GABELLI EQUITY SERIES FUNDS INC
485BPOS, 1998-01-28
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<PAGE>   1
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1998

                                                       REGISTRATION NO. 33-41913
                                                                        811-6367
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                ----------------
                                    FORM N-1A
           REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933     [X]

                         PRE-EFFECTIVE AMENDMENT NO.                   [ ]
                       POST-EFFECTIVE AMENDMENT NO. 7                  [X]
                                    AND / OR
       REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

                               AMENDMENT NO. 8                         [X]
                        (CHECK APPROPRIATE BOX OR BOXES)
                                ----------------
                       GABELLI EQUITY SERIES FUNDS, INC.
               (Exact Name of Registrant as Specified in Charter)
                 One Corporate Center, Rye, New York 10580-1434
               (Address of Principal Executive Offices)(Zip Code)
       Registrant's Telephone Number, including Area Code: (800) 422-3554
                                ----------------
                                BRUCE N. ALPERT
                              JAMES E. MCKEE, ESQ.
                              One Corporate Center
                            Rye, New York 10580-1434
                    (Name and address of Agent for Service)
                                   Copies to:
                             RICHARD T. PRINS, ESQ.
                      Skadden, Arps, Slate, Meagher & Flom
                                919 Third Avenue
                            New York, New York 10022
                                 (212) 735-3000
                                ----------------


     Approximate Date of Proposed Public Offering: As soon as practicable after
     the effective date of this Registration Statement.

               IT IS PROPOSED THAT THIS FILING WILL BE EFFECTIVE (CHECK
          APPROPRIATE BOX):

               [ ] immediately upon filing pursuant to paragraph (b)

               [X] on January 28, 1998 pursuant to paragraph (b)

               [ ] 60 days after filing pursuant to paragraph (a)(1) on (date)
                   pursuant to paragraph (a)(1)

               [ ] 75 days after filing pursuant to paragraph (a)(2)

               [ ] on (date) pursuant to paragraph (a)(2) Rule 485.

          IF APPROPRIATE, CHECK THE FOLLOWING BOX:

               [ ] this post-effective amendment designates a new effective 
                   date for a previously filed post-effective amendment.

                            ------------------------

     Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has previously filed a declaration of registration of an indefinite
number of securities under the Securities Act of 1933. Registrant's 24f-2 Notice
for the fiscal year ended September 30, 1997 was filed on December 29, 1997.


================================================================================

<PAGE>   2



                              CROSS-REFERENCE SHEET
                           (AS REQUIRED BY RULE 495(a)
                        UNDER THE SECURITIES ACT OF 1933)

<TABLE>
<CAPTION>
  N1A
ITEM NO.................................................................LOCATION
- -------                                                                 --------
<S>          <C>                                               <C>
Part A                                                          Prospectus Caption

Item 1.       Cover Page                                        Cover Page
Item 2.       Synopsis                                          Fee Table
Item 3.       Condensed Financial Information                   Table of Fees and Expenses; Financial Highlights
Item 4.       General Description of Registrant                 Cover Page;  Investment  Objective  and  Policies  and Related  Risk
                                                                Factors;  Other  Investment  Techniques  and Related  Risk  Factors;
                                                                General Information
Item 5.       Management of the Fund                            Management of the Fund; General Information
Item 5(a)     Management's Discussion of Performance            Not Applicable
Item 6.       Capital Stock and Other Securities                Dividends, Distributions and Taxes; General Information
Item 7.       Purchase of Securities Being Offered              Purchase of Shares; Distribution Plan
Item 8.       Redemption or Repurchase                          Redemption of  Shares
Item 9.       Legal Proceedings                                 Not Applicable

Part B                                                          Statement of Additional Information Caption

Item 10.      Cover Page                                        Cover Page
Item 11.      Table of Contents                                 Table of Contents
Item 12.      General Information and History                   Not Applicable
Item 13.      Investment Objectives and Policies                Other Investment Techniques; Invesment Restrictions
Item 14.      Management of the Fund                            Directors and Officers
Item 15.      Control Persons and Principal Holders             Directors and Officers
              of Securities
Item 16.      Investment Advisory and Other Services            Prospectus - General Information; The Adviser; The
              Distributor
Item 17.      Brokerage Allocation                              Portfolio Transactions and Brokerage
Item 18.      Capital Stock and Other Securities                Prospectus - Dividends, Distributions and Taxes; General
              Information
Item 19.      Purchase, Redemption and Pricing of               Purchase and Redemption of Fund Shares; Determination
              Securities Being Offered                          of Net Asset Value
Item 20.      Tax Status and Taxes                              Dividends, Distributions and Taxes
Item 21.      Underwriters                                      The Distributor
Item 22.      Calculation of Performance Data                   Investment Performance Information
Item 23.      Financial Statements                              Financial Statements

Part C                                                          Information required to be included in Part C is set forth under
                                                                the appropriate Item, so numbered, in Part C of this
                                                                Registration Statement.
</TABLE>

<PAGE>   3


<TABLE>
<CAPTION>
                                           TABLE OF CONTENTS
                                                 PAGE
                                                 ----
<S>                                              <C>
Table of Fees and Expenses .................       2

Financial Highlights .......................       3

Investment Objective and Policies and
  Related Risk Factors .....................       4

Other Investment Techniques and
  Related Risk Factors .....................       5

Management of the Fund .....................       9

Distribution Plan ..........................      11

Purchase of Shares .........................      12

Redemption of Shares .......................      13

Retirement Plans ...........................      14

Dividends, Distributions and Taxes .........      15

General Information ........................      16
</TABLE>


- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus, and
if given or made, such information or representation may not be relied upon as
being authorized by the Fund, the Adviser, the Administrator, the Distributor or
any affiliate thereof. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy in any state to any person to whom it is
unlawful to make such offer in such state.

<PAGE>   4



The
Gabelli
Equity
Income
Fund



                                   PROSPECTUS
                                JANUARY 28, 1998






                               GABELLI FUNDS, INC.
                               INVESTMENT ADVISER

                             GABELLI & COMPANY, INC.
                                   DISTRIBUTOR





<PAGE>   5




                         THE GABELLI EQUITY INCOME FUND
                              ONE CORPORATE CENTER
                            RYE, NEW YORK 10580-1434
                    TELEPHONE: 1-800-GABELLI (1-800-422-3554)
                             HTTP://WWW.GABELLI.COM

PROSPECTUS                                                    January 28, 1998

The Gabelli Equity Income Fund (the "Fund") is a series of Gabelli Equity Series
Funds, Inc., a Maryland corporation (the "Corporation"). The Fund is a no-load
open-end, diversified, management investment company whose investment objective
is to seek a high level of total return on its assets with an emphasis on
income. The Fund seeks to achieve its investment objective through a combination
of capital appreciation and current income by investing primarily in income
producing equity securities.

Shares of the Fund may be purchased without a sales load at net asset value. The
minimum initial investment is $1,000. The Fund has a distribution plan which
permits it to pay up to .25% per year of its average daily net assets for
marketing and shareholder services and expenses. For further information,
contact Gabelli & Company, Inc. at the address or telephone number shown above.

                             ----------------------

This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
dated January 28, 1998 (the "Additional Statement") containing additional
information about the Fund has been filed with the Securities and Exchange
Commission (the "SEC") and is available for reference along with other materials
on the SEC Internet website (http://www.sec.gov) and is incorporated by
reference into this Prospectus. For a free copy, write or call the Fund at the
telephone number or address set forth above.

Shares of the Fund are not deposits or obligations of any bank, are not endorsed
or guaranteed by any bank and are not insured or guaranteed by the U.S.
government, The Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency and involve risk, including the possible loss of
principal.

                             ----------------------
                       This Prospectus should be retained
                       by investors for future reference.
                             ----------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.



<PAGE>   6
<TABLE>
<CAPTION>
                                                TABLE OF FEES AND EXPENSES
- ------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses:
- ------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>     <C>     <C>        <C>     
Maximum Sales Charge Imposed on Purchases                                                                 None
Maximum Sales Charge Imposed on Reinvested Dividends                                                      None
Deferred Sales Charge                                                                                     None
Redemption Fees                                                                                           None
Exchange Fees                                                                                             None

Annual Fund Operating Expenses (as a percentage of average net assets):
- ------------------------------------------------------------------------------------------------------------------
Management Fees                                                                                          1.00%
12b-1 Expenses (a)                                                                                        .25%
Other Expenses (b)                                                                                        .53%
                                                                                                         -------
    Total Operating Expenses                                                                             1.78%
                                                                                                         =======
Example:                                                                    1 YEAR  3 YEARS 5 YEARS    10 YEARS
- ------------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming a 5%
  annual return at the end of each period                                     $18      $56     $96       $209
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

The amounts listed in this example should not be considered as representative of
future expenses since actual expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, the Fund's
actual performance will vary and may result in an actual return greater or less
than 5%.

The foregoing table is to assist you in understanding the various direct and
indirect costs and expenses that an investor in the Fund would bear.

- -----------
(a) See "Distribution Plan." Long term investors may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc. 

(b) Such expenses include custodian and transfer agency fees and other customary
Fund expenses.

Management's Discussion and Analysis of the Fund's performance during the fiscal
year ended September 30, 1997 is included in the Fund's Annual Report to
Shareholders dated September 30, 1997. The Fund's Annual Report to Shareholders
may be obtained upon request and without charge by writing or calling the Fund
at the address or telephone number listed on the Prospectus cover.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose unqualified report thereon appears in the Statement
of Additional Information: Selected data for a share of capital stock
outstanding throughout each period ended September 30:

<TABLE>
<CAPTION>
                                              1997         1996         1995       1994       1993       1992+
                                              ----         ----         ----       ----       ----       -----
<S>                                          <C>          <C>          <C>        <C>        <C>        <C>   
OPERATING PERFORMANCE:
   Net asset value, beginning of period      $13.81       $12.65       $11.54     $12.15     $10.40     $10.00
   Net investment income                       0.22         0.28         0.29       0.30       0.29       0.21
   Net realized and unrealized gain on
     investments                               4.28         1.76         1.77       0.08       1.81       0.37
   Total from investment operations            4.50         2.04         2.06       0.38       2.10       0.58
LESS DISTRIBUTIONS:
   Dividends from net investment income       (0.22)       (0.28)       (0.29)     (0.31)     (0.29)     (0.18)
   Distributions in excess of net investment
      income                                     --        (0.01)          --         --         --         --
   Distributions from net realized gain on
      investments                             (0.70)       (0.59)       (0.66)     (0.68)     (0.06)       --
   Total Distributions                        (0.92)       (0.88)       (0.95)     (0.99)     (0.35)     (0.18)
   Net asset value, end of period            $17.39       $13.81       $12.65     $11.54     $12.15     $10.40
   Total Return (a)                           34.00%       16.65%       19.24%      3.30%     20.50%      5.80%
RATIOS TO AVERAGE NET
  ASSETS/SUPPLEMENTAL DATA:
   Net assets, end of period (in thousands) $73,730      $57,006      $54,806    $50,191    $54,585    $44,940
   Ratio of operating expenses to
     average net assets                        1.78%        1.93%        1.83%      1.81%      1.78%      1.93%*
   Ratio of net investment
     income to average net assets              1.42%        1.99%        2.50%      2.58%      2.62%      2.65%*
   Portfolio turnover rate                       43%          20%          30%        20%        76%        22%
   Average commission rate per share (b)     $0.046       $0.048           --         --         --         --
</TABLE>


- ----------
* Annualized

+Fund commenced operations on January 2, 1992.

(a) Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends. 

(b) For fiscal years beginning after September 1, 1995, the SEC requires the
Fund to disclose of the average commission rate paid per share for purchases and
sales of investment securities.
<PAGE>   7



INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
AND RELATED RISK FACTORS
- --------------------------------------------------------------------------------
The Fund's investment objective is to seek a high level of total return on its
assets with an emphasis on income, through a combination of capital appreciation
and current income by investing primarily in income producing equity securities
including securities convertible into common stock. The Adviser will look for
such securities that have a better yield than the average of the Standard &
Poor's 500 Stock Index, as well as capital gains potential. Although the Fund
may also invest in any type of debt instrument and may use various special
investment techniques, under normal market conditions the Fund will invest at
least 65% of its total assets in income producing equity securities (which
include common stocks, preferred stocks and securities convertible into or
exchangeable for common and preferred stock). Risks inherent in the Fund's
investment objective and policies are discussed below.

Equity Securities
- --------------------------------------------------------------------------------
Common stocks represent the residual ownership interest in the issuer and are
entitled to the income and increase in the value of the assets and business of
the entity after all of its obligations and preferred stock are satisfied.
Common stocks generally have voting rights. Common stocks fluctuate in price in
response to many factors including historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest rates,
investor perceptions and market liquidity.

Equity securities also include preferred stock (whether or not convertible into
common stock) and debt securities convertible into or exchangeable for common or
preferred stock. Preferred stock has a preference over common stock in
liquidation (and generally dividends as well) but is subordinated to the
liabilities of the issuer in all respects. As a general rule the market value of
preferred stock with a fixed dividend rate and no conversion element varies
inversely with interest rates and perceived credit risk, while the market price
of convertible preferred stock generally also reflects some element of
conversion value. Because preferred stock is junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the issuer
will cause greater changes in the value of a preferred stock than in a more
senior debt security with similarly stated yield characteristics. Debt
securities that are convertible into or exchangeable for preferred common stock
are liabilities of the issuer but are generally subordinated to more senior
elements of the issuer's balance sheet. Although such securities also generally
reflect an element of conversion value, their market value also varies with
interest rates and perceived credit risk.

The Adviser believes that opportunities for capital appreciation may also be
found in the preferred stock and convertible securities of companies. This is
particularly true in the case of companies that have performed below
expectations at the time the preferred stock or convertible security was issued.
If the company's performance has been poor enough, its preferred stock and
convertible debt securities will trade more like the common stock than like a
fixed income security and may result in above average appreciation once it
becomes apparent that performance is improving. Even if the credit quality of
the company is not in question, the market price of the convertible security
will often reflect little or no element of conversion value if the price of its
common stock has fallen substantially below the conversion price. This leads to
the possibility of capital appreciation if the price of the common stock
recovers. Preferred stocks and convertible securities have many of the same
characteristics and risks as nonconvertible debt securities described below.

Many convertible securities are not investment grade, that is, not rated BBB or
better by Standard & Poor's Corporation ("S&P") or Baa or better by Moody's
Investors Service ("Moody's") and not considered by the Adviser to be of similar
quality.

The Fund may invest up to 35% of its assets in convertible and nonconvertible
fixed income securities rated, at the time of investment, less than BBB by S&P
or Baa by Moody's or are unrated but of comparable quality in the judgment of
the Adviser. Securities which are not investment grade are viewed by the rating
agencies as being predominantly speculative in character and are characterized
by substantial risk concerning payments of interest and principal, sensitivity
to economic conditions and changes in interest rates, as well as by market price
volatility and/or relative lack of secondary market trading among other risks
and may involve major risk exposure to adverse conditions or be in default.
However, the Fund does not expect to invest more than 5% of its assets in
securities which are in default at the time of investment and will invest in
such securities only when the Adviser expects that the securities will
appreciate in value. There is no minimum rating of securities in which the Fund
may invest. Securities rated less than BBB by S&P or Baa by Moody's or
comparable unrated securities are typically referred to in the financial press
as "junk bonds." For further information regarding lower rated securities and
the 


<PAGE>   8


risks associated therewith, see "Other Investment Techniques" in the
Additional Statement and the Description of Corporate Bond, Corporate Debt and
Preferred Stock Ratings attached thereto as an Appendix. 

Nonconvertible Debt Securities
- --------------------------------------------------------------------------------
Under normal market conditions, the Fund may invest up to 35% of its assets in
fixed income securities which are not convertible or exchangeable for common
stock. These securities include preferred stocks, bonds, debentures, notes,
asset and mortgage backed securities and money market instruments such as
commercial paper and bankers acceptances. There is no minimum credit rating for
these securities in which the Fund may invest. Accordingly, the Fund could
invest in securities in default although the Fund will not invest more than 5%
of its assets in such securities. See "Equity Securities" for a discussion of
credit considerations. Preferred stocks are subject to the same types of risks
as debt instruments. 

Asset-Backed and Mortgage-Backed
- --------------------------------------------------------------------------------
Securities
- --------------------------------------------------------------------------------
Prepayments of principal may be made at any time on the obligations underlying
asset and mortgage backed securities and are passed on to the holders of the
asset and mortgage backed securities. As a result, if the Fund purchases such a
security at a premium, faster than expected prepayments will reduce and slower
than expected prepayments will increase yield to maturity. Conversely, if the
Fund purchases these securities at a discount, faster than expected prepayments
will increase, while slower than expected prepayments will reduce, yield to
maturity. 

For temporary defensive purposes the Fund may invest up to 100% of its
assets in nonconvertible fixed income securities or high quality money market
instruments.

OTHER INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------
AND RELATED RISK FACTORS
- --------------------------------------------------------------------------------

Foreign Securities
- --------------------------------------------------------------------------------
The Fund may invest up to 35% of its total assets in the securities of non-U.S.
issuers. These investments involve certain risks not ordinarily associated with
investments in securities of domestic issuers. These risks include fluctuations
in foreign exchange rates (which the Fund will not seek to hedge), future
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. In addition, with
respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries.

There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to or as
uniform as those of U.S. companies. Non-U.S. securities markets, while growing
in volume, have, for the most part, substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S. companies. Transaction costs of
investing in non-U.S. securities markets are generally higher than in the U.S.
There is generally less government supervision and regulation of exchanges,
brokers and issuers than there is in the U.S. The Fund might have greater
difficulty taking appropriate legal action in non-U.S. courts. Non-U.S. markets
also have different clearance and settlement procedures which in some markets
have at times failed to keep pace with the volume of transactions, thereby
creating substantial delays and settlement failures that could adversely affect
the Fund's performance.

Dividend and interest income from non-U.S. securities will generally be subject
to withholding taxes by the country in which the issuer is located and may not
be recoverable by the Fund or the investor.

Corporate Reorganizations
- --------------------------------------------------------------------------------
Subject to the Fund's policy of investing at least 65% of its assets in income
producing equity securities, the Fund may invest without limit in securities for
which a tender or exchange offer has been made or announced and in securities of
companies for which a merger, consolidation, liquidation or similar
reorganization proposal has been announced if, in the judgment of the Adviser,
there is a reasonable prospect of capital appreciation significantly greater
than the added portfolio turnover expenses inherent in the short term nature of
such transactions. The 

<PAGE>   9


principal risk is that such offers or proposals may not be consummated within
the time and under the terms contemplated at the time of the investment, in
which case, unless such offers or proposals are replaced by equivalent or
increased offers or proposals which are consummated, the Fund may sustain a
loss. For further information on such investments, see "Other Investment
Techniques" in the Additional Statement.

Options and Futures
- --------------------------------------------------------------------------------
The Fund may purchase or sell options on individual securities as well as on
indices of securities as a means of achieving additional return or of hedging
the value of the Fund's portfolio.

A call option is a contract that gives the holder of the option the right, in
return for a premium paid, to buy from the seller the security underlying the
option at a specified exercise price at any time during the term of the option
or, in some cases, only at the end of the term of the option. The seller of the
call option has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price. A put option is a
contract that gives the holder of the option the right, in return for a premium
paid, to sell to the seller the underlying security at a specified price. The
seller of the put option, on the other hand, has the obligation to buy the
underlying security upon exercise at the exercise price.

If the Fund has sold an option, it may terminate its obligation by effecting a
closing purchase transaction. This is accomplished by purchasing an option of
the same series as the option previously sold. There can be no assurance that a
closing purchase transaction can be effected when the Fund so desires.

The purchaser of an option risks a total loss of the premium paid for the option
if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unexercized but
foregoes any capital appreciation in excess of the exercise price in the case of
a call option and may be required to pay a price in excess of current market
value in the case of a put option. Options purchased and sold other than on an
exchange in private transactions also impose on the Fund the credit risk that
the counterparty will fail to honor its obligations. The Fund will not purchase
options if, as a result, the aggregate cost of all outstanding options exceeds
10% of the Fund's assets. To the extent that puts, straddles and similar
investment strategies involve instruments regulated by the Commodity Futures
Trading Commission the Fund is limited to an investment not in excess of 5% of
its total assets.

Warrants and Rights
- --------------------------------------------------------------------------------
The Fund may invest up to 5% of its total assets in warrants or rights (other
than those acquired in units or attached to other securities) which entitle the
holder to buy equity securities at a specific price for or at the end of a
specific period of time.

When Issued, Delayed Delivery
- --------------------------------------------------------------------------------
Securities and Forward Commitments
- --------------------------------------------------------------------------------
The Fund may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis in excess
of customary settlement periods for the type of security involved. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a when, as and if issued security.
When such transactions are negotiated, the price is fixed at the time of the
commitment, with payment and delivery taking place in the future, generally a
month or more after the date of the commitment. While the Fund will only enter
into a forward commitment with the intention of actually acquiring the security,
the Fund may sell the security before the settlement date if it is deemed
advisable.

Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate with its Custodian (as hereinafter
defined) cash or liquid securities in an aggregate amount at least equal to the
amount of its outstanding forward commitments. See "When Issued, Delayed
Delivery Securities and Forward Commitments" in the Additional Statement.

Short Sales
- --------------------------------------------------------------------------------
The Fund may make short sales of securities. A short sale is a transaction in
which the Fund sells a security it does not own in anticipation that the market
price of that security will decline. The Fund expects to make short sales both
to obtain capital gains from anticipated declines in securities and as a form of
hedging to offset potential 

<PAGE>   10



declines in long positions in the same or similar securities. The short sale of
a security is considered a speculative investment technique.

When the Fund makes a short sale, it must borrow the security sold short and
deliver it to the broker-dealer through which it made the short sale in order to
satisfy its obligation to deliver the security upon conclusion of the sale. The
Fund may have to pay a fee to borrow particular securities and is often
obligated to pay over any payments received on such borrowed securities.

The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. government
securities or other highly liquid securities. The Fund will also be required to
deposit similar collateral with its custodian to the extent, if any, necessary
so that the value of both collateral deposits in the aggregate is at all times
equal to the greater of the price at which the security is sold short or 100% of
the current market value of the security sold short. Depending on arrangements
made with the broker-dealer from which it borrowed the security regarding
payment over of any payments received by the Fund on such security, the Fund may
not receive any payments (including interest) on its collateral deposited with
such broker-dealer.

If the price of the security sold short increases between the time of the short
sale and the time the Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a capital gain.
Any gain will be decreased, and any loss increased, by the transaction costs
described above. Although the Fund's gain is limited to the price at which it
sold the security short, its potential loss is theoretically unlimited.

The market value of the securities sold short of any one issuer will not exceed
either 5% of the Fund's total assets or 5% of such issuer's voting securities.
The Fund will not make a short sale, if, after giving effect to such sale, the
market value of all securities sold short exceeds 25% of the value of its assets
or the Fund's aggregate short sales of a particular class of securities exceeds
25% of the outstanding securities of that class. The Fund may also make short
sales "against the box" without respect to such limitations. In this type of
short sale, at the time of the sale, the Fund owns or has the immediate and
unconditional right to acquire at no additional cost the identical security.

Restricted and Illiquid Securities
- --------------------------------------------------------------------------------
The Fund may invest up to 15% of its net assets in securities the markets for
which are illiquid. Illiquid securities include most of the securities the
disposition of which is subject to substantial legal or contractual
restrictions. The sale of illiquid securities often requires more time and
results in higher brokerage charges or dealer discounts and other selling
expenses than does the sale of securities eligible for trading on national
securities exchanges or in the over-the-counter markets. Restricted securities
may sell at a price lower than similar securities that are not subject to
restrictions on resale. Securities freely salable among qualified institutional
investors under special rules adopted by the Securities and Exchange Commission
may be treated as liquid if they satisfy liquidity standards established by the
Board of Directors. The continued liquidity of such securities is not as well
assured as that of publicly traded securities, and accordingly the Board of
Directors will monitor their liquidity.


Repurchase Agreements
- --------------------------------------------------------------------------------
The Fund may invest in repurchase agreements, which are agreements pursuant to
which securities are acquired by the Fund from a third party with the
understanding that they will be repurchased by the seller at a fixed price on an
agreed date. These agreements may be made with respect to any of the portfolio
securities in which the Fund is authorized to invest. Repurchase agreements may
be characterized as loans secured by the underlying securities. The Fund may
enter into repurchase agreements with (i) member banks of the Federal Reserve
System having total assets in excess of $500 million and (ii) securities
dealers, provided that such banks or dealers meet the creditworthiness standards
established by the Fund's Board of Directors ("Qualified Institutions"). The
Adviser will monitor the continued creditworthiness of Qualified Institutions,
subject to the supervision of the Fund's Board of Directors. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or date of maturity of the purchased security. The
collateral is marked-to-market daily. Such agreements permit the Fund to keep
all its assets earning interest while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature.

The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, as a result of its 


<PAGE>   11


bankruptcy or otherwise, the Fund will seek to dispose of such securities, which
action could involve costs or delays. If the seller becomes insolvent and
subject to liquidation or reorganization under applicable bankruptcy or other
laws, the Fund's ability to dispose of the underlying securities may be
restricted. Finally, it is possible that the Fund may not be able to
substantiate its interest in the underlying securities. To minimize this risk,
the securities underlying the repurchase agreement will be held by the Fund's
Custodian at all times in an amount at least equal to the repurchase price,
including accrued interest. If the seller fails to repurchase the securities,
the Fund may suffer a loss to the extent proceeds from the sale of the
underlying securities are less than the repurchase price. The Fund will not
enter into repurchase agreements of a duration of more than seven days if taken
together with all other illiquid securities in the Fund's portfolio, more than
15% of its net assets would be so invested.

Loans of Portfolio Securities
- --------------------------------------------------------------------------------
To increase income, the Fund may lend its portfolio securities to securities
broker-dealers or financial institutions if (1) the loan is collateralized in
accordance with applicable regulatory requirements including collateralization
continuously at no less than 100% by marking to market daily, (2) the loan is
subject to termination by the Fund at any time, (3) the Fund receives reasonable
interest or fee payments on the loan, (4) the Fund is able to exercise all
voting rights with respect to the loaned securities and (5) the loan will not
cause the value of all loaned securities to exceed 33% of the value of the
Fund's assets.

If the borrower fails to maintain the requisite amount of collateral, the loan
automatically terminates and the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over the value of the collateral. As with any extension of credit, there are
risks of delay in recovery and in some cases even loss of rights in collateral
should the borrower of the securities fail financially.

Borrowing
- --------------------------------------------------------------------------------
The Fund may not borrow money except for (1) short-term credits from banks as
may be necessary for the clearance of portfolio transactions, and (2) borrowings
from banks for temporary or emergency purposes, including the meeting of
redemption requests, which would otherwise require the untimely disposition of
its portfolio securities. Borrowing may not, in the aggregate, exceed 15% of
assets after giving effect to the borrowing and borrowing for purposes other
than meeting redemptions may not exceed 5% of the value of the Fund's assets
after giving effect to the borrowing. The Fund will not make additional
investments when borrowings exceed 5% of assets. The Fund may mortgage, pledge
or hypothecate assets to secure such borrowings.

Portfolio Turnover
- --------------------------------------------------------------------------------
The investment policies of the Fund may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest or currency exchange
rates. The portfolio turnover is expected to be less than 100%. Portfolio
turnover generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and reinvestment in other securities. The portfolio turnover rate is
computed by dividing the lesser of the amount of the securities purchased or
securities sold by the average monthly value of securities owned during the year
(excluding securities whose maturities at acquisition were one year or less).

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The Fund's Board of Directors (who, with its officers, are described in the
Additional Statement) has overall responsibility for the management of the Fund.
The Board of Directors decides upon matters of general policy and reviews the
actions of the Distributor, the Adviser and the Sub-Administrator (as defined
below). Pursuant to an Investment Advisory Contract with the Fund, the Adviser,
provides a continuous investment program for the Fund's portfolio; provides
investment research and makes and executes recommendations for the purchase and
sale of securities and the exercise of all voting and other rights appertaining
thereto; provides facilities and personnel required for the Fund's
administrative management; supervises the performance of administrative and
professional services provided by others; and pays the compensation of the
Sub-Administrator and all officers and directors of the Fund who are its
affiliates. Mr. Mario J. Gabelli -- Portfolio Manager, will be primarily
responsible for the day-to-day management of the Gabelli Equity Income Fund. Mr.
Gabelli is Chairman, Chief Investment Officer and a Director of the Adviser. As
compensation for its services and the related expenses borne by the Adviser, the
Fund pays the Adviser a fee, computed daily and payable monthly, equal, on an
annual basis, to 


<PAGE>   12


1.00% of the Fund's average daily net assets, which is higher than that paid by
most mutual funds. For fiscal years ended September 30, 1995, September 30, 1996
and September 30, 1997, the Adviser received fees of $512,370, $561,461, and
$640,070. The Adviser is located at One Corporate Center, Rye, New York
10580-1434.

The Adviser was formed in 1980 and as of December 31, 1997 acts as investment
adviser to the following funds with aggregate assets in excess of $5.5 billion:

<TABLE>
<CAPTION>
                                           Net Assets
Open-end funds:                              12/31/97
- ---------------                            ----------
                                        (in millions)
<S>                                            <C>   
Gabelli Asset Fund                             $1,334
Gabelli Growth Fund                               952
Gabelli Gold Fund, Inc.                             8
Gabelli Value Fund Inc.                           597
Gabelli Small Cap Growth Fund                     293
Gabelli Equity Income Fund                         76
Gabelli U.S. Treasury Money Market Fund           283
Gabelli ABC Fund                                   35
Gabelli Global  Telecommunications Fund           118
Gabelli Global Interactive
  Couch Potato(R) Fund                             41
Gabelli Global Convertible  Securities Fund         9
Gabelli International Growth Fund, Inc.            18
Gabelli Capital Asset Fund                        104


Closed-end funds:
- ------------------
Gabelli Convertible Securities Fund, Inc.         122
Gabelli Equity Trust Inc.                       1,201
Gabelli Global Multimedia Trust Inc.              140
</TABLE>

Gabelli & Company, Inc., the Distributor of each open-end fund's respective
shares, is an indirect majority owned subsidiary of the Adviser. GAMCO
Investors, Inc, ("GAMCO"), a wholly owned subsidiary of the Adviser, acts as
investment adviser for individuals, pension trusts, profit sharing trusts and
endowments. As of December 31, 1997, GAMCO had aggregate assets in excess of
$6.0 billion under its management. Gabelli Advisers LLC is an affiliated
Investment Adviser to The Gabelli Westwood Funds with aggregate assets in excess
of $266 million. Gabelli Fixed Income LLC is an affiliated Investment Adviser to
The Treasurer's Fund, Inc. And separate accounts with aggregate assets in excess
of $1.5 billion. Mr. Mario J. Gabelli may be deemed a "controlling person" of
the Adviser and the Distributor on the basis of his ownership of stock of the
Adviser.

In addition to the fees of the Adviser, the Fund is responsible for the payment
of all its other expenses incurred in the operation of the Fund, which include,
among other things, expenses for legal and independent auditors' services, costs
of printing all materials sent to shareholders, charges of State Street Bank and
Trust Company (the "Custodian", "Transfer Agent" and dividend paying agent) and
any other persons hired by the Fund, Securities and Exchange Commission fees,
fees and expenses of unaffiliated directors, accounting and printing costs for
reports and similar materials sent to shareholders, the Fund's pro rata portion
of membership fees in trade organizations, fidelity bond coverage for the Fund's
officers and employees, interest, brokerage and other trading costs, taxes,
expenses of qualifying the Fund for sale in various jurisdictions, expense of
the Fund's distribution plan adopted under Rule 12b-1, expenses of personnel
performing shareholder servicing functions, litigation and other extraordinary
or non-recurring expenses and other expenses properly payable by the Fund.

The Additional Statement contains further information about the Investment
Advisory Contract including a more complete description of the advisory and
expense arrangements, and administrative provisions.

Sub-Administrator
- --------------------------------------------------------------------------------
The Adviser has entered into a Sub-Administration Contract with BISYS Fund
Services, Inc. ("BISYS" or the "Sub-Administrator") pursuant to which the
Sub-Administrator provides certain administrative services necessary for the
Fund's operations. These services include the preparation and distribution of
materials for meetings of the Fund's Board of Directors, compliance testing of
Fund activities and assistance in the preparation of proxy statements, reports
to shareholders and other documentation. The Sub-Administrator's services do not
include the investment advisory and portfolio management services of the
Adviser. For the services and the related expenses borne by 


<PAGE>   13


BISYS, the Adviser pays it a prorated monthly fee at the annual rate of .0625%
of the average net assets (with a minimum annual fee of $30,000 per portfolio)
on the first $350 million of all the funds advised by the Adviser and affiliates
and administered by BISYS; .0425% of any assets above $350 million and .0225% of
any assets above $700 million which, together with the services to be rendered,
are subject to negotiation between the parties and both parties retain the right
unilaterally to terminate the arrangement on not less than 60 days' notice.
BISYS has its principal office at 3435 Stelzer Rd., Columbus, Ohio 43219.

DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
The Board of Directors of the Fund has approved as being in the best interests
of the Fund and its shareholders a Distribution Plan which authorizes payments
by the Fund in connection with the distribution of its shares at an annual rate,
of up to .25% of the Fund's average daily net assets. 

Payments may be made by the Fund under the Distribution Plan for the purpose of
financing any activity primarily intended to result in the sale of shares of the
Fund as determined by the Board of Directors. Such activities typically include
advertising; compensation for sales and sales marketing activities of the
Distributor and other banks, broker-dealers and service providers; shareholder
account servicing; production and dissemination of prospectuses and sales and
marketing materials; and capital or other expenses of associated equipment,
rent, salaries, bonuses, interest and other overhead. To the extent any activity
is one which the Fund may finance without a Distribution Plan, the Fund may also
make payments to finance such activity outside of the Plan and not subject to
its limitations.

The Plan has been implemented by written agreements between the Fund and/or the
Distributor and each person (including the Distributor) to which payments may be
made. Administration of the Plan is regulated by Rule 12b-1 under the Investment
Company Act of 1940 which includes requirements that the Board of Directors
receive and review, at least quarterly, reports concerning the nature and
qualification of expenses for which payments are made, that the Board of
Directors approve all agreements implementing the Plan and that the Plan may be
continued from year to year only if the Board of Directors concludes, at least
annually, that continuation of the Plan is likely to benefit shareholders. To
the extent any of these payments are based on allocations by the Distributor,
the Fund may be considered to be participating in joint distribution activities
with other funds distributed by the Distributor. Any such allocations would be
subject to approval by the Fund's non-interested Directors and would be based on
such factors as the net assets of each Fund, the number of shareholder inquiries
and similar pertinent criteria. For the fiscal year ended September 30, 1997,
the Fund incurred distribution costs of $ 159,992 or 0.25% of average net assets
under the Plan.

PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Shares of the Fund are currently offered without a sales charge. The minimum
initial investment is $1,000. There is no minimum for subsequent investments.
Shares of the Fund are sold at the net asset value per share next determined
after receipt of an order by the Fund's Distributor or Transfer Agent in proper
form with accompanying check or bank wire payment arrangements satisfactory to
the Fund. Although most shareholders elect not to receive stock certificates,
certificates for whole shares only can be obtained on specific written request
to the Transfer Agent. 

Shares of the Fund may be purchased through registered broker-dealers. Such
broker-dealers may charge the investor a fee for their services. Such fees may
vary among broker-dealers, and such broker-dealers may impose higher initial or
subsequent investment requirements than those established by the Fund. Services
provided by broker-dealers may include allowing the investor to establish a
margin account and to borrow on the value of the Fund's shares in that account.

Prospectuses, sales material and applications may be obtained from the
Distributor. The Fund and its Distributor reserve the right in their sole
discretion (1) to suspend the offerings of the Fund's shares and (2) to reject
purchase orders when, in the judgment of the Fund's management, such rejection
is in the best interest of the Fund. The net asset value per share of the Fund
is determined as of the close of the regular session of the New York Stock
Exchange, which is generally 4:00 p.m. Eastern time, on each day that trading is
conducted on the New York Stock Exchange by dividing the value of the Fund's net
assets (i.e., the value of its securities and other assets less its liabilities,
including expenses payable or accrued) by the number of shares outstanding at
the time the determination is made. Portfolio securities for which market
quotations are readily available are valued at


<PAGE>   14


market value as determined by the last quoted sale price prior to the valuation
time on the valuation date in the case of securities traded on securities
exchanges or other markets for which such information is available. Other
readily marketable securities are valued at the average of the latest bid and
asked quotations for such securities prior to the valuation time. Debt
securities with remaining maturities of 60 days or less are valued at amortized
cost. All other assets are valued at fair value as determined by or under the
supervision of the Board of Directors of the Fund. See "Determination of Net
Asset Value" in the Additional Statement.

Mail
- --------------------------------------------------------------------------------
To make an initial purchase by mail, send a completed subscription order form
with a check for the amount of the investment payable to "The Gabelli Equity
Income Fund" to:

                                THE GABELLI FUNDS
                                  P.O. BOX 8308
                              BOSTON, MA 02266-8308

Subsequent purchases do not require a completed application and can be made by
(1) mailing a check to the same address noted above or by (2) bank wire, as
indicated below. The exact name and number of the shareholder's account should
be clearly indicated.

Checks will be accepted if drawn in U.S. currency on a domestic bank for less
than $100,000. U.S. dollar checks drawn against a non-U.S. bank may be subject
to collection delays and will be accepted only upon actual receipt of funds by
the Transfer Agent. Bank collection fees may apply. Bank or certified checks for
investments of $100,000 or more will be required unless the investor elects to
invest by bank wire as described below. The Fund reserves the right to reject
purchases by check made payable to someone other than the Fund.

Bank Wire
- --------------------------------------------------------------------------------
To initially purchase shares of the Fund using the wire system for transmittal
of money among banks, an investor should first telephone the Fund at
1-800-422-3554 to obtain a new account number. The investor should then instruct
a Federal Reserve System member bank to wire funds to:

                       State Street Bank and Trust Company
                      ABA # 011-0000-28 REF DDA # 99046187
                           Attn: Shareholder Services
                       Re: The Gabelli Equity Income Fund
                   A/C # _____________________________________
                          Account of (Registered Owner)
                      225 Franklin Street, Boston, MA 02110

For initial purchases, the investor should promptly complete and mail the
subscription order form to the address shown above for mail purchases. There may
be a charge by your bank for transmitting the money by bank wire but State
Street Bank and Trust Company does not charge investors in the Fund for the
receipt of wire transfers. If you are planning to wire funds, it is suggested
that you instruct your bank early in the day so the wire transfer can be
accomplished the same day.

Personal Delivery
- --------------------------------------------------------------------------------
Deliver a check made payable to "The Gabelli Equity Income Fund" along with a
completed subscription order form to:

                                The Gabelli Funds
                          The BFDS Building, 6th Floor
                               Two Heritage Drive
                             North Quincy, MA 02171

Telephone Investment Plan
- --------------------------------------------------------------------------------
You may purchase additional shares of the Fund by telephone through the
Automated Clearing-house (ACH) system as long as your bank is a member of the
ACH system and you have a completed, approved investment plan application on
file with our Transfer Agent. The funding for your purchase will be
automatically deducted from the ACH eligible account you designate on the
application. Your investment will normally be credited to your mutual fund
account on the first business day following your telephone request. Your request
must be received no later than 4:00 p.m. eastern time. There is a minimum of
$100 for each telephone investment. Any subsequent changes in banking
information must be submitted in writing and accompanied by a sample voided
check. To 


<PAGE>   15


initiate an ACH purchase, please call 1-800-GABELLI (422-3554) or
1-800-872-5365. Fund shares purchased through the Telephone or Automatic
Investment Plan will not be available for redemption for up to fifteen (15) days
following the purchase date.

Automatic Investment Plan
- --------------------------------------------------------------------------------
The Fund offers an automatic monthly investment plan, details of which can be
obtained from the Distributor. There is no minimum initial investment for
accounts establishing an Automatic Investment Plan.

Systematic Withdrawal Plan
- --------------------------------------------------------------------------------
The Fund offers a systematic withdrawal program for shareholders whereby they
can authorize an automatic redemption on a monthly, quarterly or annual basis.
Details can be obtained from the Distributor.

Other Investors
- --------------------------------------------------------------------------------
No minimum initial investment is required for officers, directors or full-time
employees of the Fund, other investment companies managed by the Adviser, the
Adviser, the Administrator, the Distributor or their affiliates, including
members of the "immediate family" of such individuals and retirement plans and
trusts for their benefit. The term "immediate family" refers to spouses,
children and grandchildren (adopted or natural), parents, grandparents,
siblings, a spouse's siblings, sibling's spouse and a sibling's children.


REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Upon receipt by the Distributor or the Transfer Agent of a redemption request in
proper form, shares of the Fund will be redeemed at their next determined net
asset value. Redemption requests received after the time as of which the Fund's
net asset value is determined on a particular day will be redeemed at the net
asset value of the Fund determined on the next day that net asset value is
determined. Checks for redemption proceeds will normally be mailed to the
shareholder's address of record within seven days, but will not be mailed until
all checks in payment for the purchase of the shares to be redeemed have been
honored, which may take up to 15 days. Redemption requests may be made by letter
to the Transfer Agent, specifying the name of the Fund, the dollar amount or
number of shares to be redeemed, and the account number. The letter must be
signed in exactly the same way the account is registered (if there is more than
one owner of the shares, all must sign) and, if any certificates for the shares
to be redeemed are outstanding, presentation of such certificates properly
endorsed is also required. Signatures on a redemption request and/or
certificates must be guaranteed by an "eligible guarantor institution" as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, which
includes certain banks, brokers, dealers, credit unions, securities exchanges
and associations, clearing agencies and savings associations (signature
guarantees by notaries public are not acceptable). Shareholders may also redeem
Fund shares through certain registered broker-dealers, who have made
arrangements with the Fund permitting them to redeem shares by telephone or
facsimile transmission and who may charge shareholders a fee for this service if
they have not received any payments under the Distribution Plan.

Further documentation, such as copies of corporate resolutions and instruments
of authority, are normally requested from corporations, administrators,
executors, personal representatives, trustees or custodians to evidence the
authority of the person or entity making the redemption request.

If the Board of Directors should determine that it would be detrimental to the
remaining shareholders of the Fund to make payment wholly or partly in cash, the
Fund may pay the redemption price in whole or in part by a distribution in kind
of securities from the portfolio of the Fund, in lieu of cash, in conformity
with applicable rules of the Securities and Exchange Commission. Under such
circumstances, shareholders of the Fund receiving distributions in kind of
securities will incur brokerage commissions when they dispose of the securities.

The Fund may suspend the right of redemption or postpone the date of payment for
more than seven days during any period when (1) trading on the New York Stock
Exchange is restricted or the Exchange is closed, other than customary weekend
and holiday closings; (2) the Securities and Exchange Commission has by order
permitted such suspension or (3) an emergency, as defined by rules of the
Securities and Exchange Commission, exists making disposal of portfolio
investments or determination of the value of the net assets of the Fund not
reasonably practicable.


<PAGE>   16



To minimize expenses, the Fund reserves the right to redeem, upon not less than
30 days notice, all shares of the Fund in an account (other than an IRA) which
as a result of shareholder redemption has a value below $500. However, a
shareholder will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.

Telephone Redemption
- --------------------------------------------------------------------------------
By Check
- --------------------------------------------------------------------------------
The Fund accepts telephone requests for redemption of unissued shares, subject
to a $25,000 limitation. By calling either 1-800-GABELLI (422-3554) or
1-800-872-5365, you may request that a check be mailed to the address of record
on the account, provided that the address has not changed within thirty (30)
days prior to your request. The check will be made payable to the person in
whose name the account is registered and will normally be mailed within seven
(7) days.

By Bank Wire
- --------------------------------------------------------------------------------
The Fund accepts telephone requests for wire redemption in excess of $1,000 (but
subject to a $25,000 limitation) to a predesignated bank either on the
subscription order form or in a subsequent written authorization with the
signature guaranteed. The Fund accepts signature guaranteed written requests for
redemption by bank wire without limitation. The proceeds are normally wired on
the following business day. Your bank must be either a member of the Federal
Reserve System or have a correspondent bank which is a member. Any change to the
banking information made at a later date must be submitted in writing with a
signature guarantee.

Requests for telephone redemption must be received between 9:00 a.m. and 4:00
p.m. eastern time. If your telephone call is received after this time or on a
day when the New York Stock Exchange is not open, the request will be entered
for the following business day. Shares are redeemed at the net asset value next
determined following your request. Fund shares purchased by check or through the
automatic purchase plan will not be available for redemption for up to fifteen
(15) days following the purchase. Shares held in certificate form must be
returned to the Transfer Agent for redemption of shares. Telephone redemption is
not available for IRAs. The proceeds of a telephone redemption may be directed
to an existing account in another mutual fund advised by the Adviser, provided
the account is registered in the redeeming shareholder's name. Such purchase
will be made at the respective net asset value plus applicable sales charge, if
any, with credit for any sales charge previously charged by the Distributor.

The Fund and its Transfer Agent will not be liable for following telephone
instructions reasonably believed to be genuine. In this regard, the Fund and its
Transfer Agent require personal identification information before accepting a
telephone redemption. If the Fund or its Transfer Agent fail to use reasonable
procedures, the Fund might be liable for losses due to fraudulent instructions.

RETIREMENT PLANS
- --------------------------------------------------------------------------------
The Fund has available a form of Individual Retirement Account ("IRA") for
investment in Fund shares which may be obtained from the Distributor. The
minimum investment required to open an IRA for investment in shares of the Fund
is $1,000 for an individual except that both the individual and his or her
spouse may establish separate IRAs if their combined investment is $1,250. There
is no minimum for additional investment in an IRA account.

Investors who are self-employed may purchase shares of the Fund through
tax-deductible contributions to retirement plans for self-employed persons,
known as Keogh or H.R. 10 plans. The Fund does not currently act as Sponsor for
such plans. Fund shares may also be a suitable investment for other types of
qualified pension or profit-sharing plans which are employer-sponsored,
including deferred compensation or salary reduction plans known as "401(k)
Plans" which give participants the right to defer portions of their compensation
for investment on a tax-deferred basis until distributions are made from the
plans. The minimum initial investment for an individual under such plans is
$1,000 and there is no minimum for additional investments. Under the Code,
individuals may make wholly or partly tax deductible IRA contributions of up to
$2,000 annually, depending on whether they are active participants in an
employer-sponsored retirement plan and on their income level. However, dividends
and distributions held in the account are not taxed until withdrawn in
accordance with the provisions of the Code. An individual with a non-working
spouse may establish a separate IRA for the spouse under the same conditions and
contribute a maximum of $4,000 annually to either or both IRAs provided that no
more than $2,000 may be contributed to the IRA of either spouse. Beginning
January 1, 1998, investors satisfying statutory income level requirements may
make non-deductible contributions up to $2,000 annually to a Roth IRA,
distributions from which 


<PAGE>   17


are not subject to tax if a statutory five year holding period requirement is
satisfied. New for 1998, the Fund also makes available Education IRAs. Education
IRAs permit eligible individuals to contribute up to $500 per year per
beneficiary under 18 years old. The minimum initial investment for an Education
IRA is $250. Distributions from an education IRA are generally excluded from
income when used for qualified higher education expenses.

Investors should be aware that they may be subject to penalties or additional
tax on contributions or withdrawals from IRAs or other retirement plans which
are not permitted by the applicable provisions of the Code. Persons desiring
information concerning investments through IRA accounts or other retirement
plans should write or telephone the Distributor.

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
The Fund currently intends to pay dividends quarterly and capital gains
distributions, if any, on an annual basis. Each dividend and capital gains
distribution, if any, declared by the Fund on its outstanding shares will,
unless the shareholder elects otherwise, be paid on the payment date fixed by
the Board of Directors in additional shares of the Fund having an aggregate net
asset value as of the ex-dividend date of such dividend or distribution equal to
the cash amount of such distribution. An election to receive dividends and
distributions may be changed by notifying the Fund in writing at any time prior
to the record date for a particular dividend or distribution. There are no sales
or other charges in connection with the reinvestment of dividends and capital
gains distributions. There is no fixed dividend rate, and there can be no
assurance that the Fund will pay any dividends or realize any capital gains.

The Fund has qualified and intends to continue to qualify as a "Regulated
Investment Company" under the Code and thus is not subject to Federal income tax
on that portion of its net investment income and realized capital gain that it
pays out to its shareholders. Failure to qualify would result in the Fund being
subject to Federal income tax on its taxable income and gains.

A redemption of shares will generally result in the recognition of gain or loss
for income tax purposes equal to the difference between the proceeds of the
redemption and the shareholder's basis in the shares redeemed. Dividends from
net investment income and distributions from realized short-term capital gains
are taxable to the recipient shareholders as ordinary income, whether paid in
cash or in additional Fund shares. In the case of corporate shareholders, the
portion of the Fund's distributions attributable to dividends received by the
Fund on its investments in common or preferred stock may be eligible for the
dividends received deduction as long as certain requirements are satisfied by
the shareholder. Distributions out of long-term capital gains are taxable to the
recipient as long-term capital gains. Shareholders will be advised as to what
portion of capital gains are to be treated as "mid-term" or "long term" with
respect to the maximum tax rate for such gains (for noncorporate shareholders,
28% for mid-term gains and 20% for long term gains (10% for noncorporate
shareholders who are subject to the 15% marginal tax bracket for ordinary
income)). Dividends and distributions declared by the Fund may also be subject
to state and local taxes. Prior to investing in shares of the Fund, prospective
shareholders may wish to consult their tax advisers concerning the Federal,
state and local tax consequences of such investment.

GENERAL INFORMATION
- --------------------------------------------------------------------------------
Description of Shares, Voting Rights
- --------------------------------------------------------------------------------
and Liabilities
- --------------------------------------------------------------------------------
The Fund is a series of Gabelli Equity Series Funds, Inc., which was
incorporated in Maryland on July 25, 1991. The authorized capital stock consists
of one billion shares of stock having a par value of one tenth of one cent
($.001) per share, one hundred million of which have been initially classified
as Fund shares. The Corporation is not required, and does not intend, to hold
regular annual shareholder meetings, but may hold special meetings for
consideration of proposals requiring shareholder approval, such as changing
fundamental policies or upon the written request of 10% of the Fund's shares to
replace its Directors. The Corporation's Board of Directors is authorized to
divide the unissued shares into separate series of stock, each series
representing a separate, additional portfolio. The Board currently has
authorized the division of the unissued shares into two series each having a
separate portfolio. Shares of all series will have identical voting rights,
except where by law, certain matters must be approved by a majority of the
shares of the affected series. Each share of any series of shares when issued
has equal dividend, liquidation (see "Redemption of Shares") and voting rights
within the series for


<PAGE>   18


which it was issued and each fractional share has those rights in proportion to
the percentage that the fractional share represents of a whole share. Shares
will be voted in the aggregate.

There are no conversion or preemptive rights in connection with any shares of
the Fund. All shares, when issued in accordance with the terms of the offering,
will be fully paid and nonassessable. Shares will be redeemed at net asset
value, at the option of the shareholder.

The Fund sends semi-annual and audited annual reports to all of its shareholders
which include a list of portfolio securities. Unless it is clear that a
shareholder is a nominee for the account of an unrelated person or a shareholder
otherwise specifically requests in writing, the Fund may send a single copy of
semi-annual, annual and other reports to shareholders to all accounts at the
same address and all accounts of any person at that address.

The shares of the Fund have noncumulative voting rights which means that the
holders of more than 50% of the shares can elect 100% of the directors if the
holders choose to do so, and, in that event, the holders of the remaining shares
will not be able to elect any person or persons to the Board of Directors.
Unless specifically requested by an investor who is a shareholder of record, the
Fund does not issue certificates evidencing Fund shares.

Shareholder Approval
- --------------------------------------------------------------------------------
Other than elections of Directors, which is by plurality, any matter for which
shareholder approval is required by the Investment Company Act of 1940 requires
the affirmative vote of at least a "majority" (as defined by the Investment
Company Act of 1940) of the outstanding voting securities of the Fund or the
Corporation at a meeting called for the purpose of considering such approval. A
majority of the Fund's outstanding securities is the lesser of (1) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are present in person or by proxy or (2) more than 50% of the outstanding
shares.

Performance Information
- --------------------------------------------------------------------------------
The Fund may furnish data about its investment performance in advertisements,
sales literature and reports to shareholders. "Total return" represents the
annual percentage change in value of $1,000 invested at the maximum public
offering price for the one, five and ten year periods (if applicable) and the
life of the Fund through the most recent calendar quarter, assuming reinvestment
of all dividends and distributions. Quotations of "yield" will be based on the
investment income per share earned during a particular 30 day period, less
expenses accrued during the period, with the remainder being divided by the
maximum offering price per share on the last day of the period. The Fund may
also furnish total return and yield calculations for other periods based on
investments at various sales charge levels or net asset values.

Custodian, Transfer Agent and
- --------------------------------------------------------------------------------
Dividend Disbursing Agent
- --------------------------------------------------------------------------------
State Street Bank and Trust Company is the Custodian for the Fund's cash and
securities as well as the Transfer and Dividend Disbursing Agent for its shares.
Boston Financial Data Services, Inc., an affiliate of State Street Bank and
Trust Company performs the shareholder services on behalf of State Street and is
located at The BFDS Building, Two Heritage Drive, North Quincy, MA 02171. State
Street Bank and Trust Company does not assist in and is not responsible for
investment decisions involving assets of the Fund.

Independent Auditors
- --------------------------------------------------------------------------------
Ernst & Young LLP has been appointed independent auditors for the Fund, and is
located at 787 Seventh Ave., New York, NY 10019.

Information for Shareholders
- --------------------------------------------------------------------------------
All shareholder inquiries regarding administrative procedures including the
purchase and redemption of shares should be directed to the Distributor, Gabelli
& Company, Inc., One Corporate Center, Rye, New York 10580-1434. For assistance,
call 1-800-GABELLI (1-800-422-3554) or through the internet at
http://www.gabelli.com. 

As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Adviser is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Adviser does not expect that the Fund will incur significant
operating expenses or be required to incur material costs to be year 2000
compliant. Although the Adviser does not anticipate that the year 2000 issue
will have a material impact on the Fund's ability to provide service at current
levels, there can be no assurance that steps taken in preparation for the year
2000 will be sufficient to avoid any adverse impact on the Fund.

Upon request, Gabelli and Company, Inc. will provide without charge, a paper
copy of this Prospectus to investors or their representatives who received this
Prospectus in an electronic format.

This Prospectus omits certain information contained in the Registration
Statement filed with the Securities and Exchange Commission. Copies of the
Registration Statement including items omitted herein, may be obtained from the
Commission by paying the charges prescribed under its rules and regulations. The
Statement of Additional Information included in such Registration Statement may
be obtained without charge from the Fund or its Distributor.


<PAGE>   19

<TABLE>
<CAPTION>
                                           TABLE OF CONTENTS
                                                 PAGE
                                                 ----
<S>                                              <C>
Table of Fees and Expenses .................        2

Financial Highlights .......................        3

Investment Objective and Policies and
  Related Risk Factors .....................        3

Other Investment Techniques and
  Related Risk Factors .....................        5

Management of the Fund .....................        9

Distribution Plan ..........................       11

Purchase of Shares .........................       12

Redemption of Shares .......................       14

Retirement Plans ...........................       15

Dividends, Distributions and Taxes .........       16

General Information ........................       16
</TABLE>





- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus, and
if given or made, such information or representation may not be relied upon as
being authorized by the Fund, the Adviser, the Administrator, the Distributor or
any affiliate thereof. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy in any state to any person to whom it is
unlawful to make such offer in such state.


<PAGE>   20



The
Gabelli
Small Cap
Growth
Fund





                                   PROSPECTUS
                                JANUARY 28, 1998







                               GABELLI FUNDS, INC.
                               INVESTMENT ADVISER

                             GABELLI & COMPANY, INC.
                                   DISTRIBUTOR



<PAGE>   21





                        THE GABELLI SMALL CAP GROWTH FUND
                              ONE CORPORATE CENTER
                            RYE, NEW YORK 10580-1434
                    TELEPHONE: 1-800-GABELLI (1-800-422-3554)
                             HTTP://WWW.GABELLI.COM
PROSPECTUS                                                     January 28, 1998

The Gabelli Small Cap Growth Fund (the "Fund") is a series of Gabelli Equity
Series Funds, Inc., a Maryland corporation (the "Corporation"). The Fund is a
no-load open-end, diversified, management investment company whose investment
objective is to seek a high level of capital appreciation on its assets. The
Fund seeks to achieve its investment objective by investing primarily in the
equity securities of smaller companies (those with market values at the time of
investment of less than $500 million) which the Fund's investment adviser
believes are likely to have rapid growth in revenue and/or earnings and
potential for above average capital appreciation.

Shares of the Fund may be purchased without a sales load at net asset value. The
minimum initial investment is $1,000. Additionally, accounts establishing an
Automatic Investment Plan do not require any minimum initial investment (see
"Purchase of Shares"). The Fund has a distribution plan which permits it to pay
up to .25% per year of its average daily net assets for marketing and
shareholder services and expenses. For further information, contact Gabelli &
Company, Inc. at the address or telephone number shown above.

                             ----------------------

This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
dated January 28, 1998 (the "Additional Statement") containing additional
information about the Fund has been filed with the Securities and Exchange
Commission (the "SEC") and is available for reference along with other materials
on the SEC Internet website (http://www.sec.gov) and is incorporated by
reference into this Prospectus. For a free copy, write or call the Fund at the
telephone number or address set forth above.

Shares of the Fund are not deposits or obligations of any bank, are not endorsed
or guaranteed by any bank and are not insured or guaranteed by the Federal
Deposit Insurance Corporation, The Federal Reserve Board or any other government
agency and involve risk, including the possible loss of principal.

                             ----------------------

                       This Prospectus should be retained
                       by investors for future reference.

                             ----------------------


THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.



<PAGE>   22



<TABLE>
<CAPTION>
                                                TABLE OF FEES AND EXPENSES
<S>                                                                        <C>     <C>      <C>      <C>     
Shareholder Transaction Expenses:
- --------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases                                                            None
Maximum Sales Charge Imposed on Reinvested Dividends                                                 None
Deferred Sales Charge                                                                                None
Redemption Fees                                                                                      None
Exchange Fees                                                                                        None
Annual Fund Operating Expenses (as a percentage of average net assets):
- --------------------------------------------------------------------------------------------------------------
Management Fees                                                                                      1.00%
12b-1 Expenses (a)                                                                                     .25
Other Expenses (b)                                                                                    .37%
                                                                                                     -----
     Total Fund Operating Expenses                                                                   1.62%
                                                                                                     -----
Example:                                                                   1 YEAR  3 YEARS  5 YEARS  10 YEARS
- --------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming a 5%
  annual return at the end of each period                                    $16      $51      $88      $192
- --------------------------------------------------------------------------------------------------------------
</TABLE>

The amounts listed in this example should not be considered as representative of
future expenses since actual expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, the Fund's
actual performance will vary and may result in an actual return greater or less
than 5%.
- --------------------------------------------------------------------------------

The foregoing table is to assist you in understanding the various direct and
indirect costs and expenses that an investor in the Fund would bear.

- -----------

(a) See "Distribution Plan." Long term investors may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc. 

(b) Such expenses include custodian and transfer agency fees and other 
customary Fund expenses.

Management's Discussion and Analysis of the Fund's performance during the fiscal
year ended September 30, 1997 is included in the Fund's Annual Report to
Shareholders dated September 30, 1997. The Fund's Annual Report to Shareholders
may be obtained upon request and without charge by writing or calling the Fund
at the address or telephone number listed on the Prospectus cover.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors, whose unqualified report thereon appears in the Statement
of Additional Information: 

Selected data for a share of capital stock outstanding throughout each period
ended September 30:

<TABLE>
<CAPTION>
                                                  1997       1996       1995       1994       1993       1992+
                                                  ----       ----       ----       ----       ----       -----
<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)                   (0.07)     (0.09)     (0.04)     (0.05)      0.01       0.04
   Net realized and unrealized 
     gain on investments                           7.70       2.11       3.17       0.81       3.98       3.14
   Total from investment operations                7.63       2.02       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                                     (2.23)     (1.34)     (1.03)     (0.42)     (0.16)     (0.07)
   Total Distributions                            (2.23)     (1.34)     (1.03)     (0.42)     (0.19)     (0.08)
   Net asset value, end of  period               $25.42     $20.02     $19.34     $17.24     $16.90     $13.10
   Total Return (a)                               42.20%     11.01%     19.47%      4.48%     30.65%     31.86%
RATIOS TO AVERAGE NET
  ASSETS AND SUPPLEMENTAL DATA:
   Net assets, end of period
  (in thousands)                               $296,519   $223,239   $231,156   $205,699   $204,617    $94,864
   Ratio of operating expenses to
  average net assets                               1.62%(c)   1.58%      1.54%      1.54%      1.64%      1.97%*
   Ratio of net investment income (loss)
  to average net assets                           (0.36)%    (0.42)%    (0.24)%    (0.28)%     0.03%      0.32%*
   Portfolio turnover rate                           14%        11%        17%        19%        14%        16%
   Average commission rate per share (b)        $0.0500    $0.0490         --         --         --         --
</TABLE>

- ----------

  * Annualized

  + For the period October 22, 1991 (commencement of operations) through
September 30, 1992. 

(a) Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends.

(b) For fiscal years beginning after September 1, 1995, the SEC requires the
Fund to disclose the average commission rate paid per share for purchases and
sales of investment securities.

(c) The Fund incurred interest expense during the year ended September 30, 1997.
Excluding interest expense, the operating expense ratio would have been 1.52%.


<PAGE>   23


INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
AND RELATED RISK FACTORS
- --------------------------------------------------------------------------------
The Fund's investment objective is to seek a high level of capital appreciation
on its assets by investing primarily in the equity securities of smaller
companies (those with total market values at the time of investment of less than
$500 million) which the Adviser believes are likely to have rapid growth in
revenues and earnings and potential for above average capital appreciation.
Although the Fund may also invest in any type of fixed income instrument and may
use various hedging techniques, under normal market conditions the Fund will
invest at least 65% of its total assets in the equity securities of smaller
growth companies (as defined above). Equity securities include common stock,
preferred stock and securities convertible into or exchangeable for common or
preferred stock. Risks inherent in the Fund's investment objective and policies
are discussed below.

Equity Securities
- --------------------------------------------------------------------------------
Common stocks represent the residual ownership interest in the issuer and are
entitled to the income and increase in the value of the assets and business of
the entity after all of its obligations and preferred stock are satisfied.
Common stocks generally have voting rights. Common stocks fluctuate in price in
response to many factors including historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest rates,
investor perceptions and market liquidity.

Equity securities also include preferred stock (whether or not convertible into
common stock) and debt securities convertible into or exchangeable for common or
preferred stock. Preferred stock has a preference over common stock in
liquidation (and generally dividends as well) but is subordinated to the
liabilities of the issuer in all respects. As a general rule the market value of
preferred stock with a fixed dividend rate and no conversion element varies
inversely with interest rates and perceived credit risk, while the market price
of convertible preferred stock generally also reflects some element of
conversion value. Because preferred stock is junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the issuer
will cause greater changes in the value of a preferred stock than in a more
senior debt security with similarly stated yield characteristics. Debt
securities that are convertible into or exchangeable for preferred common stock
are liabilities of the issuer but are generally subordinated to more senior debt
included on the issuer's balance sheet. Although such securities also generally
reflect an element of conversion value, their market value also varies with
interest rates and perceived credit risk.

Smaller growth companies may offer greater potential for capital appreciation
than larger companies. Smaller growth companies usually have new products or
technologies, new distribution methods, rapid changes in industry conditions due
to regulatory or other developments, changes in management or similar
characteristics that may result not only in the expected growth in revenues but
in an accelerated or above average rate of earnings growth, which would usually
be reflected in capital appreciation. In addition, because they are less
actively followed by stock analysts and less information is available on which
to base stock price evaluations, the market may overlook favorable trends in
particular smaller growth companies, and then adjust its valuation more quickly
once investor interest is gained. Smaller growth companies may also be more
subject to a valuation catalyst (such as increased investor attention, takeover
efforts or a change in management) than larger companies.

On the other hand, higher market risks are often associated with smaller growth
companies. They may have limited product lines, markets, market share and
financial resources, or they may be dependent on a small or inexperienced
management team. In addition, their stocks may trade less frequently and in more
limited volume and be subject to greater and more abrupt price swings than
stocks of larger companies.

The Adviser believes that opportunities for capital appreciation may also be
found in the preferred stock and convertible securities of smaller growth
companies. This is particularly true in the case of companies that have
performed below expectations at the time the preferred stock or convertible
security was issued. If the company's performance has been poor enough, its
preferred stock and convertible debt securities will trade more like the common
stock than like a fixed income security and may result in above average
appreciation once it becomes apparent that performance is improving. Even if the
credit quality of the company is not in question, the market price of the
convertible security will often reflect little or no element of conversion value
if the price of its common stock has fallen substantially below the conversion
price. This leads to the possibility of capital appreciation if the price of the
common stock recovers. Although the Adviser believes that capital appreciation
opportunities may be found in these securities, it does not expect them to
constitute a major portion of the Fund's portfolio. Preferred stocks and
convertible securities have many of the same characteristics and risks as
nonconvertible debt securities described below. There is no minimum credit
rating for these securities in which the Fund may invest.


<PAGE>   24


Nonconvertible Debt Securities
- --------------------------------------------------------------------------------
Under normal market conditions, the Fund may invest (up to 35% of its total
assets) in nonconvertible debt securities. These securities include bonds,
debentures, notes, asset and mortgage backed securities and money market
instruments such as commercial paper and bankers acceptances. There is no
minimum credit rating for these securities in which the Fund may invest.
Accordingly, the Fund could invest in securities in default although the Fund
will not invest more than 5% of its assets in such securities. Fixed income
securities rated, at the time of investment, less than BBB by Standard & Poor's
Corporation ("S&P") or Baa by Moody's Investor Service ("Moody's") or which are
unrated but of comparable quality in the judgment of the Adviser, are not
investment grade and are viewed by the rating agencies as being predominantly
speculative in character and are characterized by substantial risk concerning
payments of interest and principal, sensitivity to economic conditions and
changes in interest rates, as well as by market price volatility and/or relative
lack of secondary market trading, among other risks. For further information
regarding lower rated securities, which are often known as "junk bonds", and the
risks associated therewith, see "Other Investment Techniques" and the
Description of Corporate Bond, Corporate Debt and Preferred Stock Ratings
attached in the Additional Statement as an Appendix.

Asset-Backed and Mortgage-Backed
- --------------------------------------------------------------------------------
Securities
- --------------------------------------------------------------------------------
Prepayments of principal may be made at any time on the obligations underlying
asset and mortgage backed securities and are passed on to the holders of the
asset and mortgage backed securities. As a result, if the Fund purchases such a
security at a premium, faster than expected prepayments will reduce and slower
than expected prepayments will increase yield to maturity. Conversely, if the
Fund purchases these securities at a discount, faster than expected prepayments
will increase, while slower than expected prepayments will reduce, yield to
maturity.

For temporary defensive purposes the Fund may invest up to 100% of its assets in
fixed income securities of high quality money market instruments.

OTHER INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------
AND RELATED RISK FACTORS
- --------------------------------------------------------------------------------

Foreign Securities
- --------------------------------------------------------------------------------
The Fund may invest up to 35% of its total assets in the securities of non-U.S.
issuers. These investments involve certain risks not ordinarily associated with
investments in securities of domestic issuers. These risks include fluctuations
in foreign exchange rates, future political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws or
restrictions. In addition, with respect to certain countries, there is the
possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries. 

There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to or as
uniform as those of U.S. companies. Non-U.S. securities markets, while growing
in volume, have, for the most part, substantially less volume than U.S. markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable U.S. companies. Transaction costs of
investing in non-U.S. securities markets are generally higher than in the U.S.
There is generally less government supervision and regulation of exchanges,
brokers and issuers than there is in the U.S. The Fund might have greater
difficulty taking appropriate legal action in non-U.S. courts. Non-U.S. markets
also have different clearance and settlement procedures which in some markets
have at times failed to keep pace with the volume of transactions, thereby
creating substantial delays and settlement failures that could adversely affect
the Fund's performance.

Corporate Reorganizations
- --------------------------------------------------------------------------------
Subject to the Fund's policy of investing at least 65% of its total assets in
equity securities of smaller companies, the Fund may invest without limit in
securities for which a tender or exchange offer has been made or announced and
in securities of companies for which a merger, consolidation, liquidation or
similar reorganization proposal has been announced if, in the judgment of the
Adviser, there is a reasonable prospect of capital appreciation significantly
greater than the added portfolio turnover expenses inherent in the short term
nature of such transactions. The principal risk is that such offers or proposals
may not be consummated within the time and under 


<PAGE>   25


the terms contemplated at the time of the investment, in which case, unless such
offers or proposals are replaced by equivalent or increased offers or proposals
which are consummated, the Fund may sustain a loss. For further information on
such investments, see "Other Investment Techniques" in the Additional Statement.

Options and Futures
- --------------------------------------------------------------------------------
The Fund may purchase or sell options on individual securities as well as on
indices of securities as a means of achieving additional return or of hedging
the value of the Fund's portfolio. 

A call option is a contract that gives the holder of the option the right, in
return for a premium paid, to buy from the seller the security underlying the
option at a specified exercise price at any time during the term of the option
or, in some cases, only at the end of the term of the option. The seller of the
call option has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price. A put option is a
contract that gives the holder of the option the right, in return for a premium
paid, to sell to the seller the underlying security at a specified price. The
seller of the put, on the other hand, has the obligation to buy the underlying
security upon exercise at the exercise price.

If the Fund has sold an option, it may terminate its obligation by effecting a
closing purchase transaction. This is accomplished by purchasing an option of
the same series as the option previously sold. There can be no assurance that a
closing purchase transaction can be effected when the Fund so desires.

The purchaser of an option risks a total loss of the premium paid for the option
if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unexercized but
foregoes any capital appreciation in excess of the exercise price in the case of
a call option and may be required to pay a price in excess of current market
value in the case of a put option. Options purchased and sold other than on an
exchange in private transactions also impose on the Fund the credit risk that
the counterparty will fail to honor its obligations. The Fund will not purchase
options if, as a result, the aggregate cost of all outstanding options exceeds
10% of the Fund's assets. To the extent that puts, calls, straddles and similar
investment strategies involve instruments regulated by the Commodity Futures
Trading Commission, the Fund is limited to an investment not in excess of 5% of
its total assets.

Other Investment Companies
- --------------------------------------------------------------------------------
The Fund may invest up to 10% of its total assets in other investment companies
(not more than 5% of the Fund's total assets may be invested in any one
investment company and the Fund may not invest in more than 3% of the voting
securities of any one investment company).

Warrants and Rights
- --------------------------------------------------------------------------------
The Fund may invest up to 5% of its total assets in warrants or rights (other
than those acquired in units or attached to other securities) which entitle the
holder to buy equity securities at a specific price during or at the end of a
specific period of time.

Unseasoned Companies
- --------------------------------------------------------------------------------
The Fund may invest in securities of unseasoned companies. In view of the
limited liquidity, more speculative prospects and more volatile pricing
attributes, the Fund will not invest more than 10% of the Fund's assets (at the
time of purchase) in equity securities of non-investment companies (including
predecessors) that have operated less than three years.

When Issued, Delayed Delivery
- --------------------------------------------------------------------------------
Securities and Forward Commitments
- --------------------------------------------------------------------------------
The Fund may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis in excess
of customary settlement periods for the type of security involved. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a when, as and if issued security.
When such transactions are negotiated, the price is fixed at the time of the
commitment, with payment and delivery taking place in the future, generally a
month or more after the date of the commitment. While the Fund will only enter
into a forward commitment with the intention of actually acquiring the security,
the Fund may sell the security before the settlement date if it is deemed
advisable.


<PAGE>   26



Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate with its Custodian (as hereinafter
defined) cash or liquid securities in an aggregate amount at least equal to the
amount of its outstanding forward commitments.

Short Sales
- --------------------------------------------------------------------------------
The Fund may make short sales of securities. A short sale is a transaction in
which the Fund sells a security it does not own in anticipation that the market
price of that security will decline. The Fund expects to make short sales both
to obtain capital gains from anticipated declines in securities and as a form of
hedging to offset potential declines in long positions in the same or similar
securities. The short sale of a security is considered a speculative investment
technique.

When the Fund makes a short sale, it must borrow the security sold short and
deliver it to the broker-dealer through which it made the short sale in order to
satisfy its obligation to deliver the security upon conclusion of the sale. The
Fund may have to pay a fee to borrow particular securities and is often
obligated to pay over any payments received on such borrowed securities.

The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. government
securities or other highly liquid securities. The Fund will also be required to
deposit similar collateral with its Custodian to the extent, if any, necessary
so that the value of both collateral deposits in the aggregate is at all times
equal to the greater of the price at which the security is sold short or 100% of
the current market value of the security sold short. Depending on arrangements
made with the broker-dealer from which it borrowed the security regarding
payment over of any payments received by the Fund on such security, the Fund may
not receive any payments (including interest) on its collateral deposited with
such broker-dealer.

If the price of the security sold short increases between the time of the short
sale and the time the Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a capital gain.
Any gain will be decreased, and any loss increased, by the transaction costs
described above. Although the Fund's gain is limited to the price at which it
sold the security short, its potential loss is theoretically unlimited.

The market value of the securities sold short of any one issuer will not exceed
either 5% of the Fund's total assets or 5% of such issuer's voting securities.
The Fund will not make a short sale, if, after giving effect to such sale, the
market value of all securities sold short exceeds 25% of the value of its assets
or the Fund's aggregate short sales of a particular class of securities exceeds
25% of the outstanding securities of that class. The Fund may also make short
sales "against the box" without respect to such limitations. In this type of
short sale, at the time of the sale, the Fund owns or has the immediate and
unconditional right to acquire at no additional cost the identical security.

Restricted and Illiquid Securities
- --------------------------------------------------------------------------------
The Fund may invest up to 15% of its net assets in securities the markets for
which are illiquid. Illiquid securities include most of the securities the
disposition of which is subject to substantial legal or contractual
restrictions. The sale of illiquid securities often requires more time and
results in higher brokerage charges or dealer discounts and other selling
expenses than does the sale of securities eligible for trading on national
securities exchanges or in the over-the-counter markets. Restricted securities
may sell at a price lower than similar securities that are not subject to
restrictions on resale. Securities freely salable among qualified institutional
investors under special rules adopted by the Securities and Exchange Commission
may be treated as liquid if they satisfy liquidity standards established by the
Board of Directors. The continued liquidity of such securities is not as well
assured as that of publicly traded securities, and accordingly the Board of
Directors will monitor their liquidity.

Repurchase Agreements
- --------------------------------------------------------------------------------
The Fund may invest in repurchase agreements, which are agreements pursuant to
which securities are acquired by the Fund from a third party with the
understanding that they will be repurchased by the seller at a fixed price on an
agreed date. These agreements may be made with respect to any of the portfolio
securities in which the Fund is authorized to invest. Repurchase agreements may
be characterized as loans secured by the underlying securities. The Fund may
enter into repurchase agreements with (i) member banks of the Federal Reserve
System having total assets in excess of $500 million and (ii) securities
dealers, provided that such banks or dealers meet the creditworthiness standards
established by the Fund's Board of Directors ("Qualified Institutions"). The
Adviser will monitor the continued creditworthiness of Qualified Institutions,
subject to the supervision of the 


<PAGE>   27


Fund's Board of Directors. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
date of maturity of the purchased security. The collateral is marked to market
daily. Such agreements permit the Fund to keep all its assets earning interest
while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature.

The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Fund's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Fund may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the Fund's Custodian at all
times in an amount at least equal to the repurchase price, including accrued
interest. If the seller fails to repurchase the securities, the Fund may suffer
a loss to the extent proceeds from the sale of the underlying securities are
less than the repurchase price. The Fund will not enter into repurchase
agreements of a duration of more than seven days if, taken together with all
other illiquid securities in the Fund's portfolio, more than 15% of its net
assets would be so invested.

Loans of Portfolio Securities
- --------------------------------------------------------------------------------
To increase income, the Fund may lend its portfolio securities to securities
broker-dealers or financial institutions if (1) the loan is collateralized in
accordance with applicable regulatory requirements including collateralization
continuously at no less than 100% by marking to market daily, (2) the loan is
subject to termination by the Fund at any time, (3) the Fund receives reasonable
interest or fee payments on the loan, (4) the Fund is able to exercise all
voting rights with respect to the loaned securities and (5) the loan will not
cause the value of all loaned securities to exceed 33% of the value of the
Fund's assets.

If the borrower fails to maintain the requisite amount of collateral, the loan
automatically terminates and the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over the value of the collateral. As with any extension of credit, there are
risks of delay in recovery and in some cases even loss of rights in collateral
should the borrower of the securities fail financially.

Borrowing
- --------------------------------------------------------------------------------
The Fund may not borrow money except for (1) short-term credits from banks as
may be necessary for the clearance of portfolio transactions, and (2) borrowings
from banks for temporary or emergency purposes, including the meeting of
redemption requests, which would otherwise require the untimely disposition of
its portfolio securities. Borrowing may not, in the aggregate, exceed 15% of
assets after giving effect to the borrowing and borrowing for purposes other
than meeting redemptions may not exceed 5% of the value of the Fund's assets
after giving effect to the borrowing. The Fund will not make additional
investments when borrowings exceed 5% of assets. The Fund may mortgage, pledge
or hypothecate assets to secure such borrowings.

Portfolio Turnover
- --------------------------------------------------------------------------------
The investment policies of the Fund may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest or currency exchange
rates. The portfolio turnover is expected to be less than 100%. 

Portfolio turnover generally involves some expense to the Fund, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. The portfolio turnover rate
is computed by dividing the lesser of the amount of the securities purchased or
securities sold by the average monthly value of securities owned during the year
(excluding securities whose maturities at acquisition were one year or less).

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The Fund's Board of Directors (who, with its officers, are described in the
Additional Statement) has overall responsibility for the management of the Fund.
The Board of Directors decides upon matters of general policy and reviews the
actions of Gabelli & Company, Inc. (the "Distributor"), the Adviser and the
Sub-Administrator (as defined below). Pursuant to an Investment Advisory
Contract with the Fund, the Adviser provides a continuous investment program for
the Fund's portfolio; provides investment research and makes and executes
recommendations for the purchase and sale of securities and the exercise of all
voting and other rights appertaining thereto; provides facilities and personnel
required for the Fund's administrative management; supervises the performance of
administrative and professional services provided by others, and pays the


<PAGE>   28



compensation of the Sub-Administrator and all officers and directors of the Fund
who are its affiliates. Mr. Mario J. Gabelli -- Portfolio Manager, will be
primarily responsible for the day-to-day management of The Gabelli Small Cap
Growth Fund. Mr. Gabelli is Chairman, Chief Investment Officer and a Director of
the Adviser. As compensation for its services and the related expenses borne by
the Adviser, the Fund pays the Adviser a fee, computed daily and payable
monthly, equal, on an annual basis, to 1.00% of the Fund's average daily net
assets, which is higher than that paid by most mutual funds. For the fiscal
years ended September 30, 1995, September 30, 1996 and September 30, 1997, the
Adviser received fees of $2,112,855, $2,276,908 and $2,269,141, respectively.
The Adviser is located at One Corporate Center, Rye, New York 10580-1434. 

The Adviser was formed in 1980 and as of December 31, 1997 acts as investment
adviser to the following funds with aggregate assets in excess of $5.5 billion:

<TABLE>
<CAPTION>
                                           Net Assets
Open-end funds:                              12/31/97
- ---------------                               -------
                                        (in millions)
<S>                                            <C>   
Gabelli Asset Fund                             $1,334
Gabelli Growth Fund                               952
Gabelli Gold Fund, Inc.                             8
Gabelli Value Fund Inc.                           597
Gabelli Small Cap Growth Fund                     293
Gabelli Equity Income Fund                         76
Gabelli U.S. Treasury Money Market Fund           283
Gabelli ABC Fund                                   35
Gabelli Global Telecommunications Fund            118
Gabelli Global Interactive
  Couch Potato(R) Fund                             41
Gabelli Global Convertible Securities Fund          9
Gabelli International Growth Fund, Inc.            18
Gabelli Capital Asset Fund                        104

Closed-end funds:
- -----------------
Gabelli Convertible
  Securities Fund, Inc.                           122
Gabelli Equity Trust Inc.                       1,201
Gabelli Global Multimedia
  Trust Inc.                                      140
</TABLE>


Gabelli & Company, Inc., the Distributor of each open-end fund's respective
shares, is an indirect majority owned subsidiary of the Adviser. GAMCO
Investors, Inc. ("GAMCO"), a wholly owned subsidiary of the Adviser, acts as
investment adviser for individuals, pension trusts, profit sharing trusts and
endowments. As of December 31, 1997, GAMCO had aggregate assets in excess of
$6.0 billion under its management. Gabelli LLC is an affiliated Investment
Adviser to The Gabelli Westwood Funds with aggregate assets in excess of $266
million. Gabelli Fixed Income LLC is an affiliated Investment Adviser to The
Treasurer's Fund, Inc. and separate accounts with aggregate assets in excess of
$1.5 billion. Mr. Mario J. Gabelli may be deemed a "controlling person" of the
Adviser and the Distributor on the basis of his ownership of stock of the
Adviser.

