UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-06367 --------- Gabelli Equity Series Funds, Inc. ------------------------------------------------- (Exact name of registrant as specified in charter) One Corporate Center Rye, New York 10580-1422 ------------------------------------------------- (Address of principal executive offices) (Zip code) Bruce N. Alpert Gabelli Funds, LLC One Corporate Center Rye, New York 10580-1422 ------------------------------------------------- (Name and address of agent for service) registrant's telephone number, including area code: 1-800-422-3554 -------------- Date of fiscal year end: September 30 ------------ Date of reporting period: September 30, 2006 ------------------ Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. The Report to Shareholders is attached herewith. THE GABELLI SMALL CAP GROWTH FUND ANNUAL REPORT (A) SEPTEMBER 30, 2006 TO OUR SHAREHOLDERS, During the fiscal year ended September 30, 2006, The Gabelli Small Cap Growth Fund (the "Fund") rose 8.88%, while the Russell 2000 Index and the Value Line Composite Index both rose by 9.92% and 8.79%, respectively. The Fund gained 7.65% year to date through September 30th, underperforming the Russell 2000 Index return of 8.69%. Enclosed are the investment portfolio and financial statements as of September 30, 2006. COMPARATIVE RESULTS - -------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2006 (A)(B) Since Year to Inception Quarter Date 1 Year 3 Year 5 Year 10 Year (10/22/91) - -------------------------------------------------------------------------------------------------------------------- GABELLI SMALL CAP GROWTH FUND CLASS AAA............................ 0.30% 7.65% 8.88% 16.79% 15.61% 12.99% 15.02% Russell 2000 Index..................... 0.44 8.69 9.92 15.48 13.78 9.06 11.27 Value Line Composite Index............. 2.04 6.67 8.79 15.50 15.13 12.33 13.31 Class A................................ 0.33 7.61 8.84 16.79 15.60 12.99 15.02 (5.44)(c) 1.42(c) 2.58(c) 14.51(c) 14.24(c) 12.32(c) 14.57(c) Class B................................ 0.13 7.09 8.11 16.02 15.15 12.76 14.87 (4.87)(d) 2.09(d) 3.11(d) 15.27(d) 14.92(d) 12.76(d) 14.87(d) Class C................................ 0.13 7.09 8.08 16.01 15.14 12.76 14.87 (0.87)(e) 6.09(e) 7.08(e) 16.01(e) 15.14(e) 12.76(e) 14.87(e) <FN> (a) THE FUND'S FISCAL YEAR ENDS SEPTEMBER 30. (b) RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN SHARE PRICE AND REINVESTMENT OF DISTRIBUTIONS AND ARE NET OF EXPENSES. 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. PERFORMANCE RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE FUND BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. THE CLASS AAA SHARES' NET ASSET VALUES ARE USED TO CALCULATE PERFORMANCE FOR THE PERIODS PRIOR TO THE ISSUANCE OF CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES ON DECEMBER 31, 2003. THE ACTUAL PERFORMANCE FOR THE CLASS B SHARES AND CLASS C SHARES WOULD HAVE BEEN LOWER DUE TO THE ADDITIONAL EXPENSES ASSOCIATED WITH THESE CLASSES OF SHARES. INVESTING IN SMALL CAPITALIZATION SECURITIES INVOLVES SPECIAL RISKS BECAUSE THESE SECURITIES MAY TRADE LESS FREQUENTLY AND EXPERIENCE MORE ABRUPT PRICE MOVEMENTS THAN LARGE CAPITALIZATION SECURITIES. THE RUSSELL 2000 INDEX OF SMALL U.S. COMPANIES AND THE VALUE LINE COMPOSITE INDEX (COMPOSED OF EQUALLY WEIGHTED POSITIONS IN EVERY STOCK COVERED IN THE VALUE LINE INVESTMENT SURVEY) ARE UNMANAGED INDICATORS OF STOCK MARKET PERFORMANCE. DIVIDENDS ARE CONSIDERED REINVESTED. (c) INCLUDES THE EFFECT OF THE MAXIMUM 5.75% SALES CHARGE AT THE BEGINNING OF THE PERIOD. (d) PERFORMANCE RESULTS INCLUDE THE DEFERRED SALES CHARGES FOR THE CLASS B SHARES UPON REDEMPTION AT THE END OF THE ONE YEAR, FIVE YEAR, TEN YEAR, AND SINCE INCEPTION PERIODS OF 5%, 2%, 0%, AND 0%, RESPECTIVELY, OF THE FUND'S NAV AT THE TIME OF PURCHASE OR SALE, WHICHEVER IS LOWER. CLASS B SHARES ARE NOT AVAILABLE FOR NEW PURCHASES. (e) PERFORMANCE RESULTS INCLUDE THE DEFERRED SALES CHARGE FOR THE CLASS C SHARES UPON REDEMPTION AT THE END OF THE ONE YEAR PERIOD OF 1% OF THE FUND'S NAV AT THE TIME OF PURCHASE OR SALE, WHICHEVER IS LOWER. - -------------------------------------------------------------------------------------------------------------------- </FN> - -------------------------------------------------------------------------------- We have separated the portfolio manager's commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that the content of the portfolio manager's commentary is unrestricted. The financial statements and investment portfolio are mailed separately from the commentary. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at www.gabelli.com/funds. - -------------------------------------------------------------------------------- PERFORMANCE DISCUSSION During the past twelve months, The Small Cap Growth Fund gained 8.88% versus an increase of 9.92% in the Russell 2000 Index. For the fiscal year ended September 30, 2006 the Fund had a turnover rate of 6%. Areas that performed well during the fiscal year included the Diversified Industrial sector with Sonoco Products, Crane Co., Ampco-Pittsburgh, and Lindsay Manufacturing returning double digit gains. Hotel & Gaming sector holdings Aztar (which was the subject of a bidding war that saw its price tag increase from $38 to $54 per share), Churchill Downs, and Wynn Resorts also did well. The Health Care sector performed well overall, but had representatives at both ends of the performance spectrum, with Lifecore Biomedical, PSS World Medical, and Align Technology (up 17%, 50%, and 69%, respectively) at the top, and Sonic Innovations and Regeneration Technologies (down 8% and 14%, respectively) towards the bottom. There were difficulties in some important sectors. Automotive: Parts & Accessories companies had difficult times over the past twelve months, stemming primarily from cost cutting initiatives and woes at Detroit's Big Three auto manufacturers, with portfolio holdings Dana, Earl Scheib, and Proliance International underperforming, though Standard Motor Products rose 48% thanks to better than expected numbers and a hot summer benefiting its air conditioning replacement products. And as the housing sector slowed, Manufactured Housing & Recreational Vehicles companies - including Southern Energy Homes, Fleetwood Enterprises, Champion Enterprises, and Drew Industries - were impacted. Publishing was another sector that struggled in the past twelve months, as companies adjust to an advertising dollar market share that is shifting rapidly from print to the Internet. Lower energy prices and the moderation of interest rates have led to positive market trends. However, geopolitical uncertainty and the stirrings of a slowdown in the economy are still factors. We continue to invest in quality small cap businesses, selling at a discount to their Private Market Value, which have a catalyst in place or nearby that will surface that value. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GABELLI SMALL CAP GROWTH FUND CLASS AAA, THE RUSSELL 2000 INDEX, AND THE S&P 500 INDEX [GRAPHIC OMITTED] PLOT POINTS FOLLOW: The Gabelli Small Cap Growth Fund (Class AAA) Russell 2000 Index S&P 500 Index 10/22/91 $10,000 $10,000 $10,000 9/30/92 13,186 10,854 11,174 9/30/93 17,228 14,456 12,623 9/30/94 17,999 14,835 13,088 9/30/95 21,504 18,307 16,976 9/30/96 23,871 20,710 20,426 9/30/97 33,950 27,584 28,684 9/30/98 29,356 22,338 31,288 9/30/99 35,005 26,597 39,983 9/30/00 42,356 32,818 45,289 9/30/01 39,192 25,858 33,238 9/30/02 39,736 23,453 26,434 9/30/03 50,775 32,013 32,876 9/30/04 61,641 38,022 37,433 9/30/05 74,330 44,852 41,580 9/30/06 80,927 49,302 46,062 - -------------------------------------------------------------------------------- Average Annual Total Return* - -------------------------------------------------------------------------------- 1 Year 5 Year 10 Year Life of Fund - -------------------------------------------------------------------------------- Class AAA 8.88% 15.61% 12.99% 15.02% - -------------------------------------------------------------------------------- * Past performance is not predictive of future results. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 THE GABELLI SMALL CAP GROWTH FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) For the Six Month Period from April 1, 2006 through September 30, 2006 EXPENSE TABLE ================================================================================ We believe it is important for you to understand the impact of fees and expenses regarding your investment. All mutual funds have operating expenses. As a shareholder of a fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund's gross income, directly reduce the investment return of a fund. When a fund's expenses are expressed as a percentage of its average net assets, this figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. The Expense Table below illustrates your Fund's costs in two ways: ACTUAL FUND RETURN: This section provides information about actual account values and actual expenses. You may use this section to help you to estimate the actual expenses that you paid over the period after any fee waivers and expense reimbursements. The "Ending Account Value" shown is derived from the Fund's ACTUAL return during the past six months, and the "Expenses Paid During Period" shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your Fund under the heading "Expenses Paid During Period" to estimate the expenses you paid during this period. HYPOTHETICAL 5% RETURN: This section provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio. It assumes a hypothetical annualized return of 5% before expenses during the period shown. In this case -- because the hypothetical return used is NOT the Fund's actual return -- the results do not apply to your investment and you cannot use the hypothetical account value and expense to estimate the actual ending account balance or expenses you paid for the period. This example is useful in making comparisons of the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees, if any, which are described in the Prospectus. If these costs were applied to your account, your costs would be higher. Therefore, the 5% hypothetical return is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The "Annualized Expense Ratio" represents the actual expenses for the last six months and may be different from the expense ratio in the Financial Highlights which is for the year ended September 30, 2006. Beginning Ending Annualized Expenses Account Value Account Value Expense Paid During 04/01/06 09/30/06 Ratio Period* - -------------------------------------------------------------------------------- THE GABELLI SMALL CAP GROWTH FUND - -------------------------------------------------------------------------------- ACTUAL FUND RETURN Class AAA $1,000.00 $ 976.20 1.45% $ 7.18 Class A $1,000.00 $ 975.90 1.45% $ 7.18 Class B $1,000.00 $ 972.90 2.21% $10.93 Class C $1,000.00 $ 972.90 2.20% $10.88 HYPOTHETICAL 5% RETURN Class AAA $1,000.00 $1,017.80 1.45% $ 7.33 Class A $1,000.00 $1,017.80 1.45% $ 7.33 Class B $1,000.00 $1,013.99 2.21% $11.16 Class C $1,000.00 $1,014.04 2.20% $11.11 * Expenses are equal to the Fund's annualized expense ratio for the last six months multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. 3 SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED) The following table presents portfolio holdings as a percent of total net assets as of September 30, 2006: THE GABELLI SMALL CAP GROWTH FUND Equipment and Supplies ........................ 15.3% Diversified Industrial ........................ 9.4% Health Care ................................... 7.5% Energy and Utilities .......................... 7.2% Specialty Chemicals ........................... 5.0% Food and Beverage ............................. 4.2% Financial Services ............................ 4.2% Hotels and Gaming ............................. 3.9% U.S. Government Obligations ................... 3.8% Aviation: Parts and Services .................. 3.3% Automotive: Parts and Accessories ............. 3.3% Business Services ............................. 3.2% Consumer Products ............................. 3.0% Publishing .................................... 2.2% Communications Equipment ...................... 2.2% Retail ........................................ 2.0% Cable ......................................... 1.8% Entertainment ................................. 1.8% Telecommunications ............................ 1.7% Manufactured Housing and Recreational Vehicles 1.7% Wireless Communications ....................... 1.5% Electronics ................................... 1.5% Broadcasting .................................. 1.5% Real Estate ................................... 1.3% Environmental Services ........................ 1.3% Computer Software and Services ................ 1.3% Consumer Services ............................. 1.3% Transportation ................................ 1.1% Metals and Mining ............................. 0.8% Closed-End Funds .............................. 0.7% Automotive .................................... 0.4% Satellite ..................................... 0.2% Paper and Forest Products ..................... 0.1% Aerospace ..................................... 0.1% Building and Construction ..................... 0.1% Home Furnishings .............................. 0.1% Educational Services .......................... 0.1% Agriculture ................................... 0.1% Other Assets and Liabilities (Net) ............ (0.2)% ------- 100.0% ======= THE FUND FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q, THE LAST OF WHICH WAS FILED FOR THE QUARTER ENDED JUNE 30, 2006. SHAREHOLDERS MAY OBTAIN THIS INFORMATION AT WWW.GABELLI.COM OR BY CALLING THE FUND AT 800-GABELLI(800-422-3554). THE FUND'S FORM N-Q IS AVAILABLE ON THE SEC'S WEBSITE AT WWW.SEC.GOV AND MAY ALSO BE REVIEWED AND COPIED AT THECOMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-800-SEC-0330. PROXY VOTING The Fund files Form N-PX with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. A description of the Fund's proxy voting policies, procedures, and how the Fund voted proxies relating to portfolio securities is available without charge, upon request, by (i) calling 800-GABELLI (800-422-3554); (ii) writing to The Gabelli Funds at One Corporate Center, Rye, NY 10580-1422; or (iii) visiting the SEC's website at www.sec.gov. 4 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ----- COMMON STOCKS -- 95.8% AEROSPACE -- 0.1% 75,000 Herley Industries Inc.+ .......... $ 1,354,768 $ 928,500 ------------ ------------ AGRICULTURE -- 0.1% 1,200 Cadiz Inc.+ ...................... 4,500 23,640 25,000 The Mosaic Co.+ .................. 356,788 422,500 ------------ ------------ 361,288 446,140 ------------ ------------ AUTOMOTIVE -- 0.4% 100,000 Adesa Inc. ....................... 1,881,135 2,311,000 6,000 Oshkosh Truck Corp. .............. 89,796 302,820 ------------ ------------ 1,970,931 2,613,820 ------------ ------------ AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.3% 3,816 Aftermarket Technology Corp.+ .... 47,013 67,772 78,000 BorgWarner Inc. .................. 1,671,103 4,459,260 300,000 Dana Corp. ....................... 1,161,925 312,000 200,000 Earl Scheib Inc.+ ................ 1,331,353 720,000 40,000 Federal-Mogul Corp.+ ............. 79,500 16,400 210,000 Midas Inc.+ ...................... 2,733,026 4,342,800 190,000 Modine Manufacturing Co. ......... 4,566,286 4,622,700 7,875 Monro Muffler Brake Inc. ......... 52,860 267,829 120,000 Pep Boys - Manny, Moe & Jack ..... 1,628,358 1,542,000 199,693 Proliance International Inc.+ .... 1,482,212 912,597 2,000 Puradyn Filter Technologies Inc.+ .............. 2,750 2,000 33,500 Spartan Motors Inc. .............. 365,562 630,805 170,000 Standard Motor Products Inc. ..... 2,539,350 2,038,300 27,000 Strattec Security Corp.+ ......... 1,058,830 1,033,290 10,100 Superior Industries International Inc. .............. 244,350 169,579 80,000 Tenneco Inc.+ .................... 167,200 1,871,200 28,000 Thor Industries Inc. ............. 259,454 1,152,760 ------------ ------------ 19,391,132 24,161,292 ------------ ------------ AVIATION: PARTS AND SERVICES -- 3.3% 25,000 AAR Corp.+ ....................... 302,990 596,000 10,000 Astronics Corp.+ ................. 48,990 157,500 14,000 Barnes Group Inc. ................ 119,437 245,840 122,400 Curtiss-Wright Corp. ............. 1,497,271 3,714,840 7,500 Ducommun Inc.+ ................... 80,125 139,950 20,000 EDO Corp. ........................ 441,767 457,600 30,000 Embraer-Empresa Brasileira de Aeronautica SA, ADR .......... 508,773 1,178,100 24,000 Gamesa Corp. Tecnologica SA ...... 146,892 525,887 280,000 GenCorp Inc.+ .................... 2,915,852 3,595,200 450,000 Kaman Corp. ...................... 7,139,210 8,104,500 95,000 Moog Inc., Cl. A+ ................ 609,477 3,292,700 MARKET SHARES COST VALUE ------ ---- ----- 280,000 The Fairchild Corp., Cl. A+ ...... $ 1,398,908 $ 728,000 33,500 Woodward Governor Co. ............ 657,315 1,123,590 ------------ ------------ 15,867,007 23,859,707 ------------ ------------ BROADCASTING -- 1.3% 120,000 Acme Communications Inc.+ ........ 919,240 631,200 30,800 Beasley Broadcast Group Inc., Cl. A ..................... 324,643 216,524 2,000 Cogeco Inc. ...................... 39,014 42,049 260,000 Crown Media Holdings Inc., Cl. A+ .......................... 1,892,272 1,167,400 3,333 CTN Media Group Inc.+ (b)(e) ..... 16,800 3 2,000 Global Traffic Network Inc.+ ..... 11,904 9,380 280,000 Granite Broadcasting Corp.+ ...... 393,116 36,400 400,000 Gray Television Inc. ............. 3,595,738 2,564,000 39,000 Gray Television Inc., Cl. A ...... 494,138 269,490 48,000 Hearst-Argyle Television Inc. .... 425,523 1,101,600 160,000 ION Media Networks Inc.+ ......... 507,762 129,600 250 Liberty Media Holding Corp. - Capital, Cl. A+ ................. 15,724 20,893 22,000 Nexstar Broadcasting Group Inc., Cl. A+ .......................... 209,552 86,900 96,650 Salem Communications Corp., Cl. A ........................... 1,449,253 1,093,111 200,000 Sinclair Broadcast Group Inc., Cl. A ........................... 2,156,325 1,570,000 57,000 Spanish Broadcasting System Inc., Cl. A+ .......................... 508,514 249,090 200,000 Young Broadcasting Inc., Cl. A+ .. 2,156,768 460,000 ------------ ------------ 15,116,286 9,647,640 ------------ ------------ BUILDING AND CONSTRUCTION -- 0.1% 16,500 Florida Rock Industries Inc. ..... 96,939 638,715 25,000 Huttig Building Products Inc.+ ... 90,165 138,250 1,000 Universal Forest Products Inc. ... 12,125 49,050 ------------ ------------ 199,229 826,015 ------------ ------------ BUSINESS SERVICES -- 2.8% 5,000 ACCO Brands Corp.+ ............... 123,890 111,300 240,000 AMICAS Inc.+ ..................... 1,041,111 715,200 6,000 BB Holdings Ltd.+ ................ 23,159 19,800 5,000 BrandPartners Group Inc.+ ........ 4,850 750 610,400 Career Blazers Inc.+ (b)(e) ...... 236,019 107,125 2,400 Carlisle Group Ltd.+ ............. 3,630 4,224 1,000 CheckFree Corp.+ ................. 9,040 41,320 260,000 Edgewater Technology Inc.+ ....... 1,125,922 1,482,000 22,589 GSE Systems Inc.+ ................ 31,625 81,320 500 GSI Commerce Inc.+ ............... 8,649 7,420 80,000 Industrial Distribution Group Inc.+ ..................... 224,062 707,200 See accompanying notes to financial statements. 5 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ----- COMMON STOCKS (CONTINUED) BUSINESS SERVICES (CONTINUED) 60,000 Interactive Data Corp.+ .......... $ 534,171 $ 1,197,000 160,000 Intermec Inc.+ ................... 3,133,816 4,217,600 13,000 Landauer Inc. .................... 234,859 659,750 4,000 MDC Partners Inc., Cl. A+ ........ 12,360 28,960 166,000 Nashua Corp.+ .................... 1,597,567 1,160,340 375 OneSource Services Inc.+ ......... 3,461 4,722 100,000 Paxar Corp.+ ..................... 1,199,175 1,998,000 20,000 R. H. Donnelley Corp. ............ 269,035 1,058,000 80,000 Sohgo Security Services Co. Ltd. ........................ 1,016,197 1,415,450 22,000 Stamps.com Inc.+ ................. 120,859 419,320 4,000 StarTek Inc. ..................... 62,677 49,880 80,000 The Brink's Co. .................. 1,986,050 4,244,800 116,200 Trans-Lux Corp. (a) .............. 915,077 691,390 ------------ ------------ 13,917,261 20,422,871 ------------ ------------ CABLE -- 1.8% 230,000 Adelphia Communications Corp., Cl. A+ .......................... 29,650 8,050 510,000 Cablevision Systems Corp., Cl. A+ .......................... 0 11,582,100 9,329 Liberty Global Inc., Cl. A+ ...... 249,972 240,128 9,329 Liberty Global Inc., Cl. C+ ...... 240,169 233,785 105,000 Lin TV Corp., Cl. A+ ............. 1,976,678 816,900 4,000 Outdoor Channel Holdings Inc.+ ... 44,765 43,560 ------------ ------------ 2,541,234 12,924,523 ------------ ------------ CLOSED-END FUNDS -- 0.7% 87,158 The Central Europe and Russia Fund Inc. ................ 2,011,890 4,039,773 36,700 The European Equity Fund Inc. .... 386,832 388,286 54,000 The New Germany Fund Inc. ........ 635,491 686,880 11,000 The Spain Fund Inc. .............. 103,029 144,760 ------------ ------------ 3,137,242 5,259,699 ------------ ------------ COMMUNICATIONS EQUIPMENT -- 2.2% 62,000 Andrew Corp.+ .................... 252,232 572,260 150,000 Communications Systems Inc. ...... 1,040,821 1,401,000 260,900 Sycamore Networks Inc.+ .......... 778,040 986,202 280,000 Thomas & Betts Corp.+ ............ 5,151,184 13,358,800 ------------ ------------ 7,222,277 16,318,262 ------------ ------------ COMPUTER SOFTWARE AND SERVICES -- 1.3% 276 Adobe Systems Inc.+ .............. 2,371 10,336 73,000 Borland Software Corp.+ .......... 612,810 418,290 90,000 FalconStor Software Inc.+ ........ 636,867 692,100 22,990 Global Sources Ltd.+ ............. 306,293 292,203 50,000 Jupitermedia Corp.+ .............. 435,800 433,000 20,187 MKS Instruments Inc.+ ............ 367,981 409,998 MARKET SHARES COST VALUE ------ ---- ----- 12,000 NAVTEQ Corp.+ .................... $ 489,320 $ 313,320 200,000 Net Perceptions Inc.+ ............ 124,295 360,000 160,000 OpenTV Corp., Cl. A+ ............. 860,410 456,000 8,000 Phoenix Technologies Ltd.+ ....... 55,158 34,400 800,000 StorageNetworks Inc. Escrow+ (b) . 0 24,000 345,000 Tyler Technologies Inc.+ ......... 1,338,994 4,460,850 290,000 Xanser Corp.+ .................... 1,059,514 1,696,500 ------------ ------------ 6,289,813 9,600,997 ------------ ------------ CONSUMER PRODUCTS -- 3.0% 27,000 Adams Golf Inc.+ ................. 71,200 37,800 5,250 Alberto-Culver Co. ............... 169,298 265,598 16,000 Ashworth Inc.+ ................... 69,906 109,600 33,500 Chofu Seisakusho Co. Ltd. ........ 484,644 679,217 37,500 Church & Dwight Co. Inc. ......... 354,732 1,466,625 35,000 Coachmen Industries Inc. ......... 436,787 378,350 6,000 Elizabeth Arden Inc.+ ............ 82,125 96,960 11,800 Escada AG+ ....................... 381,501 397,717 4,000 Genlyte Group Inc.+ .............. 8,580 284,800 2,000 Harley-Davidson Inc. ............. 4,713 125,500 200,000 Hartmarx Corp.+ .................. 1,011,455 1,354,000 80,000 Jacuzzi Brands Inc.+ ............. 534,949 799,200 96,500 Lenox Group Inc.+ ................ 1,139,000 583,825 5,000 Levcor International Inc.+ ....... 7,650 2,775 292,000 Marine Products Corp. ............ 194,337 2,838,240 49,100 National Presto Industries Inc. .. 1,683,335 2,713,757 99,513 Revlon Inc., Cl. A+ .............. 338,054 112,450 699,100 Schiff Nutrition International Inc.+ ............. 1,873,361 4,865,736 115,000 Spectrum Brands Inc.+ ............ 1,318,782 970,600 6,000 Steven Madden Ltd. ............... 30,540 235,440 14,000 Stewart Enterprises Inc., Cl. A .. 65,467 82,040 87,425 Syratech Corp.+ .................. 17,426 4,371 4,000 The Scotts Miracle-Gro Co., Cl. A ........................... 45,880 177,960 17,000 WD-40 Co. ........................ 470,278 606,390 103,500 Wolverine World Wide Inc. ........ 998,769 2,930,085 ------------ ------------ 11,792,769 22,119,036 ------------ ------------ CONSUMER SERVICES -- 1.3% 30,500 Bowlin Travel Centers Inc.+ ...... 23,611 51,850 50,000 Central Parking Corp. ............ 762,283 825,000 2,500 Collectors Universe Inc. ......... 8,720 34,875 12,000 eLong Inc., ADR+ ................. 140,711 170,640 10,000 Expedia Inc.+ .................... 99,143 156,800 47,500 IAC/InterActiveCorp+ ............. 558,573 1,366,100 1,250 Liberty Media Holding Corp. - Interactive, Cl. A+ ............. 21,714 25,475 16,000 Martha Stewart Living Omnimedia Inc., Cl. A ........... 167,206 284,160 See accompanying notes to financial statements. 6 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ----- COMMON STOCKS (CONTINUED) CONSUMER SERVICES (CONTINUED) 20,000 Response USA Inc.+ ............... $ 16,500 $ 2 310,000 Rollins Inc. ..................... 2,677,158 6,544,100 10,000 TiVo Inc.+ ....................... 74,563 75,900 ------------ ------------ 4,550,182 9,534,902 ------------ ------------ DIVERSIFIED INDUSTRIAL -- 9.4% 173,000 Acuity Brands Inc. ............... 2,323,864 7,854,200 100,000 Ampco-Pittsburgh Corp. ........... 972,481 3,093,000 6,000 Anixter International Inc. ....... 57,120 338,820 140,000 Baldor Electric Co. .............. 2,781,723 4,316,200 150,000 Crane Co. ........................ 