[PHOTO]
THE GABELLI
A B C
FUND
ANNUAL REPORT
DECEMBER 31, 1995
<PAGE>
THE GABELLI ABC FUND
One Corporate Center
Rye, New York 10580-1434
ANNUAL REPORT - 1995
TO OUR SHAREHOLDERS:
The bull market stumbled at year-end 1995 as the Administration and
Congress fought over a balanced budget agreement. However, an early Christmas
gift from the Federal Reserve in the form of a 25 basis point drop in the
federal funds rate helped stocks regain some momentum to end the year at
near-record levels. Investors continued to migrate from technology stocks to
consumer non-durables, seeking safety in the form of more predictable earnings
in 1996. Cyclical stocks staged a comeback with the recognition that the economy
still had some "legs".
INVESTMENT RESULTS (a)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
-----------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1995: Net Asset Value .................. $9.94 $10.14 $10.41 $9.71 $9.71
Total Return ..................... 3.9% 2.0% 2.7% 2.2% 11.2%
- ---------------------------------------------------------------------------------------------------------------------------
1994: Net Asset Value .................. $10.12 $10.11 $10.42 $9.57 $9.57
Total Return ..................... 0.9% (0.1)% 3.1% 0.6% 4.5%
- ---------------------------------------------------------------------------------------------------------------------------
1993: Net Asset Value .................. --- $10.10 $10.63 $10.03 $10.03
Total Return ..................... --- 1.0%(b) 5.2% 2.6% 9.1%(b)
- ---------------------------------------------------------------------------------------------------------------------------
Dividend History
- ----------------------------------------------- ------------------------------------------------------
Average Annual Returns - December 31, 1995 (a) Payment (ex) Date Rate Per Share Reinvestment Price
- ---------------------------------------------- ----------------- -------------- ------------------
1 Year........................... 11.2% December 28, 1995 $0.93 $9.71
........................... 8.9%(c) December 28, 1994 $0.91 $9.52
Life of Fund (b)................. 9.4% December 31, 1993 $0.88 $10.03
........................... 8.6%(c)
- -----------------------------------------------
</TABLE>
(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.
- --------------------------------------------------------------------------------
For the quarter and one year periods ended December 31, 1995, The Gabelli
ABC Fund's net asset value increased 2.2% and 11.2%, respectively, after
adjusting for the $0.93 per share distribution paid on December 28, 1995. The
Fund, which seeks to achieve a positive return in various market environments,
had a total return since inception of 26.8% through December 31, 1995, which
equates to a 9.4% annualized rate of return. During the year, the Fund invested
in several companies subject to a tender offer or merger. The Advisor believed
that these investments provided the Fund with a high annualized rate of return
after considering the acquisition costs without significant downside risk.
<PAGE>
Once again the Fund has exceeded the minimum guaranteed return to investors
of 5% by gaining 11.2% for 1995. The broad market indices advanced strongly for
the year, but investors in the ABCFund were being protected against any market
decline by the Advisor's Performance Guaranty Program. For 1996, the new program
began with an initial net asset value of $9.72 on January 2, 1996.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE GABELLI ABC FUND AND THE S&P 500 INDEX
[The following table represents a graph in the printed piece]
GABELLI ABC FUND S&P 500 INDEX
---------------- -------------
5/14/93 $10,000 $10,000
12/31/95 $12,431* $14,858
* 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.
COMMENTARY
THE GREAT BULL MARKET OF 1995 - A HARD ACT TO FOLLOW
- ----------------------------------------------------
MODEST STRONG LOW DECLINING RISING
ECONOMIC GROWTH + CORPORATE PROFITS + INFLATION + INTEREST RATES = STOCK PRICES
This simple equation drove equity prices to record levels in 1995. Will the
same factors add up to another good year for stocks in 1996? Let's take a fresh
look at all the components of this winning formula.
We are estimating growth in Gross Domestic Product (GDP) of 2.5% to 3% this
year. With lower interest rates in Great Britain, Germany and France as a
stimulant, we see European economies growing at about 2%. As a free market
system continues to evolve in China and the expansion of the middle classes in
more developed Asian countries translates into economic activity, Pacific Rim
economies should regain momentum. In short, we anticipate reasonably good
worldwide economic growth in the year ahead.
