[PHOTO OMITTED]
The
Gabelli
ABC
Fund
SEMI-ANNUAL REPORT
JUNE 30, 1998
<PAGE>
The Gabelli ABC Fund
One Corporate Center
Rye, New York 10580-1434
Semi-Annual Report
June 30, 1998
To Our Shareholders,
In the second quarter of 1998, there was a continuation of the best of
times for large cap stocks and the worst of times for small cap stocks. During
the quarter, the large cap market, as measured by the Standard & Poor's (S&P)
500 Index, rose by 3.3% while small cap stocks, as measured by the Russell 2000
Index, declined by 4.7%. U.S. government bonds rallied in a classic global
"flight to quality", with the yield on the 30 year U.S. Treasury Bond falling to
5.57% in mid-June.
Investment Performance
For the second quarter ended June 30, 1998, the Gabelli ABC Fund's (the
"Fund") total return was 0.4%. The Fund was up 10.8% over the trailing twelve
month period. For the five year period ended June 30, 1998, the Fund's return
averaged 9.8% annually. Since inception on May 14, 1993 through June 30, 1998,
the Fund had a total return of 60.9%, which equates to an average annual return
of 9.7%. The Fund seeks to achieve total returns that are attractive to
investors in various market environments without excessive risk of capital loss.
What We Do
[GRAPHIC OMITTED]
The Gabelli ABC Fund and its unique Performance Guaranty Program was
created in 1993 for conservative investors who had been reluctant to participate
in the equity markets. In other words, it was a vehicle to allow investors to
"get their feet wet" in the stock market without risking loss of capital. We see
ourselves as an "enhanced money market." Our approach has been to maintain a
diversified portfolio of value oriented equities, convertible preferred stocks,
convertible bonds and U.S. government securities. Conceptually, the upside
potential of stocks would help produce greater total return potential than a
straight bond or government securities fund and the risk in the equity portion
of the portfolio would be diminished by the combination of lower risk
convertible securities and virtually risk free U.S. Treasury Bills. To date,
this approach has worked quite well. Although we have indefinitely suspended the
Performance Guaranty Program, we believe the Fund's investment strategy can
continue to produce favorable results.
<PAGE>
INVESTMENT RESULTS (a)
- --------------------------------------------------------------------------------
Quarter
----------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
1998: Net Asset Value ........ $10.64 $10.68 - - -
Total Return ........... 4.0% 0.4% - - -
- --------------------------------------------------------------------------------
1997: Net Asset Value ........ $9.98 $10.45 $10.74 $10.23 $10.23
Total Return ........... 1.4% 4.7% 2.8% 3.3% 12.8%
- --------------------------------------------------------------------------------
1996: Net Asset Value ........ $10.10 $10.16 $9.77 $9.84 $9.84
Total Return ........... 4.1% 0.6% 0.8% 2.2% 7.8%
- --------------------------------------------------------------------------------
1995: Net Asset Value ........ $9.94 $10.14 $10.41 $9.71 $9.71
Total Return ........... 3.9% 2.0% 2.7% 2.2% 11.2%
- --------------------------------------------------------------------------------
1994: Net Asset Value ........ $10.12 $10.11 $10.42 $9.57 $9.57
Total Return ........... 0.9% (0.1)% 3.1% 0.6% 4.5%
- --------------------------------------------------------------------------------
1993: Net Asset Value ........ __ $10.10 $10.63 $10.03 $10.03
Total Return ........... __ 1.0%(b) 5.2% 2.6% 9.1%(b)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns - June 30, 1998 (a)
1 Year ................................................................ 10.8%
5 Year ................................................................ 9.8%
Life of Fund (b) ...................................................... 9.7%
- --------------------------------------------------------------------------------
Dividend History
- --------------------------------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- -------------------
December 29, 1997 $0.860 $10.17
December 27, 1996 $0.146 $9.83
September 30, 1996 $0.470 $9.77
December 28, 1995 $0.930 $9.71
December 28, 1994 $0.910 $9.52
December 31, 1993 $0.880 $10.03
(a) Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of operations on May 14, 1993.
- --------------------------------------------------------------------------------
History of the Fund
The Gabelli ABC Fund was launched on May 14, 1993 with a minimum
guaranteed total return of 6% through May 13, 1994. For 1994, 1995 and 1996, 5%
Performance Guaranty Programs were in place. These programs were unique because
they provided investors the full upside potential of the investment while
guaranteeing a minimum total return. Gabelli Funds, Inc.'s fourth Performance
Guaranty Program concluded on December 31, 1996 and a new program was not in
effect for 1997. Although the Performance Guaranty Program is not being offered
for 1998, the Fund continues striving to achieve the same objectives. During the
most recent three year period in which the S&P 500 has delivered 25% plus annual
returns, a minimum return guarantee of 5% appeared dull and unattractive.
However, in terms of market volatility, the Fund has provided comfort to the
risk averse.
The Adviser and Board of Directors are exploring several options as we
look ahead. We are considering a longer term guaranty program in a closed end
structure. This would require shareholder
2
<PAGE>
approval and would be an attractive format for initial investors. The program
would be available to all investors in the Fund as of June 30, 1998.
The Fund will continue to be managed, as it has been over the past five
years, to provide an attractive rate of return without excessive risk of
capital.
