GABELLI INTERNATIONAL GROWTH FUND INC, 497, 1996-02-15

GABELLI INTERNATIONAL GROWTH FUND INC
497, 1996-02-15

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Gabelli International Growth Fund, Inc.
One Corporate Center
Rye, New York 10580-1434
Telephone: 1-800-GABELLI (1-800-422-3554)

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PROSPECTUS

January 30, 1996

Gabelli International Growth Fund, Inc. (the "Fund") is a no-load, open-end,
diversified management investment company which seeks to provide long-term
capital appreciation. The Fund will seek to achieve its objective by investing
primarily in the equity securities of foreign issuers.
See "Investment Objective and Policies."

The Fund has a distribution plan which permits it to pay up to .25% per year
of its average daily net assets for marketing and shareholder services and
expenses. Shares of the Fund may be purchased without a sales load at net asset
value. The minimum initial investment in the Fund is currently $1,000. The Fund
will increase its minimum initial investment to $10,000 when it has either
10,000 shareholders or over $100,000,000 of assets under management. See
"Purchase of Shares." For further information, contact Gabelli & Company, Inc.
at the address or telephone number shown above.

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This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
dated January 30, 1996 (the "Additional Statement") containing additional
information about the Fund has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. For a free
copy, write or call the Fund at the telephone number or address set forth above.

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This Prospectus should be retained
by investors for future reference.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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TABLE OF FEES AND EXPENSES FOR THE FUND(a)
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<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses:

Maximum Sales Load Imposed on Purchases (as a percentage of offering price) ....... None
Maximum Sales Load Imposed on Reinvested Dividends ................................ None
Deferred Sales Load ............................................................... None
Redemption Fees (b) ............................................................... None
Exchange Fees ..................................................................... None

Annual Fund Operating Expenses (as a percentage of average net assets):

Management Fees (c) ............................................................... 1.00%
12b-1 Expenses (d) ................................................................ 0.25%
Other Expenses (e) ................................................................ 1.50%
----
Total Operating Expenses ...................................................... 2.75%
====

Example: 1 year 3 years
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You would pay the following expenses on a $1,000 investment
assuming a 5% annual return $10.61 $33.09
</TABLE>

The information contained in the foregoing table is provided to assist you in
understanding the various direct and indirect costs and expenses that an
investor in the Fund would bear.

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(a) The amounts shown are all estimated. The amounts listed in this example
should not be considered as representative of future expenses, and actual
expenses may be greater or less than those indicated. The expenses and fees
set forth above are based on the results of operations for the period July
6, 1995 through December 31, 1995. Moreover, while the example assumes a 5%
annual return, the Fund's actual performance will vary and may result in an
actual return greater or less than 5%.
(b) Does not include any service fee on wire redemptions that may be imposed by
a shareholder's agent or predesignated bank.
(c) Subject to potential reduction as a result of the expense reimbursement
obligations of the Fund's adviser.
(d) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the rules of the National
Association of Securities Dealers, Inc.
(e) Such expenses include custodian and transfer agency fees and other
customary Fund expenses.

FINANCIAL HIGHLIGHTS

The following table has been audited by Ernst & Young LLP. the Fund's
independent auditors whose unqualified report therein appears in the Statement
of Additional Information.

Selected data for a share of capital stock outstanding for the following
period:

June 30, 1995
(commencement of operations)
through December 31, 1995.
-------------------------

Operating Performance:
Net asset value, beginning of period $10.00
------
Net investment income (loss) (0.03)
Net realized and unrealized gain on securities 1.01
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Total from investment operations 0.98
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Net Asset Value, End of Period $10.98
======
Total Return 2.91%
Ratios to average net assets/supplemental data:
Net assets, end of period (in thousands) $2,096
Ratio of operating expenses to average net assets 2.75%
Ratio of net investment loss to average net assets (1.04%)
Portfolio turnover rate 29.55%
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* Annualized.

+ For the period June 30, 1995 (commencement of operations) through December
31, 1995.

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INVESTMENT OBJECTIVE
AND POLICIES

The investment objective of the Fund is long-term capital appreciation. The
production of any current income is incidental to this objective. As further
described below, the Fund will seek to achieve its objective by investing
primarily in the equity securities of foreign issuers. There can be no assurance
that the Fund's investment objective will be achieved. The Fund's investment
objective is a fundamental policy which may not be changed without the approval
of a majority of the Fund's outstanding voting securities.

Under normal circumstances, the Fund will invest at least 65% of its total
assets in the equity securities of companies located in at least three countries
outside the United States which the Fund's adviser, Gabelli Funds, Inc. (the
"Adviser"), believes are likely to have rapid growth in revenues and earnings
and potential for above-average capital appreciation. The Adviser will seek
companies that have the potential to grow faster than other companies in their
respective equity markets and are priced at attractive valuation levels. Equity
securities in which the Fund may invest include common stocks, preferred stocks,
securities convertible into common stock and securities having common stock
characteristics, such as rights and warrants.

The percentage of the Fund's assets invested in particular countries or
regions will change from time to time in accordance with the judgment of the
Adviser, which may be based on, among other things, consideration of the
political stability and economic outlook of these countries or regions and
prudent allocation among countries and regions in an effort to reduce volatility
in the Fund's portfolio. The Fund expects to invest in the securities of
companies located in developed countries and, to a lesser extent, those located
in emerging markets. Investing in securities issued by companies located in
emerging markets involves not only the risks discussed below with respect to
investing in foreign securities, but also other risks, including exposure to
economic structures that are generally less diverse and mature and to political
systems that can be expected to have less stability than those of developed
countries. See "Risk Factors and Additional Investment Policies" below.

Subject to the Fund's policy of investing at least 65% of its assets in the
equity securities of foreign companies, the Fund may invest in money market
instruments. In cases of abnormal market or economic conditions, the Fund may
invest up to 100% of its assets in money market instruments for temporary
defensive purposes, although the Fund intends to stay invested in securities
satisfying its investment objective to the fullest extent practicable. Money
market instruments include obligations of the U.S. and foreign governments and
their agencies and instrumentalities, commercial paper including bank
obligations, certificates of deposit (including Eurodollar certificates of
deposit) and repurchase agreements. The Fund intends to invest only in money
market instruments that the Adviser believes to be of high quality, i.e., rated
in one of the two highest categories by Moody's Investor Services, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P") or, if unrated,
determined to be equivalent in credit quality by the Adviser. For liquidity
purposes in meeting redemption requests or paying dividends or expenses, the
Fund may also invest its assets in such instruments.

As a diversified investment company, the Fund is subject to the following
limitations as to 75% of its total assets: (a) the Fund may not invest more than
5% of its total assets in the securities of any one issuer, except obligations
of the U.S. government and its agencies and instrumentalities, and (b) the Fund
may not own more than 10% of the outstanding voting securities of any one
issuer.

For hedging purposes only, the Fund may enter into forward foreign currency
exchange transactions, currency swaps, futures contracts and options on futures.
The Fund may also enter into covered call and put options (listed on a U.S.

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securities exchange or written in the over-the-counter market), repurchase
agreements, purchase securities on a when-issued or delayed delivery basis and
lend its portfolio securities. For more information on these and other
practices, see "Risk Factors and Additional Investment Policies" below and
"Investments" in the Additional Statement.

Although the Fund will generally invest for the long-term, investment
securities may be sold from time to time without regard to the length of time
they have been held. It is anticipated that the annual turnover rate for the
Fund will not exceed 75% under normal circumstances.

Mr. Caesar M.P. Bryan is primarily responsible for the day-to-day management
of the Fund. Mr. Bryan has been a Senior Vice President and Portfolio Manager
with GAMCO Investors, Inc., a majority-owned subsidiary of the Adviser, and
Portfolio Manager of Gabelli Gold Fund, Inc. since May 1994. Mr. Bryan served as
Senior Vice President and Portfolio Manager of Lexington Management Corporation
from 1986 until May 1994.

RISK FACTORS AND ADDITIONAL INVESTMENT POLICIES

General

Subject to the Fund's policy of investing at least 65% of its total assets in
securities of foreign companies, the Fund may invest in common stocks, preferred
stocks, convertible securities, depository receipts, bonds, notes and other debt
obligations of any maturity, warrants, options and futures contracts on
securities and securities indices, and securities of companies in bankruptcy or
reorganization. Such securities may be issued by domestic or foreign
corporations or other types of entities, governments or agencies or
instrumentalities of governments or supranational agencies. There is no minimum
rating or credit quality of fixed income securities in which the Fund may
invest. Although up to 25% of the Fund's assets may be invested in lower quality
debt securities, the Fund currently does not expect to invest in excess of 5% of
its assets in fixed income securities rated, at the time of investment, lower
than BBB by S&P or Baa by Moody's or unrated but determined by the Adviser to be
of equivalent quality. Securities rated BBB by S&P or Baa by Moody's, while
considered investment-grade, may have speculative characteristics, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade bonds. The Fund also does not expect to invest in excess of 5% of
its assets in securities of unseasoned issuers (companies that have operated
less than three years), which, due to their short operating history, may have
less information available and may not be as liquid as other securities. The
Fund may also utilize other investment strategies such as short selling, buying
or selling when-issued securities, entering into forward commitments and
engaging in various hedging strategies such as the use of futures and options
and foreign currency transactions, including currency swaps.

Common stocks represent the residual ownership interest in an issuer and are
entitled to the income and increase in the value of the assets and business of
the entity after all of its obligations and preferred stock are satisfied.
Common stocks fluctuate in price in response to many factors, including
historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. Preferred stock has a preference over common stock in liquidation
(and generally dividends as well) but is subordinated to the liabilities of the
issuer in all respects. As a general rule the market value of preferred stock
with a fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk, while the market price of convertible
preferred stock generally also reflects some element of conversion value. Bonds,
debentures, notes and money market instruments such as commercial paper and
bankers acceptances represent obligations of the issuer. Debt securities that

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are convertible into or exchangeable for common or preferred stock are
liabilities of the issuer but are generally subordinated to more senior elements
of the issuer's balance sheet. Although such securities also generally reflect
an element of conversion value, their market value also varies with the interest
rates and perceived risk. Depository receipts and shares are utilized to make
investing in a particular security (usually foreign) more convenient for
investors.

Foreign Securities

Investments in foreign securities involve certain risks not ordinarily
associated with investments in securities of domestic issuers, including
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. In addition, with respect to certain
countries, there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability or diplomatic developments which could
adversely affect investments in those countries.

There may be less publicly available information about a foreign company than
about a U.S. company, and accounting, auditing and financial reporting standards
and requirements may not be comparable. Securities of many foreign companies are
less liquid and their prices more volatile than securities of comparable U.S.
companies. Transaction costs of investing in non-U.S. securities markets are
generally higher than markets in the U.S. There is generally less government
supervision and regulation of exchanges, brokers and issuers than there is in
the U.S. The Fund might have greater difficulty taking appropriate legal action
in non-U.S. courts. Depository receipts that are not sponsored by the issuer may
be less liquid, and there may be less readily available information about the
issuer.

Dividend and interest income from non-U.S. securities will generally be
subject to withholding taxes by the country in which the issuer is located and
may not be recoverable by the Fund or the investor.

Such investments in securities of foreign issuers are frequently denominated
in foreign currencies and because the Fund may temporarily hold uninvested
reserves in bank deposits in foreign currencies, the value of the Fund's assets
as measured in U.S. dollars may be affected favorably or unfavorably by changes
in currency rates and exchange control regulations, and the Fund may incur costs
in connection with conversions between various currencies.

The Adviser will attempt to manage these risks so that such strategies and
investments benefit the Fund, but no assurance can be given that they will be
successfully managed.

Derivative Transactions

As stated below, the Fund may invest in options and warrants, forward foreign
currency exchange contracts, currency swaps, futures contracts and options on
futures. Derivative transactions have certain risks, including imperfect market
correlations, dependence on the credit of the counterparty, possible inability
to enter into offsetting transactions and market fluctuations, that can result
in the Fund being in a worse position than if the transaction had not occurred.
The loss from the Fund's investing in futures and other derivative transactions
is potentially unlimited.

Securities Subject to Reorganization

The Fund may invest in securities for which a tender or exchange offer has
been made or announced and in securities of companies for which a merger,
consolidation, liquidation or reorganization proposal has been announced if, in
the judgment of the Adviser, there is a reasonable prospect of capital
appreciation significantly greater than the brokerage and other transaction
expenses involved. The evaluation of the contingencies associated with such
proposals requires unusually broad knowledge and experience on the part of the
Adviser, which must appraise not only the value of the issuer and its component

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businesses as well as the assets or securities to be received as a result of the
contemplated transaction but also the financial resources and business
motivation of the offeror and the dynamics and business climate when the offer
or proposal is in process. Since such investments are ordinarily short-term in
nature, they will tend to increase the turnover ratio of the Fund thereby
increasing its brokerage and other transaction expenses as well as make it more
difficult for the Fund to meet the tests for favorable tax treatment as a
"Regulated Investment Company" under the Internal Revenue Code of 1986. See
"Dividends, Distributions and Taxes."

Investments in Options, Warrants
and Investment Companies

The Fund may invest up to 5% of its assets in options and up to 5% of its
assets in warrants to buy securities, with no more than 2% invested in unlisted
warrants. The Fund may also invest up to 10% of its assets (5% per issuer) in
securities issued by other unaffiliated investment companies, although the Fund
may not acquire more than 3% of the voting securities of any investment company.
To the extent the Fund invests in other investment companies, the Fund's
shareholders will incur certain duplicative fees and expenses, including
advisory fees.

When-Issued and Delayed Delivery Securities

The Fund may enter into forward commitments for the purchase or sale of
securities, including those offered on a "when-issued" or "delayed delivery"
basis. In such transactions, instruments are bought or sold with payment and
delivery taking place in the future in order to secure what is considered to be
an advantageous yield or price at the time of the transaction. Securities
purchased under a forward commitment are subject to market fluctuation, and no
interest (or dividends) accrues to the Fund prior to the settlement date.

Short Sales

The Fund may make short sales of securities. A short sale is a transaction in
which a Fund sells a security it does not own in anticipation that the market
price of that security will decline. The market value of the securities sold
short of any one issuer will not exceed either 5% of the Fund's total assets or
5% of such issuer's voting securities. The Fund will not make a short sale, if,
after giving effect to such sale, the market value of all securities sold short
exceeds 5% of the value of its assets or the Fund's aggregate short sales of a
particular class of securities exceeds 5% of the outstanding securities of that
class. Short sales may only be made in securities listed on a national
securities exchange. The Fund may also make short sales "against the box"
without regard to such limitations. In this type of short sale, at the time of
the sale, the Fund owns or has the immediate and unconditional right to acquire
at no additional cost the identical security.

If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a capital
gain. Although the Fund's gain is limited to the price at which it sold the
security short, its potential loss is theoretically unlimited.

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Repurchase Agreements

The Fund may invest in repurchase agreements with respect to any securities
it owns. Repurchase agreements are considered loans to the counterparty, and
will be fully collateralized at all times with liquid high grade debt securities
and will only be entered into with financial institutions approved by the Board
of Directors. Repurchase agreements have the risk that collateral may not be
able to be disposed of at a desirable price, delays as a result of bankruptcy of
the counterparty or encumbrances of collateral or restrictions on its
disposition. The term of such agreements is usually from overnight to one week.

