GABELLI INVESTOR FUNDS INC
485BPOS, 1996-04-29
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     As filed with the Securities and Exchange Commission on April 26, 1996
    
                                                Securities Act File No. 33-54016
                                        Investment Company Act File No. 811-7326
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM N-1A

   
           REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933         |X|
                         Pre-Effective Amendment No.                       |_|
                       Post-Effective Amendment No. 5                      |X|
    
                                     and/or
   
       REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     |X|
                               Amendment No. 7                             |X|
    

                        (Check appropriate box or boxes)

                                   ----------

                          GABELLI INVESTOR FUNDS, INC.
               (Exact Name of Registrant as Specified in Charter)

                 One Corporate Center, Rye, New York 10580-1434
                     (Address of Principal Executive Office)
                  Registrant's Telephone Number (800) 422-3554

                                 Bruce N. Alpert
                               Gabelli Funds, Inc.
                 One Corporate Center, Rye, New York 10580-1434
                     (Name and Address of Agent for Service)

                                   ----------

                                   Copies to:
      James E. McKee, Esq.                         Richard T. Prins, Esq.
       Gabelli Funds, Inc.                  Skadden, Arps, Slate, Meagher & Flom
      One Corporate Center                            919 Third Avenue
    Rye, New York 10580-1434                      New York, New York 10022
                                                        (212) 735-2000

                                   ----------

   
     It is proposed that this filing will be effective (check appropriate box):
            |_| immediately upon filing pursuant to paragraph (b); or
            |X| on May 1, 1996 pursuant to paragraph (b); or
            |_| 60 days after filing pursuant to paragraph (a); or
            |_| 75 days after filing pursuant to paragraph (a)(2)
            |_| on (date) pursuant to paragraph (a) of Rule 485
    

     If appropriate, check the following box:
            |_| this post-effective  amendment  designates a new  effective date
                for a previously filed post-effective amendment.

                                   ----------

   
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933, as amended, pursuant to Section (c)(1) of Rule 24f-2
under the Investment Company Act of 1940, as amended.  The Rule 24f-2 Notice for
the Registrant for the fiscal year ended December 31, 1995 was filed on February
28, 1996.
    

================================================================================
<PAGE>

                          GABELLI INVESTOR FUNDS, INC.

                                    FORM N-1A

   
                              CROSS REFERENCE SHEET
                           (as required by Rule 481(a))
    


<TABLE>
<CAPTION>
Part A
Item No.                                                   Prospectus Heading
- --------                                                   ------------------
<S>                                                        <C>
 1.   Cover Page........................................   Cover Page
 2.   Synopsis..........................................   Prospectus Summary; Table of Fees and Expenses for the Fund
 3.   Condensed Financial Information...................   Financial Highlights
   
 4.   General Description of Registrant.................   Cover Page; Investment Objective and Policies and Related Risk Factors;
                                                           General Information
    
 5.   Management of the Fund............................   Management of the Fund; Investment Objective and Policies; Risk Factors;
                                                           General Information
 5(a) Management's Discussion of the Fund
      Performance.......................................   Not Applicable
 6.   Capital Stock and Other Securities................   Management of the Fund; Dividends, Distributions and Taxes; General
                                                           Information
 7.   Purchase of Securities Being Offered..............   Management of the Fund; Distribution Plan; Purchase of Shares;
                                                           Retirement Plans
 8.   Redemption or Repurchase..........................   Redemption of Shares
 9.   Pending Legal Proceedings.........................   Not applicable

Part B                                                     Location in Statement of
Item No.                                                   Additional Information
- --------                                                   ------------------------
10.   Cover Page........................................   Cover Page
11.   Table of Contents.................................   Table of Contents
12.   General Information and History...................   Notes to Financial Statements; See Prospectus -- "General Information"
13.   Investment Objective and Policies.................   Investments; Investment Restrictions; See Prospectus -- "Investment
                                                           Objective and Policies and Related Risk Factors"
14.   Management of the Fund............................   The Adviser; The Distributor; Directors and Officers; See Prospectus--
                                                           "Management of the Fund" 
15.   Control Persons and Principal Holders
      of Securities.....................................   Management of the Fund; See Prospectus -- "Management of the Fund" 
16.   Investment Advisory and Other Services............   The Adviser; The Distributor; Directors and Officers; See Prospectus--
                                                           "Management of the Fund"
17.   Brokerage Allocation and Other Practices..........   Portfolio Transactions and Brokerage
18.   Capital Stock and Other Securities................   Dividends, Distributions and Taxes; Notes to Financial Statements; See
                                                           Prospectus-- "Dividends, Distributions and Taxes" and "General 
                                                           Information" 
19.   Purchase, Redemption and Pricing of
      Securities Being Offered..........................   Purchase and Redemption of Shares
20.   Tax Status........................................   Dividends, Distributions and Taxes; See Prospectus -- "Dividends,
                                                           Distributions and Taxes"
21.   Underwriters......................................   Purchase and Redemption of Shares; See Prospectus -- "Management of the
                                                           Fund" 
22.   Calculation of Performance Data...................   Investment Performance Information
23.   Financial Statements..............................   Report of Independent Auditors; Financial Statements
</TABLE>

Part C
- ------

Information required to be included in Part C is set forth after the appropriate
item, so numbered, in Part C to this Registration Statement.

                                       (i)
<PAGE>

                              The Gabelli ABC Fund

                              One Corporate Center
                            Rye, New York 10580-1434
                    Telephone: 1-800-GABELLI (1-800-422-3554)

================================================================================


   
PROSPECTUS
May 1, 1996

The Gabelli ABC Fund's (the "Fund")  investment  objective  is to achieve  total
returns that are  attractive to investors in various market  conditions  without
excessive  risk of  capital  loss.  The Fund  seeks to  achieve  its  investment
objective through  investment in securities that the Fund's  investment  adviser
believes provide attractive opportunities for appreciation or investment income.
The Fund is an open-end  non-diversified series of Gabelli Investor Funds, Inc.,
a Maryland corporation registered as a management investment company.

The  Fund  is  currently  available  only  to  existing  shareholders  who  have
participated  in the  Performance  Guaranty  Program,  which is described in the
Prospectus.  Investments are subject to a 2% sales charge,  which was waived for
investments  up to $5,000 (the  "covered  amount").  Any amounts  invested by an
investor in excess of the $5,000 covered amount were not eligible to participate
in the  Performance  Guaranty  Program.  The Fund has a distribution  plan which
permits  it to pay up to .25% per  year of its  average  daily  net  assets  for
marketing and shareholder services and expenses.
    

This  Prospectus  sets forth  concisely the  information a prospective  investor
should know before investing in the Fund.

   
A  Statement  of  Additional  Information  dated May 1,  1996  (the  "Additional
Statement") containing additional information about the Fund has been filed with
the  Securities  and  Exchange  Commission  (the "SEC") and is  incorporated  by
reference into this  Prospectus and may be received free of charge by writing or
calling  Gabelli & Company,  Inc. at the address or  telephone  number set forth
above.
    



                       ----------------------------------
                       This Prospectus should be retained
                       by investors for future reference.
                       ----------------------------------




- --------------------------------------------------------------------------------
THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED  BY THE SECURITIES AND
EXCHANGE  COMMISSION OR ANY STATE  SECURITIES  COMMISSION NOR HAS THE SECURITIES
AND  EXCHANGE  COMMISSION  OR ANY STATE  SECURITIES  COMMISSION  PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>

                           TABLE OF FEES AND EXPENSES

Shareholder Transaction Expenses:

Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) (a) ...........................           2%
Maximum Sales Load Imposed on Reinvested Dividends ................        None
Deferred Sales Load ...............................................        None
Redemption Fees ...................................................        None
Exchange Fees (b) .................................................        None

Annual Fund Operating Expenses
(as a percentage of average net assets):

   
Management Fees ...................................................        1.00%
12b-1 Expenses (c) ................................................         .25
Other Expenses (d) ................................................         .85%
                                                                           ----
    Total Operating Expenses ......................................        2.10%
                                                                           ====

Example:                                         1 year 3 years 5 years 10 years
- --------                                         ------ ------- ------- --------
If you pay the maximum sales load, you
 would pay the following expenses on
 a $1,000 investment assuming a 5%
 annual return (a) ...........................    41.09   86.50  136.56   285.32
If you do not pay a sales load, you
 would pay the following expenses on a
 $1,000 investment assuming a 5%
 annual return (a) ...........................    21.53   67.86  118.94   270.74
- --------------------------------------------------------------------------------
The amounts listed in this example should not be considered as representative of
future expenses and actual expenses may be greater or less than those indicated.
Moreover,  while the  example  assumes a 5% annual  return,  the  Fund's  actual
performance  will vary and may result in an actual  return  greater or less than
5%. The amounts shown are based on the annualized  expenses  incurred during the
fiscal year ended December 31, 1995.
- --------------------------------------------------------------------------------
    
The foregoing  table is to assist you in  understanding  the various  direct and
indirect costs and expenses that an investor in the Fund would bear.

- -----------
(a)  The Fund does not impose a sales  charge on  purchases  qualifying  for the
     Performance Guaranty Program.
(b)  Upon  exchange of shares of the Fund to another  Gabelli  fund with a sales
     charge, credit will be given for any sales charge previously paid.
   
(c)  Long-term  shareholders  may pay more than the economic  equivalent  of the
     maximum  front-end  sales  charge  permitted  by the rules of the  National
     Association of Securities Dealers.
(d)  Such  expenses  include  custodian  and  transfer  agency  fees  and  other
     customary Fund expenses.

Management's Discussion and Analysis of the Fund's performance during the fiscal
year  ended  December  31,  1995 is  included  in the  Fund's  Annual  Report to
Shareholders  dated December 31, 1995. The Fund's Annual Report to  Shareholders
may be obtained  upon request and without  charge by writing or calling the Fund
at the address or telephone number listed on the Prospectus cover.
    



                                                                               3
<PAGE>

FINANCIAL HIGHLIGHTS

   
The  following  table  has been  audited  by  Grant  Thornton  LLP,  independent
accountants,   whose  unqualified  report  thereon  appears  in  the  Additional
Statement.  This  information  should be read in conjunction  with the financial
statements which are included in the Additional Statement of selected data for a
share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
                                                               1995              1994         1993(a)
                                                              -------          --------       -------
<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) (b).............      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%       232.33%
</TABLE>
- --------------
*    Annualized.
+    Net of expenses  assumed by the Adviser  equivalent  to 0.14% and 0.82% for
     1994 and 1995, respectively.
(a)  From May 14, 1993 (Commencement of Operations) through December 31, 1993.
(b)  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.
    

INVESTMENT OBJECTIVE AND POLICIES AND RELATED RISK FACTORS

The Fund's investment  objective is to achieve total returns that are attractive
to investors in various  market  conditions  without  excessive  risk of capital
loss.  The Fund  will seek to  achieve  this  objective  through  investment  in
securities  that the  Adviser  believes  provide  attractive  opportunities  for
appreciation  or investment  income.  The Fund is not restricted as to the types
and quantities of securities it may buy except as described below.

In selecting  securities for investment,  the Adviser normally will consider the
following  factors,  among  others:  (1) the Adviser's  own  evaluations  of the
private market value of the underlying  assets and business of the company;  (2)
the interest or dividend income  generated by the securities;  (3) the potential
for capital  appreciation  of the  securities;  (4) the prices of the securities
relative to other comparable securities; (5) whether the securities are entitled
to the  benefits  of  sinking  funds or  other  protective  conditions;  (6) the
existence of any  anti-dilution  protections or guarantees of the security;  and
(7) the  diversification  of the Fund's  portfolio as to issuers.  The Adviser's
investment  philosophy with respect to equity  securities  hinges on identifying
assets that are selling in the public market at a discount to the private market
value, which the Adviser defines as the value informed purchasers are willing to
pay to acquire assets with similar  characteristics.  The Adviser also evaluates
the issuers' free cash flow and long-term earnings 



4
<PAGE>

trends.  Finally,  the Adviser looks for a catalyst:  something in the company's
industry  or  indigenous  to the  company or country  itself  that will  surface
additional value.

The Fund may invest without limit in common stock, preferred stock,  convertible
securities,  depository receipts, bonds, notes and other debt obligations of any
maturity,  mortgage-backed and asset-backed  securities,  warrants,  options and
futures  contracts on  securities  and  securities  indices,  and  securities of
companies in  bankruptcy or  reorganization.  Such  securities  may be issued by
domestic or foreign  corporations  or other types of  entities,  governments  or
agencies or instrumentalities of governments or supranational agencies. There is
no minimum rating or credit quality of fixed income securities in which the Fund
may invest. The Fund may also utilize other investment  strategies such as short
selling,  buying  when-issued  securities,  entering  into forward  commitments,
buying  securities  of  unseasoned  companies  and  engaging in various  hedging
strategies such as the use of futures and options and repurchase agreements, and
foreign currency transactions.

   
The Fund may invest up to 25% of its assets in fixed income securities rated, at
the time of investment, lower than BBB by Standard & Poor's Rating Group ("S&P")
or  Baa  by  Moody's  Investors  Services,  Inc.  ("Moody's"),  or  unrated  but
determined by the investment adviser to be of equivalent quality.  The Fund does
not  expect  to  invest  in  excess  of 10% of its  assets  in such  securities.
Securities rated below BBB or Baa are typically  referred to as "junk bonds" and
have speculative characteristics.
    

The Fund may invest  without  limit in  securities  for which a tender  offer or
exchange  offer has been made or announced  and in  securities  of companies for
which  a  merger,  consolidation,  liquidation  or  similar  proposal  has  been
announced. The Fund also may invest up to 10% of its assets in options and up to
5% of its assets in warrants to buy securities, with no more than 2% invested in
unlisted  warrants.  The Fund may invest up to 10% of its  assets in  securities
issued by real estate investment  trusts.  The Fund may also invest up to 10% of
its assets in securities issued by other investment companies.

The Fund may invest in repurchase  agreements  with respect to any securities it
may own.  Repurchase  agreements are considered loans to the  counterparty,  and
will be fully  collateralized at all times with liquid high grade securities and
will only be entered into with financial  institutions  approved by the Board of
Directors.

The Fund may also lend securities to dealers or others and may borrow from banks
for temporary or emergency purposes or to satisfy redemption requests in amounts
not in excess of 15% of the Fund's  total  assets,  with such  borrowing  not to
exceed  5% of the  Fund's  total  assets  for  purposes  other  than  satisfying
redemption  requests.  The Fund will not  purchase  securities  when  borrowings
exceed 5%.

The  Fund  may  invest  up to  10% of  its  assets  in  securities  with  resale
restrictions  or  illiquid  securities  as to which  market  quotations  are not
readily available.

See the Additional  Statement for more  information  about these  securities and
investment practices.

LIMITED PERFORMANCE GUARANTY PROGRAM OF THE FUND

   
The Performance  Guaranty  Program is designed to ensure that an investor in the
Fund will  earn at least 5% on the  portion  of his  investment  covered  by the
Program  during the year.  The  Program  seeks to achieve  this goal  through an
irrevocable  collateralized Standby Letter of Credit issued by the Bank in favor
of any of the  Corporation's  Directors  for the benefit of each  investor  that
participates in the Program. The Letter of Credit provides that if an investor's
investment  covered by the Program has a net asset value at December 
    

                                       5
<PAGE>

   
31, 1996, less than 105% of the net asset value of such investment on January 2,
1996, the Bank will pay the entire shortfall to such investor. The amount of any
one investment eligible to participate in the Performance  Guaranty Program (the
"covered amount") was limited to $5,000. The Program was offered on a first-come
first-served  basis,  applied only to investments made as of January 2, 1996 and
only if the investor  reinvests all distributions and does not redeem any of his
covered shares during the guaranty period. 
    

The following examples  illustrate the operation of the Program.  If an investor
purchased  1,000 shares at $10.00 per share for $10,000 on January 2, 1996,  500
shares  (with  an  initial  net  asset  value of  $5,000)  will be  eligible  to
participate in the Program and the balance will not. If during the calendar year
1996 the net asset value per share of the Fund  (including  reinvestment  of any
distributions)  increases by 10%,  the investor  will not be entitled to receive
any payment on the Letter of Credit. If, on the other hand, such net asset value
per share  decreases by 5%, the  investor  will be entitled to a payment of $500
because the return on the $5,000  covered amount was 10% short of the minimum 5%
return,  ($5,000 x 10% = $500).  The investor would not receive any payment with
respect to the additional  $5,000  invested that was not covered by the Program.
In addition,  if during the course of the one year guaranty  period the investor
failed to reinvest any  distributions  or redeemed any of the 500 shares covered
by the Program,  or any shares  purchased with  distributions on the 500 shares,
the investor would be ineligible to receive any part of the $500 payment.

If the net asset value of the total number of covered  shares or the  collateral
posted by the Adviser or any combination  thereof declines by more than 15% from
the initial net asset value of the covered  shares and the Adviser fails to post
additional  collateral  equal to at least the amount of the excess decline or if
the Adviser violates certain  covenants (such as pledging its assets or becoming
bankrupt), the Bank will have the right to terminate the Letter of Credit before
the end of the  Performance  Guaranty  Period and pay out the entire  shortfall.
This is the difference  between the guaranteed amount and the net asset value of
the  covered  shares next  determined  after the Bank  terminates  the Letter of
Credit.  The  Adviser  will post only high  quality  securities  with low market
volatility as  collateral  for the Letter of Credit and believes that the events
required  for early  termination  are highly  unlikely  to occur.  In  addition,
however, unless a stockholder  participating in the Performance Guaranty Program
has  affirmatively  chosen  to  retain  his  investment  in  the  Fund  in  such
circumstances,  the  application  provides that his covered  investment  will be
redeemed  on the early  termination  date of the Letter of  Credit.  In this way
investors  can be assured of  receiving  the entire  amount even in the unlikely
event that the Letter of Credit is terminated early.

No person may  participate in the Program  through more than one account (except
that spouses can each participate in a separate account and in a joint account).

   
The Adviser has arranged an irrevocable  collateralized standby Letter of Credit
issued by the Bank. See Appendix A for summary financial  information related to
the  Bank  and its  credit  rating,  which  is AA by S&P and Aa2 by  Moody's  on
long-term deposits. The Letter of Credit is an obligation of the Bank and not of
the Fund or the Adviser.  The Letter of Credit is a separate  security  from the
shares of the Fund and is  exempt  from  registration  with the  Securities  and
Exchange  Commission.  The Letter of Credit is payable  upon  presentation  of a
Drawing  Certificate  by any member of the Fund's Board of Directors,  acting as
agent  on  behalf  of  the  participants.  The  Letter  of  Credit  contains  no
restrictions  on the Adviser's  management of the Fund's  assets.  The Letter of
Credit  provides that any  assignment by 
    



6
<PAGE>

the Bank of its obligations under the Letter of Credit will not relieve the Bank
of any of its obligations under the Letter of Credit.  The form of the Letter of
Credit  has  been  filed  with  the  SEC  as an  exhibit  to  the  Corporation's
registration  statement.  Pursuant to a  Reimbursement  Agreement,  the Bank can
collect any amounts  paid under the Letter of Credit from the Adviser out of the
collateral posted by the Adviser or directly from the Adviser.

