THE GABELLI SMALL CAP GROWTH FUND
One Corporate Center
Rye, New York 10580-1434
FIRST QUARTER REPORT
DECEMBER 31, 1997(c)
TO OUR SHAREHOLDERS,
Driven by low inflation, low interest rates, good corporate earnings
gains, deals, stock repurchase programs and liquidity (the continuing strong
flow of cash into U.S. equity funds), stocks posted strong gains in 1997. As
evidenced by the Dow Jones Industrial Average and Standard & Poor's 500's
substantial lead over the Russell 2000 Index, small cap stocks continued to lag
large cap stocks in this historic bull market. We are pleased the Fund handily
topped the return of its benchmark indices in a good, but not great year for
small cap stocks in general.
<TABLE>
<CAPTION>
INVESTMENT RESULTS (a)(c)
- --------------------------------------------------------------------------------------------------------------------------
Calendar Quarter
<S> <C> <C> <C> <C> <C>
1st 2nd 3rd 4th Year
--- --- --- --- ----
1997: Net Asset Value ..................... $19.11 $22.23 $25.42 $21.58 $21.58
Total Return ........................ 3.1% 16.3% 14.7% (0.8)% 36.5%
- --------------------------------------------------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------------------------------------------------
Average Annual Returns - December 31, 1997 (a)
1 Year ...................................... 36.5%
5 Year ...................................... 17.9%
Life of Fund (b) ............................ 21.6%
Dividend History
- ------------------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
December 29, 1997 $3.590 $21.29
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
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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, 1998.
<PAGE>
INVESTMENT PERFORMANCE
For the quarter ended December 31, 1997, The Gabelli Small Cap Growth
Fund's net asset value declined 0.8%. The Value Line Composite and Russell 2000
Index had returns of (1.1)% and (3.4)%, respectively, over the same period. Each
index is an unmanaged indicator of stock market performance. The Fund was up
36.5% for 1997. The Value Line Composite and Russell 2000 rose 28.5% and 22.4%,
respectively, over the same twelve month period.
For the five year period ended December 31, 1997, the Fund's return
averaged 17.9% annually, versus average annual returns of 17.8% and 16.4% for
the Value Line Composite and Russell 2000, respectively. Since inception on
October 22, 1991 through December 31, 1997, the Fund has a total return of
236.8%, which equates to an average annual return of 21.6%.
COMMENTARY
1997 REVISITED
Year ends are always time for reflection. We look back over the last
twelve months and assess what went right and what went wrong. To borrow from
Joseph Heller's classic novel Catch 22, we tally the "feathers in our cap" and
"black eyes". In 1997, the former vastly outnumber the latter. Heading our
"feathers in the cap" list is deals. During the year, the Fund bid a cheerful
farewell to several portfolio holdings which found new homes under other
corporate roofs. Our other big "feathers" this year are an eclectic group of
terrific performers in industries ranging from cable television - Cablevision
Systems (CVC - $95.75 - ASE); cable networks - BET Holdings (BTV - $54.625 -
NYSE) and Home Shopping Network (HSNI - $51.50 - Nasdaq); oil service - RPC Inc.
(RES - $11.8125 - NYSE); restaurants - Cheesecake Factory (CAKE - $30.50 -
Nasdaq); and even candy - Tootsie Roll Industries (TR - $62.50 - NYSE).
Sprinkled among the "feathers" list are an assortment of niche industrial
companies including CTS Corp. (CTS - $31.9375 - NYSE), SPX Corp. (SPW - $69.00 -
NYSE), Ampco-Pittsburgh (AP - $19.5625 - NYSE) and Wynn's International (WN -
$31.875 - NYSE).
Our "black eyes" list was dominated by several relatively small positions
in gold stocks, which lost their glitter as gold prices collapsed. Specialty
publishers such as Thomas Nelson (TNM - $11.5625 - NYSE) and gaming stocks such
as Trump Hotels and Casino Resorts (DJT - $6.6875 - NYSE) also disappointed.
1998: WILL IT BE ANOTHER GOOD YEAR?
Despite a roller coaster ride featuring some breathtaking ascents and
declines, equity investors enjoyed themselves in 1997. Once again, large cap
stocks were in favor, as evidenced by the S&P 500's substantial lead over mid
and small cap indices. As we gauge the broad market's prospects for 1998, we see
factors that may help small cap stocks outperform their larger counterparts.
Looking ahead, many of the favorable economic factors that propelled
stocks in recent years will likely remain intact. Asian currency devaluation
will probably diminish inflationary pressure on the U.S. economy and delay the
need for a Federal Reserve interest rate hike. Long interest rates should remain
low and perhaps trend lower. Deals, restructurings and share repurchase programs
should continue to buoy stocks.
