Gabelli
International
Growth
Fund,
Inc.
ANNUAL REPORT
DECEMBER 31, 1997
<PAGE>
Gabelli International Growth Fund, Inc.
Annual Report - December 31, 1997
Caesar Bryan
To Our Shareholders,
During the quarter under review, financial markets across the globe
continued to be dominated by news emanating from Southeast Asia. Most of that
news was bad, as it became apparent that a number of countries would default on
their debt without external assistance. International equity investors voted
with their feet and sold. The magnitude of the decline in international stock
markets were probably as large and took place as rapidly as any bear market in
history. For example, just in the last six months of 1997, the equity markets of
Indonesia, Malaysia, Korea and Thailand declined, in dollar terms, between 65%
and 75%.
These dramatic declines obviously impacted investors everywhere and only a
handful of equity markets had a positive return during the fourth quarter. Apart
from the U.S., all of these markets were located in Europe, where the Fund has a
heavy weighting. The best performing equity market was Switzerland, which
returned 7.2% for the quarter.
The Japanese market fell by 21% during the quarter, reflecting her
weakening economic performance and close economic ties to Southeast Asia. The
dollar strengthened slightly against the deutschemark, but significantly against
the yen during the quarter.
INVESTMENT RESULTS (a)
- --------------------------------------------------------------------------------
Quarter
----------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
1997: Net Asset Value $13.51 $14.67 $15.31 $14.40 $14.40
Total Return ... 0.7% 8.6% 4.4% (5.9)% 7.3%
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
- ---------------------------------------------
Average Annual Returns - December 31, 1997(a)
- ---------------------------------------------
1 Year .............................. 7.3%
Life of Fund (b) .................... 15.6%
- ---------------------------------------------
(a) Total returns and average annual 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, THE LIPPER INTERNATIONAL FUND AVERAGE AND
THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX
[The following table was depicted as a line chart in the printed material.[
Gabelli International Lipper International Morgan Stanley
Growth Fund* Fund Average Capital International
--------------------- -------------------- ---------------------
6/30/95 $10,000 $10,000 $10,000
12/31/95 $10,990 $10,605 $10,837
12/31/96 $13,429 $12,132 $11,314
12/31/97 14409 12799 11552
- ----------
* Past performance is not predictions of future performance.
Investment Performance
The net asset value of the Gabelli International Growth Fund declined by
5.9% in the fourth quarter ended December 31, 1997. The Lipper Analytical
Services International Fund Average and Morgan Stanley EAFE Index of
international markets had returns of (7.7)% and (8.2)%, respectively, over the
same period. Each index is an unmanaged indicator of investment performance. The
Fund was up 7.3% for 1997. The Lipper International Fund Average and Morgan
Stanley EAFE Index rose 5.5% and 2.1%, respectively, over the same twelve month
period. Since inception on June 30, 1995 through December 31, 1997, the Fund has
a total return of 44.0%, which equates to an average annual return of 15.6%.
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.
2
<PAGE>
Global Allocation
The accompanying chart presents the Fund's holdings by geographic region
as of December 31, 1997. The geographic allocation will change based on current
global market conditions. Countries and/or regions represented in the chart and
below may or may not be included in the Fund's future portfolio.
[The following table was depicted as a pie chart in the printed material.]
HOLDINGS BY GEOGRAPHIC REGION - 12/31/97
Europe 79.4%
Southeast Asia 9.4%
Japan 7.5%
North America 3.5%
South Africa 0.2%
COMMENTARY
It is still too early to forecast with confidence the full implication of
the Southeast Asian debacle on the major developed countries in which the Fund
primarily invests. However, two observations can be made. These concern interest
rates and earnings, the two most important factors that determine equity prices.
First, the events in Southeast Asia appear to be deflationary. Demand from
the region will decline and exports from Asia will be priced lower. This will
tend to reduce inflationary expectations in developed countries, which is a
positive for interest rates. Most of this effect has already occurred as bond
yields have declined to new lows in most markets. For example, by the end of
1997, the ten year government bond yield was 5.35% in Germany and 1.85% in
Japan.
The second observation concerns corporate earnings. For the most part, the
impact is likely to be negative and will depend upon the severity of the
economic downturn in the Far East. Companies that compete with Southeast
Asian-based companies or sell directly to those countries will likely suffer
most. Of course, the market has been quick to discount this effect. The best
performing sectors in the fourth quarter, on a global basis, were telephone
systems, entertainment, utilities and household products. The tradable goods
sector performed the worst.
