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The
Gabelli
Small
Cap
Growth
Fund
ANNUAL REPORT
SEPTEMBER 30, 1999
<PAGE>
The Gabelli Small Cap Growth Fund
Annual Report
September 30, 1999(a)
To Our Shareholders,
In the third quarter of 1999, the retreating bond market, tumbling dollar,
and another Federal Reserve interest rate hike had investors on the defensive.
The small cap stock rally stalled, and the Russell 2000 Index retreated in lock
step with the leading large cap stock market indices. Our portfolio outperformed
its Russell 2000 benchmark in the third quarter of 1999, but still lost ground.
Over the first three quarters of this year, the Fund continues to enjoy a modest
lead over the Russell 2000.
Investment Performance
For the quarter ended September 30, 1999, The Gabelli Small Cap Growth
Fund's (the "Fund") net asset value declined 4.80%. The Value Line Composite and
Russell 2000 Indices declined 8.18% and 6.32%, respectively, over the same
period. Each index is an unmanaged indicator of stock market performance. The
Fund was up 19.24% over the trailing twelve-month period. The Value Line
Composite and Russell 2000 Indices rose 22.44% and 19.07%, respectively, over
the same twelve-month period.
For the five-year period ended September 30, 1999, the Fund's total return
averaged 14.23% annually versus average annual total returns of 15.73% and
12.39% for the Value Line Composite and Russell 2000 Indices, respectively.
Since inception on October 22, 1991 through September 30, 1999, the Fund had a
cumulative total return of 250.07%, which equates to an average annual total
return of 17.08%.
What We Do
We view the small capitalization stock market as a research driven stock
picker's paradise. Unlike the large cap market, where most companies are closely
followed by dozens of Wall Street analysts, the small cap market is largely
unclaimed territory. Our analysts put on their hiking shoes, strap on their
backpacks and hit the trails looking for little companies Wall Street does not
know or care about. They are seeking a particular type of company, which we
would describe generally as a dominant market share, niche franchise in a
growing and/or consolidating industry.
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(a) The Fund's fiscal year ends September 30.
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INVESTMENT RESULTS (a)(c)
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Calendar Quarter
--------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
1999: Net Asset Value ...... $19.59 $22.94 $21.84 -- --
Total Return ......... (6.8)% 17.1% (4.8)% -- --
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1998: Net Asset Value ...... $23.93 $23.59 $18.81 $21.01 $21.01
Total Return ......... 10.9% (1.4)% (20.3)% 14.7% 0.0%
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1997: Net Asset Value ...... $19.11 $22.23 $25.42 $21.58 $21.58
Total Return ......... 3.1% 16.3% 14.7% (0.8)% 36.5%
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1996: Net Asset Value ...... $19.65 $20.68 $20.02 $18.53 $18.53
Total Return ......... 6.2% 5.2% (3.2)% 3.4% 11.9%
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1995: Net Asset Value ...... $17.03 $17.88 $19.34 $18.50 $18.50
Total Return ......... 7.4% 5.0% 8.2% 2.6% 25.2%
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1994: Net Asset Value ...... $16.76 $16.33 $17.24 $15.85 $15.85
Total Return ......... (3.6)% (2.6)% 5.6% (2.1)% (2.9)%
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1993: Net Asset Value ...... $15.46 $15.74 $16.90 $17.38 $17.38
Total Return ......... 6.6% 1.8% 7.4% 5.3% 22.8%
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1992: Net Asset Value ...... $13.42 $13.41 $13.10 $14.50 $14.50
Total Return ......... 9.9% (0.1)% (2.3)% 12.1% 20.3%
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1991: Net Asset Value ...... -- -- -- $12.21 $12.21
Total Return ......... -- -- -- 22.9%(b) 22.9%(b)
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Average Annual Returns - September 30, 1999 (a)
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1 Year .................................................................. 19.24%
5 Year .................................................................. 14.23%
Life of Fund (b) ........................................................ 17.08%
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Dividend History
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Payment (ex) Date Rate Per Share Reinvestment Price
- ----------------- -------------- ------------------
December 21, 1998 $0.534 $19.80
December 29, 1997 $3.590 $21.29
September 30, 1997 $0.070 $25.42
December 27, 1996 $2.160 $18.46
December 29, 1995 $1.340 $18.50
December 30, 1994 $1.030 $15.85
December 31, 1993 $0.420 $17.38
December 31, 1992 $0.185 $14.50
December 31, 1991 $0.080 $12.21
(a) Total returns and average annual returns reflect changes in share price and
reinvestment of dividends and are net of expenses. The net asset value of the
Fund is reduced on the ex-dividend (payment) date by the amount of the dividend
paid. Of course, returns represent past performance and do not guarantee future
results. Investment returns and the principal value of an investment will
fluctuate. When shares are redeemed they may be worth more or less than their
original cost. (b) From commencement of investment operations on October 22,
1991. (c) The Fund's fiscal year ends September 30. Note: Investing in small
capitalization securities involves special challenges because these securities
may trade less frequently and experience more abrupt price movements than large
capitalization securities.
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
THE GABELLI SMALL CAP GROWTH FUND, THE RUSSELL 2000 INDEX
AND THE S&P 500 INDEX
Gabelli Small
Cap Growth Fund Russell 2000 Index S&P 500 Index
--------------- ------------------ -------------
10/22/91 $10,000 $10,000 $10,000
9/30/92 $13,410 $11,184 $11,021
9/30/93 $17,229 $14,897 $12,464
9/30/94 $18,004 $15,374 $12,925
9/30/95 $21,513 $18,971 $16,777
9/30/96 $23,874 $21,397 $20,183
9/30/97 $33,949 $28,499 $28,337
9/30/98 $29,366 $23,084 $30,916
9/30/99 $35,016 $27,486 $39,508
Our analysts are guided by specific investment principles that include:
experienced management, healthy balance sheets and rising free cash flow and
earnings. They also live by certain value parameters--their goal is to find
great companies trading at reasonable valuations relative to "real world"
economic worth. These are the kinds of companies we can feel comfortable owning
long term, rather than trading like so many small cap investors are prone to do.
COMMENTARY
Too Much of a Good Thing?
In the third quarter of 1999, the U.S. economy continued to barrel along
at a pace that investors feared would lead to higher inflation. Paced by the
long anticipated recovery in Japan, Asian economies are perking up. Coupled with
prospects that European economies are gaining momentum, this has spawned concern
that synchronized global growth would further increase inflationary pressure
here at home. All of this positive global economic news was simply too much of a
good thing for the U.S. bond market, which continued to slide.
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Long term, synchronized global growth is a blessing--we should all be
thinking in terms of Gross World Product ("GWP") rather than Gross Domestic
Product ("GDP"). However, in the short term it may put additional pressure on
the Fed to press down on the monetary brakes. Investors should view this as a
dose of cod liver oil--bitter medicine, but a tonic that will improve the long
term health of the economy and the stock market. Unfortunately, "Mr. Market"
often does not like to take his medicine and additional Fed interest rate hikes
and higher bond yields are not likely to improve his mood. So, even though third
quarter corporate earnings are likely to be quite strong, price/earnings ("P/E")
multiples (a function of investor psychology and interest rates) may continue to
contract, sending stocks even lower. The good news in this scenario would be the
return of Ben Graham's "margin of safety" to the market.
If the domestic economy begins to decelerate in the fourth quarter and the
Fed declares a monetary cease-fire, "Mr. Market" may be in a better mood.
Although P/E multiples are not likely to expand, they may stabilize, allowing
earnings to rally stocks. However, with equity valuations still at relatively
lofty levels, advances will engender additional speculative risks.
Small Trees in a Stiff Wind
We were encouraged by small cap stocks' excellent performance versus large
cap stocks in the second quarter. We were equally pleased by small caps'
competitive performance this quarter. In the market corrections of recent years,
small cap stocks had been hit much harder than large cap stocks, as investors
tended to abandon the saplings and cling to the large oaks during market storms.
This time around, small caps were bent, but unbroken.
Why the change? Perhaps investors recognize that, in general, small cap
stocks offer much better fundamental value. Russell 2000 earnings are expected
to outpace Standard & Poor's 500 earnings this year and next, yet the Russell
2000 has a lower price/earnings ratio. Perhaps small cap stocks are simply
"washed out". In recent years, small cap stocks have been stuck in the mud while
large caps have soared. Most everyone who has wanted out has gotten out, leaving
small caps in the hands of more resolute investors.
Does this mean small cap stocks will excel when the market rights itself?
We do not know. Mergers and acquisitions activity in the small cap stock
universe is intensifying. Share repurchases are higher than they have been since
the aftermath of the 1987 downturn. Insider buying is also gaining momentum.
Smart money is focusing on small cap stocks. We think it is just a matter of
time before more investors smarten up.
The Dollar in Limbo--How Low Can It Go?
As we write, the dollar has hit a four-year low against the yen. This is
another good news/bad news situation. A cheaper dollar benefits U.S. exporters
and ultimately would help reduce trade deficits, which
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have been running at extraordinarily high levels. It also bolsters dollar
denominated earnings from the international operations of U.S. companies.
