents or in default under any agreement, indenture or instrument, where such violation or default would reasonably be expected to have a material adverse effect on the ability of the Adviser to function as an investment adviser or perform its obligations under the Investment Advisory Agreement.
8. Indemnification and Contribution.
(a) The Fund and the Adviser, jointly and severally, agree to indemnify and hold harmless each of you and each other Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation), joint or several, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Prospectus, any Prepricing Prospectus, any sales material (or any amendment or supplement to any of the foregoing), or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to such Underwriter furnished in writing to the Fund by or on behalf of any Underwriter through you expressly for use in connection therewith; provided, however, that the indemnification contained in this paragraph (a) with respect to any Prepricing Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) on account of any such loss, claim, damage, liability or expense arising from the sale of the Shares by such Underwriter to any person if a copy of the Prospectus shall not have been delivered or sent to such person within the time required by the 1933 Act and the 1933 Act Rules and Regulations, and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Prepricing Prospectus was corrected in the Prospectus, provided that the Fund has delivered the Prospectus to the several Underwriters in requisite quantity on a timely basis to permit such delivery or sending. The foregoing indemnity agreement shall be in addition to any liability that the Fund or the Adviser may otherwise have.
(b) If any action, suit or proceeding shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against the Fund or the Adviser, such Underwriter or such controlling person shall promptly notify the Fund or the Adviser, and the Fund or the Adviser shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the Fund or the Adviser has agreed in writing to pay such fees and expenses, (ii) the Fund and the Adviser have failed to assume the defense and employ counsel, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Underwriter or such controlling person and the Fund or the Adviser and such Underwriter or such controlling person shall have been advised by its counsel that representation of such indemnified party and the Fund or the Adviser by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the Fund and the Adviser shall not have the right to assume the defense of such action, suit or proceeding on behalf of such Underwriter or such controlling person). It is understood, however, that the Fund and the Adviser shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Underwriters and controlling persons not having actual or potential differing interests with you or among themselves, which firm shall be designated in writing by Merrill Lynch, Pierce, Fenner & Smith Incorporated, and that all such fees and expenses shall be reimbursed as they are incurred. The Fund and the Adviser shall not be liable for any settlement of any such action, suit or proceeding effected without its written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the Fund and the Adviser agree to indemnify and hold harmless any Underwriter, to the extent provided in the preceding paragraph, and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Fund and the Adviser, their trustees, their directors, any officers who sign the Registration Statement, and any person who controls the Fund or the Adviser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, to the same extent as the foregoing indemnity from the Fund and the Adviser to each Underwriter, but only with respect to information relating to such Underwriter furnished in writing by or on behalf of such Underwriter through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against the Fund or the Adviser, any of their trustees, their directors, any such officer, or any such controlling person based on the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph (c), such Underwriter shall have the rights and duties given to the Fund and the Adviser by paragraph (b) above (except that if the Fund or the Adviser shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Fund and the Adviser, their trustees, their directors, any such officer, and any such controlling person shall have the rights and duties given to the Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability that the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 8 is unavailable to an indemnified party under paragraphs (a) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) and the Underwriters on the other hand from the offering of the Shares, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Fund bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(e) The Fund, the Adviser and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 8
were determined by a pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
paragraph (d) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (d) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating any claim or defending any
such action, suit or proceeding. Notwithstanding the provisions of this
Section 8, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price of the Shares underwritten by it and
distributed to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 8 are several in proportion to the respective numbers
of Shares set forth opposite their names in Schedule I hereto and not joint.
(f) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution
under this Section 8 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses are
incurred. The indemnity and contribution agreements contained in this Section
8 and the representations and warranties of the Fund and the Adviser set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Fund, the Adviser, their trustees,
their directors or officers, or any person controlling the Fund or the
Adviser, (ii) acceptance of any Shares and payment therefor hereunder, and
(iii) any termination of this Agreement. A successor to any Underwriter or any
person controlling any Underwriter, or to the Fund, the Adviser, their
trustees, their directors or officers, or any person controlling the Fund or
the Adviser, shall be entitled to the benefits of the indemnity, contribution,
and reimbursement agreements contained in this Section 8.
9. Conditions of Underwriters' Obligations. The several obligations of the Underwriters to purchase the Shares hereunder are subject to the following conditions:
(a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the Registration Statement or such post-effective amendment shall have become effective not later than 5:30 P.M., New York City time, on the date hereof, or at such later date and time as shall be consented to in writing by you, and all filings, if any, required by Rules 497 and 430A under the 1933 Act and the 1933 Act Rules and Regulations shall have been timely made; no stop order suspending the effectiveness of the Registration Statement or order pursuant to Section 8(e) of the 1940 Act shall have been issued and no proceeding for those purposes shall have been instituted or, to the knowledge of the Fund, the Adviser or any Underwriter, threatened by the Commission, and any request of the Commission for additional information (to be included in the Registration Statement or the prospectus or otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall not have occurred (i) any change (other than a change of up to 15% of the aggregate market value of the Fund's assets) or any development involving a prospective change, in or affecting the condition (financial or other), business, prospects, properties, net assets, or results of operations of the Fund or the Adviser and its subsidiaries, taken as a whole, not contemplated by the Prospectus, which in your opinion would materially, adversely affect the market for the Shares, or (ii) any event or development relating to or involving the Fund or the Adviser or any trustee or officer or director of the Fund or the Adviser which makes any statement made in the Prospectus untrue or which, in the opinion of the Fund and its counsel or the Underwriters and their counsel, requires the making of any addition to or change in the Prospectus in order to state a material fact required by the 1933 Act, the 1940 Act or the Rules and Regulations or any other law to be stated therein or necessary in order to make the statements therein not misleading, if amending or supplementing the Prospectus to reflect such event or development would, in your opinion materially adversely affect the market for the Shares.
(c) The Fund shall have furnished to you a report showing compliance with the asset coverage requirements of the 1940 Act and a Basic Maintenance Report (as defined in the Statement of Preferences), each dated the Closing Date and in form and substance satisfactory to you. Each such report may use portfolio holdings and valuations as of the close of business of any day not more than the six business days preceding the Closing Date; provided, however, that the Fund represents in such report that its total net assets as of the Closing Date have not declined by 5% or more from such valuation date.
(d) You shall have received on the Closing Date, opinions of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Fund, dated the Closing Date and addressed to you, to the effect that:
(i) The Fund is duly registered and qualified to conduct its business and is in good standing in the State of New York (which is the only jurisdiction identified by management of the Fund to such counsel in which the Fund owns property, has operations or conducts business);
(ii) The authorized and outstanding capital stock of the Fund is as set forth under the caption "Capitalization" in the Prospectus; and the authorized capital stock of the Fund (including the Series A Preferred and the Series B AMPS) conforms in all material respects as to legal matters to the description thereof contained in the Prospectus under the captions "Description of Capital Shares and Other Securities", "Description of the Series A Preferred and Series B AMPS" and "The Auction of Series B AMPS";
(iii) Such counsel has been orally advised that the Registration Statement has become effective under the 1933 Act and, to the best knowledge of such counsel after reasonable inquiry, no stop order suspending the effectiveness of the Registration Statement or order pursuant to Section 8(e) of the 1940 Act has been issued and no proceedings for that purpose are pending before or contemplated by the Commission; and any required filing of the Prospectus pursuant to Rule 497 has been made in accordance with Rule 497;
(iv) Each of this Agreement and the Fund Agreements has been duly executed and delivered by the Fund and is a valid, legal and binding agreement of the Fund, enforceable against the Fund in accordance with its terms, except to the extent that (A) enforcement hereof and thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, or (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity) and (B) enforcement of rights to indemnity and contribution hereunder and thereunder may be limited by Federal or state securities laws or principles of public policy;
(v) Neither the offer, sale or delivery of the Shares, the execution, delivery or performance of this Agreement and the Fund Agreements by the Fund, compliance by the Fund with the provisions hereof or thereof nor consummation by the Fund of the transactions contemplated hereby or thereby conflicts or will conflict with or constitutes or will constitute a breach of, or a default under any Material Fund Agreement, or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund under any Material Fund Agreement, nor will any such action result in any violation of (a) any provision of the New York Business Corporation Law and those laws, rules and regulations of the State of New York and the United States of America that, in the experience of such counsel, are normally applicable to entities such as the Fund and transactions of the type contemplated by this Agreement, but without having made any special investigation concerning any other laws, rules or regulations (collectively, "Applicable Fund Laws"); provided, that the term "Applicable Fund Laws" does not include (1) the rules and regulations of the NASD, (2) any federal or state securities or blue sky laws, (3) any antifraud laws or (4) any law, rule or regulation that may have become applicable to the Fund as a result of the Underwriters' involvement with the transactions contemplated hereby or because of any facts specifically pertaining to the Underwriters, or (b) any judgment, order or decree of any New York or federal executive, legislative, judicial, administrative or regulatory body under Applicable Fund Laws and the NYSE (each, a "Governmental Fund Authority") identified in an officer's certificate;
(vi) No consent, approval, license, authorization, order or validation of, or filing, recording or registration with, any Governmental Fund Authority pursuant to Applicable Fund Laws (each, a "Governmental Fund Approval") is required for the valid issuance and sale of the Shares to the Underwriters or the execution, delivery and performance by the Fund of this Agreement and the Fund Agreements or the consummation of the transactions contemplated hereby and thereby except such Governmental Fund Approvals as have been obtained;
(vii) The 1940 Act Notification, the Registration Statement, the Prospectus and the Fund's Registration Statement on Form 8-A under the 1934 Act and any supplements or amendments thereto (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included therein, as to which such counsel need not express any opinion) comply as to form in all material respects with the requirements of the 1933 Act, the 1940 Act, the Rules and Regulations, the 1934 Act and the rules and regulations promulgated thereunder;
(viii) To the actual knowledge of such counsel after reasonable inquiry, other than as described or contemplated in the Registration Statement or Prospectus (or any supplement thereto), there are (A) no legal or governmental proceedings in the State of New York or, to the actual knowledge of such counsel, any other state, pending or threatened against the Fund, or to which the Fund or any of its properties is subject, which are required to be described in the Registration Statement or Prospectus (or any amendment or supplement to either of them) that are not described as required and (B) no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) or to be filed as an exhibit to the Registration Statement, that are not described or filed as required, as the case may be;
(ix) The statements in the Registration Statement, Prospectus and statement of additional information under the caption "Taxation", insofar as they refer to statements of law or legal conclusions, are accurate and present fairly the information required to be shown;
(x) Each of the Fund Agreements and the Fund's and the Adviser's obligations under each of this Agreement and the Fund Agreements comply as to form in all material respects with all applicable provisions of the 1933 Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations;
(xi) The Fund is duly registered with the Commission under the 1940 Act as a closed-end non-diversified management investment company; and the provisions of the Fund's Agreement and Declaration of Trust, including the Statement of Preferences, and by-laws, and the investment policies and restrictions described in the Registration Statement and the Prospectus under the captions "The Fund", "Investment Objective and Policies", "Risk Factors and Special Considerations" and "Investment Restrictions" (in the statement of additional information) comply in all material respects with the requirements of the 1940 Act, and all action has been taken by the Fund as is required of the Fund by the 1933 Act and the 1940 Act and the Rules and Regulations in connection with the issuance and sale of the Shares to make the public offering and consummate the sale of the Shares as contemplated by this Agreement;
(xii) The Fund has all necessary governmental authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental regulatory officials and bodies required under Applicable Fund Law (except where the failure so to have any such authorizations, approvals, orders, licenses, certificates, franchises or permits, individually or in the aggregate, would not have a material adverse effect on the business, properties, operations or financial condition of the Fund), to own its properties and to conduct business, as described in the Prospectus;
(xiii) To the actual knowledge of such counsel after reasonable inquiry, except as described in the Prospectus, there is no holder of any security of the Fund or any other person who has the right, contractual or otherwise pursuant to any Material Fund Agreement, to cause the Fund to sell or otherwise issue to them, or to permit them to underwrite the sale of, the Shares or the right to have any securities of the Fund included in the registration statement or the right, as a result of the filing of the registration statement, to require registration under the 1933 Act of any securities of the Fund;
(xiv) If the Fund operates as described in the Prospectus, the Fund will qualify as a regulated investment company under the Code; and
(xv) Such counsel shall also state that they have participated in conferences with officers and employees of the Fund, representatives of the independent accountants for the Fund, the Underwriters and counsel for the Underwriters at which the contents of the Registration Statement and the Prospectus and related matters were discussed and, although they are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus except to the limited extent otherwise covered by paragraphs (ii), (ix), (x) and (xii), and have made no independent check or verification thereof, on the basis of the foregoing, no facts have come to their attention that would have led them to believe that the Registration Statement or any amendment or supplement thereto, at the time it became effective, contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements contained therein not misleading or that the Prospectus or any amendment or supplement thereto, as of its issue date and as of the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading, except that they express no belief with respect to the financial statements, schedules and other financial information and statistical data included therein or excluded therefrom or the exhibits to the Registration Statement.
(e) You shall have received on the Closing Date, an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, Delaware counsel for the Fund, dated the Closing Date and addressed to you, to the effect that:
(i) The Fund is a statutory trust duly formed, validly existing and in good standing under the laws of the State of Delaware with full trust power to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them);
(ii) The authorized capital stock of the Fund is as set forth under the caption "Capitalization" in the Prospectus; and the authorized capital stock of the Fund conforms in all material respects as to legal matters to the description thereof contained in the Prospectus under the caption "Description of Capital Shares and Other Securities";
(iii) The Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable. The issuance of the Shares will not be subject to preemptive or other similar rights entitling any person to purchase or acquire any of the Shares upon the issuance thereof by the Fund which arise by operation of the laws of the State of Delaware or under the Agreement and Declaration of Trust or by-laws of the Fund;
(iv) The Shares conform in all material respects to the description thereof contained in the Prospectus under the caption "Description of the Series A Preferred and Series B AMPS" and "The Auction of Series B AMPS";
(v) The form of certificates for the Shares conforms to any requirements of the applicable laws under the State of Delaware;
(vi) The Fund has the requisite trust power and authority to enter into and execute and deliver this Agreement and the Auction Agency Agreement and to issue, sell and deliver the Shares to the Underwriters as provided for herein;
(vii) Each of this Agreement and the Auction Agency Agreement has been duly authorized by the Fund. Neither the offer, sale or delivery of the Shares, the execution, delivery or performance of this Agreement and the Auction Agency Agreement by the Fund, compliance by the Fund with the provisions hereof or thereof nor consummation by the Fund of the transactions contemplated hereby conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the Agreement and Declaration of Trust, including the Statement of Preferences, or by-laws of the Fund;
(viii) The Fund has full trust power and to the knowledge of such counsel, all governmental authorizations, approvals, orders, licenses, certificates, franchises and permits necessary or required under the laws of the State of Delaware for the Fund to own its properties and to conduct its business as it now is being conducted as described in the Prospectus (except in cases where the failure so to have any such authorizations, approvals, orders, licenses, certificates, franchises or permits, individually or in the aggregate, would not have a material adverse effect on the business, properties, operations or financial conditions of the Fund); and
(ix) No consent, approval, authorization or other order of, or registration or filing with, any securities commission, court, regulatory body, administrative agency or other governmental body, agency, or official of the State of Delaware is required on the part of the Fund for the valid issuance and sale of the Shares to the Underwriters as contemplated by this Agreement, the execution and delivery by the Fund of this Agreement and the performance by the Fund of its obligations hereunder or the consummation of the transactions contemplated hereby by the Fund, except those as may be required under the securities or blue sky laws of the State of Delaware; it being understood that such counsel do not express any opinion as to any such consent, approval, authorization or other order of, or registration or filing, which may be required as a result of the involvement of any other parties to this Agreement.