In addition to the fees of the Adviser, the Fund is responsible for the payment
of all its other expenses incurred in the operation of the Fund, which include,
among other things, expenses for legal and independent auditor's services, costs
of printing all materials sent to shareholders, charges of State Street Bank and
Trust Company (the "Custodian", "Transfer Agent" and dividend paying agent), and
any persons hired by the Fund, Securities and Exchange Commission fees, fees and
expenses of unaffiliated directors, accounting and printing costs for reports
and similar materials sent to shareholders, the Fund's pro rata portion of
membership fees in trade organizations, fidelity bond coverage for the Fund's
officers and employees, interest, brokerage and other trading costs, taxes,
expenses of qualifying the Fund for sale in various jurisdictions, expense of
the Fund's distribution plan adopted under Rule 12b-1, expenses of personnel
performing shareholder servicing functions, litigation and other extraordinary
or non-recurring expenses and other expenses properly payable by the Fund.

Sub-Administrator
- --------------------------------------------------------------------------------
The Adviser has entered into a Sub-Administration Contract with BISYS Fund
Services, Inc. ("BISYS" or the "Sub-Administrator") pursuant to which the
Sub-Administrator provides certain administrative services necessary for the
Fund's operations. These services include the preparation and distribution of
materials for meetings of the Fund's 


<PAGE>   29


Board of Directors, compliance testing of Fund activities and assistance in the
preparation of proxy statements, reports to shareholders and other
documentation. The Sub-Administrator's services do not include the investment
advisory and portfolio management services provided by the Adviser. For the
services and related expenses borne by BISYS, the Adviser pays it a prorated
monthly fee at the annual rate of .0625% of the average net assets of all the
funds advised by such Adviser, (with a minimum annual fee of $30,000 per
portfolio) on the first $350 million of funds advised by the Adviser and
administered by BISYS and .0425% of any net assets above $350 million, and
 .0225% of any assets above $700 million, which, together with the services to be
rendered, are subject to negotiation between the parties and both parties retain
the right unilaterally to terminate the arrangement on not less than 60 days'
notice. BISYS has its office at 3435 Stelzer Road, Columbus, Ohio 43219.


DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
The Board of Directors of the Fund has approved as being in the best interests
of the Fund and its shareholders a Distribution Plan which authorizes payments
by the Fund in connection with the distribution of its shares at an annual rate
of up to .25% of the Fund's average daily net assets. 

Payments may be made by the Fund under the Distribution Plan for the purpose of
financing any activity primarily intended to result in the sale of shares of the
Fund as determined by the Board of Directors. Such activities typically include
advertising; compensation for sales and sales marketing activities of the
Distributor and other banks, broker-dealers and service providers; shareholder
account servicing; production and dissemination of prospectuses and sales and
marketing materials; and capital or other expenses of associated equipment,
rent, salaries, bonuses, interest and other overhead. To the extent any activity
is one which the Fund may finance without a Distribution Plan, the Fund may also
make payments to finance such activity outside of the Plan and not subject to
its limitations. 

The Plan has been implemented by written agreements between the Fund and/or the
Distributor and each person (including the Distributor) to which payments may be
made. Administration of the Plan is regulated by Rule 12b-1 under the Investment
Company Act of 1940, which includes requirements that the Board of Directors
receive and review, at least quarterly, reports concerning the nature and
qualification of expenses for which payments are made, that the Board of
Directors approve all agreements implementing the Plan and that the Plan may be
continued from year to year only if the Board of Directors concludes, at least
annually, that continuation of the Plan is likely to benefit shareholders. To
the extent any of these payments are based on allocations by the Distributor,
the Fund may be considered to be participating in joint distribution activities
with other funds distributed by the Distributor. Any such allocations would be
subject to approval by the Fund's non-interested Directors and would be based on
such factors as the net assets of each Fund, the number of shareholder inquiries
and similar pertinent criteria. For the fiscal year ended September 30, 1997,
the Fund incurred distribution costs payable to the Adviser, of $567,338 or
0.25% of average net assets, under the Plan.

PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Shares of the Fund are sold at the net asset value per share next determined
after receipt of an order by the Fund's Distributor or Transfer Agent in proper
form with accompanying check or bank wire payments arrangements satisfactory to
the Fund. The minimum initial investment is $1,000. There is no minimum initial
investment for accounts establishing an Automatic Investment Plan. Custodial
accounts for minor children require only $1,000. There is no minimum for
subsequent investments. Although most shareholders elect not to receive stock
certificates, certificates for whole shares only can be obtained on specific
written request to the Transfer Agent. 

Shares of the Fund may be purchased through registered broker-dealers. Certain
broker-dealers may charge the investor a fee for their services. Such fees may
vary among broker-dealers, and such broker-dealers may impose higher initial or
subsequent investment requirements than those established by the Fund. Services
provided by broker-dealers may include allowing the investor to establish a
margin account and to borrow on the value of the Fund's shares in that account.

Prospectuses, sales material and applications may be obtained from the
Distributor. The Fund and its Distributor reserve the right in their sole
discretion (1) to suspend the offerings of the Fund's shares and (2) to reject
purchase orders when, in the judgment of the Fund's management, such rejection
is in the best interest of the Fund. The net asset value per share of the Fund
is determined as of the close of the regular session of the New York Stock
Exchange, which is generally 4:00 p.m., Eastern time, on each day that trading
is conducted on the New York Stock Exchange by dividing the value of the Fund's
net assets (i.e., the value of its securities and other 

<PAGE>   30

assets less its liabilities, including expenses payable or accrued) by the
number of shares outstanding at the time the determination is made. Portfolio
securities for which market quotations are readily available are valued at
market value as determined by the last quoted sale price prior to the valuation
time on the valuation date in the case of securities traded on securities
exchanges or other markets for which such information is available. Other
readily marketable securities are valued at the average of the latest bid and
asked quotations for such securities prior to the valuation time. Debt
securities with remaining maturities of 60 days or less are valued at amortized
cost. All other assets are valued at fair value as determined by or under the
supervision of the Board of Directors of the Fund. See "Determination of Net
Asset Value" in the Additional Statement.

Mail
- --------------------------------------------------------------------------------
To make an initial purchase by mail, send a completed subscription order form
with a check for the amount of the investment payable to "The Gabelli Small Cap
Growth Fund" to:
                                THE GABELLI FUNDS
                                  P.O. BOX 8308
                              BOSTON, MA 02266-8308

Subsequent purchases do not require a completed application and can be made by
(1) mailing a check to the same address noted above or by (2) bank wire, as
indicated below. The exact name and number of the shareholder's account should
be clearly indicated. 

Checks will be accepted if drawn in U.S. currency on a domestic bank for less
than $100,000. U.S. dollar checks drawn against a non-U.S. bank may be subject
to collection delays and will be accepted only upon actual receipt of funds by
the Transfer Agent. Bank collection fees may apply. Bank or certified checks for
investments of $100,000 or more will be required unless the investor elects to
invest by bank wire as described below. The Fund reserves the right to reject
purchases by check made payable to someone other than the Fund.

Bank Wire
- --------------------------------------------------------------------------------
To initially purchase shares of the Fund using the wire system for transmittal
of money among banks, an investor should first telephone the Fund at
1-800-422-3554 to obtain a new account number. The investor should then instruct
a Federal Reserve System member bank to wire funds to:

                       State Street Bank and Trust Company
                      ABA # 011-0000-28 REF DDA # 9904-6187
                           Attn: Shareholder Services
                      Re: The Gabelli Small Cap Growth Fund
                   A/C # ____________________________________
                          Account of (Registered Owner)
                      225 Franklin Street, Boston, MA 02110

For initial purchases, the investor should promptly complete and mail the
subscription order form to the address shown above for mail purchases. There may
be a charge by your bank for transmitting the money by bank wire but State
Street Bank and Trust Company does not charge investors in the Fund for the
receipt of wire transfers. If you are planning to wire funds, it is suggested
that you instruct your bank early in the day so the wire transfer can be
accomplished the same day.

Personal Delivery
- --------------------------------------------------------------------------------
Deliver a check made payable to "The Gabelli Small Cap Fund" along with a
completed subscription order form to:
                                The Gabelli Funds
                          The BFDS Building, 6th Floor
                               Two Heritage Drive
                             North Quincy, MA 02171

Telephone Investment Plan
- --------------------------------------------------------------------------------
You may purchase additional shares of the Fund by telephone through the
Automated Clearing-house (ACH) system as long as your bank is a member of the
ACH system and you have a completed, approved investment plan application on
file with our Transfer Agent. The funding for your purchase will be
automatically deducted from the ACH eligible account you designate on the
application. Your investment will normally be credited to your mutual fund
account on the first business day following your telephone request. Your request
must be received no later than 4:00 p.m. eastern time. There is a minimum of
$100 for each telephone investment. Any subsequent 

<PAGE>   31

changes in banking information must be submitted in writing and accompanied by a
sample voided check. To initiate an ACH purchase, please call 1-800-GABELLI
(422-3554) or 1-800-872-5365. Fund shares purchased through the Telephone or
Automatic Investment Plan will not be available for redemption for up to fifteen
(15) days following the purchase date.

Automatic Investment Plan
- --------------------------------------------------------------------------------
The Fund offers an automatic monthly investment plan, details of which can be
obtained from the Distributor. There is no minimum initial investment for
accounts establishing an Automatic Investment Plan.

Systematic Withdrawal Plan
- --------------------------------------------------------------------------------
The Fund offers a systematic withdrawal program for shareholders whereby they
can authorize an automatic redemption on a monthly, quarterly or annual basis.
Details can be obtained from the Distributor.

Other Investors
- --------------------------------------------------------------------------------
No minimum initial investment is required for officers, directors or full-time
employees of the Fund, other investment companies managed by the Adviser, the
Adviser, the Administrator, the Distributor or their affiliates, including
members of the "immediate family" of such individuals and retirement plans and
trusts for their benefit. The term "immediate family" refers to spouses,
children and grandchildren (adopted or natural), parents, grandparents,
siblings, a spouse's siblings, a sibling's spouse and a sibling's children.

REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Upon receipt by the Distributor or the Transfer Agent of a redemption request in
proper form, shares of the Fund will be redeemed at their next determined net
asset value. Redemption requests received after the time as of which the Fund's
net asset value is determined on a particular day will be redeemed at the net
asset value of the Fund determined on the next day that net asset value is
determined. Checks for redemption proceeds will normally be mailed to the
shareholder's address of record within seven days, but will not be mailed until
all checks in payment for the purchase of the shares to be redeemed have been
honored, which may take up to 15 days. Redemption requests may be made by letter
to the Transfer Agent, specifying the name of the Fund, the dollar amount or
number of shares to be redeemed, and the account number. The letter must be
signed in exactly the same way the account is registered (if there is more than
one owner of the shares, all must sign) and, if any certificates for the shares
to be redeemed are outstanding, presentation of such certificates properly
endorsed is also required. Signatures on a redemption request and/or
certificates must be guaranteed by an "eligible guarantor institution" as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1933, which
includes certain banks, brokers, dealers, credit unions, securities exchanges
and associations, clearing agencies and savings associations (signature
guarantees by notaries public are not acceptable). Shareholders may also redeem
Fund shares through certain registered broker-dealers, who have made
arrangements with the Fund permitting them to redeem shares by telephone or
facsimile transmission and who may charge shareholders a fee for this service if
they have not received any payments under the Distribution Plan. 

Further documentation, such as copies of corporate resolutions and instruments
of authority, are normally requested from corporations, administrators,
executors, personal representatives, trustees or custodians to evidence the
authority of the person or entity making the redemption request. 

If the Board of Directors should determine that it would be detrimental to the
remaining shareholders of the Fund to make payment wholly or partly in cash, the
Fund may pay the redemption price in whole or in part by a distribution in kind
of securities from the portfolio of the Fund, in lieu of cash, in conformity
with applicable rules of the Securities and Exchange Commission. Under such
circumstances, shareholders of the Fund receiving distributions in kind of
securities will incur brokerage commissions when they dispose of the securities.

The Fund may suspend the right of redemption or postpone the date of payment for
more than seven days during any period when (1) trading on the New York Stock
Exchange is restricted or the Exchange is closed, other than customary weekend
and holiday closings; (2) the Securities and Exchange Commission has by order
permitted such suspension or (3) an emergency, as defined by rules of the
Securities and Exchange Commission, exists making disposal of portfolio
investments or determination of the value of the net assets of the Fund not
reasonably practicable. 

To minimize expenses, the Fund reserves the right to redeem, upon not less than
30 days notice, all shares of the Fund in an account (other than an IRA) which
as a result of shareholder redemption has a value below $500. However, a
shareholder will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account. 
<PAGE>   32

Telephone Redemption
- --------------------------------------------------------------------------------
By Check
- --------------------------------------------------------------------------------
The Fund accepts telephone requests for redemption of unissued shares, subject
to a $25,000 limitation. By calling either 1-800-GABELLI (422-3554) or
1-800-872-5365, you may request that a check be mailed to the address of record
on the account, provided that the address has not changed within thirty (30)
days prior to your request. The check will be made payable to the person in
whose name the account is registered and will normally be mailed within seven
(7) days. 

By Bank Wire
- --------------------------------------------------------------------------------
The Fund accepts telephone requests for wire redemption in excess of $1,000 (but
subject to a $25,000 limitation) to a predesignated bank either on the
subscription order form or in a subsequent written authorization with the
signature guaranteed. The Fund accepts signature guaranteed written requests for
redemption by bank wire without limitation. The proceeds are normally wired on
the following business day. Your bank must be either a member of the Federal
Reserve System or have a correspondent bank which is a member. Any change to the
banking information made at a later date must be submitted in writing with a
signature guarantee. 

Requests for telephone redemption must be received between 9:00 a.m. and 4:00
p.m. eastern time. If your telephone call is received after this time or on a
day when the New York Stock Exchange is not open, the request will be entered
for the following business day. Shares are redeemed at the net asset value next
determined following your request. Fund shares purchased by check or through the
automatic purchase plan will not be available for redemption for up to fifteen
(15) days following the purchase. Shares held in certificate form must be
returned to the Transfer Agent for redemption of shares. Telephone redemption is
not available for IRAs. The proceeds of a telephone redemption may be directed
to an existing account in another mutual fund advised by the Adviser, provided
the account is registered in the redeeming shareholder's name. Such purchase
will be made at the respective net asset value plus applicable sales charge, if
any, with credit for any sales charge previously charged by the Distributor. 

The Fund and its Transfer Agent will not be liable for following telephone
instructions reasonably believed to be genuine. In this regard, the Fund and its
Transfer Agent require personal identification information before accepting a
telephone redemption. If the Fund or its Transfer Agent fail to use reasonable
procedures, the Fund might be liable for losses due to fraudulent instructions.

RETIREMENT PLANS
- --------------------------------------------------------------------------------
The Fund has available a form of Individual Retirement Account ("IRA") for
investment in Fund shares which may be
obtained from the Distributor. The minimum investment required to open an IRA
for investment in shares of the Fund is $1,000 for an individual except that
both the individual and his or her spouse may establish separate IRAs if their
combined investment is $1,250. There is no minimum for additional investment in
an IRA account. 

Investors who are self-employed may purchase shares of the Fund through
tax-deductible contributions to retirement plans for self-employed persons,
known as Keogh or H.R. 10 plans. The Fund does not currently act as Sponsor for
such plans. Fund shares may also be a suitable investment for other types of
qualified pension or profit-sharing plans which are employer-sponsored,
including deferred compensation or salary reduction plans known as "401(k)
Plans" which give participants the right to defer portions of their compensation
for investment on a tax-deferred basis until distributions are made from the
plans. The minimum initial investment for an individual under such plans is
$1,000 and there is no minimum for additional investments. Under the Code,
individuals may make wholly or partly tax deductible IRA contributions of up to
$2,000 annually, depending on whether they are active participants in an
employer-sponsored retirement plan and on their income level. However, dividends
and distributions held in the account are not taxed until withdrawn in
accordance with the provisions of the Code. An individual with a non-working
spouse may establish a separate IRA for the spouse under the same conditions and
contribute a maximum of $4,000 to either or both IRAs provided that no more than
$2,000 may be contributed to the IRA of either spouse. Beginning January 1,
1998, investors satisfying statutory income level requirements may make
non-deductible contributions up to $2,000 annually to a Roth IRA, distributions
from which are not subject to tax if a statutory five year holding period
requirement is satisfied. New for 1998, the Fund also makes available education
IRAs. Education IRAs permit eligible individuals to contribute up to $500 per
year per beneficiary under 18 years old. The minimum initial investment to an
Education IRA is $250. Distributions from an Education IRA are generally
excluded from income when used for qualified higher education expenses.

Investors should be aware that they may be subject to penalties or additional
tax on contributions or withdrawals from IRAs or other retirement plans which
are not permitted by the applicable provisions of the Code. Persons 
<PAGE>   33

desiring information concerning investments through IRA accounts or other
retirement plans should write or telephone the Distributor. 

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
The Fund currently intends to pay dividends and capital gains distributions, if
any, on an annual basis. Each dividend and capital gains distribution, if any,
declared by the Fund on its outstanding shares will, unless the shareholder
elects otherwise, be paid on the payment date fixed by the Board of Directors in
additional shares of the Fund having an aggregate net asset value as of the
ex-dividend date of such dividend or distribution equal to the cash amount of
such distribution. An election to receive dividends and distributions may be
changed by notifying the Fund in writing at any time prior to the record date
for a particular dividend or distribution. There are no sales or other charges
in connection with the reinvestment of dividends and capital gains
distributions. There is no fixed dividend rate, and there can be no assurance
that the Fund will pay any dividends or realize any capital gains.

The Fund has qualified and intends to continue to qualify as a "Regulated
Investment Company" under the Code and thus is not subject to Federal income tax
on that portion of its net investment income and realized capital gain that it
pays out to its shareholders. 

Failure to qualify would result in the Fund being subject to Federal income tax
on its taxable income and gains.

A redemption of shares will generally result in the recognition of gain or loss
for income tax purposes equal to the difference between the proceeds of the
redemption and the shareholder's basis in the shares redeemed.

Dividends from net investment income and distributions from realized short-term
capital gains are taxable to the recipient shareholders as ordinary income,
whether paid in cash or in additional Fund shares. In the case of corporate
shareholders, the portion of the Fund's distributions attributable to dividends
received by the Fund on its investments in common or preferred stock may be
eligible for the dividends received deduction as long as certain requirements
are satisfied by the shareholder. Distributions out of long-term capital gains
are taxable to the recipient as long-term capital gains. Shareholders will be
advised as to what portion of capital gains are to be treated as "mid-term" or
"long term" with respect to the maximum tax rate for such gains (for
noncorporate shareholders, 28% for mid-term gains and 20% for long term gains
(10% for noncorporate shareholders who are subject to the 15% marginal tax
bracket for ordinary income)). Dividends and distributions declared by the Fund
may also be subject to state and local taxes. Prior to investing in shares of
the Fund, prospective shareholders may wish to consult their tax advisers
concerning the Federal, state and local tax consequences of such investment.

GENERAL INFORMATION
- --------------------------------------------------------------------------------
Description of Shares, Voting Rights
- --------------------------------------------------------------------------------
and Liabilities
- --------------------------------------------------------------------------------
The Fund is a series of Gabelli Equity Series Funds, Inc., (the "Corporation")
which was incorporated in Maryland on July 25, 1991. The authorized capital
stock consists of one billion shares of stock having a par value of one tenth of
one cent ($.001) per share, one hundred million of which have been initially
classified as Fund shares. The Corporation is not required, and does not intend,
to hold regular annual shareholder meetings, but may hold special meetings for
consideration of proposals requiring shareholder approval, such as changing
fundamental policies or upon the written request of 10% of the Fund's shares to
replace its Directors. The Corporation's Board of Directors is authorized to
divide the unissued shares into separate series of stock, each series
representing a separate, additional portfolio. The Board currently has
authorized the division of the unissued shares into two series each having a
separate portfolio. Shares of all series will have identical voting rights,
except where by law, certain matters must be approved by a majority of the
shares of the affected series. Each share of any series of shares when issued
has equal dividend, liquidation (see "Redemption of Shares") and voting rights
within the series for which it was issued and each fractional share has those
rights in proportion to the percentage that the fractional share represents of a
whole share. Shares will be voted in the aggregate. 

There are no conversion or preemptive rights in connection with any shares of
the Fund. All shares, when issued in accordance with the terms of the offering,
will be fully paid and nonassessable. Shares will be redeemed at net asset
value, at the option of the shareholder. 

The Fund sends semi-annual and audited annual reports to all of its shareholders
which include a list of portfolio securities. Unless it is clear that a
shareholder is a nominee for the account of an unrelated person or a shareholder
otherwise specifically requests in writing, the Fund may send a single copy of
semi-annual, annual 
<PAGE>   34

and other reports to shareholders to all accounts at the same address and all
accounts of any person at that address. 

The shares of the Fund have noncumulative voting rights which means that the
holders of more than 50% of the shares can elect 100% of the directors if the
holders choose to do so, and, in that event, the holders of the remaining shares
will not be able to elect any person or persons to the Board of Directors.
Unless specifically requested by an investor who is a shareholder of record, the
Fund does not issue certificates evidencing Fund shares.

Shareholder Approval
- --------------------------------------------------------------------------------
Other than elections of Directors, which is by plurality, any matter for which
shareholder approval is required by the Investment Company Act of 1940 requires
the affirmative vote of at least a "majority" (as defined by the Investment
Company Act of 1940) of the outstanding voting securities of the Fund or the
Corporation at a meeting called for the purpose of considering such approval. A
majority of the Fund's outstanding securities is the lesser of (1) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are present in person or by proxy or (2) more than 50% of the outstanding
shares.

Performance Information
- --------------------------------------------------------------------------------
The Fund may furnish data about its investment performance in advertisements,
sales literature and reports to shareholders. "Total return" represents the
annual percentage change in value of $1,000 invested at the maximum public
offering price for the one, five and ten year periods (if applicable) and the
life of the Fund through the most recent calendar quarter, assuming reinvestment
of all dividends and distributions. Quotations of "yield" will be based on the
investment income per share earned during a particular 30 day period, less
expenses accrued during the period, with the remainder being divided by the
maximum offering price per share on the last day of the period. The Fund may
also furnish total return and yield calculations for other periods based on
investments at various sales charge levels or net asset values. 

Custodian, Transfer Agent and
- --------------------------------------------------------------------------------
Dividend Disbursing Agent
- --------------------------------------------------------------------------------
State Street Bank and Trust Company is the Custodian for the Fund's cash and
securities as well as the Transfer and Dividend Disbursing Agent for its shares.
Boston Financial Data Services, Inc., an affiliate of State Street Bank and
Trust Company performs the shareholder services on behalf of State Street and is
located at The BFDS Building, Two Heritage Drive, North Quincy, MA 02171. State
Street Bank and Trust Company does not assist in and is not responsible for
investment decisions involving assets of the Fund. 

Independent Auditors
- --------------------------------------------------------------------------------
Ernst & Young LLP has been appointed independent auditors for the Fund, and is
located at 787 Seventh Ave., New York, NY 10019.

Information for Shareholders
- --------------------------------------------------------------------------------
All shareholder inquiries regarding administrative procedures including the
purchase and redemption of shares should be directed to the Distributor, Gabelli
& Company, Inc., One Corporate Center, Rye, New York 10580-1434. For assistance,
call 1-800-GABELLI (1-800-422-3554) or through the internet at
http://www.gabelli.com. 

As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Adviser is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Adviser does not expect that the Fund will incur significant
operating expenses or be required to incur material costs to be year 2000
compliant. Although the Adviser does not anticipate that the year 2000 issue
will have a material impact on the Fund's ability to provide service at current
levels, there can be no assurance that steps taken in preparation for the year
2000 will be sufficient to avoid any adverse impact on the Fund.

Upon request, Gabelli & Company, Inc. will provide without charge, a paper copy
of this Prospectus to investors or their representatives who received this
Prospectus in an electronic format. 

This Prospectus omits certain information contained in the Registration
Statement filed with the Securities and Exchange Commission. Copies of the
Registration Statement including items omitted herein, may be obtained from the
Commission by paying the charges prescribed under its rules and regulations. The
Statement of Additional Information included in such Registration Statement may
be obtained without charge from the Fund or its Distributor.


<PAGE>   35
                        GABELLI EQUITY SERIES FUNDS, INC.
                         THE GABELLI EQUITY INCOME FUND
                        THE GABELLI SMALLCAP GROWTH FUND
                              One Corporate Center
                            Rye, New York 10580-1434
                    Telephone 1-800-GABELLI (1-800-422-3554)

                       STATEMENT OF ADDITIONAL INFORMATION

                                January 28, 1998

     This Statement of Additional Information ("Additional Statement") relates
to The Gabelli Equity Income Fund (the "Equity Income Fund") and The Gabelli
Small Cap Growth Fund (the "Small Cap Fund") (each a "Fund" collectively the
"Funds") which are series of Gabelli Equity Series Funds, Inc., a Maryland
corporation (the "Corporation"), and is not a prospectus and is only authorized
for distribution when preceded or accompanied by the relevant Fund's prospectus
dated January 28, 1998, as supplemented from time to time (the "Prospectus").
This Statement of Additional Information contains additional and more detailed
information than that set forth in the Prospectus and should be read in
conjunction with the Prospectus, additional copies of which may be obtained
without charge by writing or telephoning the Fund at the address and telephone
number set forth above.


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           -----

              <S>                                                          <C>
              Other Investment Techniques                                  B-2

              The Adviser                                                  B-5

              The Distributor                                              B-6

              Directors and Officers                                       B-7

              Investment Restrictions                                      B-10

              Portfolio Transactions and Brokerage                         B-11

              Purchase and Redemption of Shares                            B-13

              Determination of Net Asset Value                             B-13

              Dividends, Distributions and Taxes                           B-13

              Investment Performance Information                           B-16

              Appendix to Statement of Additional Information              B-17

              Financial Statements                                         B-21
</TABLE>




<PAGE>   36




                           OTHER INVESTMENT TECHNIQUES

Securities Subject to Reorganization

     Subject to each Fund's policy of investing at least 65% of its total assets
in income producing equity securities (Equity Income Fund) or small company
equity securities (Small Cap Fund) each Fund may invest without limit in
securities for which a tender or exchange offer has been made or announced and
in securities of companies for which a merger, consolidation, liquidation or
reorganization proposal has been announced if, in the judgment of Gabelli Funds,
Inc. (the "Adviser"), there is a reasonable prospect of capital appreciation
significantly greater than the brokerage and other transaction expenses
involved. (See "Other Investment Techniques and Related Risk Factors" in the
Prospectus.)

     In general, securities which are the subject of such an offer or proposal
sell at a premium to their historic market price immediately prior to the
announcement of the offer or may also discount what the stated or appraised
value of the security would be if the contemplated transaction were approved or
consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by shareholders of the
prospective portfolio company as a result of the contemplated transaction; or
fails adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Adviser which must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be received as a
result of the contemplated transaction but also the financial resources and
business motivation of the offeror and the dynamics and business climate when
the offer of proposal is in process. In making the investments each Fund will
not violate any of its investment restrictions (see below, "Investment
Restrictions") including the requirement that, (a) as to 75% of its total
assets, it will not invest more than 5% of its total assets in the securities of
any one issuer and (b) it will not invest more than 25% of its total assets in
any one industry. Since such investments are ordinarily short-term in nature,
they will tend to increase the turnover ratio of the Fund thereby increasing its
brokerage and other transaction expenses (see "Dividends, Distributions and
Taxes" in the Prospectus).

Nonconvertible Debt Securities

     As disclosed in the Prospectus, up to 35% of each Fund's total assets may
be invested in lower quality nonconvertible debt securities. The market values
of lower quality fixed income securities tend to be less sensitive to changes in
prevailing interest rates than higher-quality securities but more sensitive to
individual corporate developments than higher-quality securities. Such
lower-quality securities also tend to be more sensitive to economic conditions
than are higher-quality securities. Accordingly, these lower-quality securities
are considered predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the
obligation and will generally involve more credit risk than securities in the
higher-quality categories. Even securities rated Baa or BBB by Moody's and S&P
respectively, which ratings are considered investment grade, possess some
speculative characteristics. There are risks involved in applying credit ratings
as a method for evaluating high yield obligations in that credit ratings
evaluate the safety of principal and interest payments, not market value risk.
In addition, credit rating agencies may not change credit ratings on a timely
basis to reflect changes in economic or company conditions that affect a
security's market value. The Funds will rely on the Adviser's judgment, analysis
and experience in evaluating the creditworthiness of an issuer. In this
evaluation, the Adviser will take into consideration, among other things, the
issuer's financial resources and ability to cover its interest and fixed
charges, factors relating to the issuer's industry and its sensitivity to
economic conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters.

     The risk of loss due to default by the issuer is significantly greater for
the holders of lower quality securities because such securities are generally
unsecured and are often subordinated to other obligations of the issuer. During
an economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of lower quality securities may experience financial stress
and may not have sufficient revenues to meet their interest payment obligations.
An issuer's ability to service its debt obligations may also be adversely
affected by specific corporate developments, its inability to meet specific
projected business forecasts, or the unavailability of additional financing.
<PAGE>   37

     Factors adversely affecting the market value of high yield and other
securities will adversely affect each Fund's net asset value. In addition, each
Fund may incur additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal of or interest on its portfolio
holdings.

     From time to time, proposals have been discussed regarding new legislation
designed to limit the use of certain high yield debt securities by issuers in
connection with leveraged buy-outs, mergers and acquisitions, or to limit the
deductibility of interest payments on such securities. Such proposals, if
enacted into law, could reduce the market for such debt securities generally,
could negatively affect the financial condition of issuers of high yield
securities by removing or reducing a source of future financing, and could
negatively affect the value of specific high yield issues and the high yield
market in general. For example, under a provision of the Internal Revenue Code
of 1986 (the "Code") enacted in 1989, a corporate issuer may be limited from
deducting all of the original issue discount on high-yield discount obligations
(i.e., certain types of debt securities issued at a significant discount to
their face amount). The likelihood of passage of any additional legislation or
the effect thereof is uncertain.

     The secondary trading market for lower-quality fixed income securities is
generally not as liquid as the secondary market for higher-quality securities
and is very thin for some securities. The relative lack of an active secondary
market may have an adverse impact on market price and a Fund's ability to
dispose of particular issues when necessary to meet the Fund's liquidity needs
or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The relative lack of an active secondary market
for certain securities may also make it more difficult for a Fund to obtain
accurate market quotations for purposes of valuing the Fund's portfolio. Market
quotations are generally available on many high yield issues only from a limited
number of dealers and may not necessarily represent firm bids of such dealers or
prices for actual sales. During such times, the responsibility of the
Corporation's Board of Directors to value the securities becomes more difficult
and judgment plays a greater role in valuation because there is less reliable,
objective data available.

Hedging Transactions

     Futures Contracts. Each Fund may enter into futures contracts only for
certain bona fide hedging, yield enhancement and risk management purposes. Each
Fund may enter into futures contracts for the purchase or sale of debt
securities, debt instruments, or indices of prices thereof, stock index futures,
other financial indices, and U.S. Government Securities.

     A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities underlying the
contract at a specified price at a specified future time. A "purchase" of a
futures contract (or a "long" futures position) means the assumption of a
contractual obligation to acquire the securities underlying the contract at a
specified price at a specified future time.

     Certain futures contracts are settled on a net cash payment basis rather
than by the sale and delivery of the securities underlying the futures
contracts. U.S. futures contracts have been designed by exchanges that have been
designated as "contract markets" by the Commodity Futures Trading Commission
(the "CFTC"), an agency of the U.S. Government, and must be executed through a
futures commission merchant (i.e., a brokerage firm) which is a member of the
relevant contract market. Futures contracts trade on these contract markets and
the exchange's affiliated clearing organization guarantees performance of the
contracts as between the clearing members of the exchange.

     These contracts entail certain risks, including but not limited to the
following: no assurance that futures contracts transactions can be offset at
favorable prices, possible reduction of each Fund's yield due to the use of
hedging, possible reduction in value of both the securities hedged and the
hedging instrument, possible lack of liquidity due to daily limits on price
fluctuation, imperfect correlation between the contracts and the securities
being hedged, and potential losses in excess of the amount invested in the
futures contracts themselves.

     Currency Transactions. Each Fund may enter into various currency
transactions, including forward foreign currency contracts, currency swaps,
foreign currency or currency index futures contracts and put and call options on
such contracts or on currencies. A forward foreign currency contract involves an
obligation to purchase or sell a specific currency for a set price at a future
date. A currency swap is an arrangement whereby each party exchanges one
currency for another on a particular date and agrees to reverse the exchange on
a later date at a specific exchange rate. Forward foreign currency contracts and
currency swaps are established in the interbank 
<PAGE>   38

market conducted directly between currency traders (usually large commercial
banks or other financial institutions) on behalf of their customers. Futures
contracts are similar to forward contracts except that they are traded on an
organized exchange and the obligations thereunder may be offset by taking an
equal but opposite position to the original contract, with profit or loss
determined by the relative prices between the opening and offsetting positions.
Each Fund expects to enter into these currency contracts and swaps in primarily
the following circumstances: to "lock in" the U.S. dollar equivalent price of a
security a Fund is contemplating to buy or sell that is denominated in a
non-U.S. currency; or to protect against a decline against the U.S. dollar of
the currency of a particular country to which the Fund's portfolio has exposure.
Each Fund anticipates seeking to achieve the same economic result by utilizing
from time to time for such hedging a currency different from the one of the
given portfolio security as long as, in the view of the Adviser, such currency
is essentially correlated to the currency of the relevant portfolio security
based on historic and expected exchange rate patterns.

     Unseasoned Companies. The Fund may invest in securities of unseasoned
companies. In view of the limited liquidity, more speculative prospects and
price volatility, the Fund will not invest more than 10% of the Fund's assets
(at the time of purchase) in securities of companies (including predecessors)
that have operated less than three years.


                                   THE ADVISER

     The Adviser is a New York corporation with principal offices located at One
Corporate Center, Rye, New York 10580-1434.

     Pursuant to an Investment Advisory Contract which was approved by each
Fund's sole shareholder on December 9, 1991 for the Equity Income Fund and
October 2, 1991 for the Small Cap Fund, the Adviser furnishes a continuous
investment program for each Fund's portfolio, makes the day-to-day investment
decisions for each Fund, arranges the portfolio transactions for each Fund and
generally manages each Fund's investments in accordance with the stated policies
of each Fund, subject to the general supervision of the Board of Directors of
the Corporation.

                                  Advisory Fees
                         For the Year Ended September 30
<TABLE>
<CAPTION>

                               1997             1996            1995
<S>                              <C>             <C>              <C>     
Equity Income Fund               $640,070        $561,461         $512,370
Small Cap Fund                 $2,269,141      $2,276,908       $2,112,855
</TABLE>

     Under each Investment Advisory Contract, the Adviser also (1) provides the
Fund with the services of persons competent to perform such supervisory,
administrative, and clerical functions as are necessary to provide efficient
administration of the Fund, including maintaining certain books and records and
overseeing the activities of the Fund's Custodian and Transfer Agent; (2)
oversees the performance of administrative and professional services provided to
the Fund by others, including the Fund's Custodian, Transfer Agent and Dividend
Disbursing Agent, as well as legal, accounting, auditing and other services
performed for the Fund; (3) provides the Fund, if requested, with adequate
office space and facilities: (4) prepares, but does not pay for, periodic
updating of the Fund's registration statement, Prospectus and Statement of
Additional Information, including the printing of such documents for the purpose
of filings with the Securities and Exchange Commission; (5) supervises the
calculation of the net asset value of shares of the Fund; (6) prepares, but does
not pay for, all filings under state "Blue Sky" laws of such states or countries
as are designated by the Distributor, which may be required to register or
qualify, or continue the registration or qualification, of the Fund and/or its
shares under such laws; and (7) prepares notices and agendas for meetings of the
Corporation's Board of Directors and minutes of such meetings in all matters
required by the Investment Company Act of 1940 (the "Act") to be acted upon by
the Board.

     The Adviser has entered into a Sub-Administration Contract with BISYS Fund
Services ("BISYS" or the "Sub-Administrator") 3435 Stelzer Road, Columbus, Ohio
43219, pursuant to which the Sub-Administrator provides certain administrative
services necessary for the Fund's operations but which do not concern the
investment advisory and portfolio management services provided by the Adviser.
For such services and the related expenses 
<PAGE>   39

borne by BISYS, the Adviser pays a prorated monthly fee at the annual rate of
 .0625% of the average net assets of the Fund (minimum annual fee of $30,000 per
portfolio) on the first $350 million of all of the funds advised by the Adviser
and its affiliates and administered by BISYS and .0425% of any net assets above
$350 million, and .0225% of any assets above $700 million which together with
the services to be rendered, is subject to negotiation between the parties and
both parties retain the right unilaterally to terminate the arrangement on not
less than 60 days' notice.

     The Investment Advisory Contract provides that absent willful misfeasance,
bad faith, gross negligence or reckless disregard of its duty, the Adviser and
its employees, officers, directors and controlling persons are not liable to the
Funds or any of its investors for any act or omission by the Adviser or for any
error of judgment or for losses sustained by the Funds. However, the Contract
provides that each Fund is not waiving any rights it may have with respect to
any violation of law which cannot be waived. The Contract also provides
indemnification for the Adviser and each of these persons for any conduct for
which they are not liable to the Funds. The Investment Advisory Contract in no
way restricts the Adviser from acting as adviser to others. The Funds have
agreed by the terms of the Investment Advisory Contract that the word "Gabelli"
in its name is derived from the name of the Adviser which in turn is derived
from the name of Mario J. Gabelli; that such name is the property of the Adviser
for copyright and/or other purposes; and that therefore, such name may freely be
used by the Adviser for other investment companies, entities or products. The
Funds have further agreed that in the event that for any reason, the Adviser
ceases to be its investment adviser, the Funds will, unless the Adviser
otherwise consents in writing, promptly take all steps necessary to change its
name to one which does not include "Gabelli."

     The Investment Advisory Contract is terminable without penalty by the
Corporation on not more than sixty days' written notice when authorized by the
Directors of the Corporation, by the holders of a majority, as defined in the
Act, of the outstanding shares of the Corporation, or by the Adviser. The
Investment Advisory Contract will automatically terminate in the event of its
assignment, as defined in the Act and rules thereunder except to the extent
otherwise provided by order of the Commission or any rule under the Act and
except to the extent the Act no longer provides for automatic termination, in
which case the approval of a majority of the disinterested directors is required
for any "assignment." Each Investment Advisory Contract provides in effect, that
unless terminated it will remain in effect from year to year so long as
continuance of the Investment Advisory Contract is approved annually by the
Directors of the Corporation, or the shareholders of the Fund and in either
case, by a majority vote of the Directors who are not parties to the Investment
Advisory Contract or "interested persons" as defined in the Act of any such
person cast in person at a meeting called specifically for the purpose of voting
on the continuance of the Investment Advisory Contract.

                                 THE DISTRIBUTOR

     Each Fund has entered into a Distribution Agreement with Gabelli & Company,
Inc. (the "Distributor"), a New York corporation which is a subsidiary of
Gabelli Funds, Inc., having principal offices located at One Corporate Center,
Rye, New York 10580-1434. The Distributor acts as agent of the Funds for the
continuous offering of its shares on a best efforts basis.

     The Distribution Agreement is terminable by the Distributor or the
Corporation at any time without penalty on not more than sixty nor less than
thirty days' written notice, provided, that termination by the Corporation must
be directed or approved by the Board of Directors of the Corporation, by the
vote of the holders of a majority of the outstanding securities of the Funds or
by written consent of a majority of the directors who are not interested persons
of the Corporation or the Distributor. The Distribution Agreement will
automatically terminate in the event of its assignment, as defined in the
Act.The Distribution Agreement provides that, unless terminated, it will remain
in effect so long as continuance of the Distribution Agreement is approved
annually by the Corporation's Board of Directors or by a majority of the
outstanding voting securities of the Corporation, and in either case, also by a
majority of the Directors who are not interested persons of the Corporation or
the Distributor.