Loans of Securities and Borrowings

The Fund may also lend securities to dealers or others and invest the
collateral in obligations of the U.S. government and other liquid high grade
debt securities. Lending of securities can result in a failure to deliver the
original security by the borrower, and similar risks with respect to disposition
of the collateral. Under its current policy, the Fund may borrow from banks for
temporary or emergency purposes or to satisfy redemption requests in amounts not
in excess of 15% of the Fund's total assets, with such borrowing not to exceed
5% of the Fund's total assets for purposes other than satisfying redemption
requests. The Fund will not purchase securities when borrowings exceed 5%.

Forward Currency Exchange Contracts and Currency Swaps

The Fund may enter into forward currency exchange contracts and currency
swaps to protect against the effects of fluctuating rates of currency exchange
and exchange control regulations. Forward currency exchange contracts provide
for the purchase or sale of an amount of a specified currency at a future date.
Currency swaps are agreements to exchange cash flows based on changes in the
values of the reference currencies. Purposes for which such currency
transactions may be used include protecting against a decline in a foreign
currency against the U.S. dollar between the trade date and settlement date when
the Fund purchases or sells non-U.S. dollar-denominated securities, locking in
the U.S. dollar value of dividends and interest on securities held by the Fund
and generally protecting the U.S. dollar value of securities held by the Fund
against exchange rate fluctuation. While such forward contracts and currency
swaps may limit losses to the Fund as a result of exchange rate fluctuation,
they will also limit any gains that may otherwise have been realized. Currency
transactions include the risk that securities losses could be magnified by
changes in the value of the currency in which a security is denominated relative
to the U.S.
dollar.

Illiquid and Restricted Securities

The Fund may invest up to 15% of its net assets in illiquid securities as to
which market quotations are not readily available, including repurchase
agreements with more than seven days to maturity. Within this 15% limitation,
the Fund may invest up to 10% of its net assets in securities with legal or
contractual restrictions on resale. Up to 5% of the Fund's net assets may be
invested in the securities of issuers which, together with any predecessor, have
been in continuous operation for less than three years. Nevertheless, to the
extent it can do so consistent with the foregoing limitations, the Fund may
invest in non-publicly traded securities, including securities that are not
registered under the Securities Act of 1933, as amended, but that can be offered
and sold to qualified institutional buyers under Rule 144A under that Act. The
Board of Directors has adopted guidelines and delegated to the Adviser, subject
to the supervision of the Board of Directors, the daily function of determining
and monitoring the liquidity of Rule 144A securities. Rule 144A securities may
become illiquid if qualified institutional buyers are not interested in
acquiring the securities. Disposition of illiquid securities often takes more

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time than for more liquid securities, may result in higher selling expenses and
may not be able to be made at desirable prices.

See the Additional Statement for more information about these securities and
investment practices.

MANAGEMENT OF THE FUND

The Fund's Board of Directors (who, with its officers, are described in the
Additional Statement) has overall responsibility for the management of the Fund.
The Board of Directors decides upon matters of general policy and reviews the
actions of Gabelli & Company, Inc. (the "Distributor") and the Adviser. Pursuant
to an Investment Advisory Contract with the Fund, the Adviser, under the
supervision of the Fund's Board of Directors, provides a continuous investment
program for the Fund's portfolio; provides investment research and makes and
executes recommendations for the purchase and sale of securities; provides
facilities and personnel, and the exercise of all voting and other rights
appertaining thereto required for the Fund's administrative management;
supervises the performance of administrative and professional services provided
by others; and pays the compensation of the Administrator and all officers and
directors of the Fund who are its affiliates. As compensation for its services
and the related expenses borne by the Adviser, the Fund pays the Adviser a fee,
computed daily and payable monthly, on an annual basis, of 1.00% of the Fund's
average daily net assets, which is higher than that paid by most mutual funds.
The Adviser is located at One Corporate Center, Rye, New York 10580-1434.

The Adviser was formed in 1980 and as of December 31, 1995 acted as
investment adviser to the following funds with aggregate assets of $4.1 billion:

Net Assets
12/31/95
Open-end funds: (in millions)
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The Gabelli Asset Fund $1,090
The Gabelli Growth Fund 526
The Gabelli Value Fund Inc. 15
The Gabelli Small Cap
Growth Fund 486
The Gabelli Equity Income Fund 229
The Gabelli U.S. Treasury
Money Market Fund 236
The Gabelli ABC Fund 21
The Gabelli Global
Telecommunications Fund 123
The Gabelli Global Interactive
Couch Potato(R) Fund 31
The Gabelli Global Convertible
Securities Fund 16
Gabelli Gold Fund, Inc. 15
Gabelli Capital Asset Fund 26
Gabelli International Growth Fund, Inc. 2

Closed-end funds:
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The Gabelli Equity Trust Inc. 1,034
The Gabelli Global Multimedia Trust Inc. 90
The Gabelli Convertible Securities Fund, Inc. 89

Gabelli & Company, Inc., the Distributor of each open-end fund's shares, is
an indirect majority owned subsidiary of the Adviser. GAMCO Investors, Inc.
("GAMCO"), a majority owned subsidiary of the Adviser, acts as investment
adviser for individuals, pension trusts, profit sharing trusts and endowments.
As of December 31, 1995, GAMCO had aggregate assets in excess of $5 billion
under its management. Teton Advisers LLC, an affiliate of the Adviser, acts as
investment adviser to The Westwood Funds with assets under management in excess
of $38 million. Mr. Mario J. Gabelli may be deemed a "controlling person" of the
Adviser and the Distributor on the basis of his ownership of stock of the
Adviser.

In addition to the fee of the Adviser, the Fund is responsible for the
payment of all its other operating expenses, which include, among other things,
expenses for legal and independent auditor services, costs of printing all
materials sent to shareholders, charges of State Street Bank and Trust Company
(the "Custodian", "Transfer Agent" and "Dividend Paying Agent") and any other
persons hired by the Fund, securities registration fees, fees and expenses of

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unaffiliated directors, accounting and printing costs for reports and similar
materials sent to shareholders, membership fees in trade organizations, fidelity
bond and liability coverage for the Fund's directors, officers and employees,
interest, brokerage and other trading costs, taxes, expenses of qualifying the
Fund for sale in various jurisdictions, expense of its distribution plan adopted
under Rule 12b-1, expenses of personnel performing shareholder servicing
functions, litigation and other extraordinary or non-recurring expenses and
other expenses properly payable by the Fund.

The Additional Statement contains further information about the Investment
Advisory Contract, including a more complete description of the advisory and
expense arrangements and administrative provisions.

Affiliates of the Adviser may, in the ordinary course of their business,
acquire for their own account or for the accounts of their advisory clients,
significant (and possibly controlling) positions in the securities of companies
that may also be suitable for investment by the Fund. The Adviser does not
believe that the investment activities of its affiliates will have a material
adverse effect upon the Fund in seeking to achieve its investment objective.

The Adviser has entered into an Administration Contract with Furman Selz LLC
(the "Administrator") pursuant to which the Administrator provides certain
administrative services necessary for the Fund's operations. These services
include the preparation and distribution of materials for meetings of the Fund's
Board of Directors, compliance testing of Fund activities and assistance in the
preparation of proxy statements, reports to shareholders and other
documentation. The Adviser pays the Administrator a monthly fee at the annual
rate of .10% of the average net assets of the Gabelli funds under its
administration (with a minimum annual fee of $40,000 per portfolio and subject
to reduction to .075% on assets in excess of $350 million and subject to further
reduction to .06% on assets in excess of $600 million) for such services, which,
together with the services to be rendered, are subject to negotiation between
the parties. Both parties retain the right unilaterally to terminate the
arrangement on not less than 60 days' notice. The Administrator has its office
at 230 Park Avenue, New York, New York 10169.

DISTRIBUTION PLAN

The Board of Directors of the Fund has approved, on behalf of the Fund as
being in the best interests of the Fund and its shareholders, and the Fund's
sole shareholder has approved, a Distribution Plan which authorizes payments by
the Fund in connection with the distribution of its shares at an annual rate, as
determined from time to time by the Board of Directors, of up to .25% of the
Fund's average daily net assets. Payments may be made in subsequent years for
expenses incurred in prior years. The potential for such subsequent payments is
a contingent liability for which no amount is currently being recorded because
the Fund does not have a reasonable basis on which to conclude that the Board of
Directors will approve such payment. Interest, carrying or other financing
charges on unreimbursed amounts could also be considered a distribution expense
if the Board so determined and would in such event also potentially be subject
to carry over to a future year upon specific approval by the Board.

Payments may be made by the Fund under its Distribution Plan for the purpose
of financing any activity primarily intended to result in the sale of its shares
as determined by the Board of Directors. Such activities typically include
advertising; compensation for sales and marketing activities of the Distributor,
banks, broker-dealers and service providers; shareholder account servicing;
production and dissemination of prospectus and sales and marketing materials;
and capital or other expenses for associated equipment, rent, salaries, bonuses,
interest and other overhead. To the extent any activity is one which the Fund
may finance without its Distribution Plan, the Fund may also make payments to

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finance such activity outside of the Plan and not be subject to its limitations.

The Plan has been implemented by written agreements between the Fund and/or
the Distributor and each person (including the Distributor) to which payments
may be made. Administration of the Plan is regulated by Rule 12b-1 under the
Investment Company Act of 1940, which includes requirements that the Board of
Directors receive and review at least quarterly reports concerning the nature
and qualification of expenses for which payments are made, that the Board of
Directors approve all agreements implementing the Plan and that the Plan may be
continued from year to year only if the Board of Directors concludes at least
annually that continuation of each Plan is likely to benefit shareholders.

The Board of Directors has implemented the Plan by having the Fund enter into
an agreement with the Distributor authorizing reimbursement of expenses
(including overhead) incurred by the Distributor and its affiliates up to the
.25% rate authorized by the Plan for distribution activities of the types listed
above. To the extent any of these payments are based on allocations by the
Distributor, the Fund may be considered to be participating in joint
distribution activities with other funds distributed by the Distributor. Any
such allocations would be subject to approval by the Fund's non-interested
Directors and would be based on such factors as the net assets of the Fund, the
number of shareholder inquiries and similar pertinent criteria.

PURCHASE OF SHARES

Shares of the Fund are currently offered without a sales load as an
investment vehicle for individuals, institutions, fiduciaries and retirement
plans.

The minimum initial investment in the Fund is currently $1,000. The Fund will
increase its minimum initial investment to $10,000 when it has either 10,000
shareholders or over $100,000,000 of assets under management. There is no
minimum for subsequent investments in the Fund. Investments through an
Individual Retirement Account or other retirement plans, however, have different
requirements (see "Retirement Plans"). Shares of the Fund are sold at the net
asset value per share next determined after receipt of an order by the Fund's
Distributor or transfer agent in proper form with accompanying check or bank
wire or other payment arrangements satisfactory to the Fund. Although most
shareholders elect not to receive stock certificates, certificates for whole
shares only can be obtained on specific written request to the transfer agent.

Shares of the Fund may also be purchased through shareholder agents that are
not affiliated with the Fund or the Distributor. There is no sales or service
charge imposed by the Fund other than as described, but agents who do not
receive distribution payments or sales charges may impose a charge to the
investor for their services. Such fees may vary among agents, and such agents
may impose higher initial or subsequent investment requirements than those
established by the Fund. Services provided by broker-dealers may include
allowing the investor to establish a margin account and to borrow on the value
of the Fund's shares in that account. It is the responsibility of the
shareholder's agent to establish procedures which would assure that upon receipt
of an order to purchase shares of the Fund the order will be transmitted so that
it will be received by the Distributor before the time when the price applicable
to the buy order expires.

Prospectuses, sales material and applications may be obtained from the
Distributor. The Fund and its Distributor reserve the right in their sole
discretion (1) to suspend the offering of the Fund's shares and (2) to reject
purchase orders when, in the judgment of the Fund's management, such rejection
is in the best interests of the Fund.

The net asset value per share of the Fund is determined as of the close of
the regular session of the New York Stock Exchange, which is generally 4:00

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10
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p.m., New York City time, on each day that trading is conducted on the New York
Stock Exchange, by dividing the value of the Fund's net assets (i.e., the value
of its securities and other assets less its liabilities, including expenses
payable or accrued but excluding capital stock and surplus) by the number of
shares outstanding at the time the determination is made. Foreign securities are
valued as of the close of trading on the primary exchange on which they trade.
Fund securities for which market quotations are readily available are valued at
market value as determined by the last quoted sale price prior to the valuation
time on the valuation date in the case of securities traded on securities
exchanges or other markets for which such information is available. Other
readily marketable securities are valued at the average of the latest bid and
asked quotations for such securities prior to the valuation time. Debt
securities with remaining maturities of 60 days or less are valued at amortized
cost, which the Board of Directors believes represents fair value. Corporate
actions by issuers of securities held by the Fund, such as the payment of
dividends or distributions, are reflected in the net asset value on the
ex-dividend date therefore, except that they will be so reflected on the date
the Fund is actually advised of the corporate action if subsequent to the
ex-dividend date. All other assets are valued at fair value as determined by or
under the supervision of the Board of Directors.

Mail

To make an initial purchase by mail, send a completed subscription order form
with a check for the amount of the investment payable to the Fund to:

The Gabelli Funds
P.O. Box 8308
Boston, MA 02266-8308

Subsequent purchases do not require a completed application and can be made
by (1) mailing a check to the address noted above or (2) bank wire, as indicated
below. The exact name and number of the shareholder's account should be clearly
indicated.

Checks will be accepted if drawn in U.S. currency on a domestic bank for less
than $100,000. U.S. dollar checks drawn against a non-U.S. bank may be subject
to collection delays and will be accepted only upon actual receipt of funds by
the Transfer Agent. Bank collection fees may apply.

Bank Wire

To initially purchase shares of the Fund using the wire system for
transmittal of money among banks, an investor should first telephone the Fund at
1-800-422-3554 to obtain a new account number. The investor should then instruct
a Federal Reserve System member bank to wire funds to:

State Street Bank and Trust Company
ABA # 011-0000-28 REF DDA # 9904-6187
Attn: Shareholder Services
Re: Gabelli International Growth Fund
A/C #_________
Account of (Registered Owner)
225 Franklin Street, Boston, MA 02110

For initial purchases, the investor should promptly complete and mail the
subscription order form to the address shown above for mail purchases. There may
be a charge by your bank for transmitting the money by bank wire but State
Street Bank and Trust Company does not charge investors in the Fund for the
receipt of wire transfers. If you are planning to wire funds, it is suggested
that you instruct your bank early in the day so the wire transfer can be
accomplished the same day.

Overnight Mail or Personal Delivery

Deliver a check made payable to the Fund in which you wish to invest along
with a completed subscription order form to:
The Gabelli Funds
The BFDS Building, 6th Floor
Two Heritage Drive
North Quincy, MA 02171

Telephone Investment Plan

You may purchase additional shares of the Fund by telephone through the
Automated Clearing House (ACH) system as long as your bank is a member of the
ACH system and you have a completed, approved Investment Plan application on

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11
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file with our Transfer Agent. The funding for your purchase will be
automatically deducted from the ACH eligible account you designate on the
application. Your investment will normally be credited to your mutual fund
account on the first business day following your telephone request. Your request
must be received no later than 4:00 p.m. eastern time. There is a minimum of
$100 for each telephone investment. Any subsequent changes in banking
information must be submitted in writing and accompanied by a sample voided
check. To initiate an ACH purchase, please call 1-800-GABELLI (1-800-422-3554)
or 1-800-872-5365. Fund shares purchased through the Telephone or Automatic
Investment Plan will not be available for redemption for up to fifteen (15) days
following the purchase date.

