The Gabelli Small Cap Growth Fund
One Corporate Center
Rye, New York 10580-1434
Semi-Annual Report
March 31, 1997(a)
To Our Shareholders:
The stock market roared out of the blocks in January, but quickly lost
momentum as inflation jitters and a slumping bond market muddied the track. In
late March, a rate hike by the Federal Reserve and much stronger than expected
economic data stampeded equities investors, eroding most of the market's earlier
gains. The Dow Jones Industrial Average and Standard & Poor's 500 Index closed
the quarter with modest gains of 1.7% and 2.7%, respectively. Smaller stocks
continued to lag as evidenced by the Russell 2000 Index's 5.2% decline.
INVESTMENT RESULTS(b)
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Calendar Quarter
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1st 2nd 3rd 4th Year
--- --- --- --- ----
1997: Net Asset Value ... $19.11 -- -- -- --
Total Return....... 3.1% -- -- -- --
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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%
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1991: Net Asset Value.... -- -- -- $12.21 $12.21
Total Return....... -- -- -- 22.9%(c) 22.9%(c)
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Average Annual Returns - March 31, 1997(b)
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1 Year....................................... 8.6%
5 Year...................................... 13.5%
Life of Fund(c)............................. 18.7%
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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) Average annual and total
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, total return
represents past performance and does 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.
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Investment Performance
For the first quarter ended March 31, 1997, The Gabelli Small Cap Growth
Fund's total return was 3.1% compared to returns of 0.1% and (5.2)% over the
same period for the Value Line Composite and Russell 2000 Index, respectively.
Each index is an unmanaged indicator of stock market performance which does not
take into account any charges, fees or other expenses. During the twelve months
ended March 31, 1997, the Fund's net asset value increased 8.6% to $19.11 per
share after adjusting for the $2.16 per share dividend paid on December 27,
1996. The Value Line Composite and Russell 2000 Index increased 13.4% and 5.1%,
respectively, for the same period.
For the five years ended March 31, 1997, the Fund achieved a total return
of 88.4%, which equates to an average annual return of 13.5%. Since inception on
October 22, 1991 through March 31, 1997, the Fund has had a total return of
154.5%, which equates to an average annual return of 18.7%.
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 articulate our investment philosophy and
methodology. The following graphic further illustrates the interplay among the
four components of our valuation approach.
[GRAPHIC OMMITED]
Our focus is on free cash flow; earnings before interest, taxes,
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-
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managed and will benefit from sustainable long-term economic dynamics. These
include macro trends, such as globalization of the market in filmed
entertainment and telecommunications, and micro trends, such as increased focus
on productivity enhancing goods and services.
Commentary
The Economy and the Stock Market: Too Much of a Good Thing
Once again, the economy confounded the Wall Street economists by growing
much faster than consensus expectations. Although inflation has not yet shown up
in the Producer Price and Consumer Price indices, Federal Reserve Chairman Alan
Greenspan and bond investors decided to err on the side of caution by taking
short- and long-term interest rates higher.
We applaud Fed Chairman Greenspan's preemptive strike against inflation.
We believe he will continue to take the steps necessary to combat inflation and,
in the process, provide confidence in Soft Landing - Part II. Over the
short-term, this may not be pleasant for equities investors. However, with the
elimination of some of the speculative excesses, the market will be on much
better fundamental footing going forward. We do not believe this is the
beginning of a secular bear market, but rather a healthy correction that is
arguably long overdue.
What can we expect over the balance of this year? We should continue to
see a volatile market as skittish investors wrestle with the latest economic
data trying to determine if inflation is a real threat. While the jury may still
be out on inflation, higher interest rates are a reality and will be problematic
for stocks on several levels. Higher interest rates might trim the economy and
restrain corporate earnings growth, putting consensus estimates of 9% to 10%
gains for 1997 in jeopardy. Higher rates also boost the U.S. dollar, further
crimping the U.S. dollar value of international earnings. Whether you are
looking at stocks on the basis of asset values or using a dividend discount
model, public prices of equities tend to decline as interest rates rise, all
else constant. So, price/cash flow and price/earnings multiples would contract,
should interest rates rise.
The wild card will be how investors react to any sustained decline in
stock prices. A tremendous amount of money has flowed into the equities market
in the last three years. Will it back out at the first sign of serious trouble?
It may not be how the great unwashed public reacts, but rather how the great
unwashed professional investors--those twenty and thirty something mutual fund
managers who have never experienced even a substantial market
correction--respond to the perceived crisis. Will they see the glass half empty
or half full? We don't know.
While we are dwelling on things on our watch list, we should also mention
the strong dollar. Despite the enormous advances in the quality of American made
goods in a wide variety of industries, the strong dollar will restrain exports
and currency translation will have an adverse impact on the earnings of U.S.
based multi-national companies. Longer term, we must also be sensitive to the
fact that substantial cost reductions and productivity gains in American
industry over the last five years may be close to running their course. In other
words, profit margins are unlikely to advance further.
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We don't view a market correction as bad news. In general, we are not
exposed to those sectors and individual companies that have benefited most from
investor euphoria and which are, therefore, most vulnerable to a dramatic change
in investor sentiment. If anything, a market correction should provide a more
level playing field for disciplined investors focusing on the fundamental value
of individual stocks. We are just now emerging from a two year period in which
fundamentals mattered much less than market momentum. We are entering what may
prove to be an extended period in which stock pickers excel.
To Index or not Index - The New Rhetoric
In 1995 and 1996, the S&P 500 Index proved to be a difficult benchmark for
active managers of all stripes. It has been a particularly tough hurdle for
value investors who have been unwilling to pay sky high price/earnings multiples
for the mega-cap market darlings that have such an enormous impact on S&P 500
returns.
There are several dynamics that have favored the largest S&P 500 stocks
over the last several years. The first is the growth of S&P 500 Index funds
themselves. S&P 500 Index mutual funds have grown at four times the rate of
actively managed mutual funds over the last five years. So, we have seen an
increasing amount of money chasing a finite number of large cap stocks and thus,
on a pure supply/demand basis, indexing has been a self fulfilling prophecy. In
addition, the substantial foreign money coming into the market is largely
devoted to the big cap, household name stocks that dominate the S&P. Finally,
active portfolio managers who have been under increasing pressure to be fully
invested regardless of their concerns over equity valuations have pumped money
into the large liquid stocks that comprise the S&P so that if something does go
wrong, they can get out in a hurry. Finally, stocks like Microsoft, Intel, P&G,
Coca-Cola and General Electric do benefit from faster growth in developing
economies.