                             DIRECTORS AND OFFICERS

     The Directors and Executive Officers of the Corporation, their principal
business occupations during the last five years and their affiliations, if any,
with the Adviser or the Administrator, are shown below. Directors deemed to 
<PAGE>   40

be "interested persons" of the Fund for purposes of the Investment Company Act
of 1940 are indicated by an asterisk.
<TABLE>
<CAPTION>

                                             Principal Occupations During Last Five Years; 
Name, Position with the Funds and Address    Affiliations with the Adviser or Administrator.
- --------------------------------------------------------------------------------------------
<S>                                          <C>
Mario J. Gabelli*                            Mr. Gabelli is Chairman, President, Chief Executive Officer, 
President, Director and Chief Investment     and a Director of Gabelli Funds, Inc., the Adviser and the
Officer                                      indirect parent of the Distributor; Chairman and Chief 
Age: 55                                      Investment Officer of GAMCO Investors, Inc.; President,
                                             Chairman, Director/Trustee, and/or Chief Investment Officer of 
                                             substantially all of the funds in the Gabelli family of funds; 
                                             Chairman and Director of Lynch Corporation; Director and Adviser 
                                             of Gabelli International Ltd. and Gabelli Associates, Ltd.; 
                                             Director of East/West Communications, Inc.


James E. McKee                               Vice President and General Counsel and Secretary of Gabelli Funds, 
Secretary                                    Inc.; Secretary of all Funds advised by Gabelli Funds, Inc. and 
Age: 34                                      Teton Advisers LLC. Secretary of The Gabelli Westwood Funds since 
                                             August 1995. Vice President and General Counsel of GAMCO Investors, 
                                             Inc. since 1993. Formerly Branch Chief with the U.S. Securities
                                             and Exchange Commission in New York from 1992 through 1993. Staff
                                             attorney with the Securities and Exchange Commission in New York 
                                             from 1989 through 1992.


Bruce N. Alpert                              Vice President, Chief Operating Officer of the investment advisory 
Vice President and                           division of the Adviser, President and Treasurer of The Gabelli Asset 
Treasurer                                    Fund and The Gabelli Growth Fund; Vice President and Treasurer of all 
Age: 46                                      other funds in the Gabelli family of funds; Vice President of the 
                                             Treasurer's Fund, and Vice President and Treasurer of The Gabelli 
                                             Westwood Funds; General Manager of Gabelli Advisers LLC.


Felix J. Christiana                          Formerly Senior Vice President of Dry Dock Savings Bank. Director/
Director                                     Trustee of several of the funds in the Gabelli family of funds.
Age: 72


Anthony J. Colavita                          President and Attorney at Law in the law firm of Anthony J. Colavita,
Director                                     P.C. since 1961; Director/Trustee of several of the funds in the Gabelli
Age: 61                                      family of funds.


Vincent D. Enright                           Senior Vice President and Chief Financial Officer of KeySpan Energy
Director                                     Corporation; Director/Trustee of several of the funds in the Gabelli
Age: 55                                      family of funds.


John D. Gabelli*                             Vice President of Gabelli & Company, Inc., Director of Gabelli Investor
Director                                     Funds, Inc., and Gabelli Global Series Funds, Inc. Manager of Gabelli
Age: 52                                      Advisers LLC.


Robert J. Morrissey                          Partner in the law firm of Morrissey & Hawkins. Director of The Gabelli
Director                                     Value Fund Inc.
Age: 57
</TABLE>
<PAGE>   41

<TABLE>
<CAPTION>

                                             Principal Occupations During Last Five Years; 
Name, Position with the Funds and Address    Affiliations with the Adviser or Administrator.
- --------------------------------------------------------------------------------------------
<S>                                          <C>
Anthony R. Pustorino                        Professor of Accounting at Pace University (1965 - present). Formerly
Director                                    President, consultant,  and shareholder, Pustorino Puglisi & Co.,
Age: 71                                     certified public accountants (1961-1989). Director/Trustee of several of
                                            the funds in the Gabelli family of funds.


Anthonie C. van Ekris                       Managing Director of Balmac International, Ltd. Director of Stahal
Director                                    Hardmeyer A.Z. and Spinnaker Industries, Inc. Director/Trustee of
Age: 62                                     several of the funds in the Gabelli family of funds.


Karl Otto Pohl*                             Partner of Sal Oppenheim Jr. & Cie. (private investment bank); Former
Director                                    President of the Deutsche Bundesbank (Germany's Central Bank)
Age: 65                                     and Chairman of its Central Bank Council (1980-1991); Currently board
                                            member of IBM World Trade Europe/Middle East/ Africa Corp.; Bertelsmann AG;
                                            Zurich Versicherungs-Gesellschaft (insurance); the International Advisory Board
                                            of General Electric Company; the International Council for JP Morgan & Co.; the
                                            Board of Supervisory Directors of ROBECo/o Group; and the Supervisory Board of
                                            Royal Dutch (petroleum company); Advisory Director of Unilever N.V. and Unilever
                                            Deutschland; German Governor, International Monetary Fund (1980-1991); Board
                                            Member, Bank for International Settlements (1980- 1991); Chairman, European
                                            Economic Community Central Bank Governors (1990-1991); Director/Trustee of all
                                            the funds in the Gabelli family of funds.
</TABLE>

     Each Director who is not an employee of the Adviser or an affiliated
company is paid an annual fee of $3,000 and $500 for each meeting of the Board
of Directors attended by the Director, and reimburses Directors for certain
travel and other out-of-pocket expenses incurred by them in connection with
attending such meetings. Directors and officers of the Funds who are employed by
the Adviser or an affiliated company receive no compensation or expense
reimbursement from the Corporation. Messrs. Mario J. Gabelli and John D. Gabelli
are brothers. Mr. Pohl receives fees from the Adviser but has no obligation to
provide any services to the Adviser. Although this relationship does not appear
to require designation of Mr. Pohl as an interested person, the Corporation is
currently making such designation in order to avoid the possibility that Mr.
Pohl's independence would be questioned.

     The following table sets forth certain information regarding the
compensation of the Corporation's directors and officers. Except as disclosed
below, no executive officer or person affiliated with the Funds received
compensation from either Fund for the calendar year ended December 31, 1997 in
excess of $60,000.





<PAGE>   42



     COMPENSATION TABLE
<TABLE>
<CAPTION>
                                          Aggregate Compensation
                                              from Registrant
                                               (Fiscal Year)                            Total Compensation
                                     Equity-                  Small                     from Registrant and
Name of Person,                      Income                   Cap                        Fund Complex Paid
Position                             Fund                     Fund                         to Directors*
- ---------------------------------------------------------------------------------------------------------------------------

<S>                                     <C>                       <C>                          <C>       
Mario J. Gabelli                        $ 0                       $ 0                          $     0
  President, Director and
  Chief Investment Officer
Felix J. Christiana
  Director                            5,000                     5,000                           84,999(9)
Anthony J. Colavita
  Director                            5,000                     5,000                           75,368(10)
Vincent D. Enright
  Director                            5,000                     5,000                           17,000(4)
John D. Gabelli
  Director                                0                         0                                0
Robert J. Morrissey
  Director                            5,000                     5,000                           26,500(3)
Anthony R. Pustorino
  Director                            5,000                     5,000                           95,499(8)
Anthonie C.van Ekris
  Director                            5,000                     5,000                           55,189(12)
Karl Otto Pohl
  DIrector                            4,500                     4,500                           27,619(20)
</TABLE>
- ----------
     * Represents the total compensation paid to such persons during the
calendar year ended December 31, 1997 (and, with respect to the Funds, estimated
to be paid during a full calendar year). The parenthetical number represents the
number of investment companies (including each Fund) from which such person
receives compensation that are considered part of the same fund complex as the
Funds, because, among other things, they have a common investment adviser.

                             INVESTMENT RESTRICTIONS

     Each Fund's investment objective and the following investment restrictions
are fundamental and cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities (defined in the 1940 Act as
the lesser of (a) more than 50% of the outstanding shares or (b) 67% or more of
the shares represented at a meeting at which more than 50% of the outstanding
shares are represented). All other investment policies or practices are
considered not to be fundamental and accordingly may be changed without
stockholder approval. If a percentage restriction on investment or use of assets
set forth below is adhered to at the time a transaction is effected, later
changes in percentage resulting from changing market values or total assets of a
Fund will not be considered a deviation from policy. Each Fund may not:

               (1) with respect to 75% of its total assets, invest more than 5%
          of the value of its total assets (taken at market value at time of
          purchase) in the outstanding securities of any one issuer or own more
          than 10% of the outstanding voting securities of any one issuer, in
          each case other than securities issued or guaranteed by the U.S.
          Government or any agency or instrumentality thereof; 

               (2) invest 25% or more of the value of its total assets in any
          one industry;

               (3) issue senior securities (including borrowing money, including
          on margin if margin securities are owned and through entering into
          reverse repurchase agreements) in excess of 33-1/3% of its total
          assets (including the amount of senior securities issued but excluding
          any liabilities and indebtedness not constituting senior securities)
          except that a Fund may borrow up to an additional 5% of its total
          assets for temporary purposes; or pledge its assets other than to
          secure such issuances or in connection with hedging transactions,
          short sales, when-issued and forward commitment transactions and
          similar investment strategies. A Fund's obligations under the
          foregoing types of transactions and investment strategies are not
          treated as senior securities; 
<PAGE>   43

               (4) make loans of money or property to any person, except through
          loans of portfolio securities, the purchase of fixed income securities
          or the acquisition of securities subject to repurchase agreements;

               (5) underwrite the securities of other issuers, except to the
          extent that in connection with the disposition of portfolio securities
          or the sale of its own shares the Fund may be deemed to be an
          underwriter;

               (6) invest for the purpose of exercising control over management
          of any company;

               (7) purchase real estate or interests therein, including limited
          partnerships that invest primarily in real estate equity interests,
          other than mortgage-backed securities and similar instruments; 
          or

               (8) purchase or sell commodities or commodity contracts except
          for hedging purposes or invest in any oil, gas or mineral interests.

                      PORTFOLIO TRANSACTIONS AND BROKERAGE

     The Adviser is authorized on behalf of each Fund to employ brokers to
effect the purchase or sale of portfolio securities with the objective of
obtaining prompt, efficient and reliable execution and clearance of such
transactions at the most favorable price obtainable ("best execution") at
reasonable expense. Transactions in securities other than those for which a
securities exchange is the principal market are generally done through a
principal market maker. However, such transactions may be effected through a
brokerage firm and a commission paid whenever it appears that the broker can
obtain a more favorable overall price. In general, there may be no stated
commission in the case of securities traded on the over-the-counter markets, but
the prices of those securities may include undisclosed commissions or markups.
Options transactions will usually be effected through a broker and a commission
will be charged. Each Fund also expects that securities will be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation generally referred to as the underwriter's concession or discount.

     The Adviser currently serves as Adviser to a number of investment company
clients and may in the future act as adviser to others. Affiliates of the
Adviser act as investment adviser to numerous private accounts and adviser to
other investment companies. It is the practice of the Adviser and its affiliates
to cause purchase and sale transactions to be allocated among the Funds and
others whose assets they manage in such manner as it deems equitable. In making
such allocations among the Funds and other client accounts, the main factors
considered are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of the Funds and
other client accounts.

     The policy of each Fund regarding purchases and sales of securities and
options for its portfolio is that primary consideration will be given to
obtaining the most favorable prices and efficient execution of transactions. In
seeking to implement each Fund's policies, the Adviser effects transactions with
those brokers and dealers who the Adviser believes provide the most favorable
prices and are capable of providing efficient executions. If the Adviser
believes such price and execution are obtainable from more than one broker or
dealer, it may give consideration to placing portfolio transactions with those
brokers and dealers who also furnish research and other services to the Funds or
the Adviser of the type described in Section 28(e) of the Exchange Act of 1934.
In doing so, the Funds may also pay higher commission rates than the lowest
available when the Adviser believes it is reasonable to do so in light of the
value of the brokerage and research services provided by the broker effecting
the transaction. Such services may include, but are not limited to, any one or
more of the following: information as to the availability of securities for
purchase or sale: statistical or factual information or opinions pertaining to
investment; wire services; and appraisals or evaluations of portfolio
securities.

Research services furnished by broker or dealers through which the Fund effects
securities transactions are used by the Adviser and its advisory affiliates in
carrying out their responsibilities with respect to all of their accounts over
which they exercise investment discretion. Such investment information may be
useful only to one or more of such other accounts. The purpose of this sharing
of research information is to avoid duplicative charges for research provided by
brokers and dealers.
<PAGE>   44
 Neither the Fund nor the Adviser has any agreement or legally binding
understanding with any broker or dealer regarding any specific amount of
brokerage commissions which will be paid in recognition of such services.
However, in determining the amount of porfolio commissions directed to such
brokers or dealers, the Adviser does consider the level of services provided.
Based on such determinations, the Adviser has allocated brokerage commissions of
$121,732 on portfolio transactions in the principal amount of $132,630,126
during fiscal year ended September 30, 1997, to various broker-dealers that have
provided research services to the Adviser. The average commission on these
transactions was $.01 per share.

The Adviser may also place orders for the purchase or sale of portfolio
securities with Gabelli & Company, Inc. ("Gabelli"), a broker-dealer member of
the National Association of Securities Dealers, Inc. and an affiliate of the
Adviser, when it appears that, as an introducing broker or otherwise, Gabelli
can obtain a price and execution which is at least as favorable as that
obtainable by other qualified brokers. The Adviser may also consider sales of
shares of the Funds and any other registered investment companies managed by the
Adviser and its affiliates by brokers and dealers other than the Distributor as
a factor in its selection of brokers and dealers to execute portfolio
transactions for the Funds. The Funds paid the following brokerage commissions
for the year ended September 30, as indicated:
<TABLE>
<CAPTION>
                                         Small Cap Fund                        Equity Income Fund
                                         --------------                        ------------------

                                 1995         1996        1997             1995         1996       1997
                                 ----         ----        ----             ----         ----       ----

<S>                            <C>         <C>            <C>              <C>          <C>          <C>    
Affiliated Commissions         $ 17,243    $ 25,682       $ 43,851          $ 6,176      $10,065      $19,323

Total Commissions               135,080     133,633       $204,515           39,097       25,191       54,306

% of affiliated
 Commission to total               12.8%       19.2%          21.4%            15.8%        40.0%        35.5%
% of aggregate dollar 
 amount of transactions 
 involving commissions paid 
 to affiliates                       --          --          17.37%              --           --        46.64%
</TABLE>

     As required by Rule 17e-1 under the Act, the Board of Directors has adopted
"Procedures" which provide that the commissions paid to Gabelli on stock
exchange transactions may not exceed that which would have been charged by
another qualified broker or member firm able to effect the same or a comparable
transaction at an equally favorable price. Rule 17e-1 and the Procedures contain
requirements that the Board, including its independent Directors, conduct
periodic compliance reviews of such brokerage allocations and review such
schedule at least annually for its continuing compliance with the foregoing
standard. The Adviser and Gabelli are also required to furnish reports and
maintain records in connection with such reviews.

     To obtain the best execution of portfolio trades on the New York Stock
Exchange ("Exchange"), Gabelli controls and monitors the execution of such
transactions on the floor of the Exchange through independent "floor brokers" or
through the Designated Order Turnaround ("DOT") System of the Exchange. Such
transactions are then cleared, confirmed to the Fund for the account of Gabelli,
and settled directly with the Custodian of the Funds by a clearing house member
firm which remits the commission less its clearing charges to Gabelli. Gabelli
may also effect Fund portfolio transactions in the same manner and pursuant to
the same arrangements on other national securities exchanges which adopt direct
access rules similar to those of the New York Stock Exchange.

     Portfolio turnover may vary from year to year, as well as within a year.
For the fiscal years ended September 30, 1997 and September 30, 1996, the
turnover rates were 43% and 20%, respectively, in the case of the Equity Income
Fund, and 14% and 11%, respectively, in the case of the Small Cap Fund.


                        PURCHASE AND REDEMPTION OF SHARES

     Cancellation of purchase orders for Fund shares (as, for example, when
checks submitted to purchase shares are returned unpaid) cause a loss to be
incurred when the net asset value of the Fund shares on the date of cancellation
is less than on the original date of purchase. The investor is responsible for
such loss, and the Fund may reimburse shares from any account registered in that
shareholder's name, or by seeking other redress. If the Fund is unable to
recover any loss to itself, it is the position of the SEC that the Distributor
will be immediately obligated to make the Fund whole.
<PAGE>   45




                        DETERMINATION OF NET ASSET VALUE

     The net asset value per share of each Fund is determined once daily as of
the close of business of the regular trading session of the New York Stock
Exchange, normally 4:00 p.m. Eastern time, on each day that the New York Stock
Exchange is open and on each other day in which there is a sufficient degree of
trading in the Fund's investments to affect the net asset value, except that the
net asset value may not be computed on a day on which no orders to purchase, or
tenders to sell or redeem, Fund shares have been received, by taking the value
of all assets of the Fund, subtracting its liabilities, dividing by the number
of shares outstanding and adjusting to the nearest cent. The New York Stock
Exchange currently observes the following holidays: New Year's Day; Martin
Luther King Day; President's Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day.

     In the calculation of each Fund's net asset value: (1) a portfolio security
listed or traded on the New York or American Stock Exchanges or quoted by
National Association of Securities Dealers Automated Quotations, Inc. ("NASDAQ")
is valued at its 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 price); (2) 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 price;
and (3) 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 Fund's Directors.


                       DIVIDENDS, DISTRIBUTIONS AND TAXES
General

     Each Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. If it so qualifies, the Fund
will not be subject to Federal income tax on its net investment income and net
short-term capital gain, if any, realized during any fiscal year to the extent
that it distributes such income and capital gains to its shareholders.

     Each Fund will determine either to distribute, or to retain for
reinvestment, all or part of any net long-term capital gain. If any such gains
are retained, the Fund will be subject to a tax of 35% of such amount. In that
event, the Fund expects to designate the retained amount as undistributed
capital gain in a notice to its shareholders, each of whom (1) will be required
to include in income for tax purposes as long-term capital gain its share of
undistributed amount, (2) will be entitled to credit its proportionate share of
the tax paid by the Fund against its Federal income tax liability and to claim
refunds to the extent the credit exceeds such liability, and (3) will increase
its basis in its shares of the Fund by an amount equal to 65% of the amount of
undistributed capital gain included in such shareholder's gross income.

     A distribution will be treated as paid during any calendar year if it is
declared by the Fund in October, November or December of the year, payable to
shareholders of record on a date during such month and paid by the Fund during
January of the following year. Any such distributions paid during January of the
following year will be deemed to be received on December 31 of the year the
distributions are declared, rather than when the distributions are received.

     Under the Code, amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a 4% excise tax. To
avoid the tax, the Fund must distribute during each calendar year, an amount
equal to at least the sum of (1) 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year year, (2) 98% of its
capital gains in excess of its capital losses for the twelve-month period ending
on October 31 of the calendar year, (unless an election is made by a fund with a
November or December year-end to use the fund's fiscal year) and (3) all
ordinary income and net capital gains for previous years that were not
previously distributed.

     Gains or losses on the sales of securities by the Funds will be long-term
capital gains or losses if the securities have been held by the Fund for more
than twelve months. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses.

     Certain options, futures contracts and options on futures contracts are
"section 1256 contracts". Any gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
("60/40"). Also, section 1256 contracts held by the Funds at the end of each
taxable year are "marked-to-
<PAGE>   46

market" with the result that unrealized gains or losses are treated as though
they were realized and the resulting gain or loss is treated as 60/40 gain or
loss.

     Hedging transactions undertaken by the Funds may result in "straddles" for
U.S. Federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Fund. In addition, losses realized by the
Funds on positions that are part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Further, the
Funds may be required to capitalize, rather than deduct currently, any interest
expense on indebtedness incurred or continued to purchase or carry any positions
that are part of a straddle. The Funds may make one or more of the elections
available under the Code which are applicable to straddles. If the Funds make
any of the elections, the amount, character and timing of the recognition of
gains or losses from the affected straddle positions will be determined under
rules that vary according to the election(s) made. The rules applicable under
certain of the elections accelerate the recognition of gains or losses from the
affected straddle positions. Because application of the straddle rules may
affect the character and timing of gains, losses or deductions from the affected
straddle positions, the amount which must be distributed to shareholders, and
which will be taxed to shareholders as ordinary income or long-term capital
gain, may be increased or decreased substantially as compared to a fund that did
not engage in such hedging transactions.

     The diversification requirements applicable to each Fund's assets may limit
the extent to which a Fund will be able to engage in transactions in options,
futures contracts and options on futures contracts.

Distributions

     Distributions of investment company taxable income (which includes taxable
interest income and the excess of net short-term capital gains over long-term
capital losses) are taxable to a U.S. shareholder as ordinary income, whether
paid in cash or in additional Fund shares. Dividends paid by a Fund will qualify
for the 70% deduction for dividends received by corporations to the extent the
Fund's income consists of qualified dividends received from U.S.corporations.
Distributions of net capital gain (which consist of the excess of long-term or
mid-term capital gains over net short-term capital losses), if any, are taxable
as long-term capital gain, whether paid in cash or in shares, and are not
eligible for the dividends received deduction. Shareholders receiving
distributions in the form of newly issued shares will have a basis in such
shares of the Fund equal to the fair market value of such shares on the
distribution date. If the net asset value of shares is reduced below a
shareholder's cost as a result of a distribution by the Fund, such distribution
may be taxable even though it represents a return of invested capital. The price
of shares purchased at any time may reflect the amount of a forthcoming
distribution. Those purchasing shares just prior to a distribution will receive
a distribution which will be taxable to them, even though the distribution
represents in part a return of invested capital. 

Sales of Shares

     Upon a sale or exchange of shares, a shareholder will realize a taxable
gain or loss depending upon the basis in the shares. Such gain or loss will be
long-term, mid-term, or short-term, generally depending upon the shareholder's
holding period for the shares. Non-corporate shareholders are subject to tax at
a minimum rate of 28% on capital gains resulting from the disposition of shares
held for more than 12 months but not more than 18 months, and at a maximum rate
of 20% on capital gains from the disposition of shares held for more than 18
months, (10% if the taxpayer is, and would be after accounting for such gains,
subject to the 15% tax bracket for ordinary income). Any loss realized on a sale
or exchange will be disallowed to the extent the shares disposed of are replaced
within a 61-day period beginning 30 days before and ending 30 days after the
date the shares are disposed of. In such case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss.

     Any loss realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any distributions of net capital gain
received by the shareholder with respect to such shares.

Backup Withholding

     The Corporation may be required to withhold Federal income tax at a rate of
31% on all taxable distributions payable to shareholders who fail to provide
their correct taxpayer identification number or to make required certifications,
or who have been notified by the Internal Revenue Service that they are subject
to backup 
<PAGE>   47

withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's Federal income tax liability.

Foreign Withholding Taxes

     Income received by the Funds from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of the Funds' assets to be invested in various
countries is not known. Because each Fund will not have more than 50% of its
total assets invested in securities of foreign governments or corporations, the
Funds will not be entitled to "pass-through" to shareholders the amount of
foreign taxes paid by the Funds.

Corporate Matters

     The Corporation reserves the right to create and issue a number of series
shares, in which case the shares of each series would participate equally in the
earnings, dividends, and assets of the particular series and would vote
separately to approve management agreements or changes in investment policies,
but shares of all series would vote together in the election or selection of
Directors, principal underwriters and auditors and on any proposed material
amendment to the Corporation's Certificate of Incorporation.

     Upon liquidation of the Corporation or any series, shareholders of the
affected series would be entitled to share pro rata in the net assets of their
respective series available for distribution to such shareholders.

                       INVESTMENT PERFORMANCE INFORMATION

     The Funds may furnish data about their investment performance in
advertisements, sales literature and reports to shareholders. "Total return"
represents the annual percentage change in value of $1,000 invested at the
maximum public offering price for the one year period and the life of the Fund
through the most recent calendar quarter, assuming reinvestment of all dividends
and distributions. The Funds may also furnish total return calculations for
these and other periods, based on investments at various sales charge levels or
net asset value.

     Quotations of yield will be based on the investment income per share earned
during a particular 30 day period, less expenses accrued during the period ("net
investment income") and will be computed by dividing net investment income by
the maximum offering price per share on the last day of the period, according to
the following formula:

                          YIELD = 2[( A-B + 1) 6 - 1]
                                       ---
                                       CD

where A = dividends and interest earned during the period, B = expenses accrued
for the period (net of any reimbursements), C = the average daily number of
shares outstanding during the period that were entitled to receive dividends,
and D = the maximum offering price per share on the last day of the period.

     Quotations of total return will reflect only the performance of a
hypothetical investment in a Fund during the particular time period shown. A
Fund's total return and current yield may vary from time to time depending on
market conditions, the compositions of the Funds' portfolio and operating
expenses. These factors and possible differences in the methods used in
calculating yield should be considered when comparing a Fund's current yield to
yields published for other investment companies and other investment vehicles.
Total return and yield should also be considered relative to change in the value
of the Funds' shares and the risks associated with each Fund's investment
objectives and policies. At any time in the future, total returns and yield may
be higher or lower than past total returns and yields and there can be no
assurance that any historical return or yield will continue.

     From time to time evaluations of performance are made by independent
sources that may be used in advertisements concerning the Funds. These sources
include: Lipper Analytical Services, Weisenberger Investment Company Service,
Barron's, Business Week, Financial World, Forbes, Fortune, Money, Personal
Investor, Sylvia Porter's Personal Finance, Bank Rate Monitor, Morningstar and
The Wall Street Journal.

     In connection with communicating its yield or total return to current or
prospective shareholders, the Fund may also compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
<PAGE>   48

other unmanaged indexes which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.

     Quotations of the Funds' total return will represent the average annual
compounded rate of return of a hypothetical investment in the Fund over periods
of 1, 5, and 10 years (up to the life of the Fund), and are calculated pursuant
to the following formula:

                                  P(1+T)n = ERV

(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the redeemable value at the end
of the period of a $1,000 payment made at the beginning of the period). Total
return figures will reflect the deduction of Fund expenses (net of certain
expenses reimbursed by the Adviser) on an annual basis, and will assume that all
dividends and distributions are reinvested and will deduct the maximum sales
charge, if any is imposed.

                                  Total Return
                     for the period ended September 30, 1997
<TABLE>
<CAPTION>
                                                                          Small Cap Fund*            Equity Income Fund*
<S>                                                                           <C>                          <C>    
Cumulative Total Return (since commencement of operations of the              239.49%                      145.50%
Fund)
Average Annual Total Return (since commencement of operations of               22.80%                       16.90%
the Fund)
Average Annual Total Return (5 years)                                          20.80%                       18.30%
Average Annual Total Return (12 months)                                        42.20%                       34.00%
</TABLE>

* Commencement of operations for the Small Cap Fund and the Equity Income Fund
took place on October 22, 1991 and January 2, 1992, respectively.


                          SHARES OF BENEFICIAL INTEREST

     As of the date of this Statement of Additional Information, the Directors
of the Corporation as a group owned less than 1% of the outstanding shares of
each Fund.

     The following persons were known to own of record 5% or more of the
outstanding voting securities of the indicated funds as of January 2, 1998:
<TABLE>
<CAPTION>
                                                SMALL CAP FUND
                  <S>                                                            <C>
                  NAME AND ADDRESS OF
                  HOLDER OF RECORD                                        PERCENTAGE OF FUND
                  ----------------                                        ------------------
                  Charles Schwab & Co., Inc.                                     9.94%
                  101 Montgomery Street
                  San Francisco, CA 94104

                                               EQUITY INCOME FUND
                  NAME AND ADDRESS OF
                  HOLDER OF RECORD                                     PERCENTAGE OF FUND
                  ----------------                                     ------------------
                  Charles Schwab & Co., Inc.                                     10.07%
                  101 Montgomery Street
                  San Francisco, CA 94104
</TABLE>
<PAGE>   49

                 APPENDIX TO STATEMENT OF ADDITIONAL INFORMATION

Description of Moody's Investors Service, Inc.'s ("Moody's") Corporate Bond 
Ratings
- --------------------------------------------------------------------------------

     AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Aa: Bonds which are rated Aa
are judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which made the long term risks appear
somewhat larger than in Aaa securities. A: Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future. Baa: Bonds which are rated Baa are considered
as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Ba: Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. B: Bonds which are
rated B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Caa: Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Ca: Bonds which are rated Ca
represent obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. C: Bonds which are rated C
are the lowest rated class of bonds and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

     Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

Description of Standard & Poor's Corporation's ("S&P's") Corporate Debt Ratings
- --------------------------------------------------------------------------------

     AAA: Debt rated AAA has the highest rating assigned by S&P's. Capacity to
pay interest and repay principal is extremely strong. AA: Debt rated AA has a
very strong capacity to pay interest and repay principal and differs from the
highest rated issues only in small degree. A: Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories. BBB: Debt rated BBB is regarded as having
adequate capacity to pay interest and repay principal. Whereas it normally
exhibits protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher rated
categories. BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. CI: The rating CI is reserved for income bonds on which no interest
is being paid. D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

     Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
<PAGE>   50

Description of Moody's Preferred Stock Ratings
- --------------------------------------------------------------------------------

     aaa: An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks. aa: An issue
which is rated aa is considered a high-grade preferred stock. This rating
indicates that there is reasonable assurance that earnings and asset protection
will remain relatively well maintained in the foreseeable future. a: An issue
which is rated a is considered to be an upper medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classifications, earnings and asset protection are, nevertheless expected to be
maintained at adequate levels. baa: An issue which is rated baa is considered to
be medium grade, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time. ba: An issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class. b: An
issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small. caa: An issue which is rated
caa is likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payment. ca: An issue which is
rated ca is speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payment. c: This is the lowest
rated class of preferred or preference stock. Issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

     Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

Description of S&P's Preferred Stock Ratings
- --------------------------------------------------------------------------------

     AAA: This is the highest rating that may be assigned by S&P's to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations. AA: A preferred stock issue rated AA also qualifies
as a high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
AAA. A: An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effect of changes in circumstances and economic conditions. BBB: An issue rated
BBB is regarded as backed by an adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make payments for a preferred stock in this category than
for issues in the A category. BB, B, CCC: Preferred stock rated BB, B, and CCC
are regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. BB indicates the lowest
degree of speculation and CCC the highest degree of speculation. While such
issues will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CC: The rating CC is reserved for a preferred stock in arrears on dividends or
sinking fund payments but that is currently paying. C: A preferred stock rated C
is a non-paying issue. D: A preferred stock rated D is a non-paying issue with
the issuer in default on debt instruments.

     Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

                              FINANCIAL STATEMENTS

     Each Fund's Financial Statements for the year ended September 30, 1997,
including the Report of Ernst & Young LLP, independent auditors, is incorporated
herein by reference to each Fund's Annual Report. Each Fund's Annual Report is
available upon request and without charge.


<PAGE>   51
                                     PART C
                                OTHER INFORMATION

Item 24. Financial Statements and Exhibits.
  (a)    Financial Statements:
         (1)   Financial information included in Part A, the Prospectus:
               The Gabelli Equity Income Fund:
               -- Financial Highlights for the years ended September 30, 1997,
               September 30, 1996, September 30, 1995, September 30, 1994,
               September 30, 1993 and for the period January 2, 1992
               (Commencement of Operations) through September 30, 1992. 
               The Gabelli Small Cap Growth Fund: 
               -- Financial Highlights for the years ended September 30, 1997,
               September 30, 1996, September 30, 1995, September 30, 1994, 
               September 30, 1993 and for the period October 22, 1991 
               (Commencement of Operations) through September 30, 1992.
         (2)   Financial Statements incorporated by reference in Part B, the
               Statement of Additional Information: 
               The Gabelli Equity Income Fund:
               -- Portfolio of Investments dated September 30, 1997.
               -- Statement of Assets and Liabilities dated September 30, 
               1997.
               -- Statement of Operations for the year ended September 30, 
               1997.
               -- Statement of Changes in Net Assets for the years ended
               September 30, 1997 and September 30, 1996. 
               -- Notes to Financial Statements. 
               -- Financial Highlights for the years ended September 30, 1997,
               September 30, 1996, September 30, 1995, September 30,
               1994, September 30, 1993 and for the period January 2, 1992
               (Commencement of Operations) through September 30, 1992. 
               -- Report of Ernst & Young LLP (independent auditors) dated 
               November 15, 1997. 
               The Gabelli Small Cap Growth Fund: 
               -- Portfolio of Investments dated September 30, 1997. 
               -- Statement of Assets and Liabilities dated September 30, 
               1997.
               -- Statement of Operations for the year ended September 30, 
               1997.
               -- Statement of Changes in Net Assets for the years ended 
               September 30, 1997 and September 30, 1996. 
               -- Notes to Financial Statements. 
               -- Financial Highlights for the years ended September 30, 
               1997, September 30, 1996, September 30, 1995, September 30, 
               1994, September 30, 1993 and for the period October 22, 1991 
               (Commencement of Operations) through September 30, 1992. 
               -- Report of Ernst & Young LLP (independent auditors) dated 
               November 15, 1997.
  (b)    Exhibits:
         (1) Articles of Incorporation of the Registrant* 
         (2) By-Laws of the Registrant* 
         (3) Not Applicable
         (4) (a) Form of Stock Certificate of The Gabelli Small Cap Growth Fund
             (Previously  filed as an exhibit to Pre-Effective Amendment No.1 
             to Registration Statement No. 33-41913 on September 20, 1991.)
             (b) Form of Stock Certificate of The Gabelli Equity Income Fund 
             (Previously filed as an exhibit to Pre-Effective Amendment No. 1 to
             Registration Statement No. 33-41913 on September 20, 1991.)
         (5) Investment Advisory Agreement with Gabelli Funds, Inc. for The 
             Gabelli Equity Series, Inc.*
         (6) Distribution Agreement* 
         (7) Not Applicable
         (8) Form of Custodian Agreement* 
         (9) Form of Transfer Agent Agreement*
        (10) Opinion and Consent of Counsel (Previously filed as an exhibit to  
             Pre-Effective Amendment No. 1 to Registration Statement No. 
             33-41913 on September 30, 1991.)
        (11) (a) Consent of Independent Auditors*

<PAGE>   52


             (b) Powers of Attorney of the Directors (Previously filed as an 
             exhibit to Post-Effective Amendment No. 1 to Registration Statement
             No. 33-41913 on August 31, 1992.)
        (12) Not Applicable
        (13) Agreement with Initial Shareholder (Previously filed as an exhibit 
             to  Pre-Effective  Amendment No. 1 to Registration Statement No. 
             33-41913 on September 20, 1991.)
        (14) Model IRA Plan (Previously filed as an exhibit to Pre-Effective 
             Amendment No. 1 to Registration  Statement No. 33-41913 on 
             September 20, 1991.)
        (15) Distribution Plan*
        (16) Schedule for computation of each performance quotation provided
             in the Registration Statement in response to Item 22.
        (27) Financial Data Schedule*

* Filed herewith.

          Item 25. Persons Controlled by or Under Common Control with 
               Registrant. 
               Insofar as the following have substantially identical boards of
               directors or trustees they may be deemed with Registrant to be
               under common control: The Gabelli Asset Fund, The Gabelli Equity
               Trust Inc., The Gabelli Growth Fund, The Gabelli Value Fund Inc.,
               The Gabelli Convertible Securities Fund, Inc., The Gabelli
               Investor Funds, Inc., The Gabelli Global Series Funds Inc., the
               Gabelli Money Market Funds, The Gabelli Global Multimedia Trust
               Inc., Gabelli International Growth Fund, Inc., Gabelli Capital
               Series Fund, Gabelli International Growth Fund, Inc., Gabelli
               Capital Asset Fund, The Westwood Funds, Gabelli International
               Growth Fund, Inc. and The Gabelli Gold Fund, Inc.

Item 26. Number of Holders of Securities.
         As of January 2, 1998, the approximate number of holders were:
                          (1)                                   (2)
                     Title of Class                     Number of Record Holders
        The Gabelli Small Cap Growth Fund Stock,                 19,149
                par value $.001 per share
          The Gabelli Equity Income Fund Stock,                   6,207
                par value $.001 per share

Item 27. Indemnification.
               The basic effect of the respective indemnification provisions of
               the Registrant's By-Laws, the Investment Advisory Agreement with
               Gabelli Funds, Inc. for The Gabelli Small Cap Growth Fund, the
               Investment Advisory Agreement with Gabelli Funds, Inc. for The
               Gabelli Equity Income Fund and Section 2-418 of the Maryland
               General Corporation Law is to indemnify each officer and director
               of both the Registrant and Gabelli Funds, Inc. to the full extent
               permitted under the General Laws of the State of Maryland, except
               that such indemnity shall not protect any such person against any
               liability to which such person would otherwise be subject by
               reason of willful misfeasance, bad faith, gross negligence or
               reckless disregard of the duties involved in the conduct of his
               office. Insofar as indemnification for liability arising under
               the Securities Act of 1933 may be permitted to directors,
               officers and controlling persons of the Registrant and the
               investment advisor and distributor pursuant to the foregoing
               provisions, or otherwise, the Registrant has been advised that in
               the opinion of the Securities and Exchange Commission such
               indemnification is against public policy as expressed in the Act
               and is, therefore, unenforceable. In the event that a claim for
               indemnification against such liabilities (other than the payment
               by the Registrant of expenses incurred or paid by a director,
               officer or controlling person of the Registrant in and the
               principal underwriter in connection with the successful defense
               of any action, suit or proceeding) is asserted against the
               Registrant by such director, officer or controlling person or the
               distributor in connection with the shares being registered, the
               Registrant will, unless in the opinion of its counsel the matter
               has been settled by controlling precedent, submit to a court of
               appropriate jurisdiction the question whether such
               indemnification by it is against public policy as expressed in
               the Act and will be governed by the final adjudication of such
               issue.
<PAGE>   53

Item 28. Business and Other Connections of Investment Adviser. 

     See "Management of the Fund" in the Prospectus and "Directors and Officers"
     in the Statement of Additional Information as well as the Adviser's current
     Form ADV which has been previously filed with the Securities and Exchange
     Commission.

Item 29. Principal Underwriters.
(a)  The Distributor, Gabelli & Company,Inc., is also the principal
     underwriter for The Gabelli Growth Fund, The Gabelli Asset Fund,
     The Gabelli Value Fund, The Gabelli Convertible Securities Fund,
     The Gabelli ABC Fund, The Gabelli Global Series Funds, The Gabelli
     Money Market Funds, The Gabelli Global Multimedia Trust Inc., The
     Gabelli Gold Fund, Gabelli International Growth Fund, Inc.,
     Gabelli Capital Asset Fund, The Treasurer's Fund, Inc. and The
     Gabelli Westwood Funds.
(b)  The information required with respect to the directors and
     executive officers of the Distributor is set forth under the
     heading "Directors and Officers" in the Statement of Additional
     Information as well as in Gabelli & Company, Inc.'s current Form
     BD, which has been previously filed with the Securities and
     Exchange Commission.
(c)  Not applicable. The Registrant's only principal underwriter is an
     affiliated person of an affiliated person of the Registrant.

Item 30. Location of Accounts and Records. 
     All accounts, books and other documents required to be maintained by
     Section 31(a) of the Investment Company Act of 1940 and the Rules
     thereunder will be maintained at the offices of the Sub-Administrator,
     BISYS, 3435 Stelzer Road, Columbus, Ohio, at the offices of the Fund's
     Custodian, State Street Bank and Trust Company, 225 Franklin Street,
     Boston, Massachusetts, at the offices of the Fund's Transfer Agent and
     Dividend Disbursing Agent, State Street Bank and Trust Company, c/o Boston
     Financial Data Services, 2 Heritage Drive, North Quincy, MA 02171 or at the
     offices of the Adviser, Gabelli Funds, Inc., One Corporate Center, Rye, New
     York 10580-1434.

Item 31. Management Services. 
     The Registrant is not a party to any management-related service contract.

Item 32. Undertakings. 
     Not applicable.

<PAGE>   54

                                   SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment No. 8 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Rye, and State of New York on the 28th day of January, 1998.
                               GABELLI EQUITY SERIES FUNDS, INC.