2
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Flow of Funds
($ Billions)
<S> <C> <C> <C> <C> <C>
Sources 1993 1994 1995 1996 1997E
- ------- ---- ---- ---- ---- -----
U.S. Deals $ 234 $ 340 $ 511 $ 652 $ 919
Stock Buybacks 37 46 99 176 179
Equity Mutual Funds Net 130 119 128 222 231
Dividends 204 230 274 309 333
----- ------ ------ ------- -------
SOURCES: 605 735 1,012 1,359 1,662
----- ------ ------ ------- -------
Uses
IPOs 103 62 82 115 118
U.S./International Equity Capital Flow
U.S. Purchases of Non-U.S. Equities 309 434 396 514 734
International Purchases of U.S. Equities 246 387 346 457 679
----- ------ ------ ------- -------
Net Flow: 63 47 50 57 55
----- ------ ------ ------- -------
USES: 166 109 132 172 173
----- ------ ------ ------- -------
NET FLOW OF FUNDS: $ 439 $ 626 $ 880 $1,187 $1,489
====== ====== ====== ====== ======
SOURCES: SECURITIES DATA CORP, INVESTMENT COMPANY INSTITUTE, BIRINYI ASSOCIATES.
- --------------------------------------------------------------------------------------------------------
</TABLE>
The wild cards are corporate earnings and investor psychology. In general,
we believe corporate earnings growth from U.S. operations will be relatively
strong--in the 8% to 9% range. However, the non-U.S. portion of earnings is
likely to be as much as 10% lower in 1998. So, larger companies with a higher
percentage of sales and earnings coming from the Far East will be more
vulnerable than smaller companies with primarily domestic businesses, which will
be largely unaffected by the economic turmoil in Asia. Other issues on our "Bear
Watch" include:
o The Asian Flu spreading to Latin American currencies and economies.
o An upswing in wage inflation not offset by productivity gains.
o The emergence of trade barriers that cause a global political backlash.
o A disruption of oil flow from the Middle East.
o The lame duck administration. Will Greenspan and Rubin retire before
2000 causing a crisis in confidence, if not in the economy?
o Last, but not least, the level of the market -- valuations are high and
the margin of safety relatively low.
Small cap stocks have something else going for them. We expect merger and
acquisition activity to remain strong across the market capitalization spectrum.
However, the reduction in the capital gains tax rate should spawn even more
deals in the small cap sector. Founders/managements tend to own a
3
<PAGE>
greater percentage of stock in small companies than in larger ones. Because they
now get to keep almost 30% more of the profits generated by the sale of their
companies, we think they will be considerably more receptive to friendly offers.
Our conclusion after all this conjecture is that in 1998, the market will
be up 5% to down 15%. We hope the market surprises on the upside. However, we
believe in the Boy Scout motto: "be prepared". We think small cap stocks,
particularly dominant domestic market share companies, can do a little better
than the market. Consequently, we are carefully monitoring the Fund portfolio,
trimming or eliminating holdings that have become more fully priced in this
market advance and adding to positions that offer better fundamental value. We
are also being more patient in re-deploying cash reserves. We doubt the Fund
will be able to duplicate its terrific 1997 returns in what should be a much
more challenging market. However, we believe we can achieve our 10% real rate of
return objective in the year ahead.
DEALS, DEALS, DEALS
There was an estimated $919 billion in domestic mergers and acquisition
activity during 1997. We do not believe a market correction will materially slow
deal activity in the year ahead. While we will probably continue to see some big
companies being taken over, much of the action will likely be in smaller, family
dominated public companies, as owner/managers take advantage of reduced long
term capital gains taxes to monetize their investments.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Deals - "Third Wave of Takeovers"
($ Billions)
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997E
---- ---- ---- ---- -----
Worldwide Deals $ 452 $ 575 $ 950 $1,140 $1,600
U.S. Deals 234 340 511 652 919
52% 59% 54% 57% 57%
U.S. Deals $ 234 $ 340 $ 511 $ 652 $ 919
Cash Deals 131 212 254 356 414
56% 62% 50% 55% 45%
SOURCES: SECURITIES DATA CORP, INVESTMENT COMPANY INSTITUTE, BIRINYI ASSOCIATES.
- ----------------------------------------------------------------------------------------
</TABLE>
MR. MARKET
Each year, we like to leave our shareholders with something to think
about. This year, we quote verbatim from Professor Benjamin Graham's classic,
THE INTELLIGENT INVESTOR.
"Let us close this section with something in the nature of a parable.
Imagine that in some private business you own a small share which cost you
$1,000. One of your partners, named Mr. Market, is very obliging indeed. Every
day he tells you what he thinks your interest is worth and furthermore offers
either to buy you out or to sell you an additional interest on that basis.
Sometimes his idea of value appears plausible and justified by business
developments and prospects as you know them. Often, on the other
4
<PAGE>
hand, Mr. Market lets his enthusiasm or his fears run away with him, and the
value he proposes seems to you a little short of silly."
At Gabelli Funds, we want to take advantage of "Mr. Market's"
generosity--buying shares of businesses he offers us at prices below our
appraisal of their true worth, and selling back to him (or someone else) when
prices equal or exceed true value. It is this simple philosophy that guides us
in good markets and bad.
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 - $54.625 - NYSE) is a media and entertainment company
that primarily targets black consumers, a market that was estimated to have
spent over $425 billion in 1997. BTV's core 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. A $48 per share offer to take BTV private
from a group led by founder Robert Johnson has ben declared inadequate by the
board's independent member.