In the  unlikely  event  that the  Bank  were to  become  insolvent  during  the
Performance  Guaranty  Program  period,  the Bank's  receiver  would be required
either to affirm or  disaffirm  the Letter of Credit.  If the  receiver  were to
affirm  the  Letter of  Credit,  the  Bank's  insolvency  would not  affect  its
performance.  If the  receiver  were to  disaffirm  the  Letter of  Credit,  the
directors  of the  Corporation  would become  general  creditors of the Bank and
might  not be able to  collect  the full  amount of any  performance  shortfall.
However,  in that event the Adviser would receive its  collateral  back from the
Bank and would seek to provide a substitute  Letter of Credit or make comparable
arrangements.  During any interim  period and if the Adviser were unable to make
alternative  arrangements,  investors  participating in the Performance Guaranty
Program would not be entitled to collect any shortfall in the Fund's performance
from any person other than the Bank, whose performance would be in doubt.

The  Letter of Credit is not an asset of the Fund.  Its  existence  will have no
impact on the Fund's net asset value or  investment  performance.  All  expenses
related to arranging the Letter of Credit will be borne by the Adviser. The fees
paid to affiliates of the Adviser have not been  increased to compensate for the
risk and expense of the Letter of Credit and are set at rates  substantially the
same as other funds advised by the Adviser.  At its option the Adviser may renew
the program on such terms and conditions as it deems  appropriate and if it does
so will make an  announcement  at least 30 days  prior to the  expiration  date.
There can be no assurance  that the program will  continue or that if continued,
it will be in the same form.

Related Risks

A particular  risk of the Fund is that the guaranty  feature of the  Performance
Guaranty Programs could cause the Adviser to manage the Fund more conservatively
than would  otherwise  be the case in an effort to avoid  losses to the  Adviser
that would occur under the  Adviser's  agreement to  reimburse  the Bank for any
payments  made by the Bank under the Letter of Credit.  The Adviser will seek to
manage the Fund without regard to this potential conflict of interest.  However,
investors  should  understand  that the Fund has a more  conservative  objective
than, for example,  a growth fund. The Adviser  expects that, in accordance with
the Fund's  investment  objective,  it will  invest the Fund's  assets in a more
conservative  manner than it would in a small  capitalization  growth fund,  for
example,  and may utilize  fixed income  securities  and hedging  strategies  to
reduce the risk of capital loss to a greater extent than it does in other equity
funds  managed  by the  Adviser.  As a result,  the Fund's  total  return is not
expected to be as high as equity funds in periods of significant appreciation in
the equity markets.

The Adviser  understands and  shareholders  should be aware that the Fund may be
susceptible to greater than normal  redemptions of shares should the Performance
Guaranty  Programs  not be renewed.  However,  the Adviser  does not expect such
higher levels of redemption as the Fund will still be managed in accordance with
the  same  investment  objective  and  policies  that  originally  made the Fund
attractive to investors who participated in the Performance Guaranty Programs.

All securities  investments are subject to risks. The equity securities in which
the Fund may invest are  generally  subordinated  to the claims of creditors


                                                                               7
<PAGE>

and market prices are subject to the  performance  of the issuer,  its financial
health and market perceptions. The value of securities of an issuer engaged in a
tender offer,  restructuring or exchange offer may decline  substantially if the
transaction fails to occur. Ratings of debt securities generally are intended to
reflect  the rating  agency's  analysis  of the  strength  of the issuer and the
likelihood of timely  payment of principal  and  interest.  Because the Fund may
invest in lower rated or unrated  securities,  it bears a substantially  greater
risk of loss of the  purchase  price  as a  result  of  bankruptcy,  default  or
reorganization  of the issuer than funds that own higher  rated debt  securities
and it is more dependent upon the adviser's  evaluations of the security and the
issuer. Many of these lower rated securities are considered speculative and thus
the Fund should not be considered to be a balanced investment but rather only as
a component of an investment  program.  The market values of lower quality fixed
income  securities  tend to be less sensitive to changes in prevailing  interest
rates and more  sensitive  to  individual  corporate  developments  and economic
conditions than higher rated  securities.  The secondary  market for lower rated
securities is generally not as liquid as that for higher rated securities, which
may adversely affect the Fund's liquidity or net asset valuation process.

Mortgage  backed  securities  may  be  more  volatile  than  other  fixed-income
securities  and are  subject to  prepayment  risk,  which can result in the Fund
failing  to recoup  all of its  investment  or  achieving  lower  than  expected
returns.  With respect to short  sales,  if a security  sold short  increases in
value the Fund could incur additional  costs in covering its obligation  greater
than any income otherwise obtained or could lose the opportunity for gain.

Repurchase  agreements  have  the  risk  that  collateral  may not be able to be
disposed  of at a  desirable  price,  delays  as a result of  bankruptcy  of the
counterparty or  encumbrances of collateral or restrictions on its  disposition.
Lending of securities  can result in a failure to deliver the original  security
by  the  borrower,  and  similar  risks  with  respect  to  disposition  of  the
collateral. When issued and delayed delivery securities transactions and forward
commitments  involve  potential  loss  to the  Fund if the  counterparty  to the
transaction  fails to perform.  Hedging  transactions  also have  certain  risks
including  imperfect  market  correlations,  dependence  on  the  credit  of the
counterparty,  possible  inability  to enter into  offsetting  transactions  and
market  fluctuations  that can result in the Fund being in a worse position than
if the hedging had not  occurred.  Currency  transactions  also include the risk
securities  losses could be magnified by changes in the value of the currency in
which a security is denominated  relative to the U.S. dollar.  While the Adviser
may try to hedge such risks,  entering into hedging  transactions  can result in
even greater losses. The Adviser will attempt to manage these risks so that such
strategies and investments  benefit the Fund, but no assurance can be given that
they will be successfully managed.

Disposition  of illiquid  securities  often takes more time than for more liquid
securities and may result in higher  selling  expenses and may not be able to be
made at desirable prices.

The  Fund's   investments  in  foreign  securities  involve  certain  risks  not
ordinarily  associated  with  investments  in  securities  of domestic  issuers,
including  fluctuations in foreign exchange rates, future political and economic
developments,  and the possible imposition of exchange controls or other foreign
governmental  laws  or  restrictions.  In  addition,  with  respect  to  certain
countries,  there is the possibility of  expropriation  of assets,  confiscatory
taxation, political or social instability or diplomatic developments which could
adversely affect investments in those countries.

There may be less publicly  available  information  about a foreign company than
about a U.S. com-



8
<PAGE>

pany,  and   accounting,   auditing  and  financial   reporting   standards  and
requirements  may not be  comparable.  Securities of many foreign  companies are
less liquid and their prices more  volatile than  securities of comparable  U.S.
companies.  Transaction  costs of investing in non-U.S.  securities  markets are
generally higher than in the U.S. There is generally less government supervision
and  regulation of exchanges,  brokers and issuers than there is in the U.S. The
Fund might have greater  difficulty taking  appropriate legal action in non-U.S.
courts.

Dividend and interest income from non-U.S.  securities will generally be subject
to  withholding  taxes by the country in which the issuer is located and may not
be recoverable by the Fund or the investor.

These risks are more fully described in the Additional Statement.

MANAGEMENT OF THE FUND

   
The Corporation's  Board of Directors (who, with its officers,  are described in
the Additional  Statement) has overall  responsibility for the management of the
Fund. The Board of Directors  decides upon matters of general policy and reviews
the actions of Gabelli & Company,  Inc.  (the  "Distributor")  and the  Adviser.
Pursuant to an Investment  Advisory  Contract with the  Corporation on behalf of
the Fund,  the  Adviser  under the  supervision  of the  Corporation's  Board of
Directors,  provides a continuous  investment  program for the Fund's portfolio;
provides  investment  research  and makes and executes  recommendations  for the
purchase and sale of securities;  provides  facilities  and  personnel,  and the
exercise of all voting and other rights  appertaining  thereto  required for the
Fund's administrative  management,  supervises the performance of administrative
and  professional  services  provided by others and pays the compensation of the
Administrator and all officers and directors of the Fund who are its affiliates.
Mario J. Gabelli, Portfolio Manager, is primarily responsible for the day-to-day
management of The Gabelli ABC Fund. Mr. Gabelli is Chairman, President and Chief
Executive Officer of the Adviser since its organization in 1980. As compensation
for its services and the related  expenses  borne by the Adviser,  the Fund pays
the Adviser a fee,  computed  daily and  payable  monthly,  equal,  on an annual
basis,  to 1.00% of the Fund's  average  daily net assets,  which is higher than
that paid by most mutual funds. The Adviser is located at One Corporate  Center,
Rye, New York 10580-1434.

The  Adviser  was formed in 1980 and as of March 31,  1996,  acts as  investment
adviser to the following investment companies with aggregate assets in excess of
$4.3 billion:

                                                     Net Assets
                                                       3/31/96
                                                   -------------
Open-end investment companies:                     (in millions)
Gabelli Asset Fund                                    $1,130
Gabelli Growth Fund                                      581
Gabelli Value Fund Inc.                                  512
Gabelli Small Cap Growth Fund                            229
Gabelli Equity Income Fund                                57
Gabelli ABC Fund                                          25
Gabelli Global Telecommunications Fund                   124
Gabelli Global Interactive Couch Potato(R) Fund           37
Gabelli Global Convertible Securities Fund                16
Gabelli Gold Fund, Inc.                                   20
Gabelli U.S. Treasury Money Market Fund                  274
Gabelli International Growth Fund, Inc.                    4
Gabelli Capital Asset Fund                                35

Closed-end investment companies:
Gabelli Convertible Securities Fund, Inc.                 91
Gabelli Equity Trust Inc.                              1,054
Gabelli Global Multimedia Trust Inc.                      94

The  Distributor of the Fund for the sale of its shares is an indirect  majority
owned subsidiary of the Adviser.  GAMCO Investors,  Inc.  ("GAMCO"),  a majority
owned  subsidiary of the Adviser,  acts as investment  adviser for  individuals,
pension  trusts,  profit  sharing trusts and  endowments.  As of March 31, 1996,
GAMCO had aggregate assets in excess of $5.1 billion under its management. Teton
Advisers  LLC, an affiliate of the Adviser,
    


                                                                               9
<PAGE>

   
acts as investment adviser of the Westwood Funds with assets under management in
excess of $50 million as of March 31, 1996. Mr. Mario J. Gabelli may be deemed a
"controlling  person" of the  Adviser  and the  Distributor  on the basis of his
ownership of stock of the Adviser.
    

In addition to the fees of the Adviser,  the Fund is responsible for the payment
of all its other expenses  incurred in the operation of the Fund, which include,
among other things, expenses for legal and independent auditor's services, costs
of printing all materials sent to shareholders, charges of State Street Bank and
Trust  Company  (the  "Custodian",  "Transfer  Agent" and  "Dividend  Disbursing
Agent") and any other persons hired by the Fund,  securities  registration fees,
fees and expenses of unaffiliated  directors,  accounting and printing costs for
reports and similar  materials sent to  shareholders,  membership  fees in trade
organizations,  fidelity  bond  and  liability  coverage  for the  Corporation's
directors, officers and employees,  interest, brokerage and other trading costs,
taxes,  expenses  of  qualifying  the Fund for  sale in  various  jurisdictions,
expense of the Fund's  distribution  plan adopted under Rule 12b-1,  expenses of
personnel  performing  shareholder  servicing  functions,  litigation  and other
extraordinary or non-recurring  expenses and other expenses  properly payable by
the Fund.

The  Additional  Statement  contains  further  information  about the Investment
Advisory  Contract  including a more  complete  description  of the advisory and
expense arrangements, and administrative provisions.

   
The Adviser has entered  into an  Administration  Contract  with Furman Selz LLC
(the  "Administrator")  pursuant  to which the  Administrator  provides  certain
administrative  services  necessary for the Fund's  operations.  These  services
include the  preparation  and  distribution  of  materials  for  meetings of the
Corporation's  Board of Directors,  compliance  testing of Fund  activities  and
assistance in the preparation of proxy  statements,  reports to shareholders and
other  documentation.  The Adviser pays the  Administrator  a monthly fee at the
annual rate of .10% of the average net assets of the Fund (with a minimum annual
fee of $40,000 and subject to reduction to .075% on assets of the Gabelli  Funds
under its  administration  in excess of $350 million up to $600 million and .06%
in excess of $600 million) which,  together with the services to be rendered are
subject to  negotiation  between the parties and both  parties  retain the right
unilaterally to terminate the arrangement on not less than 60 days' notice.
    

The  Administrator  has its principal  office at 230 Park Avenue,  New York, New
York 10169.

DISTRIBUTION PLAN

The Board of Directors of the  Corporation has approved on behalf of the Fund as
being in the best interests of the Fund and its shareholders a Distribution Plan
which authorizes payments by the Fund in connection with the distribution of its
shares  at an  annual  rate,  as  determined  from  time to time by the Board of
Directors, of up to .25% of the Fund's average daily net assets. Payments may be
made in subsequent years for expenses incurred in prior years. The potential for
such  subsequent  payments  is a  contingent  liability  for  which no amount is
currently  being recorded  because the Fund does not have a reasonable  basis on
which to  conclude  that the Board of  Directors  will  approve  such  payments.
Interest, carrying or other financing charges on unreimbursed amounts could also
be considered a  distribution  expense if the Board so  determined  and would in
such  event also  potentially  be subject  to  carryover  to a future  year upon
specific approval by the Board.

Payments may be made by the Fund under the Distribution  Plan for the purpose of
financing any activity primarily intended to result in the sale of shares of the
Fund as determined by the Board of Directors.  Such activities typically include
advertising;  compensation  for  sales  and sales



10
<PAGE>

marketing  activities of the  Distributor  and other banks,  broker-dealers  and
service providers;  shareholder account servicing;  production and dissemination
of prospectus and sales and marketing  materials;  and capital or other expenses
of associated equipment,  rent, salaries,  bonuses, interest and other overhead.
To the  extent  any  activity  is one  which  the Fund  may  finance  without  a
Distribution  Plan,  the Fund may also make  payments to finance  such  activity
outside of the Plan and not be subject to its limitations.

The Plan was  implemented  by written  agreements  between  the Fund  and/or the
Distributor and each person (including the Distributor) to which payments may be
made. Administration of the Plan is regulated by Rule 12b-1 under the Investment
Company Act of 1940 (the "Act"),  which includes  requirements that the Board of
Directors  receive and review at least quarterly  reports  concerning the nature
and  qualification  of expenses for which  payments are made,  that the Board of
Directors approve all agreements  implementing the Plan and that the Plan may be
continued  from year to year only if the Board of  Directors  concludes at least
annually that continuation of the Plan is likely to benefit shareholders.

The  Board  of  Directors  has  initially  implemented  the Plan by  having  the
Corporation   enter  into  an  agreement   with  the   Distributor   authorizing
reimbursement of expenses  (including  overhead) incurred by the Distributor and
its  affiliates  up to the .25%  rate  authorized  by the Plan for  distribution
activities  of the types listed above.  To the extent any of these  payments are
based on  allocations  by the  Distributor,  the Fund  may be  considered  to be
participating in joint  distribution  activities with other funds distributed by
the Distributor. Any such allocations would be subject to approval by the Fund's
non-interested Directors and would be based on such factors as the net assets of
each Fund, the number of shareholder inquiries and similar pertinent criteria.

PURCHASE OF SHARES

   
On or prior to January 2, 1996  investors were eligible to reserve a spot in the
Performance Guaranty Program by (1) sending in an application requesting that an
investment for a specified  amount be made in the Fund on January 2, 1996 at the
net  asset  value  on that  day  and (2)  sending  a check  or bank  wire in the
requisite  amount to arrive on or before  January 2, 1996.  Money received early
was invested in The Gabelli U.S.  Treasury  Money Market Fund and all such money
plus accrued dividends were exchanged on January 2, 1996 for shares of the Fund.
Accrued  dividends on principal  amounts exchanged up to $5,000 were not subject
to the 2% sales  charge.  The Fund's net asset value is available  daily through
the  Wall  Street  Journal  under  the  Gabelli  Funds  listing  or  by  calling
1-800-GABELLI (1-800-422-3554). Shares of the Fund may currently be purchased by
shareholders  at the  public  offering  price  per  share  (which  includes  any
applicable sales charge) next determined after receipt of an order by the Fund's
Distributor or transfer agent in proper form with accompanying  check, bank wire
or other guaranteed payment arrangements  satisfactory to the Fund.  Investments
are subject to a 2% sales load. Investments that were eligible to participate in
the Performance  Guaranty Program (i.e.,  $5,000 or less) were sold at net asset
value  without a sales load and  investments  not covered by the Program  (i.e.,
more than $5,000 excluding  dividends on The Gabelli U.S.  Treasury Money Market
Fund) were subject to a 2% sales load.  Although most shareholders  elect not to
receive stock  certificates,  certificates for whole shares only can be obtained
on specific  written request to the Transfer  Agent.  The Letter of Credit is an
obligation of the Bank and not of the Fund or the Adviser.  The Letter of Credit
is a  separate  security  from  the  shares  of  the  Fund  and is  exempt  from
registration with the Securities and Exchange Commission.
    



                                                                              11
<PAGE>

   
Shares of the Fund may be purchased by shareholders who are participating in one
of the Performance  Guaranty  Programs  through share holder agents that are not
affiliated with the Fund or the Distributor. There is no sales or service charge
imposed  by the Fund  other than as  described,  but  agents who do not  receive
distribution  payments or sales  charges may impose a charge to the investor for
their  services.  Such fees may vary among  agents,  and such  agents may impose
higher initial or subsequent  investment  requirements than those established by
the Fund.  Services  provided by agents may  include  allowing  the  investor to
establish a margin  account  and to borrow on the value of the Fund's  shares in
that account.  It is the responsibility of the shareholder's  agent to establish
procedures  which would  assure that any purchase  order  received by it will be
received by the Distributor before the time when the price applicable to the buy
order expires.
    

Prospectuses,   sales  material  and  applications  may  be  obtained  from  the
Distributor.  The Fund  and its  Distributor  reserve  the  right in their  sole
discretion  (1) to suspend the  offerings of the Fund's shares and (2) to reject
purchase orders when, in the judgment of the Fund's  management,  such rejection
is in the best interest of the Fund.

To invest, send a completed subscription order form to:

                                The Gabelli Funds
                                  P.O. Box 8308
                              Boston, MA 02266-8308


If you are  paying  for your  shares by check,  your check for the amount of the
investment  (plus  any  applicable  sales  charge)  should be mailed to the same
address and be made payable to "The Gabelli ABC Fund".

The  exact  name and  number of the  shareholder's  account  should  be  clearly
indicated.

Checks will be accepted  if drawn in U.S.  currency on a domestic  bank for less
than $100,000.  U.S. dollar checks drawn against a non-U.S.  bank may be subject
to collection  delays and will be accepted only upon actual  receipt of funds by
the Transfer Agent. Bank collection fees may apply.

