[PHOTO]
The
Gabelli
Small Cap
Growth
Fund
ANNUAL REPORT
SEPTEMBER 30, 1997
<PAGE>
The Gabelli Small Cap Growth Fund
One Corporate Center
Rye, New York 10580-1434
Annual Report - 1997(a)
* * * * *
Morningstar rates Gabelli Small Cap Growth Fund 5 stars
overall and for the 5 year period ended 10/31/97 among
2189 and 1210 domestic equity funds, respectively.
The Fund was also rated 4 stars for the 3 year period among 2189 funds.
" . . . its [Gabelli Small Cap Growth Fund's] forte is its low risk profile,
with risk scores that are among the lowest in the category . . ."
Morningstar Mutual Funds - 10/12/97
To Our Shareholders,
In the third quarter of 1997, buoyed by low inflation, solid corporate
earnings, and ongoing merger and acquisition activity, stocks posted solid
gains. In the process, the market overcame global currency instability and
attendant concerns regarding the earnings prospects for multi-national consumer
staple companies like Coca-Cola, Gillette and Proctor and Gamble. As
demonstrated by the Fund's outstanding returns, stock pickers like us were more
than adequately rewarded for our efforts.
Investment Performance
For the quarter ended September 30, 1997, The Gabelli Small Cap Growth
Fund's total return was 14.7%. The Value Line Composite and Russell 2000 Index
had returns of 12.7% and 14.9%, respectively, over the same period. Each index
is an unmanaged indicator of stock market performance. The Fund is up 37.6%
year-to-date. The Value Line Composite and Russell 2000 rose 29.9% and 26.6%,
respectively, over the same nine month period.
For the five year period ended September 30, 1997, the Fund's return
averaged 20.8% annually, versus average annual returns of 20.4% and 20.5% for
the Value Line Composite and Russell 2000, respectively. Since inception on
October 22, 1991 through September 30, 1997, the Fund has a total return of
239.5%, which equates to an average annual return of 22.8%.
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(a) The Fund's fiscal year ends September 30, 1997.
Gabelli Small Cap Growth Fund received Morningstar's highest rating - 5 stars
for overall performance and for the 5-year period ended October 31, 1997. The
Morningstar rating reflects historical risk adjusted performance as of October
31, 1997 and is subject to change every month. Morningstar proprietary ratings
are calculated from the 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 and the next 22.5%
receive four stars. Small capitalization stocks are subject to significant price
fluctuations and business risks. The stocks of smaller companies may trade less
frequently and experience more abrupt price movements than stocks of larger
companies, therefore, investing in this sector involves special challenges.
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT RESULTS (a)(c)
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Quarter
-------------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
1997: Net Asset Value ....................... $19.11 $22.23 $25.42 __ __
Total Return .......................... 3.1% 16.3% 14.7% __ __
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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%
- ----------------------------------------------------------------------------------------------------------------
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)%
- ----------------------------------------------------------------------------------------------------------------
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%
- ----------------------------------------------------------------------------------------------------------------
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%(b) 22.9%(b)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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Average Annual Returns - September 30, 1997 (a)
-----------------------------------------------
1 Year ...................................... 42.2%
5 Year ...................................... 20.8%
Life of Fund (b) ............................ 22.8%
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Dividend History
- --------------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
September 30,1997 $0.070 $25.42
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) 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 operations on October 22, 1991. (c) The
Fund's fiscal year ends September 30, 1997.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
THE GABELLI SMALL CAP GROWTH FUND, THE S&P 500 INDEX
AND THE RUSSELL 2000 INDEX
[The following information was depicted as a line graph in the printed material]
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COMMENTARY
Deal Activity Surfaces Value
A component of our investment methodology is to identify industry and
sector trends and themes ahead of the curve and position ourselves to benefit
from these developments. Industry consolidation is one such trend. As we have
discussed in previous letters, the continued strong activity in mergers and
acquisitions is providing a tailwind to the outstanding performance of the Fund
this year. The accompanying tables illustrate how deal activity surfaced value
in a small sample of the portfolio holdings.
1997 Completed Deals
Fund Holding 1997 Closing Date 1997 % Return (a)
------------ ----------------- -----------------
International Family Entertainment Inc. 9/5 125.4%
Kerr Group Inc. 8/4 110.5%
Goulds Pumps Inc. 5/22 60.8%
Rykoff-Sexton Inc. 7/3 54.3%
Delchamps Inc. 9/12 54.2%
Mafco Consolidated Group Inc. 7/10 32.0%
BBN Corp. 6/9 28.3%
UNC Inc. 9/18 25.0%
Percentage Changes through 9/30/97 for Announced Deals
Third Year-to-Date
Current Fund Holdings Quarter Return (b) Return (b)
--------------------- ------------------ ----------
Dynamics Corporation of America 33.3% 193.8%
Ticketmaster Group Inc. 39.9% 91.8%
BET Holdings Inc. 61.5% 83.9%
The Economy and the Stock Market: "Bear Watch"
In view of still favorable economic and investment demographic trends, the
Dow Jones Industrial Average is fairly, if not fully, valued at around 8,000. We
do not see many rampant excesses in the current market, but the margin of safety
is razor thin. As the doctors in charge of your financial health, we are always
looking for things that may cause investor indigestion. Accordingly, we are
keeping a close watch on the following developments that may cause us to change
our economic and market diagnoses.
- ------------
(a) Represents changes in share price and dividends paid from December 31,
1996, through the closing date.
(b) Represents changes in share price and dividends paid from beginning of
period through September 30, 1997.
3
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Thank You Morningstar!!
Gabelli Small Cap Growth receives 5 stars
* * * * * as of 10/31/97
[GRAPHIC OMITTED}
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4
<PAGE>
[GRAPHIC OMITTED}
Reprinted with permission from Morningstar.
5
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Inflation Watch
In 1981-82, then President Reagan dealt a knockdown blow to labor by
breaking the air traffic controllers strike. The settlement in the recent UPS
strike may indicate labor is finally getting up off the canvas. Labor represents
about two-thirds of U.S. industries' total costs. If labor is making a comeback,
we may see more inflation than the consensus expects.
