[PHOTO OMITTED]
The
Gabelli
ABC
Fund
THIRD QUARTER REPORT
SEPTEMBER 30, 1998
<PAGE>
The Gabelli ABC Fund
Third Quarter Report
September 30, 1998
To Our Shareholders,
In the third quarter of 1998, ongoing international economic distress,
diminished corporate earnings prospects, our prime time political crisis and the
collapse of one of the world's largest hedge funds combined to send the stock
market sharply lower. Somewhat uncharacteristically, the richly priced large cap
growth stocks that dominate the Standard & Poor's ("S&P") 500 stock index held
up better than more reasonably valued market sectors. The yield on the 30 year
Treasury bond dropped below 5.0% as international and U.S. investors sought the
safety of the world's most secure credit.
Investment Performance
For the third quarter ended September 30, 1998, The Gabelli ABC Fund (the
"Fund") could not avoid the confluence of negative capital markets as the Fund's
net asset value declined 4.9%. Over the trailing twelve month period, the Fund
was up 2.6%. For the five year period ended September 30, 1998, the Fund's
return averaged 7.6% annually. Since inception on May 14, 1993 through September
30, 1998, the Fund has a total return of 53.1%, which equates to an average
annual return of 8.2%.
What We Do
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The Gabelli ABC Fund and its unique Performance Guaranty Program was
created in 1993 for conservative investors who had been reluctant to participate
in the equity markets. In other words, it was a vehicle to allow investors to
"get their feet wet" in the stock market without risking loss of capital. We see
ourselves as an "enhanced money market." Our approach has been to maintain a
diversified portfolio of value oriented equities, convertible preferred stocks,
convertible bonds and U.S. government securities. Conceptually, the upside
potential of stocks would help produce greater total return potential than a
straight bond or government securities fund and the risk in the equity portion
of the portfolio would be diminished by the combination of lower risk
convertible securities and virtually risk free U.S. Treasury bills. Prior to
this quarter, this approach worked quite well. We believe that we will be able
to provide investors with favorable results once again in the quarters ahead.
<PAGE>
INVESTMENT RESULTS (a)
================================================================================
Quarter
1st 2nd 3rd 4th Year
1998: Net Asset Value.. $10.64 $10.68 $10.16 -- --
Total Return .... 4.0% 0.4% (4.9)% -- --
- --------------------------------------------------------------------------------
1997: Net Asset Value.. $ 9.98 $10.45 $10.74 $10.23 $10.23
Total Return .... 1.4% 4.7% 2.8% 3.3% 12.8%
- --------------------------------------------------------------------------------
1996: Net Asset Value.. $10.10 $10.16 $ 9.77 $ 9.84 $ 9.84
Total Return .... 4.1% 0.6% 0.8% 2.2% 7.8%
- --------------------------------------------------------------------------------
1995: Net Asset Value.. $ 9.94 $10.14 $10.41 $ 9.71 $ 9.71
Total Return .... 3.9% 2.0% 2.7% 2.2% 11.2%
- --------------------------------------------------------------------------------
1994: Net Asset Value.. $10.12 $10.11 $10.42 $ 9.57 $ 9.57
Total Return .... 0.9% (0.1)% 3.1% 0.6% 4.5%
- --------------------------------------------------------------------------------
1993: Net Asset Value.. -- $10.10 $10.63 $10.03 $10.03
Total Return .... -- 1.0%(b) 5.2% 2.6% 9.1%(b)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns - September 30, 1998 (a)
1 Year .................................................................. 2.6%
5 Year .................................................................. 7.6%
Life of Fund (b) ........................................................ 8.2%
- --------------------------------------------------------------------------------
Dividend History
- --------------------------------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
December 29, 1997 $0.860 $10.17
December 27, 1996 $0.146 $ 9.83
September 30, 1996 $0.470 $ 9.77
December 28, 1995 $0.930 $ 9.71
December 28, 1994 $0.910 $ 9.52
December 31, 1993 $0.880 $10.03
(a) Total returns and average annual 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 operations on May 14, 1993.
