THE GABELLI GROWTH FUND
ANNUAL REPORT
DECEMBER 31, 1999
[Graphic of 5 stars ommitted]
MORNINGSTAR RATED(TM) GABELLI GROWTH FUND 5 STARS OVERALL AND FOR
THE THREE-YEAR PERIOD ENDED 12/31/99 AMONG 3469 DOMESTIC EQUITY
FUNDS, AND FOR THE FIVE AND TEN-YEAR PERIODS ENDED 12/31/99
AMONG 2180 AND 770 DOMESTIC EQUITY FUNDS, RESPECTIVELY.
[Photo of Howard Ward omitted]
HOWARD WARD
TO OUR SHAREHOLDERS,
Whether you believe in global warming or not - I do - the climate for
growth stocks, especially those in the technology sector, was white hot last
year. If you were a statistician, you would have to note the positive
correlation between rising technology stock prices and global temperatures. So,
just how hot were technology stocks last year? Well, a year ago, the top selling
holiday gift was a "Furby" doll. This year it was shares of Qualcomm, the only
stock I have ever seen, let alone owned, that rose 100 points between breakfast
and lunch. You knew it was coming. Kids are growing up too fast. They do not
want Barbie dolls, Red Racer sleds, GI Joes, HO train sets, Erector sets,
Lincoln Logs and Matchbox racing cars. They want Qualcomm, Sun Microsystems,
EMC, Cisco Systems, Texas Instruments and Nokia. Toys 'R' Us should become
Stocks 'R' Us. Mattel should launch The Barbie Fund. Of course, stocks are good
gifts. You do not have to assemble them and they do not need batteries. Today's
youngsters, weaned on CNBC instead of Captain Kangaroo, are financially
sophisticated. It did not used to be this way. Stocks were something that
fathers talked about between rounds of golf. My dad has strong memories of the
Depression and has always been conservative. He has always favored the security
of bonds. When I was in grade school he used to lecture me on "the power of
compound interest." I would get all pumped up walking to the corner bank with my
savings book to ask the teller to update my "compound" interest earnings.
Visions of a new Schwinn ten-speed bicycle danced powerfully in my mind. The
"power" my father talked about translated into about $2.35
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect historical risk adjusted performance as of December 31, 1999 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.
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<TABLE>
<CAPTION>
INVESTMENT RESULTS (a)
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QUARTER
-------------------------------------------
1ST 2ND 3RD 4TH YEAR
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
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)
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AVERAGE ANNUAL RETURNS - DECEMBER 31, 1999 (A)
1 Year ................. 46.25%
5 Year ................. 33.82%
10 Year ................. 20.29%
Life of Fund (b).......... 21.35%
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Dividend History
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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.
- --------------------------------------------------------------------------------
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THE GABELLI GROWTH FUND AND THE S&P 500 INDEX
[Line Graph omitted--plot points as follows]
Gabelli Growth Fund S&P 500 Index
------------------- -------------
4/10/87 $10,000 $10,000
12/87 9,510 8,490
13,238 9,891
12/89 18,546 13,016
18,175 12,612
12/91 24,409 16,459
25,507 17,282
12/93 28,389 19,027
27,424 19,274
12/95 36,380 26,521
43,449 32,289
12/97 61,958 43,071
80,421 55,432
12/99 117,616 67,089
*PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
per month in my case. Some "power". If I was growing up today - some say it's
not too late - I might bypass the "power" of compound interest in favor of the
power of growth stocks and a little margined day trading. Today's parents need
to keep a watchful eye. Maybe you have read the stories of good kids that start
out innocently buying a few books online. Soon they are into CDs and then they
hit the online auction sites. Before you know it, they crave more excitement and
move up to online stock trading. You know the rest.
Speaking of success, 1999 was our most successful year ever in terms of
absolute and relative returns, as The Gabelli Growth Fund rose 46.25%. Our
benchmark, the Standard and Poor's 500 Index, rose 21.03%. No one expected the
market to exhibit such strength, supporting our policy of not engaging in market
timing. It was a banner year for "active" portfolio managers like us that
traffic in growth stocks. Advocates of "passive" management or indexing have
been silenced. A number of actively managed funds, including ours, trounced the
major indices (you cannot always be humble.) The Fund has outperformed the S&P
500 on a one, two, three, five and ten-year basis. It has also outperformed
since inception in April of 1987. We do not want to gloat but we get tired of
hearing and reading about the wisdom of indexing. Over the past five years, we
have beaten the S&P 500 by over 500 basis points compounded annually. As for
those "unmanaged" indices, you should know that America Online and Yahoo, among
others, were added to the S&P 500 last year at pretty high price levels. Across
town, the folks that "manage" the "unmanaged" Dow Jones Industrial Average
decided to add Home Depot, Microsoft, Intel and SBC Communications to the "blue
chip" index while giving the boot to Chevron, Sears, Union Carbide and Goodyear.
We remember when Chrysler was kicked out of this exclusive club of 30. It was
right at the stock's bottom. That said, we enter the new century feeling
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a need to lower your expectations for this stock market filled with helium. The
market leaders of the past year are not cheap and a reality check is past due.
