Gabelli
International
Growth
Fund,
Inc.
ANNUAL REPORT
DECEMBER 31, 1998
<PAGE>
Gabelli International Growth Fund, Inc.
Annual Report - December 31, 1998
****
Morningstar rating(TM) of The Gabelli International Growth Fund
was 4 stars overall and for the three year period ended 12/31/98
among 862 international equity funds.
Caesar Bryan
To Our Shareholders,
The performance of worldwide equity markets in 1998 reminds us of the
famous children's song The Grand Old Duke of York! They marched them up to the
top of the hill and they marched them down again. After a strong first six
months of the year, markets fell sharply in the third quarter only to march back
up in the fourth quarter.
Lower interest rates helped shift sentiment from near panic at the end of
September to euphoria by the end of the year. No major world equity market
missed out on the fun. The winners included Switzerland, France, Italy and Spain
which all rose by roughly 25%. In the Far East, Indonesia and Korea more than
doubled. And even Japan participated, although most of Tokyo's gain of 24% was
due to the appreciation of the yen against the dollar. Indeed, surveying the
list of country performance, the only markets that declined were India and
Pakistan (no doubt paying a price for their nuclear ambitions) and Brazil which
declined by just 1%.
Investment Performance
For the fourth quarter ended December 31, 1998, The Gabelli International
Growth Fund's (the "Fund") total return was 14.7%. The Lipper Analytical
Services International Fund Average and Morgan Stanley Capital International
EAFE Index of international markets had returns of 16.4% and 20.8%,
respectively, over the same period. Each index is an unmanaged indicator of
investment performance. The Fund was up 17.4% for 1998. The Lipper International
Fund Average and Morgan Stanley EAFE Index rose 13.0% and 20.3%, respectively,
over the same twelve month period.
For the three year period ended December 31, 1998, the Fund's total return
averaged 15.5% annually versus average annual total returns of 9.9% and 9.3% for
the Lipper International Fund Average and Morgan Stanley EAFE Index,
respectively. Since inception on June 30, 1995 through December 31, 1998, the
Fund had a cumulative total return of 69.0%, which equates to an average annual
return of 16.1%.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results. Morningstar proprietary
ratings reflect historical risk adjusted performance as of December 31, 1998 and
are subject to change every month. Morningstar ratings are calculated from a
Fund's three, five and ten year average annual returns in excess of 90-day
T-Bill returns with appropriate fee adjustments and a risk factor that reflects
fund performance below 90-day T-Bill returns. The top 10% of the funds in an
investment category receive five stars, the next 22.5% receive four stars, the
next 35% receive three stars, the next 22.5% receive two stars and the bottom
10% receive one star.
<PAGE>
INVESTMENT RESULTS (a)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
----------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1998: Net Asset Value .............. $17.03 $17.58 $14.74 $15.63 $15.63
Total Return ................. 18.3% 3.2% (16.2)% 14.7% 17.4%
- ------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------
</TABLE>
------------------------------------------------------
Average Annual Returns - December 31, 1998 (a)
----------------------------------------------
1 Year ........................ 17.4%
3 Year ........................ 15.5%
Life of Fund (b) .............. 16.1%
------------------------------------------------------
Dividend History
------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
----------------- -------------- ------------------
December 28, 1998 $1.260 $15.49
(a) Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of investment operations on 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.
- --------------------------------------------------------------------------------
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 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 EAFE Index
$16,912 $14,465 $13,901
2
<PAGE>
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.
International Allocation
The accompanying chart presents the Fund's holdings by geographic region
as of December 31, 1998. The geographic allo cation 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.
HOLDINGS BY GEOGRAPHIC REGION - 12/31/98
[GRAPHIC OMITTED]
COMMENTARY
What caused the huge fourth quarter turnaround in world equity markets?
First, and most important, was the series of interest rate cuts made by the
Federal Reserve in the U.S., a move that was followed by many foreign central
banks. Second, sentiment was so bearish and markets so oversold that some
recovery was inevitable. Finally, with looser monetary policy and continuing
sluggish economic growth worldwide, excess money gravitated to the financial
markets.