Automatic Investment Plan

The Fund offers an automatic monthly investment plan, details of which can be
obtained from the Distributor. There is no minimum initial investment for
accounts establishing an automatic investment plan.

Other Investors

No minimum initial investment is required for officers, directors or
full-time employees of the Fund, other investment companies managed by the
Adviser, the Adviser, the Administrator, the Transfer Agent, the Distributor or
their affiliates, including members of the "immediate family" of such
individuals and retirement plans and trusts for their benefit. The term
"immediate family" refers to spouses, children and grandchildren (adopted or
natural), parents, grandparents, siblings, a spouse's siblings, a sibling's
spouse and a sibling's children.

REDEMPTION OF SHARES

Upon receipt by the Distributor or the Transfer Agent of a redemption request
in proper form, shares of the Fund will be redeemed at their next determined net
asset value. Redemption requests received after the time as of which the Fund's
net asset value is determined on a particular day will be redeemed at the next
determined net asset value of the Fund. Checks for redemption proceeds will
normally be mailed to the shareholder's address of record within seven days, but
will not be mailed until all checks in payment for the purchase of the shares to
be redeemed have been honored, which may take up to 15 days. Redemption requests
may be made by letter to the Transfer Agent, specifying the name of the Fund,
the dollar amount or number of shares to be redeemed and the account number. The
letter must be signed in exactly the same way the account is registered (if
there is more than one owner of the shares, all must sign) and, if any
certificates for the shares to be redeemed are outstanding, presentation of such
certificates properly endorsed is also required. Signatures on the redemption
request and/or certificates must be guaranteed by an "eligible guarantor
institution," which includes certain banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations (signature guarantees by notaries public are not acceptable).
Shareholders may also redeem the Fund's shares through shareholder agents, who
have made arrangements with the Fund permitting them to redeem shares by
telephone or facsimile transmission and who may charge shareholders a fee for
this service if they have not received any payments under the appropriate
Distribution Plan. It is the responsibility of the shareholder's agent to
establish procedures which would assure that upon receipt of a shareholder's
order to redeem shares of the Fund the order will be transmitted so that it will
be received by the Fund before the time when the price applicable to the order
expires.

Further documentation, such as copies of corporate resolutions and
instruments of authority, are normally requested from corporations,
administrators, executors, personal representatives, trustees or custodians to
evidence the authority of the person or entity making the redemption request.

The Fund may suspend the right of redemption or postpone the date of payment
for more than seven days during any period when (1) trading on the New York
Stock Exchange is restricted or the Exchange is closed, other than customary
weekend and holiday closings; (2) the Securities and Exchange Commission has by

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12
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order permitted such suspension or (3) an emergency, as defined by rules of the
Securities and Exchange Commission, exists, making disposal of portfolio
investments or determination of the value of the net assets of the Fund not
reasonably practicable.

To minimize expenses, the Fund reserves the right to redeem, upon not less
than 30 days' notice, all shares of the Fund in an account (other than an IRA)
which as a result of shareholder redemption has a value below $500. However, a
shareholder will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.

Telephone Redemption By Check

The Fund accepts telephone requests for redemption of unissued shares,
subject to a $25,000 limitation. By calling 1-800-GABELLI (1-800-422-3554) or
1-800-872-5365, you may request that a check be mailed to the address of record
on the account, provided that the address has not changed within thirty (30)
days prior to your request. The check will be made payable to the person in
whose name the account is registered and will normally be mailed within seven
(7) days.

By Bank Wire

The Fund also accepts telephone requests for wire redemption in excess of
$1,000 (but subject to a $25,000 limitation) to a predesignated bank either on
the subscription order form or in a subsequent written authorization with the
signature guaranteed. The Fund accepts signature guaranteed written requests for
redemption by bank wire without limitation. The proceeds are normally wired on
the following business day. Your bank must be either a member of the Federal
Reserve System or have a correspondent bank which is a member. Any change to the
banking information made at a later date must be submitted in writing with a
signature guarantee. The Fund will not impose a wire service fee. A
shareholder's agent or the predesignated bank, however, may impose its own
service fee on wire transfers.

Requests for telephone redemption by check or bank wire must be received
between 9:00 a.m. and 4:00 p.m. eastern time. If your telephone call is received
after this time or on a day when the New York Stock Exchange is not open, the
request will be entered for the following business day. Shares are redeemed at
the net asset value next determined following your request. Fund shares
purchased by check or through the automatic purchase plan will not be available
for redemption for up to fifteen (15) days following the purchase. Shares held
in certificate form must be returned to the Transfer Agent for redemption.
Telephone redemption is not available for IRAs.

The proceeds of a telephone redemption may be directed to an account in
another mutual fund advised by the Adviser, provided the account is registered
in the redeeming shareholder's name. Such purchase will be made at the
respective net asset value plus any applicable sales charges, with credit given
for any sales charges previously paid to the Distributor.

The Fund and its transfer agent will not be liable for following telephone
instructions reasonably believed to be genuine. In this regard, the Fund and its
transfer agent require personal identification information before accepting a
telephone redemption. If the Fund or its transfer agent fails to use reasonable
procedures, the Fund might be liable for losses due to fraudulent instructions.
A shareholder may redeem shares by telephone unless he or she elects on the
subscription order form not to have such ability.

Systematic Withdrawal Plan

The Fund offers a systematic withdrawal program for shareholders whereby they
can authorize an automatic redemption on a monthly, quarterly or annual basis.
Details can be obtained from the Distributor.

RETIREMENT PLANS

The Fund has available a form of Individual Retirement Account ("IRA") for
investment which may be obtained from the Distributor. The minimum investment
required to open an IRA for investment in shares of the Fund is $1,000 for an
individual, except that both the individual and his or her spouse may establish
separate IRAs if their combined investment is $1,250. There is no minimum for
additional investment in an IRA.

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13
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Investors who are self-employed may purchase shares of the Fund through
tax-deductible contributions to retirement plans for self-employed persons,
known as Keogh or H.R. 10 plans. The Fund does not currently act as a Sponsor
for such plans. The Fund's shares may also be a suitable investment for other
types of qualified pension or salary reduction plans known as "401(k) Plans"
which give participants the right to defer portions of their compensation for
investment on a tax-deferred basis until distributions are made from the plans.
The minimum initial investment for an individual under such plans is $1,000, and
there is no minimum for additional investments.

Under the Internal Revenue Code of 1986 (the "Code"), individuals may make
wholly or partly tax deductible IRA contributions of up to $2,000 annually,
depending on whether they are active participants in an employer-sponsored
retirement plan and on their income level. However, dividends and distributions
held in the account are not taxed until withdrawn in accordance with the
provisions of the Code. An individual with a non-working spouse may establish a
separate IRA for the spouse under the same conditions and contribute a maximum
of $2,250 annually to either or both IRAs, provided that no more than $2,000 may
be contributed to the IRA of either spouse.

Investors should be aware that they may be subject to penalties or additional
tax on contributions or withdrawals from IRAs or other retirement plans which
are not permitted by the applicable provisions of the Internal Revenue Code.
Persons desiring information concerning investments through IRA accounts or
other retirement plans should write or telephone the Distributor.

DIVIDENDS, DISTRIBUTIONS
AND TAXES

Each dividend and capital gains distribution, if any, declared by the Fund on
its outstanding shares will, unless the shareholder elects otherwise, be paid on
the payment date fixed by the Board of Directors in additional shares of the
Fund having an aggregate net asset value as of the ex-dividend date of such
dividend or distribution equal to the cash amount of such distribution. An
election to receive dividends and distributions may be changed by notifying the
Fund in writing at any time prior to the record date for a particular dividend
or distribution. There are no sales or other charges in connection with the
reinvestment of dividends and capital gains distributions. There is no fixed
dividend rate, and there can be no assurance that the Fund will pay any
dividends or realize any capital gains. However, the Fund currently intends to
pay dividends and capital gains distributions, if any, on an annual basis.

The Fund has qualified and intends to continue to qualify for tax treatment
as a "Regulated Investment Company" under the Internal Revenue Code in order to
be relieved of Federal income tax on that part of its net investment income and
realized capital gains which it pays out to its shareholders.

To qualify, the Fund must meet certain relatively complex tests, including
the requirement that less than 30% of its gross income (exclusive of losses)
must be derived from the sale or other disposition of securities held for less
than three months. The loss of such status by the Fund would result in the Fund
being subject to Federal income tax on its taxable income and gains.

Dividends out of net investment income and distributions of realized
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such distributions may be
eligible for the dividends-received deduction subject to proportionate reduction
if the aggregate qualifying dividends received by the Fund from domestic
corporations in any year are less than its "gross income" as defined by the
Code. Distributions out of long-term capital gains are taxable to the recipient
as long-term capital gains. Dividends and distributions declared by the Fund may
also be subject to state and local taxes. In addition, because the Fund may have
more than 50% of its total assets invested in securities of foreign
corporations, the Fund may be entitled to "pass-through" to shareholders the
amount of foreign taxes paid by the Fund. Prior to investing in shares of the
Fund, prospective shareholders may wish to consult their tax advisers concerning
the Federal, state and local tax consequences of such investment.

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14
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GENERAL INFORMATION

Description of Shares, Voting Rights and Liabilities

The Fund was organized as a Maryland corporation on May 25, 1994. Its authorized
capital stock consists of 1 billion shares of stock having a par value of one
tenth of one cent ($.001) per share. The Fund is not required, and does not
intend, to hold regular annual shareholder meetings, but may hold special
meetings for consideration of proposals requiring shareholder approval, such as
changing fundamental policies or upon the written request of 10% of the Fund's
shares to replace its Directors. The Fund's Board of Directors is authorized to
divide the unissued shares into separate series of stock, each series
representing a separate, additional portfolio.

There are no conversion or preemptive rights in connection with any shares of
the Fund. All shares, when issued in accordance with the terms of the offering,
will be fully paid and nonassessable. Shares will be redeemed at net asset
value, at the option of the shareholder.

The Fund sends semi-annual and annual reports to all shareholders which
include lists of portfolio securities and the Fund's financial statements, which
shall be audited annually. Unless it is clear that a shareholder is a nominee
for the account of an unrelated person or a shareholder otherwise specifically
requests in writing, the Fund may send a single copy of semi-annual, annual and
other reports to shareholders to all accounts at the same address and all
accounts of any person at that address.

The shares of the Fund have noncumulative voting rights which means that the
holders of more than 50% of the shares can elect 100% of the Directors if the
holders choose to do so, and, in that event, the holders of the remaining shares
will not be able to elect any person or persons to the Board of Directors.
Unless specifically requested by an investor who is a shareholder of record, the
Fund does not issue certificates evidencing shares.

Performance Information

The Fund may furnish data about its investment performance in advertisements,
sales literature and reports to shareholders. "Total return" represents the
annual percentage change in value of $1,000 invested at the maximum public
offering price for the one, five and ten year periods (if applicable) and the
life of the Fund through the most recent calendar quarter, assuming reinvestment
of all dividends and distributions. The Fund may also furnish total return and
yield calculations for other periods and/or based on investments at various net
asset values.

Custodian, Transfer Agent and Dividend Disbursing Agent

State Street Bank and Trust Company is the Custodian for the Fund's cash and
securities as well as the Transfer and Dividend Disbursing Agent for its shares.
Boston Financial Data Services, Inc., an affiliate of State Street Bank and
Trust Company, performs the shareholder services on behalf of State Street and
is located at The BFDS Building, Two Heritage Drive, North Quincy, MA 02171.
State Street Bank and Trust Company does not assist in and is not responsible
for investment decisions involving assets of the Fund.

Information for Shareholders

All shareholder inquiries regarding administrative procedures, including the
purchase and redemption of shares, should be directed to the Distributor,
Gabelli & Company, Inc., One Corporate Center, Rye, New York 10580-1434. For
assistance, call 1-800-GABELLI (1-800-422-3554).

Upon request, Gabelli & Company, Inc. will provide without charge, a paper
copy of this Prospectus to investors or their representatives who received this
Prospectus in an electronic format.

This Prospectus omits certain information contained in the Registration
Statement filed with the Securities and Exchange Commission. Copies of the
Registration Statement, including items omitted herein, may be obtained from the
Commission by paying the charges prescribed under its rules and regulations. The
Statement of Additional Information included in such Registration Statement may
be obtained without charge from the Fund or its Distributor.

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15
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TABLE OF CONTENTS

Page
Table of Fees and Expenses ................................ 2
Financial Highlights ...................................... 2
Investment Objective and Policies ......................... 3
Risk Factors and Additional Investment
Policies ............................................. 4
Management of the Fund .................................... 8
Distribution Plan ......................................... 9
Purchase of Shares ........................................ 10
Redemption of Shares ...................................... 12
Retirement Plans .......................................... 14
Dividends, Distributions and Taxes ........................ 14
General Information ....................................... 15

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No dealer, salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus, and
if given or made, such information or representation may not be relied upon as
being authorized by the Fund, the Adviser, the Administrator, the Distributor or
any affiliate thereof. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy in any state to any person to whom it is
unlawful to make such offer in such state.

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Gabelli
International
Growth
Fund,
Inc.

PROSPECTUS
January 30, 1996

GABELLI FUNDS, INC.
Investment Adviser

GABELLI & COMPANY, INC.
Distributor

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<PAGE>

GABELLI INTERNATIONAL GROWTH FUND, INC.

One Corporate Center
Rye, New York 10580-1434
Telephone 1-800-GABELLI (1-800-422-3554)

STATEMENT OF ADDITIONAL INFORMATION

January 30, 1996

This Statement of Additional Information ("Additional Statement") relates to
Gabelli International Growth Fund, Inc., a Maryland corporation (the "Fund"),
and is not a prospectus and is only authorized for distribution when preceded or
accompanied by the Fund's prospectus dated January 30, 1996, as supplemented
from time to time (the "Prospectus"). This Statement of Additional Information
contains information in addition to that set forth in the Prospectus into which
this document is incorporated by reference and should be read in conjunction
with the Prospectus. Additional copies of this document may be obtained without
charge by writing or telephoning the Fund at the address and telephone number
set forth above.

TABLE OF CONTENTS

Page
Investments ............................... B-1
The Adviser ............................... B-10
The Distributor ........................... B-12
Directors and Officers .................... B-12
Shares of Beneficial Interest ............. B-15
Investment Restrictions ................... B-16
Portfolio Transactions and Brokerage ...... B-17
Purchase and Redemption of Shares ......... B-18
Dividends, Distributions and Taxes ........ B-19
Investment Performance Information ........ B-21
Counsel and Independent Auditors .......... B-23
Appendix -- Description of Ratings ......... B-23
Financial Statements ...................... B-25

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The following Information supplements that in the Prospectus.

INVESTMENTS

Subject to the Fund's policy of investing at least 65% of its assets in the
securities of foreign companies, the Fund may invest in any of the securities
described below.