(f) You shall have received on the Closing Date an opinion of James E. McKee, general counsel for the Adviser, dated the Closing Date and addressed to you, to the effect that:
(i) The Fund is not in violation of its Agreement and Declaration of Trust, including the Statement of Preferences, or by-laws and, to the actual knowledge of such counsel after reasonable inquiry, is not in default in the performance of any material obligation, agreement or condition in any bond, debenture, note or other evidence of indebtedness, except as may be disclosed in the Prospectus;
(ii) The Fund is not in violation of any Material Fund Agreement; and
(iii) To the actual knowledge of such counsel after
reasonable inquiry, the Fund is not in violation of (A) any provision
of the New York Business Corporation Law and those laws, rules and
regulations of the State of New York and the United States of America
that, in the experience of such counsel, are normally applicable to
entities such as the Fund and transactions of the type contemplated
by this Agreement, but without having made any special investigation
concerning any other laws, rules or regulations; provided, that such
laws, rules and regulations do not include (1) the rules and
regulations of the NASD, (2) any federal or state securities or blue
sky laws other than the 1933 Act, the 1934 Act and the 1940 Act and
the rules and regulations thereunder to the extent not excluded by
item (3) below, (3) any antifraud laws under the 1933 Act or the 1934
Act as they apply to the Prospectus and the Registration Statement or
(4) any law, rule or regulation that may have become applicable to
the Fund as a result of the Underwriters' involvement with the
transactions contemplated by this Agreement or because of any facts
specifically pertaining to the Underwriters or (B) any order,
judgment or decree of any New York or federal executive, legislative,
judicial, administrative or regulatory body under the laws, rules and
regulations referred to in clause (A) of this paragraph and the NYSE.
(g) You shall have received on the Closing Date an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for the Adviser, dated the Closing Date and addressed to you, to the effect that:
(i) The Adviser is a limited liability company duly organized and validly existing in good standing under the laws of the State of New York with full limited liability company power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), it being understood that the opinion with respect to good standing is based solely upon such counsel's review of a certificate of the Secretary of State and a telephonic confirmation;
(ii) The Adviser is duly registered with the Commission as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules and Regulations from acting under the Investment Advisory Agreement for the Fund as contemplated by the Prospectus (or any amendment or supplement thereto).
(iii) The Adviser has limited liability company power and authority to enter into this Agreement and the Investment Advisory Agreement, and this Agreement and the Investment Advisory Agreement have been duly authorized, executed and delivered by the Adviser and each is a valid, legal and binding agreement of the Adviser, enforceable against the Adviser in accordance with its terms except to the extent that (A) enforcement hereof and thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, or (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity) and (B) enforcement of rights to indemnity and contribution hereunder and thereunder may be limited by Federal or state securities laws or principles of public policy;
(iv) Neither the execution, delivery or performance of this Agreement or the Investment Advisory Agreement by the Adviser, compliance by the Adviser with the provisions hereof or thereof nor consummation by the Adviser of the transactions contemplated hereby or thereby conflicts or will conflict with, or constitutes or will constitute a breach of or default under, the certificate of incorporation or by-laws, or other organizational documents, of the Adviser or any contract or agreement to which the Adviser is a party which has been identified to such counsel by the Adviser as material or as one which could have an effect on the types of transactions contemplated by this Agreement (each, an "Material Adviser Agreement"), or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Adviser under any Material Adviser Agreement, nor will any such action result in any violation of any provision of the New York Business Corporation Law and those laws, rules and regulations of the State of New York and the United States of America that, in the experience of such counsel, are normally applicable to entities such as the Adviser and transactions of the type contemplated by this Agreement, but without having made any special investigation concerning any other laws, rules or regulations (collectively, "Applicable Adviser Laws"); provided, that the term "Applicable Adviser Laws" does not include (1) the rules and regulations of the NASD, (2) any federal or state securities or blue sky laws, (3) any antifraud laws or (4) any law, rule or regulation that may have become applicable to the Adviser as a result of the Underwriters' involvement with the transactions contemplated hereby or because of any facts specifically pertaining to the Underwriters;
(v) No consent, approval, license, authorization or validation of, or filing, recording or registration with, any New York or federal executive, legislative, judicial, administrative or regulatory body under Applicable Adviser Laws (each, a "Governmental Adviser Approval") is required on the part of the Adviser for the execution, delivery and performance by it of this Agreement and the Investment Advisory Agreement to which it is a party or the consummation by it of the transactions contemplated hereby and thereby except such Governmental Adviser Approvals as have been obtained;
(vi) To the actual knowledge of such counsel after reasonable inquiry, there are no legal or governmental proceedings pending or threatened against the Adviser or to which the Adviser or any of its properties is subject, which are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) but are not described as required or which could reasonably be expected to adversely affect the ability of the Adviser to perform its obligations under this Agreement or the Investment Advisory Agreement;
(vii) The obligations of the Adviser under this Agreement and the Investment Advisory Agreement comply in all material respects with all applicable provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act and the Advisers Act Rules and Regulations;
(viii) The Adviser has full limited liability company power and authority, and all necessary governmental authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental regulatory officials and bodies required under Applicable Adviser Law (except where the failure so to have any such authorizations, approvals, orders, licenses, certificates, franchises or permits, individually or in the aggregate, would not have a material adverse effect on the business, properties, operations or financial condition of the Adviser and its subsidiaries), to own its properties and to conduct its business, including specifically its business of acting as investment adviser to registered investment companies and as otherwise described in the Prospectus, and to perform its obligations under the Investment Advisory Agreement;
(ix) Such counsel shall also state that such counsel has been advised by the Adviser that it is not registered or qualified to conduct its business as a foreign corporation in any jurisdiction and that it believes there is no such jurisdiction where the nature of its properties or the conduct of its business requires such registration or qualification and where the failure to register or qualify would have a material adverse effect on the operations of the Adviser or on the ability of the Adviser to perform its obligations under this Agreement or the Investment Advisory Agreement; and
(x) Such counsel shall also state that they have participated in conferences with officers and employees of the Adviser and the Fund, representatives of the independent accountants for the Adviser and the Fund and the Underwriters and counsel for the Underwriters at which the contents of the Registration Statement and the Prospectus and related matters were discussed and, although they are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus and have made no independent check or verification thereof, on the basis of the foregoing, no facts have come to their attention that would have led them to believe that the Registration Statement or any amendment or supplement thereto, at the time it became effective, contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements contained therein not misleading or that the Prospectus or any amendment or supplement thereto, as of its issue date and as of the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading, except that they express no belief with respect to the financial statements, schedules and other financial information and statistical data included therein or excluded therefrom or the exhibits to the Registration Statement.
(h) You shall have received on the Closing Date an opinion of Simpson Thacher & Bartlett LLP, counsel for the Underwriters, dated the Closing Date and addressed to you, with respect to such matters as you may reasonably request.
(i) You shall have received at the time of the execution of this Agreement, a letter dated such date from PricewaterhouseCoopers LLP, in form and substance satisfactory to you, containing statements and information to the effect that:
(i) They are independent certified public accountants with respect to the Fund within the meaning of the 1933 Act and 1940 Act, and the applicable rules and regulations thereunder adopted by the Commission;
(ii) In their opinion, the financial statements of the Fund audited by them and included in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and 1940 Act and the related rules and regulations adopted by the Commission;
(iii) They will perform the procedures (but not an audit in accordance with generally accepted auditing standards) consisting of:
(A) Reading the minutes of meetings of the Board of Trustees of the Fund as set forth in the minute books through a specified date not more than three business days prior to the date of delivery of such letter;
(B) Making inquiries of certain officials of the Fund who have responsibility for financial and accounting matters regarding changes in the capital stock, net assets or long-term liabilities of the Fund as compared with the amounts shown in the latest balance sheet included in the Registration Statement or for the period from the date of the latest income statement included in the Registration Statement to a specified date not more than three business days prior to the delivery of such letter.
(iv) The letter shall also state that the information set forth under the captions "Financial Highlights", "Capitalization", "Summary--Rating and Asset Coverage Requirements" and "Description of the Series A Preferred and Series B AMPS--Asset Maintenance Requirements" which is expressed in dollars (or percentages derived from such dollar amounts) and has been obtained from accounting records which are subject to controls over financial reporting or which has been derived directly from such accounting records by analysis or computation, is in agreement with such records or computations made therefrom, and such other procedures as the Underwriters may request and PricewaterhouseCoopers LLP are willing to perform and report upon.
(j) On the Closing Date, you shall have received from PricewaterhouseCoopers LLP a letter, dated as of the Closing Date, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (i) of this Section 9, except that the specified date referred to shall be a date not more than three business days prior to Closing Date.
(k) (i) No order suspending the effectiveness of the
Registration Statement or prohibiting or suspending the use of the Prospectus
(or any amendment or supplement thereto) or any Prepricing Prospectus or any
sales material shall have been issued and no proceedings for such purpose or
for the purpose of commencing an enforcement action against the Fund, the
Adviser or, with respect to the transactions contemplated by the Prospectus
(or any amendment or supplement thereto) and this Agreement, any Underwriter,
may be pending before or, to the knowledge of the Fund, the Adviser or any
Underwriter or in the reasonable view of counsel to the Underwriters, shall be
threatened or contemplated by the Commission at or prior to the Closing Date
and that any request for additional information on the part of the Commission
(to be included in the Registration Statement, the Prospectus or otherwise) be
complied with to your satisfaction; (ii) there shall not have been any change
in the capital stock of the Fund nor any material increase in the short-term
or long-term debt of the Fund (other than in the ordinary course of business)
from that set forth or contemplated in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); (iii) there shall not
have been, subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus (or any amendment or
supplement thereto), except as may otherwise be stated in the Registration
Statement and Prospectus (or any amendment or supplement thereto), any
material adverse change in the condition (financial or other), business,
prospects, properties, net assets or results of operations of the Fund or the
Adviser; (iv) the Fund shall not have any liabilities or obligations, direct
or contingent (whether or not in the ordinary course of business), that are
material to the Fund, other than those reflected in the Registration Statement
or the Prospectus (or any amendment or supplement to either of them) and other
than liabilities for payment for securities in accordance with the Fund's
investment objective and policies; and (v) all the representations and
warranties of the Fund and the Adviser contained in this Agreement shall be
true and correct on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of each of the Fund and the Adviser (or such
other officers as are acceptable to you), to the effect set forth in this
Section 9(k) and in Section 9(l) hereof.
(l) That neither the Fund nor the Adviser shall have failed at or prior to the Closing Date to have performed or complied with any of its agreements herein contained and required to be performed or complied with by it hereunder at or prior to the Closing Date.
(m) The Fund shall have delivered and you shall have received evidence satisfactory to you that the Series A Shares are rated at least Aaa by Moody's and the Series B Shares are rated at least Aaa by Moody's and rated at least AAA by S&P as of the Closing Date, and there shall not have been given any notice of any intended or potential downgrading, or of any review for a potential downgrading, in the rating accorded to the Shares by either Rating Agency.
(n) As of the Closing Date and assuming the receipt of the net proceeds from the sale of the Shares, the asset coverage requirements of the 1940 Act and the Basic Maintenance Amount (as defined in the Statement of Preferences) will be met.
(o) The Fund and the Adviser shall have furnished or caused to be furnished to you such further certificates and documents as you shall have requested.
All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Fund or the Adviser and delivered to you or to counsel for the Underwriters, shall be deemed a representation and warranty by the Fund or the Adviser to each Underwriter as to the statements made therein.
10. Expenses. The Fund agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the 1940 Act
Notification, the Prospectus and each amendment or supplement to any of them
(including, without limitation, the filing fees prescribed by the 1933 Act,
the 1940 Act and the Rules and Regulations); (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, each
Prepricing Prospectus, the Prospectus, any sales material and all amendments
or supplements to any of them as may be reasonably requested for use in
connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the
Shares, including any stamp taxes in connection with the original issuance and
sale of the Shares; (iv) the printing (or reproduction) and delivery of this
Agreement, any dealer agreements, the preliminary and supplemental blue sky
memoranda and all other agreements or documents printed (or reproduced) and
delivered in connection with the offering of the Shares; (v) the registration
of the Shares under the Exchange Act and the listing of the Series A Shares on
the New York Stock Exchange; (vi) the qualification of the Shares for offer
and sale under the state securities or blue sky laws of the several states
(including the reasonable fees, expenses and disbursements of counsel for the
Underwriters relating to the preparation, printing or reproduction, and
delivery of the preliminary and supplemental blue sky memoranda and such
registration and qualification); (vii) fees paid to the Rating Agencies;
(viii) the transportation and other expenses incurred by or on behalf of Fund
representatives in connection with presentations to prospective purchasers of
the Shares; and (ix) the fees and expenses of the Fund's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Fund and of the transfer agent.
Except as provided in this Section 10, the Underwriters agree to pay their own costs and expenses of the underwriting, including the fees and expenses of their counsel.
11. Effective Date of Agreement. This Agreement shall become effective: (i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, when notification of the effectiveness of the registration statement or such post-effective amendment has been released by the Commission. Until such time as this Agreement shall have become effective, it may be terminated by the Fund, by notifying you, or by you, by notifying the Fund.
