<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
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. 7 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 9 /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 LLP
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, 1997 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, 1996 WAS FILED ON FEBRUARY
28, 1997.
<PAGE> 2
GABELLI INVESTOR FUNDS, INC.
FORM N-1A
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(a))
<TABLE>
<CAPTION>
PART A
ITEM NO. PROSPECTUS HEADING
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<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
</TABLE>
<TABLE>
<CAPTION>
LOCATION IN
PART B STATEMENT OF
ITEM NO. ADDITIONAL INFORMATION
- -------- ----------------------
<S> <C>
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.
<PAGE> 3
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The Gabelli ABC Fund
ONE CORPORATE CENTER, RYE, NEW YORK 10580-1434
TELEPHONE: 1-800-GABELLI (1-800-422-3554)
HTTP://WWW.GABELLI.COM
================================================================================
PROSPECTUS
MAY 1, 1997
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 available to all investors without a sales charge.
The minimum initial investment in the Fund is $1,000. 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. For further information,
contact Gabelli & Company, Inc. at the address or telephone
number shown above.
--------------------------------------
Part B (also known as the Statement of Additional Information
("Additional Statement")), dated May 1, 1997, which may be
revised from time to time, provides a further discussion of
certain areas in this Prospectus and other matters which may be
of interest to some investors. It has been filed with the
Securities and Exchange Commission (the "SEC") and is available
for reference, along with other materials on the SEC Internet
Web Site (http://www.sec.gov) and is incorporated herein by
reference. For a free copy, write to The Gabelli ABC Fund at One
Corporate Center, Rye, New York 10580-1434 or call 1-(800)
GABELLI (1-800-422-3554). Purchase orders and redemption
requests may be directed to the Gabelli Funds at P.O. Box 8308,
Boston, Massachusetts 02266-8909.
--------------------------------------
Shares of the Fund are not deposits or obligations of any bank,
and are not insured or guaranteed by any bank, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency. An investment in the Fund involves investment
risks, including the possible loss of principal.
--------------------------------------
This Prospectus should be retained by investors for future reference.
--------------------------------------
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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> 4
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TABLE OF FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases.................................................................. None
Deferred Sales Load...................................................................................... None
Redemption Fees.......................................................................................... None
Exchange Fees............................................................................................ None
ANNUAL FUND OPERATING EXPENSES: (as a percentage of average net assets)
Management Fees.......................................................................................... 1.00%
12b-1 Expenses (a)....................................................................................... .25%
Other Expenses (b)....................................................................................... .84%
-----
Total Operating Expenses........................................................................... 2.09%
=====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return............................................................... $21.20 $65.48 $112.37 $242.08
</TABLE>
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, 1996.
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) 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.
(b) 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, 1996 is included in the Fund's Annual Report to
Shareholders dated December 31, 1996. 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.
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2
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FINANCIAL HIGHLIGHTS
The following table has been audited by Grant Thornton LLP, independent
auditors, whose unqualified report thereon is incorporated by reference in the
Additional Statement. This information should be read in conjunction with the
financial statements and the following selected data for a share of capital
stock outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1996 1995 1994 1993(A)
------- ------- ------- ------
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.71 $ 9.57 $ 10.03 $10.00
------- ------- ------- ------
Net investment income................................................. 0.21 0.21 0.33 0.29
Net realized and unrealized gain on investments....................... 0.54 0.86 0.12 0.62
------- ------- ------- ------
Total from investment operations...................................... 0.75 1.07 0.45 0.91
------- ------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income.................................. (0.21) (0.21) (0.33) (0.29)
Distributions from net realized gain on investment.................... (0.41) (0.72) (0.58) (0.59)
------- ------- ------- ------
Total distributions................................................... (0.62) (0.93) (0.91) (0.88)
------- ------- ------- ------
Net asset value, end of period........................................ $ 9.84 $ 9.71 $ 9.57 $10.03
======= ======= ======= ======
Total return (b)...................................................... 7.80% 11.20% 4.50% 9.10%
======= ======= ======= ======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).............................. $26,801 $19,862 $24,419 $8,847
Ratio of operating expenses to average net assets+.................... 2.09% 2.10% 2.09% 2.75%*
Ratio of net investment income to average net assets+................. 2.11% 1.83% 2.95% 2.96%*
Portfolio turnover rate............................................... 343% 508% 490% 232%
Average Commission Rate............................................... $0.0499(c) -- -- --
</TABLE>
- ------------
<TABLE>
<S> <C>
* Annualized.
+ Net of expenses assumed by the Adviser equivalent to 0.14% and 0.82% for 1994 and 1993, 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.
(c) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission
rate per share for security trades on which commissions are charged.
</TABLE>
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3
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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 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 total 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 total 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 without limit in options, warrants to buy
securities, and securities issued by real estate investment trusts. Furthermore,
the Fund may invest without limit in securities issued by other investment
companies, subject to the conditions set forth in the Investment Company Act of
1940.
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4
<PAGE> 7
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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 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 15% 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.
RISKS. 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.
