THE GABELLI ABC FUND
THIRD QUARTER REPORT
SEPTEMBER 30, 1999
TO OUR SHAREHOLDERS,
Through most of the third quarter of 1999, stocks were slowly sinking under
the weight of a declining bond market, a tumbling dollar, and the prospect of
more aggressive Federal Reserve monetary policy tightening. Technology
stocks--the last bastion of strength in an otherwise weak market--finally
cracked in the last two weeks of the quarter, sending virtually all market
indices sharply lower. Thanks to our cash reserves and positive contributions
from our arbitrage investments, the Fund posted a modest return for the quarter
as the major stock market indices declined.
INVESTMENT PERFORMANCE
For the third quarter ended September 30, 1999, The Gabelli ABC Fund's (the
"Fund") total return was 0.10%. The Standard & Poor's ("S&P") 500 Index declined
6.24%, while the Lipper U.S. Treasury Money Market Average had a total return of
1.06% over the same period. The S&P 500 Index is an unmanaged indicator of stock
market performance, while the Lipper Average reflects the average performance of
mutual funds classified in this particular category. The Fund was up 19.14% over
the trailing twelve-month period. The S&P 500 Index and Lipper U.S. Treasury
Money Market Average rose 27.79% and 4.17%, respectively, over the same
twelve-month period.
For the five-year period ended September 30, 1999, the Fund's total return
averaged 9.98% annually versus average annual total returns of 25.03% and 4.75%
for the S&P 500 Index and Lipper U.S. Treasury Money Market Average,
respectively. Since inception on May 14, 1993 through September 30, 1999, the
Fund had a cumulative total return of 82.35%, which equates to an average annual
total return of 9.86%.
WHAT WE DO
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
[GRAPHIC OMITTED]
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INVESTMENT RESULTS (a)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
QUARTER
---------------------------------------------
1ST 2ND 3RD 4TH YEAR
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1999: Net Asset Value ............................. $9.65 $10.20 $10.21 -- --
Total Return ................................ 0.6% 5.7% 0.1% -- --
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1998: Net Asset Value ............................. $10.64 $10.68 $10.16 $9.59 $9.59
Total Return ................................ 4.0% 0.4% (4.9)% 11.9% 11.1%
----------------------------------------------------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DIVIDEND HISTORY
AVERAGE ANNUAL RETURNS - SEPTEMBER 30, 1999 (A) ----------------------------------------------------------
- ----------------------------------------------- PAYMENT (EX) DATE RATE PER SHARE REINVESTMENT PRICE
----------------- -------------- ------------------
<S> <C> <C> <C> <C>
1 Year ............................ 19.14% December 28, 1998 $1.763 $ 9.50
December 29, 1997 $0.860 $10.17
5 Year ............................ 9.98% December 27, 1996 $0.146 $ 9.83
September 30, 1996 $0.470 $ 9.77
Life of Fund (b) .................. 9.86% 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 investment operations on May 14, 1993.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
combination of lower risk convertible securities and virtually risk free U.S.
Treasury bills. To date, this approach has worked quite well. Although we have
indefinitely suspended the Performance Guaranty Program, we believe the Fund's
investment strategy can continue to produce favorable results.
HISTORY OF THE FUND
The Gabelli ABC Fund was launched on May 14, 1993 with a minimum guaranteed
total return of 6% through May 14, 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
2
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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 or 1998. The Fund's annual total returns were
12.8% and 11.1%, respectively, for those two years. Although the Performance
Guaranty Program is not being offered for 1999, the Fund continues striving to
achieve the same objectives. During the most recent four-year period in which
the S&P 500 Index 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.
The Adviser and Board of Directors continue to explore 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 six years, to provide an attractive rate of return
without excessive risk of capital.
COMMENTARY
TOO MUCH OF A GOOD THING?