In last quarter's report we stated "Microsoft's best days as a stock are
behind it". That should not be a shocking statement what with the stock having
climbed from 1 to 100 in the past decade. The law of large numbers is a real
hurdle for "Mister Softee". With a market value of about $560 billion, a 10%
increase in the share price is an extra $56 billion in appreciation. That is a
sum that equals or exceeds the value of entire companies such as McDonalds,
Pepsico and General Motors. That said, it might not be bad for shareholders if
the government forces the company to split up. The jury is most assuredly out on
that question. But the company's component pieces may grow faster as independent
companies relieved of a market capitalization that seems too big to grow rapidly
from this level. Microsoft will be a formidable competitor and grow at a nice,
if less fantastic, rate for years to come no-matter what form the company takes.
But the rules of the game have changed, which is to say, "Mister Softee" is no
longer setting them.
INVESTMENT PERFORMANCE
For the fourth quarter ended December 31, 1999, The Gabelli Growth Fund's
(the "Fund") total return was 26.06%. The Lipper Large-Cap Growth Fund Average
and Standard and Poor's ("S&P") 500 Index had total returns of 26.53% and
14.87%, 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 46.25% for 1999. The Lipper Large-Cap Growth Fund Average and S&P
500 Index rose 38.02% and 21.03%, respectively, over the same twelve-month
period.
For the ten-year period ended December 31, 1999, the Fund's total return
averaged 20.29% annually versus average annual total returns of 19.44% and
18.19% for the S&P 500 Index and Lipper Large-Cap Growth Fund Average,
respectively. Since inception on April 10, 1987 through December 31,1999, the
Fund had a cumulative total return of 1,076.28%, which equates to an average
annual total return of 21.35%. Our direct shareholders total 71,677 and net
assets are $3.2 billion as of December 31, 1999.
ECONOMIC BACKGROUND
Economics used to be known as "the dismal science." Maybe it should be known as
"the mad science." Of course, it's not really a science at all but a collection
of theories that cannot be proven in a laboratory. It is also a "science"
subject to regular change. Most economists, including Federal Reserve Board
Chairman Greenspan, have been surprised at the duration of this period of no
inflation prosperity. It will not last forever. Some challenges are surfacing,
such as oil prices, which recently hit nine-year highs. Additionally, housing
prices have started to accelerate and we can be thankful that the Consumer Price
Index ("CPI") does a poor job of capturing this change. Consumer confidence is
at record highs (32 years of data) and retail sales were strong as 1999 entered
the history books. With an
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unemployment rate as low as 4% it seems likely that wage rates will move higher
if the economy does not slow.
Then we have the stock market. Some argue we have seen a massive inflation
of financial assets that will soon spill over into the real economy. We get the
feeling that "Greenspan and Co." would like the stock market to rest. They would
also like to slow the economy to a level of more "sustainable" growth, whatever
that is. So we can expect at least one, if not more, Fed interest rate
tightenings. I think the "G-Man" wants to arrest the bull and sedate the
economy. Therefore, the economy will slow by hook or crook and interest rates
will moderate. Stocks will continue to exhibit a somewhat scary level of
volatility. In the aggregate, profits will look fine but expectations for some
of the "new economy" companies will be tough to meet. Look for growth in "real"
Gross Domestic Product ("GDP") of 3% to 4%, although 5% is possible. Cross your
fingers that inflation stays below 3%. Incidentally, whatever happened to the
Y2K induced recession that some mad scientists were calling for?
THE STOCK MARKET
Some believe the stock market has adopted a "casino mentality." This is
not true. The stock market has adopted a mentality borne in science fiction.
Internet stocks are priced in the "Twilight Zone". Where is Rod Serling when you
need him? After all, isn't it stories and dreams that drive stock prices?
Sometimes it seems as if it is. Some say stocks rise after Wall Street analysts
go public with higher price targets for their stocks. I know I witnessed that a
few times in December. Technicians say stocks go up after they go up and only go
down after they go down. How can you argue with that logic? Others say stocks go
up after companies announce stock splits. Although I continue to favor banana
splits over stock splits, people sure do get excited about owning 200 shares of
a $50 stock instead of 100 shares of a $100 stock. Sometimes, stocks go up after
companies announce they are issuing "tracking" stocks of their most valuable
assets. This too, can work, even though it has no impact on revenues, earnings
or assets. Surely stocks rise after they are added to an index such as the S&P
500, forcing the indexers to buy their shares. We have all seen that. Confusing
isn't it? As market watchers know, in the short run, all of the above may be
true. In the short run, stocks may rise or fall for frivolous or truly marginal
reasons.
Fortunately, in the long run, stocks tend to follow a company's underlying
growth in earnings or assets. This gives rise to a profession known as
securities analysis and the related art of portfolio management. Interest rates
are also important in establishing stock market values, as are tax rates,
expected rates of inflation and confidence in a country's long term prosperity.
Yes, I know there are other variables but these are the "biggies". Mechanically
speaking, stocks go up because investors are buying with a greater sense of
urgency than those on the selling side of the trade. According to the Investment
Company Institute ("ICI"), 49% of households own stocks, up from 36% in 1992.
