THE GABELLI GROWTH FUND
THIRD QUARTER REPORT
SEPTEMBER 30, 2000
[GRAPHIC OF FIVE STARS OMITTED]
MORNINGSTAR RATED(TM) GABELLI GROWTH FUND 5 STARS
OVERALL AND FOR THE FIVE AND TEN-YEAR PERIODS ENDED 9/30/00
AMONG 2419 AND 796 DOMESTIC EQUITY FUNDS, RESPECTIVELY.
[PHOTO OF HOWARD WARD OMITTED]
HOWARD F. WARD, CFA
TO OUR SHAREHOLDERS,
Now you know why managing money, either yours or the savings of others, is
a high stress job. This, if truth be told, has become the year of investing
dangerously. There are precious few places to hide when the news flow turns
negative amidst record high stock valuations and expectations to match. While
this interruption of the Bull market has been relatively short in duration, we
are reminded that sixty seconds is a long time when your head is under water.
This is a humbling business. Your report card is in the newspaper or on the Web
every day. It tests you. In this report, I want to review the general
environment for stocks and highlight some of the more important investment
principles that we follow.
Let us start with a comment on forecasting, because the stock market is a
mechanism that divines to forecast the future through the collective judgement
of investors. It distills investors' expectations for future profit growth to
arrive at present day prices. The stock market is one of the Government's
"leading economic indicators", because, more often than not, a rising stock
market has foreshadowed stronger economic activity and vice versa. However, it
is anything but perfect as a forecasting tool. Economist Paul Samuelson, who
wrote those weighty ECON 101 tomes we all enjoyed, once said "The stock market
has predicted nine of the last five recessions." Be careful what you read into
stock market movements. The decline in stock prices in recent months seems to
open the strong possibility of a slowing economy and possibly a recession. I
think it's a little early to adopt this point of view without more hard data.
You can make calls from your "gut" or you can make calls from hard data. We
prefer to use hard data because "gut" calls have low percentage outcomes.
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect historical risk adjusted performance as of September 30, 2000
and are subject to change every month. Morningstar ratings are calculated from a
Fund's three, five and ten-year average annual returns in excess of 90-day
T-Bill returns with appropriate fee adjustments and a risk factor that reflects
fund performance below 90-day T-Bill returns. The top 10% of the funds in a
broad asset class receive five stars, the next 22.5% receive four stars, the
next 35% receive three stars, the next 22.5% receive two stars and the bottom
10% receive one star.
<PAGE>
INVESTMENT RESULTS (a)
<TABLE>
<CAPTION>
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Quarter
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1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
2000: Net Asset Value .................... $50.10 $49.73 $46.88 -- --
Total Return ....................... 7.7% (0.7)% (5.7)% -- --
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1999: Net Asset Value .................... $38.53 $41.38 $41.07 $46.51 $46.51
Total Return ....................... 8.8% 7.4% (0.8)% 26.1% 46.3%
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1998: Net Asset Value .................... $32.32 $33.37 $28.54 $35.40 $35.40
Total Return ....................... 12.9% 3.2% (14.5)% 30.2% 29.8%
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1997: Net Asset Value .................... $24.50 $29.25 $33.41 $28.63 $28.63
Total Return ....................... 1.5% 19.4% 14.2% 3.1% 42.6%
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1996: Net Asset Value .................... $23.75 $24.34 $25.35 $24.14 $24.14
Total Return ....................... 7.2% 2.5% 4.1% 4.4% 19.4%
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1995: Net Asset Value .................... $20.86 $22.99 $24.91 $22.16 $22.16
Total Return ....................... 6.0% 10.2% 8.4% 4.9% 32.7%
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1994: Net Asset Value .................... $21.90 $21.23 $22.58 $19.68 $19.68
Total Return ....................... (5.8)% (3.1)% 6.4% (0.5)% (3.4)%
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1993: Net Asset Value .................... $21.71 $21.84 $23.43 $23.26 $23.26
Total Return ....................... 0.6% 0.6% 7.3% 2.5% 11.3%
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1992: Net Asset Value .................... $20.27 $19.72 $20.50 $21.59 $21.59
Total Return ....................... (4.7)% (2.7)% 4.0% 8.5% 4.5%
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1991: Net Asset Value .................... $18.18 $18.02 $19.51 $21.28 $21.28
Total Return ....................... 11.7% (0.9)% 8.3% 12.0% 34.3%
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1990: Net Asset Value .................... $16.74 $17.80 $15.75 $16.27 $16.27
Total Return ....................... (1.9)% 6.3% (11.5)% 6.2% (2.0)%
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1989: Net Asset Value .................... $13.99 $15.73 $17.46 $17.07 $17.07
Total Return ....................... 10.6% 12.4% 11.0% 1.5% 40.1%
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1988: Net Asset Value .................... $10.87 $12.40 $12.71 $12.65 $12.65
Total Return ....................... 16.1% 14.1% 2.5% 2.5% 39.2%
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1987: Net Asset Value .................... -- $10.84 $11.28 $9.51 $9.51
Total Return ....................... -- 8.4%(b) 4.1% (15.7)% (4.9)%(b)
----------------------------------------------------------------------------------------------------------------
</TABLE>
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Average Annual Returns - September 30, 2000 (a)
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1 Year ............ 27.07%
5 Year ............ 27.86%
10 Year ............. 21.36%
Life of Fund (b) .... 20.12%
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Dividend History
------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
----------------- -------------- ------------------
December 27, 1999 $5.160 $45.59
December 28, 1998 $1.745 $35.15
December 30, 1997 $5.790 $28.58
December 31, 1996 $2.324 $24.14
December 29, 1995 $3.960 $22.16
December 30, 1994 $2.790 $19.68
December 31, 1993 $0.760 $23.26
December 31, 1992 $0.646 $21.59
December 31, 1991 $0.573 $21.28
December 31, 1990 $0.460 $16.27
December 29, 1989 $0.654 $17.07
December 30, 1988 $0.377 $12.65
January 4, 1988 $0.152 $9.58
(a) Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of investment operations on April 10, 1987.