CLARCOR INC. (CLC - $29.625 - 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 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.
CTS CORP. (CTS - $31.9375 - NYSE) makes electronic components for the
automotive, computer and communications equipment markets. CTS has acquired
Dynamics Corp., which owned 44% of CTS's stock outstanding, by paying $56.25 in
cash for 32% and swapping 0.88 of a CTS share for each remaining Dynamics share.
The union increased the liquidity of CTS stock as well as enhancing its earnings
prospects.
GREIF BROS. CORP. (GBCOA - $33.50 - NASDAQ), with a corporate history spanning
120 years, operates in two industry segments, industrial shipping containers and
materials and containerboard and related products. Operations in the industrial
shipping containers segment involve the production and sale of fibre, steel and
plastic drums, multiwall bags, cooperage, dunnage and pallets. Operations in the
containerboard segment involve the production and sale of containerboard, both
virgin and recycled, and related corrugated products. The company has conducted
an in-depth review of its timberlands and is analyzing its saw timber and
pulpwood assets and developing a program of land management. In
5
<PAGE>
December, Greif Bros. announced its intention to acquire the entire industrial
container group of Sonoco Products Co. for approximately $225 million in cash.
LIBERTY CORP. (LC - $46.75 - 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 - $30.25 - NYSE) operates 30 high-fashion Neiman
Marcus stores nationally 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
- - $54.8125 - NYSE) is the company's major shareholder, holding 53% of the
outstanding common equity after a public offering in 1996 of eight million NMG
shares. The proceeds from that offering were used to partially fund the
repurchase of all Neiman Marcus' outstanding preferred stock (which was held by
Harcourt General) for $416 million. Neiman Marcus is positioned to be an
important participant in the trend to higher-scale consumer spending.
PITTWAY CORP. (PRY - $68.9375 - NYSE; PRY'A - $69.625 - 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, which the company plans to spin-off to shareholders in the second
quarter of 1998, publishes 33 national business and 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 is growing rapidly.
UNITED TELEVISION INC. (UTVI - $103.875 - NASDAQ) is a television broadcasting
company which owns and operates five television stations: one ABC, one NBC and
three UPN affiliates. UTVI has purchased WRBW, a UPN affiliate in Orlando for
approximately $60 million and WHSW in Baltimore for $80 million. UTVI stations
will cover approximately eight percent of the U.S. population. UTVI is a
59%-owned subsidiary of BHC Communications (BHC - $103.25 - ASE). Strong
advertising demand, prospects for favorable regulatory changes in the industry
and corporate cost controls will increase 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.
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.
6
<PAGE>
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.
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
1997 was yet another very good year for equity investors. If earnings
expectations are realized, 1998 may be a reasonably good year as well. We do
have our reservations and are mindful that at current valuations, stocks are
well above the safety net. As always, we are focusing on value--stocks trading
at a material discount to their longer term intrinsic value. We believe this
discipline will effectively preserve and enhance the value of the assets you
have entrusted to us.
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.
Sincerely,
MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
February 1, 1998
================================================================================
TOP TEN HOLDINGS
DECEMBER 31, 1997
BET Holdings Inc.
United Television Inc.
Liberty Corp.
Pittway Corp.
CTS Corp.
CLARCOR Inc.
Neiman Marcus Group Inc.
Grief Bros. Co.
Wynn's International Inc.
AMETEK Inc.
================================================================================
NOTE: The views expressed in this report reflect those of the portfolio manager,
only through the end of the period of this report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
7
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 1997 (UNAUDITED)
Market
Shares Value
- ------ -----
COMMON STOCKS -- 90.8%
AGRICULTURE -- 0.0%
353 Delta & Pine Land Co. ................................ $ 10,767
10,000 Erly Industries Inc.+ ................................ 76,250
-----------
87,017
-----------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 6.9%
100,000 Acktion Co.+ ......................................... 1,317,243
75,000 GenCorp Inc. ......................................... 1,875,000
60,000 Handy & Harman ....................................... 2,070,000
4,000 Lund International Holdings Inc.+ .................... 47,500
10,000 Meritor Automotive Inc. .............................. 210,625
95,000 Modine Manufacturing Co. ............................. 3,241,875
