The Gabelli Utilities Fund

Transcription

1 The Gabelli Utilities Fund Shareholder Commentary June 30, 2015 Mario J. Gabelli, CFA Portfolio Manager To Our Shareholders, For the quarter ended June 30, 2015, the net asset value ( NAV ) per Class AAA Share of The Gabelli Utilities Fund decreased 2.8% compared with a decrease of 5.8% for the Standard & Poor s ( S&P ) 500 Utilities Index. See page 2 for additional performance information. Mid-Year Outlook 2015 At June 30, 2015 the S&P 500 Utilities Index had declined 16% from its January 29, 2015 peak. Year to date, the index is down 11%. This correction is not surprising, considering that utility stocks were among the best performers in 2014 and early 2015, with the S&P Utilities Index returning 29% (24.3% in price) in 2014, including 12% in the fourth quarter, and growing another 5% through January 29 of this year. We believe utility stocks had gotten ahead of themselves as they benefited from a drop in the 10 year U.S. Treasury yield to 1.7%. In addition to interest rates and strong fundamentals, we believe utility stock valuations were temporarily boosted by global money favoring the sector s low risk and U.S. dollar denominated dividend yields. Following the correction in the first half of 2015, utility stocks trade at more reasonable valuations, including 16x and 15x 2016 and 2017 earnings, respectively. Although impacted by interest rates, we emphasize that utility stocks are more than just bond proxies, and we continue to expect the utility sector to provide a low risk 8%-10% annual total return over the long term. The median current return is 3.9%, and most utilities forecast 4%-6% annual earnings and dividend growth. Solid fundamentals include healthy balance sheets, credit ratings, improved regulatory principles, focused strategies, low natural gas prices, and opportunities to invest in infrastructure. The utility and energy sectors remain in the midst of one of the most aggressive investment cycles seen in decades, leading to dramatic changes in the way that natural gas is drilled and transported and power is generated, transmitted, and delivered. The investment opportunities and fragmented structure combine to make the group ripe for corporate restructuring, including mergers, company spin-offs, yieldcos/master Limited Partnerships (MLPs), and potentially Real Estate Investment Trusts (REITs).

2 Comparative Results Average Annual Returns through June 30, 2015 (a) Since Inception Quarter 1 Year 5 Year 10 Year (8/31/99) Class AAA (GABUX) (2.83)% (5.95)% 10.17% 6.69% 7.59% S&P 500 Utilities Index (5.80) (2.90) S&P 500 Index Lipper Utility Fund Average (3.95) (5.20) Class A (GAUAX) (2.80) (5.89) With sales charge (b) (8.38) (11.30) Class C (GAUCX) (3.07) (6.70) With contingent deferred sales charge (c) (4.04) (7.63) Class I (GAUIX) (2.75) (5.71) In the current prospectuses dated April 30, 2015, the expense ratios for Class AAA, A, C, and I Shares are 1.36%, 1.36%, 2.11%, and 1.11%, respectively. Class AAA and Class I Shares do not have a sales charge. The maximum sales charge for Class A Shares and Class C Shares is 5.75% and 1.00%, respectively. (a) Returns represent past performance and do not guarantee future results. Total returns and average annual returns reflect changes in share price, reinvestment of distributions, and are net of expenses. 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. Current performance may be lower or higher than the performance data presented. Visit for performance information as of the most recent month end. Returns would have been lower had Gabelli Funds, LLC, the Adviser not reimbursed certain expenses of the Fund for periods prior to December 31, The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days after the date of purchase. Performance returns for periods of less than one year are not annualized. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectuses contain information about these and other matters and should be read carefully before investing. To obtain a prospectus, please visit our website at The value of utility stocks generally changes as long term interest rates change. Funds investing in a single sector, such as utilities, may be subject to more volatility than funds that invest more broadly. The utilities industry can be significantly affected by government regulation, financing difficulties, supply or demand of services or fuel, and natural resources conservation. The Class AAA Share NAVs are used to calculate performance for the periods prior to the issuance of Class A Shares and Class C Shares on December 31, 2002 and Class I Shares on January 11, The actual performance of the Class A Shares and Class C Shares would have been lower due to the additional fees and expenses associated with these classes of shares. The actual performance of the Class I Shares would have been higher due to lower expenses related to this class of shares. The S&P 500 Utilities Index is an unmanaged market capitalization weighted index of large capitalization stocks that may include facilities generation and transmission or distribution of electricity, gas, or water. The S&P 500 Index is a market capitalization weighted index of 500 large capitalization stocks commonly used to represent the U.S. equity market. The Lipper Utility Fund Average reflects the average performance of mutual funds classified in this particular category. Dividends are considered reinvested. You cannot invest directly in an index. (b) Performance results include the effect of the maximum 5.75% sales charge at the beginning of the period. (c) Assuming payment of the 1% maximum contingent deferred sales charge imposed on redemptions made within one year of purchase. We have separated the portfolio manager s commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of We have done this to ensure that the content of the portfolio manager s commentary is unrestricted. The financial statements and investment portfolio are mailed separately from the commentary. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at 2

3 Investment Outlook Mergers, yieldcos, spin-offs, and the growth of large scale and rooftop solar lend sex appeal to the sector, but the bulk of earnings power will continue to be driven by investment in the traditional regulated utility business. Infrastructure to address climate change and to move inexpensive natural gas supplies from shale regions to population centers leads to rate base growth. The formula driving our strong fundamental outlook for utilities is: Investment Opportunities + Constructive Regulation = Earnings Growth. Over the past few years, public and political support of investment, combined with the low cost of natural gas, has allowed for an increasingly constructive regulatory environment, which includes numerous adjustments and mechanisms to address infrastructure investment as well as rate design changes to address efficiency and distributed generation. As a result, investors can take comfort that utilities should earn healthy and low risk returns on investment and enjoy significant investment opportunities. Furthermore, the utility business model (rate base/rate of return) continues to attract large private equity investors, infrastructure funds, and larger utilities. Utility stocks provide a platform for larger entities, such as infrastructure funds and private equity, to earn healthy returns on investment. As a result, we continue to expect utility stocks to provide a median 3.7% current return, 4%-6% earnings and dividend growth, and the potential further upside associated with consolidation or restructuring. Potential for Higher Interest Rates Given that U.S. Treasury yields have been in a long term decline since 1981, when they peaked at 15%, many believe that a period of higher rates is inevitable. Similar to most equity investments, utility stocks are negatively impacted when interest rates rise. The current 3.9% utility dividend return is 163% of the 2.4% rate on the 10 year U.S. Treasury. Should U.S. Treasury rates continue to rise, the utility dividend return becomes less compelling. In addition, the present value (or stock price) is often determined by the present value of future cash flows. As such, the higher the interest rate (discount rate), the lower the present value of an equity (or fixed income) investment, assuming all other variables are held constant. Utility stocks often appear to be more sensitive to interest rates than other stocks because the variables impacting changes in utility revenues, expenses, etc., are less sensitive to other factors. However, utility stocks pay higher dividends than other sectors, and thus the present value of the dividend stream is less impacted by changes in interest rates. In addition, utility cost-of-capital, including equity returns (ROEs), is set by state public utility commissions (PUCs) and will increase as interest rates rise. Further, improved and more frequent rate adjustments associated with capital investment may mitigate inflation risk. A primary reason for the long term decline in interest rates has been the Federal Reserve s aggressive stance towards inflation. The Fed has been active with its various tools, including the ability to move benchmark rates, control inflation, and encourage growth. Should economic growth accelerate, the Fed s long term fight against inflation would likely continue to slow inflation potential via hikes in the short term benchmark rates. The Fed s supervision provides some comfort that the low rate environment will continue. 3

4 Awaiting Final EPA Rules on GHG; MATS to be Reconsidered During the second half of 2015, we expect final rules of the Environmental Protection Agency s (EPA s) Clean Power Plan (CPP), which will set greenhouse gas (GHG) emission standards for existing power plants. Given the impact that the CPP will have on the future of power generation and the significant dollars involved, we expect CPP clarity to lead to a heightened level of activity, including power plant retirements, renewable development, Federal Energy Regulatory Commission (FERC) transmission projects, and corporate restructuring. Utilities, regulators, and regional transmission operators have delayed decisions and actions until the course outlined by the CPP is finalized. The CPP was scheduled to be finalized by June 2015, with state plans due in 2016 and the first compliance period in In June 2014, the EPA proposed standards as part of its CPP that calls for CO 2 emissions reductions of 30% from 2005 levels by 2030 (19% from 2012 levels). The EPA will set carbon targets, and the individual states will submit plans to implement and comply with interim targets between 2020 and Given that carbon reduction technology does not exist, compliance plans would involve improved efficiency at existing coal plants, retiring coal units, increasing gas and renewable generation, and improving demand side efficiency. However, some important political groups consider the rule an overreach of the federal government, and the proposal is fraught with ambiguity. Some states appear likely to refuse to comply, including Oklahoma, and the pending rule faces legal and legislative challenges. On June 29, 2015, the Supreme Court ruled that the EPA must reconsider the Mercury and Air Toxics Standards (MATS) because it didn t properly take into account the costs of the regulations before deciding to adopt them. The ruling means that the agency will have to redesign the rules. However, the MATS rules were adopted in 2012, and compliance was required this year without cost consideration. Most utilities have already installed high tech scrubbers to remove the pollutants. While there are several issues associated with finalizing the CPP and MATS, utilities have aggressively steered a course toward more environmentally friendly generation, including coal plant reductions, regardless of the regulation. Other Important Trends, Themes and Issues As noted, the pending EPA rules are significant and will likely outline the course of management decisions, including mergers, rate base investment, and financial engineering. Deals, Deals, and More Deals Over the past few years, utility mergers have involved U.S. electric and gas utilities, Canadian utilities, and private equity with motives ranging from gaining size to potential strategic rights of way. Larger European utilities had retrenched to focus on local issues, but Spanish-based Iberdrola (0.1% of net assets as of June 30, 2015) recently announced a creative way to increase its U.S. presence. Since 1995, the electric utility sector has experienced over 125 acquisition announcements and nearly 100 completed deals. Consolidation activity peaked from , when it appeared that the industry would deregulate. We expect consolidation to continue for years to come, driven by ongoing challenges related to climate change and earnings growth. 4

5 On February 25, 2015, UIL Holdings (0.4%) of New Haven, Connecticut and Iberdrola USA agreed to combine and form a separate publicly traded utility. UIL shareholders would receive one share of the NEWCO for each share held plus $10.50 cash per share. The transaction proposes a total value to UIL of $52.75 per share, a 25% premium to the previous close. The value represented a 21.1X P/E to UIL s 2015 EPS guidance of $2.50 per share and 11.2X EV/2014 EBITDA and 9.8X EV/2015E EBITDA. At closing, UIL will own 81.5% of NEWCO and Iberdrola will own 18.5%. The combination includes Iberdrola USA s utilities (New York State Electric & Gas, Rochester Gas and Electric, and Central Maine Power) and UIL s utilities (The United Illuminating Company, The Southern Connecticut Gas Company, The Connecticut Natural Gas Corporation, and The Berkshire Gas Company). The combined utility rate base would be $8.3 billion and serve 3.1 million electric and gas customers in New York, Connecticut, Maine, and Massachusetts. The following are high profile acquisition announcements made over the past eighteen months: On June 29, 2015, WEC Energy Group (1.7%) completed its acquisition of Integrys Energy Group (TEG). The agreement valued TEG at $9.1 billion enterprise value and consisted of stock, cash, and the assumption of $3.3 billion of debt. Each TEG share received shares of WEC and $18.58 per share in cash. On April 2, 2015, Dynegy (DYN) purchased 12,500 megawatts (MW) of coal and gas-fired capacity from Duke Energy (DUK) (1.1%) and Energy Capital Partners, LLC for a total of $6.25 billion. The assets are located in the Midwest, and they make DYN one of the nation s larger non-regulated power companies with 26,000-MW. On December 3, 2014, Hawaiian Electric Industries (HE) (1.2%) announced an agreement to sell its utility operations to NextEra Energy (NEE) (4.2%) for $4.3 billion (including $1.7 billion of debt) and spin off its banking business, American Savings Bank (ASB), to shareholders. HE shareholders will receive: shares of NEE ($25.19 at NEE closing price), a $0.50 per share special dividend and shares of ASB valued at ~$8.00 (1.75x tangible book of $464 million). The total value of the transaction ($33.69) represents 19.8x our 2015 earnings estimate of $1.70 per share and 8.2x our 2015 EBITDA estimate of $506 million. The $25.69 per share of utility value represented 20.6x our 2015 utility earnings estimate of $1.25 per share (includes allocated parent expenses) and 9.5x our 2015 utility EBITDA estimate of $434 million. On October 20, 2014, CLECO Corp. (1.3%) announced an agreement to be purchased for $55.37 per share in cash by Macquarie Infrastructure (0.1%) and Real Assets (group of investors). The purchase price represented a 15% premium to the previous day s close and 10.0x EV/EBITDA. On September 3, 2014, TECO Energy (TE) (0.7%) closed on the acquisition of New Mexico Gas (NMGC) for $950 million, which represented 11.0x NMGC s 2012 EBITDA of $86 million, from privately held Continental Energy. New Mexico Gas serves 509,000 retail gas customers in the Central Rio Grande Corridor of New Mexico. The agreement was announced on May 28,