With all of these factors favoring S&P 500 indexing, why bother doing
anything else? We offer two answers. The first is that longer term, valuations
do matter. Supply and demand are powerful forces in the market, but at some
stage, economic reality always asserts itself. In the early 1970's the "Nifty
Fifty", a group of terrific large cap growth companies, dominated the market.
The consensus was that these were "one decision" stocks which you simply had to
own and didn't ever have to worry about selling. At the peak, these stocks sold
at ludicrous multiples relative to their economic value. When the fertilizer hit
the market fan in 1973-74, they fell off a cliff. Even after one of the great
long-term bull markets in history, some of these original "nifty-fifty" stocks
still have market capitalizations below their 1972-73 peaks. We have not yet
witnessed that level of speculative excess in today's market favorites, but we
are seeing heady multiples that don't make economic sense. At some point,
investors will come to their senses and realize that even the best (soft drink,
household product, software, semi-conductor, movie company--pick one or more) is
not worth a price/earnings multiple two to three times its annual earnings
growth rate. Moreover, if earnings do not expand faster than revenues, and
interest rates continue to provide present "real" rates of return, then overall
stocks are unlikely to generate double-digit returns to investors.
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Our second response is simply that what has gone up the most is likely
to fall the farthest with a major shift in investor sentiment. If and when we do
see net cash outflows from equities mutual funds, we suspect index funds will
get hit the hardest. Supply and demand is a two way street.
Must Carry
In an upset rivaling the University of Arizona's victory over Kentucky in
the 1997 NCAA basketball championship, the Supreme Court voted 5 to 4 to uphold
the "must carry" provision for local broadcast companies. The must carry rule
specified that cable television systems must make one-third of their channel
capacity available free to local broadcasters. Led by Ted Turner, the cable
television industry had challenged the rule on the grounds that it violated
their first amendment rights. The industry's economic goal was to free up
channel capacity for new cable television networks providing more popular
programming and paying the cable operator for channel space. The consensus of
the lawyers on both sides of the issue was the cable guys would win. However,
the Supreme Court decided that allowing cable operators to exclude local
broadcast channels would create undue economic hardship for many broadcasters
and threaten the survival of weaker independents.
Who are the winners and losers? The broadcasters, particularly those with
extensive UHF properties get a renewed lease on life as they maintain and in
some cases add to their cable audience. The entrenched cable television
networks, like International Family Entertainment, Inc. (FAM - $20.375 - NYSE),
BET Holdings, Inc. (BTV - $29.625 - NYSE), Gaylord Entertainment Company (GET -
$21.50 - NYSE), HSN, Inc. (HSNI - $25.375 - NASDAQ) and Tele-Communications,
Inc./Liberty Media Group (LBTYA - $19.9375 - NASDAQ) benefit because with cable
channel capacity still restrained, the value of their "slots" with cable
operators increase in value. For example, the prospective value of International
Family Entertainment to a News Corporation Limited (NWS - $18.00 - NYSE), which
is trying to expand distribution of its programming, increases substantially.
The biggest losers are the cable television network wannabes who will have to
wait until cable operators complete upgrades to their systems before channel
space is available.
In This Corner Wearing the Red Trunks . . .
A heavyweight battle is unfolding between Hilton Hotels Corporation (HLT -
$24.25 - NYSE) CEO Stephen Bollenbach and ITT Corporation (ITT - $58.875 - NYSE)
Chairman Rand Araskog. Bollenbach landed the first punch with an unsolicited $56
per share offer for ITT. Araskog responded by selling off non-core assets like
ITT's 50% ownership of MSG (Madison Square Garden, the Knicks, and the Rangers)
to partner Cablevision Systems Corporation (CVC - $29.75 - ASE) and ITT's 6%
stake in French telecommunications giant Alsthom SA (ALA - $23.75 - NYSE). ITT's
Educational Services and Worldwide Yellow Pages businesses are also on the
block. For the time being, Bollenbach is circling the ring waiting for Araskog
to counter-attack. What does this wily veteran of many takeover battles have up
his sleeve? Our guess is that, aside from serving K-rations to corporate staff,
he will further build up his cash reserves for a self tender in the $60 plus per
share range. If this happens, we expect Bollenbach to wade in looking for a
merger. It's still too early in what should be a full fifteen rounder to predict
the
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winner. We're betting that shareholders of both these firms will benefit from
these corporate heavyweights slugging it out.
Snapple, Crack and Pop
In another ring, Quaker Oats Company (OAT - $36.50 - NYSE) has thrown in
the towel on Snapple, selling it to Triarc Companies Inc. (TRY - $17.50 - NYSE)
for $300 million, $1.4 billion below the $1.7 billion it paid for the company
just three years ago. Despite having egg--or is that iced tea--all over its
face, Quaker Oats has become a much more attractive target for a larger food
company like Nestle SA (NESAF - $1,170.95 - NASDAQ) or RJR Nabisco Holdings
Corporation (RN - $32.25 - NYSE) looking for dominant market share brands like
Quaker Oats' Gatorade and ready-to-eat breakfast cereals. We believe the company
is worth well over $50 a share to the right buyer. Even if nothing develops on
this front, Quaker Oats' earnings should be refreshing as they discontinue
writing off all the goodwill on the ill-advised purchase of Snapple.
Let's Talk Stocks
The following are stock specifics on selected holdings of our Fund.
Favorable EBITDA 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 - $21.125 - 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 proposed sale of its water
filtration business (Plymouth Products) to Culligan Water Technologies Inc. (CUL
- - $39.125 - NYSE) for $155 million in debt and stock. Pro-forma for the
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 - $29.625 - NYSE) is a media-entertainment company that
primarily targets black consumers, a market that was projected to spend over
$425 billion in 1996. Its core business is Black Entertainment Television, Inc.
(BET), an advertiser-supported, cable television programming service. BET serves
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 - $23.125 - NYSE) is a manufacturer and marketer of
filtration products and consumer packaging products. Filtration products include
air, fuel and hydraulic filters for heavy-duty
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trucks, buses, cars, boats and air and anti-microbial filters for factories,
hospitals and clean rooms. CLC is a leading producer of custom-decorated metal
and plastic containers widely used by consumer products companies such as
Johnson & Johnson, General Foods, McCormick and Nestle. 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.
