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The
Gabelli
ABC
Fund
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SEMI-ANNUAL REPORT
JUNE 30, 1999
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The Gabelli ABC Fund
Semi-Annual Report
June 30, 1999
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The Gabelli ABC Fund was rated "A"
by Business Week for superior
risk-adjusted total return in their
1999 Mutual Fund Scoreboard.
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To Our Shareholders,
"But Many Who Are First Will Be Last, and The Last First" (Mark 10:31)
Value stocks excelled in the second quarter of 1999. Cyclical stocks
ignited the rally, with the stronger than anticipated economy bolstering the
earnings outlook for economically sensitive companies. Other value sectors
caught the spark as investors began rotating out of richly valued growth stocks
into more reasonably priced companies in a wide range of industries. The
Internet balloon did not burst, but enough hot air escaped to bring the ".com"
companies closer to earth.
Also, small cap stocks finally emerged from what has been a long and
painful bear market. For the first time in seven quarters, the Russell 2000
outpaced the S&P 500 on its way to posting double digit returns for the quarter.
Investment Performance
For the second quarter ended June 30, 1999, the Gabelli ABC Fund's (the
"Fund") total return was 5.7%. The Standard & Poor's ("S&P") 500 Index and
Lipper U.S. Treasury Money Market Average had total returns of 7.1% and 1.0%,
respectively, over the same period. The S&P index is an unmanaged indicator of
stock market performance, while the Lipper average reflects the average
performance of mutual funds classified in this particular category. The Fund was
up 13.2% over the trailing twelve-month period. The S&P 500 and Lipper U.S.
Treasury Money Market Average rose 22.8% and 4.4%, respectively, over the same
twelve-month period.
For the five-year period ended June 30, 1999, the Fund's total return
averaged 10.6% annually versus average annual total returns of 27.9% and 4.8%
for the S&P 500 and Lipper U.S. Treasury Money Market Average, respectively.
Since inception on May 14, 1993 through June 30, 1999, the Fund had a cumulative
total return of 82.2%, which equates to an average annual total return of 10.3%.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results. Business Week's annual
Mutual Fund Scoreboard rated mutual funds based on five-year performance
adjusted for downside volatility. The top 7.5% of these funds earned A's for
superior risk-adjusted total returns. For 1998, 104 funds earned A's among 1,387
equity funds with a five-year history, the minimum history required for a
rating.
<PAGE>
INVESTMENT RESULTS (a)
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Quarter
--------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
1999: Net Asset Value $ 9.65 $ 10.20 -- -- --
Total Return .. 0.6% 5.7% -- -- --
- -------------------------------------------------------------------------------
1998: Net Asset Value $ 10.64 $ 10.68 $ 10.16 $ 9.59 $ 9.59
Total Return .. 4.0% 0.4% (4.9)% 11.9% 11.1%
- -------------------------------------------------------------------------------
1997: Net Asset Value $ 9.98 $ 10.45 $ 10.74 $ 10.23 $ 10.23
Total Return .. 1.4% 4.7% 2.8% 3.3% 12.8%
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1996: Net Asset Value $ 10.10 $ 10.16 $ 9.77 $ 9.84 $ 9.84
Total Return .. 4.1% 0.6% 0.8% 2.2% 7.8%
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1995: Net Asset Value $ 9.94 $ 10.14 $ 10.41 $ 9.71 $ 9.71
Total Return .. 3.9% 2.0% 2.7% 2.2% 11.2%
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1994: Net Asset Value $10.12 $ 10.11 $ 10.42 $ 9.57 $ 9.57
Total Return .. 0.9% (0.1)% 3.1% 0.6% 4.5%
- -------------------------------------------------------------------------------
1993: Net Asset Value -- $ 10.10 $ 10.63 $ 10.03 $ 10.03
Total Return .. -- 1.0%(b) 5.2% 2.6% 9.1%(b)
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--------------------------------------------------
Average Annual Returns - June 30, 1999 (a)
------------------------------------------
1 Year....................... 13.2%
5 Year....................... 10.6%
Life of Fund (b)............. 10.3%
--------------------------------------------------
Dividend History
Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
December 28, 1998 $1.763 $ 9.50
December 29, 1997 $0.860 $ 10.17
December 27, 1996 $0.146 $ 9.83
September 30, 1996 $0.470 $ 9.77
December 28, 1995 $0.930 $ 9.71
December 28, 1994 $0.910 $ 9.52
December 31, 1993 $0.880 $ 10.03
(a) Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of investment operations on May 14, 1993.
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What We Do
The Gabelli ABC Fund and its unique Performance Guaranty Program was
created in 1993 for conservative investors who had been reluctant to participate
in the equity markets. In other words, it was a vehicle to allow investors to
"get their feet wet" in the stock market without risking loss of capital. We see
ourselves as an "enhanced money market". Our approach has been to maintain a
diversified portfolio of value-oriented equities, convertible preferred stocks,
convertible bonds and U.S. government securities.
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2
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Conceptually, the upside potential of stocks would help produce greater total
return potential than a straight bond or government securities fund and the risk
in the equity portion of the portfolio would be diminished by the combination of
lower risk convertible securities and virtually risk free U.S. Treasury bills.
