The Gabelli ABC Fund
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
(Net Asset Value may be obtained
daily by calling
1-800-GABELLI after 6:00
P.M.)
Board of Directors
Mario J. Gabelli, CFA
Chairman and Chief
Investment Officer
Gabelli Funds, Inc.
Anthony J. Colavita
Attorney-at-Law
Anthony J. Colavita, P.C.
Vincent D. Enright
Senior Vice President
and Chief Financial Officer
The Brooklyn Union Gas Company
Karl Otto Pohl
Former President
Deutsche Bundesbank
Werner J. Roeder, MD
Director of Surgery
Lawrence Hospital
Officers
Mario J. Gabelli, CFA
President and Chief
Investment Officer
J. Hamilton Crawford, Jr.
Secretary
Bruce N. Alpert
Vice President
and Treasurer
Distributor
Gabelli & Company, Inc.
Custodian, Transfer Agent and Dividend Agent
State Street Bank and Trust Company
Independent Auditors
Grant Thornton LLP
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom
- -------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli ABC Fund. It is not authorized for distribution to prospective investors
unless preceded or accompanied by an effective prospectus.
- -------------------------------------------------------------------------------
The
Gabelli
ABC
Fund
ANNUAL REPORT
DECEMBER 31, 1994
<PAGE>
The Gabelli ABC Fund
One Corporate Center
Rye, New York 10580-1434
Annual Report - 1994
To Our Shareholders:
The Gabelli ABC Fund started investment operations on May 14, 1993. Gabelli
Funds, Inc. launched The Gabelli ABC Fund with the objective of putting its
money on the line on behalf of the wary investor. In essence, Gabelli Funds said
that no matter what the outcome of its investing success you will get your money
back plus a "minimum" return, after expenses, over a one year period. Initially
it was 6%; for 1994, it was 5% and for 1995 it is 5%, guaranteed.
INVESTMENT RESULTS (a)
Quarter
-------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
1994: Net Asset Value $10.12 $10.11 $10.42 $9.57 $9.57
Total Return 0.9% (0.1)% 3.1% 0.6% 4.5%
- -------------------------------------------------------------------------------
1993: Net Asset Value --- $10.10 $10.63 $10.03 $10.03
Total Return --- 1.0%(b) 5.2% 2.6% 9.1%(b)
- -------------------------------------------------------------------------------
Average Annual Returns - December 31, 1994 (a)
- ----------------------------------------------
1Year ............................ 4.5%
................................ 2.5%(c)
Life of Fund ..................... 8.4%
................................ 7.1%(c)
Dividend History
-----------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
December 28, 1994 $0.91 $9.52
December 31, 1993 $0.88 $10.03
(a) Total return and average annual return reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of operations on May 14, 1993. (c) Adjusted
for the maximum 2.0% sales charge applicable to investments not participating in
the Performance Guaranty Program.
Despite a lackluster equities market environment and repeated increases in
short-term interest rates by the Federal Reserve, The Gabelli ABC Fund completed
its first full calender year up 4.5%. We outperformed the Standard & Poor's 500
Index, a widely accepted unmanaged index of stock market performance which was
up 1.3% for the year.
For the fourth quarter of 1994, The Gabelli ABC Fund's net asset value
increased 0.6% to $10.48 per share on December 31, 1994, assuming reinvestment
of the $.91 per share distribution paid on December 28th. The Standard & Poor's
500 Index, was unchanged during the quarter.
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
GABELLI ABC FUND AND THE S&P 500 INDEX
(The following table is presented as a graph in the printed document)
Gabelli ABC Fund S&P 500 Index
---------------- -------------
5/14/93 $10,000 $10,000
12/31/94 $11,173* $10,798
* Past performance is not predictive of future performance. Includes effect of
maximum sales charge of 2.0% on shares not covered by the Performance
Guaranty Program.
From inception on May 14, 1993 through
December 31, 1994, the Fund has achieved a 14.0% total return which reflects an
average annual return of 8.4%. Total net assets of the Fund are currently at
$24.4 million and our shareholder base is 6,118. We hope to continue to invest
your assets and earn an attractive rate of return in the volatile market
environments that we expect to encounter.
5% Performance Guaranty Program For 1994
On December 31, 1994 the 5% Performance Guaranty Program (PGP) was
completed. In a year when the average equity growth fund declined 2.2% (as
compiled by Lipper Analytical Services), The Gabelli ABC Fund's total return
during the PGP measurement period of January 3, 1994 through December 31, 1994
was 4.743%. This is based on the initial price of $10.01 on January 3, 1994.