The average investor is 47 years old and by definition is a "baby boomer". The
average stock investor has household income of $60,000, compared with the
national average of about $33,000. I believe the stock market will continue to
benefit from the aging and relative prosperity of the baby boomer bunch, to
which I belong, although there will be periodic declines as the market adjusts
to changing circumstances.
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Some market observers express caution and concern over the market's
prospects because of record-high valuations. Indeed, the market is not
"dirt-cheap". However, not all the stocks that we favor in the large cap growth
sector are pricey. Within our universe, there are a handful of essentially fully
priced issues, mostly in the technology sector. The point is that we can still
find good values in the market. What's more, technology stocks are not the only
stocks that go up. However, if the market is fighting the Fed and higher
interest rates, then we could have a ground war with a lot of casualties. If the
"G-Man" can perform the trick of slowing the economy and the stock market with
one interest rate tightening, maybe two, then I believe the baby boomer bunch
will buy stocks with enough urgency to drive the market higher. You know I do
not believe in market timing, so you should not dwell on my market
prognostications. I don't. I do feel an obligation, however, to tell you to keep
your expectations in check.
PORTFOLIO HIGHLIGHTS
The highlight reel from the fourth quarter and the year was lengthy.
Investors ignored rising oil prices and interest rates, preferring to focus on
strong profit growth and continued low levels of overall inflation as measured
by the CPI. The keyword for the fourth quarter, if there was one, was
"wireless." Reports of robust sales of wireless handsets and oh so bright
prospects for wireless data and Internet access created a feeding frenzy as
investors chased anything remotely tied to the wireless world. Our investments
in Qualcomm (CDMA chipsets) and Nokia (handsets and infrastructure) were two of
the most sought after wireless darlings as the former rose four-fold during the
quarter and the latter more than doubled. Of course, the Internet plays
continued to attract crowds, with Sun Microsystems (client servers), EMC (data
storage) and Cisco Systems (routers) sharing center stage, rising 67%, 53% and
56% respectively. Corning (fiber optics) was added to the portfolio and made a
nice contribution to our positive performance, showing a gain of 36%.
Traditional media stocks had a solid quarter led by holdings such as
Comcast (up 27%), Time Warner (up 19%), CBS (up 38%), The New York Times (up
31%) and McGraw-Hill (up 27%). Our advertising agency stocks participated in the
rally with Interpublic Group rising 40% and Omnicom Group up 26%. Additionally,
it was a good quarter for our brick and mortar retailers with Home Depot and
Tiffany each gaining about 50%. Even though interest rates rose, our holdings of
financial services stocks such as Marsh & McLennan (up 40%), T. Rowe Price (up
35%), Merrill Lynch (up 24%) and Northern Trust (up 27%) put in a good showing.
The weak sector of the Fund was our drug stock holdings. Most of these issues
were down for the quarter save Amgen (up 47%) and Warner-Lambert (up 23%). As
you may know, Warner-Lambert is the subject of a takeover battle involving
American Home Products and Pfizer. In fact, Procter & Gamble has also been
involved in the fray. We added to our lagging drug stock investments during the
quarter, feeling the group was undervalued.
As some of you may recall, we have historically limited our investments in
a single industry sector to 25% of the portfolio. Technology stocks ended the
year with a weighting in the S&P 500 Index (our benchmark) of close to 30%. We
want to avoid being structurally underweight in this important sector so we have
modified our diversification strategy somewhat. The new ceiling is 25% of the
portfolio or a
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weighting relative to the S&P 500 Index of 125%, whichever is higher. For
example, if technology represents 20% of the Index, then we cannot go higher
than 25%. However, if technology represents 30% of the Index, then we can go as
high as 30% times 1.25, or 37.8%. We believe this is the best option for keeping
the portfolio diversified without forcing us to underweight an important area
for growth investors. If technology stocks continue to gain a larger weighting,
say 40% of the Index, then we could have a performance problem if we were stuck
at 25%.
LOOKING AHEAD
While we do not know how long this market will continue to bless some
pretty darn high, even ridiculous, valuations for some stocks, we feel like the
market will lose its patience pretty quickly if interest rates keep drifting
higher. We strongly take issue with investors that ignore valuations and dismiss
the importance of earnings. To do so is to court disaster. In my ever so humble
opinion, many of today's Internet IPOs are sad excuses for public companies.
What amazes me is that so many people have been so willing to invest so much
money in companies that lose so much money.
Last year was a record year for mergers and acquisitions by a country
mile. Expect this trend to continue. Recent merger announcements have been
gargantuan in size and strategic in nature. Some are hostile. Vodafone is
battling for Mannesmann and Pfizer is fighting for Warner-Lambert. We have old
and new telecommunications (US West and Qwest), old and new financial services
(U.S. Trust and Schwab) and the recently announced old and new media (Time
Warner and AOL). It is a global economy and companies are merging to expand
footprints, leverage research, buy technology and eliminate competitors. Any
company is game.
While the list of growth stocks ripe for picking is not as long as last
year's, we can still find attractively priced stocks. Our ideal company has
strong double digit earnings growth prospects for several years and a price to
earnings multiple with room to expand. Our best investments of last year, such
as Sun Microsystems, Texas Instruments and EMC, were just such companies.