To date, this approach has worked quite well. Although we have indefinitely
suspended the Performance Guaranty Program, we believe the Fund's investment
strategy can continue to produce favorable results.
History of the Fund
The Gabelli ABC Fund was launched on May 14, 1993 with a minimum
guaranteed total return of 6% through May 14, 1994. For 1994, 1995 and 1996, 5%
Performance Guaranty Programs were in place. These programs were unique because
they provided investors the full upside potential of the investment while
guaranteeing a minimum total return. Gabelli Funds, Inc.'s fourth Performance
Guaranty Program concluded on December 31, 1996 and a new program was not in
effect for 1997 or 1998. The Fund's annual total returns were 12.8% and 11.1%,
respectively, for those two years. Although the Performance Guaranty Program is
not being offered for 1999, the Fund continues striving to achieve the same
objectives. During the most recent four-year period in which the S&P 500 has
delivered 25% plus annual returns, a minimum return guarantee of 5% appeared
dull and unattractive. However, in terms of market volatility, the Fund has
provided comfort to the risk averse.
The Adviser and Board of Directors continue to explore several options
involving a longer term guaranty program in a closed end structure. This would
require shareholder approval. Meanwhile, the Fund will continue to be managed,
as it has been the past six years, to provide an attractive rate of return
without excessive risk of capital.
COMMENTARY
The Economy: Dueling Data on Inflation
Inflation played "peek-a-boo" with investors in the second quarter of
1999. A jump in April's Consumer Price Index ("CPI") rattled the bond market and
had equity investors holding their breath. Inflation all but disappeared again
in the May CPI numbers. The bond market stabilized and stocks regained momentum.
Then, citing the emergence of "incipient ingredients" for inflation and the long
lead time of monetary policy, the Federal Reserve decided to hike the Federal
Funds rate by 25 basis points on June 30, in what Chairman Alan Greenspan
characterized as a "preemptive action" against inflation. This sparked a flurry
of observers to question whether this single modest rate hike would be an
effective vaccination against inflation or just the first in a series of shots
that will eventually take the froth out of the economy and financial markets.
We are not optimistic on inflation. The inflationary threat comes
partially from rising commodities prices (most notably oil), which are
recovering from severely depressed levels following the Asian economic meltdown,
and from the prospect of wage inflation in fully employed America. Thus far,
technology driven productivity gains have offset rising wages. Along with Fed
Chairman Greenspan, we are not sure how much longer this can continue in an
America with help wanted signs in an increasing number of corporate windows.
3
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American Consumers: Will the Engine of Global Economic Growth Continue Steaming
Along?
We want to echo again the question we asked in our September 30, 1998
report and repeated in our March 31, 1999 report: Will the American consumer
continue to carry the rest of the world, or will the consumer eventually run low
on confidence and/or the resources required to nourish the global economy? Put
another way, can the U.S. continue to run enormous balance of payment deficits
that provide hope and sustenance for the other economies of the world as they
attempt to emerge from their economic malaise?
Full employment, higher wages, the wealth effect associated with rising
home values and a vibrant stock market have emboldened consumers, who continue
to spend quite liberally. If rising interest rates discourage consumers from
financing their spending spree, or we see a meaningful correction in the stock
market dent consumer confidence, the engine that has been driving global
economic growth may sputter. Equally important, if the U.S. consumer continues
to be the sole driver of global economic activity, the U.S. balance of payments
deficit will exceed even our dire forecast of a $250 billion run rate. The value
of the U.S. dollar is a wild card in the mix of elements that will determine the
direction of the overall U.S. economy and the stock market.
The Market: Earnings and Interest Rates
In our first quarter 1999 letter to shareholders, we also opined that
earnings and interest rates would call the market tune for the balance of the
year. In general, first quarter earnings met consensus estimates and second
quarter earnings should be stronger than anticipated, with particularly good
comparisons to 1998's second quarter, when General Motor's strike and the plunge
in energy prices crimped reported results. However, interest rates are higher,
and until we see convincing evidence that inflation is firmly under control,
rates are not likely to trend much lower. With the S&P 500's gains already
approximating 1999 earnings growth forecasts, we see an inadequate "margin of
safety" in the stock market. Money flowing into the markets, particularly from
deal activity, is the fuel powering a market that still favors stocks. However,
money is no longer pouring into equity mutual funds at the rates we have seen in
previous years. All this conjecture leads us to the opinion that stock
selectivity remains crucial over the next twelve months.
ABCs and Some XYZs
As stated previously, industrial cyclicals led the charge in the second
quarter. The equipment and supplies sector, led by Holophane Corp.,
International Comfort Products and Case Corp., posted big returns. Following
closely were the diversified industrial companies, most notably Thermo Power
Corp. and O'Sullivan Corp. The ongoing consolidation in the energy and utilities
sector also helped to pad returns, with all but one holding posting a positive
return for the quarter and companies such as Citizens Utilities and Florida
Public Utilities leading the pack.
Two stocks in particular were takeover candidates during the second
quarter. Nalco Chemical, the largest U.S. water treatment company, agreed to be
acquired by Suez Lyonnaise des Eaux of France, for $4.5 billion in cash. Nalco
is Suez's second U.S. acquisition of the month as it attempts to keep pace with
Vivendi in the water treatment business outside of France. Rental Services
Corp., the number three U.S. equipment rental company, agreed to be purchased by
Atlas Copco, a Swedish manufacturer of
4
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compressors and electric tools, for $1.63 billion ($29 per share) in cash.
