THE GABELLI UTILITIES FUND
SEMI-ANNUAL REPORT
JUNE 30, 2000
[PHOTO OF TIMOTHY P. O'BRIEN OMITTED]
TO OUR SHAREHOLDERS,
The second quarter of 2000 was mixed, but generally favorable, for
electric and gas utility investors. Interest rates at the short end of the yield
curve continued to rise, as the Federal Reserve (the "Fed") raised rates by
another fifty basis points, bringing the total increase in the current round of
tightening to 175 basis points. Rates at the long end of the yield curve climbed
back over 6% in the second quarter after having fallen noticeably in the first
quarter. U.S. electric and gas utility stocks rose in nominal terms and easily
outperformed the broader equity market. Water stocks were generally flat to down
in price, while telecommunications stocks came under severe pressure.
The outlook for utility stock performance for the rest of this year
remains fairly positive, although the best gains, particularly in the electric
and gas stocks, may be behind us. The now-inverted Treasury yield curve
indicates that rates are probably near the peak for this cycle, and falling long
rates should result in utility price appreciation. The unsettled equity market
conditions seen in the second quarter may lead investors to appreciate the high
yields and relatively stable prices of utility stocks. Looking beyond the
immediate future, electric, gas and water stocks are likely to benefit from
continuing domestic consolidation and increasing foreign interest in the U.S.
market. In June, NS Power, the privatized electric company serving Nova Scotia,
agreed to acquire Bangor Hydroelectric Co. at a substantial premium. Also, in
July, AES Corp. agreed to acquire IPALCO, another Fund holding, for a price
exceeding three times book value and eight times EBITDA (Earnings Before
Interest, Taxation, Depreciation and Amortization). In addition, National Grid
plc and PowerGen plc, both of the U.K., have publicly stated that they each
intend to acquire another U.S. electric utility company, with National Grid
likely to make its move this year. We have taken an educated guess on National
Grid's likely target and discuss it in the "Let's Talk Stocks" section later in
this report.
Telephone consolidation among the incumbent carriers in the U.S. has gone
about as far as it can go, and antitrust considerations are weighing heavily on
future proposed and pending mergers. It now appears that the planned acquisition
of Sprint by WorldCom has failed due to antitrust concerns. We
<PAGE>
INVESTMENT RESULTS(a)
--------------------------------------------------------------------------------
QUARTER
--------------------------------------
1ST 2ND 3RD 4TH YEAR
------ ------ --- --- ----
2000: Net Asset Value .. $11.76 $10.88 -- -- --
Total Return ..... 10.0% (5.7)% -- -- --
--------------------------------------------------------------------------------
1999: Net Asset Value .. -- -- $10.01 $10.89 $10.89
Total Return ..... -- -- 0.1%(b) 22.1% 22.3%(b)
--------------------------------------------------------------------------------
Dividend History
---------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
----------------- -------------- ------------------
December 27, 1999 $1.325 $10.89
---------------------------------------------------------
TOTAL RETURN - JUNE 30, 2000 (A)
--------------------------------
Life of Fund (b) .......................... 26.86%
---------------------------------------------------------
(a) Total returns reflect changes in share price and reinvestment of dividends
and are net of expenses. The net asset value of the Fund is reduced on the
ex-dividend (payment) date by the amount of the dividend paid. Of course,
returns represent past performance and do not guarantee future results.
Investment returns and the principal value of an investment will fluctuate. When
shares are redeemed they may be worth more or less than their original cost. (b)
From commencement of investment operations on August 31, 1999. The returns
stated above cover short periods of less than one year beginning August 31, 1999
through June 30, 2000 and may not be indicative of long term results.
--------------------------------------------------------------------------------
added to the Fund's position in Sprint very late in the second quarter because
we think that Sprint remains attractive either to a foreign buyer or to a
domestic local exchange carrier. Early in July, Sprint and Deutsche Telekom were
said to be in preliminary acquisition talks, and BellSouth was rumored to be
weighing a competing bid.
Foreign telecommunications giants with premium multiples are eyeing the
U.S. market hungrily. With foreign telecommunications buyers having the size,
the valuations and the interest to buy in North America, deal activity is likely
to pick up, and American companies will more likely be sellers than buyers at
current depressed valuations.
INVESTMENT PERFORMANCE
For the second quarter ended June 30, 2000, the Gabelli Utilities Fund's
(the "Fund") net asset value declined 5.70%. The Standard & Poor's (S&P) Utility
index gained 6.70%, while the Lipper Utility Fund Average declined 5.20%, over
the same period. The S&P Utility Index is an unmanaged indicator of electric and
gas utility stock performance, while the Lipper Average reflects the average
performance of mutual funds classified in this particular category. Since
inception on August 31, 1999 through June 30, 2000, the Fund had a cumulative
total return of 26.86%. The S&P Utility Index and the Lipper Utility Fund
Average rose 3.87% and 12.62%, respectively, over the same period.
2
<PAGE>
MONTHLY DISTRIBUTIONS
The Fund established a monthly distribution of $0.07 per share per month
beginning January 27, 2000. The monthly distributions will be made as part of
the Fund's policy of distributing approximately 8% of its net asset value.
