[PHOTOGRAPH OMITTED]
The
Gabelli
Small Cap
Growth
Fund
THIRD QUARTER REPORT
JUNE 30, 1997
<PAGE>
The Gabelli Small Cap Growth Fund
One Corporate Center
Rye, New York 10580-1434
Third Quarter Report
June 30, 1997(a)
To Our Shareholders,
In the second quarter of 1997, equities investors concluded that inflation
was just a bad dream after all and that "Captain Greenspan" was bringing the
economy in for another soft landing. Blue chip stocks remained in the limelight,
but smaller stocks participated in the surge. The Dow Jones Industrial Average
(DJIA) gained 17.1%.
INVESTMENT RESULTS (a)
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Quarter
-----------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
1997: Net Asset Value .... $19.11 $22.23 -- -- --
Total Return ....... 3.1% 16.3% -- -- --
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1996: Net Asset Value .... $19.65 $20.68 $20.02 $18.53 $18.53
Total Return ....... 6.2% 5.2% (3.2)% 3.4% 11.9%
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1995: Net Asset Value .... $17.03 $17.88 $19.34 $18.50 $18.50
Total Return ....... 7.4% 5.0% 8.2% 2.6% 25.2%
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1994: Net Asset Value $16.76 $16.33 $17.24 $15.85 $15.85
Total Return ....... (3.6)% (2.6)% 5.6% (2.1)% (2.9)%
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1993: Net Asset Value .... $15.46 $15.74 $16.90 $17.38 $17.38
Total Return ....... 6.6% 1.8% 7.4% 5.3% 22.8%
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1992: Net Asset Value .... $13.42 $13.41 $13.10 $14.50 $14.50
Total Return ....... 9.9% (0.1)% (2.3)% 12.1% 20.3%
- --------------------------------------------------------------------------------
1991: Net Asset Value .... -- -- -- $12.21 $12.21
Total Return ....... -- -- -- 22.9%(c) 22.9%(c)
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Average Annual Returns - June 30, 1997 (a)
------------------------------------------
1 Year ................................. 20.1%
5 Year ................................. 17.0%
Life of Fund (b) ......................... 21.0%
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Dividend History
- --------------------------------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
December 27, 1996 $2.160 $18.46
December 29, 1995 $1.340 $18.50
December 30, 1994 $1.030 $15.85
December 31, 1993 $0.420 $17.38
December 31, 1992 $0.185 $14.50
December 31, 1991 $0.080 $12.21
(a) The Fund's fiscal year ends September 30, 1997. (b) 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. (c)
From commencement of operations on October 22, 1991.
- --------------------------------------------------------------------------------
<PAGE>
Investment Performance
For the third quarter ended June 30, 1997, The Gabelli Small Cap Growth
Fund's total return was 16.3%. The Value Line Composite and Russell 2000 Index
had returns of 15.0% and 16.2%, respectively, over the same period. Each index
is an unmanaged indicator of stock market performance. The Fund is up 20.0%
year-to-date. The Value Line Composite and Russell 2000 rose 15.2% and 10.2%,
respectively, over the same six month period.
For the five-year period ended June 30, 1997, the Fund's return averaged
17.0% annually, versus average annual returns of 21.1% and 17.9% for the Value
Line Composite and Russell 2000, respectively. Since inception on October 22,
1991 through June 30, 1997, the Fund has a total return of 196.1%, which equates
to an average annual return of 21.0%.
What We Do
We do what is described as
bottom-up research: we read annual
reports; we visit the competition; we
talk to customers; we go belly to belly
with management. We structure our
portfolio by picking stocks.
In past reports, we have tried to E P
articulate our investment philosophy and P M
methodology. The following graphic S V
further illustrates the interplay among ---------------------
the four components of our valuation MANAGEMENT
approach. ---------------------
CASH FLOW
Our focus is on free cash flow; ---------------------
earnings before interest, taxes, RESEARCH
depreciation and amortization (EBITDA) ---------------------
minus the capital expenditures necessary
to grow the business. We believe free
cash flow is the best barometer of a
business' value. Rising free cash flow
often foreshadows net earnings improvement. We also look at earnings per share
trends. Unlike Wall Street's ubiquitous earnings momentum players, we do not try
to forecast earnings with accounting precision and then trade stocks based on
quarterly expectations and realities. We simply try to position ourselves in
front of long-term earnings uptrends. In addition, we analyze on and off balance
sheet assets and liabilities such as plant and equipment, inventories,
receivables, and legal, environmental and health care issues. We want to know
everything and anything that will add to or detract from our private market
value (PMV) estimates. Finally, we look for a catalyst; something happening in
the company's industry or indigenous to the company itself that will surface
value. In the case of the independent telephone stocks, the catalyst is a
regulatory change. In the agricultural equipment business, it is the increasing
world-wide demand for American food and feed crops. In other instances, it may
be a change in management, sale or spin-off of a division or the development of
a profitable new business.
Once we identify stocks that qualify as fundamental and conceptual
bargains, we then become patient investors. This has been a proven long-term
method for preserving and enhancing wealth in the U.S. equities market. At the
margin, our new investments are focused on businesses that are well-managed and
will benefit from sustainable long-term economic dynamics. These include macro
trends, such as the globalization of the market in filmed entertainment and
telecommunications, and micro trends, such as an increased focus on productivity
enhancing goods and services.