Profit Taking
Wall Street was soundly in favor of a reduction in the capital gains tax
rate. Long term, it is a positive for stocks. However, shorter term, it may
entice investors to take some profits. Increased profit taking could temporarily
alter the very favorable supply and demand profile stocks have enjoyed for the
last several years.
Currency Turmoil - ASEAN Flu
Thus far, the currency crises in Thailand, the Philippines, Malaysia, and
Singapore have not spread to the Hong Kong dollar, which is the most stable and
critical currency in the region. The same is true in Latin America, where the
recent run on the Brazilian real has failed to upset the Mexican peso. If this
currency virus were to spread further, worldwide stock markets would likely
experience some vertigo.
Stormy Weather
On the food front, El Ni-o, the unusual weather pattern that threatens
warm, wet weather throughout the U.S. may play havoc with commodities prices. A
late planting season in the Midwest could send food prices higher. A warm winter
throughout the Northern states could send fuel prices lower while oil continues
to be in short term imbalance on the supply side. This could impact earnings
patterns for companies in a range of industry groups.
Having listed some of the things that could disrupt a still favorable
backdrop for the economy and stock market, let us acknowledge the positives.
Inflation remains restrained. With a historically large spread between inflation
and interest rates along the yield curve, rates could trend down from current
levels. Corporate earnings should grow by 8% to 9% in 1998. We do not believe
price/earnings multiples are likely to expand substantially in the year ahead,
but earnings progress could push the stock market higher. Specific to the Fund,
which owns many smaller companies in attractive niche businesses, the lower
capital gains tax rate should help promote even more deal activity in smaller
firms since family managements will be able to keep more of the proceeds from
any such transactions.
6
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Cable Television Networks: Get Them While They're Hot
When we began accumulating cable television network companies, they were
priced like straw hats in winter. Today, they are hot retail items. Within the
last six months, Fox purchased International Family Entertainment and the
Johnson family and Liberty Media (LBTYA - $29.9375 - NASDAQ) agreed to jointly
buy BET Holdings Inc. (BTV - $52.875 - NYSE). These deals are being done at cash
flow multiples in the high teens. With the U.S. Supreme Court upholding "must
carry" rules that require cable systems to air local network programming,
entrenched cable networks are of increasing value to entertainment software
producers and distributors, particularly in a "capacity" constrained cable
world.
Most of the smaller independent cable network companies are gone or going
from our portfolio at very nice premiums to our purchase prices. MAY THEY REST
IN PEACE. We still own major cable network operators like Liberty Media (with
stakes in The Discovery Channel, Court TV, Black Entertainment Television, QVC,
Home Shopping Network, Liberty Sports Networks and Time Warner, a
"clearinghouse" of cable network properties), Viacom (VIA - $31.4375 - ASE)
(MTV, VH1 and Nickelodeon), Time Warner (TWX - $54.1875 - NYSE) (CNN, CNBC, TNT
and the new Cartoon Channel), Seagram's (soon to be 100% owner of the USA
Network) and Cablevision Systems (CVC - $62.75 - ASE) (Rainbow cable network
properties). With the exception of Liberty Media, these are not pure cable
network plays. The relative success of their other businesses will have a
material impact on their stock prices. However, we do not believe the full value
of these companies' cable network operations are reflected in their current
stock prices.
The Auto After-market: Coming Together
The auto after-market industry has suffered in recent years as it worked
off an extended inventory glut resulting from the elimination of middlemen in
the distribution system. Today, that excess inventory is largely history. Parts
makers like Standard Motor Products (SMP - $23.375 - NYSE) have restructured
operations. They are entering a period of very easy earnings comparisons. They
do relatively little foreign business, so they are not subject to the
vicissitudes of currency swings. Finally, they are much less cyclical than most
industrial companies. Yet, they trade at big price/earnings and price/cash flow
discounts to the market. Investors have largely overlooked this industry group.
If earnings come in as strong as we anticipate, it should attract investor
attention.
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.
BET Holdings Inc. (BTV - $52.875 - NYSE) is a media and entertainment company
that primarily targets black consumers, a market that was estimated to have
spent over $425 billion in 1996. BTV's core
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business is Black Entertainment Television (BET), an advertiser-supported cable
television programming service. BET reaches over 45 million cable households.
BET on Jazz: The Cable Jazz Channel has attracted one million subscribers since
its launch in 1996. Action Pay-Per-View's subscriber base grew by one million to
over eight 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 - $28.625 - 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 and 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, which merged with CLARCOR in February, is proceeding as
planned.
Dynamics Corporation of America (DYA - $82.75 - NYSE) manufactures electronic
components and portable electric houseware and commercial appliances. Dynamics
Corp. has been acquired by CTS (CTS - $95.00 - NYSE) in a deal which closed on
October 16, 1997. Shareholders received either 0.88 shares of CTS per DYA share
or $58 cash. CTS is an electronic component manufacturer serving customers in
the computer equipment and automation industries.
General Cigar Holdings Inc. (MPP - $28.875 - NYSE) manufactures and markets
cigars. The company's brand names such as Macanudo, Partagas, Punch, and Cohiba
dominate the premium cigar segment, which is experiencing the strongest unit
volume growth. In the mass market cigar segment, General Cigar markets eleven
brands, including Garcia y Vega, White Owl and Tiparillo. With continued volume
growth throughout the cigar industry, General Cigar should experience strong
sales, earnings and cash flow growth.
Liberty Corp. (LC - $45.25 - NYSE) is a holding company for Cosmos Broadcasting
and Liberty Life Insurance. Cosmos Broadcasting owns and operates eight network
affiliated television stations - five NBC, two ABC and one 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 - $32.00 - 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 (H - $49.5625
- - NYSE) is the company's major shareholder, holding 53% of the outstanding
common equity after 1996's public offering of eight million NMG shares. The
proceeds
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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.
Pittway Corp. (PRY - $64.125 - NYSE; PRY'A - $64.9375 - 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 1.22 million in 1996.