All securities investments are subject to risks. The equity securities in which
the Fund may invest are generally subordinated to the claims of creditors 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, or that delays as a result of bankruptcy of
the counterparty or encumbrances of collateral or restrictions on its
disposition may occur. 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
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5
<PAGE> 8
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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. company, 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 has been Chairman, Chief
Executive Officer and
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6
<PAGE> 9
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Chief Investment 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, 1997, acts as investment
adviser to the following investment companies with aggregate assets in excess of
$4.0 billion:
<TABLE>
<CAPTION>
NET ASSETS
3/31/97
OPEN-END INVESTMENT COMPANIES: (in millions)
- ------------------------------ -------------
<S> <C>
Gabelli Asset Fund $1027.1
Gabelli Growth Fund 612.5
Gabelli Value Fund Inc. 436.8
Gabelli Small Cap Growth Fund 205.3
Gabelli Equity Income Fund 60.1
Gabelli ABC Fund 22.7
Gabelli Global Telecommunications Fund 99.3
Gabelli Global Interactive Couch
Potato(R) Fund 29.4
Gabelli Global Convertible Securities
Fund 11.4
Gabelli Gold Fund, Inc. 16.9
Gabelli U.S. Treasury Money Market Fund 237.8
Gabelli International Growth Fund, Inc. 17.8
Gabelli Capital Asset Fund 52.4
CLOSED-END INVESTMENT COMPANIES:
- --------------------------------
Gabelli Convertible Securities Fund, Inc. 90.1
Gabelli Equity Trust Inc. 1006.2
Gabelli Global Multimedia Trust Inc. 91.5
</TABLE>
The Distributor of the Fund is an indirect majority owned subsidiary of the
Adviser. GAMCO Investors, Inc. ("GAMCO"), a wholly-owned subsidiary of the
Adviser, acts as investment adviser for individuals, pension trusts, profit
sharing trusts, endowments and investment companies. As of March 31, 1997, GAMCO
had aggregate assets in excess of $5.0 billion under its management. Teton
Advisers LLC, an affiliate of the Adviser, acts as investment adviser of the
Westwood Funds with assets under management in excess of $125 million as of
March 31, 1997. 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,
expenses 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 a Sub-Administration Contract with BISYS Fund
Services L.P. ("BISYS") (the "Sub-Administrator") pursuant to which the
Sub-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
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7
<PAGE> 10
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preparation of proxy statements, reports to shareholders and other
documentation. The Adviser pays the Sub-Administrator a monthly fee at the
annual rate of .10% of the aggregate average daily net assets of all Funds
administered by BISYS and advised by the Adviser or Teton Advisers (with a
minimum annual fee of $40,000 per fund and subject to reduction to .075% on
average daily net 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 Sub-Administrator has its
principal office at 3435 Stelzer Road, Columbus, Ohio 43219.
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 of up to .25% of the Fund's average daily net assets.
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 marketing activities of the Distributor
and other banks, broker-dealers and service providers; shareholder account
servicing; production and dissemination of prospectuses 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 implemented the Plan by having the Corporation enter
into an agreement with the Distributor authorizing payments to the Distributor
of up to the .25% rate authorized by the Plan for distribution and shareholder
servicing 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
Shares of the Fund are offered without a sales load. The minimum initial
investment is $1,000. There is no minimum for subsequent investments. Shares of
the Fund are sold at the net asset value per share next determined after receipt
of an order by the Fund's Distributor or Transfer Agent in proper form with
accompany-
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8
<PAGE> 11
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ing check or bank wire or other payment arrangements satisfactory to the Fund.
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.
Shares of the Fund may also be purchased through registered broker-dealers. Such
broker-dealers may charge the investor a fee for their services. Such fees may
vary among broker-dealers, and such broker-dealers may impose higher initial or
subsequent investment requirements than those established by the Fund. Services
provided by broker-dealers may include allowing the investor to establish a
margin account and to borrow on the value of the Fund's shares in that account.
The net asset value per share of the Fund is determined as of the close of the
regular session of the New York Stock Exchange, which is generally 4:00 p.m.,
eastern time, on each day that trading is conducted on the New York Stock
Exchange by dividing the value of the Fund's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued but excluding capital stock and surplus) by the number of shares
outstanding at the time the determination is made. Portfolio securities for
which market quotations are readily available are valued at market value as
determined by the last quoted sale price prior to the valuation time on the
valuation date in the case of securities traded on securities exchanges or other
markets for which such information is available. Other readily marketable
securities are valued at the average of the latest bid and asked quotations for
such securities prior to the valuation time. Debt securities with remaining
maturities of 60 days or less are valued at amortized cost. All other assets are
valued at fair value as determined by or under the supervision of the Board of
Directors of the Fund. See "Determination of Net Asset Value" in the Additional
Statement.
Prospectuses, sales materials 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 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. The Fund will not accept
checks made payable to a third party.
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# ________________________ (Registered Owner) _____________________
Account of ___________________________________________________________
Tax I.D. 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
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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 it 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 designate 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.
SYSTEMATIC WITHDRAWAL PLAN. The Fund offers a systematic withdrawal program for
shareholders whereby they can authorize an automatic redemption on a monthly,
quarterly or annual basis. Details can be obtained from the Distributor.
OTHER INVESTORS. No minimum initial investment in the Fund is required for
officers, directors or full-time employees of the Fund, the Adviser, the Sub-
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.
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 guar-
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10
<PAGE> 13
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antor 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 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
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<PAGE> 14
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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 directed to an account in another mutual fund
advised by Gabelli Funds, Inc., or its affiliate, 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 under the same
conditions and contribute a maximum of $4,000 annually 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
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12
<PAGE> 15
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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 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.
Dividends and distributions declared by the Fund 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 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,
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13
<PAGE> 16
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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 years ended December 31, 1995 and
December 31, 1996, the portfolio turnover rates were 508% and 343%,
respectively. The high portfolio turnover rates for 1995 and 1996 are
attributable to the investment in securities subject to mergers or tender offers
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.
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 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 &
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14
<PAGE> 17
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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.
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15
<PAGE> 18
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Table of Fees and Expenses........... 2
Financial Highlights................. 3
Investment Objective and Policies and
Related Risk Factors............... 4
Management of the Fund............... 6
Distribution Plan.................... 8
Purchase of Shares................... 8
Redemption of Shares................. 10
Retirement Plans..................... 12
Dividends, Distributions and Taxes... 12
General Information.................. 13
</TABLE>
- ------------------------------------------------------
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, the
Statement of Additional Information and in the Fund's official sales literature,
and if given or made, such information and representation may not be relied upon
as authorized by the Fund, its Investment Adviser, Distributor or any affiliate
thereof.