3,282,255 6,270,000 100,000 Delta plc ........................ 212,289 253,703 5,000 ESCO Technologies Inc.+ .......... 83,190 230,200 803 Foster Wheeler Ltd.+ ............. 3,183 30,988 12,000 Gardner Denver Inc.+ ............. 103,046 396,960 154,500 Greif Inc., Cl. A ................ 3,055,744 12,376,995 7,300 Greif Inc., Cl. B ................ 457,711 538,302 140,000 Griffon Corp.+ ................... 3,491,183 3,341,800 26,000 Harbor Global Co. Ltd.+ .......... 63,215 286,650 10,000 Insteel Industries Inc. .......... 4,250 198,700 72,000 Katy Industries Inc.+ ............ 567,476 203,040 73,000 Lindsay Manufacturing Co. ........ 781,892 2,098,750 160,000 Magnetek Inc.+ ................... 1,053,438 553,600 37,000 Matthews International Corp., Cl. A ........................... 861,644 1,361,970 275,000 Myers Industries Inc. ............ 2,505,876 4,675,000 130,000 National Patent Development Corp.+ .............. 86,241 205,400 93,750 Oil-Dri Corp. of America ......... 741,688 1,420,312 15,000 Olin Corp. ....................... 232,292 230,400 220,000 Park-Ohio Holdings Corp.+ ........ 1,220,379 3,033,800 100,000 Precision Castparts Corp. ........ 1,702,840 6,316,000 32,000 Roper Industries Inc. ............ 620,029 1,431,680 40,000 Sonoco Products Co. .............. 1,071,920 1,345,600 63,000 Standex International Corp. ...... 1,253,307 1,756,440 60,000 Tech/Ops Sevcon Inc. ............. 378,631 415,200 115,000 The Lamson & Sessions Co.+ ....... 599,517 2,739,300 65,000 Tredegar Corp. ................... 890,105 1,088,100 50,048 WHX Corp.+ ....................... 983,604 450,432 ------------ ------------ 32,442,133 68,851,542 ------------ ------------ EDUCATIONAL SERVICES -- 0.1% 5,000 Career Education Corp.+ .......... 118,485 112,500 10,000 School Specialty Inc.+ ........... 409,947 352,900 ------------ ------------ 528,432 465,400 ------------ ------------ ELECTRONICS -- 1.5% 22,000 Badger Meter Inc. ................ 414,281 554,180 200,088 California Micro Devices Corp.+ .. 1,497,445 1,020,449 MARKET SHARES COST VALUE ------ ---- ----- 210,000 CTS Corp. ........................ $ 2,213,523 $ 2,893,800 20,000 Greatbatch Inc.+ ................. 487,480 452,400 20,000 IMAX Corp.+ ...................... 177,441 97,800 200,000 KEMET Corp.+ ..................... 1,645,121 1,614,000 60,000 Methode Electronics Inc. ......... 560,885 570,600 95,000 Park Electrochemical Corp. ....... 2,193,420 3,009,600 20,000 Trident Microsystems Inc.+ ....... 119,857 465,200 20,000 Zoran Corp.+ ..................... 121,523 321,600 ------------ ------------ 9,430,976 10,999,629 ------------ ------------ ENERGY AND UTILITIES -- 7.2% 5,000 AGL Resources Inc. ............... 85,875 182,500 440,000 Aquila Inc.+ ..................... 1,516,877 1,905,200 6,400 BIW Ltd. ......................... 94,563 102,720 95,000 Callon Petroleum Co.+ ............ 939,533 1,288,200 142,000 CH Energy Group Inc. ............. 5,982,836 7,308,740 12,000 Chesapeake Utilities Corp. ....... 236,752 360,600 115,000 CMS Energy Corp.+ ................ 683,157 1,660,600 23,000 Connecticut Water Service Inc. ... 464,832 507,840 3,500 Consolidated Water Co. Ltd. ...... 83,341 85,995 168,000 Covanta Holding Corp.+ ........... 721,087 3,617,040 170,000 Duquesne Light Holdings Inc. ..... 2,498,893 3,342,200 150,000 El Paso Electric Co.+ ............ 1,983,209 3,351,000 20,000 Environmental Power Corp.+ ....... 110,000 89,800 126,800 Florida Public Utilities Co. ..... 1,177,900 1,749,840 43,000 Middlesex Water Co. .............. 743,997 826,890 10,000 Nicor Inc. ....................... 221,002 427,600 20,000 Oceaneering International Inc.+ .. 544,313 616,000 2,000 PetroQuest Energy Inc.+ .......... 5,250 20,860 650,000 RPC Inc. ......................... 1,022,565 11,908,000 35,000 SEMCO Energy Inc.+ ............... 218,317 197,400 96,000 SJW Corp. ........................ 1,557,739 2,871,360 52,500 Southern Union Co. ............... 682,575 1,386,525 112,000 Southwest Gas Corp. .............. 1,959,693 3,731,840 10,000 Tesoro Corp. ..................... 140,934 579,800 4,000 Toreador Resources Corp.+ ........ 15,250 73,680 10,000 Vestas Wind Systems A/S+ ......... 89,988 267,014 10,000 W-H Energy Services Inc.+ ........ 212,864 414,700 170,000 Westar Energy Inc. ............... 2,801,066 3,996,700 ------------ ------------ 26,794,408 52,870,644 ------------ ------------ ENTERTAINMENT -- 1.8% 42,500 Canterbury Park Holding Corp. .... 594,314 538,475 6,048 Chestnut Hill Ventures+ (b)(e) ... 164,590 129,864 500 Discovery Holding Co., Cl. A+ .... 6,095 7,230 201,000 Dover Motorsports Inc. ........... 1,104,623 1,089,420 84,000 Fisher Communications Inc.+ ...... 4,797,217 3,490,200 580,000 Gemstar-TV Guide International Inc.+ ............. 3,218,364 1,925,600 See accompanying notes to financial statements. 7 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ----- COMMON STOCKS (CONTINUED) ENTERTAINMENT (CONTINUED) 16,000 International Speedway Corp., Cl. A ........................... $ 515,479 $ 797,440 2,500 International Speedway Corp., Cl. B ........................... 45,000 124,550 10,000 Metromedia International Group Inc.+ ..................... 6,700 17,700 320,000 Six Flags Inc.+ .................. 1,620,999 1,673,600 200,000 The Topps Co. Inc. ............... 1,626,618 1,792,000 50,030 Triple Crown Media Inc.+ ......... 608,308 364,218 50,000 World Wrestling Entertainment Inc. .............. 581,120 821,500 38,000 WPT Enterprises Inc.+ ............ 298,988 142,880 ------------ ------------ 15,188,415 12,914,677 ------------ ------------ ENVIRONMENTAL SERVICES -- 1.3% 225,000 Allied Waste Industries Inc.+ .... 2,183,048 2,535,750 4,000 Basin Water Inc.+ ................ 41,042 32,760 22,000 Catalytica Energy Systems Inc.+ .. 153,722 24,420 175,000 Republic Services Inc. ........... 2,490,315 7,036,750 ------------ ------------ 4,868,127 9,629,680 ------------ ------------ EQUIPMENT AND SUPPLIES -- 15.3% 15,000 A.O. Smith Corp., Cl. A .......... 336,569 591,450 170,000 AMETEK Inc. ...................... 1,017,397 7,403,500 425,000 Baldwin Technology Co. Inc., Cl. A+ .......................... 1,353,684 2,460,750 73,000 Belden CDT Inc. .................. 1,196,036 2,790,790 15,000 C&D Technologies Inc. ............ 257,845 106,500 50,000 Capstone Turbine Corp.+ .......... 103,400 70,500 205,000 CIRCOR International Inc. ........ 3,175,395 6,262,750 414,000 CLARCOR Inc. ..................... 2,561,338 12,622,860 240,000 Core Molding Technologies Inc.+ .. 436,144 1,656,000 180,000 Crown Holdings Inc.+ ............. 727,278 3,348,000 2,000 Danaher Corp. .................... 34,106 137,340 66,000 Donaldson Co. Inc. ............... 761,576 2,435,400 220,000 Enodis plc ....................... 697,497 716,733 97,300 Entegris Inc.+ ................... 781,566 1,061,543 450,000 Fedders Corp.+ ................... 2,002,393 562,500 190,000 Flowserve Corp.+ ................. 3,503,180 9,612,100 175,000 Franklin Electric Co. Inc. ....... 1,420,807 9,299,500 40,000 General Magnaplate Corp.+ (b) .... 83,762 60,000 150,000 Gerber Scientific Inc.+ .......... 1,451,283 2,247,000 84,000 Graco Inc. ....................... 928,834 3,281,040 150,000 GrafTech International Ltd.+ ..... 1,005,827 876,000 60,000 IDEX Corp. ....................... 556,738 2,583,000 150,000 Interpump Group SpA .............. 589,120 1,333,359 4,000 Jarden Corp.+ .................... 11,351 131,880 MARKET SHARES COST VALUE ------ ---- ----- 10,000 K-Tron International Inc.+ ....... $ 74,932 $ 632,200 65,000 L.S. Starrett Co., Cl. A ......... 1,110,086 929,500 28,000 Littelfuse Inc.+ ................. 538,592 971,600 107,000 Lufkin Industries Inc. ........... 1,029,240 5,662,440 55,000 Maezawa Kyuso Industries Co. Ltd. ........................ 359,609 861,376 26,666 Met-Pro Corp. .................... 192,463 350,124 1,000 Middleby Corp.+ .................. 37,310 77,060 22,000 Mueller Industries Inc. .......... 691,034 773,740 10,000 Plantronics Inc. ................. 246,559 175,300 50,000 Robbins & Myers Inc. ............. 1,023,975 1,546,000 40,500 Sequa Corp., Cl. A+ .............. 1,502,140 3,801,330 80,000 Sequa Corp., Cl. B+ .............. 3,631,577 7,537,600 95,000 SL Industries Inc.+ .............. 1,114,953 1,824,000 5,000 Teleflex Inc. .................... 76,167 278,200 200,000 Tennant Co. ...................... 4,207,900 4,868,000 100,343 The Gorman-Rupp Co. .............. 1,956,301 3,281,216 5,000 Valmont Industries Inc. .......... 40,625 261,250 7,875 Watsco Inc., Cl. B ............... 23,627 362,959 192,500 Watts Water Technologies Inc., Cl. A ..................... 3,432,151 6,113,800 15,000 Wolverine Tube Inc.+ ............. 150,915 45,450 ------------ ------------ 46,433,282 112,003,640 ------------ ------------ FINANCIAL SERVICES -- 4.2% 10,710 Alleghany Corp.+ ................. 1,893,812 3,095,297 40,000 Argonaut Group Inc.+ ............. 867,813 1,241,200 86,800 Bancshares of Florida Inc.+ ...... 1,302,000 1,829,744 100,000 BKF Capital Group Inc. ........... 1,497,913 390,000 365,000 CNA Surety Corp.+ ................ 4,005,795 7,373,000 19,100 Crazy Woman Creek Bancorp Inc. ... 285,742 326,610 37,000 Epoch Holding Corp.+ ............. 63,098 244,200 3,000 Federal Agricultural Mortgage Corp., Cl. C ........... 24,000 79,410 33,000 First Republic Bank .............. 636,067 1,404,480 110,000 Flushing Financial Corp. ......... 1,642,500 1,925,000 45,000 Franklin Bank Corp.+ ............. 916,624 894,600 80,000 LaBranche & Co. Inc.+ ............ 750,397 829,600 1,000 LandAmerica Financial Group Inc. ...................... 12,175 65,790 66,000 Landesbank Berlin Holding AG+ .... 1,280,794 497,965 3,000 Leucadia National Corp. .......... 24,354 78,510 50,000 MVC Capital Inc. ................. 461,995 648,000 1,500 NetBank Inc. ..................... 6,000 9,075 100,000 NewAlliance Bancshares Inc. ...... 1,463,358 1,465,000 45,320 Sterling Bancorp ................. 775,153 890,991 20,000 SWS Group Inc. ................... 338,350 497,800 107,500 The Midland Co. .................. 822,714 4,656,900 50,000 Wilmington Trust Corp. ........... 1,574,410 2,227,500 ------------ ------------ 20,645,064 30,670,672 ------------ ------------ See accompanying notes to financial statements. 8 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ----- COMMON STOCKS (CONTINUED) FOOD AND BEVERAGE -- 4.2% 30,000 Boston Beer Co. Inc., Cl. A+ ..... $ 468,757 $ 985,500 24,000 Brown-Forman Corp., Cl. A ........ 665,535 1,856,880 100 Compania Cervecerias Unidas SA, ADR .................. 2,455 2,633 38,000 Corn Products International Inc. . 617,424 1,236,520 100,000 Del Monte Foods Co. .............. 997,536 1,045,000 85,000 Denny's Corp.+ ................... 132,580 289,850 40,000 Dynasty Fine Wines Group Ltd. .... 13,958 13,555 100 Embotelladora Andina SA, Cl. A, ADR ...................... 1,295 1,300 25,000 Farmer Brothers Co. .............. 389,323 513,500 260,000 Flowers Foods Inc. ............... 2,141,780 6,988,800 500 Genesee Corp., Cl. A+ ............ 0 1,178 21,500 Genesee Corp., Cl. B+ ............ 32,823 44,612 701,500 Grupo Continental SA ............. 1,058,724 1,304,864 10,000 Hain Celestial Group Inc.+ ....... 184,774 255,600 12,000 J & J Snack Foods Corp. .......... 100,375 373,200 210,000 Kikkoman Corp. ................... 1,375,672 2,448,000 30,000 Lifeway Foods Inc.+ .............. 174,542 205,200 20,000 Meiji Seika Kaisha Ltd. .......... 87,470 101,587 35,000 MGP Ingredients Inc. ............. 243,900 744,450 10,000 Nathan's Famous Inc.+ ............ 82,691 135,000 4,000 Omni Nutraceuticals Inc.+ ........ 13,563 3 20,000 PepsiAmericas Inc. ............... 286,588 426,800 55,000 Ralcorp Holdings Inc.+ ........... 828,181 2,652,650 11,250 The Cheesecake Factory Inc.+ ..... 37,036 305,887 66,000 The J.M. Smucker Co. ............. 1,599,230 3,164,700 100,000 The Steak n Shake Co.+ ........... 1,088,229 1,689,000 55,022 Tootsie Roll Industries Inc. ..... 1,013,075 1,612,695 50,000 Triarc Cos. Inc., Cl. A .......... 355,474 829,500 120,000 Triarc Cos. Inc., Cl. B .......... 1,025,442 1,814,400 2,000 Vina Concha Y Toro SA, ADR ....... 54,957 59,800 1,000 Willamette Valley Vineyards Inc.+ ................. 3,994 5,710 ------------ ------------ 15,077,383 31,108,374 ------------ ------------ HEALTH CARE -- 7.5% 50,000 Align Technology Inc.+ ........... 444,171 569,000 50,571 Allergan Inc. .................... 1,981,766 5,694,800 117,000 AngioDynamics Inc.+ .............. 2,475,365 2,423,070 5,000 Anika Therapeutics Inc.+ ......... 64,475 66,650 55,000 ArthroCare Corp.+ ................ 1,133,267 2,577,300 7,800 Bio-Rad Laboratories Inc., Cl. A+ .......................... 309,943 551,694 1,000 Biomet Inc. ...................... 30,350 32,190 70,000 Biosite Inc.+ .................... 3,142,639 3,236,100 9,000 Bruker BioSciences Corp.+ ........ 34,729 63,090 MARKET SHARES COST VALUE ------ ---- ----- 158,000 Chemed Corp. ..................... $ 2,577,497 $ 5,097,080 1,000 CNS Inc. ......................... 12,240 28,230 75,000 CONMED Corp.+ .................... 1,975,180 1,583,250 40,000 Crucell NV, ADR+ ................. 753,937 952,000 82,000 Del Global Technologies Corp.+ .......................... 251,543 143,500 40,000 DexCom Inc.+ ..................... 746,726 445,200 1,000 Digene Corp.+ .................... 8,000 43,150 95,000 Edwards Lifesciences Corp.+ ...... 3,358,438 4,426,050 1,102 Enzo Biochem Inc.+ ............... 13,091 13,433 65,000 Exactech Inc.+ ................... 920,376 887,900 8,000 Fisher Scientific International Inc.+ ............. 184,008 625,920 48,000 Henry Schein Inc.+ ............... 844,631 2,406,720 35,000 ICU Medical Inc.+ ................ 1,043,366 1,591,800 2,000 Integra LifeSciences Holdings Corp.+ ................. 43,600 74,960 1,000 Invacare Corp. ................... 33,835 23,520 30,000 Inverness Medical Innovations Inc.+ ............... 554,733 1,042,800 26,000 Invitrogen Corp.+ ................ 1,338,073 1,648,660 100,000 Lifecore Biomedical Inc.+ ........ 958,195 1,410,000 30,000 MWI Veterinary Supply Inc.+ ...... 661,312 1,005,900 15,000 Nabi Biopharmaceuticals+ ......... 105,625 86,700 3,000 NeoPharm Inc.+ ................... 29,760 14,550 5,000 NeuroMetrix Inc.+ ................ 132,176 95,050 1,300 Nobel Biocare Holding AG ......... 100,171 319,945 34,000 Orthofix International NV+ ....... 1,133,250 1,545,980 2,000 OrthoLogic Corp.+ ................ 6,750 2,600 35,000 Owens & Minor Inc. ............... 692,324 1,151,150 100,000 Penwest Pharmaceuticals Co.+ ..... 1,185,995 1,665,000 18,900 Possis Medical Inc.+ ............. 194,460 186,165 30,000 PSS World Medical Inc.+ .......... 367,273 599,700 190,000 Quidel Corp.+ .................... 1,165,036 2,682,800 100,000 Regeneration Technologies Inc.+ .. 1,003,406 702,000 30,000 Sirona Dental Systems Inc. ....... 267,058 987,900 590,000 Snia SpA+ ........................ 133,755 66,286 110,000 Sonic Innovations Inc.+ .......... 496,359 451,000 1,800,000 Sorin SpA+ ....................... 6,148,407 3,188,649 100,000 SSL International plc ............ 540,319 655,321 2,500 Straumann Holding AG ............. 224,697 538,306 4,200 Stryker Corp. .................... 162,570 208,278 40,000 Thoratec Corp.+ .................. 478,455 624,400 22,400 United-Guardian Inc. ............. 195,568 207,200 40,000 Vascular Solutions Inc.+ ......... 350,314 310,000 1,000 Wright Medical Group Inc.+ ....... 16,460 24,250 5,100 Young Innovations Inc. ........... 128,516 183,396 ------------ ------------ 41,154,190 55,160,593 ------------ ------------ See accompanying notes to financial statements. 9 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ----- COMMON STOCKS (CONTINUED) HOME FURNISHINGS -- 0.1% 13,000 Bassett Furniture Industries Inc. $ 215,616 $ 211,120 4,000 Bed Bath & Beyond Inc.+ .......... 11,125 153,040 1,000 Foamex International Inc.+ ....... 8,062 3,870 30,000 La-Z-Boy Inc. .................... 250,200 418,800 ------------ ------------ 485,003 786,830 ------------ ------------ HOTELS AND GAMING -- 3.9% 95,000 Aztar Corp.+ ..................... 2,830,330 5,035,950 12,000 Boyd Gaming Corp. ................ 90,225 461,280 70,000 Churchill Downs Inc. ............. 2,235,482 2,944,200 120,000 Dover Downs Gaming & Entertainment Inc. .............. 796,488 1,458,000 156,000 Gaylord Entertainment Co.+ ....... 4,494,471 6,840,600 10,002 Harrah's Entertainment Inc. ...... 498,147 664,433 145,000 Lakes Entertainment Inc.+ ........ 766,240 1,400,700 1,200 Las Vegas Sands Corp.+ ........... 34,800 82,020 405,000 Magna Entertainment Corp., Cl. A+ .......................... 2,672,344 1,899,450 20,000 Marcus Corp. ..................... 377,480 459,400 82,000 Penn National Gaming Inc.+ ....... 186,907 2,994,640 95,000 Pinnacle Entertainment Inc.+ ..... 828,043 2,671,400 3,000 Station Casinos Inc. ............. 11,670 173,490 16,000 Wynn Resorts Ltd.+ ............... 231,002 1,088,160 20,000 Youbet.com Inc.+ ................. 51,494 74,800 ------------ ------------ 16,105,123 28,248,523 ------------ ------------ MANUFACTURED HOUSING AND RECREATIONAL VEHICLES -- 1.7% 58,000 Cavco Industries Inc.+ ........... 1,127,032 1,827,580 335,000 Champion Enterprises Inc.+ ....... 3,495,127 2,311,500 17,000 Drew Industries Inc.+ ............ 296,303 429,420 200,000 Fleetwood Enterprises Inc.+ ...... 2,557,248 1,346,000 68,000 Monaco Coach Corp. ............... 1,493,022 757,520 141,000 Skyline Corp. .................... 4,489,399 5,387,610 36,000 Southern Energy Homes Inc.+ ...... 265,405 303,120 ------------ ------------ 13,723,536 12,362,750 ------------ ------------ METALS AND MINING -- 0.8% 70,000 Arizona Star Resource Corp.+ ..... 287,559 626,884 52,003 Barrick Gold Corp. ............... 1,522,648 1,597,532 10,000 Inmet Mining Corp. ............... 325,911 378,081 15,000 Ivanhoe Mines Ltd.+ .............. 111,730 93,900 142,115 Kinross Gold Corp.+ .............. 984,488 1,779,280 10,000 Meridian Gold Inc.+ .............. 75,630 248,600 1,000 Northwest Pipe Co.+ .............. 26,243 30,000 22,000 Novelis Inc. ..................... 470,548 562,980 190,000 Royal Oak Mines Inc.+ ............ 322,487 190 30,148 Stillwater Mining Co.+ ........... 389,561 253,243 ------------ ------------ 4,516,805 5,570,690 ------------ ------------ MARKET SHARES COST VALUE ------ ---- ----- PAPER AND FOREST PRODUCTS -- 0.1% 68,000 Pope & Talbot Inc.+ .............. $ 1,058,235 $ 391,000 18,000 Schweitzer-Mauduit International Inc. .............. 424,690 341,640 22,000 Wausau Paper Corp. ............... 255,362 297,000 ------------ ------------ 1,738,287 1,029,640 ------------ ------------ PUBLISHING -- 2.2% 307,237 Independent News & Media plc ..... 431,671 927,232 12,000 John Wiley & Sons Inc., Cl. B .... 46,500 431,160 50,000 Journal Communications Inc., Cl. A ........................... 882,277 563,500 130,000 Journal Register Co. ............. 1,979,992 737,100 11,000 Lee Enterprises Inc. ............. 261,685 277,640 53,000 McClatchy Co., Cl. A ............. 1,581,315 2,236,070 70,000 Media General Inc., Cl. A ........ 1,989,584 2,640,400 23,000 Meredith Corp. ................... 429,183 1,134,590 310,000 News Corp., Cl. A ................ 912,485 6,091,500 1,050,000 Penton Media Inc.+ ............... 951,840 588,000 385,000 PRIMEDIA Inc.+ ................... 1,193,587 585,200 4,500 Value Line Inc. .................. 183,817 209,745 ------------ ------------ 10,843,936 16,422,137 ------------ ------------ REAL ESTATE -- 1.3% 190 Case Pomeroy & Co. Inc., Cl. A ... 222,300 339,625 170,000 Griffin Land & Nurseries Inc.+ ... 2,202,170 5,145,900 9,000 Gyrodyne Co. of America Inc.+ .... 135,071 419,850 20,000 Malan Realty Investors Inc.+ (b)(e) .......... 75,279 18,800 110,000 Morguard Corp. ................... 1,392,683 3,838,068 ------------ ------------ 4,027,503 9,762,243 ------------ ------------ RETAIL -- 2.0% 9,000 Aaron Rents Inc. ................. 80,500 206,820 145,000 Aaron Rents Inc., Cl. A .......... 522,819 3,045,000 35,000 Big 5 Sporting Goods Corp. ....... 657,716 798,000 8,000 Casey's General Stores Inc. ...... 124,503 178,160 65,000 Coldwater Creek Inc.+ ............ 134,050 1,869,400 20,000 CoolBrands International Inc.+ ... 81,374 11,809 100,000 CSK Auto Corp.+ .................. 1,630,081 1,410,000 3,000 Gander Mountain Co.+ ............. 27,860 20,880 175,000 Ingles Markets Inc., Cl. A ....... 2,176,507 4,616,500 35,000 Movado Group Inc. ................ 515,027 889,700 16,500 Pier 1 Imports Inc. .............. 112,942 122,430 40,000 Weis Markets Inc. ................ 1,174,744 1,592,000 ------------ ------------ 7,238,123 14,760,699 ------------ ------------ See accompanying notes to financial statements. 10 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ----- COMMON STOCKS (CONTINUED) SATELLITE -- 0.2% 20,000 Pegasus Communications Corp., Cl. A+ .......................... $ 150,050 $ 39,800 200,000 Sirius Satellite Radio Inc.+ ..... 981,915 782,000 35,000 XM Satellite Radio Holdings Inc., Cl. A+ .......................... 302,980 451,150 ------------ ------------ 1,434,945 1,272,950 ------------ ------------ SPECIALTY CHEMICALS -- 5.0% 20,000 A. Schulman Inc. ................. 240,000 470,200 28,000 Airgas Inc. ...................... 172,550 1,012,760 47,000 Albemarle Corp. .................. 1,274,676 2,553,510 37,000 Arch Chemicals Inc. .............. 806,777 1,052,650 80,000 Chemtura Corp. ................... 855,716 693,600 10,000 Cytec Industries Inc. ............ 278,296 555,900 7,000 Dionex Corp.+ .................... 210,000 356,580 180,000 Ferro Corp. ...................... 3,999,568 3,200,400 240,000 H.B. Fuller Co. .................. 2,114,073 5,625,600 60,000 Hawkins Inc. ..................... 826,513 853,200 430,000 Hercules Inc.+ ................... 4,166,174 6,781,100 145,000 MacDermid Inc. ................... 2,527,513 4,729,900 150,000 Material Sciences Corp.+ ......... 1,396,604 1,494,000 160,000 Omnova Solutions Inc.+ ........... 989,633 668,800 50,000 Penford Corp. .................... 539,601 757,000 10,000 Quaker Chemical Corp. ............ 181,137 194,500 273,000 Sensient Technologies Corp. ...... 5,506,095 5,342,610 ------------ ------------ 26,084,926 36,342,310 ------------ ------------ TELECOMMUNICATIONS -- 1.7% 29,425 ALLTEL Corp. ..................... 146,376 1,633,087 23,000 Atlantic Tele-Network Inc. ....... 92,644 425,040 200,000 Cincinnati Bell Inc.+ ............ 517,183 964,000 80,000 Commonwealth Telephone Enterprises Inc. ................ 1,919,652 3,298,400 6,795 Community Service Communications Inc.+ ............ 0 13,930 46,950 D&E Communications Inc. .......... 605,207 592,040 870 NTL Inc. ......................... 13,291 22,124 80,000 Rogers Communications Inc., Cl. B ........................... 759,139 4,389,600 20,000 Shenandoah Telecommunications Co. .......... 296,543 869,400 30,000 Stratos International Inc.+ ...... 182,534 207,600 30,423 Windstream Corp. ................. 32,131 401,279 53,000 Winstar Communications Inc.+ ..... 133 53 ------------ ------------ 4,564,833 12,816,553 ------------ ------------ TRANSPORTATION -- 1.1% 150,000 GATX Corp. ....................... 4,610,044 6,205,500 125,000 Grupo TMM SA, Cl. A, ADR+ ........ 946,399 362,500 MARKET SHARES COST VALUE ------ ---- ----- 2,000 Irish Continental Group plc+ ..... $ 17,409 $ 27,948 50,000 OMI Corp. ........................ 313,120 1,085,500 5,100 Providence and Worcester Railroad Co. .................... 42,979 102,510 ------------ ------------ 5,929,951 7,783,958 ------------ ------------ WIRELESS COMMUNICATIONS -- 1.5% 45,000 Centennial Communications Corp. .. 246,806 239,850 72,000 Price Communications Corp.+ ...... 905,273 1,389,600 55,000 Rural Cellular Corp., Cl. A+ ..... 374,090 529,650 10,000 SunCom Wireless Holdings Inc., Cl. A+ .......................... 69,480 9,600 148,000 Vimpel-Communications, ADR+ ...... 1,261,092 8,967,320 ------------ ------------ 2,856,741 11,136,020 ------------ ------------ TOTAL COMMON STOCKS .............. 415,823,541 701,633,558 ------------ ------------ PREFERRED STOCKS -- 0.3% BROADCASTING -- 0.2% 1,063 Granite Broadcasting Corp., 12.750% Pfd.+ ................... 439,683 164,765 100 Gray Television Inc., 8.000% Cv. Pfd., Ser. C (b)(d)(e) ................ 1,000,000 1,000,000 1,103 PTV Inc., 10.000% Pfd.,Ser. A .... 0 4,274 ------------ ------------ 1,439,683 1,169,039 ------------ ------------ BUSINESS SERVICES -- 0.1% 23,382 Interep National Radio Sales Inc., 4.000% Cv. Pfd., Ser. A+ (b)(d)(e) ............... 2,163,146 818,377 ------------ ------------ DIVERSIFIED INDUSTRIAL -- 0.0% 151 Foster Wheeler Ltd., Pfd., Ser. B+ ................... 38,060 279,350 ------------ ------------ TOTAL PREFERRED STOCKS ........... 3,640,889 2,266,766 ------------ ------------ WARRANTS -- 0.1% AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.0% 1,213 Exide Technologies, expire 05/05/11+ ................ 2,247 243 ------------ ------------ BUSINESS SERVICES -- 0.1% 261,431 GP Strategies Corp., expire 08/14/08+ (b)(e) ......... 634,637 572,965 125,000 Interep National Radio Sales Inc., expire 05/06/07+ (b)(d)(e) ...... 0 0 ------------ ------------ 634,637 572,965 ------------ ------------ See accompanying notes to financial statements. 11 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ----- WARRANTS (CONTINUED) COMPUTER SOFTWARE AND SERVICES -- 0.0% 430 Anacomp Inc., Cl. B, expire 12/10/06+ ................ $ 0 $ 13 ------------ ------------ DIVERSIFIED INDUSTRIAL -- 0.0% 379,703 National Patent Development Corp., expire 08/14/08+ (b)(e) ......... 0 50,156 13,217 WHX Corp., expire 02/28/08+ ...... 52,373 15,200 ------------ ------------ 52,373 65,356 ------------ ------------ HEALTH CARE -- 0.0% 14,424 Del Global Technologies Corp., expire 03/28/08+ ................ 24,809 721 ------------ ------------ TELECOMMUNICATIONS -- 0.0% 86 NTL Inc., expire 01/13/11+ ....... 124 39 ------------ ------------ TOTAL WARRANTS ................... 714,190 639,337 ------------ ------------ PRINCIPAL AMOUNT ------ CORPORATE BONDS -- 0.2% AVIATION: PARTS AND SERVICES -- 0.0% $ 300,000 GenCorp Inc., Sub. Deb. Cv., 5.750%, 04/15/07 ................ 295,648 307,500 ------------ ------------ BUSINESS SERVICES -- 0.2% 2,000,000 GP Strategies Corp., Sub. Deb., 6.000%, 08/14/08 (b)(e) ................. 1,641,862 1,337,838 148,000 Trans-Lux Corp., Sub. Deb. Cv., 8.250%, 03/01/12 (a) ............ 132,145 133,940 ------------ ------------ 1,774,007 1,471,778 ------------ ------------ COMPUTER SOFTWARE AND SERVICES -- 0.0% 300,000 Exodus Communications Inc., Sub. Deb. Cv., 5.250%, 02/15/08+ (b)(c) ........ 1,185 0 ------------ ------------ HEALTH CARE -- 0.0% 28,848 Del Global Technologies Corp., 6.000%, 03/28/07 (b)(e) ......... 28,847 21,636 ------------ ------------ TOTAL CORPORATE BONDS ............ 2,099,687 1,800,914 ------------ ------------ PRINCIPAL MARKET AMOUNT COST VALUE ------ ---- ----- U.S. GOVERNMENT OBLIGATIONS -- 3.8% $27,712,000 U.S. Treasury Bills, 4.843% to 5.101%++, 10/12/06 to 03/01/07 ............ $ 27,453,732 $ 27,458,661 ------------ ------------ TOTAL INVESTMENTS -- 100.2% ...... $449,732,039 733,799,236 ============ OTHER ASSETS AND LIABILITIES (NET) -- (0.2)% .... (1,315,980) ------------ NET ASSETS -- 100.0% ............................ $732,483,256 ============ - ---------------- (a) Security considered an affiliated holding because the Fund owns at least 5% of the outstanding shares. (b) Security fair valued under procedures established by the Board of Directors. The procedures may include reviewing available financial information about the company and reviewing valuation of comparable securities and other factors on a regular basis. At September 30, 2006, the market value of fair valued securities amounted to $4,140,764 or 0.57% of total net assets. (c) Security is in default. (d) Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2006, the market value of Rule 144A securities amounted to $1,818,377 or 0.25% of total net assets. (e) At September 30, 2006, the Fund held restricted and illiquid securities amounting to $4,056,764 or 0.55% of total net assets, which were valued under methods approved by the Board, as follows: ACQUISITION 09/30/06 SHARES/ CARRYING PRINCIPAL ACQUISITION ACQUISITION VALUE AMOUNT ISSUER DATE COST PER UNIT -------- ------ ----------- ----------- -------- 610,400 Career Blazers Inc. ......... 06/04/93 $ 236,019 $ 0.1755 6,048 Chestnut Hill Ventures ...... 07/26/01 164,590 21.4722 3,333 CTN Media Group Inc. ........ 09/28/01 16,800 0.0009 $ 28,848 Del Global Technologies Corp., 6.000%, 03/28/07 ........... 05/24/02 28,847 75.0000 $2,000,000 GP Strategies Corp., Sub. Deb., 6.000%, 08/14/08 ................... 08/08/03 1,362,935 66.8919 261,431 GP Strategies Corp. warrants expire 08/14/08 ................... 08/08/03 634,637 2.1916 100 Gray Television Inc., 8.000% Cv. Pfd., Ser. C ........... 04/22/02 1,000,000 10,000.0000 23,382 Interep National Radio Sales Inc., 4.000% Cv. Pfd., Ser. A ..................... 05/03/02 2,163,146 35.0003 125,000 Interep National Radio Sales Inc. warrants expire 05/06/07 ... 05/03/02 0.00 0.0000 20,000 Malan Realty Investors Inc. . 08/17/00 75,279 0.9400 379,703 National Patent Development Corp. warrants expire 08/14/08 ... 11/24/04 0.00 0.1321 ADR American Depository Receipt + Non-income producing security. ++ Represents annualized yield at date of purchase. See accompanying notes to financial statements. 12 THE GABELLI SMALL CAP GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2006 ================================================================================ ASSETS: Investments, at value (cost $448,684,817) ................ $ 732,973,906 Investments in affiliate, at value (cost $1,047,222) ..... 825,330 Foreign currency, at value (cost $11,685) ................ 11,741 Cash ..................................................... 656 Dividends and interest receivable ........................ 639,830 Receivable for Fund shares sold .......................... 463,671 Prepaid expense .......................................... 5,284 ------------- TOTAL ASSETS ............................................. 734,920,418 ------------- LIABILITIES: Payable for Fund shares redeemed ......................... 675,030 Payable for investment advisory fees ..................... 601,751 Payable for investments purchased ........................ 591,931 Payable for shareholder services fees .................... 228,140 Payable for distribution fees ............................ 152,115 Other accrued expenses ................................... 188,195 ------------- TOTAL LIABILITIES ........................................ 2,437,162 ------------- NET ASSETS applicable to 24,086,535 shares outstanding ..................................... $ 732,483,256 ============= NET ASSETS CONSIST OF: Capital stock, each class at $0.001 par value ............ $ 24,087 Additional paid-in capital ............................... 396,753,690 Accumulated net investment loss .......................... (32,123) Accumulated net realized gain on investments and foreign currency transactions ...................... 51,670,517 Net unrealized appreciation on investments ............... 284,067,197 Net unrealized depreciation on foreign currency translations ......................... (112) ------------- NET ASSETS ............................................... $ 732,483,256 ============= SHARES OF CAPITAL STOCK: CLASS AAA: Net Asset Value, offering and redemption price per share ($727,520,784 / 23,921,373 shares outstanding; 150,000,000 shares authorized) ......................... $30.41 ====== CLASS A: Net Asset Value and redemption price per share ($2,199,173 / 72,312 shares outstanding; 50,000,000 shares authorized) .......................... $30.41 ====== Maximum offering price per share (NAV / .9425, based on maximum sales charge of 5.75% of the offering price) .................................... $32.27 ====== CLASS B: Net Asset Value and offering price per share ($113,301 / 3,806 shares outstanding; 50,000,000 shares authorized) .......................... $29.77(a) ====== CLASS C: Net Asset Value and offering price per share ($2,649,998 / 89,044 shares outstanding; 50,000,000 shares authorized) .......................... $29.76(a) ====== - --------------------- (a) Redemption price varies based on the length of time held. STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2006 ================================================================================ INVESTMENT INCOME: Dividends - unaffiliated (net of foreign taxes of $42,549) .. $ 7,913,989 Dividends - affiliated ...................................... 10,518 Interest - unaffiliated ..................................... 2,227,896 Interest - affiliated ....................................... 6,105 ------------ TOTAL INVESTMENT INCOME ..................................... 10,158,508 ------------ EXPENSES: Investment advisory fees .................................... 7,547,841 Distribution fees - Class AAA ............................... 1,875,897 Distribution fees - Class A ................................. 4,998 Distribution fees - Class B ................................. 1,270 Distribution fees - Class C ................................. 21,675 Shareholder services fees ................................... 835,561 Shareholder communications expenses ......................... 228,095 Custodian fees .............................................. 116,081 Legal and audit fees ........................................ 51,723 Accounting fees (see Note 6) ................................ 45,000 Registration expenses ....................................... 42,348 Directors' fees ............................................. 32,237 Miscellaneous expenses ...................................... 82,486 ------------ TOTAL EXPENSES .............................................. 10,885,212 Less: Custodian fee credits ................................. (12,224) ------------ TOTAL NET EXPENSES .......................................... 10,872,988 ------------ NET INVESTMENT LOSS ......................................... (714,480) ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized gain on investments - unaffiliated ............. 64,438,946 Net realized loss on investments - affiliated ............... (1,618) Net realized loss on foreign currency transactions .......... (8,406) ------------ Net realized gain on investments and foreign currency transactions ...................................... 64,428,922 Net change in unrealized appreciation/ (depreciation) on investments and foreign currency translations .............................. (40,414) ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY ....................... 64,388,508 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................................. $ 63,674,028 ============ See accompanying notes to financial statements. 13 THE GABELLI SMALL CAP GROWTH FUND STATEMENT OF CHANGES IN NET ASSETS ================================================================================ YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ------------------ ------------------ OPERATIONS: Net investment loss ........................................ $ (714,480) $ (237,209) Net realized gain on investments and foreign currency transactions ............................ 64,428,922 42,629,890 Net change in unrealized appreciation/(depreciation) on investments and foreign currency translations ............ (40,414) 83,565,118 ------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... 63,674,028 125,957,799 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: Net realized gain on investments: Class AAA ................................................ (50,200,421) (27,271,963) Class A .................................................. (124,948) (6,636) Class B .................................................. (9,605) (5,930) Class C .................................................. (119,963) (5,584) ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS ........................ (50,454,937) (27,290,113) ------------- ------------- CAPITAL SHARE TRANSACTIONS: Class AAA ................................................ (18,592,269) 14,081,158 Class A .................................................. 639,229 1,389,944 Class B .................................................. (26,318) 69,962 Class C .................................................. 1,122,817 1,402,027 ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ............................... (16,856,541) 16,943,091 ------------- ------------- REDEMPTION FEES ............................................ 3,895 35,284 ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS ...................... (3,633,555) 115,646,061 NET ASSETS: Beginning of period ........................................ 736,116,811 620,470,750 ------------- ------------- End of period (including undistributed net investment income of $0 and $0, respectively) ........................... $ 732,483,256 $ 736,116,811 ============= ============= See accompanying notes to financial statements. 14 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS ================================================================================ 1. ORGANIZATION. The Gabelli Small Cap Growth Fund (the "Fund") is a series of Gabelli Equity Series Funds, Inc. (the "Corporation"), which 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 three separately managed portfolios (collectively, the "Portfolios") of the Corporation. The Fund's primary objective is capital appreciation. The Fund commenced investment operations on October 22, 1991. 2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in accordance with United States ("U.S.") 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 or traded in the U.S. over-the-counter market for which market quotations are readily available are valued at the last quoted sale price or a market's official closing price 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. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or, if the Board of Directors (the "Board") so determines, by such other method as the Board shall determine in good faith to reflect its fair market value. 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"). Portfolio securities primarily traded on a foreign market are generally valued at the preceding closing values of such securities on the relevant market, but may be fair valued pursuant to procedures established by the Board if market conditions change significantly after the close of the foreign market but prior to the close of business on the day the securities are being valued. Debt instruments with remaining maturities of 60 days or less that are not credit impaired are valued at amortized cost, unless the Board determines such amount does not reflect the securities' fair value, in which case these securities will be fair valued as determined by the Board. Debt instruments having a maturity greater than 60 days for which market quotations are readily available are valued at the average of the latest bid and asked prices. If there were no asked prices quoted on such day, the security is valued using the closing bid price. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded. Securities and assets for which market quotations are not readily available are fair valued as determined by the Board. Fair valuation methodologies and procedures may include, but are not limited to: analysis and review of available financial and non-financial information about the company; comparisons to the valuation and changes in valuation of similar securities, including a comparison of foreign securities to the equivalent U.S. dollar value ADR securities at the close of the U.S. exchange; and evaluation of any other information that could be indicative of the value of the security. 15 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ 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. 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 102% of the dollar amount invested by the Fund in each agreement. The Fund will make payment for such securities only upon physical delivery or upon evidence of book entry transfer of the collateral to the account of the custodian. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to maintain the adequacy of the collateral. If the seller defaults and the value of the collateral 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. At September 30, 2006, there were no open repurchase agreements. 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 fluctuations in the value of the contract, which are included in unrealized appreciation/depreciation on investments and futures contracts. The Fund recognizes a realized gain or loss when the contract is closed. There are several risks in connection with the use of futures contracts as a hedging instrument. 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. At September 30, 2006, there were no open futures contracts. 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 translations. 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 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. At September 30, 2006, there were no open forward foreign exchange contracts. 16 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments, and other assets and liabilities are translated into U.S. dollars at the current exchange rates. 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 that 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 translations. 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. FOREIGN SECURITIES. The Fund may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible revaluation of currencies, the ability to repatriate funds, less complete financial information about companies, and possible future adverse political and economic developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. issuers. FOREIGN TAXES. The Fund may be subject to foreign taxes on income, gains on investments, or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in securities for which the markets are illiquid. Illiquid securities include securities the disposition of which is subject to substantial legal or contractual restrictions. The sale of illiquid securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. Securities freely saleable among qualified institutional investors under special rules adopted by the SEC may be treated as liquid if they satisfy liquidity standards established by the Board. The continued liquidity of such securities is not as well assured as that of publicly traded securities, and accordingly the Board will monitor their liquidity. 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 on the accrual basis. Premiums and discounts on debt securities are amortized using the effective yield to maturity method. Dividend income is recorded on the ex-dividend date except for certain dividends which are recorded as soon as the Fund is informed of the dividend. DETERMINATION OF NET ASSET VALUE AND CALCULATION OF EXPENSES. Certain administrative expenses are common to, and allocated among, various affiliated funds. Such allocations are made on the basis of each Fund's average net assets or other criteria directly affecting the expenses as determined by the Adviser pursuant to procedures established by the Board. 17 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ In calculating the net asset value ("NAV") per share of each class, investment income, realized and unrealized gains and losses, redemption fees, and expenses other than class specific expenses, are allocated daily to each class of shares based upon the proportion of net assets of each class at the beginning of each day. Distribution expenses are borne solely by the class incurring the expense. CUSTODIAN FEE CREDITS. When cash balances are maintained in the custody account, the Fund receives credits which are used to offset custodian fees. The gross expenses paid under the custody arrangement are included in custodian fees in the Statement of Operations with the corresponding expense offset, if any, shown as "custodian fee credits". DISTRIBUTIONS TO SHAREHOLDERS. Distributions to shareholders are recorded on the ex-dividend date. Distributions to shareholders are based on income and capital gains as determined in accordance with Federal income tax regulations, which may differ from income and capital gains as determined under U.S. generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities and foreign currency transactions held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Distributions from net investment income include net realized gains on foreign currency transactions. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, adjustments are made to the appropriate capital accounts in the period when the differences arise. These reclassifications have no impact on the NAV of the Fund. For the fiscal year ended September 30, 2006, reclassifications were made to decrease accumulated net investment loss by $713,878 and decrease accumulated net realized gain on investments by $464,421, with an offsetting adjustment to additional paid-in capital. The tax character of distributions paid during the fiscal years ended September 30, 2006 and September 30, 2005 was as follows: FISCAL YEAR ENDED FISCAL YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ------------------ ------------------ DISTRIBUTIONS PAID FROM: Ordinary income (inclusive of short-term capital gains) .................. $ 648,028 -- Net long-term capital gains ...... 49,806,909 $27,290,113 ----------- ----------- Total distributions paid ......... $50,454,937 $27,290,113 =========== =========== 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 (the "Code"). It is the policy of the Fund to comply with the requirements of the Code applicable to regulated investment companies and to distribute substantially all of its net investment company taxable income and net capital gains. Therefore, no provision for Federal income taxes is required. As of September 30, 2006, the components of accumulated earnings/(losses) on a tax basis were as follows: Undistributed long-term capital gains ........... $ 54,193,198 Post-October currency losses .................... (11,416) Net unrealized appreciation ..................... 281,570,461 Other temporary differences ..................... (46,764) ------------ Total accumulated earnings .................... $335,705,479 ============ 18 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ At September 30, 2006, the difference between book and tax basis undistributed ordinary income is primarily due to the continued accrual of defaulted interest for tax purposes which has been written down for book purposes and tax adjustments due to a partnership security. At September 30, 2006, the difference between book and tax basis unrealized appreciation is primarily due to deferral of losses on wash sales. Under the current tax law, capital losses related to securities and foreign currency realized after October 31 and prior to the Fund's fiscal year end may be treated as occurring on the first day of the following year. For the fiscal year ended September 30, 2006, the Fund deferred currency losses of $11,416. The following summarizes the tax cost of investments and the related unrealized appreciation/depreciation at September 30, 2006: GROSS GROSS NET UNREALIZED UNREALIZED UNREALIZED APPRECIATION/ COST APPRECIATION DEPRECIATION (DEPRECIATION) ------------ ------------ ------------ ------------ Investments ..................$451,181,441 $324,993,129 $(43,200,664) $281,792,465 Investments in affiliates .... 1,047,222 1,795 (223,687) (221,892) ------------ ------------ ------------ ------------ $452,228,663 $324,994,924 $(43,424,351) $281,570,573 ============ ============ ============ ============ NEW ACCOUNTING PRONOUNCEMENTS. In July 2006, the Financial Accounting Standards Board (the "FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" ("the Interpretation"). The Interpretation establishes for all entities, including pass-through entities such as the Fund, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. The Interpretation is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. Management has recently begun to evaluate the application of the Interpretation to the Fund, and is not in a position at this time to estimate the significance of its impact, if any, on the Fund's financial statements. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 157, Fair Value Measurements, which clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Adoption of SFAS 157 requires the use of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. At this time, management is in the process of reviewing the Standard against its current valuation policies to determine future applicability. 19 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ 3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS. 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 its 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 affiliated persons of the Adviser. The Corporation pays each Director that is not an affiliated person of the Adviser or its affiliates (as defined in the 1940 Act) an annual retainer of $6,000 plus $1,000 for each Board meeting attended and they are reimbursed for any out of pocket expenses incurred in attending meetings. All Board committee members receive $500 per meeting. Directors who are directors or employees of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Fund. 4. DISTRIBUTION PLAN. The Fund's Board has adopted a distribution plan (the "Plan") for each class of shares pursuant to Rule 12b-1 under the 1940 Act. Gabelli & Company, Inc. ("Gabelli & Company"), an affiliate of the Adviser, serves as distributor of the Fund. Under the Class AAA, Class A, Class B, and Class C Share Plans, payments are authorized to Gabelli & Company at annual rates of 0.25%, 0.25%, 1.00%, and 1.00%, respectively, of the average daily net assets of those classes, the annual limitations under each Plan. Such payments are accrued daily and paid monthly. 5. PORTFOLIO SECURITIES. Purchases and proceeds from the sales of securities for the fiscal year ended September 30, 2006, other than short-term securities, aggregated $39,720,019 and $41,727,458, respectively. 