[Photo]
Mario J. Gabelli
Gabelli
International
Growth
Fund,
Inc.
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
Gabelli International Growth Fund, Inc.
Annual Report - December 31, 1996
[Photo]
Caesar Bryan
To Our Shareholders:
Most international markets performed well in 1996, particularly when
measured in local currencies. However, due to the strength of the dollar,
returns to U.S.-based investors were not as good. For example, the German market
gained 28.2% in 1996 but translated back into U.S. dollars the gain was 19.0%.
Due to the poor performance of the Japanese stock market, which fell by 16.2% in
U.S. dollars, the Morgan Stanley Capital International Index of overseas equity
markets (EAFE) appreciated by only 4.4%. This meager number masks the excellent
performance of most markets. For example, European markets rose by 19.0% and
Asian/Pacific markets, excluding Japan, rose by 16.0% in U.S. dollar terms.
For 1996, the Gabelli International Growth Fund appreciated by 22.2% which
compares with a rise of 11.8% for the average international fund tracked by
Lipper Analytical Services. During the fourth quarter of 1996 the Gabelli
International Growth Fund appreciated by 7.1% compared with a rise of 3.9% and
1.2% for the average international fund tracked by Lipper and the Morgan Stanley
Capital International Index, respectively.
INVESTMENT RESULTS (a)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
---------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1996: Net Asset Value ......... $11.71 $12.55 $12.53 $13.42 $13.42
Total Return ............ 6.6% 7.2% (0.2)% 7.1% 22.2%
- -------------------------------------------------------------------------------------------
1995: Net Asset Value.......... -- -- $10.57 $10.98 $10.98
Total Return............. -- -- 5.7%(b) 3.9% 9.8%(b)
- -------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------
Average Annual Returns - December 31, 1996 (a)
1 Year .......................... 22.2%
Life of Fund (b) ................ 21.5%
- -------------------------------------------------------
(a) Total returns reflect changes in share price and are net of expenses. Of
course, returns represent past performance and do not guarantee future results.
Investment returns and the principal value of an investment will fluctuate. When
shares are redeemed they may be worth more or less than their original cost.
(b) From commencement of operations on June 30, 1995. Note: Investing in foreign
securities involves risks not ordinarily associated with investments in domestic
issues, including currency fluctuation, economic and political risks.
<PAGE>
Comparison of Change
in Value of a $10,000
Investment in the
Gabelli International
Growth Fund, Inc., and the
Morgan Stanley Capital
International Index
[The following table was represented as a line graph in the printed material.]
6/30/96 12/31/96 12/31/96
- --------------------------------------------------------------------------------
Gabelli International Growth Fund $10,000 $13,429*
- --------------------------------------------------------------------------------
Morgan Stanlet Capital International Index $10,000 $11,314
- --------------------------------------------------------------------------------
* Past performance is not predictive of future performance.
The best equity markets in 1996, in dollar terms, were Finland, Norway,
Sweden and Hong Kong. They all rose by more than 30%. Apart from Japan, the
laggards among larger markets were Austria, Switzerland and Singapore, all of
which were essentially unchanged. Among emerging markets, the winners were
Brazil, Turkey and Portugal. The losers included Korea and Thailand, both of
which fell by more than 35%.
Our Approach
We purchase attractively valued companies which we believe have the
opportunity to grow earnings more rapidly than the average in that company's
local market. We pay close attention to a company's market position, management
and balance sheet, with particular emphasis on the ability of the company to
finance its growth. Generally, we value a company relative to its local market
but, where appropriate, will attempt to benefit from valuation discrepancies
between markets. Our primary focus is on security selection and not country
allocation, but the Fund will remain well-diversified by sector and geography.
Country allocation is likely to reflect broad economic, financial and currency
trends as well as relative size of the market.
Market Outlook
We continue to be fairly optimistic about the outlook for overseas equity
markets. From a cyclical standpoint, inflation remains subdued, interest rates
are still declining in a number of countries, earnings growth remains robust and
valuations are reasonable. On a secular basis, many overseas countries have
undertaken reforms to encourage personal savings for retirement. This, if
history is any guide, along with Government privatization programs, tends to
result in good equity market performance over an extended period of time.
2
<PAGE>
We believe these comments apply particularly to Europe. Despite an extended
period of low interest rates, economic growth remains sluggish. For example, the
rate of unemployment in Germany is now over 12% of the workforce - a level not
seen since the 1930s. One of the main constraints to growth in Europe has been
the fiscal tightening that is required to bring debt and deficits to levels
which meet the criteria for European Monetary Union (EMU) which is due to be in
place at the start of 1999. Fiscal tightening, combined with monetary ease, is a
policy mix which often leads to currency weakness. Both the dollar and sterling
have strengthened against continental European currencies. This current currency
weakness will help to reflate the European economy.