- ------------------------------------------------------
The
Gabelli
ABC
Fund
PROSPECTUS
MAY 1, 1997
GABELLI FUNDS, INC.
INVESTMENT ADVISER
GABELLI & COMPANY, INC.
DISTRIBUTOR
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<PAGE> 19
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The Gabelli ABC Fund
ONE CORPORATE CENTER, RYE, NEW YORK 10580-1434
TELEPHONE 1-800-GABELLI (1-800-422-3554)
HTTP://WWW.GABELLI.COM
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
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, 1997, 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
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investments........................................................ B-2
The Adviser........................................................ B-10
The Distributor.................................................... B-11
Directors and Officers............................................. B-12
Investment Restrictions............................................ B-14
Portfolio Transactions and Brokerage............................... B-15
Purchase and Redemption of Shares.................................. B-16
Dividends, Distributions and Taxes................................. B-17
Determination of Net Asset Value................................... B-19
Investment Performance Information................................. B-20
Shares of Beneficial Interest...................................... B-21
Appendix -- Description of Ratings of Bonds and Preferred Stock.... B-22
</TABLE>
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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 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.
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B-2
<PAGE> 21
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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 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
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B-3
<PAGE> 22
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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 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, the Netherlands, 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
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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 total return 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 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 offeror 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
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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 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 without limit in warrants or rights which entitle the holder
to buy equity securities at a specific price for or at the end of a specific
period of time.
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
securities with the Fund's custodian in an aggregate amount at least equal to
the amount of its outstanding forward commitments.
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UNSEASONED COMPANIES
The Fund may invest in securities of unseasoned companies.
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 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.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest up to a total of 15% of its net assets in 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 15% 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
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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 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 15% 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 1/3% 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.
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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 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
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with its custodian, cash, U.S. government securities, or other liquid
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 originally approved by the
Fund's sole shareholder on March 12, 1993 and last approved by the Fund's Board
of Directors on February 14, 1996, 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 a Sub-Administration Contract with BISYS Fund
Services L.P. (the "Sub-Administrator") pursuant to which the Sub-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
aggregate average daily net assets of all funds administered by BISYS Fund
Services and advised by Gabelli Funds, Inc. or Teton Advisers, LLC (minimum
annual fee of $40,000 per portfolio) and subject to reduction to .075% on
aggregate average daily net assets of the Gabelli and Teton 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 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
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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. No such limitations are in effect. 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 years ended December 31, 1995 and
1996, the Adviser earned and received fees of $223,130 and $270,747,
respectively. 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.
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 an indirect 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 continu-
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ance 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, 1996, the Distributor paid
distribution expenses under the Distribution Plan of $60,400. Of this amount
$22,900 was spent on printing, postage and stationery, $5,600 on overhead
support expenses and $31,900 on salaries of personnel of the Distributor.
Pursuant to the Distribution Plan, the Fund paid the Distributor $67,611, 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.
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND AND PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS;
ADDRESS AFFILIATIONS WITH THE ADVISER OR ADMINISTRATOR.
- --------------------------------- ----------------------------------------------------------
<S> <C>
Mario J. Gabelli*................ Chairman, Chief Executive Officer, Chief Investment
Chairman of the Board Officer and a Director of Gabelli Funds, Inc., GAMCO
One Corporate Center Investors, Inc.; Registered Representative with the
Rye, New York 10580 Distributor; President and Chairman of The Gabelli Equity
Age: 54 Trust Inc. and The Gabelli Global Multimedia Trust Inc.,
Director of Gabelli Equity Series Funds, Inc., Gabelli
Gold Fund, Inc., Gabelli International Growth Fund, Inc.,
Gabelli Global Series Funds, Inc., The Gabelli Capital
Series Funds, Inc., The Gabelli Value Fund Inc., The
Gabelli Convertible Securities Fund, Inc., The Treasurer's
Fund, Inc.; and Trustee of The Gabelli Asset Fund, The
Gabelli Growth Fund, The Gabelli Money Market Funds;
Chairman and Director of Lynch Corporation.
Anthony J. Colavita.............. President and Attorney at law in the law firm of Anthony
Director J. Colavita, P.C. since 1961; Director of The Gabelli
575 White Plains Road Value Fund Inc., Gabelli Global Series Funds, Inc., The
Eastchester, New York 10709 Gabelli Convertible Securities Fund, Inc., The Gabelli
Age: 62 Capital Series Funds, Inc., Gabelli International Growth
Fund, Inc., Gabelli Gold Fund, Inc., The Treasurer's Fund,
Inc. 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 and Chief Financial Officer of
Director Brooklyn Union Gas Company; Director of Gabelli Equity
One Corporate Center Series Funds, Inc.; Trustee of The Gabelli Money Market
Rye, New York 10580 Funds.
Age: 53
</TABLE>
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B-12
<PAGE> 31
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<TABLE>
<CAPTION>
NAME, POSITION WITH FUND AND PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS;
ADDRESS AFFILIATIONS WITH THE ADVISER OR ADMINISTRATOR.
- --------------------------------- ----------------------------------------------------------
<S> <C>
Karl Otto Pohl*.................. Partner of Sal Oppenheim Jr. & Cie. (private investment
Director bank); Former President of the Deutsche Bundesbank
One Corporate Center (Germany's Central Bank) and Chairman of its Central Bank
Rye, New York 10580 Council (1980-1991); Currently board member of IBM World
Age: 67 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 and The
Treasurer's Fund, Inc..
Werner Roeder, M.D............... Director of Surgery, Lawrence Hospital and practicing
Director private physician. Director of Gabelli Global Series
One Corporate Center Funds, Inc., The Gabelli Capital Series Funds, Inc.,
Rye, New York 10580 Gabelli International Growth Fund, Inc., Gabelli Gold
Age: 56 Fund, Inc., and The Treasurer's Fund, Inc.; Trustee of The
Westwood Funds.