However, over the short term, it actually increases dollar calculated trade
deficits. Perhaps most importantly, a lower dollar is potentially inflationary,
because the prices of imported products that U.S. consumers treasure will move
higher. If the American consumer is willing to pay these higher prices for
Toyota cars and trucks, Sony big screen televisions, and Sega video games, it
will soon be reflected in the Consumer Price Index ("CPI"). This leads us to
another important question...
Will Fatigue Hit the American Consumer?
High employment and the "wealth effect" of a rising housing and stock
market have buoyed consumer confidence. Discretionary income has risen as a
result of depressed energy prices, low mortgage rates, and rising wages. If the
domestic economy does slow down, consumers may become more concerned about job
security. When investors receive third quarter statements from their brokers,
money managers and mutual funds, they will realize that their net worth has been
trimmed. Americans are paying more at the pump for gasoline and their home
heating bills will be significantly higher this winter. Variable rate mortgage
payments will increase and new fixed rate mortgages are higher. So, consumers
will not be able to raise spending money by leveraging real estate assets--no
more "take the home mortgage from $100,000 to $150,000 with the same monthly
payments and pocket the difference". As aforementioned, the prices for imported
goods are increasing. Will all this be enough to cause the American consumer to
tighten the purse strings? Or, will a significant tax cut--the Republicans are
running on the "3 Fs" (Faith, Finances, and Family)--embolden the American
consumer and keep the economic wheels moving here and abroad?
Deals, Deals, Deals--A Value Investors' Best Friend
We have discussed some of the issues likely to impact the economy and the
stock market over the short term. Being investors, not clairvoyants, we have not
come to any rock solid conclusions. One thing we are much more certain about
that is ongoing, and perhaps accelerating, is global consolidation. As economic
borders continue to be eliminated and regulatory barriers fall, bigger is
better. Companies that can extend their franchises and lower their costs will be
the ultimate winners in the global economic village.
Contrary to popular opinion, the future elimination of pooling of interest
accounting in mergers is not going to slow what we have coined "The Third Great
Wave of Takeovers". In fact, it will accelerate the process over the next year
as deals get done ahead of the accounting rules changes. Beyond 2001, different
accounting rules will be no match for the powerful economic forces that are
driving global consolidation. Wall Street will learn to value companies based on
free cash flow - earnings before interest, taxes, depreciation, and amortization
(or EBITDA), minus capital expenditures. This method is
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already the valuation standard for several of the industries we have followed
for years, including broadcasting and cable television. Free cash flow is what
any savvy business buyer looks at when evaluating an acquisition in any
industry. As more deals get done in a wider range of industries, corporate
managements will wean Wall Street analysts and investors from net earnings
oriented valuations (price/earnings ratios) and lead them to understand that
free cash flow is the best barometer of the value of a business.
This Quarter's Scorecard
Wireless communications stocks led the performance parade this quarter,
with Western Wireless, VoiceStream Wireless, Rural Cellular Corp, and Aerial
Communications (which is being acquired by VoiceStream) on our Top Ten
performance list. Other big winners came from our usual eclectic mix of industry
groups, including utilities (United Water Resources--which is being acquired by
Suez Lyonnaise), precious metals (Echo Bay Mines), gaming (Park Place
Entertainment), and broadcasting (Granite Broadcasting).
This quarter's biggest disappointments were also strange bedfellows,
including Earl Scheib (auto painting), Penton Media (publishing), and Modine
Manufacturing (auto parts). We often see one quarter's heroes becoming the next
quarter's goats and vice versa. Such is the nature of small cap investing. Our
focus is on small companies with outstanding long term growth potential that are
also likely takeover targets. We are willing to overlook temporary setbacks in
our quest for attractive long term returns.
Let's Talk Stocks
The following are stock specifics on selected holdings of our Fund.
Favorable earnings prospects do not necessarily translate into higher stock
prices, but they do express a positive trend which we believe will develop over
time.
Aztar Corp. (AZR - $10.25 - NYSE) is a gaming company that owns and operates
three casino hotels: Tropicana Casino and Resort in Atlantic City; Tropicana
Resort and Casino in Las Vegas; and Ramada Express Hotel and Casino in Laughlin,
Nevada. Aztar also operates riverboats in Caruthersville, Missouri and
Evansville, Indiana.
Carter-Wallace Inc. (CAR - $17.875 - NYSE) manufactures and sells consumer
health care products including toiletries, pharmaceuticals, diagnostic
specialties, proprietary drugs and pet products. Such recognized brand names as
Arrid deodorant, Nair hair remover and Pearl Drops toothpaste are Carter-Wallace
products. Astelin, in its second year on the market, remains the only
prescription antihistamine nasal spray in the U.S.
Celestial Seasonings Inc. (CTEA - $19.25 - Nasdaq), based in Boulder, Colorado,
developed and popularized the herb tea category in the U.S. as a flavorful,
non-caffeinated alternative to other hot
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beverages. With over 40 tea varieties under the Celestial Seasonings brand, CTEA
is the largest manufacturer of herb teas with an estimated 50% market share. The
company is expected to maintain its dominant position in the herb tea market.
Celestial Seasonings is positioned to leverage its excellent brand name into
dietary herbal supplements, green tea and wellness tea.
CLARCOR Inc. (CLC - $16.8125 - NYSE) is a U.S.-based manufacturer and
distributor of engine/mobile and industrial/environmental filtration products
and consumer packaging products. Filtration products include air, fuel and
hydraulic filters for heavy duty trucks, buses, cars and boats, as well as air
and anti-microbial filters for factories, hospitals and clean rooms. CLARCOR's
consumer packaging segment operates in two markets, custom-decorated metal
containers and plastic closures, producing such products as Band-Aid containers,
Rayovac battery shells and Kodak film canisters. Substantial cost savings and
productivity improvements are expected through the end of the decade. The
company has a history of bringing acquisitions profitably into the fold and is
entering into strategic alliances in European and other markets.
Commonwealth Telephone Enterprises Inc. (CTCO - $44.00 - Nasdaq; CTCOB -
$43.4375 - Nasdaq), located in Dallas, Pennsylvania, provides local, long
distance and other telecommunications services in rural areas of Pennsylvania.
CTCO was formed as the result of a restructuring of C-Tec Corp. in 1997. The
company currently has over 300,000 access lines and is expanding into
competitive local exchange carrier ("CLEC") businesses.
Ferro Corp. (FOE - $21.3125 - NYSE), based in Cleveland, is a global specialty
chemical manufacturer. The company is a leading producer of frits, powder
coatings, polymer additives and plastic compounds. New CEO Hector Ortino is
positioning Ferro to be a premier specialty chemical provider by focusing on
profitable growth and shareholder value. The company's new strategy of using
mature, cash generating businesses in the portfolio to finance investments in
"springboard" businesses should help to accelerate earnings per share growth.
Greif Bros. Corp. (GBCOA - $28.25 - Nasdaq), founded in 1877, is a proven leader
in industrial packagings, manufacturing fiber, steel, plastic drums, IBC's,
multiwall bags, corrugated boxes and specialty products. The company is fully
integrated, from its 305,000 acres of timberlands to corrugated sheet and box
operations, including both virgin and recycled paper mills. Management is
striving to become a packaging solutions supplier for major companies. Earlier
this year, Greif obtained a 49% interest in a French fiber drum business. Greif
also expects to repurchase 400,000 shares of its stock during fiscal 1999.
Kaman Corp. (KAMNA - $12.75 - Nasdaq), founded in 1945, is a pioneer in the
helicopter industry. Aircraft manufacturing remains the core of the business.
Kaman services both commercial and government markets with helicopters and
aircraft components. The company also produces specialized,
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high-value niche market products and services which tend to be technological
leaders in their markets. Kaman is a major, national distributor of original
equipment, repair and replacement products and value-added services to nearly
every sector of North American industry. The company also manufactures and
distributes musical instruments (Ovation guitars) and accessories to independent
retailers.
Liberty Corp. (LC - $46.375 - NYSE), headquartered in Greenville, S.C., is a
holding company with operations in broadcasting and insurance. Liberty's Cosmos
Broadcasting owns and operates eleven network affiliated television stations in
the Southeast and Midwest. Six stations are affiliated with NBC, three with ABC
and two with CBS. These stations serve more than four million households.
Liberty Life is a regional insurer, with North Carolina, South Carolina and
Louisiana accounting for more than 50% of its premium volume. The insurance
segment specializes in providing agency (home service) and mortgage protection,
life and health insurance. In February 1999, Liberty hired an investment banker
and began a strategic review which may result in a spinoff.
Media General Inc. (MEG'A - $51.25 - AMEX) is a Richmond, Virginia-based
communications company, publishing newspapers throughout the Southeast with
daily circulation of nearly 250,000. Media General also operates thirteen
network television stations in Southeastern markets, including Tampa and
Jacksonville, Florida. The relaxation of broadcast station ownership
restrictions provided by the Telecommunications Reform Act of 1996 is driving
industry consolidation and is increasing the franchise values of strong,
well-positioned media properties such as those owned by Media General. The
company produces newsprint from recycled newspapers at its Garden State Paper
Co. In April, MEG'A announced the sale of its Virginia cable franchises to Cox
Communications for $1.4 billion. In June, MEG'A sold its equity interest in the
Denver Post to Media News Group and redeemed its preferred stock for a total of
$92 million.