Commentary
In compiling our thoughts for this shareholder letter, we looked forward
by looking through the rear view mirror. In the process, we witnessed the
testimony of Federal Reserve Board Chairman Alan Greenspan and we could not say
it any better. To quote Alan . . .
"Mr. Chairman and members of the Committee, I appreciate this
opportunity to present the Federal Reserve's midyear report on monetary
policy.
Overall, the performance of the U.S. economy continues to be
impressive. Over the first part of the year, we experienced further gains in
output and employment, subdued prices, and moderate long-term interest rates.
Important crosscurrents, however, have been impacting the economy. With labor
markets very tight and domestic final demand retaining considerable momentum,
the risks of a pickup in inflation remain significant. But inventory
investment, which was quite rapid late last year and early this year, appears
to have slowed, perhaps appreciably. Moreover, the economic and financial
troubles in Asian economies are now demonstrably restraining demands for U.S.
goods and services -- and those troubles could intensify and spread further.
Weighting these forces, the Federal Open Market Committee chose to keep the
stance of policy unchanged over the first half of 1998. However, should
pressures on labor resources begin to show through more impressively in cost
increases, policy action may need to counter any associated tendency for
prices to accelerate before it undermines this extraordinary expansion."
-- Excerpt from the Monetary Policy Testimony and Report to Congress
Before the Subcommittee on Domestic and International Monetary Policy of the
Committee on Banking and Financial Services, U.S. House of Representatives,
July 21, 1998.
Arbitrage: A Favorable Risk/Reward Investment Strategy
In light of the uncertainty over how the Asian economic crisis will impact
the U.S. economy and stock market, shareholders may be surprised to see that the
cash levels in the Fund have dropped from 68% of assets at the end of the first
quarter of 1998 to 19% at the close of the second quarter. How have we been
spending this money? Primarily by investing in arbitrage situations such as
Allied Group, DeKalb Genetics, Orange & Rockland Utilities, Mercantile Stores,
Giant Food and Southern New England Telecommunications.
3
<PAGE>
What is arbitrage? We define arbitrage as investing in "event" driven
situations; primarily, but not exclusively, in announced mergers, acquisitions,
reorganizations and other "work-out" opportunities. When a company agrees to be
acquired by another company, its stock price generally immediately rises to just
below the stated acquisition price. We look at the spread between the seller's
stock price and the announced deal price and the time frame in which the
acquisition is expected to close. If we are confident the acquisition will be
consummated on schedule at the full deal price and we can earn an annualized
rate of return materially higher than that likely to be realized through
investing in cash equivalents, then we are interested.
We do the research. We value the target company to see if it is really
worth what the acquiring company has announced it will pay. Sometimes we find it
is worth even more, increasing the odds that some other company might make a
higher bid. We also research the acquiring company to insure that it can finance
the deal. If it is a stock transaction, we need to know that we will be
receiving good value in return. We look at merger agreements to see if there are
any loopholes. We review any antitrust concerns raised by the government. In
short, we make judgements to assure that what we see will be what we get.
There is greater risk in this strategy than in simply owning money market
instruments because announced acquisitions are not always completed and, in
situations where the deal currency is the acquirer's stock as opposed to cash,
the ultimate acquisition price may vary in value. However, if we do a thorough
job evaluating the downside risk, we can often earn generous returns relative to
the money markets, particularly with today's low money market yields. In
summation, we think arbitrage as we practice it in the ABC Fund, represents an
attractive investment opportunity with historically low correlation to the
performance of the overall stock market.
We borrow a quote from Warren Buffett to explain our use of arbitrage in
the Fund: "Our subsidiaries sometimes engage in arbitrage as an alternative to
holding short term cash equivalents. We prefer, of course, to make major long
term commitments. But we often have more cash than good ideas. At such times
arbitrage sometimes promises much greater returns than Treasury Bills and,
equally important, cools any temptation we may have to relax our standards for
long term investments."
Let's Talk Stocks
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
Allied Group Inc. (GRP - $46.8125 - NYSE) accepted a sweetened offer of $1.7
billion from Nationwide Mutual Insurance Co., allowing Nationwide to expand in
the Midwest through a rare unsolicited takeover in the insurance industry.
Nationwide will pay $48.25 per share ($1.5 billion) for all of Allied's shares.
It also plans to combine with Allied Mutual Insurance Co. - which owns 18.2% of
Allied's voting rights - by distributing $110 million to Allied policyholders
and paying $30 per share ($84 million) for 2.8 million publicly held shares of
Allied Life Financial Corp. (ALFC - $28.875 - Nasdaq), a unit of Allied Mutual.
In
4
<PAGE>
May, Nationwide made the unsolicited takeover bid after being rebuffed by Des
Moines, Iowa-based Allied Group for several months. Nationwide first approached
Allied's management about an acquisition in January 1998. After repeated
rejections by Allied, Nationwide took its case directly to shareholders in May,
offering to buy outstanding shares for $47 each. Nationwide eventually sweetened
its offer to $48.25 per share, gaining Allied's approval for the transaction.
Nationwide expects to complete the transaction during the late third or early
fourth quarter of this year. The companies must also obtain the approval of
insurance regulators in Ohio, Iowa, Arizona and other states.