--------------------------------------------------------------------------------
2
<PAGE>
In the long run, stock prices track earnings in a fairly straightforward
manner. Stocks have been good long-term investments because earnings grow over
time. In the short-term, stock prices incorporate a lot of noise and can be
moved viciously by short-term events and trading strategies. Obviously,
near-term profit expectations and the failure of companies to meet those
expectations can result in severe damage to a company's stock price. While such
"air pockets" may be short lived in nature, they are scary and painful. For
better or worse, the stock market must continuously reconcile expectations with
reality. The higher expectations rise, the easier it becomes to disappoint.
Absolute profit gains appear less important than relative profit gains (relative
to expectations). Going into this year, expectations were historically high, as
reflected in high stock price valuations. Most established "growth" companies,
the kind we favor, are doing well in absolute terms and reporting double digit
profit growth. Relative to expectations, there are some disappointments.
Expectations are coming down at an accelerating pace. As tough as this is, it is
essential in order to "cleanse" the market of its "weak" holders.
Readers of our reports know we frequently advise investing in stocks for
the long-term only. We don't want your short-term funds and we don't want "hot"
or momentum money. We tell you we won't time the market and we tell you the Fund
will decline in value if the stock market averages fall. For most people,
successful investing means making a multi-year commitment to stocks of
successful companies selling at defensible valuations. The large, durable,
established growth companies we invest in will weather economic storms and
prosper regardless of who is in the White House or which political party
controls the Congress. Remember that the Forbes list of the 400 wealthiest
Americans is devoid of economists, "traders", market technicians, market
strategists, market timers, Wall Street equity analysts, fixed income investors
and financial journalists.
Speaking of the financial press, let's get one thing straight. It is
impossible to sell a stock unless a buyer exists. It is also true that it is
impossible to buy a stock unless there is a seller. When you hear a commentator
say, as you will, that the market is down because of an absence of buyers, or up
because of an absence of sellers, pay them no heed. It is not possible. A
transaction can only happen if a buyer and a seller agree on a price to
consummate a trade. If sellers exhibit a greater sense of urgency, then stocks
go down, and vice versa. History will judge who was the greater fool.
INVESTMENT PERFORMANCE
For the third quarter ended September 30, 2000, The Gabelli Growth Fund
(the "Fund") declined 5.73%. The Standard and Poor's ("S&P") 500 Index and the
Lipper Large-Cap Growth Fund Average declined 0.97% and 0.47%, respectively,
over the same period. The S&P 500 Index is an unmanaged indicator of stock
market performance, while the Lipper Average reflects the average performance of
mutual funds classified in this particular category. The Fund was up 27.07% over
the twelve months ended September 30, 2000. The S&P 500 Index and Lipper
Large-Cap Growth Fund Average rose 13.28% and 30.31%, respectively, over the
same twelve-month period.
For the ten-year period ended September 30, 2000, the Fund's total return
averaged 21.36% annually, versus average annual total returns of 18.17% and
20.33% for the S&P 500 Index and Lipper Large-Cap Growth Fund Average,
respectively. Since inception on April 10, 1987 through September 30, 2000, the
Fund had a cumulative total return of 1,085.63%, which equates to an average
annual total return of 20.12%. Our direct shareholders total 95,864 and net
assets are $4.3 billion as of September 30, 2000.
3
<PAGE>
ECONOMIC BACKGROUND
We need economists because the stock market's record as a forecasting tool
is mediocre. Samuelson was right about that. Presently, the masters of the
"dismal science" are at odds with the collective judgment of the market. The
market, as we write, seems to be saying that a recession is imminent. It's not
out of the question because of the time lag involved in collecting the necessary
economic data. There has been at least one occasion during my career that we
were in a recession and didn't know it until it was over due to the nasty data
lag.