RPC Inc. (RES - $27.875 - NYSE) has two major business segments: boat
manufacturing and oil and gas services. Chaparral Boats, a wholly-owned
subsidiary of RPC, sells four lines of powerboats to a nationwide network of
independent dealers. The oil and gas service segment provides a variety of
services, equipment and personnel to the oil and gas industry through Cudd
Pressure Control, Patterson Services, Patterson Truck Lines and Patterson
Tubular Services.
United Television Inc. (UTVI - $104.25 - NASDAQ) is a television broadcasting
company which owns and operates five television stations: one ABC, one NBC and
three UPN affiliates. UTVI has announced plans to purchase WRBW, a UPN affiliate
in Orlando, for approximately $60 million and WHSW in Baltimore for $80 million.
Its stations, including announced acquisitions, will cover approximately 8% of
the U.S. population. UTVI is a 59%-owned subsidiary of BHC Communications (BHC -
$129.50 - 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 $123 per share, $29 of which is
cash. UTVI's PMV is expected to reach $165 by the year 2000.
Wynn's International Inc. (WN - $33.25 - NYSE) supplies O-rings and sealing
products, specialty chemical products, equipment and related service programs,
as well as builders hardware. Its specialty chemicals division is comprised of
Wynn Oil Company, a worldwide manufacturer and marketer of specialty chemicals
and equipment for automotive and industrial markets in over 100 countries. The
company has completed a major share repurchase program which retired 8% of its
outstanding common shares. With a debt free balance sheet, Wynn's is positioned
to easily finance another acquisition.
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.
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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
Little has changed in the favorable economic backdrop for stocks. That
does not necessarily mean there are not potential problems that could upset the
market apple cart. Barring any unexpected economic dilemmas, stocks should
continue to deliver respectable returns. More important, in our view, the market
is broadening and investors once again appear to be focusing on fundamental
value. Already, strong deal activity is gaining momentum. The capital gains tax
cut should encourage smaller niche companies' "urge to merge" in the year ahead.
We close ever mindful of the potholes that will invariably challenge
equities investors, but remain confident the Fund's portfolio is well-positioned
to endure the long investment journey to your financial success.
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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 strive to preserve the assets you have entrusted to us and provide
competitive returns.
Sincerely,
/s/ Mario J. Gabelli
-----------------------------
Mario J. Gabelli, CFA
Portfolio Manager and
Chief Investment Officer
October 25, 1997
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Top Ten Holdings
September 30, 1997
BET Holdings Inc. Neiman Marcus Group Inc.
United Television Inc. Pittway Corp.
Dynamics Corporation of America RPC Inc.
Liberty Corp. General Cigar Holdings Inc.
CLARCOR Inc. Wynn's International Inc.
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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.
11
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The Gabelli Small Cap Growth Fund
Portfolio of Investments -- September 30, 1997
================================================================================
Market
Shares Value
------ -----
COMMON STOCKS -- 84.96%:
AGRICULTURE -- 0.65%:
265 Delta & Pine Land Co............... $ 8,530
112,000 Griffin Land & Nurseries Inc.*..... 1,918,000
-----------
1,926,530
-----------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 5.70%:
100,000 Acktion Corp.*..................... 1,285,301
46,000 Brad Ragan Inc.*................... 1,334,000
75,000 GenCorp Inc........................ 2,132,812
35,000 Handy & Harman..................... 800,625
2,000 Lund International Holdings Inc.*.. 28,250
1,000 Meritor Automotive Inc.*........... 23,250
40,000 Modine Manufacturing Co............ 1,395,000
5,000 Monro Muffler Brake Inc.*.......... 76,250
65,000 Redlaw Industries Inc.*............ 50,781
1,000 SPX Corp........................... 58,625
105,000 Standard Motor Products Inc........ 2,454,374
2,000 Strattec Security Corp.*........... 55,625
1,800 Superior Industries
International Inc. .............. 49,838
115,000 TransPro Inc....................... 1,250,625
165,000 UAP Inc., Cl. A.................... 1,857,893
121,643 Wynn's International Inc........... 4,044,629
-----------
16,897,878
-----------
AVIATION: PARTS AND SERVICES -- 2.59%:
10,000 AAR Corp........................... 333,750
30,000 Curtiss-Wright Corp................ 2,321,250
5,000 Ducommun Inc.*..................... 188,438
26,500 Hi-Shear Industries Inc.*.......... 56,313
40,000 Hudson General Corp................ 1,710,000
77,000 Moog Inc., Cl. A*.................. 3,070,374
-----------
7,680,125
-----------
BROADCASTING -- 5.66%:
75,000 Ackerley Group Inc.*............... 1,354,688
1,000 Clear Channel Communications Inc.*. 64,875
12,000 Granite Broadcasting Corp.*........ 142,500
15,000 Gray Communications Systems Inc.... 378,750
20,000 Gray Communications
Systems Inc., Cl. B ............. 505,000
125,000 Liberty Corp....................... 5,656,250
12,000 NTN Communications Inc.*........... 25,500