Pittway Corp. (PRY - $28.25 - NYSE) has completed the tax-free spin-off of
Penton Media. Each Pittway shareholder received one share of Penton common stock
for each share of Pittway stock held. This action leaves Pittway with its core
business of manufacturing and distributing burglar and commercial fire alarm
equipment. Pittway's ADI distribution unit is the largest supplier of alarm
system components in the U.S. Pittway is also involved in real estate and other
promising ventures, including a 34% interest in Cylink, a leading manufacturer
of encryption equipment.
SL Industries Inc. (SL - $14.25 - NYSE), based in Mt. Laurel, New Jersey,
designs, manufactures, and distributes power and data quality equipment and
systems for industrial and consumer niche markets, as well as customized
components and other products for a wide range of original equipment
manufacturers. SL recently acquired the operating assets of Todd Products Corp.
for $8.7 million.
Southwest Gas Corp. (SWX - $26.9375 - NYSE) is a natural gas utility based in
Las Vegas, providing natural gas service to over 1.2 million residential,
commercial and industrial customers in one of the most
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economically vibrant areas of the United States: Arizona, Nevada and parts of
northeastern and southeastern California. Southwest is the nation's fastest
growing natural gas distribution company. Southwest Gas' board of directors has
approved a revised offer from Oneok Inc. (OKE - $30.3125 - NYSE) to purchase all
outstanding SWX shares for $30.00 per share in cash, valuing Southwest Gas at
approximately $1.8 billion, including assumed debt. Regulatory approvals from
the Nevada PUC and the Arizona ACC have been obtained.
TV Guide Inc. (TVGIA - $39.125 - Nasdaq), formerly United Video Satellite Group,
publishes TV Guide, the best-selling weekly magazine in the U.S. The company's
other operations include the TV Guide Channel (an on-screen programming guide
formerly called the Prevue Channel) and 40% of Superstar/Netlink Group, which
sends programming from such providers as CNN, ESPN, and HBO to home satellite
dishes. Other services include SpaceCom (satellite transmission services for
radio programming, paging, and news services) and UVTV (distribution of
superstations, such as Chicago's WGN, to cable television systems). News Corp.
and AT&T's Liberty Media Group each hold about 49% of TV Guide's voting power
and 44% of its equity.
United Television Inc. (UTVI - $112.75 - Nasdaq), headquartered in Beverly
Hills, California, is a television broadcasting group which owns and operates
seven of the stations (one ABC, one NBC and five UPN affiliates) that comprise
Chris-Craft's (CCN - $56.125 - NYSE) television division. The $60 million
purchase of WRBW, a UPN affiliate in Orlando (the country's 22nd largest and the
fastest growing television market over the past decade), closed on July 7, 1999.
UTVI stations cover approximately nine percent of the U.S. population. UTVI is
59%-owned by BHC Communications (BHC - $139.50 - AMEX). United Television is a
beneficiary of the recent FCC ruling allowing television duopoly, or ownership
of two stations in a market.
Watts Industries Inc. (WTS - $21.75 - NYSE), based in North Andover,
Massachusetts, makes valves for the plumbing, heating and water quality,
industrial, steam, oil and gas markets. In December 1998, the company announced
plans to spin off its Circor International industrial oil and gas unit to
shareholders. The spin-off was completed on October 6, 1999. Watts shareholders
received one Circor share valued at $10.625 per share for every two Watts
shares. Accordingly, the price of Watts was reduced by $5.3125 per share to
reflect the spin-off. Watts will now focus on its existing plumbing and heating
and water quality businesses.
Wynn's International Inc. (WN - $15.9375 - NYSE), founded in 1939, is a
worldwide supplier of quality automotive and industrial components and specialty
chemical products. The Automotive and Industrial Components Division includes
Wynn's-Precision, a leader in sealing products and technology serving more than
1,000 customers in 14 industrial markets around the world, and Robert Skeels &
Company, a regional wholesale distributor of builders' hardware products. The
Specialty Chemicals Division is
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comprised of Wynn Oil Company and its subsidiaries, a worldwide manufacturer and
marketer of specialty chemicals, equipment and related programs for automotive
and industrial markets in over 100 countries. Wynn's has agreed to acquire
Goshen Rubber Cos., a maker of O-rings, tetraseals, gaskets and other rubber,
plastic and urethane products, for approximately $85 million.
Minimum Initial Investment - $1,000
The Fund's minimum initial investment for both regular and retirement
accounts is $1,000. There are no subsequent investment minimums. No initial
minimum is required for those establishing an Automatic Investment Plan.
Additionally, The Gabelli Small Cap Growth Fund and other Gabelli Funds are
available through the no-transaction fee programs at many major discount
brokerage firms.
Internet
You can now visit us on the Internet. Our home page at
http://www.gabelli.com contains information about Gabelli Asset Management Inc.,
the Gabelli Mutual Funds, IRAs, 401(k)s, quarterly reports, closing prices and
other current news. You can send us e-mail at [email protected].
Proposal to Shareholders
The Fund's Board of Directors has asked shareholders to consider a
proposal to amend the Fund's Articles of Incorporation to permit the Fund to
offer additional classes of shares. We believe that this proposal would benefit
the shareholders, and we urge you to give the proposal your careful
consideration.
The proposal was first introduced at a Special Meeting of Shareholders
held on May 18, 1999. This meeting was adjourned several times until July 21,
1999. Although the proposal received overwhelming support, the Fund did not
receive the required majority of outstanding shares voting in favor of the
proposal. The Board of Directors has set a new meeting on December 1, 1999 to
reconsider this proposal to permit the Fund to offer addidional classes of
shares.
For existing shareholders we intend to remain a no-load fund. At the same
time, mutual fund distributors are increasingly employing a variety of different
types and combinations of sales charge arrangements for different classes of
shares that are targeted to the needs of particular types of investors. Your
Board of Directors believes that the Fund should be able to provide the
distribution alternatives and investment flexibility provided by other similarly
situated funds that offer multiple classes of shares. We believe that approval
of the proposal to permit the Fund to offer additional classes of shares will
enhance the potential for the Fund to attract additional investors in a manner
that could provide additional benefits for all investors in the Fund. Again, to
repeat, approval of this proposal will not diminish the ability of existing and
future shareholders to purchase and redeem shares at net asset value.
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In Conclusion
The third quarter of 1999 was a difficult period for stocks of all shapes
and sizes. Although small cap stocks gave ground, it was a much more orderly
retreat than we have seen during the market corrections of recent years. Small
cap stocks are now remarkably inexpensive on historical, absolute, and relative
bases. Corporate managements are taking advantage of bargains in their own
companies' stocks and business buyers are out in force. When the current market
storm abates, we believe the investing public will gravitate back to small
companies with big futures.
The Fund's daily net asset value is available in the financial press and
each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI
(1-800-422-3554). The Fund's Nasdaq symbol is GABSX. Please call us during the
business day for further information.
Sincerely,
/s/ Mario J. Gabelli
Mario J. Gabelli, CFA
Portfolio Manager and
Chief Investment Officer
October 25, 19991
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Top Ten Holdings
September 30, 1999
------------------
Liberty Corp. CLARCOR Inc.
United Television Inc. TV Guide Inc.
USA Networks Inc. Aztar Corp.
Carter-Wallace Inc. Celestial Seasonings Inc.
Pittway Corp. Kaman Corp.
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NOTE: The views expressed in this report reflect those of the portfolio manager
only through the end of the period stated in this report. The manager's views
are subject to change at any time based on market and other conditions.
