THE GABELLI ABC FUND
ANNUAL REPORT
DECEMBER 31, 1999
TO OUR SHAREHOLDERS,
The leading stock market indices rallied strongly in the fourth quarter of
1999 and finished the year at or near record highs. However, relatively few
stocks participated in this year's stock market bonanza. New lows outnumbered
new highs on the NYSE by a wide margin throughout much of the year. Growth
continued to out-perform value across the market capitalization spectrum and
large cap stocks continued to outperform small caps. Technology stocks were the
biggest winners, with the tech-heavy Nasdaq Composite outdistancing all other
major market indices.
In this uneven market environment, we are extremely pleased to report that
the Fund once again achieved its risk/adjusted return objective.
INVESTMENT PERFORMANCE
For the fourth quarter ended December 31, 1999, the Gabelli ABC Fund's
(the "Fund") total return was 2.38%. The Standard & Poor's ("S&P") 500 Index and
Lipper U.S. Treasury Money Market Average had total returns of 14.87% and 1.16%,
respectively, over the same period. The S&P 500 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 9.00% for 1999. The S&P 500 Index and Lipper U.S. Treasury Money Market
Average rose 21.03% and 4.26%, respectively, over the same twelve-month period.
For the five-year period ended December 31, 1999, the Fund's total return
averaged 10.36% annually versus average annual total returns of 28.54% and 4.76%
for the S&P 500 Index and Lipper U.S. Treasury Money Market Average,
respectively. Since inception on May 14, 1993 through December 31, 1999, the
Fund had a cumulative total return of 86.69%, which equates to an average annual
total return of 9.86%.
<PAGE>
INVESTMENT RESULTS (a)
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<TABLE>
<CAPTION>
Quarter
------------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1999: Net Asset Value $9.65 $10.20 $10.21 $9.44 $9.44
Total Return 0.6% 5.7% 0.1% 2.4% 9.0%
- ----------------------------------------------------------------------------------------------------
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%
- ----------------------------------------------------------------------------------------------------
1996: Net Asset Value $10.10 $10.16 $9.77 $9.84 $9.84
Total Return 4.1% 0.6% 0.8% 2.2% 7.8%
- ---------------------------------------------------------------------------------------------------
1995: Net Asset Value $9.94 $10.14 $10.41 $9.71 $9.71
Total Return 3.9% 2.0% 2.7% 2.2% 11.2%
- ----------------------------------------------------------------------------------------------------
1994: Net Asset Value $10.12 $10.11 $10.42 $9.57 $9.57
Total Return 0.9% (0.1)% 3.1% 0.6% 4.5%
- ----------------------------------------------------------------------------------------------------
1993: Net Asset Value __ $10.10 $10.63 $10.03 $10.03
Total Return __ 1.0%(b) 5.2% 2.6% 9.1%(b)
- ----------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------
Average Annual Returns - December 31, 1999 (a)
- ----------------------------------------------
1 Year .............. 9.00%
5 Year .............. 10.36%
Life of Fund (b) .... 9.86%
- ----------------------------------------------
Dividend History
- ---------------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
- ---------------------------------------------------------------
December 27, 1999 $1.000 $ 9.32
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.
- --------------------------------------------------------------------------------
WHAT WE DO
The Gabelli ABC Fund, with 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
[Graphics of Pyramid omitted--text as follows]
EPS
PMV
MANAGEMENT
CASH FLOW
RESEARCH
[End of Pyramid text]
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GABELLI ABC FUND,
THE LIPPER U.S. TREASURY MONEY MARKET AVERAGE and THE S&P 500 INDEX
[GRAPH OMITTED]
Lipper
Gabelli ABC U.S. Treasury
Fund Money Market Average S&P 500 Index
5/14/93 $10,000 $10,000 $10,000
12/93 10,910 10,163 10,659
12/94 11,401 10,530 10,798
12/95 12,278 11,091 14,858
12/96 13,667 11,618 18,275
12/97 15,410 12,139 24,370
12/98 17,127 12,706 31,374
12/99 18,668 13,247 37,972
* PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
stocks, convertible bonds and U.S. government securities. Conceptually,the
upside potential of stocks would help produce greater total return potential
than a straight bond or government securities fund and the risk in the equity
portion of the portfolio would be diminished by the combination of lower risk
convertible securities and virtually risk free U.S. Treasury bills. To date,
this approach has worked quite well. Although we have indefinitely suspended the
Performance Guaranty Program, we believe the Fund's investment strategy can
continue to produce favorable results.
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. Beginning in 1997, the
Performance Guaranty Program was suspended but the Fund's annual total returns
were 12.8%, 11.1% and 9.0% for the ensuing three years. Although the Performance
Guaranty Program is not being offered for 2000, the Fund continues striving to
achieve the same objectives. During the most recent five-year period in which
the S&P 500 Index has delivered 20% 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.
3
<PAGE>
COMMENTARY
1999'S HAVE AND HAVE NOT MARKET
At year-end 1999, many investors were left pondering how and why their
individual stock and/or mutual fund portfolios performed so poorly in a year in
which all the leading stock market indices posted strong gains. The answer is
simple. A relative handful of increasingly popular technology and
Internet-related stocks propelled the capitalization weighted market indices
higher, while the majority of stocks languished. If you owned these types of
companies, you were a winner. If you owned index funds, you earned respectable
returns. If you owned most anything else, especially value stocks and most value
oriented funds, you had a "dull year".