Bruce N. Alpert.................. Vice President and Chief Operating Officer of the
Vice President and Treasurer investment advisory division of the Adviser; Vice
One Corporate Center President and Treasurer of The Gabelli Equity Trust Inc.;
Rye, New York 10580 The Gabelli Global Multimedia Trust Inc., The Gabelli
Age: 45 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 GAMCO Investors,
Secretary Inc. since 1993 and of Gabelli Funds, Inc. since August
One Corporate Center 1995; Secretary of all Funds advised by Gabelli Funds,
Rye, New York 10580 Inc. or Teton Advisers LLC since August 1995. Branch Chief
Age: 33 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.
</TABLE>
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, 1996, in excess of $60,000.
- --------------------------------------------------------------------------------
B-13
<PAGE> 32
- --------------------------------------------------------------------------------
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM THE FUND
NAME OF PERSON, COMPENSATION AND FUND COMPLEX
POSITION FROM THE FUND PAID TO DIRECTORS*
- ---------------------------------------------------------- --------------- ------------------
<S> <C> <C>
Mario J. Gabelli.......................................... $ 0 $ 0(14)
Chairman of the Board
Vincent D. Enright........................................ $ 2,000 $ 17,000(3)
Director
Anthony J. Colavita....................................... $ 2,000 $ 70,000(14)
Director
Karl Otto Pohl............................................ $ 1,750 $ 77,750(16)
Director
Werner Roeder, M.D........................................ $ 2,000 $ 14,500(7)
Director
</TABLE>
- ---------------
* Represents the total compensation paid to such persons during the calendar
year ending December 31, 1996 (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 33 1/3% 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 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;
- --------------------------------------------------------------------------------
B-14
<PAGE> 33
- --------------------------------------------------------------------------------
(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 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.
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 invest-
- --------------------------------------------------------------------------------
B-15
<PAGE> 34
- --------------------------------------------------------------------------------
ment 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.
The following table sets forth certain information regarding the brokerage
commissions paid, the brokerage commissions paid to Gabelli affiliates,
percentage of commissions paid to affiliates and percentage of aggregate dollar
amount of transactions involving commissions paid to affiliates for the fiscal
years ended December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF
BROKERAGE PERCENTAGE OF TRANSACTIONS
TOTAL BROKERAGE COMMISSIONS PAID TO COMMISSIONS PAID TO INVOLVING COMMISSIONS
PERIOD COMMISSIONS PAID GABELLI AFFILIATES AFFILIATES PAID TO AFFILIATES
- ---------------- ---------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
1994............ $ 66,827 $11,397 17.1% 26.0%
1995............ $ 90,302 $25,448 28.2% 27.6%
1996............ $ 44,077 $16,011 36.3% 19.6%
</TABLE>
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.
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.
- --------------------------------------------------------------------------------
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<PAGE> 35
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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.
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.
- --------------------------------------------------------------------------------
B-17
<PAGE> 36
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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.
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
- --------------------------------------------------------------------------------
B-18
<PAGE> 37
- --------------------------------------------------------------------------------
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 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 Day, 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.
- --------------------------------------------------------------------------------
B-19
<PAGE> 38
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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:
(a-b)
---------
YIELD = 2[(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 share on the last day of the period. For the
30-day period ended December 31, 1996, the Fund's current yield was (1.83)%.
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 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, CDA/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:
P(1 + T)(n)= ERV
(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.
- --------------------------------------------------------------------------------
B-20
<PAGE> 39
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The cumulative returns for the fiscal year ended December 31, 1996 and since
inception were 7.80% and 25.30%, respectively and the average annual total
returns were 7.8% and 9.0%, respectively.
COUNSEL AND INDEPENDENT AUDITORS
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York
10022, serves as counsel for the Fund.
Grant Thorton LLP, 7 Hanover Square, New York, New York 10004-2616, have been
appointed independent auditors for the Fund.
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 25.18% of the outstanding shares. As of
April 2, 1997, the following were 5% or greater shareholders of the Fund:
Bear Stearns 16.20%
1 Metrotech Center North
Brooklyn, NY 11201
Holdings of Mario J. Gabelli 8.98%
- --------------------------------------------------------------------------------
B-21
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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 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 condi-
- --------------------------------------------------------------------------------
B-22
<PAGE> 41
- --------------------------------------------------------------------------------
tions. 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 foreseeable 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.
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
- --------------------------------------------------------------------------------
B-23
<PAGE> 42
- --------------------------------------------------------------------------------
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-24
<PAGE> 43
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, and
December 31, 1996.
(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, 1996.**
(c) Portfolio of Investments, December 31, 1996.**
(d) Statement of Operations for the fiscal year ended December 31,
1996.**
(e) Statement of Changes in Net Assets for the fiscal years ended
December 31, 1996 and December 31, 1995.**
(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, and
December 31, 1996.**
(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*
9(a) Form of Sub-Administrator 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
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, 1996.
<PAGE> 44
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
As of April 2, 1997, 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 3,037
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.
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.
<PAGE> 45
(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; BISYS Fund
Services L.P., 3435 Stelzer Rd., Columbus, OH 43219 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.
<PAGE> 46
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. 7 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 28th day of April, 1997.
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. 7
to the Registration Statement has been signed below by the following in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President and Trustee April 28, 1997
- ------------------------
Mario J. Gabelli
* Vice President and Treasurer April 28, 1997
- ------------------------
Bruce N. Alpert
* Director April 28, 1997
- ------------------------
Vincent D. Enright
* Director April 28, 1997
- ------------------------
Anthony Colavita
* Director April 28, 1997
- ------------------------
Karl Otto Pohl
* Director April 28, 1997
- ------------------------
Werner Roeder, M.D.