OUR APPROACH
There are over 80 publicly traded investor-owned electric utilities in
the U.S., and this is at least 50 more than are needed. We think that over the
next few years the industry will consolidate into a much smaller number of
larger, more efficient operators. The balkanized structure of the industry today
is inherently inefficient, and competitive forces are punishing inefficiency.
The industry has consolidated substantially already, and would have done so even
faster except for regulatory sclerosis impeding the pace of mergers and
acquisitions. We are skeptical about the claims of the mega-utilities to be able
to deliver superior returns, but we believe that the small-cap and mid-cap
utilities are generally doing well on their own and over time are likely
acquisition targets as the biggest utilities seek increasing advantages of
scale. Our investments in the electric stocks have generally focused on
fundamentally sound, reasonably priced small-cap and mid-cap utilities that are
logical acquisition targets for large utilities seeking to bulk up. We have not
made major investments in the water sector for the moment, but as these stocks
come back to more reasonable valuations we would expect to initiate positions.
Our investments in the telephone utilities have been focused primarily on the
larger, domestic, incumbent local exchange carriers, although we do own some new
entrants and foreign telecommunications companies.
COMMENTARY
LEGISLATION LOOMS AS SUPPLIES TIGHTEN
There have been sporadic shortages, brownouts and wholesale price spikes
for the past several years, and some utilities and customers caught short have
been stung. Conversely, the companies that have invested in merchant generation
have generally reaped handsome rewards. The price volatility and economic impact
of supply disruptions have led to calls for federal legislation. Action is
unlikely this year, and control of the House and Senate are up for grabs, so it
is unclear what the prospects are for next year. It is clear, however, that the
current status quo is unstable. Some combination of new generation and
transmission capacity, distributed generation and conservation is clearly
necessary, and pressure is growing for a federal, rather than state-by-state,
solution. The industry has generally favored regulation by the states over
federal regulation, and the prospect of a federal power grab is likely to spur
additional utility consolidation.
Following substantial restructuring efforts by electric utility
companies, accompanied by regulatory actions and related legislation, the risk
profile of the electric power industry has been greatly reduced. Those utilities
with low generating costs did not need to be restructured, although some were,
while the high cost generators have largely done so. The biggest challenge
facing most electric companies
3
<PAGE>
continues to be how to redeploy capital and rising free cash flow at attractive
rates of return. This is harder than it sounds. Electric utilities are using
their excess capital to invest in telecommunications, Internet auctions sites,
electric and HVAC (heating, ventilation and air conditioning) contractors, and
other ventures further afield. In our opinion, many of these ventures are doomed
to fail, and we tend to view skeptically the more grandiose visions of certain
utilities. Utilization of excess capital to retire debt and buy back stock
generates lower returns than diversification, but with much lower risk. We tend
to favor companies that return excess capital to investors. Among the Fund's
holdings in the electric utility sector are a substantial number of companies
that are consistent, substantial buyers of their own stock, including DPL, DTE
Energy, Edison International, Entergy, GPU, IPALCO, Kansas City Power and Light,
NSTAR and Potomac Electric Power.
The gas distribution sector does not have compelling growth
characteristics. Gas distribution companies typically grow earnings in the very
low single digits. Pipeline companies are running into some earnings pressure as
long-term contracts run off and are replaced with shorter-term deals. In
addition, near-term excess pipeline capacity is putting pressure on
transportation rates. This pressure should be manageable, but we are watching
developments carefully. Offsetting the pressure on earnings is the increasing
contribution to earnings from energy services and trading, and the benefit to
earnings from rising energy prices, since most pipelines have significant
investments in energy exploration and production. Gas stocks, particularly the
pipelines, were some of the better-performing stocks in the Fund's portfolio
during the first quarter, and did even better in the second quarter. We added to
our natural gas holdings in the second quarter.
Water companies, with few exceptions, are doing well in a low risk,
highly capital-intensive business. Following the merger and acquisition frenzy
of 1999, the few remaining independent water stocks moved to price levels that
incorporated substantial acquisition premiums, and we have elected to wait for
prices to return to more normal levels before buying.
Telecommunications companies continue to generate very impressive
earnings growth in the face of mounting competitive pressures. The Fund has a
substantial position in U.S. incumbent local exchange carriers, also known as
the local telephone companies. These companies are generating EPS growth in the
low teens, trade at half the market multiple and have solid balance sheets and
substantial cash flows. So far, these holdings have been a major drag on the
Fund's performance. Investors are concerned that rising capital expenditures
combined with increasing competitive pressures will affect earnings growth. This
is a legitimate concern, but we believe that investors are underestimating the
local telecommunications companies' advantages of incumbency, ubiquity,
liquidity and scale. Public capital is not available to competitive local
exchange companies on any terms, and it remains to be seen how much longer
private capital will be willing to fund the capital expenditures and operating
losses of the new entrants.
4
<PAGE>
The European telecommunications companies generally trade at substantial
premiums to the local market and to the U.S. peer group. This valuation
disparity is probably unsustainable, and the U.S. telecommunications companies
are likely to appreciate in absolute terms and relative to their European peers.