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The Gabelli Small Cap Growth Fund
Portfolio of Investments -- September 30, 1999
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS -- 95.0%
Agriculture -- 0.0%
7,500 Cadiz Inc.+ ...................... $ 76,434 $ 71,719
5,000 Sylvan Inc. ...................... 49,669 50,625
----------- -----------
126,103 122,344
----------- -----------
Automotive: Parts and Accessories -- 4.6%
100,000 Acktion Co.+ ..................... 1,273,170 775,563
68,000 GenCorp Inc. ..................... 1,024,599 1,245,250
8,000 Lund International
Holdings Inc.+ ................. 89,730 51,500
20,000 Meritor Automotive Inc. .......... 475,125 417,500
125,000 Modine Manufacturing Co. ......... 3,625,956 2,914,062
5,250 Monro Muffler Brake Inc.+ ........ 52,860 35,109
45,000 Redlaw Industries Inc.+ .......... 145,909 7,734
1,000 SPX Corp.+ ....................... 16,550 90,750
151,000 Standard Motor
Products Inc. .................. 2,457,169 2,935,062
17,000 Strattec Security Corp.+ ......... 427,208 595,000
46,600 Superior Industries
International Inc. ............. 1,257,079 1,304,800
125,000 TransPro Inc. .................... 1,254,392 617,188
190,000 Wynn's International Inc. ........ 1,146,645 3,028,125
----------- -----------
13,246,392 14,017,643
----------- -----------
Aviation: Parts and Services -- 3.3%
15,000 AAR Corp. ........................ 198,875 270,000
33,000 Aviall Inc.+ ..................... 439,108 338,250
10,000 Barnes Group Inc. ................ 236,562 200,625
56,000 Curtiss-Wright Corp. ............. 1,008,638 1,806,000
7,500 Ducommun Inc.+ ................... 80,125 82,500
121,125 Fairchild Corp., Cl. A+ .......... 2,133,144 1,241,531
26,500 Hi-Shear Industries Inc.+ ........ 58,141 68,320
302,100 Kaman Corp., Cl. A ............... 5,471,464 3,851,775
80,000 Moog Inc., Cl. A+ ................ 1,630,172 2,310,000
----------- -----------
11,256,229 10,169,001
----------- -----------
Broadcasting -- 8.0%
200,000 Ackerley Group Inc. .............. 2,885,163 2,462,500
200,000 Granite Broadcasting Corp.+ ...... 2,041,391 2,225,000
35,000 Gray Communications
Systems Inc. ................... 538,963 603,750
50,000 Gray Communications
Systems Inc., Cl. B ............ 664,282 718,750
54,500 Hearst-Argyle
Television Inc.+ ............... 486,898 1,171,750
167,000 Liberty Corp. .................... 5,392,917 7,744,625
110,000 Paxson Communications
Corp.+ ......................... 1,038,412 1,347,500
55,000 Price Communications
Corp.+ ......................... 73,333 1,378,438
30,000 Salem Communications
Corp., Cl. A ................... 723,563 765,000
50,000 United Television Inc. ........... 1,175,015 5,637,500
1,500 Wink Communications Inc. ......... 24,000 65,531
3,000 Young Broadcasting
Inc., Cl. A+ ................... 91,082 157,125
----------- -----------
15,135,019 24,277,469
----------- -----------
Building and Construction -- 1.6%
15,000 Florida Rock Industries Inc. ..... 246,550 521,250
94,000 Nortek Inc.+ ..................... 1,354,925 3,207,750
8,000 Oakwood Homes Corp. .............. 89,148 36,000
75,000 Republic Group Inc. .............. 427,065 1,045,313
----------- -----------
2,117,688 4,810,313
----------- -----------
Business Services -- 2.4%
24,000 Amway Asia Pacific Ltd. .......... 413,669 264,000
36,641 Amway Japan Ltd., ADR+ ........... 364,408 164,884
54,000 Berlitz International Inc.+ ...... 969,192 1,137,375
32,000 Burns International
Services Corp. ................. 442,388 516,000
610,400 Career Blazers Inc.+ ............. 236,019 228,900
6,000 Carlisle Holdings Ltd.+ .......... 30,250 62,063
20,000 Data Broadcasting Corp.+ ......... 114,002 151,250
3,000 Data Transmission
Network Corp.+ ................. 15,000 74,812
40,000 Donnelley (R.H.) Corp. ........... 547,665 745,000
343 Gartner Group Inc., Cl. A+ ....... 6,813 5,467
27,000 Industrial Distribution
Group Inc.+ .................... 310,906 89,437
10,000 Landauer Inc. .................... 163,887 251,250
5,000 MDC Communications
Corp., Cl. A+ .................. 53,950 52,188
38,500 Nashua Corp.+ .................... 545,301 341,687
109,500 National Processing Inc. ......... 971,933 985,500
110,000 Paxar Corp.+ ..................... 1,288,411 1,058,750
15,000 Pittson Brink's Group ............ 421,959 347,813
13,000 Princeton Video Image Inc.+ ...... 84,250 60,937
13,000 PubliCard Inc.+ .................. 145,900 110,500
87,000 Trans-Lux Corp. (b) .............. 734,323 511,125
8,000 Wackenhut Corp., Cl. A ........... 118,092 158,000
6,187 Wackenhut Corp., Cl. B ........... 52,368 92,805
----------- -----------
8,030,686 7,409,743
----------- -----------
Cable -- 1.5%
18,000 Cablevision Systems Corp.,
Cl. A+ ......................... 234,052 1,309,500
45,000 UnitedGlobalCom Inc.,
Cl. A .......................... 671,906 3,223,125
----------- -----------
905,958 4,532,625
----------- -----------
Closed-End Funds -- 1.3%
45,000 Central European Equity
Fund Inc. ...................... 608,109 554,063
78,000 Dresdner RCM Europe
Fund Inc. ...................... 611,900 966,420
45,000 France Growth Fund Inc. .......... 476,793 635,625
32,000 Germany Fund Inc. ................ 358,820 428,000
40,000 Italy Fund Inc. .................. 354,460 582,500
65,000 New Germany Fund Inc. ............ 764,184 767,812
11,000 Spain Fund Inc. .................. 103,029 158,812
----------- -----------
3,277,295 4,093,232
----------- -----------
See accompanying notes to financial statements.
12
<PAGE>
The Gabelli Small Cap Growth Fund
Portfolio of Investments (Continued)-- September 30, 1999
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (Continued)
Communications Equipment -- 0.3%
104,000 Allen Telecom Inc.+ .............. $ 1,078,908 $ 1,014,000
----------- -----------
Computer Software and Services -- 1.5%
1,000 @Home Corp., Ser. A+ ............. 10,375 41,438
3,000 Anacomp Inc. ..................... 47,205 49,406
92,500 Bull Run Corp.+ .................. 323,638 364,219
8,000 CDNow Inc.+ ...................... 151,542 99,500
3,000 Checkfree Holdings Corp.+ ........ 27,120 123,375
3,000 Cylink Corp. ..................... 13,727 21,750
25,000 Internet.com Corp.+ .............. 359,125 350,000
200 Macromedia Inc.+ ................. 2,370 8,175
75,000 Phoenix Technologies Ltd.+ ....... 543,985 839,062
32,000 QuadraMed Corp.+ ................. 269,780 240,000
440,000 Tyler Technologies Inc.+ ......... 1,797,730 1,952,500
105,000 Xionics Document Technologies Inc. 670,124 616,875
----------- -----------
4,216,721 4,706,300
----------- -----------
Consumer Products -- 4.7%
3,000 Action Performance
Companies Inc.+ ................ 86,846 63,188
20,000 Adams Golf Inc.+ ................. 103,995 61,250
260,000 Carter-Wallace Inc. .............. 3,862,239 4,647,500
50,000 Church & Dwight Co. Inc. ......... 510,625 1,250,000
12,000 Coachmen Industries Inc. ......... 80,758 184,500
3,000 Department 56 Inc.+ .............. 67,175 71,812
8,000 French Fragrances Inc.+ .......... 78,490 54,000
68,000 General Cigar Holdings Inc.+ ..... 669,857 459,000
133,500 General Cigar Holdings Inc.,
Cl. B+ (a) ..................... 1,076,798 901,125
58,000 General Housewares Corp. ......... 760,055 1,627,625
60,000 Genlyte Group Inc.+ .............. 229,060 1,425,000
2,000 Harley-Davidson Inc. ............. 9,425 100,125
120,000 Hartmarx Corp.+ .................. 759,538 480,000
10,000 Madden (Steven) Ltd.+ ............ 86,785 129,375
27,200 National Presto
Industries Inc. ................ 1,131,471 1,050,600
14,000 Nature's Sunshine
Products Inc. .................. 292,927 132,562
3,000 Scotts Co., Cl. A+ ............... 46,028 103,875
8,000 Skyline Corp. .................... 142,678 205,500
14,000 Stewart Enterprises Inc., Cl. A .. 65,467 84,875
3,000 TiVo Inc. ........................ 48,000 89,813
110,000 Weider Nutrition
International Inc. ............. 753,386 350,625
70,000 Wolverine World Wide Inc. ........ 834,021 796,250
----------- -----------
11,695,624 14,268,600
----------- -----------
Consumer Services -- 1.0%
20,000 Bowlin Outdoor Advertising &
Travel Centers Inc.+ ........... 96,875 105,000
40,000 Loewen Group Inc. ................ 60,400 22,500
17,000 Response USA Inc.+ ............... 108,580 24,969
162,000 Rollins Inc. ..................... 3,206,884 2,500,875
25,000 Travel Services
International Inc.+ ............ 500,950 287,500
----------- -----------
3,973,689 2,940,844
----------- -----------
Diversified Industrial -- 5.9%
99,500 Ampco-Pittsburgh Corp. ........... 966,406 1,343,250
8,000 Anixter International Inc.+ ...... 76,160 186,000
65,000 Crane Co. ........................ 812,778 1,458,438
40,000 Furon Co. ........................ 1,005,376 997,500
37,500 Gardner Denver
Machinery Corp.+ ............... 210,363 567,187
15,000 GATX Corp. ....................... 605,000 465,938
70,000 GenTek Inc. ...................... 809,488 796,250
36,000 Katy Industries Inc. ............. 487,881 432,000
450,000 Lamson & Sessions Co.+ ........... 2,581,337 2,334,375
75,000 Lindsay Manufacturing Co. ........ 725,857 1,471,875
45,000 MagneTek Inc.+ ................... 469,439 402,187
20,000 Myers Industries Inc. ............ 390,458 355,000
610,400 Noel Group Inc.+ ................. 301,469 404,390
40,000 Oil-Dri Corporation Of
America ........................ 553,600 582,500
115,000 Park-Ohio Holdings Corp.+ ........ 1,644,512 1,437,500
20,000 Standex International Corp. ...... 591,844 540,000
5,500 Thermo Power Corp.+ .............. 63,869 64,969
190,000 Thomas Industries Inc. ........... 1,683,550 3,550,625
60,000 WHX Corp.+ ....................... 690,470 600,000
----------- -----------
14,669,857 17,989,984
----------- -----------
Education -- 0.0%
22,000 Whitman Education
Group Inc.+ .................... 109,868 77,000
----------- -----------
Electronics -- 1.5%
645,000 Oak Technology Inc.+ ............. 2,335,226 2,882,344
46,000 Watkins-Johnson Co. .............. 1,230,506 1,543,875
----------- -----------
3,565,732 4,426,219
----------- -----------
Energy and Utilities -- 4.5%
35,000 AGL Resources Inc. ............... 660,415 568,750
7,000 Aquarion Co. ..................... 242,850 251,125
6,000 Basin Exploration Inc.+ .......... 93,115 144,000
20,000 Central Hudson Gas &
Electric Corp. ................. 867,400 787,500
81,660 Citizens Utilities Co., Cl. B+ ... 776,899 923,779
1,500 Connecticut Water
Service Inc. ................... 41,040 44,250
20,000 Eastern Enterprises .............. 800,500 928,750
16,000 E'Town Corp. ..................... 815,740 794,000
5,000 Fall River Gas Co. ............... 77,138 104,688
42,000 Florida Public Utilities Co. ..... 655,350 771,750
130,000 Kaneb Services Inc.+ ............. 436,625 617,500
15,000 Petroleum Geo-Services ASA+ ...... 239,369 285,937
300,000 RPC Inc. ......................... 1,200,731 2,081,250
110,000 Southwest Gas Corp. .............. 1,915,596 2,963,125
15,000 Tesoro Petroleum Corp.+ .......... 209,500 247,500
5,000 TransMontaigne Oil Co.+ .......... 71,188 75,000
49,000 United Water Resources Inc. ...... 1,062,894 1,598,625
15,000 Wicor Inc. ....................... 345,521 435,937
----------- -----------
10,511,871 13,623,466
----------- -----------
See accompanying notes to financial statements.