Individual stock performance during the quarter varied considerably, even
within sectors, reflecting the indiscriminate selling that occurred during the
summer. The Fund's better performers included Pathe, Vodafone, Granada and
Moevenpick. All of these holdings appreciated by more than 40% over the fourth
quarter. In Europe, telecommunications, health care and selected financial
stocks performed well. As in the United States, large company stocks
outperformed smaller ones. Some of the Fund's holdings in smaller companies did
not recover during the quarter even though their fundamentals remain intact.
Examples in this category include Swatch Group, Schibsted, Banco Pastor and
Simint. These stocks are all attractively valued and we believe patience will be
rewarded.
On January 1, 1999, the euro was introduced. This was a major event as
France, Germany and nine other countries ceded monetary policy to the newly
created European Central Bank located in Frankfurt. Across Euroland there is now
a uniform short term interest rate, currently 3.0%. This European experiment is
being watched by the rest of the world as the debate over currency relationships
and management gets under way. We believe that the introduction of the euro will
be one of the catalysts that spurs further corporate consolidation within
Europe. In the space of a few days during the fourth quarter, three huge
3
<PAGE>
health care mergers were announced. One of these deals involved the merger of
Astra and Zeneca, both of which are Fund holdings. We expect to see more
acquisitions and mergers in 1999.
Looking ahead, as always, there are a number of areas of concern. Those
that have already been well identified and therefore, probably discounted
include emerging markets, Japan and hedge funds (otherwise known as leveraged
investors). The emerging market contagion that spread from the Far East to
Russia is now hovering over South America. Brazil is now under the spotlight,
with fears surrounding China lurking in the background. Clearly, one lesson
learned is that free market capitalism cannot be glued on top of a corrupt
political system. In addition, massive capital flows can overwhelm small
national markets, giving the authorities no chance of stemming the tide. Policy
makers face an enormous challenge and some type of change is needed.
The Japanese economy remains in crisis. Even one of Japan's bright spots,
namely exports, is now beginning to weaken. Yet, in a very weak economic
environment, the Japanese currency strengthened dramatically in October as the
so-called yen carry trade was unwound. Moreover, Japanese bond prices collapsed
in December following comments from a government agency which manages Japan's
huge government employees pension assets. A strengthening currency and rising
bond yields are not typical market responses to a weak economy. Maybe Japan has
finally hit bottom.
One fall out from the Long Term Capital Management fiasco was the
herd-like dash for cash. The stampede caused credit spreads to widen and limited
the access to funds for less creditworthy borrowers. This strain was the primary
reason the Federal Reserve lowered interest rates during the Fall. However,
credit spreads have not returned to normal levels and international bank lending
continues to contract. As one well known financial commentator has said, "We are
still in a financial crisis environment".
Of course, it is the unexpected which usually upsets financial markets.
The strong U.S. economy relative to overseas economies has resulted in a
substantial rise in the trade deficit. The U.S. trade deficit is now running at
a monthly rate of nearly $15 billion and is likely to rise further. These
deficits have to be financed by foreigners, who are currently happy to purchase
U.S. dollars and American stocks and bonds. However, these deficits are probably
unsustainable and will likely result in a weaker dollar in the future. Americans
are enjoying their role as the world's consumer of last resort, but how long can
this last?
Strategists usually attempt to value equity markets in relation to
earnings and interest rates using historical relationships. While it is
difficult to generalize, markets look inexpensive relative to interest rates,
but fully priced as compared with the level of earnings. Long term interest
rates remain very low in Europe. For example, ten year Government bond yields
were below 4.0% in both Germany and France at the end of the year. Of course,
low interest rates reflect low inflation expectations which can have an impact
on corporate earnings. The market has rewarded companies that can grow revenues
and earnings and has punished others that have less control over pricing and
have reported disappointing earnings. We tend to avoid companies in the traded
goods and commodity sectors and favor companies with a proprietary
4
<PAGE>
service or product. These include branded consumer product companies, media,
telecommunications, drug and financial services companies.
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, 1998.
Compagnie Financiere Richemont AG (RIFZ.S - $1,413.93 - 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 cigarette brands in the world. Through its
luxury goods subsidiary, Richemont controls a portfolio of leading luxury goods
brands including Cartier, Piaget, Montblanc, Karl Lagerfeld and Alfred Dunhill.