In the third quarter of 1999, the U.S. economy continued to barrel along at
a pace that investors feared would lead to higher inflation. Paced by the long
anticipated recovery in Japan, Asian economies are perking up. Coupled with
prospects that European economies are gaining momentum, this has spawned concern
that synchronized global growth would further increase inflationary pressure
here at home. All of this positive global economic news was simply too much of a
good thing for the U.S. bond market, which continued to slide.
Long term, synchronized global growth is a blessing--we should all be
thinking in terms of Gross World Product ("GWP") rather than Gross Domestic
Product ("GDP"). However, in the short term it may put additional pressure on
the Fed to press down on the monetary brakes. Investors should view this as a
dose of cod liver oil--bitter medicine, but a tonic that will improve the long
term health of the economy and the stock market. Unfortunately, "Mr. Market"
often does not like to take his medicine and additional Fed interest rate hikes
and higher bond yields are not likely to improve his mood. So, even though third
quarter corporate earnings are likely to be quite strong, price/earnings ("P/E")
multiples (a function of investor psychology and interest rates) may continue to
contract, sending stocks even lower. The good news in this scenario would be the
return of Ben Graham's "margin of safety" to the market.
If the domestic economy begins to decelerate in the fourth quarter and the
Fed declares a monetary cease-fire, "Mr. Market" may be in a better mood.
Although P/E multiples are not likely to expand, they may stabilize, allowing
earnings to rally stocks. However, with equity valuations still at relatively
lofty levels, advances will engender additional speculative risks.
THE DOLLAR IN LIMBO--HOW LOW CAN IT GO?
As we write, the dollar has hit a four-year low against the yen. This is
another good news/bad news situation. A cheaper dollar benefits U.S. exporters
and ultimately would help reduce trade deficits, which have been running at
extraordinarily high levels. It also bolsters dollar denominated earnings from
the international operations of U.S. companies. However, over the short term, it
actually increases dollar calculated trade deficits. Perhaps most importantly, a
lower dollar is potentially inflationary, because the
3
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prices of imported products that U.S. consumers treasure will move higher. If
the American consumer is willing to pay these higher prices for Toyota cars and
trucks, Sony big screen televisions, and Sega video games, it will soon be
reflected in the Consumer Price Index ("CPI"). This leads us to another
important question...
WILL FATIGUE HIT THE AMERICAN CONSUMER?
High employment and the "wealth effect" of a rising housing and stock
market have buoyed consumer confidence. Discretionary income has risen as a
result of depressed energy prices, low mortgage rates, and rising wages. If the
domestic economy does slow down, consumers may become more concerned about job
security. When investors receive third quarter statements from their brokers,
money managers and mutual funds, they will realize that their net worth has been
trimmed. Americans are paying more at the pump for gasoline and their home
heating bills will be significantly higher this winter. Variable rate mortgage
payments will increase and new fixed rate mortgages are higher. So, consumers
will not be able to raise spending money by leveraging real estate assets--no
more "take the home mortgage from $100,000 to $150,000 with the same monthly
payments and pocket the difference". As aforementioned, the prices for imported
goods are increasing. Will all this be enough to cause the American consumer to
tighten the purse strings? Or, will a significant tax cut--the Republicans are
running on the "3 Fs" (Faith, Finances, and Family)--embolden the American
consumer and keep the economic wheels moving here and abroad?
THIS QUARTER'S SCORECARD
The ABC Fund's portfolio batting average was over .500 this quarter, a
respectable showing in a weak market. Many of our hits came from arbitrage
investments. One, United Water Resources ("UWR"), was a home run. UWR returned
32% for the quarter. On the whole, however, most were not home runs--that is not
the idea behind arbitrage investing. The portfolio is full of infield singles
that helped us score some runs and produce a positive return. Cilcorp, New
England Electric System and Thermo Power Corp., each a utility arbitrage play,
all singled in runs with returns of 3.70%, 3.49% and 3.28%.