If any one or more of the Underwriters shall fail or refuse to purchase the Shares which it or they are obligated to purchase hereunder on the Closing Date, and the aggregate number of the Shares which such defaulting Underwriter or Underwriters are obligated but fail or refuse to purchase is not more than one-tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the number of Shares set forth opposite its name in Schedule I hereto bears to the aggregate number of such Shares set forth opposite the names of all non-defaulting Underwriters, to purchase the Shares which such defaulting Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If any one or more of the Underwriters shall fail or refuse to purchase the Shares which it or they are obligated to purchase on the Closing Date and the aggregate number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares which the Underwriters are obligated to purchase on the Closing Date and arrangements satisfactory to you and the Fund for the purchase of such Shares by one or more non-defaulting Underwriters or other party or parties approved by you and the Fund are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Fund. In any such case which does not result in a termination of this Agreement either you or the Fund shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. The term "Underwriter" as used in this Agreement includes, for all purposes of this Agreement, any party not listed in Schedule I hereto who, with your approval and the approval of the Fund, purchases Shares which a defaulting Underwriter is obligated, but fails or refuses, to purchase.
Any notice under this Section 11 may be given by telegram, telecopy or telephone but shall be subsequently confirmed by letter.
12. Termination of Agreement. This Agreement shall be
subject to termination in your absolute discretion, without liability on the
part of any Underwriter to the Fund or the Adviser, by notice to the Fund or
the Adviser, if at any time prior to the Closing Date (i) trading in any
Fund's securities shall have been suspended by the Commission or the NYSE or
trading in securities generally on the NYSE, the American Stock Exchange or
the Nasdaq National Market shall have been suspended or limited or minimum
prices shall have been established on the NYSE, (ii) a banking moratorium
shall have been declared either by Federal or New York State authorities, or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war, or other
international or domestic calamity, crisis or change in political, financial
or economic conditions, the effect of which on financial markets is such as to
make it, in your judgment, impracticable or inadvisable to commence or
continue the offering of the Shares at the offering price to the public set
forth on the cover page of the Prospectus or to enforce contracts for the
resale of the Shares by the Underwriters. Notice of such termination may be
given to the Fund by telegram, telecopy or telephone and shall be subsequently
confirmed by letter.
13. Information Furnished by the Underwriters. The statements set forth in the last paragraph of the cover page, the stabilization legend on the inside cover page and the statements in the first, fourth, and tenth paragraphs under the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus, constitute the only information furnished by or on behalf of the Underwriters through you as such information is referred to in Sections 6(b) and 8 hereof.
14. Miscellaneous. Except as otherwise provided in Sections 5, 11 and 12 hereof, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (i) if to the Fund or the Adviser, at the office of the Fund at One Corporate Center, Rye, New York 10580-1422, Attention: Bruce N. Alpert; or (ii) if to you, care of Merrill Lynch, Pierce, Fenner & Smith Incorporated, 4 World Financial Center, New York, New York 10080, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit
of the several Underwriters, the Fund, the Adviser, their trustees, their
directors and officers, and the other controlling persons referred to in
Section 8 hereof and their respective successors and assigns, to the extent
provided herein, and no other person shall acquire or have any right under or
by virtue of this Agreement. Neither the term "successor" nor the term
"successors and assigns" as used in this Agreement shall include a purchaser
from any Underwriter of any of the Shares in his status as such purchaser.
15. Applicable Law; Counterparts. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts that together constitute one and the same instrument. If signed in counterparts, this Agreement shall not become effective unless at least one counterpart hereof shall have been executed and delivered on behalf of each party hereto.
Please confirm that the foregoing correctly sets forth the agreement among the Fund and the Adviser and the several Underwriters.
Very truly yours,
THE GABELLI UTILITY TRUST
By:_____________________________
Name:
Title:
GABELLI FUNDS, LLC
By:_____________________________
Name:
Title:
Name: above written on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
GABELLI & COMPANY, INC.
By MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _______________________________
Name: Brian Lessig
Title: Vice President
SCHEDULE I
THE GABELLI UTILITY TRUST
---------------------------------------------------------------------------------------------
Underwriter Number of Series A Number of Series B
Shares Shares
---------------------------------------------------------------------------------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
---------------------------------------------------------------------------------------------
Gabelli & Company, Inc.
---------------------------------------------------------------------------------------------
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Exhibit 99(k)(ii)
AUCTION AGENCY AGREEMENT
dated as of , 2003
Relating to
Series B Auction Market Preferred Stock
of
The Bank of New York, as Auction Agent
AUCTION AGENCY AGREEMENT
This Auction Agency Agreement (this "Agreement"), dated as of [__], 2003, is between The Gabelli Utility Trust (the "Trust") and The Bank of New York, a New York banking corporation, as Auction Agent (as defined below).
The Trust proposes to issue an aggregate of [__] preferred shares, par value $0.001 per share, liquidation preference $25,000 per share, designated as Series B Auction Market Preferred Shares (the "Preferred Shares"), pursuant to the Statement of Preferences (as defined below).
The Trust desires that the Auction Agent perform certain duties as agent in connection with each Auction (as defined below) (in such capacity, the "Auction Agent"), and as the transfer agent, registrar, dividend paying agent and redemption price disbursing agent with respect to the Preferred Shares (in such capacity, the "Paying Agent"), upon the terms and conditions of this Agreement, and the Trust hereby appoints The Bank of New York as said Auction Agent.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Trust and the Auction Agent agree as follows:
1. Definitions and Rules of Construction.
1.1 Terms Defined By Reference to the Statement of Preferences.
Capitalized terms not defined herein shall have the respective meanings specified in the Statement of Preferences.
1.2 Terms Defined Herein.
As used herein and in the Settlement Procedures, each of the following terms shall have the meaning ascribed to it below, unless the context otherwise requires:
(a) "Agent Member" of any Person shall mean the member of, or participant in, the Securities Depository that will act on behalf of a Bidder.
(b) "Agreement" shall mean this Agreement.
(c) "Auction" shall have the meaning specified in Section 2.1 hereof.
(d) "Auction Procedures" shall mean the auction procedures constituting Part II of the Statement of Preferences as of the filing thereof.
(e) "Authorized Officer" of the Auction Agent shall mean each Vice President, Assistant Vice President and Assistant Treasurer of the Auction Agent assigned to the Dealing and Trading Group of its Corporate Trust Department and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes hereof in a written communication to the Trust.
(f) "Broker-Dealer Agreement" shall mean each agreement between the Auction Agent and a Broker-Dealer substantially in the form attached hereto as Exhibit A.
(g) "Commercial Paper Dealers" shall mean (i) Salomon Smith Barney Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs & Co.; (ii) in lieu of any thereof, its respective affiliate or successor; and (iii) in the event that any of the foregoing shall cease to quote rates for commercial paper of issuers of the sort described above, in substitution therefor, a nationally recognized dealer in commercial paper of such issuers then making such quotations selected by the Trust.
(h) "Trust Officer" shall mean the Chairman and Chief Executive Officer, the President, each Vice President (whether or not designated by a number or word or words added before or after the title "Vice President"), the Secretary, the Treasurer, each Assistant Vice President, each Assistant Secretary and each Assistant Treasurer of the Trust and every other officer or employee of the Trust designated as a "Trust Officer" for purposes hereof in a notice to the Auction Agent.
(i) "Preferred Shares" shall mean the preferred shares, par value $.001 per share, of the Trust designated as its "Series B Auction Market Preferred Shares" and bearing such further designation as to series as the Board of Trustees, as the case may be, of the Trust or any committee thereof shall specify.
(j) "Rate Multiple" has the meaning provided in Section 2.6.
(k) "Settlement Procedures" shall mean the Settlement Procedures attached hereto as Exhibit B.
(l) "Statement of Preferences" shall mean the Statement of Preferences Creating and Fixing the Rights of the Series B Auction Market Preferred Stock.
1.3 Rules of Construction.
Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of the Agreement:
(a) Words importing the singular number shall include the plural number and vice versa.
(b) The captions and headings herein are solely for convenience of reference and shall not constitute a part of the Agreement nor shall they affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto" and other words of similar import refer to the Agreement as a whole.
(d) All references herein to a particular time of day shall be to New York City time.
2. The Auction.
2.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures.
(a) The Board of Trustees of the Trust has adopted a resolution appointing The Bank of New York as Auction Agent for purposes of the Auction Procedures. The Auction Agent hereby accepts such appointment and agrees that, on each Auction Date, it shall follow the procedures set forth in this Section 2 and the Auction Procedures for the purpose of determining the Applicable Rate of the Preferred Shares for any Dividend Period after the initial Dividend Period. Each periodic operation of such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part hereof to the same extent as if such provisions were fully set forth herein.
2.2 Preparation for Each Auction; Maintenance of Registry of Beneficial Owners.
(a) Not later than seven days prior to the first Auction Date for the Preferred Shares subject to an Auction, the Trust shall provide the Auction Agent with a list of the Broker-Dealers. Not later than seven days prior to any Auction Date for the Preferred Shares for which any change in such list of Broker-Dealers is to be effective, the Trust will notify the Auction Agent in writing of such change and, if any such change involves the addition of a Broker-Dealer to such list, shall cause to be delivered to the Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement in the form of Exhibit A signed by such Broker-Dealer; provided, however, that if the Trust proposes to designate any Special Dividend Period of the Preferred Shares pursuant to Section 4 of Part I of the Statement of Preferences, not later than 11:00 A.M. on the Business Day immediately preceding the last Auction Date prior to the first day of such Dividend Period or by such later time or date, or both, as may be agreed to by the Auction Agent, the Trust shall provide the Auction Agent with a list of the Broker-Dealers for the Preferred Shares and a manually signed copy of each Broker-Dealer Agreement or a new Schedule A to a Broker-Dealer Agreement (which Schedule A shall replace and supersede any previous Schedule A to such Broker-Dealer Agreement) with each Broker-Dealer. The Auction Agent, as Agent of the Trust, shall have entered into a Broker-Dealer Agreement with each Broker-Dealer prior to the participation of any such Broker-Dealer in any Auction.
(b) In the event that any Auction Date for the Preferred Shares shall be changed after the Auction Agent shall have given the notice referred to in clause (vii) of paragraph (a) of the Settlement Procedures, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of such change to the Broker-Dealers not later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old Auction Date.
(c)(i) The Auction Agent shall maintain a registry of Persons that are Broker-Dealers, compiled initially on the date hereof, and that hold Preferred Shares for purposes of Auctions. The Auction Agent shall indicate thereon the identity of the Broker-Dealer that submitted the most recent Order in any Auction which resulted in such Existing Holder continuing to hold or purchasing the Preferred Shares. The Auction Agent shall keep such registry current and accurate based on the information provided to it from time to time by the Broker-Dealer. The Trust shall provide or cause to be provided to the Auction Agent at or prior to the Date of Original Issue of the Preferred Shares a list of the initial Existing Holders of the Preferred Shares, the number of shares purchased by each such Existing Holder and the respective Broker-Dealer of each such Existing Holder or the affiliate thereof through which each such Existing Holder purchased such shares. The Auction Agent may rely upon, as conclusive evidence of the identities of the Existing Holders of Preferred Shares (A) such list, (B) a list of Holders as a result of Auctions, (C) notices from any Broker-Dealer as described in the first sentence of Section 2.2(c)(iii) hereof and (D) the results of any procedures approved by the Trust that have been devised for the purpose of determining the identities of Existing Holders in situations where Preferred Shares may have been transferred without compliance with any restriction on the transfer thereof set forth in the Auction Procedures.
(ii) In the event of any partial redemption of the Preferred Shares and the Auction Agent's receipt of written notice of such partial redemption thereof, the Auction Agent shall, at least two Business Days prior to the next Auction, request each Broker-Dealer to provide the Auction Agent with a list of Persons who such Broker-Dealer believes should remain Existing Holders after such redemption based upon inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as a result of the most recent Auction and with respect to each such Person, the number of Preferred Shares such Broker-Dealer believes are owned by such Person after such redemption. In the absence of receiving any such information from any Broker-Dealer, the Auction Agent may continue to treat the Existing Holders listed in its registry as the beneficial owners of the number of Preferred Shares shown in such registry.
(iii) The Auction Agent shall be required to register a transfer of Preferred Shares from an Existing Holder of such Preferred Shares only if such transfer is to another Existing Holder, or other Person if permitted by the Trust, and only if such transfer is made (A) pursuant to an Auction, (B) the Auction Agent has been notified in writing (1) in a notice substantially in the form of Exhibit B to the Broker-Dealer Agreements by a Broker-Dealer of such transfer or (2) in a notice substantially in the form of Exhibit C to the Broker-Dealer Agreements by the Broker-Dealer of any Existing Holder, or other Person if permitted by the Trust, that purchased or sold such Preferred Shares in an Auction of the failure of such Preferred Shares to be transferred as a result of such Auction or (C) pursuant to procedures approved by the Trust that have been devised for the purpose of determining the identities of Existing Holders in situations where Preferred Shares may have been transferred without compliance with any restriction on the transfer thereof set forth in the Auction Procedures. The Auction Agent is not required to accept any such notice for an Auction unless it is received by the Auction Agent by 3:00 P.M. on the Business Day preceding such Auction.
(d) The Auction Agent may, but shall have no obligation to, request the Broker-Dealers, as set forth in the Broker-Dealer Agreements, to provide the Auction Agent with a list of Persons who such Broker-Dealer believes should be Existing Holders based upon inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as a result of the most recent Auction and with respect to each such Person, the number of Preferred Shares such Broker-Dealer believes to be owned by such Person. The Auction Agent shall keep confidential such registry of Existing Holders and shall not disclose the identities of the Existing Holders of such Preferred Shares to any Person other than the Trust and the Broker-Dealer that provided such information; provided, however, that the Auction Agent reserves the right and is authorized to disclose any such information if (a) it is ordered to do so by a court of competent jurisdiction or a regulatory body, judicial or quasi-judicial agency or authority having the authority to compel such disclosure, (b) it is advised by its counsel that its failure to do so would be unlawful or (c) failure to do so would expose the Auction Agent to loss, liability, claim, damage or expense for which it has not received indemnity or security satisfactory to it.
