THE GABELLI MATHERS FUND
ANNUAL REPORT
DECEMBER 31, 1999
[Photo of Henry G. Van der Eb omitted]
HENRY G. VAN DER EB
TO OUR SHAREHOLDERS,
The major U.S. stock market indices continued to set records in 1999,
despite sharply rising interest rates, unprecedented overvaluation relative to
the U.S. economy and various long-term benchmarks, and an increasingly narrow
list of stocks participating in the advance.
The Gabelli Mathers Fund, in deference to historical precedent analysis,
maintained a conservative and, at times, a net short stock portfolio structure
during 1999. For the year, the Fund's total return was 5.73%. The equity segment
of the portfolio averaged 8.9% long and 2% short individual stocks, within
ranges of 0% to 52.2%, and 0% to 16.8% of assets, respectively. The fixed income
segment of the portfolio averaged 91.1% U.S. Treasury securities, primarily
short-term Treasury bills, within a range of 47.8% to 100% of assets. The equity
segment, which includes long and short positions in stocks and S&P 500 stock
index futures, and the fixed income segment, which includes U.S. Treasury bills
and notes, and repurchase agreements, each contributed approximately the same
amount to the Fund's total return for 1999.
During the last quarter of 1999, the Fund's common stock investments were
significantly increased, but were concentrated in stocks of takeover target
companies subject to friendly, all cash tender or merger offers from an
acquiring company. The Fund purchased these special situation stocks after the
deals were publicly announced, generally by a financially strong, strategically
motivated buyer. These stocks are typically held for short time periods, but
earn relatively high annualized returns. The Fund may continue to utilize this
relatively low-risk, defensive, non-market correlated stock investment strategy
in order to potentially increase cash returns above the prevailing level of
short-term interest rates.
<PAGE>
The Fund has maintained a bearish bias since various fundamental stock
valuation benchmarks have indicated a high-risk market by significantly
exceeding the upper limits of their long-term historical ranges in both degree
and duration. The portfolio continues to be positioned to take advantage of a
sustained stock market decline. Over the long term, the Fund seeks capital
appreciation in both up and down markets, with a relatively low risk of capital
loss.
BULL MARKET MANIA
The extraordinary characteristics of a classic stock market mania have
become increasingly apparent since early 1995, and were particularly evident
during the last quarter of 1999. When a mania starts, stock prices take off with
a powerful upward thrust, starting where a long-term bull market would normally
end, and continue upward in relentless price spurts with fewer, shorter, and
smaller pullbacks. This pattern is marked on the chart below as the Great Baby
Boomer Stock Mania of 1995 -'99.
U.S. STOCK MARKET CAPITALIZATION AS PERCENT OF NOMINAL GDP
[This chart was prepared for Mathers Fund by Topline Investment Graphics,
Boulder, CO. A hard copy is available by calling Mathers Fund at 800-962-3863.
The line is the ratio of stock market capitalization divided by nominal GDP. The
chart's X-axis represents years, from 1926 through 2000 and its Y-axis shows
percentage points, from 0 to 175. The average, since 1926, has been 51.5%. The
high points (August 1929, 81.4%; November 1968, 77.8% and December 1972, 78.10%)
were all followed by severe bear markets. The current value is a record high,
160.1%.
Two smaller charts appear in a box inset in the main chart. Each of these
charts shows a parabolic price rise, a top and the following sharp decline. The
first of the two charts reflects the price of the Tokyo Nikkei stock index and
begins in January 1985 at about 11,000 Yen, continues through its peak in
November 1989 near 39,000 Yen to its year-end 1992 level of 15,000 Yen. The
second of the two charts shows the Dow Jones Industrial Average from its 1925
level of 125, through the 1929 peak of around 375 to its year-end 1931 level of
60.]
2
<PAGE>
Distinguishing features of stock manias include the following: broad-based
public participation as individuals are swept up by the contagion of crowd
psychology, demand for stocks accelerates as buyers are attracted solely by
price momentum, gross overvaluation, get rich quick urgency, irrational
indifference to risk, novices outperforming investment professionals, and the
total discrediting of bearish views. As the bubble inflates, it becomes
progressively more unstable and likely to burst spontaneously since it requires
proportionately larger amounts of new money inflows to sustain its expanding
size. The speculative frenzy continues with increasing intra-day price
volatility, followed by a last-gasp buying panic as prices refuse to stay down.
This terminal spike ends abruptly with an unpredictable trend reversal and
precipitous drop. As prices collapse, demand falters, supply surges and prices
eventually fall below the starting point of the entire advance.
Manias, whether in stocks, Gouda tulip bulbs, numismatic coins, gold,
Beanie Babies, or real estate, stop when the false confidence and complacency
that prices will continue to rise indefinitely is broken. Federal Reserve Board
Chairman, Alan Greenspan, made the following statement on October 14, 1999:
"History tells us that sharp reversals in confidence occur abruptly, most often
with little advance notice. These reversals can be self-reinforcing processes
that can compress sizable adjustments into a very short period. Panic reactions
in the market are characterized by dramatic shifts in behavior that are intended
to minimize short-term losses. What is so intriguing is that this type of
behavior has characterized human interaction with little appreciable change over
the generations."