LET'S TALK STOCKS
ALLTEL CORP. (AT - $61.9375 - NYSE) has been a maddening stock for investors
over the past six months. We bought the stock in the fourth quarter, slightly
below $70, and saw the stock appreciate above $90 in relatively short order. In
January, the stock began to slide, and plunged following a weak fourth quarter
earnings report. The cause of the earnings shortfall was increasing pressure on
roaming rates by national cellular and PCS carriers. ALLTEL resolved this
problem in the first quarter by swapping a number of its high-roaming markets to
Verizon (VZ - NYSE) in exchange for a substantial number of easily-clustered
predominantly local markets. In addition, Verizon gave ALLTEL a very good,
strategic roaming deal that will allow ALLTEL to economically offer national
wireless service. The stock should be doing better in view of the compellingly
cheap valuation and the substantial fundamental improvements that ALLTEL's
management has made.
BELLSOUTH CORP. (BLS - $42.625 - NYSE) remains under suspicion by investors,
pending clarification of its long-term strategic plan. BellSouth has been on a
buying binge lately, acquiring an equity stake in Qwest (Q - $49.6875 - NYSE)
and becoming involved in a few clever and strategic wireless deals in Europe. In
the process, however, the company has substantially increased its financial
leverage. The company's Latin American assets, for which it gets no credit in
its share price, are jewels. The company is considering financial engineering
tactics to highlight the value of these assets. BLS can be faulted for snoozing
while the domestic competition consolidated at breakneck pace all around it, but
opportunities, while diminished, have hardly been exhausted. In the meantime,
BellSouth trades at less than seventeen times 2001 estimates, with substantial
hidden assets. We think the stock is cheap.
COASTAL CORP. (CGP - $60.875 - NYSE) is a diversified energy company. Coastal
has major oil and gas exploration and production assets, and natural gas
gathering, processing, transmission and storage operations. In 1999, Coastal
agreed to be acquired by El Paso Energy, a major interstate natural gas
pipeline, for stock. That deal will close later this year. We bought Coastal as
a way of receiving El Paso stock at a substantial discount, although the
discount has narrowed substantially since the stock was bought. Coastal has been
one of the Fund's best performing stocks this year.
DPL CORP. (DPL - $21.9375 - NYSE) provides electric service to metropolitan
Dayton, Ohio. In the past six months, DPL sold its gas distribution operations
to Vectren Corp., sold a significant equity stake to KKR, and repurchased 25
million shares of stock in a self-tender. We sold most of the Fund's shares to
the company in the tender in the first quarter at $23, and when the stock sold
off below $20 after the tender offer closed, we bought back in. The stock is
cheap based on current and prospective earnings,
5
<PAGE>
and has substantial unrealized gains in its sizeable investment portfolio. We
think that KKR's involvement in the company may ultimately lead to a merger or
leveraged buyout of DPL.
GPU INC. (GPU - $27.0625 - NYSE) serves electric customers in Pennsylvania and
New Jersey. The company sold off its U.S. generating assets, and is using the
proceeds to retire debt and buy back stock. GPU had invested aggressively in
electric assets abroad, primarily in Australia and the U.K. These efforts
generated mixed, but generally poor results, and GPU is now selling off its
foreign assets and focusing on its core domestic operations. The National Grid
Group plc (NGG - $40.125 - NYSE) of the U.K. is looking for a U.S. acquisition,
and after studying National's public announcements about the characteristics
that it is looking for, we think that GPU is a reasonably likely target for
National Grid. The Fund's position in GPU should be modestly profitable if the
company is not acquired due to the substantial dividend yield, and highly
profitable if GPU is sold. Downside risk should be modest since management is
largely discredited and expectations, after repeated management stumbles, are
low.
GTE CORP. (GTE - $62.25 - NYSE) merged with Bell Atlantic (BEL - $50.8125 -
NYSE) on July 3 to form Verizon Corp. (VZ - NYSE). We don't like the new name or
the new symbol, but we do like the stock. Verizon stock has performed poorly due
to concerns about rising capital expenditures and increasing competitive
pressures. These concerns are legitimate, but exaggerated, in our opinion. The
pending IPO of Verizon Wireless, the cellular company formed by aggregation of
the U.S. wireless assets of Bell Atlantic, GTE and Vodafone (VOD - $41.4375 -
NYSE), may be the catalyst to get the substantial value that we see in the stock
recognized by the market.
MCN ENERGY GROUP INC. (MCN - $21.375 - NYSE) is a major natural gas distributor
serving southeastern Michigan. MCN agreed to sell out to DTE Energy (DTE -
$30.5625 - NYSE), the parent of Detroit Edison, late in 1999. We like DTE
because it is statistically cheap and has substantial hidden assets, primarily
its 32% stake in Plug Power (PLUG - $62.50 - Nasdaq), a major fuel cell
manufacturer. MCN was trading at a discount to the merger value of 20% when we
bought the stock. Because the closing has been delayed by regulatory concerns,
the discount is still very substantial. We believe that the regulatory concerns
are manageable and that the deal is likely to close on the original terms.
NORTEL NETWORKS CORP. (NT - $68.25 - NYSE), formerly Northern Telecom, is a
leading global supplier of data and telephony network solutions and services.
Its business consists of the design, development, manufacture, marketing, sale,
financing, installation, servicing and support of data and telephony networks
for carrier and enterprise customers. Customers include public and private
institutions; local, long-distance, personal communications services and
cellular mobile communications companies; cable television companies; Internet
service providers; and utilities. NT has a presence in over 150 countries
worldwide.