90,000 Paxson Communications Corp.*....... 1,046,250
3,000 Pegasus Communications Corp.*...... 64,500
10,000 Price Communications Corp.*........ 86,875
2,000 Scandinavian Broadcast System SA*.. 48,000
70,000 United Television Inc.............. 7,297,500
3,000 Young Broadcasting Inc., Cl. A*.... 102,750
-----------
16,773,438
-----------
BUILDING AND CONSTRUCTION -- 2.46%:
100,000 CalMat Co.......................... 2,375,000
8,000 Florida Rock Industries Inc........ 476,000
14,000 Morgan Products Ltd.*.............. 93,625
100,000 Nortek Inc.*....................... 2,593,750
10,000 Oakwood Homes Corp................. 283,750
78,000 Republic Group Inc................. 1,462,500
-----------
7,284,625
-----------
BUSINESS SERVICES -- 2.02%:
5,000 Amway Asia Pacific Ltd............. 146,563
15,641 Amway Japan Ltd., Sponsored ADR.... 224,839
31,000 Berlitz International Inc.*........ 823,438
20,000 Borg-Warner Security Corp.*........ 390,000
20,000 Data Broadcasting Corp.*........... 135,000
6,000 Data Transmission Network Corp.*... 177,000
10,000 Hach Co............................ 235,000
1,000 Industrial Distribution Group Inc.* 21,000
10,000 Landauer Inc....................... 250,000
80,000 Nashua Corp.*...................... 915,000
11,250 Paxar Corp.*....................... 221,484
16,000 Pittston Brink's Group............. 641,000
10,000 Sterling Electronics Corp.*........ 204,375
85,000 Trans-Lux Corp. (c)................ 1,312,188
8,000 Wackenhut Corp., Cl. A............. 178,000
6,187 Wackenhut Corp., Cl. B............. 128,380
-----------
6,003,267
-----------
CABLE -- 3.35%:
150,000 BET Holdings Inc.*................. 7,931,250
1,000 Cable Michigan Inc.*............... 18,500
20,000 Cablevision Systems Corp., Cl. A*.. 1,255,000
2,000 Century Communications Corp., Cl. A* 15,250
8,000 People's Choice TV Corp.*.......... 24,000
55,000 United International
Holdings Inc., Cl. A* ........... 673,750
-----------
9,917,750
-----------
COMMUNICATIONS EQUIPMENT -- 0.05%:
5,000 Allen Telecom Inc.*................ 142,500
-----------
COMPUTER SOFTWARE AND SERVICES -- 0.06%:
1,000 @Home Corp., Series A*............. 23,125
2,000 Checkfree Corp.*................... 42,250
1,000 Cylink Corp.*...................... 15,813
1,000 NetCom On-Line Communication
Services Inc.* .................. 12,125
1,000 Noise Cancellation Technologies Inc.* 656
1,500 Volt Information Sciences Inc.*.... 95,062
-----------
189,031
-----------
CONSUMER PRODUCTS -- 5.41%:
1,000 Action Performance Companies Inc.*. 29,125
104,501 Carlyle Industries Inc.*........... 209,002
171,300 Carter-Wallace Inc................. 2,826,450
61,000 Church & Dwight Co. Inc............ 1,769,000
12,000 Coachmen Industries Inc............ 228,000
38,000 First Brands Corp.................. 1,016,500
8,000 French Fragrances Inc.*............ 93,500
142,001 General Cigar Holdings Inc.*....... 4,100,276
99,000 General Housewares Corp............ 921,938
95,000 Genlyte Group Inc.*................ 1,615,000
2,000 Harley-Davidson Inc................ 58,375
100,000 Hartmarx Corp.*.................... 862,500
19,000 National Presto Industries Inc..... 799,188
10,000 Nature's Sunshine Products Inc..... 236,250
1,000 Nu-Kote Holding Inc., Cl. A*....... 1,094
2,000 Playtex Products Inc.*............. 20,250
18,000 Scotts Co., Cl. A*................. 472,500
15,000 Skyline Corp....................... 447,188
4,000 Steven Madden Ltd.*................ 32,000
7,000 Stewart Enterprises Inc., Cl. A.... 306,250
-----------
16,044,386
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CONSUMER SERVICES -- 1.88%:
20,000 Department 56 Inc.*................ 578,750
94,250 HSN Inc.*.......................... 3,828,906
50,000 Ticketmaster Group Inc.*........... 1,162,500
-----------
5,570,156
-----------
COUNTRY/CLOSED END FUNDS -- 1.61%:
45,000 Central European Equity Fund Inc... 1,158,750
80,000 Emerging Germany Fund Inc.......... 890,000
45,000 France Growth Fund Inc............. 528,750
35,000 Germany Fund Inc................... 538,125
44,000 Italy Fund Inc..................... 459,250
65,000 New Germany Fund Inc............... 1,019,688
11,000 Spain Fund Inc..................... 167,750
-----------
4,762,313
-----------
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<PAGE>
The Gabelli Small Cap Growth Fund
Portfolio of Investments (Continued) -- September 30, 1997
================================================================================
Market
Shares Value
------ -----
COMMON STOCKS (Contineud)
DIVERSIFIED INDUSTRIAL -- 7.07%:
95,000 Ampco-Pittsburgh Corp.............. $ 1,781,250
8,000 Anixter International Inc.*........ 137,500
52,000 Crane Co........................... 2,138,500
3,000 Flanders Corp.*.................... 23,250
27,000 Gardner Denver Machinery Corp.*.... 909,563
31,000 Katy Industries Inc................ 558,000
445,000 Lamson & Sessions Co.*............. 3,420,937
55,000 Lindsay Manufacturing Co........... 2,351,250
338,000 Noel Group Inc.*................... 1,341,438
33,000 Oil-Dri Corporation of America..... 558,938
65,000 Park-Ohio Industries Inc.*......... 991,250
20,000 Standex International Corp......... 630,000
120,000 Thomas Industries Inc.............. 3,599,999
730,000 Tyler Corp.*....................... 2,509,374
-----------
20,951,249
-----------
EDUCATION -- 0.02%:
10,000 Whitman Education Group Inc.*...... 58,125
-----------
ENERGY -- 3.07%:
1,425,000 GEO International Corp.*(b)(c)..... 0
1,000 Halter Marine Group Inc.*.......... 48,375