The Consumer Confidence Index, as calculated monthly by the Conference
Board, rose to a 31-year high in December. The last time this 'man on Main
Street' index was this high was October of 1968, at the peak of the 1960's
`Go-Go' mutual fund era and the beginning of a 14-year series of bear markets
which ended in August of 1982. Additionally, today's all-time high fundamental
stock valuations are a confirming reflection of the extreme 'man on Wall Street'
euphoria toward stocks. Prevailing psychology makes it very difficult to see a
speculative bubble when one is inside of it.
COLLISION COURSE: RISING INTEREST RATES VS. STOCK PRICES
"Stocks cannot forever outperform their underlying businesses, as they
have so dramatically done for some time," said renowned investor Warren Buffett
in 1993, and in 1999, "The absolute most that the owners of a business, in
aggregate, can get out of it in the end - between now and Judgment Day - is what
the business earns over time."
Extraordinary double-digit appreciation has decoupled stock prices from
their intrinsic values. Over the last four years, the unprecedented divergence
between the S&P 500's price change versus its earnings growth rate, dividend
yield, and other fundamental measures has continued to widen. For example,
during the period from 12-31-95 to 12-31-99, the S&P 500 Index increased an
amazing 4.2 times the percentage increase in reported earnings and 5.0 times
faster than operating earnings. The compound annual increase in reported
earnings for this 4-year period was 8.2%, and 5.4% for operating earnings, with
both figures reasonably in line with long-term economic growth. What is
3
<PAGE>
abnormal is the unwarranted ballooning of the price to earnings ratio relative
to interest rates and overstated earnings.
Historically, rising interest rates have preceded more bear markets than
any other factor and are now exerting significant pressure to narrow the record
gap between stock prices and fundamental value. Despite only modest recent up
ticks in wage and price inflation, interest rates remain likely to trend higher
due to the massive financing requirements of the burgeoning U.S. trade deficit.
Four years ago, at year-end '95, the yield on the 30-year U.S. Treasury bond was
6.0% vs. 6.6% now and the yields on 2, 5 and 10-year U.S. Treasury notes are now
proportionally higher as well. The rationale that the S&P 500 has zoomed up over
the last four years due to strong earnings growth and declining interest rates
does not fit the facts.
Despite the year end rally, the S&P 500's 1.1% dividend yield and 2.9%
earnings yield, both at historic lows relative to bond yields, are unlikely to
buck rising interest rates and the Federal Reserve's tight money policy for
long. Only twice this century has a central bank raised interest rates during a
period of intense stock market speculation that had not only become a national
obsession, but a significant threat to long-term economic growth and stability.
In both cases, the U.S. in 1929 and Japan in 1989, rising interest rates became
the unintentional pin that burst the bubble.
NEW ERA, OR OLD ERA GONE TO NEW EXTREMES?
The accelerating transition from the industrial to the information age
continues. As this process has evolved, the majority of 'Old Economy' stocks
began to decline in April of 1998, while a non-stop stampede into a short list
of overpriced large capitalization 'New Economy' stocks has pushed several
averages to remarkable new highs, masking the deterioration in the overall
market. Incredibly, the NASDAQ Composite price to earnings ratio has soared to
over 200, as stocks of Internet and technology companies that are losing money
have skyrocketed. Ironically, stocks of many companies that are profitable have
declined. Additionally, fantasy projections have catapulted the prices of money
losing, miniscule revenue, Internet IPOs to absurd multi-billion dollar market
values, despite expert opinion that less than five percent of all Internet
companies will ever be profitable.
Arguably, there are many 'Old Economy' stocks that are statistically
cheap, however, there are two significant risks to owning them. First, the
Internet is having a deflationary impact on corporate pricing power which is
reducing profitability, so stocks that look undervalued on current earnings may
become overpriced as future revenues and earnings fail to materialize; and
second, past secular bear markets, as was the case in 1973 -'74, demonstrate
that when the leaders break price, very few stocks go up, regardless of how
cheap they appear or how much they have declined prior to the top in the widely
followed stock averages.
4
<PAGE>
As shown in the chart and inset table below, during the last 128 years,
both high and low stock market valuation extremes have ultimately regressed to
the mean, despite compelling rationalizations supporting them prior to major
turning points.
THE BUBBLE IN STOCKS: AN HISTORICAL PERSPECTIVE
[Contained here in paper format is a chart reflecting the Standard & Poor's 500
stock index adjusted for inflation. The X-axis reflects the years from 1871
through 2000 and its Y-axis is on a logarithmic scale and extends from 15 to
250. The long-term least squares trend line from 1871 through June 1999 is also
on the chart. The chart was prepared by The Bank Credit Analyst. A hard copy is
available by calling Mathers Fund at 800-962-3863. The chart is a line chart
with monthly data and shows the extreme overevaluation (measured as the
divergence above the trend line) in the S&P 500 Index.
