GABELLI ASSET FUND, 497, 1999-05-07

GABELLI ASSET FUND
497, 1999-05-07

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THE GABELLI GROWTH FUND

Class AAA Shares

PROSPECTUS
May 1, 1999

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES DESCRIBED IN THIS PROSPECTUS OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
==============================================================================

The Gabelli Growth Fund
One Corporate Center
Rye, New York 10580-1434
Telephone: 1-800-GABELLI (1-800-422-3554)
http://www.gabelli.com
e-mail : [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)

Board of Trustees

Mario J. Gabelli, CFA Karl Otto Pohl
Chairman and Chief Investment Officer Former President
Gabelli Funds, Inc. Deutsche Bundesbank

Felix J. Christiana Anthony R. Pustorino
Former Senior Vice President Certified Public Accountant
Dollar Dry Dock Savings Bank Professor, Pace University

Anthony J. Colavita Anthony Torna
Attorney-at-Law Herzog, Heine & Geduld, Inc.
Anthony J. Colavita, P.C.

James P. Conn Anthonie C. van Ekris
Chief Investment Officer Managing Director
Financial Security Assurance Holdings, Ltd. BALMAC International, Inc.

Officers and Portfolio Managers

Bruce N. Alpert Howard F. Ward, CFA
President and Treasurer Portfolio Manager

James E. McKee Donald C. Jenkins, CFA
Secretary Associate Portfolio Manager

TABLE OF CONTENTS

Page

INVESTMENT AND PERFORMANCE SUMMARY............................................3
INVESTMENT AND RISK INFORMATION...............................................5
MANAGEMENT OF THE FUND........................................................6
PURCHASING, SELLING AND EXCHANGING SHARES.....................................7
PRICING OF FUND SHARES........................................................7
DIVIDENDS AND DISTRIBUTIONS..................................................8
TAX INFORMATION...............................................................8
FINANCIAL HIGHLIGHTS..........................................................9

INVESTMENT AND PERFORMANCE SUMMARY

Investment Objective:

The Gabelli Growth Fund (the "Fund") seeks to provide capital appreciation.
Capital is the amount of money you invest in the Fund. Capital appreciation is
an increase in the value of your investment. The Fund's secondary goal is to
produce current income.

Principal Investment Strategies:

The Fund will primarily invest in common stocks and may also invest in
securities which may be converted into common stocks. The Fund may also invest
in foreign securities. The Fund focuses on securities of companies which appear
to have favorable, yet undervalued, prospects for earnings growth and price
appreciation. The Fund's adviser invests the Fund's assets in companies which it
believes have above-average or expanding market shares, profit margins and
returns on equity.

Principal Risks:

The Fund's share price will fluctuate with changes in the market value of the
Fund's portfolio securities. Stocks are subject to market, economic and business
risks that cause their prices to fluctuate. Investments in foreign securities
involve risks related to political, social and economic developments abroad, as
well as risks resulting from the differences between the regulations to which
U.S. and foreign issuers and markets are subject. When you sell Fund shares,
they may be worth less than what you paid for them. Consequently, you can lose
money by investing in the Fund. The Fund is also subject to the risk that the
Fund's adviser's judgments about the above-average growth potential of
particular companies' stocks is incorrect and the perceived value of such stocks
is not realized by the market, or their prices go down.

Who May Want to Invest:

The Shares offered herein (which for convenience are referred to as the "Class
AAA Shares") are offered only to investors who acquire the shares directly
through the Fund's distributor or through a select number of financial
intermediaries with whom the distributor has entered into selling agreements
specifically authorizing them to offer Class AAA Shares.

The Fund may appeal to you if:

you are a long-term investor or saver
you seek both growth of capital and some income
you believe that the market will favor growth over value
stocks over the long term you wish to include a growth
strategy as a portion of your overall investments

You may not want to invest in the Fund if:

you are seeking a high level of current income
you are conservative in your investment approach
you seek to maintain the value of your original
investment more than potential growth of
capital

An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

Performance:

The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year (since 1989), and by showing how the Fund's average annual returns for 1, 5
and 10 years compared to those of the S&P(R) 500 Stock Index. As with all mutual
funds, the Fund's past performance does not predict how the Fund will perform in
the future.

BAR CHART (Graphic Omitted)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Calendar Year Total Return

1989 40.1%
1990 (2.0)%
1991 34.3%
1992 4.5%
1993 11.3%
1994 (3.4)%
1995 32.7%
1996 19.4%
1997 42.6%
1998 29.8%

During the period shown in the bar chart, the highest return for a quarter was
30.2% (quarter ended December 31, 1998) and the lowest return for a quarter was
(14.5)% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
<S> <C> <C> <C>

- ----------------------------------------------- ----------------------- ---------------------- ----------------------
Average Annual Total Returns Past One Year Past Five Years Past Ten Years
(for the periods ended December 31, 1998)
- ----------------------------------------------- ----------------------- ---------------------- ----------------------
- ----------------------------------------------- ----------------------- ---------------------- ----------------------
The Gabelli Growth Fund Class AAA Shares 29.8% 23.2% 19.8%
- ----------------------------------------------- ----------------------- ---------------------- ----------------------
- ----------------------------------------------- ----------------------- ---------------------- ----------------------
S&P(R)500 Stock Index* 28.7% 24.1% 19.2%
- ----------------------------------------------- ----------------------- ---------------------- ----------------------

* The S&P(R) 500 Composite Stock Price Index is a widely recognized,
unmanaged index of common stock prices. The performance of the Index does
not include expenses or fees.
</TABLE>

Fees and Expenses of the Fund:

This table describes the fees and expenses that you may pay if you buy and hold
Class AAA shares of the Fund.

Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
Management Fees..................................................... 1.00%
Distribution (Rule 12b-1) Expenses1................................. 0.25%
Other Expenses...................................................... 0.16%
-----
Total Annual Operating Expenses..................................... 1.41%
=====

- ----------------------
1 Long-term shareholders may indirectly pay more than the equivalent of the
maximum permitted front-end sales
charge.

Expense Example:

This example is intended to help you compare the cost of investing in Class AAA
shares of the Fund with the cost of investing in other mutual funds. The example
assumes (1) you invest $10,000 in the Fund for the time periods shown, (2) you
redeem your shares at the end of the period, (3) your investment has a 5% return
and (4) the Fund's operating expenses remain the same. This example is for
comparison only and your actual costs may be higher or lower.

1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------

$144 $446 $771 $1,691

INVESTMENT AND RISK INFORMATION

The primary investment objective of the Fund is capital appreciation, and
current income is a secondary objective. The Fund's investment objective may not
be changed without shareholder approval.

The Fund focuses on securities of companies which appear to have favorable, yet
undervalued, prospects for earnings growth and price appreciation. The Fund's
investment adviser, Gabelli Funds, LLC (the "Adviser"), will invest the Fund's
assets primarily in companies which it believes have above-average or expanding
market shares, profit margins and returns on equity. The Adviser will sell any
Fund investments which lose their perceived value when compared to other
investment alternatives.

The Adviser uses fundamental security analysis to develop earnings forecasts for
companies and to identify investment opportunities. The Adviser bases its
analysis on general economic and industry data provided by the United States
Government, various trade associations and other sources and published corporate
financial data such as annual reports, 10-Ks and quarterly statements as well as
direct interviews with company management. Generally, the Adviser makes
investment decisions first by looking at individual companies and then by
scrutinizing their growth prospects in relation to their industries and the
overall economy. The Adviser seeks to invest in companies with high future
earnings potential relative to their current market valuations.

The Fund's assets will be invested primarily in a broad range of readily
marketable equity securities consisting of common stock, preferred stock and
securities which may be converted at a later time into common stock. Many of the
common stocks the Fund will buy will not pay dividends; instead, stocks will be
bought for the potential that their prices will increase, providing capital
appreciation for the Fund. The value of equity securities will fluctuate due to
many factors, including the past and predicted earnings of the issuer, the
quality of the issuer's management, general market conditions, the forecasts for
the issuer's industry and the value of the issuer's assets. Holders of equity
securities only have rights to value in the company after all debts have been
paid, and they could lose their entire investment in a company that encounters
financial difficulty. Warrants are rights to purchase securities at a specified
time at a specified price.

The Fund may also use the following investment techniques:

Foreign Securities. The Fund may invest up to 25% of its total
assets in securities of non-U.S.
issuers.

Defensive Investments. When opportunities for capital appreciation do
not appear attractive or when adverse market or economic conditions
occur, the Fund may temporarily invest all or a portion of its assets
in "defensive investments." These include investment grade debt
securities, obligations of the U.S. Government and its agencies and
instrumentalities, and short-term money market instruments maturing in
less than one year such as high-quality commercial paper (rated at
least "A-1" by Standard & Poor's Ratings Service or "P-1" by Moody's
Investors Service, Inc.). When following a defensive strategy, the Fund
will be less likely to achieve its investment goals.

Borrowing. The Fund may borrow money from banks (1) as may be
necessary for the clearance of portfolio transactions, and (2) for
temporary or emergency purposes, including the meeting of redemption
requests. Borrowing for any purpose (including redemptions) may not, in
the aggregate, exceed 15% of the value of the Fund's total assets.
Borrowing for purposes other than meeting redemptions may not exceed 5%
of the value of the Fund's total assets at the time the borrowing is
made. The Fund will not purchase any portfolio securities at any time
its borrowings exceed 5% of its assets. The Fund may not use more than
20% of its assets as collateral in connection with the borrowings
described above.

The Fund may also engage to a limited extent in other investment practices in
order to achieve its investment goal, which are discussed in the SAI.

Investing in the Fund involves the following risks, listed in the order of
importance.

Equity Risk. The principal risk of investing in the Fund is equity
risk. Equity risk is the risk that the prices of the securities held by
the Fund will change due to general market and economic conditions,
perceptions regarding the industries in which the companies issuing the
securities participate and the issuer company's particular
circumstances.

Fund and Management Risk. The Fund invests in growth stocks issued by
larger companies. The Fund's price may decline because the market
favors other stocks or small capitalization stocks over stocks of
larger companies. If the Adviser is incorrect in its assessment of the
growth prospects of the securities it holds, then the value of the
Fund's shares may decline.

Foreign Risk. Prices of the Fund's investments in foreign securities
may go down because of unfavorable foreign government actions,
political instability or the absence of accurate information about
foreign issuers. Also, a decline in the value of foreign currencies
relative to the U.S. dollar will reduce the value of securities
denominated in those currencies. Foreign securities are sometimes less
liquid and harder to value than securities of U.S. issuers.

Borrowing Risk. Borrowing may exaggerate the effect on net asset value
of any increase or decrease in the market value of securities purchased
with borrowed funds. Money borrowed will be subject to interest costs
which may or may not be recovered by an appreciation of securities
purchased.

MANAGEMENT OF THE FUND

The Adviser. Gabelli Funds, LLC, with principal offices located at One Corporate
Center, Rye, New York 10580-1434, serves as investment adviser to the Fund. The
Adviser makes investment decisions for the Fund and continuously reviews and
administers the Fund's investment program under the supervision of the Fund's
Board of Trustees. The Adviser and its affiliates also manage several other
open-end and closed-end investment companies in the Gabelli family of funds. The
Adviser is a New York limited company organized in 1999 as successor to Gabelli
Funds, Inc., a New York corporation organized in 1980. The Adviser is a
wholly-owned subsidiary of Gabelli Asset Management Inc. ("GAMI"), a publicly
traded company listed on the New York Stock Exchange.

As compensation for its services and the related expenses borne by the Adviser,
for the fiscal year ended December 31, 1998, the Fund paid the Adviser an annual
fee equal to 1.00% of the value of the Fund's average daily net assets.

The Portfolio Manager. Howard Frank Ward is responsible for the day-to-day
management of the Fund. Mr. Ward is a Portfolio Manager of the Adviser, and he
joined the Adviser in 1995. Prior to joining the Adviser, Mr. Ward was a
Managing Director and Director of the Quality Growth Equity Management Group of
Scudder, Stevens and Clark, Inc., with which he had been associated since 1982
and where he also served as a lead portfolio manager for several of its
registered investment companies.

Year 2000. As the year 2000 approaches, an issue has emerged regarding how the
software used by the Fund's service providers can accommodate the date "2000."
Failure to adequately address this issue could result in major systems or
process failures which could disrupt the Fund's operations. The Adviser is
working with the Fund's service providers to prepare for the year 2000. Based on
information currently available, the Adviser does not expect that the Fund will
incur significant operating expenses or be required to incur material costs to
be year 2000 compliant. The Fund cannot guarantee, however, that all year 2000
issues will be identified and corrected by January 1, 2000 and any non-compliant
computer systems could hurt key Fund operations, such as shareholder servicing,
pricing and trading. In addition, the Year 2000 problem may adversely affect the
companies in which the Fund invests, particularly companies in foreign
countries, which could lower the value of such companies' securities and
negatively affect the Fund's performance. For example, these companies may incur
substantial costs to correct the Year 2000 problem.

Rule 12b-1 Plan. The Fund has adopted a plan under Rule 12b-1 (the "Plan") which
allows the Fund to pay for the sale and distribution of its shares at an annual
rate of 0.25% of the Fund's average daily net assets attributable to Class AAA
Shares. The Fund may make payments under the Plan for the purpose of financing
any activity primarily intended to result in the sale of Fund's Class AAA Shares
as determined by the Board of Trustees. Because payments under the Plan are paid
out of the Fund's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges. See "Distribution Plan" in the SAI for more details
regarding the Plan and the expenses payable under the Plan.

PURCHASING, SELLING AND EXCHANGING SHARES

Information about purchasing, selling and exchanging your shares is contained in
a separate document called the Owner's Manual which has been delivered with this
Prospectus. The Owner's Manual is considered an integral part of this
Prospectus. The Owner's Manual also contains information about the Telephone
Investment Plan, Telephone Redemption Plan, Automatic Investment Plan,
Systematic Withdrawal Plan and Retirement Plans.

PRICING OF FUND SHARES

The net asset value per share of the Class AAA Shares is calculated on each day
on which the New York Stock Exchange ("NYSE") is open for trading. The NYSE is
open Monday through Friday, but currently is scheduled to be closed on New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and on the preceding Friday or subsequent Monday when a holiday falls on a
Saturday or Sunday, respectively.

The net asset value per share of the Class AAA Shares is determined as of the
close of regular trading on the NYSE, normally 4:00 p.m., New York time. It is
computed by dividing the value of the Fund's net assets (i.e. the value of its
securities and other assets less its liabilities, including expenses payable or
accrued but excluding capital stock and surplus) by the total number of its
shares outstanding at the time the determination is made. The Fund uses market
quotations in valuing its portfolio securities. Short-term investments that
mature in 60 days or less are valued at amortized cost, which the Trustees of
the Fund believe represents fair value.

The Fund may from time to time hold securities that are primarily listed on
foreign exchanges. Such securities may trade on days when the Fund does not
price its shares. Therefore, the net asset value of the Class AAA Shares may
change on days when you are not able to purchase or redeem the Class AAA Shares.

DIVIDENDS AND DISTRIBUTIONS

Dividends and distributions may differ for different classes of shares. They
will be automatically reinvested for your account at net asset value in
additional shares of the Fund, unless you instruct the Fund to pay all dividends
and distributions in cash. If you elect cash distributions, you must instruct
the Fund either to credit the amounts to your brokerage account or to pay the
amounts to you by check. Dividends from net investment income and distributions
of net realized capital gains, if any, will be paid at least annually. There are
no sales or other charges in connection with the reinvestment of dividends and
capital gains distributions. There is no fixed dividend rate, and there can be
no assurance that the Fund will pay any dividends or realize any capital gains.

TAX INFORMATION

The Fund expects that its distributions will consist primarily of net investment
income and capital gains, which may be taxable at different rates depending on
the length of time the Fund holds its assets. Dividends out of net investment
income and distributions of realized short-term capital gains are taxable to you
as ordinary income. Distributions of net long-term capital gains are taxable to
you at long-term capital gain rates. The Fund's distributions, whether you
receive them in cash or reinvest them in additional shares of the Fund, may be
subject to federal, state or local taxes. An exchange of the Fund's shares for
shares of another fund will be treated for tax purposes as a sale of the Fund's
shares; therefore, any gain you realize on such a transaction may be taxable.
Foreign shareholders may be subject to special withholding requirements.

This summary of tax consequences is intended for general information only. You
should consult a tax adviser concerning the tax consequences of your investment
in the Fund.

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance for the past five fiscal years of the Fund. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the Fund's Class AAA Shares. This information has been
audited by PricewaterhouseCoopers LLP, independent accountants, whose report
along with the Fund's financial statements and related notes are included in the
Fund's annual report, which is available upon request.