Atlas' bid tops a previous bid of $22.75 per share from United Rentals.
Overall, more than 80% of the Fund's holdings posted positive returns in
the second quarter and no individual sector suffered. The holdings that posted
negative returns were spread throughout the portfolio, and the majority of
holdings that were negative for the quarter represented 0.1% of the portfolio or
less. On the whole, it was a very successful quarter for the Fund.
The Role of Arbitrage in the ABC Fund Strategy
Arbitrage continues to be one of the investment strategies we employ to
preserve and enhance shareholder assets. So, we feel it appropriate to once
again explain arbitrage and the role it plays in our investment approach.
What is arbitrage? We define arbitrage as investing in "event" driven
situations: primarily, but not exclusively, in announced mergers, acquisitions,
reorganizations and other "work-out" opportunities. When a company agrees to be
acquired by another company, its stock price generally immediately rises to just
below the stated acquisition price. We look at the spread between the seller's
stock price and the announced deal price and the time frame in which the
acquisition is expected to close. If we are confident the acquisition will be
consummated on schedule at the full deal price and we can earn an annualized
rate of return materially higher than that likely to be realized through
investing in cash equivalents, then we are interested.
Then, we do the research. We value the target company to see if it is
really worth what the acquiring company has announced it will pay. Sometimes we
find it is worth even more, increasing the odds that some other company might
make a higher bid. We also research the acquiring company to ensure that it can
finance the deal. If it is a stock transaction, we need to know that we will be
receiving good value in return. We look at merger agreements to see if there are
any loopholes. We review any antitrust concerns raised by the government. In
short, we make judgments to assure that what we see will be what we get.
There is greater risk in this strategy than in simply owning money market
instruments because announced acquisitions are not always completed and, in
situations where the deal currency is the acquirer's stock as opposed to cash,
the ultimate acquisition price may vary in value. However, if we do a thorough
job evaluating the downside risk, we can often earn very generous returns
relative to the money markets, particularly with today's low money market
yields. In summation, we think arbitrage, as we practice it in the ABC Fund,
represents an attractive investment opportunity with historically low
correlation to the performance of the overall stock market.
We borrow a quote from Warren Buffet to explain our use of arbitrage in
the Fund: "Our subsidiaries sometimes engage in arbitrage as an alternative to
holding short term cash equivalents. We prefer, of course, to make major long
term commitments. But we often have more cash than good ideas. At such times
arbitrage sometimes promises much greater returns than Treasury bills and,
equally important, cools any temptation we may have to relax our standards for
long term investments".
5
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Let's Talk Stocks
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
American Bankers Insurance Group Inc. (ABI - $54.4375 - NYSE) has agreed to be
acquired by Fortis for $2.8 billion in cash and assumed debt, making the
Dutch-Belgian financial company the largest insurer of consumer and credit card
loans in the U.S. Fortis, Belgium's largest financial company, will pay $55 per
share for each American Bankers share. Fortis has been expanding outside its
home markets (Belgium, the Netherlands and Luxembourg) by developing specialized
insurance businesses such as funeral insurance and health policies for small
companies. The transaction is expected to be completed during the third quarter
of 1999.
Holophane Corp. (HLP - $38.125 - NYSE) has signed a definitive agreement to be
acquired by National Service Industries (NSI - $36.00 - NYSE), the number one
North American seller of lighting equipment. The $450 million cash transaction
allows NSI to cut costs and expand its activities in industrial and outdoor
lighting. Holophane shareholders will receive $38.50 per share through a cash
tender offer which is expected to be completed during the third quarter of 1999.
National Service, by combining its lighting unit with the well-known Holophane
brand, adds 250 marketing employees to boost sales in a fast-growing sector of
the lighting fixtures business. The transaction has received antitrust clearance
and is subject to a majority of Holophane's shares being tendered in the offer.
International Comfort Products Corp. (ICP - $11.375 - AMEX) has agreed to be
acquired by United Technologies' Carrier unit for $720 million in cash. Carrier
is the number one manufacturer of air conditioners. United Technologies will pay
$11.75 per share for ICP, thereby advancing its position in providing air
conditioning and heat pump products for the residential and light commercial
markets. United Technologies will also receive ICP's oil furnace line. ICP's
largest shareholders, representing nearly 40% of the company's shares, have
agreed to the merger. The transaction requires U.S. and Canadian antitrust
approvals and is expected to be completed during the third quarter of 1999.
Nalco Chemical Co. (NLC - $51.875 - NYSE) signed a definitive agreement to be
acquired by Suez Lyonnaise des Eaux, for $4.5 billion, or $53 per share in cash.
Nalco has 50,000 industrial customers in 120 countries and is the largest U.S.
manufacturer of water treatment chemicals used for pollution control and other
applications. Nalco is Suez's second U.S. acquisition this year, and follows
Vivendi's March agreement to buy U.S. Filter for $7.9 billion. Suez has the
largest numer of customers in the $500 billion worldwide market for water and
waste treatment, but Vivendi has a larger sales volume.