6. TRANSACTIONS WITH AFFILIATES. During the fiscal year ended September 30, 2006, the Fund paid brokerage commissions of $92,731 to Gabelli & Company. Additionally, Gabelli & Company informed the Fund that it received $5,562 from investors representing commissions (sales charges and underwriting fees) on sales and redemptions of Fund shares. The cost of calculating the Fund's NAV per share is a Fund expense pursuant to the Advisory Agreement between the Fund and the Adviser. During the fiscal year ended September 30, 2006, the Fund paid or accrued $45,000 to the Adviser in connection with the cost of computing the Fund's NAV. 7. LINE OF CREDIT. The Fund has access to an unsecured line of credit of up to $25,000,000 from the custodian for temporary borrowing purposes. Borrowings under this arrangement bear interest at 0.75% above the Federal Funds rate on outstanding balances. This amount, if any, would be shown as "interest expense" in the Statement of Operations. During the fiscal year ended September 30, 2006, there were no borrowings outstanding from the line of credit. 8. CAPITAL STOCK TRANSACTIONS. The Fund currently offers four classes of shares - -- Class AAA Shares, Class A Shares, Class B Shares, and Class C Shares. Class AAA Shares are offered only to investors who acquire them directly from Gabelli & Company, or through selected broker/dealers, or the transfer agent without a sales charge. Class A Shares are subject to a maximum front-end sales charge of 5.75%. Class B Shares are subject to a contingent deferred sales charge ("CDSC") upon redemption within six years of purchase and automatically convert to Class A Shares approximately eight years after the original purchase. The applicable CDSC is equal to a declining percentage of the lesser of the NAV per share at the date of the original purchase or at the date of redemption, based on the length of time held. Class C Shares are subject to a 1.00% CDSC for one year after purchase. Class B Shares are available only through exchange of Class B Shares of other funds distributed by Gabelli & Company. The Board has approved Class I Shares which have not been offered publicly. 20 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ Effective June 15, 2005, the Fund imposed a redemption fee of 2.00% on Class AAA Shares, Class A Shares, Class B Shares, and Class C Shares that are redeemed or exchanged on or before the seventh day after the date of a purchase. (Prior to June 15, 2005, the Fund imposed a redemption fee on shares that were redeemed or exchanged on or before the sixtieth day after the date of a purchase.) The redemption fee is deducted from the proceeds otherwise payable to the redeeming shareholders and is retained by the Fund. The redemption fees retained by the Fund during the fiscal years ended September 30, 2006 and September 30, 2005 amounted to $3,895 and $35,284, respectively. The redemption fee does not apply to shares purchased through programs that the Adviser determined to have appropriate short-term trading policies in place. Additionally, certain recordkeepers for qualified and non-qualified retirement plans that could not collect the redemption fee at the participant level due to systems limitations have received an extension to implement such systems. Transactions in shares of capital stock were as follows: YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ------------------------ ----------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- -------- ----------- CLASS AAA CLASS AAA ------------------------ ----------------------- Shares sold .............................................. 3,275,191 $ 97,982,057 5,199,909 $ 147,867,554 Shares issued upon reinvestment of distributions ......... 1,698,995 47,843,699 930,960 25,964,511 Shares redeemed .......................................... (5,511,639) (164,418,025) (5,645,493) (159,750,907) ---------- ------------- ---------- ------------- Net increase (decrease) ................................ (537,453) $ (18,592,269) 485,376 $ 14,081,158 ========== ============= ========== ============= CLASS A CLASS A ------------------------ ----------------------- Shares sold .............................................. 39,452 $ 1,176,826 49,475 $ 1,424,869 Shares issued upon reinvestment of distributions ......... 4,228 119,107 233 6,514 Shares redeemed .......................................... (21,919) (656,704) (1,399) (41,439) ---------- ------------- ---------- ------------- Net increase ........................................... 21,761 $ 639,229 48,309 $ 1,389,944 ========== ============= ========== ============= CLASS B CLASS B ------------------------ ----------------------- Shares sold .............................................. -- $ -- 3,028 $ 85,010 Shares issued upon reinvestment of distributions ......... 346 9,605 214 5,930 Shares redeemed .......................................... (1,211) (35,923) (700) (20,978) ---------- ------------- ---------- ------------- Net increase (decrease) ................................ (865) $ (26,318) 2,542 $ 69,962 ========== ============= ========== ============= CLASS C CLASS C ------------------------ ----------------------- Shares sold .............................................. 46,604 $ 1,371,491 50,553 $ 1,426,256 Shares issued upon reinvestment of distributions ......... 4,190 116,097 164 4,526 Shares redeemed .......................................... (12,415) (364,771) (989) (28,755) ---------- ------------- ---------- ------------- Net increase ........................................... 38,379 $ 1,122,817 49,728 $ 1,402,027 ========== ============= ========== ============= 21 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ 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 fiscal year ended September 30, 2006 is set forth below: NET CHANGE PERCENT DIVIDEND/ IN UNREALIZED VALUE AT OWNED BEGINNING SHARES SHARES ENDING INTEREST APPRECIATION/ SEPTEMBER 30, OF SHARES SHARES PURCHASED SOLD SHARES INCOME (DEPRECIATION) 2006 OUTSTANDING ------ --------- ---- ------ ------ ------------ --------- ----------- Trans-Lux Corp. ...... 100,000 16,700 (500) 116,200 $10,518 $ (7,494) $691,390 11.93% Trans-Lux Corp., Sub. Deb.Cv., 8.250%, 03/01/12 ... 0 148,000 (0) 148,000 6,105 133,940 133,940 0.90% 10. INDEMNIFICATIONS. The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 11. OTHER MATTERS. The Adviser and/or affiliates have received subpoenas from the Attorney General of the State of New York and the SEC requesting information on mutual fund trading practices involving certain funds managed by the Adviser. GAMCO Investors, Inc. ("GAMCO"), the Adviser's parent company, is responding to these requests for documents and testimony. In June 2006, GAMCO began discussions with the SEC regarding a possible resolution of their inquiry. Since these discussions are ongoing, it cannot be determined at this time whether they will ultimately result in a settlement of this matter. On a separate matter, in September 2005, the Adviser was informed by the staff of the SEC that the staff may recommend to the Commission that an administrative remedy and a monetary penalty be sought from the Adviser in connection with the actions of two of seven closed-end funds managed by the Adviser relating to Section 19(a) and Rule 19a-1 of the 1940 Act. These provisions require registered investment companies to provide written statements to shareholders when a dividend is made from a source other than net investment income. While the two closed-end funds sent annual statements and provided other materials containing this information, the funds did not send written statements to shareholders with each distribution in 2002 and 2003. The Adviser believes that all of the funds are now in compliance. The Adviser believes that these matters would have no effect on the Fund or any material adverse effect on the Adviser or its ability to manage the Fund. 22 THE GABELLI SMALL CAPGROWTH FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of capital stock outstanding throughout each period: INCOME FROM INVESTMENT OPERATIONS DISTRIBUTIONS -------------------------------------------------- -------------------------------------- Net Net Asset Realized and Total Net Period Value, Net Unrealized from Net Realized Ended Beginning Investment Gain on Investment Investment Gain on Total September 30 of Period (Loss)(a) Investments Operations Income Investments Distributions - ------------ ---------- ---------- ----------- ---------- ---------- ----------- ------------- CLASS AAA 2006 $29.97 $(0.03) $2.53 $2.50 -- $(2.06) $(2.06) 2005 25.88 (0.01) 5.25 5.24 -- (1.15) (1.15) 2004 21.48 (0.04) 4.61 4.57 -- (0.17) (0.17) 2003 17.04 (0.05) 4.74 4.69 -- (0.25) (0.25) 2002 17.13 (0.04) 0.31 0.27 $(0.01) (0.35) (0.36) CLASS A 2006 $29.98 $(0.02) $2.51 $2.49 -- $(2.06) $(2.06) 2005 25.89 (0.01) 5.25 5.24 -- (1.15) (1.15) 2004(c) 24.49 (0.06) 1.46 1.40 -- -- -- CLASS B 2006 $29.58 $(0.25) $2.50 $2.25 -- $(2.06) $(2.06) 2005 25.74 (0.22) 5.21 4.99 -- (1.15) (1.15) 2004(c) 24.49 (0.19) 1.44 1.25 -- -- -- CLASS C 2006 $29.58 $(0.24) $2.48 $2.24 -- $(2.06) $(2.06) 2005 25.74 (0.23) 5.22 4.99 -- (1.15) (1.15) 2004(c) 24.49 (0.20) 1.45 1.25 -- -- -- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ----------------------------------------------- Net Asset Net Assets Net Period Value, End of Investment Portfolio Ended Redemption End of Total Period Income/ Operating Turnover September 30 Fees(a) Period Return+ (in 000's) (Loss) Expenses Rate - ------------ ---------- -------- ------- --------- --------- ---------- ---------- CLASS AAA 2006 $0.00(b) $30.41 8.88% $727,521 (0.09)% 1.44% 6% 2005 0.00(b) 29.97 20.58 732,965 (0.03) 1.44 6 2004 -- 25.88 21.34 620,334 (0.15) 1.42 10 2003 -- 21.48 27.84 540,397 (0.22) 1.45 4 2002 -- 17.04 1.39 428,416 (0.22) 1.45 10 CLASS A 2006 $0.00(b) $30.41 8.84% $ 2,199 (0.08)% 1.44% 6% 2005 0.00(b) 29.98 20.57 1,515 (0.03) 1.48 6 2004(c) -- 25.89 5.72 58 (0.32)(d) 1.42(d) 10 CLASS B 2006 $0.00(b) $29.77 8.11% $ 113 (0.85)% 2.19% 6% 2005 0.00(b) 29.58 19.69 138 (0.79) 2.20 6 2004(c) -- 25.74 5.10 55 (1.02)(d) 2.17(d) 10 CLASS C 2006 $0.00(b) $29.76 8.08% $ 2,650 (0.83)% 2.19% 6% 2005 0.00(b) 29.58 19.69 1,499 (0.80) 2.23 6 2004(c) -- 25.74 5.10 24 (1.07)(d) 2.17(d) 10 - ------------------ + 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 distributions and does not reflect applicable sales charges. Total return for a period of less than one year is not annualized. (a) Per share amounts have been calculated using the average shares outstanding method. (b) Amount represents less than $0.005 per share. (c) From the commencement of offering Class A, Class B, and Class C Shares on December 31, 2003. (d) Annualized. See accompanying notes to financial statements. 23 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ================================================================================ To the Shareholders and Board of Directors of The Gabelli Small Cap Growth Fund We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Gabelli Small Cap Growth Fund (the "Fund"), a series of Gabelli Equity Series Funds, Inc., as of September 30, 2006, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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, a series of Gabelli Equity Series Funds, Inc., at September 30, 2006, 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 its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania November 7, 2006 24 THE GABELLI SMALL CAP GROWTH FUND ADDITIONAL FUND INFORMATION (UNAUDITED) ================================================================================ The business and affairs of the Fund are managed under the direction of the Fund's Board of Directors. Information pertaining to the Directors and officers of the Fund is set forth below. The Fund's Statement of Additional Information includes additional information about The Gabelli Small Cap Growth Fund's Directors and is available, without charge, upon request, by calling 800-GABELLI (800-422-3554) or by writing to The Gabelli Small Cap Growth Fund at One Corporate Center, Rye, NY 10580-1422. TERM OF NUMBER OF NAME, POSITION(S) OFFICE AND FUNDS IN FUND ADDRESS 1 LENGTH OF COMPLEX OVERSEEN PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS AND AGE TIME SERVED 2 BY DIRECTOR DURING PAST FIVE YEARS HELD BY DIRECTOR 3 - ----------------- ------------- ---------------- ---------------------- ------------------ INTERESTED DIRECTORS 4: - ---------------------- MARIO J. GABELLI Since 1991 23 Chairman of the Board and Chief Executive Director of Morgan Group Director and Officer of GAMCO Investors, Inc. and Holdings, Inc. Chief Investment Officer Chief Investment Officer-Value Portfolios (holding company) Age: 64 of Gabelli Funds, LLC and GAMCO Asset Management Inc.; Chairman and Chief Executive Officer of Lynch Interactive Corporation (multimedia and services) JOHN D. GABELLI Since 1991 10 Senior Vice President of Gabelli & Director of GAMCO Director Company, Inc. Investors, Inc. Age: 62 NON-INTERESTED DIRECTORS: - ------------------------ ANTHONY J. COLAVITA Since 1991 33 Partner in the law firm of -- Director Anthony J. Colavita, P.C. Age: 70 VINCENT D. ENRIGHT Since 1991 13 Former Senior Vice President and Chief Director of Aphton Director Financial Officer of KeySpan Energy Corporation Age: 62 Corporation (utility holding company) (biopharmaceutical company) ROBERT J. MORRISSEY Since 1991 6 Partner in the law firm of Morrissey, -- Director Hawkins & Lynch Age: 67 ANTHONY R. PUSTORINO Since 1991 14 Certified Public Accountant; Professor Director of Lynch Corporation Director Emeritus, Pace University (diversified manufacturing) Age: 81 ANTHONIE C. VAN EKRIS Since 1991 17 Chairman of BALMAC International, Inc. -- Director (commodities and futures trading) Age: 72 SALVATORE J. ZIZZA Since 2001 24 Chairman, Hallmark Electrical Supplies Corp. Director of Hollis-Eden Director Pharmaceuticals Age: 60 (biotechnology); Director of Earl Scheib, Inc. (automotive services) 25 THE GABELLI SMALL CAP GROWTH FUND ADDITIONAL FUND INFORMATION (CONTINUED) (UNAUDITED) ================================================================================ NAME, POSITION(S) TERM OF OFFICE ADDRESS 1 AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED 2 DURING PAST FIVE YEARS - ----------------- --------------- ----------------------- OFFICERS: - -------- BRUCE N. ALPERT Since 1991 Executive Vice President and Chief Operating Officer President of Gabelli Funds, LLC since 1988; Director and Age: 54 President of Gabelli Advisers, Inc. since 1998; Officer of all of the registered investment companies in the Gabelli Funds complex JAMES E. MCKEE Since 1995 Vice President, General Counsel and Secretary of Secretary Investors, Inc. since 1999 and GAMCO Asset Age: 43 Management Inc. since 1993; Secretary of all of the registered investment companies in the Gabelli Funds complex AGNES MULLADY Since 2006 Treasurer of all of the registered investment companies Treasurer in the Gabelli Funds complex; Senior Vice President of Age: 48 U.S. Trust Company, N.A. and Treasurer and Chief Financial Officer of Excelsior Funds from 2004 through 2005; Chief Financial Officer of AMIC Distribution Partners from 2002 through 2004; Controller of Reserve Management Corporation and Reserve Partners, Inc. and Treasurer of Reserve Funds from 2000 through 2002 PETER D. GOLDSTEIN Since 2004 Director of Regulatory Affairs for GAMCO Investors, Inc. Chief Compliance Officer since 2004; Chief Compliance Officer of all of the registered Age: 53 investment companies in the Gabelli Funds complex; Vice President of Goldman Sachs Asset Management from 2000-2004 - ------------------ 1 Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted. 2 Each Director will hold office for an indefinite term until the earliest of (i) the next meeting of shareholders, if any, called for the purpose of considering the election or re-election of such Director and until the election and qualification of his or her successor, if any, elected at such meeting, or (ii) the date a Director resigns or retires, or a Director is removed by the Board of Directors or shareholders, in accordance with the Corporation's By-Laws and Articles of Incorporation. Each officer will hold office for an indefinite term until the date he or she resigns or retires or until his or her successor is elected and qualified. 3 This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934 (i.e. public companies) or other investment companies registered under the 1940 Act. 4 "Interested person" of the Fund as defined in the Investment Company Act of 1940. Messrs. Gabelli are each considered an "interested person" because of their affiliation with Gabelli Funds, LLC which acts as the Fund's investment adviser. Mario J. Gabelli and John D. Gabelli are brothers. - -------------------------------------------------------------------------------- 2006 TAX NOTICE TO SHAREHOLDERS (Unaudited) For the fiscal year ended September 30, 2006, the Fund paid to Class AAA, Class A, Class B, and Class C shareholders, on December 20, 2005 an ordinary income dividend (comprised of short-term capital gains) totaling $0.0265 per share and long-term capital gains totaling $2.0300 per share. For the fiscal year ended September 30, 2006, 100% of the ordinary income dividend qualifies for the dividends received deduction available to corporations and 100% of the ordinary income distribution was qualified dividend income. An estimate of qualified dividend income of $7,899,770 was received by the Fund through September 30, 2006 that qualifies for a reduced tax rate pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003. - -------------------------------------------------------------------------------- 26 GABELLI FAMILY OF FUNDS VALUE _______________________________________ GABELLI ASSET FUND Seeks to invest primarily in a diversified portfolio of common stocks selling at significant discounts to their private market value. The Fund's primary objective is growth of capital. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA GABELLI BLUE CHIP VALUE FUND Seeks long term growth of capital through investment primarily in the common stocks of established companies which are temporarily out of favor. The fund's objective is to identify a catalyst or sequence of events that will return the company to a higher value. (MULTICLASS) PORTFOLIO MANAGER: BARBARA MARCIN, CFA WESTWOOD EQUITY FUND Seeks to invest primarily in the common stock of well-seasoned companies that have recently reported positive earnings surprises and are trading below Westwood's proprietary growth rate estimates. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: SUSAN M. BYRNE FOCUSED VALUE _______________________________ GABELLI VALUE FUND Seeks to invest in securities of companies believed to be undervalued. The Fund's primary objective is long-term capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA SMALL CAP VALUE _____________________________ GABELLI SMALL CAP FUND Seeks to invest primarily in common stock of smaller companies (market capitalizations of $2 billion or less) believed to have rapid revenue and earnings growth potential. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA WESTWOOD SMALLCAP EQUITY FUND Seeks to invest primarily in smaller capitalization equity securities - market caps of $2.5 billion or less. The Fund's primary objective is long-term capital appreciation. (MULTICLASS) TEAM MANAGED GABELLI WOODLAND SMALL CAP VALUE FUND Seeks to invest primarily in the common stocks of smaller companies (market capitalizations less than $3.0 billion) believed to be undervalued with shareholder oriented management teams that are employing strategies to grow the company's value. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: ELIZABETH M. LILLY, CFA GROWTH ______________________________________ GAMCO GROWTH FUND Seeks to invest primarily in large cap stocks believed to have favorable, yet undervalued, prospects for earnings growth. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: HOWARD F. WARD, CFA GAMCO INTERNATIONAL GROWTH FUND Seeks to invest in the equity securities of foreign issuers with long-term capital appreciation potential. The Fund offers investors global diversification. (MULTICLASS) PORTFOLIO MANAGER: CAESAR BRYAN AGGRESSIVE GROWTH ___________________________ GAMCO GLOBAL GROWTH FUND Seeks capital appreciation through a disciplined investment program focusing on the globalization and interactivity of the world's marketplace. The Fund invests in companies at the forefront of accelerated growth. The Fund's primary objective is capital appreciation. (MULTICLASS) TEAM MANAGED MICRO-CAP ___________________________________ WESTWOOD MIGHTY MITES(SM) FUND Seeks to invest in micro-cap companies that have market capitalizations of $300 million or less. The Fund's primary objective is long-term capital appreciation. (MULTICLASS) TEAM MANAGED EQUITY INCOME _______________________________ GABELLI EQUITY INCOME FUND Seeks to invest primarily in equity securities with above market average yields. The Fund pays monthly dividends and seeks a high level of total return with an emphasis on income. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA WESTWOOD BALANCED FUND Seeks to invest in a balanced and diversified portfolio of stocks and bonds. The Fund's primary objective is both capital appreciation and current income. (MULTICLASS) CO-PORTFOLIO MANAGERS: SUSAN M. BYRNE MARK FREEMAN, CFA WESTWOOD INCOME FUND Seeks to provide a high level of current income as well as long-term capital appreciation by investing in income producing equity and fixed income securities. (MULTICLASS) TEAM MANAGED SPECIALTY EQUITY ____________________________ GAMCO GLOBAL CONVERTIBLE SECURITIES FUND Seeks to invest principally in bonds and preferred stocks which are convertible into common stock of foreign and domestic companies. The Fund's primary objective is total return through a combination of current income and capital appreciation. (MULTICLASS) TEAM MANAGED GAMCO GLOBAL OPPORTUNITY FUND Seeks to invest in common stock of companies which have rapid growth in revenues and earnings and potential for above average capital appreciation or are undervalued. The Fund's primary objective is capital appreciation. (MULTICLASS) TEAM MANAGED SECTOR ______________________________________ GAMCO GLOBAL TELECOMMUNICATIONS FUND Seeks to invest in telecommunications companies throughout the world - targeting undervalued companies with strong earnings and cash flow dynamics. The Fund's primary objective is capital appreciation. (MULTICLASS) TEAM MANAGED GAMCO GOLD FUND Seeks to invest in a global portfolio of equity securities of gold mining and related companies. The Fund's objective is long-term capital appreciation. Investment in gold stocks is considered speculative and is affected by a variety of world-wide economic, financial, and political factors. (MULTICLASS) PORTFOLIO MANAGER: CAESAR BRYAN GABELLI UTILITIES FUND Seeks to provide a high level of total return through a combination of capital appreciation and current income. (MULTICLASS) TEAM MANAGED MERGER AND ARBITRAGE ________________________ GABELLI ABC FUND Seeks to invest in securities with attractive opportunities for appreciation or investment income. The Fund's primary objective is total return in various market conditions without excessive risk of capital loss. (NO-LOAD) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA CONTRARIAN___________________________________ GAMCO MATHERS FUND Seeks long-term capital appreciation in various market conditions without excessive risk of capital loss. (CLASS AAA-NO-LOAD) PORTFOLIO MANAGER: HENRY VAN DER EB, CFA COMSTOCK CAPITAL VALUE FUND Seeks capital appreciation and current income. The Fund may use either long or short positions to achieve its objective. (MULTICLASS) PORTFOLIO MANAGER: MARTIN WEINER, CFA COMSTOCK STRATEGY FUND The Fund emphasizes investments in debt securities, which maximize total return in light of credit risk, interest rate risk, and the risk associated with the length of maturity of debt instruments. (MULTICLASS) PORTFOLIO MANAGER: MARTIN WEINER, CFA FIXED INCOME ________________________________ WESTWOOD INTERMEDIATE BOND FUND Seeks to invest in a diversified portfolio of bonds with various maturities. The Fund's primary objective is total return. (MULTICLASS) PORTFOLIO MANAGER: MARK FREEMAN, CFA CASH MANAGEMENT-MONEY MARKET ________________ GABELLI U.S. TREASURY MONEY MARKET FUND Seeks to invest exclusively in short-term U.S. Treasury securities. The Fund's primary objective is to provide high current income consistent with the preservation of principal and liquidity. (NO-LOAD) PORTFOLIO MANAGER: JUDITH A. RANERI AN INVESTMENT IN THE ABOVE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. THE FUNDS MAY INVEST IN FOREIGN SECURITIES WHICH INVOLVE RISKS NOT ORDINARILY ASSOCIATED WITH INVESTMENTS IN DOMESTIC ISSUES, INCLUDING CURRENCY FLUCTUATION, ECONOMIC, AND POLITICAL RISKS. TO RECEIVE A PROSPECTUS, CALL 800-GABELLI (422-3554). INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES, AND EXPENSES OF THE FUND BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. Gabelli Equity Series Funds, Inc. THE GABELLI SMALL CAP GROWTH FUND One Corporate Center Rye, New York 10580-1422 800-GABELLI 800-422-3554 FAX: 914-921-5118 WEBSITE: WWW.GABELLI.COM E-MAIL: INFO@GABELLI.COM Net Asset Value available daily by calling 800-GABELLI after 6:00 P.M. BOARD OF DIRECTORS Mario J. Gabelli, CFA Robert J. Morrissey CHAIRMAN AND CHIEF ATTORNEY-AT-LAW EXECUTIVE OFFICER MORRISSEY, HAWKINS & LYNCH GAMCO INVESTORS, INC. Anthony J. Colavita Anthony R. Pustorino ATTORNEY-AT-LAW CERTIFIED PUBLIC ACCOUNTANT, ANTHONY J. COLAVITA, P.C. PROFESSOR EMERITUS PACE UNIVERSITY Vincent D. Enright Anthonie C. van Ekris FORMER SENIOR VICE PRESIDENT CHAIRMAN AND CHIEF FINANCIAL OFFICER BALMAC INTERNATIONAL, INC. KEYSPAN ENERGY CORP. John D. Gabelli Salvatore J. Zizza SENIOR VICE PRESIDENT CHAIRMAN GABELLI & COMPANY, INC. HALLMARK ELECTRICAL SUPPLIES CORP. OFFICERS Bruce N. Alpert James E. McKee PRESIDENT SECRETARY Agnes Mullady Peter D. Goldstein TREASURER CHIEF COMPLIANCE OFFICER 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. - -------------------------------------------------------------------------------- GAB443Q306SR [GRAPHIC OMITTED] E P Gabelli Triangle P M MANAGEMENT S V CASH FLOW RESEARCH THE GABELLI SMALL CAP GROWTH FUND ANNUAL REPORT SEPTEMBER 30, 2006 THE GABELLI EQUITY INCOME FUND ANNUAL REPORT (A) SEPTEMBER 30, 2006 TO OUR SHAREHOLDERS, Investors continued their appreciation for dividend paying stocks that outperformed broad stock market indices in the third quarter of 2006. The Gabelli Equity Income Fund (the "Fund") gained 4.16% during the quarter. Calendar year to date through September 30th, the Fund gained 11.42% while the Standard & Poor's ("S&P") 500 Index rose 8.52% over the same period. Enclosed are the investment portfolio and financial statements as of September 30, 2006. COMPARATIVE RESULTS - ----------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2006 (A)(B) Since Year to Inception Quarter Date 1 Year 3 Year 5 Year 10 Year (1/2/92) ------- ------- ------- ------ ------ ------- -------- GABELLI EQUITY INCOME FUND CLASS AAA ...... 