Also contained within the chart is a table of data as follows:
S&P 500 PRICE DIVIDEND P/E
1928 TO 1999 BOOK YIELD % RATIO
- ----------------- ----- -------- -----
5 MAJOR BOTTOMS 0.9 7.14 7.8
LONG-TERM AVERAGE 1.9 3.82 14.7
6 MAJOR TOPS 2.4 2.94 20.2
SEPT. '29 TOP 3.6 2.86 21.1
AUG. '87 TOP 2.5 2.58 22.9
JULY '99 HIGH * 7.5 1.18 37.0
DEC. '99 HIGH 7.0 1.14 33.4
*Record Overevaluation]
There are numerous analytical approaches that can be used to quantify the
downside risk in today's stock market. The Federal Reserve's own internal
valuation model, which uses the S&P 500 consensus forward estimate of operating
earnings divided by the 10-year U.S. Treasury note yield, calculates the S&P 500
was 62% overvalued at year-end 1999, compared to 33% prior to the 1987 Crash.
Using regression to the long-term means and medians for various fundamental data
series, including those shown on the charts and table above, gives an average
downside projection of approximately 65%, and a move to historical
undervaluation, a loss of about 75%.
IN CONCLUSION
No one yet knows whether a lasting paradigm shift in equity valuation or
economic stability has actually occurred, and we will not know the answer at
least until the next bear market and recession are over. We do know that
previous 'new era' stock valuations and perpetual prosperity thinking, which
occurred in the U.S. in the late 1920's and Japan in the late 1980's, turned out
to be new
5
<PAGE>
excesses within the 'old era,' regardless of new technological advances. Fed
Chairman Greenspan commented in February of 1997, "Regrettably, history is
strewn with visions of 'New Eras' that, in the end, have proven to be a mirage."
History remains on the side of the skeptics, at least for now.
Sincerely,
/s/ Signature
HENRY G. VAN DER EB, CFA
President and Portfolio Manager
January 10, 2000
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period covered in this report. The manager's views
are subject to change at any time based on market and other conditions.
GROWTH OF A $10,000 INVESTMENT IN GABELLI MATHERSD FUND
GABELLI S&P 500
MATHERS FUND INDEX
------------ -------
$10,000 $10,000
'65 12,089 10,768
'66 12,598 9,685
'67 24,266 12,006
'68 30,784 13,334
'69 28,937 12,199
'70 29,507 12,687
'71 35,358 14,504
'72 41,062 17,256
'73 25,807 14,728
'74 17,910 10,831
'75 28,128 14,861
'76 40,608 18,405
'77 46,375 17,084
'78 53,359 18,204
'79 78,197 21,561
'80 109,703 28,551
'81 101,212 27,178
'82 116,252 32,994
'83 135,039 40,424
'84 131,555 42,955
'85 167,719 56,606
'86 191,149 67,203
'87 242,836 70,731
'88 276,177 82,444
'89 304,927 108,562
'90 336,731 105,196
'91 368,552 137,166
'92 380,014 147,604
'93 388,109 162,453
'94 365,249 164,581
'95 390,853 226,348
'96 390,579 278,295
'97 402,336 371,134
'98 381,334 477,724
'99 403,184 578,237
COMPOUND ANNUAL RETURNS (A)
1 YR 5 YRS 10 YRS 34 YRS (B)
---- ----- ------ ----------
GABELLI MATHERS FUND 5.73% 2.00% 2.83% 11.36%
Standard & Poor's 500 21.04% 28.56% 18.21% 12.53%
Past performance is not predictive of future performances. (a) Total returns and
average annual returns reflect changes in share price and reinvestment of
dividends and are net of expenses. The net asset value of the Fund is reduced on
the ex-dividend (payment) date by the amount of the dividend paid. Of course,
returns represent past performance and do not guarantee future results.