According to Lipper Analytical Services the Fund's total return placed it 34th
out of 564 general equity growth funds. As promised, under the terms of the
Letter of Credit issued by State Street Bank and Trust Company, participating
investors received the .257% shortfall in January to bring their total return to
5%. Stated differently, a $5,000 investment on January 3, 1995 received $12.85
as proceeds from the Letter of Credit.
New 5% Performance Guaranty Program For 1995
On January 3, 1995, Gabelli Funds, Inc. launched its third Performance
Guaranty Program, once again guaranteeing your principal investment up to $5,000
plus a return of at least 5% for the one year period through December 31, 1995.
Accounts which participated in the 1994 Performance Guaranty Program will
participate in the new program up to $5,000 if their investment remained in the
Fund on January 3, 1995 and is held through December 31, 1995 and distributions
are reinvested. There will be no sales charge for investments covered by the new
program. The portion of any new investment in excess of $5,000 made after
January 3, 1995 and additional investments made subsequent to that date are
subject to a 2% sales charge.
<PAGE>
We thought we would structure this report to you
in a Question and Answer format. Questions that individuals have asked us about
The Gabelli ABC Fund include the following:
Question: Where is the guaranty coming from?
Answer: The Guaranty is from State Street Bank and Trust Company. In addition,
The Gabelli organization has pledged collateral to State Street Bank
to make the investor whole. Simply stated, the Gabelli organization is
putting its capital behind the guaranty.
Question: How do you guarantee a return?
Answer: Gabelli Funds has arranged for the Letter of Credit to serve as the
guarantee. Gabelli Funds posts collateral to support the amount of the
Letter of Credit. Fees and expenses associated with developing the
Letter of Credit are assumed by Gabelli Funds.
Question: Are our personal holdings in The Gabelli ABC Fund liquid?
Answer: Like any mutual fund, you may sell your shares on any day at the
current net asset value. However, to maintain the guaranty you must
hold the shares for the entire guaranty period.
Question: What happens if the Gabelli organization makes poor investments?
Answer: This is a mutual fund and functions like a mutual fund. The assets are
invested by the investment advisor and State Street Bank serves as the
custodian. If the market were to drop sharply, and the investments in
the portfolio were to decline shareholders would look to State Street
Bank for the return of their money plus 5%. State Street looks to
Gabelli.
Question: How have we done so far?
The first Performance guaranty period was from May 14, 1993 through
May 13, 1994 during which period the fund grew by 9.8%. During the
second performance guaranty period (January 3, 1994 through December
31, 1994) investors earned 4.74% a the shortfall to bring the total
return to 5%.
Question: How did the Fund pay a $0.91 per share dividend, but only grew by 4.5%
for the year?
Answer: We selectively acquired investments in the equity markets that we
believed would generate positive returns. Our focused selections
performed well while our U.S. Treasury securities generated income to
meet tax requirements and they also the portfolio against market
declines. But as a mutual fund we must pay out virtually all of the
dividend and interest income, net of expenses, as well as realized
capital gains to avoid paying taxes at the Fund level. This payout
represent your investment on January 3, 1994. However certain
securities held in the portfolio declined in market value. This
"unrealized" depreciation during 1994 reduced our annual return to
4.5% for the full year.
<PAGE>
Question: What impact will this dividend have on the 5% guaranty?
Answer: These dividends which were distributed by the Fund and reinvested by
shareholders are counted as part of the guaranteed return.
Question: What were the results for 1994 and what happens in 1995?
Answer: On a $5,000 investment on January 3, 1994, shareholders received the
Letter of Credit proceeds of $12.85. If shareholders remain in the
Fund, they automatically participate in the 1995 performance guaranty
program up to $5,000. Shares owned in excess of $5,000 participate in
the actual performance of the Fund. If they choose to redeem their
shares before December 31, 1995, they would do so at the current net
asset value.
Question: What about the investment strategy ?
Answer: We are still being somewhat cautious. Last year's results were helped
by opportunistic investments, but rising interest rates dampened
returns on our fixed income investments.
Question: What are the risks involved?
Answer: With the standby Letter of Credit, the Performance Guaranty Program
has been designed to minimize risks. The principle risk is the failure
of any party to fulfill its obligation under the contract. State
Street Bank and Trust Company has a high quality credit rating and a
strong reputation.
Question: As for 1995, won't the high expense ratio deter the potential for
gains greater than 5%?
Answer: Because of its small size, the Fund's expense ratio is higher than
larger mutual funds. This will have a direct effect on the Fund's net
returns to shareholders. If the fund size increases through additional
investments or appreciation, the effect of fixed expenses is reduced.
In any event, your returns will be no less than the performance
guaranty amount on covered investments.
Question: Why are you doing this?
Answer: Gabelli Funds started this Fund to attract investors wary of the
securities market and individuals unfamiliar with mutual funds. Low
interest rates caused many to look for higher returns without risk.