================================================================================
History of the Fund
The Gabelli ABC Fund was launched on May 14, 1993 with a minimum
guaranteed total return of 6% through May 13, 1994. For 1994, 1995 and 1996, 5%
Performance Guaranty Programs were in place. These programs were unique because
they provided investors the full upside potential of the investment while
guaranteeing a minimum total return. Gabelli Funds, Inc.'s fourth Performance
Guaranty Program concluded on December 31, 1996 and a new program was not in
effect for 1997. Although the Performance Guaranty Program is not being offered
for 1998, the Fund continues striving to achieve the same objectives. During the
most recent three year period in which the S&P 500 has delivered 25% plus annual
returns, a minimum return guarantee of 5% appeared dull and unattractive.
However, in terms of market volatility, the Fund has provided comfort to the
risk averse.
For 1999, The Adviser and Board of Directors are exploring several options
involving a longer term guaranty program in a closed end structure. This would
require shareholder approval. Meanwhile, the Fund will continue to be managed,
as it has been the past five years, to provide an attractive rate of return
without excessive risk of capital.
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COMMENTARY
Through the Looking Glass
What do investors see as they peer through the looking glass? Like Alice
after she has eaten the mushroom, is the market still shrinking or ready to
grow? Should savvy investors be heading through the keyhole or smiling like the
Cheshire cat? What do we see happening in the stock market Wonderland?
Equity valuations pivot on the outlook for earnings and on the multiple
accorded those earnings. The earnings picture has been muddied by global
economic turmoil. However, we continue to believe that on a longer term secular
basis, U.S. corporations should grow earnings at high single digit rates. In
light of this favorable long term secular earnings forecast and the positive
outlook for inflation and interest rates, we believe at current prices, most
stocks are now quite reasonably valued. So, going forward, we believe the
outlook for equity owners is favorable.
The Four M's
In the third quarter of 1998, consumers and investors focused on the Four
M's:
Market
McGwire
Monica
Meriwether
M as in Market
The sharp crack in U.S. equities during the third quarter raises several
questions. Will the economy be impacted either through a reduction in consumer
spending or a cutback in corporate expenditures? Since the U.S. economy has been
the engine of global growth, will a slowdown accentuate a global spiral?
Our answer to the first is, yes, lower spending by consumers and
corporations will cause an economic and profit slowdown. However, we believe the
odds favor just that, a slowdown, not a recession. The Russell 2000 Index, Wall
Street jargon for the average U.S. company, has already discounted a recession.
Should we avoid one, stocks will likely recover sharply.
Our answer to the second question is also yes. U.S. economic weakness will
have a negative impact on the rest of the world. But, we see some very positive
signs as well. The Japanese are finally addressing their economic problems.
Stimulation in Japan should buttress overall economic activity, particularly in
Southeast Asia. The same applies to Euroland (the new name for the countries
participating in European Monetary Union), where economic cooperation is
supporting economic growth prospects. Moreover, part of the global economic
disequilibrium we have been experiencing stems from the strong dollar. With the
dollar weakening against the mark and the yen, some global economic balance
should be restored.
3
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McGwire
Mark McGwire and Sammy Sosa's heroics put baseball back on the front
pages. In places other than New York, Boston, Los Angeles and San Francisco,
most people were more captivated by the historic home run record chase than what
was occurring in the economy and the stock market. Will they continue to focus
on the day-to-day elements that impact their lives and their own individual
economic expectations? Job security, low inflation, low interest rates
(resulting in much lower mortgage payments) and the prospects of reduced taxes
should make most people feel relatively good.
Monica
The histrionics associated with the President's current predicament have
also taken center stage. Will the U.S. be in a position to provide moral
leadership on such issues as nuclear armaments? (Most of us now understand
Kashmir is not a sweater). Will President Clinton be able to energize the new
Congress and focus on critical economic issues in a timely fashion? Will Robert
Rubin and Alan Greenspan resign if Clinton is not in power?