Orange & Rockland Utilities Inc. (ORU - $58.4375 - NYSE) has agreed to be
acquired by Consolidated Edison (ED - $45.25 - NYSE) for $1.15 billion in cash
and assumed debt, allowing Con Edison to boost its power transmission business
in a growing part of the New York City area. Orange & Rockland is a small
utility, with most of its customers in New York's northern suburbs. Con Edison
is to pay $58.50 per share for all of Orange & Rockland's 13.5 million
outstanding shares. Orange & Rockland shareholders approved the merger on August
20, 1998 and the companies have filed all necessary regulatory
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applications. The transaction is expected to be completed once all state and
federal regulatory approvals are obtained which is expected during the third
quarter of 1999. In addition to the $58.50 per share, we will also receive
Orange & Rockland's $0.645 quarterly dividend.
Paymentech Inc. (PTI - $25.375 - NYSE) has agreed to allow First Data, the
nation's largest processor of consumer payments to retail merchants, to acquire
the 45% of Paymentech that is publicly held for approximately $400 million and
then combine its stake with a unit of Bank One, which owns the remaining 55%.
First Data will pay $25.50 per share for the roughly 16 million shares held by
the public. PTI is the third-largest processor of credit card transactions in
the U.S. Regulatory approval has been obtained and the transaction is expected
to be completed shortly after Paymentech's shareholders approve the merger. The
shareholder meeting is set for July 26, 1999.
Rental Services Corp. (RSV - $28.625 - NYSE) has accepted an offer to be
acquired by Atlas Copco AB for $1.63 billion, topping a bid by United Rentals.
RSV is the number three U.S. renter of industrial and construction equipment.
Stockholm-based Atlas Copco AB will pay $29 per share through a cash tender
offer for all of Rental Services' outstanding shares. The Swedish company, which
entered the U.S. rental market through a 1997 acquisition, would overtake
Hertz's non-vehicle rental business and become a stronger competitor to number
one United Rentals.
Southwest Gas Corp. (SWX - $28.625 - NYSE) is a natural gas utility based in Las
Vegas, providing natural gas service to over 1.2 million residential, commercial
and industrial customers in one of the most economically vibrant areas of the
United States: Arizona, Nevada and parts of northeastern and southeastern
California. The company added more than 58,000 customers during 1998. Southwest
is the nation's fastest growing natural gas distribution company. Southwest Gas'
board of directors has approved a revised offer from Oneok Inc. (OKE - $31.75 -
NYSE) to purchase all outstanding SWX shares for $30.00 per share in cash,
valuing Southwest Gas at approximately $1.8 billion, including assumed debt.
Regulatory approvals from the Nevada PUC and the Arizona ACC have been obtained.
Thermo Power Corp. (THP - $11.6875 - AMEX) announced it has entered into a
definitive agreement to merge with its parent company, Thermo Electron (TMO -
$20.0625 - NYSE). Under terms of the agreement, Thermo Electron will pay $12.00
per share in cash for the 20% of Thermo Power it does not currently own. The
terms of the merger agreement were negotiated by a special committee who hired
an investment banker to evaluate Thermo Electron's merger proposal. The
transaction is expected to be completed during the third quarter of 1999.
Wicor Inc. (WIC - $27.9375 - NYSE) headquartered in Milwaukee, is a diversified
holding company whose subsidiaries provide natural gas distribution to
approximately 530,000 thousand customers throughout Wisconsin and manufacture
pumps and fluid processing equipment, including filtration equipment. Wicor is
the parent of Wisconsin Gas Company, the state's largest gas utility. Flotec
Products is a manufacturer of water, pool, spa, sump, effluent, garden pond
pumps, as well as pressure tanks and filters for home water purification. Hypro
Corp. is a manufacturer of pumps for the agricultural, industrial marine engine
cooling and pressure cleaning markets. Wisconsin Energy Corp. (WEC - $25.0625 -
NYSE), owner of Wisconsin's largest electric utility, has agreed to acquire
Wicor for approximately $1.275 billion. The acquisition should be completed by
the spring of 2000.
7
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Minimum Initial Investment - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
Additionally, The Gabelli ABC Fund and other Gabelli Funds are available through
the no-transaction fee programs at many major discount brokerage firms.
In Conclusion
In the second quarter of 1999, value reasserted itself and small cap
stocks came roaring back. Both of these forces provided a tailwind for our
portfolio. Looking ahead, we have our reservations regarding the stock market,
which, based on fundamentals, appears to be well above intrinsic value. However,
we still see windows of opportunity, particularly in the small and mid-cap value
sectors where we are most active. We will strive to continue to uncover such
opportunities and maintain a diversified portfolio of what we view as long term
fundamental investment bargains.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's Nasdaq symbol is GABCX. Please call us during the
business day for further information.
Sincerely,
/s/ Mario J. Gabelli
Mario J. Gabelli, CFA
Portfolio Manager and
Chief Investment Officer
July 30, 1999
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Top Ten Holdings
June 30, 1999
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Orange & Rockland Utilities Inc. International Comfort Products
Paymentech Inc. Wicor Inc.
Rental Services Corp. Nalco Chemical Co.