In this "have and have not" market, our risk averse allocation among value
oriented common stocks, arbitrage investments, and short term Treasury
securities helped preserve and enhance shareholder assets.
THE ECONOMY AND THE MARKET
The long term bull market in U.S. stocks has been fueled by low inflation,
declining interest rates, strong corporate profit growth, and very favorable
supply/demand dynamics for equities. As we write, two of the four ingredients
that have been propelling the market remain in place. Corporate profits are
expanding at an attractive rate and demand for equities continues to outpace
supply. However, inflation has moved modestly higher and market interest rates
are at two-year peaks.
Will inflation remain in the current comfort zone? That depends on whether
the Federal Reserve can effectively restrain the economy and whether increased
productivity can continue to offset rising wages in a tight labor market. At
present, nobody (including us) can answer these questions. However, we suspect
that if the economy continues to expand at a rate in excess of 5.0% and the job
market continues to tighten, there will be more serious inflationary
implications and interest rates will move even higher. If this economic scenario
unfolds, stocks will likely stall or perhaps correct. If the Federal Reserve
succeeds in cooling down the economy and inflation and interest rates stabilize
around current levels, stocks could advance in line with corporate earnings
growth.
We believe that the ABC Fund portfolio selections should continue to
adequately reward risk averse investors in either of these two economic/market
scenarios. We are now enjoying materially higher yields from our short term
Treasury securities (cash reserves). Our arbitrage investments continue to be
productive on an annualized return basis, while shielding the portfolio from
stock market volatility. We believe our common stock portfolio still represents
good fundamental value.
THIS YEAR'S SCORECARD
Our top performers in 1999 come from an eclectic group of industries
including wireless communications (CommNet Cellular), utilities (United Water
Resources), chemicals (Amphenol Corp.)
4
<PAGE>
and telecommunications (Citizens Utilities). Notable losers include aviation
suppliers Aviall and Kaman, insurer Argonaut Group, auto parts manufacturer
Federal-Mogul, and gold miner Royal Oak Mines. We were pleased with our stock
picking batting average in a year in which the market rewarded relatively few
companies and ignored or abandoned most others.
Since arbitrage plays a major role in our portfolio strategy, we want to
share excerpts from an article we prepared for CIGAR AFICIONADO magazine
discussing what we believe is now a very exciting investment subject.
Additionally, more examples and strategies for arbitrage as an investment
opportunity are provided in Gabelli University Press' new book DEALS... DEALS...
AND MORE DEALS.
RISK ARBITRAGE--HOW TO PROFIT FROM "THE THIRD WAVE OF TAKEOVERS"(TM)
[PHOTO OMITTED]
WE ARE IN THE MIDST OF THE THIRD GREAT WAVE OF MERGERS AND ACQUISITIONS SINCE
WORLD WAR II.
The first wave swelled in the 1960s, with conglomerators like LTV's Jimmy
Ling, Gulf & Western's Charles Bluhdorn, and ITT's Harold Geneen merging
companies in non-related industries. They did so in an attempt to produce more
consistent earnings growth through the ups and downs of the business cycle. The
second major wave of takeovers began in the 1980s, when financial engineers
including leveraged buyout firms like Kohlberg, Kravis & Roberts, and corporate
raiders like T. Boone Pickens used junk debt to gobble up undervalued companies
and then dismember them for a profit. This second wave broke as financially
unrealistic deals like the proposed leveraged buyout ("LBO") of United Airlines
fell apart, the junk bond market collapsed, and the House of Drexel
disintegrated under the weight of a government criminal investigation.
The third great wave of mergers and acquisitions is being driven by
consolidators--companies in a wide range of industries buying competitors in
order to extend their franchises, trim costs and increase profitability. We
trace the beginning of this wave to March 14, 1994, when much admired General
Electric Chairman Jack Welch launched a hostile bid to buy Kemper Insurance -
signaling that deals were once again respectable. This Third Wave will continue
to gain momentum as companies worldwide jockey for market position and profits
in the increasingly competitive global economy.
THERE ARE TWO WAYS INVESTORS CAN TAKE ADVANTAGE OF MERGER AND ACQUISITION
ACTIVITY.
The first is buying public shares of likely takeover candidates before the
"deal" is announced. Gabelli Asset Management's ability to identify industries
ripe for consolidation and our focus on undervalued companies has resulted in a
long list of portfolio holdings being taken over at substantial premiums to our
purchase prices. The second (and much less known) method is through risk
arbitrage. It would take a book to detail all the complexities of risk
arbitrage. In this article, I'll provide the basics, and more importantly, the
reasons why I believe risk arbitrage is such a compelling investment strategy.
Simply stated, risk arbitrage is investing in a merger or acquisition
target after the deal has been announced and pocketing the spread between the
trading price of the target company following the
5
<PAGE>
announcement and the deal price upon closing. This spread is usually relatively
narrow--offering a somewhat modest nominal total return. However, since deals
generally close in much less than a year's time, this modest total return
translates into a much more attractive annualized return.
The following is a very basic risk arbitrage investment. On March 22,
1999, the NYSE-listed First Data Corp. announced it would pay $25.50 in cash for
all the remaining publicly owned shares of Paymentech, Inc. (52.5% of the
company would continue to be owned by Bank One, which has a merchant processing
alliance with First Data). The deal was expected to close within four months.