On the inflation front, we see little pressure coming from wage increases.
In fact, we are encouraged by the strong stands governments here and abroad are
taking against inflationary wage demands. Even the French, who have
traditionally been at the mercy of public worker unions, are holding the line.
Rising food and fuel prices could, however, result in more inflation than most
investors expect. Lower grain production in the U.S. last year, strong demand
from the Chinese, and crop failures in the former Soviet Union will push food
prices higher. Regarding energy, we are producing less and consuming more. This
will ultimately lead to higher pricing. The potential of political unrest in
Saudi Arabia may be a short-term catalyst for higher fuel prices. We are
estimating that inflation could run as high as 3.5% in the second half of 1996.
2
<PAGE>
If this inflation forecast proves accurate, long-term interest rates will
not stay at the current 6% level. Herein lies the primary threat to the stock
market. The consensus is that, with a soft economy, low inflation, lower
interest rates in Europe, a balanced budget agreement, and a Federal Reserve
Chairman who is up for reappointment in an election year, interest rates are
bound to come down. At current levels, stock and bond valuations reflect this
consensus. With a soft economy coupled with a flat yield curve, we could see
short-term rates come down without long-term rates following. Be reminded that
price/earnings multiples are a function of earnings growth and longer term
interest rates. If earnings growth slows as we anticipate and long rates remain
flat or possibly trend modestly higher, stock multiples are likely to contract.
Flow of funds into the U.S. stock market should continue to be favorable.
Equity mutual funds still enjoy strong cash inflows. If deal activity matches
that of 1995 ($458 billion in the U.S. and $866 billion worldwide), investors
will end up with a pile of cash. In addition, corporate stock buybacks and
rising dividends will buttress stock prices. Some of that money finds its way
into initial public offerings. More will go into non-U.S. investments,
particularly markets which languished in 1995. But much more will be recycled
into a shrinking supply of stock.
Our conclusion from all this conjecture is a somewhat different formula for
the 1996 stock market:
MODEST DECENT LOW SLIGHTLY HIGHER
ECONOMIC GROWTH + CORPORATE PROFITS + INFLATION + INTEREST RATES
A DECENT, BUT MUCH LESS
= INSPIRING STOCK MARKET
THE NET
Speculative bubbles are part of the free market system. In the 1960s, it
was the "nifty fifty" growth stocks. In the 1970s, it was oil, gold, silver, and
the Hong Kong stock market. In the 1980s, it was semiconductors, biotechnology,
and Japanese real estate. Today, it is the Internet. These bubbles are always
very exciting and can be profitable for a time. Unfortunately, most people who
invest in these bubbles end up taking a bath. The Internet is showing signs of
becoming a "similar" speculative frenzy.
This is not to say that the Internet will not be a tremendous growth
business. But, how does the value oriented investor participate? One of the
tenets of value investing is to buy what is, as opposed to what will be. We
believe we have found a way, in the terminology of Graham & Dodd, to buy
"net/nets" on the Internet.
The cable television industry currently has more than 60 million
subscribers in the U.S. and is working feverishly to upgrade systems to offer
telephony services. It is estimated that 25 million of those subscribers also
have personal computers and that 10% of those 25 million people will be Internet
users.
How will they access the Internet? They can do it through telephone line
modems. Or, in the not-too-distant future, through cable modems that will be
more than 100 times faster, since existing cable lines going into the home will
3
<PAGE>
be able to carry much more digital information than telephone lines. At a recent
investment conference, Comcast Corporation (CMCSA - $17.625 - NASDAQ) staged a
horse race between the most commonly used telephone modem and a cable modem
prototype. It was no contest. The list of telecommunications equipment
manufacturers developing cable modems represents a "Who's Who" of the industry,
including: Motorola, Inc. (MOT - $57.00 - NYSE), Hewlett-Packard Co. (HWP -
$83.75 - NYSE), Intel Corporation (INTC - $56.75 - NASDAQ), Zenith Electronics
Corp. (ZE - $6.875 - NYSE), General Instrument Corporation (GIC - $23.375 -
NYSE), and Scientific-Atlanta, Inc. (SFA - $15.00 - NYSE). Rollout of these new
modems is scheduled for mid-1996. We believe personal computer manufacturers
will respond by adapting their machines for cable modem use.