Equity Securities

Because the Fund in seeking to achieve its investment objective may invest
in the common stocks of both foreign and domestic issuers, an investment in the
Fund should be made with an understanding of the risks inherent in any
investment in common stocks including the risk that the financial condition of
the issuers of the Fund's portfolio securities may become impaired or that the
general condition of the stock market may worsen (both of which may contribute
directly to a decrease in the value of the securities and thus in the value of
the Fund's shares). Additional risks include risks associated with the right to
receive payments from the issuer which is generally inferior to the rights of
creditors of, or holders of debt obligations or preferred stock issued by, the
issuer.

Moreover, common stocks do not represent an obligation of the issuer and
therefore do not offer any assurance of income or provide the degree of
protection of debt securities. The issuance of debt securities or even preferred
stock by an issuer will create prior claims for payment of principal, interest
and dividends which could adversely affect the ability and inclination of the
issuer to declare or pay dividends on its common stock or the economic interest
of holders of common stock with respect to assets of the issuer upon liquidation
or bankruptcy. Further, unlike the debt securities which typically have a stated
principal amount payable at maturity (which value will be subject to market
fluctuations prior thereto), common stocks have neither a fixed principal amount
nor a maturity and have values which are subject to market fluctuations for as
long as the common stocks remain outstanding. Common stocks are especially
susceptible to general stock market movements and to volatile increases and
decreases in value as market confidence in and perceptions of the issuers
change. These perceptions are based on unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises. The value of the common stocks
in the Fund's portfolio thus may be expected to fluctuate.

Preferred stocks are usually entitled to rights on liquidation which are
senior to those of common stocks. For these reasons, preferred stocks generally
entail less risk than common stocks. Such securities may pay cumulative
dividends. Because the dividend rate is pre-established, and they are senior to
common stocks, such securities tend to have less possibility of capital
appreciation.

Some of the securities in the Fund may be in the form of depository
receipts. Depository receipts usually represent common stock or other equity
securities of non-U.S. issuers deposited with a custodian in a depository. The
underlying securities are usually withdrawable at any time by surrendering the
depository receipt. Depository receipts are usually denominated in U.S. dollars
and dividends and other payments from the issuer are converted by the custodian
into U.S. dollars before payment to receipt holders. In other respects
depository receipts for foreign securities have the same characteristics as the
underlying securities. Depository receipts that are not sponsored by the issuer
may be less liquid and there may be less readily available public information
about the issuer.

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B-1
<PAGE>
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Sovereign Debt Securities

The Fund may invest in securities issued or guaranteed by any country and
denominated in any currency. The Fund expects to invest in the securities of
companies located in developed countries, and to a lesser extent, those located
in emerging markets. Developed markets include Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Luxembourg,
the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, the United
Kingdom and the United States. An emerging country is any country which is
generally considered to be an emerging or developing country by the
International Bank for Reconstruction and Development (more commonly referred to
as the World Bank) and the International Finance Corporation, as well as
countries that are classified by the United Nations or otherwise regarded by its
authorities as emerging or developing, at the time of the Fund's investment. The
obligations of governmental entities have various kinds of government support
and include obligations issued or guaranteed by governmental entities with
taxing power. These obligations may or may not be supported by the full faith
and credit of a government. Debt securities issued or guaranteed by foreign
governmental entities have credit characteristics similar to those of domestic
debt securities but include additional risks. These additional risks include
those resulting from devaluation of currencies, future adverse political and
economic developments and other foreign governmental laws.

The Fund may also purchase securities issued by quasi-governmental or
supranational agencies such as the Asian Development Bank, the International
Bank for Reconstructional Development, the Export-Import Bank and the European
Investment Bank. The governmental members, or "stockholders," usually make
initial capital contributions to the supranational entity and in many cases are
committed to make additional capital contributions if the supranational entity
is unable to repay its borrowings. The Fund will not invest more than 25% of its
assets in the securities of such supranational entities.

The Fund may invest in securities denominated in a multi-national currency
unit. An illustration of a multi-national currency unit is the European Currency
Unit (the "ECU"), which is a "basket" consisting of specified amounts of the
currencies of the member states of the European Community, a Western European
economic cooperative organization that includes France, Germany, The
Netherlands, the United Kingdom and other countries. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. Such investments involve credit risks associated with the issuer and
currency risks associated with the currency in which the obligation is
denominated.

Nonconvertible Fixed Income Securities

The category of fixed income securities which are not convertible or
exchangeable for common stock includes preferred stocks, bonds, debentures,
notes and money market instruments such as commercial paper and bankers
acceptances. There is no minimum credit rating for these securities in which the
Fund may invest. Accordingly, the Fund could invest in securities in default,
although the Fund will not invest more than 5% of its assets in such securities.

Up to 25% of the Fund's assets may be invested in lower-quality debt
securities although the Fund currently does not expect to invest more than 5% of
its assets in such securities. The market values of lower-quality fixed income
securities tend to be less sensitive to changes in prevailing interest rates
than higher-quality securities but more sensitive to individual corporate

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B-2

<PAGE>

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developments than higher-quality securities. Such lower-quality securities also
tend to be more sensitive to economic conditions than are higher-quality
securities. Accordingly, these lower-quality securities are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and will
generally involve more credit risk than securities in the higher-quality
categories. Even securities rated Baa or BBB by Moody's Investors Service, Inc.
("Moody's") and Standard and Poor's Ratings Group ("S&P"), respectively, which
ratings are considered investment grade, possess some speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher-grade bonds. See "Appendix -- Description
of Ratings." There are risks involved in applying credit ratings as a method of
evaluating high yield obligations in that credit ratings evaluate the safety of
principal and interest payments, not market value risk. In addition, credit
rating agencies may not change credit ratings on a timely basis to reflect
changes in economic or company conditions that affect a security's market value.
The Fund will rely on the judgment, analysis and experience of its adviser,
Gabelli Funds, Inc. (the "Adviser"), in evaluating the creditworthiness of an
issuer. In this evaluation, the Adviser will take into consideration, among
other things, the issuer's financial resources and ability to cover its interest
and fixed charges, factors relating to the issuer's industry and its sensitivity
to economic conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters.

The risk of loss due to default by the issuer is significantly greater for
the holders of lower quality securities because such securities are generally
unsecured and are often subordinated to other obligations of the issuer. During
an economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of lower quality securities may experience financial stress
and may not have sufficient revenues to meet their interest payment obligations.
An issuer's ability to service its debt obligations may also be adversely
affected by specific corporate developments, its inability to meet specific
projected business forecasts, or the unavailability of additional financing.

Factors adversely affecting the market value of high yield and other fixed
income securities will adversely affect the Fund's net asset value. In addition,
the Fund may incur additional expenses to the extent that it is required to seek
recovery upon a default in the payment of principal of or interest on its
portfolio holdings.

From time to time, proposals have been discussed regarding new legislation
designed to limit the use of certain high yield debt securities by issuers in
connection with leveraged buy-outs, mergers and acquisitions, or to limit the
deductibility of interest payments on such securities. Such proposals, if
enacted into law, could reduce the market for such debt securities generally,
could negatively affect the financial condition of issuers of high yield
securities by removing or reducing a source of future financing, and could
negatively affect the value of specific high yield issues and the high yield
market in general. For example, under a provision of the Internal Revenue Code
enacted in 1989, a corporate issuer may be limited from deducting all of the
original issue discount on high-yield discount obligations (i.e., certain types
of debt securities issued at a significant discount to their face amount). The
likelihood of passage of any additional legislation or the effect thereof is
uncertain.

The secondary trading market for lower-quality fixed income securities is
generally not as liquid as the secondary market for higher-quality securities
and is very thin for some securities. The relative lack of an active secondary
market may have an adverse impact on market price and the Fund's ability to

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dispose of particular issues when necessary to meet liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The relative lack of an active secondary market
for certain securities may also make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing its portfolio. Market
quotations are generally available on many high yield issues only from a limited
number of dealers and may not necessarily represent firm bids of such dealers or
prices for actual sales. During such times, the responsibility of the Board of
Directors to value the securities becomes more difficult and judgment plays a
greater role in valuation because there is less reliable, objective data
available.

Convertible Securities

The Fund may invest up to 25% of its assets in convertible securities
rated, at the time of investment, less than BBB by S&P or Baa by Moody's or
unrated but of equivalent credit quality in the judgment of the Adviser,
although the Fund currently does not expect to invest in excess of 5% of its
assets in such securities.

Some of the convertible securities in the Fund's portfolio may be
"Pay-in-Kind" securities. During a designated period from original issuance, the
issuer or such a security may pay dividends or interest to the holder by issuing
additional fully paid and nonassessable shares or units of the same or another
specified security.

Securities Subject to Reorganization

In general, securities which are the subject of such an offer or proposal
sell at a premium to their historic market price immediately prior to the
announcement of the offer or may also discount what the stated or appraised
value of the security would be if the contemplated transaction were approved or
consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by shareholders of the
prospective portfolio company as a result of the contemplated transaction; or
fails adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Adviser, which must appraise not only the value of the issuer and
its component businesses as well as the assets or securities to be received as a
result of the contemplated transaction but also the financial resources and
business motivation of the offeror and the dynamics and business climate when
the offer or proposal is in process. Since such investments are ordinarily
short-term in nature, they will tend to increase the turnover ratio of the Fund
thereby increasing its brokerage and other transaction expenses as well as make
it more difficult for the Fund to meet the tests for favorable tax treatment as
a "Regulated Investment Company" under the Internal Revenue Code of 1986, as
amended (the "Code") (see "Dividends, Distributions and Taxes" in the
Prospectus). The Adviser intends to select investments of the type described
which, in its view, have a reasonable prospect of capital appreciation which is
significant in relation to both risk involved and the potential of available

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alternate investments as well as to monitor the effect of such investments on
the tax qualification test of the Code.

Options

The Fund may purchase or sell options on individual securities as well as
on indices of securities as a means of achieving additional return or of hedging
the value of its portfolio.

A call option is a contract that gives the holder of the option the right,
in return for a premium paid, to buy from the seller the security underlying the
option at a specified exercise price at any time during the term of the option
or, in some cases, only at the end of the term of the option. The seller of the
call option has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price. A put option is a
contract that gives the holder of the option the right in return for a premium
to sell to the seller the underlying security at a specified price. The seller
of the put option, on the other hand, has the obligation to buy the underlying
security upon exercise at the exercise price. The Fund's transactions in options
may be subject to specific segregation requirements. See "Hedging Transactions"
below.

If the Fund has sold an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously sold. There can be no
assurance that a closing purchase transaction can be effected when the Fund so
desires.

The purchaser of an option risks a total loss of the premium paid for the
option if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unrecognized but
forgoes any capital appreciation in excess of the exercise price in the case of
a call option and may be required to pay a price in excess of current market
value in the case of a put option. Options purchased and sold other than on an
exchange in private transactions also impose on the Fund the credit risk that
the counterparty will fail to honor its obligations. The Fund will not purchase
options if, as a result, the aggregate cost of all outstanding options exceeds
5% of the Fund's assets. To the extent that puts, straddles and similar
investment strategies involve instruments regulated by the Commodity Futures
Trading Commission, the Fund is limited to investments not in excess of 5% of
its total assets.

Warrants and Rights

The Fund may invest up to 5% of its total assets in warrants or
rights(other than those acquired in units or attached to other securities) which
entitle the holder to buy equity securities at a specific price for or at the
end of a specific period of time. The Fund will not invest more than 2% of its
total assets in warrants or rights which are not listed on the New York or
American Stock Exchanges.

Investments in Investment Companies

The Fund may invest up to 10% of its assets (5% per issuer) in securities
issued by other unaffiliated investment companies, although the Fund may not
acquire more than 3% of the voting securities of any investment company.

When Issued, Delayed Delivery Securities and Forward Commitments

The Fund may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis. In such

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transactions, instruments are bought with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous yield or
price at the time of the transaction. In some cases, a forward commitment may be
conditioned upon the occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt restructuring, i.e.,
a when, as and if issued security. When such transactions are negotiated, the
price is fixed at the time of the commitment, with payment and delivery taking
place in the future, generally a month or more after the date of the commitment.
While the Fund will only enter into a forward commitment with the intention of
actually acquiring the security, the Fund may sell the security before the
settlement date if it is deemed advisable.

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

Short Sales

The Fund may make short sales of securities. A short sale is a transaction
in which the Fund sells a security it does not own in anticipation that the
market price of that security will decline. The Fund expects to make short sales
both to obtain capital gains from anticipated declines in securities and as a
form of hedging to offset potential declines in long positions in the same or
similar securities. The short sale of a security is considered a speculative
investment technique.

When the Fund makes a short sale, it must borrow the security sold short
and deliver it to the broker-dealer through which it made the short sale in
order to satisfy its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.

The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. government
securities or other highly liquid debt securities. The Fund will also be
required to deposit similar collateral with its Custodian to the extent, if any,
necessary so that the value of both collateral deposits in the aggregate is at
all times equal to the greater of the price at which the security is sold short
or 100% of the current market value of the security sold short. Depending on
arrangements made with the broker-dealer from which it borrowed the security
regarding payment over of any payments received by the Fund on such security,
the Fund may not receive any payments (including interest) on its collateral
deposited with such broker-dealer. If the price of the security sold short
increases between the time of the short sale and the time the Fund replaces the
borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Any gain will be decreased, and
any loss increased, by the transaction costs described above. Although the
Fund's gain is limited to the price at which it sold the security short, its
potential loss is theoretically unlimited.

The market value of the securities sold short of any one issuer will not
exceed either 5% of the Fund's total assets or 5% of such issuer's voting
securities. The Fund will not make a short sale, if, after giving effect to such
sale, the market value of all securities sold short exceeds 5% of the value of
its assets or the Fund's aggregate short sales of a particular class of
securities exceeds 5% of the outstanding securities of that class. The Fund may
also make short sales "against the box" without respect to such limitations. In

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this type of short sale, at the time of the sale, the Fund owns or has the
immediate and unconditional right to acquire at no additional cost the identical
security.

Restricted and Illiquid Securities

The Fund may invest up to a total of 15% of its net assets in securities
that are subject to restrictions on resale and securities the markets for which
are illiquid, including repurchase agreements with more than seven days to
maturity. Within this 15% limitation, the Fund may invest up to 10% of its net
assets in restricted securities and up to 5% of its net assets in the securities
of unseasoned issuers. Illiquid securities include securities the disposition of
which is subject to substantial legal or contractual restrictions. The sale of
illiquid securities often requires more time and results in higher brokerage
charges or dealer discounts and other selling expenses than does the sale of
securities eligible for trading on national securities exchanges or in the
over-the-counter markets. Restricted securities may sell at a price lower than
similar securities that are not subject to restrictions on resale. Unseasoned
issuers are companies (including predecessors) that have operated less than
three years. The continued liquidity of such securities is not as well assured
as that of publicly traded securities, and accordingly the Board of Directors
will monitor their liquidity. The Board will review pertinent factors such as
trading activity, reliability of price information and trading patterns of
comparable securities in determining whether to treat any such security as
liquid for purposes of the foregoing 15% test. To the extent the Board treats
such securities as liquid, temporary impairments to trading patterns of such
securities may adversely affect the Fund's liquidity.