American Bankers Insurance Group Inc. (ABI - $60.125 - NYSE) agreed to be
acquired by Cendant Corp. (CD - $20.875 - NYSE) for $3.1 billion ($67 per share)
in stock and cash, making the combined company a leading direct-marketer of
insurance. American Bankers had been the object of a bidding war since late
January, when Cendant unveiled a $58 per share ($2.7 billion) tender offer,
topping a $47 per share ($2.2 billion) bid that American International Group
proposed in December. AIG matched the bid on March 2, after trying to hobble
Cendant with legal and regulatory filings. Cendant retaliated with a $67 per
share offer on March 16. AIG declined to match Cendant's bid but walked away
with a $110 million breakup fee. Cendant wants to add credit life insurance to
the range of travel, shopping and other services it sells to millions of
consumers. The agreed $67 per share offer consists of one-half stock and
one-half cash. The cash portion is being paid through a tender offer with the
balance to be paid in Cendant stock. The tender offer and stock swap are
conditioned on the companies receiving several state insurance regulatory
approvals and is expected to be completed by the end of the third quarter.
BET Holdings Inc. (BTV - $62.9375 - NYSE) is a media and entertainment company
that primarily targets black consumers, a market that was estimated to have
spent over $450 billion in 1997. BTV's core business is Black Entertainment
Television (BET), an advertiser-supported cable television programming service.
Of the 70 million cable households in the U.S., BET reaches over 51 million. BET
on Jazz: The Cable Jazz Channel produced nearly 150 hours of original jazz
programming in 1997. Action Pay-Per-View's subscriber base has grown to over
nine million as the service expands beyond a traditional urban audience. The
company is leveraging its brand identity into markets including pay-per-view
movies, direct merchandising and magazine publishing. The $48 per share offer
from a group led by founder Robert Johnson to take BTV private has been
increased to $63 per share.
DeKalb Genetics Corp. (DKB - $94.625 - NYSE) agreed to be acquired by Monsanto
(MTC - $55.875 - NYSE) through a $100 per share cash tender offer. Monsanto will
pay $2.3 billion for the 60% of DeKalb it doesn't already own. Monsanto won the
auction for DeKalb after the company put itself up for sale earlier in the
quarter. Monsanto's simultaneous agreement with Delta & Pine gives it two of the
last remaining available seed companies. Monsanto's twin purchases underscore
the growth potential of the emerging agricultural biotechnology industry, which
by some estimates will generate $20 billion in annual sales of genetically
engineered seed by 2010, up from today's minimal base. DeKalb and Delta & Pine
provide crucial gateways through which Monsanto can introduce and distribute
technology that makes crops resistant to insects and herbicides or more
nutritional, whether as food or animal feed. Monsanto currently owns 45% of
DeKalb's non-voting stock and 10% of its voting stock, for an overall holding of
40%. The Roberts family, which controls 56% of the voting shares, has agreed to
the sale. The transaction is expected to be completed during the fourth quarter,
pending U.S. antitrust review.
5
<PAGE>
Giant Food Inc. (GFS'A - $43.0625 - ASE) agreed to be acquired by Royal Ahold NV
(AHO - $32.00 - NYSE), the Netherlands' largest retailer, for more than $2.7
billion in cash ($43.50 per share). The acquisition makes Ahold the
fifth-largest U.S. supermarket company. Ahold agreed to buy all voting shares
from Giant's management and J Sainsbury plc, Britain's second-largest
supermarket operator. Sainsbury also agreed to sell its 20% non-voting share
stake, which amounts to 11.8 million of Giant's 59.9 million Class A shares.
Combining Giant's 176 stores in the Washington-Baltimore region with other
recent acquisitions will push Ahold's sales to $35 billion from $26 billion in
1997. The purchase will help AHO cut costs and prices paid to suppliers in the
U.S., where it already owns six other chains, from Stop & Shop in New England to
BI-LO in the Southeast. Ahold is still seeking additional companies to buy in
the U.S. as well as in South America, Asia and Europe. The original withdrawal
and expiration of the tender offer was June 17, 1998. The tender offer has been
extended to August 14, 1998 to accommodate all necessary regulatory filings. The
transaction is expected to be completed by the end of the third quarter of 1998.
Mercantile Stores Co. (MST - $78.9375 - NYSE) agreed to be acquired by Dillard's
(DDS - $41.4375 - NYSE) for $3.14 billion in cash and assumed debt. Dillard's is
one of the largest department store companies in the U.S. with 272 stores, while
Fairfield, Ohio-based Mercantile operates 103 stores under the Gayfers, Maison
Blanche and McAlpin's names. The Milliken family, which owns 40% of MST, agreed
to support the transaction. Dillard's will be able to cut costs by combining
advertising and distribution because both chains operate in many of the same
markets. Dillard's will pay $80 per share in a cash tender offer for each MST
share, or $2.94 billion. Dillard's plans to sell or swap as many as a quarter of
Mercantile's stores because it doesn't want to have two stores in the same
market. All of the stores will carry the Dillard's name. The transaction is
expected to be completed during the third quarter.