The bottom line is that those dull old cable television stocks are good
"back door" plays on the promising future of the Internet. You don't have to pay
nosebleed multiples to participate. Cable stocks are good values today based on
their existing business. If they can tack on incremental revenues of $25 per
month from those subscribers who want to "Surf the Net", they are an even
greater bargain.
LET'S MAKE A DEAL
We were among the first on Wall Street to proclaim the beginning of the
third great wave of takeovers since World War II. Record setting merger and
acquisition activity, highlighted by a big jump in hostile deals this year
further validated our thesis. In 1995, it was the three Bs - banks, broadcasters
and brokers. In 1996, we believe deal activity will spread to bell operating
companies, telephone companies generally, cable television networks and small
and mid-sized industrial franchises. If we get a lower capital gains rate,
smaller companies in which management has significant ownership will have more
incentive to put out the "For Sale" sign.
THE WAITING GAME
As little as ten years ago, America had the best telecommunications system
in the world by far. Today, we are already behind Great Britain and France, and
in danger of losing ground to other industrialized countries. It is not as a
result of telecommunications technology, in which we remain a world leader.
Rather, it is our antiquated regulatory system which has restrained competition
and productivity in the industry.
As of this writing, the comprehensive telecommunications bill promised to
us by the Clinton Administration and Congress three years ago remains stalled in
committee. Most of the difficult issues seem to be resolved. Presently, the bill
is being held captive to political posturing over whether broadcasters should be
made to pay for high definition television spectrum or simply be given this
spectrum as the FCC had originally planned. Once this issue is resolved, one
fears another will emerge to further delay this essential legislation. The devil
may be in the details here, however, as Washington must eliminate the artificial
barriers preventing the public from getting what they want: better service and
lower prices -- and telecommunications companies from getting what they need: a
set of rules that will allow them to implement competitive strategies for the
upcoming free market free-for-all.
With this cloud of uncertainty still hanging over the telephone/cable
television/broadcast industries, investors are not fully valuing the bright
future of well-managed, financially strong companies in all of these sectors.
4
<PAGE>
BREAKING UP'S NOT HARD TO DO
In our last quarter's letter to you, we talked about "Humpty Dumpty" stocks
and the trend toward surfacing value through the sale and/or spin-off of
businesses. Two of the Fund's larger portfolio holdings, AT&T Corp. (T - $64.75
- - NYSE) and ITT Corporation (ITT - $53.00 - NYSE), have performed quite well
since announcing their divestiture plans. We are now getting some financial
details on the new business structures and have concluded, in both instances,
that the parts remain more valuable than the whole.
AT&T will be breaking up into three publicly traded global businesses:
Communication Services (long distance and wireless); Communications Systems
(telecommunications equipment), and Global Information Solutions (the old NCR).
AT&T Capital Corp. (TCC - $38.25 - NYSE), 86% owned by AT&T, will be sold. The
sum of our Private Market Value (PMV) estimates for the three component
companies is $94 per share today, growing to $165 in 5 years. Estimated trading
values per share (about 70% of PMV), are $64 per share today, growing to $115
within 5 years. The divestiture is expected to be completed in 1996.
ITT has already been broken into three separate publicly traded companies:
the "new" ITT holds the hotel and gaming operations: ITT Industries, Inc. (IIN -
$24.00 - NYSE) consists of the parent's auto parts, pump and valve, and defense
electronics business; and ITT Hartford Group Inc. (HIG - $48.375 - NYSE) holds
the insurance operations. We value the "new" ITT at $55 today, with that value
growing to the mid-$60s next year. We estimate 20% annual earnings growth over
the next 3 to 5 years. We believe IIN is an even better bargain with a PMV of
$40 per share today and a 13% to 15% growth rate going forward. HIG is a slower
growth, interest rate sensitive business. If we mark HIG to its current $48 per
share market value and add our $55 and $40 PMVs for ITT and IIN, respectively,
we see parts worth $143 per share, compared with the old ITT's $118 collective
trading price for the three components.