Following the announcement, we were able to purchase Paymentech shares for
$24.02 (the trading price of $24 per share on the day the deal was announced
plus 2 cents per share in commissions). The spread between our purchase price
and the value of the stock upon closing was 6.2%. The deal closed on July 27,
1999, generating an annualized return of 18.5%.
This particular arbitrage worked out very well for us. We were able to buy
Paymentech shares at a good discount to the final transaction price and the deal
closed on schedule. Not all arb investments produce such an attractive
annualized return. However, arbitrage portfolios have posted annualized returns
in the low to mid teens in the 1990s.
THE GREAT ADVANTAGE OF RISK ARBITRAGE IS THAT IT IS LARGELY A MARKET NEUTRAL
STRATEGY--DEALS GET DONE IN GOOD MARKETS AND BAD--THAT CAN DELIVER CONSISTENT
RETURNS EVEN IN VOLATILE MARKETS.
Because a conservatively managed risk arbitrage portfolio produces
consistent gains, the financial magic of compounding works strongly in its
favor. Let me offer two examples of the power of compounding returns.
Once upon a time, there was a king in a far away land. In order to repay
the local sage for saving his daughter's life, the king offered the sage any
reward he wished. The sage asked for what appeared to be a modest stipend--one
grain of rice - the amount to be doubled each day for 31 days. The sage would
receive one grain of rice that day, two the next, four the next, and so on. The
king thought nothing of giving away a few grains of rice on a daily basis, but,
it was only a matter of weeks before the king's granaries were empty and the
sage had become the richest man in the land. After only one month, the king was
paying the sage over 1 billion grains of rice a day. In 31 days, one grain
became one billion through the magic of compounding.
The purchase of Manhattan Island from the Indians for just $24 worth of
beads is generally considered one of the greatest investments in history. The
estimated value of all the real estate in Manhattan today is around $10 trillion
dollars. Amazingly, this equates to an annualized compounded return of just 7.4%
in the 375 years since the deal was done.
Of course, arbitrage investments don't compound at 100% daily, and most
investors' time horizons are much shorter than the 375 years it took to make the
purchase of Manhattan look like such a great deal. But consider the following
hypothetical scenario. Alice and Bob both invest $1 million of their
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<PAGE>
401(k) money in the year 2000. Alice puts her money in a risk arbitragefund that
ends up returning 12% each year for the next ten years. Bob puts his money in an
aggressive equity fund that gains 20% in eight of the ten years, but is down 20%
in year one and year six. In 2010, Alice has $3.1 million compared to Bob's $2.7
million, despite the fact that Bob's returns were almost double Alice's returns
in eight of the ten years.
Are we shortchanging Bob in this scenario? After all, the stock market has
had only one down year in the last 10, and over that time period, the S&P 500
has posted an average annual gain of 20%. True enough. However, the long term
average annualized return from stocks is just over 11%, and I suggest that over
the next ten years, equity returns will more closely resemble the historic
norms. I would also opine that these returns will be accompanied by considerable
volatility--yes, major corrections and perhaps a full scale bear market. Are
Alice's arb fund returns realistic? Remember, risk arbitrage returns are
impacted by deal flow, not the direction of the stock market. If deal flow
continues to be as robust as we anticipate over the next ten years, arb funds
have the potential to deliver consistent annual returns in the low to mid teens.
So, this hypothetical scenario may prove remarkably accurate.
AT THIS JUNCTURE, YOU MAY BE WONDERING WHERE IS THE RISK IN RISK ARBITRAGE?
The biggest risk in risk arbitrage is that announced deals will not be
consummated and that the stock of the company to be acquired will sink following
a bust up in the deal. In fact, in virtually every individual risk arbitrage
investment, upside potential is dwarfed by downside risk. One old time pundit
said it best ... "arbitrage is the only business we know where you risk dollars
to make nickels." The second biggest risk is that the deal may take much longer
to close than first anticipated, turning an attractive annualized gain into a
much more modest return.
Deals do break for a variety of reasons and a busted deal generally means
a big loss. However, during this third great wave of mergers and acquisitions,
96.5% of all announced deals have been consummated. That puts the odds in the
arbritrageur's favor, particularly if he or she knows how to analyze a deal in a
manner that helps avoid most, if not all, of the inevitable potholes. An
adequately diversified arbitrage portfolio is a must. A diversified arb
portfolio can withstand the large loss from a broken deal and still generate a
positive return. Regarding the timing issue, deals do get stretched out, but
provided one is not investing with leverage or having to bear the cost of a
short position in a stock swap deal, this generally results in a more modest
gain rather than a loss. Due to the complexities of most deals and because broad
diversification is absolutely essential, in my opinion, risk arbitrage is best
left to organizations with research and trading expertise and sufficient assets
to support a fully diversified arb portfolio.
But, just because you can't do it at home, doesn't mean that investors
shouldn't take advantage of this relatively low risk strategy to create wealth
through the magic of compounding returns. There are numerous arbitrage
partnerships open to individual investors.
7
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So, when the next deal is announced, remember it is still not too late to
buy and earn an attractive return on your investment.
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.