Consensus economic forecasts suggest that economic growth for Europe,
excluding the United Kingdom, will accelerate to over 2% on an annual basis in
1997, compared to about 1.5% in 1996. Inflation is also expected to decline
further to below 2%. Even though European bond markets have performed well, real
rates remain high and we believe there is potential for further falls in bond
yields. The United Kingdom is further advanced than the rest of Europe in the
economic cycle, with a slightly different policy mix, namely a more relaxed
fiscal but tighter monetary policy than her continental neighbors.
In this environment earnings growth in Europe should exceed 15% in 1997,
putting most markets on an earnings multiple of about 17. Looking further out
into 1998, we expect future earnings growth based on unit volume growth, a
competitive currency and insignificant unit labor cost increases.
What are the risks to this benign environment? Three come to mind. First,
economic growth surprises on the upside necessitating interest rate rises.
Secondly, inflation rises from factors such as higher oil prices and, thirdly,
possible division within the European community caused by EMU. Even though EMU
is due to take place at the start of 1999 -- less than two years away -- many
uncertainties still exist. For example, which countries will participate at
inception and will the starting date even be in 1999? This is a consequence of
the process having become increasingly politicized. Although EMU will continue
to generate debate, we continue to believe that most European countries will
follow policies intended to reduce government debt. This should result in low
inflation and interest rates which are good for financial assets.
The major disappointment of 1996 was the horrible performance of the
Japanese stock market, especially towards the end of the year. There were a
number of reasons why the market fell sharply. Probably the most significant is
the view that tax increases, due to take effect in March 1997, may weaken the
fragile economic recovery. Others include the fear that deregulation will
increase competition and reduce company profits and that the banking system
remains under stress. Amid the gloom we believe there are some opportunities.
There are a number of Japanese companies that are competitive on a global basis.
The challenge is finding companies at attractive prices, that have superior
growth characteristics and shareholder friendly management. The recent weakness
in the yen (which should improve exports and help bolster consumer confidence)
and very low interest rates have assisted various sectors of the economy such as
housing and autos.
3
<PAGE>
International Allocation
The chart at the right presents the Fund's holdings by geographic region as
of December 31, 1996. The geographic allocation will change based on future
global market conditions. Countries and/or regions or companies represented in
the chart and below may or may not be included in the Fund's portfolio in the
future.
[The following table was represented as a pie chart in the printed material.]
HOLDINGS BY GEOGRAPHIC REGION - 12/31/96
Europe 54.6%
South East Asia 21.7%
Japan 15.8%
North America 4.1%
Cash 1.8%
Other 2.0%
Portfolio Structure
Well over half of the Fund is invested in Europe, with the major emphasis
on continental Europe. Recently we have increased the Fund's exposure to France
and Germany at the expense of Scandinavia and southern Europe. We continue to
focus our efforts on companies involved in fundamentally attractive businesses
which have proactive managements. For example, Clariant, formerly a division of
Sandoz, made a deal to buy Hoechst's specialty chemical business for stock. This
is an imaginative deal that will benefit both sets of shareholders and involves
an industry ripe for reorganization.
We have also increased the Fund's exposure to the financial sector. This
sector underperformed for most of 1996, valuations became increasingly
attractive and we believe the sector will witness consolidation in the near
future as major banks and insurance companies seek to increase their market
share and improve profitability.
In Japan, we have concentrated on global companies with established market
position such as Sony and Toyota. We also favor companies which have established
franchises within Japan such as Nippon Telegraph and Telephone and D.D.I.
Corporation, the wireless telephone operator.
The Fund's investments in South East Asia outside of Japan are concentrated
in Hong Kong and, to a lesser extent, in Malaysia, Indonesia and Australia.
Let's Talk Stocks
The following are stock specifics on selected holdings of our Fund.
Favorable EBITDA (earnings before interest, taxes, depreciation and
amortization) prospects do not necessarily translate into higher stock prices,
but they do express a positive trend which we believe will develop over time.
Bank Negara Indonesia (BNII.JK - $0.529 - Jakarta Stock Exchange) was privatized
by the Government last year and is the largest (by market capitalization) bank
in Indonesia. Bank Negara has a heavy exposure to Indonesia's rapidly growing
manufacturing sector and has a large market share in trade finance. The bank's
exposure to the more cyclical property sector is minimal. Currently, lending
margins
4
<PAGE>
are rising as funding costs have fallen due to lower interest rates which we
expect will lead to sharply higher earnings.