THE 5% PERFORMANCE GUARANTY PROGRAM FOR 1996
On January 2, 1996, Gabelli Funds, Inc. launched its fourth Performance
Guaranty Program, once again guaranteeing that the value of your principal
investment up to $5,000 would return at least 5% for the one year period through
December 31, 1996. Accounts which participated in the 1995 Performance Guaranty
Program are participating in the new program (up to $5,000) if their investment
was added to or remained in the Fund on January 2, 1996 and is held through
December 31, 1996 with distributions reinvested. There is no sales charge for
investments covered by the new program. The portion of any new investment in
excess of $5,000 made after January 2, 1996 and additional investments made
subsequent to that date are subject to a 2% sales charge.
5
<PAGE>
QUESTIONS & ANSWERS
We thought we would reiterate in this report the questions that individuals
have asked us about The Gabelli ABC Fund.
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
guaranty. 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 sharply, the
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?
Answer: The first performance guaranty period for a 6% guaranteed return 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% and were
paid the shortfall to bring the total return to 5%. For the year
ended December 31, 1995, the Fund increased 11.2%, surpassing the
minimum guaranteed return. The Fund will continue to operate as a
conservative investment fund to achieve positive returns in any
market environment.
QUESTION: WHAT IMPACT WILL DIVIDENDS HAVE ON THE 5% GUARANTY?
Answer: Dividends which are distributed by the Fund and reinvested are
counted as part of the guaranteed return. Participating shareholders
should realize that, although the reinvested dividends increase
their overall cost basis, it is the total value of their holdings
that is being guaranteed. Therefore, shareholders must compare their
initial investment (or initial cost basis) at the start of the
Program to their ending market value at each year end.
6
<PAGE>
QUESTION: WHAT ARE THE RISKS INVOLVED?
Answer: With the standby Letter of Credit, the Performance Guaranty Program
has been designed to minimize risks. The principal 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's size increases through
additional investments of shareholders or appreciation, the per
share 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.
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 Letter of 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: The Letter of Credit issued by State Street Bank and Trust Company
guarantees that the value of your initial principal investment (up
to $5,000) plus a minimum 5% return will be available to you if you
hold the securities and reinvest your dividends throughout the
guaranty period.
7
<PAGE>
LET'S TALK STOCKS
The following are company 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.
CELLULAR COMMUNICATIONS, INC. (COMMA - $49.75 - NASDAQ) provides cellular
services in Michigan and Ohio. In August 1991, COMMA formed a joint venture with
AirTouch Communications Inc., formerly known as PacTel Cellular. To maximize
shareholder value, the joint venture agreement provides for the total buyout, in
stages, of Cellular Communications by AirTouch. The buyout process, called the
mandatory redemption obligation, started in October 1995. At the present time,
AirTouch owns approximately 37% of Cellular Communications.
NORTEK, INC. (NTK - $11.75 - NYSE) is a diversified manufacturer of residential
and commercial building products, including kitchen range hoods, bathroom fans,
shower doors, cabinets and central heating and air conditioning systems. Nortek
operates within three principal product groups: Residential Building Products,
Air Conditioning and Heating Products, and Plumbing Products. A primary
beneficiary of the do-it-yourself and professional replacement, remodeling and
renovation markets, sales growth of continuing businesses has been approximately
10% per year over the last few years. The company returned to profitability in
1994 and is expected to be a strong cash flow generator over the next five
years. In this context, the board has authorized a share repurchase program. We
expect earnings per share to increase from $1.55 in 1996 to $2.75 in 2000 and
believe the stock is undervalued with a PMV of $25 for 1996.
TIME WARNER INC. (SUB. DEB. CV. 8.75% 01/10/15), in a bold and brilliant tactic,
is acquiring Turner Broadcasting System Inc. for $7.5 billion. The acquisition
will make TWX the largest diversified media and publishing company in the world
and will add a wealth of programming to a company already rich in entertainment
content. Time Warner is restructuring into two general areas: copyright and
creativity, which includes publishing, music and filmed entertainment, and
distribution, which is mostly cable. Under the aegis of Gerald M. Levin,
investors can expect significant returns over the rest of the decade.