Benefiting from lower interest rates and corporate activity, the Fund's
financial stocks in Europe performed well during the quarter. These included
Bank of Scotland, Bank of Ireland, Banca Commerciale Italiana and Banco Pastor
in Spain. All of these stocks appreciated by more than ten percent. The Fund's
insurance holdings such as Skandia in Sweden and UAF and SCOR in France also did
well. The best performing holding during the quarter was Vodafone, the
U.K.-based cellular telephone company, which rose by over 30%.
Investors were quick to punish any company thought to be vulnerable to the
"Asian Flu". Some will be adversely impacted but others have little exposure.
Companies with sales in developing markets and the Far East such as Richemont,
Christian Dior and Volkswagen performed poorly. However, other companies with
very limited exposure to Asia fell sharply for no apparent reason. Examples of
this includes Rieter, a Swiss machinery and auto parts company, and Village
Roadshow, an Australian-based entertainment and broadcasting company.
3
<PAGE>
In an environment of continuing low inflation and moderate growth,
companies that can demonstrate earnings growth will likely be well rewarded by
the market. In Europe, a recovering economy will help top line revenue growth
and stocks will continue to be bolstered by restructuring efforts. Also, merger
activity should remain strong as companies prepare for the introduction of the
single currency.
Despite continuing problems in the financial sector in Japan, we expect
further measures to spur economic growth which should positively impact the
stock market. In this environment, more domestically oriented sectors of the
market might recover. The challenge in the Japanese market will be to find
companies with shareholder friendly management, a leading market position and
the ability to grow earnings.
Southeast Asian markets are likely to rebound from very oversold levels
but the economic adjustment process is likely to be painful and unpredictable.
Therefore, we would rather wait until earnings visibility has improved before
making any significant commitments to Asian markets.
Let's Talk Stocks
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time. The share prices of the following holdings are stated in U.S. dollar
equivalent terms as of December 31, 1997.
Banca Commerciale Italiana (BCMI.MI - $3.48 - Milan Stock Exchange) is a
commercial bank based in Milan. The bank has 1,350 branches in Italy and 330
abroad. We believe that there are a number of trends in place which should prove
beneficial to a number of Italian banks. First, the macroeconomic environment in
Italy has improved considerably and Italy appears set to join the European
Monetary Union. Second, the government recognizes the need to improve the
industry's returns and this should pave the way for a consolidation among the
larger banks. We expect BCI to be involved in this process. BCI is currently
benefiting from a surge in its asset management business as customers move
assets from deposit accounts to mutual funds.
Bank of Ireland (BKIR.I - $15.28 - Irish Stock Exchange) is the second largest
bank in Ireland behind Allied Irish Banks. Roughly half of the bank's revenues
are derived from Ireland. Apart from a small presence in the U.S., the remainder
of the bank's activities are located in the U.K. The company is experiencing
excellent growth in Ireland as the Irish economy is growing rapidly and with
extremely low inflation. The bank recently made an excellent acquisition in the
west of England and we expect further growth in their U.K. activities. The Bank
of Ireland's ability to generate high returns on risk assets and equity should
result in substantial dividend increases over the next few years.
Commercial Union plc (CUAC.L - $13.97 - London Stock Exchange), headquartered in
the U.K., is one of the largest insurance groups in Europe. The company writes
life and general business insurance in more than fifty countries, although
France, the Netherlands, the U.S. and the U.K. are its major markets. In recent
years, the company has concentrated on life insurance rather than non-life
business because of its greater growth potential and stability of earnings.
Asset management is now an important generator of fees and
4
<PAGE>
Commercial Union now has over $100 billion under management. We believe the
market has not yet fully recognized the company's more highly valued life
insurance business.
Deutsche Bank AG (DBKG.F - $69.96 - Frankfurt Stock Exchange) is one of Europe's
leading banking institutions. In recent years, the bank has expanded outside its
home market of Germany and developed an investment banking capability. Last
year, the bank adjusted its management structure into four divisions - retail,
corporate, investment banking and group services. Each division has its own
management. In 1996, Deutsche Bank reported net income of DM2.2 billion (US $1.3
billion) and a return on equity of 17.1%. The bank has a large stock portfolio
which was valued at DM27.0 billion (US $16.9 billion) at the end of 1996. This
includes 22.6% of Daimler-Benz and 10% of Allianz. Assets under management for
private and institutional clients exceeded DM350 billion (US $205 billion) at
the end of the last year. We believe Deutsche Bank will be at the center of the
consolidation of Europe's banking industry.