The data, at this point, suggests the economy is healthy. The Fed didn't
even relax its bias toward tightening at the October meeting. The unemployment
rate is 3.9%. "Real" GDP growth is widely expected to be higher than 3% for the
next few quarters. Corporate profits are growing at a low double-digit or high
single-digit rate. Productivity growth continues to impress. Yes, we continue to
run a large trade deficit but tell me something new. Isn't that a sign of our
prosperity? Inflation, as tracked by the Consumer Price Index and Producer Price
Index, appears dormant. So what's the problem?
At least some of the stock market's worries are manifest in the hot winds
of the Persian Gulf, as oil hit its highest price since The Gulf War in November
of 1990. Is it possible that the surprising spike in the price of oil
(surprising since no one on Wall Street expected it) is having a deflationary
impact on our economy? Yes. I said DEFLATIONARY. How so Mr. Wizard? We know that
demand for oil in the U.S. is fairly price inelastic. That's to say consumption
is not closely correlated with price. Therefore, in order to maintain
consumption at pre-spike levels, prices of other goods must decline or
consumption of those goods is reduced. In other words, oil's share of consumer
and business spending goes up and everything else loses share of wallet. This is
not like the Seventies, when the Fed's printing presses monetized higher oil
prices and fed INFLATION. Without the Fed's help, no one else can raise prices.
Hence, we have the possibility that this year's oil spike is deflationary.
Additionally, we cannot forget that the Fed raised interest rates six
times in the last 15 months. Monetary policy has a lagged effect. The confluence
of higher oil prices, Fed tightenings and the plummeting Euro, have led some
market pundits to call this the "Perfect Storm" of a financial nature. The lower
Euro, which we did not address, depresses the profits of U.S. multinationals.
Some companies have said that their business "hit a wall" in September,
especially in Europe, where oil prices are more than double those in the States
due to higher taxes. You can see why the stock market is concerned. You can
easily develop a "gut" feel that the economy is in serious trouble. But
remember, basing investment policy decisions on "gut" feels is like playing
poker.
Our best guess at this point is for a "soft" landing, not a recession. We
note that 75% of our workforce is now in the "service" sector. That is one
reason this has been the longest economic expansion on record. It also suggests
that economists spend too much time analyzing the manufacturing sector and may
need some new tools that more specifically address the service sector. We love
Alan Greenspan, the Federal Reserve Chairman, but we are worried that he may not
move quickly enough to ease policy if the economy is truly tanking. First, we
don't think he wants to influence the election and ease before November 7, and
second, his comments after the October meeting were "hawkish" in nature. Stay
tuned.
4
<PAGE>
THE STOCK MARKET
We didn't talk about the election in our economic commentary because for
those purposes the election is not material at this point. However, it is an
additional concern of some investors. The possible end of gridlock is
frightening to some in both parties. The bond market is no friend of spending
proposals. It also fears tax cuts, as that means less budget surplus. The stock
market does not like what the bond market fears. If you think the Government's
forecast for a multi-trillion dollar budget surplus in the second decade of this
new millennium is a sure thing, think again. Did someone say "many a slip
between cup and lip"? It pains me to say this, but the candidate that does the
best job of telling lies and looking sincere could win this election.
Welcome to life after irrational exuberance. Confusion, cynicism and chaos
roil the market all too often. In our previous reports this year we have
cautioned our readers to keep expectations down for 2000. While that does little
to take the sting out of lower stock prices, I hope it raises our level of
credibility with you, the shareholder. Investor sentiment, of course, follows
stock prices in both directions. That means sentiment is now negative. Risk
aversion and fear are increasingly in vogue. This typically occurs as the market
is forming a bottom. We must make cold and unemotional investment decisions and
we cannot and will not allow ourselves to get thrown off track by emotional
crowd psychology.
We began the year on a somewhat cautious note, understanding that the 33%
compound annual return we earned over the preceding five years was the product
of a remarkable period for equity investors (the S&P compounded at 28%) that
would be tough to sustain. Prices were high. Expectations were high in general
and insane for the dot.com stocks, a position we have consistently held, to the
point of obnoxiously reminding you in each of our last six quarterly reports.
While the market has spent most of the year in positive territory, it has turned
negative with the onset of Fall. At the same time, the earnings of the market in
general, and our stocks in particular, have grown nicely. While we have had some
disappointments, frankly that goes with the territory. My point is that with
prices now generally down and earnings generally up, the market and our universe
of large capitalization growth stocks are attractively priced. The cold
unemotional decision is to buy, not sell, provided you have a long-term
investment horizon. This may not be the bottom but it is most definitely not the
top. Don't get whipped around by rumors and media hype.