To the extent it can do so consistent with the foregoing limitations, the
Fund may invest in non-publicly traded securities, including securities that are
not registered under the Securities Act of 1933, as amended, but that can be
offered and sold to qualified institutional buyers under Rule 144A under that
Act. The Board of Directors has adopted guidelines and delegated to the Adviser,
subject to the supervision of the Board of Directors, the daily function of
determining and monitoring the liquidity of Rule 144A securities. Rule 144A
securities may become illiquid if qualified institutional buyers are not
interested in acquiring the securities.

Repurchase Agreements

The Fund may invest in repurchase agreements, which are agreements pursuant
to which securities are acquired by the Fund from a third party with the
understanding that they will be repurchased by the seller at a fixed price on an
agreed date. These agreements may be made with respect to any of the portfolio
securities in which the Fund is authorized to invest. Repurchase agreements may
be characterized as loans secured by the underlying securities. The Fund may
enter into repurchase agreements with (i) member banks of the Federal Reserve
System having total assets in excess of $500 million and (ii) securities
dealers, provided that such banks or dealers meet the creditworthiness standards
established by the Fund's Board of Directors ("Qualified Institutions"). The
Adviser will monitor the continued creditworthiness of Qualified Institutions,
subject to the supervision of the Board of Directors. The resale price reflects
the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or date of maturity of the purchased security. The
collateral is marked to market daily. Such agreements permit the Fund to keep
all its assets earning interest while retaining "overnight" flexibility in
pursuit of investment of a longer-term nature.

The use of repurchase agreements involves certain risks. For example, if
the seller of securities under a repurchase agreement defaults on its obligation
to repurchase the underlying securities, as a result of its bankruptcy or

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otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Fund's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Fund may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the Fund's custodian at all
times in an amount at least equal to the repurchase price, including accrued
interest. If the seller fails to repurchase the securities, the Fund may suffer
a loss to the extent proceeds from the sale of the underlying securities are
less than the repurchase price. The Fund will not enter into repurchase
agreements of a duration of more than seven days if, taken together with all
other illiquid securities in the Fund's portfolio, more than 15% of its net
assets would be so invested.

Loans of Portfolio Securities

To increase income, the Fund may lend its portfolio securities to
securities broker-dealers or financial institutions if (1) the loan is
collateralized in accordance with applicable regulatory requirements including
collateralization continuously at no less than 100% by marking to market daily,
(2) the loan is subject to termination by the Fund at any time, (3) the Fund
receives reasonable interest or fee payments on the loan, (4) the Fund is able
to exercise all voting rights with respect to the loaned securities and (5) the
loan will not cause the value of all loaned securities to exceed 33% of the
value of the Fund's assets.

If the borrower fails to maintain the requisite amount of collateral, the
loan automatically terminates and the Fund could use the collateral to replace
the securities while holding the borrower liable for any excess of replacement
cost over the value of the collateral. As with any extension of credit, there
are risks of delay in recovery and in some cases even loss of rights in
collateral should the borrower of the securities fail financially.

Borrowing

The Fund may not borrow money except for (1) short-term credits from banks
as may be necessary for the clearance of portfolio transactions, and (2)
borrowings from banks for temporary or emergency purposes, including the meeting
of redemption requests, which would otherwise require the untimely disposition
of its portfolio securities. Borrowing may not, in the aggregate, exceed 15% of
assets after giving effect to the borrowing, and borrowing for purposes other
than meeting redemptions may not exceed 5% of the value of the Fund's assets
after giving effect to the borrowing. The Fund will not make additional
investments when borrowings exceed 5% of assets. The Fund may mortgage, pledge
or hypothecate assets to secure such borrowings.

Hedging Transactions

Futures and Forward Contracts. The Fund may enter into futures and forward
contracts only for certain bona fide hedging and risk management purposes. The
Fund may enter into futures and forward contracts for the purchase or sale of
debt securities, debt instruments, or indices of prices thereof, stock index
futures, other financial indices, and U.S. Government Securities.

A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities underlying the
contract at a specified price at a specified future time. A "purchase" of a
futures contract (or a "long" futures position) means the assumption of a

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contractual obligation to acquire the securities underlying the contract at a
specified price at a specified future time.

Certain futures contracts are settled on a net cash payment basis rather
than by the sale and delivery of the securities underlying the futures
contracts. U.S. futures contracts have been designed by exchanges that have been
designated as "contract markets" by the Commodity Futures Trading Commission, an
agency of the U.S. Government, and must be executed through a futures commission
merchant (i.e., a brokerage firm) which is a member of the relevant contract
market. Futures contracts trade on these contract markets and the exchange's
affiliated clearing organization guarantees performance of the contracts as
between the clearing members of the exchange.

These contracts entail certain risks, including but not limited to the
following: no assurance that futures contracts transactions can be offset at
favorable prices, possible reduction of the Fund's yield due to the use of
hedging, possible reduction in value of both the securities hedged and the
hedging instrument, possible lack of liquidity due to daily limits on price
fluctuation, imperfect correlation between the contracts and the securities
being hedged, and potential losses in excess of the amount invested in the
futures contracts themselves.

Currency Transactions. The Fund may enter into various currency
transactions, including forward foreign currency contracts, currency swaps,
foreign currency or currency index futures contracts and put and call options on
such contracts or on currencies. A forward foreign currency contract involves an
obligation to purchase or sell a specific currency for a set price at a future
date. A currency swap is an arrangement whereby each party exchanges one
currency for another on a particular day and agrees to reverse the exchange on a
later date at a specific exchange rate. Forward foreign currency contracts and
currency swaps are established in the interbank market conducted directly
between currency traders (usually large commercial banks or other financial
institutions) on behalf of their customers. Futures contracts are similar to
forward contracts except that they are traded on an organized exchange and the
obligations thereunder may be offset by taking an equal but opposite position to
the original contract, with profit or loss determined by the relative prices
between the opening and offsetting positions. The Fund expects to enter into
these currency contracts and swaps in primarily the following circumstances: to
"lock in" the U.S. dollar equivalent price of a security the Fund is
contemplating to buy or sell that is denominated in a non-U.S. currency; or to
protect against a decline against the U.S. dollar of the currency of a
particular country to which the Fund's portfolio has exposure. The Fund
anticipates seeking to achieve the same economic result by utilizing from time
to time for such hedging a currency different from the one of the given
portfolio security as long as, in the view of the Adviser, such currency is
essentially correlated to the currency of the relevant portfolio security based
on historic and expected exchange rate patterns.

The Adviser may choose to use such instruments on behalf of the Fund
depending upon market conditions prevailing and the perceived investment needs
of the Fund. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively broad and deep as compared to the markets for
similar instruments which are established in the interbank market. In accordance
with the current position of the staff of the Securities and Exchange
Commission, the Fund will treat swap transactions as illiquid for purposes of
the Fund's policy regarding illiquid securities. Futures contracts, interest
rate swaps, and options on securities, indices and futures contracts and certain

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currency contracts sold by the Fund are generally subject to segregation and
coverage requirements with the result that, if the Fund does not hold the
security or futures contract underlying the instrument, the Fund will be
required to segregate on an ongoing basis with its custodian, cash, U.S.
government securities, or other high grade liquid debt obligations in an amount
at least equal to the Fund's obligations with respect to such instruments. Such
amounts fluctuate as the obligations increase or decrease. The segregation
requirement can result in the Fund maintaining securities positions it would
otherwise liquidate or segregating assets at a time when it might be
disadvantageous to do so.

The Fund expects that its investments in these currency transactions and
the futures and forward contracts described above will be less than 5% of its
net assets.

Portfolio Turnover

The investment policies of the Fund may lead to frequent changes in
investments, particularly in periods of rapidly fluctuating interest or currency
exchange rates. The portfolio turnover may be higher than that of other
investment companies. While it is impossible to predict with certainty the
portfolio turnover, the Adviser expects that the annual turnover rate of the
Fund will not exceed 75%.

Portfolio turnover generally involves some expense to the Fund, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. Rapid turnover makes it more
difficult to qualify as a pass-through entity for federal tax purposes in view
of a requirement that the Fund obtain less than 30% of its gross income in any
tax year from gains on the sale of securities held less than three months.
Failure of the Fund to qualify as a pass-through entity would result in federal
taxation of the Fund at the standard corporate rate of 34% and may adversely
affect returns to shareholders. The portfolio turnover rate is computed by
dividing the lesser of the amount of the securities purchased or securities sold
by the average monthly value of securities owned during the year (excluding
securities whose maturities at acquisition were one year or less).

THE ADVISER

The Adviser is a New York corporation with principal offices located at One
Corporate Center, Rye, New York 10580-1434.

Pursuant to an Investment Advisory Contract, which was approved by the
Fund's sole shareholder on June 28, 1995, the Adviser furnishes a continuous
investment program for the Fund's portfolio, makes the day-to-day investment
decisions for the Fund, arranges the portfolio transactions for the Fund and
generally manages the Fund's investments in accordance with the stated policies
of the Fund, subject to the general supervision of the Board of Directors of the
Fund.

Under the Investment Advisory Contract, the Adviser also (1) provides the
Fund with the services of persons competent to perform such supervisory,
administrative, and clerical functions as are necessary to provide efficient
administration of the Fund, including maintaining certain books and records and
overseeing the activities of the Fund's Custodian and Transfer Agent; (2)
oversees the performance of administrative and professional services provided to
the Fund by others, including the Fund's Custodian, Transfer Agent and Dividend
Disbursing Agent, as well as legal, accounting, auditing and other services
performed for the Fund; (3) provides the Fund, if requested, with adequate
office space and facilities; (4) prepares, but does not pay for, periodic
updating of the Fund's registration statement, Prospectus and Statement of

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Additional Information, including the printing of such documents for the purpose
of filings with the Securities and Exchange Commission; (5) supervises the
calculation of the net asset value of shares of the Fund; (6) prepares, but does
not pay for, all filings under state "Blue Sky" laws of such states or countries
as are designated by the Distributor, which may be required to register or
qualify, or continue the registration or qualification of, the Fund and/or its
shares under such laws; and (7) prepares notices and agendas for meetings of the
Fund's Board of Directors and minutes of such meetings in all matters required
by the Investment Company Act of 1940 (the "Act") to be acted upon by the Board.

The Adviser has entered into an Administration Contract with Furman Selz
LLC (the "Administrator") pursuant to which the Administrator provides certain
administrative services necessary for the Fund's operations but which do not
concern the investment advisory and portfolio management services provided by
the Adviser. For such services and the related expenses borne by the
Administrator, the Adviser pays a monthly fee at the annual rate of .10% of the
average net assets of the Gabelli funds under its administration (with a minimum
annual fee of $40,000 per portfolio and subject to reduction to .075% on assets
in excess of $350 million and subject to further reduction to .06% on assets in
excess of $600 million) which, together with the services to be rendered, is
subject to negotiation between the parties and both parties retain the right
unilaterally to terminate the arrangement on not less than 60 days' notice.

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

The Investment Advisory Contract is terminable without penalty by the Fund
on not more than 60 days' written notice when authorized by the Directors of the
Fund, by the holders of a majority, as defined in the Act, of the outstanding
shares of the Fund, or by the Adviser. The Investment Advisory Contract will
automatically terminate in the event of its assignment, as defined in the Act
and rules thereunder, except to the extent otherwise provided by order of the
Securities and Exchange Commission or any rule under the Act and except to the
extent the Act no longer provides for automatic termination, in which case the
approval of a majority of the disinterested directors is required for any
"assignment." The Investment Advisory Contract provides that unless terminated
it will remain in effect until June 28, 1997, and from year to year thereafter,
so long as continuance of the Investment Advisory Contract is approved annually
by the Directors, or the shareholders of the Fund and in either case, by a

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majority vote of the Directors who are not parties to the Investment Advisory
Contract or "interested persons" as defined in the Act of any such person cast
in person at a meeting called specifically for the purpose of voting on the
continuance of the Investment Advisory Contract.

The Investment Advisory Contract also provides that the Adviser is
obligated to reimburse to the Fund any amount up to the amount of its advisory
fee by which its aggregate expenses including advisory fees payable to the
Adviser (but excluding interest, taxes, Rule 12b-1 expenses, brokerage
commissions, extraordinary expenses and any other expenses not subject to any
applicable expense limitation) during the portion of any fiscal year in which
the Contract is in effect exceed the most restrictive expense limitation imposed
by the securities law of any jurisdiction in which shares of the Fund are
registered or qualified for sale. Such limitation is currently believed to be
2.5% of the first $30 million of average net assets, 2.0% of the next $70
million of average net assets and 1.5% of average net assets in excess of $100
million. For purposes of this expense limitation the Fund's expenses are accrued
monthly, and the monthly fee otherwise payable to the Adviser is postponed to
the extent that the Fund's includable expenses to date exceed the proportionate
amount of such limitation to date.

THE DISTRIBUTOR

The Fund has entered into a Distribution Agreement with Gabelli & Company,
Inc. (the "Distributor"), a New York corporation which is a subsidiary of
Gabelli Funds, Inc., having principal offices located at One Corporate Center,
Rye, New York 10580-1434. The Distributor acts as agent of the Fund for the
continuous offering of its shares on a best efforts basis.

The Distribution Agreement is terminable by the Distributor or the Fund at
any time without penalty on not more than 60 nor less than 30 days' written
notice, provided that termination by the Fund must be directed or approved by
the Board of Directors of the Fund, by the vote of the holders of a majority of
the outstanding securities of the Fund, or by written consent of a majority of
the directors who are not interested persons of the Fund or the Distributor. The
Distribution Agreement will automatically terminate in the event of its
assignment, as defined in the Act. The Distribution Agreement provides that,
unless terminated, it will remain in effect until June 28, 1997 and from year to
year thereafter, so long as continuance of the Distribution Agreement is
approved annually by the Fund's Board of Directors or by a majority of the
outstanding voting securities of the Fund, and in either case, also by a
majority of the Directors who are not interested persons of the Fund or the
Distributor.

DIRECTORS AND OFFICERS

The Director and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Adviser or the Administrator, are shown below. Directors deemed to be
"interested persons"of the Fund for purposes of the Investment Company Act of
1940 are indicated by an asterisk. Unless otherwise indicated, the address for
each individual is One Corporate Center, Rye, New York 10580.

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<TABLE>
<CAPTION>
Principal Occupations During last Five Years;
Name, Position with Fund and Address Affiliations with the Adviser or Administrator
- ------------------------------------ ----------------------------------------------
<S> <C>
Mario J. Gabelli* Chairman, President, Chief Executive Officer and a Director
Chairman of the Board of Gabelli Funds, Inc., the Adviser and the indirect parent
Age: 53 of Gabelli & Company, Inc., the Distributor; Chief
Investment Officer of GAMCO Investors, Inc.; President and
Chairman of The Gabelli Equity Trust Inc. and Gabelli Global
Multimedia Trust Inc.; President, Chief Investment Officer
and Director of Gabelli Investor Funds, Inc., Gabelli Equity
Series Funds, Inc., The Gabelli Convertible Securities Fund,
Inc., Gabelli Global Series Funds, Inc., The Gabelli Capital
Series Funds, Inc., The Gabelli Income Series Funds, Inc.
and The Gabelli Value Fund Inc.; Trustee of The Gabelli
Asset Fund, The Gabelli Growth Fund and The Gabelli Money
Market Funds; Chairman and Director of Gabelli Gold Fund,
Inc. and Lynch Corporation; Director and Adviser of Gabelli
International Ltd. and Director of The Morgan Group, Inc., a
subsidiary of Lynch Corporation.