4.16% 11.42% 11.25% 14.80% 10.76% 11.51% 12.19% S&P 500 Index ............................. 5.66 8.52 10.78 12.29 6.97 8.59 10.35 Nasdaq Composite Index .................... 3.97 2.41 4.96 8.12 8.55 6.29 9.58 Lipper Equity Income Fund Average ......... 5.05 10.51 11.74 14.18 8.30 8.89 10.49 Class A ................................... 4.17 11.39 11.29 14.75 10.73 11.50 12.18 (1.82)(c) 4.99(c) 4.89(c) 12.51(c) 9.41(c) 10.84(c) 11.72(c) Class B ................................... 4.03 10.86 10.46 14.01 10.30 11.28 12.03 (0.97)(d) 5.86(d) 5.46(d) 13.23(d) 10.03(d) 11.28(d) 12.03(d) Class C ................................... 3.98 10.81 10.46 14.04 10.32 11.29 12.04 2.98(e) 9.81(e) 9.46(e) 14.04(e) 10.32(e) 11.29(e) 12.04(e) <FN> (a) THE FUND'S FISCAL YEAR ENDS SEPTEMBER 30. (b) RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN SHARE PRICE AND REINVESTMENT OF DISTRIBUTIONS AND ARE NET OF EXPENSES. 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. PERFORMANCE RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES, AND EXPENSES OF THE FUND BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. THE CLASS AAA SHARES' NET ASSET VALUES ARE USED TO CALCULATE PERFORMANCE FOR THE PERIODS PRIOR TO THE ISSUANCE OF CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES ON DECEMBER 31, 2003. THE ACTUAL PERFORMANCE FOR THE CLASS B SHARES AND CLASS C SHARES WOULD HAVE BEEN LOWER DUE TO THE ADDITIONAL EXPENSES ASSOCIATED WITH THESE CLASSES OF SHARES. THE S&P 500 INDEX OF THE LARGEST U.S. COMPANIES AND THE NASDAQ COMPOSITE INDEX (MEASURES ALL NASDAQ DOMESTIC AND INTERNATIONAL COMMON TYPE STOCKS UNDER AN UNMANAGED MARKET CAPITALIZATION WEIGHTED METHODOLOGY) ARE UNMANAGED INDICATORS OF STOCK MARKET PERFORMANCE, WHILE THE LIPPER AVERAGE REFLECTS THE AVERAGE PERFORMANCE OF MUTUAL FUNDS CLASSIFIED IN THIS PARTICULAR CATEGORY. DIVIDENDS ARE CONSIDERED REINVESTED (EXCEPT FOR THE NASDAQ COMPOSITE INDEX). (c) INCLUDES THE EFFECT OF THE MAXIMUM 5.75% SALES CHARGE AT THE BEGINNING OF THE PERIOD. (d) PERFORMANCE RESULTS INCLUDE THE DEFERRED SALES CHARGES FOR THE CLASS B SHARES UPON REDEMPTION AT THE END OF THE ONE YEAR, FIVE YEAR, TEN YEAR, AND SINCE INCEPTION PERIODS OF 5%, 2%, 0%, AND 0%, RESPECTIVELY, OF THE FUND'S NAV AT THE TIME OF PURCHASE OR SALE, WHICHEVER IS LOWER. CLASS B SHARES ARE NOT AVAILABLE FOR NEW PURCHASES. (e) PERFORMANCE RESULTS INCLUDE THE DEFERRED SALES CHARGE FOR THE CLASS C SHARES UPON REDEMPTION AT THE END OF THE ONE YEAR PERIOD OF 1% OF THE FUND'S NAV AT THE TIME OF PURCHASE OR SALE, WHICHEVER IS LOWER. - -------------------------------------------------------------------------------------------------------------------------- </FN> - -------------------------------------------------------------------------------- We have separated the portfolio manager's commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that the content of the portfolio manager's commentary is unrestricted. The financial statements and investment portfolio are mailed separately from the commentary. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at www.gabelli.com/funds. - -------------------------------------------------------------------------------- PERFORMANCE DISCUSSION For the fiscal year ended September 30, 2006, The Gabelli Equity Income Fund rose 11.25% versus an increase of 10.78% in the S&P 500 Index. For the fiscal year ended September 30, 2006 the Fund's turnover rate was 14%. Financial Services was one of the top performing sectors in the past twelve months. JPMorgan Chase (+43.3%), Morgan Stanley (+37.7%), Merrill Lynch (+29.2%), and Mellon Financial (+25.3%) were among the companies in that group that boosted the Fund's returns. Three of our Natural Gas holdings were takeover targets (KeySpan Corp., Kinder Morgan, and Western Gas Resources) and saw their share prices increase. Other energy related companies that outperformed included most of our Utility holdings due to improving valuations in the group following the repeal of the Public Utility Holding Company Act and investors' expectations of consolidation and deal activity in this sub-sector. The Health Care sector, performed well overall, but had representatives at both ends of the performance spectrum, with Merck (+61.0%), Becton Dickinson (+36.7%), and Baxter International (+15.7%) towards the top, and Tenet Healthcare (-27.5%) and Hospira (-6.6%) towards the bottom. There were difficulties in some important sectors. Automotive: Parts & Accessories companies had difficult times over the past twelve months, stemming primarily from cost cutting initiatives and woes at Detroit's Big Three auto manufacturers, with portfolio holdings Dana (-88.9%), Modine Manufacturing (-31.9%), and Genuine Parts (-3.7%) underperforming. Publishing was another sector that struggled in the past twelve months, as companies adjust to an advertising dollar market share that is shifting rapidly from print to the Internet. And as the housing sector slowed, Manufactured Housing holdings were impacted. We still believe, however, that the Federal Reserve can navigate a soft landing for the economy. Although the Fed made some hawkish comments on inflation in its September 29 Federal Open Market Committee meeting, it is continuing its wait and see approach to interest rates. The pause in rate increases in part sparked the stock market rally in August and September. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GABELLI EQUITY INCOME FUND CLASS AAA, THE LIPPER EQUITY INCOME FUND AVERAGE, AND THE S&P 500 INDEX [GRAPHIC OMITTED] PLOT POINTS FOLLOW: The Gabelli Equity Income Fund Lipper Equity Income (Class AAA) Fund Average S&P 500 Index 1/2/92 $10,000 $10,000 $10,000 9/30/92 10,582 10,601 10,242 9/30/93 12,752 12,554 11,570 9/30/94 13,173 12,748 11,996 9/30/95 15,708 15,429 15,560 9/30/96 18,323 17,974 18,722 9/30/97 24,549 23,632 26,291 9/30/98 25,281 24,459 28,679 9/30/99 30,291 27,673 36,648 9/30/00 32,839 30,539 41,512 9/30/01 32,694 28,228 30,465 9/30/02 28,908 23,570 24,229 9/30/03 36,017 28,352 30,134 9/30/04 42,187 33,079 34,310 9/30/05 48,975 37,607 38,513 9/30/06 54,484 42,022 42,665 - -------------------------------------------------------------------------------- Average Annual Total Return* - -------------------------------------------------------------------------------- 1 Year 5 Year 10 Year Life of Fund - -------------------------------------------------------------------------------- Class AAA 11.25% 10.76% 11.51% 12.19% - -------------------------------------------------------------------------------- *Past performance is not predictive of future results. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 THE GABELLI EQUITY INCOME FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) For the Six Month Period from April 1, 2006 through September 30, 2006 EXPENSE TABLE ================================================================================ We believe it is important for you to understand the impact of fees and expenses regarding your investment. All mutual funds have operating expenses. As a shareholder of a fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund's gross income, directly reduce the investment return of a fund. When a fund's expenses are expressed as a percentage of its average net assets, this figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. The Expense Table below illustrates your Fund's costs in two ways: ACTUAL FUND RETURN: This section provides information about actual account values and actual expenses. You may use this section to help you to estimate the actual expenses that you paid over the period after any fee waivers and expense reimbursements. The "Ending Account Value" shown is derived from the Fund's ACTUAL return during the past six months, and the "Expenses Paid During Period" shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your Fund under the heading "Expenses Paid During Period" to estimate the expenses you paid during this period. HYPOTHETICAL 5% RETURN: This section provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio. It assumes a hypothetical annualized return of 5% before expenses during the period shown. In this case -- because the hypothetical return used is NOT the Fund's actual return -- the results do not apply to your investment and you cannot use the hypothetical account value and expense to estimate the actual ending account balance or expenses you paid for the period. This example is useful in making comparisons of the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees, if any, which are described in the Prospectus. If these costs were applied to your account, your costs would be higher. Therefore, the 5% hypothetical return is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The "Annualized Expense Ratio" represents the actual expenses for the last six months and may be different from the expense ratio in the Financial Highlights which is for the year ended September 30, 2006. Beginning Ending Annualized Expenses Account Value Account Value Expense Paid During 04/01/06 09/30/06 Ratio Period* - -------------------------------------------------------------------------------- THE GABELLI EQUITY INCOME FUND - -------------------------------------------------------------------------------- ACTUAL FUND RETURN Class AAA $1,000.00 $1,055.60 1.49% $ 7.68 Class A $1,000.00 $1,055.80 1.48% $ 7.63 Class B $1,000.00 $1,052.30 2.22% $11.42 Class C $1,000.00 $1,051.80 2.23% $11.47 HYPOTHETICAL 5% RETURN Class AAA $1,000.00 $1,017.60 1.49% $ 7.54 Class A $1,000.00 $1,017.65 1.48% $ 7.49 Class B $1,000.00 $1,013.94 2.22% $11.21 Class C $1,000.00 $1,013.89 2.23% $11.26 * Expenses are equal to the Fund's annualized expense ratio for the last six months multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. 3 SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED) The following table presents portfolio holdings as a percent of total net assets as of September 30, 2006: THE GABELLI EQUITY INCOME FUND Financial Services ................................ 11.6% Health Care ....................................... 10.7% Food and Beverage ................................. 9.4% Energy and Utilities: Oil ......................... 8.7% Consumer Products ................................. 7.4% Energy and Utilities: Integrated .................. 6.5% Energy and Utilities: Natural Gas ................. 4.3% Telecommunications ................................ 3.9% Diversified Industrial ............................ 3.8% Communications Equipment .......................... 2.7% Retail ............................................ 2.6% Publishing ........................................ 2.4% Automotive: Parts and Accessories ................. 2.2% Electronics ....................................... 2.2% Metals and Mining ................................. 2.1% Specialty Chemicals ............................... 2.1% Energy and Utilities: Electric .................... 2.0% Computer Hardware ................................. 2.0% Aerospace ......................................... 1.8% U.S. Government Obligations ....................... 1.8% Entertainment ..................................... 1.7% Equipment and Supplies ............................ 1.5% Broadcasting ...................................... 1.0% Energy and Utilities: Services .................... 1.0% Hotels and Gaming ................................. 1.0% Aviation: Parts and Services ...................... 1.0% Cable and Satellite ............................... 0.8% Automotive ........................................ 0.7% Environmental Services ............................ 0.7% Computer Software and Services .................... 0.6% Business Services ................................. 0.4% Machinery ......................................... 0.4% Transportation .................................... 0.2% Agriculture ....................................... 0.2% Consumer Services ................................. 0.1% Manufactured Housing .............................. 0.1% Energy and Utilities: Water ....................... 0.1% Real Estate ....................................... 0.0% Closed-End Funds .................................. 0.0% Other Assets and Liabilities (Net) ................ (1.7)% ------- 100.0% ======= THE FUND FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q, THE LAST OF WHICH WAS FILED FOR THE QUARTER ENDED JUNE 30, 2006. SHAREHOLDERS MAY OBTAIN THIS INFORMATION AT WWW.GABELLI.COM OR BY CALLING THE FUND AT 800-GABELLI (800-422-3554). THE FUND'S FORM N-Q IS AVAILABLE ON THE SEC'S WEBSITE AT WWW.SEC.GOV AND MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-800-SEC-0330. PROXY VOTING The Fund files Form N-PX with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. A description of the Fund's proxy voting policies, procedures, and how the Fund voted proxies relating to portfolio securities is available without charge, upon request, by (i) calling 800-GABELLI (800-422-3554); (ii) writing to The Gabelli Funds at One Corporate Center, Rye, NY 10580-1422; or (iii) visiting the SEC's website at www.sec.gov. 4 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS -- 96.5% AEROSPACE -- 1.8% 32,000 Boeing Co. ...................$ 1,082,148 $ 2,523,200 2,000 Lockheed Martin Corp. ........ 47,350 172,120 4,000 Northrop Grumman Corp. ....... 139,100 272,280 10,000 Raytheon Co. ................. 279,250 480,100 2,000 Rockwell Automation Inc. ..... 25,686 116,200 2,000 Rockwell Collins Inc. ........ 15,843 109,680 1,260,000 Rolls-Royce Group plc+ ....... 8,984,010 10,686,965 ------------ ------------ 10,573,387 14,360,545 ------------ ------------ AGRICULTURE -- 0.2% 20,000 Delta & Pine Land Co. ........ 807,375 810,000 50,000 The Mosaic Co.+ .............. 739,297 845,000 ------------ ------------ 1,546,672 1,655,000 ------------ ------------ AUTOMOTIVE -- 0.7% 180,000 General Motors Corp. ......... 5,245,878 5,986,800 ------------ ------------ AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.6% 1,000 ArvinMeritor Inc. ............ 10,487 14,240 180,000 Dana Corp. ................... 719,392 187,200 250,000 Genuine Parts Co. ............ 8,986,399 10,782,500 2,000 Johnson Controls Inc. ........ 50,425 143,480 45,000 Modine Manufacturing Co. ..... 693,569 1,094,850 80,000 Pep Boys - Manny, Moe & Jack . 1,075,840 1,028,000 14,140 Proliance International Inc.+ 47,310 64,620 ------------ ------------ 11,583,422 13,314,890 ------------ ------------ AVIATION: PARTS AND SERVICES -- 0.8% 6,000 Barnes Group Inc. ............ 57,237 105,360 46,192 Curtiss-Wright Corp. ......... 349,652 1,401,927 35,000 GenCorp Inc.+ ................ 299,658 449,400 35,614 Sequa Corp., Cl. A+ .......... 2,341,976 3,342,730 16,000 United Technologies Corp. .... 281,946 1,013,600 ------------ ------------ 3,330,469 6,313,017 ------------ ------------ BROADCASTING -- 0.6% 151,000 CBS Corp., Cl. A ............. 3,876,844 4,261,220 25,000 CBS Corp., Cl. B ............. 651,930 704,250 26,000 Granite Broadcasting Corp.+ .. 10,805 3,380 ------------ ------------ 4,539,579 4,968,850 ------------ ------------ BUSINESS SERVICES -- 0.1% 4,000 Automatic Data Processing Inc. 126,808 189,360 500 Imation Corp. ................ 7,150 20,075 4,000 Landauer Inc. ................ 134,546 203,000 7,500 MasterCard Inc., Cl. A ....... 292,500 527,625 3,000 R. H. Donnelley Corp. ........ 33,450 158,700 ------------ ------------ 594,454 1,098,760 ------------ ------------ CABLE AND SATELLITE -- 0.8% 140,000 Cablevision Systems Corp., Cl. A+ ...................... 1,769,455 3,179,400 MARKET SHARES COST VALUE ------ ---- ------- 70,000 EchoStar Communications Corp., Cl. A+ ......................$ 2,105,798 $ 2,291,800 36,000 The DIRECTV Group Inc.+ ...... 429,789 708,480 ------------ ------------ 4,305,042 6,179,680 ------------ ------------ UNITS ----- CLOSED-END FUNDS -- 0.0% 4,495 Bell Aliant Regional Communications Income Fund .. 117,429 140,550 ------------ ------------ SHARES ----- COMMUNICATIONS EQUIPMENT -- 1.3% 175,000 Corning Inc.+ ................ 2,000,662 4,271,750 100,000 Motorola Inc. ................ 830,109 2,500,000 70,000 Thomas & Betts Corp.+ ........ 1,533,023 3,339,700 ------------ ------------ 4,363,794 10,111,450 ------------ ------------ COMPUTER HARDWARE -- 2.0% 167,000 International Business Machines Corp. .............. 13,346,420 13,683,980 145,000 Xerox Corp.+ ................. 2,023,022 2,256,200 ------------ ------------ 15,369,442 15,940,180 ------------ ------------ COMPUTER SOFTWARE AND SERVICES -- 0.6% 2,000 EMC Corp.+ ................... 19,360 23,960 20,000 Microsoft Corp. .............. 537,915 546,600 154 Telecom Italia Media SpA ..... 205 71 20,700 The Reynolds & Reynolds Co., Cl. A .................. 802,908 817,857 127,000 Yahoo! Inc.+ ................. 4,220,658 3,210,560 ------------ ------------ 5,581,046 4,599,048 ------------ ------------ CONSUMER PRODUCTS -- 7.4% 35,000 Altria Group Inc. ............ 1,127,729 2,679,250 255,000 Avon Products Inc. ........... 8,175,554 7,818,300 15,000 Clorox Co. ................... 823,581 945,000 40,000 Colgate-Palmolive Co. ........ 2,281,604 2,484,000 50,000 Eastman Kodak Co. ............ 1,175,567 1,120,000 55,000 Energizer Holdings Inc.+ ..... 1,956,959 3,959,450 50,000 Fortune Brands Inc. .......... 3,703,261 3,755,500 94,700 Gallaher Group plc, ADR ...... 2,711,252 6,190,539 5,000 Hanesbrands Inc.+ ............ 108,950 112,550 15,000 National Presto Industries Inc. 441,072 829,050 10,000 Pactiv Corp.+ ................ 161,895 284,200 120,000 Procter & Gamble Co. ......... 6,003,412 7,437,600 100,000 Reckitt Benckiser plc ........ 3,154,703 4,145,370 26,000 Rothmans Inc. ................ 237,941 475,222 940,500 Swedish Match AB ............. 9,972,140 15,304,630 78,000 Unilever NV, ADR ............. 1,542,066 1,914,120 10,000 UST Inc. ..................... 364,903 548,300 ------------ ------------ 43,942,589 60,003,081 ------------ ------------ CONSUMER SERVICES -- 0.1% 6,000 IAC/InterActiveCorp+ ......... 169,220 172,560 45,000 Rollins Inc. ................. 386,886 949,950 ------------ ------------ 556,106 1,122,510 ------------ ------------ See accompanying notes to financial statements. 5 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS (CONTINUED) DIVERSIFIED INDUSTRIAL -- 3.8% 5,000 3M Co. .......................$ 213,645 $ 372,100 17,000 Acuity Brands Inc. ........... 256,122 771,800 55,000 Cooper Industries Ltd., Cl. A ....................... 3,148,666 4,687,100 295,000 General Electric Co. ......... 9,150,982 10,413,500 5,000 Harbor Global Co. Ltd.+ ...... 24,173 55,125 176,000 Honeywell International Inc. . 5,190,664 7,198,400 25,100 ITT Corp. .................... 1,246,573 1,286,877 6,000 Trinity Industries Inc. ...... 82,100 193,020 200,000 Tyco International Ltd. ...... 5,378,797 5,598,000 4,000 Walter Industries Inc. ....... 198,021 170,720 50,000 WHX Corp.+ ................... 642,115 450,000 ------------ ------------ 25,531,858 31,196,642 ------------ ------------ ELECTRONICS -- 2.2% 10,000 Freescale Semiconductor Inc., Cl. B+ ...................... 81,750 380,100 300,000 Intel Corp. .................. 5,959,881 6,171,000 300,000 Symbol Technologies Inc. ..... 4,442,690 4,458,000 180,000 Texas Instruments Inc. ....... 3,980,219 5,985,000 15,000 Thermo Electron Corp.+ ....... 325,333 589,950 ------------ ------------ 14,789,873 17,584,050 ------------ ------------ ENERGY AND UTILITIES: ELECTRIC -- 2.0% 30,000 American Electric Power Co. Inc. .............. 932,060 1,091,100 16,000 DTE Energy Co. ............... 695,800 664,160 85,000 El Paso Electric Co.+ ........ 670,852 1,898,900 80,000 FPL Group Inc. ............... 2,803,387 3,600,000 45,000 Great Plains Energy Inc. ..... 1,055,160 1,395,900 60,000 Korea Electric Power Corp., ADR ............ 977,409 1,173,000 54,824 Mirant Corp.+ ................ 886,914 1,497,243 120,000 Northeast Utilities .......... 2,261,119 2,792,400 80,000 The AES Corp.+ ............... 268,400 1,631,200 13,333 UIL Holdings Corp. ........... 293,785 499,988 ------------ ------------ 10,844,886 16,243,891 ------------ ------------ ENERGY AND UTILITIES: INTEGRATED -- 6.4% 42,000 Allegheny Energy Inc.+ ....... 404,378 1,687,140 250,000 Aquila Inc.+ ................. 731,171 1,082,500 44,000 BP plc, ADR .................. 1,030,211 2,885,520 44,000 CH Energy Group Inc. ......... 1,809,289 2,264,680 55,000 Constellation Energy Group ... 1,783,439 3,256,000 1,000 Dominion Resources Inc. ...... 48,852 76,490 120,000 DPL Inc. ..................... 3,161,330 3,254,400 250,000 Duke Energy Corp. ............ 5,242,612 7,550,000 180,000 Duquesne Light Holdings Inc. ............... 2,827,314 3,538,800 220,000 El Paso Corp. ................ 2,242,718 3,000,800 40,000 Endesa SA .................... 1,050,637 1,701,728 150,000 Energy East Corp. ............ 3,071,332 3,558,000 29,000 Eni SpA ...................... 304,221 859,398 MARKET SHARES COST VALUE ------ ---- ------- 80,000 NSTAR ........................$ 1,282,183 $ 2,668,800 75,000 OGE Energy Corp. ............. 2,043,450 2,708,250 80,000 Progress Energy Inc. ......... 3,424,284 3,630,400 15,000 Progress Energy Inc., CVO+ ... 7,800 4,950 6,000 Public Service Enterprise Group Inc. ....... 235,600 367,140 9,523 Scottish Power plc, ADR ......................... 314,346 462,437 20,000 Suncor Energy Inc. ........... 1,043,936 1,441,000 55,000 TECO Energy Inc. ............. 740,886 860,750 28,500 TXU Corp. .................... 313,264 1,781,820 140,000 Westar Energy Inc. ........... 2,374,664 3,291,400 ------------ ------------ 35,487,917 51,932,403 ------------ ------------ ENERGY AND UTILITIES: NATURAL GAS -- 4.3% 20,000 AGL Resources Inc. ........... 388,379 730,000 50,000 Atmos Energy Corp. ........... 1,233,167 1,427,500 140,000 KeySpan Corp. ................ 5,668,930 5,759,600 141,100 Kinder Morgan Inc. ........... 14,544,085 14,794,335 25,000 National Fuel Gas Co. ........ 519,678 908,750 70,000 ONEOK Inc. ................... 1,559,551 2,645,300 39,200 Peoples Energy Corp. ......... 1,530,679 1,593,480 24,000 Piedmont Natural Gas Co. Inc. ................ 394,017 607,440 40,000 SEMCO Energy Inc.+ ........... 282,604 225,600 120,000 Southern Union Co. ........... 2,177,448 3,169,200 100,000 Southwest Gas Corp. .......... 1,777,547 3,332,000 ------------ ------------ 30,076,085 35,193,205 ------------ ------------ ENERGY AND UTILITIES: OIL -- 8.7% 46,000 Anadarko Petroleum Corp. ..... 2,010,549 2,016,180 28,000 Cameron International Corp.+ ...................... 804,246 1,352,680 192,000 Chevron Corp. ................ 8,828,069 12,453,120 187,000 ConocoPhillips ............... 5,471,173 11,132,110 49,000 Devon Energy Corp. ........... 2,021,181 3,094,350 150,000 Exxon Mobil Corp. ............ 4,749,795 10,065,000 50,000 Giant Industries Inc.+ ....... 4,099,555 4,060,000 20,000 Helix Energy Solutions Group Inc.+ ................. 799,699 668,000 2,000 Niko Resources Ltd. .......... 114,911 118,989 98,000 Occidental Petroleum Corp. ... 3,802,361 4,714,780 22,000 Oceaneering International Inc.+ ......... 592,204 677,600 11,000 PetroChina Co. Ltd., ADR ..... 747,751 1,184,150 30,000 Repsol YPF SA, ADR ........... 631,290 894,900 120,000 Royal Dutch Shell plc, Cl. A, ADR .................. 5,536,434 7,932,000 25,000 Statoil ASA, ADR ............. 327,939 595,500 17,518 Total SA, ADR ................ 290,564 1,155,137 77,000 Transocean Inc.+ ............. 4,585,201 5,638,710 60,000 Weatherford International Ltd.+ ......... 2,634,929 2,503,200 ------------ ------------ 48,047,851 70,256,406 ------------ ------------ See accompanying notes to financial statements. 