We have long maintained the view that a great democracy like ours has many
flaws. But, the underpinnings of our system, being rooted in personal freedom
and ownership of capital, will survive flaws and sometimes even flourish in the
absence of credible leadership.
Meriwether
We, like virtually everyone in the financial community, were surprised by
the extent of leverage that an organization could accomplish and the extent of
damage that leverage could have on the financial system. A shutdown in lending,
so vital to both domestic and global growth, is occurring. We have a liquidity
crisis, but one different than past "credit crunches." When asked how to become
a millionaire, Warren Buffett quipped, "Start with $1 billion and buy an
airline." We now offer our version, "Start with $1 billion and give it to a
hedge fund manager who focuses on emerging market debt with leverage."
While the first chapter is still being written on the Long Term Capital
Management debacle, we will wait for the smoke to clear, the floor boards to be
lifted and the foundation inspected before commenting further. However, we
believe global cooperation will help curtail the damage.
Finally, Some Margin of Safety
We leave it to others to forecast the short to intermediate term direction
of the market. We have a longer term perspective. We are encouraged by the fact
that Ben Graham's "margin of safety" has returned to the market. We now see many
more good companies trading at much more reasonable valuations relative to their
intrinsic value. This does not necessarily mean they have bottomed, as stocks
can go from being substantially overvalued to significantly undervalued. But,
the long term investor should take some comfort in the fact that some of the
speculative excess has departed many stocks, if not those in the S&P 500 Index.
Whether the investing public will take comfort in this is another question. Thus
far, despite the market's sharp decline and continued volatility, we have not
seen substantial redemptions from equity mutual funds. Investors have been
conditioned by the extended bull market to buy on dips. However, if the pain
gets more severe, they may react differently. For those who are
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tempted to walk away from equities, we point out that the stocks you loved six
months ago are now a lot less expensive. We think this improves the odds for
achieving respectable long term returns going forward.
The Role of Arbitrage as an Investment Strategy in the ABC Fund
Arbitrage continues to be one of the investment strategies we employ to
preserve and enhance shareholder assets. So, we feel it appropriate to once
again explain arbitrage and the role it plays in our investment approach.
What is arbitrage? We define arbitrage as investing in "event" driven
situations; primarily, but not exclusively, in announced mergers, acquisitions,
reorganizations and other "work-out" opportunities. When a company agrees to be
acquired by another company, its stock price generally immediately rises to just
below the stated acquisition price. We look at the spread between the seller's
stock price and the announced deal price and the time frame in which the
acquisition is expected to close. If we are confident the acquisition will be
consummated on schedule at the full deal price and we can earn an annualized
rate of return materially higher than that likely to be realized through
investing in cash equivalents, then we are interested.
Then, we do the research. We value the target company to see if it is
really worth what the acquiring company has announced it will pay. Sometimes we
find it is worth even more, increasing the odds that some other company might
make a higher bid. We also research the acquiring company to insure that it can
finance the deal. If it is a stock transaction, we need to know that we will be
receiving good value in return. We look at merger agreements to see if there are
any loopholes. We review any antitrust concerns raised by the government. In
short, we make judgments to assure that what we see will be what we get.
There is greater risk in this strategy than in simply owning money market
instruments because announced acquisitions are not always completed and, in
situations where the deal currency is the acquirer's stock as opposed to cash,
the ultimate acquisition price may vary in value. However, if we do a thorough
job evaluating the downside risk, we can often earn very generous returns
relative to the money markets, particularly with today's low money market
yields. In summation, we think arbitrage, as we practice it in the ABC Fund,
represents an attractive investment opportunity with historically low
correlation to the performance of the overall stock market.