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. An investment in The
Gabelli U.S. Treasury Money Market Fund is neither insured nor guaranteed by the
U.S. Government. There can be no assurance that the Fund will maintain a stable
$1 per share net asset value. 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.
8
<PAGE>
IN CONCLUSION
1995 was a terrific year for most equity investors. As is usually the case
during big bull markets, growth stocks delivered better returns than those in
the value sector. Looking forward to a less inspiring market in 1996, we believe
value investors will have the opportunity to excel.
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 1996.
Sincerely,
MARIO J. GABELLI, CFA
President and
Chief Investment Officer
January 31, 1996
------------------------------------------------------------
TOP TEN HOLDINGS
DECEMBER 31, 1995
-----------------
GEICO Corp. Time Warner Inc.
Magma Copper Company Nortek, Inc.
Maybelline Inc. Pratt & Lambert, Inc.
Commerce Clearing House, Inc. Cellular Communications, Inc.
CBIIndustries Inc. Hudson General Corporation
--------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
9
<PAGE>
THE GABELLI ABC FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1995
- --------------------------------------------------------------------------------
Principal
Amount Market
or Shares Cost Value
- --------- ---- ------
COMMON STOCKS - 60.31%
AUTOMOTIVE: PARTS AND ACCESSORIES - 0.60%
4,000 Wynn's International, Inc. ............ $ 101,700 $ 118,500
----------- -----------
AVIATION: PARTS AND ACCESSORIES - 0.22%
6,000 Hi-Shear Industries Inc.+ ............. 31,300 43,500
----------- -----------
BROADCASTING - 1.31%
5,500 Outlet Communications, Inc.+ .......... 253,745 259,875
----------- -----------
COMPUTER SOFTWARE AND SERVICES - 0.07%
100 Netscape Communications
Corporation+......... 2,800 13,900
----------- -----------
CONSUMER PRODUCTS - 11.95%
13,000 Carter-Wallace, Inc.................... 136,244 147,875
5,000 Kerr Group, Inc.+...................... 41,188 50,000
60,000 Maybelline Inc......................... 2,185,500 2,175,000
----------- -----------
2,362,932 2,372,875
----------- -----------
DIVERSIFIED INDUSTRIAL - 0.93%
20,000 Katy Industries, Inc................... 499,425 185,000
----------- -----------
ENERGY - 0.50%
5,600 Southwest Gas Corporation ............. 90,718 98,700
----------- -----------
FINANCIAL SERVICES - 18.15%
21,000 Commerce Clearing
House, Inc. - Class A 1,148,172 1,160,250
35,000 GEICO Corp............................. 2,392,250 2,445,625
----------- -----------
3,540,422 3,605,875
----------- -----------
HEALTH CARE - 1.60%
6,000 Genentech, Inc.+....................... 287,150 318,000
----------- -----------
INDUSTRIAL EQUIPMENT AND SUPPLIES - 0.78%
9,000 Ampco-Pittsburgh Corporation 62,350 96,750
5,000 Nortek, Inc.+.......................... 54,000 58,750
----------- -----------
116,350 155,500
----------- -----------
METALS & MINING - 11.23%
80,000 Magma Copper Company................... 2,224,000 2,230,000
----------- -----------
RETAIL - 0.10%
2,000 Burlington Coat Factory
Warehouse Corporation+ .............. 24,600 20,500
----------- -----------
SPECIALTY CHEMICALS - 8.48%
30,000 CBI Industries Inc..................... 983,081 986,250
20,000 Pratt & Lambert, Inc................... 698,500 697,500
----------- -----------
1,681,581 1,683,750
----------- -----------
WIRELESS COMMUNICATIONS - 4.39%
11,500 Cellular Communications,Inc.+ ......... 577,960 572,125
10,000 Pacific Telecom, Inc. (a) ............. 297,400 300,000
----------- -----------
875,360 872,125
----------- -----------
TOTAL COMMON STOCKS ................... 12,092,083 11,978,100
----------- -----------
CONVERTIBLE CORPORATE BONDS - 8.52%
AVIATION PARTS - 2.64%
$500,000 Hudson General Corporation
Sub. Deb. Cv.