Simint (SIMI.MI - $3.72 - Milan Stock Exchange) produces high end casual wear
under license for Georgio Armani who owns a majority of the company. New
management has concentrated the company's operations on design, distribution and
branding with excellent results.
We expect strong earnings growth over the next two years.
Schibsted A/A (SCHX.OL - $18.44 - Oslo Stock Exchange) is involved in all
aspects of the media business in Norway and is now expanding into the rest of
Scandinavia. The company is organized into three business groups: Print Media,
TV/Film and Multimedia. Cash flows from the original newspaper businesses have
been, during recent years, reinvested in Television, TV programming and
multimedia activities. We believe that these new activities will prove
successful.
MIF Limited (MIF.OL - $14.91 - Oslo Stock Exchange) is a very conservatively
managed shipping company that currently owns eleven product and crude oil
tankers. Management's principal objective is to maximize shareholder value
through cash earnings from the operation of its vessels and by generating
capital gains from the sale of vessels upon appreciation of their market value.
Invik & Company ($43.78 - Stockholm Stock Exchange) is a Swedish company
involved in a number of financial activities. Three separate subsidiaries are
responsible for securities, insurance and banking. The company also has an
equity portfolio of long-term holdings. The most important equity investment is
its holding in Kinnevik, a company quoted on the Stockholm Stock Exchange.
Kinnevik is an operating group involved in three activities including TV and
media, telecommunications, and paper and packaging. All these businesses have
good growth potential and Invik provides exposure to Kinnevik at a significant
discount.
Novartis (NOVZN.S - $1,144.03 - Zurich Stock Exchange) was created by the merger
of two of Europe's largest pharmaceutical companies, namely Ciba Geigy and
Sandoz, both of which were headquartered in Basel, Switzerland. Apart from
pharmaceuticals, the merged company has a strong position in agribusiness and
nutrition. Ciba specialty chemicals, with sales of about $5 billion, will
shortly be spun off to shareholders. The company has a number of new drugs in
development that have excellent sales potential and we believe management will
reduce costs following the merger. We expect at least 15% annual earnings growth
for the next few years.
Compagnie Financiere Richemont AG (RIFZ.Z - $1,402.99 - Zurich Stock Exchange)
is a Swiss-based holding company which exercises financial and operational
control over companies operating primarily in the fields of tobacco and luxury
goods. Richemont's interests in the tobacco industry are held through Rothmans
International, and three of the Group's trademarks: Rothmans, Dunhill and Peter
Stuyvesant are among the top fifteen international cigarette brands in the
world. Through its majority stake in Vendome Luxury Group, Richemont controls a
portfolio of leading luxury goods brands including Cartier, Piaget, Montblanc,
Karl Lagerfeld and Alfred Dunhill. Recently the company sold its pay TV company,
Nethold, to CANAL+ for a 15% stake in CANAL+. We believe this was an excellent
transaction and shows management's ability to create value.
5
<PAGE>
Clariant AG (CLRZn.S - $427.61 - Zurich Stock Market) was formerly the specialty
chemical division of Sandoz. Its activities include pigments, dyes and
masterbatches. Recently the company agreed to buy Hoechst's specialty chemicals
business which will provide Clariant the opportunity to gain market share and
cut costs. We believe that the company will continue to participate in the
restructuring of the European specialty chemicals sector.
Cheung Kong ($8.89 - Hong Kong Stock Exchange) is one of Hong Kong's leading
conglomerates. The company has holdings in a number of companies including
Hutchinson Whampoa, HK Electric and Cheung Kong Infrastructure. Cheung Kong's
major activities include property development, infrastructure management and
construction, cement and electric generation.
Reuters Holdings PLC (RTR.L - $71.04 - London Stock Exchange) is the world's
largest financial information vendor. The company employs 1,600 journalists and
has clients in 150 countries around the world. Reuters has three divisions, the
largest of which is Information Products, which accounts for about 70% of the
firm's revenues. This division delivers news and prices to customer screens
covering currencies, stocks, bonds and other financial instruments. The second
largest division is Transaction Products, which enables traders to deal from
their keyboards either with chosen trading partners or through an automated
matching system. The smallest division, accounting for 6% of revenue, is Media
Products, which delivers news to broadcasters and newspapers around the world.
We believe that Reuters is well-positioned to provide quotes and news stories in
countries such as Russia and China which have recently implemented market-based
reforms, as well as increasing its market share in established markets such as
the United States and Japan.