American Bankers Insurance Group Holophane Corp.
Thermo Power Corp. Southwest Gas Corp.
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NOTE: The views expressed in this report reflect those of the portfolio manager,
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
8
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The Gabelli ABC Fund
Portfolio of Investments -- June 30, 1999 (Unaudited)
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS - 50.4%
Automotive: Parts and Accessories - 0.1%
5,000 Durakon Industries Inc.+ .......... $ 77,700 $ 78,438
----------- -----------
Aviation: Parts and Services - 1.2%
20,000 Aviall Inc.+....................... 317,454 376,250
20,000 Fairchild Corp., Cl. A+............ 385,750 255,000
7,000 Hi-Shear Industries Inc.+.......... 10,215 18,047
22,000 Kaman Corp., Cl. A................. 395,473 345,125
----------- -----------
1,108,892 994,422
----------- -----------
Broadcasting - 0.2%
1,000 Infinity Broadcasting Corp.+....... 20,500 29,750
2,500 Liberty Corp....................... 121,108 136,250
----------- -----------
141,608 166,000
----------- -----------
Business Services - 9.7%
2,580 Fisher Scientific International
Inc.+............................ 24,892 57,566
201,000 Paymentech Inc.+ .................. 5,034,231 5,100,375
2,580 ProcureNet Inc.+................... 0 387
100,000 Rental Services Corp.+ 2,864,000 2,862,500
----------- -----------
7,923,123 8,020,828
----------- -----------
Communications Equipment - 0.1%
5,000 Dynatech Corp.+.................... 122,000 17,188
1,000 L - 3 Communications
Holdings Inc.+................... 22,000 48,312
----------- -----------
144,000 65,500
----------- -----------
Computer Software and Services - 0.0%
1,438 DecisionOne Holdings Corp.+........ 6,828 2,696
----------- -----------
Consumer Products - 1.0%
12,500 Carter-Wallace Inc................. 147,694 227,344
7,000 General Housewares Corp............ 89,021 136,063
28,442 Syratech Corp.+.................... 907,944 440,850
----------- -----------
1,144,659 804,257
----------- -----------
Diversified Industrial - 3.1%
6,000 Ampco-Pittsburgh Corp.............. 69,606 76,875
10,000 Katy Industries Inc................ 239,250 130,000
50,000 O'Sullivan Corp.................... 606,875 609,375
150,000 Thermo Power Corp.+ ............... 1,732,500 1,748,437
3,000 WHX Corp.+......................... 34,650 19,688
----------- -----------
2,682,881 2,584,375
----------- -----------
Electronics - 0.3%
10,000 UCAR International Inc.+........... 186,256 252,500
----------- -----------
Energy and Utilities - 15.6%
20,000 AGL Resources Inc.................. 363,454 368,750
10,000 Aquarion Co........................ 347,481 347,500
8,000 Cilcorp Inc........................ 487,456 500,000
30,603 Citizens Utilities Co., Cl. B+..... 301,244 340,458
50,000 El Paso Electric Co.+.............. 397,438 446,875
22,000 Florida Public Utilities Co........ 329,010 415,250
1,000 Nevada Power Co.................... 25,113 25,000
8,000 New England Electric System........ 387,615 401,000
102,000 Orange & Rockland Utilities Inc.... 5,733,016 5,960,624
40,000 PennzEnergy Co..................... 653,857 667,500
2,500 Piedmont Natural Gas Co............ 83,406 77,813
1,000 Public Service Co. of
North Carolina................... 29,488 29,250
1,000 Sierra Pacific Resources........... 34,613 36,375
40,000 Southwest Gas Corp................. 983,350 1,145,000
5,000 St. Joseph Light & Power Co........ 102,750 102,813
10,000 United Water Resources Inc......... 181,813 226,875
60,000 Wicor Inc.......................... 1,645,922 1,676,249
----------- -----------
12,087,026 12,767,332
----------- -----------
Entertainment - 1.1%
9,000 Fisher Companies Inc............... 625,306 567,000
20,000 Florida Panthers Holdings Inc.+.... 186,106 213,750
1,000 Liberty Media Group, Cl. A+........ 18,625 36,750
12,000 Topps Co. Inc.+.................... 51,348 87,375
----------- -----------
881,385 904,875
----------- -----------
Environmental Services - 0.6%
20,000 Superior Services Inc.+............ 534,910 533,750
----------- -----------
Equipment and Supplies - 4.8%
4,500 Amphenol Corp., Cl. A+............. 124,282 178,875
1,000 Case Corp.......................... 49,571 48,125
40,000 Holophane Corp.+................... 1,522,000 1,525,000
150,000 International Comfort
Products Corp.+.................. 1,723,125 1,706,250
20,000 Juno Lighting Inc.................. 484,375 500,000
----------- -----------
3,903,353 3,958,250
----------- -----------
Financial Services - 4.5%
44,000 American Bankers
Insurance Group Inc.............. 2,725,645 2,395,250
30,000 Argonaut Group Inc................. 1,015,593 720,000
5,000 Leucadia National Corp.+........... 174,181 125,000
20,000 Life USA Holdings Inc.............. 396,250 405,000
5,000 Pioneer Group Inc.+................ 87,805 86,250
----------- -----------
4,399,474 3,731,500
----------- -----------
Food and Beverage - 0.2%
30,000 Advantica Restaurant Group Inc.+... 320,182 103,125
3,000 Whitman Corp....................... 52,228 54,000
----------- -----------
372,410 157,125
----------- -----------
Health Care - 0.2%
4,000 Life Technologies Inc.............. 148,781 144,500
----------- -----------
See accompanying notes to financial statements.