7.00%, 7/15/11....................... 504,973 525,000
----------- -----------
BUSINESS SERVICES - 0.50%
94,000 Trans-Lux Corporation Sub. Deb. Cv.
9.00%, 12/01/05...................... 96,135 99,170
----------- -----------
ENTERTAINMENT - 4.86%
$ 932,150 Time Warner Inc. Sub. Deb. Cv.
8.75%, 01/10/15...................... 981,498 965,940
----------- -----------
FOOD AND BEVERAGE - 0.52%
150,000 Flagstar Companies, Inc. Sub. Deb. Cv.
10.00%, 11/01/14..................... 123,089 81,750
20,000 Ingles Markets, Incorporated
Sub. Deb. Cv.
10.00%, 10/15/08..................... 20,913 22,000
------------ -----------
144,002 103,750
----------- -----------
TOTAL CONVERTIBLE
CORPORATE BONDS ..................... 1,726,608 1,693,860
----------- -----------
CONVERTIBLE PREFERRED STOCKS - 1.24%
CABLE - 0.96%
7,000 Cablevision Systems Corporation ....... 175,000 190,750
----------- -----------
FINANCIAL SERVICES - 0.01%
100 Phoenix Duff & Phelps Corp. Pfd. ...... 3,464 2,526
----------- -----------
INDUSTRIAL EQUIPMENT AND SUPPLIES - 0.27%
500 Navistar International Corporation
$6.00 Cv. Pfd. Ser. G ............... 27,275 27,125
1,500 NYCOR, Inc. $1.70 Cv. Pfd. ............ 26,250 25,500
----------- -----------
53,525 52,625
----------- -----------
TOTAL CONVERTIBLE
PREFERRED STOCKS .................... 231,989 245,901
----------- -----------
CORPORATE BONDS - 4.13%
FOOD AND BEVERAGE - 0.36%
$ 100,000 Flagstar Companies, Inc.
11.25%, 11/01/04..................... 100,767 71,500
----------- -----------
INDUSTRIAL EQUIPMENT AND
SUPPLIES - 3.77%
800,000 Nortek, Inc.
9.875%, 03/01/04..................... 794,463 748,000
----------- -----------
TOTAL CORPORATE BONDS ................. 895,230 819,500
----------- -----------
U.S. GOVERNMENT OBLIGATIONS - 35.95%
7,160,000 U.S. Treasury Bills, 4.40% to 5.27%
Due 01/11/96 to 02/22/96 ............ 7,140,097 7,140,097
----------- -----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS ......................... 7,140,097 7,140,097
----------- -----------
TOTAL INVESTMENTS - 110.15% ........... $22,086,007* 21,877,458
=========== ===========
LIABILITIES IN EXCESS OF
OTHER ASSETS, - 10.15% ............. (2,015,244)
-----------
NET ASSETS - 100.00%
(2,046,495 shares outstanding) ...... $19,862,214
===========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE ..... ............... $9.71
=====
MAXIMUM PUBLIC OFFERING PRICE PER SHARE
($9.71/.980 Based on a maximum
sales charge of 2.0%) ............... $9.91
=====
- ----------------------
(a) Security fair valued as determined by Board of Directors.
+ Non-income producing security.