5,000 Monro Muffler Brake Inc.+ ............................ 71,875
46,000 Ragan (Brad) Inc.+ ................................... 1,679,000
65,000 Redlaw Industries Inc.+ .............................. 48,750
1,000 SPX Corp. ............................................ 69,000
110,000 Standard Motor Products Inc. ......................... 2,481,875
2,000 Strattec Security Corp.+ ............................. 51,000
1,800 Superior Industries International Inc. ............... 48,263
115,000 TransPro Inc. ........................................ 1,035,000
165,000 UAP Inc., Cl. A ...................................... 1,922,668
125,643 Wynn's International Inc. ............................ 4,004,870
-----------
20,174,544
-----------
AVIATION: PARTS AND SERVICES-- 3.8%
10,000 AAR Corp. ............................................ 387,500
41,000 Banner Aerospace Inc.+ ............................... 453,563
60,000 Curtiss-Wright Corp. ................................. 2,178,750
5,000 Ducommun Inc.+ ....................................... 174,688
120,000 Fairchild Corp., Cl. A+ .............................. 2,984,999
26,500 Hi-Shear Industries Inc.+ ............................ 54,656
43,000 Hudson General Corp. ................................. 2,064,000
77,000 Moog Inc., Cl. A+ .................................... 2,690,188
-----------
10,988,344
-----------
BROADCASTING -- 5.7%
79,600 Ackerley Group Inc.+ ................................. 1,348,225
1,000 Clear Channel Communications Inc.+ ................... 79,438
10,000 Granite Broadcasting Corp.+ .......................... 90,625
15,000 Gray Communications Systems Inc. ..................... 393,750
30,000 Gray Communications Systems Inc., Cl. B .............. 772,500
128,000 Liberty Corp. ........................................ 5,984,000
12,000 NTN Communications Inc.+ ............................. 12,000
90,000 Paxson Communications Corp.+ ......................... 663,750
3,000 Pegasus Communications Corp.+ ........................ 62,250
12,500 Price Communications Corp.+ .......................... 107,031
2,000 Scandinavian Broadcast System SA+ .................... 49,000
67,000 United Television Inc. ............................... 6,959,624
3,000 Young Broadcasting Inc., Cl. A+ ...................... 116,250
-----------
16,638,443
-----------
BUILDING AND CONSTRUCTION-- 2.5%
100,000 CalMat Co. ........................................... 2,787,500
14,000 Florida Rock Industries Inc. ......................... 318,500
14,000 Morgan Products Ltd.+ ................................ 74,375
100,000 Nortek Inc.+ ......................................... 2,656,250
BUILDING AND CONSTRUCTION (CONTINUED)
10,000 Oakwood Homes Corp. .................................. $ 331,875
78,000 Republic Group Inc. .................................. 1,277,250
-----------
7,445,750
-----------
BUSINESS SERVICES -- 2.1%
5,000 Amway Asia Pacific Ltd. .............................. 97,500
15,641 Amway Japan Ltd., Sponsored ADR ...................... 144,679
31,000 Berlitz International Inc.+ .......................... 825,375
20,000 Borg-Warner Security Corp.+ .......................... 352,500
20,000 Data Broadcasting Corp.+ ............................. 112,500
6,000 Data Transmission Network Corp.+ ..................... 168,000
10,000 Hach Co. ............................................. 126,250
10,000 Hach Co., Cl. A ...................................... 93,750
5,000 Industrial Distribution Group Inc.+ .................. 78,438
10,000 Landauer Inc. ........................................ 280,000
81,000 Nashua Corp.+ ........................................ 951,750
18,750 Paxar Corp.+ ......................................... 277,734
15,000 Pittston Brink's Group ............................... 603,750
30,000 Princeton Video Image Inc.+ .......................... 281,250
10,000 Sterling Electronics Corp.+ .......................... 208,750
80,000 Trans-Lux Corp. ...................................... 1,180,001
8,000 Wackenhut Corp., Cl. A ............................... 185,500
6,187 Wackenhut Corp., Cl. B ............................... 130,700
-----------
6,098,427
-----------
CABLE -- 3.7%
150,000 BET Holdings Inc.+ ................................... 8,193,750
17,250 Cable Michigan Inc.+ ................................. 394,594
18,000 Cablevision Systems Corp., Cl. A+ .................... 1,723,500
2,000 Century Communications Corp., Cl. A+ ................. 19,500
8,000 People's Choice TV Corp.+ ............................ 14,250
55,000 United International Holdings Inc., Cl. A+ ........... 632,500
-----------
10,978,094
-----------
COMMUNICATIONS EQUIPMENT-- 0.1%
15,000 Allen Telecom Inc.+ .................................. 276,563
-----------
COMPUTER SOFTWARE AND SERVICES-- 0.1%
1,000 @Home Corp., Series A+ ............................... 25,125
2,000 Checkfree Holdings Corp.+ ............................ 54,000
2,000 Cylink Corp.+ ........................................ 19,500
1,000 Electronics For Imaging Inc.+ ........................ 16,625
1,000 Noise Cancellation Technologies Inc.+ ................ 1,125
1,500 Volt Information Sciences Inc.+ ...................... 80,813