Nestle SA (NESZ.Z - $75.04 - Zurich Stock Exchange), based in Switzerland, is
one of the world's leading food companies. Its major business groups include
beverages, milk products, prepared dishes and confectionery. Nestle invented
instant coffee and its brand Nescafe is the world's leading instant coffee.
Other well known brands which Nestle controls include Perrier, Carnation,
Stouffer's, Alcon and L'Oreal. Nestle's sales are spread over the different
regions of the world with particularly good positions in developing countries
which, we believe, will contribute increasingly to revenues in the future. For
example, of fifteen factories opened in the past three years, twelve were
located in emerging markets. We expect fairly strong profit growth in the medium
term after a few years of lackluster performance and the stock appears
undervalued relative to its peers.
Novartis AG (NOVZN.S - $1,624.90 - 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, was
recently spun off to shareholders as the new company concentrates on its core
divisions. Novartis 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.
Oerlikon-Buehrle Holding AG (OBZN.S - $140.55 - Zurich Stock Exchange) is a
Zurich-based holding company best known for being involved in businesses as
diverse as shoes and defense equipment. The gem within this company is their
wholly-owned subsidiary called Balzers and Leybold, which manufactures vacuum
pumps and thin film-coating systems. These products are sold to semiconductor
manufacturers and companies involved in data storage. Balzers and Leybold is a
market leader in most of its areas of operation and the business is very
profitable. We believe the market has overlooked the excellent growth potential
at Balzers but rather focused on Oerlikon-Buehrle's second largest operating
unit, Bally. Bally is one of the world's best-known shoe manufacturers but
suffers from low profitability. We believe new management will seek to improve
Bally's operating performance and take other measures to surface shareholder
value.
5
<PAGE>
SCOR SA (SCOR.P -$47.84 - Paris Stock Exchange) is a medium sized re-insurance
company based in France. The company has undergone significant ownership changes
over the past year with over 80% of the shares now in public hands. The
re-insurance industry is in the midst of a period of consolidation that will
likely raise the barrier to entry. This should have a positive impact on
profitability. SCOR trades at a meaningful discount to its competitors, which we
believe, will narrow over time.
Skandia Forsakrings AB (SDIA.ST - $47.20 - Stockholm Stock Exchange) is an
insurance company with its headquarters in Sweden. The most exciting aspect of
Skandia's operations is its unit linked savings business, commonly known in the
U.S. as variable annuities. Skandia has established leading market positions in
both the U.S. and U.K. as well as Scandinavia. Their variable annuity business,
known as AFS, has grown quickly and benefits from worldwide trends towards self
administrated savings plans. We believe that this rapid growth will continue and
that the market has not yet fully recognized the value of this business. If this
persists, we expect management to seek a separate listing for AFS.
Telecom Italia Mobile SpA (TIM.MI - $4.62 - Milan Stock Exchange) operates one
of the two cellular licenses in Italy and is controlled by Telecom Italia.
Growth in cellular telephony in Italy has been rapid over the past two years and
TIM has benefited from this growth. Management has been successful in avoiding
handset subsidies but has been able to be innovative in providing attractive
packages and services such as prepaid cards. Although we expect a third operator
to be granted a license soon, this new operator will probably not begin
operations until 1999.
Minimum Initial Investment - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
Additionally, The Gabelli International Growth Fund and other Gabelli funds are
available through the no-transaction fee programs at many major discount
brokerage firms.
The Roth IRA
The Taxpayer Relief Act of 1997 included new tax incentives and more
opportunities to save for retirement and other major expenditures. The Roth IRA
is just one of these new opportunities now available at Gabelli Funds. Our
investor representatives are available at 1-800-GABELLI (1-800-422-3554) to
speak with you about establishing a new Roth IRA and to discuss your investment
choices.
Gabelli U.S. Treasury Money Market Fund
Shareholders of any of the Gabelli Funds may invest in The Gabelli U.S.
Treasury Money Market Fund with an initial investment of $3,000 or more. The
Fund provides checkwriting and exchange privileges. The Fund's expenses are
capped at .30% of average net assets, making it one of the most attractive U.S.