Dynamics Corporation of America (DYA - $38.125 - NYSE) is an under-followed
company with a significant stake in CTS Corporation (CTS - $51.00 - NYSE). DYA
owns 2.4 million shares, or 44%, of CTS's common stock. At CTS's current market
price, DYA's investment is worth over $150 million which is only slightly less
than the total equity market value for DYA. DYA and CTS are strong cash
generators, have large cash balances and are virtually free of long-term debt.
CTS has agreed to buy Dynamics, thwarting an earlier tender offer by WHX Corp.
International Family Entertainment, Inc. (FAM - $20.375 - 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. While the company posts strong operating margins in its core
businesses, it is currently funding losses in its start-up businesses. FAM has
formed a joint venture to launch three Latin American channels. These new units
provide operating leverage and, as they reach profitability, increase the
opportunity for capital appreciation.
Liberty Corporation (LC - $42.00 - 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 - $25.75 - 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 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 its outstanding
preferred stock (held by Harcourt General) for $416 million. Notwithstanding a
disappointing Christmas selling season, 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 Corporation (PRY - $51.00 - NYSE; PRY'A - $48.50 - NYSE) has undergone
significant changes over the past few years, selling or spinning off businesses
representing half its sales volume and over 60% of its income. The company has
two remaining core businesses: manufacturing and distributing
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professional burglar and fire alarm equipment and publishing trade magazines and
directories. Its Ademco Security Group, over 80% of revenues and operating
profits, is growing rapidly. Penton Publishing is emerging from a period of
difficult operating conditions and operating margins are showing improvement.
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 in 1996,
reaching 1,220,000 by the end of December.
United Television, Inc. (UTVI - $87.625 - 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. 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.
Wynn's International, Inc. (WYNN - $223.125 - NASDAQ) supplies O-rings, sealing
products, specialty chemical products and builders hardware supplies. Its
specialty chemicals division is comprised of Wynn Oil Company, a world-wide
manufacturer and marketer of specialty chemicals and equipment for automotive
and industrial markets in over 100 countries. The company has begun a tender
offer to repurchase for cash up to 1.1 million, or 8%, of its outstanding common
shares in a Dutch auction.
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 not subject to a sales
charge. The minimum initial investment for all accounts is $1,000. Additionally,
we invite shareholders to start an automatic investment plan whereby no initial
minimum is required. Furthermore, The Gabelli Small Cap Growth Fund and other
Gabelli Funds are available through the no-transaction fee programs at many
major discount brokerage firms.
Internet
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Funds, Inc., the
Gabelli Mutual Funds, quarterly reports, closing prices, IRAs, 401(k)s and other
current news. You can also send us e-mail at [email protected].
In Conclusion
In our year-end 1996 letter to you, we expressed our doubts about the
market's ability to duplicate its substantial gains in 1995 and 1996. After
getting off to a strong start, the market lost momentum and then sputtered badly
at the end of the quarter as strong economic data re-ignited inflationary fears.
As
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we write, the jury is still out on inflation, but long interest rates are above
7%, providing sizeable "real" rates of return. Looking ahead, we anticipate a
continually volatile stock market that will have many investors on the edge of
their seats. We rest somewhat more comfortably having been through such uneasy
times before and having faith that our value oriented discipline will sustain us
as it has in the past.
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
day for further information.
We thank you for your confidence in our investing abilities and wish you a
productive and financially rewarding 1997.
Sincerely,
/s/ Mario J. Gabelli
Mario J. Gabelli, CFA
President and
Chief Investment Officer
May 1, 1997
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Top Ten Holdings
March 31, 1997
--------------
United Television, Inc. AMETEK, Inc.
Int'l Family Entertainment, Inc. CLARCOR, Inc.
Neiman Marcus Group, Inc. BET Holdings, Inc.
Dynamics Corporation of America Pittway Corporation
Liberty Corporation 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.
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The Gabelli Small Cap Growth Fund
Portfolio of Investments -- March 31, 1997 (Unaudited)
================================================================================
Market
Shares Cost Value
- ------ ---- -----
COMMON STOCKS -- 101.24%
AGRICULTURE -- 0.01%
199 Delta and Pine Land Company+................. $ 1,273 $ 6,169
---------- ----------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 6.51%
8,000 APS Holding Corporation
Cl. A+...................................... 124,100 68,500
70,000 GenCorp Inc.................................. 1,053,410 1,330,000
28,000 Handy & Harman .............................. 424,124 420,000
2,000 Lund International Holdings
Inc....................................... 25,000 25,500
40,000 Modine Manufacturing
Company................................... 719,446 980,000
8,000 Monro Muffler Brake, Inc.+................... 88,251 133,000
75,000 Redlaw Industries Inc.+...................... 252,153 84,375
15,500 SPX Corporation.............................. 337,850 703,267
110,000 Standard Motor Products, Inc................. 1,544,175 1,443,750
70,000 Stant Corporation............................ 727,452 1,023,750
2,000 Strattec Security
Corporation............................... 22,500 35,000
1,800 Superior Industries
International, Inc........................ 24,922 40,680