Minimum Initial Investment - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent minimums. No initial minimum is
required for those establishing an Automatic Investment Plan. The Gabelli
International Growth Fund and many of our other Funds are available through the
no-transaction fee programs at many major discount brokerage firms.
Internet
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Funds, Inc., the
Gabelli Mutual Funds, quarterly reports, closing prices, IRAs, 401(k)s and other
current news. You can also send us e-mail at [email protected].
6
<PAGE>
In Conclusion
The Fund's daily net asset value is now available in the financial press
and each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's NASDAQ symbol is GIGRX. Please call us during the
day for further information.
We thank you for your confidence in our investing abilities and wish you a
productive and financially rewarding 1997.
Sincerely,
/s/Caesar Bryan
Caesar Bryan
President and Portfolio Manager
February 3, 1997
- --------------------------------------------------------------------------------
Top Ten Holdings
December 31, 1996
-----------------
Bank Negara Indonesia Novartis
Simint Compagnie Financiere Richemont AG
Schibsted A/A Clariant AG
MIF Limited Cheung Kong
Invik & Company Reuters Holdings PLC
- --------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
7
<PAGE>
Gabelli International Growth Fund, Inc.
Portfolio of Investments -- December 31, 1996
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS -- 96.84%
AUTOMOTIVE: MANUFACTURING -- 1.54%
15,000 Mazda Motor Corporation ........ $ 70,570 $ 53,673
5,000 Toyota Motor Corporation ....... 119,750 143,907
---------- ----------
190,320 197,580
---------- ----------
AUTOMOTIVE: PARTS AND SERVICES -- 0.85%
9,000 Nittan Valve Co. ............... 51,460 40,294
10,000 Oriental Holdings Berhad ....... 66,246 68,119
---------- ----------
117,706 108,413
---------- ----------
BANKS -- 11.30%
25,000 Arab Malaysian Corporation
Berhad ...................... 110,355 124,752
2,500 Banco Pastor S.A ............... 143,335 160,247
18,000 Bank of Ireland ................ 130,904 162,579
743,000 Bank Negara Indonesia .......... 274,256 393,039
25,000 Bank of Scotland ............... 108,895 132,115
4,000 Bayerische Versicherung ........ 139,810 162,183
6,000 HSBC Holdings plc .............. 99,733 128,394
18,000 Skandinaviska
Enskilda Banken ............. 138,313 185,104
---------- ----------
1,145,601 1,448,413
---------- ----------
BROADCASTING -- 1.87%
300 NRJ SA ......................... 35,986 38,035
700 Pathe SA ....................... 174,147 168,593
6,000 Spencer Gulf
Telecasters Ltd. ............ 24,860 33,348
---------- ----------
234,993 239,976
---------- ----------
BUILDING MATERIALS -- 0.97%
12,000 CRH plc ........................ 118,069 124,055
---------- ----------
CONGLOMERATES -- 5.09%
23,000 Cheung Kong (Holdings)
Limited ..................... 166,713 204,454
27,000 Citic Pacific Limited .......... 117,451 156,749
35,000 Sime Darby Berhad .............. 114,321 137,921
16,000 Swire Pacific Limited .......... 142,329 152,573
---------- ----------
540,814 651,697
---------- ----------
CHEMICALS -- 1.67%
500 Clariant AG .................... 209,484 213,806
---------- ----------
CONSUMER PRODUCTS -- 6.83%
1,000 Christian Dior ................. 141,656 161,272
155 Compagnie Financiere
Richemont AG ................ 231,233 217,463
7,000 Lazare Kaplan
International, Inc. ............ 119,000 119,875
2,500 Nintendo Co., Ltd. ............. 158,757 179,127
1,000 Salomon SA ..................... 82,390 85,742
1,700 Sony Corporation ............... 95,809 111,521
---------- ----------
828,845 875,000
---------- ----------
DIVERSIFIED INDUSTRIAL -- 6.42%
5,000 Albatros Investissement ........ 97,949 119,461
11,300 Antofagasta Holdings plc ....... 56,819 65,813
15,000 Daiki Engineering Co. .......... 77,045 58,341
1,500 ICBT S.A ....................... 69,211 58,382
5,100 Invik & Company AB,
B Free ...................... 146,967 223,270
800 KSB AG ......................... 97,859 124,756
13,000 Mitsubishi Heavy
Industries Ltd. .............. 103,976 103,371
5,000 NBC Industries Co. Ltd. ........ 100,348 69,144
---------- ----------
750,174 822,538
---------- ----------
ELECTRONICS -- 2.07%
9,000 Hitachi, Ltd. .................. 88,250 84,010
15,000 NEC Corp. ...................... 184,784 181,504
---------- ----------
273,034 265,514
---------- ----------
ENERGY -- 5.18%
15,000 British Petroleum
Company plc ................. 136,279 179,993
5,000 Gazprom ........................ 78,750 88,750
75,000 Hong Kong and China Gas ........ 127,619 144,977
4,000 Shaw Industries Ltd. ........... 42,781 80,817
13,000 Van Der Horst Ltd. ............. 61,888 54,360
2,000 Veba AG ........................ 108,202 115,010
---------- ----------
555,519 663,907
---------- ----------
ENTERTAINMENT -- 2.45%
125,000 Southern Star Group
Limited ..................... 138,950 175,673
50,845 Village Roadshow Ltd. .......... 153,097 138,069
---------- ----------
292,047 313,742
---------- ----------
FINANCIAL SERVICES -- 4.35%
2,000 CSA Management
Limited Cl. A ............... 19,233 19,694
8,000 Dundee Bancorp Cl. A+ . ........ 100,199 147,338
200,000 Integrated Development
Capital Ltd. ................ 32,623 33,348
200,000 Integrated Development
Capital Ltd. - Options ...... 5,931 7,146
1,900 ORIX Corp. ..................... 73,289 79,153
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Gabelli International Growth Fund, Inc.