Recently, the company sold its pay television 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.
Glaxo Wellcome plc (GLX.L - $34.41 - London Stock Exchange) is one of the
world's premier health care companies. The company has a five percent share of
the global pharmaceutical market with leadership positions in gastrointestinal,
respiratory and viral infection therapies. The company's best known product,
Zantac, has recently lost patent protection but other drugs are experiencing
rapid growth. One of the company's strengths is the effectiveness of their
research and development effort and Glaxo remains on track to bring three
significant medicines to the market per year from the year 2000 onwards.
Invik & Co. AB (INVKb.ST - $81.43 - Stockholm Stock Exchange) is a Swedish
company involved in a number of financial activities. Three separate
subsidiaries are responsible for stock brokerage, insurance and banking. The
company also has an equity portfolio of long term holdings. The most important
equity investment is the holding in Kinnevik, which is a company listed on the
Stockholm Stock Exchange. Kinnevik is an operating group involved in three
activities, including television and media, telecommunications, and paper and
packaging. All of these businesses have solid growth potential and Invik
provides exposure to Kinnevik at a significant discount.
Nestle SA (NESZ.S - $108.85 - 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 that 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 strong 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. The stock appears undervalued
relative to its peers.
5
<PAGE>
Novartis AG (NOVZN.S - $1,965.81 - Zurich Stock Exchange) is one of the world's
largest pharmaceutical companies and was created by the merger of two of
Europe's dominant pharmaceutical companies, 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 nearly $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 continue to reduce costs.
Roche Holding AG (ROCZg.S - $12,202.57 - Zurich Stock Exchange) is one of the
world's leading health care companies. Apart from pharmaceuticals, the company
has major positions in vitamins, diagnostics, fragrances and flavors and
orthopedics. The company has recently completed the purchase of Corange for
approximately $11 billion, which we believe will be additive to earnings. This
acquisition will make Roche the largest diagnostic company. We expect Roche to
introduce a number of new drugs during the next few years, which should result
in stronger earnings growth.
SCOR SA (SCOR.PA - $66.15 - Paris Stock Exchange) is a leading European
reinsurance company based in France. The reinsurance industry is in the midst of
a period of consolidation that will likely raise a barrier to entry. This
consolidation trend should have a positive impact on profitability. SCOR trades
at a meaningful discount to its competitors which, we believe, will narrow over
time.
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 the advantages of converting to a Roth IRA and to discuss
your investment choices.
Internet
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Asset Management Inc.,
the Gabelli Mutual Funds, IRAs, 401(k)s, quarterly reports, closing prices and
other current news. You can send us e-mail at [email protected].
6
<PAGE>
In Conclusion
In conclusion, we expect equity markets in 1999 will be supported by low
interest rates, modest economic growth aided by consumer optimism and a high
level of corporate merger and acquisition activity.
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.
We thank you for your loyalty and as always, pledge our best efforts on
your behalf.
Sincerely,
Caesar Bryan
President and Portfolio Manager
January 29, 1999
- --------------------------------------------------------------------------------
Top Ten Holdings
December 31, 1998
-----------------
Novartis AG Compagnie Financiere Richemont
Glaxo Wellcome plc Roche Holding AG
Vodafone Group plc Invik & Co. AB
CRH plc Astra AB
Nestle SA Zeneca Group plc
- --------------------------------------------------------------------------------
NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
7
<PAGE>
Gabelli International Growth Fund, Inc.