6 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS (CONTINUED) ENERGY AND UTILITIES: SERVICES -- 1.0% 30,000 ABB Ltd., ADR ................$ 351,824 $ 395,400 190,000 Halliburton Co. .............. 5,386,474 5,405,500 40,000 Schlumberger Ltd. ............ 1,275,020 2,481,200 ------------ ------------ 7,013,318 8,282,100 ------------ ------------ ENERGY AND UTILITIES: WATER -- 0.1% 24,000 Aqua America Inc. ............ 221,672 526,560 40,000 Suez SA, Strips+ ............. 0 507 ------------ ------------ 221,672 527,067 ------------ ------------ ENTERTAINMENT -- 1.7% 500,000 Rank Group plc ............... 2,545,364 2,197,664 110,000 The Walt Disney Co. .......... 1,967,096 3,400,100 190,000 Time Warner Inc. ............. 3,093,052 3,463,700 40,000 Viacom Inc., Cl. A+ .......... 1,559,883 1,492,000 95,000 Vivendi ...................... 2,941,676 3,424,823 ------------ ------------ 12,107,071 13,978,287 ------------ ------------ ENVIRONMENTAL SERVICES -- 0.7% 150,000 Waste Management Inc. ........ 4,274,178 5,502,000 ------------ ------------ EQUIPMENT AND SUPPLIES -- 1.5% 12,000 A.O. Smith Corp. ............. 253,183 473,160 85,000 Flowserve Corp.+ ............. 2,437,365 4,300,150 6,000 Ingersoll-Rand Co. Ltd., Cl. A ....................... 125,173 227,880 1,500 Minerals Technologies Inc. ... 37,938 80,100 40,000 Mueller Industries Inc. ...... 1,650,585 1,406,800 8,000 Parker Hannifin Corp. ........ 459,607 621,840 1,052,000 Tomkins plc .................. 5,109,041 4,663,279 ------------ ------------ 10,072,892 11,773,209 ------------ ------------ FINANCIAL SERVICES -- 11.6% 6,528 Alleghany Corp.+ ............. 1,116,610 1,886,657 190,000 American Express Co. ......... 7,903,314 10,655,200 100,000 American International Group Inc. .................. 6,490,664 6,626,000 70,000 Ameriprise Financial Inc. .............. 2,369,773 3,283,000 37,000 Argonaut Group Inc.+ ......... 741,824 1,148,110 25,000 Banco Popular Espanol SA ..... 185,939 409,899 18,000 Banco Santander Central Hispano SA, ADR ............. 64,963 284,220 2,000 Banco Santander Chile SA, ADR ............... 29,250 90,500 130,000 Bank of America Corp. ........ 3,918,781 6,964,100 8,825 Banque Nationale de Paris SA .................... 362,345 949,520 375,000 Citigroup Inc. ............... 17,721,942 18,626,250 40,000 Commerzbank AG, ADR .......... 855,073 1,353,904 35,000 Deutsche Bank AG ............. 1,966,016 4,224,500 3,000 Fannie Mae ................... 153,815 167,730 16,000 Fidelity Southern Corp. ...... 153,870 292,240 145,000 H&R Block Inc. ............... 3,433,874 3,152,300 25,000 Huntington Bancshares Inc. ... 407,250 598,250 82,080 JPMorgan Chase & Co. ......... 2,489,151 3,854,477 MARKET SHARES COST VALUE ------ ---- ------- 1,000 KeyCorp ......................$ 30,270 $ 37,440 30,000 Landesbank Berlin Holding AG+ 201,349 226,348 30,000 Leucadia National Corp. ...... 329,356 785,100 2,000 Manulife Financial Corp. ..... 24,694 64,520 55,000 Mellon Financial Corp. ....... 1,528,208 2,150,500 13,000 Merrill Lynch & Co. Inc. ..... 525,900 1,016,860 8,000 Moody's Corp. ................ 64,841 523,040 42,000 Morgan Stanley ............... 2,695,723 3,062,220 3,000 Municipal Mortgage & Equity, LLC ................. 60,488 85,230 6,000 Northern Trust Corp. ......... 60,300 350,580 45,000 PNC Financial Services Group Inc. .................. 1,905,739 3,259,800 60,000 Popular Inc. ................. 1,410,834 1,166,400 500 Raiffeisen International Bank Holding AG ............. 28,874 53,258 113,400 Sterling Bancorp ............. 1,456,020 2,229,444 12,000 SunTrust Banks Inc. .......... 251,737 927,360 40,000 T. Rowe Price Group Inc. ..... 896,910 1,914,000 1,000 The Allstate Corp. ........... 33,300 62,730 44,000 The Bank of New York Co. Inc. .................... 1,423,658 1,551,440 5,000 The Bear Stearns Companies Inc. .............. 507,485 700,500 5,000 The Charles Schwab Corp. ..... 77,500 89,500 2,000 The Dun & Bradstreet Corp.+ .. 20,476 149,980 50,000 The Phoenix Companies Inc. ... 650,511 700,000 36,000 The St. Paul Travelers Companies Inc. .............. 1,428,424 1,688,040 40,000 Unitrin Inc. ................. 1,156,156 1,766,800 12,000 Wachovia Corp. ............... 407,292 669,600 80,000 Waddell & Reed Financial Inc., Cl. A ....................... 1,602,334 1,980,000 55,000 Wilmington Trust Corp. ....... 1,712,407 2,450,250 ------------ ------------ 70,855,240 94,227,797 ------------ ------------ FOOD AND BEVERAGE -- 9.4% 125,000 Anheuser-Busch Companies Inc. .............. 5,661,848 5,938,750 25,500 Brown-Forman Corp., Cl. A ....................... 1,483,296 1,972,935 125,000 Cadbury Schweppes plc, ADR .................... 4,392,106 5,346,250 60,000 Campbell Soup Co. ............ 1,626,168 2,190,000 40,000 Coca-Cola Amatil Ltd., ADR ................... 246,845 399,396 15,000 Coca-Cola Femsa SA de CV, ADR .................. 388,903 469,050 16,000 Corn Products International Inc. .......... 197,588 520,640 40,000 Del Monte Foods Co. .......... 393,820 418,000 56,000 Diageo plc, ADR .............. 2,330,906 3,978,240 39,900 Fomento Economico Mexicano SA de CV, ADR ............... 2,070,553 3,867,906 195,000 General Mills Inc. ........... 9,648,350 11,037,000 See accompanying notes to financial statements. 7 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS (CONTINUED) FOOD AND BEVERAGE (CONTINUED) 70,000 Groupe Danone ................$ 7,584,576 $ 9,826,150 1,000,000 Grupo Bimbo SA de CV, Cl. A ....................... 3,093,579 3,511,006 110,000 H.J. Heinz Co. ............... 3,889,273 4,612,300 50,000 Heineken NV .................. 1,884,243 2,286,935 5,000 Kellogg Co. .................. 149,740 247,600 10,000 Nestle SA .................... 2,083,075 3,486,745 20,000 PepsiCo Inc. ................. 1,241,224 1,305,200 6,004 Pernod-Ricard SA ............. 1,018,278 1,249,358 250,000 The Coca-Cola Co. ............ 10,901,531 11,170,000 20,000 The Hershey Co. .............. 967,855 1,069,000 32,100 Tootsie Roll Industries Inc. ............. 867,958 940,851 10,000 Wm. Wrigley Jr. Co. .......... 475,992 460,600 750 Wm. Wrigley Jr. Co., Cl. B ....................... 41,831 34,500 ------------ ------------ 62,639,538 76,338,412 ------------ ------------ HEALTH CARE -- 10.7% 16,000 Abbott Laboratories .......... 618,814 776,960 26,000 Aetna Inc. ................... 926,540 1,028,300 100,000 Baxter International Inc. .......... 3,409,762 4,546,000 90,000 Becton, Dickinson & Co. ...... 5,189,491 6,360,300 500 Bio-Rad Laboratories Inc., Cl. B+ ...................... 20,960 35,745 25,100 Biosite Inc.+ ................ 1,191,265 1,160,373 75,000 Bristol-Myers Squibb Co. ..... 1,844,954 1,869,000 145,000 Eli Lilly & Co. .............. 8,186,675 8,265,000 11,276 GlaxoSmithKline plc, ADR ..... 515,984 600,222 24,000 Henry Schein Inc.+ ........... 609,295 1,203,360 121,800 Hospira Inc.+ ................ 4,356,101 4,661,286 130,000 Johnson & Johnson ............ 7,578,731 8,442,200 70,000 Medco Health Solutions Inc.+ ............. 3,383,591 4,207,700 105,000 Merck & Co. Inc. ............. 3,358,120 4,399,500 1,000 Nobel Biocare Holding AG .................. 139,480 246,111 120,000 Novartis AG, ADR ............. 6,613,009 7,012,800 7,000 Orthofix International NV+ ........... 247,804 318,290 575,000 Pfizer Inc. .................. 16,144,699 16,307,000 150,000 Schering-Plough Corp. ........ 2,779,186 3,313,500 300,000 Tenet Healthcare Corp.+ ...... 2,634,820 2,442,000 100,000 UnitedHealth Group Inc. ...... 4,879,322 4,920,000 20,000 William Demant Holding A/S+ .. 983,839 1,535,753 44,000 Zimmer Holdings Inc.+ ........ 2,802,455 2,970,000 ------------ ------------ 78,414,897 86,621,400 ------------ ------------ HOTELS AND GAMING -- 1.0% 60,000 Hilton Hotels Corp. .......... 1,387,308 1,671,000 20,000 International Game Technology .................. 608,024 830,000 529,411 Ladbrokes plc ................ 7,677,932 3,855,922 25,000 Starwood Hotels & Resorts Worldwide Inc. ...... 447,533 1,429,750 ------------ ------------ 10,120,797 7,786,672 ------------ ------------ MARKET SHARES COST VALUE ------ ---- ------- MACHINERY -- 0.4% 6,000 Caterpillar Inc. .............$ 35,181 $ 394,800 31,000 Deere & Co. .................. 752,487 2,601,210 ------------ ------------ 787,668 2,996,010 ------------ ------------ MANUFACTURED HOUSING -- 0.1% 140,000 Champion Enterprises Inc.+ ... 1,407,727 966,000 ------------ ------------ METALS AND MINING -- 1.9% 78,000 Alcoa Inc. ................... 2,539,602 2,187,120 6,000 Carpenter Technology Corp. ... 531,700 645,060 27,000 Fording Canadian Coal Trust (Toronto) ........ 179,580 714,042 55,875 Freeport-McMoRan Copper & Gold Inc., Cl. B ............ 1,202,109 2,975,902 40,000 Inco Ltd. .................... 3,073,815 3,050,800 110,000 Newmont Mining Corp. ......... 4,485,635 4,702,500 35,000 Peabody Energy Corp. ......... 1,409,961 1,287,300 ------------ ------------ 13,422,402 15,562,724 ------------ ------------ PUBLISHING -- 2.4% 100,000 Dow Jones & Co. Inc. ......... 3,815,049 3,354,000 5,118 McClatchy Co., Cl. A ......... 249,095 215,929 17,000 New York Times Co., Cl. A .... 502,366 390,660 40,000 News Corp., Cl. A ............ 478,943 786,000 6,016 News Corp., Cl. B ............ 70,881 124,170 100,000 PagesJaunes Groupe SA ........ 2,774,394 2,840,441 406 Seat Pagine Gialle SpA ....... 1,350 203 40,000 The E.W. Scripps Co., Cl. A ....................... 1,856,822 1,917,200 25,000 The McGraw-Hill Companies Inc. .............. 755,341 1,450,750 125,000 The Reader's Digest Association Inc. ............ 1,708,821 1,620,000 1,200 The Washington Post Co., Cl. B ....................... 700,030 884,400 175,000 Tribune Co. .................. 5,548,296 5,726,000 1,300 Value Line Inc. .............. 56,478 60,593 ------------ ------------ 18,517,866 19,370,346 ------------ ------------ REAL ESTATE -- 0.0% 5,000 Griffin Land & Nurseries Inc.+ ............. 71,716 151,350 ------------ ------------ RETAIL -- 2.6% 85,000 Costco Wholesale Corp. ....... 4,037,934 4,222,800 5,000 Ingles Markets Inc., Cl. A ....................... 64,548 131,900 150,000 Safeway Inc. ................. 3,114,997 4,552,500 500 Sears Holdings Corp.+ ........ 40,733 79,045 100,000 SUPERVALU Inc. ............... 2,935,535 2,965,000 100,000 The Home Depot Inc. .......... 3,488,117 3,627,000 100,000 Wal-Mart Stores Inc. ......... 4,809,433 4,932,000 10,000 Weis Markets Inc. ............ 300,480 398,000 ------------ ------------ 18,791,777 20,908,245 ------------ ------------ See accompanying notes to financial statements. 8 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ------- COMMON STOCKS (CONTINUED) SPECIALTY CHEMICALS -- 2.1% 24,000 Albemarle Corp. ..............$ 622,324 $ 1,303,920 437 Arkema, ADR+ ................. 8,969 20,599 36,500 Ashland Inc. ................. 2,294,915 2,327,970 55,000 Chemtura Corp. ............... 511,787 476,850 22,000 E.I. du Pont de Nemours & Co. ............... 1,008,543 942,480 102,700 Ferro Corp. .................. 2,020,677 1,826,006 1,000 FMC Corp. .................... 64,790 64,070 100,000 Hercules Inc.+ ............... 1,164,286 1,577,000 133,000 Monsanto Co. ................. 1,227,948 6,252,330 3,500 NewMarket Corp. .............. 13,508 203,560 50,000 Omnova Solutions Inc.+ ....... 339,908 209,000 4,000 Quaker Chemical Corp. ........ 79,615 77,800 65,000 Sensient Technologies Corp. ....................... 1,345,215 1,272,050 20,000 The Dow Chemical Co. ......... 755,496 779,600 2,542 Tronox Inc., Cl. B ........... 22,513 32,461 ------------ ------------ 11,480,494 17,365,696 ------------ ------------ TELECOMMUNICATIONS -- 3.7% 6,000 ALLTEL Corp. ................. 251,925 333,000 280,000 AT&T Inc. .................... 7,077,184 9,116,800 50,000 BCE Inc. ..................... 1,025,210 1,354,500 45,000 BellSouth Corp. .............. 1,177,655 1,923,750 200,000 BT Group plc ................. 825,179 1,003,576 30,000 BT Group plc, ADR ............ 1,006,938 1,517,100 140,000 Cable & Wireless plc ......... 273,765 363,048 12,000 CenturyTel Inc. .............. 431,455 476,040 245,000 Cincinnati Bell Inc.+ ........ 1,412,944 1,180,900 15,000 Citizens Communications Co. .. 202,050 210,600 60,000 Deutsche Telekom AG, ADR ..... 1,075,041 952,200 17,500 Embarq Corp. ................. 733,523 846,475 15,000 France Telecom SA, ADR ....... 436,434 349,650 190,000 Qwest Communications International Inc.+ ......... 738,535 1,656,800 175,000 Sprint Nextel Corp. .......... 3,218,021 3,001,250 3,300 Telecom Italia SpA, ADR ...... 31,072 93,489 8,195 Telefonica SA, ADR ........... 80,699 424,583 12,000 TELUS Corp. .................. 185,454 675,285 130,000 Verizon Communications Inc. ........................ 4,718,820 4,826,900 6,203 Windstream Corp. ............. 55,295 81,818 ------------ ------------ 24,957,199 30,387,764 ------------ ------------ TRANSPORTATION -- 0.2% 48,000 GATX Corp. ................... 1,404,589 1,985,760 ------------ ------------ TOTAL COMMON STOCKS .......... 622,988,820 782,931,797 ------------ ------------ CONVERTIBLE PREFERRED STOCKS -- 0.5% AUTOMOTIVE -- 0.0% 1,000 Ford Motor Co. Capital Trust II, 6.500% Cv. Pfd. ............. 45,215 33,590 ------------ ------------ MARKET SHARES COST VALUE ------ ---- ------- BROADCASTING -- 0.1% 100 Gray Television Inc., 8.000% Cv. Pfd., Ser. C (b)(c)(d) ............$ 1,000,000 $ 1,000,000 ------------ ------------ COMMUNICATIONS EQUIPMENT -- 0.1% 1,100 Lucent Technologies Capital Trust I, 7.750% Cv. Pfd. ............. 759,000 1,124,750 ------------ ------------ ENERGY AND UTILITIES: INTEGRATED -- 0.1% 300 El Paso Corp., 4.990% Cv. Pfd. (b) ......... 293,192 364,825 ------------ ------------ ENTERTAINMENT -- 0.0% 3,000 Metromedia International Group Inc., 7.250% Cv. Pfd.+ ............ 5,310 126,000 ------------ ------------ TELECOMMUNICATIONS -- 0.2% 33,000 Cincinnati Bell Inc., 6.750% Cv. Pfd., Ser. B ..... 918,894 1,452,000 ------------ ------------ TOTAL CONVERTIBLE PREFERRED STOCKS ............ 3,021,611 4,101,165 ------------ ------------ WARRANTS -- 0.1% BUSINESS SERVICES -- 0.1% 262,431 GP Strategies Corp., expire 08/14/08+ (c)(d) ..... 637,065 575,157 ------------ ------------ DIVERSIFIED INDUSTRIAL -- 0.0% 379,703 National Patent Development Corp., expire 08/14/08+ (c)(d) ..... 0 50,156 3,625 WHX Corp., expire 02/28/08+ .. 14,168 4,169 ------------ ------------ 14,168 54,325 ------------ ------------ TOTAL WARRANTS ............... 651,233 629,482 ------------ ------------ PRINCIPAL AMOUNT -------- CORPORATE BONDS -- 2.8% AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.6% $ 800,000 Standard Motor Products Inc., Sub. Deb. Cv., 6.750%, 07/15/09 ............ 705,954 760,000 4,000,000 The Pep Boys - Manny, Moe & Jack, Cv., 4.250%, 06/01/07 ............ 3,978,775 3,995,000 ------------ ------------ 4,684,729 4,755,000 ------------ ------------ AVIATION: PARTS AND SERVICES -- 0.2% 1,400,000 GenCorp Inc., Sub. Deb. Cv., 5.750%, 04/15/07 ............ 1,385,628 1,435,000 ------------ ------------ See accompanying notes to financial statements. 9 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2006 ================================================================================ PRINCIPAL MARKET AMOUNT COST VALUE -------- ---- ------- CORPORATE BONDS (CONTINUED) BROADCASTING -- 0.3% $ 2,550,000 Sinclair Broadcast Group Inc., Sub. Deb. Cv., 6.000%, 09/15/12 ............$ 2,125,302 $ 2,279,062 350,000 Sinclair Broadcast Group Inc., Sub. Deb. Cv. (STEP), 4.875%, 07/15/18 ............ 314,919 312,813 ------------ ------------ 2,440,221 2,591,875 ------------ ------------ BUSINESS SERVICES -- 0.2% 100,000 BBN Corp., Sub. Deb. Cv., 6.000%, 04/01/12+ (a)(c) .... 97,499 0 2,000,000 GP Strategies Corp., Sub. Deb., 6.000%, 08/14/08 (c)(d) ..... 1,641,862 1,337,838 ------------ ------------ 1,739,361 1,337,838 ------------ ------------ COMMUNICATIONS EQUIPMENT -- 1.3% 4,000,000 Agere Systems Inc., Sub. Deb. Cv., 6.500%, 12/15/09 ............ 3,928,021 4,030,000 7,000,000 Nortel Networks Corp., Cv., 4.250%, 09/01/08 ............ 6,772,732 6,720,000 ------------ ------------ 10,700,753 10,750,000 ------------ ------------ METALS AND MINING -- 0.2% 1,000,000 Inco Ltd., Cv., Zero Coupon, 03/29/21 ....... 997,718 2,030,000 ------------ ------------ TOTAL CORPORATE BONDS ........ 21,948,410 22,899,713 ------------ ------------ U.S. GOVERNMENT OBLIGATIONS -- 1.8% 14,190,000 U.S. Treasury Bills, 4.706% to 5.152%++, 10/12/06 to 03/08/07 ........ 13,977,886 13,982,787 ------------ ------------ TOTAL INVESTMENTS -- 101.7% ..$662,587,960 824,544,944 ============ OTHER ASSETS AND LIABILITIES (NET) -- (1.7)% .... (13,394,465) ------------ NET ASSETS -- 100.0% ............................$811,150,479 ============ - ------------- (a) Security in default. (b) Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2006, the market value of Rule 144A securities amounted to $1,364,825 or 0.17% of total net assets. Except as noted in (d), these securities are liquid. (c) Securities fair valued under procedures established by the Board of Directors. The procedures may include reviewing available financial information about the company and reviewing valuation of comparable securities and other factors on a regular basis. At September 30, 2006, the market value of fair valued securities amounted to $2,963,151 or 0.37% of total net assets. (d) At September 30, 2006, the Fund held investments in restricted and illiquid securities amounting to $2,963,151 or 0.37% of total net assets, which were valued under methods approved by the Board, as follows: ACQUISITION 09/30/06 SHARES/ CARRYING PRINCIPAL ACQUISITION ACQUISITION VALUE AMOUNT ISSUER DATE COST PER UNIT -------- ------ ----------- ----------- -------- $2,000,000 GP Strategies Corp., Sub. Deb., 6.00%, 08/14/08 .................... 08/08/03 $1,362,935 $ 66.8919 262,431 GP Strategies Corp., Warrants, expire 08/14/08 .................... 08/08/03 637,065 2.1917 100 Gray Television Inc., 8.000% Cv. Pfd., Ser. C ..... 04/22/02 1,000,000 10,000.0000 379,703 National Patent Development Corp., Warrants, expire 08/14/08 ............. 11/24/04 0.00 0.1321 + Non-income producing security. ++ Represents annualized yield at date of purchase. ADR American Depository Receipt CVO Contingent Value Obligation STEP Step coupon bond. The rate disclosed is that in effect at September 30, 2006. See accompanying notes to financial statements. 10 THE GABELLI EQUITY INCOME FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2006 ================================================================================ ASSETS: Investments, at value (cost $662,587,960) .............. $ 824,544,944 Foreign currency, at value (cost $39,130) .............. 38,383 Cash ................................................... 1,440 Receivable for Fund shares sold ........................ 3,215,035 Dividends and interest receivable ...................... 1,410,763 Prepaid expense ........................................ 4,408 ------------- TOTAL ASSETS ........................................... 829,214,973 ------------- LIABILITIES: Payable for investments purchased ...................... 16,045,622 Payable for Fund shares redeemed ....................... 817,937 Payable for investment advisory fees ................... 651,774 Payable for distribution fees .......................... 167,858 Other accrued expenses ................................. 381,303 ------------- TOTAL LIABILITIES ...................................... 18,064,494 ------------- NET ASSETS applicable to 40,098,513 shares outstanding ................................. $ 811,150,479 ============= NET ASSETS CONSIST OF: Capital stock, each class at $0.001 par value .......... $ 40,099 Additional paid-in capital ............................. 634,501,114 Accumulated net investment income ...................... 543,923 Accumulated net realized gain on investments, securities sold short, and foreign currency transactions ......................................... 14,109,035 Net unrealized appreciation on investments ............. 161,956,984 Net unrealized depreciation on foreign currency translations ........................ (676) ------------- NET ASSETS ............................................. $ 811,150,479 ============= SHARES OF CAPITAL STOCK: CLASS AAA: Net Asset Value, offering and redemption price per share ($794,374,772 / 39,259,300 shares outstanding; 150,000,000 shares authorized) .......... $20.23 ====== CLASS A: Net Asset Value and redemption price per share ($8,379,567 / 415,398 shares outstanding; 50,000,000 shares authorized) ........................ $20.17 ====== Maximum offering price per share (NAV / .9425, based on maximum sales charge of 5.75% of the offering price) ............... $21.40 ====== CLASS B: Net Asset Value and offering price per share ($352,313 / 17,775 shares outstanding; 50,000,000 shares authorized) ........................ $19.82(a) ====== CLASS C: Net Asset Value and offering price per share ($8,043,827 / 406,040 shares outstanding; 50,000,000 shares authorized) ........................ $19.81(a) ====== - --------------- (a) Redemption price varies based on the length of time held. STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2006 ================================================================================ INVESTMENT INCOME: Dividends (net of foreign taxes of $266,818) .............. $ 21,558,514 Interest .................................................. 2,624,789 ------------ TOTAL INVESTMENT INCOME ................................... 24,183,303 ------------ EXPENSES: Investment advisory fees .................................. 7,036,963 Distribution fees -- Class AAA ............................ 1,727,347 Distribution fees -- Class A .............................. 16,430 Distribution fees -- Class B .............................. 1,389 Distribution fees -- Class C .............................. 60,468 Shareholder services fees ................................. 771,824 Shareholder communications expenses ....................... 276,532 Custodian fees ............................................ 128,106 Registration expenses ..................................... 78,229 Legal and audit fees ...................................... 50,092 Accounting fees (see Note 6) .............................. 45,000 Directors' fees ........................................... 28,293 Miscellaneous expenses .................................... 69,318 ------------ TOTAL EXPENSES ............................................ 10,289,991 Less: Custodian fee credits ............................... (30,294) ------------ TOTAL NET EXPENSES ........................................ 10,259,697 ------------ NET INVESTMENT INCOME ..................................... 13,923,606 ------------ NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS, SECURITIES SOLD SHORT, AND FOREIGN CURRENCY: Net realized gain on investments .......................... 15,436,532 Net realized gain on securities sold short ................ 30,844 Net realized gain on foreign currency transactions ................................... 44,776 ------------ Net realized gain on investments, securities sold short, and foreign currency transactions ................................... 15,512,152 Net change in unrealized appreciation/ (depreciation) on investments, securities sold short, and foreign currency translations ........................... 49,558,089 ------------ NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS, SECURITIES SOLD SHORT, AND FOREIGN CURRENCY ............. 65,070,241 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................... $ 78,993,847 ============ See accompanying notes to financial statements. 11 THE GABELLI EQUITY INCOME FUND STATEMENT OF CHANGES IN NET ASSETS ================================================================================ YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ------------------ ------------------ OPERATIONS: Net investment income .................................... $ 13,923,606 $ 6,041,330 Net realized gain on investments, securities sold short, and foreign currency transactions ...................... 15,512,152 10,284,275 Net change in unrealized appreciation/(depreciation) on investments, securities sold short, and foreign currency translations .......................... 49,558,089 48,815,905 ------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... 78,993,847 65,141,510 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Class AAA .............................................. (13,070,105) (6,076,053) Class A ................................................ (126,247) (14,675) Class B ................................................ (2,901) (137) Class C ................................................ (118,288) (15,344) ------------- ------------- (13,317,541) (6,106,209) ------------- ------------- Net realized gain on investments: Class AAA .............................................. (6,315,010) (9,683,440) Class A ................................................ (51,353) (13,842) Class B ................................................ (532) (107) Class C ................................................ (52,102) (14,192) ------------- ------------- (6,418,997) (9,711,581) ------------- ------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS ...................... (19,736,538) (15,817,790) ------------- ------------- CAPITAL SHARE TRANSACTIONS: Class AAA .............................................. 