*By: /s/ Bruce N. Alpert
-------------------
Bruce N. Alpert
Attorney-in-fact
</TABLE>
<PAGE> 47
EXHIBIT INDEX
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 Form of Custodian Contract*
9 Form of Transfer Agency and Service Agreement*
9(b) Form of Sub-Administration Agreement
10(a) Opinion and consent of Willkie Farr & Gallagher*
11 Consent of Independent Auditors
12 Not applicable
13 Subscription Agreement*
14 Not applicable
15 Distribution Plan under Rule 12b-1*
16 Schedule for Computation of Performance Quotations --
to be filed by Post Effective Amendment.
17 Financial Data Schedule
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.
<PAGE> 1
Exhibit 9B
SUB-ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of October, 1996, by and
between GABELLI FUNDS, INC. (the "Administrator"), and BISYS FUND SERVICES
LIMITED PARTNERSHIP, d/b/a/ BISYS FUND SERVICES ("BISYS").
WHEREAS, the Administrator is the investment adviser for the registered
investment companies (hereinafter referred to individually as a "Company" and
collectively as the "Companies") set forth in Schedule B attached hereto and is
responsible for the provision of administrative services to such Companies and
each of the Portfolios (hereinafter referred to individually as a "Portfolio"
and collectively as the "Portfolios") of such Companies;
WHEREAS, each Company is a management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator desires to retain BISYS to assist it in
performing administrative services with respect to each Portfolio and BISYS is
willing to perform such services on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Administrator and BISYS hereby agree as follows:
ARTICLE 1. Retention of BISYS: Conversion to the Services. The
Administrator hereby engages BISYS to furnish each Portfolio with the
administrative services as set forth in Article 2 below (collectively, the
"Services"), and, in connection therewith, the Administrator agrees to cause
each Portfolio to convert to BISYS' data processing systems and software (the
"BISYS System") as necessary in order to receive the Services. The
Administrator shall cooperate with BISYS to provide BISYS with all necessary
information and assistance required to successfully convert to the BISYS
System. BISYS shall provide the Administrator with a schedule relating to such
conversion and the parties agree that the conversion may progress in stages.
The date upon which all Services shall have been converted to the BISYS System
shall be referred to herein as the "Conversion Date." The parties hereby agree
that the Conversion Date shall be no later than January 1, 1997. BISYS hereby
accepts such engagement and agrees to perform the Services commencing, with
respect to each individual Service, on the date that the conversion of such
Service to the BISYS System has been completed. BISYS shall determine in
accordance with its normal acceptance procedures when the applicable Services
has been successfully converted.
BISYS shall, for all purposes herein, be deemed to be an independent
contractor and, unless otherwise expressly provided or authorized, shall have
no authority to act for or represent the Administrator or the Companies in any
way.
<PAGE> 2
ARTICLE 2. Administrative Services. BISYS shall perform or supervise
the performance by others of administrative services in connection with the
operations of the Portfolios, and, on behalf of the Companies, will
investigate, assist in the selection of and conduct relations with custodians,
depositories, accountants, legal counsel, underwriters, brokers and dealers,
corporate fiduciaries, insurers, banks and persons in any other capacity deemed
to be necessary or desirable for the Portfolios' operations. BISYS shall
provide the Directors/Trustees (hereafter, the "Directors") of the Companies
with such reports regarding investment performance as they may reasonably
request but shall have no responsibility for supervising the performance by any
investment adviser or sub-adviser of its responsibilities.
BISYS shall provide the Companies with regulatory reporting, all
necessary office space, equipment, personnel, compensation and facilities
(including facilities for meetings of shareholders ("Shareholder") and
Directors of the Companies) for handling the affairs of the Portfolios and such
other services as BISYS and the Administrator shall, from time to time,
determine to be necessary to perform BISYS' obligations under this Agreement.
In addition, at the request of the Boards of Directors, BISYS shall make
reports to the Companies' Directors concerning the performance of its
obligations hereunder.
Without limiting the generality of the foregoing, BISYS shall;
(a) calculate contractual Company expenses and provide necessary
instructions for all disbursements for the Companies, and as
appropriate compute each Company's yields, total return, expense
ratios, portfolio turnover rate, average commission rate and, if
required, portfolio average dollar-weighted maturity;
(b) assist Company counsel with the preparation of prospectuses,
statements of additional information, registration statements
and proxy materials;
(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities
law) as may be necessary or desirable to register each Company's
Shares with state securities authorities, monitor the sale of
Company Shares for compliance with state securities laws, and
file with the appropriate state securities authorities the
registration statements and reports for each Company and each
Company's Shares and all amendments thereto, as may be necessary
or convenient to register and keep effective each Company and
its Shares with state securities authorities to enable each
Company to make a continuous offering of its Shares;
(d) develop and prepare, with the assistance of the Administrator,
communications to Shareholders, including the annual report to
Shareholders, coordinate the mailing of prospectuses, notices,
proxy statements, proxies and other reports to Shareholders, and
supervise and facilitate the proxy solicitation process for all
shareholder meetings, including the tabulation of shareholder
votes;
2
<PAGE> 3
(e) administer contracts on behalf of each Company with, among
others, each Company's investment adviser, distributor,
custodian, transfer agent and fund accountant;
(f) supervise the Companies' transfer agent with respect to the
payment of dividends and other distributions to Shareholders;
(g) calculate performance data of the Portfolios for dissemination
to information services covering the investment company
industry;
(h) prepare or cause to be prepared at its expense the filing of
each Company's tax returns;
(i) examine and review the operations and performance of the various
organizations providing services to the Companies or any
Portfolio, including, without limitation, the investment
adviser, distributor, custodian, fund accountant, transfer
agent, outside legal counsel and independent public accountants,
and at the request of a Company's Board of Directors, report to
the Board on the performance of such organizations;
(j) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and printing
of each Company's quarterly, semi-annual, and annual reports to
Shareholders;
(k) assist with the design, development, and operations of the
Portfolios, including new classes, investment objectives,
policies and structure;
(l) provide individuals reasonably acceptable to each Company's
Board of Directors to serve as officers of the Company, who will
be responsible for the management of certain of the Company's
affairs as determined by the Company's Board of Directors;
(m) advise each Company and its Board of Directors on matters
concerning the Company and its affairs;
(n) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for each
Company in accordance with the requirements of Rules 17g-1 and
17d-1(7) under the 1940 Act as such bonds and policies are
approved by the Company's Board of Directors;
(o) monitor and advise each Company and its Portfolios on their
regulated investment company status under the Internal Revenue
Code of 1986; as amended;
3
<PAGE> 4
(p) perform all administrative services and functions of each
Company and each Portfolio to the extent administrative services
and functions are not provided to the Company or such Portfolio
pursuant to the Company's or such Portfolio's administration
agreement, investment advisory agreement, distribution
agreement, custodian agreement, transfer agent agreement and
fund accounting agreement;
(q) furnish advice and recommendations with respect to other aspects
of the business and affairs of the Portfolios as the
Administrator and BISYS shall determine desirable;
(r) prepare and file with the SEC the semi-annual report for each
Company on Form N-SAR and all required notices pursuant to Rule
24f-2.
