<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
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. 10 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 12 [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, LLC
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, LLC 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 3, 1999 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.
<PAGE> 2
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
<TABLE>
<S> <C>
Mario J. Gabelli, CFA Karl Otto Pohl
Chairman and Chief Former President
Investment Officer Deutsche Bundesbank
Gabelli Asset Management 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.
</TABLE>
OFFICERS
<TABLE>
<S> <C>
Mario J. Gabelli, CFA Bruce N. Alpert
President and Chief Vice President
Investment Officer and Treasurer
James E. Mckee
Secretary
</TABLE>
QUESTIONS?
Call 1-800-GABELLI
or your investment representative.
GABELLI
ABC
FUND
PROSPECTUS
MAY 1, 1999
A SERIES OF THE
GABELLI INVESTOR FUNDS, INC.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THE SHARES
DESCRIBED IN THIS PROSPECTUS OR DETERMINED
WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE> 3
GABELLI ABC FUND TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
Carefully review this important 3-5
section, which summarizes the
Fund's investments, risks, past
performance and fees.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Review this section for 6-7
information on investment
strategies and their risks.
FUND MANAGEMENT
Review this section for details 8 The Investment Adviser
on the people and organizations 8 The Portfolio Manager
who oversee the Funds. 8 The Distributor
SHAREHOLDER INFORMATION
Review this section and the 9 Pricing of Fund Shares
accompanying Owner's Manual for 9 Purchasing, Selling and Exchanging Shares
details on how shares are 9 Distribution Arrangements
valued, how to purchase, sell 10 Dividends, Distributions and Taxes
and exchange shares, related 10 Other Shareholder Services
charges and payments of
dividends and distributions.
FINANCIAL HIGHLIGHTS
11
BACK COVER
Where to learn more about this Fund
</TABLE>
2
<PAGE> 4
RISK/RETURN SUMMARY AND FUND EXPENSES
- -
<TABLE>
<S> <C>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE The Fund seeks to achieve total returns that are attractive
to investors in various market conditions without excessive
risk of capital loss. The Fund's investment objective may
not be changed without shareholder approval.
PRINCIPAL The Fund invests primarily in securities that the Fund's
INVESTMENT STRATEGIES investment adviser (the "Adviser") believes provide
attractive opportunities for appreciation or investment
income. The Adviser seeks to limit excessive risk of capital
loss by utilizing various investment strategies including
investing in value-oriented common stocks (i.e., common
stocks that trade at a significant discount to the Advisers
assessment of their "private market value" -- the value
informed investors would be willing to pay to acquire the
entire company), convertible securities (the income
component of which makes such securities less risky than
common stocks), virtually risk free U.S. Treasury Bills and
utilizing "arbitrage" strategies. Arbitrage may be defined
as investing in "event" driven situations such as announced
mergers, acquisitions and reorganizations. When a company
agrees to be acquired by another company, its stock price
often quickly rises to just below the stated acquisition
price. If the Adviser, through extensive research,
determines that the acquisition is likely to be consummated
on schedule at the stated acquisition price, then the Fund
may purchase the selling company's securities, offering the
Fund the possibility of generous returns relative to cash
equivalents with a limited risk of excessive loss of
capital.
PRINCIPAL The Fund's share price will fluctuate with changes in the
INVESTMENT RISKS market value of the Fund's portfolio securities. Stocks are
subject to market, economic and business risks that cause
their prices to fluctuate. As the Fund is non-diversified,
the Fund will have the ability to invest a larger portion of
its assets in a single issuer than would be the case if it
were diversified. As a result, the Fund may experience
greater fluctuation in net asset value than Funds which
invest in a broad range of issuers. The Fund may invest in
lower credit quality securities which may involve major risk
exposures such as increased sensitivity to interest rate and
economic changes and limited liquidity. The investment
policies of the Fund may lead to a higher portfolio turnover
rate which could increase the Fund's expenses which could
negatively impact the Fund's performance. When you sell Fund
shares, they may be worth less than what you paid for them.
Consequently, you can lose money by investing in the Fund.
The Fund is also subject to the risk that the potential
private market value of the Fund's stocks will never be
realized or that the portfolio securities' prices will
decline.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? [ ] FAVOR A CONSERVATIVE APPROACH TO INVESTMENTS AND RETURNS
[ ] SEEK STABILITY OF PRINCIPAL MORE THAN GROWTH AND
LONG-TERM RETURNS
This Fund will not be appropriate for anyone:
[ ] SEEKING MONTHLY INCOME
[ ] SEEKING AGGRESSIVE CAPITAL APPRECIATION
</TABLE>
3
<PAGE> 5
RISK/RETURN SUMMARY AND FUND EXPENSES
- -
The chart on this page shows the Fund's annual returns over the past five
years and provides some indication of the risks of investing in the Fund by
showing how its performance has varied from year to year. The table below
compares the Fund's performance over time to that of the Lipper U.S. Treasury
Money Market Average ("LUSTMMA") and the S&P 500 Index ("S&P"). The S&P is
widely recognized, unmanaged index composed of U.S. common stocks. The
LUSTMMA represents an unmanaged index composed of U.S. Treasury money market
funds, as tracked by Lipper Inc. Of course, past performance does not
indicate how the Fund will perform in the future. Both the chart and table
assume reinvestment of dividends and distributions.
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
<TABLE>
<S> <C>
94 4.5
95 11.20
96 7.80
97 12.80
98 11.10
</TABLE>
Best quarter: 4(th)
Qtr 1998 11.91 %
Worst quarter: 3(rd)
Qtr 1998 (4.87)%
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1998)
<TABLE>
<CAPTION>
SINCE INCEPTION
INCEPTION DATE PAST YEAR PAST 5 YEARS OF FUND
<S> <C> <C> <C> <C>
ABC FUND 5/14/93 11.1% 9.4% 10.0%
S&P 500 Index 28.7% 24.1% 22.4%
Lipper U.S. Treasury Money Market Average 4.7% 4.6% 4.4%
</TABLE>
4
<PAGE> 6
RISK/RETURN SUMMARY AND FUND EXPENSES
FUND EXPENSES
FEES AND EXPENSES
As an investor in the
Fund, you will pay the
following fees and
expenses when you buy and
hold shares. Annual Fund
operating expenses are
paid out of Fund assets,
and are reflected in the
share price.
<TABLE>
<S> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)
Management fees 1.00%
Distribution (12b-1) fees .25%
Other expenses .37%
Total annual Fund operating expenses(1) 1.62%
</TABLE>
There are no front or back end sales charges or
fees for exchanges of Class AAA shares.
EXPENSE EXAMPLE
Use the example shown here
to compare fees and
expenses with those of
other funds. It
illustrates the amount of
fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of
each period
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your
actual costs may be higher
or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
GABELLI ABC FUND $165 $511 $881 $1,992
</TABLE>
(1) Total annual Fund operating expenses have been restated to reflect
current fees and may differ from information in the Fund's most recent
Annual Report.
5
<PAGE> 7
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The Fund seeks to achieve total returns that are attractive to investors in
various market conditions without excessive risk of capital loss. The Adviser
seeks to limit excessive risk of capital loss by utilizing various investment
strategies including investing in equity securities of companies selling in
the public market at significant discounts to their private market value,
lower risk convertible securities, virtually risk free U.S. Treasury Bills
and utilizing "arbitrage" strategies. Arbitrage may be defined as investing
in "event" driven situations such as announced mergers, acquisitions and
reorganizations. When a company agrees to be acquired by another company, its
stock price often quickly rises to just below the stated acquisition price.
If the Adviser, through extensive research, determines that the acquisition
is likely to be consummated on schedule at the stated acquisition price, then
the Fund may purchase the selling company's securities, offering the Fund the
possibility of generous returns relative to cash equivalents with a limited
risk of excessive loss of capital.
In selecting securities for investment, the Adviser normally will consider
the following factors, among others:
- the Adviser's own evaluations of the "private market value" of the
underlying assets and business of the company. Private market value is the
value the Adviser believes informed investors would be willing to pay to
acquire the entire company;
- the interest or dividend income generated by the securities;
- the potential for capital appreciation of the securities;
- the prices of the securities relative to other comparable securities;
- whether the securities are entitled to the benefits of sinking funds or
other protective conditions;
- the existence of any anti-dilution protections or guarantees of the
security; and
- the diversification of the Fund's portfolio as to issuers.