6 On September 2, 2014, Laclede Group (0.4%) closed on the acquisition of Alabama Gas Corporation (Alagasco) from Energen Corporation (EGN) (0.1%) for $1.6 billion. Alagasco is the largest gas local distribution company in the state, serving over 420,000 customers in central and north Alabama, including Birmingham. The agreement was announced on April 7, On August 15, 2014 Canadian utility Fortis Inc. (FTS.TO) (0.1%) closed on the acquisition of the Tucson, Arizona electric utility, UNS Energy, for $60.25 per share, a 31% premium to the previous day s close. The agreement was announced on December 11, On April 30, 2014, Exelon Corporation (EXC) (0.9%) agreed to acquire Pepco Holdings, Inc. (POM) for $11.9 billion, or $27.25 per share, which represented a 20% premium over the previous day s closing price. The agreement will bring together Exelon and Pepco s gas and electric utilities, creating the leading Mid-Atlantic electric and gas utility, serving ten million customers. On March 3, 2014, UIL Holdings Corp announced that it won the bid for Philadelphia Gas Works (PGW), a municipal gas utility that serves 500,000 customers, at $1.9 billion. On December 4, 2014, UIL terminated its agreement after failing to get city council support. On December 19, 2013, NV Energy was acquired by MidAmerican Energy Holdings Co. for $23.75 in cash. The deal was announced on May 30, 2013, and the offer price represented a 23% premium to the previous day s closing price. Financial Engineering (MLPs, Yieldcos, and REITs) In addition to mergers, integrated or diversified electric and gas utilities have created significant value over the past decade by forming MLPs with pipelines and/or midstream assets. More recently, electric utilities have engineered the corporate structure to form a new equity known as yieldcos, which serve a similar purpose, achieving a lower cost of capital (higher valuation) by separating more stable and tax advantaged cash flows into an income paying publicly traded vehicle. We have listed some higher profile MLP and yieldco issuances below: October 15, 2014, Dominion Resources (D) (0.5% of net assets as of June 30, 2015) IPO d Dominion Midstream (DM) (less than 0.1%), an MLP with an initial asset of a preferred interest in the Cove Point LNG facility. D estimates that Cove Point and its Blue Racer JV would have up to $1 billion of EBITDA by In addition, D had roughly $1 billion of EBITDA potential to drop down from other assets at Dominion East Ohio, Dominion Transmission, and the Iroquois Pipeline. On June 26, 2014, NextEra Energy (4.2%) issued 16.3 million shares, approximately 20% of its newly created yieldco, NextEra Energy Partners, LP (NEP) (0.1%), at $25 per share. The IPO raised $405 million and was priced at the high end of the $23-$25 per share range (raised from the initial $19-$21 per share range). NEE also has incentive distribution rights and 100% of the special voting units. 6

7 On July 16, 2013, NRG Energy (NRG) (0.2%) spun off a portion of its contracted generation capacity into a separate company called NRG Yield (NYLD) via a $430 million IPO. NYLD is a dividend oriented company that owns, operates, and acquires contracted renewable and conventional generation and thermal infrastructure assets. NYLD shares were priced at $22 per share and currently trade at $51.20 per share. Additionally, the January 30, 2015 IPO of InfraREIT (HIFR), priced at $23 per share (20 million of million shares outstanding). The company is headquartered in Dallas, Texas and is an externally managed REIT that owns 620 miles of electric transmission assets and distribution assets with 50,000 delivery points. Roughly 75% of InfraREIT s existing rate base is transmission, and the remaining 25% of rate base is spread across four distribution service areas. This IPO could spur other larger utilities with FERC regulated transmission assets to pursue a REIT structure. In 2014, the IRS clarified the definition of real property, which allows transmission assets to become REITs, but most are reluctant, given that any benefits would be passed onto customers by regulators. Many utilities have the potential to form transmission REITs, including Ameren Corp. (0.9%), American Electric Power (1.8%), Centerpoint (0.1%), FirstEnergy Corp. (0.7%), Great Plains Energy (1.3%), ITC Holdings (0.1%), Eversource Energy (1.9%), WEC Energy Group, and Westar Energy (1.4%). Business Separation Finally, some diversified utilities recognized that investors value non-regulated businesses separately from regulated businesses and have opted to create value by separating into distinct business units. Examples include: On July 2, 2015 NiSource (NI) (0.5% of net assets as of June 30, 2015), a diversified energy company, split into two publicly traded companies, an electric and gas utility and a pure-play gas pipeline, midstream, and storage company. The utilities, which serve 3.4 million natural gas customers in seven states, (Ohio, Pennsylvania, Massachusetts, Virginia, Kentucky, Maryland, and Indiana) and 450,000 electric customers (Indiana) kept the name NiSource. NiSource shareholders received one share of Columbia Pipeline Group common stock for every one share of NiSource common stock held as of the record date. The gas pipelines, with headquarters in Houston, Texas, trade as Columbia Pipeline Group on the NYSE under the ticker "CPGX. Columbia Pipeline Group owns 15,700 miles of natural gas transmission pipeline stretching from Louisiana to New York, with 300 billion cubic feet of underground storage. On February 11, 2015, NiSource IPO d 53.8 million common units of MLP, Columbia Pipeline Partners LP (CPPL). CPPL received net proceeds of $1.2 billion for 53.5% of the partnership s outstanding limited partnership interests. The assets of CPPL consist of a 15.7% limited partnership interest in Columbia OpCo, which substantially consists of the operations of Columbia Pipeline Group. 7

8 On June 1, 2015, PPL Corporation (PPL) (0.7%) spun off its non-regulated generation subsidiary via a distribution; PPL share received shares of new company, Talen Energy (TLN) (0.1%) to existing shareholders. The company combined its power plants with those of private equity firm Riverstone Holdings to form Talen Energy Corporation. TLN owns approximately 15,000 MW (PPL-10,000 MW, Riverstone-5,300 MW) of unregulated generation in PJM (Pennsylvania, New Jersey, Maryland, etc.) and ERCOT (Electric Reliability Council of Texas). PPL shareholders received shares on a tax free basis and own 65% of the company. We view the transaction favorably, as it transitions PPL from the non-regulated competitive power business, which is a higher risk business, and allows management to focus on the core regulated utility businesses. On February 2, 2014, ONE Gas (OGS) (0.3%), with two million customers in Oklahoma, Kansas, and Texas, began trading as a separate independent gas utility after being distributed to shareholders by ONEOK (OKE) (0.9%). Rate Base Growth: Are We Near the End of a Capital Investment Cycle? As we stated previously, the formula driving our strong fundamental outlook for utilities is: Investment Opportunities + Constructive Regulation = Earnings Growth. Investor concern that post-2015 MATS investment could moderate has been alleviated by the CPP, FERC Order 1000, and smart grid investment opportunities, as well as new platforms into gas infrastructure. Capital investment doubled from $41 billion in 2004 to $83 billion in 2008, with major spending on environmental control equipment, generation projects, and transmission. In 2014, utility capital expenditures were $98.3 billion, compared to $90.3 billion in The Edison Electric Institute currently projects industry spending at $108 billion in 2015, $100 billion in 2016, and $92 billion in We continue to believe electric and gas utilities will have abundant infrastructure investment opportunities for the foreseeable future and funding appears manageable. In 2014, the industry s average credit rating moved to BBB+, after holding at BBB for the past ten years. Rating agencies cite state level regulation improvement, including numerous transparent and timely cost recovery mechanisms. The constructive rate treatment and ability to fund the significant investment opportunity both support our forecasted 4%-6% annual earnings growth. FERC Order 1000 Moving Slowly The FERC s favorable incentive oriented regulation continues to make transmission investment one of the more compelling uses of capital for electric utilities. The favorable regulatory treatment is designed to help the nation repair, upgrade, and expand its aging transmission network. Allowed ROEs have ranged as high as roughly 14%, though recent FERC rate decisions reset the benchmark at a lower level. In June of 2014, FERC lowered New England transmission base ROEs to 10.57% from 11.14% and capped incentive ROEs at 11.74%. Nonetheless, transmission growth opportunities command premium multiples and are among the more desirable projects sought by utility management teams. The Brattle Group estimates $240-$320 billion of necessary transmission investment through We have been disappointed in the pace of acceleration for transmission projects under FERC Order 1000, which 8

9 opens transmission projects to a competitive bidding process. Until the CPP is finalized, ISOs are challenged to determine future plant retirements and additions, and therefore the location of new transmission lines. Over the new few years, we expect transmission development to accelerate as projects are identified to integrate new generation, specifically renewables, and to ensure reliability as older base load coal plants are retired. Gas Pipelines and Reserves in Rate Base Electric utilities are becoming increasingly dependent on natural gas-to-fire generation, and they are eager to minimize price and reliability risk associated with the commodity. Partially driven by the 2013/2014 polar vortex as well as size and scale, some electric utilities are building and developing natural gas pipelines and investing in natural gas reserves. Some examples follow: Access Northeast ($3 billion; November 2018) Eversource Energy teamed up with Spectra Energy (SE) (0.8% of net assets as of June 30, 2015) to enhance the Algonquin and Maritimes pipelines, which would help alleviate congestion for the winter of 2016/2017. Atlantic Coast Pipeline ($5 billion) D, DUK, AGL Resources (GAS) (0.2%), and Piedmont Natural Gas (PNY) (0.1%) have ventured to build a pipeline that runs from West Virginia through Virginia to North Carolina. Sabal Trail ($3 billion) NEE and SE plan to build a 465 mile interstate pipeline that would originate in Alabama and transport gas to Georgia and Southeast Florida. The pipeline would include a Southeast connection built by NEE, which would run an additional 126 miles to the Martin Energy Center. Southeast Supply Header: SE and Centerpoint Energy (CNP) (0.1%) plan to build a 286 mile pipeline from east Texas and northern Louisiana to Mississippi and Alabama. Southeast Pipeline: EQT Corp. (EQT) and NEE plan to build a 330 mile pipeline to connect the Utica/Marcellus to Southeast (West Virginia). In addition, some electric and gas utilities are pursuing the inclusion of natural gas reserves in rate base. The benefit of such a move is to secure gas supply and minimize price risk. Three utilities in the western U.S., including Questar Corp. (STR) (less than 0.1% of net assets), Northwestern Corp. (NWE) (1.4%), and Northwest Natural Gas (NWN) (0.8%), have implemented these programs. While NWE and NWN s programs are relatively new, STR s program has been successful in saving customers approximately $1.1 billion cumulatively since Recently, NEE s Florida Power & Light received Federal Public Service Commission (FPSC) approval for a $500 million per year natural gas reserve program. As more commissions become comfortable with the program, we expect additional or expanded programs to help drive rate base growth. Black Hills Corp. (BKH) (1.1%) and NEE are already actively pursuing initiatives, and other companies exploring this notion include DTE Energy (DTE) (less than 0.1%), Duke Energy, Alliant Energy (LNT) (0.2%), Portland General Electric (POR), and Xcel Energy (XEL) (0.5%). 9

10 Allowed ROEs Decline - But Not As Fast as Cost of Capital Allowed ROEs have gradually declined over the past two decades to slightly below 10.0%. The average allowed ROE in 2014 (58 rate cases) was 9.89%, which compares to the 2013 average awarded ROE of 10.01% (46 rate cases). We emphasize that the absolute decline in profit levels has not been as significant as the decline in utility cost of capital, and thus the favorable spread has benefited utilities. The fourth quarter 2014 (current) spread between the average allowed ROE of 9.78% and the 10 year U.S. Treasury yield of 2.36% is over 700 basis points. While this level is below the 880 bps spread seen in 2012, it still represents a fairly significant increase from the bps spread levels seen in the 1990s. In addition, many regulatory jurisdictions encourage investment through annual, semiannual, or even quarterly riders for various items, including distribution pipe replacement, environmental investment, healthcare costs, property taxes, pension costs, efficiency spending, etc. Further, utilities and PUCs are making considerable efforts toward rate design and/or decoupling sales from revenues. The improved regulatory treatment results in a greater opportunity to earn the ROEs allowed and results in stair-step earnings growth. When combined with opportunities to invest and earn returns on a growing rate base, we consider the allowed ROEs to be more than adequate to grow earnings and dividends at or above the consensus growth rates. Potential Recovery in Power Markets We believe power markets, especially those in the Northeast and Texas, are poised for a more meaningful rebound over the next few years. The May 2014 PJM Interconnection power capacity results were modestly encouraging. While we await clarity on the specific targets of the EPA s CPP, we believe it is inevitable that the new standards will require the shutdown of a meaningful number of merchant coal power plants. We expect the impact of EPA mandated coal unit retirements will combine with the natural retirements of aging nuclear and gas/oil fired power plants to result in improved ERCOT, PJM, and New England power markets over the next few years. The polar vortex of 2013/2014 exposed New England to power supply and pipeline congestion concerns. On June 9, 2015, the FERC approved PJM s proposed capacity performance (CP) product, which allows for a premium (and penalty) for reliability and performance. The new product may increase the 2015 PJM auction capacity pricing by $20-$40 MW/day and will favor generators with dual fuel capabilities to ensure that supply issues do not incur the larger penalties for non-performance. Due to the delay in the decision process on the inclusion of the CP product, the traditional May PJM auction process has been moved to August We consider ERCOT to be a potentially volatile market, given low capacity cushion that could lead to higher spot prices during a hot summer, unusual weather conditions, or supply outages. However, volatility has been mitigated over the past few years by relatively mild summer weather and the addition of significant wind generation in the region. Additionally, ERCOT is still contemplating initiating a capacity market, which would allow for increased earnings for generators in the region. Retail Electric Sales Recovering Since the beginning of the Great Recession in 2008, U.S. electric demand growth has been relatively anemic, with an average growth rate of less than 1% per annum, though it varies by region. Historically, electric 10