13
<PAGE>
The Gabelli Small Cap Growth Fund
Portfolio of Investments (Continued) -- September 30, 1999
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (Continued)
Entertainment -- 5.5%
105,000 Ascent Entertainment
Group Inc.+ .................... $ 1,254,088 $ 1,443,750
15,000 Dover Downs Entertainment Inc. ... 201,863 208,125
45,000 Fisher Companies Inc. ............ 2,918,370 2,677,500
40,000 GC Companies Inc.+ ............... 1,803,272 1,200,000
2,500 International Speedway Corp. ..... 45,000 130,938
10,000 Liberty Digital Inc. ............. 43,671 233,125
4,000 Loews Cineplex
Entertainment Corp.+ ........... 58,662 31,500
3,000 Metromedia International
Group Inc.+ .................... 26,925 12,375
175,000 Topps Co. Inc.+ .................. 764,370 1,312,500
107,500 TV Guide Inc.+ ................... 1,595,313 4,205,937
142,000 USA Networks Inc.+ ............... 2,230,436 5,502,500
------------ ------------
10,941,970 16,958,250
------------ ------------
Equipment and Supplies -- 16.7%
42,000 AFC Cable Systems Inc.+ .......... 837,638 1,785,000
14,000 Alltrista Corp.+ ................. 262,292 365,750
145,000 AMETEK Inc. ...................... 1,658,858 2,872,812
20,500 Amphenol Corp., Cl. A+ ........... 693,791 1,016,031
320,000 Baldwin Technology Co.
Inc., Cl. A+ ................... 1,529,709 760,000
20,000 Belden Inc. ...................... 297,375 410,000
4,000 Bway Corp.+ ...................... 66,250 39,750
20,000 C&D Technologies Inc. ............ 503,782 726,250
259,000 CLARCOR Inc. ..................... 3,003,923 4,354,437
5,000 Commercial Intertech Corp. ....... 66,438 60,312
60,000 Core Materials Corp.+ ............ 199,581 112,500
43,000 CTS Corp. ........................ 87,548 2,472,500
65,000 Cuno Inc.+ ....................... 1,008,408 1,291,875
9,000 Danaher Corp. .................... 303,554 474,188
257,600 Fedders Corp. .................... 1,536,999 1,545,600
102,000 Flowserve Corp. .................. 2,128,056 1,695,750
54,800 Franklin Electric Co. ............ 1,687,631 3,616,800
40,000 General Magnaplate Corp. ......... 83,762 95,000
70,000 Gerber Scientific Inc. ........... 955,212 1,566,250
40,000 Global Industrial
Technologies Inc.+ ............. 473,563 487,500
17,775 Gorman-Rupp Co. .................. 276,467 277,734
17,000 Graco Inc. ....................... 433,361 557,813
145,000 Hussmann International Inc. ...... 1,990,678 2,465,000
47,000 IDEX Corp. ....................... 438,725 1,330,687
32,000 Johnston Industries Inc.+ ........ 254,514 78,000
113,000 Kollmorgen Corp. ................. 1,299,382 1,377,187
10,000 K-Tron International Inc.+ ....... 74,932 148,750
10,000 Littelfuse Inc.+ ................. 68,312 222,500
22,000 Lufkin Industries Inc. ........... 389,520 335,500
86,000 Mark IV Industries Inc. .......... 1,719,813 1,698,500
115,000 Material Sciences Corp.+ ......... 1,100,827 1,530,938
20,000 Met-Pro Corp. .................... 271,619 212,500
160,000 Pittway Corp. .................... 1,508,150 4,520,000
2,000 Plantronics Inc.+ ................ 15,396 99,500
26,000 Raytech Corp.+ ................... 116,337 104,000
10,000 Robbins & Myers Inc. ............. 98,665 155,000
30,000 Roper Industries Inc. ............ 195,000 1,147,500
3,500 Sames Corp.+ ..................... 61,294 62,563
40,000 Sequa Corp., Cl. A+ .............. 1,477,615 2,520,000
13,500 Sequa Corp., Cl. B+ .............. 879,802 891,000
56,000 SL Industries Inc. ............... 749,975 798,000
1,000 Smith (A.O.) Corp. ............... 16,550 30,250
9,000 Smith (A.O.) Corp., Cl. A ........ 249,550 275,063
74,000 SPS Technologies Inc.+ ........... 2,273,458 2,807,375
5,000 Teleflex Inc. .................... 76,167 197,188
15,000 Tennant Co. ...................... 392,120 508,125
5,000 Valmont Industries Inc. .......... 40,625 84,375
7,875 Watsco Inc., Cl. B ............... 23,627 81,703
30,000 Watts Industries Inc., Cl. A ..... 491,536 652,500
------------ ------------
34,368,387 50,917,556
------------ ------------
Financial Services -- 2.9%
30,000 Argonaut Group Inc. .............. 737,000 753,750
68,000 Berliner Bank Aktienge-
sellschaft ..................... 1,408,705 1,205,667
45,000 Danielson Holding Corp.+ ......... 165,200 270,000
3,000 Federal Agricultural
Mortgage Corp., Cl. C+ ......... 24,000 59,813
45,000 Gainsco Inc. ..................... 291,025 278,438
18,000 Hibernia Corp., Cl. A ............ 140,063 209,250
3,000 Landamerica Financial Group ...... 41,015 59,250
15,000 Metris Companies Inc. ............ 211,831 441,562
103,500 Midland Co. ...................... 1,474,112 2,173,500
1,500 Net.B@nk Inc.+ ................... 6,000 33,187
223,000 Pioneer Group Inc.+ .............. 4,185,873 3,345,000
------------ ------------
8,684,824 8,829,417
------------ ------------
Food and Beverage -- 3.9%
12,000 Advantica Restaurant
Group Inc.+ .................... 124,642 36,375
34,863 Buenos Aires Embotel-
ladora SA+ (a) ................. 0 0
216,000 Celestial Seasonings Inc.+ ....... 2,468,481 4,158,000
6,000 Cheesecake Factory Inc.+ ......... 65,061 166,500
200,000 Chock Full o'Nuts Corp.+ ......... 1,423,155 2,175,000
1,000 Farmer Brothers Co. .............. 133,895 166,000
21,000 Genesee Corp., Cl. B ............. 811,567 430,500
10,000 International Multifoods
Corp. .......................... 199,921 230,000
15,000 J & J Snack Foods Corp.+ ......... 187,457 296,250
8,000 Midwest Grain
Products Inc.+ ................. 144,620 75,500
1,000 Mondavi (Robert) Corp.+ .......... 34,250 37,563
1,000 Northland Cranberries Inc.,
Cl. A .......................... 7,625 6,531
2,000 Omni Nutraceuticals Inc. ......... 11,500 4,250
130,000 Pepsi-Cola Puerto Rico
Bottling Co.+ .................. 760,178 780,000
40,000 Ralcorp Holdings Inc.+ ........... 575,759 707,500
31,658 Tootsie Roll Industries Inc. ..... 556,724 1,040,757
90,000 Twinlab Corp.+ ................... 1,405,495 798,750
48,000 Whitman Corp. .................... 740,400 684,000
------------ ------------
9,650,730 11,793,476
------------ ------------
See accompanying notes to financial statements.