The Adviser also evaluates the issuer's 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 what will surface
additional value.
RISK FACTORS
Investing in the Fund involves the following risks:
GENERAL. 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.
6
<PAGE> 8
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
MARKET RISK. The principal risk of investing in the Fund is market risk.
Market risk is the risk that the prices of the securities held by the Fund
will change due to general market and economic conditions, perceptions
regarding the industries in which the companies issuing the securities
participate and the issuer company's particular circumstances. Because the
Fund invests in securities of companies that have agreed to be sold to
another company at a premium over prevailing market prices, the Fund is
subject to the risk that the merger or similar transaction will not occur and
the price of the company's securities will decline significantly.
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. Portfolio turnover generally
involves some expense to the Fund, including brokerage commissions or dealer
mark-ups and other transaction costs on the sale of securities and
reinvestment in other securities. As such, a higher portfolio turnover rate
could increase the Fund's expenses which could negatively impact the Fund's
performance.
NON-DIVERSIFICATION RISK. The Fund is a "non-diversified investment company"
which means that it can concentrate its investments in the securities of a
single company to a greater extent than a diversified investment company.
Because the Fund may invest its assets in the securities of a limited number
of companies, a decline in the value of the stock of any one of these issuers
will have a greater impact on the Fund's share price. In addition, many
companies in the past several years have adopted so-called "poison pill" and
other defensive measures. Such measures may limit the amount of securities in
any one issuer that the Fund may buy. This may limit tender offers or other
non-negotiated offers for a company and/or prevent competing offers.
HEDGING RISK. The Fund may use options and futures to hedge the risks of
investing by the Fund. The success of hedging depends on the Adviser's
ability to predict movements in the prices of the hedged securities and
market fluctuations. The Adviser may not be able to perfectly correlate
changes in the market value of securities and the prices of the corresponding
options or futures. The Adviser may have difficulty selling or buying futures
contracts and options when it chooses and there may be certain restrictions
on trading futures contracts and options. The Fund is not obligated to pursue
any hedging strategy. In addition, hedging practices may not be available,
may be too costly to be used effectively or may be unable to be used for
other reasons.
LOWERED RATED SECURITIES. The Fund may invest in lower credit quality
securities, including up to 5% of its assets in securities of issuers that
are in default. These securities may involve major risk exposures such as
increased sensitivity to interest rate and economic changes, and the market
to sell such securities may be limited. These securities are often referred
to in the financial press as "junk bonds."
7
<PAGE> 9
FUND MANAGEMENT
THE INVESTMENT ADVISER
Gabelli Funds, LLC, One Corporate Center, Rye, NY 10580 is a limited
liability company organized in 1999 after a reorganization of the
predecessor, Gabelli Funds, Inc., which was formed in 1980. As of December
31, 1998, Gabelli Funds, LLC and its affiliates manage more than $16.3
billion in assets. Through its portfolio management team, Gabelli Funds, LLC
makes the day-to-day investment decisions and continuously reviews,
supervises and administers the Fund's investment programs.
For these advisory services, the Adviser was paid a fee of 1.00% of average
net assets during the fiscal year ended December 31, 1998. Any portion of the
total fees received by the Adviser may be used by the Adviser to provide
shareholder and administrative services.
THE PORTFOLIO MANAGER
Mr. Mario J. Gabelli is primarily responsible for the day-to-day management
of the Fund. Mr. Gabelli has been Chairman, Chief Executive Officer and Chief
Investment Officer of the Adviser since its organization in 1980. He may be
deemed a "controlling person" of the Adviser and the Distributor on the basis
of his ownership of stock of the Adviser.
THE DISTRIBUTOR
Gabelli & Company, Inc. is the Fund's distributor. Its address is One
Corporate Center, Rye, NY 10580.
The Statement of Additional Information has more detailed information about
the Adviser and other service providers.
YEAR 2000. As the year 2000 approaches, an issue has emerged regarding how
the software used by the Fund's service providers can accommodate the date
"2000." Failure to adequately address this issue could result in major
systems or process failures which could disrupt the Fund's operations. The
Adviser is in the process of working with the Fund's service providers to
prepare for the year 2000. Based on information currently available, the
Adviser does not expect that the Fund will incur significant operating
expenses or be required to incur material costs to be year 2000 compliant.
The Fund cannot guarantee, however, that all year 2000 issues will be
identified and corrected by January 1, 2000, and any non-compliant computer
system could hurt key Fund operations, such as shareholder servicing, pricing
and trading. In addition, the Year 2000 problem may adversely affect the
companies in which the Fund invests, particularly companies in foreign
countries. For example, these companies may incur substantial costs to
correct the problem. To the extent that the impact on a Fund holding is
negative, it could seriously affect the Fund's performance.
8
<PAGE> 10
SHAREHOLDER INFORMATION
- -
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The NAV is calculated by
adding the total value of
the Fund's investments and
other assets, subtracting
its liabilities and then
dividing that figure by the
number of outstanding
shares of the Fund:
NAV =
Total Assets - Liabilities
----------------------------
Number of Shares
Outstanding
---------------------------
You can find the Fund's NAV
daily in the Wall Street
Journal and other
newspapers or by calling
1-800-GABELLI
(800-422-3554).
The Fund's net asset value, or NAV, is
determined and its shares are priced
at the close of regular trading on the
New York Stock Exchange, normally at
4:00 p.m., eastern time, on days the
New York Stock Exchange is open. Your
order for purchase, sale or exchange
of shares is priced at the next NAV
calculated after your order is
received by the Fund. This is what is
known as the offering price.
Fund securities are valued as of the
close of trading on the primary
exchange on which they trade. The
Fund's securities are generally valued
at current market prices. If market
quotations are not available, prices
will be based on the average of the
latest bid and asked quotations for
such securities prior to the valuation
time, or latest bid price if asked
prices are not available. Debt
securities with remaining maturities
of 60 days or less will be valued at
amortized cost, which the Board of
Directors believes represents fair
value.
Some Fund securities may be listed on
foreign exchanges that are open on
days (such as U.S. holidays) when the
Fund does not compute its NAV. This
could cause the value of the Fund's
portfolio investments to be affected
on days when you cannot buy or sell
shares.
PURCHASING, SELLING AND EXCHANGING SHARES
Information about purchasing, selling and exchanging your shares is contained
in a separate document called the Owner's Manual. If you have not received
it, please contact your broker or financial consultant or the Fund at the
number listed on the back page of this Prospectus. The Owner's Manual is
considered an integral part of this Prospectus.
DISTRIBUTION ARRANGEMENTS
The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
1940 Act which authorizes payments by the Fund of .25% of the average daily
net assets of the Fund to compensate the Distributor and other dealers and
investment representatives for services and expenses relating to the sale and
distribution of the Fund's shares. Rule 12b-1 fees are paid from Fund assets
on an ongoing basis, and increase the cost of your investment and may cost
you more than paying other types of sales charges.
9
<PAGE> 11
SHAREHOLDER INFORMATION
- -
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income the Fund receives in the form of interest or dividends is paid
out, less expenses, to its shareholders. The Fund declares and pays dividends
from net investment income and capital gains, if any, on an annual basis.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
The Fund expects that its dividends will primarily consist of net investment
income and, if any, short-term and long-term capital gains. The determination
as to whether a gain to be distributed is short-term or long-term depends on
the amount of time the security is held by the Fund prior to disposition and
not on the amount of time a shareholder has been invested in the Fund.
Distributions from net investment income and short-term capital gains are
taxable as ordinary income. Such distributions are taken into account for tax
purposes in the year in which they are declared, even if they appear on your
account statement the following year. Long-term capital gain distributions
are taxable at long-term capital gain tax rates. The exchange of the Fund's
Shares for shares of another fund will be treated as a sale of shares, and
any gain on the transaction may be subject to federal income tax.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
TAX IDENTIFICATION NUMBER
The Fund is required to withhold 31% of taxable dividends,
capital gains distributions and redemptions proceeds paid
to shareholders who have not provided the Fund with their
Taxpayer Identification Number in compliance with IRS
rules. To avoid this, make sure you provide your correct
Tax Identification Number (Social Security Number for most
investors) on your account application.
Foreign shareholders may be subject to special withholding requirements.
Consult your tax adviser about the federal, state and local tax consequences
in your particular circumstances.