Portfolio of Investments (Continued) -- December 31, 1996
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (Continued)
FINANCIAL SERVICES (Continued)
7,000 Skandia Forsakrings AB ......... $ 198,213 $ 198,472
1,000 Takefuji Corporation ........... 83,055 72,169
---------- ----------
512,543 557,320
---------- ----------
FOOD AND BEVERAGE -- 3.10%
14,000 Guiness plc .................... 103,104 109,718
3,500 Hartwall Oy AB ................. 75,145 153,595
2,500 Nestle SA ADR .................. 136,593 133,777
---------- ----------
314,842 397,090
---------- ----------
FOREST PRODUCTS -- 0.37%
16,000 Jefferson Smurfit
Group plc ................... 42,663 46,998
---------- ----------
GAMING / CASINOS -- 1.20%
100,000 Sydney Harbour Casino
Holdings Limited ............ 143,450 154,036
---------- ----------
HEALTHCARE -- 0.93%
10,000 Bure Investment
Aktiebolaget ................ 94,646 118,995
---------- ----------
INSURANCE -- 0.91%
10,000 Commercial Union plc ........... 108,799 117,084
---------- ----------
MEDIA -- 4.05%
11,000 Granada Group plc .............. 135,696 162,332
30,037 News Corporation Limited ....... 161,333 158,360
2,600 Reuters Holdings plc ADR ....... 179,281 198,900
---------- ----------
476,310 519,592
---------- ----------
METALS AND MINING -- 6.25%
915 Acerinox, S.A .................. 107,041 132,245
16,000 Durban Roodeport
Deep Ltd. - Options ......... 62,700 55,579
50,000 Emperor Mines Ltd. ............. 97,208 97,265
167,500 Glencar Explorations ........... 142,653 141,789
3,000 Golden Star Resources Ltd. ..... 34,400 39,497
3,000 Hullas de Coto Cortes .......... 46,370 59,168
15,000 IAM Gold International
African Mining .............. 62,732 72,757
22,000 Lonrho plc ..................... 58,290 46,919
14,040 Randgold and Exploration
Company Ltd.+ .................. 56,120 95,291
8,000 Ranger Minerals NL ............. 24,729 24,455
2,000 Stillwater Mining Ltd.+(a) ..... 43,000 36,250
---------- ----------
735,243 801,215
---------- ----------
PHARMACEUTICALS -- 6.82%
4,000 Astra AB A ..................... 168,049 198,031
5,000 Eisai Co., Ltd. ................ 89,938 98,531
9,000 Glaxo Wellcome plc ............. 127,786 146,153
190 Novartis ....................... 207,410 217,366
390 Roussel-Uclaf .................. 79,607 114,746
1,000 Sanofi SA ...................... 97,824 99,422
---------- ----------
770,614 874,249
---------- ----------
PUBLISHING -- 4.91%
20,000 Arnoldo Mondadori
Editore ..................... 158,195 162,714
21,574 Independent
Newspapers Ltd. ............. 92,183 109,576
14,000 Schibsted A/A .................. 204,631 258,161
25,000 Star Publication Malaysia+ ..... 58,853 98,515
---------- ----------
513,862 628,966
---------- ----------
REAL ESTATE -- 1.72%
6,000 Mitsubishi Estate .............. 73,475 61,711
13,000 Sun Hung Kai & Co. ............. 139,294 159,264
---------- ----------
212,769 220,975
---------- ----------
RETAIL -- 2.55%
4,500 Bulgari SpA ADS+(a) ............ 23,940 86,625
6,000 Chain Store Okuwa Co., Ltd. .... 105,147 80,380
4,000 Chiyoda Corp. .................. 75,621 62,230
1,000 Circle K Corp. Japan Ltd. ...... 24,851 43,215
25,000 PT Ramayana Lestari
Sentosa ..................... 39,693 53,956
---------- ----------
269,252 326,406
---------- ----------
SHIPPING -- 1.75%
15,000 MIF Limited .................... 188,903 223,635
---------- ----------
SOFTWARE -- 0.58%
5,000 Intentia International ......... 41,572 74,923
---------- ----------
TELECOMMUNICATIONS -- 4.52%