We borrow a quote from Warren Buffett to explain our use of arbitrage in
the Fund: "Our subsidiaries sometimes engage in arbitrage as an alternative to
holding short term cash equivalents. We prefer, of course, to make major long
term commitments. But we often have more cash than good ideas. At such times
arbitrage sometimes promises much greater returns than Treasury bills and,
equally important, cools any temptation we may have to relax our standards for
long term investments."
In general, our "arb" positions continued to provide stability for the
portfolio. However, this quarter, we did experience some declines in arbitrage
stocks, as growing global economic uncertainty generated concern that proposed
mergers would be delayed or terminated and the value of deals using the
acquiring company's stock as currency declined. We were also hurt as macro-hedge
funds and fixed
5
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income hedge funds (such as Long Term Capital Management) dumped arbitrage
positions as they reallocated away from style drifting investments.
Let's Talk Stocks
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
Allied Group Inc. (GRP - $48.0625 - NYSE) has accepted a sweetened offer from
Nationwide Mutual Insurance Co. for $1.7 billion, allowing Nationwide to expand
into the Midwest through a rare unsolicited takeover in the insurance industry.
Nationwide will pay $48.25 per share, or nearly $1.5 billion, for all of
Allied's shares. In May, Nationwide made the unsolicited takeover bid after
being rebuffed by Des Moines, Iowa-based Allied for several months. After
repeated rejections by Allied, Nationwide took its case directly to shareholders
by offering to purchase their shares for $47 each. Nationwide eventually
sweetened the offer, raising it to $48.25 per share, to gain Allied's approval
for the transaction. Nationwide has received all necessary state insurance
approvals and completed its $48.25 per share cash tender offer on September 30,
1998.
American Bankers Insurance Group Inc. (ABI - $42.50 - NYSE), based in Miami, is
a leading provider of credit insurance and credit-related insurance products.
ABI and Cendant Corp. (CD - $11.625 - NYSE) announced that they have terminated
their merger agreement, ending a nearly eleven month saga that began with the
announcement that ABI would be purchased by American International Group (AIG)
for $47 per share. Cendant bid $58 per share on January 27, 1998 and eventually
won the right to acquire ABI for $67 per share. Revelations of accounting
problems at Cendant placed the deal in jeopardy and ultimately led to the
cancellation of the deal. As part of the companies' termination agreement,
Cendant paid ABI $400 million (equal to approximately $5.50 per share).
Throughout the ordeal, ABI's basic business has remained on track, and it had
significant volumes of new business in the pipeline. With the termination of the
deal, the company will be able to focus on closing the new business in the
pipeline. As such, top line growth is expected to pick up in the near future and
get back on track to a more normal 10% to 12% growth rate in 1999. Greater
upside potential exists as it is possible that AIG will once again make an offer
for ABI.
BetzDearborn Inc. (BTL - $69.125 - NYSE) has agreed to be acquired by Hercules
Inc. (HPC - $30.0625 - NYSE), a U.S. specialty chemicals maker, for $3.1 billion
in cash and assumed debt, creating one of the world's biggest makers of
chemicals used in paper-making, water-treatment and other industrial processes.
Hercules, which had $1.87 billion in 1997 sales, is offering $72 per
BetzDearborn share. BetzDearborn is the number two U.S. producer of
water-treatment and industrial process chemicals, with $1.3 billion in 1997
sales. The purchase allows Wilmington, Delaware-based Hercules to resume its
worldwide expansion amid industry consolidation. The companies have set October
8, 1998 for BetzDearborn shareholders to approve the merger. They expect to
close the transaction in October 1998.
DeKalb Genetics Corp. (DKB - $92.00 - NYSE), an agricultural genetics and crop
biotechnology company, develops and sells hybrid seeds and is the second largest
supplier of hybrid seed corn. Monsanto (MTC - $56.25 - NYSE), which controls 40%
of DeKalb's outstanding shares, won a three-
6
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month-long auction by agreeing to pay $100 in cash for each of the remaining
shares, or $2.5 billion. The transaction is expected to be completed by year
end.