Treasury-only money market funds. With dividends that are exempt from state and
local income taxes in all states, the Fund is an excellent vehicle in which to
store idle cash. An investment in The Gabelli U.S. Treasury Money Market Fund is
neither insured nor guaranteed by the U.S. Government. There can be no
6
<PAGE>
assurance that the Fund will maintain a stable $1 per share net asset value.
Call us at 1-800-GABELLI (1-800-422-3554) for a prospectus which gives a more
complete description of the Fund, including management fees and expenses. Read
the prospectus carefully before you invest or send money.
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, IRAs, 401(k)s, quarterly reports, closing prices and other
current news. You can send us e-mail at [email protected].
In Conclusion
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's NASDAQ symbol is GIGRX. Please call us during the
business day for further information.
As always, we thank you for your confidence in our investment abilities
and will strive to preserve and enhance the assets you have entrusted to us.
Sincerely,
Caesar Bryan
President and Portfolio Manager
February 1, 1998
---------------------------------------------------------------------
Top Ten Holdings
December 31, 1997
Novartis AG Commercial Union plc
Skandia Forsakrings AB Oerlikon-Buehrle Holding AG
Bank of Ireland Deutsche Bank AG
Banca Commerciale Italiana SCOR SA
Telecom Italia Mobile SpA Nestle SA
---------------------------------------------------------------------
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, 1997
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS -- 99.1%
AUTOMOTIVE -- 2.7%
10,000 Renault SA+ ......................... $ 276,471 $ 281,423
7,000 Toyota Motor Corp. .................. 172,703 201,352
----------- -----------
449,174 482,775
----------- -----------
AUTOMOTIVE: PARTS and
ACCESSORIES -- 1.6%
16,000 Phoenix AG .......................... 253,094 284,754
----------- -----------
BROADCASTING -- 5.1%
20,000 Granada Group plc ................... 256,310 308,348
1,250 NRJ SA .............................. 161,550 174,123
700 Pathe SA ............................ 174,147 135,907
35,000 Publishing and
Broadcasting Ltd. ................. 145,933 155,073
74,430 Village Roadshow Ltd. ............... 207,714 153,054
----------- -----------
945,654 926,505
----------- -----------
BUILDING and
CONSTRUCTION -- 1.1%
17,000 CRH plc ............................. 169,915 197,484
----------- -----------
BUSINESS SERVICES -- 2.1%
1,000 Alliance Et Gestion ................. 47,107 44,383
5,000 Reuters Holdings plc, ADR ........... 340,351 331,250
----------- -----------
387,458 375,633
----------- -----------
COMPUTER SOFTWARE and
SERVICES -- 0.5%
2,500 Merkantildata ASA ................... 88,510 86,135
----------- -----------
CONGLOMERATES -- 1.7%
6,800 Invik & Co. AB, B Free .............. 204,771 304,246
----------- -----------
CONSUMER PRODUCTS -- 8.5%
2,000 Christian Dior SA ................... 310,970 205,124
230 Compagnie Financiere
Richemont AG ...................... 336,451 250,728
16,000 Lavipharm SA ........................ 123,415 85,160
12,000 Matsushita Electronic
Industrial Co. Ltd. ............... 245,335 176,279
2,500 Nintendo Co. Ltd. ................... 158,757 246,114
3,200 Sony Corp. .......................... 233,240 285,492
85,000 Swedish Match AB .................... 277,853 283,892
----------- -----------
1,686,021 1,532,789
----------- -----------
DIVERSIFIED INDUSTRIAL -- 2.1%
2,750 Oerlikon-Buehrle
Holding AG ........................ 294,179 386,514
----------- -----------
ELECTRONICS -- 0.9%
15,000 NEC Corp. ........................... 184,784 160,359
----------- -----------
ENERGY -- 3.3%
25,000 British Petroleum Co. plc ........... 264,993 329,080
4,000 Veba AG ............................. 225,078 272,519
----------- -----------
490,071 601,599
----------- -----------
EQUIPMENT and SUPPLIES -- 2.5%
1,600 KSB AG .............................. 237,909 351,494
250 Rieter Holdings Ltd. ................ 114,153 106,955
----------- -----------
352,062 458,449
----------- -----------
FINANCIAL SERVICES -- 18.6%
130,000 Banca Commerciale Italiana .......... 257,460 452,206
4,000 Banco Pastor SA ..................... 234,057 337,236
30,234 Bank of Ireland ..................... 251,566 461,954
40,000 Bank of Scotland .................... 192,685 362,647
71,239 Colonial Ltd. ....................... 191,867 203,306
5,500 Deutsche Bank AG .................... 378,087 384,807
10,000 Dundee Bancorp Inc.,
Cl. A+ ............................ 135,907 210,340
10,175 HSBC Holdings plc ................... 199,155 250,821