11 demand has been highly correlated with GDP growth. Conservation, efficiency, and distributed generation (e.g., solar panels, micro-turbines, and fuel cells) have played a role in mitigating growth, but unusual weather patterns have combined with exaggerated price elasticity during the weak economic times to impact demand data. After a dramatic decline in the housing market, it appears that many housing markets have improved. The U.S. industrial revolution, which is being fueled by low cost natural gas, has resulted in strong retail electric industrial sales growth. More recently, residential and commercial electric sales are experiencing a modest recovery. While our financial and valuation forecasts are based on the new consensus of lower electric demand growth (we assume approximately 1% per annum), we suspect that electric demand growth will return to historical trends as consumers budgets and outlooks improve. Importantly, state PUCs are working toward separating electric sales from revenue to encourage conservation, efficiency, and the development of distributed generation, particularly rooftop solar. Distributed Generation Distributed generation (DG) systems, such as rooftop solar, are small scale, onsite power sources located at or near customers home or businesses. According to Bloomberg New Energy Finance (BNEF), at the end of 2014, there was close to 8.5 gigawatts (GW) of capacity from operating solar DG systems, representing roughly 0.8% of total U.S. installed power capacity of 1,100 GW. Approximately 7.4 GW were built from 2010 to 2014, including 2.5 GW in New installations are expected to grow from 2.5 GW in 2014 to 3.5 GW in 2015, resulting in total solar DG capacity of ~12 GW by the end of this year. The rapid growth in DG has been driven by federal tax incentives, lower installation costs, state and utility incentives, higher electric bills, and attractive financing. Including utility scale solar, California (~10 GW) and Arizona (~2 GW) represent ~60% of the total U.S. solar capacity, and, according to the Solar Energy Industries Association (SEIA), Arizona ranks second among solar capacity per capita at 316 watts per capita, only behind Hawaii at 321 watts per capita. The high penetration of DG in Arizona has led the state s utilities to request a reassessment of the rate design, due to the increasing effect of DG systems on net metering. Generally, in the current net metering structure, customers with DG sell any excess electricity to the respective electric company at the full retail rate. The full retail rate includes all of the fixed costs of poles, wires, meters, and other infrastructure to manage and service the grid, therefore electricity sold at the retail rate essentially allows DG customers to avoid paying their share of the fixed costs related to maintaining the grid. As a result, customers without a DG system, many of whom are low-income, pay a disproportionally high amount of the fixed costs associated with operating the grid. To mitigate the effects of the rising proliferation of DG, Arizona utilities have requested a monthly fixed charge for new DG system customers to access the grid. Obviously, solar generation only works when the sun shines, so customers remain dependent on the utility grid. Economically viable battery storage would represent a significant technology to alter the traditional method of utility service. Tesla recently announced production of a household battery storage product, named Powerwall, with capacity ranging from 7 kwh ($3,000) to 10 kwh ($3,500). In order to put the Powerwall s capacity in perspective, a single use of a washer and dryer consumes roughly 5.6 kwh of energy. In the near to mid-term, we do not believe DG systems will be able to compete with the reliability of the grid until the storage 11

12 capacity of household batteries significantly improves. Given that these states have decoupled revenues from sales, the lower demand does not negatively impact revenues, but rather becomes a cost-sharing challenge. Despite the rapid growth, DG systems represent less than 0.1% of the U.S. s total electric generation. We expect widespread penetration of DG systems to be constrained in the near term, due to high installation costs for the average household, expiration of federal tax incentives at the end of 2016, potential changes to rate design, reliability concerns, and limited energy storage technology. Nonetheless, more progressive utilities have embraced the technology and are pursuing network upgrades to incorporate new technologies, as well as changes to rate design, to better align bills with cost structures and send more realistic price signals to customers (higher fixed charges). Gas Prices The abundance of shale gas supply and sustained period of low prices is transforming the energy and utility industry. Natural gas prices remain at historically inexpensive levels, and this has significant financial and operational implications. Regulated utilities pass-on fuel prices to customers via frequent adjustments to customer bills, and thus changes in gas prices are margin neutral. However, lower gas prices result in lower customer bills and thus create a more favorable environment for base rate increases. Natural gas has become the fuel of choice for electric generation, and the multi-year price declines have minimized net retail electric rate increases and depressed wholesale power prices. The low wholesale power prices continue to depress non-regulated coal and nuclear generation. As a result, utilities have updated investment plans to include new gas fired generation, accelerated retirement of smaller and older coal plants, and the reconsideration of the development of new nuclear plants. Valuation High On Absolute Basis but Reasonable Relative to Interest Rates Our electric utility universe trades at 15.7x forward earnings, which compares to the 20 year range of 10-19x trailing twelve months earnings. However, utility stocks appear inexpensive relative to interest rates, specifically the 10 year Treasury yield. Given that long term interest rates (specifically the 10 year and 30 year U.S. Treasury yields) were in a long term secular decline from the late 1980s, we measure the earnings yield as a percent of the 10 year U.S. Treasury yield to gauge interest rate adjusted valuations. Should the twenty year relationship hold, the 10 year Treasury yield could rise 110 basis points without negatively impacting P/E multiples. Our Approach For several decades, utility companies have acquired other utilities and utility assets for the sake of gaining economies of scale and efficiency. The same forces that resulted in more than one hundred utility takeover announcements over the past two decades remain in place, and new forces have come into play that continue to drive this long term trend. Climate change and environmental policy have pressured marginal players. The electric and gas utility sector remains fragmented, with roughly sixty electric utilities and thirty gas utilities. This is fifty more than we need from the standpoint of economic efficiency. Our investments in regulated companies have primarily, though not exclusively, focused on fundamentally sound, reasonably priced, mid and small-cap utilities that are likely acquisition targets for large utilities seeking 12

13 increased scale. We prefer utilities that operate in more constructive regulatory environments, possess lower carbon footprints, and/or have access to strategic geographies. In addition, we favor utilities with pending transmission line developments, and we focus on natural gas pipelines and storage operators as a way to take advantage of the growing demand for natural gas in the U.S. 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 that we believe will develop over time. Individual securities mentioned are not necessarily representative of the entire portfolio. For the following holdings, the share prices are listed first in United States dollars (USD) and second in the local currency, where applicable, and are presented as of June 30, AES Corp. (1.9% of net assets as of June 30, 2015) (AES $13.26 NYSE) is a global power company that owns distribution and generation assets on four continents in 18 countries, with a generating capacity of over 36,000 MW and distribution networks in eight countries, including larger utilities in the U.S. and Brazil. Since late 2011, AES has been undergoing a transformation to narrow the strategic focus, allocate capital efficiently, and improve existing operations. As a result, AES has sold ~$3 billion in non-core assets and repurchased stock and debt. In early 2013, the company formed six strategic business units to include six focus regions consisting of the U.S., Andes (Chile, Columbia, Argentina), Brazil, MCAC (Mexico, Central America, and the Caribbean), EMEA (Europe, Middle East, and Africa), and Asia. Future capital investments and growth projects will be focused in areas where a platform already exists. The company offers a 3% current return on a $0.40 per share annual dividend, which management expects to grow 10% annually. With this focused approach to management, we regard AES as one of the better securities to allow the Fund to gain exposure to utility markets both inside and outside of the U.S. American Electric Power Company Inc. (1.8%) (AEP $52.97 NYSE) is one of the nation s largest electric utilities, serving more than 5.3 million retail customers in eleven states (Ohio and Texas the largest), owns approximately 38,000 megawatts (MW) of generating capacity, 40,000 miles of transmission lines (nation s largest) and 221,000 miles of distribution lines. AEP is focused on becoming a premier regulated utility and plans to invest $12 billion over the time period in regulated assets, driving 7.5% CAGR in net regulated plant. Management expects 4%-6% annual earnings growth, driven by a recovering economy, cost controls, and rate recovery of capital investment. Some of the growth will come from AEP Transco, a transmission development subsidiary that contributed $0.31 per AEP share in 2014, which plans to grow its total capital investment to $6.4-$8.2 billion and generate $0.66-$0.81 per share by AEP also currently pays roughly 60% of earnings to shareholders in the form of dividends and expects to increase the payout to 60%-70%. Cleco Corp. (1.3%) (CNL $53.85 NYSE), based in Pineville, Louisiana, is a public utility holding company that serves ~481,000 electric customers in Louisiana and holds 3,340 MW of owned generation. On October 20, 2014, CNL announced an agreement to be purchased for $55.37 per share in cash by Macquarie Infrastructure and Real Assets (group of investors) at a total value of ~$4.7 billion. The purchase price 13

14 represents a 15% premium to the previous day s closing price and 10X EV/EBITDA. The transaction is expected to close in the second half of Edison International (2.0%) (EIX $55.58 NYSE), through Southern California Edison (SCE), is one of the nation s largest regulated electric utilities serving 14 million residents (5 million customers) in central, coastal, and southern California. In early 2014, EIX completed the sale of its bankrupt non-regulated generation business, Edison Mission Energy (EME) to NRG Energy. In addition, the company continues to move forward on plans to permanently retire Units 2 (1,100MW; 2022) and 3 (1,100 MW; 2022) of its 78% owned (SRE owns 20%) San Onofre Nuclear Generating Station (SONGS). On March 27, 2014, EIX reached a settlement agreement regarding recovery of the SONGS units, helping to eliminate a large uncertainty for the company. As a result, EIX is a high quality regulated utility operating in a constructive California regulatory environment. The company continues to await a decision on its GRC, but note that rates will be retroactive to January 1, We continue to expect the utility to benefit from rate cases, ongoing constructive California regulatory mechanisms, and 7%-9% projected average annual rate base growth driven by an $11.8 billion $13.4 billion capital program through Eversource Energy (1.9%) (ES $45.41 NYSE) is New England s largest electric and gas distribution utility and delivery system. ES (formerly known as Northeast Utilities (NU) is the product of the April 2012 merger between Northeast Utilities, headquartered in Hartford, Connecticut with NSTAR, headquartered in Boston, Massachusetts creating a premier New England distribution utility. ES serves 3.6 million customers in Connecticut, New Hampshire, and Massachusetts. We consider ES to be one of the better long-term growth stories driven by transmission investment, cost-cutting opportunities and oil-to-gas heat conversions in the Northeast. The company targets 6%-8% long-term earnings growth rate. ES formed a joint venture with Spectra Energy to construct a $3 billion gas pipeline to supply the region s electric generators with natural gas. Construction is expected to begin in 2017 with an in service date by the winter of In addition, ES expects its 180 mile, $1.4 billion Northern Pass electric transmission line will now be completed in mid 2019 with construction to begin following a final environmental impact statement in early 2016 and New Hampshire siting approval. The company expects further transmission development as aging nuclear and coal facilities are replaced. National Fuel Gas Co. (5.7%) (NFG $58.89 NYSE) is a diversified natural gas company. NFG owns a regulated gas utility serving the region around Buffalo, New York, gas pipelines that move gas between the Midwest and Canada and from the Marcellus to the Northeast, gathering and processing systems and an oil and gas exploration and production business. NFG s regulated utility and pipeline businesses, as well as its California oil production business, provide stable earnings and cash flows to support the dividend, while the natural gas production business offers significant upside potential. NFG s ownership of 800,000 net acres in Pennsylvania, including 780,000 acres in in the Marcellus shale holds enormous natural gas reserve potential. We continue to expect above-average long term earnings and cash flow growth from rapidly growing gas production and expansion of the strategically located pipeline network. The company has increased its dividend for over forty consecutive years. In addition, NFG is considering corporate restructuring alternatives, including an MLP of its midstream assets. 14

15 NextEra Energy Inc. (4.2%) (NEE $98.03 NYSE) is the holding company for Florida Power & Light (FP&L), the largest electric utility in Florida, and NextEra Energy Resources (NER), a leading wholesale power generator. In mid 2014, NEE IPO d 20% of a new publicly traded yieldco (NextEra Energy Partners) to help drive non-regulated renewable generation growth. We regard NEE as one of the better positioned electric companies to grow earnings and dividends over the next several years. FP&L operates one of the premier utility franchises in the nation, with favorable long term demographics and above average rate base growth potential due to the power plant rate adjustments, flexible amortization and other regulatory mechanisms. FP&L operates under a four year ( ) plan premised on an allowed ROE of 10.5% (+/-100-basis points). Importantly, FP&L can raise rates to recognize $3.5 billion of power plant modernization projects. NEE also agreed to purchase Hawaiian Electric Industries (HE) on December 3, 2014 while spinning off American Savings Bank to shareholders. NEE will finance the deal with shares of NEE per HE share and the assumption of tax liabilities related to the spin-off. Additionally, NER owns and operates the nation s largest renewable power portfolio, with a significant pipeline of future growth opportunities. Many of these projects and opportunities are likely to be dropped down into NEP. In addition, NEE entered into a Joint Venture with Spectra Energy on a 465-mile, $3 billion (NEE to fund $1 billion) intrastate pipeline from Alabama through Georgia to southern Florida. The project includes an associated $550 million 126 mile expansion to FPL s Martin Energy Center. PNM Resources Inc. (1.7%) (PNM $24.60 NYSE) is a public utility holding company headquartered in Albuquerque, New Mexico. Regulated electric utility subsidiaries include Public Service Company of New Mexico (PSNM) and Texas-New Mexico Power Company (TNMP). PNM expects rate base growth of 5%-7% per annum at both PSNM and TNMP. PNM s capital plan totals $2.2 billion, including $568 million in 2015, $515 million in 2016, $444 million in 2017, $302 million (excludes $165 million for PV 3) in 2018 and $382 million in PNM is awaiting a final decision from the New Mexico Public Regulation Commission (NMPRC) regarding the final environmental retrofit plan and ownership changes for the San Juan coal units. Additionally, PSNM plans to refile an important New Mexico rate case using a forward-looking 2016 test year to recognize a comprehensive environmental plan, including selective non-catalytic reduction (SNCR) equipment on San Juan Units 1 & 4, Palo Verde 2 lease-purchase (64-MW; $134 million), the addition of a 40 MW solar facility ($66 million; 2016), 40 MW gas peaker ($50 million; 2016), and other investments. The original request includes a $107.4 million, or 8%, rate increase to recognize $2.4 billion of rate base, based on a 50% common equity ratio and 10.5% allowed ROE. TNMP benefits from annual distribution and transmission rate adjustments, as well as well above average sales growth, but it may file a general rate request in the near future. Assuming fair regulatory treatment, PNM targets 7%-9% annual earnings growth, which includes a 2016 earnings power of $1.90-$1.97 per share. Southwest Gas Corp. (2.6%) (SWX $53.21 NYSE) is a natural gas distribution utility serving 1.9 million customers in geographically diverse portions of Arizona (1.0 million, or 54%), Nevada (688,000, or 36%), and California (185,000, or 10%). From 2008 to 2010, customer growth slowed due to the overall slowdown in the new housing market and the increase in idle/vacant homes resulting from foreclosures and challenging economic conditions. However, customer growth is improving, over the long term, we expect that the service area will return to higher growth rates as the favorable regional climate and lower housing prices attract 15