52,000 CPT Telefonica del Peru
Cl. B+ ...................... 110,248 97,350
15 DDI Corp. ...................... 122,579 99,309
4,930 Hellenic Telecommunications
Organization S.A. (OTE) ..... 81,407 84,816
74,800 Hong Kong Telecom .............. 131,955 120,411
15 Nippon Telegraph and
Telephone Corporation ....... 112,507 113,829
1,000 Telecel-Comunicacaoes
Pessoais SA .................... 50,685 63,788
---------- ----------
609,381 579,503
---------- ----------
TEXTILE -- 2.84%
8,000 Kyokuichi Corporation .......... 98,310 85,048
75,000 Simint ......................... 143,491 279,150
---------- ----------
241,801 364,198
---------- ----------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Gabelli International Growth Fund, Inc.
Portfolio of Investments (Continued) -- December 31, 1996
================================================================================
Principal
Amount or Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (Continued)
TOBACCO -- 0.83%
30,000 Swedish Match AB ............... $ 94,103 $ 105,773
----------- -----------
TRANSPORTATION -- 0.24%
22,000 Ocean Wilsons
Holdings plc ................... 30,665 31,091
----------- -----------
WIRELESS COMMUNICATIONS -- 2.68%
1,700 Advanced Information
Service Ltd. ................ 30,929 15,906
70,000 Telecomm Italia
Mobile SpA+ ................. 138,386 176,845
3,650 Vodafone Group plc ADR ......... 139,450 151,018
----------- -----------
308,765 343,769
----------- -----------
TOTAL COMMON
STOCKS.......................... 10,966,789 12,410,459
----------- -----------
CONVERTIBLE CORPORATE BONDS -- 0.39%
$50,000 Randgold Finance
Sub. Deb. Cv.
7.00%, 10/03/01................. 50,000 50,250
----------- -----------
TOTAL CONVERTIBLE
CORPORATE BONDS................. 50,000 50,250
----------- -----------
U.S. GOVERNMENT OBLIGATIONS -- 1.09%
$140,000 U.S. Treasury Bills,
4.82% due 02/13/97............. 139,194 139,194
----------- -----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS.................... 139,194 139,194
----------- -----------
TOTAL
INVESTMENTS-- 98.32%........... $11,155,983* 12,599,903
===========
Cash and Other Assets
in Excess of Liabilities
-- 1.68%....................... 215,490
-----------
NET ASSETS -- 100.00%
(955,129 shares outstanding) $12,815,393
===========
Net Asset Value and
Redemption Price Per Share $13.42
===========
- --------------------------------------------------------------------------------
(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, 1996, Rule 144A
securities amounted to $122,875 or 1.0% of net assets.
ADR -- American Depositary Receipt
+ Non-income producing security
*For Federal income tax purposes:
Aggregate cost ..................... $ 11,155,983
============
Gross unrealized appreciation ...... $ 1,751,699
Gross unrealized depreciation ...... (307,779)
------------
Net unrealized appreciation ........ $ 1,443,920
============
%of
Net Market
Geographic Diversification Assets Value
- -------------------------- ------ -----
Europe ................................ 54.6% $ 6,997,205
South East Asia ....................... 21.7 2,780,940
Japan ................................. 15.8 2,024,832
North America ......................... 5.9 756,108
South Africa .......................... 1.2 153,785
South America ......................... 0.8 102,523
----- -----------
100.0% $12,815,393
===== ===========
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Gabelli International Growth Fund, Inc.