Presently, we are favoring some laggards among the drug, financial services and
telecommunications sectors. Some of last year's strongest stocks should exhibit
solid earnings growth but it is asking too much to expect their multiples to
expand from here.
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.
CISCO SYSTEMS INC. (CSCO - $107.125 - NASDAQ) 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 expect significant growth in earnings to continue
over the next few years.
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CLEAR CHANNEL COMMUNICATIONS INC. (CCU - $89.25 - NYSE) is one of the top two
radio broadcasters, along with Infinity Broadcasting (which is 80% owned by
CBS). The company is also a leader in outdoor advertising. Both markets are
strong, reflecting the good national economy and heavy advertising by new
Internet companies as they strive to develop brand awareness. Radio ad rates are
low compared to other media such as television and newspapers, which gives radio
operators a degree of pricing protection. CCU is acquiring AMFM (AFM - $78.25 -
NYSE) (formerly Chancellor Broadcasting), which will further set Clear Channel
and Infinity apart as the heavyweights in the radio business.
EMC CORP. (EMC - $109.25 - NYSE) is the leading provider of enterprise wide data
storage products. Storage has become a high growth market in today's information
based economy. Electronic commerce requires massive amounts of storage, which
has given EMC a tremendous business opportunity. We believe EMC is the
technology leader in enterprise storage (competitors are IBM, Hitachi and Sun
Microsystems) and is leading the field in introducing Storage Area Networks
("SANs"). EMC is the vendor of choice for Internet Service Providers ("ISPs"),
just as Cisco is for routers and Sun is for client servers. We expect strong
double-digit growth in the foreseeable future.
HOME DEPOT INC. (HD - $68.5625 - NYSE) continues to take market share in the
home improvement retailing segment, in which it is the leader by a wide margin.
HD does not rest on its laurels. The company is testing a smaller format store
known as Villager's Hardware, which competes with small hardware stores. The
company continues to roll out Expo Design Centers and is expanding into
institutional facilities maintenance. Finally, Home Depot is developing an
Internet sales facility that will leverage the company's brand beyond
traditional retail outlets.
INTEL CORP. (INTC - $82.3125 - 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. We expect earnings to grow at a double-digit
rate based on continued mid-teen growth in personal computer shipments.
INTERNATIONAL BUSINESS MACHINES CORP. (IBM - $108.00 - NYSE) is a leading
supplier of hardware, software and outsourcing services for the computer
industry. Over 60% of the company's revenues now come from relatively higher
margin software and service businesses. IBM is well positioned as an electronic
commerce solutions provider, which also provides a platform to cross-sell the
company's many products. We expect the company to grow earnings per share going
forward.
MARSH & MCLENNAN COMPANIES INC. (MMC - $95.6875 - 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 to
continue based on sustained strong results at Putnam, albeit slower than last
year, and some modest improvement in the company's traditional insurance
brokerage business.
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MEDIAONE GROUP INC. (UMG - $76.8125 - NYSE) is being acquired by AT&T (T -
$50.8125 - NYSE) as that company continues to build and enhance its facilities
to offer one stop shopping for telecommunications services. Upon completion of
the merger, AT&T will become the nation's largest provider of cable television
services. Under the leadership of C. Michael Armstrong, AT&T's growth rate has
begun to improve. The company wants to expand beyond being just a long distance
provider. They are now a major provider of wireless telecommunications services
(both cellular and PCS) and traditional landline long distance. The new AT&T is
a major provider of cable television services and Internet access.Additionally,
they will use the cable plant to offer local telephone service.
MELLON FINANCIAL CORP. (MEL - $34.0625 - NYSE) is one of the largest asset
managers in the country. In addition to the Bank's asset gathering arm, their
Dreyfus and Boston Company subsidiaries continue to grow and prosper. New
management is shedding non-core assets to focus on the company's highest margin
and best growth opportunities. Fees represent over 60% of revenues and that
number should grow as the year progresses. The bank prefers to remain
independent but it is an attractive property to financial services companies
seeking to boost their asset manager businesses.
NORTHERN TRUST CORP. (NTRS - $53.00 - NASDAQ) is one of an elite group of
institutions with a major presence in the wealth management market for high net
worth individuals and families. The company has established a network of offices
in the primary wealth markets across the country (Palm Beach, Beverly Hills,
etc...) and continues to build its fee income in a methodical way. We believe
earnings will continue to grow, powered by growth in assets under management,
which exceed $200 billion. We regard NTRS as a trophy property within the
banking sector.
STATE STREET CORP. (STT - $73.0625 - NYSE) is a leading provider of financial
services to mutual funds and other institutional investors. The company is the
third largest custodian of assets with $6 trillion under custody. Additionally,
State Street is a major asset manager itself with $574 billion under management.
The company is focused on these two business lines and recently exited the
corporate lending business altogether. We believe this enhances the company'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.
SUN MICROSYSTEMS INC. (SUNW - $77.4375 - NASDAQ) is a leading provider of
hardware and software for network based distributed computing systems. While
most of the company's revenue is derived from UNIX-based workstations and client
servers, its JAVA operating software is gaining in popularity with software
writers. Sun Microsystems has entered into a joint venture with America Online,
which provides SUNW with a platform to enhance its presence in electronic
commerce. As the top supplier of client server computers to Internet Service
Providers ("ISPs"), SUNW is a major beneficiary of continued Internet growth.