Per share amounts for Class AAA Shares of the Fund outstanding throughout each
year ended December 31,

1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Operating performance:
Net asset value, beginning of year $28.63 $ 24.14 $ 22.16 $ 19.68 $ 23.26
------ ------- ------- ------- ----
Net investment income /(loss) ... (0.09) (0.06) 0.03 0.05 0.07
Net realized and unrealized gain/(loss)
on investments................. 8.60 10.34 4.27 6.39 (0.86)
---- ----- ------- -------- ----------
Total from investment operations. 8.51 10.28 4.30 6.44 (0.79)
---- ----- ------- -------- ----------
Distributions to shareholders :
Net investment income............ --- (0.00) (a) (0.02) (0.05) (0.08)
In excess of net investment income --- (0.00) (a) --- --- (0.01)
Net realized gains............... (1.74) (5.79) (2.30) (3.91) (2.39)
In excess of net realized gains.. (0.00)(a) (0.00) (a) --- --- (0.31)
Total distributions.............. (1.74) (5.79) (2.32) (3.96) (2.79)
------ ------ -------- --------- -----------
Net asset value, end of year..... $35.40 $ 28.63 $ 24.14 $ 22.16 $ 19.68
------ ------- ------- ------- -------
Total return +................... 29.8% 42.6% 19.4% 32.7% (3.4)%
----- ----- --------= --------- -----------
Ratios to average net assets and
supplemental data:
Net assets, end of year (in 000's)............. $1,864,556 $ 943,985 $ 609,405 $ 533,041 $ 482,471
Ratio of net investment income to average
net assets..................... (0.33)% (0.23)% 0.12% 0.22% 0.31%
Ratio of operating expenses to average
net assets..................... 1.41% 1.43% 1.43% 1.44% 1.36%
Portfolio turnover rate.......... 40% 83% 88% 140% 40%

+ 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.

</TABLE>

[BACK COVER PAGE]

The Gabelli Growth Fund
Class AAA Shares

For More Information:
For more information about the Fund, the following documents are available free
upon request:

Owner's Manual:
Information about purchasing, selling and exchanging shares of the Fund is
included in a separate document entitled "Owner's Manual." The Owner's Manual is
incorporated by reference into the Prospectus. If you have not received it,
please contact the Fund at the number listed below.

Annual/Semi-annual Reports:
The Fund's semi-annual and audited annual reports to shareholders contain
detailed information on the Fund's investments. In the annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.

Statement of Additional Information (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investments policies. It is incorporated by reference, and is
legally considered a part of this prospectus.

- -----------------------------------------------------------------------------

- --------------------------------------------------------------------------------
You can get free copies of these documents and prospectuses of other funds in
the Gabelli family, or request other information and discuss your questions
about the Fund by contacting:

- -------------------------------------------------------------------------------
The Gabelli Growth Fund
- ------------------------------------------------------------------------------
One Corporate Center
Rye, NY 10580
Telephone: 1-800-GABELLI (1-800-422-3554)
www.gabelli.com

You can review the Fund's reports and SAIs at the Public Reference
Room of the Securities and Exchange
Commission. You can get text-only copies:
o For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling
1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov

(Investment Company Act file no. 811-4873)

THE GABELLI FAMILY
OF FUNDS

- ------------------------------------------------------------------------------
Owner's Manual
- -------------------------------------------------------------------------------
AAA Class -

No-Load Class

Gabelli Global Series Funds, Inc.
Gabelli Gold Fund, Inc.
Gabelli International Growth Fund, Inc.
Gabelli ABC Fund
Gabelli Asset Fund
Gabelli Growth Fund

May 1, 1999

The information contained in the Owner's Manual is
incorporated by reference into, and is legally
considered part of, the Prospectuses for the
Gabelli family of Funds. The Owner's Manual
must be preceded or accompanied by a Gabelli
Funds Prospectus.

Owner's Manual
Table of Contents

Purchasing Shares
----------------------------------------------------------------------------
3 Instructions for Opening or Adding to
an Account 4 Telephone Investment Plan
4 Automatic Investment Plan 4
Retirement Plans 4 Minimum Investments
5 Dividends and Distributions

Selling Shares
----------------------------------------------------------------------------
5 Instructions for Selling Shares
5 By Bank Wire or Check via Telephone
5 By Bank Wire or Check via Mail
6 General Policies on Selling Shares
6 Signature Guarantees
6 Verifying Telephone Redemptions
6 Redemptions Within 15 Days of Investment
6 Refusal of Redemption Request
6 Closing of Small Accounts
6 Undeliverable Distribution Checks

Exchanging Shares
-----------------------------------------------------------------------
7 Instructions for Exchanging Shares

Pricing of Fund Shares
------------------------------------------------------------------------
7 How NAV is Calculated

PURCHASING SHARES

Instructions for Opening or Adding to an Account

Purchases through Brokers/Dealers:
If purchasing through your financial advisor or brokerage account, simply tell
your advisor or broker that you wish to purchase shares of the Funds and he or
she will take care of the necessary documentation. Your should state
specifically which class of shares you are buying. For all other purchases
directly with the Fund, follow the instructions below.

Purchases directly from the Fund:
All investments made by regular mail or personal delivery, whether initial or
subsequent, should be sent to:

By Regular Mail By Overnight Delivery
The Gabelli Funds The Gabelli Funds

PO Box 8308 c/o BFDS Building, 6th Floor
Boston, MA 02266-8308 Two Heritage Drive
Quincy, MA 02171

For Initial Investment:

1. Carefully read and complete the application.
2. Make check, bank draft or money order payable to "[name of Fund]." 3. Mail or
deliver application and payment to the address above.

For Subsequent Investments:
1. Make check, bank draft or money order payable to "[name of Fund]." 2. Provide
the exact name and number of your account.
3. Mail or deliver payment to the address above.

By Wire Transfer

For Initial Investment:
Call 1-800-GABELLI (1-800-422-3554) to obtain a new account number.
Promptly mail the completed application to
the address shown above for regular mail, and

For Initial and Subsequent Investments:
Instruct your bank to wire transfer your investment to:
State Street Bank and Trust Company
ABA #011-0000-28 REF DDA# 9904-6187
Attn: Shareholder Services
Re: [Fund Name]
A/C#___________________________
Your name ______________________
225 Franklin Street, Boston, MA 02110

Note: Your bank may charge a wire transfer fee.

Call 1-800-GABELLI
or your investment representative.
Questions?
Call 1-800-GABELLI
or your investment representative.

Purchasing Shares (continued)

You can add to your account by using the convenient options described below. The
Fund reserves the right to change or eliminate these privileges at any time upon
60 days notice to shareholders.

Telephone Investment Plan Automatic Investment Plan

You may purchase additional shares of the Funds by You can make automatic
monthly investments in the telephone as long as your bank is a member of the
Funds. Details about this plan can be obtained from Automated Clearing House
(ACH) system. You must also the Distributor on a separate application by calling
have a completed, approved Investment Plan application 1-800-GABELLI
(800-422-3554).
on file with the Fund's Transfer Agent.
------------------------------------------------------
There is a minimum of $100 for each telephone
investment. To initiate an ACH purchase, please call
1-800-GABELLI (1-800-422-3554) or 1-800-872-5365. Retirement Plans

You can invest in
various types of
retirement plans
through the Fund.
Details about these
plans can be
obtained from the
Distributor on a
separate application
by calling
1-800-GABELLI
(800-422-3554).

- -------------------------------------------------------------------------------

Minimum Investments
You may purchase Funds through the Distributor or participating
organizations, which may charge additional fees and may require higher or
lower minimum investments or impose other limitations on buying and selling
shares.

Minimum
Initial Minimum
Account type Investment Subsequent
................................ ......................................
................................ ......................................

Regular (non-retirement) $ 1,000 $ 0

Retirement (IRA)
Traditional IRA $ 1,000 $ 0
Roth IRA $ 1,000 $ 0
Spousal IRA $ 250 $ 0
Education IRA $ 250 $ 0
................................ ......................................
................................ .......................................

Automatic Investment Plan $ 0 $ 100
................................ ......................................
................................ .......................................

Telephone Investment Plan $ 100 $ 100
................................ .......................................

All purchases must be in U.S. dollars. A fee will be charged for any
checks that do not clear. Third-party checks are not accepted. Your
purchase of shares will be effective on the same business day if the
Fund's transfer agent receives your order by 4:00 p.m. (12 noon for a
money market fund), and receives Federal funds by 4:00 p.m., eastern time.
Otherwise, your purchase will be effective on the next business day. (See
"Pricing of Fund Shares.") Shares are held on account for you unless you
specify in writing that you would like to receive a stock certificate
(certificates are not available for money market funds). We can only issue
a certificate for whole shares.

The Distributor may reject a purchase order if it considers it in the
best interest of the Fund and its shareholders. A Fund may waive its
minimum purchase requirement.

Dividends and Distributions

All dividends and distributions will be automatically reinvested unless you
request otherwise.

SELLING SHARES

As a mutual fund shareholder, you are technically selling shares when
you request a withdrawal in cash. This is also known as redeeming shares.
- ------------------------------------------------------------------------------
Withdrawing Money from Your Investment
- ------------------------------------------------------------------------------
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund, its transfer agent, or your
investment representative. See section on "General Policies on Selling
Shares" below.

Systematic Withdrawal Plan
You can receive automatic payments from your account on a monthly, quarterly
or annual basis. You can obtain details from the Distributor.
- ------------------------------------------------------------------------------

Instructions for Selling Shares

The Fund accepts telephone requests for redemptions of unissued shares.

By Bank Wire or Check via Telephone
1. Call 1-800-GABELLI (1-800-422-3554) with your account number, the amount of
the redemption and instructions as to how you wish to receive your funds.

2. If you are unable to reach the Fund by telephone, you may telecopy your
redemption request to the Fund at 914-921-____.

NOTE: If you call by 4:00 p.m., eastern time, your payment will normally be
wired to your bank on the following business day. (For Money Market Funds: If
you call before 12:00 noon, eastern time, your payment will be wired to your
bank on that day.) If you call after that time, your payment will be wired to
your bank on the next business day. If you request your wire redemption by
telephone, it must be at least $1,000. Your bank may charge a fee for incoming
wires.

By Bank Wire or Check via Mail
Submit a redemption request to the Fund. Redemption requests may be made by
letter to the Transfer Agent. You must specify the name of the Fund, the dollar
amount or number of shares you wish to redeem and the account number. You must
sign the letter in exactly the same way the account is registered, and if there
is more than one owner of shares, all must sign. A signature guarantee is
required for most requests.

Selling Shares (continued)

General Policies on Selling Shares

Signature Guarantees
Signature guarantees are required on redemption requests for the following: o
The check is not being mailed to the address on your account o The check
is not being made payable to the owner of the account o The redemption
proceeds are being transferred to another person's Fund account.

A signature guarantee can be obtained from most banks and securities dealers.
Notarized signatures are not considered a signature guarantee.

Verifying Telephone Redemptions
The Fund makes every effort to ensure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. If appropriate
precautions have not been taken, the Fund may be liable for losses due to
unauthorized transactions.

Redemptions Within 15 Days of Investment
When you have made an investment by check or through the automatic investment
plan, your redemption proceeds will not be mailed until the Transfer Agent is
satisfied that the check has cleared (which may require up to 15 days). You can
avoid this delay by purchasing shares with a certified check or federal funds
wire.

Redemption In Kind
The Fund reserves the right to make a redemption in kind - payment in portfolio
securities rather than cash - for certain large redemption amounts that could
hurt fund operations.

Refusal of Redemption Request
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.

Closing of Small Accounts
If your account (other than an IRA) falls below $500, the Fund may ask you to
increase your balance. If it is still below $500 after 30 days, the Fund may
close your account and send you the proceeds at the current NAV.

Undeliverable Distribution Checks
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that remain
uncashed for six months will be canceled and the money reinvested in the Fund at
the then current net asset value.

Call 1-800-GABELLI
or your investment representative.
Questions?
Call 1-800-GABELLI
or your investment representative.

EXCHANGING SHARES

You can exchange your shares in one Fund for shares of the same class of another
Fund managed by Gabelli Funds, LLC, or its affiliates, usually without paying
additional sales charges (see "Notes" below).

You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable transactions.
Instructions for Exchanging Shares
- -------------------------------------------------------------------------------

Exchanges may be made by sending a written request to The Gabelli Funds,
PO Box 8308, Boston, MA 02266-8308 or by calling 1-800-GABELLI
(1-800-422-3554).

Please provide the following information:
o Your name and telephone number
o The exact name on your account and account number
o Taxpayer identification number (usually your Social Security number)
o Dollar value or number of shares to be exchanged o The names of the
Funds from/into which the exchange is to be made

See "Selling Shares" for important information about telephone
transactions.

Notes on exchanges
o When exchanging from a Fund that
has no sales charge or a lower
sales charge to a Fund with a
higher sales charge, you will pay
the difference.
o The registration and tax
identification numbers of the two
accounts must be identical.
o This exchange privilege may be
changed or eliminated at any time
upon a 60-day notice to
shareholders.
o Be sure to read the prospectus
carefully of any Fund into which
you wish to exchange shares.

PRICING OF FUND SHARES

How NAV is Calculated

The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:

NAV =

Total Assets - Liabilities
Number of Shares
Outstanding

You can find the Fund's NAV daily in the Wall Street Journal and other
newspapers, or by calling 1-800-GABELLI (800-422-3554).
A Fund's net asset value, or NAV, is determined and its shares are priced
at the close of regular trading on the New York Stock Exchange, normally
at 4:00 p.m., eastern time, on days the New York Stock Exchange is open.
Your order for purchase, sale or exchange of shares is priced at the next
NAV calculated after your order is received by the Fund. This is what is
known as the offering price.

Fund securities are valued as of the close of trading on the primary
exchange on which they trade. Fund securities are generally valued at
current market prices. If market quotations are not available, prices
will be based on the average of the latest bid and asked quotations for
such securities prior to the valuation time, or the latest bid price if
asked prices are not available. Debt securities with remaining maturities
of 60 days or less will be valued at amortized cost, which the Board of
Directors believes represents fair value.

Some Fund securities may be listed on foreign exchanges that are open on
days (such as U.S. holidays) when a Fund does not compute its NAV. This
could cause the value of a Fund's portfolio investments to be affected on
days when you cannot buy or sell shares.

THE GABELLI GROWTH FUND

CLASS A SHARES
Class B Shares
Class C Shares`

PROSPECTUS
May 1, 1999

The Gabelli Growth Fund
One Corporate Center
Rye, New York 10580-1434
Telephone: 1-800-GABELLI (1-800-422-3554)
http://www.gabelli.com
e-mail: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)

Board of Trustees

Mario J. Gabelli, CFA Karl Otto Pohl
Chairman and Chief Investment Officer Former President
Gabelli Funds, Inc. Deutsche Bundesbank

Felix J. Christiana Anthony R. Pustorino
Former Senior Vice President Certified Public Accountant
Dollar Dry Dock Savings Bank Professor, Pace University

Anthony J. Colavita Anthony Torna
Attorney-at-Law Herzog, Heine & Geduld, Inc.
Anthony J. Colavita, P.C.

James P. Conn Anthonie C. van Ekris
Chief Investment Officer Managing Director
Financial Security Assurance Holdings, Ltd.BALMAC International, Inc.

Officers and Portfolio Managers

Bruce N. Alpert Howard F. Ward, CFA
President and Treasurer Portfolio Manager

James E. McKee Donald C. Jenkins, CFA
Secretary Associate Portfolio Manager

TABLE OF CONTENTS

Page
INVESTMENT AND PERFORMANCE SUMMARY...........................................3
INVESTMENT AND RISK INFORMATION...............................................6
MANAGEMENT OF THE FUND......................................................7
CLASSES OF SHARES.............................................................8
PURCHASE OF SHARES............................................................13
REDEMPTION OF SHARES.........................................................15
EXCHANGES OF SHARES..........................................................16
PRICING OF FUND SHARES.......................................................17
DIVIDENDS AND DISTRIBUTIONS.................................................17
TAX INFORMATION.............................................................17
FINANCIAL HIGHLIGHTS.........................................................18

INVESTMENT AND PERFORMANCE SUMMARY

Investment Objective:

Principal Investment Strategies:

Principal Risks:

The Fund's share price will fluctuate with changes in the market value of the
Fund's portfolio securities. Stocks are subject to market, economic and business
risks that cause their prices to fluctuate. Investments in foreign securities
involve risks related to political, social and economic development abroad, as
well as risks resulting from the differences between the regulations to which
U.S. and foreign issues and markets are subject. When you sell Fund shares, they
may be worth less than what you paid for them. Consequently, you can lose money
by investing in the Fund. The Fund is also subject to the risk that the Fund's
adviser's judgments about the above-average growth potential of particular
companies' stocks is incorrect and the perceived value of such stocks is not
realized by the market, or their prices go down.