Investment returns and the principal value of an investment will fluctuate. When
shares are redeemed they may be worth more or less than their original cost. (b)
From commencement of investment operations on August 19, 1965
6
<PAGE>
THE GABELLI MATHERS FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------- ---- ------
COMMON STOCKS -- 36.5%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.1%
5,000 Federal-Mogul Corp. ......... $ 93,325 $ 100,625
1,500 Transportation Technologies
Industries Inc.+ ........... 26,625 27,094
------------ ------------
119,950 127,719
------------ ------------
CONSUMER PRODUCTS -- 1.7%
195,000 Gibson Greetings Inc. ....... 1,810,518 1,748,906
------------ ------------
ELECTRONICS -- 1.9%
50,000 Watkins-Johnson Co. ......... 1,956,976 2,000,000
------------ ------------
ENERGY AND UTILITIES-- 13.7%
70,000 Aquarion Co. ................ 2,562,107 2,590,000
75,000 Eastern Utilities Associates 2,272,969 2,273,438
100,000 MidAmerican Energy
Holdings Co.+ .............. 3,323,942 3,368,750
80,500 New England Electric System . 4,243,085 4,165,875
4,500 Southwest Gas Corp. ......... 108,913 103,500
20,000 United Water Resources Inc. . 671,044 683,750
40,000 WICOR Inc. .................. 1,200,588 1,167,500
------------ ------------
14,382,648 14,352,813
------------ ------------
FINANCIAL SERVICES -- 3.1%
62,500 Foremost Corp. of America ... 1,758,987 1,773,437
30,000 PIMCO Advisors Holdings LP .. 1,121,800 1,130,625
10,000 UST Corp. ................... 316,250 317,500
------------ ------------
3,197,037 3,221,562
------------ ------------
HOTELS AND GAMING -- 2.5%
320,000 Players International Inc.+ . 2,435,161 2,630,000
------------ ------------
PAPER AND FOREST PRODUCTS -- 0.4%
10,000 TJ International Inc. ....... 416,250 420,000
------------ ------------
REAL ESTATE INVESTMENT TRUST -- 3.4%
310,000 Imperial Credit Commercial
Mortgage Investment
Corp. ...................... 3,483,682 3,526,250
------------ ------------
RETAIL -- 0.9%
45,000 Catherine's Stores Corp.+ ... 905,312 945,000
------------ ------------
SATELLITE -- 4.1%
211,000 Vertex Communications
Corp.+ ..................... 4,431,460 4,325,500
------------ ------------
TRANSPORTATION -- 4.7%
151,000 Air Express International
Corp. ...................... 4,866,262 4,879,187
------------ ------------
TOTAL COMMON STOCKS ......... 38,005,256 38,176,937
------------ ------------
PRINCIPAL MARKET
AMOUNT COST VALUE
------- ---- ------
U.S. TREASURY OBLIGATIONS -- 57.2%
$60,000,000 U.S. Treasury Bills,
3.95% to 5.31%++,
due 01/13/00 to 01/20/00 ... $ 59,854,375 $ 59,854,375
------------ ------------
REPURCHASE AGREEMENTS -- 2.1%
2,271,471 Agreement with State Street
Bank & Trust Co., 3.25%,
dated 12/31/99,
due 01/03/00, proceeds
at maturity $2,272,087(a) .. 2,271,472 2,271,472
------------ ------------
TOTAL
INVESTMENTS -- 95.8% ....... $100,131,103 100,302,784
============
OTHER ASSETS AND
LIABILITIES (NET)-- 4.2% ................. 4,390,589
------------
NET ASSETS -- 100%
(8,768,873 shares outstanding) ........... $104,693,373
============
NET ASSET VALUE,
OFFERING AND REDEMPTION
PRICE PER SHARE .......................... $11.94
======
For Federal tax purposes:
Aggregate cost ............................ $100,137,069
============
Gross unrealized appreciation ............. $ 448,998
Gross unrealized depreciation ............. (283,283)
------------
Net unrealized appreciation ............... $ 165,715
============
------------------------
(a) Collateralized by U.S. Treasury Bond, 12.38%, due 05/15/04, market value
$2,317,969.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
See accompanying notes to financial statements.
7
<PAGE>
THE GABELLI MATHERS FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $100,131,103) . $100,302,784
Dividends and interest receivable ......... 174,149
Receivable for investments sold ........... 5,729,000
Receivable for Fund shares sold ........... 800
Other assets .............................. 11,737
------------
TOTAL ASSETS .............................. 106,218,470
------------
LIABILITIES:
Payable for investments purchased ......... 1,343,996
Payable for Fund shares redeemed .......... 21,660
Payable for investment advisory fees ...... 66,547
Payable for distribution fees ............. 21,945
Payable to custodian ...................... 10,733
Payable to Trustees ....................... 5,000
Other accrued expenses and liabilities .... 55,216
------------
TOTAL LIABILITIES ......................... 1,525,097
------------
NET ASSETS applicable to 8,768,873
shares outstanding ...................... $104,693,373
============
NET ASSETS CONSIST OF:
Shares of beneficial interest, at par value $ 8,768,873
Additional paid-in capital ................ 134,946,034
Accumulated net investment income ......... 33,622
Accumulated net realized loss on investments
and futures contracts ................... (39,226,837)
Net unrealized appreciation on investments 171,681
------------
TOTAL NET ASSETS $104,693,373
============
NET ASSET VALUE, offering and redemption
price per share ($104,693,373 / 8,768,873
shares outstanding; 100,000,000 shares
authorized of $1.00 par value) .......... $11.94
======
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends ................................. $ 213,928
Interest .................................. 4,738,064
----------
TOTAL INVESTMENT INCOME ................... 4,951,992
----------
EXPENSES:
Investment advisory fees .................. 784,713
Distribution fees ......................... 65,081
Shareholder services fees ................. 129,202
Legal and audit fees ...................... 124,500
Trustees' fees ............................ 40,000
Custodian fees ............................ 37,282
Registration fees ......................... 32,254
Shareholder communications expenses ....... 27,500
Dividends on securities sold short ........ 3,989
Miscellaneous expenses .................... 50,816
----------
TOTAL EXPENSES ............................ 1,295,337
----------
NET INVESTMENT INCOME ..................... 3,656,655
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments and
futures contracts ....................... 4,428,251
Net realized loss on securities
sold short .............................. (1,893,870)
Net change in unrealized appreciation on
investments and securities sold short ... (445,493)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND
FUTURES CONTRACTS ....................... 2,088,888
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ......................... $5,745,543
==========
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Net investment income ...................................................... $ 3,656,655 $ 5,579,805
Net realized gain (loss) on investments and futures contracts .............. 4,428,251 (51,633)
Net realized loss on securities sold short ................................. (1,893,870) (7,643,718)
Net change in unrealized appreciation on investments and securities sold short (445,493) (4,390,362)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............ 5,745,543 (6,505,908)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ...................................................... (3,638,301) (5,529,990)