16 customers to inhabit vacant homes. SWX also owns Centuri Construction Group, a full service underground piping contractor that provides trenching and installation, replacement, and maintenance services for energy distribution systems. The pipeline construction business is growing strongly, given the industry s focus on safety related pipeline replacement programs. The 2014 acquisition of Link-Line Group s pipeline construction business expanded the scope and scale of the business, allowing the potential for some type of financial engineering. We consider SWX to be a high quality gas utility with a focused, low risk strategy and solid earnings outlook driven by recent and future rate increases, expanded infrastructure tracking mechanisms, customer growth and cost controls. Westar Energy Inc. (1.4%) (WR $34.22 NYSE) is an electric utility serving 700,000 customers in central and northeastern Kansas. WR is well positioned to grow its earnings given a constructive regulatory environment, which allows for annual rate adjustments outside of a general rate case to recognize environmental and transmission investment. WR is expanding its 6,200 miles of transmission infrastructure by constructing smaller transmission projects in Kansas, and plans to spend $200 million per year on transmission projects despite the recently lowered allowed ROE for transmission. The company filed a General Rate Case on March 2, 2015 to recognize investment in the system, including $610 million for environmental controls to the La Cygne Generating Station (1,578 MW). A decision is expected by late October July 7, 2015 Top Ten Holdings (Percent of Net Assets) June 30, 2015 National Fuel Gas Co. 5.7% NextEra Energy Co. 4.2% Southwest Gas Corp. 2.6% Edison International 2.0% Eversource Energy 1.9% Cablevision Systems Corp. 1.9% AES Corp. 1.9% American Electric Power Company Inc. 1.8% WEC Energy Group Inc. 1.7% PNM Resources Inc. 1.7% Note: The views expressed in this Shareholder Commentary reflect those of the Portfolio Manager only through the end of the period stated in this Shareholder Commentary. The Portfolio Manager s views are subject to change at any time based on market and other conditions. The information in this Portfolio Manager s Shareholder Commentary represents the opinions of the individual Portfolio Manager and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Views expressed are those of the Portfolio Manager and may differ from those of other portfolio managers or of the Firm as a whole. This Shareholder Commentary does not constitute an offer of any transaction in any securities. Any recommendation contained herein may not be suitable for all investors. Information contained in this Shareholder Commentary has been obtained from sources we believe to be reliable, but cannot be guaranteed. 16

17 Minimum Initial Investment $1,000 The Fund s minimum initial investment for regular 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/GAMCO Funds are available through the no-transaction fee programs at many major brokerage firms. The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days after the date of purchase. See the prospectuses for more details. Please visit us on the Internet. Our homepage at contains information about GAMCO Investors, Inc., the Gabelli/GAMCO Mutual Funds, IRAs, 401(k)s, current and historical quarterly reports, closing prices, and other current news. We welcome your comments and questions via at [email protected]. The Fund s daily net asset value is available in the financial press and each evening after 7:00 PM (Eastern Time) by calling 800-GABELLI ( ). The Fund s Nasdaq symbol is GABUX for Class AAA Shares. Please call us during the business day, between 8:00 AM 7:00 PM (Eastern Time), for further information. You may sign up for our alerts at and receive early notice of quarterly report availability, news events, media sightings, and mutual fund prices and performance. e-delivery We are pleased to offer electronic delivery of Gabelli fund documents. Direct shareholders of our mutual funds can elect to receive their Annual and Semiannual Reports, Manager Commentaries, and Prospectuses via e- delivery. For more information or to sign up for e-delivery, please visit our website at Multi-Class Shares The Gabelli Utilities Fund began offering additional classes of Fund shares on December 31, Class AAA Shares are no-load shares offered directly through selected broker/dealers. Class A and Class C Shares are targeted to the needs of investors who seek advice through financial consultants. Class I Shares are available directly through the Fund s distributor or brokers that have entered into selling agreements specifically with respect to Class I Shares. The Board of Trustees determined that expanding the types of Fund shares available through various distribution options will enhance the ability of the Fund to attract additional investors. 17

18 Gabelli/GAMCO Funds and Your Personal Privacy Who are we? The Gabelli/GAMCO Funds are investment companies registered with the Securities and Exchange Commission under the Investment Company Act of We are managed by Gabelli Funds, LLC and GAMCO Asset Management Inc., which are affiliated with GAMCO Investors, Inc. GAMCO Investors, Inc. is a publicly held company that has subsidiaries that provide investment advisory or brokerage services for a variety of clients. What kind of non-public information do we collect about you if you become a fund shareholder? If you apply to open an account directly with us, you will be giving us some non-public information about yourself. The non-public information we collect about you is: Information you give us on your application form. This could include your name, address, telephone number, social security number, bank account number, and other information. Information about your transactions with us, any transactions with our affiliates, and transactions with the entities we hire to provide services to you. This would include information about the shares that you buy or redeem. If we hire someone else to provide services like a transfer agent we will also have information about the transactions that you conduct through them. What information do we disclose and to whom do we disclose it? We do not disclose any non-public personal information about our customers or former customers to anyone other than our affiliates, our service providers who need to know such information, and as otherwise permitted by law. If you want to find out what the law permits, you can read the privacy rules adopted by the Securities and Exchange Commission. They are in volume 17 of the Code of Federal Regulations, Part 248. The Commission often posts information about its regulations on its website, What do we do to protect your personal information? We restrict access to non-public personal information about you to the people who need to know that information in order to provide services to you or the fund and to ensure that we are complying with the laws governing the securities business. We maintain physical, electronic, and procedural safeguards to keep your personal information confidential. 18

19 THE GABELLI UTILITIES FUND One Corporate Center Rye, NY Portfolio Manager Biography Mario J. Gabelli, CFA, is Chairman and Chief Executive Officer of GAMCO Investors, Inc. that he founded in 1977 and Chief Investment Officer Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc. Mr. Gabelli is a summa cum laude graduate of Fordham University and holds an MBA degree from Columbia Business School and Honorary Doctorates from Fordham University and Roger Williams University. 19

20 THE GABELLI UTILITIES FUND One Corporate Center Rye, NY t 800-GABELLI ( ) f e [email protected] GABELLI.COM Net Asset Value per share available daily by calling 800-GABELLI after 7:00 P.M. BOARD OF TRUSTEES Mario J. Gabelli, CFA Chairman and Chief Executive Officer, GAMCO Investors, Inc. Anthony J. Colavita President, Anthony J. Colavita, P.C. Vincent D. Enright Former Senior Vice President and Chief Financial Officer, KeySpan Corp. Mary E. Hauck Former Senior Portfolio Manager, Gabelli-O Connor Fixed Income Mutual Fund Management Co. Kuni Nakamura President, Advanced Polymer, Inc. Werner J. Roeder, MD Former Medical Director, Lawrence Hospital OFFICERS Bruce N. Alpert President Andrea R. Mango Secretary Agnes Mullady Treasurer Richard J. Walz Chief Compliance Officer DISTRIBUTOR G.distributors, LLC CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT State Street Bank and Trust Company LEGAL COUNSEL Skadden, Arps, Slate, Meagher & Flom LLP THE GABELLI UTILITIES FUND Shareholder Commentary June 30, 2015 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. GAB470Q215SC

21 The Gabelli Utilities Fund Semiannual Report June 30, 2015 Mario J. Gabelli, CFA Portfolio Manager To Our Shareholders, For the six months ended June 30, 2015, the net asset value ( NAV ) per Class AAA Share of The Gabelli Utilities Fund decreased 5.6% compared with a decrease of 10.7% for the Standard & Poor s ( S&P ) 500 Utilities Index. See below for additional performance information. Enclosed are the financial statements, including the schedule of investments, as of June 30, Comparative Results Average Annual Returns through June 30, 2015 (a) (Unaudited) Since Inception Six Months 1 Year 5 Year 10 Year 15 Year (8/31/99) Class AAA (GABUX)... (5.57)% (5.95)%10.17% 6.69% 6.33% 7.59% S&P 500 Utilities Index... (10.67) (2.90) S&P 500 Index Lipper Utility Fund Average... (6.18) (5.20) Class A (GAUAX).... (5.68) (5.89) Withsalescharge(b)... (11.11) (11.30) Class C (GAUCX).... (6.02) (6.70) With contingent deferred sales charge (c)... (6.96) (7.63) Class I (GAUIX)... (5.51) (5.71) In the current prospectuses dated April 30, 2015, the expense ratios for Class AAA, A, C, and I Shares are 1.36%, 1.36%, 2.11%, and 1.11%, respectively. See page 11 for the expense ratios for the six months ended June 30, Class AAA and Class I Shares do not have a sales charge. The maximum sales charge for Class A and Class C Shares is 5.75% and 1.00%, respectively. (a) Returns represent past performance and do not guarantee future results. Total returns and average annual returns reflect changes in share price, reinvestment of distributions, and are net of expenses. 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. Current performance may be lower or higher than the performance data presented. Visit for performance information as of the most recent month end. Returns would have been lower had Gabelli Funds, LLC, the Adviser, not reimbursed certain expenses of the Fund for periods prior to December 31, The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days after the date of purchase. Performance returns for periods of less than one year are not annualized. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectuses contain information about these and other matters and should be read carefully before investing. To obtain a prospectus, please visit our website at The value of utility stocks generally changes as long term interest rates change. Funds investing in a single sector, such as utilities, may be subject to more volatility than funds that invest more broadly. The utilities industry can be significantly affected by government regulation, financing difficulties, supply or demand of services or fuel, and natural resources conservation. The Class AAA Share NAVs are used to calculate performance for the periods prior to the issuance of Class A Shares and Class C Shares on December 31, 2002 and Class I Shares on January 11, The actual performance of the Class A Shares and Class C Shares would have been lower due to the additional fees and expenses associated with these classes of shares. The actual performance of the Class I Shares would have been higher due to lower expenses related to this class of shares. The S&P 500 Utilities Index is an unmanaged market capitalization weighted index of large capitalization stocks that may include facilities generation and transmission or distribution of electricity, gas, or water. The S&P 500 Index is a market capitalization weighted index of 500 large capitalization stocks commonly used to represent the U.S. equity market. The Lipper Utility Fund Average reflects the average performance of mutual funds classified in this particular category. Dividends are considered reinvested. You cannot invest directly in an index. (b) Performance results include the effect of the maximum 5.75% sales charge at the beginning of the period. (c) Assuming payment of the 1% maximum contingent deferred sales charge imposed on redemptions made within one year of purchase.

22 The Gabelli Utilities Fund Disclosure of Fund Expenses (Unaudited) For the Six Month Period from January 1, 2015 through June 30, 2015 Expense Table We believe it is important for you to understand the impact of fees and expenses regarding your investment. All mutual funds have operating expenses. As a shareholder of a fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund s gross income, directly reduce the investment return of a fund. When a fund s expenses are expressed as a percentage of its average net assets, this figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. The Expense Table below illustrates your Fund s costs in two ways: Actual Fund Return: This section provides information about actual account values and actual expenses. You may use this section to help you to estimate the actual expenses that you paid over the period after any fee waivers and expense reimbursements. The Ending Account Value shown is derived from the Fund s actual return during the past six months, and the Expenses Paid During Period shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your Fund under the heading Expenses Paid During Period to estimate the expenses you paid during this period. Hypothetical 5% Return: This section provides information about hypothetical account values and hypothetical expenses based on the Fund s actual expense ratio. It assumes a hypothetical annualized return of 5% before expenses during the period shown. In this case because the hypothetical return used is not the Fund s actual return the results do not apply to your investment and you cannot use the hypothetical account value and expense to estimate the actual ending account balance or expenses you paid for the period. This example is useful in making comparisons of the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees, if any, which are described in the Prospectus. If these costs were applied to your account, your costs would be higher. Therefore, the 5% hypothetical return is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. Beginning Account Value 01/01/15 Ending Account Value 06/30/15 Annualized Expense Ratio Expenses Paid During Period* The Gabelli Utilities Fund Actual Fund Return Class AAA $1, $ % $ 6.70 Class A $1, $ % $ 6.70 Class C $1, $ % $10.29 Class I $1, $ % $ 5.50 Hypothetical 5% Return Class AAA $1, $1, % $ 6.95 Class A $1, $1, % $ 6.95 Class C $1, $1, % $10.69 Class I $1, $1, % $ 5.71 * Expenses are equal to the Fund s annualized expense ratio for the last six months multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (181 days), then divided by

23 Summary of Portfolio Holdings (Unaudited) The following table presents portfolio holdings as a percent of net assets as of June 30, 2015: The Gabelli Utilities Fund Energy and Utilities % Communications % Other % U.S. Government Obligations % Other Assets and Liabilities (Net) % 100.0% The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (the SEC ) for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain this information at or by calling the Fund at 800-GABELLI ( ). The Fund s Form N-Q is available on the SEC s website at and may also be reviewed and copied at the SEC s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC Proxy Voting The Fund files Form N-PX with its complete proxy voting record for the twelve months ended June 30, no later than August 31 of each year. A description of the Fund s proxy voting policies, procedures, and how the Fund voted proxies relating to portfolio securities is available without charge, upon request, by (i) calling 800-GABELLI ( ); (ii) writing to The Gabelli Funds at One Corporate Center, Rye, NY ; or (iii) visiting the SEC s website at 3