-----------
197,188
-----------
CONSUMER PRODUCTS -- 5.2%
3,000 Action Performance Companies Inc.+ ................... 113,625
151,474 Carlyle Industries Inc.+ ............................. 227,211
200,300 Carter-Wallace Inc. .................................. 3,380,062
61,000 Church & Dwight Co. Inc. ............................. 1,711,812
12,000 Coachmen Industries Inc. ............................. 258,750
38,000 First Brands Corp. ................................... 1,023,625
8,000 French Fragrances Inc.+ .............................. 73,000
133,500 General Cigar Holdings Inc.+ ......................... 2,845,218
99,000 General Housewares Corp. ............................. 1,039,500
88,000 Genlyte Group Inc.+ .................................. 1,562,000
2,000 Harley-Davidson Inc. ................................. 54,750
8
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1997 (UNAUDITED)
Market
Shares Value
- ------ -----
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS (CONTINUED)
100,000 Hartmarx Corp.+ ...................................... $ 762,500
19,000 National Presto Industries Inc. ...................... 751,688
15,000 Nature's Sunshine Products Inc. ...................... 390,000
1,000 Nu-Kote Holding Inc., Cl. A+ ......................... 594
2,000 Playtex Products Inc.+ ............................... 20,500
10,000 Scotts Co., Cl. A+ ................................... 302,500
15,000 Skyline Corp. ........................................ 412,500
6,000 Steven Madden Ltd.+ .................................. 45,375
7,000 Stewart Enterprises Inc., Cl. A ...................... 326,375
-----------
15,301,585
-----------
CONSUMER SERVICES -- 2.2%
20,000 Department 56 Inc.+ .................................. 575,000
75,000 HSN Inc.+ ............................................ 3,862,500
40,000 Rollins Inc. ......................................... 812,500
50,000 Ticketmaster Group Inc.+ ............................. 1,150,000
-----------
6,400,000
-----------
COUNTRY AND CLOSED END FUNDS-- 1.4%
45,000 Central European Equity Fund Inc. .................... 824,063
80,000 Emerging Germany Fund Inc. ........................... 900,000
45,000 France Growth Fund Inc. .............................. 472,500
35,000 Germany Fund Inc. .................................... 498,750
44,000 Italy Fund Inc. ...................................... 473,000
65,000 New Germany Fund Inc. ................................ 877,500
11,000 Spain Fund Inc. ...................................... 159,500
-----------
4,205,313
-----------
DIVERSIFIED INDUSTRIAL-- 7.4%
95,000 Ampco-Pittsburgh Corp. ............................... 1,858,438
8,000 Anixter International Inc.+ .......................... 132,000
10,000 Antofagasta Holdings plc ............................. 54,298
52,000 Crane Co. ............................................ 2,255,500
3,000 Flanders Corp.+ ...................................... 27,750
37,500 Gardner Denver Machinery Corp.+ ...................... 949,219
31,000 Katy Industries Inc. ................................. 631,625
445,000 Lamson & Sessions Co.+ ............................... 2,586,563
55,000 Lindsay Manufacturing Co. ............................ 2,385,625
438,000 Noel Group Inc.+ ..................................... 1,505,625
33,000 Oil-Dri Corporation of America ....................... 544,500
75,000 Park-Ohio Industries Inc.+ ........................... 1,368,750
20,000 Standex International Corp. .......................... 705,000
180,000 Thomas Industries Inc. ............................... 3,554,999
578,800 Tyler Corp.+ ......................................... 3,183,399
-----------
21,743,291
-----------
EDUCATION -- 0.0%
10,000 Whitman Education Group Inc.+ ........................ 57,500
-----------
ENERGY -- 3.6%
2,000 Basin Exploration Inc.+ .............................. 35,500
2,000 Fall River Gas Co. ................................... 32,500
2,000 Forcenergy Inc.+ ..................................... 52,375
1,425,000 GEO International Corp.+(b) .......................... 0
750 Halter Marine Group Inc.+ ............................ 21,656
125,000 Kaneb Services Inc.+ ................................. 648,438
2,000 Ocean Energy Inc.+ ................................... 98,625
2,000 Oryx Energy Co.+ ..................................... $ 51,000
2,000 Petsec Energy Ltd., Sponsored ADR+ ................... 27,500
2,000 Plains Resources Inc.+ ............................... 34,375
290,000 RPC Inc. ............................................. 3,425,625
105,000 Southwest Gas Corp. .................................. 1,962,188
60,000 Tejas Gas Corp.+ ..................................... 3,674,999
15,000 Tesoro Petroleum Corp.+ .............................. 232,500
2,000 TransMontaigne Oil Co.+ .............................. 30,000
2,000 Union Pacific Resources Group Inc. ................... 48,500
2,000 United Meridian Corp.+ ............................... 56,250
2,000 Vastar Resources Inc. ................................ 71,500
-----------
10,503,531
-----------
ENTERTAINMENT -- 1.3%
115,000 Ascent Entertainment Group Inc.+ ..................... 1,193,125