(s) assist each Company with respect to SEC examinations, including
the furnishing of documents and information, as appropriate, and
responding to SEC examination letters; and
(t) assist each Company in preparing for Board meetings by (i)
coordinating board book production and distribution, (ii)
preparing Board agendas, (iii) preparing the BISYS section of
Board materials, (iv) preparing special Board meeting materials,
including but not limited to, materials relating to annual
contract approvals and 12b-1 plan approvals, as agreed upon by
the parties, and (v) such other Board meeting functions that are
agreed upon by the parties.
BISYS shall perform such other services for each Company that are
mutually agreed upon by the parties from time to time. Such services may
include performing internal audit examinations; mailing the annual reports of
the Portfolios; preparing an annual list of Shareholders; and mailing notices
of Shareholders' meeting, proxies and proxy statements, for all of which the
Administrator will pay or cause to be paid BISYS' reasonable out-of-pocket
expenses.
ARTICLE 3. Allocation of Charges and Expenses.
(A) BISYS. BISYS shall furnish at its own expense the executive,
supervisory and clerical personnel necessary to perform its obligations under
this Agreement. BISYS shall also provide the items which it is obligated to
provide under this Agreement, and shall pay all compensation, if any, of
officers of each Company as well as all Directors of each Company who are
affiliated persons of BISYS or any affiliated company of BISYS; provided,
however, that unless otherwise specifically provided, BISYS shall not be
obligated to pay the compensation of any employee of a Company retained by the
Directors of such Company to perform services on behalf of the Company.
(B) The Administrator. The Administrator hereby represents that
each Company has undertaken to pay or cause to be paid all other expenses of
the Company not otherwise allocated herein, including, without limitation,
organization costs, taxes, expenses for legal and auditing
4
<PAGE> 5
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of
custodial services, the cost of initial and ongoing registration of the Shares
under Federal and state securities laws, fees and out-of-pocket expenses of
Directors who are not affiliated persons of the Administrator or the Investment
Adviser to the Company or any affiliated corporation of the Administrator or
the Investment Adviser, insurance, interest brokerage costs, litigation and
other extraordinary or nonrecurring expenses, and all fees and charges of
investment advisers to the Company.
ARTICLE 4. Compensation of BISYS.
(A) Sub-Administration Fee. Commencing on the Conversion Date, for
the services rendered, the facilities and the expenses assumed by BISYS
pursuant to this Agreement, the Administrator shall pay to BISYS compensation at
an annual rate specified in Schedule A attached hereto. Such compensation shall
be calculated and accrued daily, and paid to BISYS monthly.
If the Conversion Date occurs subsequent to the first day of a
month or termination of this Agreement occurs before the last day of a month,
BISYS' compensation for that part of the month in which this Agreement is in
effect shall be prorated in a manner consistent with the calculation of the
fees as set forth above. Payment of BISYS' compensation for the preceding month
shall be made promptly.
(B) Survival of Compensation Rights. All rights of compensation
under this Agreement for services performed as of the termination date shall
survive the termination of this Agreement.
ARTICLE 5. Limitation of Liability of BISYS. The duties of BISYS shall
be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against BISYS hereunder. BISYS shall not be liable
for any error of judgment or mistake of law or for any loss arising out of any
act or omission in carrying out its duties hereunder, except a loss resulting
from willful misfeasance, bad faith or negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions of applicable
law which cannot be waived or modified hereby. (As used in this Article 5, the
term "BISYS" shall include partners, officers, employees and other agents of
BISYS as well as BISYS itself.)
So long as BISYS acts in good faith and with due diligence and without
negligence, the Administrator assumes full responsibility and shall indemnify
BISYS and hold it harmless from and against any and all actions, suits and
claims, whether groundless or otherwise, and from and against any and all
losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation
expenses) arising directly or indirectly out of BISYS' actions taken or
nonactions with respect to the performance of services hereunder.
5
<PAGE> 6
The indemnity and defense provisions set forth herein shall indefinitely survive
the termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Administrator may be asked to indemnify or
hold BISYS harmless, the Administrator shall be fully and promptly advised of
all pertinent facts concerning the situation in question, and it is further
understood that BISYS will use all reasonable care to identify and notify the
Administrator promptly concerning any situation which presents or appears likely
to present the probability of such a claim for indemnification against the
Administrator, but failure to do so in good faith shall not affect the rights
hereunder.
The Administrator shall be entitled to participate at its own expense or,
if it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Administrator elects to assume the
defense of any such claim, the defense shall be conducted by counsel chosen by
the Administrator and satisfactory to BISYS, whose approval shall not be
unreasonably withheld. In the event that the Administrator elects to assume the
defense of any suit and retain counsel, BISYS shall bear the fees and expenses
of any additional counsel retained by it. If the Administrator does not elect to
assume the defense of a suit, it will reimburse BISYS for the reasonable fees
and expenses of any counsel retained by BISYS.