Portfolio of Investments -- December 31, 1998
================================================================================
Market
Shares Cost Value
------ ---- ------
COMMON STOCKS - 100.9%
Automotive - 1.6%
3,500 Honda Motor Co. Ltd. .............. $ 113,156 $ 115,119
7,000 Renault SA ........................ 232,748 314,536
---------- ----------
345,904 429,655
---------- ----------
Broadcasting - 7.3%
3,700 Audiofina ......................... 151,469 166,944
36,000 Granada Group plc ................. 536,822 636,403
1,650 NRJ SA ............................ 241,087 295,381
1,800 Pathe SA .......................... 402,104 502,685
35,000 Publishing and
Broadcasting Ltd. ............... 147,471 153,064
18,000 Tokyo Broadcasting
System Inc. ..................... 194,215 201,549
---------- ----------
1,673,168 1,956,026
---------- ----------
Building and Construction - 3.4%
45,000 CRH plc ........................... 581,567 765,930
12,500 Sekisui House Ltd. ................ 125,497 132,429
---------- ----------
707,064 898,359
---------- ----------
Business Services - 2.7%
5,833 Reuters Holdings plc, ADR ......... 434,246 373,312
1,350 Vivendi ........................... 330,410 350,429
---------- ----------
764,656 723,741
---------- ----------
Conglomerates - 2.7%
8,800 Invik & Co. AB, B Free ............ 427,980 716,547
---------- ----------
Consumer Products - 9.5%
2,500 Christian Dior SA ................. 375,174 276,584
520 Compagnie Financiere
Richemont AG .................... 729,380 735,241
7,000 KAO Corp. ......................... 132,557 158,249
4,000 Nintendo Co. Ltd. ................. 282,942 388,310
20,000 Reckitt & Colman plc .............. 413,687 264,877
550 Swatch Group AG ................... 334,134 340,376
34,800 Unilever plc ...................... 322,372 390,247
---------- ----------
2,590,246 2,553,884
---------- ----------
Diversified Industrial - 3.6%
3,500 Deutsche Babcock AG+ .............. 273,295 171,267
10,000 Indus Holding AG .................. 322,759 387,266
3,500 Oerlikon-Buhrle Holding AG ........ 588,986 408,997
---------- ----------
1,185,040 967,530
---------- ----------
Electronics - 2.5%
20,000 Matsushita Electronic
Industrial Co. Ltd. ............. 370,816 354,443
4,200 Sony Corp. ........................ 319,105 306,445
---------- ----------
689,921 660,888
---------- ----------
Energy and Utilities - 2.5%
23,000 British Petroleum Co. plc ......... 337,165 343,450
5,500 Veba AG ........................... 382,112 329,236
---------- ----------
719,277 672,686
---------- ----------
Equipment and Supplies - 0.4%
7,000 Toyo Seikan Kaisha Ltd. ........... 131,356 119,028
---------- ----------
Financial Services - 4.3%
144,492 Colonial Ltd. ..................... 427,123 496,304
7,000 Safra Republic Holdings SA ........ 338,000 381,500
15,000 Schroders plc ..................... 438,989 273,778
---------- ----------
1,204,112 1,151,582
---------- ----------
Financial Services: Banks - 6.1%
50,000 Banca Commerciale Italiana ........ 244,349 347,324
110,000 Banca Nazionale Lavoro + .......... 342,339 329,888
5,000 Banco Pastor SA ................... 214,638 314,063
16,003 Bank of Ireland ................... 272,771 352,583
25,000 Bank of Scotland .................. 269,806 298,236
---------- ----------
1,343,903 1,642,094
---------- ----------
Financial Services: Insurance - 8.9%
15,000 AMP Ltd.+ ......................... 171,944 190,218
34,000 CGU plc ........................... 486,370 532,316
120,000 Istituto Nazionale delle
Assicurazioni ................... 327,002 317,668
8,600 Mapfre Corp. ...................... 292,450 233,677
9,000 SCOR SA ........................... 490,817 595,327
33,000 Skandia Forsakrings AB ............ 229,780 504,840
---------- ----------
1,998,363 2,374,046
---------- ----------
Food and Beverage - 7.6%
4,500 Flo Groupe + ...................... 208,632 229,592
180,000 Foster's Brewing Group Ltd. ....... 357,162 487,989
1,000 Moevenpick Holding AG ............. 462,543 560,619
7,000 Nestle SA, ADR .................... 491,468 761,933
---------- ----------
1,519,805 2,040,133
---------- ----------
Health Care - 16.0%
33,000 Astra AB, Cl. A ................... 619,181 673,798
23,000 Glaxo Wellcome plc ................ 495,769 791,370
600 Novartis AG ....................... 736,928 1,179,483
60 Roche Holding AG .................. 605,517 732,154
2,000 Schering AG ....................... 189,820 251,272
15,000 Zeneca Group plc .................. 537,516 653,124
---------- ----------
3,184,731 4,281,201
---------- ----------
See accompanying notes to financial statements.