2.3 Auction Schedule.
The Auction Agent shall conduct Auctions in accordance with the
schedule set forth below. Such schedule may be changed by the Auction Agent
with the consent of the Trust, which consent shall not be unreasonably
withheld. The Auction Agent shall give written notice of any such change to
each Broker-Dealer. Such notice shall be given prior to the close of business
on the Business Day immediately preceding the first Auction Date on which any
such change shall be effective. The Auction Agent will follow the Bond Market
Association's Market Practice U.S. Holiday Recommendations for shortened
trading days for the bond markets (the "BMA Recommendation") unless the
Auction Agent is instructed otherwise. In the event of a BMA Recommendation on
an Auction Date the Submission Deadline will be 11:30 a.m., instead of 1:30
p.m., and as a result the notice set forth in Section 2.4 will occur earlier.
Time Event
---- -----
By 9:30 A.M. Auction Agent advises the Trust and
Broker-Dealers of (i) the applicable
Maximum Rate and (ii) when
applicable, the Reference Rate or the
Treasury Index Rate, used in
determining such Maximum Rate as set
forth in Section 2.6 hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers
as provided in Sections 2(a) and 3 of
the Auction Procedures. Submission
Deadline is 1:30 P.M.
Not earlier than 3:00 P.M. Auction Agent makes determinations
pursuant to Section 4(a) of the Auction
Procedures.
By approximately 3:00 P.M. Auction Agent advises Trust of results
of Auction as provided in Section 4(b)
of the Auction Procedures.
Submitted Bids and Submitted Sell
Orders are accepted and rejected in
whole or in part and Preferred Shares
allocated as provided in Section 5 of
the Auction Procedures. Auction Agent
gives notice of Auction results as set
forth in paragraph (a) of the
Settlement Procedures.
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The Auction Agent shall follow the notification procedures set forth in paragraph (a) of the Settlement Procedures.
2.4 Notice of Auction Results.
The Auction Agent will advise each Broker-Dealer who submitted a Bid or Sell Order in an Auction whether such Bid or Sell Order was accepted or rejected in whole or in part and of the Applicable Rate for the next Dividend Period for the related Preferred Shares by telephone or through its auction processing system as set forth in paragraph (a) of the Settlement Procedures.
2.5 Broker-Dealers.
(a) No later than 12:00 noon on each Auction Date for Preferred Shares, the Trust shall pay to the Auction Agent an amount in cash equal to the aggregate fees payable to the Broker-Dealers pursuant to Section 2.8 of the Broker-Dealer Agreements. The Auction Agent shall apply such moneys as set forth in Section 2.8 of each such Broker-Dealer Agreement.
(b) The Trust shall obtain the consent of the Auction Agent prior to selecting any Person to act as a Broker-Dealer, which consent shall not be unreasonably withheld.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement as set forth therein if so directed by the Trust, provided that at least one Broker-Dealer Agreement would be in effect for the Preferred Shares after such termination.
(d) Subject to the Auction Agent's having consented to the selection of the relevant Broker-Dealer pursuant to Section 2.5(b) hereof, the Auction Agent shall from time to time enter into such Broker-Dealer Agreements in the form attached hereto as Exhibit A with one or more Broker-Dealers as the Trust shall request, and shall enter into such schedules to any such Broker-Dealer Agreements as the Trust shall request.
2.6 Information Concerning Rates.
If there is any change in the credit rating of Preferred Shares by the rating agency (or substitute or successor rating agencies), referred to in the definition of "Maximum Rate," that results in any change in the applicable percentage of the Reference Rate or applicable spread over the Reference Rate, used to determine the Maximum Rate for Preferred Shares (the "Rate Multiple" and "Rate Spread," respectively), the Trust shall notify the Auction Agent in writing of such change in the Rate Multiple or Rate Spread prior to 12:00 noon on the Business Day prior to the next Auction Date succeeding such change. On the date hereof the Rate Multiple is 125%, and the Rate Spread is 125 basis points. If the Trust designates all or a portion of any dividend on Preferred Shares to consist of net capital gains or other income taxable for Federal income tax purposes, it will indicate, in a notice in the form of Exhibit H hereto to the Auction Agent pursuant to Section 2.6 hereof, the Rate Multiple or Rate Spread to be in effect for the Auction Date on which the dividend rate for such dividend is to be fixed. In determining the Maximum Rate on any Auction Date, the Auction Agent shall be entitled to rely on the last Rate Multiple or Rate Spread for Preferred Shares of which it has most recently received notice from the Trust (or, in the absence of such notice, the percentage determined by reference to the definition of Rate Multiple or Rate Spread), except that if the Trust shall have notified the Auction Agent of a Rate Multiple or Rate Spread to be in effect for an Auction Date in accordance with the preceding sentence, the Rate Multiple or Rate Spread in effect for the next succeeding Auction Date shall be, unless the Trust notifies the Auction Agent of a change in the Rate Multiple or Rate Spread for such succeeding Auction Date pursuant to this Section 2.6, the Rate Multiple or Rate Spread that was in effect on the first preceding Auction Date for Preferred Shares with respect to which the dividend, the rate for which was fixed on such Auction Date, did not include any net capital gain or other income taxable for Federal income tax purposes.
On each Auction Date, the Auction Agent shall determine the Maximum Rate. Not later than 9:30 A.M. on each Auction Date the Auction Agent shall notify the Trust and the Broker-Dealers of the Maximum Rate and the LIBOR Rate and Treasury Index Rate, as the case may be, used to make such determination.
2.7 Designation of Special Dividend Period.
(a) No designation is necessary for a Standard Dividend Period, which shall last seven calendar days.
(b) Pursuant to the Statement of Preferences, the Trust may, at its option, designate a Special Dividend Period for the Preferred Shares in the manner described in Section 4 of Part I of the Statement of Preferences.
(i) If the Board of Trustees proposes to designate any Dividend Period as a Special Dividend Period, (A) the Trust shall deliver to the Auction Agent a notice of such proposed Special Dividend Period in the form of Exhibit C hereto not less than seven Business Days (or two Business Days in the event the duration of the Dividend Period prior to the Special Dividend Period is less than eight Business Days) nor more than 30 Business Days prior to the first day of the Special Dividend Period and (B) the Auction Agent on behalf of the Trust shall deliver such notice by first-class mail, postage prepaid, to each Existing Holder of Preferred Shares at the address set forth for such Existing Holder in the records of the Auction Agent and to the Broker-Dealers as promptly as practicable after its receipt of such notice from the Trust.
(ii) If the Trust determines to designate such Dividend Period as a Special Dividend Period, (A) the Trust shall deliver to the Auction Agent a notice of such determination in the form of Exhibit D hereto not later than 3:00 P.M. on the second Business Day immediately preceding the first day of such proposed Special Dividend Period and (B) the Auction Agent shall deliver such notice to the Broker-Dealers promptly on such second Business Day.
(iii) If the Trust shall deliver to the Auction Agent
a notice not later than 3:00 P.M. on the second Business Day
immediately preceding the first day of such proposed Special Dividend
Period stating that the Trust has determined not to exercise its
option to designate such Dividend Period as a Special Dividend
Period, in the form of Exhibit E hereto, or shall fail to timely
deliver either such notice or a notice in the form of Exhibit D
hereto, the Auction Agent shall deliver a notice in the form of
Exhibit E hereto to the Broker-Dealers promptly on such second
Business Day. If the Trust fails to deliver either such notice
provided in this Section 2.7(b) hereof by 3:00 P.M., the Trust shall
be deemed to have delivered a notice to the Auction Agent with
respect to such Dividend Period to the effect set forth in this
Section 2.7(b)(iii), thereby resulting in a Standard Dividend Period.
Such change in the length of any Dividend Period shall not occur if
(1) an Auction for Preferred Shares shall not be held on such Auction Date for
any reason or (2) an Auction for Preferred Shares shall be held on such
Auction Date but Sufficient Clearing Bids for Preferred Shares shall not exist
in such Auction.
2.8 Default.
In the event the Trust fails to deliver amounts to the Auction Agent in accordance with the Statement of Preferences, all amounts payable by the Trust with respect to such Default, or Default which has been cured, will be delivered to the Auction Agent as set forth in the Statement of Preferences.
2.9 Ownership of Shares of Preferred Shares.
Neither the Trust nor any affiliate of the Trust shall submit any Order in any Auction for Preferred Shares, except as set forth in the next sentence. Any Broker-Dealer that is an affiliate of the Trust may submit Orders in Auctions, but only if such Orders are not for its own account. For purposes of this Section 2.9, a Broker-Dealer shall not be deemed to be an affiliate of the Trust solely because one or more of the directors or executive officers of such Broker-Dealer or of any Person controlled by, in control of or under common control with such Broker-Dealer is also a trustee of the Trust. The Auction Agent shall have no duty or liability with respect to the enforcement or otherwise of this Section 2.9.
2.10 Intentionally Omitted.
2.11 Access to and Maintenance of Auction Records.
The Auction Agent shall afford to the Trust, its agents, independent public accountants and counsel and the Broker-Dealers, access at reasonable times during normal business hours to review and make extracts or copies of all books, records, documents and other information concerning the conduct and results of Auctions (at no cost to the Auction Agent), provided that any such agent, accountant, counsel or Broker-Dealer shall furnish the Auction Agent with a letter from the Trust requesting that the Auction Agent afford such person access. The Auction Agent shall maintain records relating to any Auction for a period of six years after such Auction, and such records shall, in reasonable detail, accurately and fairly reflect the actions taken by the Auction Agent hereunder.
3. The Auction Agent as Dividend and Redemption Price Disbursing Agent.
The Auction Agent, as dividend and redemption price disbursing agent, shall pay to the Holders of Preferred Shares (i) on each Dividend Payment Date, dividends on the Preferred Shares, (ii) on any date fixed for redemption of Preferred Shares, the Redemption Price of the Preferred Shares called for redemption and (iii) any late charge related to any payment of dividends or Redemption Price, in each case after receipt of the necessary funds from the Trust with which to pay such dividends, Redemption Price or late charge. The amount of dividends for any Dividend Period to be paid by the Auction Agent to the Holders of Preferred Shares will be determined by the Trust as set forth in Section 2 of Part I of the Statement of Preferences. The Redemption Price of any shares to be paid by the Auction Agent to the Holders will be determined by the Trust as set forth in Section 3 of Part I of the Statement of Preferences. The Trust shall notify the Auction Agent in writing of a decision to redeem Preferred Shares at least one Business Day prior to the date a notice of redemption is required to be mailed to the Holders of the shares to be redeemed by paragraph (b) of Section 3 of Part I of the Statement of Preferences and shall notify the Auction Agent in writing on or prior to the 10th day preceding a Mandatory Redemption Date. Such notice by the Trust to the Auction Agent shall contain the information required by paragraph (b) of Section 3 of Part I of the Statement of Preferences to be stated in the notice of redemption required to be mailed by the Trust to such Holders.
4. The Auction Agent as Transfer Agent and Registrar.
4.1 Issue of Stock or Shares Certificates.
Upon the Date of Original Issue of Preferred Shares, one or more certificates representing all of the Preferred Shares issued on such date shall be issued by the Trust and, at the request of the Trust, registered in the name of Cede & Co. and countersigned by the Auction Agent.
4.2 Registration of Transfer of Shares.
Preferred Shares shall be registered solely in the name of the Securities Depository or its nominee.
4.3 Removal of Legend on Restricted Shares.
All requests for removal of legends on Preferred Shares indicating restrictions on transfer shall be accompanied by an opinion of counsel stating that such legends may be removed and such shares freely transferred, such opinion to be delivered under cover of a letter from a Trust Officer authorizing the Auction Agent to remove the legend on the basis of said opinion.
4.4 Lost Stock or Share Certificates.
The Auction Agent shall issue and register replacement certificates for certificates represented to have been lost, stolen or destroyed upon the fulfillment of such requirements as shall be deemed appropriate by the Trust and the Auction Agent, subject at all times to provisions of law, the By-Laws of the Trust governing such matters and resolutions adopted by the Trust with respect to lost securities. The Auction Agent shall not have any liability for loss incurred by the Trust or by any other person as a result of the receipt or acceptance of fraudulent, forged or invalid certificates or securities (or certificates or securities which are otherwise not freely transferable or deliverable without encumbrance in any relevant market). The Auction Agent may issue new certificates in exchange for and upon the cancellation of mutilated certificates. Any request by the Trust to the Auction Agent to issue a replacement or new certificate pursuant to this Section 4.4 shall be deemed to be a representation and warranty by the Trust to the Auction Agent that such issuance will comply with such provisions of law and the By-Laws and resolutions of the Trust.
4.5 Disposition of Cancelled Certificates; Record Retention.
The Auction Agent shall retain all stock or share certificates which have been cancelled in transfer or exchange and all accompanying documentation in accordance with applicable rules and regulations of the Securities and Exchange Commission for two calendar years. The Trust shall also undertake to furnish to the Securities and Exchange Commission and to the Board of Governors of the Federal Reserve System, upon demand, at either the principal office or at any regional office, complete, correct and current hard copies of any and all such records.
4.6 Stock or Record Books.
For so long as the Auction Agent is acting as the transfer agent for Preferred Shares pursuant to this Agreement, it shall maintain a stock or record book containing a list of the Holders of the Preferred Shares. In case of any request or demand for the inspection of the stock or record books of the Trust or any other books in the possession of the Auction Agent, the Auction Agent will notify the Trust and secure instructions as to permitting or refusing such inspection; provided, however, the Auction Agent shall allow inspection of such books and records in its possession without the consent of the Trust by its lawyers, accountants, regulators, auditors and other parties the Auction Agent deems necessary in order to carry out the normal operation of its business. The Auction Agent reserves the right, however, to exhibit the stock or record books or other books to any Person if (a) it is ordered to do so by a court of competent jurisdiction or a regulatory body, judicial or quasi-judicial agency or authority having the authority to compel such disclosure, (b) it is advised by its counsel that its failure to do so would be unlawful or (c) failure to do so would expose the Auction Agent to loss, liability, claim, damage or expense for which it has not received indemnity or security satisfactory to it.
4.7 Return of Funds.
Any funds deposited with the Auction Agent hereunder by the Trust for any reason, including but not limited to redemption of Preferred Shares, that remain unpaid after ninety days shall be repaid to the Trust upon the written request of the Trust.