------------ ------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ........................................ (3,638,301) (5,529,990)
------------ ------------
SHARE TRANSACTIONS:
Net decrease in net assets from shares of beneficial interest transactions . (5,961,454) (17,820,332)
------------ ------------
NET DECREASE IN NET ASSETS ................................................. (3,854,212) (29,856,230)
NET ASSETS:
Beginning of period ........................................................ 108,547,585 138,403,815
------------ ------------
End of period (Including undistributed net investment income of $33,622
and $251,081, respectively) .............................................. $104,693,373 $108,547,585
============ ============
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
THE GABELLI MATHERS FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION. The Gabelli Mathers Fund (the "Fund") was organized on June 17,
1999 as a Delaware business trust. The Fund commenced investment operations on
October 1, 1999 as the successor to the Mathers Fund, Inc. (the "Mathers Fund")
which was organized on March 31, 1965 as a Maryland corporation. The Mathers
Fund commenced investment operations on August 19, 1965. The Fund is a
non-diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "Act"). The Fund's primary
objective is long term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
SECURITY VALUATION. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange as of the close of business on
the day the securities are being valued (if there were no sales that day, the
security is valued at the average of the closing bid and asked prices or, if
there were no asked prices quoted on that day, then the security is valued at
the closing bid price on that day, except for open short positions, which are
valued at the last asked price). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, LLC
(the "Adviser"). Securities and assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Trustees. Short term debt securities with remaining maturities of 60 days or
less are valued at amortized cost, unless the Trustees determine such does not
reflect the securities' fair value, in which case these securities will be
valued at their fair value as determined by the Trustees. Debt instruments
having a maturity greater than 60 days are valued at the highest bid price
obtained from a dealer maintaining an active market in those securities.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
primary government securities dealers recognized by the Federal Reserve Board,
with member banks of the Federal Reserve System or with other brokers or dealers
that meet credit guidelines established by the Directors. Under the terms of a
typical repurchase agreement, the Fund takes possession of an underlying debt
obligation subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period. The Fund will always receive and
maintain securities as collateral whose market value, including accrued
interest, will be at least equal to 100% of the dollar amount invested by the
Fund in each agreement. The Fund will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer of the collateral to
the account of the custodian. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral
9
<PAGE>
THE GABELLI MATHERS FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
is marked-to-market on a daily basis to maintain the adequacy of the collateral.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
FUTURES CONTRACTS. The Fund may engage in futures contracts for the purpose of
hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin." Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily fluctuation of the
value of the contract. The daily changes in the contract are included in
unrealized gains or losses. The Fund recognizes a realized gain or loss when the
contract is closed. At December 31, 1999, there were no open futures contracts.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
SECURITIES SOLD SHORT. A short sale involves selling a security which the Fund
does not own. The proceeds received for short sales are recorded as liabilities
and the Fund records an unrealized gain or loss to the extent of the difference
between the proceeds received and the value of the open short position on the
day of determination. The Fund records a realized gain or loss when the short
position is closed out. By entering into a short sale, the Fund bears the market
risk of an unfavorable change in price of the security sold short. Dividends on
short sales are recorded as an expense by the Fund on the ex-dividend date and
interest expense is recorded on the accrual basis. At December 31, 1999, there
were no open positions in securities sold short.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
For the year ended December 31, 1999, reclassifications were made to decrease
accumulated undistributed net investment income for $235,813 and decrease
accumulated net realized loss on investments and futures contracts for $11,962
with an offsetting adjustment to additional paid-in capital.
PROVISION FOR INCOME TAXES. The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. As a result, a Federal income tax provision is not required.
10
<PAGE>
THE GABELLI MATHERS FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The Fund has a net capital loss carryforward for Federal income tax purposes at
December 31, 1999 of $39,220,871. This capital loss carryforward is available to
reduce future distributions of net capital gains to shareholders. $9,124,017 of
the loss carryforward is available through 2003; $22,226,886 is available
through 2004; and $7,869,968 is available through 2006.
3. INVESTMENT ADVISORY AGREEMENT. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 0.75% of the first $100,000,000 of the Fund's average daily
net assets plus 1.00% of average daily net assets over $100,000,000 until
September 30, 2001. In accordance with the Advisory Agreement, the Adviser
provides a continuous investment program for the Fund's portfolio, oversees the
administration of all aspects of the Fund's business and affairs and pays the
compensation of all Officers and Trustees of the Fund who are its affiliates.
Prior to October 1, 1999, Mathers and Company, Inc. ("Mathers") served as
investment adviser and manager, which provided that the Fund paid Mathers a
management fee of 0.75% of the first $200,000,000 of the Fund's average monthly
net assets, 0.625% of average monthly net assets over $200,000,000 but not
exceeding $500,000,000, and 0.50% of average monthly net assets over
$500,000,000. Mathers was required to reimburse the Fund to the extent that
expenses, other than taxes and dividends on securities sold short, but including
the management fee, in any year exceeded the sum of 1.50% of the first
$30,000,000 of the Fund's average monthly net assets plus 1.00% of such value in
excess of $30,000,000.