8
<PAGE>
Gabelli International Growth Fund, Inc.
Portfolio of Investments (Continued) -- December 31, 1998
================================================================================
Market
Shares Cost Value
------ ---- ------
COMMON STOCKS (Continued)
Metals and Mining - 2.3%
5,000 Anglogold Ltd. .................... $ 113,375 $ 97,813
26,081 Antofagasta Holding plc ........... 156,373 77,024
5,000 Barrick Gold Corp. ................ 99,938 97,500
30,000 Harmony Gold Mining Ltd.+ ......... 136,838 150,188
75,000 Lihir Gold Ltd.+ .................. 92,245 84,184
10,000 Placer Dome Inc. .................. 140,500 114,999
----------- -----------
739,269 621,708
----------- -----------
Publishing - 7.6%
25,000 Arnoldo Mondadori
Editore SpA ..................... 218,839 331,283
91,573 Independent Newspapers Ltd. ....... 497,518 379,001
55,037 News Corp. Ltd.+ .................. 307,613 363,906
30,000 Pearson plc ....................... 416,954 595,474
30,000 Schibsted ASA ..................... 538,173 378,014
----------- -----------
1,979,097 2,047,678
----------- -----------
Retail - 0.5%
2,000 Ito Yokado Co. Ltd. ............... 113,989 140,075
----------- -----------
Telecommunications - 4.8%
26,000 Cable & Wireless plc .............. 298,679 319,682
40 Nippon Telegraph &
Telephone Corp. ................. 312,085 309,229
700 Swisscom AG+ ...................... 176,938 293,051
42,300 Telecom Italia SpA ................ 334,397 361,716
----------- -----------
1,122,099 1,283,678
----------- -----------
Textiles - 0.8%
30,000 Simint SpA ........................ 78,840 212,506
----------- -----------
Transportation - 1.2%
15,637 MIF Ltd.+ ......................... 188,903 307,865
----------- -----------
Wireless Communications - 4.6%
60,000 Telecom Italia Mobile SpA ......... 271,586 443,934
4,835 Vodafone Group plc, ADR ........... 267,116 779,040
----------- -----------
538,702 1,222,974
----------- -----------
TOTAL COMMON STOCKS ............... 23,246,425 27,023,884
----------- -----------
OPTIONS - 0.0%
Metals and Mining - 0.0%
16,000 Durban Roodepoort Deep
Ltd.+ ........................... 62,700 6,256
----------- -----------
Market
Cost Value
---- ------
TOTAL INVESTMENTS -
100.9% .......................... $23,309,125 $27,030,140
===========
Other Assets and
Liabilities (Net) - (0.9)% (239,332)
-----------
NET ASSETS - 100.0%
(1,713,933 shares outstanding) $26,790,808
===========
NET ASSET VALUE,
Offering and Redemption
Price Per Share ................. $15.63
======
- ----------
For Federal tax purposes:
Aggregate cost .................... $23,334,113
===========
Gross unrealized appreciation $ 5,121,410
Gross unrealized depreciation (1,425,383)
-----------
Net unrealized appreciation $ 3,696,027
===========
Net
Unrealized
Principal Settlement Appreciation
Amount Date (Depreciation)
- --------- ---------- --------------
FORWARD FOREIGN EXCHANGE CONTRACTS
7,967(a) Deliver British Pounds
in exchange for
USD 13,407 ...................... 01/07/99 $(151)
431,792(b) Deliver French Francs
in exchange for
USD 77,007 ...................... 01/29/99 292
155,399(c) Sell Swiss Francs
in exchange for
USD 113,745 ..................... 01/04/99 603
-----
TOTAL FORWARD FOREIGN
EXCHANGE CONTRACTS .............. $ 744
=====
- ----------
(a) Principal amount denoted in British Pounds.
(b) Principal amount denoted in French Francs.
(c) Principal amount denoted in Swiss Francs.
+ Non-income producing security.
ADR - American Depositary Receipt.
USD - U.S. Dollars.