118,000 TransPro Inc................................. 1,254,794 1,047,250
165,000 UAP Inc. Cl. A............................... 1,824,324 2,056,539
171,000 Wynn's International, Inc.................... 1,204,529 3,954,375
---------- ----------
9,627,030 13,345,986
---------- ----------
AVIATION: PARTS AND ACCESSORIES -- 0.96%
10,000 AAR Corporation ............................. 198,875 300,000
30,000 Curtiss-Wright Corporation................... 1,097,362 1,605,000
26,500 Hi-Shear Industries Inc.+.................... 58,140 68,734
---------- ----------
1,354,377 1,973,734
---------- ----------
AVIATION: PARTS AND SERVICES -- 2.82%
40,000 Hudson General Corporation................... 607,299 1,490,000
80,000 Moog, Inc. Cl. A............................. 1,567,692 1,870,000
170,000 UNC Incorporated............................. 1,096,148 2,422,500
---------- ----------
3,271,139 5,782,500
---------- ----------
BROADCASTING -- 6.76%
75,000 Ackerley Group, Inc.......................... 364,100 984,375
3,000 Clear Channel
Communications, Inc.+..................... 20,880 128,625
12,000 Granite Broadcasting
Corporation............................... 156,125 115,500
15,000 Gray Communications
Systems, Inc.+............................ 295,612 273,750
20,000 Gray Communications
Systems, Inc. Cl. B....................... 334,225 365,000
125,000 Liberty Corporation ......................... 3,246,111 5,250,000
10,000 NTN Communications Inc....................... 70,500 41,875
40,000 Paxson Communications
Corporation............................... 315,804 430,000
2,500 Price Communications
Corporation+.............................. 8,600 24,375
2,000 Scandinavian Broadcast
System S.A.+.............................. 27,300 36,000
70,000 United Television, Inc....................... 1,779,330 6,133,750
3,000 Young Broadcasting Inc....................... 71,170 72,375
---------- ----------
6,689,757 13,855,625
---------- ----------
BUILDING AND CONSTRUCTION -- 2.81%
100,000 CalMat Co.................................... 1,812,337 1,762,500
100,000 Catellus Development
Corporation............................... 908,543 1,525,000
19,300 Florida Rock Industries, Inc................. 552,221 632,075
8,000 Medusa Corporation........................... 167,466 300,000
15,000 Morgan Products Ltd.+........................ 128,662 116,250
10,000 Oakwood Homes Corporation.................... 114,281 176,250
82,500 Republic Group, Inc.......................... 473,636 1,258,125
---------- ----------
4,157,146 5,770,200
---------- ----------
BUSINESS SERVICES -- 1.64%
5,000 Amway Asia Pacific Ltd.+..................... 145,750 188,125
14,641 Amway Japan Limited
Spons. ADR................................ 322,933 206,804
25,000 BBN Corporation.............................. 656,479 415,625
32,000 Berlitz International, Inc.+................. 470,487 716,100
15,000 Borg-Warner Security
Corporation+.............................. 157,250 219,375
13,000 Data Transmission Network
Corporation............................... 65,092 341,250
10,000 Landauer, Inc................................ 163,887 210,000
4,000 Hach Company................................. 73,075 71,000
82,500 Nashua Corporation........................... 2,038,692 990,000
---------- ----------
4,093,645 3,358,279
---------- ----------
CABLE DISTRIBUTION -- 0.32%
8,600 Jones Intercable
Investors L.P............................. 88,237 131,150
8,000 People's Choice TV
Corporation............................... 130,029 21,000
55,000 United International
Holdings, Inc. Cl. A...................... 732,527 522,500
---------- ----------
950,793 674,650
---------- ----------
CABLE PROGRAMMERS -- 4.95%
150,000 BET Holdings, Inc............................ 2,561,337 4,443,750
280,000 International Family
Entertainment, Inc.+...................... 3,178,702 5,705,000
---------- ----------
5,740,039 10,148,750
---------- ----------
COMMERCIAL SERVICES -- 0.33%
16,000 Pittston Brink's Group....................... 452,988 404,000
10,000 Wackenhut Corporation Cl. A.................. 136,510 161,250
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
The Gabelli Small Cap Growth Fund
Portfolio of Investments (Continued) -- March 31, 1997 (Unaudited)
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (CONTINUED)
6,187 Wackenhut Corporation
Cl. B ............................. $ 52,368 $ 88,164
---------- -----------
641,866 653,414
---------- -----------
COMMUNICATIONS EQUIPMENT -- 0.04%
5,000 Allen Telecom, Inc. ............... 79,000 87,500
---------- -----------
COMPUTER SOFTWARE AND SERVICES -- 0.02%
1,000 Noise Cancellation
Technologies, Inc. ................ 625 468
1,000 Volt Information Sciences,
Inc.+ ............................. 7,875 47,500
---------- -----------
8,500 47,968
---------- -----------
CONSUMER PRODUCTS -- 6.61%
90,501 Carlyle Industries, Inc. .......... 538,478 192,314
100,000 Carter-Wallace, Inc. .............. 1,168,889 1,362,500
75,000 Church & Dwight Co., Inc. ......... 1,614,693 2,156,250
12,000 Coachmen Industries, Inc. ......... 80,758 226,500
41,000 Culbro Corporation ................ 1,515,696 3,843,750
1,000 Harley-Davidson Inc. .............. 9,425 33,875
38,000 First Brands Corporation .......... 517,525 931,000
98,000 General Housewares Corp. .......... 1,309,288 943,250
115,000 Genlyte Group Incorporated ........ 454,890 1,250,625
95,000 Kerr Group, Inc.+ ................. 660,376 201,875
12,000 Mafco Consolidated Group
Inc.+ ............................. 279,006 384,000
1,000 Nu-Kote Holding, Inc. Cl. A+ ...... 8,400 2,750
2,000 Playtex Products, Inc.+ ........... 14,600 21,750
60,000 Scotts Company Cl. A+ ............. 1,050,269 1,380,000
15,000 Skyline Corporation ............... 271,425 328,125
8,000 Stewart Enterprises, Inc. .........
Cl. A ............................. 74,133 292,000
---------- -----------
9,567,851 13,550,564
---------- -----------
CONSUMER SERVICES -- 1.46%
35,000 Department 56, Inc. ............... 825,190 608,125
94,250 HSN, Inc. ......................... 2,322,590 2,391,594
---------- -----------
3,147,780 2,999,719
---------- -----------
COUNTRY/CLOSED END FUNDS -- 2.03%
47,000 Central European Equity
Fund Inc. ......................... 633,608 1,004,625
80,000 Emerging Germany Fund
Inc. .............................. 629,750 700,000