Commentary
The Economy and the Stock Market: Having Your Cake and Eating It Too
From 1995 through the second quarter of 1997, equities investors have
enjoyed their just desserts. Modest economic growth, low inflation, and strong
corporate earnings have translated into spectacular
2
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equities returns. The "What Me Worry" market cheerleaders are now projecting
these favorable conditions forward indefinitely in order to justify high
equities valuations and to support their fantastic predictions for the Dow and
S&P. We look at the same picture and wonder whether all the economic components
that have combined to propel this historic market advance are sustainable.
If it is truly different this time around, the stock market tree can grow
to the sky. Stocks probably deserve to trade at 20 times earnings or higher if
the following scenario holds: the Federal Reserve and corporate managements have
really tamed the business cycle; inflation is truly dead rather than dormant;
further cost cutting and productivity gains allow American corporations to
continue to grow earnings at three to four times top line revenues; and there
are no major political or financial accidents here or abroad. In other words,
everything has to remain right for the fundamentals to raise the safety net --
we just do not have a "margin of safety".
Let's look at what's been going so right and what could go wrong. We
applaud Alan Greenspan's Federal Reserve and corporate managements for reducing
economic volatility. More modest but sustainable economic growth is vastly
preferable to the boom/bust business cycles of the past. The business cycle has
not disappeared, but the 31/2 billion new consumers in the global market place
have added extra secular growth to the global economy, perhaps diluting the
cyclical effects of economic policy most of us have lived through. We do not
believe inflation is dead, but it is certainly subdued.
Can net earnings continue to outpace top line revenue growth? Corporate
America has been on "Slim Fast" for almost a decade. Management has restructured
and technology has contributed to enormous productivity gains. How much more
efficiently can we run our businesses? Rebounding from 1994's inventory bubble,
S&P 500 earnings grew approximately 18% in 1995. These earnings rose nearly 10%
in 1996, and are projected to advance another 9% to 11% in 1997. These are
impressive numbers considering the economy has chugged along at a modest 3% to
4% annual growth rate over this same time period. Return on equity has exceeded
the expectation of even the most optimistic. Will we retreat to a more normal
relationship between top line revenue and earnings growth?
This year, equities investors have been so concerned about inflation and
the potential for higher interest rates while praying so fervently for a slower
economy, that they seem to have lost sight of the fact that one of the
consequences may be corporate earnings growth below "enhanced expectations."
With Europe and the Far East gaining economic momentum, second half earnings for
U.S. multinationals should be okay, with an obvious yellow flag associated with
"currency" adjustments. But, we are likely to see disappointments domestically.
Investors' recent reaction to warnings of earnings shortfalls from a string of
leading technology companies may be duplicated in other industry groups in the
next six months.
The final piece of the puzzle is always the most difficult to predict--some
form of political or financial accident that could spread like a California
brush fire in the increasingly interconnected global economy and capital
markets. That is the "G Factor" - only God knows.
What do we conclude from all this conjecture? If we continue to be blessed
with this highly favorable economic backdrop for equities, the stock market can
continue to advance, albeit at a much less torrid pace than we have enjoyed over
the last 21/2 years. Equities investors can continue to have their cake and eat
it too, but it will be served in significantly smaller portions. If there proves
to be one or more flies in the ointment, we could see a substantial correction
that lasts for more than just a few weeks. We also believe we are entering what
could be an extended phase of a market of stocks rather
3
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than a stock market. Investors have been broadening their horizons as evidenced
by the much stronger relative performance of broader market indices. This would
indicate that individual stock fundamentals are becoming as important as sheer
market momentum in the decision making process.
Cable Television: One Man's Junk is Bill Gates' Treasure
We have been analyzing the cable television (CATV) stocks for many years.
We've experienced the thrill of victory--the pricing deregulation and rampant
consolidation of the industry in the mid eighties--and over the last few years,
the agony of defeat--re-regulation and the threat of competition from telcos and
satellite broadcasters. Through it all, we have viewed cable TV as a good
long-term investment. The business has most of the economic and financial
characteristics we favor: an identifiable franchise, high operating margins, and
strong cash flow. We are aware of the negatives: lousy service by new entrants,
high debt, the need for a second round of substantial capital investment to
technologically upgrade systems, and the prospect for increased competition.
However, we remain confident that the value of all those connections to American
homes will ultimately be recognized.
Let's Make a Deal
News Corp/International Family Entertainment
CTS Corporation/Dynamics Corporation of America
ITT Industries/Goulds Pumps
In the long-running game show "Let's Make a Deal", host Monty Hall would
urge his contestants to deal for the fabulous prizes hidden behind door number
one, two, or three. This quarter, we've had portfolio prizes hidden behind all
three doors. Seeking a national distribution channel for its children's
programming and shut out by a Supreme Court ruling upholding "must carry"
requirements, News Corp. wooed and won International Family Entertainment, Inc.
(FAM - $34.375 - NYSE). To further extend its fluid handling operations, ITT
Industries, Inc. (IIN - $25.75 - NYSE) bought Goulds Pumps Incorporated.
Finally, after heated competition with WHX Corporation, CTS Corporation (CTS -
$68.9375 - NYSE) appears to have won Dynamics Corporation of America (DYA -
$62.25 - NYSE). This last contest may not yet be concluded because Ron Labow's
WHX (financial engineers operating from the shell of a small steel company) may
turn its attention from the original prize Dynamics to the winning bidder CTS.
We'll stay tuned for the exciting conclusion of this one. Your advisor was the
dominant holder of these three take out investments.