% of
Market Market
Geographic Diversification Value Value
- -------------------------- ------ ------
Europe 83.5% $22,562,844
Japan 8.2% 2,224,876
Asia/Pacific Rim 6.6% 1,775,664
South Africa 0.9% 254,256
North America 0.8% 212,500
----- -----------
100.0% $27,030,140
===== ===========
See accompanying notes to financial statements.
9
<PAGE>
Gabelli International Growth Fund, Inc.
Statement of Assets and Liabilities
December 31, 1998
================================================================================
Assets:
Investments, at value (Cost $23,309,125) ................ $ 27,030,140
Foreign currency, at value (Cost $437,965) .............. 433,676
Dividends, interest and reclaims receivable ............. 44,412
Receivable for investments sold ......................... 257,516
Receivable for capital shares issued .................... 12,497
Deferred organizational expenses ........................ 29,304
Unrealized appreciation on foreign
exchange contracts .................................... 744
------------
Total Assets .......................................... 27,808,289
------------
Liabilities:
Payable for investments purchased ....................... 156,640
Payable for capital shares redeemed ..................... 258,152
Payable for investment advisory fees .................... 22,267
Payable for distribution fees ........................... 5,544
Payable to custodian .................................... 474,521
Other accrued expenses and liabilities .................. 100,357
------------
Total Liabilities ..................................... 1,017,481
------------
Net Assets applicable to 1,713,933
shares outstanding .................................. $ 26,790,808
============
Net Assets consist of:
Capital stock, at par value ............................. $ 1,714
Additional paid-in capital .............................. 23,095,730
Undistributed net investment income ..................... 307
Accumulated distributions in excess of net
realized gain on investments and foreign
currency transactions ................................. (24,988)
Net unrealized appreciation on investments
and foreign currency transactions ..................... 3,718,045
------------
Total Net Assets ...................................... $ 26,790,808
============
Net Asset Value, offering and redemption
price per share ($26,790,808 / 1,713,933
shares outstanding; 1,000,000,000 shares
authorized of $0.001 par value) ..................... $15.63
======
Statement of Operations
For the Year Ended December 31, 1998
================================================================================
Investment Income:
Dividends (net of foreign taxes of $49,727) .............. $ 469,917
Interest ................................................. 38,713
-----------
Total Investment Income ................................ 508,630
-----------
Expenses:
Investment advisory fees ................................. 276,379
Distribution fees ........................................ 69,095
Custodian fees ........................................... 55,986
Shareholder services fees ................................ 31,648
Legal and audit fees ..................................... 28,796
Registration fees ........................................ 21,301
Shareholder report expenses .............................. 20,819
Organizational expenses .................................. 19,643
Directors' fees .......................................... 14,853
Interest expense ......................................... 5,551
Miscellaneous expenses ................................... 4,524
-----------
Total Expenses ......................................... 548,595
-----------
Net Investment Loss .................................... (39,965)
-----------
Net Realized and Unrealized Gain
on Investments:
Net realized gain on investments
and foreign currency transactions ...................... 2,058,312
Net change in unrealized appreciation
on investments and foreign currency
transactions ........................................... 749,979
-----------
Net realized and unrealized gain on
investments ............................................ 2,808,291
-----------
Net increase in net assets resulting
from operations .......................................... $ 2,768,326
===========
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Operations:
Net investment loss ........................................................ $ (39,965) $ (157,817)
Net realized gain (loss) on investments and foreign currency transactions .. 2,058,312 (3,387)
Net change in unrealized appreciation on investments
and foreign currency transactions ........................................ 749,979 1,523,689
------------ ------------
Net increase in net assets resulting from operations ..................... 2,768,326 1,362,485
------------ ------------
Distributions to shareholders:
In excess of net investment income ......................................... (54,801) --
Net realized gain on investments ........................................... (1,976,054) --
------------ ------------
Total distributions to shareholders ...................................... (2,030,855) --
------------ ------------
Capital share transactions:
Net increase in net assets from capital share transactions ................. 7,920,259 3,955,200
------------ ------------
Net increase in net assets ............................................... 8,657,730 5,317,685
Net Assets:
Beginning of period ........................................................ 18,133,078 12,815,393
------------ ------------
End of period .............................................................. $ 26,790,808 $ 18,133,078
============ ============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
Gabelli International Growth Fund, Inc.