If you are paying for your shares by bank wire,  you should first  telephone the
Fund at 1-800-422-3554. You should then instruct a Federal Reserve System member
bank to wire funds to:

                           State Street Bank and Trust
                          Company ABA # 011-0000-28 REF
                                 DDA # 99046187
                     Attn: Custody and Shareholder Services

Re: "The Gabelli ABC Fund"
A/C #__________________________________

Account of      (Registered Owner)
Tax ID number:__________________________
225 Franklin Street, Boston, MA 02110

There may be a charge by your bank for  transmitting  the money by bank wire but
State Street Bank and Trust  Company  does not charge  investors in the Fund for
the  receipt  of wire  transfers.  If you are  planning  to  wire  funds,  it is
suggested  that you instruct your bank early in the day so the wire transfer can
be accomplished the same day.

If you are delivering  your check by overnight or personal  delivery,  send them
to:

                                The Gabelli Funds
                          The BFDS Building, 6th Floor
                               Two Heritage Drive
                             North Quincy, MA 02171

Telephone Investment Plan

You may  purchase  additional  shares  of the  Fund  by  telephone  through  the
Automated Clearinghouse (ACH) system as long as your bank is a member of the ACH
system and you have a completed,  approved  Investment Plan  application on file
with our Transfer  Agent.  The funding for your purchase  will be  automatically
deducted from the ACH eligible  account you des-



12
<PAGE>

ignate on the  application.  Your  investment  will normally be credited to your
Mutual Fund account on the first business day following your telephone  request.
Your request must be received no later than 4:00 p.m.  eastern time.  There is a
minimum of $100 for each telephone investment. Any subsequent changes in banking
information  must be submitted  in writing and  accompanied  by a sample  voided
check.  To initiate an ACH  purchase,  please call  1-800-GABELLI  (422-3554) or
1-800-872-5365.  Fund  shares  purchased  through  the  Telephone  or  Automatic
Investment Plan will not be available for redemption for up to fifteen (15) days
following  the  purchase  date.

Automatic  Investment  Plan 

The Fund offers an automatic  monthly  investment plan,  details of which can be
obtained  from the  Distributor.  There is no  minimum  initial  investment  for
accounts establishing an automatic investment plan.

Other Investors 

No minimum initial investment in the Fund or sales charge on any such investment
is required for  officers,  directors or  full-time  employees of the Fund,  the
Adviser,  the  Administrator,  the  Distributor or their  affiliates,  including
members of the "immediate  family" of such  individuals and retirement plans and
trusts  for their  benefit.  The term  "immediate  family"  refers  to  spouses,
children  and  grandchildren  (adopted  or  natural),   parents,   grandparents,
siblings,  a spouse's  siblings,  a sibling's  spouse and a sibling's  children.

Shares issued  pursuant to the  automatic  reinvestment  of income  dividends or
capital gains are not subject to any sales charges. The Distributor's commission
is the sales charge shown below.

The  following  table  indicates  the sales  charges  applicable  to purchase of
shares:

                            Discount or               
                          Sales Charge as             Commission to
                          a Percentage of               Dealers or 
                       --------------------------      Agents as a 
                       Net Amount  Public Offering     % of Public   
    Amount Invested     Invested        Price         Offering Price
    --------------      --------        -----         --------------
All amounts...........   2.04%          2.00%              1.5%
                                                

REDEMPTION OF SHARES

Upon receipt by the Distributor or the Transfer Agent of a redemption request in
proper form,  shares of the Fund will be redeemed at their next  determined  net
asset value.  Redemption requests received after the time as of which the Fund's
net asset value is  determined  on a particular  day will be redeemed at the net
asset  value of the Fund  determined  on the  next day that net  asset  value is
determined.  Checks  for  redemption  proceeds  will  normally  be mailed to the
shareholder's  address of record within seven days, but will not be mailed until
all checks in payment for the  purchase  of the shares to be redeemed  have been
honored, which may take up to 15 days. Redemption requests may be made by letter
to the Transfer  Agent,  specifying  the name of the Fund,  the dollar amount or
number of shares to be  redeemed,  and the  account  number.  The letter must be
signed in exactly the same way the account is registered  (if there is more than
one owner of the shares,  all must sign) and, if any certificates for the shares
to be redeemed  are  outstanding,  presentation  of such  certificates  properly
endorsed  is  also   required.   Signatures  on  a  redemption   request  and/or
certificates  must be guaranteed by an "eligible  guarantor  institution"  which
includes certain banks, brokers,  dealers,  credit unions,  securities exchanges
and  associations,   clearing  agencies  and  savings  associations   (signature
guarantees by notaries public are not acceptable).  Shareholders may also redeem
Fund shares through shareholder agents, who have made arrangements with the Fund
permitting them to redeem shares by telephone or facsimile  transmission and who
may charge  shareholders  a fee for this  service if they have not  received any


                                                                              13
<PAGE>

payments  under  the  Distribution   Plan.  It  is  the  responsibility  of  the
shareholder's agent to establish procedures which would assure that upon receipt
of a  shareholder's  order  to  redeem  shares  of the Fund  the  order  will be
transmitted so that it will be received by the Distributor  before the time when
the price applicable to the order expires.

Further  documentation,  such as copies of corporate resolutions and instruments
of  authority,   are  normally  requested  from  corporations,   administrators,
executors,  personal  representatives,  trustees or  custodians  to evidence the
authority of the person or entity making the redemption request.

If the Board of Directors  should  determine that it would be detrimental to the
remaining shareholders of the Fund to make payment wholly or partly in cash, the
Fund may pay the redemption  price in whole or in part by a distribution in kind
of  securities  from the  portfolio of the Fund,  in lieu of cash, in conformity
with  applicable  rules of the  Securities and Exchange  Commission.  Under such
circumstances,  shareholders  of the  Fund  receiving  distributions  in kind of
securities will incur brokerage commissions when they dispose of the securities.

The Fund may suspend the right of redemption or postpone the date of payment for
more than seven days  during any period  when (1)  trading on the New York Stock
Exchange is restricted or the Exchange is closed,  other than customary  weekend
and holiday  closings;  (2) the Securities and Exchange  Commission has by order
permitted  such  suspension  or (3) an  emergency,  as  defined  by rules of the
Securities  and  Exchange  Commission,   exists  making  disposal  of  portfolio
investments  or  determination  of the  value of the net  assets of the Fund not
reasonably practicable.

To minimize expenses,  the Fund reserves the right to redeem, upon not less than
30 days' notice,  all shares of the Fund in an account (other than an IRA) which
as a result  of  shareholder  redemption  has a value  below  $500.  However,  a
shareholder  will be allowed to make  additional  investments  prior to the date
fixed for redemption to avoid liquidation of the account.

Telephone Redemption By Check

The Fund accepts  telephone  requests  for  redemption  of unissued  shares from
shareholders  provided  the  check is  mailed  to the  address  of record on the
account and such address has not been changed  within  thirty (30) days prior to
the request.

By Bank Wire

The Fund accepts telephone requests for wire redemption in excess of $1,000 (but
subject  to a  $25,000  limitation)  to  a  predesignated  bank  either  on  the
subscription  order  form or in a  subsequent  written  authorization  with  the
signature guaranteed. The Fund accepts signature guaranteed written requests for
redemption by bank wire without  limitation.  The proceeds are normally wired on
the  following  business  day.  Your bank must be either a member of the Federal
Reserve System or have a correspondent bank which is a member. Any change to the
banking  information  made at a later date must be  submitted  in writing with a
signature guarantee.

   
Requests for telephone  redemption  must be received  between 9:00 a.m. and 4:00
p.m.  eastern time. If your  telephone  call is received after this time or on a
day when the New York Stock  Exchange is not open,  the request  will be entered
for the following  business day. Shares are redeemed at the net asset value next
determined following your request. Fund shares purchased by check or through the
automatic  purchase plan will not be available for  redemption  for fifteen (15)
days following the purchase. Shares held in certificate form must be returned to
the  Transfer  Agent for  redemption  of  shares.  Telephone  redemption  is not
available for IRAs. The proceeds of a telephone redemption may be direc-
    


14
<PAGE>

ted to an account in  another  mutual  fund  advised  by  Gabelli  Funds,  Inc.,
provided the account is  registered in the redeeming  shareholder's  name.  Such
purchase will be made at the  respective net asset value plus  applicable  sales
charge,  if  any,  with  credit  for any  sales  charge  previously  paid to the
Distributor.

The Fund and its  transfer  agent  will not be liable  for  following  telephone
instructions  reasonably believed to be genuine. In this regard the Fund and its
transfer agent require personal  identification  information  before accepting a
telephone  redemption.  If the Fund or its transfer agent fail to use reasonable
procedures, the Fund might be liable for losses due to fraudulent instructions.

RETIREMENT PLANS

The Fund has  available  a form of  Individual  Retirement  Account  ("IRA") for
investment  in Fund  shares  which may be  obtained  from the  Distributor.  The
minimum investment  required to open an IRA for investment in shares of the Fund
is $1,000  for an  individual  except  that both the  individual  and his or her
spouse may establish separate IRAs if their combined investment is $1,250. There
is no minimum for additional investment in an IRA account.

Investors  who  are  self-employed  may  purchase  shares  of the  Fund  through
tax-deductible  contributions  to retirement  plans for  self-employed  persons,
known as Keogh or H.R. 10 plans.  The Fund does not currently act as Sponsor for
such  plans.  Fund shares may also be a suitable  investment  for other types of
qualified  pension  or  profit-  sharing  plans  which  are  employer-sponsored,
including  deferred  compensation  or salary  reduction  plans  known as "401(k)
Plans" which give participants the right to defer portions of their compensation
for investment on a  tax-deferred  basis until  distributions  are made from the
plans.  The minimum  initial  investment  for an individual  under such plans is
$1,000 and there is no minimum for  additional  investments.  Under the Internal
Revenue  Code of 1986,  (the "Code")  individuals  may make wholly or partly tax
deductible IRA contributions of up to $2,000 annually, depending on whether they
are active  participants in an  employer-sponsored  retirement plan and on their
income level.  However,  dividends and distributions held in the account are not
taxed  until  withdrawn  in  accordance  with the  provisions  of the  Code.  An
individual with a non-working spouse may establish a separate IRA for the spouse
under the same  conditions and contribute a maximum of $2,250 annually to either
or both IRAs provided that no more than $2,000 may be  contributed to the IRA of
either spouse.

Persons  desiring  information  concerning  investments  through IRA accounts or
other retirement plans should write or telephone the Distributor.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Each dividend and capital gains  distribution,  if any,  declared by the Fund on
its outstanding shares will, unless the shareholder elects otherwise, be paid on
the payment  date fixed by the Board of Directors  in  additional  shares of the
Fund  having an  aggregate  net asset value as of the  ex-dividend  date of such
dividend  or  distribution  equal to the cash  amount of such  distribution.  An
election to receive  dividends and distributions may be changed by notifying the
Fund in writing at any time prior to the record date for a  particular  dividend
or  distribution.  There are no sales or other  charges in  connection  with the
reinvestment  of dividends  and capital gains  distributions.  There is no fixed
dividend  rate,  and  there  can be no  assurance  that  the  Fund  will pay any
dividends or realize any capital gains.  However,  the Fund currently intends to
pay dividends and capital gains distributions, if any, on an annual basis.

The Fund  intends  to  qualify  for tax  treatment  as a  "Regulated  Investment
Company"  under the  



                                                                              15
<PAGE>

Internal Revenue Code in order to be relieved of Federal income tax on that part
of its net investment income and realized capital gains which it pays out to its
shareholders.

To qualify,  the Fund must meet certain relatively complex tests,  including the
requirement that less than 30% of its gross income  (exclusive of losses) may be
derived  from the sale or other  disposition  of  securities  held for less than
three months.  The loss of such status would result in the Fund being subject to
Federal income tax on its taxable income and gains.

Dividends out of net investment income and distributions of realized  short-term
capital gains are taxable to the recipient  shareholders as ordinary income.  In
the case of  corporate  shareholders,  such  distributions  are eligible for the
dividends received deduction subject to proportionate reduction if the aggregate
qualifying dividends received by the Fund from domestic corporations in any year
are less than its "gross  income" as defined by the Code.  Distributions  out of
long- term  capital  gains are taxable to the  recipient  as  long-term  capital
gains. Amounts received by shareholders with respect to the Performance Guaranty
Programs will be taxable as ordinary income,  but will not generally be eligible
for the dividends received deduction.  The shareholder's  calculation of capital
gain or loss on a redemption of shares will not be affected by amounts  received
with respect to the Performance  Guaranty Programs.  Dividends and distributions
declared  by the Fund,  and amounts  received  with  respect to the  Performance
Guaranty  Programs,  may also be  subject  to state  and local  taxes.  Prior to
investing in shares of the Fund,  prospective  shareholders  may wish to consult
their tax advisers  concerning the Federal,  state and local tax consequences of
such investment.

GENERAL INFORMATION

Description of Shares, Voting Rights and Liabilities

The Fund is a series of Gabelli Investor Funds, Inc., (the "Corporation")  which
was  incorporated in Maryland on October 30, 1992. The authorized  capital stock
consists of one billion  shares of stock  having a par value of one tenth of one
cent  ($.001) per share,  all of which have been  initially  classified  as Fund
shares.  The Corporation is not required,  and does not intend,  to hold regular
annual shareholder meetings,  but may hold special meetings for consideration of
proposals requiring shareholder approval,  such as changing fundamental policies
or  upon  the  written  request  of 10% of the  Fund's  shares  to  replace  its
Directors.

The Corporation's Board of Directors is authorized to divide the unissued shares
into separate series of stock, each series  representing a separate,  additional
portfolio.  The shares of each series would participate equally in the earnings,
dividends,  and assets of the  particular  series and would vote  separately  to
approve management  agreements or changes in investment policies,  but shares of
all series  would vote  together in the  election  or  selection  of  Directors,
principal  underwriters and auditors and on any proposed  material  amendment to
the Corporation's Articles of Incorporation. Upon liquidation of the Corporation
or any series,  shareholders  of the affected  series would be entitled to share
pro rata in the net assets of their respective series available for distribution
to such shareholders.

There are no conversion or  preemptive  rights in connection  with any shares of
the Fund. All shares,  when issued in accordance with the terms of the offering,
will be fully  paid and  nonassessable.  Shares  will be  redeemed  at net asset
value, at the option of the shareholder.

The Fund sends  semi-annual and annual reports to all of its shareholders  which
include a list of



16
<PAGE>

portfolio  securities and the Fund's financial statements which shall be audited
annually.  Unless it is clear that a shareholder is a nominee for the account of
an unrelated person or a shareholder otherwise specifically requests in writing,
the Fund may send a single  copy of  semi-annual,  annual  and other  reports to
shareholders  to all accounts at the same address and all accounts of any person
at that address.

The shares of the Fund have  noncumulative  voting  rights  which means that the
holders of more than 50% of the shares  can elect 100% of the  directors  if the
holders choose to do so, and, in that event, the holders of the remaining shares
will not be able to elect any  person  or  persons  to the  Board of  Directors.
Unless specifically requested by an investor who is a shareholder of record, the
Fund does not issue certificates evidencing Fund shares.

Portfolio Turnover

The investment policies of the Fund may lead to frequent changes in investments,
particularly  in periods of rapidly  fluctuating  interest or currency  exchange
rates.  The  portfolio  turnover  may be higher  than  that of other  investment
companies.  For the fiscal year ended  December 31, 1995 the portfolio  turnover
rate was 508%. The high portfolio  turnover rate for 1995 is attributable to the
investment in securities  subject to a tender offer for which the holding period
was  relatively  short.  Accordingly,  the Fund  experienced  a large  amount of
purchases  and sales of investment  securities  relative to the average value of
its long term holdings.

Portfolio turnover generally involves some cost to the Fund, including brokerage
commissions  or  dealer  mark-ups  and  other  transaction  costs on the sale of
securities and  reinvestment in other  securities.  Rapid turnover makes it more
difficult to qualify as a passthrough entity for Federal tax purposes in view of
a requirement  that the Fund obtain less than 30% of its gross income in any tax
year from gains on the sale of securities  held less than three months.  Failure
to qualify as a passthrough  entity would result in Federal taxation of the Fund
at the  standard  corporate  rate of 34% and may  adversely  affect  returns  to
shareholders.  The portfolio turnover rate is computed by dividing the lesser of
the amount of the securities purchased or securities sold by the average monthly
value of securities owned during the year (excluding securities whose maturities
at acquisition were one year or less).

Performance Information

The Fund may furnish data about its investment  performance  in  advertisements,
sales  literature and reports to  shareholders.  "Total  return"  represents the
annual  percentage  change in value of $1,000  invested  at the  maximum  public
offering  price for the one, five and ten year periods (if  applicable)  and the
life of the Fund through the most recent calendar quarter, assuming reinvestment
of all dividends and  distributions.  Quotations of "yield" will be based on the
investment  income per share  earned  during a  particular  30 day period,  less
expenses  accrued  during the period,  with the  remainder  being divided by the
maximum  offering  price per share on the last day of the  period.  The Fund may
also furnish total return and yield  calculations for other periods and/or based
on  investments  at  various  sales  charge  levels  or net  asset  values.  Any
performance data which is based on the Fund's net asset value per share would be
reduced if a sales charge were taken into account.

Custodian, Transfer Agent and Dividend Disbursing Agent

State  Street Bank and Trust  Company is the  Custodian  for the Fund's cash and
securities as well as the Transfer and Dividend Disbursing Agent for its shares.
Boston  Financial  Data  Services,  Inc.,  an affiliate of State Street Bank and
Trust Company performs the shareholder services on behalf of State Street and is
located at The BFDS Building, Two Heritage Drive, North




                                                                              17
<PAGE>

Quincy, MA 02171.  State Street Bank and Trust Company does not assist in and is
not responsible for investment decisions involving assets of the Fund.

Independent Auditors

Grant Thornton LLP has been appointed  independent auditors for the Fund, and is
located at 7 Hanover Square, 6th Floor, New York, New York 10004.

Information for Shareholders

All shareholder  inquiries  regarding  administrative  procedures  including the
purchase and redemption of shares should be directed to the Distributor, Gabelli
& Company, Inc., One Corporate Center, Rye, New York 10580-1434. For assistance,
call 1-800-GABELLI (1-800-422-3554).  Upon request, Gabelli & Company, Inc. will
provide  without  charge,  a paper copy of this Prospectus to investors or their
representatives who received this Prospectus in an electronic format.

This  Prospectus  omits  certain  information   contained  in  the  Registration
Statement  filed with the  Securities  and  Exchange  Commission.  Copies of the
Registration  Statement including items omitted herein, may be obtained from the
Commission by paying the charges prescribed under its rules and regulations. The
Statement of Additional  Information included in such Registration Statement may
be obtained without charge from the Fund or its Distributor.



18
<PAGE>

                                   APPENDIX A

Summary Financial Information of State Street Bank and Trust Company

State  Street Bank and Trust  Company  (the  "Bank") is a  commercial  bank that
provides banking,  securities processing and investment management services to a
broad  base of  customers  world  wide.  The  bank is the  largest  mutual  fund
custodian  in the United  States and a leading  global  custodian.  According to
industry  rankings,  the Bank is the largest U.S.  master trust / master custody
bank, the second largest bank money manager in the U.S. and the largest  manager
of global assets for U.S. pension funds. The Bank's long-term deposits are rated
Aa2 by Moody's Investors Services, Inc. and AA by Standard & Poor's Corporation.
The Bank or an  affiliate  serves as the Fund's  custodian,  transfer  agent and
dividend disbursing agent and receives customary fees therefor.