10,000 Cineplex Odeon Corp.+ ................................ 12,500
4,000 Fisher Companies Inc. ................................ 480,000
31,200 Florida Panthers Holdings Inc.+ ...................... 538,200
25,000 Gaylord Entertainment Co. ............................ 798,438
1,500 Groupe AB SA, ADR+ ................................... 9,656
3,000 International Speedway Corp. ......................... 70,875
2,000 Metromedia International Group Inc.+ ................. 19,000
75,000 Spelling Entertainment Group Inc.+ ................... 525,000
75,000 Topps Co. Inc.+ ...................................... 166,406
-----------
3,813,200
-----------
EQUIPMENT AND SUPPLIES-- 13.9%
50,000 AFC Cable Systems Inc.+ .............................. 1,487,500
17,000 Alltrista Corp.+ ..................................... 482,375
145,000 AMETEK Inc. .......................................... 3,915,000
5,000 Amphenol Corp., Cl. A+ ............................... 278,438
315,000 Baldwin Technology Co. Inc., Cl. A+ .................. 1,575,000
1,000 Belden Inc. .......................................... 35,250
3,000 Bway Corp.+ .......................................... 68,625
183,500 CLARCOR Inc. ......................................... 5,436,187
1,000 Commercial Intertech Corp. ........................... 20,750
174,000 CTS Corp. ............................................ 5,557,124
18,900 Culligan Water Technologies Inc.+ .................... 949,725
35,000 Cuno Inc.+ ........................................... 533,750
20,000 Daniel Industries .................................... 385,000
175,000 EnviroSource Inc.+ ................................... 525,000
92,500 Fedders Corp. ........................................ 578,125
30,000 Flowserve Corp. ...................................... 838,125
40,000 General Magnaplate Corp. ............................. 315,000
60,000 Gerber Scientific Inc. ............................... 1,192,500
15,000 Global Industrial Technologies Inc.+ ................. 254,063
34,650 Johnston Industries Inc. ............................. 151,594
10,000 K-Tron International Inc.+ ........................... 172,500
77,500 Kollmorgen Corp. ..................................... 1,419,219
10,000 Littelfuse Inc.+ ..................................... 248,750
22,000 Lufkin Industries Inc. ............................... 786,500
4,000 Mark IV Industries Inc. .............................. 87,500
3,000 Met-Pro Corp. ........................................ 49,500
20,000 Pacific Scientific Co. ............................... 480,000
82,000 Pittway Corp. ........................................ 5,652,874
4,000 Plantronics Inc.+ .................................... 160,000
52,500 Portec Inc. .......................................... 761,250
11,000 Raytech Corp.+ ....................................... 59,125
9
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1997 (UNAUDITED)
Market
Shares Value
- ------ -----
COMMON STOCKS (CONTINUED)
EQUIPMENT AND SUPPLIES (CONTINUED)
37,000 Sequa Corp., Cl. A+ .................................. $ 2,407,313
5,000 Sequa Corp., Cl. B+ .................................. 372,500
4,000 Smith (A.O.) Corp., Cl. A ............................ 168,500
52,000 SPS Technologies Inc.+ ............................... 2,268,500
5,000 Teleflex Inc. ........................................ 188,750
12,000 Tennant Co. .......................................... 436,500
5,000 Valmont Industries Inc. .............................. 97,500
5,250 Watsco Inc., Cl. B ................................... 131,250
-----------
40,527,162
-----------
FINANCIAL SERVICES -- 1.7%
70,000 Berliner Bank Aktiengesellschaft ..................... 1,537,783
45,000 Danielson Holding Corp.+ ............................. 326,250
1,000 Federal Agricultural Mortgage Corp., Cl. C+ .......... 61,000
6,000 Gryphon Holdings Inc.+ ............................... 100,500
18,000 Hibernia Corp. ....................................... 338,625
4,000 Lawyers Title Insurance Corp. ........................ 125,750
38,000 Midland Co. .......................................... 2,394,000
500 Net.B@nk Inc.+ ...................................... 5,875
-----------
4,889,783
-----------
FOOD AND BEVERAGE -- 4.2%
120,000 Celestial Seasonings Inc.+ ........................... 3,779,999
5,000 Cheesecake Factory Inc.+ ............................. 152,500
190,000 Chock Full o'Nuts Corp.+ ............................. 1,330,000
220,000 Eskimo Pie Corp. ..................................... 2,530,000
1,000 Farmer Brothers Co. .................................. 187,000
18,000 Genesee Corp., Cl. B ................................. 729,000
10,000 Grist Mill Co.+ ...................................... 100,000
10,000 International Multifoods Corp. ....................... 283,125
12,000 J & J Snack Foods Corp.+ ............................. 196,500
7,000 Midwest Grain Products Inc.+ ......................... 87,500
1,000 Northland Cranberries Inc., Cl. A .................... 15,500
65,000 Pepsi-Cola Puerto Rico Bottling Co.+ ................. 438,750
12,000 Ralcorp Holdings Inc.+ ............................... 203,250