Giant Food Inc. (GFS'A - $43.1875 - AMEX) operates a chain of over 170
supermarkets, mostly food and drug combination stores, primarily in the
Washington, DC and Baltimore metropolitan areas. The company is expanding from
this base into New Jersey, Pennsylvania and Delaware. J. Sainsbury plc, one of
the largest supermarket retailers in the United Kingdom, was the owner of a
non-controlling 50% of Giant's voting shares, in addition to approximately 20%
of the non-voting shares. The Dutch food retailer Royal Ahold NV (AHO - $29.0625
- - NYSE) paid Sainsbury $613 million for its Giant Food stake and is purchasing
the remaining Giant Food shares for $43.50 per share.
Orange & Rockland Utilities Inc. (ORU - $54.875 - NYSE) has agreed to be
acquired by Consolidated Edison (ED - $52.00 - NYSE) for $1.15 billion in cash
and assumed debt, allowing Con Edison to boost its power transmission business
in a growing part of the New York City area. Orange & Rockland is a small
utility, with most of its customers in New York's northern suburbs. Con Edison
is to pay $58.50 per share for all of Orange & Rockland's 13.5 million
outstanding shares. Orange & Rockland shareholders approved the merger on August
20, 1998 and the companies have filed all necessary regulatory applications. The
transaction is expected to be completed once all state and federal regulatory
approvals are obtained which is expected during the second quarter of 1999. In
addition to the $58.50 per share, we will also receive Orange & Rockland's
$0.645 quarterly dividend.
Nashua Corp. (NSH - $14.75 - NYSE) conducts business in three segments:
Specialty Coated Products, Label Products and Imaging Supplies. Nashua is a
leading manufacturer and provider of coated products and office supplies,
including facsimile and thermal papers, pressure-sensitive labels, specialty
papers, and copier and laser printer supplies. Nashua is narrowing its business
focus. The company's entire photofinishing group has been sold for $52.5
million. The specialty coated products division, which the company previously
intended to sell, is now making a positive contribution with new products, lower
costs and better margins.
Sprint Corp. (FON - $72.00 - NYSE) is the third largest long distance carrier
and the second largest independent local telephone company in the U.S. Sprint
has positioned itself globally through a joint venture called GlobalOne. Its
joint venture partners, France Telecom and Deutsche Telekom, also have a direct
20% stake in Sprint. The company has a promising national personal
communications services ("PCS") and wireless joint venture with three major
cable operators: Tele-Communications Inc., Comcast and Cox Communications. FON
faces risks from prospective new entrants in its long distance business which
may be offset by the PCS venture and its own pursuit of the $100 billion local
telephone market.
SPS Transaction Services Inc. (PAY - $31.50 - NYSE) has agreed to a transaction
with Associates First Capital (AFS - $65.25 - NYSE), the largest U.S. consumer
finance company, involving $896 million in cash. Associates First is buying the
assets of SPS, an issuer of credit cards for companies such as Office Depot and
Radio Shack. Associates First administers and owns receivables for the
private-label credit card operations of Texaco and Amoco. SPS thereafter will
pay its shareholders $32.02 per share from the proceeds of the asset sale. The
transaction is expected to be completed shortly after SPS's special shareholder
meeting held on October 14, 1998.
7
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WHX Corp. (WHX - $12.875 - NYSE) is a holding company for wholly owned
subsidiary Wheeling-Pittsburgh Steel, America's ninth largest integrated steel
producer. Wheeling-Pittsburgh develops, processes and fabricates steel (hot/cold
rolled sheets and coated products) and steel products (roof deck, form deck,
culvert, steel framing and related products). In April, WHX completed its
acquisition of Handy & Harman, a diversified industrial manufacturing company,
for a total consideration of $604 million including assumption of $186 million
in debt.
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 Gabelli ABC Fund and other Gabelli Funds are available through
the no-transaction fee programs at many major discount brokerage firms.