Nashua Corp. (NSH - $15.625 - NYSE) markets specialty imaging products and
services to consumers and commercial customers. The company's products included
domestic photofinishing services, imaging supplies and pressure-sensitive
labels. Nashua is narrowing its business focus. The company's entire
photofinishing group has been sold for $52.5 million. The specialty coated
products division, which the company previously intended to sell, is now making
a positive contribution with new products, lower costs and better margins.
Orange & Rockland Utilities Inc. (ORU - $53.6875 - NYSE) agreed to be acquired
by Consolidated Edison (ED - $46.0625 - NYSE) for $1.15 billion in cash and
assumed debt, allowing Con Edison to boost its power transmission business in a
growing part of the New York City area. Orange & Rockland, a small utility with
most of its customers in New York's northern suburbs, will become a subsidiary
of Con Edison, the giant power company that serves New York itself. The buyout
is the first step toward greater consolidation in the utility industry in New
York State, which is opening its $11 billion in annual electricity sales to
competition over the next few years. ED will pay $790 million in cash ($58.50
per share) for ORU. Both Con Edison and Orange & Rockland will sell off most of
their power plants as part of New York's deregulation plan. The companies
instead will generate revenue from the fees they charge others for moving
electricity on their power lines. The transaction is expected to receive all
necessary regulatory approvals within a year. In addition to the $58.50 per
share we will be receiving in the merger, ORU also pays a $2.58 annual dividend.
6
<PAGE>
SPS Transaction Services Inc. (PAY - $31.375 - NYSE) agreed to be acquired by
Associates First Capital Corp. (AFS - $76.9375 - NYSE), the largest U.S.
consumer finance company, for $896 million in cash. Dallas-based Associates
First is buying the assets of SPS, which issues credit-cards for companies such
as Office Depot and Tandy Corp.'s Radio Shack, from Morgan Stanley and public
shareholders. Associates First similarly administers and owns receivables for
the private-label credit card operations of Texaco and Amoco. SPS will pay its
public shareholders roughly $32 per share from the proceeds of the asset sale.
The transaction will let Associates First, which gets most of its income from
consumer loans and credit cards, expand fee revenue that's less dependent on
interest rate changes. The transaction is subject to regulatory approval and is
expected to be completed by the end of the third quarter.
Triangle Pacific Corp. (TRIP - $55.00 - Nasdaq) agreed to be acquired by
Armstrong World Industries (ACK - $67.375 - NYSE), a floor coverings company,
for $1.15 billion in cash and assumed debt. Armstrong will pay $890 million in
cash ($55.50 per share) to Triangle Pacific shareholders. Dallas-based Triangle
Pacific makes hardwood flooring products and kitchen and bathroom cabinets.
Armstrong, the leading North American producer of vinyl floor coverings, is
hoping to expand its presence in other areas of the hard-floor covering market.
Upon Armstrong's completion of the acquisition of Triangle, the combined company
will be the second largest maker of floor coverings in the world after Shaw
Industries, a carpet maker, and the largest maker of hard-floor coverings in the
world. The expiration of the tender offer is July 17.
Minimum Initial Investment - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
Additionally, The Gabelli ABC Fund and other Gabelli Funds are available through
the no-transaction fee programs at many major discount brokerage firms.
No Load - Effective January 2, 1997
Effective January 2, 1997, the Fund no longer imposes a front end sales
charge. All purchases made after January 1, 1997 are no load, that is, without a
sales charge. New and current shareholders may purchase shares of the Fund at
any time.
The Roth IRA
The Taxpayer Relief Act of 1997 included new tax incentives and more
opportunities to save for retirement and other major expenditures. The Roth IRA
is just one of these new opportunities now available at Gabelli Funds. Our
investor representatives are available at 1-800-GABELLI (1-800-422-3554) to
speak with you about establishing a new Roth IRA and to discuss your investment
choices.
7
<PAGE>
Internet
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Funds, Inc., the
Gabelli Mutual Funds, IRAs, 401(k)s, quarterly reports, closing prices and other
current news. You can send us e-mail at [email protected].
In Conclusion
We believe it is still too early to accurately assess the impact of Asian
economic distress on the U.S. economy and corporate earnings. However, Asia's
problems may prolong investment uncertainty and restrain stock prices, perhaps
for the balance of the year. We have hedged the portfolio's downside risk by
retaining 19% in cash equivalents and investing in arbitrage situations we
believe will generate solid returns irrespective of whatever may happen to the
stock market during what we believe will be challenging times for the overall
market.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's Nasdaq symbol is GABCX. Please call us during the
business day for further information.
Sincerely,
/s/ Mario J. Gabelli
Mario J. Gabelli, CFA
Portfolio Manager and
Chief Investment Officer
August 1, 1998
---------------------------------------------------------------------
Top Ten Holdings
June 30, 1998
Giant Food Inc. Allied Group Inc.
DeKalb Genetics Corp. Nashua Corp.
SPS Transaction Services Inc. Orange & Rockland Utilities Inc.
BET Holdings Inc. Mercantile Stores Co.
American Bankers Insurance Group Triangle Pacific Corp.