                               /s/BRUCE N. ALPERT
                               -------------------------------------------------
                               By: Bruce N. Alpert
                               Title: Vice President and Treasurer

Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registration Statement has been signed below by the following in the
capacity and on the date indicated.
<TABLE>
<CAPTION>
            Signature                     Title                                               Date
            ---------                     -----                                               ----
<S>                               <C>                                                   <C>

                 *                President, and Director                               January 28, 1998
- -----------------------
Mario J. Gabelli

          /s/BRUCE ALPERT         Vice-President and Treasurer                          January 28, 1998
- -----------------------
Bruce N. Alpert
                 *                Secretary                                             January 28, 1998
- -----------------------
James E. McKee
                 *                Director                                              January 28, 1998
- -----------------------
Felix J. Christiana
                 *                Director                                              January 28, 1998
- -----------------------
Anthony J. Colavita
                 *                Director                                              January 28, 1998
- -----------------------
Vincent D. Enright
                 *                Director                                              January 28, 1998
- -----------------------
John D. Gabelli
                 *                Director                                              January 28, 1998
- -----------------------
Robert J. Morrissey
                 *                Director                                              January 28, 1998
- -----------------------
Karl Otto Pohl
                 *                Director                                              January 28, 1998
- -----------------------
Anthony R. Pustorino
                 *                Director                                              January 28, 1998
- -----------------------
Anthonie C. van Ekris

*BY       /s/BRUCE ALPERT         Attorney-in-Fact
- -----------------------
Bruce N. Alpert
</TABLE>
<PAGE>   55

Shareholders and Board of Directors
The Gabelli Equity Income Fund

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Gabelli Equity Income Fund (a series of
Gabelli Equity Series Funds, Inc.) as of September 30, 1997, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Gabelli Equity Income Fund at September 30, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.



New York, New York
November 15, 1997




<PAGE>   56


                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                  DESCRIPTION                                  PAGE NUMBER
        ------                  -----------                                  -----------

<S>               <C>                                                         <C>
         1        Articles of Incorporation of the Registrant

         2        By-Laws of the Registrant

         5        Investment Advisory Agreement

         6        Distribution Agreement

         8        Custodian Agreement

         9        Transfer Agent Agreement

         11(a)    Consent of Independent Auditors

         15       Distribution Plan

         27       Financial Data Schedule
</TABLE>



<PAGE>   1

                           ARTICLES OF INCORPORATION

                                       OF

                       GABELLI EQUITY SERIES FUNDS, INC.



                                   * * * * *



                                   ARTICLE I

     THE UNDERSIGNED, Deborah Reusch, whose post office address is One Rodney
Square, Wilmington, Delaware 19801, being at least eighteen (18) years of age,
hereby forms a corporation under and by virtue of the Maryland General
Corporation Law.


                                   ARTICLE II

                                      NAME
                                      ----

     The name of the Corporation is GABELLI EQUITY SERIES FUNDS, INC. (the
"Corporation").

                                  ARTICLE III

                              PURPOSES AND POWERS
                              -------------------

     The purposes for which the Corporation is formed are to act as an
investment company under the federal Investment Company Act of 1940 as amended
(the "1940 Act"), and to exercise and enjoy all of the general powers, rights
and privileges granted to, or conferred upon, corporations by the Maryland
General Corporation Law now or hereafter in force.


                                   ARTICLE IV

                      PRINCIPAL OFFICE AND RESIDENT AGENT
                      -----------------------------------

     The post office address of the principal office of the Corporation in the
State of Maryland is c/o The

<PAGE>   2


                               STATE OF MARYLAND                     115403



                              STATE DEPARTMENT OF
                            ASSESSMENTS AND TAXATION
               301 WEST PRESTON STREET BALTIMORE, MARYLAND 21201


                                                             DATE: JULY 25, 1991



     THIS IS TO ADVISE YOU THAT YOUR ARTICLES OF INCORPORATION FOR GABELLI
EQUITY SERIES FUNDS, INC. WERE RECEIVED AND APPROVED FOR RECORD ON JULY 25, 1991
AT 10:50 AM.




FEE PAID:     288.00


[STATE OF MARYLAND DEPARTMENT OF                       JOYCE M. THOMPSON
ASSESSMENTS AND TAXATION SEAL]                         LEGAL OFFICER

AT5-031


<PAGE>   3


                           ARTICLES OF INCORPORATION

                                       OF

                       GABELLI EQUITY SERIES FUNDS, INC.



                                   * * * * *



                                   ARTICLE I

     THE UNDERSIGNED, Deborah Reusch, whose post office address is One Rodney
Square, Wilmington, Delaware 19801, being at least eighteen (18) years of age,
hereby forms a corporation under and by virtue of the Maryland General
Corporation Law.


                                   ARTICLE II

                                      NAME
                                      ----

     The name of the Corporation is GABELLI EQUITY SERIES FUNDS, INC. (the
"Corporation").

                                  ARTICLE III

                              PURPOSES AND POWERS
                              -------------------

     The purposes for which the Corporation is formed are to act as an
investment company under the federal Investment Company Act of 1940 as amended
(the "1940 Act"), and to exercise and enjoy all of the general powers, rights
and privileges granted to, or conferred upon, corporations by the Maryland
General Corporation Law now or hereafter in force.


                                   ARTICLE IV

                       PRINCIPAL OFFICE AND RESIDENT AGENT
                       -----------------------------------

     The post office address of the principal office of the
Corporation in the State of Maryland is c/o The


<PAGE>   4


Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The
name of the resident agent of the Corporation in the State of Maryland is The
Corporation Trust Incorporated, a corporation of the State of Maryland, and the
post office address of the resident agent is 32 South Street, Baltimore,
Maryland 21202.


                                   ARTICLE V

                                 CAPITAL STOCK
                                 -------------

     (1) The total number of shares of stock of all classes which the
Corporation shall have authority to issue is One Billion (1,000,000,000) all of
which stock shall have a par value of one-tenth of one cent ($.00l) per share.
The aggregate par value of all authorized shares of stock of the Corporation is
One Million Dollars($l,000,000).

     (2) (a) The Board of Directors of the Corporation is authorized to classify
or to reclassify, from time to time, any unissued shares of stock of the
Corporation, whether now or hereafter authorized, by setting, changing or
eliminating the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, and qualifications or terms and
conditions of or rights to require redemption of the stock and, pursuant to such
classification or reclassification, to increase or decrease the number of
authorized shares of any class, but the number of shares of any class shall not
be reduced by the Board of Directors below the number of shares thereof then
outstanding.

     (b) Without limiting the generality of the foregoing, the dividends and
distributions of investment income and capital gains with respect to the stock
of the Corporation, and with respect to each class that hereafter may be
created, shall be in such amount as may be declared from time to time by the
Board of Directors, and such dividends and distributions may vary from class to
class to such extent and for such purposes as the Board of Directors may deem
appropriate, including, but not limited to, the purpose of complying with
requirements of regulatory or legislative authorities. 

     (c) Without limiting the generality of the foregoing, the Board of 
Directors may designate, from


                                      2


<PAGE>   5




time to time, any unissued shares of stock of the Corporation, whether now or
hereafter authorized, as a class or classes or a number of series of preferred
or special stock that is excluded from the definition of "senior security" set
forth in section 18(g) of the 1940 Act (or in any successor statute).

     (3) Until such time as the Board of Directors shall provide otherwise
pursuant to the authority granted in section (2) of this Article V, 500,000,000
shares of the authorized shares of the Corporation are designated as The Gabelli
Small Cap Growth Fund Stock ("Small Cap Stock") and 500,000,000 of the
authorized shares stock of the Corporation are designated as The Gabelli Equity
Income Fund Stock ("Equity Income Stock"). Shares of the Small Cap Stock and
Equity Income Stock and the holders thereof, and shares of any class or series
of the type referred to in subsection (c) of section (2) of this Article V and
the holders thereof, shall be subject to the following provisions, provided,
however, that if no shares of any class or series of the type referred to in
subsection (c) of section (2) of this Article V are outstanding, the shares of
the Small Cap Stock and Equity Income Stock and the holders thereof shall
nevertheless be subject to the following provisions except to the extent that
such provisions are by their terms applicable only when shares of two or more
classes are outstanding.

     (a) As more fully set forth hereafter, the assets and liabilities and the
income and expenses of each class of the Corporation's stock shall be determined
separately and, accordingly, the net asset value, the distributions payable to
holders, and the amounts distributable in the event of dissolution of the
Corporation to holders, of shares of the Corporation's stock may vary from class
to class. Except for these differences and certain other differences hereafter
set forth, each class of the Corporation's stock shall have the same
preferences, conversion and other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms and conditions of and
rights to require redemption.

     (b) All consideration received by the Corporation for the issue or sale of
shares of a class of the Corporation's stock, together with all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof,


                                       3
<PAGE>   6


and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be (collectively referred to as "assets belonging to"
that class), shall irrevocably belong to that class for all purposes, subject
only to the rights of creditors, and shall be so recorded upon the books of
account of the Corporation. For purposes of the preceding sentence, the assets
of any corporation or business trust merged with and into the Corporation
pursuant to a merger in which the Corporation is the surviving corporation shall
be deemed to be assets belonging to that class of the Corporation's stock the
shares of which are issued by the Corporation pursuant to the merger.

     (c) For purposes of determining the net asset value per share of stock of a
class, the assets belonging to such class of the Corporation's stock shall be
charged with the liabilities of the Corporation with respect to that class and
with that class' share of the liabilities of the Corporation not attributable to
any particular class, in the latter case in the proportion that the net asset
value of that class (determined without regard to such liabilities) bears to the
net asset value of all classes of the Corporation's stock (determined without
regard to such liabilities) as determined in accordance with procedures adopted
by the Board of Directors. The determination of the Board of Directors shall be
conclusive as to the allocation of liabilities, including accrued expenses and
reserves, and assets to a particular class or classes. The liabilities of any
corporation or business trust merged with and into the Corporation pursuant to a
merger in which the Corporation is the surviving corporation shall be charged
to that class of the Corporation's stock the shares of which are issued by the
Corporation pursuant to the merger.

     (d) Each holder of stock of the Corporation, upon request to the
Corporation (accompanied by surrender of the appropriate stock certificate or
certificates in proper form for transfer, if any certificates have been issued
to represent such shares) shall be entitled to require the Corporation to
redeem, to the extent that the Corporation may lawfully effect such redemption
under the laws of the State of Maryland and the federal securities laws but
subject to any right of the Corporation to postpone or suspend such right of
redemption pursuant to the federal securities laws, all or any part of the
shares of stock standing in the name of such holder on the books of

                                       4
<PAGE>   7



the Corporation at a price per share equal to the net asset value per share.

     (e) Payment by the Corporation for shares of stock of the Corporation
surrendered to it for redemption shall be made by the Corporation within seven
business days of such surrender out of the funds legally available therefor,
provided that the Corporation may suspend the right of the holders of stock of
the Corporation to redeem shares of stock and may postpone the right of such
holders to receive payment for any shares when permitted or required to do so by
applicable statutes or regulations. Payment of the aggregate price of shares
surrendered for redemption may be made in cash or, at the option of the
Corporation, wholly or partly in such portfolio securities or other assets of
the Corporation as the Corporation shall select.

     (f) The right of any holder of stock of the Corporation redeemed by the
Corporation as provided in subsection (d) of this section (3) to receive
dividends thereon and all other rights of such holder with respect to such
shares shall terminate at the time as of which the purchase or redemption price
of such shares is determined, except the right of such holder to receive (i) the
redemption price of such shares from the Corporation or its designated agent and
(ii) any dividend or distribution to which such holder had previously become
entitled as the record holder of such shares on the record date for such
dividend or distribution.

     (g) The Corporation shall have the power to redeem shares of any series at
a redemption price determined in accordance with subsection (d) of this section
(3) if at any time the total investment in such account does not have a value of
at least $2,500. In the event the Corporation determines to exercise its power
to redeem Shares provided in this subsection (g), the Shareholder shall be
notified that the value of his account is less than the applicable minimum
amount and shall be allowed 30 days to make an appropriate investment before
such mandatory redemption is processed.

     (h) The Corporation shall be entitled to purchase shares of its stock, to
the extent that the Corporation may lawfully effect such purchase under the
laws of the State of Maryland, upon such terms and conditions and for such
consideration as the Board of Directors

                                       5

<PAGE>   8


shall deem advisable, at a price not exceeding the net asset value per share.

     (i) The net asset value of each share of each class of the Corporation's
stock issued and sold or redeemed or purchased at net asset value shall be the
current net asset value per share of the shares of that class as determined in
accordance with procedures adopted from time to time by the Board of Directors
which comply with the 1940 Act with such current net asset value to be based on
the assets belonging to each such class less the liabilities charged to each
such class.

     (j) In the absence of any specification as to the purpose for which shares
of stock of the Corporation are redeemed or purchased by it, all shares so
redeemed or purchased shall be deemed to be retired in the sense contemplated by
the laws of the State of Maryland and the number of the authorized shares of
stock of the Corporation shall not be reduced by the number of any shares
redeemed or purchased by it. Until their classification is changed in accordance
with section (2) of this Article V, all shares so redeemed or purchased shall
continue to belong to the same class or series to which they belonged at the
time of their redemption or purchase.

     (k) Shares of each class of stock shall be entitled to such dividends or
distributions, in stock or in cash or both, as may be declared from time to time
by the Board of Directors, acting in its sole discretion, with respect to such
class, provided that dividends or distributions shall be paid on shares of a
class of stock only out of lawfully available assets belonging to that class.

     (1) In the event of the liquidation or dissolution of the Corporation, the
stockholders of a class of the Corporation's stock shall be entitled to receive,
as a class, out of the assets of the Corporation available for distribution to
stockholders, the assets belonging to that class. The assets so distributable to
the stockholders of a class shall be distributed among such stockholders in
proportion to the number of shares of that class held by them and recorded on
the books of the Corporation. In the event that there are any assets available
for distribution that are not attributable to any particular class of stock,
such assets shall be allocated to all classes in proportion to the net assets of
the

                                       6

<PAGE>   9


respective classes and then distributed to the holders of stock of each class in
proportion to the number of shares of that class held by the respective holders.

     (m) On each matter submitted to a vote of the stockholders for approval,
each holder of a share of stock shall be entitled to one vote for each such
share standing in his name on the books of the Corporation irrespective of the
class or series thereof, and all shares of all classes or series shall vote as a
single class or series ("Single Class Voting"); provided, however, that (a) as
to any matter with respect to which a separate vote of any class or series is
required by the 1940 Act or by the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series shall apply in lieu of
Single Class Voting as described above; (b) in the event that the separate vote
requirements referred to in (a) above apply with respect to one or more classes
of series, then, subject to (c) below, the shares of all other classes or series
shall vote as a single class or series; and (c) as to any matter which does not
affect the interest of all classes or series, only the holders of shares of the
one or more affected classes or series shall be entitled to vote.

     (n) The Corporation may issue shares of stock in fractional denominations
to the same extent as its whole shares, and shares in fractional denominations
shall be shares of stock having proportionately to the respective fractions
represented thereby all the rights of whole shares, including without
limitation, the right to vote, the right to receive dividends and distributions,
and the right to participate upon liquidation of the Corporation, but excluding
the right to receive a stock certificate representing fractional shares.

     (4) All persons who shall acquire stock or other securities of the
Corporation shall acquire the same subject to the provisions of these Articles
of Incorporation, as from time to time amended.

                                       7


<PAGE>   10


                                   ARTICLE VI

                       PROVISIONS FOR DEFINING, LIMITING
                        AND REGULATING CERTAIN POWERS OF
                      THE CORPORATION AND OF THE DIRECTORS
                                AND STOCKHOLDERS
                      ------------------------------------




     (1) The number of directors of the Corporation shall be three (3), which
number may be altered by and pursuant to the By-Laws of the Corporation but
shall never be less than three nor more than fifteen. The names of the persons
who shall act as directors until the first stockholders meeting and until their
successors are duly elected and qualify are:

                          Mario J. Gabelli
                          Thomas J. LaBarbera
                          Bruce N. Alpert

     The term of office for a director is until the next annual meeting of
stockholders at which directors are elected or until death, resignation,
retirement or reelection, or until a successor is elected and qualified. In no
case shall a decrease in the number of directors shorten the term of any
incumbent director. Any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the entire
Board of Directors, provided that a quorum is present, and any other vacancy
occurring in the Board of Directors may be filled by a majority of the directors
then in office, whether or not sufficient to constitute a quorum, or by a sole
remaining director. A director elected by the Board of Directors to fill any
vacancy in the Board of Directors shall serve until the next meeting of
stockholders and until his successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office. At any meeting of stockholders, stockholders shall be
entitled to elect directors to fill any vacancies in the Board of Directors that
have arisen since the preceding meeting of stockholders (whether or not any such
vacancy has been filled by election of a new director by the Board of Directors)
and any director so elected by the stockholders shall hold office until the next
meeting of stockholders or until death, resignation or retirement or until a
successor is elected and qualified. A director may be removed for cause or
without cause, and only by action of the stockholders taken by

                                        8

<PAGE>   11


the holders of at least a majority of the shares of capital stock then entitled
to vote in an election of directors.

     (2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, whether now
or hereafter authorized, for such consideration as the Board of Directors may
deem advisable, subject to such limitations as may be set forth in these
Articles of Incorporation or in the By-Laws of the Corporation or in the
Maryland General Corporation Law.

     (3) Each director and each officer of the Corporation shall be indemnified
by the Corporation to the full extent permitted by the Maryland General
Corporation Law, subject to the requirements of the 1940 Act that such indemnity
shall not protect such person against any liability to the Corporation or a
stockholder to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.

     (4) The Board of Directors of the Corporation shall have the exclusive
authority to make, alter or repeal from time to time any of the By-Laws of the
Corporation except any particular By-Law which is specified as not subject to
alteration or repeal by the Board of Directors, subject to the requirements of
the 1940 Act.

     (5) The Board of Directors may designate, from time to time, the location
of the offices of the Corporation.

                                  ARTICLE VII

                          DENIAL OF PREEMPTIVE RIGHTS
                          ---------------------------

     No stockholder of the Corporation shall by reason of his holding shares of
capital stock have any preemptive or preferential right to purchase or subscribe
to any shares of capital stock of the Corporation, now or hereafter authorized,
or any notes, debentures, bonds or other securities convertible into shares of
capital stock, now or hereafter to be authorized, whether or not the issuance of
any such shares of capital stock, or notes, debentures, bonds or other
securities would ad-

                                       9



<PAGE>   12



versely affect the dividend or voting rights of such shareholder; and the Board
of Directors may issue shares of any class of capital stock of the Corporation,
or any notes, debentures, bonds, other securities convertible into shares of any
class of capital stock of the Corporation, either whole or in part, to the
existing stockholders for such lawful consideration and on such terms as the
Board of Directors, in its sole discretion, may determine.


                                  ARTICLE VIII

                         MAJORITY VOTES OF STOCKHOLDERS
                         ------------------------------

     Except as otherwise provided in these Articles of Incorporation or as
required under the 1940 Act, and notwithstanding any provision of the Maryland
General Corporation Law requiring approval by the stockholders of any action by
the affirmative vote of a greater proportion than a majority of the votes
entitled to be cast upon the matter, any such action may be taken or authorized
upon the concurrence of a majority of the number of votes entitled to be cast
thereon.


                                   ARTICLE IX

                             DETERMINATION BINDING
                             ---------------------

     Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
authority of the direction of the Board of Directors, as to the amount of
assets, obligations or liabilities of the Corporation, as to the amount of net
income of the Corporation from dividends and interest for any period or amounts
at any time legally available for the payment of dividends, as to the amount of
any reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or charges shall have been created, shall have been paid or
discharged or shall be then or thereafter required to be paid or discharged), as
to the price of any security owned by the Corporation or as to any other matters
relating to the issuance, sale, redemption or



                                       10

<PAGE>   13


other acquisition or disposition of securities or shares of capital stock of the
Corporation, and any reasonable determination made in good faith by the Board of
Directors shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its capital stock, past, present and future, and
shares of the capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of capital
stock or acceptance of share certificates, that any and all such determinations
shall be binding as aforesaid. No provision of these Articles of Incorporation
shall be effective to (a) require a waiver of compliance with any provision of
the Securities Act of 1933, as amended, or the 1940 Act, or of any valid rule,
regulation or order of the Securities and Exchange Commission thereunder or (b)
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

                                   ARTICLE X

                        PRIVATE PROPERTY OF STOCKHOLDERS
                        --------------------------------

     The private property of stockholders shall not be subject to the payment of
corporate debts to any extent whatsoever.

                                   ARTICLE XI

                              PERPETUAL EXISTENCE
                              -------------------

     The duration of the Corporation shall be perpetual.

                                  ARTICLE XII

                                   AMENDMENT
                                   ---------

     The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation. All amendments shall require the
affirmative vote

                                       11

<PAGE>   14


of a majority of the Corporation's outstanding stock entitled to vote.

     IN WITNESS WHEREOF, the undersigned incorporator of GABELLI EQUITY SERIES
FUNDS, INC. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to be his act and further acknowledges that, to the best
of his knowledge, the matters and facts set forth therein are true in all
material respects under the penalties of perjury.

     Dated the 25th day of July, 1991.



                                      /S/ Deborah Reusch
                                     --------------------------------------
                                      Deborah Reusch


                                       12

<PAGE>   15
                               STATE OF MARYLAND
                               -----------------

I hereby certify that this is a true and complete copy of the  13   page
document on file in this office, dated:  7-26-91             ------
                                       ---------------
                  STATE DEPARTMENT OF ASSESSMENTS AND TAXATION

BY: /s/ Nancy Grueninger
   ------------------------------------------------------------------------
This stamp replaces our previous certification system. Effective: 10,84
<PAGE>   16
<TABLE>
<S>                                                            <C>
- -----------------------------------------------------------------------------------------------------------
STATE OF MARYLAND                    [STATE OF MARYLAND SEAL]

WILLIAM DONALD SCHAEFER                                             Department of Assessments and Taxation
Governor                                                                                  CHARTER DIVISION

LLOYD W. JONES                                                                                    Room 809
Director                                                                           301 West Preston Street
                                                                                 Baltimore, Maryland 21201
PAUL B. ANDERSON
Administrator
- -----------------------------------------------------------------------------------------------------------

DOCUMENT CODE      ODM              BUSINESS CODE                                COUNTY    74
             --------------------                -----------------------               --------------------
#______________________    _______ P.A.  ______ Religious  ______ Close    ______ Stock     ______ Nonstock

Merging                                                        Surviving
(Transferor)______________________________________             (Transferee)________________________________

__________________________________________________             ____________________________________________

__________________________________________________             ____________________________________________

__________________________________________________             ____________________________________________

CODE     AMOUNT   FEE REMITTED
- ----     ------   ------------
                                                               Name Change
10         50     Expedited Fee                                -----------
         ------                                                (New Name)__________________________________
20        200     Organ. & Capitalization
         ------                                                ____________________________________________
61        20      Rec. Fee (Arts. of Inc.)
         ------                                                ____________________________________________
62                Rec. Fee (Amendment)                         
         ------
63                Rec. Fee (Merger or                               _______  Change of Name
         ------   Consolidation)                                    _______  Change of Principal Office
64                Rec. Fee (Transfer)                               _______  Change of Resident Agent
         ------                                                     _______  Change of Resident Agent 
65                Rec. Fee (Dissolution)                                     Address
         ------                                                     _______  Resignation of Resident Agent
66                Rec. Fee (Revival)                                _______  Designation of Resident Agent
         ------                                                              and Resident Agent's Address
52                Foreign Qualification                             _______  Other Change__________________
         ------                                                              ______________________________
50                Cert. of Qual. or Reg.
         ------
51                Foreign Name Registration
         ------
13        18       1  Certified Copy  12
         ------   ---                ----
56                Penalty
         ------
54                For. Supplemental Cert.
         ------
53                Foreign Resolution
         ------
73                Certificate of Conveyance  
         ------   _______________________________
                  _______________________________
76                Certificate of Merger/Transfer
         ------   _______________________________
                  _______________________________                       Code    007
75                Special Fee                                               ------------
         ------
80                For. Limited Partnership                              ATTENTION:        Alysha
         ------                                                                    --------------------------
83                Cert. Limited Partnership
         ------                                                         -------------------------------------
84                Amendment to Limited Partnership
         ------                                                         -------------------------------------
85                Termination of Limited Partnership
         ------
21                Recordation Tax                                       MAIL TO ADDRESS:_____________________
         ------                                                         
22                State Transfer Tax                                    _____________________________________
         ------
23                Local Transfer Tax
         ------
31                _________ Corp. Good Standing
         ------
NA                Foreign Corp. Registration
         ------
87                _________ Limited Part. Good Standing
         ------
71                Financial
         ------
600               ___________________________ Personal
         ------
</TABLE>

<PAGE>   1
                                    BY-LAWS

                                       OF

                       GABELLI EQUITY SERIES FUNDS, INC.


                                   ARTICLE I

                                    Offices
                                    -------

         Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be in the City of Baltimore, State of Maryland.

         Section 2. PRINCIPAL EXECUTIVE OFFICE. The principal executive office
of the Corporation shall be at The Corporate Center at Rye, 555 Theodore Fremd
Avenue, Rye, New York 10580.

         Section 3. OTHER OFFICES. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.


                                   ARTICLE II

                            Meetings of Stockholders
                            ------------------------

         Section 1. ANNUAL MEETINGS. The Corporation is not required to hold an
annual meeting in any year in which the election of directors is not required
to be acted upon under the Investment Company Act of 1940 (the "1940 Act"), but
it may hold annual meetings (whether or not required by the 1940 Act). Any
meeting held for the purpose of electing directors shall be designated the
annual meeting of stockholders for that year. If the Corporation is required to
hold a meeting of stockholders to elect directors pursuant to the Investment
Company Act of 1940, the annual meeting shall be held no later than 120 days
after the occurrence of the event requiring the meeting. All other annual
meetings shall be held on a day in the month of May selected by the Board of
Directors.

         Section 2. SPECIAL MEETINGS. Special meetings of the stockholders,
unless otherwise provided by law or
<PAGE>   2
by the Articles of Incorporation (the "Articles") may be called for any purpose
or purposes by a majority of the Board of Directors, the President, or on the
written request of the holders of at least 25% of the outstanding capital stock
of the Corporation entitled to vote at such meeting.

         Section 3. PLACE OF MEETINGS. Annual and special meetings of the
stockholders shall be held at such place within the United States as the Board
of Directors may from time to time determine.

         Section 4. NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of the place,
date and time of the holding of each annual and special meeting of the
stockholders and the purpose or purposes of each special meeting shall be given
personally or by mail, not less than ten nor more than ninety days before the
date of such meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.

         Notice of any meeting of stockholders hall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is for more than
one hundred and twenty days after the original record date, notice of such
adjourned meeting need not be given if the time and place to which the meeting
shall be adjourned were announced at the meeting at which the adjournment is
taken.

         Section 5. QUORUM. At all meetings of the stockholders, the holders of
a majority of the shares of stock of the Corporation entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as otherwise provided by statute, the 1940
Act and the Rules promulgated thereunder (the "1940 Act Rules"). or the
Articles. In the absence of a quorum no business may be transacted, except that
the holders of a majority of the shares of

                                       2
<PAGE>   3
stock present in person or by proxy and entitled to vote may adjourn the meeting
from time to time, without notice other than announcement thereat except as
otherwise required by these By-Laws, until the holders of the requisite amount
of shares of stock shall be so present. At any such adjourned meeting at which
a quorum may be present any business may be transacted which might have been
transacted at the meeting as originally called. The absence from any meeting, in
person or by proxy, of holders of the number of shares of stock of the
Corporation in excess of a majority thereof which may be required by the laws
of the State of Maryland, the 1940 Act, or other applicable statute, the
Articles, or these By-Laws, for action upon any given matter shall not prevent
action at such meeting upon any other matter or matters which may properly come
before the meeting, if there shall be present thereat, in person or by proxy,
holders of the number of shares of stock of the Corporation required for action
in respect of such other matter or matters. A quorum shall be present with
respect to matters as to which only the holders of one class of stock may vote
if a majority of the shares of that class are present at the meeting in person
or by proxy, and the absence of holders of a majority of shares with respect to
one class shall have no effect with respect to any other class of stock.

         Section 6. ORGANIZATION. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in the
Chairman of the Board's absence or inability to act, the President, or in the
absence or inability of the Chairman of the Board and the President, a Vice
President, shall act as chairman of the meeting. The Secretary, or in the
Secretary's absence or inability to act, any person appointed by the chairman
of the meeting, shall act as secretary of the meeting and keep the minutes
thereof.

         Section 7. ORDER OF BUSINESS. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.

         Section 8. VOTING. Pursuant to Article V, section (3)(m) of the
Corporation's Articles, stockholders shall be entitled to one vote on each
matter submitted to the stockholders for approval for every share of such stock
standing in such stockholder's name on the record of stockholders of the
Corporation as of the record date determined pursuant to Section 9 of this Arti-

                                       3
<PAGE>   4
cle or if such record date shall not have been so fixed, then at the later of 
(i) the close of business on the day on which notice of the meeting is mailed 
or (ii) the thirtieth day before the meeting.

         Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the 1940 Act, the 1940 Act Rules, the Articles
or these By-Laws, any corporate action to be taken by vote of the stockholders
shall be authorized by a majority of the total votes cast at a meeting of
stockholders by the holders of shares present in person or represented by proxy
and entitled to vote on such action.

         If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute, 
the 1940 Act, the 1940 Act Rules or these By-Laws, or determined by the 
chairman of the meeting to be advisable, any such vote need not be by 
ballot. On a vote by ballot, each ballot shall be signed by the stockholder 
voting, or by his proxy, if there be such proxy, and shall state the number 
of shares voted.

         Section 9. FIXING OF RECORD DATE. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than
ninety nor less than ten days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time,
and not others, shall be entitled to vote at such meeting and any adjournment
thereof.

         Section 10. INSPECTORS. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspector shall not be so appointed or if any of
them shall fail to appear or act, the chairman

                                       4
<PAGE>   5
of the meeting may, and on the request of any stockholder entitled to vote
thereat shall, appoint inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath to execute faithfully the
duties of inspectors at such meeting with strict impartiality and according to
the best of his ability. The inspectors shall determine the number of shares
outstanding and the voting powers of each, the number of shares represented at
the meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting or any stockholder entitled to vote
thereat, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any
fact found by them. No directors or candidates for the officer of director shall
act as inspector of an election of directors. Inspectors need not be
stockholders.

         Section 11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Except as
otherwise provided by statute, the 1940 Act, the 1940 Act Rules or the
Articles, any action required to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior  notice and
without a vote, if the following are filed with the records of stockholders
meetings: (i) a unanimous written consent which sets forth the action and is
signed by each stockholder entitled to vote on the matter and (ii) a written
waiver of any right to dissent signed by each stockholder entitled to notice of
the meeting but not entitled to vote thereat.

                                  ARTICLE III

                               BOARD OF DIRECTORS

         Section 1. GENERAL POWERS. Except as otherwise provided in the
Articles, the business and affairs of the Corporation shall be managed under
the direction of the Board of Directors. All powers of the Corporation

                                       5
<PAGE>   6
may be exercised by or under authority of the Board of Directors except as
conferred on or reserved to the stockholders by law or by the Articles or these
By-Laws.

         Section 2. NUMBER OF DIRECTORS. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the directors then in office; provided, however, that the number of directors
shall in no event be less than three nor more than fifteen. Any vacancy created
by an increase in the number of Directors may be filled in accordance with
Section 6 of this Article III. No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration of
his term. Directors need not be stockholders.

         Section 3. ELECTION AND TERM OF DIRECTORS. Directors shall be elected
by written ballot at a meeting of stockholders, held for that purpose unless
otherwise provided by statute or the Articles. The term of office of directors
shall be from the time of their election and qualification until the next annual
meeting of stockholders and until their successors are elected and qualify.

         Section 4. RESIGNATION. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.

         Section 5. REMOVAL OF DIRECTORS. Any director of the Corporation may be
removed for cause or without cause by the stockholders by a vote of a majority 
of the votes entitled to be cast for the election of directors.

         Section 6. VACANCIES. Subject to the provisions of the 1940 Act, any
vacancies in the Board, whether arising from death, resignation, removal, an
increase in the number of directors or any other cause, shall be filled by a
vote of the Board of Directors in accordance with the Articles.

                                       6
<PAGE>   7
         Section 7. PLACE OF MEETINGS. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.

         Section 8. REGULAR MEETING. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.

         Section 9. SPECIAL MEETINGS. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.

         Section 10. POST STOCKHOLDER MEETINGS. A meeting of the Board of
Directors shall be held as soon as practicable after each meeting of
stockholders at which directors were elected. No notice of such meeting shall be
necessary if held immediately after the adjournment, and at the site, of the
meeting of stockholders. If not so held, notice shall be given as hereinafter
provided for special meetings of the Board of Directors.

         Section 11. NOTICE OF SPECIAL MEETINGS. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or mailed by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.

         Section 12. WAIVER OF NOTICE OF MEETINGS. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver of notice of any meeting need not state the
purpose of such meeting.

         Section 13. QUORUM AND VOTING. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in

                                       7
<PAGE>   8
Order to constitute a quorum for the transaction of business at such meeting,
and except as otherwise expressly required by statute, the 1940 Act, the 1940
Act Rules, the Articles, these By-Laws, or other applicable statute, the act of
a majority of the directors present at any meeting at which a quorum is
presented shall be the act of the Board; provided, however, that the approval of
any contract with an investment adviser or principal underwriter, as such terms
are defined in the 1940 act, which the Corporation enters into or any renewal
or amendment thereof, and the selection of the Corporations' independent public
accountants shall each require the affirmative vote of a majority of the
directors who are not interested persons, as defined in the 1940 Act, of the
Corporation cast in person at such meeting and the approval of the fidelity bond
required by the 1940 Act shall require the approval of a majority of such
directors. In the absence of a quorum at any meeting of the Board, a majority of
the directors present thereat may adjourn such meeting to another time and place
until a quorum shall be present thereat. Notice of the time and place of any
such adjourned meeting shall be given to the directors who were not present at
the time of the adjournment and, unless such time and place were announced at
the meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.

         Section 14. ORGANIZATION. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence 
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.

Section 15. WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING. Subject
to the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or 


                                       8
<PAGE>   9
committee, as the case may be, consent thereto in writing, and the writings or
writing are filed with the minutes of the proceedings of the Board or
committee.

        Section 16. COMPENSATION.  Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the 
Board.

                                  ARTICLE IV

                                  COMMITTEES

        Section 1.  COMMITTEES OF THE BOARD.  The Board of Directors may from
time to time, by resolution adopted by a majority of the whole Board, designate
one or more committees of the Board, each such committee to consist of two or
more directors and to have such powers and duties as the Board of Directors
may, by resolution, prescribe.

        Section 2.  GENERAL.  One-third, but not less than two, of the members
of any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The Board
may designate a chairman of any committee and such chairman or any two members
of any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of
any committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall
be deemed to prevent the Board from appointing one or more committees
consisting in whole or in part of persons who are not directors of the
Corporation; provided, however, that no such committee shall have or may
exercise any authority or power of 
<PAGE>   10
the Board in the management of the business or affairs of the Corporation.

                                   ARTICLE V

                         OFFICERS, AGENTS AND EMPLOYEES

         Section 1. OFFICERS. The officers of the Corporation shall be a
President, who shall be a director of the Corporation, a Secretary and a
Treasurer, each of whom shall be elected by the Board of Directors. The Board of
Directors may elect or appoint one or more Vice Presidents and may also appoint
such other officers, agents and employees as it may deem necessary or proper.
Any two or more offices may be held by the same person, except the offices of
President and Vice President, but no officer shall execute, acknowledge or
verify any instrument as an officer in more than one capacity. Such officers
shall be elected by the Board of Directors to serve at the pleasure of the
Board, each to hold office until the next meeting of stockholders and until
their successors shall have been duly elected and shall have qualified, or until
death, resignation, or removal, as hereinafter provided in these By-Laws. The
Board may from time to time elect, or delegate to the President the power to
appoint, such officers (including one or more Assistant Vice Presidents, one or
more Assistant Treasurers and one or more Assistant Secretaries) and such
agents, as may be necessary or desirable for the business of the Corporation.
Such officers and agents shall have such duties and shall hold their offices 
for such terms as may be prescribed by the Board or by the appointing 
authority.

         Section 2. RESIGNATIONS. Any officer of the Corporation may resign at
any time by giving written notice of resignation to the Board, the Chairman of
the Board, President and Secretary. Any such resignation shall take effect the
the time specified therein or, if the time when it shall become effective shall
not be specified therein, immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
         
         Section 3. REMOVAL OF OFFICER, AGENT OR EMPLOYEE. Any officer, agent
or employee of the Corpora-         

                                       10
<PAGE>   11

tion may be removed by the Board of Directors with or without cause at any
time, and the Board may delegate such power of removal as to agents and
employees not elected or appointed by the Board of Directors. Such removal
shall be without prejudice to such person's contract rights, if any, but the
appointment of any person as an officer, agent or employee of the Corporation
shall not of itself create contract rights.

        Section 4.  VACANCIES.  A vacancy in any office, either arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.

        Section 5.  COMPENSATION.  The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.

        Section 6.  BONDS OR OTHER SECURITY.  If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.

        Section 7.  PRESIDENT.  The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the stockholders and of the
Board of Directors. He shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation. He
may employ and discharge employees and agents of the Corporation, except such
as shall be appointed by the Board, and he may delegate these powers.

        Section 8.  VICE PRESIDENT.  Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President may from
time to time prescribe.

<PAGE>   12
         Section 9: TREASURER. The Treasurer shall

         (a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, except those which the Corporation has placed
in the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934, as
amended) pursuant to a written agreement designating such bank or trust company
or member of a national securities exchange as a custodian or sub-custodian of
the property of the Corporation;

         (b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;

         (c) cause all moneys and other valuables to be deposited to the credit
of the Corporation;

         (d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;

         (e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefore;

         (f) provide assistance to the Audit Committee of the Board and report
to such committee as necessary;

         (g) be designated as principal accounting officer for purposes of
Section 32 of the 1940 Act; and

         (h) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.

         Section 10. SECRETARY. The Secretary shall

         (a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;

                                       12
<PAGE>   13
         (b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;

         (c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;

         (d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and

         (e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.

         Section 11. DELEGATION OF DUTIES. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.


                                   ARTICLE VI

                                INDEMNIFICATION
                                ---------------

         Each officer and director of the Corporation shall be indemnified by
the Corporation to the full extent permitted under the General Laws of the State
of Maryland, except that such indemnity shall not protect any such person
against any liability to the Corporation or any stockholder thereof to which
such person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office. Absent a court determination that an officer or director
seeking indemnification was not liable on the merits or guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, the decision by the Corporation to
indemnify

                                       13
<PAGE>   14
such person must be based upon the reasonable determination of independent
counsel or nonparty independent directors, after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

         The Corporation may purchase insurance on behalf of an officer,
director, employee or other agent of the Corporation protecting such person to
the full extent permitted under the General Laws of the State of Maryland, from
liability arising from his activities as officer or director of the
Corporation. The Corporation, however, may not purchase insurance on behalf of
any officer or director of the Corporation that protects or purports to protect
such person from liability to the Corporation or to its stockholders to which
such officer or director would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.


                                  ARTICLE VII

                                 Capital Stock
                                 -------------

         Section 1. STOCK CERTIFICATES. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the seal on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were
still in office at the date of issue.

                                       14
<PAGE>   15
         Section 2. BOOKS OF ACCOUNTS AND RECORD OF STOCKHOLDERS. There shall
be kept at the principal executive office of the Corporation correct and
complete books and records of account of all the business and transactions of
the Corporation. There shall be made available upon request of any stockholder,
in accordance with Maryland law, a record containing the number of shares of
stock issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.

         Section 3. TRANSFERS OF SHARES. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent
or transfer clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
rights of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.

         Section 4. REGULATIONS. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.

         Section 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of
any certificates representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation of
such certificate, and the Corporation may issue a new certificate of stock in
the place of any certifi-

                                       15
<PAGE>   16

cate theretofore issued by it which the owner thereof shall allege to have been
lost or destroyed or which shall have been mutilated, and the Board may, in its
discretion, require such owner or his legal representatives to give to the
Corporation a bond in such sum, limited or unlimited, and in such form and with
such surety or sureties, as the Board in its absolute discretion shall
determine, to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss or destruction of any such
certificate, or issuance of a new certificate. Anything herein to the contrary
notwithstanding, the Board, in its absolute discretion, may refuse to issue any
such new certificate, except pursuant to legal proceedings under the laws of
the State of Maryland.

        Section 6.  FIXING OF A RECORD DATE FOR DIVIDENDS AND DISTRIBUTIONS. 
The Board may fix, in advance, a date not more than ninety days preceding the
date fixed for the payment of any dividend or the making of any distribution.
Once the Board of Directors fixes a record date as the record date for the
determination of the stockholders entitled to receive any such dividend or
distribution, in such case only the stockholders of record at the time so fixed
shall be entitled to receive such dividend or distribution.