NSTAR (NST - $40.6875 - NYSE) is the parent company of Boston Edison and
Commonwealth Energy, which Edison acquired last year. The acquisition increased
the company's size by about 50%, and was accorded unusually generous regulatory
treatment by Massachusetts. As a result of the excellent
6
<PAGE>
geographic fit of the two companies, there is unusually good scope to cut costs
and enhance efficiencies, and a substantial portion of these savings will be
retained by shareholders. The company also has substantial telecommunications
assets that are not reflected in the share price. The stock has lagged this year
due to concerns about NSTAR's exposure to wholesale power price spikes during
the summer peak season. These concerns are conceptually correct but exaggerated
in our opinion. At less than eleven times earnings, which have grown at nearly
10% per year, the stock is cheap. Down the road NSTAR is a logical acquisition
candidate, but is unlikely to sell out anytime soon.
POTOMAC ELECTRIC POWER CO. (POM - $25.00 - NYSE) serves the metropolitan
Washington D.C. market. Potomac Electric has agreed to sell its generating
assets as part of its restructuring plan. Potomac will also sharply reduce its
dividend payout. The proceeds of the asset sales and the free cash flow
resulting from the dividend cut will be used to retire debt, bolstering the
already-strong balance sheet, and buy back stock. Potomac also has significant
telecommunications assets that are not fully reflected in the share price. That
being said, Potomac has risen appreciably since we bought the stock, and at the
current P/E of fourteen times 2001 estimates, some of the good news is reflected
in the stock price.
SPRINT CORP. (FON - $51.00 - NYSE) is the third largest long distance carrier
and the second largest independent local telephone company in the U.S. FON faces
risks from prospective new entrants in its long distance business, which may be
offset by the "ION" high bandwidth network that the company is developing, and
by other new services.
SPRINT PCS GROUP (PCS - $65.50 - NYSE) is the leading all digital personal
communications service ("PCS") carrier in the U.S., with over 6 million
customers and licenses covering over 230 million people. After failing to
receive regulatory approval to complete its merge with MCI WorldCom, Sprint
currently remains independent, while representing an attractive acquisition
target for a number of major global telecommunications providers.
MINIMUM INITIAL INVESTMENT - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
Additionally, the Fund and other Gabelli Funds are available through the
no-transaction fee programs at many major brokerage firms.
WWW.GABELLI.COM
Please visit us on the Internet. Our homepage at http://www.gabelli.com
contains information about Gabelli Asset Management Inc., the Gabelli Mutual
Funds, IRAs, 401(k)s, quarterly reports, closing prices and other current news.
You can send us e-mail at [email protected].
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<PAGE>
IN CONCLUSION
The major factors depressing utility stock prices in 1999 were rising
long interest rates and investors' infatuation with technology stocks. With long
rates perhaps having peaked for this cycle and with technology stocks now coming
under some pressure, utility price performance is likely to continue to improve
in both absolute and relative terms.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's Nasdaq symbol is GABUX. Please call us during the
business day for further information.
Sincerely,
/s/signature omitted
TIMOTHY P. O'BRIEN, CFA
Portfolio Manager
July 14, 2000
--------------------------------------------------------------------------------
MONTHLY DISTRIBUTIONS -- $0.07 PER SHARE
----------------------------------------
Reinvestment Date Reinvestment Price Reinvestment Date Reinvestment Price
-------------------------------------- ----------------------------------------
January 27, 2000 $10.70 April 26, 2000 $11.19
February 25, 2000 $10.85 May 26, 2000 $10.64
March 29, 2000 $11.82 June 28, 2000 $11.12
--------------------------------------------------------------------------------
----------------------------------------------------------------
TOP TEN HOLDINGS
JUNE 30, 2000
-------------
Nortel Networks Corp. ALLTEL Corp.
Coastal Corp. (The) MCN Energy Group Inc.
US West Inc. BellSouthCorp.
Potomac Electric Power Co. GTE Corp.
NSTAR GPU Inc.
