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Gabelli Equity Series Funds Inc – ‘N-30D’ for 3/31/97

As of:  Tuesday, 6/10/97   ·   For:  3/31/97   ·   Accession #:  1005477-97-1645   ·   File #:  811-06367

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 6/10/97  Gabelli Equity Series Funds Inc   N-30D       3/31/97    1:68K                                    CT EDGAR123/FA

Annual or Semi-Annual Report Mailed to Shareholders   —   Rule 30d-1
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Document/Exhibit                   Description                      Pages   Size 

 1: N-30D       Semi-Annual Report                                    19    111K 


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The Gabelli Small Cap Growth Fund One Corporate Center Rye, New York 10580-1434 Semi-Annual Report March 31, 1997(a) To Our Shareholders: The stock market roared out of the blocks in January, but quickly lost momentum as inflation jitters and a slumping bond market muddied the track. In late March, a rate hike by the Federal Reserve and much stronger than expected economic data stampeded equities investors, eroding most of the market's earlier gains. The Dow Jones Industrial Average and Standard & Poor's 500 Index closed the quarter with modest gains of 1.7% and 2.7%, respectively. Smaller stocks continued to lag as evidenced by the Russell 2000 Index's 5.2% decline. INVESTMENT RESULTS(b) -------------------------------------------------------------------------------- Calendar Quarter -------------------------------------- 1st 2nd 3rd 4th Year --- --- --- --- ---- 1997: Net Asset Value ... $19.11 -- -- -- -- Total Return....... 3.1% -- -- -- -- -------------------------------------------------------------------------------- 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%(c) 22.9%(c) -------------------------------------------------------------------------------- -------------------------------------------------- Average Annual Returns - March 31, 1997(b) ------------------------------------------- 1 Year....................................... 8.6% 5 Year...................................... 13.5% Life of Fund(c)............................. 18.7% -------------------------------------------------- Dividend History ----------------------------------------------------------- Payment (ex) Date Rate Per Share Reinvestment Price ----------------- -------------- ------------------ December 27, 1996 $2.160 $18.46 December 29, 1995 $1.340 $18.50 December 30, 1994 $1.030 $15.85 December 31, 1993 $0.420 $17.38 December 31, 1992 $0.185 $14.50 December 31, 1991 $0.080 $12.21 (a) The Fund's fiscal year ends September 30, 1997. (b) Average annual and total returns reflect changes in share price and reinvestment of dividends and are net of expenses. The net asset value of the Fund is reduced on the ex-dividend (payment) date by the amount of the dividend paid. Of course, total return represents past performance and does not guarantee future results. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed they may be worth more or less than their original cost. (c) From commencement of operations on October 22, 1991. --------------------------------------------------------------------------------
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Investment Performance For the first quarter ended March 31, 1997, The Gabelli Small Cap Growth Fund's total return was 3.1% compared to returns of 0.1% and (5.2)% over the same period for the Value Line Composite and Russell 2000 Index, respectively. Each index is an unmanaged indicator of stock market performance which does not take into account any charges, fees or other expenses. During the twelve months ended March 31, 1997, the Fund's net asset value increased 8.6% to $19.11 per share after adjusting for the $2.16 per share dividend paid on December 27, 1996. The Value Line Composite and Russell 2000 Index increased 13.4% and 5.1%, respectively, for the same period. For the five years ended March 31, 1997, the Fund achieved a total return of 88.4%, which equates to an average annual return of 13.5%. Since inception on October 22, 1991 through March 31, 1997, the Fund has had a total return of 154.5%, which equates to an average annual return of 18.7%. What We Do We do what is described as bottom-up research: we read annual reports; we visit the competition; we talk to customers; we go belly to belly with management. We structure our portfolio by picking stocks. In past reports, we have tried to articulate our investment philosophy and methodology. The following graphic further illustrates the interplay among the four components of our valuation approach. [GRAPHIC OMMITED] Our focus is on free cash flow; earnings before interest, taxes, depreciation and amortization (EBITDA) minus the capital expenditures necessary to grow the business. We believe free cash flow is the best barometer of a business' value. Rising free cash flow often foreshadows net earnings improvement. We also look at earnings per share trends. Unlike Wall Street's ubiquitous earnings momentum players, we do not try to forecast earnings with accounting precision and then trade stocks based on quarterly expectations and realities. We simply try to position ourselves in front of long-term earnings uptrends. In addition, we analyze on and off balance sheet assets and liabilities such as plant and equipment, inventories, receivables, and legal, environmental and health care issues. We want to know everything and anything that will add to or detract from our private market value (PMV) estimates. Finally, we look for a catalyst; something happening in the company's industry or indigenous to the company itself that will surface value. In the case of the independent telephone stocks, the catalyst is a regulatory change. In the agricultural equipment business, it is the increasing world-wide demand for American food and feed crops. In other instances, it may be a change in management, sale or spin-off of a division or the development of a profitable new business. Once we identify stocks that qualify as fundamental and conceptual bargains, we then become patient investors. This has been a proven long-term method for preserving and enhancing wealth in the U.S. equities market. At the margin, our new investments are focused on businesses that are well- 2
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managed and will benefit from sustainable long-term economic dynamics. These include macro trends, such as globalization of the market in filmed entertainment and telecommunications, and micro trends, such as increased focus on productivity enhancing goods and services. Commentary The Economy and the Stock Market: Too Much of a Good Thing Once again, the economy confounded the Wall Street economists by growing much faster than consensus expectations. Although inflation has not yet shown up in the Producer Price and Consumer Price indices, Federal Reserve Chairman Alan Greenspan and bond investors decided to err on the side of caution by taking short- and long-term interest rates higher. We applaud Fed Chairman Greenspan's preemptive strike against inflation. We believe he will continue to take the steps necessary to combat inflation and, in the process, provide confidence in Soft Landing - Part II. Over the short-term, this may not be pleasant for equities investors. However, with the elimination of some of the speculative excesses, the market will be on much better fundamental footing going forward. We do not believe this is the beginning of a secular bear market, but rather a healthy correction that is arguably long overdue. What can we expect over the balance of this year? We should continue to see a volatile market as skittish investors wrestle with the latest economic data trying to determine if inflation is a real threat. While the jury may still be out on inflation, higher interest rates are a reality and will be problematic for stocks on several levels. Higher interest rates might trim the economy and restrain corporate earnings growth, putting consensus estimates of 9% to 10% gains for 1997 in jeopardy. Higher rates also boost the U.S. dollar, further crimping the U.S. dollar value of international earnings. Whether you are looking at stocks on the