PORTFOLIO HIGHLIGHTS
All was not gloom and doom in the third quarter. We had excellent
performance from a number of financial service and technology holdings. The
better performers included Northern Trust (up 36%), EMC (up 29%), Sun
Microsystems (up 28%), Mellon Financial (up 27%), Marsh and McLennan (up 27%),
and Hughes Electronics (up 26%). Other winners included Automatic Data
Processing (up 24%), State Street (up 23%), Goldman Sachs (up 20%) and Qualcomm
(up 19%).
Regulators put an end to WorldCom's plan to buy Sprint and this hurt the
portfolio, as did earnings disappointments from Apple Computer, Intel and Dell.
Fears of an advertising slowdown, led by the disappearance of dot.com companies,
took its toll on some of our media holdings such as Clear Channel, Viacom and
Interpublic Group. The bottom line is that it was a mixed quarter with
tremendous
5
<PAGE>
stock price volatility. Stocks seem to have become increasingly volatile, much
more so than underlying business fundamentals.
Just as we did in the second quarter, we acted to take advantage of
declining prices in a number of holdings, especially in the media and technology
sectors. We expect to be nicely compensated for taking this action, but we
cannot tell you precisely when that will happen. We were early in cutting back
on expensive holdings in January and February but were rewarded in March and
April. We are long term investors and base our investment decisions on company
specific fundamentals, including price. We are not "technicians" that base
purchase and sale decisions on charts and flows. We believe earnings drive share
prices over time. Forget the noise. If our companies produce double-digit growth
in earnings over an extended period of time, then we will be happy campers and
so will you.
More and more investors are recognizing what we have long avowed, which is
that earnings and valuations matter. They matter a lot. We only invest in
companies with operating earnings. We have a tool we refer to as our earnings
valuation model that helps us identify stock specific opportunities and risks in
the market. It is not perfect but it gives us a framework for understanding risk
and reward in individual stocks. I think it is essential to have a valuation
framework, especially during periods of market stress.
LOOKING AHEAD
The fourth quarter is off to a bad start. It is now clear that investor
expectations, too high for too long, are sobering up to the reality of an
economy that is possibly hitting a rough patch. This is not the time to panic.
Oil prices are unlikely to move much higher and should stabilize soon. Conflict
in the Middle East is nothing new. The Market won't focus on it for long. It
will move on. Similarly, I believe the decline in the Euro is largely, if not
completely, behind us. What's more, should today's apparent weakness in the
economy persist, the Fed will have no choice but to quickly cut interest rates,
usually a strong tonic for whatever ails stocks. As for earnings, they may not
be as strong as some hoped, but in the aggregate they are showing healthy, if
not spectacular growth. Finally, stock prices are down. They are discounting a
material dose of bad news. Hang in there. As for me, I am a long-term investor
and I have been boosting my personal stake in the Fund in recent days. Stocks
could go lower, but I feel today's prices are attractive and no one can call the
bottom.
LET'S TALK STOCKS
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
ANALOG DEVICES INC. (ADI - $82.5625 - NYSE) is a diversified manufacturer of
semiconductors with leading positions in analog chips and digital signal
processors, where it claims the number two position after Texas Instruments. The
company is also a leader in converters, which enable the analog and digital
chips to communicate with each other. ADI's business is well diversified by
industry, with only a 5% exposure to wireless handsets and a 10% exposure to
personal computers. Earnings and revenues are growing at strong rates and we
expect this to continue for several years.
6
<PAGE>
CISCO SYSTEMS INC. (CSCO - $55.25 - NYSE) is the leading supplier of data
networking equipment such as routers and ATM switches for use in Local Area
Networks, Wide Area Networks and the Internet. As an integral provider of
infrastructure for the Internet, the company is a major beneficiary of the Net's
explosive growth. We forecast strong growth in earnings for this year and next.
HUGHES ELECTRONICS (GMH - $37.1875 - NYSE) is the leading provider of satellite
based television services through its DIRECTV product. The company expects to
offer two-way satellite based Internet communication through their DIRECTPC
product later this year. Healthy subscriber additions should drive revenue
growth and higher growth in EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) over the next couple of years. We believe General
Motors, which owns the Hughes Electronics assets, will negotiate the sale of the
company on terms favorable to Hughes' shareholders.
INTEL CORP. (INTC - $41.625 - NASDAQ) is the dominant supplier of
microprocessors for the personal computer industry with an 80% market share. The
company is developing new lines of business in semiconductors for the
communications equipment market and "server farms" for managing the electronic
commerce needs of other companies. As a leader in flash memory chips, Intel will
benefit from the robust growth expected in the wireless handset business. We
expect earnings to grow at a solid rate based on continued growth in personal
computer shipments. The company is an integral member of the information
revolution.
MARSH & MCLENNAN COMPANIES INC. (MMC - $132.75 - NYSE) is the world's largest
insurance brokerage and one of the leading asset managers through its ownership
of The Putnam Funds. MMC is also a leader in employee benefit consulting with
its ownership of the Mercer Group. The company's growth rate has accelerated in
recent years due primarily to the success of Putnam. We expect overall growth
based on continued strong results at Putnam and some modest improvement in the
company's traditional insurance brokerage business.