Statement of Assets and Liabilities
December 31, 1996
================================================================================
Assets:
Investments in securities, at value
(Cost $11,155,983) .................................. $12,599,903
Cash ................................................... 635,029
Receivable for investments sold ........................ 148,504
Receivable for Fund shares sold ........................ 47,957
Dividends and interest receivable ...................... 15,935
Deferred organizational expenses ....................... 68,589
-----------
Total Assets ........................................ 13,515,917
-----------
Liabilities:
Payable to Advisor ..................................... 5,413
Payable for distribution fees .......................... 2,561
Payable for Fund shares redeemed ....................... 9,962
Payable for investments purchased ...................... 606,230
Other accrued expenses ................................. 76,358
-----------
Total Liabilities .................................... 700,524
-----------
Net Assets (applicable to 955,129
shares outstanding) ............................... $12,815,393
-----------
Net asset value and redemption
price per share.................................... $13.42
===========
Net Assets Consist of:
Capital stock, at par value ............................ $ 955
Additional paid-in capital ............................. 11,316,571
Accumulated net realized gains on
investments and foreign currency
transactions ....................................... 53,490
Net unrealized appreciation on
investments and assets and liabilities
denominated in foreign currencies ................... 1,444,377
-----------
Net Assets ........................................... $12,815,393
===========
Statement of Operations -- For the Year Ended
December 31, 1996
================================================================================
Income:
Dividends (net of foreign taxes of $8,341) ............. $ 71,204
Interest ............................................... 27,110
-----------
Total Income ......................................... 98,314
-----------
Expenses:
Investment advisory fees ............................... 65,095
Legal and audit fees ................................... 32,245
Custodian fees and expenses ............................ 27,313
Printing and mailing ................................... 20,703
Transfer and shareholder servicing agent ............... 20,637
Amortization of organization expenses .................. 19,643
Distribution expenses .................................. 16,274
Registration fees ...................................... 15,608
Directors' fees ........................................ 8,063
Miscellaneous .......................................... 10,552
-----------
Total expenses before
expenses assumed by Advisor .......................... 236,133
Expenses assumed by Advisor ............................ (59,249)
-----------
Total expenses ....................................... 176,884
Investment loss - net .................................. (78,570)
-----------
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions:
Net realized gain on investments ....................... 53,631
Net realized loss on
foreign currency transactions ....................... (141)
-----------
Net realized gain ...................................... 53,490
Net change in unrealized appreciation on
investments and assets and liabilities
denominated in foreign currencies ................... 1,335,173
-----------
Net Realized and Unrealized
Gain on Investments .................................... 1,388,663
-----------
Net increase in net assets resulting
from operations ........................................ $ 1,310,093
==========
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
June 30, 1995
(Commencement of
Year Ended Operations) through
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Increase (decrease) in Net Assets:
Investment loss - net .............................................. ($ 78,570) ($ 7,431)
Net realized gain on investments and foreign currency transactions . 53,490 6,690
Net change in unrealized appreciation on investments and assets
and liabilities denominated in foreign currencies ................ 1,335,173 109,204
------------ -----------
Net increase in net assets resulting from operations ............... 1,310,093 108,463
------------ -----------
Share transactions - net ........................................... 9,409,143 1,887,694
------------ -----------
Net increase in net assets ....................................... 10,719,236 1,996,157
Net Assets:
Beginning of period ................................................ 2,096,157 100,000
------------ -----------
End of period ...................................................... $ 12,815,393 $ 2,096,157
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<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 whose investment
objective is long-term capital appreciation. The preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of significant accounting policies
followed by the Fund: 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
recorded at the exchange rate on the valuation date.
(ii) purchases and sales of investment securities, income and expenses are
recorded 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 year ended December 31, 1996.
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 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.
12
<PAGE>
Gabelli International Growth Fund, Inc.
Notes to Financial Statements (Continued)
================================================================================
At December 31, 1996, the Fund had sold short the following forward foreign
currency contracts:
Settlement Unrealized
Amount/Currency Date Value Gain
------------------------- -------- ------- --------
58,228 Canadian Dollars 1/6/97 $42,471 $ 22
91,345 French Francs 2/3/97 17,600 8
-------- -------
$60,071 $ 30
======== =======
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 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 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 up 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.
For the year ended December 31, 1996, the Fund reclassified $78,570 from
accumulated net investment loss to paid-in capital. For the year ended December
31, 1995, the Fund reclassified $6,690 from accumulated net investment loss to
net realized gain on investments and $741 from accumulated net investment loss
to paid-in capital. Net assets were not affected by these reclassifications.
2. Capital Stock Transactions. The Articles of Incorporation, dated July 16,
1993, permit the Fund to issue 200,000,000 shares (par value $0.001).