This Fund provides an answer to all of these concerns. We wanted to
offer a unique product which differentiates our organization from
other mutual fund groups. This product is an introduction to mutual
fund investing.
Question: What type of fund is it?
Answer: It is a Fund that will utilize various investment techniques to
generate positive returns in various market conditions without
excessive risk of capital. This is a flexible portfolio.
<PAGE>
Question: How will I be paid in the event the Fund does not perform to the
guaranty?
Answer: If we do not achieve our total return of 5%, State Street Bank and
Trust Company will fund your investment account with the difference.
If you elect to redeem the Fund at the end of the guaranty program,
your investment plus proceeds from the Let Credit will be directed to
you either by check or exchanged into The Gabelli U.S. Treasury Money
Market Fund. Alternatively, the proceeds and your original investment
may continue to be invested in the Fund.
Question: Is my principal guaranteed?
Answer: Yes, up to $5,000 for 1995. The Letter of Credit issued by State
Street Bank and Trust Company guaranteed your principal plus a minimum
5% return, if you hold the securities and reinvest your dividends
throughout the guaranty period.
Let's Talk Stocks
The following are stock specifics on selected holdings of our Fund's
investments. Favorable EBITDA prospects do not necessarily translate into higher
stock prices, but they do express a positive trend which we believe will develop
over time.
QVC Inc. (QVCN - $42.125 - NASDAQ) agreed to accept a sweetened $46 per share
offer by Comcast (CMCSA - $15.375 - NASDAQ) and Tele-Communications Inc. (TCOMA
- - $21.75 - NASDAQ) for the 65% of QVCN shares that the two cable giants do not
own. CMCSA and TCOMA have notified the FTC of their intention to consummate the
$46 tender offer at any time after 5pm on February 6, 1995 provided all
conditions have been satisfied. We continue to hold a large position.
Caesars World, Inc. (CAW - $66.75 - NYSE) signed a definitive agreement to be
acquired by ITT Corporation (ITT - $88.625 - NYSE) through a $67.50 cash tender
offer. ITT needs the approval of regulators in Nevada, New Jersey and Canada to
consummate the merger. These approvals are expected by February 1, 1995. ITT is
also addressing potential problems the merger might create with the NBA and the
NHL. (ITT is buying the N.Y. Knicks and the N.Y. Rangers from Viacom.) Their
league policies prohibit franchise owners from having an interest in a
sports-betting operation. (CAW runs the largest sports book in Las Vegas.) ITT
anticipates all issues in this regard will be resolved promptly. The Caesars
World acquisition would be a major boost to ITT's plan to become a forceful
presence in entertainment-related industries.
American Brands, Inc. (AMB - $37.50 - NYSE) is an asset rich company with many
different lines of businesses including Titleist and Pinnacle golf balls, Moen
faucets, Jim Beam bourbon and Acco office products. American Brands also owns
Gallaher, the largest tobacco company in the United Kingdom. American Brands
completed the sale of The Franklin Life Insurance company for $1.17 billion in
January 1995 and sold its domestic tobacco business, American Tobacco, to B.A.T.
for $1 billion in December 1994. We believe these sales are symbolic of
management's commitment to surface shareholder value. American Brands is a
strong cash flow generator and currently pays a healthy $2.00 dividend.
<PAGE>
Time Warner Inc. (Sub. Deb. Cv. 8.75% - 1/10/15 - $94.50 - NYSE) is one of the
largest diversified media and publishing companies in the world with a market
capitalization of over $15 billion. Warner Brothers Studios, the company's
filmed entertainment subsidiary, was ranked number one at the box office for the
third consecutive year. Time Warner is restructuring its business into copyright
and creativity (notably publishing, music and filmed entertainment) on one side
and distribution (mostly cable) on the other.
Genuine Parts Company (GPC - $36.00 - NYSE) is engaged in the distribution of
automotive replacement parts, industrial replacement parts and office products.
GPC is the dominant distributor of automotive replacement parts in the U.S.
through its network of 68 NAPA distribution centers and 6,000 NAPA auto parts
stores. In 1994, GPC maintained its leadership position in the auto aftermarket
by increasing earnings for the 34th consecutive year. In the future we envision
GPC transcending its current distribution channels by offering its products and
repair services on the "information highway" to the home.