3,000 Safra Republic Holdings SA .......... 263,000 321,000
23,000 Skandinaviska
Enskilda Banken ................... 198,798 291,328
2,000 Trimark Financial Corp. ............. 99,395 90,495
----------- -----------
2,401,977 3,366,140
----------- -----------
FOOD and BEVERAGE -- 5.2%
150,000 Foster's Brewing Group Ltd. ......... 285,534 285,386
3,500 Hartwall Oy AB ...................... 75,145 289,230
5,000 Nestle SA, ADR ...................... 295,719 375,202
----------- -----------
656,398 949,818
----------- -----------
HEALTH CARE -- 10.8%
17,000 Astra AB, Cl. A ..................... 283,533 294,605
15,000 Glaxo Wellcome plc .................. 226,478 355,407
450 Novartis AG ......................... 478,288 731,204
30 Roche Holding AG .................... 273,742 298,344
8,000 Zeneca Group plc .................... 243,955 281,693
----------- -----------
1,505,996 1,961,253
----------- -----------
HOTELS and GAMING -- 0.6%
115,000 Sydney Harbour Casino
Holdings Ltd.+ .................... 159,426 109,023
----------- -----------
INSURANCE -- 7.7%
28,670 Commercial Union plc ................ 326,998 400,504
5,600 Mapfre Corp. ........................ 149,798 148,436
8,000 SCOR SA ............................. 293,745 382,722
10,000 Skandia Forsakrings AB .............. 290,162 471,997
----------- -----------
1,060,703 1,403,659
----------- -----------
METALS and MINING -- 1.3%
31,081 Antofagasta Holding plc ............. 181,222 168,765
67,500 Glencar Explorations plc+ ........... 57,487 30,543
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Gabelli International Growth Fund, Inc.
Portfolio of Investments (Continued) -- December 31, 1997
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (continued)
METALS and MINING (continued)
24,040 Randgold and
Exploration Co. Ltd.+ ............. $ 85,420 $ 31,122
----------- -----------
324,129 230,430
----------- -----------
PUBLISHING -- 7.5%
25,000 Arnoldo Mondadori
Editore SpA+ ...................... 199,677 196,550
35,000 Independent Newspapers .............. 184,724 188,604
16,573 Independent Newspapers
Ltd. .............................. 64,735 89,764
50,037 News Corp. Ltd. ..................... 254,217 276,143
20,000 Pearson plc ......................... 247,873 259,974
20,000 Schibsted SA ........................ 316,348 343,181
----------- -----------
1,267,574 1,354,216
----------- -----------
REAL ESTATE -- 1.6%
24,000 Cheung Kong (Holdings) Ltd. ......... 212,570 157,196
19,000 Sun Hung Kai Properties Ltd. ........ 232,225 132,417
---------- ----------
444,795 289,613
----------- -----------
SPECIALTY CHEMICALS-- 1.8%
400 Clariant AG ......................... 167,575 334,579
----------- -----------
TELECOMMUNICATIONS -- 2.4%
20 DDI Corp. ........................... 155,661 53,068
5,930 Hellenic Telecommunications
Organization SA (OTE) ............. 143,116 121,651
30 Nippon Telegraph &
Telephone Corp. ................... 222,580 258,420
----------- -----------
521,357 433,139
----------- -----------
TEXTILE -- 2.0%
50,000 Simint SpA+ ......................... 113,952 363,406
----------- -----------
TRANSPORTATION -- 3.4%
15,300 MIF Ltd. ............................ 188,903 271,873
25,000 SAS Norge ASA, Cl. B ................ 302,891 349,286
----------- -----------
491,794 621,159
----------- -----------
WIRELESS COMMUNICATIONS -- 4.2%
90,000 Telecom Italia Mobile SpA ........... 195,877 415,640
4,650 Vodafone Group plc, ADR ............. 187,626 337,125
----------- -----------
383,503 752,765
----------- -----------
TOTAL COMMON
STOCKS .............................. 15,004,872 17,966,442
----------- -----------
PREFERRED STOCKS -- 2.4%
AUTOMOTIVE -- 1.4%
600 Volkswagen AG Pfd. .................. 218,932 257,280
----------- -----------
BROADCASTING -- 0.9%
3,750 Prosieben Media AG Pfd.+ ............ 154,101 172,062
----------- -----------
TOTAL PREFERRED STOCKS .............. 373,033 429,342
----------- -----------
RIGHTS -- 0.0%
FINANCIAL SERVICES -- 0.0%
70,000 Colonial Ltd.+ ...................... 0 3,284
----------- -----------
TOTAL RIGHTS ........................ 0 3,284
----------- -----------
OPTIONS -- 0.0%
METALS and MINING -- 0.0%
16,000 Durban Roodepoort Deep Ltd.+ 62,700 9,042
----------- -----------
TOTAL OPTIONS ....................... 62,700 9,042
----------- -----------
TOTAL INVESTMENTS --
101.5%............. ............... $15,440,605 18,408,110
===========
Other Assets and Liabilities
(Net)-- (1.5)%..................... (275,032)
-----------
NET ASSETS -- 100.0%
(1,259,160 shares outstanding) .... $18,133,078
===========
NET ASSET VALUE,
Offering and Redemption
Price Per Share.................... $14.40