24 The Gabelli Utilities Fund Schedule of Investments June 30, 2015 (Unaudited) Shares Cost Market Value COMMON STOCKS 99.5% ENERGY AND UTILITIES 67.2% Alternative Energy 0.3% 370,000 Algonquin Power & Utilities Corp.... $ 2,068,158 $ 2,772,778 36,000 NextEra Energy Partners LP ,113 1,426,320 65,000 Ormat Technologies Inc., New York... 1,685,559 2,449,200 6,739 Ormat Technologies Inc., Tel Aviv , ,136 4,854,367 6,900,434 Electric Integrated 37.9% 310,000 ALLETE Inc ,164,607 14,380,900 87,000 Alliant Energy Corp... 3,065,133 5,021, ,000 Ameren Corp... 16,902,814 21,666, ,000 American Electric Power Co. Inc ,435,685 42,905,700 5,000 Atlantic Power Corp ,174 15, ,000 Avista Corp.... 7,258,656 9,041, ,000 Black Hills Corp ,929,493 26,190,000 16,000 Calpine Corp , , ,000 Cleco Corp ,460,394 30,694,500 60,000 CMS Energy Corp ,675 1,910, ,000 Dominion Resources Inc.... 7,795,563 12,705,300 5,000 DTE Energy Co , , ,000 Duke Energy Corp ,936,543 25,423, ,000 Edison International... 29,187,730 46,687, ,000 El Paso Electric Co ,260,170 28,351,880 1,400 Entergy Corp... 96,612 98, ,000 Eversource Energy... 23,380,957 44,501, ,000 Exelon Corp... 22,409,385 20,737, ,000 FirstEnergy Corp ,234,250 16,275, ,000 Fortis Inc.... 3,606,944 3,229,944 1,225,000 Great Plains Energy Inc... 23,654,349 29,596, ,000 Hawaiian Electric Industries Inc ,130,005 28,689,450 42,000 IDACORP Inc.... 1,703,782 2,357, ,000 ITC Holdings Corp... 2,988,402 3,475, ,000 MGE Energy Inc... 7,231,434 12,935,820 1,000,000 NextEra Energy Inc ,041,969 98,030, ,000 NiSource Inc.... 5,946,797 11,853, ,000 NorthWestern Corp... 18,073,530 31,443, ,000 OGE Energy Corp... 13,380,182 22,570, ,000 Otter Tail Corp ,231,860 19,950, ,000 PG&E Corp.... 4,272,684 5,892, ,000 Pinnacle West Capital Corp ,324,080 18,489,250 1,635,000 PNM Resources Inc ,562,610 40,221, ,000 PPL Corp ,657,112 16,856, ,000 Public Service Enterprise Group Inc.... 5,558,607 7,541, ,000 SCANA Corp ,000,265 22,286,000 71,446 Talen Energy Corp.... 1,329,028 1,226,013 Shares See accompanying notes to financial statements. 4 Cost Market Value 980,000 TECO Energy Inc.... $ 17,400,620 $ 17,306, ,000 The Empire District Electric Co.... 8,318,570 8,938, ,000 The Southern Co ,825,524 22,416,500 39,000 Unitil Corp ,325 1,287, ,000 Vectren Corp... 13,275,752 18,393, ,760 WEC Energy Group Inc ,684,435 40,417, ,000 Westar Energy Inc... 23,170,847 33,193, ,000 Xcel Energy Inc.... 8,137,380 12,035, ,978, ,900,986 Electric Transmission and Distribution 1.0% 235,000 Consolidated Edison Inc ,455,257 13,601, ,000 UIL Holdings Corp.... 7,567,624 9,164,000 18,022,881 22,765,800 Global Utilities 2.7% 11,000 AES Tiete SA, Preference ,630 61,420 32,000 Chubu Electric Power Co. Inc.. 569, ,052 35,000 E.ON SE , ,287 12,004 EDF SA , ,654 5,000 EDP - Energias de Portugal SA,ADR , , ,000 Electric Power Development Co. Ltd.... 4,991,198 7,067,860 10,000 Eletropaulo Metropolitana Eletricidade de Sao Paulo SA, Preference... 32,332 57, ,000 Emera Inc... 4,704,398 5,984,468 35,000 Enagas SA , , ,000 Endesa SA... 2,186,478 1,913, ,000 Enel SpA... 1,244,860 1,087,382 2,000 EuroSite Power Inc.... 1,300 1, ,000 Hera SpA... 1,056,604 1,250,864 66,000 Hokkaido Electric Power Co. Inc.... 1,054, ,062 40,000 Hokuriku Electric Power Co , , ,000 Huaneng Power International Inc., ADR... 4,990,614 9,764,300 55,000 Iberdrola SA, ADR... 1,694,172 1,443,750 50,192 Iberdrola SA, London , , ,752 Iberdrola SA, Madrid... 1,451,656 1,419, ,000 Korea Electric Power Corp., ADR... 5,392,840 8,245, ,000 Kyushu Electric Power Co. Inc.... 1,462,973 1,160,273 17,000 National Grid plc, ADR ,389 1,097,690 6,000 Noble Energy Inc , ,080 90,000 Red Electrica Corporacion SA. 4,191,840 7,212,201 32,000 Shikoku Electric Power Co. Inc , ,274 2,000 Snam SpA... 8,967 9, ,000 Statoil ASA... 4,474,797 3,395,086

25 The Gabelli Utilities Fund Schedule of Investments (Continued) June 30, 2015 (Unaudited) Shares Cost Market Value COMMON STOCKS (Continued) ENERGY AND UTILITIES (Continued) Global Utilities (Continued) 28,000 The Chugoku Electric Power Co. Inc.... $ 509,466 $ 408, ,000 The Kansai Electric Power Co. Inc.... 4,521,353 3,544,225 55,000 The Tokyo Electric Power Co. Inc , , ,000 Tohoku Electric Power Co. Inc.... 2,793,879 2,303,060 52,821,361 62,501,265 Merchant Energy 2.1% 40,000 GenOn Energy Inc. - Old, Escrow ,000 GenOn Energy Inc., Escrow ,000 NRG Energy Inc.... 4,899,848 4,804,800 3,300,000 The AES Corp ,335,704 43,758,000 42,235,552 48,562,800 Natural Gas Integrated 11.0% 30,000 Apache Corp.... 2,380,832 1,728,900 7,500 Atlas Energy Group LLC... 61,190 37,500 66,000 Devon Energy Corp... 4,002,084 3,926,340 1,000 Dominion Midstream Partners LP... 38,878 38,310 20,000 Energen Corp ,277 1,366, ,000 Energy Transfer Equity LP... 2,114,995 19,700,190 10,000 Energy Transfer Partners LP , , ,000 Hess Corp.... 8,975,826 10,032, ,000 Kinder Morgan Inc.... 9,248,957 14,396,250 2,230,000 National Fuel Gas Co ,573, ,324, ,000 Northwest Natural Gas Co ,368,578 19,234, ,000 ONEOK Inc... 7,028,766 20,608, ,000 Spectra Energy Corp ,136,488 19,560, ,000 UGI Corp.... 7,699,597 12,505, ,398, ,980,180 Natural Gas Utilities 5.6% 110,000 AGL Resources Inc... 4,368,477 5,121,600 86,000 Atmos Energy Corp.... 2,367,344 4,410,080 94,000 CenterPoint Energy Inc.... 1,812,563 1,788,820 52,000 Chesapeake Utilities Corp ,630 2,800, ,000 CONSOL Energy Inc ,141,160 16,957, ,000 Corning Natural Gas Holding Co.(a)... 3,685,398 6,314, ,018 Delta Natural Gas Co. Inc.... 2,516,138 3,336, ,000 Gulf Coast Ultra Deep Royalty Trust ,313 70,000 14,000 New Jersey Resources Corp , , ,000 ONE Gas Inc.... 1,132,190 6,086,080 Shares Cost Market Value 72,000 Piedmont Natural Gas Co. Inc.... $ 1,793,795 $ 2,542,320 48,000 Questar Corp ,212 1,003,680 44,000 RGC Resources Inc , , ,000 South Jersey Industries Inc.... 1,982,945 3,462,200 1,115,000 Southwest Gas Corp ,506,052 59,329,150 3,500 Targa Resources Corp , , ,000 The Laclede Group Inc.... 5,591,404 8,850,200 98,500 WGL Holdings Inc... 3,993,938 5,347,565 96,219, ,998,787 Natural Resources 2.1% 14,000 Alliance Holdings GP LP , ,100 62,000 Anadarko Petroleum Corp.... 4,423,077 4,839, ,000 BP plc, ADR... 11,701,306 10,789,200 23,000 California Resources Corp , , ,000 Cameco Corp.... 8,104,248 5,783,400 10,000 Compania de Minas Buenaventura SAA, ADR , , ,000 Mueller Industries Inc ,670,604 24,928,960 7,000 Occidental Petroleum Corp , , ,000 Peabody Energy Corp.... 9,685,442 1,314,000 70,000 Tullow Oil plc , ,625 6,000 Ultra Petroleum Corp ,942 75,120 51,405,661 49,439,235 Services 1.0% 10,000 Areva SA ,327 84,294 18,000 Halliburton Co , ,260 35,000 MDU Resources Group Inc , ,550 52,000 Patterson-UTI Energy Inc , ,380 95,000 Rowan Companies plc, Cl. A.. 3,275,764 2,005,450 1,000 Tenaris SA, ADR... 19,870 27,020 1,420,000 Weatherford International plc... 19,268,085 17,423,400 24,883,094 21,977,354 Water 1.8% 8,000 American States Water Co , , ,000 American Water Works Co. Inc.... 2,917,498 5,884, ,000 Aqua America Inc.... 9,534,470 13,885,830 5,000 California Water Service Group... 90, ,250 10,500 Connecticut Water Service Inc , ,680 16,000 Consolidated Water Co. Ltd , ,600 20,000 Middlesex Water Co , , ,000 Severn Trent plc... 8,230,556 10,299, ,600 SJW Corp... 5,546,547 7,107,804 88,000 The York Water Co.... 1,222,051 1,835,680 See accompanying notes to financial statements. 5

26 The Gabelli Utilities Fund Schedule of Investments (Continued) June 30, 2015 (Unaudited) Shares Cost Market Value COMMON STOCKS (Continued) ENERGY AND UTILITIES (Continued) Water (Continued) 44,000 United Utilities Group plc, ADR... $ 1,185,493 $ 1,234,640 29,652,277 41,672,748 Diversified Industrial 1.6% 33,000 AZZ Inc.... 1,353,394 1,709, ,000 General Electric Co ,900,161 22,717, ,000 Mueller Water Products Inc., Cl.A... 1,974,640 3,276,000 20,000 Park-Ohio Holdings Corp , , ,000 Tyco International plc... 6,233,102 8,850,400 24,835,200 37,522,350 Environmental Services 0.1% 20,000 Covanta Holding Corp , ,800 91,991 Veolia Environnement SA... 1,406,990 1,875,756 1,757,256 2,299,556 TOTAL ENERGY AND UTILITIES... 1,156,064,086 1,555,521,495 COMMUNICATIONS 24.1% Cable and Satellite 8.3% 1,845,000 Cablevision Systems Corp., Cl.A... 26,172,555 44,169,300 20,500 Charter Communications Inc., Cl.A ,875 3,510,625 25,000 Cogeco Cable Inc ,204 1,445,957 70,000 Cogeco Inc... 1,589,491 3,213,050 71,000 Comcast Corp., Cl. A... 1,519,504 4,269,940 62,000 Comcast Corp., Cl. A, Special. 1,266,840 3,716, ,000 DIRECTV... 10,883,203 11,877, ,000 DISH Network Corp., Cl. A... 7,945,055 27,761, ,000 EchoStar Corp., Cl. A... 6,142,089 14,750, Liberty Broadband Corp., Cl.B... 5,203 5, ,000 Liberty Global plc, Cl. A... 2,269,177 9,137, ,000 Liberty Global plc, Cl. C... 2,259,427 8,556,470 90,000 Rogers Communications Inc., Cl.B... 2,426,676 3,197,700 12,000 Shaw Communications Inc., Cl.B , ,480 2,100,000 Sky Deutschland AG... 17,848,824 15,800,687 1,600,000 Sky plc... 17,429,899 26,070,014 70,000 Time Warner Cable Inc.... 3,697,554 12,471,900 50,000 Tokyo Broadcasting System Holdings Inc , , ,924, ,905,551 Shares Cost Market Value Computer Services Software and Systems 0.1% 330,026 Internap Corp.... $ 2,153,495 $ 3,052,741 Telecommunications 12.3% 145,000 AT&T Inc.... 3,676,704 5,150,400 99,000 Atlantic Tele-Network Inc.... 3,558,727 6,838, ,000 BCE Inc... 18,038,809 26,137,500 31,000,000 Cable & Wireless Communications plc... 20,963,070 32,439, ,000 CenturyLink Inc.... 9,198,348 8,520,200 3,960,000 Cincinnati Bell Inc ,249,366 15,127,200 35,000 Deutsche Telekom AG , , ,000 Deutsche Telekom AG, ADR... 7,276,747 9,984, ,000 Global Telecom Holding SAE, GDR... 1,416, ,000 30,000 Harris Corp.... 2,383,368 2,307, ,000 Jazztel plc... 1,541,364 1,443,733 1,440,000 Koninklijke KPN NV... 4,192,069 5,506,477 18,000 Koninklijke KPN NV, ADR... 80,480 69, ,000 Level 3 Communications Inc ,457,636 28,283, ,000 Loral Space & Communications Inc.... 4,462,207 6,880,080 2,200 Mobistar SA... 33,392 41,646 35,200 NextGenTel Holding , , ,000 Nippon Telegraph & Telephone Corp.... 7,575,368 11,085, ,000 Orascom Telecom Media and Technology Holding SAE, GDR , , ,000 Pharol SGPS SA ,152 52, ,000 Pharol SGPS SA, ADR , ,800 75,877 Philippine Long Distance Telephone Co., ADR... 4,184,730 4,727, ,000 Proximus... 4,628,591 5,119,568 2,000 PT Indosat Tbk... 1, ,000 Shenandoah Telecommunications Co... 15,867 34,230 2,300,000 Singapore Telecommunications Ltd.... 5,695,042 7,189, ,000 Sprint Corp.... 4,679,649 3,648, ,000 Swisscom AG, ADR... 4,498,889 6,832,000 8,000 Tele2 AB, Cl. B ,042 93, ,000 Telecom Italia SpA, ADR... 2,206,728 2,162, ,000 Telefonica Brasil SA, ADR... 4,053,552 3,134,250 53,000 Telefonica Deutschland Holding AG , , ,000 Telefonica SA, ADR... 10,391,664 7,952,000 1,000,000 Telekom Austria AG... 7,767,364 6,617, ,000 Telenet Group Holding NV... 17,194,312 20,669, ,000 Telephone & Data Systems Inc ,660,572 15,876,000 See accompanying notes to financial statements. 6