Notes to Financial Statements
================================================================================
1. Description. 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 "1940 Act"). The Fund's primary objective is long
term capital appreciation. The Fund commenced investment operations on June 30,
1995.
2. Significant Accounting Policies. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange as of the close of business on
the day the securities are being valued (if there were no sales that day, the
security is valued at the average of the closing bid and asked prices or, if
there were no asked prices quoted on that day, then the security is valued at
the closing bid price on that day). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, Inc.
(the "Adviser"). Securities and assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of 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. Debt instruments
having a greater maturity are valued at the highest bid price obtained from a
dealer maintaining an active market in those securities. 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.
Repurchase Agreements. The Fund may enter into repurchase agreements with
primary government securities dealers recognized by the Federal Reserve Bank of
New York, with member banks of the Federal Reserve System or with other brokers
or dealers that meet credit guidelines established by the Directors. Under the
terms of a typical repurchase agreement, the Fund takes possession of an
underlying debt obligation subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. The Fund will always
receive and maintain securities as collateral whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the Fund in each agreement. The Fund will make payment for such securities
only upon physical delivery or upon evidence of book entry transfer of the
collateral to the account of the custodian. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to maintain the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Forward Foreign Exchange 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 exchange contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
included in unrealized appreciation/depreciation on investments. 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.
11
<PAGE>
Gabelli International Growth Fund, Inc.
Notes to Financial Statements (Continued)
================================================================================
The use of forward foreign exchange 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
exchange 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.
Foreign Currency Translation. The books and records of the Fund are maintained
in United States (U.S.) dollars. Foreign currencies, investments and other
assets and liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period, and purchases and sales of investment
securities, income and expenses are translated at the exchange rate prevailing
on the respective dates of such transactions. Unrealized gains and losses, which
result from changes in foreign exchange rates and/or changes in market prices of
securities, have been included in unrealized appreciation/depreciation on
investments. Net realized foreign currency gains and losses resulting from
changes in exchange rates include foreign currency gains and losses between
trade date and settlement date on investment securities transactions, foreign
currency transactions and the difference between the amounts of interest and
dividends recorded on the books of the Fund and the amounts actually received.
The portion of foreign currency gains and losses related to fluctuation in
exchange rates between the initial trade date and subsequent sale trade date is
included in realized gain/(loss) on investments.
Securities Transactions and Investment Income. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
For the year ended December 31, 1998, reclassifications were made to increase
undistributed net investment income for $95,656 and decrease accumulated
distributions in excess of net realized gain on investments and foreign currency
transactions for $95,656.
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 to claim the benefits of such treaties. If the value of more than 50%
of the Fund's total net 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.
3. Investment Advisory Agreement. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00% of the value of the Fund's average daily net assets. In
accordance with the
12
<PAGE>
Gabelli International Growth Fund, Inc.
Notes to Financial Statements (Continued)
================================================================================
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.
4. Distribution Plan. The Fund's Board of Directors has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For the year ended
December 31, 1998, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an indirect wholly-owned subsidiary of the Adviser, of $69,095,
or 0.25% of average daily net assets, the annual limitation under the Plan. Such
payments are accrued daily and paid monthly.
5. Organizational Expenses. The organizational expenses of the Fund are being
amortized on a straight-line basis over a period of 60 months.
6. Portfolio Securities. Purchases and sales of securities for the year ended
December 31, 1998, other than short term securities, aggregated $19,538,624 and
$13,631,869, respectively.
7. Bank Loan. The Fund has access to an unsecured line of credit from the
custodian for temporary borrowing purposes. Borrowings under this arrangement
bear interest at 0.75% above the Federal Funds rate on outstanding balances.
There were no borrowings outstanding at December 31, 1998.
The average daily amount of borrowings outstanding during the year ended
December 31, 1998, was $91,222, with a related weighted average interest rate of
6.09%. The maximum amount borrowed at any time during the year ended December
31, 1998 was $1,340,000.