======
- ------------
For Federal income tax purposes:
Aggregate cost.............................. $15,440,605
===========
Gross unrealized appreciation............... 3,895,645
Gross unrealized depreciation............... (928,140)
-----------
Net unrealized appreciation................. $ 2,967,505
===========
- -------------------
+ Non-income producing security.
ADR -- American Depositary Receipt.
% of
Market Market
Geographic Diversification Value Value
- -------------------------- ----- -----
Europe 79.4% $14,616,040
Southeast Asia 9.4% 1,730,362
Japan 7.5% 1,380,608
North America 3.5% 644,284
South Africa 0.2% 36,816
------ -----------
100.0% $18,408,110
====== ===========
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Gabelli International Growth Fund, Inc.
Statement of Assets and Liabilities
December 31, 1997
================================================================================
Assets:
Investments, at value (cost $15,440,605) ................ $ 18,408,110
Foreign cash, at value (cost $57,848) ................... 58,799
Receivable for investments sold ......................... 587,261
Dividends and interest receivable ....................... 10,575
Deferred organizational expenses ........................ 48,946
Other receivables ....................................... 17,469
------------
Total Assets .......................................... 19,131,160
------------
Liabilities:
Payable to custodian .................................... 853,363
Payable for investments purchased ....................... 5,591
Payable for Fund shares redeemed ........................ 618
Payable for investment advisory fees .................... 16,138
Payable for distribution fees ........................... 12,640
Other accrued expenses .................................. 109,732
------------
Total Liabilities ..................................... 998,082
------------
Net Assets (applicable to 1,259,160
shares outstanding) ................................. $ 18,133,078
============
Net Asset Value, offering and
redemption price per share .......................... $ 14.40
============
Net Assets consist of:
Capital stock, at par value ............................. $ 1,259
Additional paid-in capital .............................. 15,175,926
Accumulated net investment loss ......................... (583)
Accumulated net realized loss on investments
and foreign currency transactions ..................... (11,590)
Net unrealized appreciation on
investments and assets and liabilities
denominated in foreign currencies ..................... 2,968,066
------------
Total Net Assets ...................................... $ 18,133,078
============
Statement of Operations
For the Year Ended December 31, 1997
================================================================================
Investment Income:
Dividends (net of foreign taxes of $34,081) ............. $ 300,054
Interest ................................................ 18,354
------------
Total Investment Income ............................... 318,408
------------
Expenses:
Investment advisory fees ................................ 193,382
Distribution fees ....................................... 48,332
Custodian fees and expenses ............................. 53,176
Shareholder services fees ............................... 37,917
Registration fees ....................................... 37,468
Legal and audit fees .................................... 34,065
Shareholder report expenses ............................. 32,574
Amortization of organizational expenses ................. 19,643
Interest expense ........................................ 5,033
Miscellaneous expenses .................................. 14,635
------------
Total Expenses ........................................ 476,225
------------
Net Investment Loss ........................................ (157,817)
------------
Net Realized and Unrealized Gain (Loss) on
Investments:
Net realized loss on investments and
foreign currency transactions .......................... (3,387)
Net change in unrealized appreciation on
investments and assets and liabilities
denominated in foreign currencies ..................... 1,523,689
------------
Net realized and unrealized gain on
investments and foreign
currency transactions ................................. 1,520,302
------------
Net increase in net assets resulting
from operations ......................................... $ 1,362,485
============
Statement of Changes in Net Assets
================================================================================
Year Ended December 31,
-----------------------------