The Roth IRA
The Taxpayer Relief Act of 1997 included new tax incentives and more
opportunities to save for retirement and other major expenditures. The Roth IRA
is just one of these new opportunities now available at Gabelli Funds. Our
investor representatives are available at 1-800-GABELLI (1-800-422-3554) to
speak with you about establishing a new Roth IRA and to discuss your investment
choices. Ask our representatives about the advantage of converting to a Roth IRA
before 1999.
Internet
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Funds, 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].
Shareholders will soon be able to receive quarterly reports from Gabelli
Funds via e-mail. We anticipate that this service will be available in early
1999. If you are interested in receiving your quarterly report via e-mail,
please send an e-mail to [email protected] with your name and address and
we will provide you with the appropriate forms. Our investor representatives are
available at 1-800-GABELLI (1-800-422-3554) to assist you as well.
8
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In Conclusion
We are disappointed that the ABC Fund's net asset value declined this
quarter and that it has posted a modest decline over the first three quarters of
1998. However, we are pleased the Fund held up quite well relative to the S&P
500 Index and extremely well relative to the Russell 2000 Index during this very
difficult quarter for stocks. We remain committed to our risk averse approach to
the equity markets and confident that we can achieve our long term objective of
preserving and enhancing the value of the assets you have entrusted to us.
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 GABCX. Please call us during the
business day for further information.
Sincerely,
/s/ Mario J. Gabelli
Mario J. Gabelli, CFA
Portfolio Manager and
Chief Investment Officer
October 30, 1998
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Top Ten Holdings
September 30, 1998
------------------
Giant Food Inc.
DeKalb Genetics Corp.
BetzDearborn Inc.
SPS Transaction Services Inc.
Allied Group Inc.
Orange & Rockland Utilities Inc.
Nashua Corp.
American Bankers Insurance Group
Sprint Corp.
WHX Corp.
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NOTE: The views expressed in this report reflect those of the portfolio manager,
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
9
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The Gabelli ABC Fund
Portfolio of Investments -- September 30, 1998 (Unaudited)
================================================================================
Market
Shares Value
------ ------
COMMON STOCKS - 93.1%
Agriculture - 10.7%
48,000 DeKalb Genetics Corp. ........................ $4,416,000
----------
Automotive: Parts and Accessories - 0.7%
9,300 Modine Manufacturing Co. ..................... 269,700
----------
Aviation: Parts and Services - 2.3%
20,000 Fairchild Corp., Cl. A + ..................... 282,500
7,000 Hi-Shear Industries Inc. + ................... 18,813
5,000 Hudson General Corp. ......................... 252,500
22,000 Kaman Corp., Cl. A ........................... 376,750
----------
930,563
----------
Broadcasting - 0.3%
2,500 Liberty Corp. ................................ 103,906
----------
Building and Construction - 1.2%
40,000 Dravo Group Corp. + .......................... 505,000
----------
Business Services - 5.5%
2,580 Fisher Scientific International Inc. ......... 44,344
150,000 Nashua Corp.+ ................................ 2,212,500
----------
2,256,844
----------
Cable - 0.3%
3,000 Cable Michigan Inc. + ........................ 104,250
2,000 TCI Ventures Group Inc. ...................... 35,875
----------
140,125
----------
Communications Equipment - 0.5%
5,000 Dynatech Corp.+ .............................. 14,688
3,500 Gemstar International Group Ltd. + ........... 162,312
1,000 L - 3 Communications Holdings Inc.+ .......... 39,688