MELLON FINANCIAL CORP. (MEL - $46.375 - NYSE) is one of the largest asset
managers in the country. In addition to the Bank's traditional Mellon brand
asset gathering arm, their Dreyfus, Founders and Boston Company subsidiaries are
showing improvement. New management has shed non-core assets to focus on the
company's highest margin and best growth opportunities. Fees represent over 60%
of revenues and that number will grow as the year progresses. Assets under
management now exceed $500 billion, which creates an enviable stream of
recurring fee revenue.
MOTOROLA INC. (MOT - $28.25 - NYSE) is a leading supplier of semiconductors,
cable set-top boxes, wireless handsets and infrastructure for the wireless
telecommunications industry. Earnings should grow the next few years, driven by
growth in the demand for wireless handsets and infrastructure. The stock's
valuation is presently depressed due to a low level of profitability in the
handset business. We view this as a buying opportunity.
PFIZER INC. (PFE - $44.9375 - NYSE) is a diversified consumer products and
pharmaceutical company. The company recently completed the acquisition of Warner
Lambert. The newly combined company has a research budget in excess of $4
billion, which we think bodes well for future growth. Business trends are strong
and we expect the new enterprise to grow earnings for the next couple of years,
making Pfizer one of the fastest growing pharmaceutical companies.
7
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. (Q - $48.0625 - NYSE) has recently
completed its acquisition of U.S. West. The merger complements the company's
national fiber optic network by giving it a presence in local and wireless
telephony as well as DSL Internet access. We expect solid growth in revenues and
EBITDA over the next few years.
STATE STREET CORP. (STT - $130.00 - NYSE) is a leading provider of financial
services to mutual funds and other institutional investors. The company is the
third largest custodian of assets in the world with $6 trillion under custody.
Additionally, the company is a major asset manager itself with over $500 billion
under management. The company is focused on these two business lines and
recently exited the corporate lending business altogether. We believe this
enhances State Street's growth prospects and valuation. Management believes the
company has strong growth prospects overseas and growing this part of their
business is a strategic priority, as is having a greater presence directly with
retail investors.
TELLABS INC. (TLAB - $47.75 - NASDAQ) is a rapidly growing provider of
telecommunications equipment. The company is in the early stages of a new
product cycle for which it has received little attention. Earnings should grow
at a healthy rate going forward. The company's stock should benefit from the
growing visibility of new products over the next 18 months. Tellabs is one of
the most profitable telecom equipment companies with operating margins of 30%.
TEXAS INSTRUMENTS INC. (TXN - $47.1875 - NYSE) is the largest provider of
digital signal processors, a critical component for digital communication
devices, including wireless phones and digital signal lines (DSLs). Having
restructured the company in recent years, its valuation is no longer hostage to
the memory chip (DRAM) cycle and defense businesses. We believe the DSP chip
business, in which TXN is the leader, will grow at an accelerated rate in the
foreseeable future.
MINIMUM INITIAL INVESTMENT - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
WWW.GABELLI.COM
Please visit us on the Internet. Our home page at http://www.gabelli.com
contains information about Gabelli Asset Management Inc., the Gabelli Mutual
Funds, IRAs, 401(k)s, quarterly reports, closing prices and other current news.
You can e-mail us at [email protected].
Subscribe in time and join me for a chat session entitled "Growth -
Domestic" on Tuesday, December 5.
IN CONCLUSION
Earlier in my career I served as an investment counselor for wealthy
individuals as well as numerous pension funds, endowments and foundations.
Because individuals don't like paying taxes and are less concerned with relative
quarterly investment performance, they are more likely to hold the
8
<PAGE>
stocks of good companies for an extended period of time. In some cases holdings
are in families for over 50 years. In many cases they are held for 20 to 30
years. The large established growth companies favored by many of these
investors, as well as me, are durable. By and large, they grow earnings and
prosper through wars, periods of high inflation and stagflation, civil unrest,
weak Presidents, recessions, OPEC oil embargoes, and Bear markets. To be sure,
these stocks may not rise every year, but over time they follow earnings higher.
Seeing the power of compounded earnings growth over time is intoxicating.
Can you imagine seeing portfolios with a cost per share of $1.00 or less for
companies like Merck, Intel, Hewlett Packard, Texas Instruments and Johnson &
Johnson, among others? These are the kinds of strong and established companies
we invest in, along with their contemporaries like Cisco Systems, EMC, and
Corning. They are wealth creators. They may not reward you every day, or even
every year, but they will be superior long-term investments and their
shareholders won't be disappointed. Remember, buy low, sell high, focus on the
long term and avoid leverage. Stick with the program.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's Nasdaq symbol is GABGX. Please call us during the
business day for further information.