Caesar M.P. Bryan* Senior Vice President of GAMCO Investors, Inc., a
President majority-owned subsidiary of the Adviser, since May 1994 and
Age: 41 President of Gabelli Gold Fund, Inc. Formerly Senior Vice
President and Portfolio Manager of Lexington Management
Corporation (until May 1994).

Anthony J. Colavita President and Attorney at Law in the law firm of Anthony J.
Director Colavita, P.C.; Director of Gabelli Capital Series Funds,
Age: 60 Inc., Gabelli Equity Series Funds, Inc., Gabelli Global
Series Funds, Inc., Gabelli Gold Fund, Inc., Gabelli Income
Series Funds Inc., Gabelli Investor Funds, Inc., The Gabelli
Value Fund Inc. and The Gabelli Convertible Securities Fund,
Inc.; Trustee of The Gabelli Asset Fund, The Gabelli Growth
Fund and the Westwood Funds.
</TABLE>
- --------------------------------------------------------------------------------
B-13
<PAGE>
- --------------------------------------------------------------------------------

<S> <C>

Karl Otto Pohl* Partner of Sal Oppenheim Jr. & Cie. (private investment
Director bank); Former President of the Deutsche Bundesbank
Age: 65 (Germany's Central Bank) and Chairman of its Central Bank
Council (1980-1991); Currently board member of IBM World
Trade Europe/Middle East/Africa Corp.; Bertlesmann AG;
Zurich Versicherungs-Gesellshaft (insurance); the
International Advisory Board of General Electric Company;
the International Council for JP Morgan & Co.; the Board of
Supervisory Directors of ROBECo/o Group; and the Supervisory
Board of Royal Dutch (petroleum company); Advisory Director
of Unilever N.V. and Unilever Deutschland; German Governor,
International Monetary Fund (1980-1991); Board Member, Bank
for International Settlements (1980-1991); Chairman,
European Economic Community Central Bank Governors
(1990-1991); Director or Trustee of all funds managed by the
Adviser.

Werner J. Roeder, M.D. Director of Surgery, Lawrence Hospital and practicing
Director private physician. Director, Gabelli Capital Series Funds,
Age: 61 Inc., Gabelli Gold Fund, Inc., Gabelli Investor Funds, Inc.
and Gabelli Global Series Funds, Inc. and Trustee of the
Westwood Funds.

Anthonie C. van Ekris Managing Director, Balmac International. Director of Stahal
Director Hardmayer A.Z. (through present). Trustee of The Gabelli
Age: 61 Asset Fund, The Gabelli Growth Fund and The Gabelli Money
Market Funds. Director, Gabelli Capital Series Funds, Inc.,
Gabelli Equity Series Funds, Inc., Gabelli Global Series
Funds, Inc., Gabelli Gold Fund, Inc. and Gabelli Income
Series Funds Inc.

Bruce N. Alpert Vice President, Treasurer and Chief Financial and
Vice President and Treasurer Administrative Officer of the investment advisory division
Age: 44 of the Adviser; President and Treasurer of The Gabelli Asset
Fund and The Gabelli Growth Fund; Vice President and
Treasurer of Gabelli Capital Series Funds, Inc., Gabelli
Equity Series Funds, Inc., The Gabelli Equity Trust Inc.,
Gabelli Gold Fund, Inc., The Gabelli Global Multimedia Trust
Inc., The Gabelli Money Market Funds, The Gabelli Value Fund
Inc., Gabelli Investor Funds, Inc., Gabelli Global Series
Funds, Inc. and The Gabelli Convertible Securities Fund,
Inc.; Vice President of the Westwood Funds since November
1994. Manager of Teton Advisers LLC.

</TABLE>
- --------------------------------------------------------------------------------
B-14

<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------

Principal Occupations During last Five Years;
Name, Position with Fund and Address Affiliations with the Adviser or Administrator
- ------------------------------------ ----------------------------------------------
<S> <C>

James E. McKee, Esq. Vice President and General Counsel of the Adviser; Secretary
Secretary of all funds managed by the Adviser; Secretary of the
Age: 32 Westwood Funds. Vice President and General Counsel of GAMCO
Investors, Inc. since 1993. Formerly Branch Chief with the
Securities and Exchange Commission in New York from 1992 to
1993. Staff attorney with the Securities and Exchange
Commission in New York from 1989 through 1992.
</TABLE>

The Fund pays each Director who is not an employee of the Adviser or an
affiliated company an annual fee of $1,000 and $250 for each meeting of the
Board of Directors attended by the Director, and reimburses Directors for
certain travel and other out-of-pocket expenses incurred by them in connection
with attending such meetings. Directors and officers of the Fund who are
employed by the Adviser or an affiliated company receive no compensation or
expense reimbursement from the Fund.

The following table sets forth certain information regarding the
compensation of the Fund's directors and officers. Except as disclosed below, no
executive officer or person affiliated with the Fund received compensation from
the Fund for the calendar year ended December 31, 1995 in excess of $60,000.

COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Pension or Retirement Total Compensation
Aggregate Benefits Accrued as Estimated Annual From the Fund and
Name of Person Compensation Part of Fund Benefits Upon Fund Complex Paid to
Position from the Fund* Expenses* Retirement Directors**
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Mario J. Gabelli 0 0 N/A 0
Chairman of the Board

Anthony J. Colavita $500 0 N/A 65,753 (11)
Director

Karl Otto Pohl 500 0 N/A 80,253 (15)
Director

Werner J. Roeder, M.D. 500 0 N/A 11,253 (4)
Director

Anthonie C. van Ekris 500 0 N/A 45,263 (9)
Director
</TABLE>

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

* Since the Fund commenced operations on June 30, 1995, the amounts shown
represent those estimated to be paid during a full fiscal year.

** Represents the total compensation paid to such persons during the calendar
year ended December 31, 1995 (and, with respect to the Fund, estimated to
be paid during a full calendar year). The parenthetical number represents
the number of investment companies (including the Fund) from which such
person receives compensation that are considered part of the same fund
complex as the Fund, because, among other things, they have a common
investment adviser.

SHARES OF BENEFICIAL INTEREST

As of the date of this Statement of Additional Information, the Directors
of the Fund as a group owned 12.25% of the outstanding shares of the Fund.

- --------------------------------------------------------------------------------
B-15

<PAGE>

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

The following persons were known by the Fund to own of record 5% or more of
the outstanding voting securities of the Fund as of December 22, 1995:

Name and Address of
Holder of Record Percentage of Fund
---------------- ------------------
Media Buying Service Co. 5.72%
150 Bloor Street Ste. 703 West
Toronto, Ontario

Cazenovia College 8.90%
Seminary Street
Cazenovia, NY

Gabelli Funds, Inc. 7.80%
One Corporate Center
Rye, NY

INVESTMENT RESTRICTIONS

The Fund's investment objective and the following investment restrictions
are fundamental and cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities (defined in the Act as the
lesser of (a) more than 50% of the outstanding shares or (b) 67% or more of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented). All other investment policies or practices are considered by
the Fund not to be fundamental and accordingly may be changed without
stockholder approval. If a percentage restriction on investment or use of assets
set forth below is adhered to at the time a transaction is effected, later
changes in percentage resulting from changing market values or total assets of
the Fund will not be considered a deviation from policy. The Fund may not:

(1) invest in more than 25% of the value of its total assets in any
particular industry (this restriction does not apply to obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities);

(2) issue senior securities, except that the Fund may borrow money from a
bank, including on margin if margin securities are owned, in an amount up to
331/3% of its total assets (including the amount of such enumerated senior
securities issued but excluding any liabilities and indebtedness not
constituting senior securities) and except that the Fund may borrow up to an
additional 5% of its total assets for temporary purposes; or pledge its assets
other than to secure such issuances or in connection with hedging transactions,
short sales, when-issued and forward commitment transactions and similar
investment strategies;

(3) make loans of money or property to any person, except through loans of
portfolio securities, the purchase of fixed income securities or the acquisition
of securities subject to repurchase agreements;

(4) underwrite the securities of other issuers, except to the extent that
in connection with the disposition of portfolio securities or the sale of its
own shares the Fund may be deemed to be an underwriter;

- --------------------------------------------------------------------------------
B-16

<PAGE>

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

(5) invest for the purpose of exercising control over management of any
company;

(6) purchase real estate or interests therein, including limited
partnerships that invest primarily in real estate equity interests, other than
publicly traded real estate investment trusts and publicly traded master limited
partnership interests; or

(7) purchase or sell commodities or commodity contracts except for certain
bona fide hedging, yield enhancement and risk management purposes or invest in
any oil, gas or mineral leases.

In addition, as a diversified investment company, the Fund is subject to
the following limitations as to 75% of its total assets: (a) the Fund may not
invest more than 5% of its total assets in the securities of any one issuer,
except obligations of the U.S. Government and its agencies and
instrumentalities, and (b) the Fund may not own more than 10% of the outstanding
voting securities of any one issuer.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Adviser is authorized on behalf of the Fund to employ brokers to effect
the purchase or sale of portfolio securities with the objective of obtaining
prompt, efficient and reliable execution and clearance of such transactions at
the most favorable price obtainable ("best execution") at reasonable expense.
Transactions in securities other than those for which a securities exchange is
the principal market are generally done through a principal market maker.
However, such transactions may be effected through a brokerage firm and a
commission paid whenever it appears that a broker can obtain a more favorable
overall price. In general, there may be no stated commission in the case of
securities traded on the over-the-counter markets, but the prices of those
securities may include undisclosed commissions or markups. Options transaction
will usually be effected through a broker and a commission will be charged. The
Fund also expects that securities will be purchased at times in underwritten
offerings where the price includes a fixed amount of compensation generally
referred to as the underwriter's concession or discount.

The Adviser currently serves as Adviser to a number of investment company
clients and may in the future act as adviser to others. Affiliates of the
Adviser act as investment adviser to numerous private accounts. It is the
practice of the Adviser and its affiliates to cause purchase and sale
transactions to be allocated among the Fund and others whose assets they manage
in such manner as it deems equitable. In making such allocations among the Fund
and other client accounts, the main factors considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client accounts.

The policy of the Fund regarding purchases and sales of securities and
options for its portfolio is that primary consideration will be given to
obtaining the most favorable prices and efficient execution of transactions. In
seeking to implement the Fund's policies, the Adviser effects transactions with
those brokers and dealers who the Adviser believes provide the most favorable
prices and are capable of providing efficient executions. If the Adviser
believes such price and execution are obtainable from more than one broker or
dealer, it may give consideration to placing portfolio transactions with those
brokers and dealers who also furnish research and other services to the Fund or
the Adviser of the type described in Section 28(e) of the Securities Exchange
Act of 1934. In doing so, the Fund may also pay higher commission rates than the

- --------------------------------------------------------------------------------
B-17

<PAGE>

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

lowest available when the Adviser believes it is reasonable to do so in light of
the value of the brokerage and research services provided by the broker
effecting the transaction. Such services may include, but are not limited to,
any one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or opinions
pertaining to investment; wire services; and appraisals or evaluations of
portfolio securities.

The Adviser may also place orders for the purchase or sale of portfolio
securities with Gabelli & Company, Inc. ("Gabelli"), a broker-dealer member of
the National Association of Securities Dealers, Inc. and an affiliate of the
Adviser, when it appears that, as an introducing broker or otherwise, Gabelli
can obtain a price and execution which is at least as favorable as that
obtainable by other qualified brokers. The Adviser may also consider sales of
shares of the Fund and any other registered investment companies managed by the
Adviser and its affiliates by brokers and dealers other than the Distributor as
a factor in its selection of brokers and dealers to execute portfolio
transactions for the Fund. For the period July 6, 1995 (commencement of
operations) through December 31, 1995, the Fund paid a total of $10,161 in
brokerage commissions of which Gabelli & Company, Inc. received $0.

As required by Rule 17e-1 under the Act, the Board of Directors of the Fund
has adopted "Procedures" which provide that the commissions paid to Gabelli on
stock exchange transactions may not exceed that which would have been charged by
another qualified broker or member firm able to effect the same or a comparable
transaction at an equally favorable price. Rule 17e-1 and the Procedures contain
requirements that the Board, including independent Directors, conduct periodic
compliance reviews of such brokerage allocations and review such schedule at
least annually for its continuing compliance with the foregoing standard. The
Adviser and Gabelli are also required to furnish reports and maintain records in
connection with such reviews.

To obtain the best execution of portfolio trades on the New York Stock
Exchange ("Exchange"), Gabelli controls and monitors the execution of such
transactions on the floor of the Exchange through independent "floor brokers" or
through the Designated Order Turnaround ("DOT") System of the Exchange. Such
transactions are then cleared, confirmed to the Fund for the account of Gabelli,
and settled directly with the Custodian of the Fund by a clearing house member
firm which remits the commission less its clearing charges to Gabelli. Gabelli
may also effect portfolio transactions on behalf of the Fund in the same manner
and pursuant to the same arrangements on other national securities exchanges
which adopt direct access rules similar to those of the New York Stock Exchange.

PURCHASE AND REDEMPTION OF SHARES

Cancellation of purchase orders for shares of the Fund (as, for example,
when checks submitted to purchase shares are returned unpaid) cause a loss to be
incurred when the net asset value of the Fund's shares on the date of
cancellation is less than on the original date of purchase. The investor is
responsible for such loss, and the Fund may redeem shares from any account
registered in that shareholder's name, or by seeking other redress. If the Fund
is unable to recover any loss to itself, it is the position of the Commission
that the Distributor will be immediately obligated to make the Fund whole.

To minimize expenses, the Fund reserves the right to redeem, upon not less
than 30 days' notice, all shares of the Fund in an account (other than an IRA)
which as a result of shareholder redemption has a value below $500 and has
reserved the ability to raise this amount to up to $10,000. However, a

- --------------------------------------------------------------------------------
B-18

<PAGE>

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

shareholder will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.

DIVIDENDS, DISTRIBUTIONS AND TAXES
General

The Fund will determine either to distribute or to retain all or part of
any net long-term capital gains in any year for reinvestment. If any such gains
are retained, the Fund will be subject to a tax of 35% of such amount. In that
event, the Fund expects that it will designate the retained amount as
undistributed capital gains in a notice to its shareholders, each of whom (1)
will be required to include in income for tax purposes as long-term capital
gains, its share of the undistributed amount, (2) will be entitled to credit its
proportionate share of the tax paid by the Fund against its Federal income tax
liability and to claim refunds to the extent the credit exceeds such liability,
and (3) will increase its basis in its shares of the Fund by an amount equal to

65% of the amount of undistributed capital gains included in such shareholder's
gross income.

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

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

The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. If so qualified, the Fund
will not be subject to Federal income tax on its net investment income and net
short-term capital gains, if any, realized during any fiscal year in which it
distributes such income and capital gains to its shareholders.

Hedging Transactions

Certain options, futures contracts and options on futures contracts are
"section 1256 contracts." Any gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
("60/40"). Also, section 1256 contracts held by the Fund at the end of each
taxable year are "marked-to-market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as 60/40 gain or loss.

- --------------------------------------------------------------------------------
B-19
<PAGE>

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

Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. Federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.