OTHER SHAREHOLDER SERVICES
As a shareholder of the Fund, you can take advantage of other service
privileges which are described in the Owner's Manual:
- Telephone Investment and Redemption Plan
- Automatic Investment Plan
- Systematic Withdrawal Plan
- Retirement Plans
10
<PAGE> 12
FINANCIAL HIGHLIGHTS
- -
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that you would have earned or lost on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Grant Thornton LLP, whose report, along with
the Fund's financial statements, are included in the Statement of Additional
Information, which is available upon request.
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.23 $ 9.84 $ 9.71 $ 9.57 $ 10.03
------- ------- ------- ------- -------
Net investment loss 0.22 0.08 0.21 0.21 0.33
Net realized and unrealized gain on
investments 0.90 1.17 0.54 0.86 0.12
------- ------- ------- ------- -------
Total from investment operations 1.12 1.25 0.75 1.07 0.45
------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (0.22) (0.08) (0.21) (0.21) (0.33)
Net realized gain on investments (1.54) (0.77) (0.41) (0.72) (0.58)
In excess of net investment income -- (0.01) -- -- --
------- ------- ------- ------- -------
Total distributions (1.76) (0.86) (0.62) (0.93) (0.91)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.59 $ 10.23 $ 9.84 $ 9.71 $ 9.57
======= ======= ======= ======= =======
Total return + 11.10% 12.80% 7.80% 11.20% 4.50%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $39,358 $35,228 $26,801 $19,862 $24,419
Ratio of net investment income to
average net assets 1.00% 0.87% 2.11% 1.83% 2.95%
Ratio of operating expenses to average
net assets(a) 1.69% 2.26% 2.09% 2.10% 2.09%
Portfolio turnover rate 299% 493% 343% 508% 490%
</TABLE>
+ 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.
(a) The ratios of operating expenses to average net assets for the years
ended December 31, 1998 and 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.
11
<PAGE> 13
GABELLI ABC FUND
FOR MORE INFORMATION:
For more information about the Fund, the following documents are available free
upon request:
OWNER'S MANUAL:
Information about purchasing, selling and exchanging shares of the Fund is
included in a separate document entitled "Owner's Manual." The Owner's Manual is
incorporated by reference into the Prospectus. If you have not received it,
please contact the Fund at the number listed below.
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's semi-annual and audited annual reports to shareholders contain
detailed information on the Fund's investments. In the annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference, and is
legally considered a part of this prospectus.
You can get free copies of these documents and prospectuses of other Funds
in the Gabelli family, or request other information and discuss your
questions about the Fund by contacting:
Gabelli ABC Fund
One Corporate Center
Rye, NY 10580
Telephone: 1-800-GABELLI (1-800-422-3554)
www.gabelli.com
You can review the Fund's reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies:
X For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
X Free from the Commission's Website at http://www.sec.gov.
(Investment Company Act file no. 811-07326)
<PAGE> 14
GABELLI FUNDS
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
1-800-422-3554
FAX: 1-914-921-5118
http://www.gabelli.com
E-MAIL: [email protected]
QUESTIONS?
Call 1-800-GABELLI
or your investment representative.
THE
GABELLI FAMILY OF
FUNDS
OWNER'S MANUAL
AAA CLASS -
NO-LOAD CLASS
MAY 1, 1999
- GABELLI GLOBAL SERIES FUNDS, INC.
- GABELLI GOLD FUND, INC.
- GABELLI INTERNATIONAL GROWTH FUND, INC.
- GABELLI ABC FUND
- GABELLI ASSET FUND
- GABELLI GROWTH FUND
THE INFORMATION CONTAINED IN THE OWNER'S MANUAL IS INCORPORATED BY REFERENCE
INTO, AND IS LEGALLY CONSIDERED PART OF, THE PROSPECTUSES FOR THE GABELLI
FAMILY OF FUNDS. THE OWNER'S MANUAL MUST BE PRECEDED OR ACCOMPANIED BY A
GABELLI FUNDS PROSPECTUS.
<PAGE> 15
OWNER'S MANUAL TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PURCHASING SHARES
3 Instructions for Opening or Adding to an Account
4 Telephone Investment Plan
4 Automatic Investment Plan
4 Retirement Plans
4 Minimum Investments
4 Dividends and Distributions
SELLING SHARES
5 Instructions for Selling Shares
5 By Bank Wire or Check via Telephone
5 By Bank Wire or Check via Mail
5 General Policies on Selling Shares
5 Signature Guarantees
6 Verifying Telephone Redemptions
6 Redemptions Within 15 Days of Investment
6 Redemption in Kind
6 Refusal of Redemption Request
6 Closing of Small Accounts
6 Undeliverable Distribution Checks
EXCHANGING SHARES
7 Instructions for Exchanging Shares
PRICING OF FUND SHARES
8 How NAV is Calculated
</TABLE>
2
<PAGE> 16
PURCHASING SHARES
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
PURCHASES THROUGH BROKERS/DEALERS:
If purchasing through your financial advisor or brokerage account, simply
tell your advisor or broker that you wish to purchase shares of the Funds and
he or she will take care of the necessary documentation. You should state
specifically which class of shares you are buying. For all other purchases
directly with the Fund, follow the instructions below.
PURCHASES DIRECTLY FROM THE FUND:
All investments made by regular mail or personal delivery, whether initial or
subsequent, should be sent to:
<TABLE>
BY
REGULAR
MAIL BY OVERNIGHT DELIVERY
<S> <C>
The Gabelli Funds The Gabelli Funds
PO Box 8308 c/o BFDS
Boston, MA 02266-8308 66 Brooks Drive
Braintree, MA 02184
</TABLE>
For Initial Investment:
1. Carefully read and complete the application.
2. Make check, bank draft or money order payable to "[name of Fund]."
3. Mail or deliver application and payment to the address above.
For Subsequent Investments:
1. Make check, bank draft or money order payable to "[name of Fund]" or
"Gabelli Funds."
2. Provide the exact name and number of your account.
3. Mail or deliver payment to the address above.
BY WIRE TRANSFER
For Initial Investment:
Call 1-800-GABELLI (1-800-422-3554) to obtain a new account number. Promptly
mail the completed application to the address shown above for regular mail,
and
For Initial and Subsequent Investments:
Instruct your bank to wire transfer your investment to:
STATE STREET BANK AND TRUST COMPANY
ABA #011-0000-28 REF DDA# 9904-6187
ATTN: SHAREHOLDER SERVICES
RE: [FUND NAME]
A/C#
---------------------------------
YOUR NAME
----------------------------
225 FRANKLIN STREET, BOSTON, MA 02110
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
3
<PAGE> 17
PURCHASING SHARES
You can add to your account by using the convenient options described
below. The Fund reserves the right to change or eliminate these privileges
at any time upon 60 days notice to shareholders.
TELEPHONE INVESTMENT PLAN
You may purchase additional shares of the Funds by telephone as long as your
bank is a member of the Automated Clearing House (ACH) system. You must also
have a completed, approved Investment Plan application on file with the
Fund's Transfer Agent. There is a minimum of $100 for each telephone
investment. To initiate an ACH purchase, please call 1-800-GABELLI
(1-800-422-3554) or 1-800-872-5365.
AUTOMATIC INVESTMENT PLAN
You can make automatic monthly investments in the Funds. Details about this
plan can be obtained from the Distributor on a separate application by
calling 1-800-GABELLI (800-422-3554).
RETIREMENT PLANS
You can invest in various types of retirement plans through the Fund. Details
about these plans can be obtained from the Distributor on a separate
application by calling 1-800-GABELLI (800-422-3554).
<TABLE>
<CAPTION>
MINIMUM
MINIMUM INITIAL SUBSEQUENT
ACCOUNT TYPE INVESTMENT INVESTMENT
<S> <C> <C>
Regular (non-retirement) $1,000 $ 0
Retirement (IRA)
Traditional IRA $1,000 $ 0
Roth IRA $1,000 $ 0
Spousal IRA $ 250 $ 0
Education IRA $ 250 $ 0
Automatic Investment Plan $ 0 $100
Telephone Investment Plan $ 100 $100
</TABLE>
MINIMUM INVESTMENTS
You may purchase Funds
through the Distributor
or participating
organizations, which
may charge additional
fees and may require
higher or lower minimum
investments or impose
other limitations on
buying and selling
shares.
All purchases must be in U.S. dollars. A fee will be
charged for any checks that do not clear.