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The Gabelli ABC Fund
Portfolio of Investments (Continued) -- June 30, 1999 (Unaudited)
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (Continued)
Home Furnishings - 0.2%
8,000 O'Sullivan Industries
Holdings Inc.+................... $ 132,900 $ 136,000
----------- -----------
Hotels and Gaming - 0.1%
9,300 Aztar Corp.+....................... 62,078 85,444
----------- -----------
Metals and Mining - 0.0%
10,000 Royal Oak Mines Inc.+.............. 11,858 439
----------- -----------
Publishing - 0.3%
10,000 Penton Media Inc................... 195,000 242,500
----------- -----------
Real Estate - 1.6%
70,000 Catellus Development Corp.+........ 1,175,673 1,085,000
20,000 Griffin Land & Nurseries Inc.+..... 322,381 237,500
----------- -----------
1,498,054 1,322,500
----------- -----------
Real Estate Investment Trust - 0.7%
50,000 Imperial Credit Commercial
Mortgage Investment Corp......... 513,562 540,625
----------- -----------
Retail - 0.9%
120,000 Bruno's Inc.+ 76,300 30,000
8,000 Lillian Vernon Corp................ 132,815 104,000
50,000 Pamida Holdings Corp.+............. 564,999 568,750
3,000 Richfood Holdings Inc.............. 53,588 52,875
----------- -----------
827,702 755,625
----------- -----------
Specialty Chemicals - 2.2%
6,000 Bush Boake Allen Inc.+............. 184,337 175,500
32,000 Nalco Chemical Co.................. 1,651,287 1,660,000
----------- -----------
1,835,624 1,835,500
----------- -----------
Telecommunications - 0.4%
11,000 Rogers Communications Inc.,
Cl. B+........................... 168,300 178,063
6,800 Shenandoah
Telecommunications Co............ 148,906 167,450
----------- -----------
317,206 345,513
----------- -----------
Textiles - 0.5%
321,974 Carlyle Industries Inc.+ 150,941 412,529
----------- -----------
Wireless Communications - 0.8%
2,000 American Tower Corp., Cl. A+....... 31,009 48,000
21,000 CommNet Cellular Inc.+............. 213,362 551,250
2,000 Rural Cellular Corp., Cl. A+....... 24,493 40,000
----------- -----------
268,864 639,250
----------- -----------
TOTAL COMMON STOCKS................ 41,557,075 41,482,273
----------- -----------
PREFERRED STOCKS - 2.2%
Diversified Industrial - 0.7%
11,000 WHX Corp., Pfd., Ser. A............ 519,238 354,063
6,000 WHX Corp., Pfd., Ser. B............ 259,432 192,750
----------- -----------
778,670 546,813
----------- -----------
Telecommunications - 1.5%
4,000 Citizens Utilities Co.,
5.00% Cv. Pfd.................... 194,320 194,500
12,500 Sprint Corp.,
8.25% Cv. Pfd.................... 462,841 1,087,500
----------- -----------
657,161 1,282,000
----------- -----------
TOTAL PREFERRED STOCKS............. 1,435,831 1,828,813
----------- -----------
Principal Market
Amount Cost Value
------ ---- -----
CORPORATE BONDS - 0.0%
Retail - 0.0%
$ 200,000 RDM Sports Group Inc., Cv.
8.00%, 08/15/03.................. 4,000 20,000
----------- -----------
Transportation - 0.0%
850,000 Builders Transport Inc., Cv.
6.50%, 05/01/11.................. 8,500 12,750
----------- -----------
TOTAL CORPORATE BONDS.............. 12,500 32,750
----------- -----------
U.S. GOVERNMENT OBLIGATIONS - 50.1%
41,608,000 U.S. Treasury Bills,
4.56% to 4.73% ++,
due 09/02/99 to 09/30/99......... 41,200,539 41,202,387
----------- -----------
TOTAL
INVESTMENTS - 102.7%........... $84,205,945 84,546,223
===========
Other Assets and
Liabilities (Net) - (2.7)% .... (2,237,950)
-----------
NET ASSETS - 100.0%
(8,066,254 shares outstanding)... $82,308,273
===========
NET ASSET VALUE,
Offering and Redemption
Price Per Share.................. $10.20
======
- ----------
For Federal tax purposes:
Aggregate cost..................... $84,205,945
===========
Gross unrealized appreciation...... $ 2,710,054
Gross unrealized depreciation...... (2,369,776)
-----------
Net unrealized appreciation........ $ 340,278
===========
- ----------
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
See accompanying notes to financial statements.