The scorecard was not perfect, however. A few of the Fund's arbitrage plays
looked as if they needed a pinch hitter, most notably Nalco Chemical, Southwest
Gas, and O'Sullivan Industries Holdings (with declines of 2.65%, 5.90% and
11.76%, respectively). The manager decided to stay with the veterans and it
appears that they might be beginning to climb out of their respective slumps.
Since arbitrage plays a major role in our portfolio strategy, we want to
share excerpts from an article we prepared for CIGAR AFICIONADO magazine
discussing what we believe is now a very exciting investment subject.
RISK ARBITRAGE--HOW TO PROFIT FROM "THE THIRD WAVE OF TAKEOVERS"TM
WE ARE IN THE MIDST OF THE THIRD GREAT WAVE OF MERGERS AND ACQUISITIONS SINCE
WORLD WAR II.
The first wave swelled in the 1960s, with conglomerators like LTV's Jimmy
Ling, Gulf & Western's Charles Bluhdorn, and ITT's Harold Geneen merging
companies in non-related industries. They did so in
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an attempt to produce more consistent earnings growth through the ups and downs
of the business cycle. The second major wave of takeovers began in the 1980s,
when financial engineers including leveraged buyout firms like Kohlberg, Kravis
& Roberts, and corporate raiders like T. Boone Pickens used junk debt to gobble
up undervalued companies and then dismember them for a profit. This second wave
broke as financially unrealistic deals like the proposed leveraged buyout
("LBO") of United Airlines fell apart, the junk bond market collapsed, and the
House of Drexel disintegrated under the weight of a government criminal
investigation.
The third great wave of mergers and acquisitions is being driven by
consolidators--companies in a wide range of industries buying competitors in
order to extend their franchises, trim costs and increase profitability. We
trace the beginning of this wave to March 14, 1994, when much admired General
Electric Chairman Jack Welch launched a hostile bid to buy Kemper Insurance -
signaling that deals were once again respectable. This Third Wave will continue
to gain momentum as companies worldwide jockey for market position and profits
in the increasingly competitive global economy.
THERE ARE TWO WAYS INVESTORS CAN TAKE ADVANTAGE OF MERGER AND ACQUISITION
ACTIVITY.
The first is buying public shares of likely takeover candidates before the
"deal" is announced. Gabelli Asset Management's ability to identify industries
ripe for consolidation and our focus on undervalued companies has resulted in a
long list of portfolio holdings being taken over at substantial premiums to our
purchase prices. The second (and much less known) method is through risk
arbitrage. It would take a book to detail all the complexities of risk
arbitrage. In this article, I'll provide the basics, and more importantly, the
reasons why I believe risk arbitrage is such a compelling investment strategy.
Simply stated, risk arbitrage is investing in a merger or acquisition
target after the deal has been announced and pocketing the spread between the
trading price of the target company following the announcement and the deal
price upon closing. This spread is usually relatively narrow--offering a
somewhat modest nominal total return. However, since deals generally close in
much less than a year's time, this modest total return translates into a much
more attractive annualized return.
The following is a very basic risk arbitrage investment. On March 22, 1999,
the NYSE-listed First Data Corp. announced it would pay $25.50 in cash for all
the remaining publicly owned shares of Paymentech, Inc. (52.5% of the company
would continue to be owned by Bank One, which has a merchant processing alliance
with First Data). The deal was expected to close within four months. Following
the announcement, we were able to purchase Paymentech shares for $24.02 (the
trading price of $24 per share on the day the deal was announced plus 2 cents
per share in commissions). The spread between our purchase price and the value
of the stock upon closing was 6.2%. The deal closed on July 27, 1999, generating
an annualized return of 18.5%.
This particular arbitrage worked out very well for us. We were able to buy
Paymentech shares at a good discount to the final transaction price and the deal
closed on schedule. Not all arb investments produce such an attractive
annualized return. However, arbitrage portfolios have posted annualized returns
in the low to mid teens in the 1990s.