basis of asset values or using a dividend discount model, public prices of equities tend to decline as interest rates rise, all else constant. So, price/cash flow and price/earnings multiples would contract, should interest rates rise. The wild card will be how investors react to any sustained decline in stock prices. A tremendous amount of money has flowed into the equities market in the last three years. Will it back out at the first sign of serious trouble? It may not be how the great unwashed public reacts, but rather how the great unwashed professional investors--those twenty and thirty something mutual fund managers who have never experienced even a substantial market correction--respond to the perceived crisis. Will they see the glass half empty or half full? We don't know. While we are dwelling on things on our watch list, we should also mention the strong dollar. Despite the enormous advances in the quality of American made goods in a wide variety of industries, the strong dollar will restrain exports and currency translation will have an adverse impact on the earnings of U.S. based multi-national companies. Longer term, we must also be sensitive to the fact that substantial cost reductions and productivity gains in American industry over the last five years may be close to running their course. In other words, profit margins are unlikely to advance further. 3
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We don't view a market correction as bad news. In general, we are not exposed to those sectors and individual companies that have benefited most from investor euphoria and which are, therefore, most vulnerable to a dramatic change in investor sentiment. If anything, a market correction should provide a more level playing field for disciplined investors focusing on the fundamental value of individual stocks. We are just now emerging from a two year period in which fundamentals mattered much less than market momentum. We are entering what may prove to be an extended period in which stock pickers excel. To Index or not Index - The New Rhetoric In 1995 and 1996, the S&P 500 Index proved to be a difficult benchmark for active managers of all stripes. It has been a particularly tough hurdle for value investors who have been unwilling to pay sky high price/earnings multiples for the mega-cap market darlings that have such an enormous impact on S&P 500 returns. There are several dynamics that have favored the largest S&P 500 stocks over the last several years. The first is the growth of S&P 500 Index funds themselves. S&P 500 Index mutual funds have grown at four times the rate of actively managed mutual funds over the last five years. So, we have seen an increasing amount of money chasing a finite number of large cap stocks and thus, on a pure supply/demand basis, indexing has been a self fulfilling prophecy. In addition, the substantial foreign money coming into the market is largely devoted to the big cap, household name stocks that dominate the S&P. Finally, active portfolio managers who have been under increasing pressure to be fully invested regardless of their concerns over equity valuations have pumped money into the large liquid stocks that comprise the S&P so that if something does go wrong, they can get out in a hurry. Finally, stocks like Microsoft, Intel, P&G, Coca-Cola and General Electric do benefit from faster growth in developing economies. With all of these factors favoring S&P 500 indexing, why bother doing anything else? We offer two answers. The first is that longer term, valuations do matter. Supply and demand are powerful forces in the market, but at some stage, economic reality always asserts itself. In the early 1970's the "Nifty Fifty", a group of terrific large cap growth companies, dominated the market. The consensus was that these were "one decision" stocks which you simply had to own and didn't ever have to worry about selling. At the peak, these stocks sold at ludicrous multiples relative to their economic value. When the fertilizer hit the market fan in 1973-74, they fell off a cliff. Even after one of the great long-term bull markets in history, some of these original "nifty-fifty" stocks still have market capitalizations below their 1972-73 peaks. We have not yet witnessed that level of speculative excess in today's market favorites, but we are seeing heady multiples that don't make economic sense. At some point, investors will come to their senses and realize that even the best (soft drink, household product, software, semi-conductor, movie company--pick one or more) is not worth a price/earnings multiple two to three times its annual earnings growth rate. Moreover, if earnings do not expand faster than revenues, and interest rates continue to provide present "real" rates of return, then overall stocks are unlikely to generate double-digit returns to investors. 4
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Our second response is simply that what has gone up the most is likely to fall the farthest with a major shift in investor sentiment. If and when we do see net cash outflows from equities mutual funds, we suspect index funds will get hit the hardest. Supply and demand is a two way street. Must Carry In an upset rivaling the University of Arizona's victory over Kentucky in the 1997 NCAA basketball championship, the Supreme Court voted 5 to 4 to uphold the "must carry" provision for local broadcast companies. The must carry rule specified that cable television systems must make one-third of their channel capacity available free to local broadcasters. Led by Ted Turner, the cable television industry had challenged the rule on the grounds that it violated their first amendment rights. The industry's economic goal was to free up channel capacity for new cable television networks providing more popular programming and paying the cable operator for channel space. The consensus of the lawyers on both sides of the issue was the cable guys would win. However, the Supreme Court decided that allowing cable operators to exclude local broadcast channels would create undue economic hardship for many broadcasters and threaten the survival of weaker independents. Who are the winners and losers? The broadcasters, particularly those with extensive UHF properties get a renewed lease on life as they maintain and in some cases add to their cable audience. The entrenched cable television networks, like International Family Entertainment, Inc. (FAM - $20.375 - NYSE), BET Holdings, Inc. (BTV - $29.625 - NYSE), Gaylord Entertainment Company (GET - $21.50 - NYSE), HSN, Inc. (HSNI - $25.375 - NASDAQ) and Tele-Communications, Inc./Liberty Media Group (LBTYA - $19.9375 - NASDAQ) benefit because with cable channel capacity still restrained, the value of their "slots" with cable operators increase in value. For example, the prospective value of International Family Entertainment to a News Corporation Limited (NWS - $18.00 - NYSE), which is trying to expand distribution of its programming, increases substantially. The biggest losers are the cable television network wannabes who will have to wait until cable operators complete upgrades to their systems before channel space is available. In This Corner Wearing the Red Trunks . . . A heavyweight battle is unfolding between Hilton Hotels Corporation (HLT - $24.25 - NYSE) CEO Stephen Bollenbach and ITT Corporation (ITT - $58.875 - NYSE) Chairman Rand Araskog. Bollenbach landed the first punch with an unsolicited $56 per share offer for ITT. Araskog responded by selling off non-core assets like ITT's 50% ownership of MSG (Madison Square Garden, the Knicks, and the Rangers) to partner Cablevision Systems Corporation (CVC - $29.75 - ASE) and ITT's 6% stake in French telecommunications giant Alsthom SA (ALA - $23.75 - NYSE). ITT's Educational Services and Worldwide Yellow Pages businesses are also on the block. For the time being, Bollenbach is circling the ring waiting for Araskog to counter-attack. What does this wily veteran of many takeover battles have up his sleeve? Our guess is that, aside from serving K-rations to corporate staff, he will further build up his cash reserves for a self tender in the $60 plus per share range. If this happens, we expect Bollenbach to wade in looking for a merger. It's still too early in what should be a full fifteen rounder to predict the 5