----------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
8
<PAGE>
THE GABELLI UTILITIES FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS -- 92.7%
COMPUTER SOFTWARE AND SERVICES -- 1.9%
10,000 Open Market Inc.+ .......... $ 107,969 $ 138,125
------------ -----------
COMMUNICATIONS EQUIPMENT -- 11.6%
10,000 Carrier 1 International
SA, ADR+ .................. 161,875 116,250
5,000 Convergent
Communications Inc.+ ...... 59,375 40,000
10,364 Nortel Networks Corp. ...... 581,033 707,343
------------ -----------
802,283 863,593
------------ -----------
ENERGY AND UTILITIES: ELECTRIC -- 23.1%
80,000 British Energy plc ......... 178,350 211,531
7,999 DPL Inc. ................... 157,655 175,478
3,000 DTE Energy Co. ............. 90,150 91,687
5,000 Edison International ....... 82,750 102,500
10,000 GPU Inc. ................... 296,125 270,625
3,000 IPALCO Enterprises Inc. .... 56,212 60,375
5,000 Kansas City Power & Light Co. 109,425 112,500
14,000 Potomac Electric Power Co. . 313,487 350,000
6,000 Southern Co. ............... 139,800 139,875
6,000 TECO Energy Inc. ........... 120,300 120,375
2,000 United Illuminating Co. .... 76,475 87,500
------------ -----------
1,620,729 1,722,446
------------ -----------
ENERGY AND UTILITIES: INTEGRATED -- 14.7%
1,500 Enron Corp. ................ 96,450 96,750
6,000 Entergy Corp. .............. 124,800 163,125
5,000 LG&E Energy Corp. .......... 82,437 119,375
13,000 MCN Energy Group Inc. ...... 322,369 277,875
4,000 Montana Power Co. .......... 118,669 141,250
7,300 NSTAR ...................... 304,967 297,019
------------ -----------
1,049,692 1,095,394
------------ -----------
ENERGY AND UTILITIES: NATURAL GAS -- 13.8%
6,000 Coastal Corp. (The) ........ 242,300 365,250
1,000 Eastern Enterprises ........ 52,550 63,000
4,000 El Paso Energy Corp. ....... 131,450 203,750
3,000 National Fuel Gas Co. ...... 124,275 146,250
6,000 Williams Companies Inc. (The) 204,362 250,125
------------ -----------
754,937 1,028,375
------------ -----------
TELECOMMUNICATIONS: BROADBAND -- 0.7%
2,000 BroadWing Inc.+ ............ 57,288 51,875
------------ -----------
MARKET
SHARES COST VALUE
------ ---- ------
TELECOMMUNICATIONS: LOCAL -- 18.5%
4,500 ALLTEL Corp. ............... $ 314,063 $ 278,719
6,500 BellSouth Corp. ............ 297,144 277,063
4,400 GTE Corp. .................. 287,771 273,900
4,500 SBC Communications Inc. .... 211,077 194,625
4,100 US West Inc. ............... 268,505 351,575
------------ -----------
1,378,560 1,375,882
------------ -----------
TELECOMMUNICATIONS: LONG DISTANCE -- 5.0%
3,515 AT&T Corp. ................. 119,290 111,162
500 Global Crossing Ltd.+ ...... 25,250 13,156
2,000 Sprint Corp.+ .............. 118,975 102,000
7,000 Teleglobe Inc.+ ............ 165,725 147,437
------------ -----------
429,240 373,755
------------ -----------
TELECOMMUNICATIONS: NATIONAL -- 1.6%
3,500 Tele Danmark A/S, ADR ...... 141,050 119,000
------------ -----------
WIRELESS COMMUNICATIONS -- 1.8%
2,500 Western Wireless Corp., Cl. A+ 119,531 136,250
------------ -----------
TOTAL COMMON STOCKS ........ 6,461,279 6,904,695
------------ -----------
PRINCIPAL
AMOUNT
---------
U.S. GOVERNMENT OBLIGATIONS -- 4.9%
$367,000 U.S. Treasury Bills,
5.64% to 6.13%++,
due 07/06/00 to 09/14/00 .. 364,235 364,285
------------ -----------
TOTAL
INVESTMENTS -- 97.6% $ 6,825,514 7,268,980
============
OTHER ASSETS AND
LIABILITIES (NET) -- 2.4% ................. 180,705
-----------
NET ASSETS -- 100.0%
(684,624 shares outstanding) .............. $ 7,449,685
===========
------------------------
For Federal tax purposes:
Aggregate cost ............................. $ 6,825,514
===========
Gross unrealized appreciation .............. $ 755,104
Gross unrealized depreciation .............. (311,638)
-----------
Net unrealized appreciation ................ $ 443,466
===========
------------------------
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt.
See accompanying notes to financial statements.
9
<PAGE>
THE GABELLI UTILITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $6,825,514) ............... $7,268,980
Cash .................................................. 57,521
Dividends receivable .................................. 13,810
Receivable for investments sold ....................... 253,490
Receivable from adviser ............................... 6,999
----------
TOTAL ASSETS .......................................... 7,600,800
----------
LIABILITIES:
Payable for investments purchased ..................... 119,290
Payable for distribution fees ......................... 1,546
Other accrued expenses ................................ 30,279
----------
TOTAL LIABILITIES ..................................... 151,115
----------
NET ASSETS applicable to 684,624
shares outstanding .................................. $7,449,685
==========
NET ASSETS CONSIST OF:
Shares of beneficial interest, at par value ........... $ 685
Additional paid-in capital ............................ 7,402,248
Accumulated net investment income ..................... 363,937
Accumulated net realized loss
on investments ...................................... (760,651)
Net unrealized appreciation on investments ............ 443,466
----------
TOTAL NET ASSETS ...................................... $7,449,685
==========
NET ASSET VALUE, offering and redemption
price per share ($7,449,685 / 684,624
shares outstanding; 500,000,000 shares
authorized of $0.001 par value) ..................... $10.88
======
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends ............................................. $ 654,677
Interest .............................................. 8,878
---------
TOTAL INVESTMENT INCOME ............................... 663,555
---------
EXPENSES:
Investment advisory fees .............................. 30,433
Distribution fees ..................................... 7,495
Legal and audit fees .................................. 17,413
Registration fees ..................................... 12,959
Trustees' fees ........................................ 9,142
Shareholder communications expenses ................... 7,813
Custodian fees ........................................ 4,197
Shareholder services fees ............................. 1,052
Miscellaneous expenses ................................ 7,549
----------
TOTAL EXPENSES ........................................ 98,053
----------
Less: Expense reimbursements .......................... (37,432)
----------
TOTAL NET EXPENSES .................................... 60,621
----------
NET INVESTMENT INCOME ................................. 602,934
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments ...................... (758,534)
Net change in unrealized appreciation
on investments ..................................... 283,187
----------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS ...................................... (475,347)
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ..................................... $ 127,587
==========
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2000 PERIOD ENDED
(UNAUDITED) DECEMBER 31, 1999+
---------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income ................................................. $ 602,934 $ 7,341
Net realized gain (loss) on investments ............................... (758,534) 379,590
Net change in unrealized appreciation on investments .................. 283,187 160,279
---------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. 127,587 547,210
---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ................................................. (238,997) (7,740)
Net realized gain on investments ...................................... -- (379,590)
In excess of net realized gain on investments ......................... -- (22,931)
---------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ................................... (238,997) (410,261)
---------- -----------
SHARE TRANSACTIONS:
Net increase in net assets from shares of beneficial interest transactions 3,876,134 3,448,012
---------- -----------
NET INCREASE IN NET ASSETS ............................................ 3,764,724 3,584,961
NET ASSETS:
Beginning of period ................................................... 3,684,961 100,000
---------- -----------
End of period ......................................................... $7,449,685 $ 3,684,961
========== ===========
</TABLE>
--------------
+ From the commencement of investment operations on August 31, 1999
through December 31, 1999.