45,000 France Growth Fund, Inc. .......... 476,793 500,625
35,000 Germany Fund, Inc. ................ 395,061 463,750
44,000 Italy Fund, Inc. .................. 394,347 374,000
70,000 New Germany Fund, Inc. ............ 817,411 980,000
12,700 Spain Fund Inc. ................... 118,435 144,462
---------- -----------
3,465,405 4,167,462
---------- -----------
DIVERSIFIED INDUSTRIAL -- 7.38%
70,000 Ampco-Pittsburgh
Corporation ....................... 533,837 848,750
8,000 Anixter International Inc. ........ 76,160 99,000
53,500 Crane Company ..................... 944,094 1,678,562
500 Flanders Corporation .............. 5,812 4,750
30,000 Gardner Denver Machinery
Corporation ....................... 251,775 712,500
21,500 Katy Industries, Inc. ............. 241,674 335,937
445,000 Lamson & Sessions Co.+ ............ 2,545,556 3,504,375
66,000 Lindsay Manufacturing Co.+ ........ 959,932 2,161,500
338,000 Noel Group, Inc.+ ................. 1,761,811 2,197,000
33,000 Oil-Dri Corporation of
America ........................... 445,450 540,375
65,000 Park-Ohio Industries, Inc.+ ....... 756,924 861,250
22,000 Standex International
Corporation ....................... 674,662 574,750
15,000 Trinity Industries, Inc. .......... 409,250 455,625
710,000 Tyler Corporation+ ................ 3,254,292 1,153,750
---------- -----------
12,861,229 15,128,124
---------- -----------
ELECTRICAL EQUIPMENT AND SUPPLIES -- 8.53%
215,000 AMETEK, Inc. ...................... 3,115,931 4,541,875
1,000 Belden Inc. ....................... 15,425 35,625
41,000 CTS Corporation ................... 971,362 2,091,000
140,000 Dynamics Corporation of
America ........................... 1,512,123 5,337,500
74,700 Kollmorgen Corporation ............ 571,447 1,027,125
6,000 Littelfuse, Inc.+ ................. 79,937 277,500
126,000 Thomas Industries Inc. ............ 1,382,200 2,961,000
100,000 Trans-Lux Corporation(a) .......... 831,792 1,225,000
---------- -----------
8,480,217 17,496,625
---------- -----------
EQUIPMENT AND SUPPLIES -- 9.35%
47,000 AFC Cable Systems, Inc.+ .......... 477,933 975,250
20,000 Alltrista Corp. ................... 380,822 460,000
42,000 Brad Ragan, Inc.+ ................. 1,075,312 1,155,000
320,000 Baldwin Technology
Company, Inc. Cl. A ............... 1,534,458 1,000,000
10,000 BW/IP Holding, Inc. ............... 155,625 151,250
194,500 CLARCOR Inc. ...................... 3,301,369 4,497,812
1,000 Commercial Intertech
Corporation ....................... 11,675 11,250
7,500 Cuno Incorporated ................. 118,325 115,312
5,000 Ducommun, Incorporated ............ 80,125 121,875
20,000 General Magnaplate
Corporation ....................... 83,762 122,500
60,000 Gerber Scientific, Inc. ........... 746,587 930,000
17,000 Global Industrial
Technologies Inc. ................. 217,550 293,250
34,650 Johnston Industries, Inc. ......... 268,295 264,206
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
The Gabelli Small Cap Growth Fund
Portfolio of Investments (Continued) -- March 31, 1997 (Unaudited)
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (CONTINUED)
12,000 K-Tron International, Inc.+ ....... $ 95,932 $ 124,500
22,000 Lufkin Industries, Inc. ........... 389,520 485,375
5,500 Mark IV Industries, Inc. .......... 97,883 129,250
84,000 Pittway Corporation ............... 2,140,908 4,284,000
2,000 Plantronics, Inc.+ ................ 30,791 86,000
37,000 Sequa Corporation Cl. A+ .......... 1,284,714 1,651,125
3,500 Sequa Corporation Cl. B+ .......... 119,646 179,812
17,500 SPS Technologies, Inc.+ ........... 448,825 1,181,250
6,000 Teleflex Incorporated ............. 187,625 317,250
14,000 Tennant Company ................... 304,175 388,500
3,000 Valmont Industries, Inc. .......... 48,750 117,000
5,250 Watsco, Inc. Cl. B ................ 23,627 137,812
---------- -----------
13,624,234 19,179,579
---------- -----------
ENERGY -- 2.58%
1,425,000 GEO International
Corporation(a)(c) ................. 74,144 1
75,000 Kaneb Services, Inc.+ ............. 172,000 300,000
220,000 RPC Inc.+ ......................... 1,637,237 3,162,500
105,000 Southwest Gas Corporation ......... 1,783,470 1,824,375
---------- -----------
3,666,851 5,286,876
---------- -----------
ENTERTAINMENT -- 0.56%
12,000 All American
Communications Inc. ............... 133,156 156,756
10,000 Cineplex Odeon Corporation+ ....... 20,887 15,000
2,000 Fisher Companies Inc. ............. 194,825 242,000
3,000 International Speedway
Corporation ....................... 54,000 59,250
2,000 Metromedia International
Group Inc. ........................ 22,000 17,376
75,000 Spelling Entertainment
Group Inc. ........................ 578,499 431,250
55,000 Topps Company Inc.+ ............... 331,431 220,000
---------- -----------
1,334,798 1,141,632
---------- -----------
ENVIRONMENTAL CONTROL -- 0.15%
150,000 EnviroSource, Inc.+ ............... 481,745 309,375
---------- -----------
FINANCIAL SERVICES -- 1.84%
70,000 Berliner Bank
Aktiengesellschaft ................ 1,452,996 1,412,537
50,000 Danielson Holding
Corporation ....................... 185,137 343,750
1,000 Federal Agricultural
Mortgage Corp. Cl. C .............. 24,000 25,250
6,000 Gryphon Holdings Inc.+ ............ 78,000 85,500
18,000 Hibernia Corporation .............. 140,062 236,250
4,000 Lawyers Title Insurance
Corp. ............................. 58,015 78,000
40,000 Midland Company ................... 1,717,750 1,600,000
---------- -----------
3,655,960 3,781,287
---------- -----------
FOOD AND BEVERAGE -- 4.71%
70,000 Celestial Seasonings, Inc.+ ....... 1,389,800 1,505,000
5,000 Cheesecake Factory
Incorporated+ ..................... 82,003 98,750
90,000 Chock Full o'Nuts
Corporation+ ...................... 662,821 528,750
40,000 Delchamps, Inc. ................... 858,622 965,000
220,000 Eskimo Pie Corporation(a) ......... 3,429,361 2,722,500
1,000 Farmer Brothers Company ........... 133,895 135,000
18,000 Genesee Corporation Cl. B ......... 727,316 724,500
10,000 Grist Mill Co. .................... 73,022 58,750
10,000 International Multifoods
Corporation ....................... 199,920 205,000
12,000 J & J Snack Foods Corp.+ .......... 121,707 153,000
7,000 Midwest Grain Products, Inc. ...... 130,620 84,000
1,000 Northland Cranberries, Inc. .......