We believe the current "Let's Make a Deal" market may run as long as the
popular game show. There is tremendous liquidity in the financial system. With
modest top line revenue growth, minimal pricing flexibility, and limits to
further margin expansion through cost cutting and productivity gains, the
ability of many companies to grow earnings from existing operations is
restrained. The answer for many will be to grow via acquisitions. This will not
take the form of the re-conglomeratization of American business. Instead, we
will see larger companies buying smaller niche companies to complement their
existing businesses. This feeds nicely into our focus on smaller niche
franchises and we expect to be bidding a fond farewell to additional portfolio
holdings in the years ahead. We identified the "urge to consolidate" in previous
reports to you. We have announced and heralded this Third Wave of Mergers in all
of our letters to you since General Electric Company (GE - $65.375 - NYSE)
attempted a hostile takeover of Kemper in February 1994. A reduction in
long-term capital gains rates will fan the flames of an already raging fire.
4
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The Last Shall Be First
Our investment thesis is that if you buy good businesses at the right
price, and hold them long term, you will eventually earn a satisfactory return.
Often, it takes quite awhile for the corporate values we identify to be
recognized by other investors. Generally, our patience is rewarded. This
quarter, many of our sleepers have come to life. Golden Books Family
Entertainment, Inc. (GBFE - $12.50 - NASDAQ), Cablevision (CVC - $53.50 - ASE),
and GenCorp Inc. (GY - $23.125 - NYSE) were among our top performing stocks,
posting large percentage gains after somewhat extended naps. If you factor in
our holding periods, there are not many grand slam home runs. These are singles
and doubles, and in some cases, the count is just now even. But, they are
helping to produce the kind of consistent investment progress our value
discipline is designed to provide. In this age of instant gratification, most
investors are simply not willing to wait on stocks that aren't moving. They dump
and run, chasing momentum not value. This may work well during roaring bull
markets. But, over the long term and through the market cycles, it has not
proven to be a particularly effective way to generate superior returns.
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.
AMETEK, Inc. (AME - $23.50 - NYSE) manufactures electric motors and blowers for
floor care, lawn and garden products, medical and heating equipment, precision
instruments for the aerospace and process control industries, heavy vehicles,
and specialty materials. AMETEK is the world's leading supplier of electric
motors for vacuum cleaners. Its advanced motor technology, high quality and low
costs provide an edge over competing producers. The company has an aggressive
shareholder value enhancement program, including the sale of its water
filtration business (Plymouth Products) to Culligan Water Technologies Inc. for
$155 million in debt and stock. Pro-forma for the tax-free transaction, we
expect earnings per share to increase from $1.55 in 1997 to $1.80 in 1998 and
almost $2.50 by the year 2000.
BET Holdings, Inc. (BTV - $32.75 - NYSE) is a media/entertainment company that
primarily targets black consumers, a market that was estimated to have spent
over $425 billion in 1996. BTV's core business is Black Entertainment
Television, Inc. (BET), an advertiser-supported, cable television programming
service. BET reaches over 45 million cable households. BET on Jazz: The Cable
Jazz Channel has attracted 1 million subscribers since its launch a year ago.
Action Pay-Per-View's subscriber base grew by 1 million to over 8 million as the
service expanded beyond a traditional urban audience. The company is leveraging
its brand identity into markets including pay-per-view movies, direct
merchandising and magazine publishing.
CLARCOR Inc. (CLC - $24.75 - NYSE) manufactures and markets mobile and
environmental filtration products and consumer packaging products. Filtration
products include air, fuel and hydraulic filters for heavy-duty trucks, buses,
cars, boats and air and anti-microbial filters for factories, hospitals and
clean rooms. CLARCOR is a leading producer of custom-decorated metal and plastic
containers widely used by consumer products companies. Substantial cost savings
and productivity improvements are expected in 1997 and further gains are
anticipated through the end of the decade as the company continues its history
of bringing acquisitions profitably into the fold. Its newest acquisitions,
Hastings Filters and United Air Specialists, are beginning to show more
favorable results. Hastings' profitability is improving and the integration of
United Air Specialists is proceeding as planned.
5
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Culbro Corporation (CBO - $139.1875 - NYSE) is planning to merge into General
Cigar Holdings Inc. (MPP - $29.4375 - NYSE), the manufacturer of the country's
two largest selling premium cigar brands - Macanudo and Partagas. The company is
benefiting from the boom in cigar consumption. In July, as part of Culbro's
program to separate into two publicly traded companies, all the stock of Griffin
Land & Nurseries Inc. was distributed to Culbro shareholders on a
share-for-share basis in a tax-free spinoff.
Dynamics Corporation of America (DYA - $62.25 - NYSE) manufactures electronic
components, portable electric houseware and commercial appliances. Dynamics
Corp. is in the process of being taken over by CTS Corporation (CTS - $68.9375 -
NYSE). The acquisition is expected to be completed this summer. CTS, an electric
component manufacturer, made a friendly $221 million tender offer that topped a
rival, hostile bid by WHX Corporation. WHX agreed to support the merger of CTS
and Dynamics Corp. after the CTS offer for Dynamics was amended to give DYA
shareholders the option of receiving either 0.88 share of CTS stock or $58 cash
for each Dynamics share.