Sincerely,
/S/ SIGNATURE
HOWARD F. WARD, CFA
Portfolio Manager
October 16, 2000
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TOP TEN HOLDINGS
SEPTEMBER 30, 2000
------------------
State Street Corp. Tellabs Inc.
Mellon Financial Corp. General Motors Corp., Cl. H
Analog Devices Inc. Motorola Inc.
Pfizer Inc. Qwest Communications International Inc.
Marsh & McLennan Companies Inc. Texas Instruments Inc.
------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
9
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THE GABELLI GROWTH FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 99.7%
BROADCASTING -- 2.1%
1,591,600 Clear Channel Communications Inc.+ ......... $ 89,925,400
--------------
BUSINESS SERVICES -- 4.0%
1,225,000 Automatic Data Processing Inc. ............. 81,921,875
1,878,100 Interpublic Group of Companies Inc. ........ 63,972,781
372,000 Omnicom Group Inc. ......................... 27,132,750
--------------
173,027,406
--------------
CABLE -- 0.7%
730,000 Comcast Corp., Cl. A, Special .............. 29,884,375
--------------
COMMUNICATIONS EQUIPMENT -- 15.6%
1,626,000 Cisco Systems Inc.+ ........................ 89,836,500
180,000 Corning Inc. ............................... 53,460,000
4,735,000 Motorola Inc. .............................. 133,763,750
1,370,000 Nokia Corp., Cl. A, ADR .................... 54,543,125
895,000 Nortel Networks Corp. ...................... 53,308,437
1,768,000 Qualcomm Inc.+ ............................. 125,970,000
3,340,000 Tellabs Inc.+ .............................. 159,485,000
--------------
670,366,812
--------------
COMPUTER HARDWARE -- 5.1%
1,580,000 Apple Computer Inc.+ ....................... 40,685,000
2,320,000 Dell Computer Corp.+ ....................... 71,485,000
630,000 Hewlett-Packard Co. ........................ 61,110,000
390,000 Sun Microsystems Inc.+ ..................... 45,532,500
--------------
218,812,500
--------------
COMPUTER SOFTWARE AND SERVICES -- 4.7%
1,410,000 America Online Inc.+ ....................... 75,787,500
620,000 EMC Corp.+ ................................. 61,457,500
1,055,000 Microsoft Corp.+ ........................... 63,563,750
--------------
200,808,750
--------------
DIVERSIFIED INDUSTRIAL -- 1.5%
975,000 Emerson Electric Co. ....................... 65,325,000
--------------
ELECTRONICS -- 10.1%
2,280,000 Analog Devices Inc.+ ....................... 188,242,500
2,800,000 Intel Corp. ................................ 116,550,000
2,746,000 Texas Instruments Inc. ..................... 129,576,875
--------------
434,369,375
--------------
ENTERTAINMENT -- 3.6%
610,000 Time Warner Inc. ........................... 47,732,500
1,845,851 Viacom Inc., Cl. B+ ........................ 107,982,283
--------------
155,714,783
--------------
FINANCIAL SERVICES -- 20.3%
570,000 Goldman Sachs Group Inc. ................... 64,944,375
1,233,500 Marsh & McLennan Companies Inc. ............ 163,747,125
4,421,000 Mellon Financial Corp. ..................... 205,023,875
1,120,000 Merrill Lynch & Co. Inc. ................... 73,920,000
1,134,900 Northern Trust Corp. ....................... 100,864,237
MARKET
SHARES VALUE
------ ------
1,350,000 Schwab (Charles) Corp. ..................... $ 47,925,000
1,654,400 State Street Corp. ......................... 215,072,000
--------------
871,496,612
--------------
HEALTH CARE -- 14.6%
648,000 Amgen Inc.+ ................................ 45,248,625
1,062,000 Baxter International Inc. .................. 84,760,875
757,000 Johnson & Johnson .......................... 71,110,687
1,030,000 Lilly (Eli) & Co. .......................... 83,558,750
911,000 Merck & Co. Inc. ........................... 67,812,563
4,137,500 Pfizer Inc. ................................ 185,928,906
1,855,000 Schering-Plough Corp. ...................... 86,257,500
--------------
624,677,906
--------------
PUBLISHING -- 3.3%
741,000 Dow Jones & Co. Inc. ....................... 44,830,500
937,500 McGraw-Hill Companies Inc. ................. 59,589,844
968,000 New York Times Co., Cl. A .................. 38,054,500
--------------
142,474,844
--------------
RETAIL -- 4.1%
2,071,577 Home Depot Inc. ............................ 109,923,055
1,688,400 Tiffany & Co. .............................. 65,108,925
--------------
175,031,980
--------------
SATELLITE -- 3.3%
3,770,000 General Motors Corp., Cl. H+ ............... 140,168,600
--------------
TELECOMMUNICATIONS -- 5.7%
2,750,747 Qwest Communications International Inc.+ ... 132,207,778
3,805,000 Sprint Corp.+ .............................. 111,534,063
--------------
243,741,841
--------------
WIRELESS COMMUNICATIONS -- 1.0%
1,130,000 Vodafone Group plc, ADR .................... 41,810,000
--------------
TOTAL COMMON STOCKS ........................ 4,277,636,184
--------------
PRINCIPAL
AMOUNT
---------
U.S. GOVERNMENT OBLIGATIONS -- 1.7%
$73,277,000 U.S. Treasury Bills,
6.09% to 6.28%++,
due 11/16/00 to 12/28/00 .................. 72,285,770
--------------
TOTAL INVESTMENTS -- 101.4%
(Cost $3,623,771,931) .................... 4,349,921,954
OTHER ASSETS AND
LIABILITIES (NET) -- (1.4%) .............. (59,860,764)
--------------
NET ASSETS -- 100.0%
(91,515,609 shares outstanding) .......... $4,290,061,190
==============
------------------------
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt.