Third-party checks are not accepted. Your purchase
of shares will be effective on the same business day
if the Fund's Transfer Agent receives your order by
4:00 p.m. (12 noon for a money market fund), and
receives your form of payment by 4:00 p.m., eastern
time. Otherwise, your purchase will be effective on
the next business day. (See "Pricing of Fund
Shares.") Shares are held on account for you unless
you specify in writing that you would like to
receive a stock certificate (certificates are not
available for money market funds). We can only issue
a certificate for whole shares.
The Distributor may reject a purchase order if it
considers it in the best interest of the Fund and
its shareholders. A Fund may waive its minimum
purchase requirement.
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise.
4
<PAGE> 18
SELLING SHARES
As a mutual fund
shareholder, you are
technically selling shares
when you request a
withdrawal in cash. This
is also known as redeeming
shares.
WITHDRAWING MONEY FROM YOUR INVESTMENT
You may sell your shares at any time. Your
sales price will be the next NAV after your
sell order is received by the Fund, its
transfer agent, or your investment
representative. See section on "General
Policies on Selling Shares" below.
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your
account on a monthly, quarterly or annual
basis. You can obtain details from the
Distributor.
INSTRUCTIONS FOR SELLING SHARES
The Fund accepts telephone requests for redemptions of unissued shares.
BY BANK WIRE OR CHECK VIA TELEPHONE
1. Call 1-800-GABELLI (1-800-422-3554) with your account number, the amount
of the redemption and instructions as to how you wish to receive your
funds.
2. If you are unable to reach the Fund by telephone, you may telecopy your
redemption request to the Fund at 914-921-5118.
NOTE: If you call by 4:00 p.m., eastern time, your payment will normally be
wired to your bank on the following business day. (For Money Market Funds: If
you call before 12:00 noon, eastern time, your payment will be wired to your
bank on that day.) If you call after that time, your payment will be wired to
your bank on the next business day. If you request your wire redemption by
telephone, it must be at least $1,000. Your bank may charge a fee for
incoming wires.
BY BANK WIRE OR CHECK VIA MAIL
Submit a redemption request to the Fund. Redemption requests may be made by
letter to the Transfer Agent. You must specify the name of the Fund, the
dollar amount or number of shares you wish to redeem and the account number.
You must sign the letter in exactly the same way the account is registered,
and if there is more than one owner of shares, all must sign. A signature
guarantee is required for most requests.
GENERAL POLICIES ON SELLING SHARES
SIGNATURE GUARANTEES
Signature guarantees are required on redemption requests for the following:
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another person's Fund
account.
A signature guarantee can be obtained from most banks and securities dealers.
Notarized signatures are not considered a signature guarantee.
5
<PAGE> 19
SELLING SHARES
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to ensure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity. If
appropriate precautions have not been taken, the Fund may be liable for
losses due to unauthorized transactions.
REDEMPTIONS WITHIN 15 DAYS OF INVESTMENT
When you have made an investment by check or through the automatic investment
plan, your redemption proceeds will not be mailed until the Transfer Agent is
satisfied that the check has cleared (which may require up to 15 days). You
can avoid this delay by purchasing shares with a certified check or federal
funds wire.
REDEMPTION IN KIND
The Fund reserves the right to make a redemption in kind - payment in
portfolio securities rather than cash - for certain large redemption amounts
that could hurt fund operations.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.
CLOSING OF SMALL ACCOUNTS
If your account (other than an IRA) falls below $500, the Fund may ask you to
increase your balance. If it is still below $500 after 30 days, the Fund may
close your account and send you the proceeds at the current NAV.
UNDELIVERABLE DISTRIBUTION CHECKS
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the Fund at the then current net asset value.
QUESTIONS?
Call 1-800-GABELLI
or your investment
representative.
6
<PAGE> 20
EXCHANGING SHARES
You can exchange your
shares in one Fund for
shares of the same class of
another Fund managed by
Gabelli Funds, LLC, or its
affiliates, usually without
paying additional sales
charges (see "Notes on
Exchanges" below).
You must meet the minimum
investment requirements for
the Fund into which you are
exchanging. Exchanges from
one Fund to another are
taxable transactions.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a
written request to The Gabelli
Funds, PO Box 8308, Boston, MA
02266-8308 or by calling
1-800-GABELLI (1-800-422-3554).
Please provide the following
information:
- Your name and telephone number
- The exact name on your account and
account number
- Taxpayer identification number
(usually your Social Security
number)
- Dollar value or number of shares
to be exchanged
- The names of the Funds from/into
which the exchange is to be made
See "Selling Shares" for important
information about telephone
transactions.
NOTES ON EXCHANGES
- When exchanging from a Fund that
has no sales charge or a lower
sales charge to a Fund with a
higher sales charge, you will pay
the difference.
- The registration and tax
identification numbers of the two
accounts must be identical.
- This exchange privilege may be
changed or eliminated at any time
upon a 60-day notice to
shareholders.
- Be sure to read the prospectus
carefully of any Fund into which
you wish to exchange shares.
7
<PAGE> 21
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The NAV is calculated by
adding the total value of
the Fund's investments and
other assets, subtracting
its liabilities and then
dividing that figure by the
number of outstanding
shares of the Fund:
NAV =
Total Assets - Liabilities
----------------------------
Number of Shares
Outstanding
You can find the Fund's NAV
daily in the Wall Street
Journal and other
newspapers, or by calling
1-800-GABELLI
(800-422-3554).
The net asset value, or NAV, of each
Fund's Class AAA shares is determined
and such shares are priced at the
close of regular trading on the New
York Stock Exchange, normally at 4:00
p.m., eastern time, on days the New
York Stock Exchange is open. Your
order for purchase, sale or exchange
of shares is priced at the next NAV
calculated after your order is
received by the Fund. This is what is
known as the offering price.
Fund securities are valued as of the
close of trading on the primary
exchange on which they trade. Fund
securities are generally valued at
current market prices. If market
quotations are not available, prices
will be based on the average of the
latest bid and asked quotations for
such securities prior to the valuation
time, or the latest bid price if asked
prices are not available. Debt
securities with remaining maturities
of 60 days or less will be valued at
amortized cost, which the Board of
Directors believes represents fair
value.
Some Fund securities may be listed on
foreign exchanges that are open on
days (such as U.S. holidays) when a
Fund does not compute its NAV. This
could cause the value of a Fund's
portfolio investments to be affected
on days when you cannot buy or sell
shares.
QUESTIONS?
Call 1-800-GABELLI
or your investment
representative.
8
<PAGE> 22
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, 1999
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 organized on October 30, 1992 (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, 1999, as supplemented from
time to time (the "Prospectus"). This Additional Statement 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 or the prospectus 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
Investment Restrictions................................................................. B-11
Directors and Officers.................................................................. B-11
Shares of Beneficial Interest........................................................... B-13
The Adviser............................................................................. B-14
The Distributor......................................................................... B-15
The Distribution Plan................................................................... B-16
Portfolio Transactions and Brokerage.................................................... B-16
Description of Shares, Voting Rights and Liabilities.................................... B-18
Purchase and Redemption of Shares....................................................... B-19
Exchange Privilege...................................................................... B-19
Retirement Plans........................................................................ B-20
Dividends, Distributions and Taxes...................................................... B-21
Investment Performance Information...................................................... B-24
Service Providers ...................................................................... B-25
Appendix-- Description of Ratings of Bonds and Preferred Stock.......................... B-26
</TABLE>
<PAGE> 23
THE FOLLOWING INFORMATION SUPPLEMENTS THAT IN THE PROSPECTUS
INVESTMENTS
The Corporation is a non-diversified, open-end management investment company.
The Corporation was organized as a corporation under the laws of the state of
Maryland on October 30, 1992.
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 as 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 can be withdrawn 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.
B-2
<PAGE> 24
Up to 25% of the Fund's total assets may be invested in lower quality debt
securities although the Fund does not expect to invest more than 10% of its
total 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 Investors Service, Inc.,
("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 Gabelli Funds, LLC's (the "Adviser") 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. At
times, adverse publicity regarding lower-quality securities has depressed prices
for such securities to some extent.
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 Fund's
Board of Directors of the Corporation (the "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.
B-3
<PAGE> 25
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Mortgage-backed securities are securities that indirectly represent a
participation in, or are secured by and payable from, mortgage loans secured by
real property.