International Family Entertainment, Inc. (FAM - $34.375 - NYSE) is a
Virginia-based entertainment company with production and distribution operations
around the world. With such key assets as The Family Channel, MTM and Cable
Health Club, FAM is a leading provider of cable programming oriented toward
families. The Family Channel is performing exceptionally well, and MTM has been
re-energized. FAM has created an exceptional franchise which attracted News
Corporation Limited (NWS - $19.25 - NYSE), whose Fox Kids Worldwide Inc. unit
agreed to buy FAM for $35 a share cash in a transaction valued at $1.9 billion.
Liberty Corporation (LC - $40.75 - NYSE) is a holding company for Liberty Life
Insurance Company and Cosmos Broadcasting Corporation. Cosmos Broadcasting owns
and operates eight network-affiliated television stations - 5 NBC, 2 ABC and 1
CBS - mainly in the Southeast. These stations serve 4.2 million households.
Liberty Life is a regional insurer, with North Carolina and South Carolina
accounting for more than 50% of its premium volume. The insurance segment
specializes in providing agency (home service), pre-need and mortgage protection
life and health insurance.
Neiman Marcus Group, Inc. (NMG - $26.25 - NYSE) operates 30 high-fashion Neiman
Marcus stores and two Bergdorf Goodman stores in New York City. NMG's NM Direct
is a state-of-the-art direct marketing operation. Harcourt General, Inc. (H -
$47.625 - NYSE) is the company's major shareholder, holding 53% of the
outstanding common equity after last fall's public offering of eight million NMG
shares. The proceeds from the offering were used to partially fund the
repurchase of all Neiman Marcus' outstanding preferred stock (held by Harcourt
General) for $416 million. Neiman Marcus is positioned to be an important
participant in the trend to higher-scale consumer spending. We see earnings
increasing to $2.00 per share in the next few years.
United Television, Inc. (UTVI - $99.00 - NASDAQ) is a television broadcasting
company which owns and operates five television stations: one ABC, one NBC and
three UPN affiliates. Its stations cover approximately 6% of the U.S.
population. UTVI is a 59%-owned subsidiary of BHC Communications, Inc. (BHC -
$119.50 - ASE). Strong advertising demand, prospects for favorable regulatory
changes in the industry and corporate cost controls will magnify EBITDA growth
going forward. Our 1997 PMV is estimated at $125 per share, $26 of which is
cash. UTVI's PMV is expected to reach $162 by the year 2000.
6
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Pittway Corporation (PRY - $50.00 - NYSE; PRY'A - $49.75 - NYSE) has two core
businesses: manufacturing and distributing burglar and commercial fire alarm
equipment and publishing trade magazines and directories. Its ADI distribution
unit is the largest supplier of alarm system components in the U.S. Penton
Publishing is composed of roughly 33 trade magazines. Pittway is also involved
in real estate and other promising ventures, including a 34% interest in Cylink
(Pittway owns 8.6 million shares), a leading manufacturer of encryption
equipment, and a 4.2% interest in U.S. Satellite Broadcasting (Pittway owns 3.8
million shares), a direct-to-the-home (DTH) satellite broadcast company whose
subscriber base nearly doubled to 1,220,000 in 1996.
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 Small Cap Growth Fund and other Gabelli Funds are
available through the no-transaction fee programs at many major discount
brokerage firms.
No Load - Effective August 12, 1996
Effective August 12, 1996, the Fund no longer imposes a front-end sales
charge. All purchases made after August 12, 1996 are no load, that is, without a
sales charge.
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 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 strength of the market is understandable considering today's favorable
economic/earnings/ interest rate backdrop and the enormous amount of money being
poured into equities mutual funds. Although high by historical standards,
current equities valuations may be justified as long as these "best of all
possible worlds" market conditions can be sustained. If something happens to
disrupt this comfortable scenario--our best guess is it may come in the form of
more widespread earnings
7
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disappointments as the slowing economy begins to impact corporate
profitability--the market could run into some trouble.
We are encouraged by the broadening of this bull market and some evidence
that investors are once again focusing on fundamental value instead of just
momentum. Stock pickers across the land rejoice! Ongoing merger and acquisition
activity should continue to provide a tailwind for our portfolio.
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 GABSX. Please call us during the
business day for further information.
As always, we thank you for your confidence in our investment abilities and
will work hard to preserve and enhance the assets you have entrusted to us.
Sincerely,
/s/ Mario J.Gabelli
Mario J. Gabelli, CFA
Portfolio Manager and
Chief Investment Officer
August 1, 1997
- --------------------------------------------------------------------------------
Top Ten Holdings
June 30, 1997
-------------
International Family Entertainment, Inc. BET Holdings, Inc.
United Television, Inc. Culbro Corporation
Neiman Marcus Group, Inc. CLARCOR Inc.
Liberty Corporation AMTEK, Inc.
Dynamics Corporation of America Pittway Corporation
- --------------------------------------------------------------------------------
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.