10
<PAGE>
--------------------------------------------------------------------------------
GABELLI FAMILY OF FUNDS
--------------------------------------------------------------------------------
GABELLI ASSET FUND ________________________
Seeks to invest primarily in a diversified portfolio of common stocks selling at
significant discounts to their private market value. The Fund's primary
objective is growth of capital. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI GROWTH FUND _______________________
Seeks to invest primarily in large cap stocks believed to have favorable, yet
undervalued, prospects for earnings growth. The Fund's primary objective is
capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: HOWARD F. WARD, CFA
GABELLI WESTWOOD EQUITY FUND _____________
Seeks to invest primarily in the common stock of seasoned companies believed to
have proven records and above average historical earnings growth. The Fund's
primary objective is capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: SUSAN M. BYRNE
GABELLI SMALL CAP GROWTH FUND ____________
Seeks to invest primarily in common stock of smaller companies (market
capitalizations less than $500 million) believed to have rapid revenue and
earnings growth potential. The Fund's primary objective is capital appreciation.
(NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI BLUE CHIP VALUE FUND ______________
Seeks long-term growth of capital through investment primarily in the common
stocks of well-established, high quality companies that have market
capitalizations of greater than $5 billion.
(NO-LOAD) PORTFOLIO MANAGER: BARBARA MARCIN, CFA
GABELLI WESTWOOD SMALLCAP EQUITY FUND ________________
Seeks to invest primarily in smaller capitalization equity securities - market
caps of $1 billion or less. The Fund's primary objective is long-term capital
appreciation. (NO-LOAD)
PORTFOLIO MANAGER: LYNDA CALKIN, CFA
GABELLI WESTWOOD INTERMEDIATE BOND FUND __________________
Seeks to invest in a diversified portfolio of bonds with various maturities. The
Fund's primary objective is total return. (NO-LOAD)
PORTFOLIO MANAGER: PATRICIA FRAZE
GABELLI EQUITY INCOME FUND ________________
Seeks to invest primarily in equity securities with above market average yields.
The Fund pays quarterly dividends and seeks a high level of total return with an
emphasis on income. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI WESTWOOD BALANCED FUND __________
Seeks to invest in a balanced and diversified portfolio of stocks and bonds. The
Fund's primary objective is both capital appreciation and current income.
(NO-LOAD)
PORTFOLIO MANAGERS: SUSAN M. BYRNE & PATRICIA FRAZE
GABELLI WESTWOOD MIGHTY MITES(SERVICE MARK) FUND _____
Seeks to invest in micro-cap companies that have market capitalizations of $300
million or less. The Fund's primary objective is long-term capital appreciation.
(NO-LOAD)
TEAM MANAGED: MARIO J. GABELLI, CFA,
MARC J. GABELLI, LAURA K. LINEHAN AND
WALTER K. WALSH
GABELLI VALUE FUND ________________________
Seeks to invest in securities of companies believed to be undervalued. The
Fund's primary objective is long-term capital appreciation.
MAX. SALES CHARGE: 51/2%
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI UTILITIES FUND ______________________
Seeks to provide a high level of total return through a combination of capital
appreciation and current income. (NO-LOAD)
PORTFOLIO MANAGER: TIMOTHY O'BRIEN, CFA
GABELLI ABC FUND _________________________
Seeks to invest in securities with attractive opportunities for appreciation or
investment income. The Fund's primary objective is total return in various
market conditions without excessive risk of capital loss. (NO-LOAD)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI MATHERS FUND _____________________
Seeks long-term capital appreciation in various market conditions without
excessive risk of capital loss. (NO-LOAD)
PORTFOLIO MANAGER: HENRY VAN DER EB, CFA
GABELLI U.S. TREASURY MONEY MARKET FUND ___
Seeks to invest exclusively in short-term U.S. Treasury securities. The Fund's
primary objective is to provide high current income consistent with the
preservation of principal and liquidity.