---------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager,
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
8
<PAGE>
The Gabelli ABC Fund
Portfolio of Investments -- June 30, 1998 (Unaudited)
================================================================================
Market
Shares Cost Value
------ ---- ------
COMMON STOCKS - 78.5%
Agriculture - 7.7%
46,000 DeKalb Genetics Corp. .............. $ 4,335,922 $ 4,352,750
----------- -----------
Automotive: Parts and Accessories - 0.6%
9,300 Modine Manufacturing Co. ........... 306,710 322,013
----------- -----------
Aviation: Parts and Services - 1.8%
20,000 Fairchild Corp., Cl. A+ ............ 400,802 403,749
7,000 Hi-Shear Industries Inc.+ .......... 10,215 18,813
5,000 Hudson General Corp. ............... 231,825 253,125
19,000 Kaman Corp., Cl. A ................. 345,223 361,594
----------- -----------
988,065 1,037,281
----------- -----------
Broadcasting - 0.3%
2,000 American Tower Corp., Cl. A + ...... 31,009 49,875
2,000 Liberty Corp. ...................... 100,538 100,625
----------- -----------
131,547 150,500
----------- -----------
Business Services - 7.1%
76,500 Donnelley Enterprise
Solutions Inc.+ ................... 1,598,529 1,606,500
2,580 Fisher Scientific
International Inc. ................ 24,892 37,249
150,000 Nashua Corp.+ 1,931,250 2,343,750
2,000 PCA International Inc. ............. 51,975 50,500
----------- -----------
3,606,646 4,037,999
----------- -----------
Cable - 0.1%
2,000 TCI Ventures Group Inc.+ ........... 30,833 40,125
----------- -----------
Communications Equipment - 0.1%
5,000 Dynatech Corp.+ .................... 122,000 15,625
1,000 L - 3 Communications
Holdings Inc.+ .................... 22,000 32,688
------------ -----------
144,000 48,313
------------ -----------
Computer Software and Services - 5.5%
138 DecisionOne Holdings Corp.+ ........ 3,085 2,760
100,000 Transaction Systems
Architects Inc.+ .................. 3,087,550 3,137,500
------------ -----------
3,090,635 3,140,260
------------ -----------
Consumer Products - 0.4%
13,000 Carter-Wallace Inc. ................ 141,766 234,813
------------ -----------
Diversified Industrial - 0.7%
14,000 Bethlehem Steel Corp.+ ............. 160,908 174,131
10,000 Katy Industries Inc. ............... 239,250 182,500
1,000 Myers Industries Inc. .............. 20,300 24,000
------------ -----------
420,458 380,631
------------ -----------
Electronics - 0.2%
3,000 Ucar International Inc.+ ........... 83,325 87,563
------------ -----------
Energy - 5.1%
2,200 Florida Public Utilities Co. ....... 58,060 66,550
1,000 Nevada Power Co. ................... 25,113 25,750
38,000 Orange & Rockland
Utilities Inc. .................... 2,033,242 2,040,125
5,000 Pennzoil Co. ....................... 328,626 253,125
1,000 Sierra Pacific Resources ........... 34,613 36,313
16,000 Southwest Gas Corp. ................ 302,563 391,000
4,000 Wicor Inc. ......................... 91,877 92,500
------------ -----------
2,874,094 2,905,363
------------ -----------
Entertainment - 8.3%
44,000 BET Holdings Inc.+ ................. 2,719,185 2,769,249
6,500 Fisher Companies Inc. .............. 451,453 464,750
2,000 Florida Panthers
Holdings Inc.+ .................... 33,100 39,375
10,000 Topps Co. Inc.+ .................... 44,893 30,938
33,780 USA Networks Inc.+ 737,596 848,722
10,000 Viacom Inc., Cl. A+ ................ 292,680 585,000
------------ -----------
4,278,907 4,738,034
------------ -----------
Equipment and Supplies - 0.5%
6,000 Ampco-Pittsburgh Corp. ............. 69,606 92,250
2,500 Amphenol Corp., Cl. A+ ............. 63,563 97,500
3,000 Navistar International Corp.+ ...... 89,775 86,625
------------ -----------
222,944 276,375
------------ -----------
Financial Services - 10.3%
53,000 Allied Group Inc. .................. 2,456,996 2,481,062
42,000 American Bankers Insurance
Group Inc. ........................ 2,728,794 2,525,249
22,000 Argonaut Group Inc. ................ 787,823 695,750
3,000 Leucadia National Corp. ............ 110,894 99,188
2,500 Pioneer Group Inc. ................. 71,727 65,781
------------ -----------
6,156,234 5,867,030
------------ -----------
Food and Beverage - 0.8%
25,000 Advantica Restaurant
Group Inc. ........................ 286,432 243,750
2,000 PepsiCo Inc. ....................... 77,975 82,375
6,000 Whitman Corp. ...................... 99,182 137,625
------------ -----------
463,589 463,750
------------ -----------
Health Care - 0.8%
6,000 Genentech Inc.+ .................... 287,150 407,250
2,000 Harborside Healthcare Corp.+ ....... 47,975 47,750
------------ -----------
335,125 455,000
------------ -----------
Home Furnishings - 3.4%
35,000 Triangle Pacific Corp.+ ............ 1,922,625 1,925,000
------------ -----------
Hotels and Gaming - 0.2%
15,000 Aztar Corp.+ ....................... 117,813 102,188
------------ -----------
See accompanying notes to financial statements.