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The Gabelli Small Cap Growth Fund
Schedule of Portfolio Investments -- June 30, 1997 (Unaudited)
================================================================================
Market
Shares Value
------ -----
COMMON STOCKS -- 98.30%
AGRICULTURE (0.03%):
265 Delta & Pine Land Company......................... $ 9,441
5,000 Griffin Land & Nurseries Inc.+.................... 71,250
------------
80,691
------------
AUTOMOTIVE: PARTS and ACCESSORIES (5.85%):
70,000 Acklands Ltd.+.................................... 907,314
5,000 APS Holding Corporation, Cl. A+................... 43,750
3,000 Borg-Warner Automotive Inc........................ 162,188
46,000 Brad Ragan, Inc................................... 1,086,750
83,000 GenCorp Inc....................................... 1,919,375
35,000 Handy & Harman.................................... 608,125
2,000 Lund International Holdings Inc................... 22,500
40,000 Modine Manufacturing Company...................... 1,190,000
8,400 Monro Muffler Brake, Inc.+........................ 144,900
67,000 Redlaw Industries Inc.+........................... 50,250
1,000 SPX Corporation................................... 64,813
110,000 Standard Motor Products, Inc...................... 1,512,500
2,000 Strattec Security Corporation..................... 41,250
1,800 Superior Industries International, Inc. .......... 47,700
118,000 TransPro Inc...................................... 1,025,125
165,000 UAP Inc., Cl. A................................... 1,947,501
112,543 Wynn's International, Inc......................... 3,193,407
------------
13,967,448
------------
AVIATION: PARTS and SERVICES (3.53%):
10,000 AAR Corporation................................... 323,125
30,000 Curtiss-Wright Corporation........................ 1,747,500
5,000 Ducommun, Inc..................................... 147,188
26,500 Hi-Shear Industries Inc.+......................... 62,111
40,000 Hudson General Corporation........................ 1,520,000
80,000 Moog, Inc., Cl. A................................. 2,499,999
145,000 UNC Incorporated.................................. 2,120,625
------------
8,420,548
------------
BROADCASTING (6.46%):
75,000 Ackerley Group, Inc............................... 843,750
3,000 Clear Channel Communications, Inc.+............... 184,500
12,000 Granite Broadcasting Corporation.................. 123,000
15,000 Gray Communications Systems, Inc.................. 336,563
20,000 Gray Communications Systems, Inc., Cl. B ......... 448,750
125,000 Liberty Corporation............................... 5,093,750
12,000 NTN Communications, Inc........................... 53,250
90,000 Paxson Communications Corporation................. 1,147,500
3,000 Pegasus Communications Corporation+............... 33,375
10,000 Price Communications Corporation+................. 87,500
2,000 Scandinavian Broadcast System S.A.+............... 44,500
70,000 United Television, Inc............................ 6,930,000
3,000 Young Broadcasting Inc............................ 97,500
------------
15,423,938
------------
BUILDING and CONSTRUCTION (3.11%):
100,000 CalMat Co......................................... 2,150,000
15,000 Florida Rock Industries Inc....................... 609,375
15,000 Morgan Products Ltd.+............................. 112,500
110,000 Nortek, Inc.+..................................... 2,653,750
10,000 Oakwood Homes Corporation......................... 240,000
82,500 Republic Group, Inc............................... 1,660,313
------------
7,425,938
------------
BUSINESS SERVICES (2.25%):
5,000 Amway Asia Pacific Ltd............................ 218,125
14,641 Amway Japan Limited, Sponsored ADR................ 253,472
31,000 Berlitz International, Inc.+...................... 773,063
20,000 Borg-Warner Security Corporation.................. 357,500
20,000 Data Broadcasting Corp............................ 95,000
8,000 Data Transmission Network Corporation ............ 254,000
5,000 Hach Company...................................... 98,750
Market
Shares Value
------ -----
10,000 Landauer, Inc..................................... $ 231,875
80,000 Nashua Corporation................................ 870,000
4,000 Paxar Corp.+...................................... 75,500
16,000 Pittston Brink's Group............................ 480,000
98,500 Trans-Lux Corporation (c)......................... 1,292,813
10,000 Wackenhut Corporation, Cl. A...................... 240,000
6,187 Wackenhut Corporation, Cl. B...................... 123,353
------------
5,363,451
------------
CABLE (6.39%):
150,000 BET Holdings, Inc................................. 4,912,500
280,000 International Family Entertainment, Inc.+ ........ 9,625,000
8,600 Jones Intercable Investors L.P.................... 131,688
8,000 People's Choice TV Corporation.................... 13,000
55,000 United International Holdings, Inc., Cl. A ....... 570,625
------------
15,252,813
------------
COMMUNICATIONS EQUIPMENT (0.04%):
5,000 Allen Telecom Inc................................. 103,750
------------
COMPUTER SOFTWARE and SERVICES (0.04%):
1,000 NetCom On-Line Communication
Services Inc.+.................................. 14,750
1,000 Noise Cancellation Technologies, Inc. ............ 281
1,500 Volt Information Sciences, Inc.+.................. 75,750
------------
90,781
------------
CONSUMER PRODUCTS (7.17%):
95,501 Carlyle Industries, Inc........................... 202,940
100,000 Carter-Wallace, Inc............................... 1,787,499
75,000 Church & Dwight Co., Inc.......................... 2,006,249
12,000 Coachmen Industries, Inc.......................... 205,500
35,000 Culbro Corporation................................ 4,871,562
38,000 First Brands Corporation.......................... 871,625
7,000 French Fragrances Inc.+........................... 64,750