        Section 7.  INFORMATION TO STOCKHOLDERS AND OTHERS.  Any stockholder of
the Corporation or his agent may inspect and copy during usual business hours
the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.

                                 ARTICLE VIII

                                     Seal
                                     ----

        The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.


                                      16
<PAGE>   17
                                   ARTICLE IX

                                  Fiscal Year
                                  -----------

         Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 31st day of December.

                                   ARTICLE X

                          Depositories and Custodians
                          ---------------------------

         Section 1. DEPOSITORIES. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of
the Corporation may from time to time determine.

         Section 2.  CUSTODIANS. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the 1940 Act, and the general rules and regulations thereunder.

                                   ARTICLE XI

                            Execution of Instruments
                            ------------------------

         Section 1. CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as
the Board of Directors by resolution shall from time to time designate.

         Section 2. SALE OR TRANSFER OF SECURITIES. Stock certificates, bonds
or other securities at any time owned by the Corporation may be held on behalf
of the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board
and, when so authorized to be held on behalf of the Corporation or sold,
transferred or otherwise disposed of, may be transferred from 

                                       17
<PAGE>   18
the name of the Corporation by the signature of the President or a Vice
President or the Treasurer or pursuant to any procedure approved by the Board of
Directors, subject to applicable law.

                                  ARTICLE XII

                         Independent Public Accountants
                         ------------------------------

         The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors and
ratified by the stockholders to the extent required by the 1940 Act and the 1940
Act Rules.

                                  ARTICLE XIII

                                Annual Statement
                                ----------------

         The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed to
each stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be available at
the annual meeting of stockholders and be placed on file at the Corporation's
principal office in the State of Maryland. Each such report shall show the
assets and liabilities of the Corporation as of the close of the annual or
quarterly period covered by the report and the Securities in which the funds of
the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or quarterly
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.

                                       18
<PAGE>   19
                                  ARTICLE XIV

                                   Amendments
                                   ----------

         The Board of Directors, by affirmative vote of a majority thereof,
shall have the right to amend, alter or repeal these By-Laws at any regular or
special meeting of the Board of Directors, except any particular By-Law which is
specified as not subject to alteration or repeal by the Board of Directors.


                                       19

<PAGE>   1
                         INVESTMENT ADVISORY AGREEMENT
                         -----------------------------


        INVESTMENT ADVISORY AGREEMENT, DATED 10/1/1991, between Gabelli Equity
Series Funds, Inc. (the "Company"), a Maryland corporation, and Gabelli Funds,
Inc. (the "Adviser"), a Delaware Corporation.

        In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is agreed by and between the parties hereto as follows:

        1. IN GENERAL

        The Adviser agrees, all as more fully set forth herein, to act as
investment adviser to the Company with respect to the investment of the assets
of the Trust allocated to the Gabelli Small Cap Growth Fund Stock (the "Fund")
and to supervise and arrange the purchase and sale of assets held in the
investment portfolio of the Fund.

        2. DUTIES AND OBLIGATIONS OF THE ADVISER WITH RESPECT TO INVESTMENTS OF
           ASSETS OF THE FUND

           (a) Subject to the succeeding provisions of this paragraph and
subject to the direction and control of the Company's Board of Directors, the
Adviser shall (i) act as investment adviser for and supervise and manage the
investment and reinvestment of the Fund's assets and in connection therewith
have complete discretion in purchasing and selling securities and other assets
for the Fund and in voting, exercising consents and exercising all other rights
appertaining to such securities and other assets on behalf of the Fund; (ii)
arrange for the purchase and sale of securities and other assets held in the
investment portfolio of the Fund and (iii) oversee the administration of all
aspects of the Fund's business and affairs and provide, or arrange for others
whom it believes to be competent to provide, certain services as specified in
subparagraph (b) below. Nothing contained herein shall be construed to restrict
the Company's right to hire its own employees or to contract for administrative
services to be performed by third parties, including but not limited to, the
calculation of the net asset value of the Fund's shares.

           (b) The specific services to be provided

                                       74

<PAGE>   2




or arranged for by the Adviser for the Fund are (i) maintaining the Fund's books
and records, such as journals, ledger accounts and other records in accordance
with applicable laws and regulations to the extent not maintained by the Fund's
custodian, transfer agent and dividend disbursing agent; (ii) transmitting
purchase and redemption orders for Fund shares to the extent not transmitted by
the Fund's distributor or others who purchase and redeem shares; (iii)
initiating all money transfers to the Fund's custodian and from the Fund's
custodian for the payment of the Fund's expenses, investments, dividends and
share redemptions; (iv) reconciling account information and balances among the
Fund's custodian, transfer agent, distributor, dividend disbursing agent and the
Adviser; (v) providing the Fund, upon request, with such office space and
facilities, utilities and office equipment as are adequate for the Fund's needs;
(vi) preparing, but not paying for, all reports by the Company, on behalf of the
Fund, to its shareholders and all reports and filings required to maintain the
registration and qualification of the Fund's shares under federal and state law
including periodic updating of the Company's registration statement and
Prospectus (including its Statement of Additional Information); (vii)
supervising the calculation of the net asset value of the Fund's shares; and
(viii) preparing notices and agendas for meetings of the Fund's shareholders and
the Company's Board of Directors as well as minutes of such meetings in all
matters required by applicable law to be acted upon by the Board of Directors.

           (c) In the performance of its duties under this Agreement, the
Adviser shall at all times use all reasonable efforts to conform to, and act in
accordance with, any requirements imposed by (i) the provisions of the
Investment Company Act of 1940 (the "Act"), and of any rules or regulations in
force thereunder; (ii) any other applicable provision of law; (iii) the
provisions of the Articles of Incorporation and By-Laws of the Company, as such
documents are amended from time to time; (iv) the investment objective, policies
and restrictions applicable to the Fund as set forth in the Company's
Registration Statement on Form N-lA and (v) any policies and determinations of
the Board of Directors of the Company with respect to the Fund.

           (d) The Adviser will seek to provide qualified personnel to fullfil
its duties hereunder and will bear all costs and expenses (including any
overhead and personnel costs) incurred in connection with its


                                       75

<PAGE>   3





duties hereunder and shall bear the costs of any salaries or directors fees of
any officers or directors of the Company who are affiliated persons (as defined
in the Act) of the Adviser. If in any fiscal year the Fund's aggregate expenses
(excluding interest, taxes, distribution expenses, brokerage commissions and
extraordinary expenses) exceed the most restrictive expense limitation imposed
by the securities law of any state in which the shares of the Fund are
registered or qualified for sale, the Adviser will reimburse the Company for the
amount of such excess up to the amount of fees accrued for such fiscal year
hereunder. The amount of such reimbursement shall be calculated monthly and an
appropriate amount shall be held back or released to the Adviser each month so
that the aggregate amount held back at any particular time shall equal the net
amount of the reimbursement on a cummulative year-to-date basis. As of the end
of the year the final amount of the total reimbursement shall be calculated and
the appropriate amount released to the Fund or the Adviser or paid to the Fund
by the Adviser. Subject to the foregoing, the Company shall be responsible for
the payment of all the Fund's other expenses, including (i) payment of the fees
payable to the Adviser under paragraph 4 hereof; (ii) organizational expenses;
(iii) brokerage fees and commissions; (iv) taxes; (v) interest charges on
borrowings; (vi) the cost of liability insurance or fidelity bond coverage for
the Company officers and employees, and directors' and officers' errors and
omissions insurance coverage; (vii) legal, auditing and accounting fees and
expenses; (viii) charges of the Fund's custodian, transfer agent and dividend
disbursing agent; (ix) the Fund's pro rata portion of dues, fees and charges of
any trade association of which the Company is a member; (x) the expenses of
printing, preparing and mailing proxies, stock certificates and reports,
including the Fund's prospectuses and statements of additional information, and
notices to shareholders; (xi) filing fees for the registration or qualification
of the Fund and its shares under federal or state securities laws; (xii) the
fees and expenses involved in registering and maintaining registration of the
Fund's shares with the Securities and Exchange Commission; (xiii) the expenses
of holding shareholder meetings; (xiv) the compensation, including fees, of any
of the Company's directors, officers or employees who are not affiliated persons
of the Adviser; (xv) all expenses of computing the Fund's net asset value per
share, including any equipment or services obtained solely for the purpose of
pricing shares or valuing the Fund's investment portfolio; (xvi) expenses of
personnel performing shareholder servicing


                                       76


<PAGE>   4

functions and all other distribution expenses payable by the Company; and (xvii)
litigation and other extraordinary or non-recurring expenses and other expenses
properly payable by the Fund.

           (e) The Adviser shall give the Fund the benefit of its best judgment
and effort in rendering services hereunder, but neither the Adviser nor any of
its officers, directors, employees, agents or controlling persons shall be
liable for any act or omission or for any loss sustained by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement; provided, however, that the
foregoing shall not constitute a waiver of any rights which the Company may have
which may not be waived under applicable law.

           (f) Nothing in this Agreement shall prevent the Adviser or any
director, officer, employee or other affiliate thereof from acting as investment
adviser for any other person, firm or corporation, or from engaging in any other
lawful activity, and shall not in any way limit or restrict the Adviser or any
of its directors, officers, employees or agents from buying, selling or trading
any securities for its or their own accounts or for the accounts of others for
whom it or they may be acting. 

        3. PORTFOLIO TRANSACTIONS

        In the course of the Adviser's execution of portfolio transactions
for the Fund, it is agreed that the Adviser shall employ securities brokers and
dealers which, in its judgment, will be able to satisfy the policy of the Fund
to seek the best execution of its portfolio transactions at reasonable expenses.
For purposes of this agreement, "best execution" shall mean prompt, efficient
and reliable execution at the most favorable price obtainable. Under such
conditions as may be specified by the Company's Board of Directors in the
interest of its shareholders and to ensure compliance with applicable law and
regulations, the Adviser may (a) place orders for the purchase or sale of the
Fund's portfolio securities with its affiliate, Gabelli & Company, Inc.; (b) pay
commissions to brokers other than its affiliate which are higher than might be
charged by another qualified broker to obtain brokerage and/or research services
considered by the Adviser to be useful or desirable in the performance

                                       77

<PAGE>   5


of its duties hereunder and for the investment management of other advisory
accounts over which it or its affiliates exercise investment discretion; and (c)
consider sales by brokers (other than its affiliate distributor) of shares of
the Fund and any other mutual fund for which it or its affiliates act as
investment adviser, as a factor in its selection of brokers and dealers for Fund
portfolio transactions.

        4. COMPENSATION OF THE ADVISER

           (a) Subject to paragraph 2(b), the Company agrees to pay to the
Adviser out of the Fund's assets and the Adviser agrees to accept as full
compensation for all services rendered by or through the Adviser (other than any
amounts payable to the Adviser pursuant to paragraph 4(b)) a fee computed and
payable monthly in an amount equal on an annualized basis to 1.0% of the Fund's
daily average net asset value. For any period less than a month during which
this Agreement is in effect, the fee shall be prorated according to the
proportion which such period bears to a full month of 28, 29, 30 or 31 days, as
the case may be.

           (b) The Company will pay the Adviser separately for any costs and
expenses incurred by the Adviser in connection with distribution of the Fund's
shares in accordance with the terms (including proration or nonpayment as a
result of allocations of payments) of a Plan of Distribution (the "Plan")
adopted for the Fund pursuant to Rule 12b-l under the Act as such Plan may be in
effect from time to time; provided, however, that no payments shall be due or
paid to the Adviser hereunder unless and until this Agreement shall have been
approved by Director Approval and Disinterested Director Approval (as such terms
are defined in such Plan). The Company reserves the right to modify or terminate
such Plan at any time as specified in the Plan and Rule 12b-l, and this
subparagraph shall thereupon be modified or terminated to the same extent
without further action of the parties. The persons authorized to direct the
payment of the funds pursuant to this Agreement and the Plan shall provide to
the Company's Board of Directors, and the Directors shall review, at least
quarterly a written report of the amount so paid and the purposes for which such
expenditures were made.

           (c) For purposes of this Agreement, the net asset of the Fund shall
be calculated pursuant to the procedures adopted by resolutions of the Directors
of the


                                       78

<PAGE>   6



Company for calculating the net asset value of the Fund's shares.

        5. INDEMNITY.

           (a) The Company hereby agrees to indemnify the Adviser and each of
the Adviser's directors, officers, employees, and agents (including any
individual who serves at the Adviser's request as director, officer, partner,
trustee or the like of another corporation) and controlling persons (each such
person being an "indemnitee) against any liabilities and expenses, including    
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees (all as provided in accordance with applicable
corporate law) reasonably incurred by such indemnitee in connection with the
defense or disposition of any action, suit or other proceeding, whether civil
or criminal, before any court or administrative or investigative body in which
he may be or may have been involved as a party or otherwise or with which he
may be or may have been threatened, while acting in any capacity set forth
above in this paragraph or thereafter by reason of his having acted in any such
capacity, except with respect to any matter as to which he shall have been
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Company and furthermore, in the case of
any criminal proceeding, so long as he had no reasonable cause to believe that
the conduct was unlawful, provided, however, that (1) no indemnitee shall be
indemnified hereunder against any liability to the Company or its shareholders
or any expense of such indemnitee arising by reason of (i) willful misfeasance,
(ii) bad faith, (iii) gross negligence (iv) reckless disregard of the duties
involved in the conduct of his position (the conduct referred to in such
clauses (i) through (v) being sometimes referred to herein as "disabling
conduct"), (2) as to any matter disposed of by settlement or a compromise
payment by such indemnitee, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless there has been a determination that such settlement or
compromise is in the best interests of the Company and that such indemnitee
appears to have acted in good faith in the reasonable belief that his action
was in the best interest of the Company and did not involve disabling conduct
by such indemnitee and (3) with respect to any action, suit or other proceeding
voluntarily prosecuted by any indemnitee as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or


                                       79

<PAGE>   7



other proceeding by such indemnitee was authorized by a majority of the full
Board of the Company. Notwithstanding the foregoing the Company shall not be
obligated to provide any such indemnification to the extent such provision would
waive any right which the Company cannot lawfully waive.

           (b) The Company shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification might be
sought hereunder if the Company receives a written affirmation of the
indemnitee's good faith belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to reimburse the Company
unless it is subsequently determined that he is entitled to such indemnification
and if the directors of the Company determine that the facts then known to them
would not preclude indemnification. In addition, at least one of the following
conditions must be met: (A) the indemnitee shall provide a security for his
undertaking, (B) the Company shall be insured against losses arising by reason
of any lawful advances, or (C) a majority of a quorum of directors of the
Company who are neither "interested persons" of the Company (as defined in
Section 2(a)(19) of the Act) nor parties to the proceeding ("Disinterested
Non-Party Directors") or an independent legal counsel in a written opinion,
shall determine, based on a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe that the indemnitee
ultimately will be found entitled to indemnification.

           (c) All determinations with respect to indemnification hereunder
shall be made (1) by a final decision on the merits by a court or other body
before whom the proceeding was brought that such indemnitee is not liable by
reason of disabling conduct or, (2) in the absence of such a decision, by (i) a
majority vote of a quorum of the Disinterested Non-party Directors of the
Company, or (ii) if such a quorum is not obtainable or even, if obtainable, if a
majority vote of such quorum so directs, independent legal counsel in a written
opinion.

           The rights accruing to any indemnitee under these provisions shall
not exclude any other right to which he may be lawfully entitled.

        6. DURATION AND TERMINATION




                                       80

<PAGE>   8


         This Agreement shall become effective upon on the date hereof and shall
continue in effect for a period of two years and thereafter from year to year,
but only so long as such continuation is specifically approved at least annually
in accordance with the requirements of the Act.

         This Agreement may be terminated by the Adviser at any time without
penalty upon giving the Company sixty days written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Adviser sixty days notice (which notice may be waived by
the Adviser), provided that such termination by the Company shall be directed or
approved by the vote of a majority of the Directors of the Company in office at
the time or by the vote of the holders of a "majority of the voting securities"
(as defined in the Act) of the Fund at the time outstanding and entitled to vote
or, with respect to paragraph 4(b), by a majority of the Directors of the
Company who are not "interested persons" of the Company and who have no direct
or indirect financial interest in the operation of the Plan or any agreements
related to the Plan. This Agreement shall terminate automatically in the event
of its assignment (as "assignment" is defined in the Act and the rules
thereunder.)

         7. NOTICES

         Any notice under this Agreement shall be in writing to the other party
at such address as the other party may designate from time to time for the
receipt of such notice and shall be deemed to be received on the earlier of the
date actually received or on the fourth day after the postmark if such notice is
mailed first class postage prepaid.

         8. GOVERNING LAW

         This Agreement shall be construed in accordance with the laws of the
State of New York for contracts to be performed entirely therein and in
accordance with the applicable provisions of the Act.


                                       81
<PAGE>   9


         IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers, all as of the day
and the year first above written.

                              GABELLI EQUITY SERIES FUNDS, INC.


                              By: /s/
                                  ---------------------------------------
                                  Name:
                                  Title:


                              GABELLI FUNDS, INC.

                              By: /s/
                                  ---------------------------------------
                                  Name:
                                  Title:










                                       82


<PAGE>   1
                             DISTRIBUTION AGREEMENT

                                      FOR

                         THE GABELLI EQUITY INCOME FUND


         DISTRIBUTION AGREEMENT, dated November 13, 1991 between Gabelli Equity
Series Funds, Inc., a Maryland corporation (the "Company"), on behalf of its
series The Gabelli Equity Income Fund (the "Fund"), and Gabelli & Company, Inc.,
a New York corporation (the "Distributor"). The Company is registered as an
investment company under the Investment Company Act of 1940 (the "1940 Act"),
and an indefinite number of shares (the "Shares") of the Fund, par value $.001
per share (the "Shares"), have been registered under the Securities Act of 1933
(the "1933 Act") to be offered for sale to the public in a continuous public
offering in accordance with terms and conditions set forth in the Prospectus and
Statement of Additional Information (the "Prospectus") of the Fund included in
the Company's Registration Statement on Form N-lA as such documents may be
amended from time to time.

         In this connection, the Company desires that the Distributor act as its
exclusive sales agent and distributor for the sale and distribution of Shares.
The Distributor has advised the Company that it is willing to act in such
capacities, and it is accordingly agreed between them as follows:

         1. The Company hereby appoints the Distributor as exclusive sales agent
and distributor for the sale and distribution of Shares pursuant to the
aforesaid continuous public offering of Shares, and the Company further agrees
from and after the commencement of such continuous public offering that it will
not, without the Distributor's consent, sell or agree to sell any Shares
otherwise than through the Distributor, except the Company may issue Shares in
connection with a merger, consolidation or acquisition of assets on such basis
as may be authorized or permitted under the 1940 Act.

         2. The Distributor hereby accepts such appointment and agrees to use
its best efforts to sell such Shares, provided, however, that when requested by
the





                                      141

<PAGE>   2


Fund at any time for any reason the Distributor will suspend such efforts. The
Company may also withdraw the offering of Shares at any time when required by
the provisions of any statute, order, rule or regulation of any governmental
body having jurisdiction. It is understood that the Distributor does not
undertake to sell all or any specific portion of the Shares.

         3. The Distributor represents that it is a member in good standing of
the National Association of Dealers, Inc. and agrees that it will use all
reasonable efforts to maintain such status and to abide by the Rules of Fair
Practice, the Constitution and the Bylaws of the National Association of
Securities Dealers, Inc., and all other rules and regulations that are now or
may become applicable to its performance hereunder. The Distributor will
undertake and discharge its obligations hereunder as an independent contractor
and it shall have no authority or power to obligate or bind the Company by its
actions, conduct or contracts except that it is authorized to accept orders for
the purchase or repurchase of Shares as the Company's agent and subject to its
approval. The Company reserves the right to reject any order in whole or in
part. The Distributor may appoint sub-agents or distribute through dealers or
otherwise as it may determine from time to time pursuant to agreements approved
by the Company, but this Agreement shall not be construed as authorizing any
dealer or other person to accept orders for sale or repurchase of Shares on
behalf of the Company or otherwise act as the Company's agent for any purpose.
The Distributor shall not utilize any materials in connection with the sale or
offering of Shares except the then current Prospectus and such other materials
as the Company shall provide or approve in writing.

         4. Shares may be sold by the Distributor only at prices and terms
described in the then current Prospectus relating to the Shares and may be sold
either through persons with whom it has selling agreements in a form approved by
the Company's Board of Directors or directly to prospective purchasers. To
facilitate sales, the Company will furnish the Distributor with the net asset
value of its Shares promptly after each calculation thereof.

         5. The Company has delivered to the Distributor a copy of the current
Prospectus for the Fund. It





                                      142

<PAGE>   3


agrees that it will use its best efforts to continue the effectiveness of its
Registration Statement filed under the 1933 Act and the 1940 Act. The Company
further agrees to prepare and file any amendments to its Registration Statement
as may be necessary and any supplemental data in order to comply with such Acts.
The Company will furnish the Distributor at the Distributor's expense with a
reasonable number of copies of the Prospectus and any amended Prospectus for use
in connection with the sale of Shares.

         6. At the Distributor's request, the Company will take such steps at
its own expense as may be necessary and feasible to qualify Shares for sale in
states, territories or dependencies of the United States of America and in the
District of Columbia in accordance with the laws thereof, and to renew or extend
any such qualification; provided, however, that the Company shall not be
required to qualify Shares or to maintain the qualification of Shares in any
state, territory, dependency or district where it shall deem such qualification
disadvantageous to the Fund.

         7. The Distributor agrees that:

                  (a) It will furnish to the Company any pertinent information
         required to be inserted with respect to the Distributor as exclusive
         sales agent and distributor within the purview of Federal and state
         securities laws in any reports or registrations required to be filed
         with any government authority;

                  (b) It will not make any representations inconsistent with the
         information contained in the Registration Statement or Prospectus filed
         under the Securities Act of 1933, as in effect from time to time;

                  (c) It will not use or distribute or authorize the use or
         distribution of any statements other than those contained in the
         Fund's then current Prospectus or in such supplemental literature or
         advertising as may be authorized in writing by the Company; and









                                      143

<PAGE>   4


                  (d) Subject to paragraph 9 below, the Distributor will bear
         the costs and expenses of printing and distributing any copies of any
         prospectuses and annual and interim reports of the Fund (after such
         items have been prepared and set in type) which are used in connection
         with the offering of Shares, and the costs and expenses of preparing,
         printing and distributing any other literature used by the Distributor
         or furnished by the Distributor for use in connection with the offering
         of the Shares and the costs and expenses incurred by the Distributor in
         advertising, promoting and selling Shares of the Fund to the public.

         8. The Company will pay its legal and auditing expenses and the cost of
composition of any prospectuses of annual or interim reports of the Fund.

         9. The Company will pay the Distributor for costs and expenses incurred
by the Distributor in connection with distribution of Shares by the Distributor
in accordance with the terms of a Plan of Distribution (the "Plan") adopted by
the Fund pursuant to Rule 12b-1 under the 1940 Act as such Plan may be in effect
from time to time; provided, however, that no payments shall be due or paid to
the Distributor hereunder unless and until this Agreement shall have been
approved by Director Approval and Disinterested Director Approval (as such terms
are defined in such Plan). The Company reserves the right to modify or terminate
such Plan at any time as specified in the Plan and Rule 12b-1, and this Section
9 shall thereupon be modified or terminated to the same extent without further
action of the parties. The persons authorized to direct the payment of funds
pursuant to this Agreement and the Plan shall provide to the Company's Board of
Directors, and the Directors shall review, at least quarterly a written report
of the amounts so paid and the purposes for which such expenditures were made.

         10. The Company agrees to indemnify, defend and hold the Distributor,
its officers, directors, employees and agents and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act (each, an
"indemnitee"), free and harmless from any and all liabilities and expenses,
including costs of investigation or defense (including reasonable counsel fees)
incurred by such indemnitee in connection with the de-





                                      144

<PAGE>   5


fense or disposition of any action, suit or other proceeding, whether civil or
criminal, in which such indemnitee may be or may have been involved as a party
or otherwise or with which he may be or may have been threatened, while the
Distributor was active in such capacity or by reason of the Distributor having
acted in any such capacity or arising out of or based upon any untrue statement
of a material fact contained in the then-current Prospectus relating to the
Shares or arising out of or based upon any alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Company
expressly for use in any such Prospectus; provided, however, that (1) no
indemnitee shall be indemnified hereunder against any liability to the Company
or the shareholders of the Fund or any expense of such indemnitee with respect
to any matter as to which such indemnitee shall have been adjudicated not to
have acted in good faith in the reasonable belief that its action was in the
best interest of the Company or arising by reason of such indemnitee's willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations under this Agreement
("disabling conduct"), or (2) as to any matter disposed of by settlement or a
compromise payment by such indemnitee, no indemnification shall be provided
unless there has been a determination that such settlement or compromise is in
the best interests of the Company and that such indemnitee appears to have acted
in good faith in the reasonable belief that its action was in the best interest
of the Company and did not involve disabling conduct by such indemnitee.
Notwithstanding the foregoing the Company shall not be obligated to provide any
such indemnification to the extent such provision would waive any right which
the Company cannot lawfully waive.

         The Distributor agrees to indemnify, defend and hold the Company, its
Directors, officers, employees and agents and any person who controls the
Company within the meaning of Section 15 of the 1933 Act (each, an
"indemnitee"), free and harmless from and against any and all liabilities and
expenses, including costs of investiga-

                                      145

<PAGE>   6


tion or defense (including reasonable counsel fees) incurred by such indemnitee,
but only to the extent that such liability or expense shall arise out of or be
based upon any untrue or alleged untrue statement of a material fact contained
in information furnished in writing by the Distributor of the Company expressly
for use in a Prospectus or any alleged omission to state a material fact in
connection with such information required to be stated therein or necessary to
make such information not misleading or arising by reason of disabling conduct
by such indemnitee or any person selling Shares pursuant to an agreement with
the Distributor.

         The Company shall make advance payments in connection with the expenses
of defending any action with respect to which indemnification might be sought
hereunder if the Company receives a written affirmation of the indemnitee's good
faith belief that the standard of conduct necessary for indemnification has been
met and a written undertaking to reimburse the Company unless it is subsequently
determined that he is entitled to such indemnification and if the directors of
the Company determine that the facts then known to them would not preclude
indemnification. In addition, at least one of the following conditions must be
met: (A) the indemnitee shall provide a security for his undertaking, (B) the
Company shall be insured against losses arising by reason of any lawful
advances, or (C) a majority of a quorum of directors of the Company who are
neither "interested persons" of the Company (as defined in Section 2(a) (19) of
the Act) nor parties to the proceeding ("Disinterested Non-Party Directors") or
an independent legal counsel in a written opinion, shall determine, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the indemnitee ultimately will be found
entitled to indemnification.

         All determinations with respect to indemnification hereunder shall be
made (1) by a final decision on the merits by a court or other body before whom
the proceeding was brought that such indemnitee is not liable by reason of
disabling conduct or, (2) in the absence of such a decision, by (i) a majority
vote of a quorum of the Disinterested Non-party Directors of the Company, or
(ii) if such a quorum is not obtainable or even, if






                                      146

<PAGE>   7


obtainable, if a majority vote of such quorum so directs, independent legal
counsel in a written opinion.

         11. This Agreement shall become effective on the date first set forth
above and shall remain in effect for up to two years from such date (one year in
the case of Section 9) and thereafter from year to year provided such
continuance is specifically approved at least annually prior to each anniversary
of such date by (a) Director Approval or by vote at a meeting of shareholders of
the Fund of the lesser of (i) 67 per cent of the Shares present or represented
by proxy and (ii) 50 per cent of the outstanding Shares and (b) by Disinterested
Director Approval.

         12. This Agreement may be terminated (a) by the Distributor at any time
without penalty by giving sixty (60) days' written notice to the Company which
notice may be waived by the Company; or (b) by the Company at any time without
penalty upon sixty (60) days' written notice to the Distributor (which notice
may be waived by the Distributor); provided, however, that any such termination
by the Company shall be directed or approved in the same manner as required for
continuance of this Agreement by Section 11(a) (or, in the case of termination
of Section 9, by Section 11(b)).

         13. This Agreement may not be amended or changed except in writing
signed by each of the parties hereto and approved in the same manner as provided
for continuance of this Agreement in Section 11(a) (or, in the case of amendment
of Section 9, by Section 11(b)). Any such amendment or change shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors, but this Agreement shall not be assigned by either party and shall
automatically terminate upon assignment (as such term is defined in the 1940 Act
and the rules thereunder).

         14. This Agreement shall be construed in accordance with the laws of
the State of New York applicable to agreements to be performed entirely therein
and in accordance with applicable provisions of the 1940 Act.

         15. If any provision of this Agreement shall be held or made invalid or
unenforceable by a court deci-

                                      147

<PAGE>   8


sion, statute, rule or otherwise, the remainder of this Agreement shall not be
affected or impaired thereby.


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first written above.





                   GABELLI EQUITY SERIES FUNDS, INC.



                   By: /s/ Bruce N. Alpert
                       ------------------------------
                   Name:
                   Title:


                   GABELLI & COMPANY, INC.



                   By: /s/ Stephen G. Bondi
                       ------------------------------
                   Name: Stephen G. Bondi
                   Title: Vice President







                                      148

<PAGE>   9


                              AMENDED AND RESTATED

                  PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1

                                       OF

                         THE GABELLI EQUITY INCOME FUND


         The Gabelli Equity Income Fund (the "Fund") is engaged in business as a
separate series of Gabelli Equity Series Funds, Inc. (the "Company"), which is
an open-end management investment company registered as such under the
Investment Company Act of 1940 (the "Act"). The Fund intends to employ Gabelli
& Company, Inc. and/or others as the principal underwriter and distributor (the
"Distributor") of the shares of the Fund pursuant to a written distribution
agreement. The Fund has adopted a plan of distribution pursuant to Rule 12b-1
under the Act to assist in the distribution of shares of the Fund.

         The Board of Directors (the "Board") of the Company having determined
that it would be desirable to amend the current plan of distribution in certain
respects and to restate such amended plan in its entirety and that a plan of
distribution containing the terms set forth herein is reasonably likely to
benefit the Fund and its shareholders, the Fund hereby amends and restates its
plan of distribution (the "Plan") pursuant to Rule 12b-1 under the Act to read
in its entirety as follows:

         1. In consideration of the services to be provided, and the expenses to
be incurred, by the Distributor pursuant to the distribution agreement, the
Company will pay to the Distributor as distribution payments (the "Payments") in
connection with the distribution of shares of the Fund an aggregate amount at a
rate of 0.25% per year of the average daily net assets of the Fund. Such
Payments shall be accrued daily and paid monthly in arrears or shall be accrued
and paid at such other intervals as the Board shall determine. The Company's
obligation hereunder shall be limited to the assets of the Fund and shall not
constitute an obligation of the Company except out of such assets and shall not
constitute an obligation of any shareholder of the Fund or other series of the
Company.






                                      153

<PAGE>   10


         2. It is understood that the Payments made by the Fund under this Plan
will be used by the Distributor for the purpose of financing or assisting in the
financing of any activity which is primarily intended to result in the sale of
shares of the Fund. The scope of the foregoing shall be interpreted by the
Board, whose decision shall be conclusive except to the extent it contravenes
established legal authority. Without in any way limiting the discretion of the
Board, the following activities are hereby declared to be primarily intended to
result in the sale of shares of the Fund: advertising the Fund or the Fund's
investment advisor's mutual fund activities; compensating underwriters, dealers,
brokers, banks and other selling entities (including the Distributor and its
affiliates) and sales and marketing personnel of any of them for sales of shares
of the Fund, whether in a lump sum or on a continuous, periodic, contingent,
deferred or other basis; compensating underwriters, dealers, brokers, banks and
other servicing entities and servicing personnel (including the Fund's
investment adviser and its personnel) of any of them for providing services to
shareholders of the Fund relating to their investment in the Fund, including
assistance in connection with inquiries relating to shareholder accounts; the
production and dissemination of prospectuses (including statements of additional
information) of the Fund and the preparation, production and dissemination of
sales, marketing and shareholder servicing materials; and the ordinary or
capital expenses, such as equipment, rent, fixtures, salaries, bonuses,
reporting and recordkeeping and third party consultancy or similar expenses
relating to any activity for which Payment is authorized by the Board; and the
financing of any activity for which Payment is authorized by the Board; and
profit to the Distributor and its affiliates arising out of their provision of
shareholder services. Notwithstanding the foregoing, this Plan does not require
the Distributor or any of its affiliates to perform any specific type or level
of distribution activities or shareholder services or to incur any specific
level of expenses for activities covered by this Section 2. In addition,
Payments made in a particular year shall not be refundable whether or not such
Payments exceed the expenses incurred for that year pursuant to this Section 2.

         3. The Company is hereby authorized and directed to enter into
appropriate written agreements with





                                      154

<PAGE>   11


the Distributor and each other person to whom the Company intends to make any
Payment, and the Distributor is hereby authorized and directed to enter into
appropriate written agreements with each person to whom the Distributor intends
to make any payments in the nature of a Payment. The foregoing requirement is
not intended to apply to any agreement or arrangement with respect to which the
party to whom Payment is to be made does not have the purpose set forth in
Section 2 above (such as the printer in the case of the printing of a prospectus
or a newspaper in the case of an advertisement) unless the Board determines that
such an agreement or arrangement should be treated as a "related" agreement for
purposes of Rule 12b-1 under the Act.

         4. Each agreement required to be in writing by Section 3 must contain
the provisions required by Rule 12b-1 under the Act and must be approved by a
majority of the Board ("Board Approval") and by a majority of the Directors
("Disinterested Director Approval") who are not interested persons of the
Company and have no direct or indirect financial interest in the operation of
the Plan or any such agreement, by vote cast in person at a meeting called for
the purposes of voting on such agreement. All determinations or authorizations
of the Board hereunder shall be made by Board Approval and Disinterested
Director Approval.

         5. The officers, investment adviser or Distributor of the Fund, as
appropriate, shall provide to the Board and the Board shall review, at least
quarterly, a written report of the amounts expended pursuant to this Plan and
the purposes for which such Payments were made.

         6. To the extent any activity is covered by Section 2 and is also an
activity which the Company may pay for on behalf of the Fund without regard to
the existence or terms and conditions of a plan of distribution under Rule 12b-1
of the Act, this Plan shall not be construed to prevent or restrict the Company
from paying such amounts outside of this Plan and without limitation hereby and
without such payments being included in calculation of Payments subject to the
limitation set forth in Section 1.

         7. This Plan shall not take effect until it has been approved by a vote
of at least a majority of the






                                      155

<PAGE>   12


outstanding voting securities of the Fund. This Plan may not be amended in any
material respect without Board Approval and Disinterested Director Approval and
may not be amended to increase the maximum level of Payments permitted hereunder
without such approvals and further approval by a vote of at least a majority of
the outstanding voting securities of the Fund. This Plan may continue in effect
for longer than one year after its approval by the shareholders of the Fund only
as long as such continuance is specifically approved at least annually by Board
Approval and by Disinterested Director Approval.

         8. This Plan may be terminated at any time by a vote of the directors
who are not interested persons of the Fund and have no direct or indirect
financial interest in the operation of the Plan or any agreement hereunder, cast
in person at a meeting called for the purposes of voting on such termination, or
by a vote of at least a majority of the outstanding voting securities of the
Fund.

         9. For purposes of this Plan the terms "interested person" and "related
agreement" shall have the meanings ascribed to them in the Act and the rules
adopted by the Securities and Exchange Commission thereunder and the term "vote
of a majority of the outstanding voting securities" of the Fund shall mean the
vote, at the annual or a special meeting of the security holders of the Fund
duly called, (a) of 67% or more of the voting securities present at such
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy or, if less, (b) more than 50% of
the outstanding voting securities of the Fund.



















                                      156


<PAGE>   13
                             DISTRIBUTION AGREEMENT

                                      FOR

                       THE GABELLI SMALL CAP GROWTH FUND


         DISTRIBUTION AGREEMENT, dated September 9, 1991 between Gabelli Equity
Series Funds, Inc., a Maryland corporation (the "Company"), on behalf of its
series The Gabelli Small Cap Growth Fund (the "Fund"), and Gabelli & Company,
Inc., a New York corporation (the "Distributor"). The Company is registered as
an investment company under the Investment Company Act of 1940 (the "1940 Act"),
and an indefinite number of shares (the "Shares") of the Fund, par value $.001
per share (the "Shares"), have been registered under the Securities Act of 1933
(the "1933 Act") to be offered for sale to the public in a continuous public
offering in accordance with terms and conditions set forth in the Prospectus and
Statement of Additional Information (the "Prospectus") of the Fund included in
the Company's Registration Statement on Form N-1A as such documents may be
amended from time to time.

         In this connection, the Company desires that the Distributor act as its
exclusive sales agent and distributor for the sale and distribution of Shares.
The Distributor has advised the Company that it is willing to act in such
capacities, and it is accordingly agreed between them as follows:

         1. The Company hereby appoints the Distributor as exclusive sales agent
and distributor for the sale and distribution of Shares pursuant to the
aforesaid continuous public offering of Shares, and the Company further agrees
from and after the commencement of such continuous public offering that it will
not, without the Distributor's consent, sell or agree to sell any Shares
otherwise than through the Distributor, except the Company may issue Shares in
connection with a merger, consolidation or acquisition of assets on such basis
as may be authorized or permitted under the 1940 Act.

         2. The Distributor hereby accepts such appointment and agrees to use
its best efforts to sell such Shares, provided, however, that when requested by
the


                                      133

<PAGE>   14


Fund at any time for any reason the Distributor will suspend such efforts. The
Company may also withdraw the offering of Shares at any time when required by
the provisions of any statute, order, rule or regulation of any governmental
body having jurisdiction. It is understood that the Distributor does not
undertake to sell all or any specific portion of the Shares.

         3. The Distributor represents that it is a member in good standing of
the National Association of Dealers, Inc. and agrees that it will use all
reasonable efforts to maintain such status and to abide by the Rules of Fair
Practice, the Constitution and the Bylaws of the National Association of
Securities Dealers, Inc., and all other rules and regulations that are now or
may become applicable to its performance hereunder. The Distributor will
undertake and discharge its obligations hereunder as an independent contractor
and it shall have no authority or power to obligate or bind the Company by its
actions, conduct or contracts except that it is authorized to accept orders for
the purchase or repurchase of Shares as the Company's agent and subject to its
approval. The Company reserves the right to reject any order in whole or in
part. The Distributor may appoint sub-agents or distribute through dealers or
otherwise as it may determine from time to time pursuant to agreements approved
by the Company, but this Agreement shall not be construed as authorizing any
dealer or other person to accept orders for sale or repurchase of Shares on
behalf of the Company or otherwise act as the Company's agent for any purpose.
The Distributor shall not utilize any materials in connection with the sale or
offering of Shares except the then current Prospectus and such other materials
as the Company shall provide or approve in writing.

         4. Shares may be sold by the Distributor only at prices and terms
described in the then current Prospectus relating to the Shares and may be sold
either through persons with whom it has selling agreements in a form approved by
the Company's Board of Directors or directly to prospective purchasers. To
facilitate sales, the Company will furnish the Distributor with the net asset
value of its Shares promptly after each calculation thereof.

         5. The Company has delivered to the Distributor a copy of the current
Prospectus for the Fund. It


                                      134

<PAGE>   15


agrees that it will use its best efforts to continue the effectiveness of its
Registration Statement filed under the 1933 Act and the 1940 Act. The Company
further agrees to prepare and file any amendments to its Registration Statement
as may be necessary and any supplemental data in order to comply with such Acts.
The Company will furnish the Distributor at the Distributor's expense with a
reasonable number of copies of the Prospectus and any amended Prospectus for use
in connection with the sale of Shares.

         6. At the Distributor's request, the Company will take such steps at
its own expense as may be necessary and feasible to qualify Shares for sale in
states, territories or dependencies of the United States of America and in the
District of Columbia in accordance with the laws thereof, and to renew or extend
any such qualification; provided, however, that the Company shall not be
required to qualify Shares or to maintain the qualification of Shares in any
state, territory, dependency or district where it shall deem such qualification
disadvantageous to the Fund.