Further, the Fund may be required to capitalize, rather than deduct
currently, any interest expense on indebtedness incurred or continued to
purchase or carry any positions that are a part of a straddle. Because only a
few regulations implementing the straddle rules have been promulgated, the tax
consequences of hedging transactions to the Fund are not entirely clear.

The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
accelerate the recognition of gains or losses from the affected straddle
positions.

Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, and require the capitalization of interest
expense, the amount which must be distributed to shareholders, and which will be
taxed to shareholders as ordinary income or long-term capital gain, may be
increased or decreased substantially as compared to a fund that did not engage
in such hedging transactions.

The 30% limitation and the diversification requirements applicable to the
Fund's assets may limit the extent to which the Fund will be able to engage in
transactions in options, futures contracts and options on futures contracts.

Distributions

Distributions of investment company taxable income (which includes taxable
interest income and the excess of net short-term capital gains over long-term
capital losses) are taxable to a U.S. shareholder as ordinary income, whether
paid in cash or shares. Dividends paid by the Fund will qualify for the 70%
deduction for dividends received by corporations to the extent the Fund's income
consists of qualified dividends received from U.S. corporations. Distributions
of net capital gains (which consists of the excess of long-term capital gains
over net short-term capital losses), if any, are taxable as long-term capital
gains, whether paid in cash or in shares, and are not eligible for the dividends
received deduction. Shareholders receiving distributions in the form of newly
issued shares will have a basis in such shares of the Fund equal to the fair
market value of such shares on the distribution date. If the net asset value of
shares is reduced below a shareholder's cost as a result of a distribution by
the Fund, such distribution will be taxable even though it represents a return
of invested capital. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which will nevertheless be taxable to
them.

Sales of Shares

Upon a sale or exchange of his or her shares, a shareholder will realize a
taxable gain or loss depending upon his or her basis in the shares. Such gain or
loss will be treated as a long-term capital gain or loss if the shares have been
held for more than one year. Any loss realized on a sale or exchange will be

- --------------------------------------------------------------------------------
B-20

<PAGE>

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

disallowed to the extent the shares disposed of are replaced, including
replacement through reinvestment of dividends and capital gains distributions in
the Fund, within a period of 61 days beginning 30 days before and ending 30 days
after the shares are disposed of. In such case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss.

Any loss realized by a shareholder on the sale of the Fund's shares held by
the shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.

Backup Withholding

The Fund may be required to withhold Federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's Federal income
tax liability.

Foreign Withholding Taxes

Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of the Fund's assets to be invested in various
countries is not known. Because the Fund may have more than 50% of its total
assets invested in securities of foreign corporations, the Fund may be entitled
to "pass-through" to shareholders the amount of foreign taxes paid by the Fund.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to Federal, state or local taxes.

Creation of Additional Series

The Fund reserves the right to create and issue a number of series shares,
in which case the shares of each series would participate equally in the
earnings, dividends, and assets of the particular series and would vote
separately to approve management agreements or changes in investment policies,
but shares of all series would vote together in the election or selection of
Directors, principal underwriters and auditors and on any proposed material
amendment to the Fund's Certificate of Incorporation.

Upon liquidation of the Fund or any series, shareholders of the affected
series would be entitled to share pro rata in the net assets of their respective
series available for distribution to such shareholder.

INVESTMENT PERFORMANCE INFORMATION

The Fund may furnish data about its investment performance in
advertisements, sales literature and reports to shareholders. "Total return"
represents the annual percentage change in value of $1,000 invested at the
maximum public offering price for the one-year period and the life of the Fund
through the most recent calendar quarter, assuming reinvestment of all dividends
and distributions. The Fund may also furnish total return calculations for these
and other periods, based on investments at various sales charge levels or net
asset value. Any performance data which is based on the Fund's net asset value
per share would be reduced if a sales charge were taken into account.

- --------------------------------------------------------------------------------
B-21
<PAGE>
- --------------------------------------------------------------------------------

Quotations of yield will be based on the investment income per share earned
during a particular 30-day period, less expenses accrued during the period ("net
investment income") and will be computed by dividing net investment income by
the maximum offering price per share on the last day of the period, according to
the following formula:

YIELD=2[((A-B)/(CD)+1)^6-1]

where A = dividends and interest earned during the period, B = expenses accrued
for the period (net of any reimbursements), C = the average daily number of
shares outstanding during the period that were entitled to receive dividends,
and D = the maximum offering price share on the last day of the period.

For the 30 day period ended December 31, 1995 the Fund's yield was 2.91%.

Quotations of total return will reflect only the performance of a
hypothetical investment in the Fund during the particular time period shown. The
Fund's total return and current yield may vary from time to time depending on
market conditions, the compositions of its portfolio and operating expenses.
These factors and possible differences in the methods used in calculating yield
should be considered when comparing the Fund's current yield to yields published
for other investment companies and other investment vehicles. Total return and
yield should also be considered relative to changes in the value of the Fund's
shares and the risks associated with the Fund's investment objectives and
policies. At any time in the future, total returns and yield may be higher or
lower than past total returns and yields and there can be no assurance that any
historical return or yield will continue.

From time to time evaluations of performance are made by independent
sources that may be used in advertisements concerning the Fund. These sources
include: Lipper Analytical Services, Weisenberger Investment Company Service,
Barron's, Business Week, Changing Times, Financial World, Forbes, Fortune,
Money, Personal Investor, Sylvia Porter's Personal Finance, Bank Rate Monitor,
Morningstar and The Wall Street Journal.

In connection with communicating its yield or total return to current or
prospective shareholders, the Fund may also compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indexes which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.

Quotations of the Fund's total return will represent the average annual
compounded rate of return of a hypothetical investment in the Fund over periods
of 1, 5, and 10 years (up to the life of the Fund), and are calculated pursuant
to the following formula:

T=(ERV/P^(1/n)-1

where P = a hypothetical initial payment of $1,000, T = the average annual total
return, n = the number of years, and ERV = the redeemable value at the end of
the period of a $1,000 payment made at the beginning of the period. All total
return figures will reflect the deduction of Fund expenses (net of certain
expenses reimbursed by the Adviser) on an annual basis, and will assume that all
dividends and distributions are reinvested and will deduct the maximum sales
charge, if any is imposed.

For the period from June 30, 1995 (commencement of operations) through
December 31, 1995, the Fund's total return was 9.80%.

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B-22

<PAGE>
- --------------------------------------------------------------------------------

COUNSEL AND INDEPENDENT AUDITORS

Willkie Farr & Gallagher, 153 East 53rd Street, New York, New York 10022,
serves as counsel for the Fund.

Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has been
appointed independent auditors for the Fund.

APPENDIX TO STATEMENT OF ADDITIONAL INFORMATION

Description of Moody's Investors Service, Inc.("Moody's") Corporate Bond Ratings

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Aa: Bonds which are rated Aa
are judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which made the long term risks appear
somewhat larger than in Aaa securities. A: Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future. Baa: Bonds which are rated Baa are considered
as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Ba: Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. B: Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Caa: Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Ca: Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. C: Bonds which are rated C
are the lowest rated class of bonds and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

- --------------------------------------------------------------------------------
B-23

<PAGE>

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

Description of Standard & Poor's Ratings Group ("S&P's") Corporate Debt Ratings

AAA: Debt rated AAA has the highest rating assigned by S&P's. Capacity to
pay interest and repay principal is extremely strong. AA: Debt rated AA has a
very strong capacity to pay interest and repay principal and differs from the
highest rated issues only in small degrees. A: Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories. BBB: Debt rated BBB is regarded
as having adequate capacity to pay interest and repay principal. Whereas it
normally exhibits protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher rated
categories. BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. CI: The rating CI is reserved for income bonds on which no interest
is being paid. D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Plus (+) or Minus (-): The ratings from "AA" to "CCC " may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

r: The "r" symbol is attached to derivative, hybrid and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks created by the terms of the
obligation.

Description of Moody's Preferred Stock Ratings

aaa: An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks. aa: An issue
which is rated aa is considered a high-grade preferred stock. This rating
indicates that there is reasonable assurance that earnings and asset protection
will remain relatively well maintained in the foreseeable future. a: An issue
which is rated a is considered to be an upper medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classifications, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels. baa: An issue which is rated baa is considered to
be medium grade, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time. ba: An issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class. b: An
issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small. caa: An issue which is rated
caa is likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payment. ca: An issue which is

- --------------------------------------------------------------------------------
B-24

<PAGE>

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

rated ca is speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payment. c: This is the lowest
rated class of preferred or preference stock. Issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

Description of S&P's Preferred Stock Ratings

AAA: This is the highest rating that may be assigned by S&P's to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations. AA: A preferred stock issue rated AA also qualifies
as a high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
AAA. A: An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effect of changes in circumstances and economic conditions. BBB: An issue rated
BBB is regarded as backed by an adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make payments for a preferred stock in this category than
for issues in the A category. BB, B, CCC: Preferred stock rated BB, B, and CCC
are regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. BB indicates the lowest
degree of speculation and CCC the highest degree of speculation. While such
issues will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CC: The rating CC is reserved for a preferred stock in arrears on dividends or
sinking fund payments but that is currently paying. C: A preferred stock rated C
is a non-paying issue. D: A preferred stock rated D is a non-paying issue with
the issuer in default on debt instruments.

Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

FINANCIAL STATEMENTS

The Fund's Financial Statements for the period June 30, 1995 (commencement
of operations) through December 31, 1995 including the Report of Ernst & Young
LLP, independent accountants, are included herein.

- --------------------------------------------------------------------------------
B-25
<PAGE>

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

Gabelli International Growth Fund, Inc.
Report of Ernst & Young LLP, Independent Auditors

Shareholders and Board of Directors
Gabelli International Growth Fund, Inc.

We have audited the accompanying statement of assets and liabilities of The
Gabelli International Growth Fund, Inc., including the portfolio of investments,
as of December 31, 1995, and the related statements of operations and changes in
net assets, and financial highlights for the period from June 30, 1995
(commencement of operations) to December 31, 1995. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1995 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above presents fairly, in all material respects, the financial position of The
Gabelli International Growth Fund, Inc. at December 31, 1995, and the results of
its operations, the changes in its assets and the financial highlights for the
period from June 30, 1995 to December 31, 1995, in conformity with generally
accepted accounting principles.

/s/ ERNST & YOUNG LLP

New York, New York
January 24, 1996

B-26

<PAGE>

Gabelli International Growth Fund, Inc.
Portfolio of Investments -- December 31, 1995
================================================================================

Market
Shares Cost Value
------ ---- ------
COMMON STOCKS -- 94.58%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 2.87%
3,000 Nissan Motor Company Ltd. ........................ $23,339 $23,050
2,000 Nittan Valve Co. ................................. 11,289 11,045
1,500 Pininfarina SpA .................................. 15,122 13,039
3,000 Swedish Motors Corp. ............................. 12,233 12,981
------- -------
61,983 60,115
------- -------

BROADCASTING -- 1.03%
5,000 Spencer Gulf Telecasters Ltd. .................... 19,887 21,547
------- -------

CONSUMER PRODUCTS -- 9.44%
1,800 Brio Industries Inc.,
B Shares ........................................ 15,066 15,948
15 Compagnie Financiere
Richemont AG .................................... 19,544 22,467
2,500 Safilo SpA ....................................... 22,801 32,362
300 Sanofi S.A ....................................... 18,568 19,179
3,000 Scandinavia Mobility
International A/S+ .............................. 65,726 71,929
600 Seagram Company Ltd. ............................. 21,293 20,775
2,000 Tomiya Apparel Co., Ltd. ......................... 13,350 15,250
------- -------
176,348 197,910
------- -------

DIVERSIFIED INDUSTRIAL -- 6.95%
6,300 Antofagasta Holdings plc ......................... 30,589 28,611
250 Cubiertas y Mzov S.A ............................. 15,078 13,808
5,000 Hutchison Whampoa Ltd. ........................... 30,070 30,454
5,000 Mitsubishi Heavy Industries
Ltd. ............................................ 37,666 39,870
10,000 PT Mustika Ratu+ ................................. 14,233 15,741
3,000 Sanyo Electric Company Ltd. ...................... 17,006 17,295
------- -------
144,642 145,779
------- -------

ELECTRONICS -- 6.86%
1,000 Alpine Electronics Inc. .......................... 30,023 33,718
2,000 Hitachi, Ltd. .................................... 20,790 20,153
1,000 Japan Digital Laboratory Co. ..................... 20,204 22,575
1,250 Nippon Ceramic Co.,
Ltd. ............................................ 18,445 19,378
800 Sony Corporation ................................. 39,615 47,980
------- -------
129,077 143,804
------- -------

ENERGY -- 1.08%
1,700 Saga Petroleum a.s.,
A Shares ....................................... 23,196 22,626
------- -------

ENTERTAINMENT -- 5.27%
2,400 Granada Group plc ................................ 24,498 23,994
200 Infogrames
Entertainment SA +............................... 29,912 27,861
20,000 Sydney Harbour Casino
Holdings Limited+ ............................... 24,712 25,262
5,000 Television Broadcasts Ltd. ....................... 18,021 17,813
5,000 Village Roadshow Ltd. ............................ 11,720 15,603
------- -------
108,863 110,533
------- -------

FINANCIAL SERVICES -- 13.12%
100 Berliner Bank
Aktiengesellschaft .............................. 27,257 25,452
3,000 Dundee Bancorp Cl. A+ ............................ 30,028 30,220
1,600 Invik & Company AB, B Free ....................... 36,508 39,525
2,000 Nomura Securities
Company Ltd. .................................... 41,025 43,600
500 ORIX Corp. ....................................... 17,566 20,589
500 Promise Co., Ltd. ................................ 21,298 24,077
1,700 Siam Commercial Bank Ltd. ........................ 20,329 22,406
3,000 Skandinaviska Enskilda
Banken .......................................... 22,088 24,779
10,000 Westpac Banking Corp. ............................ 40,869 44,283
------- -------
256,968 274,931
------- -------

FOOD AND BEVERAGE -- 3.84%
20 Bongrain S.A ..................................... 11,843 11,242
1,500 Hartwall Oy AB ................................... 24,267 27,854
500 Nestle SA ADR .................................... 25,344 27,688
1,000 Yakult Honsha Co., Ltd. .......................... 14,770 13,661
------- -------
76,224 80,445
------- -------

FOREST PRODUCTS -- 0.70%
6,000 Jefferson Smurfit Group plc ...................... 18,571 14,660
------- -------

HOTELS AND LODGING -- 1.04%
40,000 AAPC Ltd. ........................................ 21,435 21,696
------- -------

INDUSTRIAL SERVICES -- 0.81%
4,000 Hazama Corporation ............................... 18,255 17,053
------- -------

MEDIA -- 2.21%
250 Kinnevik AB, B Shares ............................ 8,297 7,790
700 Reuters Holdings plc ADR ......................... 38,294 38,588
------- -------
46,591 46,378
------- -------

METALS AND MINING -- 9.96%
215 Acerinox, S.A .................................... 26,645 21,682
25,000 Golden Shamrock Mine Ltd.+ ....................... 15,134 15,417
1,000 Impala Platinum Holdings ......................... 22,750 19,000
9,000 Kawasaki Steel ................................... 31,801 31,392
12,000 Lonrho plc ....................................... 31,338 32,736
6,040 Randgold and Exploration
Company Ltd.+ ................................... 21,015 24,435
2,000 Stillwater Mining Ltd.+(a) ....................... 43,000 38,500
4,000 Western Mining Corporation
Holdings Ltd. ................................... 25,777 25,678
------- -------
217,460 208,840
------- -------

The accompanying notes are an integral part of the financial statements.