98,000 General Housewares Corp........................... 967,750
112,000 Genlyte Group Incorporated........................ 1,470,000
1,000 Harley-Davidson, Inc.............................. 47,938
100,000 Hartmarx Corporation+............................. 825,000
95,000 Kerr Group, Inc.+................................. 368,125
19,000 Mafco Consolidated Group Inc...................... 636,500
15,000 National Presto Industries, Inc................... 604,688
1,000 Nu-Kote Holding, Inc., Cl. A+..................... 2,500
2,000 Playtex Products, Inc.+........................... 18,750
50,000 Scotts Company, Cl. A+............................ 1,450,000
15,000 Skyline Corporation............................... 369,375
8,000 Stewart Enterprises, Inc., Cl. A.................. 336,000
------------
17,106,751
------------
CONSUMER SERVICES (1.94%):
27,000 Department 56, Inc................................ 599,063
94,250 HSN, Inc.......................................... 2,945,312
65,000 Ticketmaster Group Inc.+.......................... 1,080,625
------------
4,625,000
------------
COUNTRY/CLOSED END FUNDS (1.91%):
45,000 Central European Equity Fund Inc.................. 1,080,000
80,000 Emerging Germany Fund Inc......................... 830,000
45,000 France Growth Fund, Inc........................... 503,438
35,000 Germany Fund, Inc................................. 516,250
44,000 Italy Fund, Inc................................... 420,750
65,000 New Germany Fund, Inc............................. 1,023,750
12,700 Spain Fund Inc.................................... 184,150
------------
4,558,338
------------
DIVERSIFIED INDUSTRIAL (8.27%):
85,000 Ampco-Pittsburgh Corporation...................... 1,248,438
8,000 Anixter International Inc......................... 137,500
53,500 Crane Co.......................................... 2,236,968
3,000 Flanders Corporation.............................. 18,938
30,000 Gardner Denver Machinery Corporation ............. 892,500
9
<PAGE>
The Gabelli Small Cap Growth Fund
Schedule of Portfolio Investments (Continued) -- June 30, 1997 (Unaudited)
================================================================================
Market
Shares Value
------ -----
COMMON STOCKS (CONTINUED)
DIVERSIFIED INDUSTRIAL (continued)
21,500 Katy Industries, Inc.............................. $ 319,813
445,000 Lamson & Sessions Company+........................ 3,699,062
62,000 Lindsay Manufacturing Co.......................... 2,030,500
338,000 Noel Group, Inc.+................................. 1,436,500
33,000 Oil-Dri Corporation of America.................... 530,063
65,000 Park-Ohio Industries, Inc.+....................... 991,250
20,000 Standex International Corporation................. 600,000
126,000 Thomas Industries Inc............................. 3,622,499
15,000 Trinity Industries, Inc........................... 476,250
730,000 Tyler Corporation+................................ 1,505,625
------------
19,745,906
------------
EDUCATION (0.02%):
10,000 Whitman Education Group Inc.+...... .............. 42,500
------------
ENERGY (2.52%):
1,425,000 GEO International Corporation (b)(c) ............. 0
2,000 Halter Marine Group, Inc.+........................ 48,000
130,000 Kaneb Services, Inc.+............................. 479,375
220,000 RPC Inc........................................... 3,245,000
105,000 Southwest Gas Corporation......................... 2,086,875
10,000 Tesoro Petroleum Corp.+........................... 148,125
------------
6,007,375
------------
ENTERTAINMENT (0.57%):
12,000 All American Communications Inc................... 181,507
10,000 Cineplex Odeon Corporation........................ 18,125
2,000 Fisher Companies Inc.............................. 260,000
3,000 International Speedway Corporation................ 57,000
2,000 Metromedia International Group Inc. .............. 25,375
75,000 Spelling Entertainment Group Inc.................. 515,625
70,000 Topps Company Inc.+............................... 293,125
------------
1,350,757
------------
EQUIPMENT and SUPPLIES (14.25%):
47,000 AFC Cable Systems, Inc.+.......................... 1,269,000
18,000 Alltrista Corp.................................... 492,750
185,000 AMETEK, Inc....................................... 4,347,499
5,000 Amphenol Corporation+............................. 194,375
320,000 Baldwin Technology Company, Inc., Cl. A .......... 960,000
1,000 Belden Inc........................................ 34,063
2,000 Bway Corp.+....................................... 46,500
194,500 CLARCOR Inc....................................... 4,813,874
1,000 Commercial Intertech Corporation.................. 13,938
35,000 CTS Corporation................................... 2,412,813
35,000 Cuno Incorporated................................. 586,250
20,000 Daniel Industries................................. 308,750
80,000 Dynamics Corporation of America................... 4,980,000
162,000 EnviroSource, Inc.+............................... 324,000
20,000 General Magnaplate Corporation.................... 125,000
60,000 Gerber Scientific, Inc............................ 1,185,000
17,000 Global Industrial Technologies Inc. .............. 348,500
34,650 Johnston Industries, Inc.......................... 220,894
10,000 K-Tron International, Inc.+....................... 150,000
72,000 Kollmorgen Corporation............................ 1,138,500
10,000 Littelfuse, Inc.+................................. 282,500
22,000 Lufkin Industries, Inc............................ 577,500
5,775 Mark IV Industries, Inc........................... 138,600
3,000 Met-Pro Corp...................................... 45,375
84,000 Pittway Corporation............................... 4,200,000
2,000 Plantronics, Inc.+................................ 100,250
8,000 Portec Inc........................................ 94,000
11,000 Raytech Corp.+.................................... 61,875