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winner. We're betting that shareholders of both these firms will benefit from these corporate heavyweights slugging it out. Snapple, Crack and Pop In another ring, Quaker Oats Company (OAT - $36.50 - NYSE) has thrown in the towel on Snapple, selling it to Triarc Companies Inc. (TRY - $17.50 - NYSE) for $300 million, $1.4 billion below the $1.7 billion it paid for the company just three years ago. Despite having egg--or is that iced tea--all over its face, Quaker Oats has become a much more attractive target for a larger food company like Nestle SA (NESAF - $1,170.95 - NASDAQ) or RJR Nabisco Holdings Corporation (RN - $32.25 - NYSE) looking for dominant market share brands like Quaker Oats' Gatorade and ready-to-eat breakfast cereals. We believe the company is worth well over $50 a share to the right buyer. Even if nothing develops on this front, Quaker Oats' earnings should be refreshing as they discontinue writing off all the goodwill on the ill-advised purchase of Snapple. Let's Talk Stocks The following are stock specifics on selected holdings of our Fund. Favorable EBITDA prospects do not necessarily translate into higher stock prices, but they do express a positive trend which we believe will develop over time. AMETEK, Inc. (AME - $21.125 - NYSE) manufactures electric motors and blowers for floor care, lawn and garden products, medical and heating equipment, precision instruments for the aerospace and process control industries, heavy vehicles, and specialty materials. AMETEK is the world's leading supplier of electric motors for vacuum cleaners. Its advanced motor technology, high quality and low costs provide an edge over competing producers. The company has an aggressive shareholder value enhancement program, including the proposed sale of its water filtration business (Plymouth Products) to Culligan Water Technologies Inc. (CUL - $39.125 - NYSE) for $155 million in debt and stock. Pro-forma for the transaction, we expect earnings per share to increase from $1.55 in 1997 to $1.80 in 1998 and almost $2.50 by the year 2000. BET Holdings, Inc. (BTV - $29.625 - NYSE) is a media-entertainment company that primarily targets black consumers, a market that was projected to spend over $425 billion in 1996. Its core business is Black Entertainment Television, Inc. (BET), an advertiser-supported, cable television programming service. BET serves over 45 million cable households. BET on Jazz: The Cable Jazz Channel has attracted 1 million subscribers since its launch a year ago. Action Pay-Per-View's subscriber base grew by 1 million to over 8 million as the service expanded beyond a traditional urban audience. The company is leveraging its brand identity into markets including pay-per-view movies, direct merchandising and magazine publishing. CLARCOR, Inc. (CLC - $23.125 - NYSE) is a manufacturer and marketer of filtration products and consumer packaging products. Filtration products include air, fuel and hydraulic filters for heavy-duty 6
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trucks, buses, cars, boats and air and anti-microbial filters for factories, hospitals and clean rooms. CLC is a leading producer of custom-decorated metal and plastic containers widely used by consumer products companies such as Johnson & Johnson, General Foods, McCormick and Nestle. Substantial cost savings and productivity improvements are expected in 1997 and further gains are anticipated through the end of the decade as the company continues its history of bringing acquisitions profitably into the fold. Dynamics Corporation of America (DYA - $38.125 - NYSE) is an under-followed company with a significant stake in CTS Corporation (CTS - $51.00 - NYSE). DYA owns 2.4 million shares, or 44%, of CTS's common stock. At CTS's current market price, DYA's investment is worth over $150 million which is only slightly less than the total equity market value for DYA. DYA and CTS are strong cash generators, have large cash balances and are virtually free of long-term debt. CTS has agreed to buy Dynamics, thwarting an earlier tender offer by WHX Corp. International Family Entertainment, Inc. (FAM - $20.375 - NYSE) is a Virginia-based entertainment company with production and distribution operations around the world. With such key assets as The Family Channel, MTM and Cable Health Club, FAM is a leading provider of cable programming oriented toward families. The Family Channel is performing exceptionally well, and MTM has been re-energized. While the company posts strong operating margins in its core businesses, it is currently funding losses in its start-up businesses. FAM has formed a joint venture to launch three Latin American channels. These new units provide operating leverage and, as they reach profitability, increase the opportunity for capital appreciation. Liberty Corporation (LC - $42.00 - NYSE) is a holding company for Liberty Life Insurance Company and Cosmos Broadcasting Corporation. Cosmos Broadcasting owns and operates eight network-affiliated television stations - 5 NBC, 2 ABC and 1 CBS - mainly in the Southeast. These stations serve 4.2 million households. Liberty Life is a regional insurer, with North Carolina and South Carolina accounting for more than 50% of its premium volume. The insurance segment specializes in providing agency (home service), pre-need and mortgage protection, life and health insurance. Neiman Marcus Group, Inc. (NMG - $25.75 - NYSE) operates 30 high-fashion Neiman Marcus stores and two Bergdorf Goodman stores in New York City. NMG's NM Direct is a state-of-the-art direct marketing operation. Harcourt General is the company's major shareholder, holding 53% of the outstanding common equity after last fall's public offering of eight million NMG shares. The proceeds from the offering were used to partially fund the repurchase of all its outstanding preferred stock (held by Harcourt General) for $416 million. Notwithstanding a disappointing Christmas selling season, Neiman Marcus is positioned to be an important participant in the trend to higher-scale consumer spending. We see earnings increasing to $2.00 per share in the next few years. Pittway Corporation (PRY - $51.00 - NYSE; PRY'A - $48.50 - NYSE) has undergone significant changes over the past few years, selling or spinning off businesses representing half its sales volume and over 60% of its income. The company has two remaining core businesses: manufacturing and distributing 7
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professional burglar and fire alarm equipment and publishing trade magazines and directories. Its Ademco Security Group, over 80% of revenues and operating profits, is growing rapidly. Penton Publishing is emerging from a period of difficult operating conditions and operating margins are showing improvement. Pittway is also involved in real estate and other promising ventures, including a 34% interest in Cylink (Pittway owns 8.6 million shares), a leading manufacturer of encryption equipment, and a 4.2% interest in U.S. Satellite Broadcasting (Pittway owns 3.8 million shares), a direct-to-the-home (DTH) satellite broadcast company whose subscriber base nearly doubled in 1996, reaching 1,220,000 by the end of December. United Television, Inc. (UTVI - $87.625 - NASDAQ) is a television broadcasting company which owns and operates five television stations: one ABC, one NBC and three UPN affiliates. Its stations cover approximately 6% of the U.S. population. UTVI is a 59%-owned subsidiary of BHC Communications. Strong advertising demand, prospects for favorable regulatory changes in the industry and corporate cost controls will magnify EBITDA growth going forward. Our 1997 PMV is estimated at $125 per share, $26 of which is cash. UTVI's PMV is expected to reach $162 by the year 2000. Wynn's International, Inc. (WYNN - $223.125 - NASDAQ) supplies O-rings, sealing products, specialty chemical products and builders hardware supplies. Its specialty chemicals division is comprised of Wynn Oil Company, a world-wide manufacturer and marketer of specialty chemicals and equipment for automotive and industrial markets in over 100 countries. The company has begun a tender offer to repurchase for cash up to 1.1 million, or 8%, of its outstanding common shares in a Dutch auction. No Load - Effective August 12, 1996 Effective August 12, 1996, the Fund no longer imposes a front-end sales charge. All purchases made after August 12, 1996 are not subject to a sales charge. The minimum initial investment for all accounts is $1,000. Additionally, we invite shareholders to start an automatic investment plan whereby no initial minimum is required. Furthermore, The Gabelli Small Cap Growth Fund and other Gabelli Funds are available through the no-transaction fee programs at many major discount brokerage firms. Internet You can now visit us on the Internet. Our home page at http://www.gabelli.com contains information about Gabelli Funds, Inc., the Gabelli Mutual Funds, quarterly reports, closing prices, IRAs, 401(k)s and other current news. You can also send us e-mail at info@gabelli.com. In Conclusion In our year-end 1996 letter to you, we expressed our doubts about the market's ability to duplicate its substantial gains in 1995 and 1996. After getting off to a strong start, the market lost momentum and then sputtered badly at the end of the quarter as strong economic data re-ignited inflationary fears. As 8