5. Representations and Warranties.
5.1 Representations and Warranties of the Trust.
The Trust represents and warrants to the Auction Agent that:
(a) the Trust is duly organized and existing as a statutory trust in good standing under the laws of the State of Delaware and has full trust power or all requisite power to execute and deliver the Agreement and to authorize, create and issue the Preferred Shares, and the Preferred Shares when issued, will be duly authorized, validly issued, fully paid and nonassessable;
(b) the Agreement has been duly and validly authorized, executed and delivered by the Trust and constitutes the legal, valid and binding obligation of the Trust;
(c) the form of the certificate evidencing the Preferred Shares complies or will comply with all applicable laws of the State of its incorporation;
(d) when issued, the Preferred Shares will have been duly registered under the Securities Act of 1933, as amended, and no further action by or before any governmental body or authority of the United States or of any state thereof is required in connection with the execution and delivery of this Agreement or will have been required in connection with the issuance of Preferred Shares;
(e) the execution and delivery of this Agreement and the issuance and delivery of the Preferred Shares do not and will not conflict with, violate or result in a breach of, the terms, conditions or provisions of, or constitute a default under, the Agreement and Declaration of Trust (as amended) or the By-Laws of the Trust, any law or regulation, any order or decree of any court or public authority having jurisdiction, or any mortgage, indenture, contract, agreement or undertaking to which the Trust is a party or by which it is bound the effect of which conflict, violation, default or breach would be material to the Trust; and
(f) no taxes are payable upon or in respect of the execution of this Agreement or the issuance of the Preferred Shares.
5.2 Representations and Warranties of the Auction Agent.
The Auction Agent represents and warrants to the Trust that:
(a) The Auction Agent is duly organized and is validly existing as a banking corporation in good standing under the laws of the State of New York and has the corporate power to enter into and perform its obligations under this Agreement; and
(b) this Agreement has been duly and validly authorized, executed and delivered by the Auction Agent and constitutes the legal, valid and binding obligation of the Auction Agent, enforceable against the Auction Agent in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equitable principles.
6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Trust hereunder and owes no fiduciary duties to any Person except if provided by this Agreement.
(b) The Auction Agent undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Auction Agent.
(c) In the absence of gross negligence or willful misconduct on its part, the Auction Agent shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under the Agreement. The Auction Agent shall not be liable for any error of judgment resulting from the use or reliance on a source of information used in good faith unless the Auction Agent shall have been grossly negligent in the determination, calculation or declaration thereunder. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining (or failing to ascertain) the pertinent facts.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may conclusively rely and shall be fully protected in acting or refraining from acting upon any communication authorized hereby and upon any written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or document believed in good faith by it to be genuine. The Auction Agent shall not be liable for acting upon any telephone communication authorized hereby which the Auction Agent believes in good faith to have been given by the Trust or by a Broker-Dealer. The Auction Agent may record telephone communications with the Trust or with the Broker-Dealers or both.
(b) The Auction Agent may consult with counsel of its choice and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder.
(e) The Auction Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation strikes, work stoppages, acts of war or terrorism, insurrection, revolution, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions or utilities, communications or computer (software and hardware) services, it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
(f) The Auction Agent shall not be: (i) required to, and does not, make any representations or have any responsibilities as to the validity, accuracy, value or genuineness of any signatures or endorsements, other than its own; (ii) obligated to take any legal action hereunder that might, in its judgment, involve any expense or liability, unless it has been furnished with indemnity satisfactory to the Auction Agent; and (iii) responsible for or liable in any respect on account of the identity, authority or rights of any Person (other than itself and its agents and attorneys) executing or delivering or purporting to execute or deliver any document under this Agreement or any Broker-Dealer Agreement.
6.3 Compensation, Expenses and Indemnification.
(a) The Trust shall pay the Auction Agent an annual fee as compensation for all services rendered by it under this Agreement and the Broker-Dealer Agreements as the Trust and the Auction Agent have agreed to from time to time.
(b) The Trust shall reimburse the Auction Agent upon its request for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by the Auction Agent in accordance with any provision of this Agreement and the Broker-Dealer Agreements (including the compensation and the reasonable expenses and disbursements of its agents and counsel), except any expense or disbursement attributable to its gross negligence or willful misconduct. In no event shall the Auction Agent be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit), even if the Auction Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.
(c) To the extent, if any, that a court of competent jurisdiction would enforce such agreement as not contrary to law or public policy, the Trust hereby agrees to keep fully indemnified, on an after-tax basis, the Auction Agent (in its capacity as Auction Agent and, if applicable, in its capacity as transfer agent, registrar, dividend paying agent and redemption price disbursing agent and any other capacity contemplated by this Agreement) and its officers, directors, employees and agents for and hold them harmless against any loss, liability or expense incurred without gross negligence or willful misconduct on their part, arising out of or in connection with this Agreement and any Broker-Dealer Agreements, including the costs and expenses of defending itself against any such claim or liability in connection with its exercise or performance of any of its rights or duties hereunder and thereunder (which costs and expenses include the costs and expenses of the enforcement of this provision).
(d) The Auction Agent, in any of its various capacities, shall hold funds uninvested unless otherwise directed by the Trust. In the event the Trust directs the Auction Agent to invest funds in money market accounts or other investments agreed upon between the Auction Agent and the Trust, amounts of interest accrued to such invested funds will be returned to the Trust.
6.4 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity or adequacy of the Agreement, the Broker-Dealer Agreements or the Preferred Shares except that the Auction Agent hereby represents that this Agreement has been duly authorized, executed and delivered by the Auction Agent and constitutes a legal and binding obligation of the Auction Agent.
7. Miscellaneous.
7.1 Term of Agreement.
(a) The term of this Agreement is unlimited unless it shall be terminated as provided in this Section 7.1. The Trust may terminate this Agreement at any time by so notifying the Auction Agent, provided that the Trust has entered into an agreement in substantially the form of the Agreement with a successor Auction Agent. The Auction Agent may terminate this Agreement upon written notice to the Trust on the date specified in such notice, which date shall be no earlier than 30 days after the date of delivery of such notice.
(b) Except as otherwise provided in this paragraph (b), the respective rights and duties of the Trust and the Auction Agent under this Agreement with respect to the Preferred Shares shall cease upon termination of the Agreement. The Trust's representations, warranties, covenants and obligations to the Auction Agent under Sections 5 and 6.3 hereof shall survive the termination of the Agreement. Upon termination of this Agreement, the Auction Agent shall, at the Trust's request, promptly deliver to the Trust copies of all books and records maintained by it with respect to Preferred Shares in connection with its duties hereunder.
7.2 Communications.
Except for (a) communications authorized to be by telephone pursuant to this Agreement or the Auction Procedures and (b) communications in connection with Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be given to such party, addressed to it, at its address or telecopy number set forth below:
If to the Trust, The Gabelli Utility Trust
One Corporate Center
Rye, New York 10580-1422
Attention: Bruce N. Alpert
Telephone No.: 914-921-5158
Facsimile No.: 914-921-5100
If to the Auction Agent, The Bank of New York
100 Church Street, 8th Floor
New York, New York 10286
Telephone No.: 212-437-6166
Facsimile No.: 212-437-6155
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Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of the Trust by a Trust Officer and on behalf of the Auction Agent by telephone (confirmed by telecopy or in writing) by an Authorized Officer.
7.3 Entire Agreement.
This Agreement contains the entire agreement between the parties relating to, and superseding any prior agreement between the parties relating to, the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or implied, between the parties relating to the subject matter hereof except for agreements relating to the compensation of the Auction Agent.
7.4 Benefits.
Nothing herein, express or implied, shall give to any Person, other than the Trust, the Auction Agent and their respective successors and assigns, any benefit of any legal or equitable right, remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the party to be charged.
(b) Failure of either party hereto to exercise any right or remedy hereunder in the event of a breach hereof by the other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach.
7.6 Successors and Assigns.
This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and assigns of each of the Trust and the Auction Agent.
7.7 Severability.
If any clause, provision or section hereof shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof.
7.8 Disclosure of Information.
The Auction Agent agrees that it will not disclose or use any "non- public personal information" about the Trust's shareholders other than such uses or disclosures as are permitted by Regulation S-P under Section 504 of the Gramm Leach Biley Act ("Regulation S-P"). "Nonpublic personal information" about a shareholder shall mean: (a) personally identifiable financial information; (b) any list, description, or other grouping of consumers that is derived from using any personally identifiable information that is not publically available; and (c) any other information that a customer or the Transfer Agent is prohibited from using or disclosing pursuant to Regulation S-P.
7.9 Governing Law; Jurisdiction; and Waiver of Trial by Jury.
This Agreement shall be governed by, and interpreted and construed in accordance with, the substantive law of the State of New York. The parties agree that all actions and proceedings arising out of this Agreement or any transactions contemplated hereby shall be brought in the State of New York and, in connection with any such action or proceeding, submit to the jurisdiction of, and venue in, such State. Each of the parties hereto also irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of this agreement or the transaction contemplated hereby.
THE GABELLI UTILITY TRUST
THE BANK OF NEW YORK
[Auction Agency Agreement]
EXHIBIT A
FORM OF
BROKER-DEALER AGREEMENT
Exhibit B
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the procedures expected to be followed in connection with the settlement of each Auction and will be incorporated by reference in the Auction Agency Agreement and each Broker-Dealer Agreement. Nothing contained in this Exhibit B constitutes a representation by the Trust that in each Auction each party referred to herein will actually perform the procedures described herein to be performed by such party.
(a) By approximately 3:00 p.m., New York City time, on each Auction Date, the Auction Agent shall notify by telephone or through its auction processing system the Broker-Dealers that participated in the Auction held on such Auction Date and submitted an order on behalf of any Existing Holder or Potential Holder of:
(i) the Applicable Rate fixed for the next succeeding Dividend Period;
(ii) whether Sufficient Clearing Bids existed for the determination of the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker- Dealer") submitted a Bid or Sell Order on behalf of an Existing Holder, the number of shares, if any, of Preferred Shares to be sold by such Existing Holder;
(iv) if such Broker-Dealer (a "Buyer's Broker- Dealer") submitted a Bid on behalf of a Potential Holder, the number of shares, if any, of Preferred Shares to be purchased by such Potential Holder;
(v) if the aggregate number of Preferred Shares to be sold by all Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order exceeds the aggregate number of Preferred Shares to be purchased by all Potential Holders on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more Buyer's Broker-Dealers (and the name of the Agent Member with the Securities Depository, if any, of each such Buyer's Broker- Dealer) acting for one or more purchasers of such excess number of Preferred Shares and the number of such shares to be purchased from one or more Existing Holders on whose behalf such Broker-Dealer acted by one or more Potential Holders on whose behalf each of such Buyer's Broker-Dealers acted;
(vi) if the aggregate number of Preferred Shares to be purchased by all Potential Holders on whose behalf such Broker- Dealer submitted a Bid exceeds the aggregate number of Preferred Shares to be sold by all Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order, the name or names of one or more Seller's Broker Dealers (and the name of the Agent Member, if any, of each such Seller's Broker-Dealer) acting for one or more sellers of such excess number of Preferred Shares and the number of such shares to be sold to one or more Potential Holders on whose behalf such Broker-Dealer acted by one or more Existing Holders on whose behalf each of such Seller's Broker-Dealers acted; and
(vii) the Auction Date of the next succeeding Auction with respect to the Preferred Shares.
(b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Holder or Potential Holder shall:
(i) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer, instruct each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, to instruct such Potential Holder's Agent Member to pay to such Broker-Dealer (or its Agent Member) through the Securities Depository the amount necessary to purchase the number of Preferred Shares to be purchased pursuant to such Bid against receipt of such shares and advise such Potential Holder of the Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's Broker-Dealer, instruct each Existing Holder on whose behalf such Broker-Dealer submitted a Sell Order that was accepted, in whole or in part, to instruct such Existing Holder's Agent Member to deliver to such Broker-Dealer (or its Agent Member) through the Securities Depository the number of Preferred Shares to be sold pursuant to such Order against payment therefor and advise any such Existing Holder that will continue to hold Preferred Shares of the Applicable Rate for the next succeeding Dividend Period;
(iii) advise each Existing Holder on whose behalf such Broker-Dealer submitted a Hold Order of the Applicable Rate for the next succeeding Dividend Period;
(iv) advise each Existing Holder on whose behalf such Broker-Dealer submitted an Order of the Auction Date for the next succeeding Auction; and
(v) advise each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the Auction Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a) above, each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a Potential Holder or an Existing Holder shall, in such manner and at such time or times as in its sole discretion it may determine, allocated any funds received by it pursuant to (b)(i) above and any Preferred Shares received by it pursuant to (b)(ii) above among the Potential Holders, if any, on whose behalf such Broker-Dealer submitted Bids, the Existing Holders, if any, on whose behalf such Broker-Dealer submitted Bids that were accepted or Sell Orders, and any Broker-Dealer or Broker-Dealers identified to it by the Auction Agent pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Holder and Existing Holder shall instruct its Agent Member as provided in (b)(i) or (ii) above, as the case may be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of the Securities Depository shall instruct its Agent Member to (A) pay through the Securities Depository to the Agent Member of the Existing Holder delivering shares to such Broker- Dealer pursuant to (b)(ii) above the amount necessary to purchase such shares against receipt of such shares, and (B) deliver such shares through the Securities Depository to a Buyer's Broker-Dealer (or its Agent Member) identified to such Seller's Broker-Dealer pursuant to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of the Securities Depository shall instruct its Agent Member to (A) pay through the Securities Depository to a Seller's Broker-Dealer (or its Agent Member) identified pursuant to (a) (vi) above the amount necessary to purchase the shares to be purchased pursuant to (b) (i) above against receipt of such shares, and (B) deliver such shares through the Securities Depository to the Agent Member of the purchaser thereof against payment therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in (d) (i) above shall instruct the Securities Depository to execute the transactions described under (b) (i) or (ii) above, and the Securities Depository shall execute such transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall instruct the Securities Depository to execute the transactions described in (d) (ii) above, and the Securities Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Agent Member shall instruct the Securities Depository to execute the transactions described in (d) (iii) above, and the Securities Depository shall execute such transactions.
(f) If an Existing Holder selling Preferred Shares in an Auction fails to deliver such shares (by authorized book-entry), a Broker-Dealer may deliver to the Potential Holder on behalf of which it submitted a Bid that was accepted a number of whole Preferred Shares that is less than the number of shares that otherwise was to be purchased by such Potential Holder. In such event, the number of Preferred Shares to be so delivered shall be determined solely by such Broker-Dealer. Delivery of such lesser number of shares shall constitute good delivery. Notwithstanding the foregoing terms of this paragraph (f), any delivery or non-delivery of shares which shall represent any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or non-delivery in accordance with the provisions of the Auction Agency Agreement and the Broker- Dealer Agreements.
EXHIBIT C
THE GABELLI UTILITY TRUST
NOTICE OF PROPOSED CHANGE OF
LENGTH OF DIVIDEND PERIOD OF
SERIES B AUCTION MARKET PREFERRED STOCK
("Preferred Shares")
The Gabelli Utility Trust (the "Trust") may exercise its option to designate the Dividend Period of its Preferred Shares commencing [the first day of the Special Dividend Period] as a Special Dividend Period.