         7. The Distributor agrees that:

            (a) It will furnish to the Company any pertinent information
         required to be inserted with respect to the Distributor as exclusive
         sales agent and distributor within the purview of Federal and state
         securities laws in any reports or registrations required to be filed
         with any government authority;

            (b) It will not make any representations inconsistent with the
         information contained in the Registration Statement or Prospectus filed
         under the Securities Act of 1933, as in effect from time to time;

            (c) It will not use or distribute or authorize the use or
         distribution of any statements other than those contained in the Fund's
         then current Prospectus or in such supplemental literature or
         advertising as may be authorized in writing by the Company; and

                                      135

<PAGE>   16



            (d) Subject to paragraph 9 below, the Distributor will bear the
         costs and expenses of printing and distributing any copies of any
         prospectuses and annual and interim reports of the Fund (after such
         items have been prepared and set in type) which are used in connection
         with the offering of Shares, and the costs and expenses of preparing,
         printing and distributing any other literature used by the Distributor
         or furnished by the Distributor for use in connection with the offering
         of the Shares and the costs and expenses incurred by the Distributor in
         advertising, promoting and selling Shares of the Fund to the public.

         8. The Company will pay its legal and auditing expenses and the cost of
composition of any prospectuses of annual or interim reports of the Fund.

         9. The Company will pay the Distributor for costs and expenses incurred
by the Distributor in connection with distribution of Shares by the Distributor
in accordance with the terms of a Plan of Distribution (the "Plan") adopted by
the Fund pursuant to Rule 12b-1 under the 1940 Act as such Plan may be in effect
from time to time; provided, however, that no payments shall be due or paid to
the Distributor hereunder unless and until this Agreement shall have been
approved by Director Approval and Disinterested Director Approval (as such terms
are defined in such Plan). The Company reserves the right to modify or
terminate such Plan at any time as specified in the Plan and Rule 12b-1, and
this Section 9 shall thereupon be modified or terminated to the same extent
without further action of the parties. The persons authorized to direct the
payment of funds pursuant to this Agreement and the Plan shall provide to the
Company's Board of Directors, and the Directors shall review, at least quarterly
a written report of the amounts so paid and the purposes for which such
expenditures were made.

         10. The Company agrees to indemnify, defend and hold the Distributor,
its officers, directors, employees and agents and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act (each, an
"indemnitee"), free and harmless from any and all liabilities and expenses,
including costs of investigation or defense (including reasonable counsel fees)
incurred by such indemnitee in connection with the de-


                                      136

<PAGE>   17


fense or disposition of any action, suit or other proceeding, whether civil or
criminal, in which such indemnitee may be or may have been involved as a party
or otherwise or with which he may be or may have been threatened, while the
Distributor was active in such capacity or by reason of the Distributor having
acted in any such capacity or arising out of or based upon any untrue statement
of a material fact contained in the then-current Prospectus relating to the
Shares or arising out of or based upon any alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by the Distributor to the Company expressly for
use in any such Prospectus; provided, however, that (1) no indemnitee shall be
indemnified hereunder against any liability to the Company or the shareholders
of the Fund or any expense of such indemnitee with respect to any matter as to
which such indemnitee shall have been adjudicated not to have acted in good
faith in the reasonable belief that its action was in the best interest of the
Company or arising by reason of such indemnitee's willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement ("disabling
conduct"), or (2) as to any matter disposed of by settlement or a compromise
payment by such indemnitee, no indemnification shall be provided unless there
has been a determination that such settlement or compromise is in the best
interests of the Company and that such indemnitee appears to have acted in good
faith in the reasonable belief that its action was in the best interest of the
Company and did not involve disabling conduct by such indemnitee.
Notwithstanding the foregoing the Company shall not be obligated to provide any
such indemnification to the extent such provision would waive any right which
the Company cannot lawfully waive.

         The Distributor agrees to indemnify, defend and hold the Company, its
Directors, officers, employees and agents and any person who controls the
Company within the meaning of Section 15 of the 1933 Act (each, an
"indemnitee"), free and harmless from and against any and all liabilities and
expenses, including costs of investiga-

                                      137

<PAGE>   18



tion or defense (including reasonable counsel fees) incurred by such indemnitee,
but only to the extent that such liability or expense shall arise out of or be
based upon any untrue or alleged untrue statement of a material fact contained
in information furnished in writing by the Distributor of the Company expressly
for use in a Prospectus or any alleged omission to state a material fact in
connection with such information required to be stated therein or necessary to
make such information not misleading or arising by reason of disabling conduct
by such indemnitee or any person selling Shares pursuant to an agreement with
the Distributor.

         The Company shall make advance payments in connection with the expenses
of defending any action with respect to which indemnification might be sought
hereunder if the Company receives a written affirmation of the indemnitee's good
faith belief that the standard of conduct necessary for indemnification has been
met and a written undertaking to reimburse the Company unless it is subsequently
determined that he is entitled to such indemnification and if the directors of
the Company determine that the facts then known to them would not preclude
indemnification. In addition, at least one of the following conditions must be
met: (A) the indemnitee shall provide a security for his undertaking, (B) the
Company shall be insured against losses arising by reason of any lawful
advances, or (C) a majority of a quorum of directors of the Company who are
neither "interested persons" of the Company (as defined in Section 2(a)(19) of
the Act) nor parties to the proceeding ("Disinterested Non-Party Directors") or
an independent legal counsel in a written opinion, shall determine, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the indemnitee ultimately will be found
entitled to indemnification.

         All determinations with respect to indemnification hereunder shall be
made (1) by a final decision on the merits by a court or other body before whom
the proceeding was brought that such indemnitee is not liable by reason of
disabling conduct or, (2) in the absence of such a decision, by (i) a majority
vote of a quorum of the Disinterested Non-party Directors of the Company, or
(ii) if such a quorum is not obtainable or even, if


                                      138

<PAGE>   19



obtainable, if a majority vote of such quorum so directs, independent legal
counsel in a written opinion.

         11. This Agreement shall become effective on the date first set forth
above and shall remain in effect for up to two years from such date (one year in
the case of Section 9) and thereafter from year to year provided such
continuance is specifically approved at least annually prior to each anniversary
of such date by (a) Director Approval or by vote at a meeting of shareholders of
the Fund of the lesser of (i) 67 per cent of the Shares present or represented
by proxy and (ii) 50 per cent of the outstanding Shares and (b) by Disinterested
Director Approval.

         12. This Agreement may be terminated (a) by the Distributor at any time
without penalty by giving sixty (60) days' written notice to the Company which
notice may be waived by the Company; or (b) by the Company at any time without
penalty upon sixty (60) days' written notice to the Distributor (which notice
may be waived by the Distributor); provided, however, that any such termination
by the Company shall be directed or approved in the same manner as required for
continuance of this Agreement by Section 11(a) (or, in the case of termination
of Section 9, by Section 11(b)).

         13. This Agreement may not be amended or changed except in writing
signed by each of the parties hereto and approved in the same manner as provided
for continuance of this Agreement in Section 11(a) (or, in the case of amendment
of Section 9, by Section 11(b)). Any such amendment or change shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors, but this Agreement shall not be assigned by either party and shall
automatically terminate upon assignment (as such term is defined in the 1940 Act
and the rules thereunder).

         14. This Agreement shall be construed in accordance with the laws of
the State of New York applicable to agreements to be performed entirely therein
and in accordance with applicable provisions of the 1940 Act.

         15. If any provision of this Agreement shall be held or made invalid or
unenforceable by a court deci-

                                      139


<PAGE>   20



sion, statute, rule or otherwise, the remainder of this Agreement shall not be
affected or impaired thereby.


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first written above.




                              GABELLI EQUITY SERIES FUNDS, INC.


                              By: /s/ Bruce N. Alpert
                                  ---------------------------------------
                                  Name: Bruce N. Alpert
                                  Title:


                            GABELLI & COMPANY, INC.

                              By: /s/ Stephen G. Bondi
                                  ---------------------------------------
                                  Name: Stephen G. Bondi
                                  Title: Vice President



                                      140

<PAGE>   21




                              AMENDED AND RESTATED

                  PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-l

                                       OF

                       THE GABELLI SMALL CAP GROWTH FUND


         The Gabelli Small Cap Growth Fund (the "Fund") is engaged in business
as a separate series qf Gabelli Equity Series Funds, Inc. (the "Company"), which
is an open-end management investment company registered as such under the
Investment Company Act of 1940 (the "Act"). The Fund intends to employ Gabelli
& Company, Inc. and/or others as the principal underwriter and distributor (the
"Distributor") of the shares of the Fund pursuant to a written distribution
agreement. The Fund has adopted a plan of distribution pursuant to Rule 12b-1
under the Act to assist in the distribution of shares of the Fund.

         The Board of Directors (the "Board") of the Company having determined
that it would be desirable to amend the current plan of distribution in certain
respects and to restate such amended plan in its entirety and that a plan of
distribution containing the terms set forth herein is reasonably likely to
benefit the Fund and its shareholders, The Fund hereby amends and restates its
plan of distribution (the "Plan") pursuant to Rule 12b-1 under the Act to read
in its entirety as follows:

         1. In consideration of the services to be provided, and the expenses to
be incurred, by the Distributor pursuant to the distribution agreement, the
Company will pay to the Distributor as distribution payments (the "Payments") in
connection with the distribution of shares of the Fund an aggregate amount at a
rate of 0.25% per year of the average daily net assets of the Fund. Such
Payments shall be accrued daily and paid monthly in arrears or shall be accrued
and paid at such other intervals as the Board shall determine. The Company's
obligation hereunder shall be limited to the assets of the Fund and shall not
constitute an obligation of the Company except out of such assets and shall not
constitute an obligation of any shareholder of the Fund or other series of the
Company.


                                       149


<PAGE>   22


         2. It is understood that the Payments made by the Fund under this Plan
will be used by the Distributor for the purpose of financing or assisting in the
financing of any activity which is primarily intended to result in the sale of
shares of the Fund. The scope of the foregoing shall be interpreted by the
Board, whose decision shall be conclusive except to the extent it contravenes
established legal authority. without in any way limiting the discretion of the
board, the following activities are hereby declared to be primarily intended to
result in the sale of shares of the Fund: advertising the Fund or the Fund's
investment advisor's mutual fund activities; compensating underwriters, dealers,
brokers, banks and other selling entities (including the Distributor and its
affiliates) and sales and marketing personnel of any of them for sales of shares
of the Fund, whether in a lump sum or on a continuous, periodic, contingent,
deferred or other basis; compensating underwriters, dealers, brokers, banks and
other servicing entities and servicing personnel (including the Fund's
investment adviser and its personnel) of any of them for providing services to
shareholders of the Fund relating to their investment in the Fund, including
assistance in connection with inquiries relating to shareholder accounts; the
production and dissemination of prospectuses (including statements of additional
information) of the Fund and the preparation, production and dissemination of
sales, marketing and shareholder servicing materials; and the ordinary or
capital expenses, such as equipment, rent, fixtures, salaries, bonuses,
reporting and recordkeeping and third party consultancy or similar expenses
relating to any activity for which Payment is authorized by the Board; and the
financing of any activity for which Payment is authorized by the Board; and
profit to the Distributor and its affiliates arising out of their provision of
shareholder services. Notwithstanding the foregoing, this Plan does not require
the Distributor or any of its affiliates to perform any specific type or level
of distribution activities or shareholder services or to incur any specific
level of expenses for activities covered by this Section 2. In addition,
Payments made in a particular year shall not be refundable whether or not such
Payments exceed the expenses incurred for that year pursuant to this Section 2.

         3. The Company is hereby authorized and directed to enter into
appropriate written agreements with


                                       150


<PAGE>   23



the Distributor and each other person to whom the Company intends to make any
Payment, and the Distributor is hereby authorized and directed to enter into
appropriate written agreements with each person to whom the Distributor intends
to make any payments in the nature of a Payment. The foregoing requirement is
not intended to apply to any agreement or arrangement with respect to which the
party to whom Payment is to be made does not have the purpose set forth in
Section 2 above (such as the printer in the case of the printing of a prospectus
or a newspaper in the case of an advertisement) unless the Board determines that
such an agreement or arrangement should be treated as a "related" agreement for
purposes of Rule 12b-1 under the Act.


         4. Each agreement required to be in writing by Section 3 must contain
the provisions required by Rule 12b-1 under the Act and must be approved by a
majority of the Board ("Board Approval") and by a majority of the Directors
("Disinterested Director Approval") who are not interested persons of the
Company and have no direct or indirect financial interest in the operation of
the Plan or any such agreement, by vote cast in person at a meeting called for
the purposes of voting on such agreement. All determinations or authorizations
of the Board hereunder shall be made by Board Approval and Disinterested
Director Approval.

         5. The officers, investment adviser or Distributor of the Fund, as
appropriate, shall provide to the Board and the Board shall review, at least
quarterly, a written report of the amounts expended pursuant to this Plan and
the purposes for which such Payments were made. 

         6. To the extent any activity is covered by Section 2 and is also an
activity which the Company may pay for on behalf of the Fund without regard to
the existence or terms and conditions of a plan of distribution under Rule 12b-1
of the Act, this Plan shall not be construed to prevent or restrict the Company
from paying such amounts outside of this Plan and without limitation hereby and
without such payments being included in calculation of Payments subject to the
limitation set forth in Section 1.

         7. This Plan shall not take effect until it has been approved by a vote
of at least a majority of the


                                      151

<PAGE>   24


outstanding voting securities of the Fund. This Plan may not be amended in any
material respect without Board Approval and Disinterested Director Approval and
may not be amended to increase the maximum level of Payments permitted hereunder
without such approvals and further approval by a vote of at least a majority of
the outstanding voting securities of the Fund. This Plan may continue in effect
for longer than one year after its approval by the shareholders of the Fund only
as long as such continuance is specifically approved at least annually by Board
Approval and by Disinterested Director Approval.

         8. This Plan may be terminated at any time by a vote of the directors
who are not interested persons of the Fund and have no direct or indirect
financial interest in the operation of the Plan or any agreement hereunder, cast
in person at a meeting called for the purposes of voting on such termination, or
by a vote of at least a majority of the outstanding voting securities of the
Fund.

         9. For purposes of this Plan the terms "interested person" and "related
agreement" shall have the meanings ascribed to them in the Act and the rules
adopted by the Securities and Exchange Commission thereunder and the term "vote
of a majority of the outstanding voting securities" of the Fund shall mean the
vote, at the annual or a special meeting of the security holders of the Fund
duly called, (a) of 67% or more of the voting securities present at such
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy or, if less, (b) more than 50% of
the outstanding voting securities of the Fund.




                                      152

<PAGE>   1
                                                                          082991

                               CUSTODIAN CONTRACT

                                    Between
                     THE GABELLI EQUITY SERIES FUNDS, INC.

                                      and

                      STATE STREET BANK AND TRUST COMPANY






21N691

WP1521C
<PAGE>   2

                               TABLE OF CONTENTS
                               -----------------

                                                                        Page
                                                                        ----

1.     Employment of Custodian and Property to be Held By It...............1

2.     Duties of the Custodian with Respect to Property of the Fund 
       Held by the Custodian in the United States..........................3

       2.1    Holding Securities ..........................................3 
       2.2    Delivery of Securities ......................................3 
       2.3    Registration of Securities ..................................8
       2.4    Bank Accounts ...............................................9
       2.5    Availability of Federal Funds ..............................10
       2.6    Collection of Income .......................................10
       2.7    Payment of Fund Monies .....................................11
       2.8    Liability for Payment in Advance of
              Receipt of Securities Purchased ............................14
       2.9    Appointment of Agents ......................................15
       2.10   Deposit of Fund Assets in Securities System ................15
       2.1OA  Fund Assets Held in the Custodian's Direct 
              Paper  System ..............................................18
       2.11   Segregated Account .........................................20
       2.12   Ownership Certificates for Tax Purposes ....................21
       2.13   Proxies ....................................................22
       2.14   Communications Relating to Portfolio
              Securities .................................................22

3.     Duties of the Custodian with Respect to Property of 
       the Fund Held Outside of the United States ........................23

       3.1    Appointment of Foreign Sub-Custodians ......................23
       3.2    Assets to be Held ..........................................23
       3.3    Foreign Securities Depositories ............................24
       3.4    Segregation of Securities ..................................24
       3.5    Agreements with Foreign Banking Institutions ...............25 
       3.6    Access of Independent Accountants of the Fund. .............25 
       3.7    Reports by Custodian .......................................26
       3.8    Transactions in Foreign Custody Account ....................26
       3.9    Liability of Foreign Sub-Custodians ........................27
       3.10   Liability of Custodian .....................................28
       3.11   Reimbursement for Advances .................................29
       3.12   Monitoring Responsibilities ................................29
       3.13   Branches of U.S. Banks .....................................30
       3.14   Tax Law ....................................................30

4.     Payments for Sales or Repurchase or Redemptions
       of Shares of the Fund .............................................31

5.     Proper Instructions ...............................................32

6.     Actions Permitted Without Express Authority .......................33

7.     Evidence of Authority .............................................34

8.     Duties of Custodian With Respect to the Books of Account
       and Calculation of Net Asset Value and Net Income .................34
<PAGE>   3

9.     Records ...........................................................35

10.    Opinion of Fund's Independent Accountants .........................35

11.    Reports to Fund by Independent Public Accountants .................36

12.    Compensation of Custodian .........................................36

13.    Responsibility of Custodian .......................................36

14.    Effective Period, Termination and Amendment .......................39

15.    Successor Custodian ...............................................40

16.    Interpretive and Additional Provisions ............................42

17.    Additional Funds ..................................................42

18.    Massachusetts Law to Apply ........................................43

19.    Prior Contracts ...................................................43
<PAGE>   4

                               CUSTODIAN CONTRACT
                               ------------------

       This Contract between The Gabelli Equity Series Funds, Inc., a
corporation organized and existing under the laws of Maryland, having its
principal place of business at Corporate Center at Rye, Rye, New York, 10580,
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",


                                  WITNESSETH:

       WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and

       WHEREAS, the Fund intends to initially offer shares in two series, The
Gabelli Small Cap Growth Fund and The Gabelli Equity Income Fund (such series
together with all other series subsequently established by the Fund and made
subject to this Contract in accordance with paragraph 17, being herein referred
to as the "Portfolio(s)");

       NOW THEREFOR, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:

1.     Employment of Custodian and Property to be Held by It
       -----------------------------------------------------

       The Fund hereby employs the Custodian as the custodian of
the assets of the Portfolios of the Fund, including securities which the Fund,
on behalf of the applicable Portfolio desires to be held in places within the
United States ("domestic 

<PAGE>   5

securities") and securities it desires to be held outside the United States
("foreign securities") pursuant to the provisions of the Articles of
Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock of
the Fund representing interests in the Portfolios, ("Shares") as may be issued
or sold from time to time. The Custodian shall not be responsible for any
property of a Portfolio held or received by the Portfolio and not delivered to
the Custodian.

       Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Directors of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.

                                      -2-


<PAGE>   6

                                                                          

2.     Duties of the Custodian with Respect to Property of the
       -------------------------------------------------------

Fund Held By the Custodian in the United States
- -----------------------------------------------

2.1    HOLDING SECURITIES. The Custodian shall hold and physically segregate for
       the account of each Portfolio all non-cash property, to be held by it in
       the United States including all domestic securities owned by such
       Portfolio, other than (a) securities which are maintained pursuant to
       Section 2.10 in a clearing agency which acts as a securities depository
       or in a book-entry system authorized by the U.S. Department of the
       Treasury, collectively referred to herein as "Securities System" and (b)
       commercial paper of an issuer for which State Street Bank and Trust
       Company acts as issuing and paying agent ("Direct Paper") which is
       deposited and/or maintained in the Direct Paper System of the Custodian
       pursuant to Section 2.10A.

2.2    DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic
       securities owned by a Portfolio held by the Custodian or in a Securities
       System account of the Custodian or in the Custodian's Direct Paper book
       entry system account ("Direct Paper System Account") only upon receipt of
       Proper Instructions from the Fund on behalf of the applicable Portfolio,
       which may be continuing instructions when deemed appropriate by the
       parties, and only in the following cases:

              1)     Upon sale of such securities for the account of the
                     Portfolio and receipt of payment therefor;

                                      -3-
<PAGE>   7

              2)     Upon the receipt of payment in connection with any
                     repurchase agreement related to such securities entered
                     into by the Portfolio;

              3)     In the case of a sale effected through a Securities System,
                     in accordance with the provisions of Section 2.10 hereof;

              4)     To the depository agent in connection with tender or other
                     similar offers for securities of the Portfolio;

              5)     To the issuer thereof or its agent when such securities are
                     called, redeemed, retired or otherwise become payable;
                     provided that, in any such case, the cash or other
                     consideration is to be delivered to the Custodian;

              6)     To the issuer thereof, or its agent, for transfer into the
                     name of the Portfolio or into the name of any nominee or
                     nominees of the Custodian or into the name or nominee name
                     of any agent appointed pursuant to Section 2.9 or into the
                     name or nominee name of any sub-custodian appointed
                     pursuant to Article 1; or for exchange for a different
                     number of bonds, certificates or other evidence
                     representing the same aggregate face amount or number of
                     units; PROVIDED that, in any such case, the new securities
                     are to be delivered to the Custodian;


                                       -4-
<PAGE>   8

              7)     Upon the sale of such securities for the account of the
                     Portfolio, to the broker or its clearing agent, against a
                     receipt, for examination in accordance with "street
                     delivery" custom; provided that in any such case, the
                     Custodian shall have no responsibility or liability for any
                     loss arising from the delivery of such securities prior to
                     receiving payment for such securities except as may arise
                     from the Custodian's own negligence or willful misconduct;

              8)     For exchange or conversion pursuant to any plan of merger,
                     consolidation, recapitalization, reorganization or
                     readjustment of the securities of the issuer of such
                     securities, or pursuant to provisions for conversion
                     contained in such securities, or pursuant to any deposit
                     agreement; provided that, in any such case, the new
                     securities and cash, if any, are to be delivered to the
                     Custodian;

              9)     In the case of warrants, rights or similar securities, the
                     surrender thereof in the exercise of such warrants, rights
                     or similar securities or the surrender of interim receipts
                     or temporary securities for


                                       -5-
<PAGE>   9

                     definitive securities; provided that, in any such case, the
                     new securities and cash, if any, are to be delivered to the
                     Custodian;


              10)    For delivery in connection with any loans of securities
                     made by the Portfolio, BUT ONLY against receipt of adequate
                     collateral as agreed upon from time to time by the
                     Custodian and the Fund on behalf of the Portfolio, which
                     may be in the form of cash or obligations issued by the
                     United States government, its agencies or
                     instrumentalities, except that in connection with any loans
                     for which collateral is to be credited to the Custodian's
                     account in the book-entry system authorized by the U.S.
                     Department of the Treasury, the Custodian will not be held
                     liable or responsible for the delivery of securities owned
                     by the Portfolio prior to the receipt of such collateral;

              11)    For delivery as security in connection with any borrowings
                     by the Fund on behalf of the Portfolio requiring a pledge
                     of assets by the Fund on behalf of the Portfolio, BUT ONLY
                     against receipt of amounts borrowed; 

              12)    For delivery in accordance with the provisions of any
                     agreement among the Fund on behalf of the Portfolio, the
                     Custodian and a

                                       -6-
<PAGE>   10

                     broker-dealer registered under the Securities Exchange Act
                     of 1934 (the "Exchange Act") and a member of The National
                     Association of Securities Dealers, Inc. ("NASD"), relating
                     to compliance with the rules of The Options Clearing
                     Corporation and of any registered national securities
                     exchange, or of any similar organization or organizations,
                     regarding escrow or other arrangements in connection with
                     transactions by the Portfolio of the Fund;

              13)    For delivery in accordance with the provisions of any
                     agreement among the Fund on behalf of the Portfolio, the
                     Custodian, and a Futures Commission Merchant registered
                     under the Commodity Exchange Act, relating to compliance
                     with the rules of the Commodity Futures Trading Commission
                     and/or any Contract Market, or any similar organization or
                     organizations, regarding account deposits in connection
                     with transactions by the Portfolio of the Fund;

              14)    Upon receipt of instructions from the transfer agent
                     ("Transfer Agent") for the Fund, for delivery to such
                     Transfer Agent or to the holders of shares in connection
                     with distributions in kind, as may be described


                                       -7-
<PAGE>   11


                  from time to time in the currently effective prospectus and
                  statement of additional information of the Fund, related to
                  the Portfolio ("Prospectus"), in satisfaction of requests by
                  holders of Shares for repurchase or redemption; and

        15)       For any other proper corporate purpose, BUT ONLY upon receipt
                  of, in addition to Proper Instructions from the Fund on behalf
                  of the applicable Portfolio, a certified copy of a resolution
                  of the Board of Directors or of the Executive Committee signed
                  by an officer of the Fund and certified by the Secretary or an
                  Assistant Secretary, specifying the securities of the
                  Portfolio to be delivered, setting forth the purpose for which
                  such delivery is to be made, declaring such purpose to be a
                  proper corporate purpose, and naming the person or persons to
                  whom delivery of such securities shall be made.

2.3    REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
       (other than bearer securities) shall be registered in the name of the
       Portfolio or in the name of any nominee of the Fund on behalf of the
       Portfolio or of any nominee of the Custodian which nominee shall be
       assigned exclusively to the Portfolio, UNLESS the Fund has authorized in
       writing the appointment of a nominee to



                                      -8-
<PAGE>   12

       be used in common with other registered investment companies having the
       same investment adviser as the Portfolio, or in the name or nominee name
       of any agent appointed pursuant to Section 2.9 or in the name or nominee
       name of any sub-custodian appointed pursuant to Article 1. All securities
       accepted by the Custodian on behalf of the Portfolio under the terms of
       this Contract shall be in "street name" or other good delivery form. If,
       however, the Fund directs the Custodian to maintain securities in "street
       name", the Custodian shall utilize its best efforts only to timely
       collect income due the Fund on such securities and to notify the Fund on
       a best efforts basis only of relevant corporate actions including,
       without limitation, pendency of calls, maturities, tender or exchange
       offers.

2.4    BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
       account or accounts in the United States in the name of each Portfolio of
       the Fund, subject only to draft or order by the Custodian acting pursuant
       to the terms of this Contract, and shall hold in such account or
       accounts, subject to the provisions hereof, all cash received by it from
       or for the account of the Portfolio, other than cash maintained by the
       Portfolio in a bank account established and used in accordance with Rule
       17f-3 under the Investment Company Act of 1940. Funds held by the
       Custodian for a Portfolio may be deposited by it to its credit as
       Custodian in the Banking Department

                                      -9-


<PAGE>   13

                                                                               

       of the Custodian or in such other banks or trust companies as it may in
       its discretion deem necessary or desirable; PROVIDED, however, that every
       such bank or trust company shall be qualified to act as a custodian under
       the Investment Company Act of 1940 and that each such bank or trust
       company and the funds to be deposited with each such bank or trust
       company shall on behalf of each applicable Portfolio be approved by vote
       of a majority of the Board of Directors of the Fund. Such funds shall be
       deposited by the Custodian in its capacity as Custodian and shall be
       withdrawable by the Custodian only in that capacity.

2.5    AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund on
       behalf of each applicable Portfolio and the Custodian, the Custodian
       shall, upon the receipt of Proper Instructions from the Fund on behalf of
       a Portfolio, make federal funds available to such Portfolio as of
       specified times agreed upon from time to time by the Fund and the
       Custodian in the amount of checks received in payment for Shares of such
       Portfolio which are deposited into the Portfolio's account.

2.6    COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
       Custodian shall collect on a timely basis all income and other payments
       with respect to registered domestic securities held hereunder to which
       each Portfolio shall be entitled either by law or pursuant to custom in
       the securities business, and shall

                                      -10-


<PAGE>   14



       collect on a timely basis all income and other payments with respect to
       bearer domestic securities if, on the date of payment by the issuer, such
       securities are held by the Custodian or its agent thereof and shall
       credit such income, as collected, to such Portfolio's custodian account.
       Without limiting the generality of the foregoing, the Custodian shall
       detach and present for payment all coupons and other income items
       requiring presentation as and when they become due and shall collect
       interest when due on securities held hereunder. Income due each Portfolio
       on securities loaned pursuant to the provisions of Section 2.2 (10) shall
       be the responsibility of the Fund. The Custodian will have no duty or
       responsibility in connection therewith, other than to provide the Fund
       with such information or data as may be necessary to assist the Fund in
       arranging for the timely delivery to the Custodian of the income to which
       the Portfolio is properly entitled.

2.7    PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions from the Fund
       on behalf of the applicable Portfolio, which may be continuing
       instructions when deemed appropriate by the parties, the Custodian shall
       pay out monies of a Portfolio in the following cases only:

              1)     Upon the purchase of domestic securities, options, futures
                     contracts or options on futures contracts for the account
                     of the Portfolio but only (a) against the delivery

                                      -11-
<PAGE>   15

                     of such securities or evidence of title to such options,
                     futures contracts or options on futures contracts to the
                     Custodian (or any bank, banking firm or trust company doing
                     business in the United States or abroad which is qualified
                     under the Investment Company Act of 1940, as amended, to
                     act as a custodian and has been designated by the Custodian
                     as its agent for this purpose) registered in the name of
                     the Portfolio or in the name of a nominee of the Custodian
                     referred to in Section 2.3 hereof or in proper form for
                     transfer; (b) in the case of a purchase effected through a
                     Securities System, in accordance with the conditions set
                     forth in Section 2.10 hereof; (c) in the case of a purchase
                     involving the Direct Paper System, in accordance with the
                     conditions set forth in Section 2.1OA; (d) in the case of
                     repurchase agreements entered into between the Fund on
                     behalf of the Portfolio and the Custodian, or another bank,
                     or a broker-dealer which is a member of NASD, (i) against
                     delivery of the securities either in certificate form or
                     through an entry crediting the Custodian's account at the
                     Federal Reserve Bank with such securities or

                                      -12-
<PAGE>   16

                     (ii) against delivery of the receipt evidencing purchase by
                     the Portfolio of securities owned by the Custodian along
                     with written evidence of the agreement by the Custodian to
                     repurchase such securities from the Portfolio or (e) for
                     transfer to a time deposit account of the Fund in any bank,
                     whether domestic or foreign; such transfer may be effected
                     prior to receipt of a confirmation from a broker and/or the
                     applicable bank pursuant to Proper Instructions from the
                     Fund as defined in Article 5;

              2)     In connection with conversion, exchange or surrender of
                     securities owned by the Portfolio as set forth in Section
                     2.2 hereof;

              3)     For the redemption or repurchase of Shares issued by the
                     Portfolio as set forth in Article 4 hereof;

              4)     For the payment of any expense or liability incurred by the
                     Portfolio, including but not limited to the following
                     payments for the account of the Portfolio: interest, taxes,
                     management, accounting, transfer agent and legal fees, and
                     operating expenses of the Fund whether or not such expenses
                     are to be in whole or part capitalized or treated as
                     deferred expenses;

                                      -13-
<PAGE>   17

              5)     For the payment of any dividends on Shares of the Portfolio
                     declared pursuant to the governing documents of the Fund;

              6)     For payment of the amount of dividends received in respect
                     of securities sold short;

              7)     For any other proper purpose, BUT ONLY upon receipt of, in
                     addition to Proper Instructions from the Fund on behalf of
                     the Portfolio, a certified copy of a resolution of the
                     Board of Directors or of the Executive Committee of the
                     Fund signed by an officer of the Fund and certified by its
                     Secretary or an Assistant Secretary, specifying the amount
                     of such payment, setting forth the purpose for which such
                     payment is to be made, declaring such purpose to be a
                     proper purpose, and naming the person or persons to whom
                     such payment is to be made.

2.8    LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
       Except as specifically stated otherwise in this Contract, in any and
       every case where payment for purchase of domestic securities for the
       account of a Portfolio is made by the Custodian in advance of receipt of
       the securities purchased in the absence of specific written instructions
       from the Fund on behalf of such Portfolio to so pay in advance, the
       Custodian shall be absolutely liable to the Fund for such securities to
       the

                                      -14-
<PAGE>   18

       same extent as if the securities had been received by the Custodian.

2.9    APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
       discretion appoint (and may at any time remove) any other bank or trust
       company which is itself qualified under the Investment Company Act of
       1940, as amended, to act as a custodian, as its agent to carry out such
       of the provisions of this Article 2 as the Custodian may from time to
       time direct; provided, however, that the appointment of any agent shall
       not relieve the Custodian of its responsibilities or liabilities
       hereunder.

2.10   DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The Custodian may deposit
       and/or maintain securities owned by a Portfolio in a clearing agency
       registered with the Securities and Exchange Commission under Section 17A
       of the Securities Exchange Act of 1934, which acts as a securities
       depository, or in the book-entry system authorized by the U.S. Department
       of the Treasury and certain federal agencies, collectively referred to
       herein as "Securities System" in accordance with applicable Federal
       Reserve Board and Securities and Exchange Commission rules and
       regulations, if any, and subject to the following provisions:

              1)     The Custodian may keep securities of the Portfolio in a
                     Securities System provided that such securities are
                     represented in an account ("Account") of the Custodian in
                     the

                                      -15-
<PAGE>   19

                                                                    

                     Securities System which shall not include any assets of the
                     Custodian other than assets held as a fiduciary, custodian
                     or otherwise for customers;

              2)     The records of the Custodian with respect to securities of
                     the Portfolio which are maintained in a Securities System
                     shall identify by book-entry those securities belonging to
                     the Portfolio;

              3)     The Custodian shall pay for securities purchased for the
                     account of the Portfolio upon (i) receipt of advice from
                     the Securities System that such securities have been
                     transferred to the Account, and (ii) the making of an entry
                     on the records of the Custodian to reflect such payment and
                     transfer for the account of the Portfolio. The Custodian
                     shall transfer securities sold for the account of the
                     Portfolio upon (i) receipt of advice from the Securities
                     System that payment for such securities has been
                     transferred to the Account, and (ii) the making of an entry
                     on the records of the Custodian to reflect such transfer
                     and payment for the account of the Portfolio. Copies of all
                     advices from the Securities System of transfers of
                     securities for the

                                      -16-
<PAGE>   20

                                                                           

                     account of the Portfolio shall identify the Portfolio, be
                     maintained for the Portfolio by the Custodian and be
                     provided to the Fund at its request. Upon request, the
                     Custodian shall furnish the Fund on behalf of the Portfolio
                     confirmation of each transfer to or from the account of the
                     Portfolio in the form of a written advice or notice and
                     shall furnish to the Fund on behalf of the Portfolio copies
                     of daily transaction sheets reflecting each day's
                     transactions in the Securities System for the account of
                     the Portfolio.

              4)     The Custodian shall provide the Fund for the Portfolio with
                     any report obtained by the Custodian on the Securities
                     System's accounting system, internal accounting control and
                     procedures for safeguarding securities deposited in the
                     Securities System;

              5)     The Custodian shall have received from the Fund on behalf
                     of the Portfolio the initial or annual certificate, as the
                     case may be, required by Article 14 hereof;

              6)     Anything to the contrary in this Contract notwithstanding,
                     the Custodian shall be liable to the Fund for the benefit
                     of the Portfolio for any loss or damage to the

                                      -17-
<PAGE>   21

                     Portfolio resulting from use of the Securities System by
                     reason of any negligence, misfeasance or misconduct of the
                     Custodian or any of its agents or of any of its or their
                     employees or from failure of the Custodian or any such
                     agent to enforce effectively such rights as it may have
                     against the Securities System; at the election of the Fund,
                     it shall be entitled to be subrogated to the rights of the
                     Custodian with respect to any claim against the Securities
                     System or any other person which the Custodian may have as
                     a consequence of any such loss or damage if and to the
                     extent that the Portfolio has not been made whole for any
                     such loss or damage.

2.1OA  FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM 

       The Custodian may deposit and/or maintain securities owned by a Portfolio
       in the Direct Paper System of the Custodian subject to the following
       provisions: 

              1)     No transaction relating to securities in the Direct Paper
                     System will be effected in the absence of Proper
                     Instructions from the Fund on behalf of the Portfolio;

              2)     The Custodian may keep securities of the Portfolio in the
                     Direct Paper System only if such securities are represented
                     in an account


                                      -18-
<PAGE>   22

                     ("Account") of the Custodian in the Direct Paper System
                     which shall not include any assets of the Custodian other
                     than assets held as a fiduciary, custodian or otherwise for
                     customers;

              3)     The records of the Custodian with respect to securities of
                     the Portfolio which are maintained in the Direct Paper
                     System shall identify by book-entry those securities
                     belonging to the Portfolio;

              4)     The Custodian shall pay for securities purchased for the
                     account of the Portfolio upon the making of an entry on the
                     records of the Custodian to reflect such payment and
                     transfer of securities to the account of the Portfolio. The
                     Custodian shall transfer securities sold for the account of
                     the Portfolio upon the making of an entry on the records of
                     the Custodian to reflect such transfer and receipt of
                     payment for the account of the Portfolio;

              5)     The Custodian shall furnish the Fund on behalf of the
                     Portfolio confirmation of each transfer to or from the
                     account of the Portfolio, in the form of a written advice
                     or notice, of Direct Paper on the next business day
                     following such transfer and shall furnish


                                      -19-
<PAGE>   23

                  to the Fund on behalf of the Portfolio copies of daily
                  transaction sheets reflecting each day's transaction in the
                  Securities System for the account of the Portfolio;

        6)        The Custodian shall provide the Fund on behalf of the
                  Portfolio with any report on its system of internal accounting
                  control as the Fund may reasonably request from time to time.

2.11   SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
       Instructions from the Fund on behalf of each applicable Portfolio
       establish and maintain a segregated account or accounts for and on behalf
       of each such Portfolio, into which account or accounts may be transferred
       cash and/or securities, including securities maintained in an account by
       the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
       provisions of any agreement among the Fund on behalf of the Portfolio,
       the Custodian and a broker-dealer registered under the Exchange Act and a
       member of the NASD (or any futures commission merchant registered under
       the Commodity Exchange Act), relating to compliance with the rules of The
       Options Clearing Corporation and of any registered national securities
       exchange (or the Commodity Futures Trading Commission or any registered
       contract market), or of any similar organization or organizations,
       regarding escrow or other arrangements in connection with



                                      -20-
<PAGE>   24

       transactions by the Portfolio, (ii) for purposes of segregating cash or
       government securities in connection with options purchased, sold or
       written by the Portfolio or commodity futures contracts or options
       thereon purchased or sold by the Portfolio, (iii) for the purposes of
       compliance by the Portfolio with the procedures required by Investment
       Company Act Release No. 10666, or any subsequent release or releases of
       the Securities and Exchange Commission relating to the maintenance of
       segregated accounts by registered investment companies and (iv) for other
       proper corporate purposes, but only, in the case of clause (iv), upon
       receipt of, in addition to Proper Instructions from the Fund on behalf of
       the applicable Portfolio, a certified copy of a resolution of the Board
       of Directors or of the Executive Committee signed by an officer of the
       Fund and certified by the Secretary or an Assistant Secretary, setting
       forth the purpose or purposes of such segregated account and declaring
       such purposes to be proper corporate purposes.

2.12   OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
       ownership and other certificates and affidavits for all federal and state
       tax purposes in connection with receipt of income or other payments with
       respect to domestic securities of each Portfolio held by it and in
       connection with transfers of securities.



                                      -21-
<PAGE>   25


2.13   PROXIES. The Custodian shall, with respect to the domestic securities
       held hereunder, cause to be promptly executed by the registered holder of
       such securities, if the securities are registered otherwise than in the
       name of the Portfolio or a nominee of the Portfolio, all proxies, without
       indication of the manner in which such proxies are to be voted, and shall
       promptly deliver to the Portfolio such proxies, all proxy soliciting
       materials and all notices relating to such securities.

2.14   COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES 

       Subject to the provisions of Section 2.3, the Custodian shall transmit
       promptly to the Fund for each Portfolio all written information
       (including, without limitation, pendency of calls and maturities of
       domestic securities and expirations of rights in connection therewith and
       notices of exercise of call and put options written by the Fund on behalf
       of the Portfolio and the maturity of futures contracts purchased or sold
       by the Portfolio) received by the Custodian from issuers of the
       securities being held for the Portfolio. With respect to tender or
       exchange offers, the Custodian shall transmit promptly to the Portfolio
       all written information received by the Custodian from issuers of the
       securities whose tender or exchange is sought and from the party (or his
       agents) making the tender or exchange offer. If the Portfolio desires to
       take action with respect to any tender offer, exchange offer or any other
       similar transaction, the

                                      -22-


<PAGE>   26



       Portfolio shall notify the Custodian at least three business days prior
       to the date on which the Custodian is to take such action.