1997 1996
---- ----
Operations:
Net investment loss ......................... $ (157,817) $ (78,570)
----------- -----------
Net realized gain (loss) on investments and
foreign currency transactions ............. (3,387) 53,490
Net change in unrealized appreciation
on investments and assets and liabilities
denominated in foreign currencies .......... 1,523,689 1,335,173
----------- -----------
Net increase in net assets resulting from
operations .............................. 1,362,485 1,310,093
----------- -----------
Share transactions:
Net increase in net assets from Fund share
transactions .............................. 3,955,200 9,409,143
----------- -----------
Net increase in net assets ................ 5,317,685 10,719,236
Net Assets:
Beginning of period ......................... 12,815,393 2,096,157
----------- -----------
End of period ............................... $18,133,078 $12,815,393
=========== ===========
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Gabelli International Growth Fund, Inc.
Notes to Financial Statements
================================================================================
1. Significant Accounting Policies. The Gabelli International Growth Fund, Inc.
(the "Fund") was organized on May 25, 1994 as a Maryland corporation. The Fund
is a diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "Act") whose primary objective
is long term capital appreciation. The Fund commenced operations on June 30,
1995. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange (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. If no sales of such options have taken place
that day, they will be valued at the mean between their closing bid and asked
prices.
Foreign Currency Translations. 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 fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss on investments.
Forward Foreign Currency Contracts. The Fund may engage in forward foreign
exchange contracts for hedging a specific transaction with respect to either the
currency in which the transaction is denominated or another currency as deemed
appropriate by the Adviser. 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
11
<PAGE>
Gabelli International Growth Fund, Inc.
Notes to Financial Statements (Continued)
================================================================================
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, 1997, the Fund had open positions in the following forward
foreign currency sale contracts:
Settlement Unrealized
Amount/Currency Date Proceeds Value Gain (Loss)
------------------------- ---------- ---------- ---------- -----------
12,539 Australian Dollars 1/6/98 $ (8,226) $ (8,171) $ 55
281,292 French Francs 1/6/98 (46,980) (46,773) 207
336,029 French Francs 2/2/98 (56,240) (55,951) 289
64,131 German Marks 1/7/98 (35,847) (35,680) 167
16,545,025 Greek Drachmas 1/7/98 (58,577) (58,219) 358
34,339 Irish Punts 1/6/98 (49,534) (48,934) 600
17,168,866 Japanese Yen 1/8/98 (131,967) (132,101) (134)
1,081,595 Norwegian Krones 1/7/98 (147,759) (146,807) 952
396,506 Swedish Krones 1/8/98 (50,254) (50,005) 249
--------- --------- ------
Total/Net $(585,384) $(582,641) $2,743
========= ========= ======
Securities Transactions and Investment Income. Securities transactions are
accounted for on the trade date, with realized gain or loss on the sale of
investments determined by using the identified cost method. Interest income
(including amortization of premium and accretion of discount) is recorded as
earned. Dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
As of December 31, 1997, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to additional
paid-in-capital:
Accumulated Net
Accumulated Net Realized (Loss) on Investments
Investment (Loss) and Foreign Currency Transactions
----------------- ---------------------------------
$157,234 $(61,693)
Provision for Income Taxes. The Fund has qualified and intends to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a result, a Federal income tax provision is
not required.
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
12
<PAGE>
Gabelli International Growth Fund, Inc.
Notes to Financial Statements (Continued)
================================================================================
to claim the benefits of such treaties. If the value of more than 50% 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.
The Fund has a net capital loss carryforward for Federal income tax purposes of
$11,590. This loss carryforward is available to reduce future distributions of
net capital gains to shareholders. All of this loss carryforward is available
through 2005.