* For Federal income tax purposes:
Aggregate cost.................. ...................... $22,086,007
===========
Gross unrealized appreciation ......................... $ 250,676
Gross unrealized depreciation ......................... (459,225)
-----------
Net unrealized depreciation ....................... $ (208,549)
===========
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE GABELLI ABC FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
========================================================
ASSETS:
Investments in securities, at value
(Cost $22,086,007)............... $21,877,458
Receivable for Fund shares sold...... 2,142
Receivable for investments sold...... 115,450
Accrued interest receivable.......... 68,584
Dividends receivable................. 5,601
Deferred organizational expenses .... 57,662
-----------
TOTAL ASSETS .................... 22,126,897
-----------
LIABILITIES:
Payable to Advisor................... 17,733
Payable to Custodian................. 698,440
Payable for distribution fees........ 8,756
Payable for investments purchased.... 1,419,441
Payable for Fund shares redeemed..... 95,828
Other accrued expenses............... 24,485
-----------
TOTAL LIABILITIES ............... 2,264,683
-----------
NET ASSETS (applicable to
2,046,495 shares outstanding).. $19,862,214
===========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE .............. $9.71
===========
MAXIMUM OFFERING PRICE PER SHARE
($9.71/.98 BASED ON A MAXIMUM
SALES CHARGE OF 2%) ........... $9.91
===========
NET ASSETS CONSIST OF:
Capital Stock, at par value.......... $ 2,047
Additional paid-in-capital........... 20,056,778
Distributions in excess of net
investment income................ (10,662)
Accumulated net realized gain on
investments and foreign
currency transactions............ 23,087
Net unrealized depreciation on
investmentsand assets and
liabilities denominated
in foreign currencies............ (209,036)
-----------
NET ASSETS ...................... $19,862,214
===========
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
========================================================
INVESTMENT INCOME:
Interest............................. $ 655,098
Dividends ........................... 220,915
-----------
Total Income..................... 876,013
-----------
EXPENSES:
Investment advisory fees ........... 223,130
Transfer & shareholder
servicing agent ................. 74,893
Distribution expenses................ 55,816
Legal and audit fees................. 30,200
Amortization of
organization expenses ........... 24,421
Printing and mailing................. 20,313
Custodian fees and expenses.......... 17,658
Registration fees.................... 11,079
Directors' fees and expenses......... 8,000
Miscellaneous........................ 3,618
----------
Total Expenses................... 469,128
----------
Investment Income--Net .............. 406,885
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments and
foreign currency transactions.... 1,476,151
Net realized loss on futures......... (44,165)
Net change in unrealized
appreciation .................... 527,684
----------
Net gain on investments.............. 1,959,670
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................ $2,366,555
==========
STATEMENT OF CHANGES IN NET ASSETS
================================================================================
Year Ended Year Ended
December 31, December 31,
1995 1994
------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
Investment income--Net .................... $ 406,885 $ 813,541
Net realized gain on investments and
foreign currency transactions ........... 1,476,151 1,573,688
Net realized loss on futures .............. (44,165) (103,150)
Net change in unrealized appreciation ..... 527,684 (1,064,232)
------------ ------------
Net increase in net assets
resulting from operations ............... 2,366,555 1,219,847
------------ ------------
Distributions to shareholders from:
Net investment income ................... (406,885) (813,541)
Net realized gain ....................... (1,404,069) (1,445,219)
Distributions in excess of
net investment income ................. (2,698) (7,065)
------------ ------------
(1,813,652) (2,265,825)
------------ ------------
Share transactions - net .................. (5,109,412) 16,617,988
------------ ------------
Net increase (decrease)in net assets... (4,556,509) 15,572,010
NET ASSETS:
Beginning of period ........................ 24,418,723 8,846,713
------------ ------------
End of period ..................... $19,862,214 $ 24,418,723
============ ============
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE GABELLI ABC FUND
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES. The objective of The Gabelli ABC Fund (the
"Fund") is to achieve total returns that are attractive to investors in various
market conditions without excessive risk of capital loss. 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 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:
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:
12
<PAGE>
THE GABELLI ABC FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Shares sold ................... ................ 276,536 $ 2,700,619 2,151,014 $21,534,845
Shares issued upon reinvestment of dividends ... 181,381 1,761,175 236,769 2,254,043
Shares redeemed ............... ................ (963,429) (9,571,206) (717,837) (7,170,900)
-------- ----------- --------- -----------
Net increase (decrease) ..................... (505,512) $(5,109,412) 1,669,946 $16,617,988
======== =========== ========= ===========
</TABLE>
3. PURCHASES AND SALES OF SECURITIES. Purchases and sales of securities for the
year ended December 31, 1995, other than U.S. government obligations and
short-term securities, aggregated $80,727,392 and $80,811,205, 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, 1995, the Fund
sold short futures contracts aggregating $2,430,000 and closed short futures
contracts aggregating $2,474,000.