Who May Want to Invest:

The Fund may appeal to you if:

You may not want to invest in the Fund if:

you are seeking a high level of current income
you are conservative in your investment approach
you seek to maintain the value of your original
investment more than potential growth of
capital

An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

Performance:

BAR CHART * (Graphic Omitted)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Calendar Year Total Return
------------- ------------
1989 40.1%
1990 (2.0)%
1991 34.3%
1992 4.5%
1993 11.3%
1994 (3.4)%
1995 32.7%
1996 19.4%
1997 42.6%
1998 29.8%

* The Class A, Class B and Class C shares are new classes of the Fund for
which performance is not yet available. The Class AAA shares of the
Fund are offered in a separate prospectus. The returns for the Class A,
Class B and Class C shares will be substantially similar to those of
the Class AAA shares shown in the chart above because all shares of the
Fund are invested in the same portfolio of securities. The annual
returns of the different Classes of shares will differ only to the
extent that the expenses of the Classes differ.

Class A, B and C share sales loads are not reflected in the above chart. If
sales loads were reflected, the Fund's returns would be less than those shown.
During the period shown in the bar chart, the highest return for a quarter was
30.2% (quarter ended December 31, 1998) and the lowest return for a quarter was
(14.5)% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
<S> <C> <C> <C>

---------------------------------------------- ---------------------- ---------------------- --------------------
Average Annual Total Returns Past One Year Past Five Years Past Ten Years
(for the periods ended December 31, 1998)
---------------------------------------------- ---------------------- ---------------------- --------------------
---------------------------------------------- ---------------------- ---------------------- --------------------
The Gabelli Growth Fund Class AAA Shares 29.8% 23.2% 19.8%
---------------------------------------------- ---------------------- ---------------------- --------------------
---------------------------------------------- ---------------------- ---------------------- --------------------
S&P(R)500 Stock Index** 28.7% 24.1% 19.2%
---------------------------------------------- ---------------------- ---------------------- --------------------

** The S&P(R) 500 Composite Stock Price Index is a widely recognized,
unmanaged index of common stock prices. The performance of the Index
does not include expenses or fees.
</TABLE>

Fees and Expenses of the Fund:

These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>

Class A Shares Class B Shares Class C Shares
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) on Purchases
(as a percentage of offering price)...................... 5.75%1 None None
Maximum Deferred Sales Charge (Load)
(as a percentage of redemption price*)................... None2 5.00%2 1.00%2

Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
Management Fees............................................. 1.00% 1.00% 1.00%
Distribution and Service (Rule 12b-1) Fees3................. 0.25% 1.00% 1.00%
Other Expenses.............................................. 0.16% 0.16% 0.16%
----- ----- -----
Total Annual Operating Expenses............................. 1.41% 2.16% 2.16%
===== ===== =====
- ----------------------
1 The sales charge declines as the amount invested increases.
2 The Fund imposes a maximum contingent deferred sales charge upon
redemption of Class B Shares, which is a back-end load, if you sell
your shares within eighty-four months after purchase. A maximum CDSC of
1% applies to redemptions of Class C shares within twenty-four months
after purchase and a CDSC of 1% applies to redemptions of certain Class
A shares within twelve months after purchase.
3 Long-term shareholders may indirectly pay more than the equivalent of
the maximum permitted front-end sales charge.
* "Redemption price" equals the net asset value at the time of
investment or redemption, whichever is
lower.
</TABLE>

Expense Example:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes (1) you
invest $10,000 in the Fund for the time periods shown, (2) you redeem your
shares at the end of the period (except as noted), (3) your investment has a 5%
return and (4) the Fund's operating expenses remain the same. This example is
for comparison only and your actual costs may be higher or lower.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class A shares $710 $996 $1,302 $2,169

Class B shares
- assuming redemption $719 $976 $1,359 $2,493
- assuming no redemption $219 $676 $1,159 $2,493

Class C shares
- assuming redemption $319 $676 $1,159 $2,493
- assuming no redemption $219 $676 $1,159 $2,493

</TABLE>

INVESTMENT AND RISK INFORMATION

The primary investment objective of the Fund is capital appreciation, and
current income is a secondary objective. The Fund's investment objective may not
be changed without shareholder approval.

The Fund may also use the following investment techniques:

Foreign Securities. The Fund may invest up to 25% of its total
assets in securities of non-U.S.
issuers.

Defensive Investments. When opportunities for capital appreciation do
not appear attractive or when adverse market or economic conditions
occur, the Fund may temporarily invest all or a portion of its assets
in "defensive investments." These include investment grade debt
securities, obligations of the U.S. Government and its agencies and
instrumentalities, and short-term money market instruments maturing in
less than one year such as high-quality commercial paper (rated at
least "A-1" by Standard & Poor's Ratings Service or "P-1" by Moody's
Investors Service, Inc.) When following a defensive strategy, the Fund
will be less likely to achieve its investment goals.

Investing in the Fund involves the following risks, listed in the order of
importance.

Fund and Management Risk. The Fund invests in growth stocks issued by
larger companies. The Fund's price may decline because the market
favors value stocks over growth stocks, or small capitalization stocks
over stocks of larger companies. If the Adviser is incorrect in its
assessment of the growth prospects of the securities it holds, then the
value of the Fund's shares may decline.

Borrowing Risk. Borrowing may exaggerate the effect on net asset value of
any increase or decrease in the market value of securities purchased with
borrowed funds. Money borrowed will be subject to interest costs which may
or may not be recovered by an appreciation of securities purchased.

MANAGEMENT OF THE FUND

The Adviser. Gabelli Funds, LLC, with principal offices located at One Corporate
Center, Rye, New York 10580-1434, serves as investment adviser to the Fund. The
Adviser makes investment decisions for the Fund and continuously reviews and
administers the Fund's investment program under the supervision of the Fund's
Board of Trustees. The Adviser and its affiliates also manage several other
open-end and closed-end investment companies in the Gabelli family of funds. The
Adviser is a New York limited liability company organized in 1999 as successor
to Gabelli Funds, Inc., a New York corporation organized in 1980. The Adviser is
a wholly-owned subsidiary of Gabelli Asset Management Inc.("GAMI"), a publicly
held company listed on the New York Stock Exchange.

Year 2000. As the year 2000 approaches, an issue has emerged regarding how the
software used by the Fund's service providers can accommodate the date "2000."
Failure to adequately address this issue could result in major systems or
process failures which could disrupt the Fund's operations. The Adviser is
working with the Fund's service providers to prepare for the year 2000. Based on
information currently available, the Adviser does not expect that the Fund will
incur significant operating expenses or be required to incur material costs to
be year 2000 compliant. The Fund cannot guarantee, however, that all year 2000
issues will be identified and corrected by January 1, 2000 and any non-compliant
computer systems could hurt key Fund operations, such as shareholder servicing,
pricing and trading. In addition, the Year 2000 problem may adversely affect the
companies in which the Fund invests, particularly companies in foreign
countries. For example, these companies may incur substantial costs to correct
the Year 2000 problem, which could lower the value of such companies' securities
and negatively affect the Fund's performance.

CLASSES OF SHARES

Three classes of the Fund's shares are offered in this prospectus - Class A
shares, Class B shares and Class C shares. The table below summarizes the
differences among the classes of shares. Note that the Fund's shareholders must
approve certain technical amendments to the Fund's Declaration of Trust before
the Fund is able to implement a multi-class structure. Therefore, the Fund will
not offer Class A, Class B or Class C shares until it receives such shareholder
approval.

A "front-end sales load," or sales charge, is a one-time fee charged
at the time of purchase of shares. A "contingent deferred sales
charge" ("CDSC") is a one-time fee charged at the time of redemption.
A "Rule 12b-1 fee" is a recurring annual fee for distributing shares
and servicing shareholder accounts
based on the Fund's average daily net assets attributable to the
particular class of shares.

- --------------------------------- ---------------------------- -------------------------- --------------------------
Class A Shares Class B Shares Class C Shares
- --------------------------------- ---------------------------- -------------------------- --------------------------
- --------------------------------- ---------------------------- -------------------------- --------------------------

Front-End Sales Load? Yes. The percentage No. No.
declines as the amount
invested increases.

- --------------------------------- ---------------------------- -------------------------- --------------------------
- --------------------------------- ---------------------------- -------------------------- --------------------------
Contingent Deferred Yes, for certain shares Yes, for shares redeemed Yes, for shares redeemed
Sales Charge? redeemed within twelve within eighty-four within twenty-four
months after purchase. months of purchase. months after purchase.
Declines over time.
- --------------------------------- ---------------------------- -------------------------- --------------------------
- --------------------------------- ---------------------------- -------------------------- --------------------------
Rule 12b-1 Fee 0.25% 1.00% 1.00%

</TABLE>

In selecting a class of shares in which to invest, you should consider
the length of time you plan to hold the shares the amount of sales
charge and Rule 12b-1 fees whether you qualify for a reduction or
waiver of the Class A sales charge
that Class B shares convert to Class A shares approximately
eighty-four months after purchase
<TABLE>
<CAPTION>
<S> <C>

- ----------------------------------------------------------- --------------------------------------------------------
If you... Then you should consider...
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
intend to hold your shares for less than purchasing Class C shares
instead of either Class A eighty-four months shares or Class B shares
do not qualify for a reduced or waived
front-end sales load
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------
intend to hold your shares for seven years or purchasing Class B shares instead of either Class A
more shares or Class C shares
do not qualify for a reduced or waived
front-end sales load
- ----------------------------------------------------------- --------------------------------------------------------
qualify for a reduced or waived front-end sales purchasing Class A shares no matter how long you
load intend to hold your shares
- ----------------------------------------------------------- --------------------------------------------------------
</TABLE>

Sales Charge - Class A Shares. The sales charge is imposed on Class A shares
in accordance with the following
schedule:
<TABLE>
<CAPTION>
<S> <C> <C> <C>

Sales Charge Sales Charge Reallowance
as % of the as % of to
Amount of Investment Offering Price* Amount Invested Broker-Dealers
- -------------------- -------------- --------------- --------------
Under $50,000........................................ 5.75% 6.10% 5.00%
$50,000 but under $100,000........................... 4.50% 4.71% 3.75%
$100,000 but under $250,000.......................... 3.50% 3.62% 2.75%
$250,000 but under $500,000.......................... 2.50% 2.56% 2.00%
$500,000 but under $1 million........................ 2.00% 2.04% 1.75%
$1 million but under $2 million...................... 1.00% 1.01% 1.00%
$2 million or more................................... 0.00% 0.00% 1.00%

* Includes front-end sales load
</TABLE>

Sales Charge Reductions and Waivers - Class A Shares

Reduced sales charges are available to (1) investors who are eligible to combine
their purchases of Class A shares to receive volume discounts and (2) investors
who sign a Letter of Intent and agree to make purchases over time. Certain types
of investors are eligible for sales charge waivers.

1. Volume Discounts. Investors eligible to receive volume discounts are
individuals and their immediate families, tax-qualified employee benefit plans
and a trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account even though more than one beneficiary is involved. You
also may combine the value of Class A shares you already hold in the Fund and
other funds advised by Gabelli Funds, LLC or its affiliates along with the value
of the Class A shares being purchased to qualify for a reduced sales charge. For
example, if you own Class A shares of the Fund that have an aggregate value of
$100,000, and make an additional investment in Class A shares of the Fund of
$4,000, the sales charge applicable to the additional investment would be 3.50%,
rather than the 5.75% normally charged on a $4,000 purchase. If you want more
information on volume discounts, call the Distributor at 1-800-GABELLI
(1-800-422-3554) or your broker.

2. Letter of Intent. If you initially invest at least $1,000 in Class A shares
of the Fund and submit a Letter of Intent to the Distributor, you may make
purchases of Class A shares of the Fund during a 13-month period at the reduced
sales charge rates applicable to the aggregate amount of the intended purchases
stated in the Letter. The Letter may apply to purchases made up to 90 days
before the date of the Letter. For more information on the Letter of Intent,
call 1-800-GABELLI (1-800-422-3554).

3. Investors Eligible for Sales Charge Waivers. Class A shares of the Fund may
be offered without a sales charge to:

(1) employees of Gabelli & Company, Inc. BFDS, State Street, and First Data
Investor Services Group, Inc., employee benefit plans for those
employees and the spouses and minor children of such employees when
orders on their behalf are placed by such employees (the minimum
initial investment for such purchases is $500); (2) the Adviser, GAMCO,
officers, directors, trustees, general partners, directors and
employees of other investment companies managed by the Adviser,
employee benefit plans for such persons and their spouses and minor
children when orders on their behalf are placed by such persons (with
no required minimum initial investment), the term "immediate family"
for this purpose refers to a person's spouse, children and
grandchildren (adopted or natural), parents, grandparents, siblings, a
spouse's siblings, a sibling's spouse and a sibling's children; (3) any
other investment company in connection with the combination of such
company with the Fund by merger, acquisition of assets or otherwise;
(4) shareholders who have redeemed shares in the Fund and who wish to
reinvest their redemption proceeds in the Fund, provided the
reinvestment is made within 30 days of the redemption; (5) tax-exempt
organizations enumerated in Section 501(c)(3) of the Internal Revenue
Code of 1986 (the "Code") and private, charitable foundations that in
each case make lump-sum purchases of $100,000 or more; (6) qualified
employee benefit plans established pursuant to Section 457 of the Code
that have established omnibus accounts with the Fund; (7) qualified
employee benefit plans having more than one hundred eligible employees
and a minimum of $1 million in plan assets invested in the Fund (plan
sponsors are encouraged to notify the Fund's distributor when they
first satisfy these requirements); (8) any unit investment trusts
registered under the Investment Company Act of 1940 (the "1940 Act")
which have shares of the Fund as a principal investment; (9) investment
advisory clients of GAMCO and their immediate family; (10) employee
participants of organizations adopting the 401(k) Plan sponsored by the
Adviser; (11) financial institutions purchasing Class A shares of the
Fund for clients participating in a fee based asset allocation program
or wrap fee program which has been approved by the Distributor; and
(12) registered investment advisers or financial planners who place
trades for their own accounts or the accounts of their clients and who
charge a management, consulting or other fee for their services; and
clients of such investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books
and records of a broker or agent.

Investors who qualify under the categories described above should contact their
brokerage firm or the Distributor.

Contingent Deferred Sales Charges

You will pay a CDSC when you redeem:

Class A shares purchased as part of an investment of greater
than $2 million if no front-end sales load was paid at the
time of purchase, within twelve months of buying them.
Class B shares within eighty-four months of buying them Class
C shares within twenty-four months of buying them.

The CDSC payable upon redemption of Class A or Class C shares in the
circumstances described above is 1%. The CDSC schedule for Class B shares is set
forth below. The CDSC is based on the net asset value at the time of your
investment or the net asset value at the time of redemption, whichever is lower.

Class B Shares
Years Since Purchase CDSC
- -------------------- ----
First.................................................. 5.00%
Second................................................. 4.00%
Third.................................................. 3.00%
Fourth................................................. 3.00%
Fifth.................................................. 2.00%
Sixth.................................................. 1.00%
Seventh and thereafter................................. 0.00%

The Distributor pays sales commissions of 4.00% of the purchase price of Class B
shares of the Fund to brokers at the time of sale that initiate and are
responsible for purchases of such Class B shares of the Fund.

You will not pay a CDSC to the extent that the value of the redeemed shares
represents:

reinvestment of dividends or capital gains distributions
capital appreciation of shares redeemed

When you redeem shares, we will assume that you are redeeming first shares
representing reinvestment of dividends and capital gains distributions, then any
appreciation on shares redeemed, and then remaining shares held by you for the
longest period of time. We will calculate the holding period of shares acquired
through an exchange of shares of another fund from the date you acquired the
original shares of the other fund. The time you hold shares in a money market
fund, however, will not count for purposes of calculating the applicable CDSC.

We will waive the CDSC payable upon redemptions of shares for:

redemptions and distributions from retirement plans
made after the death or disability of a
shareholder
minimum required distributions made from an IRA or other
retirement plan account after you
reach age 59 1/2
involuntary redemptions made by the Fund
a distribution from a tax-deferred retirement plan after
your retirement
returns of excess contributions to retirement plans
following the shareholder's death or
disability

Conversion Feature - Class B Shares

Class B shares automatically convert to Class A shares of the
Fund on the first business day of the eighty-fifth month
following the month in which you acquired such shares.
After conversion, your shares will be subject to the lower
Rule 12b-1 fees charged on Class A shares, which will increase
your investment return compared to the Class B shares.
You will not pay any sales charge or fees when your shares
convert, nor will the transaction be subject to any tax.
The dollar value of Class A shares you receive will equal the
dollar value of the B shares converted.