14
<PAGE>
The Gabelli Small Cap Growth Fund
Portfolio of Investments (Continued) -- September 30, 1999
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (Continued)
Health Care -- 1.5%
45,000 Inamed Corp.+ .................... $ 844,282 $ 1,327,500
140,000 IVAX Corp.+ ...................... 1,392,206 2,310,000
14,000 Life Technologies Inc. ........... 524,475 574,000
48,000 Penwest Pharmaceuticals Co.+ ..... 327,279 354,000
3,620 U.S. Physical Therapy Inc.+ ...... 22,625 28,055
12,000 Women First Health
Care Inc.+ ..................... 132,000 84,750
------------ ------------
3,242,867 4,678,305
------------ ------------
Home Furnishings -- 1.0%
7,000 Bassett Furniture
Industries Inc. ................ 164,478 133,000
2,000 Bed Bath & Beyond Inc.+ .......... 11,125 69,875
17,000 Foamex International Inc. ........ 145,935 119,000
30,000 La-Z-Boy Chair Co. ............... 218,125 571,875
50,000 Mikasa Inc. ...................... 698,044 587,500
70,000 Oneida Ltd. ...................... 732,977 1,666,875
------------ ------------
1,970,684 3,148,125
------------ ------------
Hotels and Gaming -- 4.5%
410,000 Aztar Corp.+ ..................... 2,675,870 4,202,500
115,000 Boca Resorts Inc., Cl. A ......... 1,532,875 1,207,500
15,000 Boyd Gaming Corp.+ ............... 132,500 90,000
20,000 Churchill Downs Inc. ............. 416,463 462,500
55,000 Extended Stay America Inc.+ ...... 629,984 495,000
94,000 Gaylord Entertainment Co. ........ 2,840,954 2,773,000
130,000 Jackpot Enterprises Inc.+ ........ 1,525,807 1,137,500
5,000 Jurys Hotel Group plc ............ 27,762 46,029
30,000 Lakes Gaming Inc.+ ............... 433,680 288,750
80,000 Mirage Resorts Inc.+ ............. 670,439 1,125,000
100,000 Park Place Entertainment
Corp.+ ......................... 966,845 1,250,000
25,000 Penn National Gaming Inc. ........ 248,260 237,500
6,000 Station Casinos Inc.+ ............ 40,050 139,500
100,000 Trump Hotels & Casino
Resorts Inc.+ .................. 948,101 425,000
------------ ------------
13,089,590 13,879,779
------------ ------------
Metals and Mining -- 0.6%
210,000 Echo Bay Mines Ltd.+ ............. 833,414 406,875
190,000 Royal Oak Mines Inc.+ ............ 322,487 7,756
28,000 Stillwater Mining Co.+ ........... 379,317 752,500
5,000 Toreador Royalty Corp.+ .......... 19,062 17,500
545,000 TVX Gold Inc.+ ................... 925,628 681,250
------------ ------------
2,479,908 1,865,881
------------ ------------
Paper and Forest Products -- 1.1%
123,000 Greif Bros. Corp.+ ............... 2,331,134 3,474,750
------------ ------------
Publishing -- 4.3%
121,278 Independent News &
Media plc ...................... 380,260 638,897
2,000 Lee Enterprises Inc. ............. 61,037 54,750
40,000 McClatchy Newspapers Inc.,
Cl. A .......................... 943,061 1,430,000
60,000 Media General Inc., Cl. A ........ 1,310,565 3,075,000
23,000 Meredith Corp. ................... 329,933 835,187
200,000 Thomas Nelson Inc. ............... 2,260,295 1,950,000
185,000 Penton Media Inc. ................ 2,032,750 3,006,250
45,000 Pulitzer Inc. .................... 737,211 2,044,688
12,000 Wiley (John) & Sons Inc., Cl. B .. 46,500 186,750
------------ ------------
8,101,612 13,221,522
------------ ------------
Real Estate -- 1.1%
150,000 Catellus Development Corp.+ ...... 1,756,210 1,762,500
118,000 Griffin Land &
Nurseries Inc.+ ................ 1,471,129 1,275,875
9,000 Gyrodyne Company Of
America Inc.+ .................. 154,267 180,563
------------ ------------
3,381,606 3,218,938
------------ ------------
Retail -- 3.9%
60,000 Aaron Rents Inc. ................. 461,298 1,035,000
46,000 Aaron Rents Inc., Cl. A .......... 211,041 678,500
8,000 Borders Group Inc.+ .............. 156,937 117,500
105,000 Burlington Coat Factory
Warehouse Corp. ................ 1,120,021 2,073,750
25,000 Coldwater Creek Inc.+ ............ 488,166 500,000
10,000 Gerald Stevens Inc.+ ............. 120,000 140,000
120,000 Ingles Markets Inc., Cl. A ....... 1,532,344 1,582,500
210,000 Lillian Vernon Corp. ............. 3,383,836 2,625,000
5,000 Midas Inc. ....................... 129,344 103,125
95,000 Neiman Marcus Group Inc.+ ........ 1,272,266 2,220,625
190,000 Scheib (Earl) Inc.+ .............. 1,301,170 522,500
100,000 Sports Authority Inc.+ ........... 869,281 318,750
------------ ------------
11,045,704 11,917,250
------------ ------------
Satellite -- 0.2%
5,789 COMSAT Corp. ..................... 224,527 171,499
5,000 Pegasus Communications
Corp.+ ......................... 81,245 225,625
40,000 TCI Satellite Entertainment+ ..... 174,875 160,000
------------ ------------
480,647 557,124
------------ ------------
Specialty Chemicals -- 1.6%
31,000 Airgas Inc.+ ..................... 425,887 360,375
24,000 Bush Boake Allen Inc.+ ........... 709,056 633,000
38,000 Dexter Corp. ..................... 1,149,374 1,417,875
75,000 Ferro Corp. ...................... 1,354,574 1,598,438
70,000 General Chemical Group Inc. ...... 270,982 240,625
600 MacDermid Inc. ................... 2,200 20,437
32,000 Penford Corp. .................... 281,839 436,000
11,000 Sybron Chemicals Inc.+ ........... 180,612 167,750
------------ ------------
4,374,524 4,874,500
------------ ------------
See accompanying notes to financial statements.
15
<PAGE>
The Gabelli Small Cap Growth Fund
Portfolio of Investments (Continued) -- September 30, 1999
================================================================================
Market
Shares Cost Value
------ ---- -----
COMMON STOCKS (Continued)
Telecommunications -- 2.1%
23,000 ARC International Corp.+ ......... $ 125,555 $ 34,500
9,200 Atlantic Tele-Network Inc. ....... 92,644 89,700
47,300 Commonwealth Telephone
Enterprises Inc.+ .............. 875,751 2,081,200
20,000 Commonwealth Telephone
Enterprises Inc., Cl. B+ ....... 140,935 868,750
100,000 Communications Systems
Inc. ........................... 556,544 1,162,500
80,000 GST Telecommunications
Inc.+ .......................... 925,228 562,500
10,000 RCN Corp.+ ....................... 43,315 410,000
40,000 Rogers Communications Inc.,
Cl. B+ ......................... 315,878 672,500
20,000 Viatel Inc.+ ..................... 247,945 591,250
------------ ------------
3,323,795 6,472,900
------------ ------------
Transportation -- 0.1%
2,000 Irish Continental Group plc ...... 18,259 20,221
50,000 OMI Corp.+ ....................... 313,120 128,125
------------ ------------
331,379 148,346
------------ ------------
Wireless Communications -- 1.9%
65,000 Aerial Communications Inc.+ ...... 526,812 1,763,125
8,000 Associated Group Inc., Cl. A+ .... 208,545 484,000
1,000 Centennial Cellular Corp.+ ....... 11,042 45,438
40,000 CommNet Cellular Inc.+ ........... 541,737 1,252,500
33,000 Corecomm Ltd.+ ................... 148,225 1,086,937
10,000 Rural Cellular Corp., Cl. A+ ..... 130,504 458,750
8,000 Teligent Inc., Cl. A+ ............ 172,000 397,500
1,000 VoiceStream Wireless Corp.+ ...... 8,043 61,719
4,000 Western Wireless Corp., Cl. A+ ... 41,989 179,375
------------ ------------
1,788,897 5,729,344
------------ ------------
TOTAL COMMON STOCKS 223,505,898 290,164,246
------------ ------------
Principal Market
Amount Cost Value
------ ---- -----
CORPORATE BONDS - 0.0%
Computer Software and Services-- 0.0%
$ 500 MacNeal-Schwendler Corp.
Sub. Deb. Cv.