5,000 Sylvan Food Holdings Inc.+ ........................... 70,000
14,921 Tootsie Roll Industries Inc. ......................... 932,563
50,000 Twinlab Corp.+ ....................................... 1,237,500
-----------
12,273,187
-----------
HEALTH CARE -- 0.6%
45,020 HealthPlan Services Corp. ............................ 945,420
90,000 IVAX Corp.+ .......................................... 607,500
6,000 U.S. Physical Therapy Inc.+ .......................... 72,000
-----------
1,624,920
-----------
HOME FURNISHINGS -- 1.2%
8,000 Bassett Furniture Industries Inc. .................... 240,000
1,000 Bed Bath & Beyond Inc.+ .............................. 38,500
17,000 Foamex International Inc.+ ........................... 184,875
10,000 La-Z-Boy Chair Co. ................................... 431,250
45,000 Mikasa Inc. .......................................... 655,313
72,000 Oneida Ltd. .......................................... 1,921,500
-----------
3,471,438
-----------
HOTELS AND GAMING -- 2.1%
390,000 Aztar Corp.+ ......................................... $ 2,437,500
8,000 Boyd Gaming Corp.+ ................................... 53,000
4,000 Chartwell Leisure Inc.+ .............................. 66,750
10,000 Churchill Downs Inc. ................................. 438,750
120,000 Jackpot Enterprises Inc. ............................. 1,357,500
5,000 Jurys Hotel Group plc ................................ 26,012
52,000 Mirage Resorts Inc.+ ................................. 1,183,000
2,500 Penn National Gaming Inc.+ ........................... 24,375
95,000 Trump Hotels & Casino Resorts Inc.+ .................. 635,313
-----------
6,222,200
-----------
METALS AND MINING -- 1.9%
10,000 Barrick Gold Corp. ................................... 186,250
150,000 Echo Bay Mines Ltd. .................................. 365,625
400,000 Pegasus Gold Inc.+ ................................... 250,000
122,000 Pioneer Group Inc. ................................... 3,431,250
10,000 Prime Resources Group Inc. ........................... 66,386
400,000 Royal Oak Mines Inc.+ ................................ 625,000
20,000 Stillwater Mining Co.+ ............................... 335,000
5,000 Toreador Royalty Corp.+ .............................. 22,188
100,000 TVX Gold Inc.+ ....................................... 337,500
-----------
5,619,199
-----------
PAPER AND FOREST PRODUCTS-- 1.4%
123,000 Grief Bros. Corp. .................................... 4,120,500
-----------
PUBLISHING -- 3.8%
10,000 CMP Media Inc., Cl. A+ ............................... 172,500
45,000 Golden Books Family Entertainment Inc.+ .............. 464,063
121,278 Independent Newspapers Ltd. .......................... 656,872
34,900 McClatchy Newspapers Inc., Cl. A ..................... 948,844
65,000 Media General Inc., Cl. A ............................ 2,717,813
33,000 Meredith Corp. ....................................... 1,177,688
44,000 Pulitzer Publishing Co. .............................. 2,763,749
190,000 Thomas Nelson Inc. ................................... 2,196,875
3,000 Wiley (John) & Sons Inc., Cl. B ...................... 162,375
-----------
11,260,779
-----------
PUMPS AND VALVES -- 2.7%
58,000 Franklin Electric Co. ................................ 3,726,500
17,775 Gorman-Rupp Co. ...................................... 375,497
2,000 Graco Inc. ........................................... 74,625
68,000 IDEX Corp. ........................................... 2,371,500
10,000 Robbins & Myers Inc. ................................. 396,250
30,000 Roper Industries Inc. ................................ 847,500
-----------
7,791,872
-----------
REAL ESTATE -- 1.5%
125,000 Catellus Development Corp.+ .......................... 2,500,000
115,000 Griffin Land & Nurseries Inc.+ ....................... 1,782,500
1,000 Gyrodyne Company of America Inc.+ .................... 19,750
6,000 Newhall Land & Farming Co. ........................... 180,000
-----------
4,482,250
-----------
RETAIL -- 4.4%
45,000 Aaron Rents Inc. ..................................... 871,875
43,000 Aaron Rents Inc., Cl. A .............................. 752,500
280,000 Bruno's Inc.+ ........................................ 577,500
10
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- DECEMBER 31, 1997 (UNAUDITED)
COMMON STOCKS (CONTINUED)
RETAIL (CONTINUED)
102,000 Burlington Coat Factory Warehouse Corp. .............. $ 1,676,625
7,000 Crown Books Corp.+ ................................... 44,625
25,000 Fingerhut Companies Inc. ............................. 534,375
5,000 Ingles Markets Inc., Cl. A ........................... 71,250
105,000 Lillian Vernon Corp. ................................. 1,745,625
33,500 Mott's Holdings Inc.+(b) ............................. 201,000
167,800 Neiman-Marcus Group Inc.+ ............................ 5,075,949
182,000 Scheib (Earl) Inc.+ .................................. 1,456,000
-----------
13,007,324
-----------
SATELLITE -- 0.1%
10,000 United Video Satellite Group Inc., Cl. A+ ............ 287,500
-----------
SPECIALTY CHEMICALS -- 0.8%
45,000 Ferro Corp. .......................................... 1,094,063