The Board of Trustees may suspend the automatic conversion of Class B to Class A
shares for legal reasons or due to the exercise of its fiduciary duty. If the
Board determines that such suspension is likely to continue for a substantial
period of time, it will create another class of shares into which Class B shares
are convertible.

Rule 12b-1 Plan

The Fund has adopted a plan under Rule 12b-1 (the "Plan") for each of its
classes of shares. Under the Plan, the Fund may use its assets to finance
activities relating to the sale of its shares and the provision of certain
shareholder services.

The Rule 12b-1 fees vary by class as follows:

Class A Class B Class C
Service Fees 0.25% 0.25% 0.25%
Distribution Fees None 0.75% 0.75%

These are annual rates based on the value of each Class' average daily net
assets. Because the Rule 12b-1 fees are higher for Class B and Class C shares
than Class A shares, Class B and Class C shares will have higher annual
expenses. Because Rule 12b-1 fees are paid out of the Fund's assets on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.

PURCHASE OF SHARES

You can purchase the Fund's shares on any day the New York Stock Exchange, Inc.
("NYSE") is open for trading (a "Business Day"). You may purchase shares through
Gabelli & Company, Inc. (the "Distributor"), directly from the Fund through the
Fund's transfer agent or through broker-dealers that have entered into selling
agreements with the Distributor.

By Mail or In Person. You may open an account by mailing a completed
subscription order form with a check or money order payable to "The
Gabelli Growth Fund" to:

By Mail By Personal Delivery
The Gabelli Funds The Gabelli Funds
P.O. Box 8308 The BFDS Building,7th Floor
Boston, MA 02266-8308 Two Heritage Drive
Quincy, MA 02171

You can obtain a subscription order form by calling 1-800-422-3554.
Checks made payable to a third party and endorsed by the depositor are
not acceptable. For additional investments, send a check to the above
address with a note stating your exact name and account number, the
name of the Fund and class of shares you wish to purchase.

By Bank Wire. To open an account using the bank wire system, first
telephone the Fund at 1-800-422-3554 to obtain a new account number.
Then instruct a Federal Reserve System member bank to wire funds to:

State Street Bank and Trust Company
ABA #011-0000-28 REF DDA #99046187
Re: The Gabelli Growth Fund
Class A, B or C Shares
Account #__________
Account of [Registered Owners]
225 Franklin Street, Boston, MA 02110

If you are making an initial purchase, you should also complete and
mail a subscription order form to the address shown under "By Mail."
Note that banks may charge fees for wiring funds, although State Street
Bank and Trust Company ("State Street") will not charge you for
receiving wire transfers.

From a Broker-Dealer. You may purchase shares from broker-dealers. The
broker-dealer will transmit a purchase order and payment to State
Street on your behalf. Broker-dealers may send you confirmations of
your transactions and periodic account statements showing your
investments in the Fund.

Minimum Investments. Your minimum initial investment must be at least $1,000.
See "Retirement Plans" and "Automatic Investment Plan" regarding minimum
investment amounts applicable to such plans. There is no minimum for subsequent
investments. Broker-dealers may have different minimum investment requirements.

Share Price. The Fund sells its shares at the "net asset value" next determined
after the Fund receives your completed subscription order form and your payment
in Federal funds, subject to a sales charge in the case of Class A shares. See
"Pricing of Fund Shares" for a description of the calculation of net asset value
and "Classes of Shares -- Sales Charges - Class A Shares" for a description of
the Sales Charges.

Retirement Plans

The Fund has available a form of IRA for investment in Fund shares that may be
obtained from the Distributor by calling 1-800-GABELLI (1-800-422-3554).
Self-employed investors may purchase shares of the Fund through tax-deductible
contributions to existing retirement plans for self-employed persons, known as
Keogh or H.R. 10 plans. The Fund does not currently act as sponsor to such
plans. Fund shares may also be a suitable investment for other types of
qualified pension or profit-sharing plans which are employer sponsored,
including deferred compensation or salary reduction plans known as "401(k)
Plans" which give participants the right to defer portions of their compensation
for investment on a tax-deferred basis until distributions are made from the
plans. The minimum initial investments for all such retirement plans is $250.
The minimum for all subsequent investments is $100.

Automatic Investment Plan. The Fund offers an automatic monthly investment plan.
There is no minimum monthly investment for accounts establishing an automatic
investment plan. Call the Distributor at 1-800-GABELLI (1-800-422-3554) for more
details about the plan.

General. State Street will not issue share certificates unless requested by you.
The Fund reserves the right to (i) reject any purchase order if, in the opinion
of Fund management, it is in the Fund's best interest to do so and (ii) suspend
the offering of shares for any period of time.

REDEMPTION OF SHARES

You can redeem shares on any Business Day without a redemption fee. The Fund may
temporarily stop redeeming its shares when the NYSE is closed or trading on the
NYSE is restricted, when an emergency exists and the Fund cannot sell its shares
or accurately determine the value of its assets, or if the Securities and
Exchange Commission ("SEC") orders the Fund to suspend redemptions.

The Fund redeems its shares at the net asset value next determined after the
Fund receives your redemption request, subject in some cases to a CDSC as
described under "Classes of Shares -- Contingent Deferred Sales Charges" above.
See "Pricing of Fund Shares" for a description of the calculation of net asset
value.

You may redeem shares through the Distributor, directly from the Fund through
its transfer agent or through a broker-dealer.

Through a Broker-Dealer. You may redeem shares through a
broker-dealer which will transmit a redemption order to State
Street on your behalf. A redemption request received from a
broker-dealer will be effected at the net asset value next
determined (less any applicable CDSC) after State Street
receives the request. If you hold share certificates, you must
present the certificates to the broker-dealer endorsed for
transfer. A broker-dealer may charge you fees for effecting
redemptions for you.

By Letter. You may mail a letter requesting redemption of
shares to: The Gabelli Funds, P.O. Box 8308, Boston, MA
02266-8308. Your letter should state the name of the Fund and
the share class, the dollar amount or number of shares you are
redeeming and your account number. You must sign the letter in
exactly the same way the account is registered and if there is
more than one owner of shares, all must sign. A signature
guarantee is required for each signature on your redemption
letter. You can obtain a signature guarantee from financial
institutions such as commercial banks, brokers, dealers and
savings associations. A notary public cannot provide a
signature guarantee.

By Telephone. You may redeem your shares in a direct registered account by
calling either 1-800-422-3554 or 1-800-872-5365 (617-328-5000 from outside
the United States), subject to a $25,000 limitation. You may not redeem
shares held through an IRA by telephone. If State Street properly acts on
telephone instructions and follows reasonable procedures to protect against
unauthorized transactions, neither State Street nor the Fund will be
responsible for any losses due to telephone transactions. You may be
responsible for any fraudulent telephone order as long as State Street or
the Fund takes reasonable measures to verify the order. You may request
that redemption proceeds be mailed to you by check (if your address has not
changed in the prior 30 days), forwarded to you by bank wire or invested in
another mutual fund advised by the Adviser (see "Exchange of Shares"
below).

1. Telephone Redemption By Check. The Fund will make
checks payable to the name in which the account is
registered and normally will mail the check to the
address of record within seven days.

2. Telephone Redemption By Wire. The Fund accepts
telephone requests for wire redemption in amounts of
at least $1,000. The Fund will send a wire to either
a bank designated on your subscription order form or
on a subsequent letter with a guaranteed signature.
The proceeds are normally wired on the next Business
Day.

Through the Automatic Cash Withdrawal Plan. You may
automatically redeem shares on a monthly, quarterly or annual
basis if you have at least $10,000 in your account and if your
account is directly registered with State Street. If you
redeem Class B or Class C shares under this plan, you must pay
the applicable CDSC. Please call the Distributor at
1-800-422-3554 for more information.

Through Involuntary Redemption. The Fund may redeem all
shares in your account (other than an IRA account) if their
value falls below $1,000 as a result of redemptions (but not
as a result of a decline in net asset value). You will be
notified in writing and allowed 30 days to increase the value
of your shares to at least $1,000.

Redemption Proceeds. If you request redemption proceeds by check, the Fund will
normally mail the check to you within seven days after it receives your
redemption request. If you purchased your Fund shares by check, you may not
redeem shares until the check clears, which may take up to 15 days following
purchase.

The Fund may pay to you your redemption proceeds wholly or partly in portfolio
securities. Payments would be made in portfolio securities, however, only in the
rare instance that the Fund's Board of Trustees believes that it would be in the
Fund's best interest not to pay redemption proceeds in cash.

EXCHANGES OF SHARES

You may exchange shares of the Fund you hold for shares of the same class of
another fund managed by the Adviser or its affiliates based on their relative
net asset values. To obtain a list of the funds whose shares you may acquire
through exchange call 1-800-GABELLI (1-800-422-3554). You may also exchange your
shares for shares of a money market fund managed by the Adviser or its
affiliates. Class B and Class C shares will continue to age from the date of the
original purchase of such shares and will assume the CDSC rate they had at the
time of exchange.

In effecting an exchange:

you must meet the minimum purchase requirements for the fund
whose shares you purchase through exchange.
if you are exchanging into Class A shares of a fund with a
higher sales charge, you must pay the difference at the time
of exchange.
you may realize a taxable gain or loss.
you should read the prospectus of the fund whose shares you
are purchasing (call 1-800-GABELLI (1-800-422-3554) to obtain
the prospectus).
you should be aware that brokers may charge a fee for
handling an exchange for you.

You may exchange share by telephone, by mail or through a broker-dealer.

Exchanges by Telephone. You may give exchange
instructions by telephone by calling
1-800-GABELLI (1-800-422-3554). You may not exchange
shares by telephone if you hold share
certificates.

Exchanges by Mail. You may send a written request for
exchanges to: The Gabelli Funds, P.O. Box 8308, Boston, MA
02266-8308. State your name, your account number, the dollar
value or number of shares you wish to exchange, the name and
class of the funds whose shares you wish to exchange, and the
name of the fund whose shares you wish to acquire.

We may modify or terminate the exchange privilege at any time. You will be given
notice 60 days prior to any material change in the exchange privilege.

PRICING OF FUND SHARES

The Fund's net asset value is calculated separately for each class. It is
calculated on each Business Day. The NYSE is currently scheduled to be closed on
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and on the preceding Friday or subsequent Monday when a holiday falls on a
Saturday or Sunday, respectively.

The Fund's net asset value is calculated separately for each class. It is
determined as of the close of regular trading on the NYSE, normally 4:00 p.m.,
New York time. It is computed by dividing the value of the Fund's net assets
(i.e. the value of its securities and other assets less its liabilities,
including expenses payable or accrued but excluding capital stock and surplus)
by the total number of its shares outstanding at the time the determination is
made. The Fund uses market quotations in valuing its portfolio securities.
Short-term investments that mature in 60 days or less are valued at amortized
cost, which the Trustees of the Fund believe represents fair value.

The Fund may from time to time hold securities that are primarily listed on
foreign exchanges. Such securities may trade on days when the Fund does not
price its shares. Therefore, the Fund's net asset value may change on days when
you are not able to purchase or redeem the Fund's shares.

DIVIDENDS AND DISTRIBUTIONS

TAX INFORMATION

This summary of tax consequences is intended for general information only. You
should consult a tax adviser concerning the tax consequences of your investment
in the Fund.

FINANCIAL HIGHLIGHTS

The Class A, Class B and Class C shares of the Fund have not previously been
offered and therefore do not have previous financial history.

[BACK COVER PAGE]

The Gabelli Growth Fund
Class A,B,C Shares

For More Information:
For more information about the Fund, the following documents are available free
upon request:

- ------------------------------------------------------------------------------

- -------------------------------------------------------------------------
You can get free copies of these documents and prospectuses of other funds in
the Gabelli family, or request other information and discuss your questions
about the Fund by contacting:

- ------------------------------------------------------------------------------
The Gabelli Growth Fund
- ------------------------------------------------------------------------------
One Corporate Center
Rye, NY 10580
Telephone: 1-800-GABELLI (1-800-422-3554)
www.gabelli.com

(Investment Company Act file no. 811-4873)

THE GABELLI GROWTH FUND

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1999

This Statement of Additional Information (the "SAI"), which is not a prospectus,
describes the Gabelli Growth Fund. The SAI should be read in conjunction with
the Fund's Prospectuses for Class A, Class B, Class C and Class AAA shares dated
May 1, 1999. For a free copy of the Prospectuses, please contact the Fund at the
address, telephone number or Internet Web site printed below.

One Corporate Center
Rye, New York 10580-1434
Telephone 1-800-GABELLI (1-800-422-3554)
http://www.gabelli.com

TABLE OF CONTENTS

GENERAL INFORMATION...........................................................1
INVESTMENT STRATEGIES AND RISKS...............................................1
INVESTMENT RESTRICTIONS.......................................................4
TRUSTEES AND OFFICERS.........................................................6
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS....................................9
INVESTMENT ADVISORY AND OTHER SERVICES........................................9
DISTRIBUTION PLAN...........................................................11
PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................12
RETIREMENT PLANS............................................................14
REDEMPTION OF SHARES.........................................................15
COMPUTATION OF NET ASSET VALUE..............................................15
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................................16
INVESTMENT PERFORMANCE INFORMATION...........................................19
DESCRIPTION OF THE FUND'S SHARES............................................20
FINANCIAL STATEMENTS.........................................................22
APPENDIX A - DESCRIPTION OF CORPORATE DEBT RATINGS.........................A-1

GENERAL INFORMATION

The Fund is a diversified, open-end, management investment company. The
Fund was organized as a business trust under the laws of the Commonwealth of
Massachusetts on October 24, 1986 and commenced investment operations on April
10, 1987.

INVESTMENT STRATEGIES AND RISKS

The Prospectus discusses the investment objective of the Fund and the
principal strategies to be employed to achieve that objective. This section
contains supplemental information concerning certain types of securities and
other instruments in which the Fund may invest, additional strategies that the
Fund may utilize and certain risks associated with such investments and
strategies.

Convertible Securities

The Fund may invest in convertible securities when it appears to the
Adviser that it may not be prudent to be fully invested in common stocks. The
Fund will normally purchase only investment grade, convertible debt securities
having a rating of, or equivalent to, an S&P rating of at least "BBB" (which
securities may have speculative characteristics) or, if unrated, judged by the
Adviser to be of comparable quality. However, the Fund may also invest up to 15%
of its assets in more speculative convertible debt securities which appear to
present an advantageous means of acquiring common stock having potential capital
appreciation provided such securities have a rating of, or equivalent to, at
least an S&P rating of "B" or, if unrated, judged by the Adviser to be of
comparable quality. Corporate debt obligations having a "B" rating will likely
have some quality and protective characteristics which, in the judgment of the
rating organization, are outweighed by large uncertainties or major risk
exposures to adverse conditions. Although lower rated debt securities generally
have higher yields, they are also more subject to market price volatility based
on increased sensitivity to changes in interest rates and economic conditions or
the liquidity of their secondary trading market. A description of corporate debt
ratings including convertible securities is contained in Appendix A -
"Description of Corporate Debt Ratings."

As with all debt securities, the market value of convertible securities
tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. Convertible securities generally
offer lower interest or dividend yields than non-convertible securities
of similar quality. However, when the market price of the common stock
underlying a convertible security exceeds the conversion price, the
price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common
stock declines, the convertible security tends to trade increasingly on
a yield basis, and thus may not depreciate to the same extent as the
underlying common stock. Convertible securities rank senior to common
stocks on an issuer's capital structure and are consequently of higher
quality and entail less risk than the issuer's common stock, although
the extent to which such risk is reduced depends in large measure upon
the degree to which the convertible security sells above its value as a
fixed-income security.

In selecting convertible securities for the Fund, the Adviser relies
primarily on its own evaluation of the issuer and the potential for capital
appreciation through conversion. It does not rely on the rating of the security
or sell because of a change in rating absent a change in its own evaluation of
the underlying common stock and the ability of the issuer to pay principal and
interest or dividends when due without disrupting its business goals. Interest
or dividend yield is a factor only to the extent it is reasonably consistent
with prevailing rates for securities of similar quality and thereby provides a
support level for the market price of the security. The Fund will purchase the
convertible securities of highly leveraged issuers only when, in the judgment of
the Adviser, the risk of default is outweighed by the potential for capital
appreciation.