By 3:00 P.M., New York City time, on the second Business Day preceding the first day of such proposed Special Dividend Period, the Trust will notify ___________________ of either (a) its determination to exercise such option, designating the length of such Special Dividend Period or (b) its determination not to exercise such option.
THE GABELLI UTILITY TRUST
Dated: __________, 20__
EXHIBIT D
THE GABELLI UTILITY TRUST
NOTICE OF CHANGE OF LENGTH OF DIVIDEND PERIOD
SERIES B AUCTION MARKET PREFERRED STOCK
("Preferred Shares")
NOTICE IS HEREBY GIVEN that (the "Trust") has determined to designate the Dividend Period of its Preferred Shares commencing on [the first day of the Special Dividend Period] as a Special Dividend Period.
Capitalized terms not defined herein shall have the respective meanings specified in the Statement of Preferences or Auction Agency Agreement, as the case may be.
The Special Dividend Period will be __________ calendar days.
The Auction Date for the Special Dividend Period is the Business Day immediately preceding the first day of such Special Dividend Period.
As a result of the Special Dividend Period designation, the amount of dividends payable on Preferred Shares during the Special Dividend Period will be based on a 360-day year.
The Special Dividend Period shall not commence if (a) an Auction for Preferred Shares shall not be held on such Auction Date for any reason or (b) an Auction for Preferred Shares shall be held on such Auction Date but Sufficient Clearing Bids for such shares shall not exist in such Auction.
The scheduled Dividend Payment Dates for the Preferred Shares during such Special Dividend Period will be _________________________.
[Special Redemption Provisions, if any]
THE GABELLI UTILITY TRUST
Dated: __________, 20__
EXHIBIT E
THE GABELLI UTILITY TRUST
NOTICE OF DETERMINATION NOT TO CHANGE
LENGTH OF DIVIDEND PERIOD OF
SERIES B AUCTION MARKET PREFERRED STOCK
("Preferred Shares")
NOTICE IS HEREBY GIVEN that The Gabelli Utility Trust (the "Trust") has determined not to exercise its option to designate a Special Dividend Period of its Preferred Shares and the next succeeding Dividend Period will be a Standard Dividend Period of seven calendar days.
THE GABELLI UTILITY TRUST
Dated: __________, 20___
EXHIBIT F
THE GABELLI UTILITY TRUST
NOTICE OF CURE OF DEFAULT ON
SERIES B AUCTION MARKET PREFERRED STOCK
("Preferred Shares")
NOTICE IS HEREBY GIVEN that The Gabelli Utility Trust (the "Trust") has cured its Default and paid the applicable late charge with respect to its Preferred Shares. The next Auction Date for the Preferred Shares is scheduled to be on _________________, 20___.
THE GABELLI UTILITY TRUST
Dated: __________, 20___
EXHIBIT G
THE GABELLI UTILITY TRUST
NOTICE OF CURE OF DEFAULT ON
SERIES B AUCTION MARKET PREFERRED STOCK
("Preferred Shares")
NOTICE IS HEREBY GIVEN that The Gabelli Utility Trust (the "Trust") has cured its Default and paid the applicable late charge with respect to its Preferred Shares. The next Auction Date for the Preferred Shares is scheduled to be on _________________, 20___.
THE GABELLI UTILITY TRUST
Dated: __________, 20___
EXHIBIT H
THE GABELLI UTILITY TRUST
NOTICE OF
[CAPITAL GAINS] [AND] [TAXABLE ORDINARY INCOME](1)
DIVIDEND FOR
SERIES B AUCTION MARKET PREFERRED STOCK
("Preferred Shares")
NOTICE IS HEREBY GIVEN that the amount of the dividend payable on ________________, 20____ for The Gabelli Utility Trust's Preferred Shares will be determined by the Auction to be held on _______________, 20___. Up to [$ A ](2) [$ B ](3) per share of the dividend payable on such date as determined by such Auction will consist of [capital gains](2) [ordinary income taxable for Federal income tax purposes](3). If the dividend amount payable on such date as determined by such Auction is less than [$ A ](2) [$ B ](3) per share, the entire amount of the dividend will consist of [capital gains](2) [ordinary income taxable for Federal income tax purposes](3). [To the extent such dividend amount exceeds [$ A ] per share, any excess up to [$ B ] per share will consist of ordinary income taxable for Federal income tax purposes.](4) Accordingly, the aforementioned composition of the dividend payable on _______________, 20___ should be considered in determining Orders to be submitted with respect to the Auction to be held on ________________, 20__. The Rate Multiple in effect for such Auction will be ____%.
THE GABELLI UTILITY TRUST
(1) Include language with respect to capital gains, taxable ordinary income or both, depending on the character of the designation to be made with respect to the dividend(s).
(2) Include bracketed material if a portion of the dividend will be designated capital gains.
(3) Include bracketed material if a portion of the dividend will be designated ordinary income taxable for Federal income tax purposes and no portion of the dividend will be designated capital gains.
(4) Include bracketed material if a portion of the dividend will be designated capital gains and a portion will be designated ordinary income taxable for Federal income tax purposes.
A = the maximum amount of capital gains allocated to the Preferred Shares to be included in such dividend, divided by the number of Preferred Shares.
B = the maximum amount of ordinary income taxable for Federal income tax purposes allocated to the Preferred Shares to be included in such dividend, divided by the number of preferred shares.
Exhibit 99(k)(iii)
BROKER-DEALER AGREEMENT
between
THE BANK OF NEW YORK
as Auction Agent
and
as Broker-Dealer
Dated as of , 2003
Relating to
SERIES B AUCTION MARKET PREFERRED SHARES OF
THE GABELLI UTILITY TRUST
BROKER-DEALER AGREEMENT dated as of , 2003 (this "Agreement"),
among (i) The Bank of New York, a New York banking corporation, as auction agent
(the "Auction Agent") (not in its individual capacity but solely as agent)
pursuant to authority granted to it in the Auction Agency Agreement, dated
as of , 2003, (the "Auction Agency Agreement") between The Gabelli
Utility Trust, a Delaware statutory trust (the "Trust"), and the Auction Agent
and (ii) each broker-dealer whose name appears on the signature page hereof,
as broker-dealer (together with its successors and assigns as such hereinafter
referred to as "BD").
The Trust intends to issue shares of Series B Auction Market Preferred Shares, par value $0.001 per share, liquidation preference $25,000 per share (the "Preferred Shares") pursuant to the Trust's Statement of Preferences, as defined below. The shares of Preferred Shares shall be issued in book-entry form through the facilities of the Securities Depository. References to "Preferred Shares" in this Agreement shall refer only to the beneficial interests in the Preferred Shares unless the context otherwise requires.
The Auction Procedures require the participation of a Broker-Dealer.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Auction Agent and BD agree as follows:
1. Definitions and Rules of Construction
1.1 Terms Defined by Statement of Preferences. Capitalized terms not defined herein shall have the respective meanings specified in the Statement of Preferences.
1.2 Terms Defined Herein. As used herein and in the Settlement Procedures, the following terms shall have the following meanings, unless the context otherwise requires:
(a) "Agent Member" of any Person shall mean the member of, or participant in, the Securities Depositary that will act on behalf of a Bidder.
(b) "Agreement" with respect to the Trust shall mean this Agreement as may be amended in writing with written consent of the Trust.
(c) "Auction" shall have the meaning specified in Section 2.1 hereof.
(d) "Auction Procedures" shall mean the auction procedures constituting Part II of the form of Statement of Preferences as of the filing thereof.
(e) "Authorized Officer" of the Auction Agent shall mean each Vice President, Assistant Vice President and Assistant Treasurer of the Auction Agent assigned to the Dealing and Trading Group of its Corporate Trust Department and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes hereof in a written communication to the Trust.
(f) "Trust Officer" shall mean the Chairman and Chief Executive Officer, the President, each Vice President (whether or not designated by a number or word or words added before or after the title "Vice President"), the Secretary, the Treasurer, each Assistant Vice President, each Assistant Secretary and each Assistant Treasurer of the Trust and every other officer or employee of the Trust designated as a "Trust Officer" for purposes hereof in a notice to the Auction Agent.
(g) "Preferred Shares" shall mean the preferred shares, par value $.001 per share, of the Trust designated as its "Series B Auction Market Preferred Shares" and bearing such further designation as to series as the Board of Trustees, as the case may be, of the Trust or any committee thereof shall specify.
(h) "Settlement Procedures" shall mean the Settlement Procedures attached to the Auction Agency Agreement as Exhibit B.
(i) "Statement of Preferences" shall mean the Statement of Preferences Creating and Fixing the Rights of the Series B Auction Market Preferred Shares, as the same may be amended, supplemented or modified from time to time.
1.3 Rules of Construction. Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of this Agreement:
(a) Words importing the singular number shall include the plural number and vice versa.
(b) The captions and headings herein are solely for convenience of reference and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to New York City time.
(e) Section 1 and 2 hereof shall be read in conjunction with the Statement of Preferences and in the event of any conflict with the Statement of Preferences, the Statement of Preferences shall take precedence.
1.4 Warranty of BD. BD hereby represents and warrants that this Broker-Dealer Agreement has been duly authorized, executed and delivered by BD and that, assuming the due authorization, execution and delivery hereof by the Auction Agent, this Broker-Dealer Agreement constitutes a valid and binding agreement of BD, enforceable against it in accordance with its terms. BD's representation and warranty in this Section 1.4 shall survive the termination of this Agreement.
2. The Auctions
2.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures.
(a) On each Auction Date, the provisions of the Auction Procedures will be followed by the Auction Agent for the purpose of determining the Applicable Rate for the Preferred Shares for the next Dividend Period. Each periodic implementation of such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions were fully set forth herein.
(c) BD agrees to act as, and assumes the obligations of and limitations and restrictions placed upon, a Broker-Dealer under this Agreement. BD understands that other Persons meeting the requirements specified in the definition of "Broker-Dealer" contained in Section 13 of Part I of the Statement of Preferences may execute a Broker-Dealer Agreement and participate as Broker-Dealers in Auctions.
(d) BD acknowledges and agrees that each provision of the Auction Procedures that requires BD to perform an obligation or procedure is hereby incorporated herein by reference and that this Agreement shall constitute the Trust's instruction, and BD hereby agrees, to perform such obligations and procedures without further request by or instructions from the Trust.
(e) BD may participate in Auctions for its own account unless the Trust notifies all Broker-Dealers that they may no longer do so, in which case BD may continue to submit Hold Orders or Sell Orders for its own account. The Auction Agent shall have no duty to monitor whether or not the BD has complied with the provisions of this Section 2.1(e).
2.2 Preparation for Each Auction.
(a) Not later than 9:30 a.m. on each Auction Date for the Preferred Shares, the Auction Agent shall advise BD by telephone or other electronic means, and shall promptly confirm such advice in writing, of (i) the Maximum Rate and (ii) when applicable, the Reference Rate.
(b) As promptly as practicable after determining each Auction Date, but not later than 9:15 a.m. on the Business Day preceding such Auction Date, the Auction Agent shall notify BD, by such means as the Auction Agent deems practicable, of the scheduled date of such Auction Date. If the Auction Date for any Auction shall be changed after the Auction Agent has given such notice or the notice referred to in clause (vii) of paragraph (a) of the Settlement Procedures, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of such change to BD not later than the earlier of (x) 9:15 a.m. on the new Auction Date, and (y) 9:15 a.m. on the original Auction Date. Thereafter, BD shall promptly notify customers of BD that are Existing Holders of such change in the Auction Date.
(c) If required by applicable law, or requested by the Auction Agent, BD shall provide a list of Existing Holders based upon inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as a result of the most recent Auction to the Auction Agent promptly after any date so requested by the Auction Agent. The Auction Agent shall keep confidential any such information, including information received as to the identity of Bidders in any Auction, and shall not disclose any such information so provided to any Person other than the other parties hereto, provided that the Auction Agent reserves the right to disclose any such information if (a) it is ordered to do so by a court of competent jurisdiction or a regulatory body, judicial or quasi-judicial agency or authority having the authority to compel such disclosure, (b) it is advised by its counsel that its failure to do so would be unlawful, or (c) failure to do so would expose the Auction Agent to loss, liability, claim, damage or expense for which it has not received indemnity satisfactory to it.
(d) BD agrees to maintain a list of customers relating to the Preferred Shares and to contact the customers on such list whom BD believes may be interested in participating in the Auction on each Auction Date, as a Potential Holder, for the purposes set forth in the Auction Procedures. Nothing herein shall require BD to submit an Order for any customer in any Auction.
(e) The Auction Agent's registry of Existing Holders of Preferred Shares shall be conclusive and binding on BD. BD may inquire of the Auction Agent between 3:00 p.m. on the Business Day preceding an Auction for Preferred Shares and 9:30 a.m. on the Auction Date for such Auction to ascertain the number of Preferred Shares in respect of which the Auction Agent has determined BD to be an Existing Holder. If BD believes it is the Existing Holder of fewer Preferred Shares than specified by the Auction Agent in response to BD's inquiry, BD may so inform the Auction Agent of that belief. BD shall not, in its capacity as Existing Holder of Preferred Shares, submit Orders in such Auction in respect of Preferred Shares covering in the aggregate more than the number of Preferred Shares specified by the Auction Agent in response to BD's inquiry.
2.3 Auction Schedule; Method of Submission of Orders.
(a) The Auction Agent shall conduct Auctions in accordance with the schedule set forth below. Such schedule may be changed at any time by the Auction Agent with the consent of the Trust, which consent shall not be unreasonably withheld. The Auction Agent shall give written notice of any such change to BD which shall have the right to review such change. Such notice shall be received prior to the close of business on the Business Day immediately preceding the first Auction Date on which any such change shall be effective.
Time Event
---- -----
By 9:30 a.m. Auction Agent advises the Trust and
the Broker-Dealer of (i) the
applicable Maximum Rate and (ii) when
applicable, the Reference Rate or the
Treasury Index Rate as set forth in
Section 2.2(a) hereof.
9:30 a.m. - 1:30 p.m. Auction Agent assembles information
communicated to it by Broker-Dealer as
provided in Section 2(a) of the
Auction Procedures. Submission
Deadline is 1:30 p.m.
Not earlier than Auction Agent makes determinations
3:00 p.m. pursuant to 4(a) of the Auction
Procedures.