The following summary financial  information  regarding the Bank is derived from
filings made with U.S.  bank  regulatory  authorities  and has been  prepared in
accordance with regulatory accounting principles,  which differ in some respects
from generally accepted accounting principles.  The following information is not
audited but is used in the  preparation of the Bank's parent  company's  audited
financial statements.

                        Balance Sheet Items ($ millions)

   
                             Dec. 31,    Dec. 31,     Dec. 31,     Dec. 31,
                              1992        1993         1994         1995
                             -------     -------      -------      --------
Cash Items                  $ 6,075      $ 6,650     $ 5,786        $7,303
Securities                    4,061        5,671       8,510         7,734
Loans & Leases                1,963        2,644       3,200         4,425
 (net)                                                           
Total Assets                 16,543       18,784      21,611        25,558
Deposits                     11,033       12,994      14,093        16,487
Total Liabilities            15,611       17,717      20,402        24,103
Total Equity Capital            932        1,067       1,209         1,455
                                                               


                       Income Statement Items ($ millions)

   
                             Year Ended  Year Ended  Year Ended  Year Ended
                              Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,
                               1992        1993        1994        1995
                              --------    --------    --------    -------
Net interest income             $284        $329      $  374      $  416
Noninterest income               663         785         951       1,049
Noninterest expense              693         843       1,000       1,124
Net income before
 taxes                           254         275         312         340
Net income                       160         179         199         228
    

- ----------
Note to Summary Financial Information -- Off-Balance Sheet Financial Instruments

The Bank uses various  off-balance  sheet  financial  instruments to satisfy the
financing  needs of customers,  manage  balance  sheet risk and conduct  trading
activities.  These  instruments  generate  fee,  interest  or  trading  revenue.
Associated with these instruments are market and credit risks which could expose
the Bank to  potential  losses.  Market  risk  relates to the  possibility  that
financial  instruments may change in value due to future  fluctuations in market
prices.  Credit risk relates to the  possibility  that a loss may occur from the
failure of another  party to perform  according to the terms of a contract.  The
credit risk associated with off-balance  sheet financial  instruments is managed
in  conjunction  with the Bank's  balance sheet  activities.  Historically,  the
credit  losses   experienced  with  respect  to  these   instruments  have  been
immaterial.

The following is a summary of the  contractual or notional  amount of the Bank's
off-balance sheet financial instruments:


   
                                   Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,
($ millions)                        1992        1993        1994        1995
                                   --------    --------    --------    --------
Financial instruments
 whose contractual
 amounts represent
 credit risk:
  Loan commitments                 $ 1,595    $ 2,356     $ 2,536      $ 3,626
  Standby letter of credit             471        799         929       1,286
  Letters of credit                    115        140         168         179
  Indemnified securities
   lent                              9,582     12,432      22,300      28,949
Financial instruments
  whose contractual or
  notional amount
  exceeds the amount
  of credit risk:
   Foreign exchange
    commitments                     16,737     36,179      43,126      54,965
   Interest-rate contracts:
    Futures and options, 72            686        598       2,870 
    Swap agreements                    265        158         255         637
    


                                                                              19
<PAGE>

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20
<PAGE>

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                                                                              21
<PAGE>

                 TABLE OF CONTENTS
                                                 Page
                                                 ----
Table of Fees and Expenses....................      3

Financial Highlights..........................      4

Investment Objective and Policies and
   Related Risk Factors.......................      4

Limited Performance Guaranty Program..........      5

Management of the Fund........................      9

Distribution Plan.............................     10

Purchase of Shares............................     11

Redemption of Shares..........................     13

Retirement Plans..............................     15

Dividends, Distributions and Taxes............     15

General Information...........................     16

Appendix to Prospectus........................     19









   
- --------------------------------------------------------------------------------
No dealer,  salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus, and
if given or made, such information or  representation  may not be relied upon as
being authorized by the Fund, the Adviser, the Administrator, the Distributor or
any affiliate thereof. This Prospectus does not constitute an offer to sell or a
solicitation  of any  offer  to buy in any  state  to any  person  to whom it is
unlawful to make such offer in such state.
- --------------------------------------------------------------------------------
    



                                   The
                                   Gabelli
                                   ABC
                                   Fund





   
                                   PROSPECTUS
                                   May 1, 1996
    










                               GABELLI FUNDS, INC.
                               Investment Adviser

                             GABELLI & COMPANY, INC.
                                   Distributor
<PAGE>

                              THE GABELLI ABC FUND

                              One Corporate Center
                            Rye, New York 10580-1434
                    Telephone 1-800-GABELLI (1-800-422-3554)

                       STATEMENT OF ADDITIONAL INFORMATION

   
                                   May 1, 1996

This Statement of Additional Information ("Additional Statement") relates to The
Gabelli ABC Fund (the "Fund") which is a series of Gabelli Investor Funds, Inc.,
a Maryland corporation (the "Corporation"),  and is not a prospectus and is only
authorized  for  distribution   when  preceded  or  accompanied  by  the  Fund's
prospectus  dated  May  1,  1996,  as  supplemented   from  time  to  time  (the
"Prospectus").  This Statement of Additional Information contains information in
addition  to that set  forth in the  Prospectus  into  which  this  document  is
incorporated by reference and should be read in conjunction with the Prospectus.
Additional  copies of this document may be obtained without charge by writing or
telephoning the Fund at the address and telephone number set forth above.

                                TABLE OF CONTENTS
                                                                        Page
                                                                        ----
 Investments.........................................................   B-2
 The Adviser.........................................................   B-11
 The Distributor.....................................................   B-13
 Directors and Officers..............................................   B-13
 Investment Restrictions.............................................   B-16
 Portfolio Transactions and Brokerage................................   B-17
 Purchase and Redemption of Shares...................................   B-19
 Dividends, Distributions and Taxes..................................   B-19
 Determination of Net Asset Value....................................   B-21
 Investment Performance Information..................................   B-22
 Shares of Beneficial Interest.......................................   B-23
 Appendix-- Description of Ratings of Bonds
   and Preferred Stock...............................................   B-24
 Financial Statements................................................   B-27
    
<PAGE>

          The following Information supplements that in the Prospectus

                                   INVESTMENTS
Equity Securities

      Because  the Fund may invest  without  limit in the common  stocks of both
domestic and foreign  issuers,  an investment in the Fund should be made with an
understanding of the risks inherent in any investment in common stocks including
the risk that the  financial  condition  of the issuers of the Fund's  portfolio
securities may become impaired or that the general condition of the stock market
may worsen (both of which may contribute  directly to a decrease in the value of
the securities  and thus in the value of the Fund's  Shares).  Additional  risks
include  risks  associated  with the right to receive  payments  from the issuer
which is generally  inferior to the rights of  creditors  of, or holders of debt
obligations or preferred stock issued by, the issuer.

      Moreover,  common  stocks do not represent an obligation of the issuer and
therefore  do not  offer  any  assurance  of income  or  provide  the  degree of
protection of debt securities. The issuance of debt securities or even preferred
stock by an issuer will create prior claims for payment of  principal,  interest
and dividends  which could  adversely  affect the ability and inclination of the
issuer to declare or pay dividends on its common stock or the economic  interest
of holders of common stock with respect to assets of the issuer upon liquidation
or bankruptcy.  Further,  unlike debt  securities  which typically have a stated
principal  amount  payable at  maturity  (which  value will be subject to market
fluctuations prior thereto), common stocks have neither a fixed principal amount
nor a maturity and have values which are subject to market  fluctuations  for as
long as the common  stocks  remain  outstanding.  Common  stocks are  especially
susceptible  to general  stock market  movements  and to volatile  increases and
decreases  in value as  market  confidence  in and  perceptions  of the  issuers
change.   These  perceptions  are  based  on  unpredictable   factors  including
expectations  regarding  government,  economic,  monetary  and fiscal  policies,
inflation and interest rates,  economic expansion or contraction,  and global or
regional  political,  economic or banking crises. The value of the common stocks
in the Fund's portfolio thus may be expected to fluctuate.

      Preferred stocks are usually  entitled to rights on liquidation  which are
senior to those of common stocks. For these reasons,  preferred stocks generally
entail  less  risk  than  common  stocks.  Such  securities  may pay  cumulative
dividends. Because the dividend rate is pre-established,  and they are senior to
common  stocks,  such  securities  tend  to have  less  possibility  of  capital
appreciation.

      Some of the  securities  in the  Fund  may be in the  form  of  depository
receipts.  Depository  receipts  usually  represent common stock or other equity
securities of non-U.S.  issuers deposited with a custodian in a depository.  The
underlying  securities are usually  withdrawable at any time by surrendering the
depository receipt.  Depository receipts are usually denominated in U.S. dollars
and dividends and other  payments from the issuer are converted by the custodian
into  U.S.  dollars  before  payment  to  receipt  holders.  In  other  respects
depository receipts for foreign securities have the same  characteristics as the
underlying securities.  Depository receipts that are not sponsored by the issuer
may be less liquid and there may be less readily  available  public  information
about the issuer.

Nonconvertible  Fixed  Income  

      Securities  The  category  of  fixed  income   securities  which  are  not
convertible or exchangeable for common stock includes  preferred stocks,  bonds,
debentures, notes, asset and mortgage backed securities and




B-2
<PAGE>

money market instruments such as commercial paper and bankers acceptances. There
is no minimum  credit rating for these  securities in which the Fund may invest.
Accordingly,  the Fund could invest in securities  in default  although the Fund
will not invest more than 5% of its assets in such securities.

      Up to 25% of the  Fund's  assets may be  invested  in lower  quality  debt
securities  although  the Fund does not  expect  to invest  more than 10% of its
assets in such  securities.  The market  values of lower  quality  fixed  income
securities  tend to be less  sensitive to changes in prevailing  interest  rates
than  higher-quality  securities  but more  sensitive  to  individual  corporate
developments than higher-quality securities.  Such lower-quality securities also
tend to be  more  sensitive  to  economic  conditions  than  are  higher-quality
securities.   Accordingly,   these   lower-quality   securities  are  considered
predominantly  speculative with respect to the issuer's capacity to pay interest
and repay  principal in  accordance  with the terms of the  obligation  and will
generally  involve  more  credit  risk  than  securities  in the  higher-quality
categories.  Even  securities  rated Baa or BBB by Moody's and Standard & Poor's
Rating Group  ("S&P"),  respectively,  which ratings are  considered  investment
grade,  possess some  speculative  characteristics.  There are risks involved in
applying  credit  ratings as a method for evaluating  high yield  obligations in
that credit ratings evaluate the safety of principal and interest payments,  not
market value risk.  In addition,  credit  rating  agencies may not change credit
ratings on a timely basis to reflect  changes in economic or company  conditions
that  affect a  security's  market  value.  The Fund will rely on the  Adviser's
judgment,  analysis and  experience in  evaluating  the  creditworthiness  of an
issuer.  In this  evaluation,  the Adviser will take into  consideration,  among
other things, the issuer's financial resources and ability to cover its interest
and fixed charges, factors relating to the issuer's industry and its sensitivity
to economic  conditions and trends,  its operating  history,  the quality of the
issuer's management and regulatory matters.

      The risk of loss due to default by the issuer is significantly greater for
the holders of lower quality  securities  because such  securities are generally
unsecured and are often subordinated to other obligations of the issuer.  During
an economic  downturn or a sustained  period of rising  interest  rates,  highly
leveraged  issuers of lower quality  securities may experience  financial stress
and may not have sufficient revenues to meet their interest payment obligations.
An  issuer's  ability  to service  its debt  obligations  may also be  adversely
affected by specific  corporate  developments,  its  inability to meet  specific
projected business forecasts, or the unavailability of additional financing.

      Factors  adversely  affecting  the  market  value of high  yield and other
securities will adversely  affect the Fund's net asset value.  In addition,  the
Fund may incur additional expenses to the extent it is required to seek recovery
upon a default in the  payment of  principal  of or  interest  on its  portfolio
holdings.

      From time to time, proposals have been discussed regarding new legislation
designed to limit the use of certain  high yield debt  securities  by issuers in
connection with leveraged  buy-outs,  mergers and acquisitions,  or to limit the
deductibility  of  interest  payments on such  securities.  Such  proposals,  if
enacted into law,  could reduce the market for such debt  securities  generally,
could  negatively  affect  the  financial  condition  of  issuers  of high yield
securities  by  removing  or  reducing a source of future  financing,  and could
negatively  affect the value of  specific  high yield  issues and the high yield
market in general.  For example,  under a provision of the Internal Revenue Code
enacted in 1989,  a corporate  issuer may be limited from  deducting  all of the
original issue discount on high-yield discount  obligations (i.e., certain types
of debt securities issued at a significant  discount to their face amount).  The
likelihood of passage of any  additional  legislation  or the effect  thereof is
uncertain.

      The secondary trading market for lower-quality  fixed income securities is
generally not as liquid as the secondary  market for  higher-quality  securities
and is very thin for some securities. The relative lack



                                                                             B-3
<PAGE>

of an active secondary market may have an adverse impact on market price and the
Fund's ability to dispose of particular issues when necessary to meet the Fund's
liquidity  needs  or  in  response  to  a  specific  economic  event  such  as a
deterioration  in the  creditworthiness  of the issuer.  The relative lack of an
active secondary  market for certain  securities may also make it more difficult
for the Fund to obtain  accurate  market  quotations for purposes of valuing the
Fund's portfolio.  Market quotations are generally  available on many high yield
issues only from a limited number of dealers and may not  necessarily  represent
firm bids of such  dealers or prices for actual  sales.  During such times,  the
responsibility of the Fund's Board of Directors to value the securities  becomes
more difficult and judgment  plays a greater role in valuation  because there is
less reliable, objective data available.

Asset-Backed and Mortgage-Backed Securities

      Prepayments  of  principal  may be  made at any  time  on the  obligations
underlying asset and mortgage backed securities and are passed on to the holders
of the asset and mortgage backed securities.  As a result, if the Fund purchases
such a security at a premium,  faster than expected  prepayments will reduce and
slower than expected prepayments will increase yield to maturity. Conversely, if
the  Fund  purchases  these  securities  at a  discount,  faster  than  expected
prepayments will increase,  while slower than expected  prepayments will reduce,
yield to maturity.

Convertible Securities

      The Adviser believes that opportunities for capital  appreciation may also
be found in  convertible  securities  and the Fund may invest  without  limit in
convertible securities.  This is particularly true in the case of companies that
have  performed  below  expectations  at the time the  convertible  security was
issued. If the company's  performance has been poor enough, its convertible debt
securities  will trade more like common stock than like a fixed-income  security
and may  result in above  average  appreciation  once it becomes  apparent  that
performance  is improving.  Even if the credit  quality of the company is not in
question, the market price of the convertible security will often reflect little
or no element of  conversion  value if the price of its common  stock has fallen
substantially  below the  conversion  price.  This leads to the  possibility  of
capital appreciation if the price of the common stock recovers.

      Many convertible  securities are not investment  grade, that is, not rated
BBB or better by  Standard  & Poor's  Rating  Group  ("S&P") or Baa or better by
Moody's Investors Service, Inc. ("Moody's") and not considered by the Adviser to
be of equivalent credit quality.

      The Fund may  invest  up to 25% of its  assets in  convertible  securities
rated, at the time of investment,  less than BBB by S&P or Baa by Moody's or are
unrated  but of  equivalent  credit  quality  in the  judgment  of the  Adviser.
Securities  which are not investment  grade are viewed by the rating agencies as
being   predominantly   speculative  in  character  and  are   characterized  by
substantial risk concerning  payments of interest and principal,  sensitivity to
economic  conditions and changes in interest  rates,  as well as by market price
volatility  and/or  relative lack of secondary  market trading among other risks
and may  involve  major risk  exposure to adverse  conditions  or be in default.
However,  the Fund  does not  expect to  invest  more  than 5% of its  assets in
securities  which are in default at the time of  investment  and will  invest in
such  securities  only  when  the  Adviser  expects  that  the  securities  will
appreciate in value.  There is no minimum rating of securities in which the Fund
may  invest.  Securities  rated  less  than  BBB by S&P  or  Baa by  Moody's  or
comparable  unrated  securities  are typically  referred to as "junk bonds." For
further  information  regarding  lower rated  securities and the




B-4
<PAGE>

risk associated  therewith, see the Description of Corporate Bond and  Corporate
Debt Ratings attached hereto as an Appendix.

      Some  of  the  convertible   securities  in  the  Fund  portfolio  may  be
"Pay-In-Kind" securities. During a designated period from original issuance, the
issuer of such a security may pay dividends or interest to the holder by issuing
additional fully paid and  nonassessable  shares or units of the same or another
specified security.

Sovereign Debt Securities

      The Fund may invest in securities issued by any country and denominated in
any currency,  but expects that it generally will invest in developed  countries
including Australia,  Canada, Finland, France, Germany, Hong Kong, Italy, Japan,
New Zealand,  Norway,  Spain,  Sweden, the United Kingdom and the United States.
The  obligations  of  governmental  entities  have various  kinds of  government
support and include  obligations  issued or guaranteed by governmental  entities
with taxing  power.  These  obligations  may or may not be supported by the full
faith and credit of a government.  The Fund will invest in government securities
of issuers  considered  stable by the Adviser,  based on its analysis of factors
such as general political or economic  conditions relating to the government and
the likelihood of  expropriation,  nationalization,  freezes or  confiscation of
private property.  The Adviser does not believe that the credit risk inherent in
the obligations of one stable  government is necessarily  significantly  greater
than that of another. Except for the fact that the Fund may invest up to 100% of
its assets in U.S.  government  securities for temporary  defensive purposes and
except for the absence of currency exchange  volatility,  the Fund would utilize
the same  factors in  determining  whether  and to what extent to invest in U.S.
government  securities  as with respect to debt  securities  of other  sovereign
issuers.

      The Fund may also  purchase  securities  issued  by  semi-governmental  or
supranational  agencies such as the Asian  Development  Bank, the  International
Bank for Reconstructional  Development,  the Export-Import Bank and the European
Investment  Bank. The  governmental  members,  or  "stockholders,"  usually make
initial capital  contributions to the supranational entity and in many cases are
committed to make additional capital  contributions if the supranational  entity
is unable to repay its borrowings.

      The Fund may invest in securities denominated in a multi-national currency
unit. An illustration of a multi-national currency unit is the European Currency
Unit (the "ECU"),  which is a "basket"  consisting  of specified  amounts of the
currencies of the member states of the European  Community,  a Western  European
economic   cooperative   organization   that  includes  France,   Germany,   The
Netherlands,  the United Kingdom and other  countries.  The specific  amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European  Community  to reflect  changes in  relative  values of the  underlying
currencies. Such investments involve credit risks associated with the issuer and
currency  risks  associated  with  the  currency  in  which  the  obligation  is
denominated.

Securities Subject to Reorganization

      The Fund may  invest  without  limit in  securities  for which a tender or
exchange  offer has been made or announced  and in  securities  of companies for
which a merger,  consolidation,  liquidation or reorganization proposal has been
announced if, in the judgment of Gabelli Funds, Inc. (the "Adviser"), there is a
reasonable  prospect  of  high  total  return  significantly  greater  than  the
brokerage and other transaction expenses involved.