The issuers of debt obligations having speculative characteristics may
experience difficulty in paying principal and interest when due in the event of
a downturn in the economy or unanticipated corporate developments. The market
prices of such securities may become increasingly volatile in periods of
economic uncertainty. Moreover, adverse publicity or the perceptions of
investors over which the Adviser has no control, whether or not based on
fundamental analysis, may decrease the market price and liquidity of such
investments. Although the Adviser will attempt to avoid exposing the Fund to
such risks, there is no assurance that it will be successful or that a liquid
secondary market will continue to be available for the disposition of such
securities.

Investments in Warrants and Rights

Warrants basically are options to purchase equity securities at a
specified price valid for a specified period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities. Rights are
similar to warrants, but normally have a short duration and are distributed
directly by the issuer to its shareholders. Rights and warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.

The Fund may invest up to 5% of its total assets in warrants and rights
(other than those acquired in units or attached to other securities) but will do
so only if the underlying equity securities are deemed appropriate by the
Adviser for inclusion in the Fund's portfolio.

Investing in rights and warrants can provide a greater potential for
profit or loss than an equivalent investment in the underlying security, and
thus can be a speculative investment. The value of a right or warrant may
decline because of a decline in the value of the underlying security, the
passage of time, changes in interest rates or in the dividend or other policies
of the Fund whose equity underlies the warrant or a change in the perception as
to the future price of the underlying security, or any combination thereof.
Rights and warrants generally pay no dividends and confer no voting or other
rights other than to purchase the underlying security.

Investments in Small, Unseasoned Companies and Other Illiquid Securities

The Fund may invest up to 5% of its net assets in small, less
well-known companies which have operated for less than three years (including
predecessors). The securities of such companies may have a limited trading
market, which may adversely affect their disposition and can result in their
being priced lower than might otherwise be the case. If other investment
companies and investors who invest in such issuers trade the same securities
when the Fund attempts to dispose of its holdings, the Fund may receive lower
prices than might otherwise be obtained.

The Fund will not in the aggregate invest more than 10% of its net
assets in illiquid securities. These securities include securities which are
restricted for public sale, securities for which market quotations are not
readily available, and repurchase agreements maturing or terminable in more than
seven days. Securities freely salable among qualified institutional investors
under special rules adopted by the SEC may be treated as liquid if they satisfy
liquidity standards established by the Board of Trustees. The continued
liquidity of such securities is not as well assured as that of publicly traded
securities, and accordingly, the Board of Trustees will monitor their liquidity.

Loans of Portfolio Securities

To increase income and pay a portion of its expenses, the Fund may lend
its portfolio securities to broker-dealers or financial institutions, provided
the loan is (1) collateralized according to the regulatory requirements
discussed below and (2) limited so that the value of all loaned securities does
not exceed 25% of the value of the Fund's net assets. Under applicable
regulatory requirements (which are subject to change), the loan collateral must
be cash, a letter of credit from a U.S. bank or U.S. Government securities and
must at all times at least equal the value of the loaned securities. The Fund
must receive reasonable interest on the loan, any distributions on the
securities and any increase in their market value. The Fund may also pay
reasonable finder's, custodian and administrative fees. The terms of the Fund's
loans must meet applicable tests under the Internal Revenue Code of 1986, as
amended and permit it to reacquire loaned securities on five days' notice or in
time to vote on any important matter.

Corporate Reorganizations

In general, securities of companies engaged in reorganization
transactions sell at a premium to their historic market price immediately prior
to the announcement of a tender offer or reorganization proposal. However, the
increased market price of such securities may also discount what the stated or
appraised value of the security would be if the contemplated transaction were
approved or consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by shareholders of the
prospective portfolio company as a result of the contemplated transaction; or
fails adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Adviser which must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be received as a
result of the contemplated transaction, but also the financial resources and
business motivation of the offeror as well as the dynamics of the business
climate when the offer or proposal is in progress.

In making such investments, the Fund will not violate any of its
diversification requirements or investment restrictions (see below, "Investment
Restrictions") including the requirement that, except for the investment of up
to 25% of its assets in any one company or industry, not more than 5% of its
assets may be invested in the securities of any issuer. Since such investments
are ordinarily short term in nature, they will tend to increase the turnover
ratio of the Fund thereby increasing its brokerage and other transaction
expenses. The Adviser intends to select investments of the type described which,
in its view, have a reasonable prospect of capital appreciation which is
significant in relation to both the risk involved and the potential of available
alternate investments.

When Issued, Delayed Delivery Securities & Forward Commitments

The Fund is authorized to buy and sell when issued securities as an
additional investment strategy in furtherance of its investment objectives.

In utilizing this strategy, the Fund may enter into forward commitments
for the purchase or sale of securities, including on a "when issued" or "delayed
delivery" basis in excess of customary settlement periods for the type of
security involved. In some cases, a forward commitment may be conditioned upon
the occurrence of a subsequent event, such as approval and consummation of a
merger, corporate reorganization or debt restructuring, i.e., a when, as and if
issued security. When such transactions are negotiated, the price is fixed at
the time of the commitment, with payment and delivery taking place in the
future, generally a month or more after the date of the commitment. While the
Fund will only enter into a forward commitment with the intention of actually
acquiring the security, the Fund may sell the security before the settlement
date if it is deemed advisable.

Securities purchased under a forward commitment are subject to market
fluctuation and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate cash or liquid high-grade debt
securities with its custodian in an aggregate amount at least equal to the
amount of its outstanding forward commitments.

Other Investment Companies

The Fund does not intend to purchase the shares of other open-end
investment companies but reserves the right to invest up to 10% of its
total assets in the securities of closed-end investment companies
including small business investment companies (not more than 5% of its
total assets may be invested in more than 3% of the securities of any
investment company). To the extent that the Fund invests in the
securities of other investment companies, shareholders in the Fund may
be subject to duplicative advisory and administrative fees.

Repurchase Agreements

The Fund may enter into repurchase agreements with "primary dealers" in
U.S. Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. In a repurchase agreement, an investor (e.g., the
Fund) purchases a debt security from a seller which undertakes to repurchase the
security at a specified resale price on an agreed future date (ordinarily a week
or less). The resale price generally exceeds the purchase price by an amount
which reflects an agreed-upon market interest rate for the term of the
repurchase agreement. The Fund's risk is primarily that, if the seller defaults,
the proceeds from the disposition of underlying securities and other collateral
for the seller's obligation are less than the repurchase price. If the seller
becomes bankrupt, the Fund might be delayed in selling the collateral. Under the
Investment Company Act of 1940, as amended (the "1940 Act"), repurchase
agreements are considered loans. Repurchase agreements usually are for short
periods, such as one week or less, but could be longer. Except for repurchase
agreements for a period of a week or less in respect to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, not more
than 5% of the Fund's total assets may be invested in repurchase agreements. In
addition, the Fund will not enter into repurchase agreements of a duration of
more than seven days if, taken together with restricted securities and other
securities for which there are no readily available quotations, more than 10% of
its total assets would be so invested. These percentage limitations are
fundamental and may not be changed without shareholder approval.

INVESTMENT RESTRICTIONS

The Fund's investment objectives and the following investment
restrictions are fundamental and may not be changed without the approval of a
majority of the Fund's shareholders, defined as the lesser of (1) 67% of the
Fund's shares present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the Fund's outstanding shares. Under such restrictions, the Fund may not:

(1) Purchase the securities of any one issuer, other
than the United States Government or any of its agencies or
instrumentalities, if immediately after such purchase more
than 5% of the value of its total assets would be invested in
such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up
to 25% of the value of the Fund's total assets may be invested
without regard to such 5% and 10% limitations;

(2) Invest more than 25% of the value of its total
assets in any particular industry;

(3) Purchase securities on margin, but it may obtain
such short-term credits from banks as may be necessary for the
clearance of purchase and sales of securities;

(4) Make loans of its assets except pursuant to the
conditions set forth in the Prospectus or for the purchase of
debt securities;

(5) Borrow money except subject to the restrictions
set forth in the Prospectus under "Borrowing";

(6) Mortgage, pledge or hypothecate any of its assets
except that, in connection with permissible borrowings
mentioned in paragraph 5 above, not more than 20% of the
assets of the Fund (not including amounts borrowed) may be
used as collateral;

(7) Invest more than 5% of its total assets in more
than 3% of the securities of another investment company or
invest more than 10% of its total assets in the securities of
other investment companies, nor make any such investments
other than through purchase in the open market where to the
best information of the Fund no commission or profit to a
sponsor or dealer (other than the customary broker's
commission) results from such purchase;

(8) Act as an underwriter of securities of other
issuers;

(9) Invest, in the aggregate, more than 10% of the
value of its total assets in securities for which market
quotations are not readily available, securities which are
restricted for public sale, or in repurchase agreements
maturing or terminable in more than seven days;

(10) Purchase or otherwise acquire interests in real
estate, real estate mortgage loans or interests in oil, gas or
other mineral exploration or development programs;

(11) Sell securities short or invest in puts, calls,
straddles, spreads or combinations thereof;

(12) Purchase or acquire commodities or commodity
contracts;

(13) Issue senior securities, except insofar as the
Fund may be deemed to have issued a senior security in
connection with any permitted borrowing;

(14) Participate on a joint, or a joint and
several, basis in any securities trading
account; or

(15) Invest in companies for the purpose of
exercising control.

TRUSTEES AND OFFICERS

Under Massachusetts law, the Fund's Board of Trustees is responsible
for establishing the Fund's policies and for overseeing the management of the
Fund. The Board also elects the Fund's officers who conduct the daily business
of the Fund. The Trustees and principal officers of the Fund, their ages and
their principal occupations for the past five years, are listed below. Unless
otherwise specified, the address of each such person is One Corporate Center,
Rye, New York 10580-1434. Trustees deemed to be "interested persons" of the Fund
for purposes of the Act are indicated by an asterisk.

Name, Address, Age and Position(s)
with Fund Principal Occupations During Past Five Years

Mario J. Gabelli, CFA, * 56 Chairman of the Board, Chief Executive Officer and Chief
Trustee Investment Officer of Gabelli Asset Management Inc.,
(since 1999) and Gabelli
Funds Inc.; Director or
Trustee and Officer of
various other mutual
funds advised by Gabelli
Funds, LLC and it
affiliates; Chairman of
the Board and Chief
Executive Officer of
Lynch Corporation
(diversified
manufacturing and
communications services
company) and Director of
East/West Communications
Inc.

Felix J. Christiana, 73 Formerly Senior Vice President of Dry Dock Savings Bank;
Trustee Director or Trustee of various other mutual funds advised
by Gabelli Funds, LLC and its affiliates.

Anthony J. Colavita, 64 President and Attorney at Law in the law firm of Anthony
Trustee J. Colavita, P.C. since 1961; Director or Trustee of
various other mutual funds advised by Gabelli Funds, LLC
and its affiliates.

James P. Conn, 61 Former Managing Director/Chief Investment Officer of
Trustee Financial Security Assurance Holdings Ltd. 1992-1998;
Director of Santa Anita
Operating Company since
1995; Director of
California Jockey Club
since 1983; Director of
Meditrust Corporation
and First Republic Bank;
Director or Trustee of
various other mutual
funds advised by Gabelli
Funds, LLC and its
affiliates.

Name, Address, Age and Position(s)
with Fund Principal Occupations During Past Five Years

Karl Otto Pohl, *+ 69 Member of the Shareholder Committee of Sal Oppenheim Jr. &
Trustee Cie (private investment bank); Director of Gabelli Asset
Management Inc.
(investment management),
Zurich Allied
(insurance), and
TrizecHahn Corp.; Former
President of the
Deutsche Bundesbank and
Chairman of its Central
Bank Council from 1980
through 1991; Director
or Trustee of all other
mutual funds advised by
Gabelli Funds, LLC and
its affiliates.

Anthony R. Pustorino, CPA, 73 Certified Public Accountant; Professor of Accounting, Pace
Trustee University, since 1965; Trustee of The Gabelli Asset Fund;
and Director or Trustee
of various other mutual
funds advised by Gabelli
Funds, LLC and its
affiliates.

Anthony Torna,* 72 Registered Representative with Herzog, Heine & Geduld, Inc.
Trustee
Anthonie C. Van Ekris, 65 Managing Director of Balmac International; Director or
Trustee Trustee of various other mutual funds advised by Gabelli
Funds, LLC and its affiliates.

Bruce N. Alpert, 47 Executive Vice President and Chief Operating Officer of
President and Treasurer the Adviser; President and Director of Gabelli Advisers,
Inc. and an officer of all funds advised by Gabelli Funds,
LLC and its affiliates.

James E. McKee, 35 Vice President and General Counsel of the Adviser; Vice
Secretary President and General Counsel of GAMCO Investors, Inc.
since 1993; Secretary of
all funds advised by
Gabelli Funds, LLC and
Gabelli Advisers, Inc.
since August 1995;
Branch Chief with the
U.S. Securities and
Exchange Commission in
New York, 1992 through
1993.

+ Mr. Pohl is a director of the parent company of the Adviser.
</TABLE>

No director, officer or employee of Gabelli & Company, Inc. ("Gabelli &
Company" or the "Distributor") or the Adviser or of any affiliate of Gabelli &
Company or the Adviser receives any compensation from the Fund for serving as an
officer or Trustee of the Fund. The Fund pays each of its Trustees who is not a
director, officer or employee of the Adviser or any of their affiliates, $6,000
per annum plus $500 per meeting attended in person and reimburses each Trustee
for related travel and out-of-pocket expenses. The Fund also pays each Trustee
serving as a member of the Audit, Proxy or Nominating Committees a fee of $500
per committee meeting, if held on a day other than a regularly scheduled board
meeting and the Chairman of each committee receives $1,000 per annum. For the
fiscal year ended December 31, 1998, such fees paid totaled $77,000.

Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C>

- ----------------------------------------- ---------------------------------- ---------------------------------------
(1) (2) (3)

Total Compensation
Aggregate Compensation from from Registrant and Fund Complex Paid
Registrant for to Trustees
Name of Person, Position Fiscal Year for Calendar Year*
- ----------------------------------------- ---------------------------------- ---------------------------------------

Mario J. Gabelli $ 0 $ 0 (13)
Trustee

Anthony J. Colavita $ 9,000 $ 81,500 (14)
Trustee

Felix J. Christiana $ 9,000 $ 88,100 (10)
Trustee

James P. Conn $ 8,000 $ 46,000 (5)
Trustee

Dugald A. Fletcher** $ 8,000 $ 16,000 (2)
Adviser

Karl Otto Pohl $ 8,000 $ 102,466 (15)
Trustee

Anthony R. Pustorino $ 11,000 $ 100,500 (10)
Trustee

Anthony Torna $ 8,000 $ 8,000 (1)
Trustee

Anthonie C. van Ekris $ 8,000 $ 57,500 (11)
Trustee

Salvatore J. Zizza** $ 8,000 $ 51,000 (5)
Adviser

The total compensation paid to such persons during the calendar year
ending December 31, 1998 by investment companies (including the Fund) from
which such person receives compensation that are part of the same Fund
complex as the Fund, because they have common or affiliated investment
advisers. The number in parentheses represents the number of such
investment companies.

** Dugald A. Fletcher and Salvatore J. Zizza resigned as Trustees of the Fund
on March 11, 1997 and March 19, 1997, respectively. They continue to serve
as advisors to the Trustees for which they receive compensation as
indicated above.

</TABLE>

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS

As of April 1, 1999, the following persons owned of record or
beneficially 5% or more of the Fund's
outstanding shares:

Name and Address % of Class Nature of Ownership

Charles Schwab & Co. Inc. 17.18% Record(a)
101 Montgomery Street
San Francisco, CA 94104-4122

(a) Charles Schwab disclaim beneficial ownership and no one underlying
shareholder owns beneficially more than 5% of the shares of the Fund.

As of April 1, 1999, as a group the Trustees and officers of the Fund
owned less than 1% of the outstanding shares of common stock of the Fund.

INVESTMENT ADVISORY AND OTHER SERVICES

The Adviser is a New York limited liability company which also serves
as Adviser to 12 other open-end investment companies and three closed-end
investment companies. The Adviser is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. Mr. Mario J. Gabelli may be deemed
a "controlling person" of the Adviser on the basis of his controlling interest
of the parent company of the Adviser. GAMCO Investors, Inc. ("GAMCO"), a
wholly-owned subsidiary of the Adviser, acts as investment adviser for
individuals, pension trusts, profit-sharing trusts and endowments, and had
aggregate assets in excess of $8.0 billion under its management as of December
31, 1998.