7.88%, 08/18/04 ................ $ 27 $ 438
------------ ------------
U.S. GOVERNMENT OBLIGATIONS -- 2.7%
8,131,000 U.S. Treasury Bills,
4.55% to 4.83%++,
due 10/14/99 to 12/09/99 ....... 8,085,001 8,085,045
------------ ------------
TOTAL
INVESTMENTS -- 97.7%............ $231,590,926 298,249,729
============
Other Assets and
Liabilities (Net) -- 2.3% 7,152,987
------------
NET ASSETS -- 100.00%
(13,986,794 shares outstanding) $305,402,716
============
NET ASSET VALUE,
Offering and Redemption
Price Per Share $ 21.84
============
- ----------
* For Federal tax purposes:
Aggregate cost ................... $232,831,027
============
Gross unrealized appreciation .... $ 87,098,698
Gross unrealized depreciation .... (21,679,996)
------------
Net unrealized appreciation ...... $ 65,418,702
============
(a) Security fair valued under procedures established by the Board of
Directors.
(b) Security considered an affiliated holding because the Fund owns at least
5% of the outstanding shares. (See Note 9.)
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR-- American Depositary Receipt.
See accompanying notes to financial statements.
16
<PAGE>
The Gabelli Small Cap Growth Fund
Statement of Assets and Liabilities
September 30, 1999
================================================================================
Assets:
Investments, at value
(Cost $231,590,926) ................................ $ 298,249,729
Cash ................................................. 927,476
Dividends receivable ................................. 241,057
Receivable for investments sold ...................... 6,646,179
Receivable for capital shares sold ................... 415,217
-------------
Total Assets ......................................... 306,479,658
-------------
Liabilities:
Payable for investments purchased .................... 447,863
Payable for capital shares redeemed .................. 135,352
Payable for investment advisory fees ................. 253,984
Payable for distribution fees ........................ 63,500
Payable for custodian fees ........................... 10,600
Other accrued expenses ............................... 165,643
-------------
Total Liabilities .................................... 1,076,942
-------------
Net Assets applicable to 13,986,794
shares outstanding ................................. $ 305,402,716
=============
Net Assets consist of:
Capital stock, at par value .......................... $ 13,987
Additional paid-in capital ........................... 207,929,481
Accumulated net realized gain
on investments and foreign currency
transactions ....................................... 30,800,314
Net unrealized appreciation on investments
and foreign currency transactions .................. 66,658,934
-------------
Total Net Assets ..................................... $ 305,402,716
=============
Net Asset Value, offering and redemption
price per share ($305,402,716 / 13,986,794
shares outstanding; unlimited number of
shares authorized of $0.001 par value) ............. $21.84
======
Statement of Operations
For the Year Ended September 30, 1999
================================================================================
Investment Income:
Dividends (net of foreign taxes of $1,092) ........... $ 3,449,198
Interest ............................................. 192,041
Other income ......................................... 64,841
-------------
Total Investment Income .............................. 3,706,080
-------------
Expenses:
Investment advisory fees ............................. 3,024,908
Distribution fees .................................... 758,069
Shareholder services fees ............................ 399,516
Shareholder communications expenses .................. 147,493
Custodian fees ....................................... 94,857
Interest expense ..................................... 75,288
Legal and audit fees ................................. 61,396
Directors' fees ...................................... 35,200
Registration fees .................................... 32,417
Miscellaneous expenses ............................... 95,878
-------------
Total Expenses ....................................... 4,725,022
-------------
Net Investment Loss .................................. (1,018,942)
-------------
Net Realized and Unrealized Gain
on Investments:
Net realized gain on investments
and foreign currency transactions .................. 33,500,032
Net realized loss on investments
in securities of affiliated issuers ................ (722,439)
Net change in unrealized appreciation
on investments and foreign currency
transactions ....................................... 19,961,942
-------------
Net realized and unrealized gain
on investments and foreign currency
transactions ....................................... 52,739,535
-------------
Net increase in net assets resulting
from operations .................................... $ 51,720,593
=============
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Operations:
Net investment loss ................................................. $ (1,018,942) $ (451,816)
Net realized gain on investments and foreign currency transactions .. 32,777,593 9,637,886
Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions ................................. 19,961,942 (54,116,321)
------------- -------------
Net increase (decrease) in net assets resulting from operations ..... 51,720,593 (44,930,251)
------------- -------------
Distributions to shareholders:
Net realized gain on investments .................................... (8,006,838) (40,993,996)
------------- -------------
Total distributions to shareholders ................................. (8,006,838) (40,993,996)
------------- -------------
Capital share transactions:
Net increase (decrease) in net assets from capital share transactions (16,130,819) 67,225,287
------------- -------------
Net increase (decrease) in net assets ............................... 27,582,936 (18,698,960)
Net Assets:
Beginning of period ................................................. 277,819,780 296,518,740
------------- -------------
End of period ....................................................... $ 305,402,716 $ 277,819,780
============= =============
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
The Gabelli Small Cap Growth Fund
Notes to Financial Statements
================================================================================
1. Organization. The Gabelli Small Cap Growth Fund (the "Fund"), a series of
Gabelli Equity Series Funds, Inc. (the "Corporation"), was organized on July 25,
1991 as a Maryland corporation. The Fund is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), and one of two separately managed portfolios
(collectively, the "Portfolios") of the Corporation. The Fund's primary
objective is capital appreciation. The Fund commenced investment operations on
October 22, 1991.
2. Significant Accounting Policies. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation. Portfolio securities listed or traded on a nationally
recognized securities exchange, quoted by the National Association of Securities
Dealers Automated Quotations, Inc. ("Nasdaq") or traded on foreign exchanges are
valued at the last sale price on that exchange as of the close of business on
the day the securities are being valued (if there were no sales that day, the
security is valued at the average of the closing bid and asked prices or, if
there were no asked prices quoted on that day, then the security is valued at
the closing bid price on that day, except for open short positions, which are
valued at the last asked price). All other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest average of the bid and asked prices. Portfolio securities traded on more
than one national securities exchange or market are valued according to the
broadest and most representative market, as determined by Gabelli Funds, LLC
(the "Adviser"). Securities and assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Directors. Short term debt securities with remaining maturities of 60 days or
less are valued at amortized cost, unless the Directors determine such does not
reflect the securities' fair value, in which case these securities will be
valued at their fair value as determined by the Directors. Debt instruments
having a maturity greater than 60 days are valued at the highest bid price
obtained from a dealer maintaining an active market in those securities. Options
are valued at the last sale price on the exchange on which they are listed. If
no sales of such options have taken place that day, they will be valued at the
mean between their closing bid and asked prices.
Repurchase Agreements. The Fund may enter into repurchase agreements with
primary government securities dealers recognized by the Federal Reserve Bank of
New York, with member banks of the Federal Reserve System or with other brokers
or dealers that meet credit guidelines established by the Directors. Under the
terms of a typical repurchase agreement, the Fund takes possession of an
underlying debt obligation subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. The Fund will always
receive and maintain securities as collateral whose market value, including
accrued interest, will be at least equal to 100% of the dollar amount invested
by the Fund in each agreement. The Fund will make payment for such securities
only upon physical delivery or upon evidence of book entry transfer of the
collateral to the account of the custodian. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to maintain the adequacy of the collateral. If
the seller defaults and the value of the collateral
18
<PAGE>
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
================================================================================
declines or if bankruptcy proceedings are commenced with respect to the seller
of the security, realization of the collateral by the Fund may be delayed or
limited.
Futures Contracts. The Fund may engage in futures contracts for the purpose of
hedging against changes in the value of its portfolio securities and in the
value of securities it intends to purchase. Upon entering into a futures
contract, the Fund is required to deposit with the broker an amount of cash or
cash equivalents equal to a certain percentage of the contract amount. This is
known as the "initial margin". Subsequent payments ("variation margin") are made
or received by the Fund each day, depending on the daily fluctuation of the
value of the contract. The daily changes in the contract are included in
unrealized gains or losses. The Fund recognizes a realized gain or loss when the
contract is closed. At September 30, 1999, there were no open futures contracts.
There are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily corresponds
with the value of their underlying instruments, which may not correlate with the
change in value of the hedged investments. In addition, there is the risk that
the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market.
Forward Foreign Exchange Contracts. The Fund may engage in forward foreign
exchange contracts for hedging a specific transaction with respect to either the
currency in which the transaction is denominated or another currency as deemed
appropriate by the Adviser. Forward foreign exchange contracts are valued at the
forward rate and are marked-to-market daily. The change in market value is
included in unrealized appreciation/depreciation on investments and foreign
currency transactions. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
The use of forward foreign exchange contracts does not eliminate fluctuations in
the underlying prices of the Fund's portfolio securities, but it does establish
a rate of exchange that can be achieved in the future. Although forward foreign
exchange contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain/(loss) that might result
should the value of the currency increase. In addition, the Fund could be
exposed to risks if the counterparties to the contracts are unable to meet the
terms of their contracts.
Foreign Currency Translation. The books and records of the Fund are maintained
in United States (U.S.) dollars. Foreign currencies, investments and other
assets and liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period, and purchases and sales of investment
securities, income and expenses are translated at the exchange rate prevailing
on the respective dates of such transactions. Unrealized gains and losses, which
result from changes in foreign exchange rates and/or changes in market prices of
securities, have been included in unrealized appreciation/depreciation on
investments and foreign currency transactions. Net realized foreign currency
gains and losses resulting from changes in exchange rates include foreign
currency gains and losses between trade date and settlement date on investment
securities transactions, foreign currency transactions and the difference
between the amounts of interest and dividends recorded on the books of the Fund
and the amounts actually received. The portion of foreign currency gains and
losses related to fluctuation in exchange rates between the initial trade date
and subsequent sale trade date is included in realized gain/(loss) on
investments.