27 The Gabelli Utilities Fund Schedule of Investments (Continued) June 30, 2015 (Unaudited) Shares Cost Market Value COMMON STOCKS (Continued) COMMUNICATIONS (Continued) Telecommunications (Continued) 775,000 Verizon Communications Inc.. $ 25,317,743 $ 36,122, ,000 VimpelCom Ltd., ADR... 7,588,828 3,081, ,142, ,155,574 Wireless Communications 3.4% 60,000 America Movil SAB de CV, Cl.L,ADR... 1,015,391 1,278,600 70,000 China Mobile Ltd., ADR... 2,817,689 4,486,300 60,000 China Unicom Hong Kong Ltd., ADR , , Hutchison Telecommunications Hong Kong Holdings Ltd ,000 Millicom International Cellular SA... 6,919,371 5,769, ,000 Millicom International Cellular SA,SDR... 19,317,047 17,703,577 6,500 Mobile TeleSystems OJSC, ADR... 86,498 63, ,000 NII Holdings Inc ,589 4, ,000 NTT DoCoMo Inc... 7,286,947 8,905, ,000 SK Telecom Co. Ltd., ADR... 2,383,798 3,346, SmarTone Telecommunications Holdings Ltd ,012 Tim Participacoes SA, ADR , , ,000 Turkcell Iletisim Hizmetleri A/S, ADR... 6,888,886 5,457, ,000 United States Cellular Corp... 16,144,987 13,598, ,000 Vodafone Group plc, ADR... 19,222,852 17,131,500 83,783,996 79,246,387 TOTAL COMMUNICATIONS ,003, ,360,253 OTHER 8.2% Aerospace 1.4% 2,300,000 Rolls-Royce Holdings plc... 20,251,701 31,440, ,300,000 Rolls-Royce Holdings plc, Cl.C , ,553 20,739,429 31,950,066 Aviation: Parts and Services 0.1% 25,000 Curtiss-Wright Corp ,983 1,811,000 Building and Construction 0.0% 12,000 Acciona SA... 1,140, ,107 Business Services 0.8% 1,400,015 Clear Channel Outdoor Holdings Inc., Cl. A... 6,544,885 14,182,152 36,000 Macquarie Infrastructure Corp ,830 2,974,680 Shares Cost Market Value 10,000 McGrath RentCorp... $ 287,814 $ 304,300 17,500 Vectrus Inc , ,225 7,774,312 17,896,357 Computer Software and Services 0.3% 810,000 EarthLink Holdings Corp... 4,042,184 6,066,900 Diversified Industrial 0.4% 1,000 Alstom SA... 31,457 28,373 24,000 Bouygues SA , ,278 5,000 Donaldson Co. Inc , , ,000 ITT Corp.... 2,291,704 4,602,400 15,000 Raven Industries Inc , ,950 13,000 Svenska Cellulosa AB, Cl. A , , ,000 Twin Disc Inc.... 3,660,128 2,646,880 7,497,694 8,990,552 Electronics 0.9% 125,000 Corning Inc.... 1,411,136 2,466, ,000 Sony Corp., ADR... 11,751,995 18,311,550 13,163,131 20,777,800 Entertainment 1.6% 610,000 Grupo Televisa SAB, ADR... 15,084,887 23,680, ,000 Vivendi SA... 11,565,256 13,872,940 26,650,143 37,553,140 Financial Services 0.3% 168,000 Kinnevik Investment AB, Cl. A. 3,583,754 5,390,689 78,000 Kinnevik Investment AB, Cl. B. 2,472,948 2,466,124 6,056,702 7,856,813 Health Care 0.0% 12,000 Tsumura & Co , ,267 Machinery 1.1% 94,000 Astec Industries Inc.... 3,325,266 3,931,080 1,000 Flowserve Corp ,156 52,660 85,000 The Gorman-Rupp Co.... 1,988,815 2,386, ,000 Xylem Inc... 14,004,416 18,535,000 19,356,653 24,905,540 Metals and Mining 0.5% 295,000 Freeport-McMoRan Inc... 8,475,181 5,492,900 51,600 Haynes International Inc... 2,569,055 2,544,912 50,000 Materion Corp.... 1,264,387 1,762,500 17,000 Vulcan Materials Co ,880 1,426,810 13,106,503 11,227,122 Transportation 0.8% 349,000 GATX Corp ,260,261 18,549,350 See accompanying notes to financial statements. 7

28 The Gabelli Utilities Fund Schedule of Investments (Continued) June 30, 2015 (Unaudited) Shares Cost Market Value COMMON STOCKS (Continued) OTHER (Continued) Transportation (Continued) 30,014 Providence and Worcester Railroad Co... $ 443,758 $ 520,443 10,704,019 19,069,793 TOTAL OTHER ,252, ,269,457 TOTAL COMMON STOCKS... 1,706,320,464 2,303,151,205 CONVERTIBLE PREFERRED STOCKS 0.0% COMMUNICATIONS 0.0% Telecommunications 0.0% 21,000 Cincinnati Bell Inc., 6.750%, Ser. B ,010 1,029,630 WARRANTS 0.2% ENERGY AND UTILITIES 0.2% Natural Gas Integrated 0.2% 1,168,600 Kinder Morgan Inc., expire 05/25/ ,927,322 3,155,220 COMMUNICATIONS 0.0% Telecommunications 0.0% 80,000 Bharti Airtel Ltd., expire 08/04/16 (b) , ,950 TOTAL WARRANTS... 2,309,298 3,683,170 Principal Amount Market Value Cost U.S. GOVERNMENT OBLIGATIONS 0.2% $ 3,610,000 U.S. Treasury Bills, 0.015%, 12/10/15... $ 3,609,756 $ 3,609,390 TOTAL INVESTMENTS 99.9%... $1,712,934,528 2,311,473,395 Other Assets and Liabilities (Net) 0.1%... 2,006,444 NET ASSETS 100.0%... $2,313,479,839 (a) Security considered an affiliated holding because the Fund owns at least 5% of its outstanding shares. (b) Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. This security may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2015, the market value of the Rule 144A security amounted to $527,950 or 0.02% of net assets. Non-income producing security. Represents annualized yield at date of purchase. ADR American Depositary Receipt GDR Global Depositary Receipt OJSC Open Joint Stock Company SDR Swedish Depositary Receipt See accompanying notes to financial statements. 8

29 Statement of Assets and Liabilities June 30, 2015 (Unaudited) Assets: Investments, at value (cost $1,709,249,130).. $2,305,158,635 Investments in affiliates, at value (cost $3,685,398)... 6,314,760 Cash... 7,801,461 Receivable for Fund shares sold... 5,042,213 Receivable for investments sold... 1,083,727 Dividends receivable... 6,503,550 Prepaid expenses... 98,382 Total Assets... 2,332,002,728 Liabilities: Foreign currency payable to custodian, at value (cost $5,334)... 5,340 Payable for Fund shares redeemed... 15,030,151 Payable for investments purchased... 21,224 Payable for investment advisory fees... 1,984,369 Payable for distribution fees... 1,003,683 Payableforaccountingfees... 11,250 Other accrued expenses ,872 Total Liabilities... Net Assets 18,522,889 (applicable to 269,715,744 shares outstanding)... $2,313,479,839 Net Assets Consist of: Paid-incapital... $1,573,637,984 Undistributed net investment income... 14,515,218 Accumulated net realized gain on investments and foreign currency transactions ,863,015 Net unrealized appreciation on investments ,538,867 Net unrealized depreciation on foreign currency translations... (75,245) Net Assets... $2,313,479,839 The Gabelli Utilities Fund Shares of Beneficial Interest, each at $0.001 par value; unlimited number of shares authorized: Class AAA: Net Asset Value, offering, and redemption price per share ($470,139,227 50,105,022 shares outstanding)... $ 9.38 Class A: Net Asset Value and redemption price per share ($827,885,290 87,135,074 shares outstanding)... $ 9.50 Maximum offering price per share (NAV , based on maximum sales charge of 5.75% of the offering price)... $10.08 Class C: Net Asset Value and offering price per share ($847,614, ,118,855 shares outstanding)... $ 7.36(a) Class I: Net Asset Value, offering, and redemption price per share ($167,840,853 17,356,793 shares outstanding)... $ 9.67 Statement of Operations For the Six Months Ended June 30, 2015 (Unaudited) Investment Income: Dividends - Unaffiliated (net of foreign withholding taxes of $1,040,464)... $ 39,105,201 Dividends - Affiliated... 93,960 Interest... 13,138 Total Investment Income... 39,212,299 Expenses: Investment advisory fees... 13,682,259 Distribution fees - Class AAA ,663 Distribution fees - Class A... 1,221,904 Distribution fees - Class C... 4,756,552 Shareholder services fees... 1,166,220 Shareholder communications expenses ,153 Custodianfees ,147 Registration expenses ,167 Trustees fees... 68,767 Interest expense... 37,402 Legal and audit fees... 32,556 Accountingfees... 22,500 Miscellaneous expenses... 91,522 Total Expenses... 22,346,812 Less: Expenses paid indirectly by broker (SeeNote6)... (5,400) Net Expenses... 22,341,412 Net Investment Income... 16,870,887 Net Realized and Unrealized Gain/(Loss) on Investments and Foreign Currency: Net realized gain on investments ,585,309 Net realized gain on investments - affiliated... 4,931 Net realized loss on foreign currency transactions... (124,820) Net realized gain on investments and foreign currency transactions ,465,420 Net change in unrealized appreciation/depreciation: on investments... (316,966,816) on foreign currency translations... (11,066) Net change in unrealized appreciation/ depreciation on investments and foreign currencytranslations... (316,977,882) Net Realized and Unrealized Gain/(Loss) on Investments and Foreign Currency... (172,512,462) Net Decrease in Net Assets Resulting from Operations... $(155,641,575) (a) Redemption price varies based on the length of time held. See accompanying notes to financial statements. 9

30 Statement of Changes in Net Assets The Gabelli Utilities Fund Six Months Ended June 30, 2015 (Unaudited) Year Ended December 31, 2014 Operations: Net investment income... $ 16,870,887 $ 46,562,126 Net realized gain on investments and foreign currency transactions ,465,420 34,072,784 Net change in unrealized appreciation/depreciation on investments and foreign currency translations... (316,977,882) 191,891,483 Net Increase/(Decrease) in Net Assets Resulting from Operations... (155,641,575) 272,526,393 Distributions to Shareholders: Net investment income ClassAAA... (1,405,746)* (10,010,261) ClassA... (2,219,178)* (14,723,154) ClassC... (2,735,745)* (16,760,627) ClassI... (447,566)* (2,685,886) (6,808,235) (44,179,928) Net realized gain ClassAAA... (8,049,038) ClassA... (11,838,575) ClassC... (13,476,863) ClassI... (2,159,664) (35,524,140) Return of capital ClassAAA... (33,324,457)* (105,610,805) ClassA... (52,607,578)* (155,333,037) ClassC... (64,853,260)* (176,828,893) ClassI... (10,609,957)* (28,336,788) (161,395,252) (466,109,523) Total Distributions to Shareholders... (168,203,487) (545,813,591) Shares of Beneficial Interest Transactions: ClassAAA... (282,286,221) 137,689,091 ClassA... (294,318,486) 202,230,814 ClassC... (139,122,745) 196,796,662 ClassI... (65,983,500) 90,300,102 Net Increase/(Decrease) in Net Assets from Shares of Beneficial Interest Transactions... (781,710,952) 627,016,669 Redemption Fees... 12,457 34,190 Net Increase/(Decrease) in Net Assets... (1,105,543,557) 353,763,661 Net Assets: Beginning of year... 3,419,023,396 3,065,259,735 End of period (including undistributed net investment income of $14,515,218 and $4,452,566, respectively)... $2,313,479,839 $3,419,023,396 * Based on year to date book income. Amounts are subject to change and recharacterization at year end. See accompanying notes to financial statements. 10