Transactions in shares of common stock were as follows:
June 30, 1995
Year Ended (Commencement of Operations)
December 31, 1996 through December 31, 1995
---------------------------- -----------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Shares sold ..... 1,181,626 $ 14,647,029 195,806 $ 2,044,809
Shares redeemed . (417,324) (5,237,886) (14,978) (157,115)
------------ ------------ ------------ ------------
Net increase .. 764,302 $ 9,409,143 180,828 $ 1,887,694
============ ============ ============ ============
3. Purchases and Sales of Securities. Purchases and sales of securities for the
year ended December 31, 1996, other than U.S. government obligations and
short-term securities, aggregated $12,447,137 and $3,368,380, 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
13
<PAGE>
Gabelli International Growth Fund, Inc.
Notes to Financial Statements (Continued)
================================================================================
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 of the Fund's average daily net assets (excluding taxes,
interest, distribution expenses and extraordinary items). Pursuant to this
limitation, for the year ended December 31, 1996, the Advisor assumed $59,249 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.
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. For the year ended December 31, 1996, the Fund has
incurred distribution costs of $16,274, or 0.25% of average net assets, the
annual limitation under the Plan. The Board of Directors has approved that
Distribution costs incurred by Gabelli & Company, Inc., totaling $188,508, which
are in excess of the 0.25% limitation, may be recovered from the Fund in future
periods, subject to such limitation.
7. Transactions with Affiliates. The Fund paid brokerage commissions during the
year ended December 31, 1996 of $25 to Gabelli & Company, Inc.
Financial Highlights
================================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
June 30, 1995
(Commencement of Operations)
Year Ended through
December 31, 1996 December 31, 1995
---------------- -----------------
<S> <C> <C>
Operating Performance:
Net asset value, beginning of period ........................ $10.98 $10.00
------ ------
Increase from Investment Operations:
Net investment loss(a) ...................................... (0.15) (0.03)
Net realized and unrealized gain on securities .............. 2.59 1.01
------ ------
Total from investment operations .............................. 2.44 0.98
------ ------
Net asset value, end of period .................................. $13.42 $10.98
====== ======
Total Return(d) ............................................. 22.2% 9.8%
Ratios to average net assets/supplemental data:
Net assets, end of period (in thousands) .................... $12,815 $2,096
Ratio of operating expenses to average net assets(b) ........ 2.72% 2.75%(c)
Ratio of net investment loss to average net assets(b) ....... (1.21)% (1.19)%(c)
Portfolio turnover rate ..................................... 55% 30%
Average commission rate(e) .................................. $0.0271 --
</TABLE>
- ----------
(a) Based on average month-end shares outstanding.
(b) Before reimbursement, the ratios of expenses and net investment loss to
average net assets would have been 3.62% and (2.12%) for 1996 (annualized)
and 8.10% and (6.54%) for 1995 (annualized), respectively.
(c) Annualized.
(d) Total return is calculated assuming a purchase of shares at the net asset
value on the first day and a sale on the last day of each year reported and
includes reinvestment of dividends and distributions.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate paid per share for
purchases and sales of investment securities.
14
<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 Gabelli
International Growth Fund, Inc., including the portfolio of investments, as of
December 31, 1996, and the related statement of operations for the year then
ended, and the statement of changes in net assets and financial highlights for
the year then ended and 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 audits.
We conducted our audits 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Gabelli International Growth Fund, Inc. at December 31, 1996, and the results of
its operations for the year then ended, and the changes in its net assets and
the financial highlights for the year then ended, and for the period from June
30, 1995 to December 31, 1995, in conformity with generally accepted accounting
principles.
New York, New York Ernst & Young LLP
February 20, 1997
15
<PAGE>
Gabelli International Growth Fund, Inc.
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
fax: 1-914-921-5118
http://www.gabelli.com
e-mail: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
Board of Directors
Mario J. Gabelli, CFA
Chairman and Chief
Investment Officer
Gabelli Funds, Inc.
Anthony J. Colavita
Attorney-at-Law
Anthony J. Colavita, P.C.
Anthonie C. van Ekris
Managing Director
BALMAC International, Inc.
Karl Otto Pohl
Former President
Deutsche Bundesbank
Werner J. Roeder, MD
Director of Surgery
Lawrence Hospital
Officers and Portfolio Managers
Caesar Bryan
President and
Portfolio Manager
James E. McKee
Secretary
Bruce N. Alpert
Vice President
and Treasurer
Distributor
Gabelli & Company, Inc.
Custodian, Transfer Agent and Dividend Agent
State Street Bank and Trust Company
Legal Counsel
Willkie Farr & Gallagher
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of
Gabelli International Growth Fund, Inc. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