Dr Pepper/Seven-Up Companies, Inc. (DPS - $25.625 - NYSE) signed a definitive
agreement to be acquired by Cadbury Schweppes plc (CADBY - $27.00 - NASDAQ) for
$33 per share in cash. CADBY will buy all the DPS shares it doesn't already own
through a $33 cash tender. CADBY currently holds 25.3 million DPS shares or
22.7% of fully diluted common stock. CADBY will finance the offer through a 1
for 7 rights issue to raise 395 million pounds. CADBY also proposes to provide
an enhanced scrip dividend alternative. The total value of the rights issue and
the scrip dividend, if accepted in full, is 528 million pounds. CADBY will be
the third largest soft-drink player in the U.S. and the acquisition would give
it added muscle as it faces growing competition from Coke and Pepsi. The tender
expires on March 1, 1995. We are establishing a position in DPS.
Fleet Mortgage Inc. (FLG - $19.875 - NYSE) announced that Fleet Financial Group
(FLT - $32.375 - NYSE) formally began a cash tender offer to purchase the 19% of
FLG that it doesn't already own for $20 a share. A majority of FLG's board of
directors have recommended that shareholders accept the offer. However, FLG's
two unaffiliated directors recommended that shareholders not tender to the
offer. They viewed the $20 offer as being inadequate from a financial
standpoint. FLT has substantial support from FLG's minority shareholder base.
Keefe Managers Inc., FLG's largest minority shareholder, supports the proposed
offer. The offer is conditioned upon a majority of the minority shareholders
tendering their shares. We are establishing a position in FLG.
Pet Inc. (PT - $19.75 - NYSE), which was spun off from the Whitman Corporation
on April 1, 1991, is a leading niche prepared food company. Old El Paso Mexican
food and Progresso Soups, Pet's fastest growing products, are the bright stars
in the company's product line. Other Pet products include Van de Kamp's frozen
seafood, B&M Baked Beans, Ac'cent Brand flavor enhancer and Pet Evaporated Milk.
Grand Metropolitan recently began a $26 cash tender offer for Pet. We are
establishing a position in PT.
<PAGE>
Gabelli U.S. Treasury Money Market Fund
Many of our shareholders have become acquainted with The Gabelli U.S.
Treasury Money Market Fund. The Fund provides checkwriting and exchange
privileges. The Fund's expenses are capped at .30% of average net assets, making
it one of the most attractive U.S. Treasury-only money market funds. With
dividends that are exempt from state and local income taxes in all states, the
Fund is an excellent vehicle in which to store idle cash. Call us at
1-800-GABELLI (1-800-422-3554) for a prospectus which gives a more complete
description of the Fund, including management fees and expenses. Read it
carefully before you invest or send money.
In Conclusion
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's NASDAQ symbol is GABCX. Please call us during the
day for further information. We thank you for your confidence in our investing
abilities and wish you a productive and financially rewarding 1995.
Sincerely,
/s/ Mario J. Gabelli, CFA
President and
Chief Investment Officer
February 1, 1995
Top Ten Holdings
December 31, 1994
-----------------
QVC, Inc. British Sky Broadcasting
Time Warner Inc. Contel Cellular, Inc.
Caesars World , Inc. United Inns, Inc.
Nortek, Inc. Genuine Parts, Inc.
American Cyanamid Company American Brands, Inc.
<PAGE>
The Gabelli ABC Fund
Portfolio of Investments -- December 31, 1994
===============================================================================
Principal
Amount Market
or Shares Cost Value
- ------------ ---- ------
COMMON STOCKS--37.60%
AUTOMOTIVE: PARTS AND ACCESSORIES - 1.48%
6,000 Genuine Parts Company ............ $ 216,300 $ 216,000
10,000 R B & W Corporation+ ............. 65,000 80,000
3,000 Wynn's International, Inc. ....... 63,150 66,000
---------- ----------
344,450 362,000
---------- ----------
AVIATION: PARTS AND ACCESSORIES - 0.10%
6,000 Hi-Shear Industries Inc.+ 31,300 23,250
---------- ----------
BROADCASTING - 2.95%
30,000 British Sky Broadcasting ADR+ .... 721,500 720,000
---------- ----------
CABLE - 13.81%
80,000 QVC, Inc.+ ....................... 3,524,344 3,370,000
---------- ----------
CONSUMER PRODUCTS - 1.27%
5,000 American Brands, Inc ............. 188,375 187,500
9,500 Carter-Wallace, Inc. ............. 96,444 123,500
---------- ----------
284,819 311,000
---------- ----------
DIVERSIFIED INDUSTRIAL - 0.70%
20,000 Katy Industries, Inc. ............ 499,425 170,000
---------- ----------
ENERGY - 0.29%
5,100 Southwest Gas Corporation ........ 83,130 72,038
---------- ----------
HEALTH CARE - 4.47%
10,000 American Cyanamid
Company ........................ 963,000 1,010,000
4,000 Marion Merell Dow Inc. ........... 68,200 81,500
---------- ----------
1,031,200 1,091,500
---------- ----------
HOTELS/CASINOS - 8.96%
25,000 Ceasars World, Inc.+ ............. 1,643,750 1,668,750
800 Hilton Hotels Corporation ........ 55,927 53,900
18,800 United Inns, Inc.+ ............... 466,240 465,300
---------- ----------
2,165,917 2,187,950
---------- ----------
INDUSTRIAL EQUIPMENT & SUPPLIES - 1.09%
9,000 Ampco-Pittsburgh
Corporation .................... 62,350 88,875
5,000 Nortek Inc.+ ..................... 54,000 59,375
2,200 Sequa Corporation Cl. A+ ......... 64,203 57,200
1,456 Tenneco Inc. ..................... 60,575 61,869
---------- ----------
241,128 267,319
---------- ----------
WIRELESS COMMUNICATIONS - 2.48%
2,000 Cellular Communications
Inc. Cl. A+ .................... 92,000 107,000
20,000 Contel Cellular, Inc.+ ........... 482,895 498,750
---------- ----------
574,895 605,750
---------- ----------
TOTAL COMMON STOCKS .............. 9,502,108 9,180,807
---------- ----------
CONVERTIBLE CORPORATE BONDS - 8.72%
BUSINESS SERVICES - 0.19%
$48,000 Trans-Lux Corp. Sub.