----------
216,688
----------
Computer Software and Services - 7.6%
138 DecisionOne Holdings Corp.+ .................. 1,346
100,000 SPS Transaction Services Inc.+ ............... 3,150,000
----------
3,151,346
----------
Consumer Products - 0.6%
15,000 Carter-Wallace Inc. .......................... 235,313
----------
Consumer Services - 0.3%
7,000 Loewen Group Inc. ............................ 103,250
----------
Diversified Industrial - 0.5%
10,000 Katy Industries Inc. ......................... 164,375
1,000 Myers Industries Inc. ........................ 23,000
3,000 WHX Corp. + .................................. 38,625
----------
226,000
----------
Electronics - 0.3%
7,000 UCAR International Inc. + .................... 126,000
----------
Energy - 8.5%
7,600 AGL Resources Inc. ........................... 147,250
6,500 Florida Public Utilities Co. ................. 99,125
500 MidAmerican Energy Holdings Co. .............. 13,219
1,000 Nevada Power Co. ............................. 26,875
44,000 Orange & Rockland Utilities Inc. ............. 2,414,499
10,000 Pennzoil Co. ................................. 350,624
1,000 Sierra Pacific Resources ..................... 38,813
16,000 Southwest Gas Corp. .......................... 327,000
4,000 Wicor Inc. ................................... 95,500
----------
3,512,905
----------
Entertainment - 4.5%
8,000 Fisher Companies Inc. .......................... 546,000
3,000 Florida Panthers Holdings Inc.+ ................ 32,438
3,000 Tele-Communications Inc./Liberty Media
Group, Cl. A ................................... 110,063
10,000 Topps Co. Inc.+ ................................ 28,125
32,000 USA Networks Inc. + ............................ 621,999
9,000 Viacom Inc., Cl. A+ ............................ 517,500
----------
1,856,125
----------
Equipment and Supplies - 1.0%
5,000 AMP Inc. ....................................... 178,750
6,000 Ampco-Pittsburgh Corp. ......................... 87,750
2,500 Amphenol Corp., Cl. A+ ......................... 87,188
3,000 Navistar International Corp.+ .................. 67,875
----------
421,563
----------
Financial Services - 12.7%
53,000 Allied Group Inc. .............................. 2,547,312
43,000 American Bankers Insurance Group Inc. .......... 1,827,500
26,900 Argonaut Group Inc. ............................ 685,950
4,000 Leucadia National Corp. ........................ 117,250
2,500 Pioneer Group Inc. ............................. 41,250
1,000 Summit Holding Southeast Inc. + ................ 32,875
----------
5,252,137
----------
Food and Beverage - 0.5%
25,000 Advantica Restaurant Group Inc. + .............. 118,750
5,000 Whitman Corp. .................................. 79,688
----------
198,438
----------
Health Care - 3.1%
2,000 AmeriSource Health Corp. + ..................... 108,875
2,000 Bergen Brunswig Corp. .......................... 101,125
17,900 DePuy Inc. ..................................... 626,500
6,000 Genentech Inc.+ ................................ 431,250
----------
1,267,750
----------
Hotels and Gaming - 0.1%
15,000 Aztar Corp.+ ................................... 58,125
----------
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The Gabelli ABC Fund
Portfolio of Investments (Continued) -- September 30, 1998 (Unaudited)
================================================================================
Market
Shares Value
------ ------
COMMON STOCKS (Continued)
Metals and Mining - 0.0%
155,000 Pegasus Gold Inc. + ............................ $ 8,525
10,000 Royal Oak Mines Inc. + ......................... 6,875
----------
15,400
----------
Publishing - 0.1%
2,000 Reader's Digest Association Inc., Cl. B ........ 38,000
----------
Real Estate - 2.3%
55,000 Catellus Development Corp. + ................... 715,000
20,000 Griffin Land & Nurseries Inc. + ................ 221,250
1,000 Property Capital Trust ......................... 150
-----------
936,400