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.
Asset-backed securities are securities that through the use of trusts and
special purpose vehicles, are securitized with various types of assets such as
automobile receivables, credit card receivables and home equity loans in
pass-through structures similar to mortgage-related securities.
In general, the collateral supporting asset-backed securities is of shorter
maturity than the collateral supporting mortgage loans and is less likely to
experience substantial prepayments. However, asset-backed securities are not
backed by any governmental agency.
Prepayments of principal generally may be made at any time without penalty on
residential mortgages and these prepayments are passed through to holders of one
or more of the classes of mortgage-backed securities. Prepayment rates may
change rapidly and greatly, thereby also affecting yield to maturity,
reinvestment risk and market value of the mortgage-backed securities. As a
result, the high credit quality of many of these securities may provide little
or no protection against loss in market value, and there have been periods
during which many mortgage-backed securities have experienced substantial losses
in market value. The Adviser believes that, under certain circumstances, many of
these securities may trade at prices below their inherent value on a
risk-adjusted basis and believes that selective purchases by a Fund may provide
high yield and total return in relation to risk levels.
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
Convertible securities are bonds, debentures, notes, preferred stocks of other
securities that may be converted into and exchanged for a prescribed amount of
equity securities (generally common stocks) of the same or a different issuer
within a particular period of time at a specified price or formula.
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 S&P or Baa or better by Moody's and not considered by the Adviser to
be of equivalent credit quality.
The Fund may invest up to 25% of its total 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
B-4
<PAGE> 26
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. While no securities investment is completely without risk,
investments in convertible securities generally entail less risk than common
stock, although the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible securities sells above its
value as a fixed-income 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 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 Monetary Unit
(the "EUR"), which is a combination of the economic structures of the member
nations of the European Monetary Union into to a single currency. This union
includes France, Germany, the Netherlands, and other countries. The specific
legacy currencies rates comprising the ECU were fixed on December 31, 1998 to
reflect the relative values of the underlying currencies to the newly created
EUR. 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 in securities of companies 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 Adviser, there is a reasonable prospect of total return
greater than the brokerage and other transaction expenses involved.
B-5
<PAGE> 27
In general, securities of issuers 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 the proposal is in progress. 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. The
Adviser intends to select investments of the type described which, in its view,
have a reasonable prospect of capital appreciation which is significant in
relation to both risk involved and the potential of available alternate
investments.
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.
Investing in rights and warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and, thus, can be
a speculative investment. The value of a right or warrant may decline because of
a decline in the value of the underlying security, the passage of time, changes
in interest rates or in the dividend or other policies of the company whose
equity underlies the warrant or a change in the perception as to the future
price of the underlying security, or any combination
B-6
<PAGE> 28
thereof. Rights and warrants generally pay no dividends and confer no voting or
other rights other than to purchase the underlying security.
INVESTMENTS IN INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets (5% per issuer) in securities
issued by other unaffiliated investment companies, although the Fund may not
acquire more than 3% of the voting securities of any investment company. To the
extent that the Fund invests in securities of other investment companies,
shareholders in the Fund may be subject to duplicative advisory and
administrative fees.
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 in an aggregate amount at least equal to the amount of its
outstanding forward commitments. When the Fund engages in when-issued, delayed
delivery or forward commitment transactions, it relies on the other party to
consummate the trade. Failure of the other party to do so may result in the Fund
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous.
UNSEASONED COMPANIES
The Fund may invest in securities of unseasoned companies (companies that have
operated less then three years), which, due to their short operating history,
may have less information available and may not be as liquid as other
securities. The securities of such companies may have a limited trading market,
which may adversely affect their disposition and can result in their being
priced lower than might otherwise be the case. If the other investment companies
and investors who invest in such issuers trade the same securities when the Fund
attempt to dispose of its holdings, the Fund may receive lower prices than might
otherwise be attained.
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
B-7
<PAGE> 29
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 received by the Fund on such security,
the Fund may not receive any payments (including interest) on its collateral
deposited with such broker-dealer. If the price of the security sold short
increases between the time of the short sale and the time the Fund replaces the
borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Any gain will be decreased, and
any loss increased, by the transaction costs described above. Although the
Fund's gain is limited to the price at which it sold the security short, its
potential loss is theoretically unlimited.
The market value of the securities sold short of any one issuer will not exceed
either 5% of each Fund's total assets or 5% of such issuer's voting securities.
The Fund will not make a short sale, if, after giving effect to such sale, the
market value of all securities sold short exceeds 25% of the value of its assets
or such Fund's aggregate short sales of a particular class of securities exceeds
25% of the outstanding securities of that class. The Fund may also make short
sales "against the box" without respect to such limitations. In this type of
short sale, at the time of the sale, such Fund owns or has the immediate and
unconditional right to acquire the identical security at no additional cost.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest up to a total of 15% of its net assets in securities that
are subject to legal or contractual restrictions on resale and securities the
markets for which are illiquid. 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 (the "SEC") 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 of Directors 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 of Directors treats such securities as liquid, temporary impairments to
trading patterns of such securities may adversely affect the Fund's liquidity.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements, which are agreements pursuant to
which securities are acquired by the Fund from a third party with the
understanding that they will be repurchased by the seller at a fixed price on an
agreed date. These agreements may be made with respect to any of the portfolio
securities in which the Fund is authorized to invest. Repurchase agreements may
be characterized as loans secured by the underlying securities. The Fund may
enter into repurchase agreements with (i) member banks of the Federal Reserve
System having total assets in excess of $500 million and (ii) securities
dealers, provided that such banks or dealers meet the creditworthiness standards
established by the Fund's Board of Directors ("Qualified Institutions"). The
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 of 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.
B-8
<PAGE> 30
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 net 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
total 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
total 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.
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"), 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
B-9
<PAGE> 31
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 buying or selling which 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 securities 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.
The Adviser may use such instruments on behalf of the Fund, 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 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.
TEMPORARY DEFENSIVE POSITION
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%. See "Loans of Portfolio Securities" and "Borrowing."
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, 1997 and 1998, the portfolio
turnover rates were 493% and 299%, respectively. The high portfolio turnover
rates for 1997 and 1998 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 expense to the Fund, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. 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).
B-10
<PAGE> 32
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;
(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.
DIRECTORS AND OFFICERS
The Fund's Board of Directors has overall responsibility for the management of
the Fund. The Board of Directors decides upon matters of general policy and
reviews the actions of the Fund's Adviser, Distributor and other service
providers. 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 Sub-Administrator, are shown
below. Directors deemed to be "interested persons" of the Fund for purposes of
the 1940 Act are indicated by an asterisk.
B-11
<PAGE> 33
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS;
NAME, POSITION WITH FUND AND ADDRESS AFFILIATIONS WITH THE ADVISER OR ADMINISTRATOR
------------------------------------ ----------------------------------------------
<S> <C>
Mario J. Gabelli* Chairman of the Board, Chief Executive Officer and Chief
Chairman of the Board Investment Officer of Gabelli Asset Management Inc., the
One Corporate Center Adviser and GAMCO Investors, Inc., Chairman of the
Rye, New York 10580 Board and Chief Executive Officer of Lynch Corporation,
Age: 56 a diversified manufacturing and communications services
company; Director of East/West Communications, Inc.;
officer and/or Director or Trustee of 12 other Gabelli
funds.
Anthony J. Colavita President and Attorney at Law in the law firm of Anthony
Director J. Colavita, P.C. since 1961; Director or Trustee of 12
575 White Plains Road other Gabelli funds.
Eastchester, New York 10709
Age: 62
Vincent D. Enright Senior Vice President and Chief Financial Officer of
Director KeySpan Energy Corporation; Director or Trustee of 2
One Corporate Center other Gabelli funds.
Rye, New York 10580
Age: 54
Karl Otto Pohl* Member of the Shareholder Committee of Sal Oppenheim
Director Jr. & Cie (private investment bank); Former President of
One Corporate Center the Deutsche Bundesbank and Chairman of its Central
Rye, New York 10580 Bank Council from 1980 through 1991; Currently Board
Age: 66 Member of Gabelli Asset Management Inc., Zurich
Versicherungs-Gesellschaft (insurance); International
Council for JP Morgan & Co. & Trizechtahn Corp.; and
Director or Trustee of 14 other Gabelli funds.