156,224,106 175,602,480 Class A ................................................ 4,102,822 3,406,570 Class B ................................................ 305,182 29,210 Class C ................................................ 4,122,904 3,196,846 ------------- ------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 164,755,014 182,235,106 ------------- ------------- REDEMPTION FEES .......................................... 7,401 46,462 ------------- ------------- NET INCREASE IN NET ASSETS ............................... 224,019,724 231,605,288 NET ASSETS: Beginning of period ...................................... 587,130,755 355,525,467 ------------- ------------- End of period (including undistributed net investment income of $543,923 and $0, respectively) .... $ 811,150,479 $ 587,130,755 ============= ============= See accompanying notes to financial statements. 12 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS ================================================================================ 1. ORGANIZATION. The Gabelli Equity Income Fund (the "Fund") is a series of Gabelli Equity Series Funds, Inc. (the "Corporation"), which 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 three separately managed portfolios (collectively, the "Portfolios") of the Corporation. The Fund's primary objective is to seek a high level of total return with an emphasis on income. The Fund commenced investment operations on January 2, 1992. 2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in accordance with United States ("U.S.") 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 or traded in the U.S. over-the-counter market for which market quotations are readily available are valued at the last quoted sale price or a market's official closing price 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. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or, if the Board of Directors (the "Board") so determines, by such other method as the Board shall determine in good faith to reflect its fair market value. 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"). Portfolio securities primarily traded on a foreign market are generally valued at the preceding closing values of such securities on the relevant market, but may be fair valued pursuant to procedures established by the Board if market conditions change significantly after the close of the foreign market but prior to the close of business on the day the securities are being valued. Debt instruments with remaining maturities of 60 days or less that are not credit impaired are valued at amortized cost, unless the Board determines such amount does not reflect the securities' fair value, in which case these securities will be fair valued as determined by the Board. Debt instruments having a maturity greater than 60 days for which market quotations are readily available are valued at the average of the latest bid and asked prices. If there were no asked prices quoted on such day, the security is valued using the closing bid price. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded. Securities and assets for which market quotations are not readily available are fair valued as determined by the Board. Fair valuation methodologies and procedures may include, but are not limited to: analysis and review of available financial and non-financial information about the company; comparisons to the valuation and changes in valuation of similar securities, including a comparison of foreign securities to the equivalent U.S. dollar value ADR securities at the close of the U.S. exchange; and evaluation of any other information that could be indicative of the value of the security. 13 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ 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. 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 102% of the dollar amount invested by the Fund in each agreement. The Fund will make payment for such securities only upon physical delivery or upon evidence of book entry transfer of the collateral to the account of the custodian. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to maintain the adequacy of the collateral. If the seller defaults and the value of the collateral 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. At September 30, 2006, there were no open repurchase agreements. 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 fluctuations in the value of the contract, which are included in unrealized appreciation/depreciation on investments and futures contracts. The Fund recognizes a realized gain or loss when the contract is closed. There are several risks in connection with the use of futures contracts as a hedging instrument. 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. At September 30, 2006, there were no open futures contracts. SECURITIES SOLD SHORT. The Fund may enter into short sale transactions. Short selling involves selling securities that may or may not be owned and, at times, borrowing the same securities for delivery to the purchaser, with an obligation to replace such borrowed securities at a later date. The proceeds received from short sales are recorded as liabilities and the Fund records an unrealized gain or loss to the extent of the difference between the proceeds received and the value of an open short position on the day of determination. The Fund records a realized gain or loss when the short position is closed out. By entering into a short sale, the Fund bears the market risk of an unfavorable change in the price of the security sold short. Dividends on short sales are recorded as an expense by the Fund on the ex-dividend date and interest expense is recorded on the accrual basis. The Fund did not hold any short positions as of September 30, 2006. 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 translations. 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. 14 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ 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 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. At September 30, 2006, there were no open forward foreign exchange contracts. FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments, and other assets and liabilities are translated into U.S. dollars at the current exchange rates. 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 that 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 translations. 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. FOREIGN SECURITIES. The Fund may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible revaluation of currencies, the ability to repatriate funds, less complete financial information about companies, and possible future adverse political and economic developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. issuers. FOREIGN TAXES. The Fund may be subject to foreign taxes on income, gains on investments, or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in securities for which the markets are illiquid. Illiquid securities include securities the disposition of which is subject to substantial legal or contractual restrictions. The sale of illiquid securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. Securities freely saleable among qualified institutional investors under special rules adopted by the SEC may be treated as liquid if they satisfy liquidity standards established by the Board. The continued liquidity of such securities is not as well assured as that of publicly traded securities, and accordingly the Board will monitor their liquidity. 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 on the accrual basis. Premiums and discounts on debt securities are amortized using the effective yield to maturity method. Dividend income is recorded on the ex-dividend date except for certain dividends which are recorded as soon as the Fund is informed of the dividend. 15 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ DETERMINATION OF NET ASSET VALUE AND CALCULATION OF EXPENSES. Certain administrative expenses are common to, and allocated among, various affiliated funds. Such allocations are made on the basis of each Fund's average net assets or other criteria directly affecting the expenses as determined by the Adviser pursuant to procedures established by the Board. In calculating the net asset value ("NAV") per share of each class, investment income, realized and unrealized gains and losses, redemption fees, and expenses other than class specific expenses, are allocated daily to each class of shares based upon the proportion of net assets of each class at the beginning of each day. Distribution expenses are borne solely by the class incurring the expense. CUSTODIAN FEE CREDITS. When cash balances are maintained in the custody account, the Fund receives credits which are used to offset custodian fees. The gross expenses paid under the custody arrangement are included in custodian fees in the Statement of Operations with the corresponding expense offset, if any, shown as "custodian fee credits". DISTRIBUTIONS TO SHAREHOLDERS. Distributions to shareholders are recorded on the ex-dividend date. Distributions to shareholders are based on income and capital gains as determined in accordance with Federal income tax regulations, which may differ from income and capital gains as determined under U.S. generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities and foreign currency transactions held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Distributions from net investment income include net realized gains on foreign currency transactions. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, adjustments are made to the appropriate capital accounts in the period when the differences arise. These reclassifications have no impact on the NAV of the Fund. For the fiscal year ended September 30, 2006, reclassifications were made to decrease accumulated net investment income by $987 and increase accumulated net realized gain on investments by $985, with an offsetting adjustment to additional paid-in capital. The tax character of distributions paid during the fiscal years ended September 30, 2006 and September 30, 2005 was as follows: FISCAL YEAR ENDED FISCAL YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ------------------ ------------------ DISTRIBUTIONS PAID FROM: Ordinary income (inclusive of short-term capital gains) .................... $13,317,541 $ 9,358,636 Net long-term capital gains ........ 6,418,997 6,459,154 ----------- ----------- Total distributions paid ........... $19,736,538 $15,817,790 =========== =========== The Fund has a fixed distribution policy. Under the policy, the Fund declares and pays monthly distributions from net investment income and capital gains. The actual sources of the distributions are determined after the end of the calendar year. The Fund continues to evaluate its distribution policy in light of ongoing economic and market conditions and may change the amount of the monthly distributions in the future. The Fund currently intends to pay $0.03 per share on a monthly basis. 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 (the "Code"). It is the policy of the Fund to comply with the requirements of the Code applicable to regulated investment companies and to distribute substantially all of its net investment company taxable income and net capital gains. Therefore, no provision for Federal income taxes is required. 16 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ As of September 30, 2006, the components of accumulated earnings/(losses) on a tax basis were as follows: Undistributed ordinary income (inclusive of short-term capital gains) .............................. $ 5,111,976 Undistributed long-term capital gains ........ 12,679,347 Net unrealized appreciation .................. 158,925,245 Other temporary differences .................. (107,302) ------------ Total accumulated earnings ................. $176,609,266 ============ At September 30, 2006, the difference between book and tax basis unrealized appreciation is primarily due to defaulted interest income and deferral of losses on wash sales. Under the current tax law, capital losses related to securities and foreign currency realized after October 31 and prior to the Fund's fiscal year end may be treated as occurring on the first day of the following year. For the fiscal year ended September 30, 2006, the Fund had no capital losses to defer. The following summarizes the tax cost of investments and the related unrealized appreciation/depreciation at September 30, 2006: GROSS GROSS NET UNREALIZED UNREALIZED UNREALIZED APPRECIATION/ COST APPRECIATION DEPRECIATION (DEPRECIATION) ---- ------------ ------------ ------------ Investments .. $665,619,023 $173,619,862 $(14,693,941) $158,925,921 NEW ACCOUNTING PRONOUNCEMENTS. In July 2006, the Financial Accounting Standards Board (the "FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" ("the Interpretation"). The Interpretation establishes for all entities, including pass-through entities such as the Fund, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. The Interpretation is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. Management has recently begun to evaluate the application of the Interpretation to the Fund, and is not in a position at this time to estimate the significance of its impact, if any, on the Fund's financial statements. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 157, Fair Value Measurements, which clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Adoption of SFAS 157 requires the use of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. At this time, management is in the process of reviewing the Standard against its current valuation policies to determine future applicability. 3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS. 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 its 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 affiliated persons of the Adviser. 17 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ The Corporation pays each Director that is not an affiliated person of the Adviser or its affiliates (as defined in the 1940 Act) an annual retainer of $6,000 plus $1,000 for each Board meeting attended and they are reimbursed for any out of pocket expenses incurred in attending meetings. All Board committee members receive $500 per meeting. Directors who are directors or employees of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Fund. 4. DISTRIBUTION PLAN. The Fund's Board has adopted a distribution plan (the "Plan") for each class of shares pursuant to Rule 12b-1 under the 1940 Act. Gabelli & Company, Inc. ("Gabelli & Company"), an affiliate of the Adviser, serves as distributor of the Fund. Under the Class AAA, Class A, Class B, and Class C Share Plans, payments are authorized to Gabelli & Company at annual rates of 0.25%, 0.25%, 1.00%, and 1.00%, respectively, of the average daily net assets of those classes, the annual limitations under each Plan. Such payments are accrued daily and paid monthly. 5. PORTFOLIO SECURITIES. Purchases and proceeds from the sales of securities for the fiscal year ended September 30, 2006, other than short-term securities, aggregated $425,754,538 and $98,435,197, respectively. 6. TRANSACTIONS WITH AFFILIATES. During the fiscal year ended September 30, 2006, the Fund paid brokerage commissions of $369,825 to Gabelli & Company. Additionally, Gabelli & Company informed the Fund that it received $35,797 from investors representing commissions (sales charges and underwriting fees) on sales and redemptions of Fund shares. The cost of calculating the Fund's NAV per share is a Fund expense pursuant to the Advisory Agreement between the Fund and the Adviser. During the fiscal year ended September 30, 2006, the Fund paid or accrued $45,000 to the Adviser in connection with the cost of computing the Fund's NAV. 7. LINE OF CREDIT. The Fund has access to an unsecured line of credit of up to $25,000,000 from the custodian for temporary borrowing purposes. Borrowings under this arrangement bear interest at 0.75% above the Federal Funds rate on outstanding balances. The amount, if any, would be shown as "interest expense" in the Statement of Operations. During the fiscal year ended September 30, 2006, there were no borrowings from the line of credit. 8. CAPITAL STOCK TRANSACTIONS. The Fund currently offers four classes of shares - -- Class AAA Shares, Class A Shares, Class B Shares, and Class C Shares. Class AAA Shares are offered only to investors who acquire them directly from Gabelli & Company, or through selected broker/dealers, or the transfer agent without a sales charge. Class A Shares are subject to a maximum front-end sales charge of 5.75%. Class B Shares are subject to a contingent deferred sales charge ("CDSC") upon redemption within six years of purchase and automatically convert to Class A Shares approximately eight years after the original purchase. The applicable CDSC is equal to a declining percentage of the lesser of the NAV per share at the date of the original purchase or at the date of redemption, based on the length of time held. Class C Shares are subject to a 1.00% CDSC for one year after purchase. Class B Shares are available only through exchange of Class B Shares of other funds distributed by Gabelli & Company. The Board has approved Class I Shares which have not been offered publicly. Effective June 15, 2005, the Fund imposed a redemption fee of 2.00% on Class AAA Shares, Class A Shares, Class B Shares, and Class C Shares that are redeemed or exchanged on or before the seventh day after the date of a purchase. (Prior to June 15, 2005, the Fund imposed a redemption fee on shares that were redeemed or exchanged on or before the sixtieth day after the date of a purchase.) The redemption fee is deducted from the proceeds otherwise payable to the redeeming shareholders and is retained by the Fund. The redemption fees retained by the Fund during the fiscal years ended September 30, 2006 and September 30, 2005 amounted to $7,401 and $46,462, respectively. The redemption fee does not apply to shares purchased through programs that the Adviser determined to have appropriate short-term trading policies in place. Additionally, certain recordkeepers for qualified and non-qualified 18 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ retirement plans that could not collect the redemption fee at the participant level due to systems limitations have received an extension to implement such systems. Transactions in shares of capital stock were as follows: YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ---------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ---------- ------------- ---------- ------------ CLASS AAA CLASS AAA ---------------------------- --------------------------- Shares sold ........................................ 16,251,000 $ 309,539,237 14,143,848 $254,681,597 Shares issued upon reinvestment of distributions ... 951,459 18,000,990 812,370 14,527,787 Shares redeemed .................................... (8,928,232) (171,316,121) (5,214,853) (93,606,904) ---------- ------------- ---------- ------------ Net increase ..................................... 8,274,227 $ 156,224,106 9,741,365 $175,602,480 ========== ============= ========== ============ CLASS A CLASS A ---------------------------- --------------------------- Shares sold ........................................ 316,965 $ 5,979,164 198,451 $ 3,597,003 Shares issued upon reinvestment of distributions ... 7,240 137,173 1,332 24,074 Shares redeemed .................................... (104,070) (2,013,515) (11,920) (214,507) ---------- ------------- ---------- ------------ Net increase ..................................... 220,135 $ 4,102,822 187,863 $ 3,406,570 ========== ============= ========== ============ CLASS B CLASS B ---------------------------- --------------------------- Shares sold ........................................ 15,928 $ 302,564 1,633 $ 28,966 Shares issued upon reinvestment of distributions ... 181 3,433 14 244 Shares redeemed .................................... (43) (815) -- -- ---------- ------------- ---------- ------------ Net increase ..................................... 16,066 $ 305,182 1,647 $ 29,210 ========== ============= ========== ============ CLASS C CLASS C ---------------------------- --------------------------- Shares sold ........................................ 344,076 $ 6,388,556 179,380 $ 3,223,463 Shares issued upon reinvestment of distributions ... 8,157 152,213 1,487 26,658 Shares redeemed .................................... (128,826) (2,417,865) (2,987) (53,275) ---------- ------------- ---------- ------------ Net increase ..................................... 223,407 $ 4,122,904 177,880 $ 3,196,846 ========== ============= ========== ============ 9. INDEMNIFICATIONS. The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 10. OTHER MATTERS. The Adviser and/or affiliates have received subpoenas from the Attorney General of the State of New York and the SEC requesting information on mutual fund trading practices involving certain funds managed by the Adviser. GAMCO Investors, Inc. ("GAMCO"), the Adviser's parent company, is responding to these requests for documents and testimony. In June 2006, GAMCO began discussions with the SEC regarding a possible resolution of their inquiry. Since these discussions are ongoing, it cannot be determined at this time whether they will ultimately result in a settlement of this matter. On a separate matter, in September 2005, the Adviser was informed by the staff of the SEC that the staff may recommend to the Commission that an administrative remedy and a monetary penalty be sought from the Adviser in connection with the actions of two of seven closed-end funds managed by the Adviser relating to Section 19(a) and Rule 19a-1 of the 1940 Act. These provisions require registered investment companies to provide written statements to shareholders when a dividend is made from a source other than net investment income. While the two closed-end funds sent annual statements and provided other materials containing this information, the funds did not send written statements to shareholders with each distribution in 2002 and 2003. The Adviser believes that all of the funds are now in compliance. The Adviser believes that these matters would have no effect on the Fund or any material adverse effect on the Adviser or its ability to manage the Fund. 19 THE GABELLI EQUITY INCOME FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of capital stock outstanding throughout each period: INCOME FROM INVESTMENT OPERATIONS DISTRIBUTIONS --------------------------------------- ------------------------------------ Net Net Asset Realized and Total Net Period Value, Net Unrealized from Net Realized Ended Beginning Investment Gain/(Loss) on Investment Investment Gain on Total September 30 of Period Income(a) Investments Operations Income Investments Distributions - ------------ --------- --------- ----------- ---------- -------- ----------- ------------- CLASS AAA 2006 $18.72 $0.38 $ 1.68 $ 2.06 $(0.36) $(0.19) $(0.55) 2005 16.73 0.24 2.41 2.65 (0.24) (0.42) (0.66) 2004 14.60 0.23 2.26 2.49 (0.27) (0.09) (0.36) 2003 11.93 0.28 2.64 2.92 (0.25) -- (0.25) 2002 13.88 0.23 (1.79) (1.56) (0.23) (0.16) (0.39) CLASS A 2006 $18.66 $0.39 $ 1.67 $ 2.06 $(0.36) $(0.19) $(0.55) 2005 16.72 0.20 2.43 2.63 (0.27) (0.42) (0.69) 2004(d) 16.40 0.16 0.43 0.59 (0.20) (0.07) (0.27) CLASS B 2006 $18.48 $0.36 $ 1.53 $ 1.89 $(0.36) $(0.19) $(0.55) 2005 16.62 0.04 2.46 2.50 (0.22) (0.42) (0.64) 2004(d) 16.40 0.07 0.42 0.49 (0.20) (0.07) (0.27) CLASS C 2006 $18.47 $0.24 $ 1.65 $ 1.89 $(0.36) $(0.19) $(0.55) 2005 16.64 0.07 2.43 2.50 (0.25) (0.42) (0.67) 2004(d) 16.40 0.08 0.43 0.51 (0.20) (0.07) (0.27) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ----------------------------------------------- Net Asset Net Assets Period Value, End of Net Portfolio Ended Redemption End of Total Period Investment Operating Turnover September 30 Fees(a) Period Return+ (in 000's) Income Expenses Rate - ------------ -------- ------ ------- ----------- --------- -------- ---------- CLASS AAA 2006 $0.00(b) $20.23 11.25% $794,375 1.98% 1.46%(c) 14% 2005 0.00(b) 18.72 16.09 580,081 1.33 1.46 11 2004 -- 16.73 17.13 355,321 1.42 1.49 12 2003 -- 14.60 24.59 261,777 2.09 1.49 27 2002 -- 11.93 (11.58) 162,938 1.75 1.50 12 CLASS A 2006 $0.00(b) $20.17 11.29% $ 8,379 2.02% 1.46%(c) 14% 2005 0.00(b) 18.66 15.99 3,644 1.08 1.50 11 2004(d) -- 16.72 3.62 124 1.33(e) 1.49(e) 12 CLASS B 2006 $0.00(b) $19.82 10.46% $ 352 1.91% 2.21%(c) 14% 2005 0.00(b) 18.48 15.28 32 0.20 2.22 11 2004(d) -- 16.62 3.00 1 0.56(e) 2.24(e) 12 CLASS C 2006 $0.00(b) $19.81 10.46% $ 8,044 1.26% 2.21%(c) 14% 2005 0.00(b) 18.47 15.24 3,374 0.37 2.24 11 2004(d) -- 16.64 3.13 79 0.62(e) 2.24(e) 12 - ------------- + 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 distributions and does not reflect applicable sales charges. Total return for a period of less than one year is not annualized. (a) Per share amounts have been calculated using the average shares outstanding method. (b) Amount represents less than $0.005 per share. (c) The ratios do not include a reduction of expenses for custodian fee credits on cash balances maintained with the custodian. Including such custodian fee credits, the expense ratios for the fiscal year ended September 30, 2006 would have been 1.45%, 1.45%, 2.20%, and 2.20% for Class AAA, Class A, Class B, and Class C Shares, respectively. (d) From the commencement of offering Class A, Class B, and Class C Shares on December 31, 2003. (e) Annualized. See accompanying notes to financial statements. 