200 MacDermid Inc. ....................................... 16,975
32,000 Penford Corp. ........................................ 1,120,000
-----------
2,231,038
-----------
TELECOMMUNICATIONS -- 2.0%
18,000 Aliant Communications Inc. ........................... 564,750
10,000 ARC International Corp.+ ............................. 62,500
9,200 Atlantic Tele-Network Inc.+ .......................... 100,050
2,000 BHI Corp. ............................................ 61,500
55,000 Citizens Utilities Co., Cl. A+ ....................... 529,375
15,833 Commonwealth Telephone Enterprises Inc.+ ............. 409,679
20,000 Commonwealth Telephone Enterprises Inc.,
Cl. B+ ............................................. 525,000
100,000 Communications Systems Inc. .......................... 1,775,000
23,000 Emerging Communications Inc.+ ........................ 184,000
130,000 GST Telecommunications Inc.+ ......................... 1,543,750
-----------
5,755,604
-----------
TRANSPORTATION -- 0.2%
2,000 Irish Continential Group plc ......................... 21,095
50,000 OMI Corp.+ ........................................... 459,375
4,000 WorldCorp Inc.+ ...................................... 4,500
-----------
484,970
-----------
WIRELESS COMMUNICATIONS-- 2.3%
55,000 Aerial Communications Inc.+ .......................... 391,875
40,000 American Paging Inc.+ ................................ 85,000
4,000 Associated Group Inc., Cl. A+ ........................ 118,500
62,000 Centennial Cellular Corp., Cl. A+ .................... 1,271,000
17,000 Corecomm Inc.+ ....................................... 172,125
60,000 Rogers Cantel Mobile Communications Inc.+ ............ 2,055,000
150,000 Shared Technologies Fairchild Inc.+ .................. 2,193,750
15,000 Teligent Inc., Cl. A+ ................................ 369,375
7,000 Western Wireless Corp., Cl. A+ ....................... 121,625
-----------
6,778,250
-----------
TOTAL COMMON STOCKS .................................. 265,736,766
-----------
CONVERTIBLE CORPORATE BONDS -- 0.4%
ENTERTAINMENT -- 0.1% $ 200,000 Savoy Pictures
Entertainment Inc.
Sub. Deb. Cv. 7.00%, 07/01/03 ...................... 187,000
-----------
EQUIPMENT AND SUPPLIES -- 0.2%
650,000 Intermagnetics General Corp. Sub. Deb. Cv.
5.75%, 09/15/03 (a) ................................ 549,250
200,000 Kushner-Locke Co. Sub. Deb. Cv.
8.00%, 12/15/00 (b) ................................ 120,000
500 MacNeal-Schwendler Corp. Sub. Deb. Cv.
7.875%, 08/18/04 ................................... 500
-----------
669,750
-----------
RETAIL -- 0.1%
400,000 General Host Corp. Sub. Deb. Cv.
8.00%, 02/15/02 .................................... 401,000
-----------
TOTAL CONVERTIBLE
CORPORATE BONDS .................................... 1,257,750
-----------
U.S. GOVERNMENT OBLIGATIONS -- 8.7%
25,737,000 U.S. Treasury Bills, 4.970% to 5.760%,
due 01/02/98 to 02/26/98 ........................... 25,621,116
-----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS ........................................ 25,621,116
-----------
REPURCHASE AGREEMENTS -- 0.1% ...................... 248,000
State Street Bank & Trust,
dated 12/31/97,
with a maturity value of $248,087
(Collateralized by $250,000
U.S Treasury Notes, 6.00%,
due 09/30/98, market value $254,416) ............... 248,000
-----------
TOTAL REPURCHASE AGREEMENTS .......................... 248,000
-----------
TOTAL INVESTMENTS -- 100.0%
(cost $199,034,028) ................................ 292,863,632
OTHER ASSETS AND LIABILITIES (NET) -- 0.0% 94,486
-----------
NET ASSETS -- 100.0%
(13,575,099 shares outstanding) .................... $292,958,118
-----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE ......................... $21.58
=======
- ----------------
(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 December
31, 1997, the market value of Rule 144A securities amounted to $549,250 or
0.2% of net assets.
(b) Security fair valued as determined by the Board of Directors.
+ Non-income producing security
ADR --American Depositary Receipt
11
<PAGE>
Gabelli Equity Series Funds, Inc.
THE GABELLI SMALL CAP GROWTH FUND
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
BOARD OF DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN AND CHIEF
INVESTMENT OFFICER
GABELLI FUNDS, INC.
Felix J. Christiana
FORMER SENIOR VICE PRESIDENT
DOLLAR DRY DOCK SAVINGS BANK
Anthony J. Colavita
ATTORNEY-AT-LAW
ANTHONY J. COLAVITA, P.C.
Vincent D. Enright
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
KEYSPAN ENERGY CORP.
John D. Gabelli
VICE PRESIDENT
GABELLI & COMPANY, INC.
Robert J. Morrissey
ATTORNEY-AT-LAW
MORRISSEY & HAWKINS
Karl Otto Pohl
FORMER PRESIDENT
DEUTSCHE BUNDESBANK
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT
PROFESSOR, PACE UNIVERSITY
Anthonie C. van Ekris
MANAGING DIRECTOR
BALMAC INTERNATIONAL, INC.
OFFICERS
Mario J. Gabelli, CFA
PRESIDENT AND CHIEF
INVESTMENT OFFICER
James E. McKee
SECRETARY
Bruce N. Alpert
VICE PRESIDENT AND TREASURER
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.
- --------------------------------------------------------------------------------
THE
GABELLI
SMALL CAP
GROWTH
FUND
FIRST QUARTER REPORT
DECEMBER 31, 1997