9
<PAGE>
The Gabelli ABC Fund
Portfolio of Investments (Continued) -- June 30, 1998 (Unaudited)
================================================================================
Market
Shares Cost Value
------ ---- ------
COMMON STOCKS (Continued)
Metals and Mining - 0.0%
30,000 Pegasus Gold Inc.+ ................. $ 16,325 $ 7,200
10,000 Royal Oak Mines Inc.+ .............. 11,858 8,750
------------ -----------
28,183 15,950
------------ -----------
Paper and Forest Products - 0.7%
11,000 Sealed Air Corp.+ .................. 437,185 404,250
------------ -----------
Publishing - 0.1%
2,000 Reader's Digest Association
Inc., Cl. B ....................... 49,574 54,250
------------ -----------
Real Estate - 2.2%
50,000 Catellus Development Corp.+ ........ 900,000 884,375
20,000 Griffin Land & Nurseries Inc.+ ..... 322,381 350,000
1,000 Property Capital Trust ............. 6,613 938
------------ -----------
1,228,994 1,235,313
------------ -----------
Retail - 15.2%
18,000 Bruno's Inc.+ ...................... 135,746 18,900
130,000 Giant Food Inc., Cl. A ............. 5,512,916 5,598,124
6,000 Lillian Vernon Corp. ............... 103,965 99,750
25,400 Mercantile Stores Co. .............. 2,001,932 2,005,012
28,442 Syratech Corp.+ .................... 907,943 901,256
------------ -----------
8,662,502 8,623,042
------------ -----------
Specialty Chemicals - 3.0%
30,000 Arco Chemical Co. .................. 1,718,903 1,721,250
------------ -----------
Telecommunications - 0.8%
30,150 Citizens Utilities Co., Cl. B+ ..... 301,253 290,194
2,000 Southern New England
Telecommunications Corp. .......... 79,100 131,000
1,000 Startec Global Communi-
cations Corp.+ .................... 12,000 11,500
------------ -----------
392,353 432,694
------------ -----------
Utilities - 0.4%
13,500 United Water Resources Inc. ........ 247,688 243,000
------------ -----------
Wireless Communications - 2.2%
20,000 Centennial Cellular Corp.,
Cl. A + ........................... 659,675 746,250
13,095 CommNet Cellular Inc.+ ............. 119,849 192,333
4,000 TCI Satellite Entertainment
Inc., Cl. A+ ...................... 25,859 23,500
8,000 Telephone and Data Systems Inc. .... 382,861 315,000
------------ -----------
1,188,244 1,277,083
------------ -----------
TOTAL COMMON STOCKS ................ 43,604,864 44,571,820
------------ -----------
CONVERTIBLE PREFERRED STOCKS - 1.7%
Telecommunications - 1.7%
4,000 Citizens Utilities Co.
5.00% Cv. Pfd. .................... 194,320 189,000
13,500 Sprint Corp. 8.25% Cv. Pfd. ........ 500,507 780,469
------------ -----------
TOTAL CONVERTIBLE
PREFERRED STOCKS .................. 694,827 969,469
------------ -----------
RIGHTS - 0.0%
Computer Software and Services - 0.0%
17,500 Fusion Systems Corp.+ .............. 0 1,093
------------ -----------
Principal
Amount
---------
CONVERTIBLE CORPORATE BONDS - 0.1%
Consumer Products - 0.0%
$ 17,000 Fieldcrest Cannon Inc. Sub.
Deb. Cv. 6.00%, 03/15/12 .......... 13,990 14,599
------------ -----------
Retail - 0.1%
200,000 RDM Sports Group Inc. Cv.
8.00%, 08/15/03 ................... 4,000 20,000
------------ -----------
TOTAL CONVERTIBLE
CORPORATE BONDS ................... 17,990 34,599
------------ -----------
U.S. GOVERNMENT OBLIGATIONS - 19.4%
11,108,000 U.S. Treasury Bills, 4.81% to
5.12%, due 08/06/98 to
09/17/98++ ....................... 11,028,138 11,028,138
------------ -----------
TOTAL INVESTMENTS -
99.7% ............................. $ 55,345,819 56,605,119
============
Other Assets and
Liabilities (Net) - 0.3% ........ 183,708
-----------
NET ASSETS - 100.0%
(5,318,111 shares outstanding) ... $56,788,827
===========
NET ASSET VALUE,
Offering and Redemption
Price Per Share ................... $10.68
======
- ----------
For Federal tax purposes:
Aggregate cost ............................ $ 55,345,819
=============
Gross unrealized appreciation ............. $ 2,174,639
Gross unrealized depreciation ............. (915,339)
------------
Net unrealized appreciation ............... $ 1,259,300
============
- ----------
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
See accompanying notes to financial statements.