-----------
Retail - 15.6%
133,000 Bruno's Inc.+ .................................. 37,240
130,000 Giant Food Inc., Cl. A ......................... 5,614,374
6,000 Lillian Vernon Corp. ........................... 81,375
6,000 Republic Industries Inc. + ..................... 87,375
28,442 Syratech Corp.+ ................................ 568,840
-----------
6,389,204
-----------
Satellite - 0.0%
4,000 TCI Satellite Entertainment Inc., Cl. A + ...... 11,500
-----------
Specialty Chemicals - 8.4%
50,000 BetzDearborn Inc. .............................. 3,456,250
-----------
Telecommunications - 0.6%
30,376 Citizens Utilities Co., Cl. B .................. 246,806
1,000 Startec Global Communications Corp. + .......... 6,875
-----------
253,681
-----------
Textiles - 0.4%
321,974 Carlyle Industries Inc. + ...................... 171,049
-----------
Utilities - 0.6%
13,500 United Water Resources Inc. .................... 229,500
-----------
Wireless Communications - 3.9%
2,000 American Tower Corp., Cl. A + .................. 51,000
22,000 Centennial Cellular Corp., Cl. A + ............. 704,000
12,000 CommNet Cellular Inc. + ........................ 132,000
20,500 Telephone and Data Systems Inc. ................ 714,938
-----------
1,601,938
-----------
TOTAL COMMON STOCKS ............................ 38,350,700
-----------
PREFERRED STOCKS - 1.7%
Diversified Industrial - 1.7%
11,000 WHX Corp. Pfd., Ser. A ......................... 500,500
5,000 WHX Corp. Pfd., Ser. B ......................... 202,500
-----------
TOTAL PREFERRED STOCKS ......................... 703,000
-----------
CONVERTIBLE PREFERRED STOCKS - 2.6%
Telecommunications - 2.6%
4,000 Citizens Utilities Co. 5.00% Cv. Pfd. .......... 172,000
13,500 Sprint Corp. 8.25% Cv. Pfd. .................... 911,250
-----------
TOTAL CONVERTIBLE
PREFERRED STOCKS ............................. 1,083,250
-----------
RIGHTS - 0.0%
Computer Software and Services - 0.0%
17,500 Fusion Systems Corp.+ .......................... 546
-----------
Principal
Amount
---------
CONVERTIBLE CORPORATE BONDS - 0.1%
Consumer Products - 0.0%
$ 17,000 Fieldcrest Cannon Inc. Sub. Deb. Cv.
6.00%, 03/15/12 .............................. 13,770
-----------
Retail - 0.1%
200,000 RDM Sports Group Inc. Cv.
8.00%, 08/15/03 .............................. 24,000
-----------
TOTAL CONVERTIBLE
CORPORATE BONDS .............................. 37,770
-----------
TOTAL INVESTMENTS - 97.5% ...................... 40,175,266
Other Assets and
Liabilities (Net) - 2.5% ..................... 1,026,360
-----------
NET ASSETS - 100.0%
(4,054,295 shares outstanding) ............... $41,201,627
===========
NET ASSET VALUE,
Offering and Redemption
Price Per Share .............................. $ 10.16
===========
- ----------
+ Non-income producing security.
11
<PAGE>
The Gabelli ABC Fund
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
fax: 1-914-921-5118
e-mail: [email protected]
http://www.gabelli.com
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
Board of Directors
Mario J. Gabelli,
CFA Chairman and Chief
Investment Officer
Gabelli Funds, Inc.
Anthony J. Colavita
Attorney-at-Law
Anthony J. Colavita, P.C.
Vincent D. Enright
Former Senior Vice President
and Chief Financial Officer
KeySpan Energy Corp.
Karl Otto Pohl
Former President
Deutsche Bundesbank
Werner J. Roeder, MD
Director of Surgery
Lawrence Hospital
Officers
Mario J. Gabelli, CFA
President and Chief
Investment Officer
James E. McKee
Secretary
Bruce N. Alpert
Vice President
and Treasurer
Distributor
Gabelli & Company, Inc.
Custodian, Transfer Agent and Dividend Agent
State Street Bank and Trust Company
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
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This report is submitted for the general information of the shareholders of The
Gabelli ABC Fund. It is not authorized for distribution to prospective investors
unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