37,000 Sequa Corporation, Cl. A+......................... 2,085,875
5,000 Sequa Corporation, Cl. B+......................... 311,250
18,000 SPS Technologies, Inc.+........................... 1,273,500
6,000 Teleflex Incorporated............................. 187,500
14,000 Tennant Company................................... 465,500
Market
Shares Value
------ -----
6,000 Valmont Industries, Inc........................... $ 114,000
5,250 Watsco, Inc., Cl. B............................... 131,250
------------
34,020,681
------------
FINANCIAL SERVICES (1.81%):
70,000 Berliner Bank Aktiengesellschaft.................. 1,475,415
50,000 Danielson Holding Corporation..................... 393,750
1,000 Federal Agricultural Mortgage Corp., Cl. C+ ...... 36,250
6,000 Gryphon Holdings Inc.+............................ 93,000
18,000 Hibernia Corporation.............................. 250,875
4,000 Lawyers Title Insurance Corp...................... 75,500
40,000 Midland Company................................... 2,000,000
------------
4,324,790
------------
FOOD and BEVERAGE (4.45%):
80,000 Celestial Seasonings, Inc.+....................... 2,000,000
5,000 Cheesecake Factory Incorporated+.................. 105,000
190,000 Chock Full o'Nuts Corporation+.................... 1,389,375
220,000 Eskimo Pie Corporation (c)........................ 2,667,500
1,000 Farmer Brothers Company........................... 127,000
18,000 Genesee Corporation, Cl. B........................ 715,500
10,000 Grist Mill Co..................................... 70,625
10,000 International Multifoods Corporation ............. 251,250
12,000 J & J Snack Foods Corp.+.......................... 184,500
7,000 Midwest Grain Products, Inc....................... 92,750
1,000 Northland Cranberries, Inc., Cl. A. .............. 16,125
65,000 Pepsi-Cola Puerto Rico Bottling Company .......... 390,000
10,000 Ralcorp Holdings, Inc.+........................... 147,500
79,000 Rykoff-Sexton, Inc................................ 1,841,688
5,000 Sylvan Food Holdings, Inc.+....................... 53,125
12,921 Tootsie Roll Industries, Inc...................... 574,985
------------
10,626,923
------------
HEALTH CARE (0.87%):
60,000 HealthPlan Services Corp.......................... 1,132,500
80,000 IVAX Corp.+....................................... 895,000
6,000 U.S. Physical Therapy Inc......................... 57,750
------------
2,085,250
------------
HOME FURNISHINGS (0.97%):
8,000 Bassett Furniture Industries, Incorporated+ ...... 226,500
1,000 Bed Bath & Beyond Inc.+........................... 30,375
18,000 Foamex International Inc.+........................ 236,250
10,000 La-Z-Boy Chair Company............................ 360,000
55,000 Oneida Ltd........................................ 1,467,813
------------
2,320,938
------------
HOTELS/GAMING (2.78%):
390,000 Aztar Corporation................................. 2,754,375
6,000 Boyd Gaming Corp.................................. 34,500
4,000 Chartwell Leisure, Inc............................ 53,500
10,000 Churchill Downs Incorporated...................... 400,000
115,000 Jackpot Enterprises, Inc.......................... 1,308,125
5,000 Jurys Hotel Group plc............................. 25,393
52,000 Mirage Resorts, Incorporated...................... 1,313,000
2,500 Penn National Gaming, Inc......................... 37,188
20,000 Station Casinos, Inc.............................. 167,500
50,000 Trump Hotels & Casino Resorts Inc................. 537,500
------------
6,631,081
------------
METALS and MINING (2.22%):
8,000 Barrick Gold Corporation.......................... 176,000
140,000 Echo Bay Mines Ltd................................ 805,000
120,000 Pegasus Gold Inc.+................................ 735,000
115,000 Pioneer Group, Inc................................ 2,645,000
240,000 Royal Oak Mines Inc.+............................. 570,000
70,000 TVX Gold, Inc..................................... 371,875
------------
5,302,875
------------
10
<PAGE>
The Gabelli Small Cap Growth Fund
Schedule of Portfolio Investments (Continued) -- June 30, 1997 (Unaudited)
================================================================================
Market
Shares Value
------ -----
COMMON STOCKS (CONTINUED)
PAPER and FOREST PRODUCTS (1.36%):
120,000 Grief Bros. Corporation........................... $ 3,240,000
------------
PUBLISHING (4.46%):
40,000 Golden Books Family Entertainment, Inc. .......... 500,000
121,279 Independent Newspapers Ltd........................ 707,855
16,000 McClatchy Newspapers, Inc., Cl. A................. 470,000
65,000 Media General, Inc., Cl. A........................ 2,600,000
34,000 Meredith Corporation.............................. 986,000
44,000 Pulitzer Publishing Company....................... 2,332,000
190,000 Thomas Nelson Inc................................. 2,636,250
12,000 Wiley (John) & Sons, Inc., Cl. B.................. 405,000
------------
10,637,105
------------
PUMPS and VALVES (3.31%):
32,750 Durco International Inc........................... 957,938
60,000 Franklin Electric Company......................... 2,985,000
17,775 Gorman-Rupp Company............................... 319,950
2,000 Graco Inc......................................... 60,250
75,000 IDEX Corporation.................................. 2,475,000
10,000 Robbins & Myers, Inc.............................. 325,000
15,000 Roper Industries, Inc............................. 778,125
-----------
7,901,263
-----------
REAL ESTATE (0.76%):
100,000 Catellus Development Corporation.................. 1,812,500
-----------
RETAIL (6.89%):
55,000 Aaron Rents, Inc.................................. 735,625
44,700 Aaron Rents, Inc., Cl. A.......................... 533,606
250,000 Bruno's, Inc...................................... 2,875,000
85,000 Burlington Coat Factory Warehouse ................