See accompanying notes to financial statements.
10
<PAGE>
THE GABELLI UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. ORGANIZATION. The Gabelli Utilities Fund (the "Fund") was organized on May
18, 1999 as a Delaware business trust. The Fund is a diversified, open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Fund had no operations until August 31,
1999 other than the purchase of 10,000 shares at a cost of $100,000 by Gabelli
Funds, LLC. The Fund's primary objective is to provide a high level of total
return through a combination of capital appreciation and current income. The
Fund commenced investment operations on August 31, 1999.
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
Fund in the preparation of its financial statements.
SECURITY VALUATION. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange as of the close of business on
the day the securities are being valued (if there were no sales that day, the
security is valued at the average of 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, except for open short positions, which are
valued at the last asked price). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, LLC
(the "Adviser"). Securities and assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Trustees. Short term debt securities with remaining maturities of 60 days or
less are valued at amortized cost, unless the Trustees determine such does not
reflect the securities' fair value, in which case these securities will be
valued at their fair value as determined by the Trustees. Debt instruments
having a maturity greater than 60 days are valued at the highest bid price
obtained from a dealer maintaining an active market in those securities.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
primary government securities dealers recognized by the Federal Reserve Board,
with member banks of the Federal Reserve System or with other brokers or dealers
that meet credit guidelines established by the Adviser and reviewed by the Board
of Trustees. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding period.
The Fund will always receive and maintain securities as collateral whose market
value, including accrued interest, will be at least equal to 100% of the dollar
amount invested by the Fund in each agreement. The Fund will make payment for
such securities only upon physical delivery or upon evidence of book entry
transfer of
11
<PAGE>
THE GABELLI UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
--------------------------------------------------------------------------------
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 Fund may be delayed or limited.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on 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. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
PROVISION FOR INCOME TAXES. The Fund 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.
3. INVESTMENT ADVISORY AGREEMENT. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00% of the value of the Fund's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio, oversees the administration of all
aspects of the Fund's business and affairs and pays the compensation of all
Officers and Trustees of the Fund who are its affiliates. The Adviser
voluntarily agreed to reimburse expenses of the Fund to the extent necessary to
maintain the annualized total operating expenses of the Fund at 2.00% of the
value of the Fund's average daily net assets. Beginning January 1, 2000 the Fund
is obliged to repay the Adviser for a period of two fiscal years following the
fiscal year in which the Adviser reimbursed the Fund only to the extent that the
operating expenses of the Fund fall below 2.00% of average daily net assets. For
the six months ended June 30, 2000, the Adviser reimbursed the Fund in the
amount of $37,432.
4. DISTRIBUTION PLAN. The Fund's Board of Trustees has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For the six months
ended June 30, 2000, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an affiliate of the Adviser, of $7,495, or 0.25% of average daily
net assets, the annual limitation under the Plan. Such payments are accrued
daily and paid monthly.
12
<PAGE>
THE GABELLI UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
--------------------------------------------------------------------------------
5. PORTFOLIO SECURITIES. Purchases and sales of securities for the six months
ended June 30, 2000, other than short term securities, aggregated $10,047,496
and $6,160,777, respectively.
6. SHARES OF BENEFICIAL INTEREST. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2000 DECEMBER 31, 1999+
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold ......................................... 396,310 $4,431,219 407,147 $4,392,319
Shares issued upon reinvestment of dividends ........ 21,105 233,162 36,041 389,605
Shares redeemed ..................................... (71,236) (788,247) (114,743) (1,333,912)
------- ---------- ------- ----------
Net increase .................................... 346,179 $3,876,134 328,445 $3,448,012
======= ========== ======= ===========
</TABLE>
+ From commencement of investment operations on August 31, 1999 through
December 31, 1999.