Affiliates of the Adviser may, in the ordinary course of their
business, acquire for their own account or for the accounts of their advisory
clients, significant (and possibly controlling) positions in the securities of
companies that may also be suitable for investment by the Fund. Although such
activities may limit to some extent the Fund's ability to make certain
investments, the Adviser does not believe that any such limitations will have a
material adverse effect on the ability of the Fund to achieve its investment
objectives. Securities purchased or sold pursuant to contemporaneous orders
entered on behalf of the investment company accounts of the Adviser or the
advisory accounts managed by its affiliates for their unaffiliated clients are
allocated pursuant to principles believed to be fair and not disadvantageous to
any such accounts. In addition, all such orders are accorded priority of
execution over orders entered on behalf of accounts in which the Adviser or its
affiliates have a substantial pecuniary interest. The Adviser may on occasion
give advice or take action with respect to other clients that differ from the
actions taken with respect to the Fund. The Fund may invest in the securities of
companies which are investment management clients of GAMCO. In addition,
portfolio companies or their officers or directors may be minority shareholders
of the Adviser or its affiliates.

Pursuant to an Amended and Restated Investment Advisory Contact, which
was approved by shareholders of the Fund at a meeting held on May 11, 1992 (the
"Contract"), the Adviser furnishes a continuous investment program for the
Fund's portfolio, makes the day-to-day investment decisions for the Fund,
arranges the portfolio transactions of the Fund and generally manages the Fund's
investments in accordance with the stated policies of the Fund, subject to the
general supervision of the Board of Trustees of the Fund.

Under the Contract, the Adviser also (i) provides the Fund with
services of persons competent to perform such supervisory, administrative, and
clerical functions as are necessary to provide effective administration of the
Fund, including maintaining certain books and records and overseeing the
activities of the Fund's Custodian and Transfer Agent; (ii) oversees the
performance of administrative and professional services to the Fund by others,
including the Fund's Sub-Administrator, Custodian, Transfer Agent and Dividend
Disbursing Agent, as well as accounting, auditing and other services performed
for

the Fund; (iii) provides the Fund with adequate office space and facilities;
(iv) prepares, but does not pay for, the periodic updating of the Fund's
registration statement, Prospectus and Additional Statement, including the
printing of such documents for the purpose of filings with the SEC and state
securities administrators, the Fund's tax returns, and reports to the Fund's
shareholders and the SEC; (v) calculates the net asset value of shares in the
Fund; (vi) prepares, but does not pay for, all filings under the securities or
"Blue Sky" laws of such states or countries as are designated by the
Distributor, which may be required to register or qualify, or continue the
registration or qualification, of the Fund and/or its shares under such laws;
and (vii) prepares notices and agendas for meetings of the Fund's Board of
Trustees and minutes of such meetings in all matters required by the Act to be
acted upon by the Board.

The Contract provides that absent willful misfeasance, bad faith, gross
negligence or reckless disregard of its duty, the Adviser and its employees,
officers, directors and controlling persons are not liable to the Fund or any of
its investors for any act or omission by the Adviser or for any error of
judgment or for losses sustained by the Fund. However, the Contract provides
that the Fund is not waiving any rights it may have with respect to any
violation of law which cannot be waived. The Contract also provides
indemnification for the Adviser and each of these persons for any conduct for
which they are not liable to the Fund. The Contract in no way restricts the
Adviser from acting as adviser to others. The Fund has agreed by the terms of
the Contract that the word "Gabelli" in its name is derived from the name of the
Adviser which in turn is derived from the name of Mario J. Gabelli; that such
name is the property of the Adviser for copyright and/or other purposes; and
that, therefore, such name may freely be used by the Adviser for other
investment companies, entities or products. The Fund has further agreed that in
the event that for any reason, the Adviser ceases to be its investment adviser,
the Fund will, unless the Adviser otherwise consents in writing, promptly take
all steps necessary to change its name to one which does not include "Gabelli."

By its terms, the Contract will remain in effect from year to year,
provided each such annual continuance is specifically approved by the Fund's
Board of Trustees or by a "majority" (as defined in the 1940 Act) vote of its
shareholders and, in either case, by a majority vote of the Trustees who are not
parties to the Contract or interested persons of any such party, cast in person
at a meeting called specifically for the purpose of voting on the Contract. The
Contract is terminable without penalty by the Fund on sixty days' written notice
when authorized either by majority vote of its outstanding voting shares or by a
vote of a majority of its Board of Trustees, or by the Adviser on sixty days'
written notice, and will automatically terminate in the event of its
"assignment" as defined by the 1940 Act.

For the fiscal years ended December 31, 1996, December 31, 1997 and
December 31, 1998, the Adviser received advisory fees of $5,831,475, $7,705,864,
and $14,542,759, respectively.

Sub-Administrator

First Data Investor Services Group, Inc. (the "Sub-Administrator"), a
subsidiary of First Data Corporation, serves as Sub-Administrator to
the Fund pursuant to a Sub-Administration Agreement with the Adviser
(the "Sub-Administration Agreement"). Under the Sub-Administration
Agreement, the Sub-Administrator (a) assists in supervising all aspects
of the Fund's operations except those performed by the Adviser under
its advisory agreement with the Fund; (b) supplies the Fund with office
facilities (which may be in the Sub-Administrator's own offices),
statistical and research data, data processing services, clerical,
accounting and bookkeeping services, including, but not limited to, the
calculation of the net asset value of shares in the Fund, internal
auditing and legal services, internal executive and administrative
services, and stationery and office supplies; (c) prepares and
distributes materials for all Fund Board of Trustees' Meetings
including the mailing of all Board materials and collates the same
materials into the Board books and assists in the drafting of minutes
of the Board Meetings; (d) prepares reports to Fund shareholders, tax
returns and reports to and filings with the SEC and state "Blue Sky"
authorities; (e) calculates the Fund's net asset value per share,
provides any equipment or services necessary for the purpose of pricing
shares or valuing the Fund's investment portfolio and, when requested,
calculates the amounts permitted for the payment of distribution
expenses under any distribution plan adopted by the Fund; (f) provides
compliance testing of all Fund activities against applicable
requirements of the 1940 Act and the rules thereunder, the Code, and
the Fund's investment restrictions; (g) furnishes to the Adviser such
statistical and other factual information and information regarding
economic factors and trends as the Adviser from time to time may
require; and (h) generally provides all administrative services that
may be required for the ongoing operation of the Fund in a manner
consistent with the requirements of the 1940 Act. For the services it
provides, the Advisor pays the Sub-Administrator an annual fee based on
the value of
the aggregate average daily net assets of all funds under its administration
managed by the Adviser as follows: up to $1 billion - 0.10%; $1 billion to $1.5
billion - 0.08%; $1.5 billion to $3 billion - 0.03%; over $3 billion - 0.02.

Counsel

Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue,
New York, New York 10022, serves as the
Fund's legal counsel.

Independent Accountants

PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York 10036, independent accountants, have been selected to audit and express
their opinion on the Fund's annual financial statements.

Custodian, Transfer Agent and Dividend Disbursing Agent

State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, is the Custodian for the Fund's cash and
securities. Boston Financial Data Services, Inc. ("BFDS"), an affiliate of State
Street, is located at the BFDS Building, Two Heritage Drive, Quincy,
Massachusetts 02171 and acts as the Fund's Transfer Agent and Dividend
Disbursing Agent. Neither BFDS nor State Street assists in or is responsible for
investment decisions involving assets of the Fund.

Distributor

To implement the Fund's 12b-1 Plan, the Fund has entered into a
Distribution Agreement with the Distributor, a New York corporation
which is an indirect majority owned subsidiary of Gabelli Asset
Management Inc., having principal offices located at One Corporate
Center, Rye, New York 10580-1434. The Distributor acts as agent of the
Fund for the continuous offering of its shares on a best efforts basis.

DISTRIBUTION PLAN

On February 26, 1997, the Fund adopted a Plan of Distribution (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Payments may be made by the
Fund under the Distribution Plan for the purpose of financing any activity
primarily intended to result in the sales of shares of the Fund as determined by
the Board of Trustees. Such activities typically include advertising;
compensation for sales and marketing activities of the Distributor and other
banks, broker-dealers and service providers; shareholder account servicing;
production and dissemination of prospectus and sales and marketing materials;
and capital or other expenses of associated equipment, rent, salaries, bonuses,
interest and other overhead. To the extent any activity is one which the Fund
may finance without a distribution plan, the Fund may also make payments to
finance such activity outside of the Plan and not be subject to its limitations.
Payments under the Plan are not solely dependent on distribution expenses
actually incurred by the Distributor.

Under its terms, the Plan remains in effect so long as its continuance is
specifically approved at least annually by vote of the Fund's Board of
Trustees, including a majority of the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial
interest in the operation of the Fund ("Independent Trustees"). The
Plan may not be amended to increase materially the amount to be spent
for services provided by the Distributor thereunder without shareholder
approval, and all material amendments of the Plan must also be approved
by the Trustees in the manner described above. The Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding
voting securities of the Fund (as defined in the 1940 Act). Under the
Plan, the Distributor will provide the Trustees periodic reports of
amounts expended under the Plan and the purpose for which expenditures
were made.

No interested person of the Fund or any Independent Trustee of the Fund
had a direct or indirect financial interest in the operation of the Plan or
related agreements.

During the fiscal year ended December 31, 1998, the Fund made
distribution payments to the Distributor pursuant to the Plan in the amount of
$3,508,441. Such payments funded expenditures of approximately: $360,100 for
advertising, $290,500 for printing, postage and stationary, $2,337,741 for
overhead support expenses and $520,100 for salaries of personnel of the
Distributor. The Plan compensates the Distributor regardless of its expenses.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Under the Contract, the Adviser is authorized on behalf of the Fund to employ
brokers to effect the purchase or sale of portfolio securities with the
objective of obtaining prompt, efficient and reliable execution and
clearance of such transactions at the most favorable price obtainable
("best execution") at reasonable expense. The Adviser is permitted to
(1) direct Fund portfolio brokerage to Gabelli & Company, a
broker-dealer affiliate of the Adviser; (2) pay commissions to brokers
other than Gabelli & Company which are higher than might be charged by
another qualified broker to obtain brokerage and/or research services
considered by the Adviser to be useful or desirable for its investment
management of the Fund and/or other advisory accounts under the
management of the Adviser and any investment adviser affiliated with
it; and (3) consider the sales of shares of the Fund by brokers other
than Gabelli & Company as a factor in its selection of brokers for Fund
portfolio transactions. Transactions in securities other than those for
which a securities exchange is the principal market are generally
executed through a brokerage firm and a commission is paid wherever it
appears that the broker can obtain a more favorable overall price. In
general, there may be no stated commission on principal transactions in
over-the-counter securities, but the prices of such securities may
usually include undisclosed commissions or markups. When consistent
with the objective of obtaining best execution, Fund brokerage may be
directed to
brokers or dealers which furnish brokerage or research services to the Fund or
the Adviser of the type described in Section 28(e) of the Securities Exchange
Act of 1934, as amended. The commissions charged by a broker furnishing such
brokerage or research services may be greater than that which another qualified
broker might charge if the Adviser determines, in good faith, that the amount of
such greater commission is reasonable in relation to the value of the additional
brokerage or research services provided by the executing broker, viewed in terms
of either the particular transaction or the overall responsibilities of the
Adviser or its advisory affiliates to the accounts over which they exercise
investment discretion. Since it is not feasible to do so, the Adviser need not
attempt to place a specific dollar value on such services or the portion of the
commission which reflects the amount paid for such services but must be prepared
to demonstrate a good faith basis for its determinations.

Investment research obtained by allocations of Fund brokerage is used
to augment the scope and supplement the internal research and investment
strategy capabilities of the Adviser but does not reduce the overall expenses of
the Adviser to any material extent. Such investment research may be in written
form or through direct contact with individuals and includes information on
particular companies and industries as well as market, economic or institutional
activity areas. Research services furnished by brokers through which the Fund
effects securities transactions are used by the Adviser and its advisory
affiliates in carrying out their responsibilities with respect to all of their
accounts over which they exercise investment discretion. Such investment
information may be useful only to one or more of the other accounts of the
Adviser and its advisory affiliates, and research information received for the
commissions of those particular accounts may be useful both to the Fund and one
or more of such other accounts.

Neither the Fund nor the Adviser has any agreement or legally binding
understanding with any broker regarding any specific amount of brokerage
commissions which will be paid in recognition of such services. However, in
determining the amount of portfolio commissions directed to such brokers, the
Adviser does consider the level of services provided and, based on such
determinations, has allocated brokerage commissions of $1,330,436 on portfolio
transactions in the principal amounts of $1,415,670,000 during 1998. The average
commission on these transactions was $0.0500 per share.

The Adviser may also place orders for the purchase or sale of portfolio
securities with Gabelli & Company, a broker-dealer member of the National
Association of Securities Dealers which is an affiliate of the Adviser, when it
appears that, as an introducing broker or otherwise, Gabelli & Company can
obtain a price and execution which is at least as favorable as that of other
qualified brokers. As required by Rule 17e-1 under the 1940 Act, the Board of
Trustees of the Fund has adopted "Procedures" which provide that commissions
paid to Gabelli & Company on stock exchange transactions may not exceed that
which would have been charged by another qualified broker or member firm able to
effect the same or a comparable transaction at an equally favorable price and
contains a schedule setting forth maximum commission charges for such
transactions designed to reflect that standard. Rule 17e-1 and the Procedures
contain requirements that the Board, including its "Independent Trustees,"
conduct periodic compliance reviews of such brokerage allocations and review
such schedule at least annually for its continuing compliance with the foregoing
standard. The Adviser and Gabelli are also required to furnish reports and
maintain records in connection with such reviews.

To obtain the best execution of portfolio transactions on the New York
Stock Exchange ("NYSE"), Gabelli & Company controls and monitors the execution
of such transactions on the floor of the NYSE through independent "floor
brokers" or through the Designated Order Turnaround System of the NYSE. Such
transactions are then cleared, confirmed to the Fund for the account of Gabelli
& Company, and settled directly with the Custodian of the Fund by a clearing
house member firm which remits the commission less its clearance charges to
Gabelli & Company. Pursuant to an agreement with the Fund, Gabelli & Company
pays all charges incurred for such services and reports at least quarterly to
the Board the amount of such expenses and commissions. The net compensation
realized by Gabelli & Company for its brokerage services is subject to the
approval of the Board and the Independent Trustees of the Fund who must approve
the continuance of the arrangement at least annually. Commissions paid the Fund
pursuant to the arrangement may not exceed the commission level specified by the
Procedures described above. Gabelli & Company may also effect Fund portfolio
transactions in the same manner and pursuant to the same arrangements on other
national securities exchanges which adopt direct order access rules similar to
those of the NYSE.

The following table sets forth certain information regarding the Fund's
payment of brokerage commissions, including commissions paid to Gabelli &
Company.
<TABLE>
<CAPTION>
<S> <C> <C>

Fiscal Year Ended
December 31, Commissions
Paid
Total Brokerage Commissions................................................. 1996 $ 847,967
............................................................................ 1997 $ 894,602
............................................................................ 1998 $1,330,436

Commissions paid to Gabelli & Company....................................... 1996 $ 22,360
............................................................................ 1997 $ 3,750
............................................................................ 1998 $ 0

% of Total Brokerage Commissions paid to Gabelli & Company.................. 1998 0%

% of Total Transactions involving Commissions paid to
Gabelli & Company........................................................... 1998 0%
</TABLE>

RETIREMENT PLANS

Under the Internal Revenue Code of 1986, as amended (the "Code"), individuals
may make wholly or partly tax deductible IRA contributions of up to
$2,000 annually, depending on whether they are active participants in
an employer-sponsored retirement plan and on their income level.
However, dividends and distributions held in the account are not taxed
until withdrawn in accordance with the provisions of the Code. An
individual with a non-working spouse may establish a separate IRA for
the spouse under the same conditions and contribute a combined maximum
of $4,000 annually to both IRAs provided that no more than $2,000 may
be contributed to the IRA of either spouse. Other provisions permit
additional IRA contributions which are not tax deductible but the tax
on reinvested dividends and distributions is deferred while held in the
account. There are also rules on the amount of tax deductible
contributions which may be made to other retirement plans.

Investors may be eligible to make contributions to a new type of
individual retirement account (a "Roth IRA"). An investor can open a Roth IRA if
he or she meets certain income limits specified in the Code. Any contributions
made by an investor to a Roth IRA are nondeductible for U.S. Federal income tax
purposes. Distributions from a Roth IRA are not included in the investor's gross
income and are not subject to a 10% penalty for early withdrawal if the
distributions are made after the end of the five-year period beginning with the
first tax year in which the investor made a contribution to the Roth IRA and the
distributions meet other criteria set forth in the Code. The maximum annual
aggregate contribution that can be made to IRAs and Roth IRAs is $2,000. In
addition, certain low and middle-income investors may open an education
individual retirement account (an "Education IRA"). Eligible individuals are
permitted to contribute up to $500 per year per beneficiary under 18 years old
to an Education IRA. The minimum initial investment for an Education IRA through
the Fund is $250. A distribution from an Education IRA is generally excludable
from gross income to the extent that such distribution does not exceed qualified
higher education expenses incurred by the beneficiary during the year in which
the distribution is made.