TEXAS INSTRUMENTS INC. (TXN - $96.875 - 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
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memory chip ("DRAM") cycle and defense businesses. We believe the digital signal
processor ("DSP") chip business, in which TXN is the leader, will continue to
grow rapidly in the foreseeable future.
TIME WARNER INC. (TWX - $72.4375 - NYSE) owns one of the finest collections of
media assets in the world. In addition to being the largest operator of cable
television systems, the company is a leading content provider through its
ownership of CNN, Warner Brothers, HBO, Turner Broadcasting, The Cartoon Channel
and other premium and basic cable networks. Time Warner's media empire extends
to music and publishing, where it is a leader in both. The company's business
fundamentals are the best they have been in years with double digit growth in
operating cash flow expected to continue for the foreseeable future. A merger
with America Online (AOL - $75.875 - NYSE) is pending.
WARNER-LAMBERT CO. (WLA - $81.9375 - NYSE) is a diversified consumer products
and pharmaceutical company. The company is the target in a takeover battle
involving American Home Products, Pfizer and Procter & Gamble. Warner-Lambert
shareholders are the winners in this wrestling match. We expect to know the
outcome of the contest in the next couple of months. In the meantime, business
trends are strong, powered by the blockbuster drug, Lipitor.
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.
INTERNET
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Asset Management Inc.,
the Gabelli Mutual Funds, IRAs, 401(k)s, quarterly reports, closing prices and
other current news. You can send us e-mail at [email protected].
SHAREHOLDER MEETING
We are pleased to report that the shareholders of The Gabelli Growth Fund
overwhelmingly approved the proposal to create additional classes of shares for
the Fund. The creation of new classes of shares provides the Fund with
distribution alternatives that address the needs of various types of investors.
The offering of new classes of shares should also enhance the potential for the
Fund to attract additional investors in a manner that could provide added
benefits for all shareholders of the Fund. The existing class of shares have
been redesignated as Class AAA shares. Presently, no introduction date has been
established for the new classes of shares. The offering of new classes of shares
will not diminish the ability of current shareholders to purchase and redeem
Class AAA shares at net asset value.
10
<PAGE>
IN CONCLUSION
We have a Presidential election this year, and it seems like there are
more "debates" than usual. Unfortunately, more people would rather watch Regis
(is there a Regis.com?) give away money than hear our prospective leaders take
shots at each other. Maybe that is because Presidential debates do not seem
Presidential. Perhaps because of the strong stock market and economy, and
relative peace in the world, the questions and answers seem petty, not
Presidential. Too many questions have to do with such major economic and foreign
policy issues as negative campaigning, college loans, gays in the military and
campaign finance reform. The answers frequently seem scripted. The candidates
are not good actors. In a world of sound bites and video clips, they are
carefully trying to project the right image. Of course, in the business world
image is important too. The Silicon Valley look exemplified by Steve Jobs of
Apple has become the dress code for high tech CEOs and Wall Street fund managers
that want to identify with that crowd. You have seen it. They wear black
turtlenecks under black jackets with black pants. They look like Greenwich
Village jazz musicians from the sixties. I am reminded of Bob Fosse, Hugh Hefner
and Steve McQueen. I have personally resisted this Wall Street move to e-fashion
and only hope it won't hamper our performance. If Alan Greenspan ever shows up
for his Humphrey-Hawkins testimony, wearing nothing but black, then sell
everything.
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 omitted]
HOWARD F. WARD, CFA
Portfolio Manager
January 31, 2000
- ---------------------------------------------------------------------
TOP TEN HOLDINGS
DECEMBER 31, 1999
-----------------
Home Depot Inc. EMC Corp.
Marsh & McLennan Companies Inc. Cisco Systems Inc.
Sun Microsystems Inc. MediaOne Group Inc.
Texas Instruments Inc. Warner-Lambert Inc.
Time Warner Inc. State Street Corp.