BUSH BOAKE ALLEN INC. (BOA - $24.5625 - NYSE) is a major, international flavor,
fragrance and aroma chemical company as well as a producer of fine chemicals and
chemical intermediates for industrial and agricultural applications. The company
conducts business on six continents and has 63 locations in 39 countries
worldwide. Flavors produced by Bush Boake Allen are used in beverages, dairy
products, baked goods, confectionery items and processed foods. BOA's fragrance
compounds are used by consumer product manufacturers in perfumes and colognes,
soaps, detergents and cleaners, air fresheners, cosmetics and a variety of
personal care products.
CITIZENS UTILITIES CO. (CZN - $14.1875 - NYSE) provides telecommunications
services and public services to approximately 1.8 million customers in 21
states. Citizens owns 83% of Electric Lightwave (ELIX - $18.75 - Nasdaq), a
competitive local exchange carrier ("CLEC") serving primarily the western U.S.
Last year, management authorized the separation of Citizens' telecommunications
businesses and public services businesses into two stand-alone, publicly traded
companies. Recently, CZN announced agreements to acquire about 900,000 rural
access lines in 11 states for $2.8 billion. CZN intends to finance the
transactions by divesting its public services operations. It has already
announced the sale of its water operations to American Water Resources for $835
million. The company has sold its 16% stake in Centennial Cellular Corp. for
approximately $205 million. Citizens has monetized its ownership of Century
Communications' (CTYA - $45.625 - Nasdaq) stock and cable operations through a
sale to Adelphia Communications for approximately $220 million.
EASTERN ENTERPRISES (EFU - $57.4375 - NYSE) owns and operates Boston Gas
Company, Colonial Gas Company, Essex Gas Company, Midland Enterprises, and
ServicEdge Partners. Upon completion of the pending merger with EnergyNorth,
Eastern will serve over 800,000 residential, commercial and industrial natural
gas customers in Massachusetts and New Hampshire. Midland Enterprises,
headquartered in Cincinnati, Ohio, is the leading carrier of coal and a major
carrier of other dry bulk cargoes on the nation's inland waterways, with a fleet
of 2,399 barges and 87 towboats. ServicEdge is the largest unregulated provider
of residential HVAC equipment installation and service to customers in
Massachusetts. Eastern Enterprises has signed a definite merger agreement under
which KeySpan Energy will acquire all the common stock of Eastern Enterprises
for $64.00 per share in cash.
KAMAN CORP. (KAMNA - $12.875 - NASDAQ), founded in 1945, is a pioneer in the
helicopter industry. Aircraft manufacturing remains the core of the business.
Kaman services both commercial and government markets with helicopters and
aircraft components. The company also produces specialized, high-value niche
market products and services which tend to be technological leaders in their
markets. Kaman Industrial Technologies, located in Windsor, Connecticut is one
of the largest industrial distributors of replacement parts, including bearings,
power transmission, motion control and materials handling
8
<PAGE>
components to nearly every section of industry in North America. Kaman Music,
headquartered in Bloomfield, Connecticut, is one of the largest distributors of
music instruments in the world, distributing more than 13,000 items, including
violins, horns, guitars, drums and accessories to music retailers throughout
North America.
LIBERTY CORP. (LC - $42.1875 - NYSE), headquartered in Greenville, S.C., is a
holding company with operations in broadcasting and insurance. Liberty's Cosmos
Broadcasting owns and operates eleven network affiliated television stations in
the Southeast and Midwest. Six stations are affiliated with NBC, three with ABC
and two with CBS. These stations serve more than four million households.
Liberty Life is a regional insurer, with North Carolina, South Carolina and
Louisiana accounting for more than 50% of its premium volume. The insurance
segment specializes in providing agency (home service) and mortgage protection,
life and health insurance. In February 1999, Liberty hired an investment banker
and began a strategic review which may result in a spinoff.
SPRINT CORP. (FON.A - $74.25 - NYSE) is the third largest long distance carrier
and the second largest independent local telephone company in the U.S. Sprint
has positioned itself globally through a joint venture called GlobalOne. Its
joint venture partners, France Telecom and Deutsche Telekom, also have a direct
20% stake in Sprint. FON faces risks from prospective new entrants in its long
distance business which may be offset by the "ION" high bandwith network that
the company is developing, and by other new services. On October 5, 1999, MCI
WorldCom announced plans to acquire Sprint for $125 billion in stock and cash.
The transaction is expected to close in about 12 months upon regulatory
approval. Sprint PCS group is the leading all digital personal communications
services ("PCS") carrier in the U.S. with over four million customers and
licenses covering over 230 million people. Sprint PCS will be acquired as part
of MCI WorldCom's (WCOM - $53.0625 - Nasdaq) acquisition of Sprint Corp.
WICOR INC. (WIC - $29.1875 - NYSE), headquartered in Milwaukee, is a diversified
holding company whose subsidiaries provide natural gas distribution and
manufacture pumps and fluid processing equipment, including filtration
equipment. WICOR is the parent of Wisconsin Gas Company, which is the state's
largest gas utility serving about 530,000 customers. In June, WICOR agreed to be
acquired by Wisconsin Energy Corporation (WEC - $19.25 - NYSE) for approximately
$1.275 billion plus the assumption of $230 million of Wicor debt. The combined
companies will serve over one million electric customers in Wisconsin and
Michigan's Upper Peninsula and serve more than 920,000 gas customers.
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.