B-27

<PAGE>

Gabelli International Growth Fund, Inc.
Portfolio of Investments -- December 31, 1995 (Continued)
================================================================================

Market
Shares Cost Value
------ ---- ------
PHARMACEUTICALS -- 2.87%
800 Astra AB A ............................... $ 29,626 $ 31,837
2,000 Glaxo Wellcome plc ....................... 24,656 28,365
---------- ----------
54,282 60,202
---------- ----------

PUBLISHING -- 3.81%
4,000 Dorling Kindersley plc ................... 30,806 33,108
3,200 Independent Newspapers
Ltd. .................................... 19,138 19,931
15,000 Star Publication Malaysia+................ 27,808 26,811
---------- ----------
77,752 79,850
---------- ----------

REAL ESTATE -- 2.14%
20,000 Amoy Properties Ltd. ..................... 19,890 19,915
2,000 Mitsubishi Estate ........................ 20,869 24,998
---------- ----------
40,759 44,913
---------- ----------

RETAIL -- 13.37%
4,500 Bulgari SpA ADS+(a)....................... 23,940 38,250
800 Chiyoda Corp. ............................ 13,266 18,603
1,000 Circle K Corp. Japan Ltd. ................ 29,821 44,085
2,000 Eiden Sakakiya Company
Ltd. .................................... 24,479 25,191
500 Family Mart Co., Ltd. .................... 20,872 22,575
1,000 Gucci Group SpA + ........................ 22,000 38,875
3,000 Haruyama Trading Co. ..................... 23,009 26,451
770 Nissen ................................... 19,355 18,054
6,000 Renown Look Inc.+ ........................ 19,562 20,870
25,000 Simint ................................... 29,539 27,244
---------- ----------
225,843 280,198
---------- ----------

TELECOMMUNICATIONS -- 3.90%
11,000 CPT Telefonica del Peru
Cl. B+ .................................. 21,559 23,311
3 DDI Corp. ................................ 24,598 23,254
650 Tele Danmark A/S ADR ..................... 18,020 17,956
---------- ----------
64,177 64,521
---------- ----------

TRANSPORTATION -- 0.77%
12,000 Ocean Wilsons Holdings plc ............... 15,721 16,182
---------- ----------

WIRELESS COMMUNICATIONS -- 3.36%
700 Advanced Information
Service Ltd. ............................ 10,977 12,286
10,000 Telecomm Italia Mobile
SpA+ .................................... 13,724 17,606
1,150 Vodafone Group plc ADR ................... 43,139 40,538
---------- ----------
67,840 70,430
---------- ----------

TOTAL COMMON STOCKS 1,865,874 1,982,613
---------- ----------

PREFERRED STOCKS -- 0.56%
TELEPHONE EQUIPMENT -- 0.56%
300 Nokia Group AB Preference ................ 19,196 11,663
---------- ----------
TOTAL PREFERRED
STOCKS .................................. 19,196 11,663
---------- ----------
TOTAL INVESTMENTS -- 95.14% ............. $1,885,070 1,994,276
==========
Cash and Other Assets
in excess of Liabilities -- ............. 4.86% 101,881
----------
NET ASSETS -- 100.0%
(190,828 shares
outstanding) ............................ $2,096,157
==========
Net Asset Value and
Redemption Price
Per Share ............................... $10.98
======
- ----------

(a) Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1995, Rule 144A
securities amounted to $76,750 or 3.7% of net assets.

ADR -- American Depositary Receipt

+ Non-income producing security

*For Federal income tax purposes:
Aggregate cost ........................... $1,885,070
==========
Gross unrealized appreciation ............ 158,546
Gross unrealized depreciation ............ (49,340)
----------
Net unrealized appreciation .............. 109,206
==========

The accompanying notes are an integral part of the financial statements.

B-28

<PAGE>

Gabelli International Growth Fund, Inc.

Statement of Assets and Liabilities
December 31, 1995
================================================================================

Assets:
Investments in securities, at value
(Cost $1,885,070) ...................... $1,994,276
Cash .................................... 128,133
Receivable from Advisor ................. 27,164
Receivable for investments sold ......... 6,400
Dividends receivable .................... 1,656
Deferred organizational expenses ........ 88,232
----------
Total Assets .......................... 2,245,861
----------
Liabilities:
Payable for distribution fees ........... 775
Payable for Fund shares redeemed ........ 2,467
Payable for investments purchased ....... 73,126
Deferred organization costs payable ..... 56,278
Other accrued expenses .................. 17,058
----------
Total Liabilities ..................... 149,704
----------
Net Assets (applicable to 190,828
shares outstanding) ................. $2,096,157
==========
Net asset value and redemption
price per share ..................... $10.98
==========
Net Assets Consist of:
Capital Stock, at par value ............. $ 191
Additional paid-in capital .............. 1,986,762
Net unrealized appreciation
on investments and assets and
liabilities denominated in
foreign currencies .................... 109,204
----------
Net Assets ............................ $2,096,157
==========

Statement of Operations for the Period
June 30, 1995 (Commencement of Operations)
through December 31, 1995
================================================================================

Income:
Dividends (net of foreign
taxes of $641) ........................ $ 6,296
Interest ................................ 3,460
--------
Total Income .......................... 9,756
--------

Expenses:
Investment advisory fees ................ $ 6,204
Legal and audit fees .................... 11,000
Amortization of organization expenses ... 9,768
Custodian fees and expenses ............. 7,114
Registration fees ....................... 4,231
Transfer and shareholder servicing agent 3,826
Directors' fees and expenses ............ 3,000
Printing and mailing .................... 2,896
Distribution expenses ................... 1,546
Miscellaneous ........................... 970
--------
Total expenses before
expenses assumed by Advisor .......... 50,555
Expenses assumed by Advisor ............. (33,368)
--------
Total expenses .......................... 17,187
--------
Investment Loss - net ................... ($ 7,431)
--------
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions:
Net realized gain on investments and
foreign currency transactions .......... 6,690
Net change in unrealized appreciation
on investments and assets and
liabilities denominated in
foreign currencies .................... 109,204
--------
Net gain on investments ............... 115,894
--------
Net increase in net assets resulting from
operations .............................. $108,463
========

Statement of Changes in Net Assets --
June 30, 1995 (Commencement of Operations) through December 31, 1995
================================================================================

Increase in Net Assets:
Investment Loss - net ...................................... ($7,431)
Net Realized Gain on Investments and
Foreign Currency Transactions ............................... 6,690
Net change in unrealized appreciation on investments and
assets and liabilities denominated in foreign currencies ...... 109,204
----------
Net increase in net assets resulting from operations ...... 108,463
----------
Share transactions - net ....................................... 1,887,694
----------
Net increase in net assets ................................... 1,996,157
Net Assets:
Beginning of period ............................................ 100,000
----------
End of period .................................................. $2,096,157
==========

The accompanying notes are an integral part of the financial statements.

B-29

<PAGE>

Gabelli International Growth Fund, Inc.
Notes to Financial Statements
================================================================================

1. Significant Accounting Policies. The Gabelli International Growth Fund, Inc.
(the "Fund") was incorporated in Maryland on May 25, 1994. The Fund is a
no-load, open-end, diversified management investment company. Prior to June 30,
1995 (commencement of operations), the Fund had no operations other than the
sale of 10,000 shares of common stock at $10.00 per share to Gabelli Funds,
Inc., the Fund's advisor and an affiliate on June 21, 1995. The following is a
summary of significant accounting policies followed by the Fund:

Security Valuation. Portfolio securities listed or traded on the New York or
American Stock Exchanges, 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 (if there were no sales that day,
the security is valued at the average of the bid and asked prices). 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. When
market quotations are not readily available, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Corporation's Directors. Short-term debt
securities with remaining maturities of 60 days or less are valued at amortized
cost, unless the Directors determine such does not reflect the securities' fair
value, in which case these securities will be valued at their fair value as
determined by the Directors. Options are valued at the last sale price on the
exchange on which they are listed, unless no sales of such options have taken
place that day, in which case they will be valued at the mean between their
closing bid and asked prices.

Foreign Currency Transactions. The books and records of the Fund are maintained
in U.S. dollars as follows:

(i) market value of investment securities and other assets and liabilities are
translated at the exchange rate on the valuation date.

(ii) purchases and sales of investment securities, income and expenses are
translated at the exchange rate prevailing on the respective date of such
transactions.

The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuation
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments. Net
realized and unrealized foreign exchange gains and losses which arise from
changes in exchange rates involving assets and liabilities other than
investments in securities were immaterial for the period ended December 31,
1995.

Forward Foreign Currency Contracts. The Fund may hold currencies to meet
settlement requirements for foreign securities and may engage in currency
exchange transactions to hedge against changes in exchange rates. Forward
foreign currency contracts are valued at the forward rate and are
marked-to-market daily. The change in market value is recorded by the Fund as an
unrealized gain or loss. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.

The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the Fund's portfolio securities, but it does establish
a rate of exchange that can be be achieved in the future. Although forward
foreign currency contracts limit the risk of loss due to a decline in the value
of the hedged currency, they also limit any potential gain that might result
should the value of the currency increase. In addition, the Fund could be
exposed to risks if the counterparties to the contracts are unable to meet the
terms of their contracts.

At December 31, 1995 the Fund had the following forward foreign currency
contracts open to hedge unsettled security purchases and sales:

Foreign Net
Currency Maturity Unrealized
Amount Date Cost Value Depreciation
-------- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
14,050 Bought Canadian Dollar 1/2/96 $10,321 $10,293 $(28)
72,790 Bought Swedish Krona 1/3/96 10,946 10,931 (15)
10,159,200 Sold Italian Lira 1/8/96 6,397 6,400 (3)
70,563 Bought Malaysian Ringgits 1/3/96 27,808 27,764 (27)
----
$(73)
====

</TABLE>

B-30

<PAGE>

Gabelli International Growth Fund, Inc.
Notes to Financial Statements (Continued)
================================================================================

Security Transactions and Investment Income. Security transactions are accounted
for on the dates the securities are purchased or sold (the trade dates), with
realized gain and loss on investments determined by using specific
identification as the cost method. Interest income (including amortization of
premium and discount) is recorded as earned. Dividend income and dividend and
capital gain distributions to shareholders are recorded on the ex-dividend date.
Federal Income Taxes. The Fund has qualified and intends to continue to qualify
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986 and distribute all of its taxable income and capital gains, if any,
to its shareholders. Therefore, no Federal income tax provision is required.

Dividends and interest from non-U.S. sources received by the Fund are generally
subject to non-U.S. withholding taxes at rates ranging to 30%. Such withholding
taxes may be reduced or eliminated under the terms of applicable U.S. income tax
treaties, and the Fund intends to undertake any procedural steps required to
claim the benefits of such treaties. If more than 50% in value of the Fund's
total assets at the close of any taxable year consists of stocks or securities
of non-U.S. corporations, the Fund is permitted and may elect to treat any
non-U.S. taxes paid by it as paid by its shareholders.

A portion of the Fund's net investment loss was used to offset net short-term
capital gain. As a result, $6,690 was charged against undistributed net realized
gain on investments. In addition, the remaining $741 of net investment loss was
charged to additional paid-in capital, as the loss cannot be carried forward for
Federal income tax purposes.

2. Capital Stock Transactions. The Articles of Incorporation, dated May 14,
1994, permit the Fund to issue 1,000,000,000 shares (par value $0.001) of
capital stock. Transactions in shares of capital stock were as follows:

June 30, 1995
(commencement of operations)
through December 31, 1995
----------------------------
Shares Amount
--------- ---------

Shares sold ........................ 195,806 $2,044,809
Shares redeemed .................... (14,978) (157,115)
--------- ----------
Shares transactions -- net ....... 180,828 $1,887,694
========= ==========

3. Purchases and Sales of Securities. Purchases and sales of securities for the
year ended December 31, 1995, other than U.S. Government obligations and
short-term securities, aggregated $2,189,658 and $310,799, respectively.

4. Investment Advisory Contract. The Fund employs Gabelli Funds, Inc. (the
"Advisor") to provide a continuous investment program for the Fund's portfolio,
provide all facilities and personnel, including officers, required for its
administrative management, and to pay the compensation of all officers and
Directors of the Fund who are its affiliates. As compensation for the services
rendered and related expenses borne by the Advisor, the Fund pays the Advisor a
fee, computed and accrued daily and payable monthly, equal to 1.00% per annum of
the Fund's average daily net assets. The Advisor is obligated to reimburse the
Fund in the event the Fund's expenses exceed the most restrictive expense ratio
limitation imposed by any state, currently believed to be 2.5% of the first $30
million, 2% of the next $70 million and 1.5% of the excess over $100 million of
the Fund's average daily net assets (excluding taxes, interest, distribution
expenses and extraordinary items). Pursuant to this limitation, for the period
ended December 31, 1995, the Advisor assumed $33,368 in Fund expenses.

5. Organization Expenses. The organization expenses of the Fund are being
amortized on a straight-line basis over a period of 60 months. The Advisor has
agreed that in the event that any of the initial 10,000 shares it owns are
redeemed during the period of amortization of the Fund's organization and
start-up expenses, the redemption proceeds will be reduced by any such
unamortized organization expenses in the same proportion as the number of
initial shares redeemed to the number of initial shares outstanding at the time
of redemption.

6. Distribution Plan. The Fund's Board of Directors has adopted a distribution
plan (the "Plan") under Section 12(b) of the Investment Company Act of 1940 and
Rule 12b-1 thereunder under which the the Fund pays Gabelli & Company, Inc., the
distributor and an affiliate of the Advisor, an annual rate of up to 0.25% of
average net assets for the costs and expenses in connection with distributing
the Fund's shares. For the period ended December 31, 1995, the Fund has incurred
distribution costs of $1,546. The Board of Directors has approved that
Distribution costs incurred by Gabelli & Company, Inc., totalling $96,274 which
are in excess of the 0.25% limitation may be recovered from the Fund in future
periods, subject to such limitation.

B-31

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Financial Highlights
================================================================================

Selected data for a share of capital stock outstanding throughout the period
June 30, 1995 (Commencement of Operations) through December 31, 1995:

Operating Performance:
Net Asset Value, Beginning of Period ....................... $10.00
Increase from Investment Operations:
Net investment loss ...................................... (0.03)+
Net realized and unrealized gain on securities ........... 1.01
------
Total from Investment Operations ......................... 0.98
------
Net Asset Value, End of Period ............................. $10.98
======
Total Return ............................................. 9.80%

Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) ................. $2,096
Ratio of Expenses to Average Net Assets .................. 2.75%(a)(b)
Ratio of Net Investment Loss to Average Net Assets ....... (1.19%)(a)(b)
Portfolio Turnover Rate .................................. 29.55%

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

+ Based on average month-end shares outstanding.

(a) Annualized.
(b) Before reimbursement, the ratios of expenses and net investment loss to
average net assets would have been 8.10% and (6.54%), respectively.

B-32

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