Cl. A ............................. 7,625 18,125
65,000 Pepsi-Cola Puerto Rico
Bottling Company .................. 315,125 276,250
10,000 Ralcorp Holdings, Inc.+ ........... 81,752 102,500
80,000 Rykoff-Sexton, Inc. ............... 1,182,973 1,410,000
8,000 Sylvan Foods Holdings, Inc.+ ...... 78,794 94,000
12,921 Tootsie Roll Industries, Inc. ..... 456,225 579,845
---------- -----------
9,931,581 9,660,970
---------- -----------
HOME FURNISHINGS -- 1.17%
8,000 Bassett Furniture Industries,
Incorporated+ ..................... 188,438 192,000
1,000 Bed Bath & Beyond Inc.+ ........... 11,125 24,187
18,000 Foamex International Inc.+ ........ 157,287 281,250
10,000 La-Z-Boy Chair Company ............ 218,125 342,500
13,000 National Presto Industries,
Inc. .............................. 561,358 466,375
55,000 Oneida Ltd. ....................... 857,024 1,086,250
---------- -----------
1,993,357 2,392,562
---------- -----------
HOSPITAL SUPPLIES AND SERVICES -- 0.03%
6,000 U.S. Physical Therapy Inc. ........ 37,500 58,875
---------- -----------
HOTELS/GAMING -- 2.82%
390,000 Aztar Corporation ................. 2,510,069 2,778,750
6,000 Boyd Gaming Corp. ................. 73,300 33,750
4,000 Chartwell Leisure, Inc. ........... 50,031 56,000
10,000 Churchill Downs
Incorporated ...................... 416,462 377,500
115,000 Jackpot Enterprises, Inc. ......... 1,329,037 1,150,000
52,000 Mirage Resorts, Incorporated+ ..... 267,538 1,105,000
2,000 Penn National Gaming, Inc. ........ 40,250 33,000
20,000 Station Casinos, Inc.+ ............ 271,470 162,500
10,000 Trump Hotels & Casino
Resorts Inc. ...................... 101,750 90,000
---------- -----------
5,059,907 5,786,500
---------- -----------
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
The Gabelli Small Cap Growth Fund
Portfolio of Investments (Continued) -- March 31, 1997 (Unaudited)
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (CONTINUED)
HOUSING RELATED 1.05%
110,000 Nortek, Inc. ...................... $ 660,217 $ 2,158,750
---------- -----------
METALS AND MINING -- 2.95%
8,000 Barrick Gold Corporation .......... 200,462 190,000
130,000 Echo Bay Mines Ltd. ............... 1,312,387 861,250
120,000 Pegasus Gold Inc.+ ................ 1,720,383 975,000
115,000 Pioneer Group, Inc. ............... 1,269,630 2,975,625
220,000 Royal Oak Mines Inc.+ ............. 1,035,782 701,250
50,000 TVX Gold, Inc. .................... 396,250 356,250
---------- -----------
5,934,894 6,059,375
---------- -----------
PAPER AND FOREST PRODUCTS -- 1.59%
120,000 Greif Bros. Corporation
Class A ........................... 2,230,763 3,270,000
---------- -----------
PUBLISHING -- 3.50%
40,000 Golden Books Family
Entertainment, Inc. ............... 434,824 370,000
121,278 Independent Newspapers
Ltd. .............................. 380,260 651,921
16,000 McClatchy Newspapers, Inc. ........
Cl. A ............................. 249,915 382,000
70,000 Media General, Inc. Cl. A ......... 1,222,970 1,986,250
34,000 Meredith Corporation .............. 507,792 786,250
44,000 Pulitzer Publishing Company ....... 1,347,666 1,903,000
50,000 Thomas Nelson Inc. ................ 656,337 525,000
18,500 Wiley (John) & Sons,
Inc. Cl. B ........................ 263,093 566,562
---------- -----------
5,062,857 7,170,983
---------- -----------
PUMPS AND VALVES -- 4.26%
32,750 Duriron Company, Inc. ............. 573,302 720,500
60,000 Franklin Electric Company ......... 1,824,434 2,670,000
17,775 Gorman-Rupp Company ............... 276,467 284,400
100,000 Goulds Pumps, Incorporated ........ 2,389,857 2,337,500
2,000 Graco Inc. ........................ 24,966 57,500
75,000 IDEX Corporation .................. 618,333 1,762,500
10,000 Robbins & Myers, Inc. ............. 98,665 265,000
15,000 Roper Industries, Inc. ............ 195,000 631,875
---------- -----------
6,001,024 8,729,275
---------- -----------
RETAIL -- 7.53%
55,000 Aaron Rents, Inc. ................. 187,197 632,500
44,700 Aaron Rents, Inc. Cl. A ........... 147,448 480,525
250,000 Bruno's, Inc. ..................... 2,682,996 3,343,750
85,000 Burlington Coat Factory
Warehouse Corporation+ ............ 1,042,037 1,530,000
7,000 Crown Books Corporation+ .......... 98,017 84,000
90,000 Earl Scheib, Inc.+ ................ 513,020 562,500
25,000 Fingerhut Companies, Inc. ......... 367,919 350,000
178,500 General Host Corporation+ ......... 1,029,684 647,062
Principal
Amount Market
or Shares Cost Value
--------- ---- -----
100,000 Hartmarx Corporation+ ............. $ 610,438 $ 575,000
25,000 Ingles Markets,
Incorporated Cl. A ................ 185,950 365,625
90,000 Lillian Vernon Corporation ........ 1,328,294 1,260,000
33,500 Mott's Holdings, Inc. ............. 214,068 201,000
210,000 Neiman Marcus Group, Inc.+ ........ 3,016,902 5,407,500
---------- -----------
11,423,970 15,439,462
---------- -----------
SPECIALTY CHEMICALS -- 0.93%
30,000 Ferro Corporation ................. 714,101 900,000
12,000 MacDermid, Incorporated ........... 124,546 417,000
32,000 Penwest Ltd. ...................... 609,117 600,000
---------- -----------
1,447,764 1,917,000
---------- -----------
TELECOMMUNICATIONS -- 1.97%
18,000 Aliant Communications Inc. ........ 231,437 297,000
23,000 Atlantic Tele-Network, Inc.+ ...... 255,909 281,750
2,000 BHI Corporation ................... 30,250 38,750
100,000 Communications Systems,
Inc. .............................. 556,543 1,375,000
41,000 C-TEC Corporation+ ................ 934,409 1,158,250
30,000 C-TEC Corporation Cl. B+ .......... 495,026 881,250
---------- -----------
2,503,574 4,032,000
---------- -----------
TRANSPORTATION -- 0.24
50,000 OMI Corp. ......................... 334,637 487,500
4,000 WorldCorp, Inc. ................... 19,575 11,500
---------- -----------
354,212 499,000
---------- -----------
WIRELESS COMMUNICATIONS -- 0.83%
51,000 Aerial Communications, Inc. ....... 429,500 280,500
50,000 American Paging, Inc.+ ............ 392,912 175,000
2,000 Associated Group Inc., Cl. A ...... 50,750 75,500
17,000 Corecomm Inc. ..................... 291,750 246,500
70,000 Centennial Cellular Corp.+ ........ 1,110,251 726,250
10,000 Palmer Wireless Inc. .............. 98,000 122,500
2,000 Rural Cellular Corp. Cl. A ........ 20,250 21,000
5,000 Western Wireless Corp. ............ 72,125 62,500
---------- -----------
2,465,538 1,709,750
---------- -----------
TOTAL COMMON STOCKS ............... 152,007,793 207,630,520
------------ -----------
CONVERTIBLE CORPORATE BONDS -- 0.75%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.17%
$300,000 GenCorp Inc. Sub. Deb. Cv.