INTERNET
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Asset Management Inc.,
the Gabelli Mutual Funds, IRAs, 401(k)s, quarterly reports, closing prices and
other current news. You can send us e-mail at [email protected].
9
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IN CONCLUSION
Although the major stock market indices once again posted attractive
gains, the breadth of the market continued to deteriorate. In 1999, more stocks
declined than advanced, and if you exclude richly priced technology stocks, most
market indices would have been flat to down. Following rising interest rates,
bonds experienced their worst year since regular sales of these securities began
22 years ago, posting total return losses for the year. In this very challenging
year for the financial markets, we are pleased that the ABC Fund portfolio once
again rewarded shareholders with respectable gains.
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/ SIGNTAURE
MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
January 31, 2000
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
DECEMBER 31, 1999
-----------------
Air Express International Corp. Aquarion Co.
WICOR Inc. Southwest Gas Corp.
CommNet Cellular Inc. Hannaford Bros. Co.
United Water Resources Inc. Catellus Development Corp.
MidAmerican Energy Holdings Co. Sprint Corp.
- --------------------------------------------------------------------------------
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.
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THE GABELLI ABC FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ------ --------
COMMON STOCKS -- 66.5%
AEROSPACE-- 0.1%
1,000 Northrop Grumman Corp. . $ 55,050 $ 54,063
------------ -----------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.6%
12,000 Federal-Mogul Corp. .... 339,600 241,500
------------ -----------
AVIATION: PARTS AND SERVICES -- 1.5%
25,000 Aviall Inc.+ ........... 371,793 204,687
17,000 Fairchild Corp., Cl. ... 325,336 14,062
7,000 Hi-Shear Industries Inc. 10,215 16,187
22,000 Kaman Corp., Cl. A ..... 395,473 283,250
------------ -----------
1,102,817 658,186
------------ -----------
BROADCASTING -- 0.4%
2,500 Liberty Corp. .......... 121,108 105,469
1,000 Salem Communications
Corp., Cl. A+ ......... 19,812 22,625
500 Spanish Broadcasting
System Inc.+ .......... 10,000 20,125
----------- ----------
150,920 148,219
----------- ----------
BUILDING AND CONSTRUCTION -- 0.2%
10,000 Robertson-Ceco Corp. ... 98,725 98,750
----------- ----------
BUSINESS SERVICES -- 1.8%
20,000 Cendant Corp.+ ......... 415,158 531,250
2,580 Fisher Scientific
International Inc.+ ... 24,892 93,202
16,000 National Processing Inc.+ 141,441 142,000
2,580 ProcureNet Inc.+ ....... 387
----------- ----------
581,491 766,839
----------- ----------
COMMUNICATIONS EQUIPMENT -- 0.1%
5,000 Dynatech Corp.+ ........ 122,000 33,750
500 L-3 Communications
Holdings Inc.+ ........ 11,000 20,812
----------- ----------
133,000 54,562
----------- ----------
COMPUTER SOFTWARE AND SERVICES -- 0.0%
1,938 DecisionOne Holdings Corp.+ 7,141 969
----------- ----------
CONSUMER PRODUCTS -- 1.1%
12,500 Carter-Wallace Inc. .... 147,694 224,219
28,442 Syratech Corp.+ ........ 907,944 227,536
----------- ----------
1,055,638 451,755
----------- ----------
DIVERSIFIED INDUSTRIAL -- 0.5%
6,000 Ampco-Pittsburgh Corp. . 69,606 60,750
11,000 Katy Industries Inc. ... 250,300 95,562
4,000 WHX Corp.+ ............. 41,825 36,000
----------- ----------
361,731 192,312
----------- ----------
MARKET
SHARES COST VALUE
------ ------ --------
ENERGY AND UTILITIES: ELECTRIC -- 3.9%
65,000 El Paso Electric Co.+ .. $ 529,438 $ 637,812
10,000 Florida Progress Corp. . 469,801 423,125
10,000 New England Electric System 492,590 517,500
5,000 St. Joseph Light & Power Co. 102,750 102,500
----------- ----------
1,594,579 1,680,937
----------- ----------
ENERGY AND UTILITIES: INTEGRATED -- 5.5%
22,000 Florida Public Utilities Co. 329,010 374,000
20,000 MCN Energy Group Inc. .. 486,000 475,000
45,000 MidAmerican Energy
Holdings Co.+ ......... 1,500,687 1,515,937
286 Sierra Pacific Resources 7,458 4,951
----------- ----------
2,323,155 2,369,888
----------- ----------
ENERGY AND UTILITIES: NATURAL GAS -- 9.9%
20,000 AGL Resources Inc. ..... 363,454 340,000
1,500 Berkshire Energy Resources 52,500 52,500
10,000 Eastern Enterprises .... 565,500 574,375
2,500 Piedmont Natural Gas Co. Inc. 83,406 75,625
1,000 Public Service Co. of
North Carolina ........ 29,487 32,312
40,000 Southwest Gas Corp. .... 983,350 920,000
2,000 Valley Resources Inc. .. 44,600 44,500
75,000 WICOR Inc. ............. 2,083,601 2,189,062
------------- ----------
4,205,898 4,228,374
------------- ----------
ENERGY AND UTILITIES: WATER -- 9.0%
39,900 Aquarion Co. ........... 1,435,664 1,476,300
3,000 E'Town Corp. ........... 186,525 186,750
4,000 SJW Corp. .............. 476,612 481,000
50,000 United Water Resources Inc. 1,520,822 1,709,375
------------- ----------
3,619,623 3,853,425
------------- ----------
ENTERTAINMENT -- 1.4%
9,000 Fisher Companies Inc. .. 625,306 555,750
1,000 Liberty Media Group, Cl. A+ 18,625 56,750
------------- ----------
643,931 612,500
------------- ----------
EQUIPMENT AND SUPPLIES -- 1.2%
3,500 Amphenol Corp., Cl. A+ . 98,857 232,969
7,674 Juno Lighting Inc. ..... 129,390 79,618
10,000 UCAR International Inc.+ 186,256 178,125
------------- ----------
414,503 490,712
------------- ----------
See accompanying notes to financial statements.