4. DISTRIBUTION PLAN. On October 1, 1999, the Fund's Board of Trustees adopted a
distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For
the year ended December 31, 1999, the Fund incurred distribution costs payable
to Gabelli & Company, Inc., an affiliate of the Adviser, of $65,081, or 0.06% of
average daily net assets. Such payments are accrued daily and paid monthly at
the annual rate of 0.25% of average daily net assets.
5. PORTFOLIO SECURITIES. Purchases and sales of securities for the year ended
December 31, 1999, other than short term securities, aggregated $183,228,600 and
$151,933,396, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the year ended December 31, 1999, the
Fund paid brokerage commissions of $57,997 to Gabelli & Company, Inc.
7. SHARES OF BENEFICIAL INTEREST. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ........................................ 1,778,384 $21,299,727 920,644 $ 11,377,820
Shares issued upon reinvestment of dividends ....... 274,885 3,271,129 423,392 4,966,387
Shares redeemed .................................... (2,536,839) (30,532,310) (2,686,199) (34,164,539)
--------- ----------- --------- ------------
Net decrease ................................... (483,570) $(5,961,454) (1,342,163) $(17,820,332)
========= =========== ========= ============
</TABLE>
11
<PAGE>
THE GABELLI MATHERS FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999(A) 1998 1997 1996 1995
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ....... $ 11.73 $ 13.06 $ 13.27 $ 13.75 $ 13.55
-------- -------- -------- -------- --------
Net investment income ...................... 0.46 0.58 0.53 0.40 0.60
Net realized and unrealized gain (loss)
on investments and securities sold short . 0.21 (1.26) (0.13) (0.41) 0.35
-------- -------- -------- -------- --------
Total from investment operations ........... 0.67 (0.68) 0.40 (0.01) 0.95
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ...................... (0.46) (0.65) (0.61) (0.47) (0.72)
Net realized gain on investments ........... -- -- -- -- (0.03)
-------- -------- -------- -------- --------
Total distributions ........................ (0.46) (0.65) (0.61) (0.47) (0.75)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ............. $ 11.94 $ 11.73 $ 13.06 $ 13.27 $ 13.75
======== ======== ======== ======== ========
Total return+ .............................. 5.73% (5.21)% 3.01% (0.07)% 7.01%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ....... $104,693 $108,548 $138,404 $171,596 $232,303
Ratio of net investment income
to average net assets .................... 3.50% 4.56% 3.96% 2.96% 4.25%
Ratio of operating expenses
to average net assets (b) ................ 1.24% 1.16% 1.07% 1.03% 0.98%
Portfiolio turnover rate ................... 922% 67% 50% 38% 58%
</TABLE>
- --------------------------------
+ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends.
(a) Gabelli Funds, LLC became the investment adviser of the Fund on October 1,
1999. (See Note 3)
(b) The Fund incurred dividend expense on securities sold short for the years
ended December 31, 1999 and 1998. If the dividend expense had not been
incurred, the ratios of operating expenses to average net assets would have
been 1.24% and 1.12%, respectively.
See accompanying notes to financial statements.
12
<PAGE>
THE GABELLI MATHERS FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
The Gabelli Mathers Fund
We have audited the accompanying statement of assets and liabilities of The
Gabelli Mathers Fund (the "Fund"), including the portfolio of investments, as of
December 31, 1999, and the related statements of operations and changes in net
assets and the financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of changes
in net assets for the year ended December 31, 1998 and the financial highlights
for each of the four years in the period then ended were audited by other
auditors, whose report dated January 15, 1999 expressed an unqualified opinion.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999, by correspondence with
the custodian and other. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights, audited by
us, referred to above present fairly, in all material respects, the financial
position of The Gabelli Mathers Fund as of December 31, 1999, and the results of
its operations, the changes in its net assets and the financial highlights for
the year then ended, in conformity with accounting principles generally accepted
in the United States.
/s/ Signature
Ernst & Young LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
1999 TAX NOTICE TO SHAREHOLDERS (Unaudited)
For the fiscal year ended December 31, 1999, the Fund paid to shareholders, on
December 27, 1999, an ordinary income dividend (comprised of net investment
income) totaling $0.46 per share. For the fiscal year ended December 31, 1999,
5.16% of the ordinary income dividend qualifies for the dividend received
deduction available to corporations.
U.S. GOVERNMENT INCOME:
The percentage of the ordinary income dividend paid by the Fund during fiscal
year 1999 which was derived from U.S. Treasury securities was 98.20%. Such
income is exempt from state and local tax in all states. However, many states,
including New York and California, allow a tax exemption for a portion of the
income earned only if a mutual fund has invested at least 50% of its assets at
the end of each quarter of the Fund's fiscal year in U.S. Government securities.
Due to the diversity in state and local tax law, it is recommended that you
consult your personal tax advisor as to the applicability of the information
provided to your specific situation.