      In general,  securities which are the subject of such an offer or proposal
sell at a  premium  to their  


                                                                             B-5
<PAGE>

historic market price  immediately prior to the announcement of the offer or may
also discount what the stated or appraised value of the security would be if the
contemplated  transaction were approved or consummated.  Such investments may be
advantageous  when  the  discount  significantly  overstates  the  risk  of  the
contingencies involved; significantly undervalues the securities, assets or cash
to be received by shareholders of the prospective  portfolio company as a result
of  the  contemplated   transaction;   or  fails  adequately  to  recognize  the
possibility that the offer or proposal may be replaced or superseded by an offer
or proposal of greater  value.  The  evaluation of such  contingencies  requires
unusually  broad  knowledge and experience on the part of the Adviser which must
appraise not only the value of the issuer and its  component  businesses as well
as the  assets or  securities  to be  received  as a result of the  contemplated
transaction  but also the  financial  resources  and business  motivation of the
offer or and the dynamics and business  climate when the offer of proposal is in
process.  Since such investments are ordinarily  short-term in nature, they will
tend to  increase  the  turnover  ratio  of the  Funds  thereby  increasing  its
brokerage and other  transaction  expenses as well as make it more difficult for
the  Fund  to meet  the  tests  for  favorable  tax  treatment  as a  "Regulated
Investment  Company"  under the Internal  Revenue Code of 1986,  as amended (the
"Code")  (see  "Dividends,  Distributions  and  Taxes" in the  Prospectus).  The
Adviser intends to select  investments of the type described which, in its view,
have a  reasonable  prospect of capital  appreciation  which is  significant  in
relation  to  both  risk  involved  and the  potential  of  available  alternate
investments  as well as to  monitor  the effect of such  investments  on the tax
qualification test of the Code. 

Options 

      The Fund may purchase or sell options on individual  securities as well as
on indices of securities as a means of achieving additional return or of hedging
the value of the Fund's portfolio.

      A call option is a contract that gives the holder of the option the right,
in return for a premium paid, to buy from the seller the security underlying the
option at a specified  exercise  price at any time during the term of the option
or, in some cases, only at the end of the term of the option.  The seller of the
call  option has the  obligation  upon  exercise  of the  option to deliver  the
underlying  security  upon  payment  of the  exercise  price.  A put option is a
contract  that  gives the holder of the option the right in return for a premium
to sell to the seller the underlying  security at a specified  price. The seller
of the put option,  on the other hand,  has the obligation to buy the underlying
security upon exercise at the exercise price. The Fund's transactions in options
may be subject to specific segregation requirements.  See "Hedging Transactions"
below.

      If the  Fund  has sold an  option,  it may  terminate  its  obligation  by
effecting a closing purchase transaction.  This is accomplished by purchasing an
option  of the same  series  as the  option  previously  sold.  There  can be no
assurance that a closing  purchase  transaction can be effected when the Fund so
desires.

      The  purchaser of an option risks a total loss of the premium paid for the
option if the price of the  underlying  security  does not  increase or decrease
sufficiently to justify  exercise.  The seller of an option,  on the other hand,
will  recognize  the  premium as income if the option  expires  unexercised  but
foregoes any capital appreciation in excess of the exercise price in the case of
a call  option and may be  required  to pay a price in excess of current  market
value in the case of a put option.  Options  purchased and sold other than on an
exchange  in private  transactions  also impose on the fund the credit risk that
the counterparty will fail to honor its obligations.  The Fund will not purchase
options if, as a result,  the aggregate cost of all outstanding  options exceeds
10% of the  Fund's  assets.  To the  



B-6
<PAGE>

extent  that  puts,   straddles  and  similar   investment   strategies  involve
instruments  regulated by the Commodity  Futures Trading  Commission the Fund is
limited to an investment not in excess of 5% of its total assets.

Warrants and Rights

      The Fund may  invest up to 5% of its total  assets in  warrants  or rights
(other  than those  acquired in units or  attached  to other  securities)  which
entitle the holder to buy equity  securities  at a specific  price for or at the
end of a specific  period of time.  The Fund will not invest more than 2% of its
total  assets  in  warrants  or rights  which are not  listed on the New York or
American Stock Exchanges.

When Issued, Delayed Delivery Securities and Forward Commitments

      The Fund may enter into  forward  commitments  for the purchase or sale of
securities,  including on a "when issued" or "delayed  delivery" basis in excess
of  customary  settlement  periods  for the type of security  involved.  In some
cases,  a  forward  commitment  may be  conditioned  upon  the  occurrence  of a
subsequent  event,  such as approval  and  consummation  of a merger,  corporate
reorganization or debt  restructuring,  i.e., a when, as and if issued security.
When such  transactions  are  negotiated,  the price is fixed at the time of the
commitment,  with payment and delivery  taking place in the future,  generally a
month or more after the date of the  commitment.  While the Fund will only enter
into a forward commitment with the intention of actually acquiring the security,
the Fund may  sell the  security  before  the  settlement  date if it is  deemed
advisable.

      Securities  purchased  under a forward  commitment  are  subject to market
fluctuation,  and no interest  (or  dividends)  accrues to the Fund prior to the
settlement  date.  The Fund will  segregate  with its  custodian  cash or liquid
high-grade debt securities with the Fund's  custodian in an aggregate  amount at
least equal to the amount of its outstanding forward commitments.

Unseasoned Companies

      The Fund may invest in securities of unseasoned companies.  In view of the
limited  liquidity,  more speculative  prospects and price volatility,  the Fund
will not invest more than 10% of the Fund's  assets (at the time of purchase) in
securities of companies  (including  predecessors)  that have operated less than
three years.

Short Sales

      The Fund may make short sales of securities. A short sale is a transaction
in which the Fund  sells a  security  it does not own in  anticipation  that the
market price of that security will decline. The Fund expects to make short sales
both to obtain  capital gains from  anticipated  declines in securities and as a
form of hedging to offset  potential  declines in long  positions in the same or
similar  securities.  The short sale of a security is  considered a  speculative
investment technique.

      When the Fund makes a short sale,  it must borrow the security  sold short
and  deliver  it to the  broker-dealer  through  which it made the short sale in
order to satisfy its  obligation to deliver the security upon  conclusion of the
sale.  The Fund may have to pay a fee to  borrow  particular  securities  and is
often obligated to pay over any payments received on such borrowed securities.

      The Fund's  obligation to replace the borrowed security will be secured by
collateral  deposited  with the  broker-dealer,  usually cash,  U.S.  government
securities or other highly liquid securities.  The Fund will also be required to
deposit similar  collateral with its Custodian to the extent, if any,  necessary
so 



                                                                             B-7
<PAGE>

that the value of both  collateral  deposits  in the  aggregate  is at all times
equal to the greater of the price at which the security is sold short or 100% of
the current market value of the security sold short.  Depending on  arrangements
made with the  broker-dealer  from  which it  borrowed  the  security  regarding
payment over of any payments received by the Fund on such security, the Fund may
not receive any payments (including  interest) on its collateral  deposited with
such  broker-dealer.  If the price of the security sold short increases  between
the time of the short sale and the time the Fund replaces the borrowed security,
the Fund will incur a loss;  conversely,  if the price  declines,  the Fund will
realize a capital gain. Any gain will be decreased,  and any loss increased,  by
the transaction  costs described  above.  Although the Fund's gain is limited to
the  price  at  which  it  sold  the  security  short,  its  potential  loss  is
theoretically unlimited.

      The market value of the  securities  sold short of any one issuer will not
exceed  either  5% of the  Fund's  total  assets or 5% of such  issuer's  voting
securities. The Fund will not make a short sale, if, after giving effect to such
sale, the market value of all securities  sold short exceeds 25% of the value of
its  assets  or the  Fund's  aggregate  short  sales  of a  particular  class of
securities exceeds 25% of the outstanding securities of that class. The Fund may
also make short sales "against the box" without respect to such limitations.  In
this  type of short  sale,  at the time of the  sale,  the Fund  owns or has the
immediate and unconditional right to acquire at no additional cost the identical
security.

Restricted and Illiquid Securities

      The Fund may invest up to a total of 10% of its net  assets in  securities
that are subject to  restrictions on resale and securities the markets for which
are illiquid. Illiquid securities include most of the securities the disposition
of which is subject to substantial legal or contractual  restrictions.  The sale
of illiquid  securities often requires more time and results in higher brokerage
charges or dealer  discounts  and other  selling  expenses than does the sale of
securities  eligible  for trading on  national  securities  exchanges  or in the
over-the-counter  markets.  Restricted securities may sell at a price lower than
similar  securities that are not subject to  restrictions on resale.  Securities
freely  salable  among  qualified  institutional  investors  under special rules
adopted by the Securities and Exchange Commission or otherwise  determined to be
liquid may be treated as liquid if they satisfy liquidity standards  established
by the Board of Directors.  The continued liquidity of such securities is not as
well assured as that of publicly traded securities, and accordingly the Board of
Directors will monitor their liquidity.  The Board will review pertinent factors
such as trading activity,  reliability of price information and trading patterns
of comparable  securities in  determining  whether to treat any such security as
liquid for purposes of the  foregoing  10% test.  To the extent the Board treats
such  securities as liquid,  temporary  impairments to trading  patterns of such
securities may adversely affect the Fund's liquidity.

Repurchase Agreements

      The Fund  may  invest  in  repurchase  agreements,  which  are  agreements
pursuant to which  securities  are  acquired by the Fund from a third party with
the  understanding  that they will be repurchased by the seller at a fixed price
on an agreed  date.  These  agreements  may be made with  respect  to any of the
portfolio  securities  in which the Fund is  authorized  to  invest.  Repurchase
agreements may be characterized  as loans secured by the underlying  securities.
The Fund may enter  into  repurchase  agreements  with (i)  member  banks of the
Federal  Reserve  System  having total assets in excess of $500 million and (ii)
securities   dealers,   provided   that   such   banks  or   dealers   meet  the
creditworthiness   standards  established  by  the  Fund's  board  of  directors
("Qualified   Institutions").   The



B-8
<PAGE>

Adviser will monitor the continued  creditworthiness of Qualified  Institutions,
subject to the  supervision  of the Fund's board of directors.  The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or date of maturity of the purchased security.  The
collateral is marked to market daily.  Such  agreements  permit the Fund to keep
all its assets  earning  interest  while  retaining  "overnight"  flexibility in
pursuit of investments of a longer-term nature.

      The use of repurchase  agreements  involves certain risks. For example, if
the seller of securities under a repurchase agreement defaults on its obligation
to  repurchase  the  underlying  securities,  as a result of its  bankruptcy  or
otherwise, the Fund will seek to dispose of such securities,  which action could
involve  costs or  delays.  If the  seller  becomes  insolvent  and  subject  to
liquidation or  reorganization  under  applicable  bankruptcy or other laws, the
Fund's  ability to  dispose  of the  underlying  securities  may be  restricted.
Finally,  it is  possible  that  the Fund  may not be able to  substantiate  its
interest in the  underlying  securities.  To minimize this risk,  the securities
underlying the repurchase  agreement will be held by the Fund's custodian at all
times in an amount at least equal to the  repurchase  price,  including  accrued
interest. If the seller fails to repurchase the securities,  the Fund may suffer
a loss to the extent  proceeds from the sale of the  underlying  securities  are
less  than the  repurchase  price.  The  Fund  will not  enter  into  repurchase
agreements  of a duration  of more than seven  days if taken  together  with all
other illiquid  securities in the Fund's  portfolio,  more than 10% of its total
assets would be so invested.

Loans of Portfolio Securities

      To  increase  income,  the  Fund  may lend  its  portfolio  securities  to
securities   broker-dealers  or  financial  institutions  if  (1)  the  loan  is
collateralized in accordance with applicable regulatory  requirements  including
collaterization  continuously  at no less than 100% by marking to market  daily,
(2) the loan is subject  to  termination  by the Fund at any time,  (3) the Fund
receives  reasonable  interest or fee payments on the loan, (4) the Fund is able
to exercise all voting rights with respect to the loaned  securities and (5) the
loan  will not cause the value of all  loaned  securities  to exceed  33% of the
value of the Fund's assets.

      If the borrower fails to maintain the requisite amount of collateral,  the
loan  automatically  terminates and the Fund could use the collateral to replace
the securities  while holding the borrower  liable for any excess of replacement
cost over the value of the  collateral.  As with any extension of credit,  there
are  risks of  delay in  recovery  and in some  cases  even  loss of  rights  in
collateral should the borrower of the securities fail financially.

Borrowing

      The Fund may not borrow money except for (1) short-term credits from banks
as may be  necessary  for  the  clearance  of  portfolio  transactions,  and (2)
borrowings from banks for temporary or emergency purposes, including the meeting
of redemption  requests,  which would otherwise require the untimely disposition
of its portfolio securities.  Borrowing may not, in the aggregate, exceed 15% of
assets after giving effect to the  borrowing  and  borrowing for purposes  other
than  meeting  redemptions  may not exceed 5% of the value of the Fund's  assets
after  giving  effect  to the  borrowing.  The Fund  will  not  make  additional
investments when borrowings exceed 5% of assets.  The Fund may mortgage,  pledge
or hypothecate assets to secure such borrowings.



                                                                             B-9
<PAGE>

Hedging Transactions

      Futures  Contracts.  The Fund may enter into  futures  contracts  only for
certain bona fide hedging,  yield enhancement and risk management purposes.  The
Fund  may  enter  into  futures  contracts  for  the  purchase  or  sale of debt
securities, debt instruments, or indices of prices thereof, stock index futures,
other financial indices, and U.S. Government Securities.

      A "sale" of a futures  contract (or a "short" futures  position) means the
assumption of a contractual  obligation to deliver the securities underlying the
contract at a specified  price at a specified  future time.  A  "purchase"  of a
futures  contract  (or a "long"  futures  position)  means the  assumption  of a
contractual  obligation to acquire the  securities  underlying the contract at a
specified price at a specified future time.

      Certain  futures  contracts are settled on a net cash payment basis rather
than  by  the  sale  and  delivery  of the  securities  underlying  the  futures
contracts. U.S. futures contracts have been designed by exchanges that have been
designated as "contract  markets" by the Commodity  Futures  Trading  Commission
(the "CFTC"), an agency of the U.S.  Government,  and must be executed through a
futures  commission  merchant  (i.e., a brokerage firm) which is a member of the
relevant contract market.  Futures contracts trade on these contract markets and
the exchange's  affiliated clearing organization  guarantees  performance of the
contracts as between the clearing members of the exchange.

      These  contracts  entail certain  risks,  including but not limited to the
following:  no assurance that futures  contracts  transactions  can be offset at
favorable  prices,  possible  reduction  of the  Fund's  yield due to the use of
hedging,  possible  reduction  in value of both the  securities  hedged  and the
hedging  instrument,  possible  lack of  liquidity  due to daily limits on price
fluctuation,  imperfect  correlation  between the contracts  and the  securities
being  hedged,  and  potential  losses in excess of the amount  invested  in the
futures contracts themselves.

      Currency   Transactions.   The  Fund  may  enter  into  various   currency
transactions,  including  forward foreign  currency  contracts,  currency swaps,
foreign currency or currency index futures contracts and put and call options on
such contracts or on currencies. A forward foreign currency contract involves an
obligation  to purchase or sell a specific  currency for a set price at a future
date.  A  currency  swap is an  arrangement  whereby  each party  exchanges  one
currency for another on a particular  date and agrees to reverse the exchange on
a later date at a specific exchange rate. Forward foreign currency contracts and
currency  swaps are  established  in the  interbank  market  conducted  directly
between  currency  traders  (usually large  commercial  banks or other financial
institutions)  on behalf of their  customers.  Futures  contracts are similar to
forward  contracts except that they are traded on an organized  exchange and the
obligations thereunder may be offset by taking an equal but opposite position to
the original  contract,  with profit or loss  determined by the relative  prices
between the opening and  offsetting  positions.  The Fund  expects to enter into
these currency contracts and swaps in primarily the following circumstances:  to
"lock  in"  the  U.S.  dollar  equivalent  price  of  a  security  the  Fund  is
contemplating to buy or sell that is denominated in a non-U.S.  currency;  or to
protect  against  a  decline  against  the  U.S.  dollar  of the  currency  of a
particular  country  to  which  the  Fund's  portfolio  has  exposure.  The Fund
anticipates  seeking to achieve the same economic  result by utilizing from time
to time  for  such  hedging  a  currency  different  from  the one of the  given
portfolio  security  as long as, in the view of the  Adviser,  such  currency is
essentially  correlated to the currency of the relevant portfolio security based
on historic and expected exchange rate patterns.

      Although the Adviser has no current intention of using such instruments on
behalf  of the Fund,  it may  choose to do so at a future  date  depending  upon
market conditions  prevailing at such time and 



B-10
<PAGE>

the perceived  investment needs of the Fund.  Futures  contracts,  interest rate
swaps, options on securities, indices and futures contracts and certain currency
contracts  sold by the Fund are generally  subject to  segregation  and coverage
requirements  with the result  that,  if the Trust does not hold the security or
futures  contract  underlying  the  instrument,  the Fund  will be  required  to
segregate  on an  ongoing  basis  with  its  custodian,  cash,  U.S.  government
securities,  or other high grade liquid debt  obligations  in an amount at least
equal to the Fund's  obligations with respect to such instruments.  Such amounts
fluctuate as the obligations increase or decrease.  The segregation  requirement
can  result in the Fund  maintaining  securities  positions  it would  otherwise
liquidate or segregating assets at a time when it might be disadvantageous to do
so.


                                   THE ADVISER

      The Adviser is a New York  corporation  with principal  offices located at
One Corporate Center, Rye, New York 10580-1434.

      Pursuant to an  Investment  Advisory  Contract  which was  approved by the
Fund's sole  shareholder  on March 12, 1993 the Adviser  furnishes a  continuous
investment  program for the Fund's  portfolio,  makes the day-to-day  investment
decisions  for the Fund,  arranges the portfolio  transactions  for the Fund and
generally manages the Fund's  investments in accordance with the stated policies
of the Fund, subject to the general supervision of the Board of Directors of the
Corporation.

      Under the Investment Advisory Contract,  the Adviser also (1) provides the
Fund with the  services  of  persons  competent  to  perform  such  supervisory,
administrative,  and clerical  functions as are  necessary to provide  efficient
administration of the Fund, including  maintaining certain books and records and
overseeing  the  activities  of the Fund's  Custodian  and Transfer  Agent;  (2)
oversees the performance of administrative and professional services provided to
the Fund by others, including the Fund's Custodian,  Transfer Agent and Dividend
Disbursing  Agent,  as well as legal,  accounting,  auditing and other  services
performed  for the Fund;  (3) provides the Fund,  if  requested,  with  adequate
office  space  and  facilities:  (4)  prepares,  but does not pay for,  periodic
updating of the Fund's  registration  statement,  Prospectus  and  Statement  of
Additional Information, including the printing of such documents for the purpose
of filings with the  Securities  and Exchange  Commission;  (5)  supervises  the
calculation of the net asset value of shares of the Fund; (6) prepares, but does
not pay for, all filings under state "Blue Sky" laws of such states or countries
as are  designated  by the  Distributor,  which may be  required  to register or
qualify,  or continue the registration or qualification,  of the Fund and/or its
shares under such laws; and (7) prepares notices and agendas for meetings of the
Fund's Board of Directors and minutes of such  meetings in all matters  required
by the Investment Company Act of 1940 (the "Act") to be acted upon by the Board.