3.     Duties of the Custodian with Respect to Property of the
       -------------------------------------------------------
Fund Held Outside of the United States
- --------------------------------------

3.1    APPOINTMENT OF FOREIGN SUB-CUSTODIANS

       The Fund hereby authorizes and instructs the Custodian to employ as
       sub-custodians for the Portfolio's securities and other assets maintained
       outside the United States the foreign banking institutions and foreign
       securities depositories designated on Schedule A hereto ("foreign
       sub-custodians"). Upon receipt of "Proper Instructions", as defined in
       Section 5 of this Contract, together with a certified resolution of the
       Fund's Board of Directors, the Custodian and the Fund may agree to amend
       Schedule A hereto from time to time to designate additional foreign
       banking institutions and foreign securities depositories to act as
       sub-custodian. Upon receipt of Proper Instructions, the Fund may instruct
       the Custodian to cease the employment of any one or more such
       sub-custodians for maintaining custody of the Portfolio's assets.

3.2    ASSETS TO BE HELD. The Custodian shall limit the securities and other
       assets maintained in the custody of the foreign sub-custodians to: (a)
       "foreign securities", as defined in paragraph (c)(l) of Rule 17f-5 under
       the Investment Company Act of 1940, and (b) cash and cash

                                      -23-
<PAGE>   27

       equivalents in such amounts as the Custodian or the Fund may determine to
       be reasonably necessary to effect the Portfolio's foreign securities
       transactions.

3.3    FOREIGN SECURITIES DEPOSITORIES. Except as may otherwise be agreed upon
       in writing by the Custodian and the Fund, assets of the Portfolios shall
       be maintained in foreign securities depositories only through
       arrangements implemented by the foreign banking institutions serving as
       sub-custodians pursuant to the terms hereof. Where possible, such
       arrangements shall include entry into agreements containing the
       provisions set forth in Section 3.5 hereof.

3.4    SEGREGATION OF SECURITIES. The Custodian shall identify on its books as
       belonging to each applicable Portfolio of the Fund, the foreign
       securities of such Portfolios held by each foreign sub-custodian. Each
       agreement pursuant to which the Custodian employs a foreign banking
       institution shall require that such institution establish a custody
       account for the Custodian on behalf of the Fund for each applicable
       Portfolio of the Fund and physically segregate in each account,
       securities and other assets of the Portfolios, and, in the event that
       such institution deposits the securities of one or more of the Portfolios
       in a foreign securities depository, that it shall identify on its books
       as belonging to the Custodian, as agent for each applicable Portfolio,
       the securities so deposited.

                                      -24-

                                                                               
<PAGE>   28

3.5    AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
       foreign banking institution shall be substantially in the form set forth
       in Exhibit 1 hereto and shall provide that: (a) the assets of each
       Portfolio will not be subject to any right, charge, security interest,
       lien or claim of any kind in favor of the foreign banking institution or
       its creditors or agent, except a claim of payment for their safe custody
       or administration; (b) beneficial ownership for the assets of each
       Portfolio will be freely transferable without the payment of money or
       value other than for custody or administration; (c) adequate records will
       be maintained identifying the assets as belonging to each applicable
       Portfolio; (d) officers of or auditors employed by, or other
       representatives of the Custodian, including to the extent permitted under
       applicable law the independent public accountants for the Fund, will be
       given access to the books and records of the foreign banking institution
       relating to its actions under its agreement with the Custodian; and (e)
       assets of the Portfolios held by the foreign sub-custodian will be
       subject only to the instructions of the Custodian or its agents.

3.6    ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the Fund,
       the Custodian will use its best efforts to arrange for the independent
       accountants of the Fund to be afforded access to the books and records of
       any foreign banking institution employed as a foreign

                                      -25-
<PAGE>   29

       sub-custodian insofar as such books and records relate to the performance
       of such foreign banking institution under its agreement with the
       Custodian.

3.7    REPORTS BY CUSTODIAN. The Custodian will supply to the Fund from time to
       time, as mutually agreed upon, statements in respect of the securities
       and other assets of the Portfolio(s) held by foreign sub-custodians,
       including but not limited to an identification of entities having
       possession of the Portfolio(s) securities and other assets and advices or
       notifications of any transfers of securities to or from each custodial
       account maintained by a foreign banking institution for the Custodian on
       behalf of each applicable Portfolio indicating, as to securities acquired
       for a Portfolio, the identity of the entity having physical possession of
       such securities.

3.8    TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT

       (a) Except as otherwise provided in paragraph (b) of this Section 3.8,
       the provision of Sections 2.2 and 2.7 of this Contract shall apply,
       mutatis mutandis to the foreign securities of the Fund held outside the
       United States by foreign sub-custodians.

       (b) Notwithstanding any provision of this Contract to the contrary,
       settlement and payment for securities received for the account of each
       applicable Portfolio and delivery of securities maintained for the
       account of each applicable Portfolio may be effected in accordance with

                                      -26-
<PAGE>   30

       the customary established securities trading or securities processing
       practices and procedures in the jurisdiction or market in which the
       transaction occurs, including, without limitation, delivering securities
       to the purchaser thereof or to a dealer therefor (or an agent for such
       purchaser or dealer) against a receipt with the expectation of receiving
       later payment for such securities from such purchaser or dealer.

       (c) Securities maintained in the custody of a foreign sub-custodian may
       be maintained in the name of such entity's nominee to the same extent as
       set forth in Section 2.3 of this Contract, and the Fund agrees to hold
       any such nominee harmless from any liability as a holder of record of
       such securities.

3.9    LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the
       Custodian employs a foreign banking institution as a foreign
       sub-custodian shall require the institution to exercise reasonable care
       in the performance of its duties and to indemnify, and hold harmless, the
       Custodian and each Fund from and against any loss, damage, cost, expense,
       liability or claim arising out of or in connection with the institution's
       performance of such obligations. At the election of the Fund, it shall be
       entitled to be subrogated to the rights of the Custodian with respect to
       any claims against a foreign banking institution as a consequence of any
       such loss, damage, cost, expense, liability or claim if and to

                                      -27-
<PAGE>   31

       the extent that the Fund has not been made whole for any such loss,
       damage, cost, expense, liability or claim.

3.10   LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or
       omissions of a foreign banking institution to the same extent as set
       forth with respect to sub-custodians generally in this Contract and,
       regardless of whether assets are maintained in the custody of a foreign
       banking institution, a foreign securities depository or a branch of a
       U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
       not be liable for any loss, damage, cost, expense, liability or claim
       resulting from nationalization, expropriation, currency restrictions, or
       acts of war or terrorism or any loss where the sub-custodian has
       otherwise exercised reasonable care. Notwithstanding the foregoing
       provisions of this paragraph 3.10, in delegating custody duties to State
       Street London Ltd., the Custodian shall not be relieved of any
       responsibility to the Fund for any loss due to such delegation, except
       such loss as may result from (a) political risk (including, but not
       limited to, exchange control restrictions, confiscation, expropriation,
       nationalization, insurrection, civil strife or armed hostilities) or (b)
       other losses (excluding a bankruptcy or insolvency of State Street London
       Ltd. not caused by political risk) due to Acts of God, nuclear incident
       or other losses under circumstances where the Custodian and State Street
       London Ltd. have exercised reasonable care.

                                      -28-
<PAGE>   32

       not the subject of an exemptive order from the Securities and Exchange
       Commission is notified by such foreign sub-custodian that there appears
       to be a substantial likelihood that its shareholders' equity will decline
       below $200 million (U.S. dollars or the equivalent thereof) or that its
       shareholders' equity has declined below $200 million (in each case
       computed in accordance with generally accepted U.S. accounting
       principles).

3.13   BRANCHES OF U.S. BANKS

       (a) Except as otherwise set forth in this Contract, the provisions hereof
       shall not apply where the custody of the Portfolios assets are maintained
       in a foreign branch of a banking institution which is a "bank" as defined
       by Section 2(a)(5) of the Investment Company Act of 1940 meeting the
       qualification set forth in Section 26(a) of said Act. The appointment of
       any such branch as a sub-custodian shall be governed by paragraph 1 of
       this Contract.

       (b) Cash held for each Portfolio of the Fund in the United Kingdom shall
       be maintained in an interest bearing account established for the Fund
       with the Custodian's London branch, which account shall be subject to the
       direction of the Custodian, State Street London Ltd. or both.

3.14   TAX LAW

       The Custodian shall have no responsibility or liability for any
       obligations now or hereafter imposed on the Fund

                                      -30-
<PAGE>   33

       or the Custodian as custodian of the Fund by the tax law of the United
       States of America or any state or political subdivision thereof. It shall
       be the responsibility of the Fund to notify the Custodian of the
       obligations imposed on the Fund or the Custodian as custodian of the Fund
       by the tax law of jurisdictions other than those mentioned in the above
       sentence, including responsibility for withholding and other taxes,
       assessments or other governmental charges, certifications and
       governmental reporting. The sole responsibility of the Custodian with
       regard to such tax law shall be to use reasonable efforts to assist the
       Fund with respect to any claim for exemption or refund under the tax law
       of jurisdictions for which the Fund has provided such information.

4.     PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND

       The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.

       From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund

                                      -31-
<PAGE>   34

pursuant thereto, the Custodian shall, upon receipt of instructions from the
Transfer Agent, make funds available for payment to holders of Shares who have
delivered to the Transfer Agent a request for redemption or repurchase of their
Shares. In connection with the redemption or repurchase of Shares of a
Portfolio, the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders. In connection with the redemption or repurchase of
Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a
holder of Shares, which checks have been furnished by the Fund to the holder of
Shares, when presented to the Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time between the Fund and the
Custodian.

5.     PROPER INSTRUCTIONS

       Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Directors
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by

                                      -32-
<PAGE>   35

the Board of Directors of the Fund accompanied by a detailed description of
procedures approved by the Board of Directors, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Directors and the Custodian are satisfied
that such procedures afford adequate safeguards for the Portfolios' assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires
a segregated asset account in accordance with Section 2.11.

6.     ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY 

       The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:

       1)  make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
PROVIDED that all such payments shall be accounted for to the Fund on behalf of
the Portfolio;

       2)  surrender securities in temporary form for securities in definitive
form;

       3)  endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and

       4)  in general, attend to all non-discretionary details in connection 
with the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Portfolio except as otherwise directed
by the Board of Directors of the Fund.

                                      -33-
<PAGE>   36

7.     EVIDENCE OF AUTHORITY

       The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.

8.     DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION
       OF NET ASSET VALUE AND NET INCOME

       The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Directors of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent

                                      -34-
<PAGE>   37

periodically of the division of such net income among its various components.
The calculations of the net asset value per share and the daily income of each
Portfolio shall be made at the time or times described from time to time in the
Fund's currently effective prospectus related to such Portfolio.

9.     RECORDS

       The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.

10.    OPINION OF FUND'S INDEPENDENT ACCOUNTANT

       The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form

                                      -35-
<PAGE>   38





N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.

11.    REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS 

       The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.

12.    COMPENSATION OF CUSTODIAN

       The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.

13.    RESPONSIBILITY OF CUSTODIAN

       So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this

                                      -36-


<PAGE>   39

                                                                            

Contract and shall be held harmless in acting upon any notice, request, consent,
certificate or other instrument reasonably believed by it to be genuine and to
be signed by the proper party or parties, including any futures commission
merchant acting pursuant to the terms of a three-party futures or options
agreement. The Custodian shall be held to the exercise of reasonable care in
carrying out the provisions of this Contract, but shall be kept indemnified by
and shall be without liability to the Fund for any action taken or omitted by it
in good faith without negligence. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.

       The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.10)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.13 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody of any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.

                                      -37-
<PAGE>   40

       If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.

       If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's assets to
the extent necessary to obtain reimbursement.


                                      -38-
<PAGE>   41

14.    EFFECTIVE PERIOD, TERMINATION AND AMENDMENT

       This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; PROVIDED,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors of the Fund has
approved the initial use of a particular Securities System by such Portfolio and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors has reviewed the use by such Portfolio of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Portfolio act under Section 2.10A hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Board of
Directors has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Directors has reviewed the use by such
Portfolio of the Direct Paper System; PROVIDED FURTHER, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state



                                      -39-


<PAGE>   42

    

regulations, or any provision of the Articles of Incorporation, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of its Board of Directors (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian,
or (ii) immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.

       Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.

15.    SUCCESSOR CUSTODIAN

       If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Directors of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.

       If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the

                                      -40-
<PAGE>   43

office of the Custodian and transfer such securities, funds and other properties
in accordance with such vote.

       In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.

       In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities,


                                      -41-
<PAGE>   44

                                                         

funds and other properties and the provisions of this Contract relating to the
duties and obligations of the Custodian shall remain in full force and effect.

16.    INTERPRETIVE AND ADDITIONAL PROVISIONS

       In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.

17.    ADDITIONAL FUNDS

       In the event that the Fund establishes one or more series of Shares in
addition to The Gabelli Small Cap Growth Fund and The Gabelli Equity Income Fund
with respect to which it desires to have the Custodian render services as
custodian under the terms hereof, it shall so notify the Custodian in writing,
and if the Custodian agrees in writing to provide such services, such series of
Shares shall become a Portfolio hereunder.

                                      -42-
<PAGE>   45

18.    MASSACHUSETTS LAW TO APPLY

       This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.

19.    PRIOR CONTRACTS

       This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.


       IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 18th day of September, 1991.

ATTEST                                THE GABELLI EQUITY SERIES FUNDS, INC.

/s/ Marilyn Maier                     By /s/ Bruce N. Alpert
- ------------------------------          -----------------------------------
                                        Vice President and Treasurer


ATTEST                                STATE STREET BANK AND TRUST COMPANY

/s/ Maureen A. Rodriguez              By /s/ Charles R. Whittemore, Jr.
- ------------------------------          -----------------------------------
Assistant Secretary                       Vice President


                                      -43-
<PAGE>   46


                                   Schedule A
                                   ----------

       The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of The Gabelli Equity
Series Funds, Inc. for use as sub-custodians for the Fund's securities and other
assets:

                   (Insert banks and securities depositories)









Certified:


__________________________________
Fund's Authorized Officer 

Date: ____________________________

                                      -44-
<PAGE>   47

                                   EXHIBIT 1
                                   ---------

                               CUSTODIAN AGREEMENT
                               -------------------

TO:

Gentlemen:

       The undersigned ("State Street") hereby requests that you (the "Bank")
establish a custody account and a cash account for each State Street client
whose account is identified to this Agreement. Each such custody or cash account
as applicable will be referred to herein AS the "Account" and will be subject to
the following terms and conditions:

       1.  The Bank shall hold as agent for State Street and shall physically
segregate in the Account such cash, bullion, coin, stocks, shares, bonds,
debentures, notes and other securities and other property which is delivered to
the Bank for that State Street Account (the "Property").

       2.  (a) Without the prior approval of State Street it will not deposit
securities in any securities depository or utilize a clearing agency,
incorporated or organized under the laws of a country other than the United
States, unless such depository or clearing house operates the central system for
handling of securities or equivalent book-entries in that country or operates a
transnational system for the central handling of securities or equivalent
book-entries.

           (b) When Securities held for an Account are deposited in a securities
depository or clearing agency by the Bank, the Bank shall identify on its books
as belonging to State Street as agent for such Account, the Securities so
deposited.

       The Bank represents that either:

       3.  (a) it currently has stockholders' equity in excess of $200 million
(US dollars or the equivalent of US dollars computed in accordance with
generally accepted US accounting principles) and will promptly inform State
Street In the event that there appears to be a substantial likelihood that its
stockholders' equity will decline below $200 million, or in any event, at such
time as its stockholders' equity in fact declines below $200 million; or

           (b) It is the subject of an exemptive order issued by the United 
States Securities and Exchange Commission, which such order permits State Street
to employ the Bank as a subcustodian, notwithstanding the fact that the Bank's
stockholders' equity is currently below $200 million or may in the future
decline below $200 million due to currency fluctuation. 

       4.  Upon the written instructions of State Street as permitted by Section
8, the Bank is authorized to pay out cash from the Account and to sell, assign,
transfer, deliver or exchange, or to purchase for the Account,


<PAGE>   48

any and all stocks, shares, bonds, debentures, notes and other securities
("Securities"), bullion, coin and other property, but only as provided in such
written instructions. The Bank shall not be held liable for any act or omission
to act on instructions given or purported to be given should there be any error
in such instructions.

       5.  Unless the Bank receives written instructions of State Street to the
contrary, the Bank is authorized:

       a.     To promptly receive and collect all income and principal with
              respect to the Property and to credit cash receipts to the
              Account;

       b.     To promptly exchange Securities where the exchange is purely
              ministerial (including, without limitation, the exchange of
              temporary Securities for those in definitive form and the exchange
              of warrants, or other documents of entitlement to Securities, for
              the Securities themselves);

       c.     To promptly surrender Securities at maturity or when called for
              redemption upon receiving payment therefor;

       d.     Whenever notification of a rights entitlement or a fractional
              interest resulting from a rights issue, stock dividend or stock
              split is received for the Account and such rights entitlement or
              fractional interest bears an expiration date, the Bank will
              endeavor to obtain State Street's instructions, but should these
              not be received in time for the Bank to take timely action, the
              Bank is authorized to sell such rights entitlement or fractional
              interest and to credit the Account;

       e.     To hold registered in the name of the nominee of the Bank or its
              agents such Securities as are ordinarily held in registered form;

       f.     To execute in State Street's name for the Account, whenever the
              Bank deems it appropriate, such ownership and other certificates
              as may be required to obtain the payment of income from the
              Property; and

       g.     To pay or cause to be paid from the Account any and all taxes and
              levies in the nature of taxes imposed on such assets by any
              governmental authority, and shall use reasonable efforts to
              promptly reclaim any foreign withholding tax relating to the
              Account.

       6.     If the Bank shall receive any proxies, notices, reports, or other
communications relative to any of the Securities of the Account in connection
with tender offers; reorganizations, mergers, consolidations, or similar events
which may have an impact upon the issuer thereof, the Bank shall promptly
transmit any such communication to State Street by means as will permit State
Street to take timely action with respect thereto.

       7.     The Bank is authorized in its discretion to appoint brokers and 
agents in connection with the Bank's handling of transactions relating to the
Property provided that any such appointment shall not relieve the Bank of any of
its responsibilities or liabilities hereunder.
<PAGE>   49

       8.     Written instructions shall include (i) Instructions in writing 
signed by such persons as are designated in writing by State Street (ii) telex
or tested telex instructions of State Street, (iii) other forms of instruction
in computer readable form as shall be customarily utilized for the transmission
of like information and (iv) such other forms of communication as from time to
time shall be agreed upon by State Street and the Bank.

       9.     The Bank shall supply periodic reports with respect to the 
safekeeping of assets held by it under this Agreement. The content of such
reports shall include but not be limited to any transfer to or from any Account
held by the Bank hereunder and such other information AS State Street may
reasonably request.

       10.    In addition to its obligations under Section 2 hereof, the Bank 
shall maintain such other records as may be necessary to identify the assets
hereunder as belonging to each State Street client identified to this Agreement
from time to time.

       11.    The Bank agrees that its books and records relating to its actions
under this Agreement shall be opened to the physical, on-premises inspection and
audit at reasonable times by officers of, auditors employed by or other
representatives of State Street (including to the extent permitted under
___________law the independent public accountants for any entity whose Property
is being held hereunder) and shall be retained for such period as shall be
agreed by State Street and the Bank.

       12.    The Bank shall be entitled to reasonable compensation for its
services and expenses as custodian under this Agreement, as agreed upon from
time to time by the Bank and State Street.

       13.    The Bank shall exercise reasonable care in the performance of its
duties as are set forth or contemplated herein or contained in instructions
given to the Bank which are not contrary to this Agreement, and shall maintain
adequate insurance and agrees to indemnify and hold State Street and each
Account from and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the Bank's performance of its obligations
hereunder.

       14.    The Bank agrees that (i) the Property is not subject to any right,
charge, security interest, lien or claim of any kind in favor of the Bank or any
of its agents or its creditors except a claim of payment for their safe custody
and administration and (ii) the beneficial ownership of the Property shall be
freely transferable without the payment of money or other value other than for
safe custody or administration.

       15.    This Agreement may be terminated by the Bank or State Street by at
least 60 days' written notice to the other, sent by registered mail or express
courier. The Bank, upon the date this Agreement terminates pursuant to notice
which has been given in a timely fashion, shall deliver the Property in
accordance with written instructions of State Street specifying the name(s) of
the person(s) to whom the Property shall be delivered. 
<PAGE>   50


       16.    The Bank and State Street shall each use its best efforts to 
maintain the confidentiality of the Property in each Account, subject, however,
to the provisions of any laws requiring the disclosure of the Property.

       17.    The Bank agrees to follow such Operating Requirements as State 
Street may require from time to time. A copy of the current State Street
Operating Requirements is attached as an exhibit to this Agreement.

       18.    Unless otherwise specified in this Agreement, ALL notices with
respect to matters contemplated by this Agreement shall be deemed duly given
when received in writing or by tested telex by the Bank or State Street at their
respective addresses set forth below, or at such other address as specified in
each case in a notice similarly given:

       To State Street:            Global Custody Services Division
                                   STATE STREET BANK AND TRUST
                                     COMPANY
                                   P. O. Box 470
                                   Boston, Massachusetts 02102

       To the Bank:

       19.    This Agreement shall be governed by and construed in accordance 
with the laws of________________.

       Please acknowledge your agreement to the foregoing by executing a copy of
this letter. 


                                   Very truly yours,

                                   STATE STREET BANK AND TRUST COMPANY


                                   By ___________________________

Agreed to by :

By _________________________

Date ___________________________

scust/

                                      - 4 -
<PAGE>   51

                                                            [LOGO]  STATE STREET



                      STATE STREET BANK AND TRUST COMPANY

                             Custodian Fee Schedule

                     The Gabelli Equity Series Funds, Inc.
                       The Gabelli Small Cap Growth Fund
                         The Gabelli Equity Income Fund

- --------------------------------------------------------------------------------

       I.     Administration
              ---------------

              CUSTODY SERVICE - Maintain custody of fund assets. Settle
              portfolio purchases and sales. Report buy and sell fails.
              Determine and collect portfolio income. Make cash disbursements
              and report cash transactions. Monitor corporate actions.

              The administration fee shown below is an annual charge, billed and
              payable monthly, based on average monthly net assets.

                           ANNUAL FEES PER PORTFOLIO
                           -------------------------

              Fund Net Assets                   Custody
              ---------------                   -------

              First $20 Million                 1/ 30 of  1%
              Next $80 Million                  1/ 60 of  1%
              Excess                            1/100 of  1%

              Minimum Monthly
              Charges                           $2,000

              Minimum waived for a 12 month period or through 1992.

                                                
       II.    GLOBAL CUSTODY - Services provided include: Cash Movements,
              Foreign Communication, Foreign Exchange (local currency
              settlements).

              Fund Net Assets                     Annual Fees
              ---------------                     -----------

              First $50 Million                  22 Basis Points
              Over $50 Million                   20 Basis Points
              Minimum Per Client                 $5,000.00 Annually
<PAGE>   52

                                                          [LOGO]    STATE STREET


       III.   Portfolio Trades - For each line item processed
              -----------------------------------------------

              State Street Bank Repos                                 $ 7.00

              DTC or Fed Book Entry                                   $12.00

              New York Physical Settlements                           $25.00

              Maturity Collections                                    $ 8.00

              All other trades                                        $16.00

       IV.    Options
              -------

              Option charge for each option written or 
              closing contract, per issue, per broker                 $25.00

              Option expiration charge, per issue, per broker         $15.00

              Option exercised charge, per issue, per broker          $15.00

       V.     Interest Rate Futures
              ---------------------

              Transactions -- no security movement                    $ 8.00

       VI.    Principal Reduction Payments
              ----------------------------

              Per paydown                                             $10.00

       VII.   DIVIDEND CHARGES (For items held at the Request
              of Traders over record date in street form)             $50.00

       VIII.  Special Services
              ----------------

              Fees for activities of a non-recurring nature such as fund
              consolidations or reorganizations, extraordinary security
              shipments and the preparation of special reports will be subject
              to negotiation. Fees for automated pricing, yield calculation and
              other special items will be negotiated separately.
<PAGE>   53

                                                             [LOGO] STATE STREET

       IX.    Out-of-Pocket Expenses
              ----------------------

              A billing for the recovery of applicable out-of-pocket expenses
              will be made as of the end of each month. Out-of-pocket expenses
              include, but are not limited to the following:

                     Telephone
                     Wire Charges ($5.25 per wire in and $5.00 out)
                     Postage and Insurance
                     Courier Service
                     Duplicating
                     Legal Fees
                     Supplies Related to Fund Records
                     Rush Transfer -- $8.00 Each
                     Transfer Fees
                     Sub-custodian Charges
                     Price Waterhouse Audit Letter
                     Federal Reserve Fee for Return Check items over 
                     $2,500 - $4.25
                     GNMA Transfer - $15 each
                     PTC Deposit/Withdrawal for same day turnarounds - $50.00

       X.     Payment
              -------

              The above fees will be charged against the fund's custodian
              checking account five (5) days after the invoice is mailed to the
              fund's offices.

THE GABELLI EQUITY SERIES FUNDS, INC.           STATE STREET BANK AND TRUST CO.

By  /s/ Bruce N. Alpert                      By   /s/ Gary R. Sturgeon
    -----------------------                       -----------------------------

Title                                        Title    Vice President
    -----------------------                       -----------------------------

Date  October 1, 1991                        Date     2/21/92
    -----------------------                       -----------------------------






<PAGE>   1


                                                                        082991



                     TRANSFER AGENCY AND SERVICE AGREEMENT

                                    between

                     THE GABELLI EQUITY SERIES FUNDS, INC.

                                      and

                      STATE STREET BANK AND TRUST COMPANY






1G290

WP1520C



<PAGE>   2




                              TABLE OF CONTENTS

                                                                           PAGE

Article 1   Terms of Appointment; Duties of the Bank..........................2

Article 2   Fees and Expenses.................................................6

Article 3   Representations and Warranties of the Bank........................7

Article 4   Representations and Warranties of the Fund........................7

Article 5   Indemnification...................................................8

Article 6   Covenants of the Fund and the Bank...............................11

Article 7   Termination of Agreement.........................................12

Article 8   Additional Funds.................................................13

Article 9   Assignment.......................................................13

Article 10  Amendment........................................................14

Article 11  Massachusetts Law to Apply.......................................14

Article 12  Merger of Agreement..............................................14

Article 13  Counterparts.....................................................14

<PAGE>   3




                     TRANSFER AGENCY AND SERVICE AGREEMENT



         AGREEMENT made as of the            day of ,                  1991, by
and between THE GABELLI EQUITY SERIES FUNDS, INC., a Maryland corporation,
having its principal office and place of business at Corporate Center at Rye,
Rye, New York 10580 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").

         WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and

         WHEREAS, the Fund intends to initially offer shares in two series, The
Gabelli Small Cap Growth Fund and The Gabelli Equity Income Fund (each such
series, together with all other series subsequently established by the Fund and
made subject to this Agreement in accordance with Article 8, being herein
referred to, as a "Portfolio", and collectively as the "Portfolios");

         WHEREAS, the Fund on behalf of the Portfolios desires to appoint the
Bank as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities and the
Bank desires to accept such appointment;

         NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:

<PAGE>   4

Article 1 TERMS OF APPOINTMENT; DUTIES OF THE BANK

         1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to
act as, and the Bank agrees to act as its transfer agent for the authorized and
issued shares of capital stock of the Fund representing interests in each of the
respective Portfolios ("Shares"), dividend disbursing agent, custodian of
certain retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of the
respective Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus") of
the Fund on behalf of the applicable Portfolio, including without limitation any
periodic investment plan or periodic withdrawal program.

         1.02 The Bank agrees that it will perform the following services:

         (a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as applicable
and the Bank, the Bank shall:

         (i)    Receive for acceptance, orders for the purchase of Shares, and
                promptly deliver payment and appropriate documentation thereof
                to the Custodian of the Fund authorized pursuant to the Articles
                of Incorporation of the Fund (the "Custodian");



                                      -2-
<PAGE>   5


         (ii)   Pursuant to purchase orders, issue the appropriate number of
                Shares and hold such Shares in the appropriate Shareholder
                account;

         (iii)  Receive for acceptance redemption requests and redemption
                directions and deliver the appropriate documentation thereof to
                the Custodian;

         (iv)   In respect to the transactions in items (i), (ii) and (iii)
                above, the Bank shall execute transactions directly with
                broker-dealers authorized by the Fund who shall thereby be
                deemed to be acting on behalf of the Fund;

         (v)    At the appropriate time as and when it receives monies paid to
                it by the Custodian with respect to any redemption, pay over or
                cause to be paid over in the appropriate manner such monies as
                instructed by the redeeming Shareholders;

         (vi)   Effect transfers of Shares by the registered owners thereof upon
                receipt of appropriate instructions;

         (vii)  Prepare and transmit payments for dividends and distributions
                declared by the Fund on behalf of the applicable Portfolio;

         (viii) Issue replacement certificates for those certificates alleged to
                have been lost, stolen or destroyed upon receipt by the Bank of
                indemnification satisfactory to the Bank and protecting the Bank
                and the Fund, and the Bank at

                                       -3-

<PAGE>   6


                its option, may issue replacement certificates in place of
                mutilated stock certificates upon presentation thereof and
                without such indemnity;

         (ix)   Report abandoned property to the various states as authorized by
                the Fund per policies and principles agreed upon by the Fund and
                the Bank;

         (x)    Maintain records of account for and advise the Fund and its
                Shareholders as to the foregoing; and

         (xi)   Record the issuance of Shares of the Fund and maintain pursuant
                to SEC Rule l7Ad-l0(e) a record of the total number of Shares of
                the Fund which are authorized, based upon data provided to it by
                the Fund, and issued and outstanding. The Bank shall also
                provide the Fund on a regular basis with the total number of
                Shares which are authorized and issued and outstanding and shall
                have no obligation, when recording the issuance of Shares, to
                monitor the issuance of such Shares or to take cognizance of any
                laws relating to the issue or sale of such Shares, which
                functions shall be the sole responsibility of the Fund.

         (b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without


                                      -4-
<PAGE>   7


limitation any periodic investment plan or periodic withdrawal program),
including but not limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, receiving and tabulating proxies,
mailing Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts, preparing
and filing U.S. Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing activity
statements for Shareholders, and providing Shareholder account information and
(ii) provide a system which will enable the Fund to monitor the total number of
Shares sold in each State.

         (c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.

                                      -5-

<PAGE>   8


         (d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the Fund on
behalf of each Portfolio and the Bank per the attached service responsibility
schedule. The Bank may at times perform only a portion of these services and the
Fund or its agent may perform these services on the Fund's behalf.

Article 2 FEES AND EXPENSES

         2.01 For the performance by the Bank pursuant to this Agreement, the
Fund agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.02 below may be changed from time to time subject to
mutual written agreement between the Fund and the Bank.

         2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses or advances incurred by the Bank for the items set out in
the fee schedule attached hereto. In addition, any other expenses incurred by
the Bank at the request or with the consent of the Fund, will be reimbursed by
the Fund on behalf of the applicable Portfolio.

         2.03 The Fund agrees on behalf of each of the Portfolios to pay all
fees and reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for receipt of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall be advanced to the
Bank by the Fund at least seven (7) days prior to the mailing date of such
materials.


                                      -6-

<PAGE>   9


Article 3  REPRESENTATIONS AND WARRANTIES OF THE BANK

         The Bank represents and warrants to the Fund that:

         3.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.

         3.02 It is duly qualified to carry on its business in the Commonwealth
of Massachusetts.

         3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.

         3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.

         3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.

Article 4  REPRESENTATIONS AND WARRANTIES OF THE FUND

         The Fund represents and warrants to the Bank that:

         4.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland.

         4.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.

         4.03 All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.

         4.04 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.

                                      -7-

<PAGE>   10


         4.05 A registration statement under the Securities Act of 1933, as
amended on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of the Fund being
offered for sale.

Article 5  INDEMNIFICATION

         5.01 The Bank shall not be responsible for, and the Fund shall on
behalf of the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:

         (a) All actions of the Bank or its agent or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.

         (b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the Fund
hereunder.

         (c) The reliance on or use by the Bank or its agents or subcontractors
of information, records and documents or services which (i) are received or
relied upon by the Bank or its agents or subcontractors and/or furnished to it
or performed by or on behalf of the Fund, and (ii) have been prepared,
maintained and/or performed by the Fund or any other person or firm on behalf of
the Fund.

                                      -8-

<PAGE>   11


         (d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf of the
applicable Portfolio.

         (e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.

         5.02 The Bank shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by the Bank as a result of the Bank's lack of good faith,
negligence or willful misconduct.

         5.03 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund on behalf of the applicable Portfolio for any
action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund, reasonably believed to be genuine and to have been signed
by the proper person or persons, or upon any instruction,


                                      -9-

<PAGE>   12


information, data, records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data entry or other similar
means authorized by the Fund, and shall not be held to have notice of any change
of authority of any person, until receipt of written notice thereof from the
Fund. The Bank, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers of the Fund, and
the proper countersignature of any former transfer agent or former registrar, or
of a co-transfer agent or co-registrar.

         5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.

         5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.

         5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party


                                      -10-


<PAGE>   13


advised with respect to all developments concerning such claim. The party who
may be required to indemnify shall have the option to participate with the party
seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.

Article 6  COVENANTS OF THE FUND AND THE BANK

         6.01 The Fund shall on behalf of each of the Portfolios promptly
furnish to the Bank the following:

         (a) A certified copy of the resolution of the Directors of the Fund
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.

         (b) A copy of the Articles of Incorporation and By-Laws of the Fund and
all amendments thereto.

         6.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.

         6.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed


                                      -11-

<PAGE>   14


by the Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules, and
will be surrendered promptly to the Fund on and in accordance with its request.

         6.04 The Bank and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.

         6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.

Article 7  TERMINATION OF AGREEMENT

         7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.

   7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund on behalf of the applicable Portfolio(s). Additionally, the Bank
reserves the right to charge for any other reasonable expenses associated with
such termination and/or a charge equivalent to the average of three (3) months'
fees.


                                      -12-


<PAGE>   15

Article 8  ADDITIONAL FUNDS

         8.01 In the event that the Fund establishes one or more series of
Shares in addition to The Gabelli Small Cap Growth Fund and The Gabelli Equity
Income Fund with respect to which it desires to have the Bank render services as
transfer agent under the terms hereof, it shall so notify the Bank in writing,
and if the Bank agrees in writing to provide such services, such series of
Shares shall become a Portfolio hereunder.

Article 9  ASSIGNMENT

         9.01 Except as provided in Section 9.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.

         9.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.

         9.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.


                                      -13-

<PAGE>   16


Article 10 AMENDMENT

         10.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the
Directors of the Fund.

Article 11 MASSACHUSETTS LAW TO APPLY

         11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.

Article 12 MERGER OF AGREEMENT

         12.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.

Article 13 COUNTERPARTS

         13.01 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.


                                      -14-

<PAGE>   17


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.




                                      THE GABELLI EQUITY SERIES FUNDS, INC.


                                      BY: /s/ Bruce N. Alpert
                                          -----------------------------
                                          Vice President & Treasurer



ATTEST:

/s/ Marilyn Maier
- --------------------------



                                      STATE STREET BANK AND TRUST COMPANY


                                      BY: /s/ Charles R. Whittemore, Jr.
                                          ------------------------------
                                          Vice President

ATTEST:

/s/ Maureen A. Rodriguez
- --------------------------
Assistant Secretary








                                      -15-

<PAGE>   18
                      STATE STREET BANK AND TRUST COMPANY

                          TRANSFER AGENT FEE SCHEDULE

                     The Gabelli Equity Series Funds, Inc.
                       The Gabelli Small Cap Growth Fund
                         The Gabelli Equity Income Fund

GENERAL - Fees are based on annual per shareholder account charges for account
maintenance plus out-of-pocket expenses. Annual maintenance charges for various
kinds of mutual funds are given below. There is a minimum charge per fund on
the following schedule:

          One Fund                           $5,000/month per fund
          Two Funds                          $3,000/month per fund
          Three to Five Funds                $2,500/month per fund
          Each Fund over the Five            $1,300/month per fund

ANNUAL MAINTENANCE CHARGES - Fees are billable on a monthly basis at the rate
of 1/12 of the annual fee. A charge is made for an account in the month that an
account opens or closes.

OPEN ACCOUNT

          The Gabelli Small Cap Growth Fund  $7.00
          The Gabelli Equity Income Fund     $7.00

The above rates are to be incremented $.25 per dividend payment cycle (e.g.,
monthly dividend, add $3.00 to the annual maintenance fee).

CLOSED ACCOUNT                               $1.20

TELEPHONE CALLS                              $1.00

Investor Fees (Optional)                     $1.80
(per Investor Record)

OUT-OF-POCKET EXPENSES

Out-of-Pocket expenses include but are not limited to: Confirmation statements,
postage, forms, audio response, telephone, microfilm, microfiche, and expenses
incurred at the specific direction of the fund.

          Minimum waived for initial 3 months of operation.

THE GABELLI EQUITY SERIES FUNDS, INC.       STATE STREET BANK AND TRUST CO.

By /s/ Bruce N. Alpert                      By /s/
     -------------------------------              -------------------------

Title VP & Treasurer                        Title Vice President
      ------------------------------              -------------------------

Date 10/1/91                                Date 10/1/91
     -------------------------------             --------------------------

7392m

<PAGE>   1


                        CONSENT OF INDEPENDENT AUDITORS


We consent to the reference to our firm under the captions "Financial
Highlights", "Independent Auditors" and "Financial Statements" and to the 
use of our reports dated November 15, 1997 on The Gabelli Equity Income Fund
and The Gabelli Small Cap Growth Fund incorporated by reference in this
Registration Statement (Form N-1A No. 33-41913) of Gabelli Equity Series 
Funds, Inc.


                                           /s/  ERNST & YOUNG LLP
                                           ---------------------------     
                                                ERNST & YOUNG LLP


New York, New York
January 26, 1998

<TABLE> <S> <C>

<ARTICLE> 6
<SERIES>
   <NUMBER> 011
   <NAME> GABELLI SMALL CAP GROWTH FUND
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          SEP-30-1997
<PERIOD-START>                             OCT-01-1996
<PERIOD-END>                               SEP-30-1997
<INVESTMENTS-AT-COST>                        196050440
<INVESTMENTS-AT-VALUE>                       296865083
<RECEIVABLES>                                  1782438
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                            279342
<TOTAL-ASSETS>                               298926863
<PAYABLE-FOR-SECURITIES>                        790108
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                      1618015
<TOTAL-LIABILITIES>                            2408123
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     157151711
<SHARES-COMMON-STOCK>                         11665495
<SHARES-COMMON-PRIOR>                         11148837
<ACCUMULATED-NII-CURRENT>                            0
<OVERDISTRIBUTION-NII>                            4987
<ACCUMULATED-NET-GAINS>                       38558703
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                     100813313
<NET-ASSETS>                                 296518740
<DIVIDEND-INCOME>                              2572823
<INTEREST-INCOME>                               291107
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                 3683992
<NET-INVESTMENT-INCOME>                       (820062)
<REALIZED-GAINS-CURRENT>                      39776849
<APPREC-INCREASE-CURRENT>                     44387266
<NET-CHANGE-FROM-OPS>                         83344053
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                      23504667
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        6081693
<NUMBER-OF-SHARES-REDEEMED>                    6786508
<SHARES-REINVESTED>                            1221473
<NET-CHANGE-IN-ASSETS>                        73279537
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                     23091004
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                          2269141
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                3683992
<AVERAGE-NET-ASSETS>                         227130436
<PER-SHARE-NAV-BEGIN>                            20.02
<PER-SHARE-NII>                                  (.07)
<PER-SHARE-GAIN-APPREC>                           7.70
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                         2.23
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              25.42
<EXPENSE-RATIO>                                   1.62
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<ARTICLE> 6
<SERIES>
   <NUMBER> 021
   <NAME> GABELLI EQUITY INCOME FUND
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          SEP-30-1997
<PERIOD-START>                             OCT-01-1996
<PERIOD-END>                               SEP-30-1997
<INVESTMENTS-AT-COST>                         49295818
<INVESTMENTS-AT-VALUE>                        73742957
<RECEIVABLES>                                   334026
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                              8051
<TOTAL-ASSETS>                                74085034
<PAYABLE-FOR-SECURITIES>                         68340
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       286478
<TOTAL-LIABILITIES>                             354818
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                      42377562
<SHARES-COMMON-STOCK>                          4239209
<SHARES-COMMON-PRIOR>                          4127713
<ACCUMULATED-NII-CURRENT>                       176441
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                        6730336
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                      24445877
<NET-ASSETS>                                  73730216
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