Corporation+.................................... 1,657,500
7,000 Crown Books Corporation+.......................... 71,750
40,000 Delchamps, Inc.................................... 1,280,000
90,000 Earl Scheib, Inc.+................................ 545,625
25,000 Fingerhut Companies, Inc.......................... 435,938
170,000 General Host Corporation+......................... 584,375
20,000 Ingles Markets, Incorporated, Cl. A............... 327,500
100,000 Lillian Vernon Corporation........................ 1,687,500
33,500 Mott's Holdings, Inc.............................. 201,000
210,000 Neiman-Marcus Group, Inc.+........................ 5,512,500
------------
16,447,919
------------
SPECIALTY CHEMICALS (1.01%):
30,000 Ferro Corporation................................. 1,111,875
5,000 MacDermid, Incorporated........................... 229,375
32,000 Penwest, Ltd...................................... 1,080,000
------------
2,421,250
------------
TELECOMMUNICATIONS (1.90%):
18,000 Aliant Communications Inc......................... 351,000
23,000 Atlantic Tele-Network, Inc.+...................... 254,426
2,000 BHI Corporation................................... 44,000
41,000 C-TEC Corporation+................................ 1,429,875
30,000 C-TEC Corporation, Cl. B+......................... 1,031,250
100,000 Communications Systems, Inc....................... 1,425,000
-----------
4,535,551
------------
TRANSPORTATION (0.21%):
2,000 Irish Continential Group plc...................... 21,224
50,000 OMI Corp.......................................... 478,125
4,000 WorldCorp, Inc.................................... 10,250
------------
509,599
------------
WIRELESS COMMUNICATIONS (0.95%):
55,000 Aerial Communications Inc......................... 467,500
50,000 American Paging Inc.+............................. 75,000
2,000 Associated Group, Inc............................. 80,000
Market
Shares Value
------ -----
68,000 Centennial Cellular Corp., Cl. A+................. $ 1,079,500
17,000 Corecomm Inc...................................... 293,250
10,000 Palmer Wireless Inc., Cl. A....................... 168,750
7,000 Western Wireless Corp............................. 111,125
------------
2,275,125
------------
TOTAL COMMON STOCKS .............................. 234,658,835
------------
Principal
Amount
------
CONVERTIBLE CORPORATE BONDS -- 0.51%
ENTERTAINMENT (0.07%):
$200,000 Savoy Pictures Entertainment, Inc.
Sub. Deb. Cv. 7.00%, 07/01/03 .................. 172,000
------------
EQUIPMENT and SUPPLIES (0.30%):
650,000 Intermagnetics General Corporation
Sub. Deb. Cv. 5.75%, 09/15/03 (a) .............. 568,750
250,000 Kushner-Locke Company
Sub. Deb. Cv. 8.00%, 12/15/00 (b) ............... 150,000
500 MacNeal-Schwendler Corporation
Sub. Deb. Cv. 7.875%, 08/18/04................... 500
------------
719,250
------------
RETAIL (0.14%):
400,000 General Host Corporation
Sub. Deb. Cv. 8.00%, 02/15/02 ................... 326,000
------------
TOTAL CONVERTIBLE
CORPORATE BONDS ................................. 1,217,250
------------
U.S. GOVERNMENT OBLIGATIONS -- 1.83%
4,400,000 U.S. Treasury Bills, 4.85% to 4.97%
due 08/14/97 to 08/21/97......................... 4,370,356
------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS ...................................... 4,370,356
------------
TOTAL
INVESTMENTS -- 100.64%
(Cost - $159,412,922)........................... 240,246,441
Liabilities, in excess of
Other Assets-- (0.64%) ......................... (1,525,201)
------------
NET ASSETS -- 100.00%
(10,739,789 shares outstanding)................. $238,721,240
============
Net Asset Value And Redemption
Price Per Share................................. $22.23
======
- ------------
(a) Security exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions exempt from
registration normally to qualified institutional buyers. At June 30,
1997, Rule 144A securities amounted to $568,750 or 0.24% of net assets.
(b) Security fair valued as determined by the Board of Directors.
(c) Security considered an affiliated holding because the Advisor owns at
least 5% of the outstanding shares.
+ Non-income producing security.
ADR -- American Depositary Receipts.
11
<PAGE>
Gabelli Equity Series Funds, Inc.
The Gabelli Small Cap Growth Fund
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
fax: 1-914-921-5118
http://www.gabelli.com
e-mail: [email protected]
(Net Asset Value may be obtained daily by
calling 1-800-GABELLI after 6:00 P.M.)
Mario J. Gabelli, CFA
Chairman and Chief
Investment Officer
Gabelli Funds, Inc.
Anthony J. Colavita
Attorney-at-Law
Anthony J. Colavita, P.C.
John D. Gabelli
Vice President
Gabelli & Company, Inc.
Karl Otto Pohl
Former President
Deutsche Bundesbank
Anthony R. Pustorino
Certified Public Accountant
Professor, Pace University
Felix J. Christiana
Former Senior
Vice President
Dollar Dry Dock Savings Bank
Vincent D. Enright
Senior Vice President
and Chief Financial Officer
The Brooklyn Union Gas Company
Robert J. Morrissey
Attorney-at-Law
Morrissey & Hawkins
Anthonie C. van Ekris
Managing Director
BALMAC International, Inc.
OFFICERS
Mario J. Gabelli, CFA
President and
Chief Investment Officer
Bruce N. Alpert
Vice President and Treasurer
James E. McKee
Secretary
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli Small Cap Growth Fund. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