   
      The Adviser has entered into an  Administration  Contract with Furman Selz
LLC (the "Administrator")  pursuant to which the Administrator  provides certain
administrative  services  necessary for the Fund's  operations  but which do not
concern the investment  advisory and portfolio  management  services provided by
the  Adviser.   For  such  services  and  the  related  expenses  borne  by  the
Administrator,  the Adviser pays a monthly fee at the annual rate of .10% of the
average  net assets of the Fund  (minimum  annual fee of $40,000  and subject to
reduction to .075% on assets of the Gabelli funds under its administration  from
$350  million  up to $600  million  and .06% in excess of $600  million)  which,
together with the services to be rendered, is subject to negotiation between the
parties  and both  parties  retain  the  right  unilaterally  to  terminate  the
arrangement on not less than 60 days' notice.
    

      The Investment Advisory Contract provides that absent willful misfeasance,
bad faith, gross 

                                                                            B-11
<PAGE>

negligence  or reckless  disregard of its duty,  the Adviser and its  employees,
officers, directors and controlling persons are not liable to the Fund or any of
its  investors  for any act or  omission  by the  Adviser  or for any  error  of
judgment or for losses  sustained by the Fund.  However,  the Contract  provides
that  the  Fund is not  waiving  any  rights  it may have  with  respect  to any
violation  of  law  which  cannot  be  waived.   The  Contract   also   provides
indemnification  for the Adviser  and each of these  persons for any conduct for
which they are not liable to the Fund.  The Investment  Advisory  Contract in no
way restricts the Adviser from acting as adviser to others.  The Fund has agreed
by the terms of the Investment  Advisory Contract that the word "Gabelli" in its
name is derived  from the name of the Adviser  which in turn is derived from the
name of Mario J.  Gabelli;  that such name is the  property  of the  Adviser for
copyright  and/or other purposes;  and that  therefore,  such name may freely be
used by the Adviser for other investment  companies,  entities or products.  The
Fund has  further  agreed  that in the event that for any  reason,  the  Adviser
ceases to be its investment adviser, the Fund will, unless the Adviser otherwise
consents in writing, promptly take all steps necessary to change its name to one
which does not include "Gabelli."

      The  Investment  Advisory  Contract is terminable  without  penalty by the
Corporation on not more than sixty days' written  notice when  authorized by the
Directors of the  Corporation,  by the holders of a majority,  as defined in the
Act,  of the  outstanding  shares of the  Corporation,  or by the  Adviser.  The
Investment  Advisory Contract will  automatically  terminate in the event of its
assignment,  as  defined  in the Act and rules  thereunder  except to the extent
otherwise  provided  by order of the  Commission  or any rule  under the Act and
except to the extent the Act no longer  provides for automatic  termination,  in
which case the approval of a majority of the disinterested directors is required
for any "assignment." The Investment  Advisory Contract provides in effect, that
unless  terminated  it will  remain  in  effect  so long as  continuance  of the
Investment  Advisory Contract is approved annually by the Directors of the Fund,
or the  shareholders  of the Fund and in either case,  by a majority vote of the
Directors who are not parties to the Investment Advisory Contract or "interested
persons"  as defined in the Act of any such  person  cast in person at a meeting
called  specifically  for  the  purpose  of  voting  on the  continuance  of the
Investment Advisory Contract.

   
      The  Investment  Advisory  Contract  also  provides  that the  Adviser  is
obligated  to  reimburse to the Fund any amount up to the amount of its advisory
fee by which its  aggregate  expenses  including  advisory  fees  payable to the
Adviser  (but  excluding  interest,   taxes,  Rule  12b-1  expenses,   brokerage
commissions,  extraordinary  expenses and any other  expenses not subject to any
applicable  expense  limitation)  during the portion of any fiscal year in which
the Contract is in effect exceed the most restrictive expense limitation imposed
by the  securities law of any  jurisdiction  in which the shares of the Fund are
registered or qualified for sale.  Such  limitation is currently  believed to be
2.5% of the  first $30  million  of  average  net  assets,  2.0% of the next $70
million of average  net assets and 1.5% of average  net assets in excess of $100
million.  For the period from May 14, 1993 (Commencement of Operations)  through
December 31, 1993, the Adviser was entitled to fees of $78,527; however, $63,852
of these fees were waived by the Adviser. For the fiscal year ended December 31,
1994,  the Adviser was entitled to fees of $275,496;  however,  $39,102 of these
fees were  voluntarily  used by the Adviser to assume  expenses of the Fund. For
the fiscal year ended December 31, 1995, the Adviser earned and received fees of
$223,130.  For purposes of this  expense  limitation  Fund  expenses are accrued
monthly and the monthly fee  otherwise  payable to the Adviser will be postponed
to the extent that the includable Fund expenses to date exceed the proportionate
amount of such limitation to date.
    

B-12
<PAGE>

                                 THE DISTRIBUTOR

      The  Corporation  on behalf of the Fund has  entered  into a  Distribution
Agreement  with  Gabelli  &  Company,  Inc.  (the  "Distributor"),  a  New  York
corporation  which is a subsidiary  of Gabelli  Funds,  Inc.,  having  principal
offices  located  at  One  Corporate  Center,  Rye,  New  York  10580-1434.  The
Distributor acts as agent of the Fund for the continuous  offering of its shares
on a best efforts basis.

      The  Distribution  Agreement  is  terminable  by  the  Distributor  or the
Corporation  at any time  without  penalty  on not more than sixty nor less than
thirty days' written notice,  provided, that termination by the Corporation must
be directed or approved by the Board of  Directors  of the  Corporation,  by the
vote  of  the  holders  of a  majority  of  the  outstanding  securities  of the
Corporation,  or by written  consent of a majority of the  directors who are not
interested  persons of the  Corporation  or the  Distributor.  The  Distribution
Agreement  will  automatically  terminate  in the  event of its  assignment,  as
defined in the Act. The Distribution Agreement provides that, unless terminated,
it will remain in effect so long as continuance of the Distribution Agreement is
approved  annually by the  Corporation's  Board of Directors or by a majority of
the outstanding  voting securities of the Corporation,  and in either case, also
by a majority of the Directors who are not interested persons of the Corporation
or the Distributor.

   
      During the fiscal year ended  December  31,  1995,  the  Distributor  paid
distribution  expenses under the  Distribution  Plan of $96,107.  Of this amount
$23,106  was spent on  printing,  postage  and  stationery,  $14,350 on overhead
support  expenses  and  $58,651 on  salaries of  personnel  of the  Distributor.
Pursuant to the  Distribution  Plan, the Fund paid the Distributor  $55,816,  or
 .25% of its average net assets.
    


                             DIRECTORS AND OFFICERS

      The Directors and Executive  Officers of the Corporation,  their principal
business occupations during the last five years and their affiliations,  if any,
with the Adviser or the Administrator,  are shown below.  Directors deemed to be
"interested  persons" of the Fund for purposes of the Investment  Company Act of
1940 are indicated by an asterisk.





   
                                       Principal Occupations During Last Five 
                                       Years; Affiliations with the 
Name, Position with Fund and Address   Adviser or Administrator.
- ------------------------------------   -----------------------------------------
Mario J. Gabelli*                      Chairman, President, Chief Executive    
President, Director and                Officer and a Director of Gabelli Funds,
Chief Investment Officer               Inc., the Adviser and the indirect      
One Corporate Center                   parent of Gabelli & Company, Inc., the  
Rye, New York 10580                    Distributor; Chief Investment Officer of
Age: 53                                GAMCO Investors, Inc.; President and    
                                       Chairman of The Gabelli Equity Trust    
                                       Inc.; President, Chief Investment Officer
                                       and Director of Gabelli Equity Series
                                       Funds, Inc., Gabelli Gold Fund, Inc.,
                                       Gabelli Global Series Funds, Inc., The
                                       Gabelli Capital Series Funds, Inc. and
                                       The Gabelli Value Fund Inc., The Gabelli
                                       Convertible Securities Fund, Inc., and
                                       Trustee of The Gabelli Asset Fund; The
                                       Gabelli Growth Fund and The Gabelli Money
                                       Market Funds; Chairman and Director of
                                       Lynch Corporation and The Gabelli Global
                                       Governments Fund; Director of the Morgan 
                                       Group, Inc. and Spinnaker Industries, 
                                       Inc.
    

                                                                            B-13
<PAGE>

                                       Principal Occupations During Last Five 
                                       Years; Affiliations with the 
Name, Position with Fund and Address   Adviser or Administrator.
- ------------------------------------   -----------------------------------------

   
Anthony J. Colavita                    President and Attorney at Law in the law 
Director                               firm of Anthony J. Colavita, P.C. since  
575 White Plains Road                  1961; Director of The Gabelli Value Fund 
Eastchester, New York 10709            Inc., Gabelli Global Series Funds, Inc., 
Age: 60                                The Gabelli Convertible Securities Fund, 
                                       Inc., The Gabelli Capital Series Funds,  
                                       Inc., The Gabelli Global Governments     
                                       Fund and Gabelli Equity Series Funds,    
                                       Inc.; Trustee of The Gabelli Asset Fund, 
                                       The Gabelli Money Market Funds, The      
                                       Gabelli Growth Fund and The Westwood     
                                       Funds.                                   

Vincent D. Enright                     Senior Vice President of Brooklyn Union
Director                               Gas Company; Director of Gabelli Equity
One Metro Tech Center                  Series Funds, Inc.; Trustee of The     
Brooklyn, New York 11201               Gabelli Money Market Funds.            
Age: 52                                
    

Karl Otto Pohl*                        Partner of Sal Oppenheim Jr. & Cie.     
Director                               (private investment bank); Former       
One Corporate Center                   President of the Deutsche Bundesbank    
Rye, New York 10580                    (Germany's Central Bank) and Chairman of
Age: 65                                its Central Bank Council (1980-1991);   
                                       Currently board member of IBM World     
                                       Trade Europe/Middle East/ Africa Corp.; 
                                       Bertelsmann AG; Zurich                  
                                       Versicherungs-Gesellshaft (insurance);  
                                       the International Advisory Board of     
                                       General Electric Company; the           
                                       International Council for JP Morgan &   
                                       Co.; the Board of Supervisory Directors 
                                       of ROBECo/o Group; and the Supervisory  
                                       Board of Royal Dutch (petroleum         
                                       company); Advisory Director of Unilever 
                                       N.V. and Unilever Deutschland; German   
                                       Governor, International Monetary Fund   
                                       (1980-1991); Board Member, Bank for     
                                       International Settlements (1980-1991);  
                                       Chairman, European Economic Community   
                                       Central Bank Governors (1990-1991);     
                                       Director/Trustee of all Funds managed by
                                       the Adviser.                            
                                                                               
   
Werner Roeder, M.D.                    Director of Surgery, Lawrence Hospital  
Director                               and practicing private physician.       
One Corporate Center                   Director of Gabelli Global Series Funds,
Rye, New York 10580                    Inc., The Gabelli Capital Series Fund,  
Age: 55                                Inc., The Gabelli Global Governments    
                                       Fund, Gabelli International Growth Fund,
                                       Inc. and Gabelli Gold Fund, Inc.        
    
                                       




B-14
<PAGE>

                                       Principal Occupations During Last Five 
                                       Years; Affiliations with the 
Name, Position with Fund and Address   Adviser or Administrator.
- ------------------------------------   -----------------------------------------

   
Bruce N. Alpert                        Vice President, Treasurer and Chief     
Vice President and                     Financial Officer of the investment     
Treasurer                              advisory division of the Adviser, Vice  
One Corporate Center                   President and Treasurer of The Gabelli  
Rye, New York 10580                    Equity Trust Inc.; The Gabelli Global   
Age: 44                                Multimedia Trust Inc., The Gabelli      
                                       Convertible Securities Fund, Inc.;      
                                       Gabelli Equity Series Funds, Inc.;      
                                       Gabelli Gold Fund, Inc.; Gabelli Capital
                                       Series Funds; Gabelli International     
                                       Growth Fund, Inc.; Gabelli Global Series
                                       Funds, Inc.; The Gabelli Money Market   
                                       Funds; The Gabelli Value Fund Inc.;     
                                       President and Treasurer of The Gabelli  
                                       Asset Fund and The Gabelli Growth Fund. 
                                       Vice President of The Westwood Funds and
                                       Manager of Teton Advisers LLC.          

James E. McKee                         Vice President and General Counsel of   
Secretary                              GAMCO Investors, Inc. since 1993 and of 
One Corporate Center                   Gabelli Funds, Inc. since August 1995;  
Rye, New York 10580                    Secretary of all Funds advised by       
Age: 32                                Gabelli Funds, Inc. and Teton Advisers  
                                       LLC since August 1995. Branch Chief with
                                       the U.S. Securities and Exchange        
                                       Commission in New York 1992 through     
                                       1993. Staff attorney with the U.S.      
                                       Securities and Exchange Commission in   
                                       New York from 1989 through 1992.        
    

      The Fund pays each  Director  who is not an  employee of the Adviser or an
affiliated  company  an annual  fee of $1,000  and $250 for each  meeting of the
Board of  Directors  attended by the  Director,  and  reimburses  Directors  for
certain travel and other  out-of-pocket  expenses incurred by them in connection
with  attending  such  meetings.  Directors  and  officers  of the  Fund who are
employed by the Adviser or an  affiliated  company  receive no  compensation  or
expense reimbursement from the Corporation.

   
      The  following  table  sets  forth  certain   information   regarding  the
compensation of the Fund's directors and officers. Except as disclosed below, no
executive officer or person affiliated with the Fund received  compensation from
the Fund for the calendar year ended December 31, 1995, in excess of $60,000.
    


                                                                            B-15
<PAGE>

                               COMPENSATION TABLE

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Name of Person,        Aggregate Compensa-  Pension or Retirement  Estimated Annual Ben-  Total Compensation
Position               tion from the Fund   Benefits Accrued as    efits Upon Retirement  From the Fund and
                                            Part of Fund Expenses                         Fund Complex Paid to
                                                                                          Directors*
- --------------------------------------------------------------------------------------------------------------
<S>                           <C>                 <C>                 <C>                  <C>    
Mario J. Gabelli              $    0              0                   N/A                  $     0
Chairman of the Board

   
Vincent D. Enright            $2,000              0                   N/A                  $17,000 (3)
Director

Anthony J. Colavita           $2,000              0                   N/A                  $65,753 (9)
Director

Karl Otto Pohl                $2,000              0                   N/A                  $80,253 (10)
Director

Werner Roeder, M.D.           $2,000              0                   N/A                  $11,253 (6)
Director
</TABLE>
- -------------
*     Represents the total compensation paid to such persons during the calendar
      year ending  December  31, 1995 (and,  with  respect to the Fund  Complex,
      estimated  to be paid  during a full  calendar  year).  The  parenthetical
      number represents the number of investment  companies (including the Fund)
      from which such person receives  compensation  that are considered part of
      the same fund complex as the Fund, because,  among other things, they have
      a common investment adviser.
    


                             INVESTMENT RESTRICTIONS

      The Fund's investment objective and the following investment  restrictions
are  fundamental  and cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities (defined in the 1940 Act as
the lesser of (a) more than 50% of the outstanding  shares or (b) 67% or more of
the shares  represented  at a meeting at which more than 50% of the  outstanding
shares  are  represented).  All  other  investment  policies  or  practices  are
considered  by the Fund not to be  fundamental  and  accordingly  may be changed
without stockholder approval.  If a percentage  restriction on investment or use
of assets set forth below is adhered to at the time a  transaction  is effected,
later  changes in  percentage  resulting  from  changing  market values or total
assets of the Fund will not be considered a deviation from policy.  The Fund may
not:

      (1)  invest  25% or more  of the  value  of its  total  assets  in any one
industry or issuer;

      (2)  issue  senior  securities,  except  that the Fund may  borrow  money,
including  on margin  if margin  securities  are  owned and enter  into  reverse
repurchase  agreements  in an  amount  up to  331  1/43%  of  its  total  assets
(including the amount of such enumerated  senior securities issued but excluding
any liabilities and indebtedness not constituting  senior securities) and except
that the  Fund  may  borrow  up to an  additional  5% of its  total  assets  for
temporary purposes; or pledge its assets other than to secure


B-16
<PAGE>

such  issuances  or  in  connection  with  hedging  transactions,  short  sales,
when-issued  and  forward   commitment   transactions  and  similar   investment
strategies. The Fund's obligations under the foregoing types of transactions and
investment strategies are not treated as senior securities;

      (3) make loans of money or property to any person, except through loans of
portfolio securities, the purchase of fixed income securities or the acquisition
of securities subject to repurchase agreements;

   
      (4) underwrite the securities of other issuers,  except to the extent that
in connection  with the  disposition of portfolio  securities or the sale of its
own shares the Fund may be deemed to be an underwriter;
    

      (5) invest for the purpose of  exercising  control over  management of any
company;

      (6)  purchase  real  estate  or  interests   therein,   including  limited
partnerships that invest primarily in real estate equity  interests,  other than
mortgage-backed  securities,  publicly traded real estate  investment trusts and
similar instruments;

      or

      (7) purchase or sell commodities or commodity contracts except for hedging
purposes or invest in any oil, gas or mineral interests.


                      PORTFOLIO TRANSACTIONS AND BROKERAGE

      The  Adviser  is  authorized  on behalf of the Fund to employ  brokers  to
effect the  purchase  or sale of  portfolio  securities  with the  objective  of
obtaining  prompt,  efficient  and  reliable  execution  and  clearance  of such
transactions  at the most  favorable  price  obtainable  ("best  execution")  at
reasonable  expense.  Transactions  in  securities  other than those for which a
securities  exchange  is the  principal  market  are  generally  done  through a
principal  market maker.  However,  such  transactions may be effected through a
brokerage  firm and a  commission  paid  whenever it appears that the broker can
obtain a more  favorable  overall  price.  In  general,  there  may be no stated
commission in the case of securities traded on the over-the-counter markets, but
the prices of those securities may include  undisclosed  commissions or markups.
Options  transactions will usually be effected through a broker and a commission
will be charged.  The Fund also  expects  that  securities  will be purchased at
times in  underwritten  offerings  where the price  includes  a fixed  amount of
compensation generally referred to as the underwriter's concession or discount.

      The Adviser currently serves as Adviser to a number of investment  company
clients  and may in the  future act as  adviser  to  others.  Affiliates  of the
Adviser  act as  investment  adviser to  numerous  private  accounts.  It is the
practice  of  the  Adviser  and  its  affiliates  to  cause  purchase  and  sale
transactions  to be allocated among the Fund and others whose assets they manage
in such manner as it deems equitable.  In making such allocations among the Fund
and other  client  accounts,  the main  factors  considered  are the  respective
investment  objectives,  the relative size of portfolio  holdings of the same or
comparable  securities,  the  availability of cash for  investment,  the size of
investment   commitments   generally  held  and  the  opinions  of  the  persons
responsible for managing the portfolios of the Fund and other client accounts.