10
<PAGE>
The Gabelli ABC Fund
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
================================================================================
Assets:
Investments, at value (Cost $55,345,819) .................. $56,605,119
Dividends and interest receivable ......................... 8,602
Receivable for investments sold ........................... 484,000
-----------
Total Assets .......................................... 57,097,721
-----------
Liabilities:
Payable for investments purchased ......................... 144,382
Payable for investment advisory fees ...................... 48,416
Payable for distribution fees ............................. 12,091
Payable to custodian ...................................... 32,761
Other accrued expenses .................................... 71,244
-----------
Total Liabilities ..................................... 308,894
-----------
Net Assets applicable to 5,318,111
shares outstanding .................................. $56,788,827
===========
Net Assets consist of:
Capital stock, at par value ............................... $ 5,318
Additional paid-in-capital ................................ 53,638,611
Undistributed net investment income ....................... 413,722
Accumulated net realized gain on investments .............. 1,471,876
Net unrealized appreciation on investments ................ 1,259,300
-----------
Total Net Assets ...................................... $56,788,827
===========
Net Asset Value, offering and redemption
price per share ($56,788,827/5,318,111
shares outstanding; 1,000,000,000
shares authorized of $0.001 par value) ................ $10.68
======
Statement of Operations
For the Six Months Ended June 30, 1998
(Unaudited)
================================================================================
Investment Income:
Dividends ............................................... $ 116,907
Interest ................................................ 767,501
-----------
Total Investment Income ............................. 884,408
-----------
Expenses:
Investment advisory fees ................................ 276,409
Distribution fees ....................................... 69,102
Shareholder services fees ............................... 42,405
Legal and audit fees .................................... 20,439
Custodian fees .......................................... 13,912
Organizational expenses ................................. 8,822
Miscellaneous expenses .................................. 37,682
-----------
Total Expenses ...................................... 468,771
Custodian fee credits ................................... (3,860)
-----------
Total Net Expenses .................................. 464,911
-----------
Net Investment Income ............................... 419,497
-----------
Net Realized and Unrealized Gain
on Investments:
Net realized gain on investments ........................ 1,468,207
Net change in unrealized appreciation
on investments ...................................... 219,342
-----------
Net realized and unrealized gain
on investments ...................................... 1,687,549
-----------
Net increase in net assets resulting
from operations ......................................... $ 2,107,046
===========
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31,
(Unaudited) 1997
---------------- ------------
<S> <C> <C>
Operations:
Net investment income ........................................ $ 419,497 $ 244,811
Net realized gain on investments ............................. 1,468,207 2,253,030
Net change in unrealized appreciation on investments ......... 219,342 873,518
----------- ------------
Net increase in net assets resulting from operations ....... 2,107,046 3,371,359
----------- ------------
Distributions to shareholders:
Net investment income ........................................ -- (244,811)
Net realized gain on investments ............................. -- (2,253,030)
In excess of net investment income ........................... -- (21,105)
In excess of net realized gain on investments ................ -- (165)
----------- ------------
Total distributions to shareholders ........................ -- (2,519,111)
----------- ------------
Capital share transactions:
Net increase in net assets from capital share transactions ... 19,453,774 7,574,049
----------- ------------
Net increase in net assets ................................. 21,560,820 8,426,297
Net Assets:
Beginning of period .......................................... 35,228,007 26,801,710
----------- ------------
End of period ................................................ $56,788,827 $ 35,228,007
=========== ============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
The Gabelli ABC Fund
Notes to Financial Statements (Unaudited)
================================================================================
1. Description. The Gabelli ABC Fund (the "Fund"), a series of Gabelli Investor
Funds, Inc. (the "Corporation"), was organized on October 30, 1992 as a Maryland
corporation. The Fund is a non-diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), whose primary objective is to achieve total returns that are
attractive to investors in various market conditions without excessive risk of
capital loss. The Fund commenced operations on May 14, 1993.
2. Significant Accounting Policies. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange as of the close of business on
the day the securities are being valued (if there were no sales that day, the
security is valued at the average of the closing bid and asked prices or, if
there were no asked prices quoted on that day, then the security is valued at
the closing bid price on that day). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by the Adviser. When
market quotations are not readily available, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Board of Directors. Short term debt
securities with remaining maturities of 60 days or less are valued at amortized
cost, unless the Directors determine such does not reflect the securities' fair
value, in which case these securities will be valued at their fair value as
determined by the Directors. Debt instruments having a greater maturity are
valued at the highest bid price obtained from a dealer maintaining an active
market in those securities. Options are valued at the last sale price on the
exchange on which they are listed. If no sales of such options have taken place
that day, they will be valued at the mean between their closing bid and asked
prices.
Repurchase Agreements. The Fund may enter into repurchase agreements with
government securities dealers recognized by the Federal Reserve Board, with
member banks of the Federal Reserve System or with other brokers or dealers that
meet credit guidelines established by the Directors. Under the terms of a
typical repurchase agreement, the Fund takes possession of an underlying debt
obligation subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period. The Fund will always receive and
maintain securities as collateral whose market value, including accrued
interest, will be at least equal to 100% of the dollar amount invested by the
Fund in each agreement. The Fund will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer of the collateral to
the account of the custodian. To the extent that any repurchase transaction
exceeds one business day, the value of the
12
<PAGE>
The Gabelli ABC Fund
Notes to Financial Statements (Continued) (Unaudited)
================================================================================
collateral is marked-to-market on a daily basis to maintain the adequacy of the
collateral. If the seller defaults and the value of the collateral declines or
if bankruptcy proceedings are commenced with respect to the seller of the
security, realization of the collateral by the Fund may be delayed or limited.