Werner Roeder, M.D Director of Surgery, Lawrence Hospital, and practicing
Director private physician. Director or Trustee of 6 other
One Corporate Center Gabelli funds.
Rye, New York 10580
Age: 58
Bruce N. Alpert Executive Vice President and Chief Operating Officer of
Vice President and Treasurer Gabelli Funds, LLC. (the "Adviser"); President and
One Corporate Center Director of Gabelli Advisors, Inc.; officer of each
Rye, New York 10580 mutual fund managed by the Adviser or its affiliates.
Age: 46
James E. McKee Vice President and General Counsel of Gabelli Asset
Secretary Management Inc., of GAMCO Investors, Inc. since 1993;
One Corporate Center Secretary of all mutual funds managed by the Adviser or
Rye, New York 10580 its affiliates; U.S. Securities and Exchange Commission,
Age: 35 New York, (Branch Chief, 1992-1993, Staff Attorney,
1989-1992).
</TABLE>
B-12
<PAGE> 34
The Fund pays each Director who is not an employee of the Adviser or an
affiliated company an annual fee of $1,000 and $500 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, 1998, in excess of $60,000.
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
Chairman of the Board
Vincent D. Enright............................ $ 2,000 $18,000 (3)
Director
Anthony J. Colavita........................... $ 2,000 $82,000 (13)
Director
Karl Otto Pohl(1)............................. $ 1,750 $98,466 (15)
Director
Werner Roeder, M.D............................ $ 2,000 $25,500 (7)
Director
</TABLE>
- ----------------
* Represents the total compensation paid to such persons during the calendar
year ending December 31, 1998. 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.
SHARES OF BENEFICIAL INTEREST
As of the date of this Statement of Additional Information, the Officers and
Directors of the Fund as a group owned less than 1% of the outstanding shares.
As of April 23, 1999, the following were 5% or greater shareholders of the Fund:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
SHAREHOLDER OUTSTANDING
----------- --------------------
<S> <C> <C>
Bear Stearns Securities Corp. 37.57%
FBO 461-02655-24
1 Metrotech Center North
Brooklyn, NY 11201-3870
</TABLE>
- ------------------------
(1) Mr. Pohl is a director of Gabelli Asset Management Inc.
B-13
<PAGE> 35
<TABLE>
<CAPTION>
<S> <C> <C>
Gabelli Securities Inc. 7.49%
Attn: Michael Salatto
1 Corporate Center
Rye, NY 10580-1442
Bear Stearns Securities Corp. 5.30%
FBO 461-02993-17
1 Metrotech Center North
Brooklyn, NY 11201-3870
</TABLE>
THE ADVISER
The Adviser is a New York limited liability company with principal offices
located at One Corporate Center, Rye, New York 10580-1434. The Adviser, as
successor to Gabelli Funds, Inc.(organized in 1980), was organized on February
9, 1999 and also serves as adviser to The Gabelli Asset Fund, The Gabelli Growth
Fund, The Gabelli Value Fund Inc., The Gabelli Equity Income Fund, The Gabelli
U.S. Treasury Money Market Fund, The Gabelli Small Gap Growth Fund, Inc.,
Gabelli Gold Fund Inc., Gabelli Capital Asset Fund and Gabelli International
Growth Fund, Inc., open-end investment companies, and The Gabelli Equity Trust
Inc., The Gabelli Convertible Securities Fund, Inc., and The Gabelli Global
Multimedia Trust Inc., closed-end investment companies. As successor to Gabelli
Funds, Inc., the Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. Mr. Mario J. Gabelli may be deemed a
"controlling person" of the Adviser on the basis of his ownership of stock of
the Adviser.
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 17, 1999, 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.
For the Adviser's investment advisory services, and for related expenses borne
by the Adviser, the Fund pays the Adviser an annual fee equal to 1.00% of the
Fund's average daily net assets. The fee is payable monthly in arrears. 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 hereinafter defined), 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 SEC; (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 1940 Act
to be acted upon by the Board of Directors.
The Adviser has entered into a Sub-Administration Contract with BISYS Fund
Services L.P. ("BISYS" or 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 prorated monthly fee at
the annual rate of .0625% of the average net assets of the Fund (minimum annual
fee of $30,000 per portfolio) on the first $350 million of all of the funds
advised by the Adviser and its affiliates and administered by BISYS and .0425%
of any net assets
B-14
<PAGE> 36
above $350 million, and .0225% of any assets above $700 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 Investment
Advisory 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 Investment
Advisory 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 does not restrict 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
Board of Directors; by the holders of a majority, as defined in the 1940 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 1940 Act and rules thereunder except to the extent otherwise
provided by order of the Commission or any rule under the 1940 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 1940 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.
<TABLE>
<CAPTION>
ADVISORY FEES EARNED AND WAIVED
FOR THE FISCAL YEARS ENDED DECEMBER 31,
1996 1997 1998
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Earned Waived Earned Waived Earned Waived
$270,747 $0 $281,337 $0 $488,100 $0
</TABLE>
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 affiliate of the Adviser, 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.
B-15
<PAGE> 37
THE DISTRIBUTION PLAN
Pursuant to the distribution and service plan (the "Plan") adopted by the Fund
pursuant to Rule 12b-1 under the 1940 Act and the Distribution Agreement, the
Fund is authorized to pay the Distributor for expenses it incurs in connection
with the distribution of the Fund's shares.
The Plan continues in effect from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the operation of
the Plan (the Independent Directors), cast in person at a meeting called for the
purpose of voting on such continuance. The Plan may be terminated at any time,
without penalty, by the vote of a majority of the Independent Directors, or by
the vote of the holders of a majority of the outstanding shares of the Fund on
not more than 30 days' written notice to any other party to the Plan. The Plan
may not be amended to increase materially the amounts to be spent for the
services described therein without approval by the shareholders and all material
amendments are required to be approved by the Board of Directors in the manner
described above. The Plan will automatically terminate in the event of its
assignment. The Fund will not be contractually obligated to pay expenses
incurred under the Plan if it is terminated or not continued.
Pursuant to the Plan, the Board of Directors will review at least quarterly a
written report of the distribution expenses incurred on behalf of the Fund by
the Distributor. The report includes an itemization of the distribution expenses
and the purposes of such expenditures. In addition, as long as the Plan remains
in effect, the selection and nomination of Independent Directors shall be
committed to the Independent Directors.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the federal securities laws.
During the fiscal year ended December 31, 1998, the Distributor incurred
distribution expenses under the Distribution Plan of $45,000. Of this amount
$11,900 was spent on printing, postage and stationery, $13,200 on overhead
support expenses, $16,200 on salaries of personnel of the Distributor and $3,700
to third party brokers. Pursuant to the Distribution Plan, the Fund paid the
Distributor $122,100, or .25% of its average daily net assets.
Shares of the Fund may also be purchased through shareholder agents that are not
affiliated with the Fund or the Distributor. There is no sales or service charge
imposed by the Fund other than as described, but agents who do not receive
distribution payments or sales charges may impose a charge to the investor for
their services. Such fees may vary among agents, and such agents may impose
higher initial or subsequent investment requirements than those established by
the Fund. Services provided by 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. It is the responsibility of the shareholder's agent to establish
procedures which would assure that upon receipt of an order to purchase 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 buy order expires.
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 a 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 is 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
B-16
<PAGE> 38
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 they deem 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 such 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 portfolio securities is
that primary consideration will be given to obtaining the most favorable prices
and efficient execution of transactions. In seeking to implement each 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 Securities 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.
Research services furnished by brokers or dealers through which the Fund effects
securities transactions are used by the Adviser and its advisory affiliates in
carrying out their responsibilities with respect to all of their accounts over
which they exercise investment discretion. Such investment information may be
useful only to one or more of the other accounts of the Adviser and its advisory
affiliates, and research information received for the commissions of those
particular accounts may be useful both to the Fund and one or more of such other
accounts. The purpose of this sharing of research information is to avoid
duplicative charges for research provided by brokers and dealers.
Neither the Fund nor the Adviser has any legally binding agreement with any
broker or dealer regarding any specific amount of brokerage commissions which
will be paid in recognition of such services. However, in determining the amount
of portfolio commissions directed to such brokers or dealers, the Adviser does
consider the level of services provided. Based on such determinations, the
Adviser has allocated brokerage commissions of $37,533 on portfolio transactions
in the principal amount of $25,980,844 during 1998, to various broker-dealers
that have provided research services to the Adviser.