SHORT-SELLING. The Fund is authorized to engage 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,
to 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
13
<PAGE>
THE GABELLI ABC FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
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). For
the year ended December 31, 1995, no such reimbursement was required.
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, 1995, the Fund has
incurred distribution costs of $55,816, 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., totaling $230,739 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, 1995 of $25,448 to Gabelli & Company, Inc. and its
affiliates. For the year ended December 31, 1995, Gabelli & Company, Inc. has
informed the Fund that it received $2,467 from investors in commissions (sales
charges and underwriting fees) on sales of Fund shares.
FINANCIAL HIGHLIGHTS
================================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
MAY 14, 1993
YEAR ENDED DECEMBER 31, (COMMENCEMENT OF OPERATIONS)
--------------------------
1995 1994 THROUGH DECEMBER 31, 1993
--------- --------- ----------------------------
<S> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ................... $ 9.57 $10.03 $ 10.00
------- ------ -------
Net investment income .................................. 0.21 0.33 0.29
Net realized and unrealized gain on investments ........ 0.86 0.12 0.62
------- ------ -------
Total from investment operations ....................... 1.07 0.45 0.91
------- ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income ................... (0.21) (0.33) (0.29)
Distributions from net realized gain on investments .... (0.72) (0.58) (0.59)
------- ------ -------
Total distributions .................................... (0.93) (0.91) (0.88)
------- ------ -------
NET ASSET VALUE, END OF PERIOD ......................... $ 9.71 $ 9.57 $ 10.03
======= ====== =======
Total Return (not reflecting sales load) (a) ........... 11.18% 4.49% 9.10%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ............... $19,862 $24,419 $ 8,847
Ratio of operating expenses to average net assets+ ..... 2.10% 2.09% 2.75%*
Ratio of net investment income to average net assets+ .. 1.83% 2.95% 2.96%*
Portfolio turnover rate ................................ 508% 490% 232%
</TABLE>
- ------
(a)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. Total return for the period of less than
one year is not annualized.
*Annualized.
+Net of expenses assumed by the Advisor equivalent to 0.00%, 0.14% and 0.82%,
respectively.
14
<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
including the portfolios of investments, of The Gabelli ABC Fund (a series of
Gabelli Investor Funds, Inc.), as of December 31, 1995, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and financial
highlights for each of the two years in the period 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, 1995 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 respects, the financial position of The
Gabelli ABC Fund as of December 31, 1995, and 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 Thornton LLP
New York, New York
February 16, 1996
- --------------------------------------------------------------------------------
1995 TAX NOTICE TO SHAREHOLDERS (UNAUDITED)
For the fiscal year ended December 31, 1995, the Fund paid to shareholders, on
December 28, 1995, ordinary income dividends (comprised of net investment income
and short-term capital gains) totalling $0.93 per share. For fiscal year 1995,
8.7% of the ordinary income dividends qualifies for the dividend received
deduction available to corporations.
U.S. GOVERNMENT INCOME:
The percentage of the ordinary income dividends paid by the Fund during fiscal
1995 which was derived from U.S. Treasury securities was 9.35%. Such income is
exempt from state and local income 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.
The Gabelli ABC Fund did not meet this strict requirement in 1995. Due to the
diversity in state and local tax law, it is recommended that you consult your
personal tax advisor for the applicability of the information provided as to
your own situation.
- --------------------------------------------------------------------------------
15
<PAGE>
THE GABELLI ABC FUND
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
E:MAIL: [email protected]
HTTP://WWW.GABELLI.COM
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
BOARD OF DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN AND CHIEF
INVESTMENT OFFICER
GABELLI FUNDS, INC.
Anthony J. Colavita
ATTORNEY-AT-LAW
ANTHONY J. COLAVITA, P.C.
Vincent D. Enright
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
James E. McKee
SECRETARY
Bruce N. Alpert
VICE PRESIDENT
AND TREASURER
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