8.00%, 08/01/02.................. 298,528 351,750
------------ ------------
ENTERTAINMENT -- 0.08%
200,000 Savoy Pictures Entertainment,
Inc. Sub. Deb.
Cv. 7.00%, 07/01/03................. 161,323 167,000
------------ ------------
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
The Gabelli Small Cap Growth Fund
Portfolio of Investments (Continued) -- March 31, 1997 (Unaudited)
================================================================================
Principal Market
Amount Cost Value
--------- ---- -----
CONVERTIBLE CORPORATE BONDS (CONTINUED)
INDUSTRIAL EQUIPMENT AND SUPPLIES -- 0.34%
$650,000 Intermagnetics General
Corporation Sub. Deb.
Cv. 5.75%, 09/15/03(b)......... $ 649,598 $ 546,000
250,000 Kushner-Locke Company
Sub. Deb. Cv. 8.00%,
12/15/2000(c).................. 250,000 150,000
500 MacNeal-Schwendler
Corporation Sub. Deb. Cv.
7.875%, 08/18/04............... 531 487
------------ ------------
900,129 696,487
------------ ------------
RETAIL -- 0.16%
400,000 General Host Corporation
Sub. Deb. Cv. 8.00%,
02/15/02....................... 383,727 328,000
------------ ------------
TOTAL CONVERTIBLE
CORPORATE BONDS................ 1,743,706 1,543,237
------------ ------------
TOTAL INVESTMENTS
-- 101.99%...................... 153,751,499 209,173,757
============
Liabilities, in excess of
Other Assets -- (1.99)% ........ (4,081,080)
------------
NET ASSETS -- 100.00%
(10,732,590 shares
outstanding)................... $205,092,677
============
Net Asset Value And
Redemption Price
Per Share...................... $19.11
======
- ------------
+ Non-income producing security.
ADR -- American Depositary Receipts.
(a) Considered an affiliated issuer because the Fund owns at least 5% of the
outstanding voting securities. (See Note 8.)
(b) Security-exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transac tions exempt from
registration normally to qualified institutional buyers. At March 31,
1997, Rule 144A securities amounted to $546,000 or 0.3% of net assets.
(c) Security fair valued as determined by the Board of Directors.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
The Gabelli Small Cap Growth Fund
Statement of Assets and Liabilities (Unaudited)
March 31, 1997
================================================================================
Assets:
Investments in securities, at value
(Cost $153,751,499) .................................... $209,173,757
Cash ..................................................... 734,538
Receivable for Fund shares sold .......................... 65,710
Receivable for investments sold .......................... 687,110
Dividends receivable ..................................... 198,490
Accrued interest receivable .............................. 19,400
Other assets ............................................. 396
------------
Total assets ........................................... 210,879,401
------------
Liabilities:
Payable to Advisor (Note 4) .............................. 179,809
Note payable ............................................. 4,740,000
Payable to Custodian ..................................... 13,996
Payable for distribution fees (Note 6) ................... 195,630
Payable for investments purchased ........................ 331,820
Payable for Fund shares redeemed ......................... 297,865
Interest payable ......................................... 21,504
Other accrued liabilities ................................ 6,100
------------
Total liabilities ...................................... 5,786,724
------------
Net assets (applicable to 10,732,590
shares outstanding) (Note 2) ......................... $205,092,677
============
Net asset value and redemption
price per share ...................................... $ 19.11
============
Net Assets Consist of:
Capital Stock, at par value (Note 2) ..................... $ 10,733
Additional paid-in capital ............................... 134,163,206
Accumulated net realized gain on
investments and futures transactions ................... 15,500,959
Net unrealized appreciation on investments
and assets and liabilities denominated in
foreign currencies ..................................... 55,417,779
------------
Net assets ............................................. $205,092,677
============
Statement of Operations (Unaudited)
For the Six Months Ended March 31, 1997
================================================================================
Investment Income:
Dividends (net of foreign taxes of $4,010) ................. $ 1,554,570
Interest ................................................... 69,876
------------
Total income ............................................. 1,624,446
------------
Expenses:
Investment advisory fee (Note 4) ........................... 1,074,796
Distribution expenses (Note 5) ............................. 251,714
Transfer and shareholder servicing agent ................... 213,377
Interest expense ........................................... 203,777
Custodian fees and expenses ................................ 32,876
Printing and mailing expenses .............................. 27,501
Legal and audit fees ....................................... 22,076
Directors' fees ............................................ 17,300
Registration fees .......................................... 9,805
Miscellaneous .............................................. 8,016
------------
Total expenses ........................................... 1,861,238
Investment loss - net ...................................... (236,792)
------------
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions:
Net realized gain on investments
and foreign currency transactions ........................ 15,063,792
Net change in unrealized appreciation ...................... (1,008,268)
------------
Net gain on investments .................................. 14,055,524
------------
Net increase in net assets resulting
from operations ............................................ $ 13,818,732
============
Statement of Changes in Net Assets (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Year Ended
Ended March 31, September 30,
1997 1996
--------------- -------------
<S> <C> <C>
Increase (decrease) in Net Assets:
Investment loss - net ................................................. $ (236,792) $ (962,109)
Net realized gain on investments and foreign currency transactions .... 15,063,792 23,621,731
Net change in unrealized appreciation ................................. (1,008,268) 1,263,486
------------- -------------
Net increase in net assets resulting from operations ................ 13,818,732 23,923,108
------------- -------------
Distributions from net realized gains ................................. (22,653,837) (15,495,706)
------------- -------------
Share transactions - net .............................................. (9,311,421) (16,344,400)
------------- -------------
Net decrease in net assets .......................................... (18,146,526) (7,916,998)
Net Assets:
Beginning of period ................................................... 223,239,203 231,156,201
------------- -------------
End of period ......................................................... $ 205,092,677 $ 233,239,203
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements
15
<PAGE>
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Unaudited)
================================================================================
1. Significant Accounting Policies. The Gabelli Small Cap Growth Fund (the
"Fund") is a series of Gabelli Equity Series Funds, Inc. (the "Corporation").