10
<PAGE>
Statement of Assets and Liabilities
June 30, 1999 (Unaudited)
================================================================================
Assets:
Investments, at value (Cost $84,205,945) .................. $84,546,223
Dividends and interest receivable ......................... 48,333
Receivable for investments sold ........................... 6,480,000
Receivable for Fund shares issued ......................... 65,997
-----------
Total Assets .............................................. 91,140,553
-----------
Liabilities:
Payable for investments purchased ......................... 7,624,392
Payable for Fund shares redeemed .......................... 1,017,000
Payable for investment advisory fees ...................... 68,550
Payable for distribution fees ............................. 17,124
Payable to custodian ...................................... 10,668
Other accrued expenses .................................... 94,546
-----------
Total Liabilities ......................................... 8,832,280
-----------
Net Assets applicable to 8,066,254
shares outstanding ...................................... $82,308,273
===========
Net Assets consist of:
Capital stock, at par value ............................... $ 8,066
Additional paid-in capital ................................ 77,873,453
Accumulated net investment income ......................... 344,555
Accumulated net realized gain on investments .............. 3,741,921
Net unrealized appreciation on investments ................ 340,278
-----------
Total Net Assets .......................................... $82,308,273
===========
Net Asset Value, offering and redemption
price per share ($82,308,273 / 8,006,254
shares outstanding; 1,000,000,000 shares
authorized of $0.001 par value) ........................... $ 10.20
===========
Statement of Operations
For the Six Months Ended June 30, 1999 (Unaudited)
================================================================================
Investment Income:
Dividends ..................................................... $ 314,195
Interest ...................................................... 593,732
----------
Total Investment Income ....................................... 907,927
----------
Expenses:
Investment advisory fees ...................................... 349,982
Distribution fees ............................................. 87,495
Shareholder report expenses ................................... 30,912
Shareholder services fees ..................................... 26,505
Custodian fees ................................................ 20,865
Legal and audit fees .......................................... 19,731
Registration fees ............................................. 19,280
Directors' fees ............................................... 5,950
Miscellaneous expenses ........................................ 2,652
----------
Total Expenses ................................................ 563,372
----------
Net Investment Income ......................................... 344,555
----------
Net Realized and Unrealized Gain
on Investments:
Net realized gain on investments .............................. 3,762,723
Net change in unrealized appreciation
on investments .............................................. 444,905
----------
Net realized and unrealized gain
on investments .............................................. 4,207,628
----------
Net increase in net assets resulting
from operations ............................................. $4,552,183
==========
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
Operations:
Net investment income ................................................. $ 344,555 $ 486,648
Net realized gain on investments ...................................... 3,762,723 3,415,128
Net change in unrealized appreciation / (depreciation) on investments . 444,905 (1,144,585)
------------ ------------
Net increase in net assets resulting from operations .................. 4,552,183 2,757,191
------------ ------------
Distributions to shareholders:
Net investment income ................................................. -- (480,873)
In excess of net investment income .................................... -- (8,540)
Net realized gain on investments ...................................... -- (3,418,797)
In excess of net realized gain on investments ......................... -- (13,798)
------------ ------------
Total distributions to shareholders ................................... -- (3,922,008)
------------ ------------
Capital share transactions
Net increase in net assets from capital share transactions ............ 38,397,952 5,294,948
------------ ------------
Net increase in net assets ............................................ 42,950,135 4,130,131
Net Assets:
Beginning of period ................................................... 39,358,138 35,228,007
------------ ------------
End of period ......................................................... $ 82,308,273 $ 39,358,138
============ ============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
The Gabelli ABC Fund
Notes to Financial Statements (Unaudited)
================================================================================
1. Organization. The Gabelli ABC Fund (the "Fund"), a series of Gabelli Investor
Funds, Inc. (the "Corporation"), was organized on October 30, 1992 as a Maryland
corporation. The Fund is a non-diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund's primary objective is to achieve total returns that are
attractive to investors in various market conditions without excessive risk of
capital loss. The Fund commenced investment operations on May 14, 1993.
2. Significant Accounting Policies. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange as of the close of business on
the day the securities are being valued (if there were no sales that day, the
security is valued at the average of the closing bid and asked prices or, if
there were no asked prices quoted on that day, then the security is valued at
the closing bid price on that day, except for open short positions, which are
valued at the last asked price). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, LLC
(the successor to Gabelli Funds, Inc. as investment adviser) (the "Adviser").
Securities and assets for which market quotations are not readily available are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Board of Directors.
Short term debt securities with remaining maturities of 60 days or less are
valued at amortized cost, unless the Directors determine such does not reflect
the securities' fair value, in which case these securities will be valued at
their fair value as determined by the Directors. Debt instruments having a
greater maturity are valued at the highest bid price obtained from a dealer
maintaining an active market in those securities. Options are valued at the last
sale price on the exchange on which they are listed. If no sales of such options
have taken place that day, they will be valued at the mean between their closing
bid and asked prices.