      The policy of the Fund  regarding  purchases and sales of  securities  and
options  for its  portfolio  is that  primary  consideration  will be  given  to
obtaining the most favorable prices and efficient execution of transactions.  In
seeking to implement the Fund's policies,  the Adviser effects transactions with
those brokers and dealers who the Adviser  believes  provide the most  favorable
prices  and are  capable  of  providing  efficient  executions.  If the  Adviser
believes such price and execution are obtainable from


                                                                            B-17
<PAGE>

   
more than one broker or dealer,  it may give  consideration to placing portfolio
transactions  with those brokers and dealers who also furnish research and other
services to the Fund or the Adviser of the type  described  in Section  28(e) of
the Exchange Act of 1934.  In doing so, the Fund may also pay higher  commission
rates than the lowest available when the Adviser believes it is reasonable to do
so in light of the value of the brokerage and research  services provided by the
broker effecting the transaction. Such services may include, but are not limited
to, any one or more of the  following:  information  as to the  availability  of
securities for purchase or sale:  statistical or factual information or opinions
pertaining to  investment;  wire  services;  and  appraisals or  evaluations  of
portfolio  securities.  For the  period  from  May  14,  1993  (Commencement  of
Operations)  through  December 31, 1993 and for the fiscal years ended  December
31, 1994 and December 31, 1995,  the Fund spent a total of $14,811,  $66,827 and
$90,302, respectively, in brokerage commissions.
    

      The Adviser may also place  orders for the  purchase or sale of  portfolio
securities with Gabelli & Company, Inc.  ("Gabelli"),  a broker-dealer member of
the National  Association  of Securities  Dealers,  Inc. and an affiliate of the
Adviser,  when it appears that, as an introducing  broker or otherwise,  Gabelli
can  obtain  a price  and  execution  which is at  least  as  favorable  as that
obtainable by other  qualified  brokers.  The Adviser may also consider sales of
shares of the Fund and any other registered  investment companies managed by the
Adviser and its affiliates by brokers and dealers other than the  Distributor as
a  factor  in  its  selection  of  brokers  and  dealers  to  execute  portfolio
transactions for the Fund.
   
      As  required  by Rule  17e-1  under the Act,  the Board of  Directors  has
adopted "Procedures" which provide that the commissions paid to Gabelli on stock
exchange  transactions  may not  exceed  that which  would have been  charged by
another  qualified broker or member firm able to effect the same or a comparable
transaction at an equally favorable price. Rule 17e-1 and the Procedures contain
requirements  that the  Board,  including  its  independent  Directors,  conduct
periodic  compliance  reviews of such  brokerage  allocations  and  review  such
schedule at least  annually for its  continuing  compliance  with the  foregoing
standard.  The  Adviser and  Gabelli  are also  required to furnish  reports and
maintain  records in connection  with such reviews.  For the period from May 14,
1993 (Commencement of Operations)  through December 31, 1993, and for the fiscal
years ended  December 31, 1994 and  December 31, 1995,  the Fund paid a total of
$3,755, $11,397 and $25,448, respectively, in brokerage commissions to Gabelli &
Company,  Inc. and affiliates.  These amounts represent 25.4%,  17.1% and 27.9%,
respectively, of the Fund's aggregate brokerage commissions and 28.2%, 26.0% and
27.6%,  respectively,  of the Fund's  aggregate  dollar  amount of  transactions
involving the payment of commissions.
    

      To obtain the best  execution  of  portfolio  trades on the New York Stock
Exchange  ("Exchange"),  Gabelli  controls and  monitors  the  execution of such
transactions on the floor of the Exchange through independent "floor brokers" or
through the Designated  Order  Turnaround  ("DOT") System of the Exchange.  Such
transactions are then cleared, confirmed to the Fund for the account of Gabelli,
and settled  directly with the Custodian of the Fund by a clearing  house member
firm which remits the commission less its clearing  charges to Gabelli.  Gabelli
may also effect Fund portfolio  transactions  in the same manner and pursuant to
the same arrangements on other national securities  exchanges which adopt direct
access rules similar to those of the New York Stock Exchange.


B-18
<PAGE>

                        PURCHASE AND REDEMPTION OF SHARES

      Cancellation  of purchase  orders for Fund shares (as, for  example,  when
checks  submitted  to purchase  shares are returned  unpaid)  cause a loss to be
incurred when the net asset value of the Fund shares on the date of cancellation
is less than on the original date of purchase.  The investor is responsible  for
such loss, and the Fund may reimburse shares from any account registered in that
shareholder's  name,  or by  seeking  other  redress.  If the Fund is  unable to
recover any loss to itself,  it is the position of the SEC that the  Distributor
will be immediately obligated to make the Fund whole.

      To minimize expenses, the Fund reserves the right to redeem, upon not less
than 30 days  notice,  all shares of the Fund in an account  (other than an IRA)
which as a result  of  shareholder  redemption  has a value  below  $500 and has
reserved  the  ability  to  raise  this  amount  to up to  $10,000.  However,  a
shareholder  will be allowed to make  additional  investments  prior to the date
fixed for redemption to avoid liquidation of the account.


                       DIVIDENDS, DISTRIBUTIONS AND TAXES

General

      The Fund will  determine  either to distribute or to retain all or part of
any net long-term capital gains in any year for reinvestment.  If any such gains
are retained,  the Fund will be subject to a tax of 34% of such amount.  In that
event,  the Fund  expects to  designate  the  retained  amount as  undistributed
capital gains in a notice to its shareholders, each of whom (1) will be required
to include in income for tax purposes as long-term  capital gains,  its share of
undistributed  amount, (2) will be entitled to credit its proportionate share of
the tax paid by the Fund against its Federal  income tax  liability and to claim
refunds to the extent the credit exceeds such  liability,  and (3) will increase
its basis in its  shares of the Fund by an amount  equal to 66% of the amount of
undistributed capital gains included in such shareholder's gross income.

      Under the Code,  amounts not  distributed  on a timely basis in accordance
with a calendar year distribution  requirement are subject to a nondeductible 4%
excise  tax. To avoid the tax,  the Fund must  distribute  during each  calendar
year,  an amount  equal to, at the  minimum,  the sum of (1) 98% of its ordinary
income (not taking into  account any capital  gains or losses) for the  calendar
year,  (2) 98% of its  capital  gains in excess of its  capital  losses  for the
twelve-month  period  ending on  October  31 of the  calendar  year,  (unless an
election  is made by a fund with a  November  or  December  year-end  to use the
fund's  fiscal  year) and (3) all  ordinary  income  and net  capital  gains for
previous years that were not  previously  distributed.  A  distribution  will be
treated as paid during the calendar  year if it is paid during the calendar year
or declared by the Fund in October, November or December of the year, payable to
shareholders  of record on a date  during such month and paid by the Fund during
January of the following year. Any such distributions paid during January of the
following  year will be deemed to be  received  on  December  31 of the year the
distributions are declared, rather than when the distributions are received.

      Gains or losses on the sales of  securities  by the Fund will be long-term
capital  gains or losses if the  securities  have been held by the Fund for more
than twelve  months.  Gains or losses on the sale of securities  held for twelve
months or less will be short-term capital gains or losses.

      The Fund  intends to  qualify  as a  regulated  investment  company  under
Subchapter  M of the Code.  If so  qualified,  the Fund will not be  subject  to
Federal  income  tax on its net  investment  income and net  short-term  capital
gains,  if any,  realized  during any fiscal year in which it  distributes  such
income and capital gains to its shareholders.


                                                                            B-19
<PAGE>

Hedging Transactions

      Certain options,  futures  contracts and options on futures  contracts are
"section  1256  contracts".  Any gains or losses on section 1256  contracts  are
generally  considered 60% long-term and 40%  short-term  capital gains or losses
("60/40").  Also,  section  1256  contracts  held by the Fund at the end of each
taxable year are  "marked-to-market"  with the result that  unrealized  gains or
losses are treated as though they were realized and the  resulting  gain or loss
is treated as 60/40 gain or loss.

      Generally,  the hedging transactions  undertaken by the Fund may result in
"straddles" for U.S. Federal income tax purposes.  The straddle rules may affect
the  character of gains (or losses)  realized by the Fund.  In addition,  losses
realized by the Fund on  positions  that are part of a straddle  may be deferred
under the straddle  rules,  rather than being taken into account in  calculating
the taxable income for the taxable year in which such losses are realized.

      Further,  the Fund may be  required  to  capitalize,  rather  than  deduct
currently,  any  interest  expense on  indebtedness  incurred  or  continued  to
purchase or carry any positions that are part of a straddle.  Because only a few
regulations  implementing  the  straddle  rules have been  promulgated,  the tax
consequences of hedging transactions to the Fund are not entirely clear.

      The Fund may make one or more of the  elections  available  under the Code
which are applicable to straddles.  If the Fund makes any of the elections,  the
amount,  character  and timing of the  recognition  of gains or losses  from the
affected  straddle  positions will be determined under rules that vary according
to the  election(s)  made. The rules  applicable  under certain of the elections
accelerate  the  recognition  of gains or  losses  from  the  affected  straddle
positions.

      Because  application  of the  straddle  rules may affect the  character of
gains or losses,  defer losses and/or  accelerate  the  recognition  of gains or
losses from the affected straddle  positions,  and require the capitalization of
interest  expense,  the amount which must be  distributed to  shareholders,  and
which will be taxed to  shareholders  as ordinary  income or  long-term  capital
gain, may be increased or decreased substantially as compared to a fund that did
not engage in such hedging transactions.

      The 30% limitation and the diversification  requirements applicable to the
Fund's  assets  may limit the extent to which the Fund will be able to engage in
transactions in options, futures contracts and options on futures contracts.

Distributions

      Distributions of investment company taxable income (which includes taxable
interest  income and the excess of net  short-term  capital gains over long-term
capital losses) are taxable to a U.S.  shareholder as ordinary  income,  whether
paid in cash or  shares.  Dividends  paid by the Fund will  qualify  for the 70%
deduction for dividends received by corporations to the extent the Fund's income
consists of qualified dividends received from U.S.  corporations.  Distributions
of net capital  gains (which  consists of the excess of long-term  capital gains
over net short-term  capital losses),  if any, are taxable as long-term  capital
gains, whether paid in cash or in shares, and are not eligible for the dividends
received deduction.  Shareholders  receiving  distributions in the form of newly
issued  shares  will have a basis in such  shares of the Fund  equal to the fair
market value of such shares on the distribution  date. If the net asset value of
shares is reduced below a  shareholder's  cost as a result of a distribution  by
the Fund, such  distribution  will be taxable even though it represents a return
of invested capital.  The price of shares purchased at this time may reflect the
amount  of the  forthcoming  distribution.  Those  purchasing  just  prior  to a
distribution  will receive a distribution  which will nevertheless be taxable to
them.


B-20
<PAGE>

Sales of Shares

      Upon a sale or exchange of his or her shares, a shareholder will realize a
taxable gain or loss depending upon his or her basis in the shares. Such gain or
loss will be treated as a long-term capital gain or loss if the shares have been
held for more than one year.  Any loss  realized on a sale or  exchange  will be
disallowed to the extent the shares  disposed of are replaced within a period of
61 days  beginning  30 days  before  and  ending 30 days  after the  shares  are
disposed of. In such case, the basis of the shares  acquired will be adjusted to
reflect the disallowed loss.

      Any loss realized by a shareholder  on the sale of Fund shares held by the
shareholder  for six  months  or less  will be  treated  for tax  purposes  as a
long-term  capital loss to the extent of any  distributions of net capital gains
received by the shareholder with respect to such shares.

Backup Withholding

      The Corporation may be required to withhold Federal income tax at the rate
of 31% of all taxable  distributions payable to shareholders who fail to provide
the Fund with their correct taxpayer  identification  number or to make required
certifications,  or who have been notified by the Internal  Revenue Service that
they are subject to backup withholding.  Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's Federal income
tax liability.

Foreign Withholding Taxes

      Income  received by the Fund from sources within foreign  countries may be
subject  to  withholding  and  other  taxes  imposed  by  such  countries.   Tax
conventions  between  certain  countries  and the  United  States  may reduce or
eliminate  such taxes.  It is impossible to determine the rate of foreign tax in
advance  since  the  amount  of the  Fund's  assets to be  invested  in  various
countries  is not  known.  Because  the Fund  will not have more than 50% of its
total assets invested in securities of foreign governments or corporations,  the
Fund will not be  entitled  to  "pass-through"  to  shareholders  the  amount of
foreign  taxes  paid by the  Fund.  Shareholders  are  urged  to  consult  their
attorneys or tax advisers regarding  specific questions as to Federal,  state or
local taxes.


                        DETERMINATION OF NET ASSET VALUE

      For purposes of determining the Fund's net asset value per share,  readily
marketable  portfolio  securities  listed  on the New York  Stock  Exchange  are
valued, except as indicated below, at the last sale price reflected at the close
of the regular  trading  session of the New York Stock  Exchange on the business
day as of which  such  value is being  determined.  If there has been no sale on
such day,  the  securities  are valued at the mean of the  closing bid and asked
prices on such day. If no bid or asked  prices are quoted on such day,  then the
security is valued by such method as the Board of Directors  shall  determine in
good faith to reflect its fair market value.  Readily marketable  securities not
listed on the New York Stock  Exchange but listed on other  national  securities
exchanges  or  admitted to trading on the  National  Association  of  Securities
Dealers Automated  Quotations,  Inc. ("NASDAQ") National List are valued in like
manner.  Portfolio  securities  traded  on more  than  one  national  securities
exchange  are valued at the last sale price on the business day as of which such
value is being  determined as reflected on the tape at the close of the exchange
representing the principal market for such securities.

      Readily  marketable  securities  traded  in the  over-the-counter  market,
including  listed  securities whose primary market is believed by the Adviser to
be over-the-counter  but excluding  securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked


                                                                            B-21
<PAGE>

prices as reported by NASDAQ or, in the case of securities not quoted by NASDAQ,
the National  Quotation Bureau or such other comparable  sources as the Board of
Directors deems appropriate to reflect their fair value.

      United States  Government  obligations and other debt  instruments  having
sixty days or less remaining  until maturity are stated at amortized  cost. Debt
instruments  having a greater  remaining  maturity will be valued at the highest
bid price  obtained from a dealer  maintaining an active market in that security
or on the basis of prices obtained from a pricing  service  approved as reliable
by the Board of Directors. All other investment assets, including restricted and
not readily marketable  securities,  are valued under procedures  established by
and under the general  supervision  and  responsibility  of the Fund's  Board of
Directors designed to reflect in good faith the fair value of such securities.

      As  indicated  in the  Prospectus,  the net  asset  value per share of the
Fund's shares will be determined on each day that the New York Stock Exchange is
open for trading. That Exchange annually announces the days on which it will not
be open for trading; the most recent announcement  indicates that it will not be
open on the following days: New Year's Day, President's  Birthday,  Good Friday,
Memorial Day,  Independence Day, Labor Day,  Thanksgiving Day and Christmas Day.
However, that Exchange may close on days not included in that announcement.


                       INVESTMENT PERFORMANCE INFORMATION

      The  Fund  may  furnish   data  about  its   investment   performance   in
advertisements,  sales  literature and reports to  shareholders.  "Total return"
represents  the  annual  percentage  change in value of $1,000  invested  at the
maximum  public  offering price for the one year period and the life of the Fund
through the most recent calendar quarter, assuming reinvestment of all dividends
and distributions. The Fund may also furnish total return calculations for these
and other  periods,  based on  investments at various sales charge levels or net
asset value.  Any performance  data which is based on the Fund's net asset value
per share would be reduced if a sales charge were taken into account.

      Quotations  of yield  will be based on the  investment  income  per  share
earned  during a particular  30 day period,  less  expenses  accrued  during the
period ("net investment income") and will be computed by dividing net investment
income by the  maximum  offering  price per share on the last day of the period,
according to the following formula:

                       YIELD = 2[((A-B)/(CD)+ 1))^ 6 - 1]

   
where A = dividends and interest earned during the period,  B = expenses accrued
for the period  (net of any  reimbursements),  C = the average  daily  number of
shares  outstanding  during the period that were entitled to receive  dividends,
and D = the maximum offering price per share on the last day of the period.  For
the 30 day period ended December 31, 1995, the Fund's yield was 0.66%.
    

      Quotations  of  total  return  will  reflect  only  the  performance  of a
hypothetical investment in the Fund during the particular time period shown. The
Fund's  total return and current  yield may vary from time to time  depending on
market  conditions,  the  compositions  of the Fund's  portfolio  and  operating
expenses.  These  factors  and  possible  differences  in the  methods  used  in
calculating  yield should be considered  when comparing the Fund's current yield
to  yields  published  for  other  investment  companies  and  other  investment
vehicles. Total return and yield should also be considered relative to change in
the value of the Fund's shares and the risks  associated with Fund's  investment
objectives and policies.  At any time in the future, total returns and yield may
be higher or lower than past total returns and yields and


B-22
<PAGE>

there can be no assurance that any historical return or yield will continue.

      From  time to time  evaluations  of  performance  are made by  independent
sources that may be used in  advertisements  concerning the fund.  These sources
include:  Lipper Analytical Services,  Weisenberger  Investment Company Service,
Barron's, Business Week, Kiplinger's Personal Financial Report, Financial World,
Forbes,  Fortune,  Money,  Personal Investor,  Sylvia Porter's Personal Finance,
Bank Rate Monitor, Morningstar and The Wall Street Journal.

      In connection with  communicating  its yield or total return to current or
prospective  shareholders,  the Fund  may  also  compare  these  figures  to the
performance  of other mutual funds tracked by mutual fund rating  services or to
other unmanaged indexes which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.

      Quotations of the Fund's total return will  represent  the average  annual
compounded rate of return of a hypothetical  investment in the Fund over periods
of 1, 5, and 10 years (up to the life of the Fund), and are calculated  pursuant
to the following formula:

                              T = (ERV/P)^(1/n) - 1

(where P = a  hypothetical  initial  payment of $1,000,  T = the average  annual
total return, n = the number of years, and ERV = the redeemable value at the end
of the period of a $1,000  payment made at the  beginning  of the  period).  All
total return figures will reflect the deduction of Fund expenses (net of certain
expenses reimbursed by the Adviser) on an annual basis, and will assume that all
dividends and  distributions  are  reinvested  and will deduct the maximum sales
charge, if any is imposed.

   
      For the fiscal year ended  December 31, 1995,  the Fund's  average  annual
total return was 11.2%. Including the effect of the 2% sales charge, the average
annual total return was 8.8%.
    


                          SHARES OF BENEFICIAL INTEREST
                          -----------------------------

   
      As of the date of this Statement of Additional  Information,  the Officers
and  Directors  of the Fund as a group  owned  less  than 1% of the  outstanding
shares.

      As of April 12,  1996,  there  were no 5% or greater  shareholders  of the
Fund.
    