11
<PAGE>
THE GABELLI ABC FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ------ --------
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES -- 2.7%
1,500 Allstate Corp. ......... $ 39,638 $ 36,000
31,900 Argonaut Group Inc. .... 1,062,737 634,012
3,000 Foremost Corp.
of America ............ 84,150 85,125
5,000 Leucadia National Corp. 174,181 115,625
5,000 Pioneer Group Inc.+ .... 87,805 78,750
7,000 Terra Nova (Bermuda)
Holdings Ltd., Cl. A .. 214,413 210,000
---------- -----------
1,662,924 1,159,512
---------- -----------
FOOD AND BEVERAGE -- 0.2%
30,000 Advantica Restaurant
Group Inc.+ ............ 320,182 52,500
3,000 Whitman Corp. ............ 52,228 40,313
---------- -----------
372,410 92,813
---------- -----------
HEALTH CARE -- 0.4%
4,500 Life Technologies Inc. . 167,906 191,813
---------- -----------
HOME FURNISHINGS -- 0.5%
320,000 Carlyle Industries Inc.+ 150,016 200,000
8,000 O'Sullivan Industries
Holdings Inc.+ ........ 4,750 4,080
---------- -----------
154,766 204,080
---------- -----------
HOTELS AND GAMING -- 0.1%
2,500 Boca Resorts Inc., Cl. A+ 18,875 24,375
---------- -----------
METALS AND MINING -- 0.0%
10,000 Royal Oak Mines Inc.+ .. 11,858 416
---------- -----------
PUBLISHING -- 0.1%
900 Penton Media Inc. ...... 20,239 21,600
---------- -----------
REAL ESTATE -- 2.6%
70,000 Catellus Development Corp.+ 1,175,673 896,875
20,000 Griffin Land &
Nurseries Inc.+ ....... 322,381 230,000
3,169 HomeFed Corp.+ ......... 567 2,773
---------- -----------
1,498,621 1,129,648
---------- -----------
MARKET
SHARES COST VALUE
- -------- ------ --------
REAL ESTATE INVESTMENT TRUSTS -- 1.3%
50,000 Imperial Credit Commercial
Mortgage Investment Corp. $ 513,562 $ 568,750
----------- -----------
RETAIL -- 3.8%
120,000 Bruno's Inc.+ .......... 76,300 16,800
30,000 Catherines Stores Corp.+ 613,094 630,000
13,000 Hannaford Bros. Co. .... 935,504 901,063
8,000 Lillian Vernon Corp. ... 132,815 89,000
----------- -----------
1,757,713 1,636,863
----------- -----------
SATELLITE -- 0.5%
10,000 COMSAT Corp. ........... 205,500 198,750
----------- -----------
SPECIALTY CHEMICALS -- 0.4%
7,000 Bush Boake Allen Inc.+ . 207,887 171,938
----------- -----------
TELECOMMUNICATIONS -- 1.8%
30,603 Citizens Utilities Co., Cl. B+ 301,244 434,180
9,500 Shenandoah
Telecommunications Co. 214,381 320,625
3,000 Telegroup Inc.+ ........ 32 3
----------- -----------
515,657 754,808
----------- -----------
TRANSPORTATION -- 10.2%
135,000 Air Express
International Corp. .... 4,347,500 4,362,188
----------- -----------
WIRELESS COMMUNICATIONS -- 4.7%
2,000 American Tower Corp., Cl. A+ 31,009 61,125
60,500 CommNet Cellular Inc.+ .... 1,433,787 1,943,563
----------- -----------
1,464,796 2,004,688
----------- -----------
TOTAL COMMON STOCKS 29,608,016 28,425,233
----------- -----------
PREFERRED STOCKS -- 3.8%
DIVERSIFIED INDUSTRIAL -- 1.2%
11,000 WHX Corp.,
6.50% Cv. Pfd., Ser. A .... 519,237 356,813
6,000 WHX Corp.,
$3.75 Cv. Pfd., Ser. B .... 259,432 154,875
----------- -----------
778,669 511,688
----------- -----------
See accompanying notes to financial statements.
12
<PAGE>
THE GABELLI ABC FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
- -------- ------ --------
PREFERRED STOCKS (CONTINUED)
TELECOMMUNICATIONS -- 2.6%
4,000 Citizens Utilities Co.,
5.00% Cv. Pfd. .......... $ 194,320 $ 225,500
12,000 Sprint Corp.,
8.25% Cv. Pfd. .......... 444,208 891,000
----------- -----------
638,528 1,116,500
----------- -----------
TOTAL PREFERRED STOCKS 1,417,197 1,628,188
----------- -----------
PRINCIPAL
AMOUNT
- ---------
CORPORATE BONDS -- 0.1%
RETAIL-- 0.0%
$200,000 RDM Sports Group Inc., Cv.