Repurchase Agreements. The Fund may enter into repurchase agreements with
primary government securities dealers recognized by the Federal Reserve Bank of
New York, with member banks of the Federal Reserve System or with other brokers
or dealers that meet credit guidelines established by the Directors. Under the
terms of a typical repurchase agreement, the Fund takes possession of an
underlying debt obligation subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. The Fund will always
receive and maintain securities as collateral whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the Fund in each agreement. The Fund will make payment for such securities
only upon physical delivery or upon evidence of book entry transfer of the
collateral to the account of the custodian. To the extent that any repurchase
transaction exceeds one business
12
<PAGE>
The Gabelli ABC Fund
Notes to Financial Statements (Continued) (Unaudited)
================================================================================
day, the value of the collateral is marked-to-market on a daily basis to
maintain the adequacy of the collateral. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
Futures Contracts. The Fund may engage in futures contracts for the purpose of
hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin". Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily fluctuation of the
value of the contract. The daily changes in the contract are included in
unrealized gains or losses. The Fund recognizes a realized gain or loss when the
contract is closed. At June 30, 1999, there were no open futures contracts.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
Securities Transactions and Investment Income. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
Provision for Income Taxes. The Fund has qualified and intends to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a result, a Federal income tax provision is
not required.
3. Investment Advisory Agreement. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00% of the value of the Fund's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio, oversees the administration of all
aspects of the Fund's business and affairs and pays the compensation of all
Officers and Directors of the Fund who are its affiliates.
13
<PAGE>
The Gabelli ABC Fund
Notes to Financial Statements (Continued) (Unaudited)
================================================================================
4. Distribution Plan. The Fund's Board of Directors has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For the six months
ended June 30, 1999, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an affiliate of the Adviser, of $87,495, or 0.25% of average
daily net assets, the annual limitation under the Plan. Such payments are
accrued daily and paid monthly.
5. Portfolio Securities. Purchases and sales of securities for the six months
ended June 30, 1999, other than short term securities, aggregated $142,635,196
and $130,832,734, respectively.
6. Transactions with Affiliates. During the six months ended June 30, 1999, the
Fund paid brokerage commissions of $182,357 to Gabelli & Company, Inc. and its
affiliates.
7. Capital Stock Transactions. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
---------------------------- ----------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ................................ 6,062,151 $ 59,286,057 6,122,609 $ 62,705,757
Shares issued upon reinvestment of dividends -- -- 313,982 2,982,885
Shares redeemed ............................ (2,101,055) (20,888,105) (5,773,794) (60,393,694)
------------ ------------ ------------ ------------
Net increase ............................. 3,961,096 $ 38,397,952 662,797 $ 5,294,948
============ ============ ============ ============
</TABLE>
14
<PAGE>
The Gabelli ABC Fund
Financial Highlights
================================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
June 30, 1999 ------------------------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period .......... $ 9.59 $ 10.23 $ 9.84 $ 9.71 $ 9.57 $ 10.03
---------- ---------- ---------- ---------- ---------- ----------
Net investment income ......................... 0.04 0.22 0.08 0.21 0.21 0.33
Net realized and unrealized gain
on investments .............................. 0.57 0.90 1.17 0.54 0.86 0.12
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations .............. 0.61 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)
In excess of net investment income ............ -- (0.00)(a) (0.01) -- -- --
Net realized gain on investments .............. -- (1.54) (0.77) (0.41) (0.72) (0.58)
In excess of net realized gain on investments . -- (0.00)(a) -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total distributions ........................... -- (1.76) (0.86) (0.62) (0.93) (0.91)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period ................ $ 10.20 $ 9.59 $ 10.23 $ 9.84 $ 9.71 $ 9.57
========== ========== ========== ========== ========== ==========
Total return+ ................................. 6.4% 11.1% 12.8% 7.8% 11.2% 4.5%
========== ========== ========== ========== ========== ==========
Ratios to average net assets and supplemental data:
Net assets, end of period (in 000's) .......... $ 82,308 $ 39,358 $ 35,228 $ 26,801 $ 19,862 $ 24,419
Ratio of net investment income
to average net assets ....................... 0.98%(c) 1.00% 0.87% 2.11% 1.83% 2.95%
Ratio of operating expenses
to average net assets (b) ................... 1.60%(c) 1.69% 2.26% 2.09% 2.10% 2.09%
Portfolio turnover rate ....................... 313% 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. Total return for the period of
less than one year is not annualized.
(a) Amount represents less than $0.005 per share.
(b) 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.
(c) Annualized.
See accompanying notes to financial statements.
15
<PAGE>
The Gabelli ABC Fund
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
fax: 1-914-921-5118
e-mail: [email protected]
http://www.gabelli.com
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
Board of Directors
Mario J. Gabelli, CFA Karl Otto Pohl
Chairman and Chief Former President
Investment Officer Deutsche Bundesbank
Gabelli Asset Management Inc.
Anthony J. Colavita Werner J. Roeder, MD
Attorney-at-Law Medical Director
Anthony J. Colavita, P.C. Lawrence Hospital
Vincent D. Enright
Former Senior Vice President
and Chief Financial Officer
KeySpan Energy Corp.
Officers
Mario J. Gabelli, CFA Bruce N. Alpert
President and Chief Vice President
Investment Officer and Treasurer
James E. McKee
Secretary
Distributor
Gabelli & Company, Inc.
Custodian, Transfer Agent and Dividend Agent
State Street Bank and Trust Company
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
- --------------------------------------------------------------------------------
This report is submitted for the general information of the share holders of The
Gabelli ABC Fund. It is not authorized for distribution to prospective investors
unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
GAB408Q299SR