BISYS may apply to the Administrator at any time for instructions and may
consult counsel for the Administrator or its own counsel and with accountants
and other experts with respect to any matter arising in connection with BISYS'
duties, and BISYS shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instruction or with the
opinion of such counsel, accountants or other experts.
Also, BISYS shall be protected in acting upon any document which it
reasonably believes to be genuine and to have been signed or presented by the
proper person or persons. BISYS will not be held to have notice of any change of
authority of any officers, employees or agents of the Administrator until
receipt of written notice thereof from the Administrator.
ARTICLE 6. Activities of BISYS. The services of BISYS rendered hereunder
are not to be deemed to be exclusive. BISYS is free to render such services to
others and to have other businesses and interests. It is understood that
directors, officers, employees and Shareholders are or may be or become
interested in BISYS, as officers, employees or otherwise and that partners,
officers and employees of BISYS and its counsel are or may be or become
similarly interested in the Companies, and that BISYS may be or become
interested in the Companies as a Shareholder or otherwise.
ARTICLE 7. Duration of this Agreement. The Term of this Agreement shall be
as specified in Schedule A hereto.
6
<PAGE> 7
ARTICLE 8. Assignment. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
BISYS may, with the prior consent of the Administrator, at its expense,
subcontract with any entity or person concerning the provision of the services
contemplated hereunder. BISYS shall not, however, be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that BISYS shall be responsible, to the extent provided in
Article 5 hereof, for all acts of such subcontractor as if such acts were its
own. This Agreement shall be binding upon, and shall inure to the benefit of,
the parties hereto and their respective successors and permitted assigns.
ARTICLE 9. Amendments. This Agreement may be amended if such amendment is
specifically approved in writing by the parties hereto.
ARTICLE 10. Certain Records. BISYS shall maintain customary records in
connection with its duties as specified in this Agreement. Any records required
to be maintained and preserved pursuant to Rules 31a-1 and 31a-2 under the 1940
Act which are prepared or maintained by BISYS on behalf of each Company shall be
prepared and maintained at the expense of BISYS, but shall be the property of
each Company and will be made available to or surrendered promptly to each
Company on request.
In case of any request or demand for the inspection of such records by
another party, BISYS shall notify the Administrator and follow the
Administrator's instructions as to permitting or refusing such inspection;
provided that BISYS may exhibit such records to any person in any case where it
is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Administrator or the appropriate Company has agreed to indemnify BISYS against
such liability.
ARTICLE 11. Definitions of Certain Terms. The terms "interested person" and
"affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 12. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or certified
mail, postage prepaid, addressed by the party giving notice to the other party
at the following address: if to BISYS, to it at 3435 Stelzer Road, Columbus,
Ohio 43219; if to the Administrator, to it at One Corporate Center, Rye, New
York 10580-1434, or at such other address as such party may from time to time
specify in writing to the other party pursuant to this Section.
ARTICLE 13. Confidential Information. Each party acknowledges that it may
acquire knowledge and information relating to the other party and its affiliates
or the Companies including, but not limited to, information pertaining to
business plans, employees, customers and/or suppliers, and that all such
knowledge and information acquired or developed is and shall be confidential and
proprietary information (all such confidential and proprietary information is
herein collectively
7
<PAGE> 8
referred to as the "Confidential Information"). Each party agrees to hold the
Confidential Information in strict confidence, to refrain from directly or
indirectly disclosing it to others or using it in any way except for purposes
of performing services hereunder, and to prevent any unauthorized person access
to it either before or after termination of this Agreement, without the prior
written consent of the other party. Both parties further agree to take all
action reasonable and necessary to protect the confidentiality of the
Confidential Information. The parties shall use their best efforts to have
their directors, officers, employees and agents agree to the terms of this
Section. The obligations of the parties contained in this section shall survive
termination of this Agreement. Neither party's confidentiality obligations
under this provision shall apply to such information that (i) was in the public
domain or available to a third party without restrictions at or prior to the
time such information was made known to such party, (ii) had been independently
known to such party at the time of disclosure from persons who were not subject
to similar confidentiality obligations, or (iii) is required to be disclosed by
law (except that each party will use best efforts to give the other party
written notice prior to any such disclosure).
ARTICLE 14. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Ohio and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State of Ohio, or
any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
ARTICLE 15. Multiple Originals. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
GABELLI FUNDS, INC.
By: /s/ [Signature]
-----------------------------------
Title: VP & CFO Gabelli Funds Division
--------------------------------
BISYS FUND SERVICES LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /s/ [Signature]
------------------------------------
Title: Executive Vice President
---------------------------------
8
<PAGE> 9
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AS OF OCTOBER 1, 1996
BETWEEN GABELLI FUNDS, INC.
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
Portfolios: This Agreement shall apply to all Portfolios, either now or
hereafter created of the Companies set forth below. The current
Portfolios of such Companies are also set forth below.
GABELLI CONVERTIBLE SECURITIES FUND, INC.
Gabelli Convertible Securities Fund
GABELLI EQUITY SERIES FUNDS, INC.
Gabelli Small Cap Fund
Gabelli Equity Income Fund
GABELLI GLOBAL SERIES FUNDS, INC.
Gabelli Global Telecommunications Fund
Gabelli Global Convertible Securities Fund
Gabelli Global Interactive Couch Potato Fund
Gabelli Global Entertainment & Media Fund
Gabelli Global Growth Fund
GABELLI GOLD FUND, INC.
Gabelli Gold Fund
GABELLI INTERNATIONAL GROWTH FUND, INC.
Gabelli International Growth Fund
GABELLI INVESTOR FUNDS, INC.