5
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The great advantage of risk arbitrage is that it is largely a market
neutral strategy--deals get done in good markets and bad--that can deliver
consistent returns even in volatile markets.
Because a conservatively managed risk arbitrage portfolio produces
consistent gains, the financial magic of compounding works strongly in its
favor. Let me offer two examples of the power of compounding returns.
Once upon a time, there was a king in a far away land. In order to repay
the local sage for saving his daughter's life, the king offered the sage any
reward he wished. The sage asked for what appeared to be a modest stipend--one
grain of rice - the amount to be doubled each day for 31 days. The sage would
receive one grain of rice that day, two the next, four the next, and so on. The
king thought nothing of giving away a few grains of rice on a daily basis. But,
it was only a matter of weeks before the king's granaries were empty and the
sage had become the richest man in the land. After only one month, the king was
paying the sage over 1 billion grains of rice a day. In 31 days, one grain
became one billion through the magic of compounding.
The purchase of Manhattan Island from the Indians for just $24 worth of
beads is generally considered one of the greatest investments in history. The
estimated value of all the real estate in Manhattan today is around $10 trillion
dollars. Amazingly, this equates to an annualized compounded return of just 7.4%
in the 375 years since the deal was done.
Of course, arbitrage investments don't compound at 100% daily, and most
investors' time horizons are much shorter than the 375 years it took to make the
purchase of Manhattan look like such a great deal. But consider the following
hypothetical scenario. Alice and Bob both invest $1 million of their 401(k)
money in the year 2000. Alice puts her money in a risk arbitrage fund that ends
up returning 12% each year for the next ten years. Bob puts his money in an
aggressive equity fund that gains 20% in eight of the ten years, but is down 20%
in year one and year six. In 2010, Alice has $3.1 million compared to Bob's $2.7
million, despite the fact that Bob's returns were almost double Alice's returns
in eight of the ten years.
Are we shortchanging Bob in this scenario? After all, the stock market has
had only one down year in the last 10, and over that time period, the S&P 500
has posted an average annual gain of 20%. True enough. However, the long term
average annualized return from stocks is just over 11%, and I suggest that over
the next ten years, equities returns will more closely resemble the historic
norms. I would also opine that these returns will be accompanied by considerable
volatility--yes, major corrections and perhaps a full scale bear market. Are
Alice's arb fund returns realistic? Remember, risk arbitrage returns are
impacted by deal flow, not the direction of the stock market. If deal flow
continues to be as robust as we anticipate over the next ten years, arb funds
have the potential to deliver consistent annual returns in the low to mid teens.
So, this hypothetical scenario may prove remarkably accurate.
AT THIS JUNCTURE, YOU MAY BE WONDERING WHERE IS THE RISK IN RISK ARBITRAGE?
The biggest risk in risk arbitrage is that announced deals will not be
consummated and that the stock of the company to be acquired will sink following
a bust up in the deal. In fact, in virtually every individual risk arbitrage
investment, upside potential is dwarfed by downside risk. One old time pundit
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said it best ... "arbitrage is the only business we know where you risk dollars
to make nickels." The second biggest risk is that the deal may take much longer
to close than first anticipated, turning an attractive annualized gain into a
much more modest return.
Deals do break for a variety of reasons and a busted deal generally means a
big loss. However, during this third great wave of mergers and acquisitions,
96.5% of all announced deals have been consummated. That puts the odds in the
arbritrageur's favor, particularly if he or she knows how to analyze a deal in a
manner that helps avoid most if not all the inevitable potholes. An adequately
diversified arbitrage portfolio is a must. A diversified arb portfolio can
withstand the large loss from a broken deal and still generate a positive
return. Regarding the timing issue, deals do get stretched out, but provided one
is not investing with leverage or having to bear the cost of a short position in
a stock swap deal, this generally results in a more modest gain rather than a
loss. Due to the complexities of most deals and because broad diversification is
absolutely essential, in my opinion, risk arbitrage is best left to
organizations with research and trading expertise and sufficient assets to
support a fully diversified arb portfolio.