13
<PAGE>
THE GABELLI UTILITIES FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout the
period:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 PERIOD ENDED
(UNAUDITED) DECEMBER 31, 1999+
----------------- ------------------
<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ................................ $10.89 $10.00
------ ------
Net investment income ............................................... 0.95 0.04(a)
Net realized and unrealized gain (loss) on investments .............. (0.54) 2.18
------ ------
Total from investment operations .................................... 0.41 2.22
------ ------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ............................................... (0.42) (0.03)
Net realized gain on investments .................................... -- (1.23)
In excess of net realized gain on investments ....................... -- (0.07)
------ ------
Total distributions ................................................. (0.42) (1.33)
------ ------
NET ASSET VALUE, END OF PERIOD ...................................... $10.88 $10.89
====== ======
Total return++ ..................................................... 3.8% 22.3%
====== ======
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ................................ $7,450 $3,685
Ratio of net investment income to average net assets(c) ............. 19.88%(b) 0.99%(b)
Ratio of operating expenses to average net assets(c) ................ 2.00%(b) 2.00%(b)
Portfolio turnover rate ............................................. 109% 94%
</TABLE>
--------------------------------
+ From commencement of investment operations on August 31, 1999 through
December 31, 1999.
++ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends. Total return for the period less than
one year is not annualized.
(a) Based on average month-end shares outstanding.
(b) Annualized.
(c) During the six months ended June 30, 2000 and the period ended December 31,
1999, the Adviser voluntarily reimbursed certain expenses. Before
reimbursement, the ratios of operating expenses to average net assets would
have been 3.23% and 10.63% (annualized), respectively. Before
reimbursement, the ratios of net investment income to average net assets
would have been 18.65% and (7.64)% (annualized), respectively.
d) Includes taxable income from distribution of Nortel Networks Corp. from BCE
Inc.
See accompanying notes to financial statements.
14
<PAGE>
--------------------------------------------------------------------------------
GABELLI FAMILY OF FUNDS
--------------------------------------------------------------------------------
GABELLI ASSET FUND ________________________
Seeks to invest primarily in a diversified portfolio of common stocks selling at
significant discounts to their private market value. The Fund's primary
objective is growth of capital. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI GROWTH FUND _______________________
Seeks to invest primarily in large cap stocks believed to have favorable, yet
undervalued, prospects for earnings growth. The Fund's primary objective is
capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: HOWARD F. WARD, CFA
GABELLI WESTWOOD EQUITY FUND _____________
Seeks to invest primarily in the common stock of seasoned companies believed to
have proven records and above average historical earnings growth. The Fund's
primary objective is capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: SUSAN M. BYRNE
GABELLI SMALL CAP GROWTH FUND ____________
Seeks to invest primarily in common stock of smaller companies (market
capitalizations less than $500 million) believed to have rapid revenue and
earnings growth potential. The Fund's primary objective is capital appreciation.
(NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI BLUE CHIP VALUE FUND ______________
Seeks long-term growth of capital through investment primarily in the common
stocks of well-established, high quality companies that have market
capitalizations of greater than $5 billion.
(NO-LOAD) PORTFOLIO MANAGER: BARBARA MARCIN, CFA
GABELLI WESTWOOD SMALLCAP EQUITY FUND ___
Seeks to invest primarily in smaller capitalization equity securities - market
caps of $1 billion or less. The Fund's primary objective is long-term capital
appreciation. (NO-LOAD)
PORTFOLIO MANAGER: LYNDA CALKIN, CFA
GABELLI WESTWOOD INTERMEDIATE BOND FUND __
Seeks to invest in a diversified portfolio of bonds with various maturities. The
Fund's primary objective is total
return. (NO-LOAD)
PORTFOLIO MANAGER: PATRICIA FRAZE
GABELLI EQUITY INCOME FUND ________________
Seeks to invest primarily in equity securities with above market average yields.
The Fund pays quarterly dividends and seeks a high level of total return with an
emphasis on income. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI WESTWOOD BALANCED FUND __________
Seeks to invest in a balanced and diversified portfolio of stocks and bonds. The
Fund's primary objective is both capital appreciation and current income.
(NO-LOAD)
PORTFOLIO MANAGERS: SUSAN M. BYRNE & PATRICIA FRAZE
GABELLI WESTWOOD MIGHTY MITES [SERVICE MARK] FUND _____
Seeks to invest in micro-cap companies that have market capitalizations of $300
million or less. The Fund's primary objective is long-term capital appreciation.
(NO-LOAD)
TEAM MANAGED: MARIO J. GABELLI, CFA,
MARC J. GABELLI, LAURA K. LINEHAN AND
WALTER K. WALSH
GABELLI VALUE FUND ________________________
Seeks to invest in securities of companies believed to be undervalued. The
Fund's primary objective is long-term capital appreciation.
MAX. SALES CHARGE: 51/2%
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI UTILITIES FUND ______________________
Seeks to provide a high level of total return through a combination of capital
appreciation and current income. (NO-LOAD)
PORTFOLIO MANAGER: TIMOTHY O'BRIEN, CFA
GABELLI ABC FUND _________________________
Seeks to invest in securities with attractive opportunities for appreciation or
investment income. The Fund's primary objective is total return in various
market conditions without excessive risk of capital loss. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI MATHERS FUND _____________________
Seeks long-term capital appreciation in various market conditions without
excessive risk of capital loss. (NO-LOAD)
PORTFOLIO MANAGER: HENRY VAN DER EB, CFA
GABELLI U.S. TREASURY MONEY MARKET FUND ___
Seeks to invest exclusively in short-term U.S. Treasury securities. The Fund's
primary objective is to provide high current income consistent with the
preservation of principal and liquidity.