- ---------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
11
<PAGE>
THE GABELLI GROWTH FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS -- 98.2%
BROADCASTING -- 5.0%
1,110,600 CBS Corp.+ ..................... $ 35,119,378 $ 71,008,988
986,600 Clear Channel
Communications Inc.+ ......... 48,903,275 88,054,050
------------ -----------
84,022,653 159,063,038
------------ -----------
BUSINESS SERVICES -- 5.9%
1,135,000 Automatic Data
Processing Inc. .............. 35,664,218 61,148,125
1,328,100 Interpublic Group
of Companies Inc. ............ 35,241,346 76,614,769
372,000 Omnicom Group Inc. ............. 20,682,950 37,200,000
145,000 Young & Rubicam Inc. ........... 4,575,000 10,258,750
------------ -----------
96,163,514 185,221,644
------------ -----------
CABLE -- 3.9%
620,000 Comcast Corp., Cl. A,
Special ..................... 24,203,497 31,348,750
1,200,000 MediaOne Group Inc.+ .......... 51,742,565 92,175,000
------------ -----------
75,946,062 123,523,750
------------ -----------
COMMUNICATIONS EQUIPMENT -- 11.7%
906,500 Cisco Systems Inc.+ ............ 39,162,709 97,108,812
520,000 Corning Inc. ................... 49,185,130 67,047,500
825,000 Lucent Technologies Inc. ....... 52,626,336 61,720,312
220,000 Motorola Inc. .................. 30,891,200 32,395,000
250,000 Nokia Corp., Cl. A, ADR ........ 24,021,391 47,500,000
359,000 Qualcomm Inc.+ ................. 14,557,267 63,228,875
------------ -----------
210,444,033 369,000,499
------------ -----------
COMPUTER HARDWARE -- 8.5%
570,000 Dell Computer Corp.+ ........... 11,561,645 29,070,000
380,000 Hewlett-Packard Co. ............ 39,163,159 43,296,250
820,000 International Business
Machines Corp. ................ 70,240,984 88,560,000
1,400,000 Sun Microsystems Inc.+ ......... 17,690,852 108,412,500
------------ -----------
138,656,640 269,338,750
------------ -----------
COMPUTER SOFTWARE AND SERVICES -- 5.5%
540,600 Computer Sciences Corp.+ ....... 28,664,915 51,154,275
900,000 EMC Corp.+ ..................... 27,883,621 98,325,000
205,000 Microsoft Corp.+ ............... 11,397,945 23,933,750
------------ -----------
67,946,481 173,413,025
------------ -----------
ELECTRONICS -- 6.2%
1,080,000 Intel Corp. .................... 62,437,641 88,897,500
1,112,000 Texas Instruments Inc. ......... 54,490,831 107,725,000
------------ -----------
116,928,472 196,622,500
------------ -----------
MARKET
SHARES COST VALUE
------ ----- --------
ENTERTAINMENT -- 3.4%
1,400,000 Time Warner Inc. .............. $ 73,027,511 $ 101,412,500
90,000 Viacom Inc., Cl. B+ ........... 3,470,429 5,439,375
------------ -------------
76,497,940 106,851,875
------------ -------------
FINANCIAL SERVICES -- 13.7%
1,154,500 Marsh & McLennan
Companies Inc................ 67,809,936 110,471,219
2,341,000 Mellon Financial Corp. ........ 57,071,979 79,740,312
575,000 Merrill Lynch & Co. Inc. ...... 41,187,347 48,012,500
1,660,000 Northern Trust Corp. .......... 48,815,181 87,980,000
1,219,400 State Street Corp. ............ 69,313,361 89,092,413
473,500 T. Rowe Price Associates Inc. 15,252,211 17,489,906
------------ -------------
299,450,015 432,786,350
------------ -------------
HEALTH CARE -- 14.1%
1,338,000 Amgen Inc.+ ...................... 41,940,546 80,363,625
720,000 Baxter International Inc. ........ 44,402,319 45,225,000
624,000 Bristol-Myers Squibb Co. ......... 35,691,208 40,053,000
297,000 Johnson & Johnson ................ 22,732,996 27,658,125
695,000 Lilly (Eli) & Co. ................ 48,785,945 46,217,500
601,000 Merck & Co. Inc. ................. 35,667,904 40,304,563
830,000 Monsanto Co. ..................... 34,348,935 29,568,750
909,000 Pfizer Inc. ...................... 27,813,140 29,485,688
360,000 Schering-Plough Corp. ............ 17,103,523 15,187,500
1,094,000 Warner-Lambert Co. ............... 68,632,365 89,639,625
------------ -------------
377,118,881 443,703,376
------------ -------------
PUBLISHING -- 7.2%
506,000 Dow Jones & Co. Inc. .......... 32,182,672 34,408,000
690,000 Gannett Co. Inc. .............. 36,491,130 56,278,125
460,000 Knight-Ridder Inc. ............ 25,316,233 27,370,000
564,000 McGraw-Hill Companies Inc. 18,452,212 34,756,500
938,000 New York Times Co., Cl. A ..... 27,055,964 46,079,250
530,000 Tribune Co. ................... 11,609,158 29,183,125
------------ -------------
151,107,369 228,075,000
------------ -------------
RETAIL -- 8.8%
2,126,577 Home Depot Inc................. 24,146,127 145,803,436
954,000 Lowe's Companies Inc........... 33,911,124 57,001,500
854,200 Tiffany & Co................... 18,999,634 76,237,350
------------ -------------
77,056,885 279,042,286
------------ -------------
SATELLITE -- 1.6%
520,000 General Motors
Corp., Cl. H+................ 48,405,646 49,920,000
------------ -------------
See accompanying notes to financial statements.