8. Capital Stock Transactions. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
---------------------------- ----------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold ................................... 2,674,592 $ 45,153,618 2,060,711 $ 29,142,430
Shares issued upon reinvestment of dividends .. 126,101 1,953,306 -- --
Shares redeemed ............................... (2,345,920) (39,186,665) (1,756,680) (25,187,230)
------------ ------------ ------------ ------------
Net increase ................................ 454,773 $ 7,920,259 304,031 $ 3,955,200
============ ============ ============ ============
</TABLE>
9. Subsequent Event. On February 9, 1999, the Adviser reorganized its operations
and corporate structure by transferring a portion of its assets and liabilities
to a successor adviser, Gabelli Funds, LLC, which is wholly owned by Gabelli
Asset Management Inc., a newly formed publicly traded company that is 80% owned
by the former Adviser. Counsel to the former Adviser has concluded that the
ownership change does not constitute an assignment as defined by the Investment
Company Act of 1940, as amended.
13
<PAGE>
Gabelli International Growth Fund, Inc.
Financial Highlights
================================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Period Ended December 31,
------------------------------------------------------
1998 1997 1996 1995+
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period ............ $ 14.40 $ 13.42 $ 10.98 $ 10.00
------- ------- ------- -------
Net investment loss ............................. (0.02) (0.13) (0.15)(a) (0.03)(a)
Net realized and unrealized gain
on investments ................................ 2.51 1.11 2.59 1.01
------- ------- ------- -------
Total from investment operations ................ 2.49 0.98 2.44 0.98
------- ------- ------- -------
Distributions to shareholders:
In excess of net investment income .............. (0.03) -- -- --
Net realized gain on investments ................ (1.23) -- -- --
------- ------- ------- -------
Total distributions ............................. (1.26) -- -- --
------- ------- ------- -------
Net asset value, end of period .................. $ 15.63 $ 14.40 $ 13.42 $ 10.98
======= ======= ======= =======
Total return ++ ................................. 17.4% 7.3% 22.2% 9.8%
======= ======= ======= =======
Ratios to average net assets and
supplemental data:
Net assets, end of period (in 000's) ............ $26,791 $18,133 $12,815 $ 2,096
Ratio of net investment loss
to average net assets (c) ..................... (0.14)% (0.82)% (1.21)% (1.19)%(b)
Ratio of operating expenses
to average net assets (c) ..................... 1.98% 2.46% 2.72% 2.75%(b)
Portfolio turnover rate ......................... 52% 63% 55% 30%
</TABLE>
- ----------
+ From commencement of operations on June 30, 1995.
++ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends. Total return for the period of less
than one year is not annualized.
(a) Based on average month-end shares outstanding.
(b) Annualized.
(c) The Fund incurred interest expense for the years ended December 31, 1998
and 1997. If interest expense had not been incurred, the ratios of
operating expenses to average net assets would have been 1.96% and 2.44%,
respectively. 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.
See accompanying notes to financial statements.
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, 1998, 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, 1998 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, 1998 and the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the indicated periods, in conformity with generally accepted accounting
principles.
New York, New York
February 12, 1999
- --------------------------------------------------------------------------------
1998 TAX NOTICE TO SHAREHOLDERS (Unaudited)
For the year ended December 31, 1998, the Fund paid to shareholders, on December
28, 1998, an ordinary income dividend (comprised of net investment income and
short term capital gains) totaling $0.034 per share and long term capital gains
totaling $1.226 per share. For the year ended December 31, 1998, none of the
ordinary income dividend qualifies for the dividend received deduction available
to corporations.
U.S. Government Income:
The percentage of the ordinary income dividend paid by the Fund during fiscal
year 1998 which was derived from U.S. Treasury securities was 5.27%. Such income
is exempt from state and local tax in all states. However, many states,
including New York and California, allow a tax exemption for a portion of the
income earned only if a mutual fund has invested at least 50% of its assets at
the end of each quarter of the Fund's fiscal year in U.S. Government securities.
The Gabelli International Growth Fund did not meet this strict requirement in
1998. Due to the diversity in state and local tax law, it is recommended that
you consult your personal tax advisor for the applicability of the information
provided as to your specific situation.
- --------------------------------------------------------------------------------
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 Asset Management 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.
- --------------------------------------------------------------------------------