Deb. Cv. 9.00%, 12/01/05 ....... 49,334 47,040
---------- ----------
ENTERTAINMENT - 7.74%
2,000,000 Time Warner Inc. Sub. Deb.
Cv. 8.75%, 01/10/15 ............ 2,116,605 1,890,000
---------- ----------
FOOD AND BEVERAGE - 0.37%
100,000 Flagstar Companies, Inc.
Sub. Deb. Cv.
10.00%, 11/01/14 ............... 96,550 70,500
<PAGE>
The Gabelli ABC Fund
Portfolio of Investments -- December 31, 1994 (Continued)
===============================================================================
Principal
Amount Market
or Shares Cost Value
- ------------ ---- ------
$20,000 Ingles Markets Incorporated
Sub. Deb. Cv. 10.00%,
10/15/08 ....................... $ 20,949 $ 21,200
---------- ----------
117,499 91,700
---------- ----------
INDUSTRIAL EQUIPMENT & SUPPLIES - 0.42%
100,000 Ketema Inc. Sub. Deb. Cv.
8.00%, 11/15/03 ................ 98,440 101,750
---------- ----------
TOTAL CONVERTIBLE
CORPORATE BONDS ................ 2,381,878 2,130,490
---------- ----------
CONVERTIBLE PREFERRED STOCKS--0.19%
INDUSTRIAL EQUIPMENT & SUPPLIES - 0.19%
500 Navistar International
Corporation $6.00 Cv.
Pfd. Ser. G .................... 27,274 25,750
1,500 NYCOR, Inc.
$1.70 Cv. Pfd. ................. 26,250 20,625
---------- ----------
53,524 46,375
---------- ----------
TOTAL CONVERTIBLE
PREFERRED STOCKS ............... 53,524 46,375
---------- ----------
CORPORATE BONDS--5.87%
FOOD AND BEVERAGE - 0.34%
$100,000 Flagstar Companies Inc.
11.25%, 11/01/04 ............... 100,817 83,250
---------- ----------
INDUSTRIAL EQUIPMENT & SUPPLIES - 5.53%
1,500,000 Nortek Inc. 9.875%,
03/01/04 ....................... 1,488,828 1,350,000
---------- ----------
TOTAL
CORPORATE BONDS ................ 1,589,645 1,433,250
---------- ----------
U.S. GOVERNMENT OBLIGATIONS - 56.06%
13,750,000 U.S. Treasury Bills,
4.82% to 5.20%
Due 01/12/95 to
02/16/95 ....................... 13,689,924 13,689,924
----------- ----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS .................... 13,689,924 13,689,924
----------- ----------
TOTAL
INVESTMENTS - 108.44% .......... $27,217,079* 26,480,846
=========== ==========
Liabilities, in excess of
Other Assets - (8.44%) ......... (2,062,123)
NET ASSETS - 100.00%
(2,552,007 shares
outstanding) ................. $24,418,723
===========
Net Asset Value and
Redemption Price
Per Share ...................... $9.57
=====
MAXIMUM PUBLIC OFFERING PRICE PER SHARE
($9.57 / .980 Based on
a maximum sales
charge of 2.0%) .............. $9.77
=====
- ---------------------------
+Non-income producing security
*For Federal income tax purposes:
Aggregate cost ..................... $27,217,079
===========
Gross unrealized appreciation ...... $ 197,816
Gross unrealized depreciation ...... (934,049)
-----------
Net unrealized depreciation ...... $ (736,233)
===========
<PAGE>
The Gabelli ABC Fund
Statement of Assets and Liabilities
December 31, 1994
=======================================================
Assets:
Investments in securities, at value
(Cost $27,217,079)............... $26,480,846
Receivable for investments sold....... 188,102
Accrued interest receivable........... 99,087
Receivable for Fund shares sold....... 900
Dividends receivable.................. 5,055
Other assets.......................... 619
Deferred organizational expenses ..... 82,083
-----------
Total assets .................... 26,856,692
-----------
Liabilities:
Payable for investments purchased..... 662,981
Payable to Advisor.................... 4,347
Payable to Custodian.................. 4,978
Payable for Fund shares redeemed...... 1,670,725
Payable for distribution fees......... 5,510
Other accrued expenses................ 89,428
-----------
Total Liabilities ............... 2,437,969
-----------
Net assets (applicable to 2,552,007
shares outstanding)............ $24,418,723
===========
Net asset value and redemption
price per share ............... $9.57
===========
Maximum offering price per share
($9.57/.98 based on a maximum
sales charge of 2%) ........... $9.77
===========
Net Assets Consist of:
Capital Stock, at par value........... $ 2,552
Additional paid-in-capital............ 25,165,685
Distributions in excess of net realized
gain on investments............. (4,830)
Distributions in excess of net investment
income........................... (7,964)
Net unrealized depreciation on investments
and assets and liabilities denominated