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we write, the jury is still out on inflation, but long interest rates are above 7%, providing sizeable "real" rates of return. Looking ahead, we anticipate a continually volatile stock market that will have many investors on the edge of their seats. We rest somewhat more comfortably having been through such uneasy times before and having faith that our value oriented discipline will sustain us as it has in the past. The Fund's daily net asset value is available in the financial press and each evening after 6:00 PM (Eastern Time) by calling 1-800-GABELLI (1-800-422-3554). The Fund's NASDAQ symbol is GABSX. Please call us during the day for further information. We thank you for your confidence in our investing abilities and wish you a productive and financially rewarding 1997. Sincerely, /s/ Mario J. Gabelli Mario J. Gabelli, CFA President and Chief Investment Officer May 1, 1997 -------------------------------------------------------------------------------- Top Ten Holdings March 31, 1997 -------------- United Television, Inc. AMETEK, Inc. Int'l Family Entertainment, Inc. CLARCOR, Inc. Neiman Marcus Group, Inc. BET Holdings, Inc. Dynamics Corporation of America Pittway Corporation Liberty Corporation Wynn's International, Inc. -------------------------------------------------------------------------------- NOTE: The views expressed in this report reflect those of the portfolio manager only through the end of the period of this report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 9
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The Gabelli Small Cap Growth Fund Portfolio of Investments -- March 31, 1997 (Unaudited) ================================================================================ Market Shares Cost Value ------ ---- ----- COMMON STOCKS -- 101.24% AGRICULTURE -- 0.01% 199 Delta and Pine Land Company+................. $ 1,273 $ 6,169 ---------- ---------- AUTOMOTIVE: PARTS AND ACCESSORIES -- 6.51% 8,000 APS Holding Corporation Cl. A+...................................... 124,100 68,500 70,000 GenCorp Inc.................................. 1,053,410 1,330,000 28,000 Handy & Harman .............................. 424,124 420,000 2,000 Lund International Holdings Inc....................................... 25,000 25,500 40,000 Modine Manufacturing Company................................... 719,446 980,000 8,000 Monro Muffler Brake, Inc.+................... 88,251 133,000 75,000 Redlaw Industries Inc.+...................... 252,153 84,375 15,500 SPX Corporation.............................. 337,850 703,267 110,000 Standard Motor Products, Inc................. 1,544,175 1,443,750 70,000 Stant Corporation............................ 727,452 1,023,750 2,000 Strattec Security Corporation............................... 22,500 35,000 1,800 Superior Industries International, Inc........................ 24,922 40,680 118,000 TransPro Inc................................. 1,254,794 1,047,250 165,000 UAP Inc. Cl. A............................... 1,824,324 2,056,539 171,000 Wynn's International, Inc.................... 1,204,529 3,954,375 ---------- ---------- 9,627,030 13,345,986 ---------- ---------- AVIATION: PARTS AND ACCESSORIES -- 0.96% 10,000 AAR Corporation ............................. 198,875 300,000 30,000 Curtiss-Wright Corporation................... 1,097,362 1,605,000 26,500 Hi-Shear Industries Inc.+.................... 58,140 68,734 ---------- ---------- 1,354,377 1,973,734 ---------- ---------- AVIATION: PARTS AND SERVICES -- 2.82% 40,000 Hudson General Corporation................... 607,299 1,490,000 80,000 Moog, Inc. Cl. A............................. 1,567,692 1,870,000 170,000 UNC Incorporated............................. 1,096,148 2,422,500 ---------- ---------- 3,271,139 5,782,500 ---------- ---------- BROADCASTING -- 6.76% 75,000 Ackerley Group, Inc.......................... 364,100 984,375 3,000 Clear Channel Communications, Inc.+..................... 20,880 128,625 12,000 Granite Broadcasting Corporation............................... 156,125 115,500 15,000 Gray Communications Systems, Inc.+............................ 295,612 273,750 20,000 Gray Communications Systems, Inc. Cl. B....................... 334,225 365,000 125,000 Liberty Corporation ......................... 3,246,111 5,250,000 10,000 NTN Communications Inc....................... 70,500 41,875 40,000 Paxson Communications Corporation............................... 315,804 430,000 2,500 Price Communications Corporation+.............................. 8,600 24,375 2,000 Scandinavian Broadcast System S.A.+.............................. 27,300 36,000 70,000 United Television, Inc....................... 1,779,330 6,133,750 3,000 Young Broadcasting Inc....................... 71,170 72,375 ---------- ---------- 6,689,757 13,855,625 ---------- ---------- BUILDING AND CONSTRUCTION -- 2.81% 100,000 CalMat Co.................................... 1,812,337 1,762,500 100,000 Catellus Development Corporation............................... 908,543 1,525,000 19,300 Florida Rock Industries, Inc................. 552,221 632,075 8,000 Medusa Corporation........................... 167,466 300,000 15,000 Morgan Products Ltd.+........................ 128,662 116,250 10,000 Oakwood Homes Corporation.................... 114,281 176,250 82,500 Republic Group, Inc.......................... 473,636 1,258,125 ---------- ---------- 4,157,146 5,770,200 ---------- ---------- BUSINESS SERVICES -- 1.64% 5,000 Amway Asia Pacific Ltd.+..................... 145,750 188,125 14,641 Amway Japan Limited Spons. ADR................................ 322,933 206,804 25,000 BBN Corporation.............................. 656,479 415,625 32,000 Berlitz International, Inc.+................. 470,487 716,100 15,000 Borg-Warner Security Corporation+.............................. 157,250 219,375 13,000 Data Transmission Network Corporation............................... 65,092 341,250 10,000 Landauer, Inc................................ 163,887 210,000 4,000 Hach Company................................. 73,075 71,000 82,500 Nashua Corporation........................... 2,038,692 990,000 ---------- ---------- 4,093,645 3,358,279 ---------- ---------- CABLE DISTRIBUTION -- 0.32% 8,600 Jones Intercable Investors L.P............................. 88,237 131,150 8,000 People's Choice TV Corporation............................... 130,029 21,000 55,000 United International Holdings, Inc. Cl. A...................... 732,527 522,500 ---------- ---------- 950,793 674,650 ---------- ---------- CABLE PROGRAMMERS -- 4.95% 150,000 BET Holdings, Inc............................ 2,561,337 4,443,750 280,000 International Family Entertainment, Inc.+...................... 3,178,702 5,705,000 ---------- ---------- 5,740,039 10,148,750 ---------- ---------- COMMERCIAL SERVICES -- 0.33% 16,000 Pittston Brink's Group....................... 452,988 404,000 10,000 Wackenhut Corporation Cl. A.................. 136,510 161,250 The accompanying notes are an integral part of the financial statements. 10
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The Gabelli Small Cap Growth Fund Portfolio of Investments (Continued) -- March 31, 1997 (Unaudited) ================================================================================ Market Shares Cost Value ------ ---- ----- COMMON STOCKS (CONTINUED) 6,187 Wackenhut Corporation Cl. B ............................. $ 52,368 $ 88,164 ---------- ----------- 641,866 653,414 ---------- ----------- COMMUNICATIONS EQUIPMENT -- 0.04% 5,000 Allen Telecom, Inc. ............... 79,000 87,500 ---------- ----------- COMPUTER SOFTWARE AND SERVICES -- 0.02% 1,000 Noise Cancellation Technologies, Inc. ................ 625 468 1,000 Volt Information Sciences, Inc.+ ............................. 7,875 47,500 ---------- ----------- 8,500 47,968 ---------- ----------- CONSUMER PRODUCTS -- 6.61% 90,501 Carlyle Industries, Inc. .......... 538,478 192,314 100,000 Carter-Wallace, Inc. .............. 1,168,889 1,362,500 75,000 Church & Dwight Co., Inc. ......... 1,614,693 2,156,250 12,000 Coachmen Industries, Inc. ......... 80,758 226,500 41,000 Culbro Corporation ................ 1,515,696 3,843,750 1,000 Harley-Davidson Inc. .............. 9,425 33,875 38,000 First Brands Corporation .......... 517,525 931,000 98,000 General Housewares Corp. .......... 1,309,288 943,250 115,000 Genlyte Group Incorporated ........ 454,890 1,250,625 95,000 Kerr Group, Inc.+ ................. 660,376 201,875 12,000 Mafco Consolidated Group Inc.+ ............................. 279,006 384,000 1,000 Nu-Kote Holding, Inc. Cl. A+ ...... 8,400 2,750 2,000 Playtex Products, Inc.+ ........... 14,600 21,750 60,000 Scotts Company Cl. A+ ............. 1,050,269 1,380,000 15,000 Skyline Corporation ............... 271,425 328,125 8,000 Stewart Enterprises, Inc. ......... Cl. A ............................. 74,133 292,000 ---------- ----------- 9,567,851 13,550,564 ---------- ----------- CONSUMER SERVICES -- 1.46% 35,000 Department 56, Inc. ............... 825,190 608,125 94,250 HSN, Inc. ......................... 2,322,590 2,391,594 ---------- ----------- 3,147,780 2,999,719 ---------- ----------- COUNTRY/CLOSED END FUNDS -- 2.03% 47,000 Central European Equity Fund Inc. ......................... 633,608 1,004,625 80,000 Emerging Germany Fund Inc. .............................. 629,750 700,000 45,000 France Growth Fund, Inc. .......... 476,793 500,625 35,000 Germany Fund, Inc. ................ 395,061 463,750 44,000 Italy Fund, Inc. .................. 394,347 374,000 70,000 New Germany Fund, Inc. ............ 817,411 980,000 12,700 Spain Fund Inc. ................... 118,435 144,462 ---------- ----------- 3,465,405 4,167,462 ---------- ----------- DIVERSIFIED INDUSTRIAL -- 7.38% 70,000 Ampco-Pittsburgh Corporation ....................... 533,837 848,750 8,000 Anixter International Inc. ........ 76,160 99,000 53,500 Crane Company ..................... 944,094 1,678,562 500 Flanders Corporation .............. 5,812 4,750 30,000 Gardner Denver Machinery Corporation ....................... 251,775 712,500 21,500 Katy Industries, Inc. ............. 241,674 335,937 445,000 Lamson & Sessions Co.+ ............ 2,545,556 3,504,375 66,000 Lindsay Manufacturing Co.+ ........ 959,932 2,161,500 338,000 Noel Group, Inc.+ ................. 1,761,811 2,197,000 33,000 Oil-Dri Corporation of America ........................... 445,450 540,375 65,000 Park-Ohio Industries, Inc.+ ....... 756,924 861,250 22,000 Standex International Corporation ....................... 674,662 574,750 15,000 Trinity Industries, Inc. .......... 409,250 455,625 710,000 Tyler Corporation+ ................ 3,254,292 1,153,750 ---------- ----------- 12,861,229 15,128,124 ---------- ----------- ELECTRICAL EQUIPMENT AND SUPPLIES -- 8.53% 215,000 AMETEK, Inc. ...................... 3,115,931 4,541,875 1,000 Belden Inc. ....................... 15,425 35,625 41,000 CTS Corporation ................... 971,362 2,091,000 140,000 Dynamics Corporation of America ........................... 1,512,123 5,337,500 74,700 Kollmorgen Corporation ............ 571,447 1,027,125 6,000 Littelfuse, Inc.+ ................. 79,937 277,500 126,000 Thomas Industries Inc. ............ 1,382,200 2,961,000 100,000 Trans-Lux Corporation(a) .......... 831,792 1,225,000 ---------- ----------- 8,480,217 17,496,625 ---------- ----------- EQUIPMENT AND SUPPLIES -- 9.35% 47,000 AFC Cable Systems, Inc.+ .......... 477,933 975,250 20,000 Alltrista Corp. ................... 380,822 460,000 42,000 Brad Ragan, Inc.+ ................. 1,075,312 1,155,000 320,000 Baldwin Technology Company, Inc. Cl. A ............... 1,534,458 1,000,000 10,000 BW/IP Holding, Inc. ............... 155,625 151,250 194,500 CLARCOR Inc. ...................... 3,301,369 4,497,812 1,000 Commercial Intertech Corporation ....................... 11,675 11,250 7,500 Cuno Incorporated ................. 118,325 115,312 5,000 Ducommun, Incorporated ............ 80,125 121,875 20,000 General Magnaplate Corporation ....................... 83,762 122,500 60,000 Gerber Scientific, Inc. ........... 746,587 930,000 17,000 Global Industrial Technologies Inc. ................. 217,550 293,250 34,650 Johnston Industries, Inc. ......... 268,295 264,206 The accompanying notes are an integral part of the financial statements. 11
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The Gabelli Small Cap Growth Fund Portfolio of Investments (Continued) -- March 31, 1997 (Unaudited) ================================================================================ Market Shares Cost Value ------ ---- ----- COMMON STOCKS (CONTINUED) 12,000 K-Tron International, Inc.+ ....... $ 95,932 $ 124,500 22,000 Lufkin Industries, Inc. ........... 389,520 485,375 5,500 Mark IV Industries, Inc. .......... 97,883 129,250 84,000 Pittway Corporation ............... 2,140,908 4,284,000 2,000 Plantronics, Inc.+ ................ 30,791 86,000 37,000 Sequa Corporation Cl. A+ .......... 1,284,714 1,651,125 3,500 Sequa Corporation Cl. B+ .......... 119,646 179,812 17,500 SPS Technologies, Inc.+ ........... 448,825 1,181,250 6,000 Teleflex Incorporated ............. 187,625 317,250 14,000 Tennant Company ................... 304,175 388,500 3,000 Valmont Industries, Inc. .......... 48,750 117,000 5,250 Watsco, Inc. Cl. B ................ 23,627 137,812 ---------- ----------- 13,624,234 19,179,579 ---------- ----------- ENERGY -- 2.58% 1,425,000 GEO International Corporation(a)(c) ................. 74,144 1 75,000 Kaneb Services, Inc.+ ............. 172,000 300,000 220,000 RPC Inc.+ ......................... 1,637,237 3,162,500 105,000 Southwest Gas Corporation ......... 1,783,470 1,824,375 ---------- ----------- 3,666,851 5,286,876 ---------- ----------- ENTERTAINMENT -- 0.56% 12,000 All American Communications Inc. ............... 133,156 156,756 10,000 Cineplex Odeon Corporation+ ....... 20,887 15,000 2,000 Fisher Companies Inc. ............. 194,825 242,000 3,000 International Speedway Corporation ....................... 54,000 59,250 2,000 Metromedia International Group Inc. ........................ 22,000 17,376 75,000 Spelling Entertainment Group Inc. ........................ 578,499 431,250 55,000 Topps Company Inc.+ ............... 331,431 220,000 ---------- ----------- 1,334,798 1,141,632 ---------- ----------- ENVIRONMENTAL CONTROL -- 0.15% 150,000 EnviroSource, Inc.+ ............... 481,745 309,375 ---------- ----------- FINANCIAL SERVICES -- 1.84% 70,000 Berliner Bank Aktiengesellschaft ................ 1,452,996 1,412,537 50,000 Danielson Holding Corporation ....................... 185,137 343,750 1,000 Federal Agricultural Mortgage Corp. Cl. C .............. 24,000 25,250 6,000 Gryphon Holdings Inc.+ ............ 78,000 85,500 18,000 Hibernia Corporation .............. 140,062 236,250 4,000 Lawyers Title Insurance Corp. ............................. 58,015 78,000 40,000 Midland Company ................... 1,717,750 1,600,000 ---------- ----------- 3,655,960 3,781,287 ---------- ----------- FOOD AND BEVERAGE -- 4.71% 70,000 Celestial Seasonings, Inc.+ ....... 1,389,800 1,505,000 5,000 Cheesecake Factory Incorporated+ ..................... 82,003 98,750 90,000 Chock Full o'Nuts Corporation+ ...................... 662,821 528,750 40,000 Delchamps, Inc. ................... 858,622 965,000 220,000 Eskimo Pie Corporation(a) ......... 