19
<PAGE>
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
================================================================================
Securities Transactions and Investment Income. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded as earned.
Dividend income is recorded on the ex-dividend date.
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund.
Expenses. Certain administrative expenses are common to, and allocated among,
the Portfolios. Such allocations are made on the basis of each Portfolio's
average net assets or other criteria directly affecting the expenses as
determined by the Adviser.
Provision for Income Taxes. The Fund has qualified and intends to continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a result, a Federal income tax provision is
not required.
Dividends and interest from non-U.S. sources received by the Fund are generally
subject to non-U.S. withholding taxes at rates ranging up to 30%. Such
withholding taxes may be reduced or eliminated under the terms of applicable
U.S. income tax treaties, and the Fund intends to undertake any procedural steps
required to claim the benefits of such treaties.
3. Investment Advisory Agreement. The Fund has entered into an investment
advisory agreement (the "Advisory Agreement") with the Adviser which provides
that the Fund will pay the Adviser a fee, computed daily and paid monthly, at
the annual rate of 1.00% of the value of the Fund's average daily net assets. In
accordance with the Advisory Agreement, the Adviser provides a continuous
investment program for the Fund's portfolio, oversees the administration of all
aspects of the Fund's business and affairs and pays the compensation of all
Officers and Directors of the Fund who are its affiliates.
4. Distribution Plan. The Fund's Board of Directors has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. For the year ended
September 30, 1999, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an affiliate of the Adviser, of $758,069, or 0.25% of average
daily net assets, the annual limitation under the Plan. Such payments are
accrued daily and paid monthly.
5. Portfolio Securities. Purchases and sales of securities for the year ended
September 30, 1999, other than short term securities, aggregated $71,516,760 and
$104,906,775, respectively.
6. Transactions with Affiliates. During the year ended September 30, 1999, the
Fund paid brokerage commissions of $107,740 to Gabelli & Company, Inc. and its
affiliates.
7. Line of Credit. The Fund has access to an unsecured line of credit from the
custodian for temporary borrowing purposes. Borrowings under this arrangement
bear interest at 0.75% above the Federal Funds rate on outstanding balances.
There were no borrowings outstanding at September 30, 1999.
<PAGE>
The Gabelli Small Cap Growth Fund
Notes to Financial Statements (Continued)
================================================================================
The average amount of borrowings outstanding daily during the year ended
September 30, 1999, was $1,351,670, with a related weighted average interest
rate of 5.57%. The maximum amount borrowed at any time during the year ended
September 30, 1999, was $11,290,000.
8. Capital Stock Transactions. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1999 September 30, 1998
----------------------- ------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ................................... 7,363,983 $155,723,402 17,952,500 $420,895,401
Shares issued upon reinvestment of dividends .. 386,789 7,658,321 1,837,926 39,129,545
Shares redeemed ............................... (8,536,838) (179,512,542) (16,683,061) (392,799,659)
--------- ----------- --------- -----------
Net increase (decrease) (786,066) $(16,130,819) 3,107,365 $ 67,225,287
========= =========== ========== ===========
</TABLE>
9. Transactions in Securities of Affiliated Issuers. The 1940 Act defines
affiliated issuers as those in which the Fund's holdings of an issuer represent
5% or more of the outstanding voting securities of the issuer. A summary of the
Fund's transactions in the securities of these issuers during the year ended
September 30, 1999, is set forth below:
<TABLE>
<CAPTION>
Percent
Shares Value at Owned
Beginning Purchased Ending Realized Dividend September of Shares
Shares (Sold) Shares (Loss) Income 30, 1999 Outstanding
-------- -------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Trans-Lux Corp. 72,000 15,000 87,000 $ 0 $ 11,515 $ 511,125 8.74%
Eskimo Pie Corp. 205,000 (205,000) -- (648,294) 17,800 -- 0.00%
GEO International Corp. 1,425,000 (1,425,000) -- (74,145) -- -- 0.00%
---------- ---------- ----------
$ (722,439) $ 29,315 $ 511,125
========== ========== ==========
</TABLE>
10. New Share Classes. On March 9, 1999, the Board of Directors of the Fund
approved (subject to shareholder approval of Amendments to the Corporation's
Articles of Incorporation to permit the Fund to offer additional classes of
shares) a Rule 18f-3 Multi-Class Plan relating to the creation of three
additional classes of shares of the Fund -- Class A Shares, Class B Shares and
Class C Shares (the "New Share Classes"). The existing class of shares was
redesignated as Class AAA Shares. In addition, the Board has also approved an
Amended and Restated Distribution Agreement, Rule 12b-1 plans for each of the
New Share Classes and an Amended and Restated Plan of Distribution for the
existing class of shares (Class AAA shares) to be effective upon the
commencement of the offering of the New Share Classes. Amendments to the
Corporation's Articles of Incorporation will be presented for approval at a
Special Meeting of Shareholders to be held on December 1, 1999.
21
<PAGE>
The Gabelli Small Cap Growth Fund
Financial Highlights
================================================================================
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period .. $18.81 $25.42 $20.02 $19.34 $17.24
------ ------ ------ ------ ------
Net investment loss ................... (0.07) (0.03) (0.07) (0.09) (0.04)
Net realized and unrealized gain (loss)
on investments ...................... 3.63 (2.99) 7.70 2.11 3.17
------ ------ ------ ------ ------
Total from investment operations ...... 3.56 (3.02) 7.63 2.02 3.13
------ ------ ------ ------ ------
Distributions to shareholders:
Net realized gain on investments ...... (0.53) (3.59) (2.23) (1.34) (1.03)
------ ------ ------ ------ ------
Total distributions ................... (0.53) (3.59) (2.23) (1.34) (1.03)
------ ------ ------ ------ ------
Net asset value, end of period ........ $21.84 $18.81 $25.42 $20.02 $ 19.34
====== ====== ====== ====== =======
Total return+ ......................... 19.24% (13.53)% 42.22% 10.97% 19.66%
====== ====== ====== ====== =======
Ratios to average net assets and
supplemental data:
Net assets, end of period (in 000's) .. $305,403 $277,820 $296,519 $223,239 $231,156
Ratio of net investment loss
to average net assets ............... (0.34)% (0.14)% (0.36)% (0.42)% (0.24)%
Ratio of operating expenses
to average net assets (a) ........... 1.56% 1.44% 1.62% 1.58% 1.54%
Portfolio turnover rate ............... 24% 20% 14% 11% 17%
</TABLE>
- ----------
+ 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.
(a) The Fund incurred interest expense during the fiscal years ended September
30, 1999 and 1997. If the interest expense had not been incurred, the ratios of
operating expenses to average net assets would have been 1.53% and 1.52%,
respectively.
See accompanying notes to financial statements.
22
<PAGE>
The Gabelli Small Cap Growth Fund
Report of Ernst & Young LLP, Independent Auditors
================================================================================
To the Shareholders and Board of Directors of
The Gabelli Small Cap Growth Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Gabelli Small Cap Growth Fund (a series of
Gabelli Equity Series Funds, Inc.) as of September 30, 1999, 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 five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of September 30, 1999 by correspondence with the custodian
and brokers, or other appropriate auditing procedures when replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Gabelli Small Cap Growth Fund at September 30, 1999, 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 five years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
New York, New York
November 1, 199923
- --------------------------------------------------------------------------------
1999 TAX NOTICE TO SHAREHOLDERS (Unaudited)
For the fiscal year ended September 30, 1999, the Fund paid to shareholders, on
December 21, 1998, long term capital gains totaling $0.534 per share.
- --------------------------------------------------------------------------------
23
<PAGE>
Gabelli Equity Series Funds, Inc.
The Gabelli Small Cap Growth Fund
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
fax: 1-914-921-5118
http://www.gabelli.com
e-mail: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.) 1
Board of Directors
Mario J. Gabelli, CFA
Chairman and Chief
Investment Officer
Gabelli Asset Management Inc.
Felix J. Christiana
Former Senior Vice President
Dollar Dry Dock Savings Bank
Anthony J. Colavita
Attorney-at-Law
Anthony J. Colavita, P.C.
Vincent D. Enright
Former Senior Vice President
and Chief Financial Officer
KeySpan Energy Corp.
John D. Gabelli
Senior Vice President
Gabelli & Company, Inc.
Robert J. Morrissey
Attorney-at-Law
Morrissey, Hawkins & Lynch
Karl Otto Pohl
Former President
Deutsche Bundesbank
Anthony R. Pustorino
Certified Public Accountant
Professor, Pace University
Anthonie C. van Ekris
Managing Director
BALMAC International, Inc.
Officers
Mario J. Gabelli, CFA
President and Chief
Investment Officer
James E. McKee
Secretary
Bruce N. Alpert
Vice President and Treasurer
Distributor
Gabelli & Company, Inc.
Custodian, Transfer Agent and Dividend Agent
State Street Bank and Trust Company
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP 1
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli Small Cap Growth Fund. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
- --------------------------------------------------------------------------------
GAB443Q399SR