(NO-LOAD) PORTFOLIO MANAGER: JUDITH A. RANERI
GABELLI CASH MANAGEMENT SHARES OF
THE TREASURER'S FUND ______________________
Three money market portfolios designed to generate superior returns without
compromising portfolio safety. U.S. Treasury Money Market seeks to invest in
U.S. Treasury bills, notes and bonds. Tax Exempt Money Market seeks to invest in
municipal securities. Domestic Prime Money Market seeks to invest in prime
quality, domestic money market instruments. (NO-LOAD)
PORTFOLIO MANAGER: JUDITH A. RANERI
AN INVESTMENT IN THE ABOVE MONEY MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENT AGENCY. ALTHOUGH
THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS. GLOBAL SERIES
GABELLI GLOBAL TELECOMMUNICATIONS FUND
Seeks to invest in telecommunications companies throughout the world -
targeting undervalued companies with strong earnings and cash flow dynamics.
The Fund's primary objective is capital appreciation.
(NO-LOAD) TEAM MANAGED: MARIO J. GABELLI, CFA,
MARC J. GABELLI AND IVAN ARTEAGA, CFA
GABELLI GLOBAL CONVERTIBLE SECURITIES FUND
Seeks to invest principally in bonds and preferred stocks which are
convertible into common stock of foreign and domestic companies. The Fund's
primary objective is total return through a combination of current income and
capital appreciation.
(NO-LOAD) PORTFOLIO MANAGER: HART WOODSON
GABELLI GLOBAL GROWTH FUND
Seeks capital appreciation through a disciplined investment program focusing
on the globalization and interactivity of the world's marketplace. The Fund
invests in companies at the forefront of accelerated growth. The Fund's
primary objective is capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: MARC J. GABELLI
GABELLI GLOBAL OPPORTUNITY FUND
Seeks to invest in common stock of companies which have rapid growth in
revenues and earnings and potential for above average capital appreciation or
are undervalued. The Fund's primary objective is capital appreciation.
(NO-LOAD)
PORTFOLIO MANAGERS: MARC J. GABELLI
AND CAESAR BRYAN
GABELLI GOLD FUND _________________________
Seeks to invest in a global portfolio of equity securities of gold mining and
related companies. The Fund's objective is long-term capital appreciation.
Investment in gold stocks is considered speculative and is affected by a variety
of world-wide economic, financial and political factors.
(NO-LOAD) PORTFOLIO MANAGER: CAESAR BRYAN
GABELLI INTERNATIONAL GROWTH FUND __________
Seeks to invest in the equity securities of foreign issuers with long-term
capital appreciation potential. The Fund offers investors global
diversification. (NO-LOAD) PORTFOLIO MANAGER: CAESAR BRYAN
THE SIX FUNDS ABOVE INVEST IN FOREIGN SECURITIES WHICH INVOLVES RISKS NOT
ORDINARILY ASSOCIATED WITH INVESTMENTS IN DOMESTIC ISSUES, INCLUDING CURRENCY
FLUCTUATION, ECONOMIC AND POLITICAL RISKS. THE FUNDS LISTED ABOVE ARE
DISTRIBUTED BY GABELLI & COMPANY, INC.
--------------------------------------------------------------------------------
TO RECEIVE A PROSPECTUS, CALL 1-800-GABELLI (422-3554). THE PROSPECTUS
GIVES A MORE COMPLETE DESCRIPTION OF THE FUND, INCLUDING FEES AND EXPENSES.
READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
VISIT OUR WEBSITE AT:
WWW.GABELLI.COM
OR, CALL:
1-800-GABELLI
1-800-422-3554 [BULLET] 914-921-5100 [BULLET] FAX: 914-921-5118
[BULLET] [email protected]
ONE CORPORATE CENTER, RYE, NEW YORK 10580
<PAGE>
THE GABELLI UTILITIES FUND
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
BOARD OF TRUSTEES
Mario J. Gabelli, CFA Mary E. Hauck
CHAIRMAN AND CHIEF (RETIRED) SENIOR PORTFOLIO MANAGER
INVESTMENT OFFICER GABELLI-O'CONNOR FIXED INCOME
GABELLI ASSET MANAGEMENT INC. MUTUAL FUND MANAGEMENT CO.
Anthony J. Colavita Karl Otto Pohl
ATTORNEY-AT-LAW FORMER PRESIDENT
ANTHONY J. COLAVITA, P.C. DEUTSCHE BUNDESBANK
Vincent D. Enright Werner J. Roeder, MD
FORMER SENIOR VICE PRESIDENT MEDICAL DIRECTOR
AND CHIEF FINANCIAL OFFICER LAWRENCE HOSPITAL
KEYSPAN ENERGY CORP.
OFFICERS AND PORTFOLIO MANAGERS
Mario J. Gabelli, CFA Timothy P. O'Brien, CFA
PRESIDENT AND CHIEF PORTFOLIO MANAGER
INVESTMENT OFFICER
Bruce N. Alpert James E. McKee
VICE PRESIDENT AND TREASURER SECRETARY
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
--------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli Utilities Fund. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
--------------------------------------------------------------------------------
GAB470Q200SR
[Photo of Mario Gabelli omitted]
THE
GABELLI
UTILITIES
FUND
SEMI-ANNUAL REPORT
JUNE 30, 2000