(NO-LOAD) PORTFOLIO MANAGER: JUDITH A. RANERI
GABELLI CASH MANAGEMENT SHARES OF
THE TREASURER'S FUND ______________________
Three money market portfolios designed to generate superior returns without
compromising portfolio safety. U.S. Treasury Money Market seeks to invest in
U.S. Treasury bills, notes and bonds. Tax Exempt Money Market seeks to invest in
municipal securities. Domestic Prime Money Market seeks to invest in prime
quality, domestic money market instruments. (NO-LOAD)
PORTFOLIO MANAGER: JUDITH A. RANERI
AN INVESTMENT IN THE ABOVE MONEY MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENT AGENCY. ALTHOUGH
THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS.
GLOBAL SERIES
GABELLI GLOBAL TELECOMMUNICATIONS FUND
Seeks to invest in telecommunications companies throughout the world -
targeting undervalued companies with strong earnings and cash flow dynamics.
The Fund's primary objective is capital appreciation.
(NO-LOAD) TEAM MANAGED: MARIO J. GABELLI, CFA,
MARC J. GABELLI AND IVAN ARTEAGA, CFA
GABELLI GLOBAL CONVERTIBLE SECURITIES FUND
Seeks to invest principally in bonds and preferred stocks which are
convertible into common stock of foreign and domestic companies. The Fund's
primary objective is total return through a combination of current income and
capital appreciation.
(NO-LOAD) PORTFOLIO MANAGER: HART WOODSON
GABELLI GLOBAL GROWTH FUND
Seeks capital appreciation through a disciplined investment program focusing
on the globalization and interactivity of the world's marketplace. The Fund
invests in companies at the forefront of accelerated growth. The Fund's
primary objective is capital appreciation. (NO-LOAD)
PORTFOLIO MANAGER: MARC J. GABELLI
GABELLI GLOBAL OPPORTUNITY FUND
Seeks to invest in common stock of companies which have rapid growth in
revenues and earnings and potential for above average capital appreciation or
are undervalued. The Fund's primary objective is capital appreciation.
(NO-LOAD)
PORTFOLIO MANAGERS: MARC J. GABELLI
AND CAESAR BRYAN
GABELLI GOLD FUND _________________________
Seeks to invest in a global portfolio of equity securities of gold mining and
related companies. The Fund's objective is long-term capital appreciation.
Investment in gold stocks is considered speculative and is affected by a variety
of world-wide economic, financial and political factors.
(NO-LOAD) PORTFOLIO MANAGER: CAESAR BRYAN
GABELLI INTERNATIONAL GROWTH FUND __________
Seeks to invest in the equity securities of foreign issuers with long-term
capital appreciation potential. The Fund offers investors global
diversification. (NO-LOAD) PORTFOLIO MANAGER: CAESAR BRYAN
THE SIX FUNDS ABOVE INVEST IN FOREIGN SECURITIES WHICH INVOLVES RISKS NOT
ORDINARILY ASSOCIATED WITH INVESTMENTS IN DOMESTIC ISSUES, INCLUDING CURRENCY
FLUCTUATION, ECONOMIC AND POLITICAL RISKS. THE FUNDS LISTED ABOVE ARE
DISTRIBUTED BY GABELLI & COMPANY, INC.
--------------------------------------------------------------------------------
TO RECEIVE A PROSPECTUS, CALL 1-800-GABELLI (422-3554). THE PROSPECTUS
GIVES A MORE COMPLETE DESCRIPTION OF THE FUND, INCLUDING FEES AND EXPENSES.
READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
VISIT OUR WEBSITE AT:
www.gabelli.com
OR, CALL:
1-800-GABELLI
1-800-422-3554 (BULLET) 914-921-5100 (BULLET) FAX: 914-921-5118
(BULLET) [email protected]
ONE CORPORATE CENTER, RYE, NEW YORK 10580
<PAGE>
THE GABELLI GROWTH FUND
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(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 FORMER PRESIDENT
INVESTMENT OFFICER DEUTSCHE BUNDESBANK
GABELLI ASSET MANAGEMENT INC.
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
FORMER CHIEF INVESTMENT OFFICER MANAGING DIRECTOR
FINANCIAL SECURITY ASSURANCE BALMAC INTERNATIONAL, INC.
HOLDINGS LTD.
John D. Gabelli
SENIOR VICE PRESIDENT
GABELLI & COMPANY, INC.
OFFICERS AND PORTFOLIO MANAGERS
Bruce N. Alpert Howard F. Ward, CFA
PRESIDENT AND TREASURER PORTFOLIO MANAGER
James E. McKee
SECRETARY
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
--------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli Growth Fund. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
--------------------------------------------------------------------------------
GAB406Q300SR
[PHOTO OF MARIO J. GABELLI OMITTED]
THE
GABELLI
GROWTH
FUND
THIRD QUARTER REPORT
SEPTEMBER 30, 2000