125,000 Kaneb Services Inc.*............... 632,813
150,000 RPC Inc............................ 4,181,249
105,000 Southwest Gas Corp................. 2,060,625
32,000 Tejas Gas Corp.*................... 1,922,000
15,000 Tesoro Petroleum Corp.*............ 270,938
-----------
9,116,000
-----------
ENTERTAINMENT -- 0.95%:
10,000 All American Communications Inc.*.. 243,750
115,000 Ascent Entertainment Group Inc.*... 1,322,500
10,000 Cineplex Odeon Corp.*.............. 18,125
2,000 Fisher Companies Inc............... 242,000
3,000 International Speedway Corp........ 64,875
2,000 Metromedia International Group Inc.* 24,250
75,000 Spelling Entertainment Group Inc.*. 689,063
70,000 Topps Co. Inc.*.................... 214,375
-----------
2,818,938
-----------
EQUIPMENT AND SUPPLIES -- 13.57%:
45,000 AFC Cable Systems Inc.*............ 1,597,500
17,000 Alltrista Corp.*................... 452,625
160,000 AMETEK Inc......................... 3,759,999
5,000 Amphenol Corp., Cl. A*............. 215,625
315,000 Baldwin Technology Co. Inc., Cl. A* 1,673,438
1,000 Belden Inc......................... 37,688
3,000 Bway Corp.*........................ 63,750
190,000 CLARCOR Inc........................ 5,438,749
1,000 Commercial Intertech Corp.......... 18,250
9,000 CTS Corp........................... 855,000
18,900 Culligan Water Technologies*....... 869,400
35,000 Cuno Inc.*......................... 608,125
20,000 Daniel Industries.................. 388,750
80,000 Dynamics Corporation of America.... 6,619,999
162,000 EnviroSource Inc.*................. 415,125
30,000 Flowserve Corp..................... 896,250
20,000 General Magnaplate Corp............ 145,000
60,000 Gerber Scientific Inc.............. 1,451,250
15,000 Global Industrial Technologies Inc.* 310,313
5,000 International Imaging
Materials Inc.* ................. 145,000
34,650 Johnston Industries Inc............ 201,403
10,000 K-Tron International Inc.*......... 145,000
72,500 Kollmorgen Corp.................... 1,359,375
10,000 Littelfuse Inc.*................... 348,750
22,000 Lufkin Industries Inc.............. 673,750
4,000 Mark IV Industries Inc............. 107,500
3,000 Met-Pro Corp....................... 55,125
82,000 Pittway Corp....................... 5,258,249
4,000 Plantronics Inc.*.................. 151,000
15,000 Portec Inc......................... 194,063
11,000 Raytech Corp.*..................... 61,188
37,000 Sequa Corp., Cl. A*................ 2,132,125
5,000 Sequa Corp., Cl. B*................ 313,750
1,000 Smith (A.O.) Corp., Cl. A.......... 39,500
50,000 SPS Technologies Inc.*............. 2,350,000
5,000 Teleflex Inc....................... 173,125
12,000 Tennant Co......................... 444,000
5,000 Valmont Industries Inc............. 106,563
5,250 Watsco Inc., Cl. B................. 159,469
-----------
40,235,771
-----------
FINANCIAL SERVICES -- 1.71%:
70,000 Berliner Bank Aktiengesellschaft... 1,793,700
45,000 Danielson Holding Corp.*........... 405,000
1,000 Federal Agricultural
Mortgage Corp., Cl. C* .......... 42,250
6,000 Gryphon Holdings Inc.*............. 99,000
18,000 Hibernia Corp...................... 306,000
4,000 Lawyers Title Insurance Corp....... 123,000
40,000 Midland Co......................... 2,300,000
500 Net.B@nk Inc.*..................... 5,313
-----------
5,074,263
-----------
FOOD AND BEVERAGE -- 3.56%:
93,000 Celestial Seasonings Inc.*......... 2,882,999
5,000 Cheesecake Factory Inc.*........... 137,813
190,000 Chock Full o'Nuts Corp.*........... 1,496,250
220,000 Eskimo Pie Corp.(c)................ 2,860,000
1,000 Farmer Brothers Co................. 148,000
18,000 Genesee Corp., Cl. B............... 859,500
10,000 Grist Mill Co.*.................... 95,000
10,000 International Multifoods Corp...... 296,875
12,000 J & J Snack Foods Corp.*........... 195,000
7,000 Midwest Grain Products Inc.*....... 98,000
1,000 Northland Cranberries Inc., Cl. A.. 18,750
65,000 Pepsi-Cola Puerto Rico Bottling Co.* 450,938
10,000 Ralcorp Holdings Inc............... 186,875
5,000 Sylvan Food Holdings Inc.*......... 75,625
14,921 Tootsie Roll Industries Inc........ 757,241
-----------
10,558,866
-----------
HEALTH CARE -- 0.71%:
52,860 HealthPlan Services Corp........... 1,116,668
80,000 IVAX Corp.*........................ 940,000
6,000 U.S. Physical Therapy Inc.*........ 57,000
-----------
2,113,668
-----------
HOME FURNISHINGS -- 0.87%:
8,000 Bassett Furniture Industries Inc... 228,000
1,000 Bed Bath & Beyond Inc.*............ 35,125
18,000 Foamex International Inc.*......... 254,250
10,000 La-Z-Boy Chair Co.................. 370,000
48,000 Oneida Ltd......................... 1,704,000
-----------
2,591,375
-----------
HOTELS AND GAMING -- 2.58%:
390,000 Aztar Corp.*....................... 2,876,250
8,000 Boyd Gaming Corp.*................. 69,000
4,000 Chartwell Leisure Inc.*............ 66,500
10,000 Churchill Downs Inc................ 440,000
115,000 Jackpot Enterprises Inc............ 1,322,500
5,000 Jurys Hotel Group plc.............. 28,047
52,000 Mirage Resorts Inc.*............... 1,566,500
2,500 Penn National Gaming Inc.*......... 46,563
25,000 Station Casinos Inc.*.............. 203,125
100,000 Trump Hotels & Casino Resorts Inc.* 1,031,250
-----------
7,649,735
-----------
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
The Gabelli Small Cap Growth Fund
Portfolio of Investments (Continued) -- September 30, 1997
================================================================================
Market