The Fund is an open-end, diversified management investment company and one of
two seperately managed portfolios of 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 advisor, on September 16, 1991. The preparation of financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
followed by the Fund.
Security Valuation. Portfolio securities listed or traded on the New York or
American Stock Exchanges or quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("NASDAQ") 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 fewer are valued at amortized cost, unless
the Directors determine such does not reflect the securities' fair value, in
which case these securities will be valued at their fair value as determined by
the Directors. Options are valued at the last sale price on the exchange on
which they are listed, unless no sales of such options have taken place that
day, in which case they will be valued at the mean between their closing bid and
asked prices.
Foreign Currency Translations. The books and records of the Fund
are maintained in U.S. dollars as follows:
(i) market value of investment securities and other assets and liabilities are
recorded at the exchange rate on the valuation date.
(ii) purchases and sales of investment securities, income and expenses are
recorded at the exchange rate prevailing on the respective date of such
transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuation
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Federal Income Taxes. The Fund intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986 and
distribute all of its taxable income to its shareholders. Therefore, no Federal
income tax provision is required.
Dividends from net investment income and distributions from net realized gains
are determined in accordance with federal income tax regulations which may
differ from net investment income and net realized capital gains recorded in
accordance with generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent. To the extent these
differences are permanent, such amounts are reclassified within the capital
accounts based on their federal tax basis treatment; temporary differences do
not require reclassification.
16
<PAGE>
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Unaudited) (Continued)
================================================================================
2. Capital Stock Transactions. The Articles of Incorporation, dated July 25,
1991, permit the Fund to issue 100,000,000 shares (par value $0.001).
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1997 September 30, 1996
------------------------- -------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ................................ 1,083,994 $ 21,320,040 2,264,334 $ 44,652,493
Shares issued upon reinvestment of dividends 1,190,069 21,968,666 812,880 15,038,288
Shares redeemed ............................ (2,690,310) (52,600,126) (3,883,078) (76,035,181)
---------- ------------ ---------- ------------
Net increase (decrease) .................. (416,247) $ (9,311,420) (805,864) $(16,344,400)
========== ============ ========== ============
</TABLE>
3. Purchases and Sales of Securities. Purchases and sales of securities for the
six months ended March 31, 1997, other than U.S. Government obligations and
short-term securities, aggregated $7,053,646 and $38,334,666, respectively.
4. Investment Advisory Contract. The Fund employs Gabelli Funds, Inc., (the
"Advisor") to provide a continuous investment program for the Fund's portfolio,
provide all facilities and personnel, including officers, required for its
administrative management, and to pay the compensation of all officers and
Directors of the Fund who are its affiliates. As compensation for the services
rendered and related expenses borne by the Advisor, the Fund pays the Advisor a
fee, computed and accrued daily and payable monthly, equal to 1.00% per annum of
the Fund's average daily net assets. The Advisor is obligated to reimburse the
Fund in the event the Fund's expenses exceed certain prescribed limits. No such
reimbursement was required during the six months ended March 31, 1997.
5. Distribution Plan. The Fund's Board of Directors has adopted a distribution
plan (the "Plan") under Section 12(b) of the Investment Company Act of 1940 and
Rule 12b-1 thereunder. For the six months ended March 31, 1997, the Fund has
incurred distribution costs payable to Gabelli & Company, Inc., an affiliate of
the Advisor, of $268,714.
6. Transactions with Affiliates. During the six months ended March 31, 1997, the
Fund paid $33,726 in brokerage commissions to Gabelli & Company, Inc., an
affiliate of the Advisor.
7. 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. As of
March 31, 1997, the amount outstanding was $4,070,000, bearing interest at
7.75%. No compensating balances are required.
The average daily amount of borrowings outstanding during the six months ended
March 31, 1997 was $7,259,512, with a related weighted average interest rate of
6.05%. The maximum amount borrowed at any time during the six months ended March
31, 1997 was $11,360,000.
17
<PAGE>
The Gabelli Small Cap Growth Fund
Financial Highlights (Unaudited)
================================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months Year Ended September 30,
Ended March 31, -----------------------------------------------------------
1997 1996 1995 1994 1993 1992(a)
-------------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Performance:
Net asset value, beginning of period ....... $20.02 $19.34 $17.24 $16.90 $13.10 $10.00
-------- -------- -------- -------- -------- -------
Net investment income (loss) ............... (0.00) (0.09) (0.04) (0.05) 0.01 0.04
Net realized and unrealized
gain on securities ....................... 1.25 1.69 3.17 0.81 3.98 3.14
-------- -------- -------- -------- -------- -------
Total from investment operations ........... 1.25 1.65 3.13 0.76 3.99 3.18
-------- -------- -------- -------- -------- -------
Less Distributions:
Dividends from net investment income ....... -- -- -- -- (0.03) (0.01)
Distributions from net realized
gain on investments ...................... (2.16) (1.34) (1.03) (0.42) (0.16) (0.07)
-------- -------- -------- -------- -------- -------
Net asset value, end of period ............. $19.11 $19.65 $19.34 $17.24 $16.90 $13.10
======== ======== ======== ======== ======== =======
Total Return(b) ............................... 6.62% 11.01% 19.47% 4.48% 30.65% 31.86%
Ratios to average net assets/supplemental data:
Net assets, end of period (in thousands) ... $205,093 $228,909 $231,156 $205,699 $204,617 $94,864
Ratio of operating expenses to
average net assets ....................... 1.73%* 1.58% 1.54% 1.54% 1.64% 1.97%*
Ratio of net investment income (loss) to
average net assets ....................... (0.22%)* (0.36%) (0.24%) (0.28%) 0.03% 0.32%*
Portfolio turnover rate .................... 3% 6% 17% 19% 14% 16%
Average commission rate .................... $0.047 $0.049 -- -- -- --
</TABLE>
- ----------
* Annualized
(a) Fund commenced operations on January 2, 1992.
(b) Total return is calculated assuming a purchase of shares at the net asset
value on the first day and a sale on the last day of each year reported
and includes reinvestment of dividends and distributions.
18
<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
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.
- --------------------------------------------------------------------------------
[PHOTO]
The
Gabelli
Small Cap
Growth
Fund
SEMI-ANNUAL REPORT
MARCH 31, 1997