in foreign currencies............ (736,720)
-----------
Net assets ...................... $24,418,723
===========
Statement of Operations
Year Ended December 31, 1994
Investment Income:
Interest.............................. $ 929,268
Dividends (net of foreign tax of
$8,702) ............................ 460,942
---------
Total Income..................... 1,390,210
---------
Expenses:
Investment advisory fee .............. 275,496
Transfer & shareholder servicing agent 115,475
Distribution expenses................. 68,879
Legal and audit fees.................. 38,500
Amortization of organization expenses. 30,568
Printing and mailing.................. 24,363
Registration fees..................... 23,927
Custodian fees and expenses........... 16,451
Directors fees and expenses........... 7,827
Miscellaneous......................... 14,285
---------
Total expenses before expenses
assumed by Advisor............ 615,771
Expenses assumed by Advisor........... (39,102)
---------
Total expenses................... 576,669
---------
Investment income - net............... 813,541
---------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain on investments and
foreign currency transactions.... 1,573,688
Net realized loss on futures.......... (103,150)
Net change in unrealized appreciation. (1,064,232)
---------
Net gain on investments.......... 406,306
---------
Net increase in net assets resulting
from operations ................ $1,219,847
=========
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
May 14, 1993
Year Ended (Commencement of Operations)
December 31, 1994 through December 31, 1993
----------------- --------------------------
<S> <C> <C>
Increase in Net Assets:
Investment income - net ......................... $ 813,541 $ 232,387
Net realized gain on investments and
foreign currency transactions ................... 1,573,688 429,728
Net realized loss on futures ..................... (103,150) 22,140
Change in unrealized appreciation - net .......... (1,064,232) 327,512
---------- ----------
Net increase in net assets resulting from
operations .................................... 1,219,847 1,011,767
----------- ----------
Distributions to shareholders from:
Net investment income............................ (820,606) (233,286)
Net realized gain................................ (1,445,219) (482,017)
----------- ----------
(2,265,825) (715,303)
----------- ----------
Share transactions - net ......................... 16,617,988 8,450,249
----------- ----------
Net increase in net assets ...................... 15,572,010 8,746,713
Net Assets:
Beginning of period .............................. 8,846,713 100,000
----------- ----------
End of period .................................... $24,418,723 $8,846,713
=========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
The Gabelli ABC Fund
Notes to Financial Statements
===============================================================================
1. Significant Accounting Policies. The Gabelli ABC Fund, Inc. (the "Fund") is a
series of Gabelli Investor Funds, Inc. (the "Corporation"), incorporated in
Maryland on October 30, 1992. The Fund is an open-end, non-diversified
management investment company. The following is a summary of significant
accounting policies followed by the Fund:
Security Valuation. Portfolio securities listed or traded on the New York or
American Stock Exchanges or quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("NASDAQ") are valued at the last sale price
on that exchange (if there were no sales that day, the security is valued at the
average of the bid and asked price). All other portfolio securities for which
NASDAQ market quotations are readily available are valued at the latest average
of the bid and asked prices. When market quotations are not readily available,
portfolio securities are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the
Corporation's Directors. Short-term debt securities with remaining maturities of
60 days or fewer are valued at amortized cost, unless the Directors 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 Directors. Options are
valued at the last sale price on the exchange on which they are listed, unless
no sales of such options have taken place that day, in which case they will be
valued at the mean between their closing bid and asked prices.