Gabelli ABC Fund
Fees: Pursuant to Article 4, in consideration of services rendered and
expenses assumed pursuant to this Agreement, the Administrator
will pay BISYS on the first business day of each month, or at
such time(s) as BISYS shall request and the parties hereto shall
agree, a fee based upon the assets of all registered management
investment companies for which BISYS serves as Subadministrator
that are advised by Gabelli Funds, Inc. or its affiliates
("BISYS-administered Investment Companies"). Such fee shall be
computed daily at the annual rate of:
A-1
<PAGE> 10
Ten one-hundredths of one percent (.10%) of the
BISYS-administered Investment Companies' average daily net
assets up to $350 million.
Seven and one-half one-hundredths of one percent (.075%) of the
BISYS-administered Investment Companies' average daily net
assets in excess of $350 million up to $600 million.
Six one-hundredths of one percent (.06%) of the
BISYS-administered Investment Companies' average daily net
assets in excess of $600 million.
The fees set forth above shall be subject to a minimum annual fee amount
of $40,000 for each Portfolio. Such minimum annual fee amount shall be
payable to BISYS on the first business day of each month or at such
other time(s) as the parties may agree upon.
The fee for the period from the day of the month upon which the
Conversion Date occurs until the end of that month shall be prorated
according to the proportion which such period bears to the full monthly
period. Upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be prorated according to
the proportion which such period bears to the full monthly period and
shall be payable upon the date of termination of this Agreement.
For purposes of determining the fees payable to BISYS, the value of the
net assets of a particular Portfolio shall be computed in the manner
described in each Company's Articles of Incorporation or in the
Prospectus or Statement of Additional Information respecting that
Portfolio as from time to time is in effect for the computation of the
value of such net assets in connection with the determination of the
liquidating value of the shares of such Portfolio.
The parties hereby confirm that the fees payable hereunder shall be
applied to each Portfolio as a whole, and not to separate classes of
shares within the Portfolios.
Term: The initial term of this Agreement (the "Initial Term") shall be for a
period commencing on the date this Agreement is executed by both parties
and ending on the date that is one year after the Conversion Date. This
Agreement shall be renewed automatically for successive periods of one
year after the Initial Term, unless written notice of nonrenewal is
provided by either party not less than 90 days prior to the end of the
Initial Term or 90 days advance written notice of termination is
provided by either party at any time following the Initial Term. In
the event of any breach of this Agreement by either party, the
non-breaching party shall notify the breaching party in writing of such
breach and upon receipt of such notice, the breaching party shall
A-2
<PAGE> 11
have 45 days to remedy the breach. In the event any material breach is
not remedied within such time period, the nonbreaching party may
immediately terminate this Agreement.
Notwithstanding the foregoing, after such termination for so long as
BISYS, with the written consent of the Administrator, in fact continues
to perform any one or more of the services contemplated by this
Agreement or any schedule or exhibit hereto, the provisions of this
Agreement, including without limitation the provisions dealing with
indemnification, shall continue in full force and effect. Compensation
due BISYS and unpaid by the Administrator upon such termination shall
be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Administrator,
in addition to the compensation described in this Schedule A, all costs
reasonably incurred in connection with the Administrator's activities
in effecting such termination, including without limitation, the
delivery to each Company and/or its designees of the Company's property,
records, instruments and documents, or any copies thereof. To the extent
that BISYS may retain in its possession copies of any Company documents
or records subsequent to such termination which copies had not been
requested by or on behalf of a Company in connection with the
termination process described above, BISYS will provide such Company
with reasonable access to such copies; provided, however, that, in
exchange therefor, the Company shall reimburse BISYS for all costs
reasonably incurred in connection therewith.
If, during the Initial Term, as defined above, for any reason other than
a breach of this Agreement, BISYS is replaced as sub-administrator,
then the Administrator shall make a one-time cash payment, as liquidated
damages, to BISYS equal to the balance due BISYS for the remainder of
the Initial Term of this Agreement, assuming for purposes of calculation
of the payment that the asset level of each Company on the date BISYS
is replaced, or a third party is added, will remain constant for the
balance of such term.
A-3
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Gabelli ABC Fund,
a Series of Gabelli Investor Funds, Inc.:
We hereby consent to the incorporation by reference in Post-Effective Amendment
No. 7 to Registration Statement No. 33-54016 on Form N-1A of our Report of
Independent Auditors dated February 27, 1997, accompanying the financial
statements.
We also consent to the use of our name under the headings "Financial
Highlights" and "Independent Auditors" in the Prospectus, and "Counsel and
Independent Auditors" in the Statement of Additional Information, which is also
part of such Registration Statement.
GRANT THORNTON LLP
New York, New York
April 25, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> THE GABELLI ABC FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 28049
<INVESTMENTS-AT-VALUE> 28216
<RECEIVABLES> 52
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 33
<TOTAL-ASSETS> 28301
<PAYABLE-FOR-SECURITIES> 1474
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25
<TOTAL-LIABILITIES> 1499
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26616
<SHARES-COMMON-STOCK> 2724
<SHARES-COMMON-PRIOR> 2046
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 166
<NET-ASSETS> 26802
<DIVIDEND-INCOME> 49
<INTEREST-INCOME> 1089
<OTHER-INCOME> 0
<EXPENSES-NET> 567
<NET-INVESTMENT-INCOME> 571
<REALIZED-GAINS-CURRENT> 1086
<APPREC-INCREASE-CURRENT> 375
<NET-CHANGE-FROM-OPS> 2032
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 599
<DISTRIBUTIONS-OF-GAINS> 1090
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1738
<NUMBER-OF-SHARES-REDEEMED> 1219
<SHARES-REINVESTED> 159
<NET-CHANGE-IN-ASSETS> 6939
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 23
<OVERDISTRIB-NII-PRIOR> 11
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 271
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 567
<AVERAGE-NET-ASSETS> 29826
<PER-SHARE-NAV-BEGIN> 9.71
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .22
<PER-SHARE-DIVIDEND> .06
<PER-SHARE-DISTRIBUTIONS> .09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.84
<EXPENSE-RATIO> .021
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