Self-employed investors may purchase shares of the Fund through tax-deductible
contributions to existing retirement plans for self-employed persons,
known as Keogh or H.R. 10 plans. However, the Fund does not currently
act as sponsor to such plans. Fund shares may be a suitable investment
for other types of qualified pension or profit-sharing plans which are
employer sponsored, including deferred compensation or salary reduction
plans known as "401(k) Plans" which give participants the right to
defer portions of their compensation for investment on a tax-deferred
basis until distributions are made from the plans. The minimum initial
investment for an individual under such plans is $1,000 and there is no
minimum for additional investments.

Investorsshould be aware that they may be subject to penalties or additional
tax on contributions to or withdrawals from IRAs or other retirement
plans which are not permitted by the applicable provisions of the Code
and prior to a withdrawal, shareholders may be required to certify
their age and awareness of such restrictions in writing. Persons
desiring information concerning investments through IRAs or other
retirement plans should write or telephone the Distributor.

REDEMPTION OF SHARES

Payment of the redemption price for shares redeemed may be made either
in cash or in portfolio securities (selected in the discretion of the Board of
Trustees of the Fund and taken at their value used in determining the Fund's net
asset value per share as described under "Computation of Net Asset Value"), or
partly in cash and partly in portfolio securities. However, payments will be
made wholly in cash unless the Board of Trustees believes that economic
conditions exist which would make such a practice detrimental to the best
interests of the Fund. If payment for shares redeemed is made wholly or partly
in portfolio securities, brokerage costs may be incurred by the investor in
converting the securities to cash. The Fund will not distribute in-kind
portfolio securities that are not readily marketable. The Fund has filed a
formal election with the SEC pursuant to which the Fund will only effect a
redemption in portfolio securities where the particular shareholder of record is
redeeming more than $250,000 or 1.00% of the Fund's total net assets, whichever
is less, during any 90 day period. In the opinion of the Fund's management,
however, the amount of a redemption request would have to be significantly
greater than $250,000 before a redemption wholly or partly in portfolio
securities would be made.

Cancellation of purchase orders for Fund shares (as, for example, when
checks submitted to purchase shares are returned unpaid) causes a loss to be
incurred when the net asset value of the Fund shares on the date of cancellation
is less than on the original date of purchase. The investor is responsible for
such loss, and the Fund may reimburse itself or the Distributor for such loss by
automatically redeeming shares from any account registered at any time in that
shareholder's name, or by seeking other redress. In the event shares held in the
account of such shareholder are not sufficient to cover such loss, the
Distributor will promptly reimburse the Fund for the amount of such unrecovered
loss.

COMPUTATION OF NET ASSET VALUE

Net asset value is calculated separately for each class of the Fund.
The net asset value of Class B and Class C shares of the Fund will generally be
lower than the net asset value of Class A or Class AAA shares as a result of the
large distribution-related fee to which Class B and Class C shares are subject.
It is expected, however, that the net asset value per share of each class will
tend to converge immediately after the recording of dividends, if any, which
will differ by approximately the amount of the distribution and/or service fee
expense accrual differential among the classes.

For purposes of determining the Fund's net asset value per share,
readily marketable portfolio securities listed on the NYSE are valued, except as
indicated below, at the last sale price reflected at the close of the regular
trading session of the NYSE on the business day as of which such value is being
determined. If there has been no sale on such day, the securities are valued at
the average of the closing bid and asked prices on such day. If no asked prices
are quoted on such day, then the security is valued at the closing bid price on
such day. If no bid or asked prices are quoted on such day, then the security is
valued by such method as the Board of Trustees shall determine in good faith to
reflect its fair market value. Readily marketable securities not listed on the
NYSE but listed on other national securities exchanges or admitted to trading on
the National Association of Securities Dealers Automated Quotations, Inc.
("NASDAQ") National List are valued in like manner.

Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Adviser to
be over-the-counter but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Board of
Trustees deems appropriate to reflect their fair value. If no asked prices are
quoted on such day, then the security is valued at the closing bid price on such
day. If no bid or asked prices are quoted on such day, then the security is
valued by such method as the Board of Trustees shall determine in good faith to
reflect its fair market value.

Portfolio securities traded on more than one national securities
exchange or market are valued according to the broadest and most representative
market as determined by the Adviser. Securities traded primarily on foreign
exchanges are valued at the closing price on such foreign exchange immediately
prior to the close of the NYSE.

United States Government obligations and other short-term debt
instruments having sixty days or less remaining until maturity are stated at
amortized cost. Short-term debt instruments having a greater remaining maturity
will be valued at the highest bid price obtained from a dealer maintaining an
active market in that security or on the basis of prices obtained from a pricing
service approved as reliable by the Board of Trustees. All other investment
assets, including restricted and not readily marketable securities, are valued
under procedures established by and under the general supervision and
responsibility of the Fund's Board of Trustees designed to reflect in good faith
the fair value of such securities.

DIVIDENDS, DISTRIBUTIONS AND TAXES

General

Dividends and distributions will be automatically reinvested for each
shareholder's account at net asset value in additional shares of the Fund,
unless the shareholder instructs the Fund to pay all dividends and distributions
in cash and to credit the amounts to his or her brokerage account or to pay the
amounts by check. Fractional shares may be paid in cash. Dividends from net
investment income, if any, and distributions of any net realized capital gains
earned by the Fund will be paid annually.

Under the Code, amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To avoid the tax, the Fund must distribute during each calendar
year, at least the sum of (1) 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (2) 98% of its
capital gains in excess of its capital losses for the twelve-month period ending
on October 31 of the calendar year or, upon election, during the calendar year
and (3) all ordinary income and net capital gains for previous years that were
not previously distributed. A distribution will be treated as paid during the
calendar year if it is paid during the calendar year or declared by the Fund in
October, November or December of the year, payable to shareholders of record as
of a specified date in such a month and actually paid by the Fund during January
of the following year. Any such distributions paid during January of the
following year will be deemed to be paid and received on December 31 of the year
the distributions are declared.

Gains or losses on the sales of securities by the Fund will be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be short-term capital gains or losses.

The Fund has qualified and intends to continue to qualify as a
"Regulated Investment Company" under Subchapter M of the Code. If so qualified,
the Fund will not be subject to federal income tax on its net investment income
and net short-term and long-term capital gains, if any, realized during any
taxable year in which it distributes such income and capital gains to its
shareholders. Although the Fund is non-diversified for purposes of the 1940 Act,
the Fund nevertheless is subject to diversification requirements under
Subchapter M. In general, the Code requires the Fund to diversify its holdings
so that, at the close of each quarter of its taxable year, (1) at least 50% of
the value of its total assets consist of cash, cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities limited generally with respect to any one issuer to not more than 5%
of the total assets of the Fund and not more than 10% of the outstanding voting
securities of each issuer, and (2) not more than 25% of the value of its assets
is invested in the securities of any issuer (other than U.S. Government
securities or the securities of other regulated investment companies).

If the Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends shall be
included in the Fund's gross income as of the later of (a) the date such stock
became ex-dividend with respect to such dividends (i.e., the date on which a
buyer of the stock would not be entitled to receive the declared, but unpaid,
dividends) or (b) the date the Fund acquired such stock. Accordingly, in order
to satisfy its income distribution requirements, the Fund may be required to pay
dividends based on anticipated earnings, and shareholders may receive dividends
in an earlier year than would otherwise be the case.

The Fund's short sales against the box and transactions in futures
contracts and options will be subject to special provisions of the Code that,
among other things, may affect the character of gains and losses realized by the
Fund (i.e., may affect whether gains or losses are ordinary or capital), may
accelerate recognition of income to the Fund and may defer Fund losses. These
rules could therefore affect the character, amount and timing of distributions
to shareholders. These provisions also (a) will require the Fund to
mark-to-market certain types of the positions in its portfolio (i.e., treat them
as if they were closed out), and (b) may cause the Fund to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the 90% and 98% distribution requirements for avoiding income and excise
taxes described above. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it engages in short sales against the box or acquires any futures
contract, option or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment
company.

Foreign Withholding Taxes

Income received by the Fund from investments in foreign securities may
be subject to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of the Fund's assets to be invested in various
countries is not known. Because the Fund will not have more than 50% of its
total assets invested in securities of foreign governments or corporations, the
Fund will not be entitled to "pass-through" to shareholders the amount of
foreign taxes paid by the Fund.

Passive Foreign Investment Companies

If the Fund purchases shares in certain foreign investment entities,
called "passive foreign investment companies" (a "PFIC"), it may be subject to
United States federal income tax on a portion of any "excess distribution" or
gain from the disposition of such shares even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such distributions or gains. If the Fund were to invest in a PFIC
and elected to treat the PFIC as a "qualified electing fund" under the Code, in
lieu of the foregoing requirements, the Fund might be required to include in
income each year a portion of the ordinary earnings and net capital gains of the
qualified electing fund, even if not distributed to the Fund, and such amounts
would be subject to the 90% and excise tax distribution requirements described
above. In order to make this election, the Fund would be required to obtain
certain annual information from the passive foreign investment companies in
which it invests, which may be difficult or not possible to obtain.

Alternatively, the Fund may make a mark-to-market election that will
result in the Fund being treated as if it had sold and repurchased all of the
PFIC stock at the end of each year. In this case, the Fund would report gains as
ordinary income and would deduct losses as ordinary losses to the extent of
previously recognized gains. The election, once made, would be effective for all
subsequent taxable years of the Fund, unless revoked with the consent of the
IRS. By making the election, the Fund could potentially ameliorate the adverse
tax consequences with respect to its ownership of shares in a PFIC, but in any
particular year may be required to recognize income in excess of the
distributions it receives from PFICs and its proceeds from dispositions of PFIC
company stock. The Fund may have to distribute this "phantom" income and gain to
satisfy its distribution requirement and to avoid imposition of the 4% excise
tax. The Fund will make the appropriate tax elections, if possible, and take any
additional steps that are necessary to mitigate the effect of these rules.

Distributions

Distributions of investment company taxable income (which includes
interest and dividends and the excess of net short-term capital gains over
long-term capital losses, but not the excess of net long-term capital gains over
net short-term capital losses) are taxable to a U.S. shareholder as ordinary
income, whether paid in cash or shares. Dividends paid by the Fund will qualify
for the 70% deduction generally available for dividends received by corporations
to the extent the Fund's income consists of qualified dividends received from
U.S. corporations. Distributions of net capital gains (which consists of the
excess of net long-term capital gains over net short-term capital losses), if
any, are taxable as long-term capital gains, whether paid in cash or in shares,
regardless of how long the shareholder has held the Fund's shares, and are not
eligible for the dividends received deduction. Shareholders receiving
distributions in the form of newly issued shares will have a basis in such
shares of the Fund equal to the fair market value of such shares on the
distribution date.

The price of shares purchased just prior to a distribution by the Fund
may reflect the amount of the forthcoming distribution. Those purchasing at that
time will receive a distribution that represents a return of investment, but
that will nevertheless be taxable to them.

Sales of Shares

Upon a sale or exchange of his or her shares, a shareholder will
realize a taxable gain or loss depending upon his or her basis in the shares.
The gain or loss will be treated as a long-term capital gain or loss if the
shares have been held for more than one year. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of. In such case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on
the sale of Fund shares held by the shareholder for six months or less will be
treated for tax purposes as a long-term capital loss to the extent of any
distributions of long-term capital gains received by the shareholder with
respect to such shares. However, capital losses are deductible only against
capital gains plus, for individuals, up to $3,000 of ordinary income.

Backup Withholding

The Fund may be required to withhold federal income tax at the rate of
31% with respect to (1) taxable dividends and distributions and (2) proceeds of
any redemptions of Fund shares if a shareholder fails to provide the Fund with
his or her correct taxpayer identification number or to make required
certifications, or who has been notified by the Internal Revenue Service that he
or she is subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's federal income
tax liability.

Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state, local or foreign taxes.

INVESTMENT PERFORMANCE INFORMATION

The investment performance of the Fund quoted in advertising or sales
literature for the sale of its shares will be calculated on a total return basis
which assumes the reinvestment of all dividends and distributions. Total return
is computed by comparing the value of an assumed investment in Fund shares at
the offering price in effect at the beginning of the period shown with the
redemption price of the same investment at the end of the period (including
share(s) accrued thereon by the reinvestment of dividends and distributions).
Performance quotations given as a percentage will be derived by dividing the
amount of such total return by the amount of the assumed investment. When the
period shown is greater than one year, the result is referred to as cumulative
performance or cumulative total return.

Performance quotations will ordinarily be accompanied by the average
annual total return of the Fund for the past ten years as well as the total
return for the past five years and for the twelve months through the end of the
most recent calendar quarter. Quotations of average annual total return for
periods greater than one year will be the compounded annual rate of return which
equates to the result of the previously described calculation of cumulative
total return. Computed in the manner described, the total return of the Fund's
Class AAA shares has been:

Period/Year Ended Total Return

12/31/88 39.2%
12/31/89 40.1%
12/31/90 (2.0)%
12/31/91 34.3%
12/31/92 4.5%
12/31/93 11.3%
12/31/94 (3.4)%
12/31/95 32.7%
12/31/96 19.4%
12/31/97 42.6%
12/31/98 29.8%

The Fund's average annual total return figures for Class AAA shares are
as follows:

29.8% for the one year fiscal period from January 1, 1997 through
December 31, 1998

23.2% for the five year period from January 1, 1993 through December
31, 1998

19.8% for the ten year period from January 1, 1988 through December 31,
1998

19.4% for the period from the Fund's inception on April 10, 1987
through December 31, 1998

The formula for computing the foregoing annual rate of total return is:

P(1+T)n = ERV

P = Investment at the beginning of the period. T = Compounded annual rate of
total return.
n = Number of years.
ERV = Redemption value of the same investment at the end of the
period assuming the reinvestment of all dividends and
distributions.

Investors are cautioned that past results are not necessarily representative of
future results; that investment returns and principal value will fluctuate; that
investment performance is primarily a function of portfolio management (which is
affected by the economic and market environment as well as the volatility of
portfolio investments) and operating expenses; and that performance information,
such as that described above, may not provide a valid basis of comparison with
other investments and investment companies using a different method of computing
performance data.

DESCRIPTION OF THE FUND'S SHARES

The Fund may issue an unlimited number of full and fractional shares of
beneficial interest (par value $.01 per share). The Fund's shares have no
preemptive or conversion rights.

Voting Rights

Shareholders are entitled to one vote for each share held (and
fractional votes for fractional shares) and may vote on the election of Trustees
and on other matters submitted to meetings of shareholders. It is not
contemplated that regular annual meetings of shareholders will be held. The
Declaration of Trust provides that the Fund's shareholders have the right, upon
the declaration in writing or vote of more than two thirds of its outstanding
shares, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote upon the written request of the shareholders of 331/3% of its shares (10%
in the case of removal of a Trustee). In addition, ten shareholders holding the
lesser of $25,000 worth or one percent of Fund shares may advise the Trustees in
writing that they wish to communicate with other shareholders for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then, if requested
by the applicants, mail at the applicants' expense, the applicants'
communication to all other shareholders. The Declaration of Trust provides that
the Fund's shareholders have the right, upon the declaration in writing or vote
of more than two thirds of its outstanding shares, to remove a Trustee. Except
for a change in the name of the Trust, no amendment may be made to the
Declaration of Trust without the affirmative vote of the holders of more than
50% of its outstanding shares. Shareholders have no preemptive or conversion
rights. The Fund may be terminated upon the sale of its assets to another
issuer, if such sale is approved by the vote of the holders of more than 50% of
its outstanding shares.
If not so terminated, the Fund intends to continue indefinitely.

Liabilities, Separate Series of Shares

The Fund's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of this
office. Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for a trust's obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself is
unable to meet its obligations since the Declaration of Trust provides for
indemnification and reimbursement of expenses out of the property of the Fund to
any shareholder held personally liable for any obligation of the Fund and also
provides that the Fund shall, if requested, assume the defense of any claim made
against any shareholder for any act or obligation of the Fund and satisfy any
judgment recovered thereon.

The Fund reserves the right to create and issue a number of series of
shares, in which case the shares of each series would participate equally in the
earnings, dividends and assets of the particular series and would vote
separately to approve management agreements or changes in investment policies,
but shares of all series would vote together in the election or selection of
Trustees, principal underwriters and accountants and on any proposed material
amendment to the Fund's Declaration of Trust. Upon liquidation of the Fund,
shareholders of each series would be entitled to share pro rata in the net
assets of their respective series available for distribution to shareholders.