31 The Gabelli Utilities Fund Financial Highlights Selected data for a share of beneficial interest outstanding throughout each period: Year Ended December 31 Net Asset Value, Beginning of Year Net Investment Income(a) Income (Loss) from Investment Operations Distributions Net Realized and Unrealized Gain (Loss) on Investments Total from Investment Operations Net Investment Income Net Realized Gain on Investments Return of Capital Total Distributions Redemption Fees(a)(b) Net Asset Value, End of Period Total Return Net Assets End of Period (in 000 s) Ratios to Average Net Assets/ Supplemental Data Class AAA 2015(c) $10.50 $0.05 $(0.75) $(0.70) $(0.02)* $(0.40)* $(0.42) $0.00 $ 9.38 (5.6)% $ 470, %(d)1.39%(d)(e) 0% (0.14) $(0.10) (1.44) (1.68) , (0.14) (0.20) (1.34) (1.68) , (0.10) (0.20) (1.38) (1.68) , (0.12) (0.02) (1.54) (1.68) , (0.22) (1.46) (1.68) , Class A 2015(c) $10.64 $0.05 $(0.77) $(0.72) $(0.02)* $(0.40)* $(0.42) $0.00 $ 9.50 (5.7)% $ 827, %(d)1.39%(d)(e) 0% (0.14) $(0.10) (1.44) (1.68) ,231, (0.14) (0.20) (1.34) (1.68) ,109, (0.10) (0.20) (1.38) (1.68) , (0.12) (0.02) (1.54) (1.68) , (0.22) (1.46) (1.68) , Class C 2015(c) $ 8.40 $0.02 $(0.64) $(0.62) $(0.02)* $(0.40)* $(0.42) $0.00 $ 7.36 (6.0)% $ 847, %(d)2.14%(d)(e) 0% (0.14) $(0.10) (1.44) (1.68) ,111, (0.14) (0.20) (1.34) (1.68) ,037, (0.10) (0.20) (1.38) (1.68) , (0.12) (0.02) (1.54) (1.68) , (0.22) (1.46) (1.68) , Class I 2015(c) $10.80 $0.06 $(0.77) $(0.71) $(0.02)* $(0.40)* $(0.42) $0.00 $ 9.67 (5.5)% $ 167, %(d)1.14%(d)(e) 0% (0.14) $(0.10) (1.44) (1.68) , (0.14) (0.20) (1.34) (1.68) , (0.10) (0.20) (1.38) (1.68) , (0.12) (0.02) (1.54) (1.68) , (0.22) (1.46) (1.68) , Net Investment Income Operating Expenses Portfolio Turnover Rate All per share amounts and net asset values have been adjusted as a result of the 1 for 2 reverse stock split on March 6, 2015 (See note 8). Total return represents aggregate total return of a hypothetical $1,000 investment at the beginning of the year and sold at the end of the period and does not reflect applicable sales charges. Total return for a period of less than one year is not annualized. * Based on year to date book income. Amounts are subject to change and recharacterization at year end. (a) Per share amounts have been calculated using the average shares outstanding method. (b) Amount represents less than $0.005 per share. (c) For the six months ended June 30, 2015, unaudited. (d) Annualized. (e) The Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. For the six months ended June 30, 2015, there was no impact to the expense ratios. See accompanying notes to financial statements. 11

32 The Gabelli Utilities Fund Notes to Financial Statements (Unaudited) 1. Organization. The Gabelli Utilities Fund was organized on May 18, 1999 as a Delaware statutory 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 commenced operations on August 31, 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 invests a high percentage of its assets in the utilities sector. As a result, the Fund may be more susceptible to economic, political, and regulatory developments, positive or negative, and may experience increased volatility to the Fund s NAV and a magnified effect in its total return. 2. Significant Accounting Policies. As an investment company, the Fund follows the investment company accounting and reporting guidance, which is part of U.S. generally accepted accounting principles ( GAAP ) that may require the use of management estimates and assumptions in the preparation of its 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 or traded in the U.S. over-the-counter market for which market quotations are readily available are valued at the last quoted sale price or a market s official closing price as of the close of business on the day the securities are being valued. If there were no sales that day, the security is valued at the average of the closing bid and asked prices or, if there were no asked prices quoted on that day, then the security is valued at the closing bid price on that day. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or, if the Board of Trustees (the Board ) so determines, by such other method as the Board shall determine in good faith to reflect its fair market value. Portfolio securities traded on more than one national securities exchange or market are valued according to the broadest and most representative market, as determined by Gabelli Funds, LLC (the Adviser ). Portfolio securities primarily traded on a foreign market are generally valued at the preceding closing values of such securities on the relevant market, but may be fair valued pursuant to procedures established by the Board if market conditions change significantly after the close of the foreign market, but prior to the close of business on the day the securities are being valued. Debt instruments with remaining maturities of sixty days or less that are not credit impaired are valued at amortized cost, unless the Board determines such amount does not reflect the securities fair value, in which case these securities will be fair valued as determined by the Board. Debt instruments having a maturity greater than sixty days for which market quotations are readily available are valued at the average of the latest bid and asked prices. If there were no asked prices quoted on such day, the security is valued using the closing bid price. U.S. government obligations with maturities greater than sixty days are normally valued using a model that incorporates market observable data such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued principally using dealer quotations. Securities and assets for which market quotations are not readily available are fair valued as determined by the Board. Fair valuation methodologies and procedures may include, but are not limited to: analysis and review of available financial and non-financial information about the company; comparisons with the valuation and changes in valuation of similar securities, including a comparison of foreign securities with the equivalent U.S. 12

33 The Gabelli Utilities Fund Notes to Financial Statements (Unaudited) (Continued) dollar value American Depositary Receipt securities at the close of the U.S. exchange; and evaluation of any other information that could be indicative of the value of the security. The inputs and valuation techniques used to measure fair value of the Fund s investments are summarized into three levels as described in the hierarchy below: Level 1 quoted prices in active markets for identical securities; Level 2 other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.); and Level 3 significant unobservable inputs (including the Board s determinations as to the fair value of investments). A financial instrument s level within the fair value hierarchy is based on the lowest level of any input both individually and in the aggregate that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of the Fund s investments in securities and other financial instruments by inputs used to value the Fund s investments as of June 30, 2015 is as follows: Valuation Inputs Level 1 Quoted Prices Level 2 Other Significant Observable Inputs Level 3 Significant Unobservable Inputs Total Market Value at 6/30/15 INVESTMENTS IN SECURITIES: ASSETS (Market Value): Common Stocks: ENERGY AND UTILITIES Global Utilities $ 62,499,565 $ 1,700 $ 62,501,265 Merchant Energy 48,562,800 $ 0 48,562,800 Other Industries (a) 1,444,457,430 1,444,457,430 COMMUNICATIONS Cable and Satellite 190,900,346 5, ,905,551 Wireless Communications 79,241,687 4,700 79,246,387 Other Industries (a) 288,208, ,208,315 OTHER Aerospace 31,440, ,553 31,950,066 Other Industries (a) 157,319, ,319,391 Total Common Stocks 2,302,630, ,458 4,700 2,303,151,205 Convertible Preferred Stocks (a) 1,029,630 1,029,630 Warrants (a) 3,155, ,950 3,683,170 U.S. Government Obligations 3,609,390 3,609,390 TOTAL INVESTMENTS IN SECURITIES ASSETS $2,306,814,897 $4,653,798 $4,700 $2,311,473,395 (a) Please refer to the Schedule of Investments for the industry classifications of these portfolio holdings. The Fund did not have material transfers among Level 1, Level 2, and Level 3 during the six months ended June 30, The Fund s policy is to recognize transfers among Levels as of the beginning of the reporting period. Additional Information to Evaluate Qualitative Information. General. The Fund uses recognized industry pricing services approved by the Board and unaffiliated with the Adviser to value most of its securities, and uses broker quotes provided by market makers of securities 13

34 The Gabelli Utilities Fund Notes to Financial Statements (Unaudited) (Continued) not valued by these and other recognized pricing sources. Several different pricing feeds are received to value domestic equity securities, international equity securities, preferred equity securities, and fixed income securities. The data within these feeds is ultimately sourced from major stock exchanges and trading systems where these securities trade. The prices supplied by external sources are checked by obtaining quotations or actual transaction prices from market participants. If a price obtained from the pricing source is deemed unreliable, prices will be sought from another pricing service or from a broker/dealer that trades that security or similar securities. Fair Valuation. Fair valued securities may be common and preferred equities, warrants, options, rights, and fixed income obligations. Where appropriate, Level 3 securities are those for which market quotations are not available, such as securities not traded for several days, or for which current bids are not available, or which are restricted as to transfer. Among the factors to be considered to fair value a security are recent prices of comparable securities that are publicly traded, reliable prices of securities not publicly traded, the use of valuation models, current analyst reports, valuing the income or cash flow of the issuer, or cost if the preceding factors do not apply. A significant change in the unobservable inputs could result in a lower or higher value in Level 3 securities. The circumstances of Level 3 securities are frequently monitored to determine if fair valuation measures continue to apply. The Adviser reports quarterly to the Board the results of the application of fair valuation policies and procedures. These include back testing the prices realized in subsequent trades of these fair valued securities to fair values previously recognized. Derivative Financial Instruments. The Fund may engage in various portfolio investment strategies by investing in a number of derivative financial instruments for the purposes of increasing the income of the Fund or hedging against a specific transaction with respect to either the currency in which the transaction is denominated or another currency. Investing in certain derivative financial instruments, including participation in the options, futures, or swap markets, entails certain execution, liquidity, hedging, tax, and securities, interest, credit, or currency market risks. Losses may arise if the Adviser s prediction of movements in the direction of the securities, foreign currency, and interest rate markets is inaccurate. Losses may also arise if the counterparty does not perform its duties under a contract, or that, in the event of default, the Fund may be delayed in or prevented from obtaining payments or other contractual remedies owed to it under derivative contracts. The creditworthiness of the counterparties is closely monitored in order to minimize these risks. Participation in derivative transactions involves investment risks, transaction costs, and potential losses to which the Fund would not be subject absent the use of these strategies. The consequences of these risks, transaction costs, and losses may have a negative impact on the Fund s ability to pay distributions. The Fund s derivative contracts held at June 30, 2015, if any, are not accounted for as hedging instruments under GAAP and are disclosed in the Schedule of Investments together with the related counterparty. Swap Agreements. The Fund may enter into equity contract for difference swap transactions for the purpose of increasing the income of the Fund. The use of swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In an equity contract for difference swap, a set of future cash flows is exchanged between two counterparties. One of these cash flow streams will typically be based on a reference interest rate combined with the performance of a notional value of shares of a stock. The other will be based on the performance of the shares of a stock. Depending on the general state of short term interest rates and the returns on the Fund s portfolio securities 14

35 The Gabelli Utilities Fund Notes to Financial Statements (Unaudited) (Continued) at the time an equity contract for difference swap transaction reaches its scheduled termination date, there is a risk that the Fund will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable as on the expiring transaction. Unrealized gains related to swaps are reported as an asset and unrealized losses are reported as a liability in the Statement of Assets and Liabilities. The change in value of swaps, including the accrual of periodic amounts of interest to be received or paid on swaps, is reported as unrealized gain or loss in the Statement of Operations. A realized gain or loss is recorded upon receipt or payment of a periodic payment or termination of swap agreements. During the six months ended June 30, 2015, the Fund held no investments in equity contract for difference swap agreements. Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments, and other assets and liabilities are translated into U.S. dollars at current exchange rates. Purchases and sales of investment securities, income, and expenses are translated at the exchange rate prevailing on the respective dates of such transactions. Unrealized gains and losses that result from changes in foreign exchange rates and/or changes in market prices of securities have been included in unrealized appreciation/depreciation on investments and foreign currency translations. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date on investment securities transactions, foreign currency transactions, and the difference between the amounts of interest and dividends recorded on the books of the Fund and the amounts actually received. The portion of foreign currency gains and losses related to fluctuation in exchange rates between the initial purchase trade date and subsequent sale trade date is included in realized gain/(loss) on investments. Foreign Securities. The Fund may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible revaluation of currencies, the inability to repatriate funds, less complete financial information about companies, and possible future adverse political and economic developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than securities of comparable U.S. issuers. Foreign Taxes. The Fund may be subject to foreign taxes on income, gains on investments, or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests. Restricted Securities. The Fund may invest up to 15% of its net assets in securities for which the markets are restricted. Restricted securities include securities whose disposition is subject to substantial legal or contractual restrictions. The sale of restricted securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. Securities freely saleable among qualified institutional investors under special rules adopted by the SEC may be treated as liquid if they satisfy liquidity standards established by the Board. The continued liquidity of such securities is not as well assured as that of publicly 15

36 The Gabelli Utilities Fund Notes to Financial Statements (Unaudited) (Continued) traded securities, and accordingly the Board will monitor their liquidity. At June 30, 2015, the Fund held no restricted securities. Securities Transactions and Investment Income. Securities transactions are accounted for on the trade date with realized gain/(loss) on investments determined by using the identified cost method. Interest income (including amortization of premium and accretion of discount) is recorded on the accrual basis. Premiums and discounts on debt securities are amortized using the effective yield to maturity method. Dividend income is recorded on the ex-dividend date, except for certain dividends from foreign securities that are recorded as soon after the ex-dividend date as the Fund becomes aware of such dividends. Determination of Net Asset Value and Calculation of Expenses. Certain administrative expenses are common to, and allocated among, various affiliated funds. Such allocations are made on the basis of each fund s average net assets or other criteria directly affecting the expenses as determined by the Adviser pursuant to procedures established by the Board. In calculating the NAV per share of each class, investment income, realized and unrealized gains and losses, redemption fees, and expenses other than class specific expenses are allocated daily to each class of shares based upon the proportion of net assets of each class at the beginning of each day. Distribution expenses are borne solely by the class incurring the expense. Distributions to Shareholders. Distributions to shareholders are recorded on the ex-dividend date. Distributions to shareholders are based on income and capital gains as determined in accordance with federal income tax regulations, which may differ from income and capital gains as determined under GAAP. These differences are primarily due to differing treatments of income and gains on various investment securities and foreign currency transactions held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Distributions made in excess of current earnings and profits on a tax basis are treated as a non-taxable return of capital. Distributions from net investment income for federal income tax purposes include net realized gains on foreign currency transactions. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, adjustments are made to the appropriate capital accounts in the period when the differences arise. These reclassifications have no impact on the NAV of the Fund. The tax character of distributions paid during the year ended December 31, 2014 was as follows: Distributions paid from: Ordinaryincome(inclusiveofshorttermcapitalgains)... $ 47,497,828 Long term capital gains... 32,206,240 Returnofcapital ,109,523 Total distributions paid... $545,813,591 Since January 2000, the Fund has had a fixed distribution policy. Under the policy, the Fund declares and pays monthly distributions from net investment income, capital gains, and paid-in capital. The actual source of the distribution is determined after the end of the year. Pursuant to this policy, distributions during the year may be made in excess of required distributions. To the extent such distributions are made from current earnings and profits, they are considered ordinary income or long term capital gains. The Fund s current distribution policy may restrict the Fund s ability to pass through to shareholders all of its net realized long term capital gains as a Capital Gain Dividend, and may cause such gains to be treated as ordinary income. Distributions 16