3,429,361 2,722,500 1,000 Farmer Brothers Company ........... 133,895 135,000 18,000 Genesee Corporation Cl. B ......... 727,316 724,500 10,000 Grist Mill Co. .................... 73,022 58,750 10,000 International Multifoods Corporation ....................... 199,920 205,000 12,000 J & J Snack Foods Corp.+ .......... 121,707 153,000 7,000 Midwest Grain Products, Inc. ...... 130,620 84,000 1,000 Northland Cranberries, Inc. ....... Cl. A ............................. 7,625 18,125 65,000 Pepsi-Cola Puerto Rico Bottling Company .................. 315,125 276,250 10,000 Ralcorp Holdings, Inc.+ ........... 81,752 102,500 80,000 Rykoff-Sexton, Inc. ............... 1,182,973 1,410,000 8,000 Sylvan Foods Holdings, Inc.+ ...... 78,794 94,000 12,921 Tootsie Roll Industries, Inc. ..... 456,225 579,845 ---------- ----------- 9,931,581 9,660,970 ---------- ----------- HOME FURNISHINGS -- 1.17% 8,000 Bassett Furniture Industries, Incorporated+ ..................... 188,438 192,000 1,000 Bed Bath & Beyond Inc.+ ........... 11,125 24,187 18,000 Foamex International Inc.+ ........ 157,287 281,250 10,000 La-Z-Boy Chair Company ............ 218,125 342,500 13,000 National Presto Industries, Inc. .............................. 561,358 466,375 55,000 Oneida Ltd. ....................... 857,024 1,086,250 ---------- ----------- 1,993,357 2,392,562 ---------- ----------- HOSPITAL SUPPLIES AND SERVICES -- 0.03% 6,000 U.S. Physical Therapy Inc. ........ 37,500 58,875 ---------- ----------- HOTELS/GAMING -- 2.82% 390,000 Aztar Corporation ................. 2,510,069 2,778,750 6,000 Boyd Gaming Corp. ................. 73,300 33,750 4,000 Chartwell Leisure, Inc. ........... 50,031 56,000 10,000 Churchill Downs Incorporated ...................... 416,462 377,500 115,000 Jackpot Enterprises, Inc. ......... 1,329,037 1,150,000 52,000 Mirage Resorts, Incorporated+ ..... 267,538 1,105,000 2,000 Penn National Gaming, Inc. ........ 40,250 33,000 20,000 Station Casinos, Inc.+ ............ 271,470 162,500 10,000 Trump Hotels & Casino Resorts Inc. ...................... 101,750 90,000 ---------- ----------- 5,059,907 5,786,500 ---------- ----------- The accompanying notes are an integral part of the financial statements. 12
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The Gabelli Small Cap Growth Fund Portfolio of Investments (Continued) -- March 31, 1997 (Unaudited) ================================================================================ Market Shares Cost Value ------ ---- ----- COMMON STOCKS (CONTINUED) HOUSING RELATED 1.05% 110,000 Nortek, Inc. ...................... $ 660,217 $ 2,158,750 ---------- ----------- METALS AND MINING -- 2.95% 8,000 Barrick Gold Corporation .......... 200,462 190,000 130,000 Echo Bay Mines Ltd. ............... 1,312,387 861,250 120,000 Pegasus Gold Inc.+ ................ 1,720,383 975,000 115,000 Pioneer Group, Inc. ............... 1,269,630 2,975,625 220,000 Royal Oak Mines Inc.+ ............. 1,035,782 701,250 50,000 TVX Gold, Inc. .................... 396,250 356,250 ---------- ----------- 5,934,894 6,059,375 ---------- ----------- PAPER AND FOREST PRODUCTS -- 1.59% 120,000 Greif Bros. Corporation Class A ........................... 2,230,763 3,270,000 ---------- ----------- PUBLISHING -- 3.50% 40,000 Golden Books Family Entertainment, Inc. ............... 434,824 370,000 121,278 Independent Newspapers Ltd. .............................. 380,260 651,921 16,000 McClatchy Newspapers, Inc. ........ Cl. A ............................. 249,915 382,000 70,000 Media General, Inc. Cl. A ......... 1,222,970 1,986,250 34,000 Meredith Corporation .............. 507,792 786,250 44,000 Pulitzer Publishing Company ....... 1,347,666 1,903,000 50,000 Thomas Nelson Inc. ................ 656,337 525,000 18,500 Wiley (John) & Sons, Inc. Cl. B ........................ 263,093 566,562 ---------- ----------- 5,062,857 7,170,983 ---------- ----------- PUMPS AND VALVES -- 4.26% 32,750 Duriron Company, Inc. ............. 573,302 720,500 60,000 Franklin Electric Company ......... 1,824,434 2,670,000 17,775 Gorman-Rupp Company ............... 276,467 284,400 100,000 Goulds Pumps, Incorporated ........ 2,389,857 2,337,500 2,000 Graco Inc. ........................ 24,966 57,500 75,000 IDEX Corporation .................. 618,333 1,762,500 10,000 Robbins & Myers, Inc. ............. 98,665 265,000 15,000 Roper Industries, Inc. ............ 195,000 631,875 ---------- ----------- 6,001,024 8,729,275 ---------- ----------- RETAIL -- 7.53% 55,000 Aaron Rents, Inc. ................. 187,197 632,500 44,700 Aaron Rents, Inc. Cl. A ........... 147,448 480,525 250,000 Bruno's, Inc. ..................... 2,682,996 3,343,750 85,000 Burlington Coat Factory Warehouse Corporation+ ............ 1,042,037 1,530,000 7,000 Crown Books Corporation+ .......... 98,017 84,000 90,000 Earl Scheib, Inc.+ ................ 513,020 562,500 25,000 Fingerhut Companies, Inc. ......... 367,919 350,000 178,500 General Host Corporation+ ......... 1,029,684 647,062 Principal Amount Market or Shares Cost Value --------- ---- ----- 100,000 Hartmarx Corporation+ ............. $ 610,438 $ 575,000 25,000 Ingles Markets, Incorporated Cl. A ................ 185,950 365,625 90,000 Lillian Vernon Corporation ........ 1,328,294 1,260,000 33,500 Mott's Holdings, Inc. ............. 214,068 201,000 210,000 Neiman Marcus Group, Inc.+ ........ 3,016,902 5,407,500 ---------- ----------- 11,423,970 15,439,462 ---------- ----------- SPECIALTY CHEMICALS -- 0.93% 30,000 Ferro Corporation ................. 714,101 900,000 12,000 MacDermid, Incorporated ........... 124,546 417,000 32,000 Penwest Ltd. ...................... 609,117 600,000 ---------- ----------- 1,447,764 1,917,000 ---------- ----------- TELECOMMUNICATIONS -- 1.97% 18,000 Aliant Communications Inc. ........ 231,437 297,000 23,000 Atlantic Tele-Network, Inc.+ ...... 255,909 281,750 2,000 BHI Corporation ................... 30,250 38,750 100,000 Communications Systems, Inc. .............................. 556,543 1,375,000 41,000 C-TEC Corporation+ ................ 934,409 1,158,250 30,000 C-TEC Corporation Cl. B+ .......... 495,026 881,250 ---------- ----------- 2,503,574 4,032,000 ---------- ----------- TRANSPORTATION -- 0.24 50,000 OMI Corp. ......................... 334,637 487,500 4,000 WorldCorp, Inc. ................... 19,575 11,500 ---------- ----------- 354,212 499,000 ---------- ----------- WIRELESS COMMUNICATIONS -- 0.83% 51,000 Aerial Communications, Inc. ....... 429,500 280,500 50,000 American Paging, Inc.+ ............ 392,912 175,000 2,000 Associated Group Inc., Cl. A ...... 50,750 75,500 17,000 Corecomm Inc. ..................... 291,750 246,500 70,000 Centennial Cellular Corp.+ ........ 1,110,251 726,250 10,000 Palmer Wireless Inc. .............. 98,000 122,500 2,000 Rural Cellular Corp. Cl. A ........ 20,250 21,000 5,000 Western Wireless Corp. ............ 72,125 62,500 ---------- ----------- 2,465,538 1,709,750 ---------- ----------- TOTAL COMMON STOCKS ............... 152,007,793 207,630,520 ------------ ----------- CONVERTIBLE CORPORATE BONDS -- 0.75% AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.17% $300,000 GenCorp Inc. Sub. Deb. Cv. 8.00%, 08/01/02.................. 298,528 351,750 ------------ ------------ ENTERTAINMENT -- 0.08% 200,000 Savoy Pictures Entertainment, Inc. Sub. Deb. Cv. 7.00%, 07/01/03................. 161,323 167,000 ------------ ------------ The accompanying notes are an integral part of the financial statements. 13
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The Gabelli Small Cap Growth Fund Portfolio of Investments (Continued) -- March 31, 1997 (Unaudited) ================================================================================ Principal Market Amount Cost Value --------- ---- ----- CONVERTIBLE CORPORATE BONDS (CONTINUED) INDUSTRIAL EQUIPMENT AND SUPPLIES -- 0.34% $650,000 Intermagnetics General Corporation Sub. Deb. Cv. 5.75%, 09/15/03(b)......... $ 649,598 $ 546,000 250,000 Kushner-Locke Company Sub. Deb. Cv. 8.00%, 12/15/2000(c).................. 250,000 150,000 500 MacNeal-Schwendler Corporation Sub. Deb. Cv. 7.875%, 08/18/04............... 531 487 ------------ ------------ 900,129 696,487 ------------ ------------ RETAIL -- 0.16% 400,000 General Host Corporation Sub. Deb. Cv. 8.00%, 02/15/02....................... 383,727 328,000 ------------ ------------ TOTAL CONVERTIBLE CORPORATE BONDS................ 1,743,706 1,543,237 ------------ ------------ TOTAL INVESTMENTS -- 101.99%...................... 153,751,499 209,173,757 ============ Liabilities, in excess of Other Assets -- (1.99)% ........ (4,081,080) ------------ NET ASSETS -- 100.00% (10,732,590 shares outstanding)................... $205,092,677 ============ Net Asset Value And Redemption Price Per Share...................... $19.11 ====== ------------ + Non-income producing security. ADR -- American Depositary Receipts. (a) Considered an affiliated issuer because the Fund owns at least 5% of the outstanding voting securities. (See Note 8.) (b) Security-exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transac tions exempt from registration normally to qualified institutional buyers. At March 31, 1997, Rule 144A securities amounted to $546,000 or 0.3% of net assets. (c) Security fair valued as determined by the Board of Directors. The accompanying notes are an integral part of the financial statements. 14
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The Gabelli Small Cap Growth Fund Statement of Assets and Liabilities (Unaudited) March 31, 1997 ================================================================================ Assets: Investments in securities, at value (Cost $153,751,499) .................................... $209,173,757 Cash ..................................................... 734,538 Receivable for Fund shares sold .......................... 65,710 Receivable for investments sold .......................... 687,110 Dividends receivable ..................................... 198,490 Accrued interest receivable .............................. 19,400 Other assets ............................................. 396 ------------ Total assets ........................................... 210,879,401 ------------ Liabilities: Payable to Advisor (Note 4) .............................. 179,809 Note payable ............................................. 4,740,000 Payable to Custodian ..................................... 13,996 Payable for distribution fees (Note 6) ................... 195,630 Payable for investments purchased ........................ 331,820 Payable for Fund shares redeemed ......................... 297,865 Interest payable ......................................... 21,504 Other accrued liabilities ................................ 6,100 ------------ Total liabilities ...................................... 5,786,724 ------------ Net assets (applicable to 10,732,590 shares outstanding) (Note 2) ......................... $205,092,677 ============ Net asset value and redemption price per share ...................................... $ 19.11 ============ Net Assets Consist of: Capital Stock, at par value (Note 2) ..................... $ 10,733 Additional paid-in capital ............................... 134,163,206 Accumulated net realized gain on investments and futures transactions ................... 15,500,959 Net unrealized appreciation on investments and assets and liabilities denominated in foreign currencies ..................................... 55,417,779 ------------ Net assets ............................................. $205,092,677 ============ Statement of Operations (Unaudited) For the Six Months Ended March 31, 1997 ================================================================================ Investment Income: Dividends (net of foreign taxes of $4,010) ................. $ 1,554,570 Interest ................................................... 69,876 ------------ Total income ............................................. 1,624,446 ------------ Expenses: Investment advisory fee (Note 4) ........................... 1,074,796 Distribution expenses (Note 5) ............................. 251,714 Transfer and shareholder servicing agent ................... 213,377 Interest expense ........................................... 203,777 Custodian fees and expenses ................................ 32,876 Printing and mailing expenses .............................. 27,501 Legal and audit fees ....................................... 22,076 Directors' fees ............................................ 17,300 Registration fees .......................................... 9,805 Miscellaneous .............................................. 8,016 ------------ Total expenses ........................................... 1,861,238 Investment loss - net ...................................... (236,792) ------------ Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions: Net realized gain on investments and foreign currency transactions ........................ 15,063,792 Net change in unrealized appreciation ...................... (1,008,268) ------------ Net gain on investments .................................. 14,055,524 ------------ Net increase in net assets resulting from operations ............................................ $ 13,818,732 ============ Statement of Changes in Net Assets (Unaudited) ================================================================================ [Enlarge/Download Table] Six Months Year Ended Ended March 31, September 30, 1997 1996 --------------- ------------- Increase (decrease) in Net Assets: Investment loss - net ................................................. $ (236,792) $ (962,109) Net realized gain on investments and foreign currency transactions .... 15,063,792 23,621,731 Net change in unrealized appreciation ................................. (1,008,268) 1,263,486 ------------- ------------- Net increase in net assets resulting from operations ................ 13,818,732 23,923,108 ------------- ------------- Distributions from net realized gains ................................. (22,653,837) (15,495,706) ------------- ------------- Share transactions - net .............................................. (9,311,421) (16,344,400) ------------- ------------- Net decrease in net assets .......................................... (18,146,526) (7,916,998) Net Assets: Beginning of period ................................................... 223,239,203 231,156,201 ------------- ------------- End of period ......................................................... $ 205,092,677 $ 233,239,203 ============= ============= The accompanying notes are an integral part of the financial statements 15
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The Gabelli Small Cap Growth Fund Notes to Financial Statements (Unaudited) ================================================================================ 1. Significant Accounting Policies. The Gabelli Small Cap Growth Fund (the "Fund") is a series of Gabelli Equity Series Funds, Inc. (the "Corporation"). The Fund is an open-end, diversified management investment company and one of two seperately managed portfolios of the Corporation. The Corporation was incorporated in Maryland on July 25, 1991. Prior to October 22, 1991 (commencement of operations), the Fund had no operations other than the sale of 10,000 shares of common stock at $10.00 per share to Gabelli Funds, Inc., the Fund's advisor, on September 16, 1991. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Fund. Security Valuation. Portfolio securities listed or traded on the New York or American Stock Exchanges or quoted by the National Association of Securities Dealers Automated Quotations, Inc. ("NASDAQ") are valued at the last sale price on that exchange (if there were no sales that day, the security is valued at the average of the bid and asked prices). All other portfolio securities for which over-the-counter market quotations are readily available are valued at the latest average of the bid and asked prices. When market quotations are not readily available, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Corporation's Directors. Short-term debt securities with remaining maturities of 60 days or fewer are valued at amortized cost, unless the Directors determine such does not reflect the securities' fair value, in which case these securities will be valued at their fair value as determined by the Directors. Options are valued at the last sale price on the exchange on which they are listed, unless no sales of such options have taken place that day, in which case they will be valued at the mean between their closing bid and asked prices. Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars as follows: (i) market value of investment securities and other assets and liabilities are recorded at the exchange rate on the valuation date. (ii) purchases and sales of investment securities, income and expenses are recorded at the exchange rate prevailing on the respective date of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuation arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Federal Income Taxes. The Fund intends to continue to qualify as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986 and distribute all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. Dividends from net investment income and distributions from net realized gains are determined in accordance with federal income tax regulations which may differ from net investment income and net realized capital gains recorded in accordance with generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require reclassification. 16