By approximately Auction Agent advises the Trust of
3:00 p.m. results of Auction as provided in
Section 4(b) of the Auction
Procedures. Submitted Bids and
Submitted Sell Orders are accepted and
rejected in whole or in part and
Preferred Shares are allocated as
provided in Section 5 of the Auction
Procedures. Auction Agent gives notice
of Auction results as set forth in
paragraph (a) of the Settlement
Procedures.
|
(b) BD may designate one or more individuals in its organization who will coordinate its procedures in connection with Auctions and purchases and sales of Preferred Shares.
(c) BD agrees to handle its customers' orders in accordance with its duties under applicable securities laws and rules.
(d) To the extent that pursuant to Section 5 of the Auction Procedures of the Trust, BD continues to hold, sell or purchase a number of shares that is fewer than the number of shares in an Order submitted by BD to the Auction Agent in which BD designated itself as an Existing Holder or Potential Holder in respect of customer Orders, BD shall make appropriate pro rata allocations among its customers for which it submitted Orders of similar tenor. If as a result of such allocations, any Existing Holder would be entitled or required to sell, or any Existing Holder would be entitled or required to purchase, a fraction of a Preferred Share on any Auction Date, BD shall, in such manner as it shall determine in its sole discretion, round up or down the number of Preferred Shares to be purchased or sold on such Auction Date by any Existing Holder or Potential Holder on whose behalf BD submitted an Order so that the number of shares so purchased or sold by each such Existing Holder or Potential Holder on such Auction Date shall be whole shares.
(e) BD shall submit Orders to the Auction Agent in writing in substantially the form attached hereto as Exhibit A prior to 1:30 p.m. on each Auction Date. BD shall submit separate Orders to the Auction Agent for each Potential Holder or Existing Holder on whose behalf BD is submitting an Order and shall not net or aggregate the Orders of Potential Holders or Existing Holders on whose behalf BD is submitting Orders. Any Order submitted by BD to the Auction Agent prior to the Submission Deadline on any Auction Date shall be irrevocable.
(f) BD shall deliver to the Auction Agent a written notice, substantially in the form attached hereto as Exhibit B, of transfers of Preferred Shares made through BD by an Existing Holder to another Person other than pursuant to an Auction and a written notice, substantially in the form attached hereto as Exhibit C, of the failure of any Preferred Shares to be transferred to or by any Person that purchased or sold Preferred Shares through BD pursuant to an Auction. The Auction Agent is not required to accept any notice delivered pursuant to the terms of the foregoing sentence with respect to an Auction unless it is received by the Auction Agent by 3:00 p.m. on the Business Day immediately preceding the applicable Auction Date.
2.4 Notices.
(a) On each Auction Date, the Auction Agent shall notify BD by telephone or facsimile (or other electronic means acceptable to both parties) of the results of the Auction as set forth in paragraph (a) of the Settlement Procedures. By approximately 11:30 a.m. on the Business Day immediately succeeding such Auction Date, the Auction Agent shall notify BD in writing of the disposition of all Orders submitted by BD in the Auction held on such Auction Date.
(b) BD shall notify each Existing Holder or Potential Holder on whose behalf BD has submitted an Order as set forth in paragraph (b) of the Settlement Procedures and take such other action as is required of BD pursuant to the Settlement Procedures.
2.5 Designation of Special Dividend Period.
(a) If the Trust delivers to its Auction Agent a notice of the Auction Date for the Preferred Shares of the Trust for a Dividend Period thereof that next succeeds a Special Dividend Period, the Auction Agent shall deliver such notice to BD as promptly as practicable after its receipt of such notice from the Trust.
(b) If the Board of Trustees of the Trust proposes to designate any Dividend Period as a Special Dividend Period and the Trust delivers to its Auction Agent a notice of such proposed Special Dividend Period in the form of Exhibit C to the Auction Agency Agreement, such Auction Agent shall deliver such notice to BD as promptly as practicable after its receipt of such notice from the Trust.
(c) If the Board of Trustees of the Trust determines to designate such Dividend Period as a Special Dividend Period, and the Trust delivers to its Auction Agent a notice of such Special Dividend Period in the form of Exhibit D to the Auction Agency Agreement not later than 3:00 p.m. on the second Business Day next preceding the first day of such Dividend Period, such Auction Agent shall deliver such notice to BD promptly after being notified by the Trust on such second Business Day.
(d) If the Trust shall deliver to its Auction Agent a notice not later than 3:00 p.m. on the second Business Day next preceding the first day of a proposed Special Dividend Period stating that the Trust has determined not to exercise its option to designate such Dividend Period as a Special Dividend Period, in the form of Exhibit E to the Auction Agency Agreement, or shall fail to timely deliver either such notice or a notice in the form of Exhibit D to the Auction Agency Agreement, such Auction Agent shall deliver a notice in the form of Exhibit E to the Auction Agency Agreement to BD promptly after being notified by the Trust on such second Business Day.
2.6 Intentionally Omitted.
2.7 Default.
(a) If: (i) any Default shall have occurred with respect to Preferred Shares of the Trust during any Dividend Period thereof, but, prior to 12:00 noon, New York City time, on the third Business Day next succeeding the date on which such Default occurred, such Default shall have been cured in accordance with Section 2.8 of the Auction Agency Agreement, then such Auction Agent shall deliver a notice in the form of Exhibit F to the Auction Agency Agreement by first-class mail, postage prepaid, to BD not later than one Business Day after its receipt of the payment from the Trust curing such Default and such Late Charge; provided, however that no delivery of notice in the form of Exhibit F shall be required if, prior to one Business Day after its receipt of the payment from the Trust, the Auction Agent has otherwise informed BD of its receipt of payment from the Trust.
(b) If any Default shall have occurred with respect to Preferred Shares of the Trust during any Dividend Period thereof, and, prior to 12:00 noon, New York City time, on the third Business Day next succeeding the date on which such Default occurred, such Default shall not have been cured as described in Section 2.8 of the Auction Agency Agreement or the Trust shall not have paid to the Auction Agent the applicable Late Charge described in Section 2.8 of the Auction Agency Agreement; then such Auction Agent shall deliver a notice in the form of Exhibit G to the Auction Agency Agreement to the Broker-Dealers not later than one Business Day after the receipt of the payment from the Trust curing such Default and Late Charge.
2.8 Service Charge to Be Paid to BD.
(a) No later than 12:00 noon on each Dividend Payment Date, the Auction Agent after each Auction will pay a service charge from funds provided by the Trust to each Broker-Dealer on the basis of the purchase price of Preferred Shares placed by such Broker-Dealer at such Auction. The service charge shall be (i) in the case of any Dividend Period of less than 365 days, the product of (A) a fraction, the numerator of which is the number of days in such Dividend Period and the denominator of which is 360, times (B) 1/4 of 1%, times (C) $25,000 times (D) the aggregate number of Preferred Shares placed by such Broker-Dealer at such Auction and (ii) in the case of any Dividend Period of 365 days or more, the amount determined by mutual consent of the Trust and any such Broker-Dealers and shall be based upon a selling concession that would be applicable to an underwriting of fixed or variable rate Preferred Shares with a similar final maturity or variable rate dividend period, respectively, at the commencement of the Dividend Period with respect to such Auction. For the purpose of this Section 2.8(a), Preferred Shares will be considered "placed" by a Broker-Dealer if such shares were (I) the subject of Hold Orders deemed to have been submitted to the Auction Agent by the Broker-Dealer and were acquired by such Broker-Dealer for its customers who are Beneficial Owners or (II) the subject of an order submitted by such Broker-Dealer that is (A) a Submitted Bid of an Existing Holder that resulted in such Existing Holder continuing to hold such shares as a result of the Auction, (B) a Submitted Bid of a Potential Holder that resulted in such Potential Holder purchasing such shares as a result of the Auction or (C) a valid Hold Order.
(b) If the Trust determines to change the rate at which the Broker-Dealer Fee accrues, the Trust shall mail to the Auction Agent a notice thereof within two Business Days of such change. Any change in the Broker-Dealer fee rate shall be effective on the Auction Date next succeeding the Auction Agent's receipt of notice of such change.
2.9 Settlement.
(a) If any Existing Holder selling Preferred Shares in an
Auction fails to deliver such Preferred Shares (by authorized book-entry), the
BD of any Person that was to have purchased Preferred Shares in such Auction
may deliver to such Person a number of Preferred Shares that is less than the
number of Preferred Shares that otherwise were to be purchased by such Person.
In such event, the number of Preferred Shares to be so delivered shall be
determined by BD. Delivery of such lesser number of Preferred Shares shall
constitute good delivery. Upon the occurrence of any such failure to deliver
Preferred Shares, BD shall deliver to the Auction Agent the notice required by
Section 2.3(f) hereof. Notwithstanding the foregoing provisions of this
Section 2.9(a), any delivery or non-delivery of Preferred Shares which
represents any departure from the results of an Auction, as determined by the
Auction Agent, shall be of no effect unless and until the Auction Agent shall
have been notified of such delivery or non-delivery in accordance with the
terms of Section 2.3(f) hereof. The Auction Agent shall have no duty or
liability with respect to enforcement of this Section 2.9(a).
(b) Neither the Auction Agent nor the Trust shall have any responsibility or liability with respect to the failure of an Existing Holder, a Potential Holder or an Agent Member or any of them to deliver Preferred Shares or to pay for Preferred Shares sold or purchased pursuant to the Auction Procedures or otherwise.
(c) Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event BD is an Existing Holder with respect to Preferred Shares and the Auction Procedures provide that BD shall be deemed to have submitted a Sell Order in an Auction with respect to such shares if BD fails to submit an Order in that Auction with respect to such shares, BD shall have no liability to any Person for failing to sell such shares pursuant to such a deemed Sell Order if (i) such shares were transferred by the beneficial owner thereof without notification of such transfer in compliance with the Auction Procedures or (ii) BD has indicated to the Auction Agent pursuant to Section 2.2(f) of this Agreement that, according to BD's records, BD is not the Existing Holder of such shares.
(d) Notwithstanding any provision of the Auction Procedures or the Settlement Procedures to the contrary, in the event an Existing Holder of Preferred Shares with respect to whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that was accepted in whole or in part, or submitted or is deemed to have submitted a Sell Order for such shares that was accepted in whole or in part, fails to instruct its Agent Member to deliver such shares against payment therefore, partial deliveries of Preferred Shares that have been made in respect of Potential Holders' Submitted Bids for Preferred Shares that have been accepted in whole or in part shall constitute good delivery to such Potential Holders.
3. The Auction Agent
3.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Trust hereunder and owes no duties, fiduciary or otherwise, to any Person other than by reason of the Auction Agency Agreement.
(b) The Auction Agent undertakes to perform such duties and only such duties as are specifically set forth in this Agreement and the Auction Agency Agreement, and no implied covenants or obligations shall be read into this Agreement, the Auction Agency Agreement, Auction Procedures or the Settlement Procedures against the Auction Agent.
(c) In the absence of gross negligence or willful misconduct on its part, the Auction Agent shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under the Agreement. The Auction Agent shall not be liable for any error of judgment resulting from the use or reliance on a source of information used in good faith unless the Auction Agent shall have been grossly negligent in the determination, calculation or declaration thereunder. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining (or failing to ascertain) the pertinent facts.
(d) The Auction Agent shall not be: (i) required to, and does not, make any representations or have any responsibilities as to the validity, accuracy, value or genuineness of any signatures or endorsements, other than its own; (ii) obligated to take any legal action hereunder that might, in its judgment, involve any expense or liability, unless it has been furnished with indemnity satisfactory to the Auction Agent; and (iii) responsible for or liable in any respect on account of the identity, trust or rights of any Person (other than itself and its agents and attorneys) executing or delivering or purporting to execute or deliver any document under this Agreement or any Broker-Dealer Agreement.
3.2 Rights of the Auction Agent.
(a) The Auction Agent may conclusively rely and shall be fully protected in acting or refraining from acting upon any communication authorized by this Agreement and upon any written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or document believed by it to be genuine. The Auction Agent shall not be liable for acting upon any communication authorized by this Agreement (including, but not limited to, any made by telephone, telecopier or other means of electronic communication acceptable to the parties hereto) which the Auction Agent believes in good faith to have been given by the Trust or by BD. The Auction Agent may record telephone communications with BD.
(b) The Auction Agent may consult with counsel of its own choice, and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care.
(e) The Auction Agent shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, it being understood that the Auction Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
(f) The Auction Agent shall in no event be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit), even if the Auction Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.
3.3 Auction Agent's Disclaimer. The Auction Agent makes no representation as to, and shall have no liability with respect to, the correctness of the recitals in, or the validity, adequacy or accuracy of, this Agreement, the Auction Agency Agreement, the Auction Procedures, the offering material used in connection with the offer and sale of the Preferred Shares or any other agreement or instrument executed in connection with the transactions contemplated herein or in any thereof.
4. Duties and Responsibilities of BD
(a) BD undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement, the Auction Agency Agreement or Settlement Procedures against BD.
(b) In the absence of gross negligence or willful misconduct on its part, BD shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties under this Agreement. BD shall not be liable for any error of judgment resulting from the use or reliance on a source of information used in good faith and without gross negligence to make any determination, calculation or declaration hereunder. BD shall not be liable for any error of judgment made in good faith unless BD shall have been grossly negligent in ascertaining or failing to ascertain the pertinent facts.
(c) BD shall not be: (i) required to, and does not, make any
representations or have any responsibilities as to the validity, accuracy,
value or genuineness of any signatures or endorsements, other than its own;
(ii) obligated to take any legal action hereunder that might, in its judgment,
involve any expense or liability, unless it has been furnished with indemnity
satisfactory to BD; and (iii) responsible for or liable in any respect on
account of the identity, trust or rights of any Person (other than itself and
its agents and attorneys) executing or delivering or purporting to execute or
deliver any document under this Agreement or any Broker-Dealer Agreement.
(d) BD shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; epidemics; riots; interruptions, loss or malfunctions of utilities, Internet or communications services; acts of civil or military authority; or governmental actions; it being understood that BD shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
5. Miscellaneous
5.1 Termination. (a) Any party may terminate this Agreement at any time upon five (5) days written notice to the other parties, which notice may be given by facsimile as provided in Section 5.3 hereof. This Agreement shall automatically terminate upon the redemption of all outstanding Preferred Shares or upon termination of the Auction Agency Agreement.
(b) BD represents that it (or if BD does not act as Agent Member, one of its affiliates) shall make all dividend payments on the Preferred Shares available in same-day funds on each Dividend Payment Date to customers that use BD or affiliate as Agent Member.