Futures Contracts. The Fund may engage in futures contracts for the purpose of
hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin". Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily fluctuation of the
value of the contract. The daily changes in the contract are included in
unrealized gains or losses. The Fund recognizes a realized gain or loss when the
contract is closed. At June 30, 1998, there were no open futures contracts.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
Securities Transactions and Investment Income. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
For the year ended December 31, 1997, reclassifications were made to increase
distributions in excess of net investment income for $14,513 and decrease
undistributed net realized gain on investments for $14,513.
Provision for Income Taxes. The Fund has qualified and intends to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a result, a Federal income tax provision is
not required.
3. Investment Advisory Agreement. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00% of the value of the Fund's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio, oversees the administration of all
aspects of the Fund's business and affairs and pays the compensation of all
Officers and Directors of the Fund who are its affiliates.
13
<PAGE>
The Gabelli ABC Fund
Notes to Financial Statements (Continued) (Unaudited)
================================================================================
4. Distribution Plan. The Fund's Board of Directors has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For the six months
ended June 30, 1998 the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an indirect wholly-owned subsidiary of the Adviser, of $69,102,
or 0.25% of average net assets, the annual limitation under the Plan. Such
payments are accrued daily and paid monthly.
5. Organizational Expenses. The organizational expenses of the Fund are being
amortized on a straight-line basis over a period of 60 months.
6. Portfolio Securities. Purchases and sales of securities for the six months
ended June 30, 1998, other than short term securities, aggregated $64,335,651
and $41,376,943, respectively.
7. Transactions with Affiliates. During the six months ended June 30, 1998, the
Fund paid brokerage commissions of $39,497 to Gabelli & Company, Inc. and its
affiliates.
8. Capital Stock Transactions. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------------------- -------------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold .................................... 3,901,937 $40,858,823 3,121,544 $33,066,126
Shares issued upon reinvestment of dividends ... -- -- 205,614 2,091,093
Shares redeemed ................................ (2,026,187) (21,405,049) (2,608,737) (27,583,170)
---------- ----------- ---------- -----------
Net increase ................................ 1,875,750 $19,453,774 718,421 $7,574,049
========== =========== ========== ===========
</TABLE>
14
<PAGE>
The Gabelli ABC Fund
Financial Highlights
================================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, 1998 ----------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993+
------------ ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period ..... $ 10.23 $ 9.84 $ 9.71 $ 9.57 $ 10.03 $ 10.00
------- ------- ------- ------- ------- -------
Net investment income .................... 0.08 0.08 0.21 0.21 0.33 0.29
Net realized and unrealized gain
on investments ........................ 0.37 1.17 0.54 0.86 0.12 0.62
------- ------- ------- ------- ------- -------
Total from investment operations ......... 0.45 1.25 0.75 1.07 0.45 0.91
------- ------- ------- ------- ------- -------
Distributions to shareholders:
Net investment income .................... -- (0.08) (0.21) (0.21) (0.33) (0.29)
Net realized gain on investments ......... -- (0.77) (0.41) (0.72) (0.58) (0.59)
In excess of net investment income ....... -- (0.01) -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions ...................... -- (0.86) (0.62) (0.93) (0.91) (0.88)
------- ------- ------- ------- ------- -------
Net asset value, end of period ........... $10.68 $ 10.23 $ 9.84 $ 9.71 $ 9.57 $ 10.03
======= ======= ======= ======= ======= =======
Total return++ ........................... 4.4% 12.8% 7.8% 11.2% 4.5% 9.1%
Ratios to average net assets and
supplemental data:
Net assets, end of period (in 000's) ..... $56,789 $35,228 $26,801 $19,862 $24,419 $8,847
Ratio of net investment income
to average net assets .................. 1.51%(a) 0.87% 2.11% 1.83% 2.95% 2.96%(a)
Ratio of operating expenses
to average net assets (b) .............. 1.69%(a) 2.26%(c) 2.09% 2.10% 2.09% 2.75%(a)
Portfolio turnover rate .................. 146% 493% 343% 508% 490% 232%
</TABLE>
- ----------
+ From commencement of operations on May 14, 1993.
++ 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.
(a) Annualized.
(b) The ratios of operating expenses to average net assets for the six months
ended June 30, 1998 and for the year ended December 31, 1997 do not
include a reduction of expenses for custodian fee credits. Including such
credits, the ratios would have been 1.68% and 2.25%, respectively.
See accompanying notes to financial statements.
15
<PAGE>
The Gabelli ABC Fund
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
fax: 1-914-921-5118
e-mail: [email protected]
http://www.gabelli.com
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
Board of Directors
Mario J. Gabelli, CFA Karl Otto Pohl
Chairman and Chief Former President
Investment Officer Deutsche Bundesbank
Gabelli Funds, Inc.
Anthony J. Colavita Werner J. Roeder, MD
Attorney-at-Law Director of Surgery
Anthony J. Colavita, P.C. Lawrence Hospital
Vincent D. Enright
Former Senior Vice President
and Chief Financial Officer
KeySpan Energy Corp.
Officers
Mario J. Gabelli, CFA Bruce N. Alpert
President and Chief Vice President
Investment Officer and Treasurer
James E. McKee
Secretary
Distributor
Gabelli & Company, Inc.
Custodian, Transfer Agent and Dividend Agent
State Street Bank and Trust Company
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli ABC Fund. It is not authorized for distribution to prospective investors
unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