FINANCIAL STATEMENTS

THE GABELLI GROWTH FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS--99.6%
BROADCASTING--4.7%
950,600 CBS Corp.+..................... $ 27,571,836 $ 31,132,150
841,600 Clear Channel Communications 37,722,180 45,867,200
Inc.+.........................
365,000 Infinity Broadcasting Corp.+... 7,681,075 9,991,875
-------------- --------------
72,975,091 86,991,225
-------------- --------------
BUSINESS SERVICES--4.8%
330,000 Automatic Data Processing 16,294,823 26,461,875
Inc. .........................
60,000 Ceridian Corp.................. 3,654,187 4,188,750
489,050 Interpublic Group of Companies 21,892,432 39,001,737
Inc. .........................
292,000 Omnicom Group Inc. ............ 15,272,092 16,936,000
95,000 Young & Rubicam Inc. .......... 2,712,500 3,075,625
-------------- --------------
59,826,034 89,663,987
-------------- --------------
CABLE--2.6%
1,020,000 MediaOne Group Inc.+........... 39,028,859 47,940,000
-------------- --------------
COMMUNICATIONS EQUIPMENT--7.3%
680,750 Cisco Systems Inc.+............ 31,213,350 63,182,107
470,000 Lucent Technologies Inc. ...... 37,533,315 51,700,000
305,000 Tellabs Inc.+.................. 17,165,220 20,911,563
-------------- --------------
85,911,885 135,793,670
-------------- --------------
COMPUTER HARDWARE--7.5%
320,000 Dell Computer Corp.+........... 9,336,719 23,420,000
320,000 Hewlett-Packard Co. ........... 22,393,890 21,860,000
240,000 International Business Machines 38,612,310 44,340,000
Corp. ........................
595,000 Sun Microsystems Inc.+......... 22,143,722 50,946,875
-------------- --------------
92,486,641 140,566,875
-------------- --------------
COMPUTER SOFTWARE AND SERVICES--10.3%
335,000 BMC Software Inc.+............. 10,872,161 14,928,437
670,600 Computer Sciences Corp.+....... 28,110,416 43,211,787
560,000 EMC Corp.+..................... 28,179,147 47,600,000
447,000 Microsoft Corp.+............... 40,741,130 61,993,313
612,000 SunGard Data Systems Inc.+..... 22,149,129 24,288,750
-------------- --------------
130,051,983 192,022,287
-------------- --------------
CONSUMER PRODUCTS--2.7%
429,800 Gillette Co.................... 17,752,867 20,764,712
155,000 Procter & Gamble Co. .......... 11,668,444 14,153,438
471,000 Ralston Purina Group........... 11,927,370 15,248,625
-------------- --------------
41,348,681 50,166,775
-------------- --------------
DIVERSIFIED INDUSTRIAL--4.9%
285,000 General Electric Co. .......... 24,961,368 29,087,812
353,000 Honeywell Inc.................. 23,745,632 26,585,312
701,200 Sundstrand Corp................ 36,249,882 36,374,750
-------------- --------------
84,956,882 92,047,874
-------------- --------------
ELECTRONICS--3.6%
335,000 Intel Corp..................... 31,964,246 39,718,437
330,000 Texas Instruments Inc. ........ 27,071,373 28,235,625
-------------- --------------
59,035,619 67,954,062
-------------- --------------
ENTERTAINMENT--3.7%
503,000 Disney (Walt) Co. ............. 11,402,015 15,090,000
860,000 Time Warner Inc................ 36,903,431 53,373,750
10,000 Viacom Inc., Cl. B+............ 548,200 740,000
-------------- --------------
48,853,646 69,203,750
-------------- --------------
FINANCIAL SERVICES--8.0%
185,500 American International Group 6,114,574 17,923,937
Inc. .........................
944,500 Marsh & McLennan Companies 51,051,005 55,194,219
Inc. .........................
245,000 Merrill Lynch & Co. ........... 14,982,106 16,353,750
750,750 Schwab (Charles) Corp. ........ 15,458,751 42,182,766
533,000 T. Rowe Price Associates 15,596,159 18,255,250
Inc. .........................
-------------- --------------
103,202,595 149,909,922
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
FINANCIAL SERVICES: BANKS--10.4%
740,000 Bank of New York Inc. ......... $ 21,770,862 $ 29,785,000
813,000 Mellon Bank Corp. ............. 32,231,642 55,893,750
770,000 Northern Trust Corp. .......... 43,379,525 67,230,625
579,400 State Street Corp. ............ 21,527,917 40,304,513
-------------- --------------
118,909,946 193,213,888
-------------- --------------
FOOD AND BEVERAGE--2.3%
200,000 Coca-Cola Co................... 8,520,813 13,375,000
337,000 PepsiCo Inc.................... 8,852,736 13,795,938
553,000 Sysco Corp..................... 9,218,165 15,172,938
-------------- --------------
26,591,714 42,343,876
-------------- --------------
HEALTH CARE--8.9%
272,000 Abbott Laboratories............ 6,344,738 13,328,000
310,000 Baxter International Inc. ..... 16,732,395 19,936,875
304,000 Becton Dickinson & Co. ........ 11,091,671 12,977,000
252,000 Bristol-Myers Squibb Co. ...... 27,726,373 33,720,750
147,000 Johnson & Johnson.............. 8,634,194 12,329,625
160,000 Lilly (Eli) & Co. ............. 10,721,594 14,220,000
168,000 Merck & Co. Inc................ 17,517,119 24,811,500
123,000 Pfizer Inc..................... 8,504,608 15,428,813
249,000 Warner-Lambert Co. ............ 11,365,379 18,721,688
-------------- --------------
118,638,071 165,474,251
-------------- --------------
PUBLISHING--5.7%
600,000 Gannett Co. Inc. .............. 30,620,165 39,712,500
217,000 McGraw-Hill Companies Inc. .... 11,715,279 22,106,875
768,000 New York Times Co., Cl. A...... 22,012,718 26,640,000
255,000 Tribune Co..................... 10,548,414 16,830,000
-------------- --------------
74,896,576 105,289,375
-------------- --------------
RETAIL--12.2%
1,517,718 Home Depot Inc. ............... 24,493,089 92,865,370
904,000 Lowe's Companies Inc. ......... 31,411,002 46,273,500
325,000 Rite Aid Corp.................. 13,710,563 16,107,813
517,100 Tiffany & Co................... 23,048,041 26,824,563
440,000 Wal-Mart Stores Inc. .......... 27,264,250 35,832,500
176,000 Walgreen Co.................... 1,709,613 10,307,000
-------------- --------------
121,636,558 228,210,746
-------------- --------------
1,278,350,781 1,856,792,563
TOTAL COMMON STOCKS............
-------------- --------------

<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<C> <S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--0.4%
$8,036,000 U.S. Treasury Bills, 4.09% to
4.54%++, due 01/07/99 to
03/18/99...................... 7,980,107 7,982,413
-------------- --------------

TOTAL INVESTMENTS--100.0%...... $1,286,330,888* 1,864,774,976
==============

OTHER ASSETS AND LIABILITIES (NET)--(0.0)%..... (218,882)
--------------

NET ASSETS--100.0%
(52,671,581 shares outstanding)............... $1,864,556,094
==============

NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE..................................... $35.40
======
</TABLE>

------------------------

<TABLE>
<C> <S> <C>
* For Federal tax purposes:
Aggregate cost............................ $1,287,370,751
==============
Gross unrealized appreciation............. $ 577,938,115
Gross unrealized depreciation............. (533,890)
--------------
Net unrealized appreciation............... $ 577,404,225
==============
</TABLE>

- ---------------
+ Non-income producing security.
++ Represents annualized yield at date of purchase.

See accompanying notes to financial statements.
10
<PAGE>

THE GABELLI GROWTH FUND

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- ----------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost
$1,286,330,888)........................ $1,864,774,976
Cash..................................... 562
Dividends receivable..................... 1,009,947
Receivable for investments sold.......... 181,346
Receivable for capital shares sold....... 4,775,404
--------------
TOTAL ASSETS........................... 1,870,742,235
--------------
LIABILITIES:
Payable for Fund shares redeemed......... 3,469,624
Payable for investment advisory fees..... 1,509,796
Payable for distribution fees............ 377,449
Payable for custodian fees............... 47,000
Payable to Trustees...................... 2,056
Other accrued expenses................... 780,216
--------------
TOTAL LIABILITIES...................... 6,186,141
--------------
NET ASSETS applicable to 52,671,581
shares outstanding................... $1,864,556,094
==============
NET ASSETS CONSIST OF:
Shares of beneficial interest, at par
value.................................. $ 526,716
Additional paid-in capital............... 1,286,184,261
Distributions in excess of net realized
gain on investments and foreign
currency transactions.................. (598,971)
Net unrealized appreciation on
investments............................ 578,444,088
--------------
TOTAL NET ASSETS....................... $1,864,556,094
==============
NET ASSET VALUE, offering and redemption price per
share ($1,864,556,094 / 52,671,581
shares outstanding; unlimited number
of shares authorized of $0.01 par
value)............................... $35.40
======
</TABLE>

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- ----------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................. $ 12,908,009
Interest.................................. 2,797,401
------------
TOTAL INVESTMENT INCOME................. 15,705,410
------------
EXPENSES:
Investment advisory fees.................. 14,542,759
Distribution fees......................... 3,508,441
Shareholder services fees................. 1,096,456
Custodian fees............................ 235,178
Trustees' fees............................ 89,000
Legal and audit fees...................... 60,817
Miscellaneous expenses.................... 991,136
------------
TOTAL EXPENSES.......................... 20,523,787
------------
NET INVESTMENT LOSS..................... (4,818,377)
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain on investments and
foreign currency transactions........... 87,865,238
Net change in unrealized appreciation on
investments............................. 299,383,776
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS............................ 387,249,014
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................ $382,430,637
============
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment loss..................................... $ (4,818,377) $ (1,809,135)
Net realized gain on investments and foreign currency
transactions........................................... 87,865,238 161,959,991
Net change in unrealized appreciation on investments.... 299,383,776 106,084,148
-------------- -------------
Net increase in net assets resulting from
operations.......................................... 382,430,637 266,235,004
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income................................... -- (47,113)
In excess of net investment income...................... -- (8,321)
Net realized gain on investments........................ (87,865,238) (160,337,412)
In excess of net realized gain on investments........... (202,354) (97,442)
-------------- -------------
Total distributions to shareholders................. (88,067,592) (160,490,288)
-------------- -------------
SHARE TRANSACTIONS:
Net increase in net assets from shares of beneficial
interest transactions.................................. 626,207,999 228,835,326
-------------- -------------
Net increase in net assets.......................... 920,571,044 334,580,042
NET ASSETS:
Beginning of period..................................... 943,985,050 609,405,008
-------------- -------------
End of period........................................... $1,864,556,094 $ 943,985,050
============== =============
</TABLE>

See accompanying notes to financial statements.

11
<PAGE>

THE GABELLI GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION. The Gabelli Growth Fund (the "Fund") was organized on October
24, 1986 as a Massachusetts business trust. The Fund is a 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 capital
appreciation. The Fund commenced investment operations on April 10, 1987.

2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.

SECURITY VALUATION. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange as of the close of business on
the day the securities are being valued (if there were no sales that day, the
security is valued at the average of the closing bid and asked prices or, if
there were no asked prices quoted on that day, then the security is valued at
the closing bid price on that day). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, Inc.
(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 Trustees. Short term debt securities with remaining maturities of 60 days or
less are valued at amortized cost, unless the Trustees 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 Trustees. Short term debt
instruments having a greater maturity are valued at the highest bid price
obtained from a dealer maintaining an active market in those securities.

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 Trustees. 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-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.

12
<PAGE>
THE GABELLI GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

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.

Permanent differences incurred during the year ended December 31, 1998 resulting
from different book and tax accounting policies for currency gains and losses
and certain distributions received by the Fund are reclassified between net
investment income (loss) and net realized gain (loss) on investments at year
end. For the year ended December 31, 1998, reclassifications were made to
increase undistributed net investment loss for $4,818,377 and decrease
distributions in excess of net realized gain on investments and foreign currency
transactions for $3,085 with an offsetting adjustment to additional paid-in
capital.

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 Trustees of the Fund who are its affiliates.

4. DISTRIBUTION PLAN. The Fund's Board of Trustees has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For the year ended
December 31, 1998, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an indirect wholly-owned subsidiary of the Adviser, of
$3,508,441, 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, 1998, other than short term securities, aggregated $1,098,283,197
and $563,841,299, respectively.

6. 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, 1998.

13
<PAGE>
THE GABELLI GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

7. SHARES OF BENEFICIAL INTEREST. Transactions in shares of beneficial interest
were as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold................................................ 31,588,783 $ 992,367,041 29,696,140 $ 857,263,991
Shares issued upon reinvestment of dividends............... 2,299,838 80,836,284 5,734,075 153,468,414
Shares redeemed............................................ (14,188,364) (446,995,326) (27,348,725) (781,897,079)
----------- ------------- ----------- -------------
Net increase........................................... 19,700,257 $ 626,207,999 8,081,490 $ 228,835,326
=========== ============= =========== =============
</TABLE>

8. SUBSEQUENT EVENT. On February 9, 1999, the Adviser reorganized its
operations and corporate structure by transferring a portion of its assets and
liabilities to a successor adviser, Gabelli Funds, LLC, which is wholly owned by
Gabelli Asset Management Inc., a newly formed publicly traded company that is
80% owned by the former Adviser. Counsel to the former Adviser has concluded
that the ownership change does not constitute an assignment as defined by the
Investment Company Act of 1940, as amended.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

Selected data for a share of beneficial interest outstanding throughout each
period.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year....................... $ 28.63 $ 24.14 $ 22.16 $ 19.68 $ 23.26
---------- -------- -------- -------- --------
Net investment income/(loss)............................. (0.07) (0.06) 0.03 0.05 0.07
Net realized and unrealized gain/(loss) on investments... 8.58 10.34 4.27 6.39 (0.86)
---------- -------- -------- -------- --------
Total from investment operations......................... 8.51 10.28 4.30 6.44 (0.79)
---------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income.................................... -- (0.00)(a) (0.02) (0.05) (0.08)
In excess of net investment income....................... -- (0.00)(a) -- -- (0.01)
Net realized gain on investments......................... (1.74) (5.79) (2.30) (3.91) (2.39)
In excess of net realized gains.......................... (0.00)(a) (0.00)(a) -- -- (0.31)
---------- -------- -------- -------- --------
Total distributions...................................... (1.74) (5.79) (2.32) (3.96) (2.79)
---------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD........................... $ 35.40 $ 28.63 $ 24.14 $ 22.16 $ 19.68
========== ======== ======== ======== ========
Total return+............................................ 29.8% 42.6% 19.4% 32.7% (3.4)%
========== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)..................... $1,864,556 $943,985 $609,405 $533,041 $482,471
Ratio of net investment income/(loss) to average net
assets................................................. (0.33)% (0.23)% 0.12% 0.22% 0.31%
Ratio of operating expenses to average net assets........ 1.41% 1.43% 1.43% 1.44% 1.36%
Portfolio turnover rate.................................. 40% 83% 88% 140% 40%
</TABLE>

- ---------------

See accompanying notes to financial statements.

14
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
THE GABELLI GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Gabelli Growth Fund (the
"Fund") at December 31, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

1177 Avenue of the Americas
New York, New York
February 25, 1999

1998 TAX NOTICE TO SHAREHOLDERS (UNAUDITED)

For the year ended December 31, 1998, the Fund paid to shareholders, on December
28, 1998, long term capital gains totaling $1.745 per share. The Fund did not
make an ordinary income distribution (comprised of net investment income and
short term capital gains) in 1998.

APPENDIX A

DESCRIPTION OF CORPORATE DEBT RATINGS

MOODY'S INVESTORS SERVICE, INC.

Aaa: Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest
and principal payments or of maintenance of other terms of the
contract over any long period of time may
be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present
elements of danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in high degree. Such issues are
often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Unrated: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be
for reasons unrelated to the quality of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy. 3. There is a lack of essential data pertaining to the issue
or issuer. 4. The issue was privately placed, in which case the rating is not
published in Moody's Investors Services,
Inc.'s publications.

Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.

Note: Those bonds in the Aa A, Baa Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the
symbols Aa-1, A-1, Baa-1 and B-1.

STANDARD & POOR'S RATINGS SERVICE

AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's Ratings Service, a division of
McGraw-Hill Companies, Inc. ("S&P"). Capacity to pay interest an
repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the
higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in the highest rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of this
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, they are outweighed by large
uncertainties of major risk exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which no interest is
being paid.
D: Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus(+) Or Minus(-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show
relative standing within the major rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.