5.2 Agent Member. BD is, and shall remain for the term of this Agreement, a member of, or participant in, the Securities Depository (or an affiliate of such a member or participant).
5.3 Communications. Except for (i) communications authorized to be by telephone pursuant to this Agreement or the Auction Procedures and (ii) communications in connection with the Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (for the purposes of this Agreement, telecopy or other means of electronic communication acceptable to the parties shall be deemed to be in writing) and shall be given to such party, addressed to it, at its address, telecopy number set forth below and, where appropriate reference the particular Auction to which such notice relates:
If to BD, [
addressed:
]
Attention: Auction Trading Desk
Telephone No.: 212-[ ]
Facsimile No.: 212-[ ]
If to the Auction The Bank of New York
Agent, addressed: 100 Church Street, 8th Floor
New York, New York 10286
Attention: Dealing and Trading Group - Auction Desk
Telephone No.: 212-437-6166
Facsimile No.: 212-437-6155
If to the Trust, The Gabelli Utility Trust
addressed: One Corporate Center
Rye, New York 10580-1422
Attention: Bruce N. Alpert
Telephone No.: 914-921-5158
Facsimile No.: 914-921-5100
|
or such other address or facsimile number as such party may hereafter specify for such purpose by notice to the other parties. Each such notice, request or communication shall be effective when delivered at the address specified herein. Communications shall be given on behalf of BD by a BD Officer, on behalf of the Auction Agent by an Authorized Officer and on behalf of the Trust by a Trust Officer. Telephone communications may be recorded.
5.4 Entire Agreement. This Agreement contains the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or inferred, between the parties relating to the subject matter hereof.
5.5 Benefits. Nothing in this Agreement, express or implied, shall give to any person, other than the Auction Agent, the Trust and BD and their respective successors and permitted assigns, any benefit of any legal or equitable right, remedy or claim under this Agreement.
5.6 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of each of the parties hereto.
(b) Failure of any party to this Agreement to exercise any right or remedy hereunder in the event of a breach of this Agreement by any other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach.
5.7 Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and permitted assigns of each of the parties hereto. This Agreement may not be assigned by any party hereto absent the prior written consent of the other parties.
5.8 Severability. If any clause, provision or section of this Agreement shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any remaining clause, provision or section hereof.
5.9 Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
5.10 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ANY PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW, OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF NEW YORK). THE PARTIES AGREE THAT ALL ACTIONS AND PROCEEDINGS ARISING OUT OF THIS BROKER-DEALER AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY SHALL BE BROUGHT IN THE COURTS LOCATED IN THE BOROUGH OF MANHATTAN, CITY OF NEW YORK, STATE OF NEW YORK. EACH PARTY WAIVES ANY OBJECTION THAT IT MAY HAVE THAT SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN THE COURTS LOCATED IN THE BOROUGH OF MANHATTAN, CITY OF NEW YORK AND STATE OF NEW YORK WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME. EACH OF THE PARTIES HERETO ALSO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first above written.
THE BANK OF NEW YORK
as Auction Agent
[ ] as Broker-Dealer
Title:
[Broker-Dealer Agreement]
Exhibit A
To BROKER-DEALER
AGREEMENT
AUCTION BID FORM
(Submit only one Order on this Order Form)
THE GABELLI UTILITY TRUST
Series B Auction Market Preferred Shares ("Preferred Shares")
To: The Bank of New York Date of Auction ______________
100 Church Street, 8th Floor
New York, New York 10286
|
Attention: Dealing and Trading Group - Auction Desk
Telephone No.: 212-437-6166
Telecopier No.: 212-437-6155
The undersigned Broker-Dealer submits the following Order on behalf of the Bidder listed below:
Name of Bidder: __________________________________
Bidder placed the Order listed below covering the number of shares indicated (complete only one blank):
_________________ number of Preferred Shares now held by
Bidder (an Existing Holder), and the Order is a (check one):
|_| Hold Order; or
|_| Bid at a rate of ____%; or
|_| Sell Order;
-- or -
_________________ number of Preferred Shares not now held by Bidder (a Potential Holder), and the Order is a Bid at a rate of ______%
Notes:
(1) If submitting more than one Bid for one Bidder, use additional Order Forms.
(2) If one or more Bids covering in the aggregate more than the outstanding number of Preferred Shares held by any Existing Holder are submitted, such Bids shall be considered valid in the order of priority set forth in the Auction Procedures.
(3) A Hold or Sell Order may be placed only by an Existing Holder covering a number of Preferred Shares not greater than the number of Preferred Shares currently held by such Existing Holder.
(4) Potential Holders may make Bids only, each of which must specify a rate. If more than one Bid is submitted on behalf of any Potential Holder, each Bid submitted shall be a separate Bid with the rate specified.
(5) Bids may contain no more than three figures to the right of the decimal point (.001 of 1%).
(6) An Order must be submitted in whole Preferred Shares with an aggregate liquidation preference of $25,000.
Name of Broker-Dealer:____________________ By: _________________________________
Exhibit B
To BROKER-DEALER
AGREEMENT
(To be used only for transfers made other than pursuant to an Auction)
TRANSFER FORM
THE GABELLI UTILITY TRUST
Series B Auction Market Preferred Shares ("Preferred Shares")
We are (check one):
|_| the Existing Holder named below; or
|_| the Broker-Dealer for such Existing Holder; or
|_| the Agent Member for such Existing Holder.
We hereby notify you that such Existing Holder will transfer ___ Preferred Shares to ____________________.
| THE GABELLI UTILITY TRUST
|
|
------------------------------------|------------------------------------------ | By:
| --------------------------------------
| Name:
| Title:
|
|
------------------------------------|------------------------------------------
| (Name of Existing Holder)
|
|
------------------------------------|------------------------------------------
| (Name of Broker-Dealer)
|
|
------------------------------------|------------------------------------------
| (Name of Agent Member)
|
|
------------------------------------|------------------------------------------
| By:
| -------------------------------------
| Name:
| Title:
Exhibit C
To BROKER-DEALER
AGREEMENT
(To be used only for failures to deliver Preferred Shares sold pursuant to an Auction)
NOTICE OF A FAILURE TO DELIVER
THE GABELLI UTILITY TRUST
Series B Auction Market Preferred Shares ("Preferred Shares")
Complete either I. or II.
I. We are a Broker-Dealer for ______________ (the "Purchaser"), which purchased ____ Preferred Shares in the Auction held on __________________ from the seller of such Preferred Shares.
II. We are a Broker-Dealer for _____________ (the "Seller"), which sold ____ Preferred Shares in the Auction held on ____________________ to the purchaser of such Preferred Shares.
We hereby notify you that (check one):
__________ the Seller failed to deliver such Preferred Shares to
the Purchaser; or
__________ the Purchaser failed to make payment to the Seller
upon delivery of such Preferred Shares.
| Name:
| ----------------------------------
| (Name of Broker-Dealer)
|
|
|
------------------------------------|------------------------------------------
|
| By:
| -----------------------------------
| Printed Name:
| Title:
|
Capitalized terms used in this letter, unless otherwise defined herein, shall have the meanings set forth in the Statement of Preferences Creating and Fixing the Rights of the Series B Auction Market Preferred Shares, as the same may be amended, supplemented or modified from time to time.
(Name of Purchaser)
Title:
Dated:
Exhibit 99(k)(iv)
The Depository Trust Company A subsidiary of The Depository Trust & Clearing Corporation
BLANKET ISSUER LETTER OF REPRESENTATIONS
The Depository Trust Company
General Counsel's Office; 49th Floor
55 Water Street
New York, NY 10041-0099
Ladies and Gentlemen:
This letter sets forth our understanding with respect to all issues (the "Securities") that Issuer shall request be made eligible for deposit by The Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC, and to act in accordance with DTCs Rules with respect to the Securities, Issuer represents to DTC that Issuer will comply with the requirements stated in DTCs Operational Arrangements, as they may be amended from time to time.
Note: Very truly yours,
----
Schedule A contains statements The Gabelli Utility Trust
that DTC believes accurately ----------------------------------
describe DTC, the method of (Issuer)
effecting book-entry transfers
securities distributed through
DTC, and certain related matters. By:
------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY Bruce N. Alpert
----------------------------------
(Print Name)
By:
-------------------------
One Corporate Center
-----------------------------------
(Street Address)
Rye, New York 10580-1422
-----------------------------------
(City)(State)(Country) (Zip Code)
(914) 921-5100
-----------------------------------
(Phone Number)
Balpert@gabelli.com
-----------------------------------
(E-mail Address)
|
SCHEDULE A
(To Blanket Issuer Letter of Representations)
|
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
(Prepared by DTC-bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for [each issue of] the Securities, [each] in the aggregate principal amount of such issue, and will be deposited with DTC. [If, however, the aggregate principal amount of [any] issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.]
2. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. [Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.]
[6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTCs practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.]
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTCs practice is to credit Direct Participants' accounts upon DTCs receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC [nor its nominee], Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its
Securities purchased or tendered, through its Participant, to
[Tender/Remarketing] Agent, and shall effect delivery of such Securities by
causing the Direct Participant to transfer the Participant's interest in the
Securities, on DTC's records, to [Tender/Remarketing] Agent. The requirement
for physical delivery of Securities in connection with an optional tender or a
mandatory purchase will be deemed satisfied when the ownership rights in the
Securities are transferred by Direct Participants on DTC's records and
followed by a book-entry credit of tendered Securities to
[Tender/Remarketing] Agent's DTC account.]
10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.
11. Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form N-2 of our report dated February 13, 2003, relating to the financial statements and financial highlights of The Gabelli Utility Trust which appear in the December 31, 2002 Annual Report to Shareholders of The Gabelli Utility Trust which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights", "Experts", "Counsel and Independent Accountants" and "Financial Statements" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP New York, New York July 24, 2003 |
[Skadden Letterhead]
July 24, 2003
The Gabelli Utility Trust
One Corporate Center
Rye, New York 10580-1422
Ladies and Gentlemen:
We have acted as special counsel to The Gabelli Utility Trust, a statutory trust (the "Trust") created under the Delaware Statutory Trust Act (the "Delaware Statutory Trust Act"), in connection with the registration of up to 1,200,000 shares of the Trust's [__]% Series A Cumulative Preferred Shares, liquidation preference $25.00, par value $0.001 per share, and 2,000 shares of the Trust's Series B Auction Market Preferred Shares, liquidation preference $25,000, par value $0.001 per share (each such series individually, a "Series of Preferred Shares" and together, the "Preferred Shares").
This opinion is being furnished in accordance with the requirements of Item 24 of the Form N-2 Registration Statement under the Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company Act of 1940, as amended (the "1940 Act").
In connection with this opinion, we have examined and relied
on originals or copies, certified or otherwise identified to our satisfaction,
of (i) the Notification of Registration of the Trust as an investment company
under the 1940 Act, on Form N-8A, dated February 26, 1999, as filed with the
Securities and Exchange Commission (the "Commission"); (ii) the Registration
Statement of the Trust relating to the Preferred Shares on Form N-2 (File Nos.
333-105500 and 811-09243), as filed with the Commission on May 23, 2003 under
the 1933 Act and the 1940 Act, Pre-Effective Amendment No. 1 thereto, as filed
with the Commission on July 18, 2003, and Pre-Effective Amendment No. 2 as
filed with the Commission on July 24, 2003, under the 1933 Act (such
Registration Statement, as so amended and proposed to be amended, being
hereinafter referred to as the "Registration Statement"); (iii) the form of
the Underwriting Agreement (the "Underwriting Agreement") proposed to be
entered into between the Trust, as issuer, Gabelli Funds, LLC, and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as representative of the
underwriters named therein (the "Underwriters"), filed as an exhibit to the
Registration Statement; (iv) specimen certificates representing each Series of
Preferred Shares; (v) the Amended Certificate of Trust, as certified by with
the Secretary of State of Delaware, and the Agreement and Declaration of Trust
of the Trust, dated as of March 29, 1999, as currently in effect (the
"Agreement and Declaration of Trust"); (v) the Statement of Preferences
setting forth the rights, powers, terms and preferences of each Series of
Preferred Shares; (vi) the By-Laws of the Trust, as currently in effect; and
(vii) certain resolutions of the Board of Trustees of the Trust relating to
the creation, issuance and sale of the Preferred Shares and related matters.
We also have examined originals or copies, certified or otherwise identified
to our satisfaction, of such records of the Trust and such agreements,
certificates of public officials, certificates of officers or other
representatives of the Trust and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies, and the authenticity of the originals of such copies. In making our examination of executed documents, we have assumed that the parties thereto, other than the Trust, had or will have the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity and binding effect thereof on such parties. We have also assumed that the Underwriting Agreement will be executed in substantially the form reviewed by us and that the share certificates representing the Preferred Shares will conform to the specimen examined by us and will have been manually signed by an authorized officer of the transfer agent and registrar for the Preferred Shares and registered by such transfer agent and registrar. As to any facts material to the opinions expressed herein which we have not independently established or verified, we have relied upon statements and representations of officers and other representatives of the Trust and others.
Members of our firm are admitted to the bar in the State of Delaware and we do not express any opinion as to the laws of any jurisdiction other than the Delaware Statutory Trust Act.
Based upon and subject to the foregoing, we are of the opinion that when (i) the Registration Statement becomes effective under the 1933 Act; (ii) the Underwriting Agreement has been duly executed and delivered; (iii) certificates representing the Preferred Shares in the forms of the specimen certificates examined by us have been manually signed by an authorized officer of the transfer agent and registrar for the Preferred Shares and registered by such transfer agent and registrar; and (iv) the Preferred Shares have been delivered to and paid for by the Underwriters at a price per share not less than the per share par value of the Preferred Shares as contemplated by the Underwriting Agreement, the issuance and sale of the Preferred Shares will have been duly authorized and the Preferred Shares will be validly issued, fully paid and nonassesable, except as provided in the last sentence of Section 3.7 of the Agreement and Declaration of Trust, which provides that the Trust may cause its shares of beneficial interest, including the Preferred Shares, to pay directly, in advance or arrears, for charges of distribution, of the custodian or transfer, shareholder servicing or similar agent, a pro rata amount as the Trust may determine, by setting off such charges due from each shareholder from declared but unpaid dividends or distributions owed such shareholder and/or by reducing the number of shares in the account of such shareholder by that number of full and/or fractional shares which represents the outstanding amount of such charges due from such shareholder.
We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement. We also consent to the reference to our firm under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP |