THE GABELLI SMALL CAP GROWTH FUND
ANNUAL REPORT
SEPTEMBER 30, 2000(A)
TO OUR SHAREHOLDERS,
In the third quarter of 2000, small cap stocks continued to outperform
large cap equities in an up and down market. At the close of the quarter, the
Russell 2000 Index was the only widely followed market index in positive
performance territory for the year. Better growth rates, lower valuations, and
accelerating deal activity are all factors that could help small cap stocks
retain market leadership going forward.
INVESTMENT PERFORMANCE
For the quarter ended September 30, 2000, The Gabelli Small Cap Growth
Fund's (the "Fund") total return was 3.65%. The Value Line Composite and Russell
2000 Indices rose 6.40% and 1.11%, respectively, over the same period. Each
index is an unmanaged indicator of stock market performance. The Fund was up
21.00% over the trailing twelve-month period. The Value Line Composite and
Russell 2000 Indices rose 17.59% and 23.39%, respectively, over the same
twelve-month period.
For the five-year period ended September 30, 2000, the Fund's total return
averaged 14.52% annually versus average annual returns of 15.03% and 12.38% for
the Value Line Composite and Russell 2000 Indices, respectively. Since inception
on October 22, 1991 through September 30, 2000, the Fund had a cumulative total
return of 323.60%, which equates to an average annual total return of 17.50%.
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 having a dominant market share, niche franchise in a
growing and/or consolidating industry.
--------------------------------------------------------------------------------
(a) The Fund's fiscal year ends September 30.
<PAGE>
INVESTMENT RESULTS (a)(c)
<TABLE>
<CAPTION>
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Calendar Quarter
------------------------------------------
1st 2nd 3rd 4th Year
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
2000: Net Asset Value .................. $22.24 $22.27 $23.60 -- --
Total Return ..................... 3.8% 2.4% 3.6% -- --
--------------------------------------------------------------------------------------------------------------
1999: Net Asset Value .................. $19.59 $22.94 $21.84 $21.43 $21.43
Total Return ..................... (6.8)% 17.1% (4.8)% 9.9% 14.2%
--------------------------------------------------------------------------------------------------------------
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%
--------------------------------------------------------------------------------------------------------------
1997: Net Asset Value .................. $19.11 $22.23 $25.42 $21.58 $21.58
Total Return ..................... 3.1% 16.3% 14.7% (0.8)% 36.5%
--------------------------------------------------------------------------------------------------------------
1996: Net Asset Value .................. $19.65 $20.68 $20.02 $18.53 $18.53
Total Return ..................... 6.2% 5.2% (3.2)% 3.4% 11.9%
--------------------------------------------------------------------------------------------------------------
1995: Net Asset Value .................. $17.03 $17.88 $19.34 $18.50 $18.50
Total Return ..................... 7.4% 5.0% 8.2% 2.6% 25.2%
--------------------------------------------------------------------------------------------------------------
1994: Net Asset Value .................. $16.76 $16.33 $17.24 $15.85 $15.85
Total Return ..................... (3.6)% (2.6)% 5.6% (2.1)% (2.9)%
--------------------------------------------------------------------------------------------------------------
1993: Net Asset Value .................. $15.46 $15.74 $16.90 $17.38 $17.38
Total Return ..................... 6.6% 1.8% 7.4% 5.3% 22.8%
--------------------------------------------------------------------------------------------------------------
1992: Net Asset Value .................. $13.42 $13.41 $13.10 $14.50 $14.50
Total Return ..................... 9.9% (0.1)% (2.3)% 12.1% 20.3%
--------------------------------------------------------------------------------------------------------------
1991: Net Asset Value .................. __ __ __ $12.21 $12.21
Total Return ..................... __ __ __ 22.9%(b) 22.9%(b)
--------------------------------------------------------------------------------------------------------------
</TABLE>
Dividend History
-------------------------------------------------------
Payment (ex) Date Rate Per Share Reinvestment Price
December 20, 1999 $2.462 $20.55
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
-------------------------------------------------
Average Annual Returns - September 30, 2000 (a)
-----------------------------------------------
1 Year .............................. 21.00%
5 Year .............................. 14.52%
Life of Fund (b) .................... 17.50%
-------------------------------------------------
(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.
--------------------------------------------------------------------------------
2
<PAGE>
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.
[PYRAMID GRAPHIC OMITTED]
PYRAMID TEXT AS FOLLOWS:
EPS
PMV
MANAGEMENT
CASH FLOW
RESEARCH
COMMENTARY
THE FIVE E'S
In the third quarter of 2000, investors focused on the five E's--Energy,
the Euro, the Economy, Earnings, and the Election. We will share our perspective
on the five E's and offer an opinion on how they may impact the market going
forward.
ENERGY
The price of oil hit a ten-year high in the third quarter. Gasoline prices
exceeded $2.00 per gallon in many areas of the country this summer and home
heating costs are expected to rise by 50% this winter. Rising oil prices have
already sparked demonstrations in Europe and energy has become a political issue
in the U.S. as well. Although OPEC has increased production and is publicly
targeting a $25 to $28 per barrel price, global inventories are still tight and
the price of oil remains well over $30 per barrel. The U.S. is attempting to
influence the world energy market by dipping into its strategic oil reserves.
However, this is not likely to have a meaningful near term impact on oil prices.
Treasury Secretary Lawrence Summers recently characterized high oil prices as
"the biggest cloud in the relatively blue sky" of a fundamentally sound global
economy. We agree.
[GRAPHIC OMITTED]
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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Gabelli Small
Cap Growth Fund Russell 2000 Index S&P 500 Index
$10,000 $10,000 $10,000
13,410 11,184 11,021
17,229 14,897 12,464
18,004 15,374 12,925
21,513 18,971 16,777
23,874 21,397 20,183
33,949 28,499 28,337
29,366 23,084 30,916
35,016 27,486 39,508
42,369 33,915 44,751
3
<PAGE>
We do not anticipate a repeat of the 1973-74 oil shock, which sent the
global economy into recession and sparked the last great bear market in stocks.
After the Gulf War, we doubt Middle East oil producers, particularly the
Saudi's, would risk alienating their protectors. Only in our worst nightmares do
we consider the impact that $50 per barrel of oil would have on today's equity
markets. Our best guess is that oil prices will decline from their peaks, but
remain high enough to keep pressure on global economies.
THE EURO
[GRAPHIC OMITTED]
EURO VS. U.S. DOLLAR
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
1999 2000
------ ------
Jan 1.1874 1.0155
1.1761 1.0309
1.1637 1.0335
1.1675 1.0324
1.1556 1.0294
1.1535 1.0252
1.1555 1.0322
1.1698 1.0281
1.1687 1.0270
1.1592 1.0128
1.1603 1.0121
1.1604 1.0115
1.1574 1.0133
1.1578 1.0100
1.1583 1.0019
1.1568 1.0041
1.1575 1.0011
1.1478 0.9890
1.1393 0.9765
1.1374 0.9757
Feb 1.1303 0.9731
1.1328 0.9768
1.1338 0.9887
1.1308 0.9760
1.1283 0.9783
1.1297 0.9862
1.1303 0.9914
1.1330 0.9865
1.1303 0.9847
1.1283 0.9783
1.1247 0.9834
1.1191 0.9842
1.1231 0.9863
1.1223 0.9850
1.1072 1.0060
1.1037 1.0017
1.0994 0.9931
1.0975 0.9763
1.1069 0.9669
1.0993 0.9643
1.0891 0.9700
Mar 1.0929 0.9619
1.0887 0.9618
1.0825 0.9603
1.0843 0.9560
1.0901 0.9576
1.0873 0.9684
1.0961 0.9659
1.0917 0.9648
1.0948 0.9644
1.0930 0.9696
1.0916 0.9710
1.1017 0.9694
1.0993 0.9710
1.0925 0.9703
1.0918 0.9608
1.0919 0.9691
1.0924 0.9724
1.0872 0.9645
1.0745 0.9614
1.0718 0.9524
1.0734 0.9594
1.0809 0.9574
1.0780 0.9560
Apr 1.0707 0.9588
1.0842 0.9647
1.0785 0.9580
1.0842 0.9590
1.0785 0.9588
1.0843 0.9591
1.0780 0.9551
1.0780 0.9524
1.0718 0.9564
1.0690 0.9550
1.0610 0.9477
1.0631 0.9369
1.0614 0.9376
1.0599 0.9379
1.0633 0.9396
1.0590 0.9265
1.0649 0.9217
1.0618 0.9083
1.0597 0.9089
1.0566 0.9120
1.0570 0.9068
1.0594 0.8891
May 1.0725 0.8907
1.0779 0.8953
1.0785 0.8950
1.0790 0.9023
1.0723 0.9097
1.0667 0.9021
1.0624 0.9080
1.0652 0.9138
1.0672 0.9053
1.0672 0.8921
1.0643 0.8952
1.0632 0.8946
1.0575 0.9036
1.0589 0.9032
1.0469 0.9096
1.0439 0.9072
1.0426 0.9310
1.0436 0.9314
1.0446 0.9328
1.0360 0.9307
1.0347 0.9432
1.0330 0.9471
Jun 1.0298 0.9570
1.0442 0.9600
1.0451 0.9548
1.0479 0.9526
1.0519 0.9544
1.0418 0.9619
1.0420 0.9590
1.0303 0.9530
1.0329 0.9648
1.0368 0.9622
1.0324 0.9557
1.0322 0.9455
1.0320 0.9398
1.0371 0.9358
1.0443 0.9382
1.0372 0.9444
1.0339 0.9444
1.0300 0.9515
1.0248 0.9545
1.0224 0.9526
1.0252 0.9548
1.0221 0.9527
Jul 1.0200 0.9484
1.0187 0.9521
1.0138 0.9497
1.0179 0.9401
1.0216 0.9339
1.0221 0.9374
1.0204 0.9351
1.0204 0.9322
1.0418 0.9237
1.0526 0.9292
1.0509 0.9343
1.0501 0.9314
1.0653 0.9391
1.0628 0.9413
1.0645 0.9331
1.0716 0.9246
1.0696 0.9266
1.0680 0.9228
1.0769 0.9137
1.0794 0.9042
1.0771 0.9075
1.0712 0.9105
Aug 1.0752 0.9019
1.0664 0.8991
1.0635 0.9077
1.0570 0.9046
1.0559 0.9037
1.0524 0.9135
1.0508 0.9143
1.0644 0.9152
1.0655 0.9068
1.0553 0.9027
1.0502 0.8965
1.0468 0.8967
1.0440 0.9028
1.0464 0.9024
1.0449 0.9002
1.0581 0.8966
1.0583 0.8924
1.0691 0.8878
1.0607 0.8993
1.0582 0.8876
1.0591 0.8702
1.0541 0.8740
Sep 1.0401 0.8664
1.0401 0.8624
1.0404 0.8596
1.0388 0.8640
1.0417 0.8617
1.0401 0.8572
1.0409 0.8527
1.0462 0.8514
1.0503 0.8463
1.0416 0.8559
1.0469 0.8794
1.0432 0.8738
1.0513 0.8813
1.0616 0.8807
1.0642 0.8830
1.0717 0.8842
1.0704 0.8788
1.0692 0.8745
1.0703 0.8727
1.0722 0.8691
1.0633 0.8686
Oct 1.0737 0.8682
1.0761 0.8716
1.0803 0.8644
1.0888 0.8567
1.0864 0.8491
1.0833 0.8509
1.0764 0.8391
1.0808 0.8412
1.0679 0.8406
1.0668 0.8364
1.0578 0.8365
1.0533 0.8274
1.0519 0.8273
1.0519 0.8408
1.0495 0.8433
1.0507 0.8485
1.0487 0.8588
1.0439 0.8579
1.0402 0.8619
1.0362 0.8585
1.0402 0.8585
Nov 1.0444 0.8554
1.0315 0.8574
1.0316 0.8624
1.0319 0.8574
1.0403 0.8571
1.0306 0.8534
1.0315 0.8517
1.0329 0.8487
1.0262 0.8460
1.0177 0.8424
1.0199 0.8401
1.0138 0.8383
1.0103 0.8503
1.0077 0.8545
1.0068 0.8577
1.0026 0.8694
1.0016 0.8768
Dec 1.0253 0.8876
1.0223 0.8803
1.0262
1.0165
1.0161
1.0122
1.0068
1.0066
1.0169
1.0089
1.0068
1.0097
1.0080
1.0164
1.0132
1.0046
1.0029
1.0064
1.0070
In January 1999, the Euro was introduced with great fanfare. Originally
expected to be a strong international currency, the Euro has declined against
the Japanese yen and plummeted against the U.S. dollar.
The plunging Euro presents a threat to the U.S. economy and stock market.
Europe is by far the largest market for U.S. exports. As the dollar strengthens
against the Euro, our exports become more expensive for European and other
global consumers. Conversely, European imports become cheaper for American
consumers as well as Latin American and Asian purchasers. This is making the
already troublesome balance of trade deficit even more problematic for the U.S.
Eventually, the dollar will have to be contained. While this will help on the
balance of trade front, it may have the adverse affect of reducing foreign
investment in U.S. capital markets. This is a long-term quandary without any
easy solutions.
A secondary effect of the weak Euro--but one with a more immediate impact
on U.S. stocks--is that the earnings for U.S. multi-national companies that do a
significant amount of business in Europe are being penalized significantly as
Euro denominated revenues and profits are translated back into dollars for
reporting purposes. This results in earnings shortfalls for some of the U.S.
market's "bellwether" stocks.
THE ECONOMY
Prior to the rapid increase in oil prices and the collapse of the Euro,
the global economic picture looked relatively bright. Asia had recovered, Europe
was gaining momentum, and after six Federal Reserve interest rate hikes, the
U.S. economy appeared headed for a soft landing. Now, this comfortable economic
scenario is threatened. Will we have a "hard landing?"
4
<PAGE>
EARNINGS
The potential for slower economic growth in the U.S. has investors
questioning whether third and fourth quarter corporate 2000 earnings will meet
what may now be optimistic expectations.
Relatively high equity valuations do not leave much room for earnings
disappointments. The most richly valued sectors of the market (technology in
particular) are well above Benjamin Graham's "safety net". To wit, technology
bellwether Intel lost approximately 20% of its market value in after hours
trading following its announcement that third quarter revenues and earnings
would fall modestly short of consensus Wall Street expectations. After a sharp
decline on the opening bell the next day, stocks rebounded and ended the day
mixed. We question whether stocks will continue to be so resilient if we see
more widespread disappointments during the upcoming 2000 earnings reporting
seasons.
THE ELECTION
After this summer's relatively quiet campaigning, the political rhetoric
is heating up as we approach the November election. There are very clear
differences in the Republicans' and Democrats' positions on a number of economic
issues, in particular, what to do with the growing Federal Government budget
surplus. The Republicans favor large tax cuts. The Democrats are advocating
using the surplus to continue to reduce government debt and plug some holes in
the social safety net. The Republicans tend to view consolidation as an integral
part of global economic evolution. The Democrats are concerned that
consolidation will reduce competition, leaving consumers vulnerable. The
Republicans do not want to interfere in the energy markets. The Democrats are
calling for action. As we write, it appears the election is up for grabs,
creating even more uncertainty in an already uncertain economic and market
environment.
OUR ADVICE
Our stock selection process is based on a "bottoms up" approach. We review
relevant economic and market issues--a list of our current hopes and fears--and
offer carefully considered opinions on their short-term investment implications.
This is a courtesy to shareholders that want to know what we are thinking. It
does not influence our investment strategy. We strive to identify and invest in
undervalued companies with favorable long-term business prospects. Over the
short term, these stocks will be impacted by broad market trends. Over the long
term, they will be judged on their own individual merit. So, our advice to
shareholders is simply to be patient and have faith that selected businesses
purchased at reasonable prices to intrinsic value will produce long-term
rewards.
DRIVERS EDUCATION
Drivers who keep both hands on the wheel, keep their eyes on the road
ahead, and observe the speed limit, have fewer accidents. Riding with them may
not be as exhilarating as speeding along with more adventuresome drivers, but
you are more likely to reach your destination in one piece. We got "A's" in
Drivers Education in high school, and are applying the same safety principals to
managing the Fund portfolio. We are focused on growing companies in solid growth
businesses. We are not distracted by short-term market commotion. We are wary of
high-speed technology stocks that can cause major portfolio accidents.
Many of our small cap growth stock fund competitors have considerably more
exposure to technology. That certainly rewarded shareholders in the second half
of 1999 and the first two months of 2000 as technology stocks roared ahead. It
resulted in a major breakdown in the second quarter when they hit the wall. Of
course, as technology stocks regained their pace at the end of the quarter, the
performance of
5
<PAGE>
tech heavy small cap funds accelerated as well. Going forward, will they
outdistance the rest of the field or get in another major accident?
Earnings will decide their fate. As evidenced by the failure of the
profitless dot.coms to recover from their collision with economic reality,
technology stock investors are now focused on profitability. Their expectations
are high. If tech stocks live up to what we believe may prove to be overly
optimistic earnings projections, they will continue to perform well. However, if
we see widespread earnings shortfalls, tech stocks could cause a massive pile-up
on the investment highway. If we see money spill out of tech stocks, where will
it likely go? In our opinion, to the type of more reasonably valued small growth
companies that populate our portfolio.
INVESTMENT SCOREBOARD - THE ENVELOPE PLEASE
Each quarter we present our best and worst dressed list of portfolio
companies. Generally, the sartorially splendid and the drabbest of our portfolio
companies come from a wide variety of industries--reflecting our stock specific
approach. This quarter, small cap stocks performed better than large-cap stocks.
Some of the industries that fashioned the Fund's positive performance were
consumer products (Ashworth, Weider Nutritional, Steven Madden, Carter-Wallace,
and Hartmarx), energy and utilities (Western Resources and Southwest Gas), and
aviation (Curtiss-Wright, Kaman, and Aviall).
Industries that generated negative buzz for performance included
broadcasting (Liberty Corp. and Ackerley Group) and publishing (Penton Media,
Media General and Meredith).
<TABLE>
<CAPTION>
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2000 COMPLETED DEALS
NUMBER AVERAGE COST CLOSING
FUND HOLDING OF SHARES (a) PER SHARE (b) PRICE (c) CLOSING DATE %RETURN (d)
------------ ------------- ------------- --------- ------------ -----------
FIRST QUARTER 2000 ANNOUNCED DEALS
----------------------------------
<S> <C> <C> <C> <C> <C>
CommNet Cellular Inc. 40,000 $13.54 $32.38 01/07/00 139.14%
Associated Group Inc., Cl. A 8,000 26.07 87.88 01/17/00 237.09%
Watkins-Johnson Co. 70,000 30.94 41.00 02/01/00 32.51%
Pittway Corp. 130,000 10.14 45.50 02/04/00 348.72%
Ascent Entertainment Group Inc. 350,000 12.34 15.25 03/28/00 23.58%
SECOND QUARTER 2000 ANNOUNCED DEALS
-----------------------------------
WICOR Inc. 30,000 27.17 31.50 04/26/00 15.94%
General Cigar Holdings Inc. 170,600 11.57 15.25 05/09/00 31.81%
General Cigar Holdings Inc., Cl. B 133,500 8.07 15.25 05/09/00 88.97%
Ben & Jerry's Homemade Inc., Cl. A 22,000 26.90 43.60 05/15/00 62.08%
Celestial Seasonings Inc. 80,000 14.03 38.50 05/30/00 174.41%
Mirage Resorts Inc. 69,000 8.91 20.94 06/01/00 135.02%
Hussmann International Inc. 170,000 15.95 29.00 06/14/00 81.82%
Kollmorgen Corp. 116,000 11.51 23.00 06/15/00 99.83%
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<FN>
(a) Number of shares held by the Fund on the final day of trading for the issuer.
(b) Average purchase price of issuer's shares held by the Fund on the final day of trading for the issuer.
(c) Closing price on the final day of trading for the issuer or the tender price on the closing date of the
tender offer.
(d) Represents average estimated return based on average cost per share and closing price per share.
NOTE: SEE THE PORTFOLIO OF INVESTMENTS FOR A COMPLETE LISTING OF HOLDINGS.
</FN>
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</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
2000 COMPLETED DEALS (CONTINUED)
NUMBER AVERAGE COST CLOSING
FUND HOLDING OF SHARES (a) PER SHARE (b) PRICE (c) CLOSING DATE %RETURN (d)
------------ ------------- ------------- --------- ------------ -----------
THIRD QUARTER 2000 ANNOUNCED DEALS
----------------------------------
<S> <C> <C> <C> <C> <C>
TV Guide Inc., Cl. A 170,000 7.56 45.63 07/13/00 503.57%
Wynn's International Inc. 205,000 6.87 22.88 07/21/00 233.04%
Sun International Hotels Ltd. 85,000 19.06 21.38 07/25/00 12.17%
United Water Resources Inc. 60,000 24.12 35.44 07/28/00 46.93%
U.S. Physical Therapy Inc. 3,620 6.25 10.94 08/10/00 75.04%
Smucker (J.M.) Co., Cl. A 53,000 17.46 18.69 08/14/00 7.04%
Smucker (J.M.) Co., Cl. B 8,000 16.93 18.50 08/14/00 9.27%
Burns International Services Corp. 50,000 12.46 21.50 09/01/00 72.55%
Italy Fund Inc. 40,000 8.86 18.69 09/05/00 110.95%
Mark IV Industries Inc. 150,000 19.75 23.00 09/15/00 16.46%
Fall River Gas Co. 18,000 19.82 23.50 09/25/00 18.57%
Life Technologies Inc. 35,000 43.91 63.02 10/05/00 43.52%
Sybron Chemicals Inc. 11,000 16.42 34.97 10/20/00 112.97%
Pioneer Group Inc. 100,000 31.67 44.13 10/24/00 39.34%
Bush Boake Allen Inc. 71,500 25.37 48.50 11/03/00 91.17%
Republic Group Inc. 100,000 7.40 18.94 11/09/00 155.95%
Eastern Enterprises 50,400 53.47 64.63 11/09/00 20.87%
---------------------------------------------------------------------------------------------------------------
<FN>
(a) Number of shares held by the Fund on the final day of trading for the issuer.
(b) Average purchase price of issuer's shares held by the Fund on the final day of trading for the issuer.
(c) Closing price on the final day of trading for the issuer or the tender price on the closing date of the
tender offer.
(d) Represents average estimated return based on average cost per share and closing price per share.
NOTE: SEE THE PORTFOLIO OF INVESTMENTS FOR A COMPLETE LISTING OF HOLDINGS.
</FN>
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</TABLE>
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 - $15.375 - 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 - $24.4375 - NYSE), founded in 1880 as the Carter
Medicine Company marketing a single product called Carter Little Liver Pills,
now manufactures and sells a diversified line of consumer health care products
including toiletries, pharmaceuticals, diagnostic specialties, proprietary drugs
and pet supplies. Such brands as Arrid deodorant, Nair hair remover and Pearl
Drops toothpaste are Carter-Wallace products. The company also sells certain
products exclusively in international markets.
CLARCOR INC. (CLC - $19.50 - NYSE), founded in 1904, is a U.S.-based
manufacturer and marketer of engine-mobile filtration products,
industrial/environmental filtration products and consumer packaging
7
<PAGE>
products. CLARCOR markets a full line of oil, air, fuel, coolant and hydraulic
fluid filters that are used in a wide variety of applications, including engines
and industrial equipment. The company markets commercial and industrial air
filters and systems, electrostatic contamination control equipment, and
electrostatic high precision spraying equipment. The air filters and systems
remove contaminants from recirculated indoor air and from processed air that is
exhausted outdoors. Containers and plastic closures manufactured by the company
are used in packaging a wide variety of dry and paste form products, such as
food specialties, beverages and juices, cosmetics and toiletries, drugs and
pharmaceuticals, and chemical specialties.
FLOWSERVE CORP. (FLS - $16.4375 - NYSE) manufactures pumps, valves, actuators
and seals that provide a range of flow management services. In August, 2000,
Flowserve acquired Ingersoll-Dresser Pump from Ingersoll-Rand, creating the
world's largest pump company serving the petroleum, chemical and power
industries and the second largest pump company overall. By the end of 2001,
management anticipates $75 million of savings from the acquisition coming from
cutting costs in the manufacturing facilities, corporate office and duplicate
staff. Furthermore, with industry dynamics improving, top line growth and
selling prices may be better than expected, creating potential positive earning
surprises.
GAYLORD ENTERTAINMENT COMPANY (GET - $23.875 - NYSE) is a diversified
entertainment company operating principally in three segments: hospitality and
attractions; creative content; and interactive media. The company's hospitality
and attractions group consists of an interrelated group of businesses including
the Opryland Hotel Nashville, the Inn at Opryland, the General Jackson (an
entertainment showboat), and other related businesses. The creative content
group consists primarily of the Grand Ole Opry, the Ryman Auditorium, the
Wildhorse Saloon, Acuff-Rose Music Publishing, Word Entertainment, and other
related businesses. The interactive media group consists of Gaylord Digital,
three radio stations, CMT International, and Z Music.
LIBERTY CORP. (LC - $34.625 - 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. In June, Liberty announced the sale of its
insurance operations to Royal Bank of Canada for $650 million, refocusing the
company on its broadcasting operations. The company's Cosmos Broadcasting unit
is also buying Civic Communications for $204 million, bringing the number of
television stations to fifteen. With no debt, a stock selling for one half of
value and an aggressive stock buyback, we feel the risk/reward ratio is
attractive.
OAK TECHNOLOGY INC. (OAKT - $27.375 - NASDAQ), founded in 1987, designs,
develops and markets high performance integrated semiconductors, software and
platform solutions to original equipment manufacturers (OEMs) worldwide that
serve the optical storage, consumer electronics and digital imaging equipment
markets. The company's products consist primarily of integrated circuits and
supporting software and firmware; all designed to store and distribute digital
content. OAKT contracts with independent foundries to manufacture all its
products. Currently, the company's three target markets include optical storage,
consumer electronics and digital imaging equipment.
8
<PAGE>
PIONEER GROUP INC. (PIOG - $42.375 - NASDAQ) conducts its business through three
strategic units: Pioneer Investment Management, Pioneer International Financial
Services, and Pioneer Global Investments. Pioneer Investment Management includes
the U.S. registered mutual funds, the offshore funds registered in Ireland and
private institutional accounts. Pioneer International Financial Services
includes investment management and financial services operations in different
parts of the world. Pioneer Global Investments includes the company's
diversified strategic businesses of international venture capital management and
investing, real estate management and advisory services, and timber harvesting
and development. UniCredito Italiano SpA (UC.MI - $4.79 - Milan Stock Exchange)
entered into a definitive agreement to acquire Pioneer Group for $43.50 per
share in a transaction valued at about $1.2 billion. The deal closed on October
24. In addition to the $43.50 in cash per share, PIOG shareholders received 0.2
`stubs' of a new company called Harbor Global (HRBG.OB - Nasdaq BB) per each
original PIOG share. Harbor is comprised of the remaining Pioneer businesses
that UniCredito did not want to incorporate into their own operation, including
its Russian financial services operation, its natural resources businesses, and
its interests in venture capital and real estate.
SPS TECHNOLOGIES INC. (ST - $48.50 - NYSE) is a manufacturer of fasteners,
superalloys and magnetic products for the aerospace, industrial gas turbine,
automotive and general industrial markets. With Boeing and Airbus expected to
increase aircraft deliveries 2001 and 2002, SPS orders should continue to remain
strong throughout next year. During the last downturn, management positioned the
aerospace group for bigger profitability gains by modernizing plants, increasing
productivity and lowering costs. These actions were further paced by the
acquisition of Avibank, an $80 million manufacturer of threaded inserts, latches
and rods, which further adds to SPS' aerospace exposure.
UNITED TELEVISION INC. (UTVI - $147.00 - 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 - $82.375 - NYSE) television division. UTVI stations cover
approximately 9% of the U.S. population. UTVI is 58% owned by BHC Communications
(BHC - $157.375 - AMEX). United Television is a beneficiary of the recent FCC
ruling allowing television duopoly, or ownership of two stations in a single
market. On August 14, News Corp. (NWS - $56.0625 - NYSE) announced it would
purchase United Television (along with Chris-Craft and BHC) in a deal worth
$5.35 billion.
UNIVERSAL FOODS CORP. (UFC - $20.375 - NYSE), which changed its name to Sensient
Technologies Corp. (SXT - NYSE) on November 6, is a leading manufacturer and
supplier of flavors and colors to the food industry. Universal's products are
also used by manufacturers of pharmaceuticals, ink jet printers and cosmetics.
In August, Universal agreed to sell its Red Star Yeast division for $125 million
in cash.
WHITMAN CORP. (WH - $11.5625 - NYSE), through its principal operating company,
Pepsi-Cola General Bottlers Inc., manufactures, packages, sells and distributes
carbonated and non-carbonated Pepsi-Cola beverages as well as a variety of other
non-alcoholic beverages in the United States and Central Europe. Pepsi General
serves a significant portion of a ten state region, primarily in the Midwest,
with a population of approximately 35 million people. In addition, Pepsi General
serves territories in Poland, Hungary, the Czech Republic and the Republic of
Slovakia. Pepsi General's three largest brands in terms of volume are
Pepsi-Cola, Diet Pepsi and Mountain Dew.
9
<PAGE>
MINIMUM INITIAL INVESTMENT - $1,000
The Fund's minimum initial investment for regular accounts is $1,000.
There are no subsequent investment minimums. No initial minimum is required for
those establishing an Automatic Investment Plan. Additionally, the Fund and
other Gabelli Funds are available through the no-transaction fee programs at
many major brokerage firms.
WWW.GABELLI.COM
Please visit us on the Internet. Our homepage 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].
IN CONCLUSION
Small cap stocks have performed relatively well in this year's erratic
market. We believe this reflects investor recognition of the attractive
fundamentals in the small cap sector. Due to economic and political
crosscurrents, the outlook for the broad market is even more cloudy than usual.
However, we believe disciplined small cap growth stock investing can continue to
produce solid returns.
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/ SIGNATURE
MARIO J. GABELLI, CFA
Portfolio Manager and
Chief Investment Officer
November 14, 2000
-----------------------------------------------------------------
TOP TEN HOLDINGS
SEPTEMBER 30, 2000
------------------
Carter-Wallace Inc. Oak Technology Inc.
United Television Inc. CLARCOR Inc.
Aztar Corp. Flowserve Corp.
Gemstar - TV Guide International Inc. USA Networks Inc.
Liberty Corp. Universal Foods Corp.
-----------------------------------------------------------------
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.
10
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS -- 90.2%
AGRICULTURE -- 0.1%
9,000 Cadiz Inc.+ ....................... $ 88,809 $ 90,000
11,000 Sylvan Inc. ....................... 110,231 106,562
---------- ----------
199,040 196,562
---------- ----------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.6%
100,000 Acktion Co.+ ...................... 1,273,170 986,954
15,000 ArvinMeritor Inc. ................. 442,098 220,312
30,000 Borg-Warner Automotive Inc. ....... 1,142,334 993,750
259,300 GenCorp Inc. ...................... 2,369,007 2,106,812
14,000 Lund International
Holdings Inc.+ .................. 117,792 63,000
45,000 Midas Inc. ........................ 921,431 630,000
125,000 Modine Manufacturing Co. .......... 3,625,956 3,521,484
5,250 Monro Muffler Brake Inc.+ ......... 52,860 57,094
190,000 Scheib (Earl) Inc.+ ............... 1,301,170 617,500
151,000 Standard Motor
Products Inc. ................... 2,457,169 1,208,000
17,000 Strattec Security Corp.+ .......... 427,208 565,250
55,000 Superior Industries
International Inc. .............. 1,474,599 1,650,000
157,200 TransPro Inc. ..................... 1,398,501 550,200
---------- ----------
17,003,295 13,170,356
---------- ----------
AVIATION: PARTS AND SERVICES -- 3.1%
20,000 AAR Corp. ......................... 266,000 228,750
90,000 Aviall Inc.+ ...................... 809,103 579,375
20,000 Barnes Group Inc. ................. 392,312 367,500
63,300 Curtiss-Wright Corp. .............. 1,288,421 2,986,969
7,500 Ducommun Inc. ..................... 80,125 105,469
5,900 EDO Corp. ......................... 37,570 51,994
125,000 Fairchild Corp., Cl. A+ ........... 1,491,886 796,875
26,500 Hi-Shear Industries Inc. .......... 58,141 46,375
300,000 Kaman Corp., Cl. A ................ 5,429,465 3,787,500
80,000 Moog Inc., Cl. A+ ................. 1,630,172 2,410,000
---------- ----------
11,483,195 11,360,807
---------- ----------
BROADCASTING -- 6.6%
205,000 Ackerley Group Inc. ............... 2,983,162 2,050,000
26,000 Acme Communications Inc.+ ......... 377,087 234,000
25,000 Crown Media
Holdings Inc., Cl. A+ ........... 379,213 354,687
220,000 Granite Broadcasting Corp.+ ....... 2,205,189 1,010,625
42,000 Gray Communications
Systems Inc. .................... 618,925 475,125
62,000 Gray Communications
Systems Inc., Cl. B ............. 784,226 647,125
53,000 Hearst-Argyle
Television Inc.+ ................ 472,735 1,060,000
162,000 Liberty Corp. ..................... 5,132,667 5,609,250
MARKET
SHARES COST VALUE
------ ---- ------
25,000 On Command Corp. .................. $ 399,141 $ 307,031
190,000 Paxson Communications
Corp., Cl. A+ ................... 2,008,730 2,185,000
80,000 Salem Communications
Corp., Cl. A+ ................... 1,306,127 1,015,000
60,000 Sinclair Broadcast
Group Inc.+ ..................... 673,469 656,250
14,000 Spanish Broadcasting
System Inc., Cl. A+ ............. 211,638 164,500
3,000 TiVo Inc.+ ........................ 48,750 58,125
48,500 United Television Inc. ............ 1,139,765 7,129,500
1,500 Wink Communications Inc.+ ......... 24,000 18,000
39,000 Young Broadcasting Inc.,
Cl. A+ .......................... 1,072,314 1,226,062
---------- ----------
19,837,138 24,200,280
---------- ----------
BUILDING AND CONSTRUCTION -- 1.2%
10,000 Florida Rock Industries Inc. ...... 173,113 394,375
25,000 Huttig Building
Products Inc.+ .................. 90,165 112,500
100,000 Nortek Inc.+ ...................... 1,469,594 1,750,000
100,000 Republic Group Inc. ............... 739,689 1,837,500
37,000 Universal Forest
Products Inc. ................... 475,937 422,609
---------- ----------
2,948,498 4,516,984
---------- ----------
BUSINESS SERVICES -- 2.1%
50,000 ANC Rental Corp.+ ................. 298,125 287,500
57,000 Berlitz International Inc.+ ....... 1,010,748 484,500
610,400 Career Blazers Inc. ............... 236,019 107,125
6,000 Carlisle Holdings Ltd.+ ........... 30,250 47,625
1,000 CheckFree Corp.+ .................. 9,040 41,891
22,000 Data Broadcasting Corp.+ .......... 121,252 70,125
40,000 Donnelley (R.H.) Corp. ............ 547,665 845,000
19,000 Fisher Scientific
International Inc.+ ............. 438,250 641,250
20,000 Industrial Distribution
Group Inc.+ ..................... 190,933 60,625
70,000 Key3Media Group Inc.+ ............. 404,750 765,625
13,000 Landauer Inc. ..................... 233,156 245,050
5,000 MDC Communications
Corp., Cl. A+ ................... 53,950 45,625
40,000 Nashua Corp.+ ..................... 555,323 337,500
113,300 National Processing Inc.+ ......... 1,011,385 1,579,119
105,000 Paxar Corp.+ ...................... 1,213,161 938,437
25,000 Pittson Brink's Group ............. 583,959 387,500
6,000 Princeton Video Image Inc.+ ....... 35,250 30,187
31,000 Professional Staff plc,
ADR + ........................... 169,781 168,562
5,000 PubliCard Inc.+ ................... 49,330 10,312
87,000 Trans-Lux Corp. (a) ............... 734,323 402,375
See accompanying notes to financial statements.
11
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
BUSINESS SERVICES (CONTINUED)
8,000 Wackenhut Corp., Cl. A ................$ 118,092 $ 119,000
6,187 Wackenhut Corp., Cl. B ................ 52,368 51,043
----------- -----------
8,097,110 7,665,976
----------- -----------
CABLE -- 0.7%
85,000 UnitedGlobalCom Inc.,
Cl. A+ ............................ 648,155 2,550,000
----------- -----------
CLOSED END FUNDS -- 1.1%
45,000 Central European Equity
Fund Inc. ....................... 608,109 573,750
78,000 Dresdner RCM Europe
Fund Inc. ......................... 611,900 1,195,740
45,000 France Growth Fund Inc. ........... 476,793 568,125
32,000 Germany Fund Inc. ................. 358,820 406,000
27,808 Italy Fund Inc. ................... 243,042 481,426
65,000 New Germany Fund Inc. ............. 764,184 796,250
11,000 Spain Fund Inc. ................... 103,029 134,750
----------- -----------
3,165,877 4,156,041
----------- -----------
COMMUNICATIONS EQUIPMENT -- 0.9%
110,000 Allen Telecom Inc.+ ............... 1,138,364 1,863,125
100,500 Communications
Systems Inc. .................... 563,356 1,344,187
----------- -----------
1,701,720 3,207,312
----------- -----------
COMPUTER SOFTWARE AND SERVICES -- 1.0%
8,000 Anacomp Inc. ...................... 2,500 3,500
95,000 Bull Run Corp.+ ................... 331,294 237,500
1,000 Cylink Corp. ...................... 3,375 10,437
29,924 Global Sources Ltd.+ .............. 1,136,075 961,308
42,000 Internet.com Corp.+ ............... 621,000 1,299,375
200 Macromedia Inc.+ .................. 2,370 16,162
28,000 Phoenix Technologies Ltd.+ ........ 197,360 446,250
400,000 Tyler Technologies Inc. ........... 1,617,288 800,000
----------- -----------
3,911,262 3,774,532
----------- -----------
CONSUMER PRODUCTS -- 4.1%
9,000 Action Performance
Companies Inc.+ ................. 41,312 30,937
20,000 Adams Golf Inc.+ .................. 87,955 28,125
40,000 Ashworth Inc.+ .................... 174,156 315,000
320,000 Carter-Wallace Inc. ............... 5,098,738 7,820,000
45,000 Church & Dwight Co. Inc. .......... 459,562 826,875
12,000 Coachmen Industries Inc. .......... 80,758 125,250
25,000 Dial Corp. ........................ 279,344 290,625
18,000 Department 56 Inc.+ ............... 195,285 237,375
8,000 French Fragrances Inc.+ ........... 78,490 67,000
41,000 Genlyte Group Inc.+ ............... 160,185 1,048,062
MARKET
SHARES COST VALUE
------ ---- ------
4,000 Harley-Davidson Inc. .............. $ 9,425 $ 191,500
150,000 Hartmarx Corp.+ ................... 811,056 450,000
12,000 Madden (Steven) Ltd. .............. 100,035 103,500
42,000 National Presto
Industries Inc. ................. 1,602,024 1,257,375
7,000 Nature's Sunshine
Products Inc. ................... 115,705 52,062
3,000 Scotts Co., Cl. A+ ................ 46,027 100,500
8,000 Skyline Corp. ..................... 142,678 170,500
14,000 Stewart Enterprises Inc., Cl. A 65,467 27,125
270,000 Weider Nutrition
International Inc. .............. 1,286,881 1,333,125
70,000 Wolverine World Wide Inc. ......... 834,021 651,875
----------- -----------
11,669,104 15,126,811
----------- -----------
CONSUMER SERVICES -- 1.0%
30,000 Bowlin Outdoor Advertising &
Travel Centers Inc.+ ................ 150,843 198,750
13,000 Collectors Universe Inc. .............. 70,719 32,500
40,000 Loewen Group Inc. ..................... 60,400 11,200
4,000 Martha Stewart Living
Inc., Cl. A+ ........................ 61,775 105,000
50,000 Ogden Corp. ........................... 676,001 678,125
20,000 Response USA Inc.+ .................... 16,500 6,875
165,000 Rollins Inc. .......................... 3,243,409 2,444,062
----------- -----------
4,279,647 3,476,512
----------- ---------
DIVERSIFIED INDUSTRIAL -- 7.1%
99,500 Ampco-Pittsburgh Corp. .... 966,406 1,019,875
8,000 Anixter International Inc.+ 76,160 233,000
157,000 Baldor Electric Co. ....... 2,933,324 3,189,062
200,000 Crane Co. ................. 3,885,578 4,575,000
89,000 Denison International plc,
ADR+ .................... 1,196,199 1,187,594
80,000 Gardner Denver
Machinery Corp.+ ........ 823,626 1,300,000
20,000 GATX Corp. ................ 815,313 837,500
120,000 GenTek Inc. ............... 1,373,756 1,830,000
40,000 Katy Industries Inc. ...... 530,468 280,000
65,000 Lamson & Sessions Co.+ .... 438,587 771,875
72,000 Lindsay Manufacturing Co. . 697,035 1,341,000
110,000 MagneTek Inc. ............. 1,010,455 1,168,750
1,000 Matthews International
Corp., Cl. A ............ 24,312 29,375
90,000 Myers Industries Inc. ..... 1,250,708 1,141,875
610,400 Noel Group Inc.+ .......... 222,822 301,421
45,000 Oil-Dri Corporation of America 598,319 393,750
140,000 Park-Ohio Holdings Corp.+ . 1,880,012 1,102,500
50,000 Standex International Corp. 1,108,238 965,625
5,000 Tech/Ops Sevcon Inc. ...... 54,688 54,062
See accompanying notes to financial statements.
12
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
DIVERSIFIED INDUSTRIAL (CONTINUED)
210,000 Thomas Industries Inc. ..... $ 2,057,494 $ 4,252,500
20,000 WHX Corp.+ ................. 251,144 30,000
----------- -----------
22,194,644 26,004,764
----------- -----------
EDUCATIONAL SERVICES -- 0.1%
101,000 Whitman Education
Group Inc.+ ............... 267,016 214,625
----------- -----------
ELECTRONICS -- 2.2%
200,000 Oak Technology Inc.+ ....... 1,422,619 5,474,986
155,000 Thomas & Betts Corp. ....... 3,070,894 2,702,812
----------- -----------
4,493,513 8,177,798
----------- -----------
ENERGY AND UTILITIES -- 5.7%
40,000 AGL Resources Inc. .................... 746,290 802,500
6,000 Basin Exploration Inc.+ ............... 93,115 117,000
7,000 Birmingham Utilities Inc. ............. 126,906 93,625
5,000 Callon Petroleum Co.+ ................. 78,937 79,062
20,000 CH Energy Group Inc. .................. 867,400 797,500
10,000 Chesapeake Utilities Corp. ............ 187,062 181,250
14,000 Connecticut Water
Service Inc. .......................... 419,186 451,500
30,000 E'Town Corp. .......................... 1,699,039 2,006,250
50,000 Eastern Enterprises ................... 2,669,077 3,190,625
50,000 El Paso Electric Co.+ ................. 675,438 688,500
50,000 Florida Public Utilities Co. .......... 792,700 790,625
150,000 Kaneb Services Inc.+ .................. 549,250 693,750
15,000 Petroleum Geo-Services ASA+ ........... 239,369 258,750
2,000 PetroQuest Energy Inc.+ ............... 5,250 7,000
8,400 RGS Energy Group Inc. ................. 233,097 236,775
294,000 RPC Inc. .............................. 1,177,706 3,454,500
8,000 SJW Corp. ............................. 926,577 950,000
3,667 Southern Union Co. .................... 66,708 72,652
110,000 Southwest Gas Corp. ................... 1,915,596 2,303,125
15,000 Tesoro Petroleum Corp. ................ 209,500 149,062
5,000 Toreador Resources Corp.+ ............. 19,062 31,250
5,000 TransMontaigne Oil Co. ................ 71,188 24,687
30,000 Waterlink Inc. ........................ 81,750 67,500
152,000 Western Resources Inc. ................ 2,528,033 3,287,000
----------- -----------
16,378,236 20,734,488
----------- -----------
ENTERTAINMENT -- 4.5%
20,000 Dover Downs
Entertainment Inc.+ 261,175 268,750
44,000 Fisher Companies Inc. 2,844,492 3,168,000
75,000 GC Companies Inc.+ 2,255,860 225,000
70,000 Gemstar-TV Guide
International Inc.+ 821,407 6,103,125
2,500 International Speedway Corp. 45,000 96,250
MARKET
SHARES COST VALUE
------ ---- ------
16,000 International Speedway Corp.
Cl. A ................................ $ 515,479 $ 624,000
10,000 Liberty Digital Inc.+ ................. 43,671 202,500
18,000 Liberty Media Group, Cl. A+ ........... 143,120 324,000
4,000 Loews Cineplex
Entertainment Corp.+ ................. 12,731 7,000
3,000 Metromedia International
Group Inc.+ .......................... 26,925 11,220
35,000 Six Flags Inc. ........................ 487,460 542,500
45,000 Topps Co. Inc.+ ....................... 213,634 413,437
210,000 USA Networks Inc.+ .................... 1,873,016 4,606,875
1,500 World Wrestling Federation
Entertainment Inc.+ .................. 24,250 22,781
----------- -----------
9,568,220 16,615,438
----------- -----------
ENVIRONMENTAL SERVICES -- 0.5%
80,000 Allied Waste Industries Inc.+ ......... 817,687 735,000
75,000 Republic Services Inc.+ ............... 1,079,094 984,375
----------- -----------
1,896,781 1,719,375
----------- -----------
EQUIPMENT AND SUPPLIES -- 12.4%
14,000 Alltrista Corp.+ ...................... 262,292 290,500
147,000 AMETEK Inc. ........................... 1,698,083 3,114,562
336,000 Baldwin Technology Co. Inc.,
Cl. A+ .............................. 1,567,134 609,000
90,000 Belden Inc. ........................... 1,876,133 2,126,250
6,000 Bway Corp.+ ........................... 82,444 29,625
500 C&D Technologies Inc. ................. 6,244 28,375
100,000 CIRCOR International Inc.+ ............ 1,058,034 1,031,250
260,000 CLARCOR Inc. .......................... 3,036,616 5,070,000
65,000 Core Materials Corp. .................. 210,581 117,812
15,000 CTS Corp. ............................. 30,540 759,375
75,000 Cuno Inc.+ ............................ 1,249,481 1,668,750
9,000 Danaher Corp. ......................... 303,554 447,750
15,000 Donaldson Co. Inc. .................... 334,500 330,000
69,000 DONCASTERS plc, ADR+ .................. 785,950 1,397,250
257,600 Fedders Corp. ......................... 1,536,999 998,200
288,100 Flowserve Corp. ....................... 5,104,526 4,735,644
55,500 Franklin Electric Co. ................. 1,734,531 3,829,500
40,000 General Magnaplate Corp. .............. 83,762 60,000
85,000 Gerber Scientific Inc. ................ 1,096,088 733,125
17,775 Gorman-Rupp Co. ....................... 276,467 292,177
17,000 Graco Inc. ............................ 433,361 548,250
20,000 Hughes Supply Inc. .................... 302,875 392,400
50,000 IDEX Corp. ............................ 535,813 1,396,875
70,000 Interpump Group SpA ................... 315,941 302,672
10,000 K-Tron International Inc.+ ............ 74,932 169,375
9,000 Littelfuse Inc.+ ...................... 62,500 267,188
25,000 Lufkin Industries Inc. ................ 440,895 509,375
20,000 Met-Pro Corp. ......................... 262,406 202,500
1,500 Plantronics Inc.+ ..................... 3,849 57,000
See accompanying notes to financial statements.
13
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
EQUIPMENT AND SUPPLIES (CONTINUED)
80,000 Raytech Corp.+ ............... $ 300,200 $ 235,000
24,400 Robbins & Myers Inc. ......... 432,560 576,450
62,000 Roper Industries Inc. ........ 1,150,513 2,057,625
3,500 Sames Corp. .................. 61,294 47,688
40,000 Sequa Corp., Cl. A+ .......... 1,477,615 1,700,000
16,500 Sequa Corp., Cl. B+ .......... 1,021,452 981,750
66,000 SL Industries Inc. ........... 857,650 738,375
3,000 Smith (A.O.) Corp. ........... 49,212 37,688
15,000 Smith (A.O.) Corp., Cl. A .... 336,569 191,250
74,000 SPS Technologies Inc.+ ....... 2,273,458 3,589,000
5,000 Teleflex Inc. ................ 76,167 171,875
40,000 Tennant Co. .................. 1,234,945 1,770,000
47,000 UCAR International Inc.+ ..... 687,097 596,313
30,000 United Dominion
Industries Ltd. ............. 699,000 710,625
5,000 Valmont Industries Inc. ...... 40,625 99,375
7,875 Watsco Inc., Cl. B ........... 23,627 81,703
35,000 Watts Industries Inc., Cl. A . 405,089 350,000
----------- -----------
35,893,604 45,449,497
----------- -----------
FINANCIAL SERVICES -- 3.5%
41,000 Argonaut Group Inc. .......... 920,779 717,500
68,000 Berliner Bank Aktienge-
sellschaft .................. 1,408,705 954,079
21,000 BKF Capital Group Inc. ....... 309,354 409,500
158,000 CNA Surety Corp. ............. 1,929,214 1,817,000
45,000 Danielson Holding Corp.+ ..... 165,200 185,625
3,000 Federal Agricultural
Mortgage Corp., Cl. C+ ...... 24,000 52,875
45,000 Gainsco Inc. ................. 291,025 188,438
18,000 Hibernia Corp., Cl. A ........ 140,062 220,500
3,000 LandAmerica Financial Group .. 41,015 85,688
22,500 Metris Companies Inc. ........ 211,831 888,750
105,000 Midland Co. .................. 1,506,625 2,782,500
1,500 Net.B@nk Inc.+ ............... 6,000 17,719
100,000 Pioneer Group Inc.+ .......... 3,167,053 4,396,875
----------- -----------
10,120,863 12,717,049
----------- -----------
FOOD AND BEVERAGE -- 4.5%
90,000 Advantica Restaurant
Group Inc.+ ................. 187,581 53,438
10,000 Brown-Forman Corp., Cl. A .... 530,738 539,375
7,000 Cheesecake Factory Inc.+ ..... 51,850 302,750
2,500 Farmer Brothers Co. .......... 389,323 450,000
21,000 Genesee Corp., Cl. B ......... 785,817 845,250
1,500 Hain Celestial Group Inc.+ ... 18,083 52,688
10,000 International Multifoods
Corp. ....................... 199,921 173,750
85,000 J & J Snack Foods Corp.+ ..... 1,326,958 1,099,688
MARKET
SHARES COST VALUE
------ ---- ------
10,000 Midwest Grain Products Inc. .. $ 160,371 $ 110,000
12,000 Mondavi (Robert) Corp.+ ...... 394,813 490,500
2,000 Northland Cranberries Inc.,
Cl. A ....................... 8,844 2,250
2,000 Omni Nutraceuticals Inc ...... 11,500 3,500
710,100 PepsiAmericas Inc.+ .......... 2,684,894 2,485,350
70,000 Ralcorp Holdings Inc.+ ....... 993,684 988,750
62,500 Smucker (J.M.) Co.+ .......... 1,100,120 1,519,531
32,607 Tootsie Roll Industries Inc. . 556,711 1,279,825
6,000 Triarc Companies Inc. ........ 152,675 147,750
124,000 Twinlab Corp.+ ............... 1,659,245 542,500
225,000 Universal Foods Corp. ........ 4,602,688 4,584,375
60,000 Whitman Corp. ................ 889,415 693,750
----------- -----------
16,705,231 16,365,020
----------- -----------
HEALTH CARE -- 2.5%
48,000 Block Drug Co. Inc., Cl. A ... 1,710,401 2,070,000
62,000 Del Global
Technologies Corp.+ ......... 553,322 612,250
90,000 Inamed Corp.+ ................ 2,341,699 2,531,250
35,000 Life Technologies Inc. ....... 1,536,727 2,380,350
15,000 Nabi+ ........................ 105,625 105,000
48,000 Penwest Pharmaceuticals Co. .. 327,279 609,000
75,000 STERIS Corp.+ ................ 696,650 900,000
456 U.S. Physical Therapy Inc.+ .. 2,850 6,968
150,000 Women First Health
Care Inc.+ .................. 455,845 75,000
----------- -----------
7,730,398 9,289,818
----------- -----------
HOME FURNISHINGS -- 0.7%
10,000 Bassett Furniture
Industries Inc. .............. 205,841 141,875
4,000 Bed Bath & Beyond Inc.+ ........ 11,125 97,563
184,550 Carlyle Industries Inc.+ ....... 76,753 57,672
17,000 Foamex International Inc. ...... 145,935 106,250
30,000 La-Z-Boy Chair Co. ............. 218,125 436,875
52,000 Mikasa Inc. .................... 717,019 851,500
70,000 Oneida Ltd. .................... 732,976 971,250
----------- -----------
2,107,774 2,662,985
----------- -----------
HOTELS AND GAMING -- 5.0%
440,000 Aztar Corp.+ ................... 3,002,154 6,765,000
120,000 Boca Resorts Inc., Cl. A+ ...... 1,585,001 1,312,500
15,000 Boyd Gaming Corp.+ ............. 132,500 74,063
22,000 Churchill Downs Inc. ........... 463,838 569,250
46,500 Extended Stay America Inc.+ .... 520,779 616,125
99,300 Gaylord Entertainment Co. ...... 2,974,193 2,370,788
279,000 Jackpot Enterprises Inc. ....... 3,115,907 2,650,500
5,000 Jurys Hotel Group plc .......... 27,762 38,386
50,000 Lakes Gaming Inc.+ ............. 634,930 431,250
2,000 Magna Entertainment Corp.,
Cl. A + ...................... 14,438 13,500
See accompanying notes to financial statements.
14
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
HOTELS AND GAMING (CONTINUED)
90,000 Park Place Entertainment Corp+ . $ 840,196 $ 1,361,250
25,000 Penn National Gaming Inc.+ ..... 248,260 380,469
3,000 Station Casinos Inc.+ .......... 13,350 42,750
67,645 Sun International
Hotels Ltd.+ ................. 1,305,405 1,302,166
80,000 Trump Hotels & Casino
Resorts Inc.+ ................ 742,739 200,000
21,000 Youbet.com Inc.+ ............... 79,500 40,688
----------- -----------
15,700,952 18,168,685
----------- -----------
METALS AND MINING -- 0.3%
250,000 Echo Bay Mines Ltd.+ ........... 935,414 187,500
190,000 Royal Oak Mines Inc.+ .......... 322,487 1,235
28,000 Stillwater Mining Co.+ ......... 379,317 757,960
120,000 TVX Gold Inc.+ ................. 947,491 195,000
----------- -----------
2,584,709 1,141,695
----------- -----------
PAPER AND FOREST PRODUCTS -- 1.2%
135,000 Greif Bros. Corp., Cl. A 2,673,603 4,488,750
----------- -----------
PUBLISHING -- 3.7%
242,556 Independent News &
Media plc, Dublin ............ 380,260 888,256
23,600 Journal Register Co.+ .......... 381,321 392,350
12,000 Lee Enterprises Inc. ........... 285,262 346,500
40,000 McClatchy Newspapers Inc.,
Cl. A ........................ 943,061 1,407,500
60,000 Media General Inc., Cl. A ...... 1,345,293 2,580,000
23,000 Meredith Corp. ................. 329,933 678,500
125,000 Penton Media Inc. .............. 1,609,549 3,437,500
45,000 Pulitzer Inc. .................. 737,211 1,932,750
200,000 Thomas Nelson Inc. ............. 2,260,295 1,637,500
12,000 Wiley (John) & Sons Inc., Cl. B 46,500 277,500
----------- -----------
8,318,685 13,578,356
----------- -----------
REAL ESTATE -- 1.7%
160,000 Catellus Development Corp.+ .... 1,884,085 2,800,000
118,000 Griffin Land & Nurseries Inc.+ . 1,471,129 1,489,750
9,500 Gyrodyne Company of
America Inc.+ ................ 161,174 134,188
10,000 Malan Realty Investors Inc. .... 130,050 128,750
550,000 Meditrust Companies ............ 1,294,123 1,615,625
----------- -----------
4,940,561 6,168,313
----------- -----------
RETAIL -- 3.1%
60,000 Aaron Rents Inc. ............... 461,298 772,500
60,000 Aaron Rents Inc., Cl. A ........ 433,147 907,500
105,000 Burlington Coat Factory
Warehouse Corp. .............. 1,120,021 1,502,813
MARKET
SHARES COST VALUE
------ ---- ------
12,000 Coldwater Creek Inc.+ .......... $ 212,311 $ 324,000
100,000 Gerald Stevens Inc.+ ........... 77,500 65,625
130,000 Ingles Markets Inc., Cl. A ..... 1,631,531 1,430,000
210,000 Lillian Vernon Corp. ........... 3,383,836 2,047,500
85,000 Neiman Marcus Group Inc.+ ...... 1,138,515 2,757,188
40,000 Neiman Marcus Group Inc.,
Cl. B+ ....................... 1,236,151 1,145,000
80,000 Sports Authority Inc.+ ......... 470,469 170,000
10,000 Weis Markets Inc. .............. 356,888 396,875
----------- -----------
10,521,667 11,519,001
----------- -----------
SATELLITE -- 0.3%
60,000 Liberty Satellite &
Technology Inc., Cl. A+ 279,251 637,500
8,000 Pegasus Communications
Corp.+ 70,830 386,500
----------- -----------
350,081 1,024,000
----------- -----------
SPECIALTY CHEMICALS -- 3.1%
80,000 Airgas Inc. .................... 720,738 545,000
5,000 Arch Chemicals, Inc. ........... 95,688 91,250
71,500 Bush Boake Allen Inc.+ ......... 1,814,117 3,418,594
118,000 Ferro Corp. .................... 2,280,649 2,249,375
60,000 Fuller (H.B.) Co. .............. 1,912,526 1,725,000
110,000 General Chemical Group Inc. .... 324,232 103,125
20,000 MacDermid Inc. ................. 442,033 420,000
125,000 Material Sciences Corp.+ ....... 1,204,452 1,421,875
102,200 Omnova Solutions Inc. .......... 692,438 568,488
35,000 Penford Corp. .................. 332,776 542,500
11,000 Sybron Chemicals Inc.+ ......... 180,613 381,563
----------- -----------
10,000,262 11,466,770
----------- -----------
TELECOMMUNICATIONS -- 1.4%
20,000 ARC International Corp. ........ 49,513 2,500
9,200 Atlantic Tele-Network Inc. ..... 92,644 101,200
60,000 Citizens Communications Co. .... 572,155 806,250
54,300 Commonwealth Telephone
Enterprises Inc.+ ............ 1,172,845 2,002,313
22,000 Commonwealth Telephone
Enterprises Inc., Cl. B+ ..... 226,769 885,500
70,000 CoreComm Ltd.+ ................. 528,413 555,625
6,000 RCN Corp.+ ..................... 26,817 124,500
25,000 Rogers Communications Inc.,
Cl. B, ADR+ .................. 226,378 592,188
22,000 Viatel Inc.+ ................... 273,945 225,500
----------- -----------
3,169,479 5,295,576
----------- -----------
TRANSPORTATION -- 0.1%
2,000 Irish Continental Group plc .... 18,258 7,412
50,000 OMI Corp. ...................... 313,120 418,750
----------- -----------
331,378 426,162
----------- -----------
See accompanying notes to financial statements.
15
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2000
================================================================================
MARKET
SHARES COST VALUE
------ ---- ------
COMMON STOCKS (CONTINUED)
WIRELESS COMMUNICATIONS -- 1.1%
5,000 AirGate PCS Inc.+ .............. $ 183,563 $ 224,375
20,000 Centennial Cellular Corp.,
Cl. A+ ........................ 291,854 440,000
100,000 Price Communications Corp.+ .... 1,049,317 1,956,250
1,500 Rural Cellular Corp., Cl. A+ ... 20,310 102,188
10,000 TeleCorp PCS Inc.+ ............. 201,063 190,000
50,000 Teligent Inc., Cl. A+ .......... 789,129 650,000
12,000 Tritel Inc., Cl. A+ ............ 189,101 171,750
10,000 Triton PCS Holdings Inc., Cl. A+ 260,188 275,000
500 Western Wireless Corp., Cl. A+ . 5,249 17,813
------------ ------------
2,989,774 4,027,376
------------ ------------
TOTAL COMMON STOCKS ............ 273,881,472 330,657,714
------------ ------------
PREFERRED STOCKS -- 0.1%
DIVERSIFIED INDUSTRIAL -- 0.1%
WHX Corp.,
47,000 $3.75 Cv. Pfd., Ser. B ........ 1,316,000 308,437
6,000 6.50% Cv. Pfd., Ser. A ........ 188,050 39,375
------------ ------------
1,504,050 347,812
------------ ------------
TOTAL PREFERRED STOCKS ......... 1,504,050 347,812
------------ ------------
PRINCIPAL
AMOUNT
---------
CONVERTIBLE BONDS -- 0.0%
COMPUTER SOFTWARE AND SERVICES -- 0.0%
$ 500 MSC.Software Corp.,
Sub. Deb. Cv.
7.88%, 08/18/04 ............... 109 466
------------ ------------
U.S. GOVERNMENT -- 8.8%
32,369,000 U.S. Treasury Bills,
6.12% to 6.26%++,
due 10/05/00 to 12/28/00 ...... 32,140,204 32,138,759
------------ ------------
MARKET
COST VALUE
---- ------
TOTAL
INVESTMENTS -- 99.1% $307,525,835 $363,144,751
============ ============
OTHER ASSETS AND
LIABILITIES (NET) -- 0.9% ........................ 3,314,211
------------
NET ASSETS -- 100%
(15,507,521 shares outstanding) .................. $366,458,962
============
COMMON MARKET
STOCKS SHARES PROCEEDS VALUE
------ ------ ---------- --------
SECURITIES SOLD SHORT
Invitrogen 20 $(122,746) $(142,250)
========= =========
--------------------
For Federal tax purposes:
Aggregate cost $308,900,660
============
Gross unrealized appreciation $88,977,439
Gross unrealized depreciation (34,733,348)
------------
Net unrealized appreciation $54,244,091
============
--------------------
(a) Security considered an affiliated holding because the Fund owns at least
5% of the outstanding shares. + 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, 2000
================================================================================
ASSETS:
Investments, at value
(Cost $307,525,835) .................................. $363,144,751
Cash ................................................... 954
Dividends and interest receivable ...................... 401,930
Receivable for investments sold ........................ 5,271,033
Receivable for capital shares sold ..................... 1,389,770
------------
TOTAL ASSETS ........................................... 370,208,438
------------
LIABILITIES:
Payable for investments purchased ...................... 2,755,973
Payable for capital shares redeemed .................... 258,296
Payable for securities sold short,
at value (proceeds $122,746) ......................... 142,250
Payable for investment advisory fees ................... 304,655
Payable for distribution fees .......................... 76,164
Payable to custodian ................................... 14,151
Other accrued expenses ................................. 197,987
------------
TOTAL LIABILITIES ...................................... 3,749,476
------------
NET ASSETS applicable to 15,526,927
shares outstanding ................................... $366,458,962
============
NET ASSETS CONSIST OF:
Capital stock, at par value ............................ $ 15,527
Additional paid-in capital ............................. 240,380,599
Accumulated net investment income ...................... 436,919
Accumulated net realized gain
on investments and foreign currency
transactions ......................................... 70,027,144
Net unrealized appreciation on investments
and foreign currency transactions .................... 55,598,773
------------
TOTAL NET ASSETS ....................................... $366,458,962
============
NET ASSET VALUE, offering and redemption
price per share ($366,458,962 [DIVIDE]
15,526,927 shares outstanding; unlimited
number of shares authorized of $0.001 par value) ...... $23.60
======
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of foreign taxes of $6,561) $ 4,788,842
Interest ................................. 1,110,531
------------
TOTAL INVESTMENT INCOME .................. 5,899,373
------------
EXPENSES:
Investment advisory fees ................. 3,359,667
Distribution fees ........................ 839,913
Shareholder services fees ................ 447,035
Shareholder communications expenses ...... 141,622
Custodian fees ........................... 77,552
Directors' fees .......................... 53,291
Legal and audit fees ..................... 45,238
Registration fees ........................ 27,450
Interest expense ......................... 128
Miscellaneous expenses ................... 21,696
------------
TOTAL EXPENSES ........................... 5,013,592
------------
NET INVESTMENT INCOME .................... 885,781
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments,
future contracts and foreign currency
transactions ........................... 73,307,441
Net change in unrealized appreciation
on investments and foreign currency
transactions ........................... (11,060,161)
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS ........................... 62,247,280
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................ $ 63,133,061
============
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------- -------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ................................... $ 885,781 $ (1,018,942)
Net realized gain on investments, futures contracts and
foreign currency transactions ................................ 73,307,441 32,777,593
Net change in unrealized appreciation on investments
and foreign currency transactions ............................ (11,060,161) 19,961,942
--------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. 63,133,061 51,720,593
--------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain on investments ............................... (34,529,473) (8,006,838)
--------------- -------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ............................ (34,529,473) (8,006,838)
--------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net increase (decrease) in net assets from capital
share transactions ........................................... 32,452,658 (16,130,819)
--------------- -------------
NET INCREASE IN NET ASSETS ..................................... 61,056,246 27,582,936
NET ASSETS:
Beginning of period ............................................ 305,402,716 277,819,780
--------------- -------------
End of period (Including undistributed net investment income
of $436,919 and $0, respectively) ............................ $366,458,962 $305,402,716
=============== ============
</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, each with four separate
classes of shares known as Class AAA, Class A, Class B and Class C. Currently,
only Class AAA Shares are offered to the public. 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 Board,
with member banks of the Federal Reserve System or with other brokers or dealers
that meet credit guidelines established by the Adviser and reviewed by the Board
of 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
18
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
on a daily basis to maintain the adequacy of the collateral. If the seller
defaults and the value of the collateral 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, 2000, 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.
For the year ended September 30, 2000, reclassifications were made to decrease
accumulated undistributed net investment income for $448,862 with an offsetting
adjustment to accumulated net realized gain on investments and foreign currency
transactions.
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 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, 2000, the Fund incurred distribution costs payable to Gabelli &
Company, Inc., an affiliate of the Adviser, of $839,913, 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, 2000, other than short term securities, aggregated $147,862,309
and $168,111,668, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the year ended September 30, 2000, the
Fund paid brokerage commissions of $421,012 to Gabelli & Company, Inc. and its
affiliates.
20
<PAGE>
THE GABELLI SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
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, 2000.
The average amount of borrowings outstanding daily during the year ended
September 30, 2000, was $36,339, with a related weighted average interest rate
of 6.31%. The maximum amount borrowed at any time during the year ended
September 30, 2000, was $700,000.
8. CAPITAL STOCK TRANSACTIONS. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold .................................. 5,968,164 $132,533,464 7,363,983 $155,723,402
Shares issued upon reinvestment of dividends . 1,593,188 33,008,696 386,789 7,658,321
Shares redeemed .............................. (6,021,219) (133,089,502) (8,536,838) (179,512,542)
--------- ------------ --------- -----------
Net increase ............................ 1,540,133 $ 32,452,658 (786,066) $(16,130,819)
========= ============ ========= ============
</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, 2000, 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, 2000 OUTSTANDING
--------- --------- ------ -------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Trans-Lux Corp. 87,000 -- 87,000 $ 0 $12,180 $402,375 9.02%
--------- --------- ------ -------- --------- --------- -----------
</TABLE>
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,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period ................. $ 21.84 $ 18.81 $ 25.42 $ 20.02 $ 19.34
-------- -------- -------- -------- -------
Net investment income (loss) ......................... 0.06 (0.07) (0.03) (0.07) (0.09)
Net realized and unrealized gain (loss)
on investments ..................................... 4.16 3.63 (2.99) 7.70 2.11
-------- -------- -------- ------- -------
Total from investment operations ..................... 4.22 3.56 (3.02) 7.63 2.02
-------- -------- -------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain on investments ..................... (2.46) (0.53) (3.59) (2.23) (1.34)
-------- -------- -------- ------- -------
Total distributions .................................. (2.46) (0.53) (3.59) (2.23) (1.34)
-------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD ....................... $ 23.60 $ 21.84 $ 18.81 $ 25.42 $ 20.02
======== ======== ======== ======= =======
Total return+ ........................................ 21.00% 19.24% (13.53)% 42.22% 10.97%
======== ======== ======== ======= =======
RATIOS TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ................. $366,459 $305,403 $277,820 $296,519 $223,239
Ratio of net investment income (loss)
to average net assets .............................. 0.26% (0.34)% (0.14)% (0.36)% (0.42)%
Ratio of operating expenses
to average net assets (a) .......................... 1.49% 1.56% 1.44% 1.62% 1.58%
Portfolio turnover rate .............................. 47% 24% 20% 14% 11%
--------------------------------
<FN>
+ 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, 2000, 1999 and 1997. If interest expense had not been incurred, the
ratios of operating expenses to average net assets would have been 1.49%,
1.53% and 1.52%, respectively.
</FN>
</TABLE>
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 statements of assets and liabilities, including
the portfolio of investments, of The Gabelli Small Cap Growth Fund (the "Fund")
(a series of Gabelli Equity Series Funds, Inc.) as of September 30, 2000, 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 auditing standards generally accepted
in the United States. 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, 2000 by correspondence with
the custodian and brokers, or other appropriate auditing procedures where
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, 2000, 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 accounting
principles generally accepted in the United States.
/S/ SIGNATURE OF ERNST & YOUNG
New York, New York
November 3, 2000
--------------------------------------------------------------------------------
2000 TAX NOTICE TO SHAREHOLDERS (Unaudited)
For the fiscal year ended September 30, 2000, the Fund paid to shareholders,
on December 20, 1999, an ordinary income dividend (comprised of short term
capital gains) totaling $0.141 per share and long term capital gains totaling
$2.321 per share. For the fiscal year ended September 30, 2000, 100% of the
ordinary income dividend qualifies for the dividend received deduction
available to corporations.
U.S. GOVERNMENT INCOME:
The percentage of the ordinary income dividend paid by the Fund during fiscal
year 2000 which was derived from U.S. Treasury securities was 8.71%. Such
income is exempt from state and local tax in all states. However, many
states, including New York and California, allow a tax exemption for a
portion of the income earned only if a mutual fund has invested at least 50%
of its assets at the end of each quarter of the Fund's fiscal year in U.S.
Government securities. The Gabelli Small Cap Growth Fund did not meet this
strict requirement in 2000. Due to the diversity in state and local tax law,
it is recommended that you consult your personal tax advisor as to the
applicability of the information provided to your specific situation.
--------------------------------------------------------------------------------
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.)
BOARD OF DIRECTORS
Mario J. Gabelli, CFA Robert J. Morrissey
CHAIRMAN AND CHIEF ATTORNEY-AT-LAW
INVESTMENT OFFICER MORRISSEY, HAWKINS & LYNCH
GABELLI ASSET MANAGEMENT INC.
Felix J. Christiana Karl Otto Pohl
FORMER SENIOR VICE PRESIDENT FORMER PRESIDENT
DOLLAR DRY DOCK SAVINGS BANK DEUTSCHE BUNDESBANK
Anthony J. Colavita Anthony R. Pustorino
ATTORNEY-AT-LAW CERTIFIED PUBLIC ACCOUNTANT
ANTHONY J. COLAVITA, P.C. PROFESSOR, PACE UNIVERSITY
Vincent D. Enright Anthonie C. van Ekris
FORMER SENIOR VICE PRESIDENT MANAGING DIRECTOR
AND CHIEF FINANCIAL OFFICER BALMAC INTERNATIONAL, INC.
KEYSPAN ENERGY CORP.
John D. Gabelli
SENIOR VICE PRESIDENT
GABELLI & COMPANY, INC.
OFFICERS
Mario J. Gabelli, CFA Bruce N. Alpert
PRESIDENT AND CHIEF VICE PRESIDENT AND TREASURER
INVESTMENT OFFICER
James E. McKee
SECRETARY
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
--------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of The
Gabelli Small Cap Growth Fund. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
--------------------------------------------------------------------------------
GAB443Q300SR
[PHOTO OF MARIO J. GABELLI OMITTED]
THE
GABELLI
SMALL CAP
GROWTH
FUND
ANNUAL REPORT
SEPTEMBER 30, 2000