But, just because you can't do it at home, doesn't mean that investors
shouldn't take advantage of this relatively low risk strategy to create wealth
through the magic of compounding returns. There are numerous arbitrage
partnerships open to individual investors.
So, when the next deal is announced, remember it is still not too late to
buy and earn an attractive return on your investment.
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.
CILCORP INC. (CER - $64.8125 - NYSE), an Illinois utility company, agreed to be
acquired by AES Corp. (AES - $59.00 - NYSE) for $1.3 billion in cash and assumed
debt, as the largest U.S. power-plant developer expands into the growing Midwest
electricity market. The offer is valued at $65 per share. The acquisition is
expected to be completed by mid-November. Illinois's electric deregulation law,
which took effect last August, will make it easier for AES to improve Cilcorp's
returns. AES was attracted to CER because it is the lowest cost electricity
producer in Illinois and has been more willing to embrace competition than many
other utilities. Central Illinois Light, Cilcorp's main subsidiary, sells power
and natural gas to about 250,000 electric utility customers in the central part
of the state.
FURON CO. (FCY - $24.93175 - NYSE), a leading designer and manufacturer of
highly engineered products, will be acquired by Compagnie de Saint-Gobain
through a $25.50 per share cash tender offer. The tender is scheduled to expire
in the third quarter. Saint-Gobain, the world's top glassmaker, is expanding
into plastics with its purchase of Furon as companies are more frequently using
plastics to replace materials such as glass and metals.
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LONE STAR INDUSTRIES INC. (LCE - $49.875 - NYSE), the U.S.'s third-largest
publicly held cement company, agreed to be acquired by Germany's number two
cement company, Dyckerhoff AG, for $1.2 billion in cash and assumed debt.
Dyckerhoff will pay $50.00 per share for each share of LCE. The deal will take
place in the form of a cash tender offer. The deal is expected to close in the
fourth quarter of 1999. Dyckerhoff is turning to the strong $7.5 billion U.S.
construction market which is benefiting from a robust domestic economy. As the
U.S. government plans to spend up to $216 billion for new roads and highways
through 2003, mergers in this industry are expected to continue at a rapid pace.
NALCO CHEMICAL CO. (NLC - $50.50 - NYSE) signed a definitive agreement to be
acquired by Suez Lyonnaise des Eaux for $4.5 billion, or $53.00 per share in
cash. Headquartered in Naperville, Illinois, Nalco operates in more than 120
countries and is the world's largest producer of specialty chemicals and
services for water and industrial process treatment. Nalco is Suez's second U.S.
acquisition this year, and follows Vivendi's March agreement to buy U.S. Filter
for $7.9 billion. Suez has the largest number of customers in the $500 billion
worldwide market for water and waste treatment, but Vivendi has a larger sales
volume.
NIELSEN MEDIA RESEARCH INC. (NMR - $37.1875 - NYSE), the leader in measuring
television audiences, agreed to be acquired by Dutch publishing company VNU NV
for $2.7 billion in cash and debt. VNU, whose publications include BILLBOARD
magazine and the HOLLYWOOD REPORTER, will pay $37.75 per share in a cash tender
offer and assume $200 million in debt. The Dutch company has been acquiring
marketing businesses, which are more profitable than consumer publications and
less vulnerable to swings in economic cycles. The deal is expected to close in
the fourth quarter of 1999, and is subject to regulatory approval. While the two
companies have a small overlap in the advertising information market, the
overlap is not expected to impede the close of the deal.