Shares Value
------ ------
COMMON STOCKS (Contineud)
METALS AND MINING -- 2.51%:
8,000 Barrick Gold Corp.................. $ 198,000
150,000 Echo Bay Mines Ltd................. 853,125
150,000 Pegasus Gold Inc.*................. 843,750
120,000 Pioneer Group Inc.................. 3,840,000
270,000 Royal Oak Mines Inc.*.............. 759,375
20,000 Stillwater Mining Co.*............. 427,500
5,000 Toreador Royalty Corp.*............ 22,500
80,000 TVX Gold Inc.*..................... 500,000
-----------
7,444,250
-----------
PAPER AND FOREST PRODUCTS -- 1.32%:
120,000 Grief Bros. Corp................... 3,900,000
-----------
PUBLISHING -- 3.57%:
40,000 Golden Books Family
Entertainment Inc.* ............. 445,000
121,278 Independent Newspapers Ltd......... 697,973
14,000 McClatchy Newspapers Inc., Cl. A... 481,250
65,000 Media General Inc., Cl. A.......... 2,575,625
33,000 Meredith Corp...................... 1,093,125
44,000 Pulitzer Publishing Co............. 2,486,000
190,000 Thomas Nelson Inc.................. 2,636,250
4,000 Wiley (John) & Sons Inc., Cl. B.... 157,000
-----------
10,572,223
-----------
PUMPS AND VALVES -- 2.52%:
58,000 Franklin Electric Co............... 3,248,000
17,775 Gorman-Rupp Co..................... 353,278
2,000 Graco Inc.......................... 71,500
70,000 IDEX Corp.......................... 2,406,250
10,000 Robbins & Myers Inc................ 385,000
30,000 Roper Industries Inc............... 1,012,500
-----------
7,476,528
-----------
REAL ESTATE -- 0.70%:
100,000 Catellus Development Corp.*........ 2,075,000
-----------
RETAIL -- 4.96%:
45,000 Aaron Rents Inc.................... 787,500
43,000 Aaron Rents Inc., Cl. A............ 752,500
265,000 Bruno's Inc.*...................... 1,424,375
85,000 Burlington Coat Factory
Warehouse Corp. ................. 1,795,625
7,000 Crown Books Corp.*................. 73,500
171,000 Earl Scheib Inc.*.................. 1,539,000
25,000 Fingerhut Companies Inc............ 562,500
122,700 General Host Corp.*................ 437,119
5,000 Ingles Markets Inc., Cl. A......... 65,625
100,000 Lillian Vernon Corp................ 1,693,750
33,500 Mott's Holdings Inc.*(b)........... 201,000
167,800 Neiman-Marcus Group Inc.*.......... 5,369,600
-----------
14,702,094
-----------
SPECIALTY CHEMICALS -- 0.78%:
30,000 Ferro Corp......................... 1,145,625
200 MacDermid Inc...................... 17,425
32,000 Penwest Ltd........................ 1,144,000
-----------
2,307,050
-----------
TELECOMMUNICATIONS -- 2.05%:
18,000 Aliant Communications Inc.......... 436,500
23,000 Atlantic Tele-Network Inc.*........ 299,000
2,000 BHI Corp........................... 41,000
35,000 C-TEC Corp.*....................... 1,750,000
30,000 C-TEC Corp., Cl. B*................ 1,475,625
100,000 Communications Systems Inc......... 2,075,000
-----------
6,077,125
-----------
TRANSPORTATION -- 0.22%:
2,000 Irish Continential Group plc....... 21,855
50,000 OMI Corp.*......................... 625,000
4,000 WorldCorp Inc.*.................... $ 8,000
-----------
654,855
-----------
WIRELESS COMMUNICATIONS -- 0.78%:
55,000 Aerial Communications Inc.*........ 491,563
40,000 American Paging Inc.*.............. 82,500
2,000 Associated Group Inc., Cl. A*...... 141,000
62,000 Centennial Cellular Corp., Cl. A*.. 1,061,750
17,000 Corecomm Inc.*..................... 280,500
10,000 Shared Technologies Fairchild Inc.* 121,875
7,000 Western Wireless Corp., Cl. A*..... 131,250
-----------
2,310,438
-----------
TOTAL COMMON STOCKS ............... 251,879,552
-----------
Principal
Amount
-------
CONVERTIBLE CORPORATE BONDS -- 0.44%:
ENTERTAINMENT -- 0.06%:
$ 200,000 Savoy Pictures Entertainment Inc.
Sub. Deb. Cv. 7.00%, 07/01/03.... 178,000
-----------
EQUIPMENT AND SUPPLIES -- 0.26%:
650,000 Intermagnetics General Corp.
Sub. Deb. Cv. 5.75%, 09/15/03(a) 624,000
250,000 Kushner-Locke Co.
Sub. Deb. Cv. 8.00%, 12/15/00(b). 150,000
500 MacNeal-Schwendler Corp.
Sub. Deb. Cv. 7.875%, 08/18/04 .. 514
-----------
774,514
-----------
RETAIL -- 0.12%:
400,000 General Host Corp.
Sub. Deb. Cv. 8.00%, 02/15/02 ... 350,000
-----------
TOTAL CONVERTIBLE
CORPORATE BONDS ................. 1,302,514
-----------
U.S. GOVERNMENT OBLIGATIONS -- 14.73%:
43,900,000 U.S. Treasury Bills, 4.50% to 5.04%
due 10/16/97 to 11/28/97.........43,683,017
-----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS .....................43,683,017
-----------
TOTAL INVESTMENTS -- 100.13%
(Cost $196,050,440)( )..........296,865,083
Other Assets and Liabilities
(Net)-- 0.13% ................... (346,343)
-----------
NET ASSETS -- 100%
(11,665,495 shares outstanding) $296,518,740
-----------
NET ASSET VALUE, Offering and Redemption
Price Per Share ................. $25.42
=====
---------
For Federal tax purposes:
Aggregate cost...................$196,432,847
============
Gross unrealized appreciation....$108,159,316
Gross unrealized depreciation.... (7,727,080)
-----------
Net unrealized appreciation......$100,432,236
============
- -----------
(a) Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At September
30, 1997, the market value of Rule 144A securities amounted to $624,000 or
0.2% of net assets.
(b) Securitiy fair valued as determined by the Board of Directors.
(c) Securitity considered an affiliated holding because the Fund owns at least
5% of the outstanding shares. (See Note 8)
* Non-Income producing security.
ADR--American Depositary Receipt.
The accompanying note are an integral part of the financial statements.