- --------------------------------------------------------------------------------
13
<PAGE>
[This page intentionally left blank]
14
<PAGE>
- --------------------------------------------------------------------------------
GABELLI FAMILY OF FUNDS
- --------------------------------------------------------------------------------
GABELLI ASSET FUND--------------------------------------------------------------
Seeks to invest primarily in a diversified portfolio of common stocks selling at
significant discounts to their private market value. The Fund's primary
objective is growth of capital. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI GROWTH FUND-------------------------------------------------------------
Seeks to invest primarily in large cap stocks believed to have favorable, yet
undervalued, prospects for earnings growth. The Fund's primary objective is
capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: HOWARD F. WARD, CFA
GABELLI WESTWOOD EQUITY FUND----------------------------------------------------
Seeks to invest primarily in the common stock of seasoned companies believed to
have proven records and above average historical earnings growth. The Fund's
primary objective is capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: SUSAN M. BYRNE
GABELLI SMALL CAP GROWTH FUND---------------------------------------------------
Seeks to invest primarily in common stock of smaller companies (market
capitalizations less than $500 million) believed to have rapid revenue and
earnings growth potential. The Fund's primary objective is capital appreciation.
(NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI BLUE CHIP VALUE FUND----------------------------------------------------
Seeks long-term growth of capital through investment primarily in the common
stocks of well-established, high quality companies that have market
capitalizations of greater than $5 billion. (NO-LOAD)
PORTFOLIO MANAGER: BARBARA MARCIN, CFA
GABELLI WESTWOOD SMALLCAP EQUITY FUND-------------------------------------------
Seeks to invest primarily in smaller capitalization equity securities - market
caps of $1 billion or less. The Fund's primary objective is long-term capital
appreciation. (NO-LOAD)
PORTFOLIO MANAGER: LYNDA CALKIN, CFA
GABELLI WESTWOOD INTERMEDIATE BOND FUND-----------------------------------------
Seeks to invest in a diversified portfolio of bonds with various maturities. The
Fund's primary objective is total return. (NO-LOAD)
PORTFOLIO MANAGER: PATRICIA FRAZE
GABELLI EQUITY INCOME FUND------------------------------------------------------
Seeks to invest primarily in equity securities with above market average yields.
The Fund pays quarterly dividends and seeks a high level of total return with an
emphasis on income. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI WESTWOOD BALANCED FUND--------------------------------------------------
Seeks to invest in a balanced and diversified portfolio of stocks and bonds. The
Fund's primary objective is both capital appreciation and current income.
(NO-LOAD)
PORTFOLIO MANAGERS: SUSAN M. BYRNE & PATRICIA FRAZE
GABELLI WESTWOOD MIGHTY MITES[SERVICE MARK] FUND--------------------------------
Seeks to invest in micro-cap companies that have market capitalizations of $300
million or less. The Fund's primary objective is long-term capital appreciation.
(NO-LOAD)
TEAM MANAGED: MARIO J. GABELLI, CFA,
MARC J. GABELLI, LAURA K. LINEHAN AND
WALTER K. WALSH
GABELLI VALUE FUND--------------------------------------------------------------
Seeks to invest in securities of companies believed to be undervalued. The
Fund's primary objective is long-term capital appreciation. MAX. SALES CHARGE:
5 1/2%
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI UTILITIES FUND----------------------------------------------------------
Seeks to provide a high level of total return through a combination of capital
appreciation and current income. (NO-LOAD)
PORTFOLIO MANAGER: TIMOTHY O'BRIEN, CFA
GABELLI ABC FUND----------------------------------------------------------------
Seeks to invest in securities with attractive opportunities for appreciation or
investment income. The Fund's primary objective is total return in various
market conditions without excessive risk of capital loss. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI MATHERS FUND------------------------------------------------------------
Seeks long-term capital appreciation in various market conditions without
excessive risk of capital loss. (NO-LOAD)
PORTFOLIO MANAGER: HENRY VAN DER EB, CFA
GABELLI U.S. TREASURY MONEY MARKET FUND-----------------------------------------
Seeks to invest exclusively in short-term U.S. Treasury securities. The Fund's
primary objective is to provide high current income consistent with the
preservation of principal and liquidity. (NO-LOAD)
PORTFOLIO MANAGER: JUDITH A. RANERI
GABELLI CASH MANAGEMENT SHARES OF
THE TREASURER'S FUND------------------------------------------------------------
Three money market portfolios designed to generate superior returns without
compromising portfolio safety. U.S. Treasury Money Market seeks to invest in
U.S. Treasury bills, notes and bonds. Tax Exempt Money Market seeks to invest in
municipal securities. Domestic Prime Money Market seeks to invest in prime
quality, domestic money market instruments. (NO-LOAD)
PORTFOLIO MANAGER: JUDITH A. RANERI
AN INVESTMENT IN THE ABOVE MONEY MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENT AGENCY. ALTHOUGH
THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
GLOBAL SERIES
GABELLI GLOBAL TELECOMMUNICATIONS FUND
Seeks to invest in telecommunications companies throughout the world -
targeting undervalued companies with strong earnings and cash flow dynamics.