SOUTHWEST GAS CORP. (SWX - $26.9375 - NYSE) is a natural gas utility based in
Las Vegas, providing natural gas service to over 1.2 million residential,
commercial and industrial customers in one of the most economically vibrant
areas of the United States: Arizona, Nevada and parts of northeastern and
southeastern California. Southwest is the nation's fastest growing natural gas
distribution company. Southwest Gas' board of directors has approved a revised
offer from Oneok Inc. (OKE - $30.3125 - NYSE) to purchase all outstanding SWX
shares for $30.00 per share in cash, valuing Southwest Gas at approximately $1.8
billion, including assumed debt. Regulatory approvals from the Nevada PUC and
the Arizona ACC have been obtained.
THERMO POWER CORP. (THP - $11.8125 - AMEX) announced it has entered into a
definitive agreement to merge with its parent company, Thermo Electron (TMO -
$13.4375 - NYSE). Under terms of the agreement, Thermo Electron will pay $12.00
per share in cash for the 20% of Thermo Power it does not currently own. The
terms of the merger agreement were negotiated by a special committee who hired
an investment banker to evaluate Thermo Electron's merger proposal. The
transaction is expected to be completed during the third quarter of 1999.
UNITED WATER RESOURCES INC. (UWR - $32.625 - NYSE) announced that Suez Lyonnaise
des Eaux SA will buy the two-thirds of the company that they do not already own
for $1.8 billion in cash and assumed debt. Suez will pay $35.00 per share in
cash and will assume $800 million in debt and preferred stock of UWR, the No. 2
U.S. water company. United Water provides water and sewer treatment services to
7.5 million
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people in 19 states. Upon completion of the UWR acquisition, Suez Lyonnaise will
have worldwide water and wastewater revenues of more than $7.4 billion. The
transaction is expected to close in the first half of 2000.
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.
IN CONCLUSION
During a quarter in which the stock market indices declined sharply, the
ABC Fund delivered a modest return. Our strategy of minimizing portfolio risk
through arbitrage investing and maintaining cash reserves during challenging
markets effectively preserved assets during this difficult period. Going
forward, we continue to strive to maximize returns while minimizing market risk.
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 25, 1999
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TOP TEN HOLDINGS
SEPTEMBER 30, 1999
------------------
Lone Star Industries Inc. Wicor Inc.
Nielsen Media Research Inc. CommNet Cellular Inc.
Nalco Chemical Co. Thermo Power Corp.
Cilcorp Inc. Southwest Gas Corp.
Furon Co. United Water Resources 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.
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THE GAMBELLI ABC FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 1999 (UNAUDITED)
===============================================================================
MARKET
SHARES VALUE
------ -----
COMMON STOCKS -- 58.1%
Automotive: Parts and Accessories -- 0.4%
12,000 Federal-Mogul Corp. ................................ $ 330,750
-----------
AVIATION: PARTS AND SERVICES -- 0.9%
25,000 Aviall Inc.+ ....................................... 256,250
18,000 Fairchild Corp., Cl. A+ ............................ 184,500
7,000 Hi-Shear Industries Inc.+ .......................... 18,047
22,000 Kaman Corp., Cl. A ................................. 280,500
-----------
739,297
-----------
BROADCASTING -- 0.2%
1,000 Salem Communications Corp., Cl. A+ ................. 25,500
2,500 Liberty Corp. ...................................... 115,938
-----------
141,438
-----------
BUILDING AND CONSTRUCTION -- 9.0%
150,000 Lone Star Industries Inc. .......................... 7,481,250