Foreign Currency Transactions. The books and records of the Fund are maintained
in U.S. dollars as follows:
(i) market value of investment securities and other assets and liabilities are
recorded at the exchange rate on the valuation date.
(ii) purchases and sales of investment securities, income and expenses are
recorded at the exchange rate prevailing on the respective date of such
transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuation
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Security Transactions and Investment Income. Security transactions are accounted
for on the dates the securities are purchased or sold (the trade dates), with
realized gain and loss on investments determined by using specific
identification as the cost method. Interest income (including amortization of
premium and discount) is recorded as earned. Dividend income and dividend and
capital gain distributions to shareholders are recorded on the ex-dividend date.
Federal Income Taxes. The Fund has qualified and intends to continue to qualify
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986 and distribute all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
2. Capital Stock Transactions. The Articles of Incorporation, dated October 30,
1992, permit the Fund to issue one billion shares (par value $0.001).
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
May 14, 1993
(commencement of
Year Ended operations)
December 31, 1994 through December 31, 1993
---------------------- -------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Beginning balance 882,061 $8,550,249 10,000 $ 100,000
--------- ---------- --------- ----------
Shares sold 2,151,014 21,534,845 2,795,924 29,148,214
Shares issued upon
reinvestment of dividends 236,769 2,254,043 71,087 713,000
Shares redeemed (717,837) (7,170,900) (1,994,950) (21,410,965)
--------- ---------- --------- ----------
Net increase 1,669,946 16,617,988 872,061 8,450,249
--------- ---------- --------- ----------
Ending balance 2,552,007 $25,168,237 $ 882,061 $8,550,249
========= =========== ========= ==========
</TABLE>
3. Purchases and Sales of Securities. Purchases and sales of securities for the
year ended December 31, 1994, other than U.S. government obligations and
short-term securities, aggregated $64,813,599 and $58,025,928, respectively.
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. Such investments will only be made
if they are, in the opinion of Fund management, economically appropriate to the
reduction of risks involved in the management of the Fund. 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 recorded as
unrealized gains or losses. The Fund recognizes a realized gain or loss when the
contract is closed. The net unrealized appreciation/depreciation is shown in the
financial statements.
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. During the year ended December 31, 1994, the Fund
sold short futures contracts aggregating $18,323,858, closed short futures
contracts aggregating $18,448,535, opened long futures contracts aggregating
$3,455,750 and closed long futures contracts aggregating $3,477,276.
Options. The Fund may purchase or write call or put options on securities or
indices. During 1994, the Fund utilized call options to hedge the value of the
Fund's portfolio. As a writer of call options, the Fund receives a premium at
the outset and then bears the market risk of unfavorable changes in the price of
the financial instrument underlying the option. The Fund would incur a loss if
the price of the underlying financial instrument, increases above the strike
price between the date the option is written and the date on which the option is
terminated if the option is not covered. The Fund would realize a gain, to the
extent of the premiums, if the option is not exercised.
Transactions in written call options for the year ended December 31, 1994:
Number
of Contracts Premium
------------ -------
Contracts outstanding at beginning of year 15 $ 8,407
Options written 250 85,809
Options closed (45) (21,335)
Options exercised (220) (72,881)
---- --------
Options outstanding at December 31, 1994 0 $ 0
==== ========
As a purchaser of call options, the Fund pays a premium for the right to buy
from the seller of the call option the underlying security at a specified price.
The seller of the call has the obligation to sell the underlying security upon
exercise at the exercise price.
Transactions in purchased call options for the year ended December 31, 1994:
Number
of Contracts Premium
------------ -------
Contracts outstanding at beginning of year 0 $ 0
Options purchased 15 4,436
Options closed (15) (4,436)
--- ------
Options outstanding at December 31, 1994 0 $ 0
=== ======
<PAGE>
Short-selling. The Fund is engaged in short-selling, which obligates the Fund to
replace the security borrowed by purchasing the security at current market
value. The Fund would incur a loss if the price of the security increases
between the date of the short sale and the date on which the Fund replaces the
borrowed security. The Fund would realize a gain if the price of the security
declines between those dates. Until the Fund replaces the borrowed security, the
Fund will maintain daily, a segregated account with cash and/or U.S. Government
securities sufficient to cover its short position.
Repurchase Agreements. The Fund may enter into repurchase agreements with
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 the credit guidelines established by the Directors. 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, and 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 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.