37 The Gabelli Utilities Fund Notes to Financial Statements (Unaudited) (Continued) sourced from paid-in capital should not be considered as dividend yield or the total return from an investment in the Fund. The Board continues to evaluate the distribution policy in light of ongoing economic and market conditions and may change the amount of the monthly distributions in the future. 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 (the Code ). It is the policy of the Fund to comply with the requirements of the Code applicable to regulated investment companies and to distribute substantially all of its net investment company taxable income and net capital gains. Therefore, no provision for federal income taxes is required. The Fund is permitted to carry capital losses forward for an unlimited period. Capital losses that are carried forward will retain their character as either short term or long term capital losses. The following summarizes the tax cost of investments and the related net unrealized appreciation at June 30, 2015: Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Net Unrealized Appreciation Investments... $1,721,848,748 $688,899,816 $(99,275,169) $589,624,647 The Fund is required to evaluate tax positions taken or expected to be taken in the course of preparing the Fund s tax returns to determine whether the tax positions are more-likely-than-not of being sustained by the applicable tax authority. Income tax and related interest and penalties would be recognized by the Fund as tax expense in the Statement of Operations if the tax positions were deemed not to meet the more-likely-than-not threshold. For the six months ended June 30, 2015, the Fund did not incur any income tax, interest, or penalties. As of June 30, 2015, the Adviser has reviewed all open tax years and concluded that there was no impact to the Fund s net assets or results of operations. The Fund s federal and state tax returns for the prior three fiscal years remain open, subject to examination. On an ongoing basis, the Adviser will monitor the Fund s tax positions to determine if adjustments to this conclusion are necessary. 3. Investment Advisory Agreement and Other Transactions. 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 its 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 affiliated persons of the Adviser. The Fund pays each Trustee who is not considered an affiliated person an annual retainer of $18,000 plus $2,000 for each Board meeting attended and they are reimbursed for any out of pocket expenses incurred in attending meetings. All Board committee members receive $500 per meeting attended and the Chairman of the Audit Committee and the Lead Trustee each receive an annual fee of $2,000. A Trustee may receive a single meeting fee, allocated among the participating funds, for participation in certain meetings held on behalf of multiple funds. Trustees who are directors or employees of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Fund. 17

38 The Gabelli Utilities Fund Notes to Financial Statements (Unaudited) (Continued) 4. Distribution Plan. The Fund s Board has adopted a distribution plan (the Plan ) for each class of shares, except for Class I Shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Class AAA, Class A, and Class C Share Plans, payments are authorized to G.distributors, LLC (the Distributor ), an affiliate of the Adviser, at annual rates of 0.25%, 0.25%, and 1.00%, respectively, of the average daily net assets of those classes, the annual limitations under each Plan. Such payments are accrued daily and paid monthly. 5. Portfolio Securities. Purchases and sales of securities during the six months ended June 30, 2015, other than short term securities and U.S. Government obligations, aggregated $4,192,764 and $664,707,466, respectively. 6. Transactions with Affiliates and Other Arrangements. During the six months ended June 30, 2015, the Fund paid brokerage commissions on security trades of $403,635 to G.research, Inc., an affiliate of the Adviser. Additionally the Distributor retained a total of $791,999 from investors representing commissions (sales charges and underwriting fees) on sales and redemptions of Fund shares. During the six months ended June 30, 2015, the Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. The amount of such expenses paid through this directed brokerage arrangement during this period was $5,400. The cost of calculating the Fund s NAV per share is a Fund expense pursuant to the Advisory Agreement. During the six months ended June 30, 2015, the Fund paid or accrued $22,500 to the Adviser in connection with the cost of computing the Fund s NAV. 7. Line of Credit. The Fund participates in an unsecured line of credit of up to $75,000,000 under which it may borrow up to 15% of its net assets from the custodian for temporary borrowing purposes. Borrowings under this arrangement bear interest at the higher of the sum of the overnight LIBOR rate plus 125 basis points or the sum of the federal funds rate plus 125 basis points at the time of borrowing. This amount, if any, would be included in Interest expense in the Statement of Operations. At June 30, 2015, there were no borrowings under the line of credit. The average daily amount of borrowings outstanding under the line of credit during the six months ended June 30, 2015 was $8,844,138 with a weighted average interest rate of 1.15%. The maximum amount borrowed at any time during the six months ended June 30, 2015 was $69,965, Shares of Beneficial Interest. The Fund offers four classes of shares Class AAA Shares, Class A Shares, Class C Shares, and Class I Shares. Class AAA Shares are offered without a sales charge only to investors who acquire them directly from the Distributor, through selected broker/dealers, or the transfer agent. Class I Shares are offered without a sales charge, directly through the Distributor or brokers that have entered into selling agreements specifically with respect to Class I Shares. Class A Shares are subject to a maximum front-end sales charge of 5.75%. Class C Shares are subject to a 1.00% contingent deferred sales charge for one year after purchase. The Fund imposes a redemption fee of 2.00% on all classes of shares that are redeemed or exchanged on or before the seventh day after the date of a purchase. The redemption fee is deducted from the proceeds otherwise payable to the redeeming shareholders and is retained by the Fund as an increase in paid-in capital. 18

39 The Gabelli Utilities Fund Notes to Financial Statements (Unaudited) (Continued) The redemption fees retained by the Fund during the six months ended June 30, 2015 and the year ended December 31, 2014, if any, can be found in the Statement of Changes in Net Assets under Redemption Fees. As approved by the Board of Directors, the Fund effected a 1 for 2 reverse stock split on March 6, The net asset value of each share class increased proportionately at that time. Transactions in shares of beneficial interest were as follows: Six Months Ended June 30, 2015 (Unaudited) Year Ended December 31, 2014 Shares Amount Shares Amount Class AAA Shares sold... 7,641,394 $ 345,395,547 50,179,017 $ 274,133,538 Shares issued upon reinvestment of distributions... 4,671,213 30,145,968 19,781, ,624,985 Shares redeemed... (58,076,018) (657,827,736) (45,195,413) (244,069,432) Share reduction from 1 for 2 reverse stock split... (60,236,385) Net increase/(decrease)... (105,999,796) $(282,286,221) 24,765,374 $ 137,689,091 Class A Shares sold... 9,468,506 $ 546,252,105 66,665,561 $ 369,817,270 Shares issued upon reinvestment of distributions... 6,178,347 41,156,819 24,705, ,948,377 Shares redeemed... (63,867,888) (881,727,410) (55,048,437) (303,534,833) Share reduction from 1 for 2 reverse stock split... (96,231,492) Net increase/(decrease)... (144,452,527) $(294,318,486) 36,322,239 $ 202,230,814 Class C Shares sold... 11,704,643 $ 530,745,160 57,994,704 $ 260,862,701 Shares issued upon reinvestment of distributions... 9,660,915 51,026,411 35,446, ,055,424 Shares redeemed... (51,006,592) (720,894,316) (49,962,085) (221,121,463) Share reduction from 1 for 2 reverse stock split... (119,958,972) Net increase/(decrease)... (149,600,006) $(139,122,745) 43,479,237 $ 196,796,662 Class I Shares sold... 2,720,564 $ 118,698,557 22,152,441 $ 124,397,685 Shares issued upon reinvestment of distributions... 1,331,997 8,985,847 4,843,540 26,938,483 Shares redeemed... (14,573,259) (193,667,904) (10,974,432) (61,036,066) Share reduction from 1 for 2 reverse stock split... (19,463,756) Net increase/(decrease)... (29,984,454) $ (65,983,500) 16,021,549 $ 90,300, Transactions in Securities of Affiliated Issuers. The 1940 Act defines affiliated issuers as those in which the Fund s holdings of an issuer represent 5% or more of the outstanding voting securities of the issuer. A summary of the Fund s transactions in the securities of these issuers during the six months ended June 30, 2015 is set forth below: Beginning Shares Shares Sold Ending Shares Dividend Income Realized Gain/(Loss) Value at June 30, 2015 Percent Owned of Shares Outstanding CorningNaturalGasHoldingCo ,032 (1,032) 324,000 $93,960 $4,931 $6,314, % 10. Indemnifications. The Fund enters into contracts that contain a variety of indemnifications. The Fund s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund s existing contracts and expects the risk of loss to be remote. 19

40 The Gabelli Utilities Fund Notes to Financial Statements (Unaudited) (Continued) 11. Subsequent Events. Management has evaluated the impact on the Fund of all subsequent events occurring through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements. 20

41 The Gabelli Utilities Fund Board Consideration and Re-Approval of Investment Advisory Agreements (Unaudited) At its meeting on February 12, 2015, the Board of Trustees ( Board ) of the Fund approved the continuation of the investment advisory agreement with the Adviser for the Fund on the basis of the recommendation by the trustees who are not interested persons of the Fund (the Independent Board Members ). The following paragraphs summarize the material information and factors considered by the Independent Board Members as well as their conclusions relative to such factors. Nature, Extent, and Quality of Services. The Independent Board Members considered information regarding the portfolio manager, the depth of the analyst pool available to the Adviser and the portfolio manager, the scope of supervisory, administrative, shareholder, and other services supervised or provided by the Adviser and the absence of significant service problems reported to the Board. The Independent Board Members noted the experience, length of service, and reputation of the portfolio manager. Investment Performance. The Independent Board Members reviewed the short, medium, and longer term performance of the Fund against a peer group of utilities funds and against the customized peer group selected by Lipper. The Independent Board Members noted that the Fund s performance was within the fourth quartile of its peer groups for the one, three, and five year periods. Profitability. The Independent Board Members reviewed summary data regarding the profitability of the Fund to the Adviser both with an administrative overhead charge and without such a charge. The Independent Board Members also noted that a substantial portion of the Fund s portfolio transactions were executed by an affiliated broker, that the affiliated broker received distribution fees and minor amounts of sales commissions, and that the Adviser received a moderate amount of soft dollar benefits through the Fund s portfolio brokerage. Economies of Scale. The Independent Board Members discussed the major elements of the Adviser s cost structure and the relationship of those elements to potential economies of scale. Sharing of Economies of Scale. The Independent Board Members noted that the investment advisory fee schedule for the Fund does not take into account any potential economies of scale that may develop or any historical losses or diminished profitability of the Fund to the Adviser. Service and Cost Comparisons. The Independent Board Members compared the expense ratios of the investment advisory fee, other expenses, and total expenses of the Fund with similar expense ratios of the peer group of utilities funds and the customized Lipper group and noted that the advisory fee includes substantially all administrative services for the Fund as well as the investment advisory services of the Adviser. The Independent Board Members noted that the Fund s expense ratios were above average and the Fund s size was average within these groups. The Independent Board Members were presented with, but did not consider to be material to their decision, various information comparing the advisory fee with the fee for other types of accounts managed by affiliates of the Adviser. Conclusions. The Independent Board Members concluded that the Fund enjoyed highly experienced portfolio management services, good ancillary services, and a reasonable performance record. The Independent Board Members also concluded that the Fund s expense ratios and profitability to the Adviser of managing the Fund were reasonable and that economies of scale were not a significant factor in their thinking at this time. The Independent Board Members did not view the potential profitability of ancillary services as material to their 21

42 The Gabelli Utilities Fund Board Consideration and Re-Approval of Investment Advisory Agreements (Unaudited) (Continued) decision. On the basis of the foregoing and without assigning particular weight to any single conclusion, the Independent Board Members determined to recommend continuation of the investment advisory agreement to the full Board. Based on a consideration of all these factors in their totality, the Board Members, including all of the Independent Board Members, determined that the Fund s advisory fee was fair and reasonable with respect to the quality of services provided and in light of the other factors described above that the Board deemed relevant. Accordingly, the Board Members determined to approve the continuation of the Fund s Advisory Agreement. The Board Members based their decision on evaluations of all these factors as a whole and did not consider any one factor as all important or controlling. 22

43 THE GABELLI UTILITIES FUND One Corporate Center Rye, NY Portfolio Manager Biography Mario J. Gabelli, CFA, is Chairman and Chief Executive Officer of GAMCO Investors, Inc. that he founded in 1977 and Chief Investment Officer Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc. Mr. Gabelli is a summa cum laude graduate of Fordham University and holds an MBA degree from Columbia Business School and Honorary Doctorates from Fordham University and Roger Williams University. We have separated the portfolio manager s commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of We have done this to ensure that the content of the portfolio manager s commentary is unrestricted. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at

44 THE GABELLI UTILITIES FUND One Corporate Center Rye, New York t 800-GABELLI ( ) f e [email protected] GABELLI.COM Net Asset Value per share available daily by calling 800-GABELLI after 7:00 P.M. BOARD OF TRUSTEES Mario J. Gabelli, CFA Chairman and Chief Executive Officer, GAMCO Investors, Inc. Anthony J. Colavita President, Anthony J. Colavita, P.C. Vincent D. Enright Former Senior Vice President and Chief Financial Officer, KeySpan Corp. Mary E. Hauck Former Senior Portfolio Manager, Gabelli-O'Connor Fixed Income Mutual Fund Management Co. Kuni Nakamura President, Advanced Polymer, Inc. Werner J. Roeder, MD Former Medical Director, Lawrence Hospital OFFICERS Bruce N. Alpert President Andrea R. Mango Secretary Agnes Mullady Treasurer Richard J. Walz Chief Compliance Officer DISTRIBUTOR G.distributors, LLC CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT State Street Bank and Trust Company LEGAL COUNSEL Skadden, Arps, Slate, Meagher & Flom LLP THE GABELLI UTILITIES FUND Semiannual Report June 30, 2015 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. GAB470Q215SR