-----------
BUSINESS SERVICES -- 7.6%
2,580 Fisher Scientific International Inc.+ .............. 55,470
16,000 National Processing Inc. ........................... 144,000
165,000 Nielsen Media Research Inc. ........................ 6,135,937
2,580 ProcureNet Inc.+ ................................... 387
-----------
6,335,794
-----------
COMMUNICATIONS EQUIPMENT -- 0.1%
5,000 Dynatech Corp.+ .................................... 25,000
1,000 L - 3 Communications Holdings Inc.+ ................ 37,750
-----------
62,750
-----------
COMPUTER SOFTWARE AND SERVICES -- 0.0%
1,938 DecisionOne Holdings Corp.+ ........................ 1,090
-----------
CONSUMER PRODUCTS -- 0.7%
12,500 Carter-Wallace Inc. ................................ 223,438
1,000 General Housewares Corp. ........................... 28,062
28,442 Syratech Corp.+ .................................... 312,862
----------
564,362
-----------
DIVERSIFIED INDUSTRIAL -- 5.4%
6,000 Ampco-Pittsburgh Corp. ............................. 81,000
100,000 Furon Co. .......................................... 2,493,750
11,000 Katy Industries Inc. ............................... 132,000
150,000 Thermo Power Corp.+ ................................ 1,771,875
4,000 WHX Corp.+ ......................................... 40,000
-----------
4,518,625
-----------
ELECTRONICS -- 0.3%
10,000 UCAR International Inc.+ ........................... 228,125
-----------
ENERGY AND UTILITIES -- 15.0%
20,000 AGL Resources Inc. ................................. 325,000
20,000 Aquarion Co. ....................................... 717,500
75,000 Cilcorp Inc. ....................................... 4,860,938
30,603 Citizens Utilities Co., Cl. B+ ..................... 346,196
2,000 Devon Energy Corp. ................................. 82,875
50,000 El Paso Electric Co.+ .............................. 450,000
10,000 Florida Progress Corp. ............................. 462,500
22,000 Florida Public Utilities Co. ....................... 404,250
8,000 New England Electric System ........................ 415,000
2,500 Piedmont Natural Gas Co. ........................... 75,781
1,000 Public Service Co. of North Carolina ............... 31,000
40,000 Southwest Gas Corp. ................................ 1,077,500
5,000 St. Joseph Light & Power Co. ....................... 103,125
30,000 United Water Resources Inc. ........................ 978,750
75,000 Wicor Inc. ......................................... 2,179,688
----------
12,510,103
-----------
ENTERTAINMENT -- 0.8%
9,000 Fisher Companies Inc. .............................. 535,500
1,000 Liberty Media Group, Cl. A+ ........................ 37,125
12,000 Topps Co. Inc.+ .................................... 90,000
-----------
662,625
-----------
ENVIRONMENTAL SERVICES -- 0.3%
10,000 Superior Services Inc.+ ............................ 268,594
-----------
EQUIPMENT AND SUPPLIES -- 0.4%
4,500 Amphenol Corp., Cl. A+ ............................. 223,031
1,000 Case Corp. ......................................... 49,813
6,674 Juno Lighting Inc. ................................. 79,671
-----------
352,515
-----------
FINANCIAL SERVICES -- 2.8%
31,900 Argonaut Group Inc. ................................ 801,487
5,000 Leucadia National Corp.+ ........................... 105,000
22,500 Life USA Holdings Inc. ............................. 464,063
15,000 Orion Capital Corp. ................................ 710,625
5,000 Pioneer Group Inc.+ ................................ 75,000
7,000 Terra Nova (Bermuda) Holdings Ltd., Cl. A .......... 223,562
-----------
2,379,737
-----------
FOOD AND BEVERAGE -- 0.2%
30,000 Advantica Restaurant Group Inc.+ ................... 90,938
3,000 Whitman Corp. ...................................... 42,750
-----------
133,688
-----------
HEALTH CARE -- 0.2%
4,500 Life Technologies Inc. ............................. 184,500