14
<PAGE>
The Gabelli Small Cap Growth Fund
Statement of Assets and Liabilities
September 30, 1997
================================================================================
Assets:
Investments, at value (cost $196,050,440) ............... $ 296,865,083
Cash .................................................... 231,765
Foreign Cash (cost $44,999) ............................. 43,919
Receivable for Fund shares sold ......................... 809,460
Receivable for investments sold ......................... 807,643
Dividends and interest receivable ....................... 165,335
Prepaid expense ......................................... 3,658
-------------
Total Assets .......................................... 298,926,863
-------------
Liabilities:
Payable for investments purchased ....................... 790,108
Payable for Fund shares redeemed ........................ 957,471
Payable for investment advisory fees .................... 229,533
Payable for distribution fees ........................... 102,335
Payable for dividends ................................... 46,054
Other accrued expenses .................................. 282,622
-------------
Total Liabilities ..................................... 2,408,123
-------------
Net Assets (applicable to 11,665,495
shares outstanding) ................................. $ 296,518,740
=============
Net Asset Value, offering and redemption price
per share ........................................... $ 25.42
=============
Net Assets Consist of:
Capital Stock, at par value ($0.001) .................... $ 11,665
Additional paid-in capital .............................. 157,140,046
Accumulated undistributed net investment loss ........... (4,987)
Accumulated undistributed net realized gain on
investments and foreign currency transactions ......... 38,558,703
Net unrealized appreciation on investments and assets
and liabilities denominated in foreign currencies ..... 100,813,313
-------------
Net Assets ............................................ $ 296,518,740
=============
Statement of Operations
For the Year ended September 30, 1997
================================================================================
Investment Income:
Interest ................................................ $ 291,107
Dividends (net of foreign withholding tax of $13,932) ... 2,572,823
------------
Total investment income ............................ 2,863,930
------------
Expenses:
Investment advisory fee ................................. 2,269,141
Distribution fees ....................................... 567,338
Shareholder servicing fees .............................. 411,542
Interest expense ........................................ 225,897
Directors' fees ......................................... 40,265
Miscellaneous expenses .................................. 169,809
------------
Total expenses ..................................... 3,683,992
------------
Net Investment (Loss) ................................... (820,062)
------------
Net Realized and Unrealized Gain on
Investments:
Net realized gain on investment and
foreign currency transactions ......................... 39,776,849
Net change in unrealized appreciation of
investments and assets and liabilities
denominated in foreign currencies ..................... 44,387,266
------------
Net realized and unrealized gain on
investments and foreign currency
transactions ...................................... 84,164,115
------------
Net increase in net assets resulting
from operations ......................................... $ 83,344,053
============
Statement of Changes in Net Assets
================================================================================
Year Ended September 30,
-----------------------------
1997 1996
------------ -----------
Operations:
Net investment loss ......................... $ (820,062) $ (962,109)
Net realized gain on investment and foreign
currency transactions ..................... 39,776,849 23,621,731
Net change in unrealized appreciation of
investments and assets and liabilities
denominated in foreign currencies ......... 44,387,266 1,263,486
------------ ------------
Net increase in net assets resulting from
operations .............................. 83,344,053 23,923,108
------------ ------------
Distributions to shareholders from:
Net realized gain on investments ............ (23,504,667) (15,495,706)
Share transactions - net .................... 13,440,151 (16,344,400)
------------ ------------
Net increase in net assets ................ 73,279,537 (7,916,998)
Net Assets:
Beginning of period ......................... 223,239,203 231,156,201
------------ ------------
End of period ............................... $296,518,740 $223,239,203
============ ============
See accompanying notes to financial statements.
15
<PAGE>
The Gabelli Small Cap Growth Fund
Notes to Financial Statements
================================================================================
1. Significant Accounting Policies. The Gabelli Small Cap Growth Fund (the
"Fund") is a series of Gabelli Equity Series Funds, Inc. (the "Corporation").
The Corporation was incorporated in Maryland on July 25, 1991. Prior to October
22, 1991 (commencement of operations), the Fund had no operations other than the
sale of 10,000 shares of common stock at $10.00 per share to Gabelli Funds,
Inc., the Fund's adviser, on September 16, 1991. The Fund is an open-end,
diversified management investment company and one of two separately managed
portfolios of the Corporation. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("NASDAQ") or traded on foreign exchanges are
valued at the last sale price on that exchange (if there were no sales that day,
the security is valued at the average of the bid and asked prices). All other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest average of the bid and asked prices. When
market quotations are not readily available, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Corporation's Directors. Short-term debt
securities with remaining maturities of 60 days or less are valued at amortized
cost, unless the Directors determine such does not reflect the securities' fair
value, in which case these securities will be valued at their fair value as
determined by the Directors. Options are valued at the last sale price on the
exchange on which they are listed. If no sales of such options have taken place
that day, they will be valued at the mean between their closing bid and asked
prices.
Foreign Currency Transactions. The books and records of the Fund are maintained
in U.S. dollars as follows:
(i) market value of investment securities and other assets and liabilities
are recorded at the exchange rate on the valuation date.
(ii) purchases and sales of investment securities, income and expenses are
recorded at the exchange rate prevailing on the respective date of
such transactions.
Securities Transactions and Investment Income. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using specific identification as the cost method. Interest income
(including amortization of premium and accretion of discount) is recorded as
earned. Dividend income and dividend and capital gain distributions to
shareholders are 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.
16
<PAGE>
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
================================================================================
As of September 30, 1997, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to additional
paid-in-capital:
Accumulated Accumulated
Undistributed Net Realized Gain (Loss)
Investment Income on Investments
----------------- --------------------
$815,075 $(804,483)
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. Under current tax law, currency losses realized after October 31,
in a given year, may be deferred and treated as occurring on the first day of
the following fiscal year. The Small Cap Growth Fund incurred currency losses of
$4,987 after October 31,1996.
2. Investment Advisory Agreement. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00% of the value of the Fund's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio, oversees the administration of all
aspects of the Fund's business and affairs, and pays the compensation of all
Officers and Directors of the Fund who are its affiliates.
3. Distribution Plan. The Fund's Board of Directors has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940. For the year ended September 30, 1997 the Fund incurred distribution costs
payable to Gabelli & Company, Inc., an indirect wholly-owned subsidiary of the
Adviser, of $567,338, or 0.25% of average net assets, the annual limitation
under the Plan.