The Adviser may also place orders for the purchase or sale of portfolio
securities with Gabelli & Company, Inc. ("Gabelli"), a broker-dealer member of
the National Association of Securities Dealers, Inc. and an affiliate of the
Adviser, when it appears that, as an introducing broker or otherwise, Gabelli
can obtain a price and execution which is at least as favorable as that
obtainable by other qualified brokers. The Adviser may also consider sales of
shares of the Fund and any other registered investment companies managed by the
Adviser and its affiliates by brokers and dealers other than the Distributor as
a factor in its selection of brokers and dealers to execute portfolio
transactions for the Fund.
As required by Rule 17e-1 under the 1940 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 of Directors, including its Independent Directors,
conduct periodic compliance reviews of such brokerage allocations and review
such schedule at least annually for its continuing compliance with
B-17
<PAGE> 39
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, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE DOLLAR
AMOUNT OF
TRANSACTIONS
BROKERAGE PERCENTAGE OF INVOLVING
TOTAL BROKERAGE COMMISSIONS PAID TO COMMISSIONS PAID TO COMMISSIONS
PERIOD COMMISSIONS PAID GABELLI AFFILIATES AFFILIATES PAID TO AFFILIATES
------------- ---------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
1996............................ $44,077 $16,011 36.3% 19.6%
1997............................ $122,327 $51,270 41.9% 32.5%
1998............................ $127,713 $66,777 52.3% 52.4%
</TABLE>
To obtain the best execution of portfolio trades on the New York Stock Exchange,
Inc. ("NYSE"), Gabelli controls and monitors the execution of such transactions
on the floor of the Exchange through independent "floor brokers" or through the
Designated Order Turnaround ("DOT") System of the Exchange. Such transactions
are then cleared, confirmed to the Fund for the account of Gabelli, and settled
directly with the Custodian of the Fund by a clearing house member firm which
remits the commission less its clearing charges to Gabelli. Gabelli may also
effect Fund portfolio transactions in the same manner and pursuant to the same
arrangements on other national securities exchanges which adopt direct access
rules similar to those of the NYSE.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund is an open-end management investment company that is a series of
Gabelli Investor Funds, Inc., a Maryland corporation organized on October 30,
1992. Its authorized capital stock consists of one billion shares of stock
having a par value of one tenth of one cent ($.001) per share. The Fund 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 Board of Directors is
authorized to divide the unissued shares into separate series of stock, each
series representing a separate, additional portfolio.
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 audited annual reports to all shareholders which
include lists 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, 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 shares.
B-18
<PAGE> 40
PURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES
Shares of the Fund are offered exclusively to investors acquiring shares
directly from the Distributor or from a financial intermediary with whom the
Distributor has entered into an agreement expressly authorizing the sale by such
intermediary of Class AAA shares. No minimum initial investment is required for
officers, directors or full-time employees of the Fund, other investment
companies managed by the Adviser, the Adviser, the Sub-Administrator, the
Transfer agent, 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
Payment of the redemption price for shares redeemed may be made either in cash
or in portfolio securities (selected at the discretion of the Board of Directors
and taken at their value used in determining the Fund's net asset value per
share as we described under "Net Asset Value" below), or partly in cash and
partly in portfolio securities. However, payments will be made wholly in cash
unless the Board of Directors believes that economic conditions exist which
would make such a practice detrimental to the best interests of the Fund. If
payment for shares redeemed is made wholly or partly in portfolio securities,
brokerage costs may be incurred by the investor in converting the securities to
cash. The Fund will not distribute in-kind portfolio securities that are not
readily marketable. The Corporation has filed a formal election with the SEC
pursuant to which the Fund will only effect a redemption in portfolio securities
where the particular shareholder of record is redeeming more than $250,000 or
1.00% of the Fund's total net assets, whichever is less, during any 90-day
period. In the opinion of the Fund's management, however, the amount of a
redemption request would have to be significantly greater than $250,000 before a
redemption wholly or partly in portfolio securities would be made.
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.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders the privilege of exchanging their
shares for shares of certain other funds managed by the Adviser or an affiliate,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of each fund (the "Exchange Privilege"). Shares
of such other Gabelli funds may also be exchanged for shares of the Fund. All
exchanges are made on the basis of the relative NAV next determined after
receipt of an order in proper form. An exchange will be treated as a redemption
and purchase for tax purposes. Shares may be exchanged for shares of another
fund only if shares of such fund may legally be sold under applicable state
laws. For retirement and group plans having a limited menu of Gabelli funds, the
Exchange Privilege is available for those funds eligible for investment in the
particular program.
B-19
<PAGE> 41
The Fund's shares may be exchanged for Class AAA shares of any other funds
managed by the Adviser or an affiliate of the Adviser that offers Class AAA
shares or the no-load shares of Funds which do not have a multi-class structure
and money market funds.
Additional details about the Exchange Privilege and prospectuses for each of the
funds managed by the Adviser or an affiliate are available from the Fund's
Transfer Agent. The Exchange Privilege may be modified, terminated or suspended
on sixty days' notice, and any fund, or the Distributor, has the right to reject
any exchange application relating to such fund's shares.
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. For tax years
beginning after December 31, 1997, investors may be eligible to make
contributions to a new type of individual retirement account (a "Roth IRA"). An
investor can open a Roth IRA if he meets certain income limits specified in the
Internal Revenue Code of 1986, as amended (the "Code"). Any contributions made
by an investor to a Roth IRA are nondeductible for U.S. Federal income tax
purposes. Distributions from a Roth IRA are not included in the investor's gross
income and are not subject to a 10% penalty for early withdrawal if the
distributions are made after the end of the five-year period beginning with the
first tax year in which the investor made a contribution to the Roth IRA and the
distributions meet other criteria set forth in the Code. The maximum annual
aggregate contribution that can be made to IRAs and Roth IRAs is $2,000. 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. In addition, for tax
years beginning after December 31, 1997, certain low and middle-income investors
may open an education individual retirement account (an "Education IRA").
Eligible individuals are permitted to contribute up to $500 per year per
beneficiary under 18 years old to an Education IRA. The minimum initial
investment for an Education IRA through the Fund is $250. A distribution from an
education IRA is generally excludable from gross income to the extent that such
distribution does not exceed qualified higher education expenses incurred by the
beneficiary during the year in which the distribution is made.
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." These 401(k) Plans 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 Code, individuals may make wholly or partial 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.
Persons desiring information concerning investments through IRA accounts or
other retirement plans should write or telephone the Distributor.
DETERMINATION OF NET ASSET VALUE
For purposes of determining the Fund's net asset value per share, readily
marketable portfolio securities listed on the NYSE are valued, except as
indicated below, at the last sale price reflected at the close of the regular
trading session of the NYSE 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
B-20
<PAGE> 42
as the Board of Directors shall determine in good faith to reflect its fair
market value. Readily marketable securities not listed on the NYSE 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 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 NYSE 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, Martin Luther King, Jr. 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
GENERAL
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.
The Fund will determine whether 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
B-21
<PAGE> 43
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.
Each dividend and capital gains distribution, if any, declared by the Fund on
its outstanding shares will, unless the shareholder elects otherwise, be paid on
the payment date fixed by the Board of Directors in additional shares of the
Fund having an aggregate net asset value as of the ex-dividend date of such
dividend or distribution equal to the cash amount of such distribution. An
election to receive dividends and distributions may be changed by notifying the
Fund in writing at any time prior to the record date for a particular dividend
or distribution. There are no sales or other charges in connection with the
reinvestment of dividends and capital gains distributions. There is no fixed
dividend rate, and there can be no assurance that the Fund will pay any
dividends or realize any capital gains.
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.
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 continue to purchase or carry
any positions that are part of a straddle.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences of hedging transactions to the Fund are not
entirely clear.
The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections accelerate
the recognition of gains or losses from the affected straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, and require the capitalization of interest
expense, the amount which must be distributed to shareholders, and which will be
taxed to shareholders as ordinary income or long-term capital gain, may be
increased or decreased substantially as compared to a fund that did not engage
in such hedging transactions.