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The Gabelli Small Cap Growth Fund Notes to Financial Statements (Unaudited) (Continued) ================================================================================ 2. Capital Stock Transactions. The Articles of Incorporation, dated July 25, 1991, permit the Fund to issue 100,000,000 shares (par value $0.001). Transactions in shares of common stock were as follows: [Enlarge/Download Table] Six Months Ended Year Ended March 31, 1997 September 30, 1996 ------------------------- ------------------------- Shares Amount Shares Amount ---------- ------------ ---------- ------------ Shares sold ................................ 1,083,994 $ 21,320,040 2,264,334 $ 44,652,493 Shares issued upon reinvestment of dividends 1,190,069 21,968,666 812,880 15,038,288 Shares redeemed ............................ (2,690,310) (52,600,126) (3,883,078) (76,035,181) ---------- ------------ ---------- ------------ Net increase (decrease) .................. (416,247) $ (9,311,420) (805,864) $(16,344,400) ========== ============ ========== ============ 3. Purchases and Sales of Securities. Purchases and sales of securities for the six months ended March 31, 1997, other than U.S. Government obligations and short-term securities, aggregated $7,053,646 and $38,334,666, respectively. 4. Investment Advisory Contract. The Fund employs Gabelli Funds, Inc., (the "Advisor") to provide a continuous investment program for the Fund's portfolio, provide all facilities and personnel, including officers, required for its administrative management, and to pay the compensation of all officers and Directors of the Fund who are its affiliates. As compensation for the services rendered and related expenses borne by the Advisor, the Fund pays the Advisor a fee, computed and accrued daily and payable monthly, equal to 1.00% per annum of the Fund's average daily net assets. The Advisor is obligated to reimburse the Fund in the event the Fund's expenses exceed certain prescribed limits. No such reimbursement was required during the six months ended March 31, 1997. 5. Distribution Plan. The Fund's Board of Directors has adopted a distribution plan (the "Plan") under Section 12(b) of the Investment Company Act of 1940 and Rule 12b-1 thereunder. For the six months ended March 31, 1997, the Fund has incurred distribution costs payable to Gabelli & Company, Inc., an affiliate of the Advisor, of $268,714. 6. Transactions with Affiliates. During the six months ended March 31, 1997, the Fund paid $33,726 in brokerage commissions to Gabelli & Company, Inc., an affiliate of the Advisor. 7. Bank Loan. The Fund has access to an unsecured line of credit from the Custodian for temporary purposes. Borrowings under this arrangement bear interest at 0.75% above the Federal Funds rate on outstanding balances. As of March 31, 1997, the amount outstanding was $4,070,000, bearing interest at 7.75%. No compensating balances are required. The average daily amount of borrowings outstanding during the six months ended March 31, 1997 was $7,259,512, with a related weighted average interest rate of 6.05%. The maximum amount borrowed at any time during the six months ended March 31, 1997 was $11,360,000. 17
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The Gabelli Small Cap Growth Fund Financial Highlights (Unaudited) ================================================================================ Selected data for a share of capital stock outstanding throughout each period: [Enlarge/Download Table] Six Months Year Ended September 30, Ended March 31, ----------------------------------------------------------- 1997 1996 1995 1994 1993 1992(a) -------------- -------- -------- -------- -------- ------- Operating Performance: Net asset value, beginning of period ....... $20.02 $19.34 $17.24 $16.90 $13.10 $10.00 -------- -------- -------- -------- -------- ------- Net investment income (loss) ............... (0.00) (0.09) (0.04) (0.05) 0.01 0.04 Net realized and unrealized gain on securities ....................... 1.25 1.69 3.17 0.81 3.98 3.14 -------- -------- -------- -------- -------- ------- Total from investment operations ........... 1.25 1.65 3.13 0.76 3.99 3.18 -------- -------- -------- -------- -------- ------- Less Distributions: Dividends from net investment income ....... -- -- -- -- (0.03) (0.01) Distributions from net realized gain on investments ...................... (2.16) (1.34) (1.03) (0.42) (0.16) (0.07) -------- -------- -------- -------- -------- ------- Net asset value, end of period ............. $19.11 $19.65 $19.34 $17.24 $16.90 $13.10 ======== ======== ======== ======== ======== ======= Total Return(b) ............................... 6.62% 11.01% 19.47% 4.48% 30.65% 31.86% Ratios to average net assets/supplemental data: Net assets, end of period (in thousands) ... $205,093 $228,909 $231,156 $205,699 $204,617 $94,864 Ratio of operating expenses to average net assets ....................... 1.73%* 1.58% 1.54% 1.54% 1.64% 1.97%* Ratio of net investment income (loss) to average net assets ....................... (0.22%)* (0.36%) (0.24%) (0.28%) 0.03% 0.32%* Portfolio turnover rate .................... 3% 6% 17% 19% 14% 16% Average commission rate .................... $0.047 $0.049 -- -- -- -- ---------- * Annualized (a) Fund commenced operations on January 2, 1992. (b) Total return is calculated assuming a purchase of shares at the net asset value on the first day and a sale on the last day of each year reported and includes reinvestment of dividends and distributions. 18
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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: info@gabelli.com (Net Asset Value may be obtained daily by calling 1-800-GABELLI after 6:00 P.M.) BOARD OF DIRECTORS Mario J. Gabelli, CFA Chairman and Chief Investment Officer Gabelli Funds, Inc. Anthony J. Colavita Attorney-at-Law Anthony J. Colavita, P.C. John D. Gabelli Vice President Gabelli & Company, Inc. Karl Otto Pohl Former President Deutsche Bundesbank Anthony R. Pustorino Certified Public Accountant Professor, Pace University Felix J. Christiana Former Senior Vice President Dollar Dry Dock Savings Bank Vincent D. Enright Senior Vice President and Chief Financial Officer The Brooklyn Union Gas Company Robert J. Morrissey Attorney-at-Law Morrissey & Hawkins Anthonie C. van Ekris Managing DIrector BALMAC International, Inc. OFFICERS Mario J. Gabelli, CFA President and Chief Investment Officer Bruce N. Alpert Vice President and Treasurer James E. McKee Secretary DISTRIBUTOR Gabelli & Company, Inc. CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT State Street Bank and Trust Company LEGAL COUNSEL Skadden, Arps, Slate, Meagher & Flom LLP -------------------------------------------------------------------------------- This report is submitted for the general information of the shareholders of The Gabelli Small Cap Growth Fund. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. -------------------------------------------------------------------------------- [PHOTO] The Gabelli Small Cap Growth Fund SEMI-ANNUAL REPORT MARCH 31, 1997

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12/27/9612
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