The Fund's primary objective is capital appreciation. (NO-LOAD)
TEAM MANAGED: MARIO J. GABELLI, CFA,
MARC J. GABELLI AND IVAN ARTEAGA, CFA
GABELLI GLOBAL CONVERTIBLE SECURITIES FUND
Seeks to invest principally in bonds and preferred stocks which are
convertible into common stock of foreign and domestic companies. The Fund's
primary objective is total return through a combination of current income and
capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: HART WOODSON
GABELLI GLOBAL GROWTH FUND
Seeks capital appreciation through a disciplined investment program focusing
on the globalization and interactivity of the world's marketplace. The Fund
invests in companies at the forefront of accelerated growth. The Fund's
primary objective is capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: MARC J. GABELLI
GABELLI GLOBAL OPPORTUNITY FUND
Seeks to invest in common stock of companies which have rapid growth in
revenues and earnings and potential for above average capital appreciation or
are undervalued. The Fund's primary objective is capital appreciation.
(NO-LOAD)
PORTFOLIO MANAGERS: MARC J. GABELLI
AND CAESAR BRYAN
GABELLI GOLD FUND---------------------------------------------------------------
Seeks to invest in a global portfolio of equity securities of gold mining and
related companies. The Fund's objective is long-term capital appreciation.
Investment in gold stocks is considered speculative and is affected by a variety
of world-wide economic, financial and political factors. (NO-LOAD)
PORTFOLIO MANAGER: CAESAR BRYAN
GABELLI INTERNATIONAL GROWTH FUND-----------------------------------------------
Seeks to invest in the equity securities of foreign issuers with long-term
capital appreciation potential. The Fund offers investors global
diversification. (NO-LOAD)
PORTFOLIO MANAGER: CAESAR BRYAN
THE SIX FUNDS ABOVE INVEST IN FOREIGN SECURITIES WHICH INVOLVES RISKS NOT
ORDINARILY ASSOCIATED WITH INVESTMENTS IN DOMESTIC ISSUES, INCLUDING CURRENCY
FLUCTUATION, ECONOMIC AND POLITICAL RISKS. THE FUNDS LISTED ABOVE ARE
DISTRIBUTED BY GABELLI & COMPANY, INC.
- --------------------------------------------------------------------------------
TO RECEIVE A PROSPECTUS, CALL 1-800-GABELLI (422-3554). THE
PROSPECTUS GIVES A MORE COMPLETE DESCRIPTION OF THE FUND,
INCLUDING FEES AND EXPENSES. READ THE PROSPECTUS CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
VISIT OUR WEBSITE AT:
WWW.GABELLI.COM
OR, CALL:
1-800-GABELLI
1-800-422-3554 [BULLET] 914-921-5100 [BULLET]
FAX: 914-921-5118 [BULLET] [email protected]
ONE CORPORATE CENTER, RYE, NEW YORK 10580
<PAGE>
THE GABELLI MATHERS FUND
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI AFTER 6:00 P.M.)
BOARD OF TRUSTEES
Mario J. Gabelli, CFA Karl Otto Pohl
CHAIRMAN AND CHIEF FORMER PRESIDENT
INVESTMENT OFFICER DEUTSCHE BUNDESBANK
GABELLI ASSET MANAGEMENT INC.
Felix J. Christiana Anthony R. Pustorino
FORMER SENIOR VICE PRESIDENT CERTIFIED PUBLIC ACCOUNTANT
DOLLAR DRY DOCK SAVINGS BANK PROFESSOR, PACE UNIVERSITY
Anthony J. Colavita Werner J. Roeder, MD
ATTORNEY-AT-LAW MEDICAL DIRECTOR
ANTHONY J. COLAVITA, P.C. LAWRENCE HOSPITAL
Vincent D. Enright Jack O. Vance
FORMER SENIOR VICE PRESIDENT MANAGING DIRECTOR
AND CHIEF FINANCIAL OFFICER MANAGEMENT RESEARCH INC.
KEYSPAN ENERGY CORP.
Jon P. Hedrich Henry G. Van der Eb, CFA
FORMER PRESIDENT AND PARTNER PRESIDENT AND CHIEF
STEINER DIAMOND INSTITUTIONAL EXECUTIVE OFFICER
SERVICES THE GABELLI MATHERS FUND
Robert E. Kohnen Anthonie C. van Ekris
FORMER VICE PRESIDENT AND MANAGING DIRECTOR
INVESTMENT MANAGER BALMAC INTERNATIONAL, INC.
PROTECTION MUTUAL INSURANCE
OFFICERS AND PORTFOLIO MANAGERS
Henry G. Van der Eb, CFA Anne E. Morrissy, CFA
PRESIDENT AND EXECUTIVE VICE PRESIDENT
PORTFOLIO MANAGER
Bruce N. Alpert James E. McKee
EXECUTIVE VICE PRESIDENT SECRETARY
AND TREASURER
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli Mathers Fund. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
GAB1726Q499SR
[Photo of Mario J. Gabelli omitted]
THE
GABELLI
MATHERS
FUND
ANNUAL REPORT
DECEMBER 31, 1999