8.00%, 08/15/03 ......... 25,866 18,000
----------- -----------
TRANSPORTATION -- 0.1%
850,000 Builders Transport Inc., Cv.
6.50%, 05/01/11 ......... 40,956 12,750
140,000 WorldCorp. Inc.,
Sub. Deb. Cv.,
7.00%, 05/15/04 ......... 25,192 23,800
----------- -----------
66,148 36,550
----------- -----------
TOTAL CORPORATE BONDS 92,014 54,550
----------- -----------
U.S. GOVERNMENT OBLIGATIONS -- 4.8%
2,080,000 U.S. Treasury Bills,
5.30% to 5.42%++,
due 03/16/00 to 03/23/00 2,055,575 2,057,019
----------- -----------
MARKET
COST VALUE
------ ---------
TOTAL INVESTMENTS -- 75.2% $33,172,802 $32,164,990
===========
OTHER ASSETS AND
LIABILITIES (NET) -- 24.8% ........... 10,618,497
-----------
NET ASSETS-- 100.0%
(4,532,793 shares outstanding) ...... $42,783,487
===========
NET ASSET VALUE,
OFFERING AND REDEMPTION
PRICE PER SHARE ..................... $9.44
=====
-----------------
For Federal tax purposes:
Aggregate cost ....................... $ 33,184,803
============
Gross unrealized appreciation ........ $ 2,436,547
Gross unrealized depreciation ........ (3,456,360)
------------
Net unrealized appreciation .......... $ (1,019,813)
============
-----------------
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
See accompanying notes to financial statements.
13
<PAGE>
THE GABELLI ABC FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $33,172,802) ............ $32,164,990
Dividends and interest receivable ................... 67,547
Receivable for investments sold ..................... 864,000
Receivable for Fund shares sold ..................... 10,001,000
-----------
TOTAL ASSETS ........................................ 43,097,537
-----------
LIABILITIES:
Payable for Fund shares redeemed .................... 175,851
Payable for investment advisory fees ................ 39,295
Payable for distribution fees ....................... 9,824
Payable to custodian ................................ 19,548
Other accrued expenses .............................. 69,532
-----------
TOTAL LIABILITIES ................................... 314,050
-----------
NET ASSETS applicable to 4,532,793
shares outstanding ................................ $42,783,487
===========
NET ASSETS CONSIST OF:
Capital stock, at par value ......................... $4,533
Additional paid-in capital .......................... 43,798,767
Distributions in excess of net realized
gain on investments ............................... (12,001)
Net unrealized depreciation on investments .......... (1,007,812)
-----------
TOTAL NET ASSETS .................................... $42,783,487
===========
NET ASSET VALUE, offering and redemption
price per share ($42,783,487 / 4,532,793
shares outstanding; 1,000,000,000 shares
authorized of $0.001 par value) ................... $9.44
=====
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- ----------------------------------------------------------
INVESTMENT INCOME:
Dividends ........................ $ 683,081
Interest ......................... 1,362,414
-----------
TOTAL INVESTMENT INCOME .......... 2,045,495
-----------
EXPENSES:
Investment advisory fees ......... 718,694
Distribution fees ................ 179,687
Shareholder communications expenses 47,169
Shareholder services fees ........ 34,335
Legal and audit fees ............. 26,917
Registration fees ................ 26,689
Custodian fees ................... 14,607
Directors' fees .................. 7,566
Miscellaneous expenses ........... 4,334
-----------
TOTAL EXPENSES ................... 1,059,998
-----------
NET INVESTMENT INCOME ............ 985,497
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments . 5,778,370
Net change in unrealized depreciation
on investments ................. (903,185)
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ................. 4,875,185
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................ $5,860,682
===========
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income .............................. $ 985,497 $ 486,648
Net realized gain on investments ................... 5,778,370 3,415,128
Net change in unrealized depreciation on investments (903,185) (1,144,585)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 5,860,682 2,757,191
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income .............................. (463,667) (480,873)
In excess of net investment income ................. -- (8,540)
Net realized gain on investments ................... (2,734,053) (3,418,797)
In excess of net realized gain on investments ...... -- (13,798)
------------ -------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ................. (3,197,720) (3,922,008)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets from capital share transactions 762,387 5,294,948
------------ -------------
NET INCREASE IN NET ASSETS .......................... 3,425,349 4,130,131
NET ASSETS:
Beginning of period ................................ 39,358,138 35,228,007
------------ -------------
End of period ...................................... $ 42,783,487 $ 39,358,138
============ =============
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
THE GABELLI ABC FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 "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 maturity greater than 60 days 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 Board,
with member banks of the Federal Reserve System or with other brokers or dealers
that meet credit guidelines established by the Directors. Under the terms of a
typical repurchase agreement, the Fund takes possession of an underlying debt
obligation subject to an obligation of the seller to repurchase, and the Fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the Fund's holding period. The Fund will always receive and
maintain securities as collateral whose market value, including accrued
interest, will be at least equal to 100% of the dollar amount invested by the
Fund in each agreement. The Fund will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer of the collateral to
the account of the custodian. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-
15
<PAGE>
THE GABELLI ABC FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 December 31, 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,
distributions that were deemed to be made upon redemption of shares and
differing characterization of distributions made by the Fund.