4. Investment Advisory Contract. The Fund employs Gabelli Funds, Inc. (the
"Advisor") to provide a continuous investment program for the Fund's portfolio,
provide all facilities and personnel, including officers, required for its
administrative management, and to pay the compensation of all officers and
Directors of the Fund who are affiliated with the Advisor. As compensation for
the services rendered and related expenses borne by the Advisor, the Fund pays
the Advisor a fee, computed and accrued daily and payable monthly, equal to
1.00% per annum of the Fund's average daily net assets. The Advisor is obligated
to reimburse the Fund in the event the Fund's expenses exceed the most
restrictive expense ratio limitation imposed by any state, currently believed to
be 2.5% of the first $30 million of the Fund's average daily net assets
(excluding taxes, interest, distribution expenses and extraordinary items). The
Advisor voluntarily agreed to assume certain expenses of the Fund for the year
ended December 31, 1994, in the amount of $39,102.
5. Organization Expenses. The organization expenses of the Fund are being
amortized on a straight-line basis over a period of 60 months. The Advisor has
agreed that in the event that any of the initial 10,000 shares it acquired on
April 23, 1993 are redeemed during the period of amortization of the Fund's
organization expenses, the redemption proceeds will be reduced by any such
unamortized organization expenses in the same proportion as the number of
initial shares being redeemed bears to the number of initial shares outstanding
at the time of redemption.
6. Distribution Plan. The Fund's Board of Directors has adopted a distribution
plan (the "Plan") under Section 12(b) of the Investment Company Act of 1940 and
Rule 12b-1 thereunder. For the year ended December 31, 1994, the Fund has
incurred distribution costs of $68,879, or 0.25% of average net assets, the
annual limitation under the Plan, payable to Gabelli & Company, Inc., an
affiliate of the Advisor. The Board of Directors has approved that Distribution
costs incurred by Gabelli & Company, Inc., totalling $190,406 which are in
excess of the .25% limitation may be recovered from the Fund in future periods,
subject to such limitation.
7. Transactions with Affiliates. The Fund paid brokerage commissions during the
year ended December 31, 1994 of $11,397 to Gabelli & Company, Inc. For the year
ended December 31, 1994, Gabelli & Company, Inc. has informed the Fund that it
received $7,537 from investors in commissions (sales charges and underwriting
fees) on sales of Fund shares.
<PAGE>
The Gabelli ABC Fund
Financial Highlights
===============================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
May 14, 1993
Year Ended (Commencement of Operations)
December 31, 1994 through December 31, 1993
----------------- ---------------------------
<S> <C> <C>
Net asset value, beginning of period $ 10.03 $ 10.00
------- -------
Net investment income 0.33 0.29
Net realized and unrealized gain on investments 0.12 0.62
------- -------
Total from investment operations 0.45 0.91
------ ------- -------
Less Distributions:
Dividends from net investment income (0.33) (0.29)
Distributions from net realized gain on investments (0.58) (0.59)
------ ------- -------
Total distributions (0.91) (0.88)
------ ------- -------
Net asset value, end of period $ 9.57 $ 10.03
====== ======= =======
Total Return (not reflecting sales load) 4.49% 9.10%
Ratios to average net assets/supplemental data:
Net assets, end of Period (in thousands) $24,419 $ 8,847
Ratio of operating expenses to average net assets+ 2.09% 2.75%*
Ratio of net investment income to average net assets+ 2.95% 2.96%*
Portfolio Turnover Rate 489.54% 232.33%
</TABLE>
- --------
* Annualized.
+ Net of expenses assumed by the Advisor equivalent to 0.14% and 0.82%,
respectively.
<PAGE>
The Gabelli ABC Fund
Report of Grant Thornton LLP, Independent Auditors
===============================================================================
Shareholders and Board of Directors
The Gabelli ABC Fund
We have audited the accompanying statement of assets and liabilities of The
Gabelli ABC Fund, including the portfolio of investments as of December 31,
1994, and the related statement of operations for the year then ended, the
statement of changes in net assets and financial highlights for the year then
ended and for the period from May 14, 1993 (commencement of operations) through
December 31, 1993. 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
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material aspects, the financial position of The
Gabelli ABC Fund at December 31, 1994, the results of its operations, the
changes in its net assets and the financial highlights for the periods indicated
above, in conformity with generally accepted accounting principles.
/s/ Grant Thorton LLP
New York, New York
February 5, 1995
1994 TAX NOTICE TO SHAREHOLDERS (unaudited)
On December 30, 1994 the Fund paid to shareholders an ordinary income
dividend (comprised of net investment income and short-term capital gains) of
$0.910 per share. For 1994, 16.5% of such 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 1994
which was derived from U.S. Treasury securities was 19.39%. Such income is
exempt from state and local income tax in most 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.
The Gabelli ABC Fund did not meet this strict requirement in 1994.