12
<PAGE>
THE GABELLI GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MARKET
SHARES COST VALUE
------ ---- -------
TELECOMMUNICATIONS -- 2.7%
900,000 MCI WorldCom Inc.+ ............ $ 52,007,126 $ 47,756,250
785,000 Vodafone AirTouch
plc, ADR .................... 36,910,414 38,857,500
-------------- --------------
88,917,540 86,613,750
-------------- --------------
TOTAL COMMON STOCKS 1,908,662,131 3,103,175,843
-------------- --------------
PRINCIPAL
AMOUNT
---------
U.S. GOVERNMENT OBLIGATIONS -- 1.5%
$47,528,000 U.S. Treasury Bills,
5.12% to 5.42%++,
due 01/13/00 to 03/30/00 47,024,098 47,031,323
-------------- --------------
TOTAL
INVESTMENTS -- 99.7% $1,955,686,229 3,150,207,166
==============
OTHER ASSETS AND
LIABILITIES (NET)-- 0.3% ..................... 8,241,016
--------------
NET ASSETS -- 100.0%
(67,912,387 shares outstanding) .............. $3,158,448,182
==============
NET ASSET VALUE,
OFFERING AND REDEMPTION
PRICE PER SHARE .............................. $46.51
======
VALUE
-----------
------------------------
For Federal tax purposes:
Aggregate cost................... $1,957,118,912
==============
Gross unrealized appreciation ... $1,200,997,914
Gross unrealized depreciation ... (7,909,660)
--------------
Net unrealized appreciation ..... $1,193,088,254
==============
-----------------------
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR - American Depositary Receipt.
See accompanying notes to financial statements.
13
<PAGE>
THE GABELLI GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- -------------------------------------------------
ASSETS:
Investments, at value
(Cost $1,955,686,229)...................... $ 3,150,207,166
Cash......................................... 42,842
Dividends receivable......................... 1,219,950
Receivable for investments sold.............. 290,178
Receivable for Fund shares sold.............. 12,747,227
---------------
TOTAL ASSETS 3,164,507,363
---------------
LIABILITIES:
Payable for investments purchased ........... 116,437
Payable for Fund shares redeemed ............ 2,220,158
Payable for investment advisory fees ........ 2,521,143
Payable for distribution fees ............... 630,286
Payable to custodian ........................ 49,500
Other accrued expenses ...................... 521,657
---------------
TOTAL LIABILITIES ........................... 6,059,181
---------------
NET ASSETS applicable to 67,912,387
shares outstanding ........................ $ 3,158,448,182
===============
NET ASSETS CONSIST OF:
Shares of beneficial interest, at par value $ 679,124
Additional paid-in capital .................. 1,964,680,804
Distributions in excess of net realized gain
on investments ............................ (1,432,683)
Net unrealized appreciation on investments .. 1,194,520,937
---------------
TOTAL NET ASSETS ............................ $ 3,158,448,182
===============
NET ASSET VALUE, offering and redemption
price per share ($3,158,448,182 /
67,912,387 shares outstanding; unlimited
number of shares authorized of
$0.01 par value)........................... $46.51
======
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- -------------------------------------------------
INVESTMENT INCOME:
Dividends ................................... $ 14,339,216
Interest .................................... 1,177,460
---------------
TOTAL INVESTMENT INCOME ..................... 15,516,676
---------------
EXPENSES:
Investment advisory fees .................... 22,489,007
Distribution fees ........................... 5,622,252
Shareholder services fees ................... 1,652,491
Custodian fees .............................. 305,623
Legal and audit fees ........................ 105,928
Trustees' fees .............................. 80,235
Miscellaneous expenses ...................... 600,033
---------------
TOTAL EXPENSES .............................. 30,855,569
---------------
NET INVESTMENT LOSS ......................... (15,338,893)
---------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments ............ 326,900,048
Net change in unrealized appreciation
on investments ............................ 616,076,849
---------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS ............................... 942,976,897
---------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................... $ 927,638,004
===============
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- ------------------
<S> <C> <C>
OPERATIONS:
Net investment loss ......................... $ (15,338,893) $ (4,818,377)
Net realized gain on investments ............ 326,900,048 87,865,238
Net change in unrealized appreciation on investments 616,076,849 299,383,776
-------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 927,638,004 382,430,637
-------------- -------------
DISTRIBUTION TO SHAREHOLDERS:
Net realized gain on investments ............ (312,444,198) (87,865,238)
In excess of net realized gain on investments -- (202,354)
-------------- -------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ......... (312,444,198) (88,067,592)
-------------- -------------
SHARE TRANSACTIONS:
Net increase in net assets from shares of beneficial interest transactions 678,698,282 626,207,999
-------------- -------------
NET INCREASE IN NET ASSETS .................. 1,293,892,088 920,571,044
NET ASSETS:
Beginning of period ......................... 1,864,556,094 943,985,050
-------------- -------------
End of period ............................... $3,158,448,182 $1,864,556,094
============== ==============
</TABLE>
See accompanying notes to financial statements.
14
<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, LLC
(the "Adviser"). Securities and assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of 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. Debt instruments
having a maturity greater than 60 days are valued at the highest bid price
obtained from a dealer maintaining an active market in those securities.
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.
For the year ended December 31, 1999, reclassifications were made to increase
undistributed net investment loss for $15,338,893 and decrease distributions in
excess of net realized gain on investments for $15,289,562 with an offsetting
adjustment to additional paid-in capital.
15
<PAGE>
THE GABELLI GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES. The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. As a result, a Federal income tax provision is not required.
3. INVESTMENT ADVISORY AGREEMENT. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00% of the value of the Fund's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio, oversees the administration of all
aspects of the Fund's business and affairs and pays the compensation of all
Officers and 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, 1999, the Fund incurred distribution costs payable to Gabelli
&Company, Inc., an affiliate of the Adviser, of $5,622,252, or 0.25% of average
daily net assets, the annual limitation under the Plan. Such payments are
accrued daily and paid monthly.