For the year ended December 31, 1999, reclassifications were made to decrease
accumulated undistributed net investment income for $521,830 and decrease
distributions in excess of net realized gain on investments for $3,035,516 with
an offsetting adjustment to additional paid-in capital.
PROVISION FOR INCOME TAXES. The Fund 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.
16
<PAGE>
THE GABELLI ABC FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 year ended
December 31, 1999, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an affiliate of the Adviser, of $179,687, 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 year ended
December 31, 1999, other than short term securities, aggregated $277,450,777 and
$278,397,420, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the year ended December 31, 1999, the
Fund paid brokerage commissions of $289,027 to Gabelli & Company, Inc. and its
affiliates.
7. LINE OF CREDIT. The Fund has access to an unsecured line of credit up to
$25,000,000 from the custodian for temporary borrowing purposes. Borrowings
under this arrangement bear interest at 0.75% above the Federal Funds rate on
outstanding balances. There were no borrowings against the line of credit during
the year ended December 31, 1999.
8. CAPITAL STOCK TRANSACTIONS. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
---------------------------- -----------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ................................ 8,133,675 $ 79,459,417 6,122,609 $ 62,705,757
Shares issued upon reinvestment of dividends 331,243 3,087,197 313,982 2,982,885
Shares redeemed ............................ (8,037,283) 81,784,227) (5,773,794) (60,393,694)
---------- ------------- ---------- ------------
Net increase ........................... 427,635 $ 762,387 662,797 $ 5,294,948
========== ============= ========== ============
</TABLE>
17
<PAGE>
THE GABELLI ABC FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 9.59 $ 10.23 $ 9.84 $ 9.71 $ 9.57
------- ------- ------- ------- -------
Net investment income .................. 0.26 0.22 0.08 0.21 0.21
Net realized and unrealized gain
on investments ....................... 0.59 0.90 1.17 0.54 0.86
------- ------- ------- ------- -------
0.85 1.12 1.25 0.75 1.07
------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income .................. (0.14) (0.22) (0.08) (0.21) (0.21)
In excess of net investment income ..... -- (0.00)(a) (0.01) -- --
Net realized gain on investments ....... (0.86) (1.54) (0.77) (0.41) (0.72)
In excess of net realized gain
on investments ....................... -- (0.00)(a) -- -- --
------- ------- ------- ------- -------
Total distributions .................... (1.00) (1.76) (0.86) (0.62) (0.93)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD ......... $ 9.44 $ 9.59 $ 10.23 $ 9.84 $ 9.71
======= ======= ======= ======= =======
Total return+ .......................... 9.0% 11.1% 12.8% 7.8% 11.2%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ... $42,783 $39,358 $35,228 $26,801 $19,862
Ratio of net investment income
to average net assets ................ 1.37% 1.00% 0.87% 2.11% 1.83%
Ratio of operating expenses
to average net assets (b) ............ 1.47% 1.69% 2.26% 2.09% 2.10%
Portfiolio turnover rate ............... 672% 299% 493% 343% 508%
</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) Amount represents less than $0.005 per share.
(b) The ratio 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.
See accompanying notes to financial statements.
18
<PAGE>
THE GABELLI ABC FUND
REPORT OF GRANT THORNTON LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Shareholders and Board of Directors of
The Gabelli ABC Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Gabelli ABC Fund (one of the Funds
constituting Gabelli Investor Funds, Inc.) as of December 31, 1999, the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended and financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999 by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Gabelli ABC Fund at December 31, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the respective stated
periods, in conformity with accounting principles generally accepted in the
United States.
/s/ SIGNATURE
Grant Thorton, LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
1999 TAX NOTICE TO SHAREHOLDERS (Unaudited)
For the fiscal year ended December 31, 1999, the Fund paid to shareholders, on
December 27, 1999, an ordinary income dividend (comprised of net investment
income and short term capital gains) totaling $0.94 per share and long term
capital gains totaling $0.06 per share. For the fiscal year ended December 31,
1999, 21.13% of the ordinary income dividend qualifies for the dividend received
deduction available to corporations.
U.S. GOVERNMENT INCOME:
The percentage of the ordinary income dividend paid by the Fund during fiscal
year 1999 which was derived from U.S. Treasury securities was 43.95%. Such
income is exempt from state and local tax in all states. However, many states,
including New York and California, allow a tax exemption for a portion of the
income earned only if a mutual fund has invested at least 50% of its assets at
the end of each quarter of the Fund's fiscal year in U.S. Government securities.
The Gabelli ABC Fund did not meet this strict requirement in 1999. Due to the
diversity in state and local tax law, it is recommended that you consult your
personal tax advisor as to the applicability of the information provided to your
specific situation.
- --------------------------------------------------------------------------------
19
<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 JAMES E. MCKEE
INVESTMENT OFFICER AND TREASURER
James E. McKee
SECRETARY
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli ABC Fund. It is not authorized for distribution to prospective investors
unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
GAB408Q499SR
[PHOTO OF MARIO GABELLI OMITTED]
THE
GABELLI ABC
[GRAPHIC OMITTED]
FUND
ANNUAL REPORT
DECEMBER 31, 1999