-----------
HOME FURNISHINGS -- 0.4%
320,000 Carlyle Industries Inc.+ ........................... 260,000
8,000 O'Sullivan Industries Holdings Inc.+ ............... 120,000
-----------
380,000
-----------
HOTELS AND GAMING -- 0.0%
2,500 Boca Resorts Inc., Cl. A+ .......................... 26,250
-----------
METALS AND MINING -- 0.0%
10,000 Royal Oak Mines Inc.+ .............................. 408
-----------
PUBLISHING -- 0.3%
15,000 Penton Media Inc. .................................. 243,750
-----------
REAL ESTATE -- 1.2%
70,000 Catellus Development Corp.+ ........................ 822,500
20,000 Griffin Land & Nurseries Inc.+ ..................... 216,250
-----------
1,038,750
-----------
10
<PAGE>
MARKET
SHARES VALUE
------ -----
COMMON STOCKS (CONTINUED)
Real Estate Investment Trusts -- 0.7%
50,000 Imperial Credit Commercial Mortgage
Investment Corp. ................................. $ 550,000
------------
RETAIL -- 1.2%
120,000 Bruno's Inc.+ ...................................... 31,200
13,000 Hannaford Bros. Co. ................................ 915,687
8,000 Lillian Vernon Corp. ............................... 100,000
-----------
1,046,887
-----------
SPECIALTY CHEMICALS -- 7.1%
6,000 Bush Boake Allen Inc.+ ............................. 158,250
115,000 Nalco Chemical Co. ................................. 5,807,500
-----------
5,965,750
-----------
TELECOMMUNICATIONS -- 0.5%
11,000 Rogers Communications Inc., Cl. B+ ................. 184,938
9,000 Shenandoah Telecommunications Co. .................. 198,000
-----------
382,938
-----------
WIRELESS COMMUNICATIONS -- 2.4%
2,000 American Tower Corp., Cl. A+ ....................... 39,125
60,500 CommNet Cellular Inc.+ ............................. 1,894,406
1,000 Rural Cellular Corp., Cl. A+ ....................... 45,875
-----------
1,979,406
-----------
TOTAL COMMON STOCKS ................................ 48,509,382
-----------
PREFERRED STOCKS -- 2.1%
DIVERSIFIED INDUSTRIAL -- 0.7%
11,000 WHX Corp., Pfd., Ser. A ............................ 415,938
6,000 WHX Corp., Pfd., Ser. B ............................ 200,625
-----------
616,563
-----------
TELECOMMUNICATIONS -- 1.4%
4,000 Citizens Utilities Co.,
5.00% Cv. Pfd. ................................... 199,000
12,000 Sprint Corp.,
8.25% Cv. Pfd. ................................... 940,500
------------
1,139,500
-----------
TOTAL PREFERRED STOCKS ............................. 1,756,063
-----------
PRINCIPAL MARKET
AMOUNT VALUE
------ -----
CORPORATE BONDS -- 0.0%
RETAIL -- 0.0%
$ 200,000 RDM Sports Group Inc., Cv.
8.00%, 08/15/03 .................................. $ 18,000
-----------
Transportation -- 0.0%
850,000 Builders Transport Inc., Cv. 6.50%, 05/01/11 ....... 12,750
-----------
TOTAL CORPORATE BONDS .............................. 30,750
-----------
U.S. GOVERNMENT OBLIGATIONS -- 26.9%
22,572,000 U.S. Treasury Bills,
4.46% to 4.86%++,
due 10/14/99 to 12/09/99 ......................... 22,470,247
-----------
TOTAL INVESTMENTS -- 87.1%
(Cost $73,480,503) ............................... 72,766,442
OTHER ASSETS AND
LIABILITIES (NET)-- 12.9% ........................ 10,739,592
-----------
NET ASSETS -- 100.0%
(8,178,180 shares outstanding) ................... $83,506,034
===========
NET ASSET VALUE,
OFFERING AND REDEMPTION
PRICE PER SHARE .................................. $ 10.21
=======
----------------
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
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 ASSET MANAGEMENT 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 Pshl
FORMER PRESIDENT
DEUTSCHE BUNDESBANK
Werner J. Roeder, MD
MEDICAL DIRECTOR
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
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
GAB408Q399SR
[PHOTO OF MARIO J. GABELLI]
THE
GABELLI
ABC
FUND
THIRD QUARTER REPORT
SEPTEMBER 30, 1999