4. Bank Loan. The Fund has access to an unsecured line of credit from the
Custodian for temporary purposes. Borrowings under this arrangement bear
interest at 0.75% above the Federal Funds rate on outstanding balances. There
was no outstanding loan as of September 30, 1997. The average daily amount of
borrowings outstanding during the year ended September 30, 1997, was $1,881,233,
with a related weighted average interest rate of 6.14%. The maximum amount
borrowed at any time during the year ended September 30, 1997 was $11,360,000.
5. Portfolio Securities. Purchases and sales of securities for the year ended
September 30, 1997, other than U.S. government obligations and short-term
securities, aggregated $31,380,315 and $88,445,787, respectively.
6. Transactions with Affiliates. During the year ended September 30, 1997, the
Fund paid brokerage commissions of $43,851 to Gabelli & Company, Inc. and its
affiliates.
7. Capital Stock Transactions. Transactions in shares of common stock were as
follows:
<TABLE>
<CAPTION>
For the year ended September 30,
--------------------------------------------------------------
1997 1996
---------------------------- ---------------------------
Shares Amount Shares Amount
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold .......................... 6,081,693 $133,408,500 2,264,334 $ 44,652,493
Shares issued upon reinvestment of
dividends .......................... 1,221,473 22,767,034 812,880 15,038,288
Shares redeemed ...................... (6,786,508) (142,735,383) (3,883,078) (76,035,181)
--------- ------------ --------- ------------
Net increase (decrease) .............. 516,658 $ 13,440,151 (805,864) $(16,344,400)
========= ============ ========= ============
</TABLE>
17
<PAGE>
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
================================================================================
8. Transactions in Securities of Affiliated Issuers. The Investment Company Act
of 1940 defines affiliated issuers as those in which the Fund's holdings of an
issuer represent 5% or more of the outstanding voting securities of the issuer.
A summary of the Fund's transactions in the securities of these issuers during
the year ended September 30, 1997 is set forth below:
<TABLE>
<CAPTION>
Shares Value at
Beginning Purchased Ending Realized Dividend September
Shares (Sold) Shares Gain Income 30, 1997
------ ------ ------ ---- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Eskimo Pie Corp. ............. 181,900 38,100 220,000 $ 0 $ 32,600 $2,860,000
Trans-Lux Corp. .............. 105,052 (20,052) 85,000 140,371 14,231 1,312,188
GEO International Corp. ...... 1,425,000 -- 1,425,000 -- -- 0
-------- -------- ----------
$140,371 $ 46,831 $4,172,188
======== ======== ==========
</TABLE>
Financial Highlights
================================================================================
Selected data for a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
For the Year Ended September 30,
-------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating Performance:
Net asset value, beginning of year .................... $ 20.02 $ 19.34 $ 17.24 $ 16.90 $ 13.10
-------- -------- -------- -------- --------
Net investment income (loss) .......................... (0.07) (0.09) (0.04) (0.05) 0.01
Net realized and unrealized gain on investments ....... 7.70 2.11 3.17 0.81 3.98
-------- -------- -------- -------- --------
Total from investment operations ...................... 7.63 2.02 3.13 0.76 3.99
-------- -------- -------- -------- --------
Distributions:
Dividends from net investment income .................. -- -- -- -- (0.03)
Dividends from net realized gain on investments ....... (2.23) (1.34) (1.03) (0.42) (0.16)
-------- -------- -------- -------- --------
Total distributions ................................... (2.23) (1.34) (1.03) (0.42) (0.19)
-------- -------- -------- -------- --------
Net asset value, end of year .......................... $ 25.42 $ 20.02 $ 19.34 $ 17.24 $ 16.90
======== ======== ======== ======== ========
Total return(a) ....................................... 42.20% 11.01% 19.47% 4.48% 30.65%
Ratios to average net assets and supplemental data:
Net assets, end of year (in thousands) ................ $296,519 $223,239 $231,156 $205,699 $204,617
Ratio of operating expenses to average net assets(c) .. 1.62% 1.58% 1.54% 1.54% 1.64%
Ratio of net investment income (loss) to average
net assets ........................................... (0.36)% (0.42)% (0.24)% (0.28)% 0.03%
Portfolio turnover rate ............................... 14% 11% 17% 19% 14%
Average commission rate per share(b) .................. $0.0500 $0.0490 -- -- --
</TABLE>
- -----------
(a) Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends.
(b) For fiscal years beginning after September 1, 1995, the SEC requires the
Fund to disclose the average commission rate paid per share for purchases
and sales of investment securities.
(c) The Fund incurred interest expense during the year ended September 30,
1997. If the interest expense had not been incurred, the operating expense
ratio would have been 1.52%.
18
<PAGE>
The Gabelli Small Cap Growth Fund
Report of Ernst & Young LLP, Independent Auditors
================================================================================
Shareholders and Board of Directors
The Gabelli Small Cap Growth Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Gabelli Small Cap Growth Fund (a series of
Gabelli Equity Series Funds, Inc.) as of September 30, 1997, and the related
statement of operations for the year then ended, the statement 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 September 30, 1997 by correspondence with the custodian.
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 The
Gabelli Small Cap Growth Fund at September 30, 1997, the results of its
operations for the year 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.
Ernst & Young LLP
New York, New York
November 15, 1997
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1997 TAX NOTICE TO SHAREHOLDERS (Unaudited)
The $2.16 per share distribution of long term capital gains paid on December
27, 1996 was designated by the Board of Directors as a capital gain
distribution. Additionally, the $0.07 per share distribution of long term
capital gains paid on September 30, 1997 was designated by the Board of
Directors as a capital gain distribution.
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19
<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.)
BOARD OF DIRECTORS
Mario J. Gabelli, CFA
Chairman and Chief
Investment Officer
Gabelli Funds, Inc.
Anthony J. Colavita
Attorney-at-Law
Anthony J. Colavita, P.C.
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
KeySpan Energy Corp.
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
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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.
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