DISTRIBUTIONS
Distributions of investment company taxable income (which includes taxable
interest and dividend 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
B-22
<PAGE> 44
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 may reflect the amount of the
forthcoming distribution. Those purchasing at that time 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, or short-term, generally depending upon the
shareholder's holding period for the shares. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of. In such case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
BACKUP WITHHOLDING
The Corporation may be required to withhold Federal income tax at the rate of
31% of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's Federal income
tax liability.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is impossible to determine the rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known. Because the Fund will not have more than 50% of its total assets invested
in securities of foreign governments or corporations, the Fund will not be
entitled to "pass-through" to shareholders the amount of foreign taxes paid by
the Fund. Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to Federal, state or local taxes.
CREATION OF ADDITIONAL SHARES
The Fund reserves the right to create and issue a number of series shares, in
which case 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 Fund's Articles of Incorporation.
Upon liquidation of the Fund 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 shareholder.
B-23
<PAGE> 45
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, 1998, the Fund's current yield was 0.80%.
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 (or for the periods of the Fund's operations), 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-24
<PAGE> 46
The cumulative returns for the fiscal year ended December 31, 1998 and since
inception were 11.1% and 71.3%, respectively and the average annual total
returns were 11.1% and 10.0%, respectively.
SERVICE PROVIDERS
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York
10022, serves as counsel for the Fund.
Grant Thornton LLP, 7 Hanover Square, New York, New York 10004-2616, has been
appointed independent auditor for the Fund.
State Street Bank and Trust Company ("State Street") 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, performs the shareholder services on behalf of State Street and is
located at the BFDS Building, 2 Heritage Drive, North Quincy, Massachusetts
07171.
B-25
<PAGE> 47
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 conditions. CI: The rating CI
is reserved for income bonds on which no interest is being paid. D: Debt rated D
is in payment default. The D rating category is used when interest payments or
principal payments are not made on the date due even if the applicable grace
period has not expired, unless S&P's believes that such payments will be made
B-26
<PAGE> 48
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 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-27
<PAGE> 49
PART C: OTHER INFORMATION
ITEM 23. FINANCIAL STATEMENTS AND EXHIBITS
(A) Financial Statements:
(1) Financial Statements included in Part A, the Prospectus:
(a) Financial Highlights for the fiscal years ended December 31, 1994,
1995, 1996, 1997 and 1998.
(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, 1998.**
(c) Portfolio of Investments, December 31, 1998.**
(d) Statement of Operations for the fiscal year ended December 31, 1998.**
(e) Statement of Changes in Net Assets for the fiscal years ended December
31, 1997 and December 31, 1998.**
(f) Financial Highlights for the fiscal years ended December 31, 1998,
1997, 1996, 1995 and 1994.**
(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 Investment Advisory Agreement***
6 Distribution Agreement***
7 Not applicable
8(a) Custodian Contract***
9 Transfer Agency and Service Agreement***
9(a) Sub-Administration Agreement***
10(a) Opinion and consent of Counsel for the Registrant*
(b) Consent of Counsel for the Registrant (filed herewith)
<PAGE> 50
11(a) Consent of Independent Auditors (filed herewith)
12 Not applicable
13 Subscription Agreement*
14 Not Applicable
15 Distribution Plan under Rule 12b-1***
16 Not Applicable
17 Financial Data Schedule (filed herewith)
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, 1997.
*** Previously filed as an exhibit to the Post-Effective Amendment No. 8
to Registration Statement No. 33-54016 filed on April 30, 1998.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 25. 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
<PAGE> 51
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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Gabelli Funds, LLC 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 27. PRINCIPAL UNDERWRITERS
(A) The Distributor, Gabelli & Company, Inc., is also the principal
underwriter for The Gabelli Global Telecommunications Fund, The Gabelli Global
Interactive Couch Potato Fund, The Gabelli Global Convertible Securities Fund,
The Gabelli Growth Fund, The Gabelli Asset Fund, The Gabelli Value Fund, The
Gabelli Capital Asset Fund, The Gabelli Small Cap Growth Fund, Gabelli Equity
Income Fund, Gabelli Gold Fund, Inc., The Westwood Funds and The Gabelli Money
Market Funds.
(B) For information with respect to each director and officer of Gabelli &
Company, Inc., reference is made to Form BD filed by Gabelli & Company, Inc.
under the Securities Exchange Act of 1934.
(C) Inapplicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All such accounts, books and other documents are maintained at the offices of:
Gabelli Funds, LLC, One Corporate Center, Rye, New York, 10580-1434; BISYS Fund
Services, 3435 Stelzer Rd., Columbus, OH 43219 and State Street Bank and Trust
Company, 1776 Heritage Drive, North Quincy, Massachusetts 02171.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. 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> 52
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, 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, as amended, and has duly caused this Amendment No. 10 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, 1999.
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, as amended, this
Amendment No. 10 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 Director April 28, 1999
- ----------------------------
Mario J. Gabelli
* Vice President and Treasurer April 28, 1999
- ----------------------------
Bruce N. Alpert
* Director April 28, 1999
- ----------------------------
Vincent D. Enright
* Director April 28, 1999
- ----------------------------
Anthony Colavita
* Director April 28, 1999
- ----------------------------
Karl Otto Pohl
* Director April 28, 1999
- ----------------------------
Werner Roeder, M.D.
*By: /s/ Bruce N. Alpert
-----------------------
Bruce N. Alpert
Attorney-in-fact
</TABLE>
<PAGE> 1
May 3, 1999
Gabelli Investor Series Funds, Inc.
One Corporate Center
Rye, New York 10580-1434
Ladies and Gentlemen:
As special Maryland counsel to Gabelli Investor Series Funds, Inc., a
Maryland corporation (the "Corporation"), in connection with Post-Effective
Amendment No. 10 to the Corporation's Registration Statement on Form N-1A
(Registration Nos. 33-54016 and 811-7326) filed with the Securities and Exchange
Commission (the "Commission") on the date hereof, we hereby consent to the use
of the opinion letter dated March 12, 1993 (the "Opinion Letter") previously
filed with the Commission (the "Commission"). In giving our consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations of
the Commission thereunder. This consent relates solely to the opinions expressed
in the Opinion Letter as of the date of the Opinion Letter, and the opinions
expressed therein shall continue to be expressed solely as of that date and
relate solely to the shares which were the subject of the Registration Statement
on the date our opinion was originally filed with the Commission. No other
opinion should be inferred beyond the matters expressly stated in the Opinion
Letter.
Very truly yours,
/s/ MILES & STOCKBRIDGE P.C.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
The Gabelli ABC Fund,
a Series of Gabelli Investor Funds, Inc.
We hereby consent to the incorporation by reference in Post-Effective Amendment
No. 10 to Registration Statement No. 33-54016 on Form N-1A of our Report of
Independent Auditors dated February 19, 1999, accompanying the financial
statements.
We also consent to the use of our name under the headings "Financial Highlights"
and "Independent Auditors" in the Prospectus, the "Counsel and Independent
Auditors" in the Statement of Additional Information, which is also part of such
Registration Statement.
/s/ GRANT THORNTON LLP
----------------------
New York, New York
April 28, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000893783
<NAME> GABELLI INVESTOR FUNDS, INC.
<SERIES>
<NUMBER> 00
<NAME> THE GABELLI ABC FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 37039223
<INVESTMENTS-AT-VALUE> 36934596
<RECEIVABLES> 2508513
<ASSETS-OTHER> 33624
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39476733
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 118595
<TOTAL-LIABILITIES> 118595
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39483567
<SHARES-COMMON-STOCK> 4105158
<SHARES-COMMON-PRIOR> 3442361
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 20802
<ACCUM-APPREC-OR-DEPREC> (104627)
<NET-ASSETS> 39358138
<DIVIDEND-INCOME> 344728
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<EXPENSES-NET> 818788
<NET-INVESTMENT-INCOME> 486648
<REALIZED-GAINS-CURRENT> 3415128
<APPREC-INCREASE-CURRENT> (1144585)
<NET-CHANGE-FROM-OPS> 2757191
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 489413
<DISTRIBUTIONS-OF-GAINS> 3432595
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6122609
<NUMBER-OF-SHARES-REDEEMED> 5773794
<SHARES-REINVESTED> 313982
<NET-CHANGE-IN-ASSETS> 4130131
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3669
<OVERDISTRIB-NII-PRIOR> 5775
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 488100
<INTEREST-EXPENSE> 2868
<GROSS-EXPENSE> 822669
<AVERAGE-NET-ASSETS> 48821232
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 0.90
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 1.54
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.59
<EXPENSE-RATIO> 1.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