                                                                            B-23
<PAGE>

   
                 APPENDIX TO STATEMENT OF ADDITIONAL INFORMATION

Description of Moody's Investors
Services, Inc.'s ("Moody's") Corporate
Bond Ratings
    

      Aaa: Bonds which are rated Aaa are judged to be of the best quality.  They
carry the smallest  degree of investment  risk and are generally  referred to as
"gilt edge." Interest  payments are protected by a large or by an  exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change,  such changes as can be visualized are most unlikely to impair
the fundamentally  strong position of such issues.  Aa: Bonds which are rated Aa
are judged to be of high quality by all  standards.  Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because  margins of protection may not be as large as in Aaa
securities or fluctuation of protective  elements may be of greater amplitude or
there  may be other  elements  present  which  made the long term  risks  appear
somewhat larger than in Aaa securities.  A: Bonds which are rated A possess many
favorable  investment  attributes and are to be considered as upper medium grade
obligations.  Factors  giving  security to principal and interest are considered
adequate  but  elements  may  be  present  which  suggest  a  susceptibility  to
impairment sometime in the future. Baa: Bonds which are rated Baa are considered
as medium grade obligations,  i.e., they are neither highly protected nor poorly
secured.  Interest  payments  and  principal  security  appear  adequate for the
present   but   certain   protective   elements   may  be   lacking  or  may  be
characteristically  unreliable  over any great  length of time.  Such bonds lack
outstanding   investment   characteristics   and  in   fact   have   speculative
characteristics  as well.  Ba:  Bonds  which  are  rated Ba are  judged  to have
speculative elements;  their future cannot be considered as well assured.  Often
the  protection  of interest and  principal  payments  may be very  moderate and
thereby  not well  safeguarded  during  both good and bad times over the future.
Uncertainty of position  characterizes  bonds in this class.  B: Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Caa: Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with  respect to  principal  or  interest.  Ca:  Bonds which are rated Ca
represent  obligations  which are speculative in a high degree.  Such issues are
often in default or have other marked  shortcomings.  C: Bonds which are rated C
are the  lowest  rated  class of bonds and  issues so rated can be  regarded  as
having extremely poor prospects of ever attaining any real investment standing.

      Note:  Moody's may apply numerical  modifiers,  1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates  that the  security  ranks in the higher end of its generic
rating category;  the modifier 2 indicates a mid-range ranking; and the modifier
3  indicates  that  the  issue  ranks in the  lower  end of its  generic  rating
category.

Description of Standard & Poor's
Rating Group ("S&P's") Corporate Debt
Ratings

      AAA: Debt rated AAA has the highest rating assigned by S&P's.  Capacity to
pay interest and repay  principal is extremely  strong.  AA: Debt rated AA has a
very strong  capacity to pay interest and repay  principal  and differs from the
highest rated issues only in small degree. A: Debt rated A has a strong


B-24
<PAGE>

capacity to pay  interest  and repay  principal  although  it is  somewhat  more
susceptible  to the adverse  effects of changes in  circumstances  and  economic
conditions than debt in higher rated categories. BBB: Debt rated BBB is regarded
as having  adequate  capacity to pay  interest and repay  principal.  Whereas it
normally exhibits protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay  principal  for  debt in this  category  than  for  debt in  higher  rated
categories.  BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded,  on
balance,  as predominantly  speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation.  While
such debt will likely have some quality and  protective  characteristics,  these
are  outweighed  by large  uncertainties  or major  risk  exposures  to  adverse
conditions.  CI: The rating CI is reserved for income bonds on which no interest
is being paid. D: Debt rated D is in payment  default.  The D rating category is
used when interest  payments or principal  payments are not made on the date due
even if the applicable grace period has not expired,  unless S&P's believes that
such payments  will be made during such grace period.  The D rating also will be
used upon the filing of a  bankruptcy  petition  if debt  service  payments  are
jeopardized.

      Plus (+) or Minus (-):  The ratings  from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative  standing within the major
rating categories.


Description of Moody's Preferred Stock
Ratings

      aaa:  An issue  which  is  rated  aaa is  considered  to be a  top-quality
preferred stock.  This rating indicates good asset protection and the least risk
of dividend  impairment  within the universe of preferred  stocks.  aa: An issue
which is rated aa is  considered  a  high-grade  preferred  stock.  This  rating
indicates that there is reasonable  assurance that earnings and asset protection
will remain  relatively  well maintained in the forseeable  future.  a: An issue
which is rated a is  considered  to be an upper  medium grade  preferred  stock.
While  risks  are  judged  to be  somewhat  greater  than  in  the  aaa  and  aa
classifications,  earnings and asset protection are, nevertheless expected to be
maintained at adequate levels. baa: An issue which is rated baa is considered to
be medium grade, neither highly protected nor poorly secured. Earnings and asset
protection  appear  adequate at present but may be  questionable  over any great
length of time. ba: An issue which is rated ba is considered to have speculative
elements and its future  cannot be considered  well assured.  Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty  of position  characterizes  preferred  stocks in this class.  b: An
issue  which is rated b  generally  lacks  the  characteristics  of a  desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long  period of time may be small.  caa:  An issue which is rated
caa is likely to be in arrears on dividend  payments.  This  rating  designation
does not purport to indicate the future status of payment. ca: An issue which is
rated ca is  speculative  in a high  degree  and is likely to be in  arrears  on
dividends  with little  likelihood  of eventual  payment.  c: This is the lowest
rated class of preferred or preference stock. Issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

      Note:  Moody's  may apply  numerical  modifiers  1, 2 and 3 in each rating
classification  from "aa" through "b" in its preferred stock rating system.  The
modifier 1 indicates  that the  security  ranks in the higher end of its generic
rating category;  the modifier 2 indicates a mid-range ranking; and the modifier
3  indicates  that  the  issue  ranks in the  lower  end of its  generic  rating
category.


                                                                            B-25
<PAGE>

Description of S&P's Preferred Stock
Ratings

      AAA:  This is the  highest  rating  that  may be  assigned  by  S&P's to a
preferred  stock issue and  indicates  an extremely  strong  capacity to pay the
preferred stock obligations. AA: A preferred stock issue rated AA also qualifies
as a high-quality  fixed income  security.  The capacity to pay preferred  stock
obligations  is very strong,  although not as  overwhelming  as for issues rated
AAA.  A: An issue  rated A is backed by a sound  capacity  to pay the  preferred
stock  obligations,  although it is  somewhat  more  susceptible  to the adverse
effect of changes in circumstances and economic conditions.  BBB: An issue rated
BBB is  regarded as backed by an adequate  capacity to pay the  preferred  stock
obligations.  Whereas  it  normally  exhibits  adequate  protection  parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make payments for a preferred stock in this category than
for issues in the A category.  BB, B, CCC:  Preferred stock rated BB, B, and CCC
are  regarded,  on balance,  as  predominantly  speculative  with respect to the
issuer's  capacity to pay preferred stock  obligations.  BB indicates the lowest
degree of  speculation  and CCC the highest  degree of  speculation.  While such
issues will likely have some quality and protective  characteristics,  these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CC: The rating CC is reserved  for a preferred  stock in arrears on dividends or
sinking fund payments but that is currently paying. C: A preferred stock rated C
is a non-paying  issue. D: A preferred stock rated D is a non-paying  issue with
the issuer in default on debt instruments.

      Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition  of a plus or minus  sign to show  relative  standing  within the major
rating categories.


B-26
<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.


                                      B-27
<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 investments
        and 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
================================================================================

<TABLE>
<CAPTION>
                                                                                     Year Ended                     Year Ended
                                                                                  December 31, 1995              December 31, 1994
                                                                                 ------------------             ------------------
        <S>                                                                           <C>                            <C>       
        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
                                                                                     ===========                    ===========
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                      B-28
<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:

                                      B-29
<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
1.00% per annum of the Fund's

                                      B-30
<PAGE>

The Gabelli ABC Fund
Notes to Financial Statements (Continued)
================================================================================
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>
                                                                       Year Ended December 31,                  May 14, 1993        
                                                                  ---------------------------------     (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.


                                      B-31
<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


                                      B-32
<PAGE>

                            PART C: OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(A)  Financial Statements:

(1)  Financial Statements included in Part A, the Prospectus:

      (a)   Financial  Highlights for the period from May 14, 1993 (commencement
            of  operations)  through  December 31, 1993 and for the fiscal years
            ended December 31, 1994 and December 31, 1995.

(2)   Financial  Statements  included  in Part B, the  Statement  of  Additional
      Information:

      (a)   Report of Independent Auditors**
   
      (b)   Statement  of Assets  and  Liabilities  for the  fiscal  year  ended
            December 31, 1995.

      (c)   Portfolio of Investments, December 31, 1995.

      (d)   Statement of Operations for the fiscal year ended December 31, 1995.

      (e)   Statement  of  Changes in Net  Assets  for the  fiscal  years  ended
            December 31, 1995 and December 31, 1994.**

      (f)   Financial  Highlights  for the fiscal years ended  December 31, 1995
            and  December  31,  1994  and  for the  period  from  May  14,  1993
            (commencement of operations) through December 31, 1993.**
    
      (g)   Notes to the Financial Statements**

(B) Exhibits:

       Exhibit No.      Description of Exhibits
            1           Articles of Incorporation of Registrant*
            2           By-Laws of Registrant*
            3           Not applicable
            4           Specimen copies of certificates for shares issued by
                        Registrant*
            5           Form of Investment Advisory Agreement*
            6           Form of Distribution Agreement*
            7           Not applicable
          8(a)          Form of Custodian Contract*
            9           Form of Transfer Agency and Service Agreement*
          10(a)         Opinion and consent of Counsel for the Registrant*
          11(a)         Consent of Independent Auditors
           12           Not applicable
           13           Subscription Agreement*
           14           Not Applicable
           15           Distribution Plan under Rule 12b-1*
           16           Computation of Performance Quotations
           17           Financial Data Schedule


                                                                             C-1
<PAGE>

       Exhibit No.      Description of Exhibits
           18           Form of Reimbursement Agreement for Performance Guaranty
                        Program*
          24(a)         Power of Attorney*
          24(b)         Not applicable

- --------------
*     Previously  filed as an exhibit to the  Post-Effective  Amendment No. 1 to
      Registration Statement No. 33-54016 filed on November 4, 1993.

   
**    Previously filed with the Fund's Annual Report for the year ended December
      31, 1995.
    

Item 25. Persons Controlled by or Under Common Control with Registrant

None

Item 26. Number of Holders of Securities

   
As of April 12, 1996,  the  approximate  number of holders of  securities of the
registrant were:

Title of Class                                      Number of Record Holders
Common Stock, par value $.001 per share                       5,035
    

Item 27. Indemnification

Under  Article V, Section 1, of the  registrant's  By-Laws,  any past or present
director or officer of registrant is indemnified to the fullest extent permitted
by  law  against  liability  and  all  expenses  reasonably  incurred  by him in
connection  with any action,  suit or  proceeding  to which he may be a party or
otherwise  involved  by reason of his being or having been a director or officer
of  registrant.  This provision  does not authorize  indemnification  when it is
determined,  in the manner  specified  in the  By-Laws,  that such  director  or
officer would otherwise be liable to registrant or its shareholders by reason of
willful  misfeasance,  bad faith,  gross negligence or reckless disregard of his
duties. In addition,  Section 1 provides that to the fullest extent permitted by
Maryland  General  Corporation Law, as amended from time to time, no director or
officer of the Fund shall be personally  liable to the Fund or its  stockholders
for money  damages,  except to the  extent  such  exemption  from  liability  or
limitation  thereof is not permitted by the  Investment  Company Act of 1940, as
amended  from time to time.  Under  Article V,  Section  2, of the  registrant's
By-Laws,  expenses may be paid by registrant in advance of the final disposition
of any  action,  suit or  proceeding  upon  receipt  of an  undertaking  by such
director or officer to repay such expenses to registrant in the event that it is
ultimately  determined  that  indemnification  of the  advanced  expenses is not
authorized under the By-Laws.  

Insofar as  indemnification  for liability  arising under the  Securities Act of
1933 (the "1933 Act") may be permitted to  directors,  officers and  controlling
persons of registrant pursuant to the foregoing  provisions,  or otherwise,  the
registrant  has been advised that in the opinion of the  Securities and Exchange
Commission  such  indemnification  is against  public policy as expressed in the
1933  Act  and is,  therefore,  unenforceable.  In the  event  that a claim  for
indemnification  against such liabilities  (other than the payment by registrant
of expenses incurred or paid by a director, officer or controlling person of the
registrant  in the  successful  defense of any action,  suit or  proceeding)  is
asserted by such director,  officer or controlling person in connection with the
securities  being  registered,  registrant  will,  unless in the  opinion of its
counsel the matter has been settled by controlling precedent,  submit to a court
of appropriate  jurisdiction the question whether such  indemnification by it is
against  public  policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.


C-2
<PAGE>

Item 28. Business and Other Connections of Investment Adviser

Gabelli Funds, Inc. is the investment adviser of the registrant (the "Adviser").
For a list of officers and directors of the Adviser,  together with  information
as to any other  business,  profession,  vocation or employment of a substantial
nature engaged in by the Adviser or such officers and directors  during the past
two  years,  reference  is made to Form ADV  filed by it  under  the  Investment
Advisers Act of 1940.

Item 29. Principal Underwriters

(A)   The  Distributor,   Gabelli  &  Company,   Inc.,  is  also  the  principal
      underwriter  for The Gabelli Global  Telecommunications  Fund, The Gabelli
      Global  Interactive  Couch Potato  Fund,  The Gabelli  Global  Convertible
      Securities  Fund,  The Gabelli  Growth Fund,  The Gabelli Asset Fund,  The
      Gabelli Value Fund, The Gabelli  Capital Asset Fund, The Gabelli Small Cap
      Growth Fund,  Gabelli  Equity Income Fund,  Gabelli Gold Fund,  Inc.,  The
      Westwood Funds and The Gabelli Money Market Funds.

(B)   For  information  with  respect to each  director and officer of Gabelli &
      Company,  Inc.,  reference  is made to Form BD filed by Gabelli & Company,
      Inc. under the Securities Exchange Act of 1934.

(C)   Inapplicable.

Item 30. Location of Accounts and Records

   
All such accounts,  books and other  documents are maintained at the offices of:
Gabelli Funds,  Inc., One Corporate Center,  Rye, New York,  10580-1434;  Furman
Selz LLC,  230 Park Avenue,  New York,  New York 10169 and State Street Bank and
Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts 02171.
    

Item 31. Management Services

Not applicable.

Item 32. Undertakings

(C)   Registrant  hereby  undertakes  to  furnish  to  each  person  to  whom  a
      prospectus  is delivered a copy of  Registrant's  latest  Annual Report to
      Shareholders upon request and without charge.


                                                                             C-3
<PAGE>

                                   SIGNATURES

   
Pursuant to the  requirements  of the  Securities Act of 1933 and the Investment
Company  Act  of  1940,  the  registrant  certifies  that  it  meets  all of the
requirements  for  effectiveness  of  this   Post-Effective   Amendment  to  the
Registration  Statement pursuant to Rule 485(b) under the Securities Act of 1933
has duly caused this Amendment No. 5 to the Registration  Statement to be signed
on its behalf by the undersigned,  thereunto duly authorized, in the City of Rye
and State of New York on the 26th day of April, 1996.
    

                                                    THE GABELLI INVESTOR FUNDS

                                                    /s/ Bruce N. Alpert
                                                    --------------------------
                                                    By: Bruce N. Alpert
                                                    Vice President and Treasurer

   
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 5
to the  Registration  Statement  has been signed  below by the  following in the
capacities and on the dates indicated.
    

            Signature                  Title                           Date
            ---------                  -----                           ----

   
        *                      President and Trustee             April 26, 1996
- -----------------------
Mario J. Gabelli

        *                      Vice President and Treasurer      April 26, 1996
- -----------------------
Bruce N. Alpert

        *                      Director                          April 26, 1996
- -----------------------
Vincent D. Enright

        *                      Director                          April 26, 1996
- -----------------------
Anthony Colavita

        *                      Director                          April 26, 1996
- -----------------------
Karl Otto Pohl

        *                      Director                          April 26, 1996
- -----------------------
Werner Roeder, M.D.
    

*By:  /s/ Bruce N. Alpert
      -------------------------------------
      Bruce N. Alpert
      Attorney-in-fact


C-4
<PAGE>

                                  EXHIBIT INDEX



 Exhibit No.                Description of Exhibits
 -----------                -----------------------
          11      Consent of Independent Auditors
          16      Computation of Performance Quotations
          17      Financial Data Schedule

                                         CONSENT OF INDEPENDENT CERTIFIED
                                                PUBLIC ACCOUNTANTS




The Gabelli ABC Fund,
         a Series of Gabelli Investor Funds, Inc.



We  hereby  consent  to  the   incorporation  in  the  Statement  of  Additional
Information  constituting  part  of this  Amendment  No.  7 to the  Registration
Statement on Form N-1A of our report dated February 16, 1996,  accompanying  the
financial statements of The Gabelli ABC Fund.

We also consent to the use of our name under the heading "Independent  Auditors"
in the prospectus.



GRANT THORNTON LLP

New York, NY
April 26, 1996




                                  Gabelli ABC
                                  -----------

                            T=((ERV)/P)^(1/n)-1x100
                     T=((1,319/1,000)^(1/(365/1,052))-1)x100
                           T=((1.319)^(1/.3470)-1)x100
                                T=(1.1008-1)x100
                                     T=10.1%




<TABLE> <S> <C>

<ARTICLE> 6
<SERIES>
   <NUMBER> 01
   <NAME> GABELLI INVESTOR FUNDS, INC., GABELLI ABC FUND
<MULTIPLIER> 1000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-END>                               DEC-31-1995
<INVESTMENTS-AT-COST>                            22086
<INVESTMENTS-AT-VALUE>                           21877
<RECEIVABLES>                                      192
<ASSETS-OTHER>                                      58
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                                   22127
<PAYABLE-FOR-SECURITIES>                          1420
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                          845
<TOTAL-LIABILITIES>                               2265
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                         20059
<SHARES-COMMON-STOCK>                             2046
<SHARES-COMMON-PRIOR>                             2552
<ACCUMULATED-NII-CURRENT>                            0
<OVERDISTRIBUTION-NII>                              11
<ACCUMULATED-NET-GAINS>                             23
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                         (209)
<NET-ASSETS>                                     19862
<DIVIDEND-INCOME>                                  221
<INTEREST-INCOME>                                  655
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                     469
<NET-INVESTMENT-INCOME>                            407
<REALIZED-GAINS-CURRENT>                          1432
<APPREC-INCREASE-CURRENT>                          528
<NET-CHANGE-FROM-OPS>                             2367
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                          410
<DISTRIBUTIONS-OF-GAINS>                          1404
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                            277
<NUMBER-OF-SHARES-REDEEMED>                        963
<SHARES-REINVESTED>                                181
<NET-CHANGE-IN-ASSETS>                            4557
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              8
<OVERDIST-NET-GAINS-PRIOR>                           5
<GROSS-ADVISORY-FEES>                              223
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                    469
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<PER-SHARE-NAV-BEGIN>                             9.57
<PER-SHARE-NII>                                    .21
<PER-SHARE-GAIN-APPREC>                            .86
<PER-SHARE-DIVIDEND>                               .21
<PER-SHARE-DISTRIBUTIONS>                          .72
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                               9.71
<EXPENSE-RATIO>                                   .021
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>


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