2. Investment Advisory Agreement. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00% of the value of the Fund's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio, oversees the administration of all
aspects of the Fund's business and affairs and pays the compensation of all
Officers and Directors of the Fund who are its affiliates.
3. Organizational Expenses. The organizational expenses of the Fund are being
amortized on a straight-line basis over a period of 60 months.
4. Distribution Plan. The Fund's Board of Directors has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940. For the year ended December 31, 1997, the Fund incurred distribution costs
payable to Gabelli & Company, Inc., an indirect wholly-owned subsidiary of the
Adviser, of $48,332, or 0.25% of average net assets, the annual limitation under
the Plan.
5. Portfolio Securities. Purchases and sales of securities for the year ended
December 31, 1997, other than short term securities, aggregated $15,972,048 and
$11,746,857, respectively.
6. Bank Loan. The Fund has access to an unsecured line of credit from the
custodian for temporary purposes. Borrowings under this arrangement bear
interest at 0.75% above the Federal Funds rate on outstanding balances. There
were no borrowings outstanding at December 31, 1997.
The average daily amount of borrowings outstanding during the year ended
December 31, 1997 was $10,110, with a related weighted average interest rate of
6.375%. The maximum amount borrowed at any time during the year ended December
31, 1997 was $530,000.
7. Capital Stock Transactions. Transactions in shares of common stock were as
follows:
Year Ended Year Ended
December 31, 1997 December 31, 1996
---------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Shares sold ... 2,060,711 $29,142,430 1,181,626 $14,647,029
Shares redeemed (1,756,680) (25,187,230) (417,324) (5,237,886)
--------- ----------- ---------- -----------
Net increase 304,031 $ 3,955,200 764,302 $ 9,409,143
========= =========== ========== ===========
13
<PAGE>
Gabelli International Growth Fund, Inc.
Financial Highlights
================================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995+
------- ------- ------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period .................. $13.42 $10.98 $10.00
------ ------ ------
Net investment loss ................................... (0.13) (0.15)(e) (0.03)(e)
Net realized and unrealized gain on investments ....... 1.11 2.59 1.01
------ ------ ------
Total from investment operations ...................... 0.98 2.44 0.98
------ ------ ------
Net asset value, end of period ............................ $14.40 $13.42 $10.98
====== ====== ======
Total return (a) ...................................... 7.3% 22.2% 9.8%
====== ====== ======
Ratios to average net assets and supplemental data:
Net assets, end of period (in 000's) .................. $18,133 $12,815 $2,096
Ratios of net investment loss to average net assets (b) (0.82)% (1.21)% (1.19)%(c)
Ratio of operating expenses to average net assets (b) . 2.46% 2.72% 2.75%(c)
Portfolio turnover rate ............................... 63% 55% 30%
Average commission rate per share (d) ................. $0.0165 $0.0271 --
</TABLE>
- ----------
+ From commencement of operations on June 30, 1995.
(a) Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the
period. Total return for the period of less than one year is not
annualized.
(b) The Fund incurred interest expense during the year ended December 31,
1997. If interest expense had not been incurred, the ratio of operating
expenses to average net assets would have been 2.44%. Before
reimbursement, the ratios of operating expenses and net investment loss to
average net assets would have been 3.62% and (2.12)% for 1996 and 8.10%
and (6.54)% for 1995 (annualized), respectively.
(c) Annualized.
(d) For fiscal years beginning on or after September 1, 1995, the SEC requires
a fund to disclose its average commission rate paid per share.
(e) Based on average month-end shares outstanding.
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, 1997, and the related statement of operations for the year then
ended, and the statements of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
indicated therein. 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, 1997 by correspondence with the custodian
and others. 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, 1997 and the results of
its operations for the year then ended, and the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
New York, New York /s/ Ernst & Young LLP
February 13, 1998
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 Werner J. Roeder, MD
Chairman and Chief Director of Surgery
Investment Officer Lawrence Hospital
Gabelli Funds, Inc.
Anthony J. Colavita Anthonie C. van Ekris
Attorney-at-Law Managing Director
Anthony J. Colavita, P.C. BALMAC International, Inc.
Karl Otto Pohl
Former President
Deutsche Bundesbank
Officers and Portfolio Managers
Caesar Bryan Bruce N. Alpert
President and Vice President
Portfolio Manager and Treasurer
James E. McKee
Secretary
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.
- --------------------------------------------------------------------------------