5. PORTFOLIO SECURITIES. Purchases and sales of securities for the year ended
December 31, 1999, other than short term securities, aggregated $1,461,825,293
and $1,158,433,632, 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, 1999.
7. SHARES OF BENEFICIAL INTEREST. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Shares sold ................................... 23,312,269 $ 964,769,065 31,588,783 $ 992,367,041
Shares issued upon reinvestment of dividends .. 6,422,964 292,802,709 2,299,838 80,836,284
Shares redeemed ............................... (14,494,427) (578,873,492) (14,188,364) (446,995,326)
---------- ------------- ---------- -------------
Net increase .............................. 15,240,806 $ 678,698,282 19,700,257 $ 626,207,999
========== ============= ========== =============
</TABLE>
8. NEW SHARE CLASSES. On March 9, 1999, the Board of Trustees of the Fund
approved a Rule 18f-3 Multi-Class Plan relating to the creation of three
additional classes of shares of the Fund - Class A Shares, Class B Shares and
Class C Shares (the "New Share Classes"). The existing class of shares was
redesignated as Class AAA Shares. In addition, the Board had also approved an
Amended and Restated Distribution Agreement, Rule 12b-1 plans for each of the
New Share Classes and an Amended and Restated Plan of Distribution for the
existing class of shares (Class AAA Shares) to be effective upon the
commencement of the offering of the New Share Classes. On November 30, 1999,
shareholder approval permitting the Fund to offer additional classes of shares
was attained. The New Share Classes are currently not being offered to the
public.
16
<PAGE>
THE GABELLI GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ....... $ 35.40 $ 28.63 $ 24.14 $ 22.16 $ 19.68
---------- ---------- -------- -------- -------
Net investment income (loss)................ (0.23) (0.07) (0.06) 0.03 0.05
Net realized and unrealized ................
gain (loss) on investments ............... 16.50 8.58 10.34 4.27 6.39
---------- ---------- -------- -------- -------
Total from investment operations ........... 16.27 8.51 10.28 4.30 6.44
---------- ---------- -------- -------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income....................... -- -- (0.00)(a) (0.02) (0.05)
In excess of net investment income ......... -- -- (0.00)(a) -- --
Net realized gain on investments ........... (5.16) (1.74) (5.79) (2.30) (3.91)
In excess of net realized gains ............ -- (0.00)(a) (0.00)(a) -- --
---------- ---------- -------- -------- -------
Total distributions ........................ (5.16) (1.74) (5.79) (2.32) (3.96)
---------- ---------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD ............. $ 46.51 $ 35.40 $ 28.63 $ 24.14 $ 22.16
========== ========== ======== ======== =======
Total return+ .............................. 46.3% 29.8% 42.6% 19.4% 32.7%
========== ========== ======== ======== =======
RATIOS TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........ $3,158,448 $1,864,556 $943,985 $609,405 $533,041
Ratio of net investment income (loss).......
to average net assets .................... (0.68)% (0.33)% (0.23)% 0.12% 0.22%
Ratio of operating expenses ................
to average net assets .................... 1.37% 1.41% 1.43% 1.43% 1.44%
Portfiolio turnover rate ................... 52% 40% 83% 88% 140%
- --------------------------------
<FN>
+ 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.
</FN>
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
THE GABELLI GROWTH FUND
REPORT OF PRICEWATERHOUSECOOPERS LLP, 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, 1999, 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 accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States, 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, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
1999 TAX NOTICE TO SHAREHOLDERS (Unaudited)
For the fiscal year ended December 31, 1999, the Fund paid to shareholders, on
December 27, 1999, an ordinary income dividend (comprised of short term capital
gains) totaling $1.50 per share and long term capital gains totaling $3.66 per
share. For the fiscal year ended December 31, 1999, 15.79% of the ordinary
income dividend qualifies for the dividend received deduction available to
corporations.
U.S. GOVERNMENT INCOME:
The percentage of the ordinary income dividend paid by the Fund during fiscal
year 1999 which was derived from U.S. Treasury securities was 1.30%. Such income
is exempt from state and local tax in all states. However, many states,
including New York and California, allow a tax exemption for a portion of the
income earned only if a mutual fund has invested at least 50% of its assets at
the end of each quarter of the Fund's fiscal year in U.S. Government securities.
The Gabelli Growth Fund did not meet this strict requirement in 1999. Due to the
diversity in state and local tax law, it is recommended that you consult your
personal tax advisor as to the applicability of the information provided to your
specific situation.
- --------------------------------------------------------------------------------
18
<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(SM) 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: 5 1/2%
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.
OFFICERS AND PORTFOLIO MANAGERS
Bruce N. Alpert Howard H. Ward, CFS
PRESIDENT AND TREASURER PORFOLIO 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
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This report is submitted for the general information of the shareholders of The
Gabelli Blue Chip Value Fund. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
GAB406Q499SR
[Photo of Mario J. Gabelli omitted]
THE
GABELLI
GROWTH
FUND
ANNUAL REPORT
DECEMBER 31, 1999