20 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ================================================================================ To the Shareholders and Board of Directors of The Gabelli Equity Income Fund We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Gabelli Equity Income Fund (the "Fund"), a series of Gabelli Equity Series Funds, Inc., as of September 30, 2006, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Gabelli Equity Income Fund, a series of Gabelli Equity Series Funds, Inc., at September 30, 2006, 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 its financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania November 7, 2006 21 THE GABELLI EQUITY INCOME FUND ADDITIONAL FUND INFORMATION (UNAUDITED) ================================================================================ The business and affairs of the Fund are managed under the direction of the Fund's Board of Directors. Information pertaining to the Directors and officers of the Fund is set forth below. The Fund's Statement of Additional Information includes additional information about The Gabelli Equity Income Fund's Directors and is available, without charge, upon request, by calling 800-GABELLI (800-422-3554) or by writing to The Gabelli Equity Income Fund at One Corporate Center, Rye, NY 10580-1422. TERM OF NUMBER OF NAME, POSITION(S) OFFICE AND FUNDS IN FUND ADDRESS 1 LENGTH OF COMPLEX OVERSEEN PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS AND AGE TIME SERVED 2 BY DIRECTOR DURING PAST FIVE YEARS HELD BY DIRECTOR 3 - ----------------- ------------- ---------------- ---------------------- ------------------ INTERESTED DIRECTORS 4: - ---------------------- MARIO J. GABELLI Since 1991 23 Chairman of the Board and Chief Executive Director of Morgan Group Director and Officer of GAMCO Investors, Inc. and Holdings, Inc. Chief Investment Officer Chief Investment Officer-Value Portfolios (holding company) Age: 64 of Gabelli Funds, LLC and GAMCO Asset Management Inc.; Chairman and Chief Executive Officer of Lynch Interactive Corporation (multimedia and services) JOHN D. GABELLI Since 1991 10 Senior Vice President of Gabelli & Director of GAMCO Director Company, Inc. Investors, Inc. Age: 62 NON-INTERESTED DIRECTORS: - ------------------------ ANTHONY J. COLAVITA Since 1991 33 Partner in the law firm of -- Director Anthony J. Colavita, P.C. Age: 70 VINCENT D. ENRIGHT Since 1991 13 Former Senior Vice President and Chief Director of Aphton Director Financial Officer of KeySpan Energy Corporation Age: 62 Corporation (utility holding company) (biopharmaceutical company) ROBERT J. MORRISSEY Since 1991 6 Partner in the law firm of Morrissey, -- Director Hawkins & Lynch Age: 67 ANTHONY R. PUSTORINO Since 1991 14 Certified Public Accountant; Professor Director of Lynch Corporation Director Emeritus, Pace University (diversified manufacturing) Age: 81 ANTHONIE C. VAN EKRIS Since 1991 17 Chairman of BALMAC International, Inc. -- Director (commodities and futures trading) Age: 72 SALVATORE J. ZIZZA Since 2001 24 Chairman, Hallmark Electrical Supplies Corp. Director of Hollis-Eden Director Pharmaceuticals Age: 60 (biotechnology); Director of Earl Scheib, Inc. (automotive services) 22 THE GABELLI EQUITY INCOME FUND ADDITIONAL FUND INFORMATION (UNAUDITED) (CONTINUED) ================================================================================ NAME, POSITION(S) TERM OF OFFICE ADDRESS 1 AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED 2 DURING PAST FIVE YEARS - ----------------- --------------- ----------------------- OFFICERS: - -------- BRUCE N. ALPERT Since 1991 Executive Vice President and Chief Operating Officer President of Gabelli Funds, LLC since 1988; Director and Age: 54 President of Gabelli Advisers, Inc. since 1998; Officer of all of the registered investment companies in the Gabelli Funds complex JAMES E. MCKEE Since 1995 Vice President, General Counsel and Secretary of Secretary Investors, Inc. since 1999 and GAMCO Asset Age: 43 Management Inc. since 1993; Secretary of all of the registered investment companies in the Gabelli Funds complex AGNES MULLADY Since 2006 Treasurer of all of the registered investment companies Treasurer in the Gabelli Funds complex; Senior Vice President of Age: 48 U.S. Trust Company, N.A. and Treasurer and Chief Financial Officer of Excelsior Funds from 2004 through 2005; Chief Financial Officer of AMIC Distribution Partners from 2002 through 2004; Controller of Reserve Management Corporation and Reserve Partners, Inc. and Treasurer of Reserve Funds from 2000 through 2002 PETER D. GOLDSTEIN Since 2004 Director of Regulatory Affairs for GAMCO Investors, Inc. Chief Compliance Officer since 2004; Chief Compliance Officer of all of the registered Age: 53 investment companies in the Gabelli Funds complex; Vice President of Goldman Sachs Asset Management from 2000-2004 - ------------------ 1 Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted. 2 Each Director will hold office for an indefinite term until the earliest of (i) the next meeting of shareholders, if any, called for the purpose of considering the election or re-election of such Director and until the election and qualification of his or her successor, if any, elected at such meeting, or (ii) the date a Director resigns or retires, or a Director is removed by the Board of Directors or shareholders, in accordance with the Corporation's By-Laws and Articles of Incorporation. Each officer will hold office for an indefinite term until the date he or she resigns or retires or until his or her successor is elected and qualified. 3 This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934 (i.e. public companies) or other investment companies registered under the 1940 Act. 4 "Interested person" of the Fund as defined in the Investment Company Act of 1940. Messrs. Gabelli are each considered an "interested person" because of their affiliation with Gabelli Funds, LLC which acts as the Fund's investment adviser. Mario J. Gabelli and John D. Gabelli are brothers. - -------------------------------------------------------------------------------- 2006 TAX NOTICE TO SHAREHOLDERS (Unaudited) For the fiscal year ended September 30, 2006, the Fund paid to shareholders ordinary income dividends (comprised of net investment income and short-term capital gains) totaling $0.36, $0.36, $0.36, and $0.36 and long-term capital gains totaling $0.19, $0.19, $0.19, and $0.19 per share for Class AAA, Class A, Class B, and Class C, respectively. The distributions of long-term capital gains have been designated as Capital Gain Dividends by the Fund's Board of Directors. For the fiscal year ended September 30, 2006, 66.39% of the ordinary income dividend qualifies for the dividends received deduction available to corporations and 100% of the ordinary income distribution was qualified dividend income. An estimate of qualified dividend income of $21,260,866 was received by the Fund through September 30, 2006 that qualifies for a reduced tax rate pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003. U.S. GOVERNMENT INCOME: The percentage of the ordinary income dividend paid by the Fund during fiscal year 2006 which was derived from U.S. Treasury securities was 4.88%. 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 Equity Income Fund did not meet this strict requirement in 2006. Due to the diversity in state and local tax law, it is recommended that you consult your personal tax adviser as to the applicability of the information provided to your specific situation. - -------------------------------------------------------------------------------- 23 Gabelli Equity Series Funds, Inc. THE GABELLI EQUITY INCOME FUND One Corporate Center Rye, New York 10580-1422 800-GABELLI 800-422-3554 FAX: 914-921-5118 WEBSITE: WWW.GABELLI.COM E-MAIL: INFO@GABELLI.COM Net Asset Value available daily by calling 800-GABELLI after 6:00 P.M. BOARD OF DIRECTORS Mario J. Gabelli, CFA Robert J. Morrissey CHAIRMAN AND CHIEF ATTORNEY-AT-LAW EXECUTIVE OFFICER MORRISSEY, HAWKINS & LYNCH GAMCO INVESTORS, INC. Anthony J. Colavita Anthony R. Pustorino ATTORNEY-AT-LAW CERTIFIED PUBLIC ACCOUNTANT, ANTHONY J. COLAVITA, P.C. PROFESSOR EMERITUS PACE UNIVERSITY Vincent D. Enright Anthonie C. van Ekris FORMER SENIOR VICE PRESIDENT CHAIRMAN AND CHIEF FINANCIAL OFFICER BALMAC INTERNATIONAL, INC. KEYSPAN ENERGY CORP. John D. Gabelli Salvatore J. Zizza SENIOR VICE PRESIDENT CHAIRMAN GABELLI & COMPANY, INC. HALLMARK ELECTRICAL SUPPLIES CORP. OFFICERS Bruce N. Alpert James E. McKee PRESIDENT SECRETARY Agnes Mullady Peter D. Goldstein TREASURER CHIEF COMPLIANCE OFFICER 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 Equity Income Fund. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. - -------------------------------------------------------------------------------- GAB444Q306SR [GRAPHIC OMITTED] E P Gabelli Triangle P M MANAGEMENT S V CASH FLOW RESEARCH THE GABELLI EQUITY INCOME FUND ANNUAL REPORT SEPTEMBER 30, 2006 THE GABELLI WOODLAND SMALL CAP VALUE FUND ANNUAL REPORT (A) SEPTEMBER 30, 2006 TO OUR SHAREHOLDERS, The Gabelli Woodland Small Cap Value Fund underperformed its small cap benchmark, the Russell 2000 Index, as well as other broad based market indices for the twelve month period ended September 30, 2006. During this period, the Fund was virtually unchanged, declining by (0.35)% versus gains of 9.92% for the Russell 2000, 10.78% for the Standard & Poor's 500 ("S&P") Index and 8.79% for the Value Line Composite Index. COMPARATIVE RESULTS - -------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2006 (A)(B) Since Inception Quarter 1 Year 3 Year (12/31/02)* - -------------------------------------------------------------------------------------------------------------------- GABELLI WOODLAND SMALL CAP VALUE FUND CLASS AAA ........... (1.55)% (0.35)% 13.38% 12.25% Russell 2000 Index ........................................ 0.44 9.92 15.48 19.98 S&P 500 Index ............................................. 5.66 10.78 12.29 13.80 Value Line Composite Index ................................ 2.04 8.79 15.50 19.95 Class A ................................................... (1.55) (0.36) 13.44 12.27 (7.21)(c) (6.09)(c) 11.23(c) 10.51(c) Class B ................................................... (1.91) (1.19) 13.33 12.24 (6.81)(d) (6.13)(d) 12.55(d) 11.65(d) Class C ................................................... (1.74) (1.11) 12.58 11.53 (2.72)(e) (2.10)(e) 12.58(e) 11.53(e) <FN> (a) THE FUND'S FISCAL YEAR ENDS SEPTEMBER 30. (b) RETURNS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. TOTAL RETURNS AND AVERAGE ANNUAL RETURNS REFLECT CHANGES IN SHARE PRICE AND REINVESTMENT OF DISTRIBUTIONS AND ARE NET OF EXPENSES. 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. PERFORMANCE RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES, AND EXPENSES OF THE FUND BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. INVESTING IN SMALL CAPITALIZATION SECURITIES INVOLVES SPECIAL RISKS BECAUSE THESE SECURITIES MAY TRADE LESS FREQUENTLY AND EXPERIENCE MORE ABRUPT PRICE MOVEMENTS THAN LARGE CAPITALIZATION SECURITIES. THE RUSSELL 2000 INDEX OF SMALL U.S. COMPANIES, THE S&P 500 INDEX OF THE LARGEST U.S. COMPANIES, AND THE VALUE LINE COMPOSITE INDEX (COMPRISED OF EQUALLY WEIGHTED POSITIONS IN EVERY STOCK COVERED IN THE VALUE LINE INVESTMENT SURVEY) ARE UNMANAGED INDICATORS OF STOCK MARKET PERFORMANCE. DIVIDENDS ARE CONSIDERED REINVESTED. (c) INCLUDES THE EFFECT OF THE MAXIMUM 5.75% SALES CHARGE AT THE BEGINNING OF THE PERIOD. (d) PERFORMANCE RESULTS INCLUDE THE DEFERRED SALES CHARGES FOR THE CLASS B SHARES UPON REDEMPTION AT THE END OF THE ONE YEAR, FIVE YEAR, TEN YEAR, AND SINCE INCEPTION PERIODS OF 5%, 2%, 0%, AND 0%, RESPECTIVELY, OF THE FUND'S NAV AT THE TIME OF PURCHASE OR SALE, WHICHEVER IS LOWER. CLASS B SHARES ARE NOT AVAILABLE FOR NEW PURCHASES. (e) PERFORMANCE RESULTS INCLUDE THE DEFERRED SALES CHARGE FOR THE CLASS C SHARES UPON REDEMPTION AT THE END OF THE ONE YEAR PERIOD OF 1% OF THE FUND'S NAV AT THE TIME OF PURCHASE OR SALE, WHICHEVER IS LOWER. * PERFORMANCE IS CALCULATED SINCE INCEPTION OF CLASS AAA SHARES ON DECEMBER 31, 2002. - -------------------------------------------------------------------------------------------------------------------- </FN> - -------------------------------------------------------------------------------- We have separated the portfolio manager's commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that the content of the portfolio manager's commentary is unrestricted. The financial statements and investment portfolio are mailed separately from the commentary. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at www.gabelli.com/funds. - -------------------------------------------------------------------------------- PERFORMANCE DISCUSSION The Gabelli Woodland Small Cap Value Fund (the "Fund") decreased 0.4% for the fiscal year ended September 30, 2006 versus the Russell 2000, which increased 9.9%. Large cap stocks outperformed small cap stocks during the same time period, with the S&P 500 increasing 10.8%. During the past year we had several investments add to our overall performance. The three biggest contributors were AnorMED, Kimball International, and Vail Resorts. AnorMED, which was purchased during the fiscal year, rose 86% since it was purchased by the Fund. AnorMED's lead product, Mozobil, is a stem cell mobilizer that is in Phase III trials and nearing commercialization. Genzyme and Millennium Pharmaceuticals began a bidding war to acquire AnorMED, with Genzyme agreeing to pay $13.50 per share in cash. Kimball International rose 34% since it was purchased during the fiscal year. Kimball had been going through a transition from a vertically integrated manufacturer of furniture to being focused on its core manufacturing competencies and end markets. Over the last year, the company's financial results have begun to show the results of the transformation and the valuation in the market has reacted accordingly. Vail Resorts, owner and operator of ski resorts in Colorado and California, rose almost 40% over the last twelve months. Vail benefited over the last year from the second best ski conditions in a decade, driving record results for the resort operations, coupled with continued demand for their valuable real estate portfolio. We were not without our share of disappointments during the past year. The biggest disappointment was the performance of the portfolio. Clearly we made investment decisions that were less than impressive and were downright poor. Having said that, we remain disciplined in our investment approach and continue to invest by the principles that we have laid out in prior letters. We believe that it is important to reiterate them to you again. We are focused on investing in companies with positive and growing earnings and free cash flow, operated by management teams that are excellent allocators of capital, and trade at prices we believe are significantly less than our appraisal of their intrinsic value. Therefore, we do not have a Fund that will mirror the performance of the Russell 2000 year-in and year-out. We commit to you to improve our performance going forward. In terms of disappointments with individual holdings, the biggest decline was Champion Enterprises. Champion is one of the largest producers of manufactured homes and the nation's largest modular homebuilder. The manufactured home industry is in the midst of a 45 year low and is expected to rebound in the coming years. Champion remains a market leader, maintains a conservative capital structure, and generates significant free cash flow which is being used to pay down debt and make strategic acquisitions. As always, we appreciate your loyalty and support and look forward to communicating with you next quarter. COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GABELLI WOODLAND SMALL CAP VALUE FUND CLASS AAA AND THE RUSSELL 2000 INDEX [GRAPHIC OMITTED] PLOT POINTS FOLLOW: The Gabelli Woodland Small Cap Value Fund (Class AAA) Russell 2000 Index 12/31/02 $10,000 $10,000 9/30/03 10,580 12,858 9/30/04 12,825 15,271 9/30/05 15,476 18,022 9/30/06 15,422 19,800 - -------------------------------------------------------------------------------- Average Annual Total Return* - -------------------------------------------------------------------------------- 1 Year 3 Year Life of Fund - -------------------------------------------------------------------------------- Class AAA (0.35)% 3.38% 12.25% Russell 2000 9.92 15.48 19.98 - -------------------------------------------------------------------------------- *Past performance is not predictive of future results. The performance tables and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 2 THE GABELLI WOODLAND SMALL CAP VALUE FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) For the Six Month Period from April 1, 2006 through September 30, 2006 EXPENSE TABLE ================================================================================ We believe it is important for you to understand the impact of fees and expenses regarding your investment. All mutual funds have operating expenses. As a shareholder of a fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund's gross income, directly reduce the investment return of a fund. When a fund's expenses are expressed as a percentage of its average net assets, this figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. The Expense Table below illustrates your Fund's costs in two ways: ACTUAL FUND RETURN: This section provides information about actual account values and actual expenses. You may use this section to help you to estimate the actual expenses that you paid over the period after any fee waivers and expense reimbursements. The "Ending Account Value" shown is derived from the Fund's ACTUAL return during the past six months, and the "Expenses Paid During Period" shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your Fund under the heading "Expenses Paid During Period" to estimate the expenses you paid during this period. HYPOTHETICAL 5% RETURN: This section provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio. It assumes a hypothetical annualized return of 5% before expenses during the period shown. In this case -- because the hypothetical return used is NOT the Fund's actual return -- the results do not apply to your investment and you cannot use the hypothetical account value and expense to estimate the actual ending account balance or expenses you paid for the period. This example is useful in making comparisons of the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees, if any, which are described in the Prospectus. If these costs were applied to your account, your costs would be higher. Therefore, the 5% hypothetical return is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. The "Annualized Expense Ratio" represents the actual expenses for the last six months and may be different from the expense ratio in the Financial Highlights which is for the year ended September 30, 2006. Beginning Ending Annualized Expenses Account Value Account Value Expense Paid During 04/01/06 09/30/06 Ratio Period* - -------------------------------------------------------------------------------- THE GABELLI WOODLAND SMALL CAP VALUE FUND - -------------------------------------------------------------------------------- ACTUAL FUND RETURN Class AAA $1,000.00 $ 926.40 2.00% $ 9.66 Class A $1,000.00 $ 925.80 2.00% $ 9.66 Class B $1,000.00 $ 921.40 2.75% $13.25 Class C $1,000.00 $ 922.60 2.75% $13.25 HYPOTHETICAL 5% RETURN Class AAA $1,000.00 $1,015.04 2.00% $10.10 Class A $1,000.00 $1,015.04 2.00% $10.10 Class B $1,000.00 $1,011.28 2.75% $13.87 Class C $1,000.00 $1,011.28 2.75% $13.87 * Expenses are equal to the Fund's annualized expense ratio for the last six months multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365. 3 SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED) ================================================================================ The following table presents portfolio holdings as a percent of total net assets as of September 30, 2006: THE GABELLI WOODLAND SMALL CAP VALUE FUND Health Care ........................................ 11.8% Consumer Products .................................. 11.6% Diversified Industrial ............................. 9.5% Food and Beverage .................................. 7.7% Equipment and Supplies ............................. 7.7% Hotels and Gaming .................................. 6.6% Financial Services ................................. 6.4% Computer Software and Services ..................... 6.3% Business Services .................................. 5.4% Energy and Utilities ............................... 4.8% Retail ............................................. 4.2% U.S. Government Obligations ........................ 3.4% Aerospace .......................................... 2.8% Entertainment ...................................... 2.6% Aviation: Parts and Services ....................... 2.4% Automotive ......................................... 2.2% Publishing ......................................... 1.9% Automotive: Parts and Accessories .................. 1.7% Manufactured Housing and Recreational Vehicles ..... 1.2% Other Assets and Liabilities (Net) ................. (0.2)% ------- 100.0% ======= THE FUND FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q, THE LAST OF WHICH WAS FILED FOR THE QUARTER ENDED JUNE 30, 2006. SHAREHOLDERS MAY OBTAIN THIS INFORMATION AT WWW.GABELLI.COM OR BY CALLING THE FUND AT 800-GABELLI (800-422-3554). THE FUND'S FORM N-Q IS AVAILABLE ON THE SEC'S WEBSITE AT WWW.SEC.GOV AND MAY ALSO BE REVIEWED AND COPIED AT THE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-800-SEC-0330. PROXY VOTING The Fund files Form N-PX with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. A description of the Fund's proxy voting policies, procedures, and how the Fund voted proxies relating to portfolio securities is available without charge, upon request, by (i) calling 800-GABELLI (800-422-3554); (ii) writing to The Gabelli Funds at One Corporate Center, Rye, NY 10580-1422; or (iii) visiting the SEC's website at www.sec.gov. 4 THE GABELLI WOODLAND SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS -- SEPTEMBER 30, 2006 ================================================================================ MARKET SHARES COST VALUE ------ ---- ----- COMMON STOCKS -- 96.8% AEROSPACE -- 2.8% 3,275 Alliant Techsystems Inc.+ .... $ 149,145 $ 265,472 ---------- ---------- AUTOMOTIVE -- 2.2% 9,080 Adesa Inc. ................... 132,170 209,839 ---------- ---------- AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.7% 8,070 Midas Inc.+ .................. 157,486 166,888 ---------- ---------- AVIATION: PARTS AND SERVICES -- 2.4% 10,335 EDO Corp. .................... 281,028 236,465 ---------- ---------- BUSINESS SERVICES -- 5.4% 62,740 AMICAS Inc.+ ................. 286,120 186,965 3,680 Imation Corp. ................ 155,361 147,752 3,580 The Brink's Co. .............. 86,901 189,955 ---------- ---------- 528,382 524,672 ---------- ---------- COMPUTER SOFTWARE AND SERVICES -- 6.3% 3,230 John H. Harland Co. .......... 98,007 117,733 33,280 Lawson Software Inc.+ ........ 252,294 241,280 22,965 Stellent Inc. ................ 194,318 248,941 ---------- ---------- 544,619 607,954 ---------- ---------- CONSUMER PRODUCTS -- 11.6% 5,280 Alberto-Culver Co. ........... 153,283 267,115 11,340 Callaway Golf Co. ............ 176,339 148,667 4,435 Church & Dwight Co. Inc. ..... 96,869 173,453 6,780 CNS Inc. ..................... 147,486 191,399 5,145 Jarden Corp.+ ................ 126,246 169,631 8,990 Kimball International Inc., Cl. B ................. 129,572 173,507 ---------- ---------- 829,795 1,123,772 ---------- ---------- DIVERSIFIED INDUSTRIAL -- 9.5% 1,510 Carlisle Companies Inc. ...... 81,959 126,991 9,130 Griffon Corp.+ ............... 191,022 217,933 14,000 Jacuzzi Brands Inc.+ ......... 152,373 139,860 5,250 Texas Industries Inc. ........ 182,727 273,315 3,810 Walter Industries Inc. ....... 226,081 162,611 ---------- ---------- 834,162 920,710 ---------- ---------- ENERGY AND UTILITIES -- 4.8% 2,879 ALLETE Inc. .................. 82,984 125,093 8,290 Comstock Resources Inc.+ ..... 233,858 225,073 31,300 Seitel Inc.+ ................. 147,667 114,871 ---------- ---------- 464,509 465,037 ---------- ---------- ENTERTAINMENT -- 2.6% 17,080 Discovery Holding Co., Cl. A+ ...................... 263,567 246,977 ---------- ---------- EQUIPMENT AND SUPPLIES -- 7.7% 34,200 FSI International Inc.+ ...... 204,330 196,650 11,360 Tennant Co. .................. 215,393 276,502 6,380 Toro Co. ..................... 163,660 269,045 ---------- ---------- 583,383 742,197 ---------- ---------- MARKET SHARES COST VALUE ------ ---- ----- FINANCIAL SERVICES -- 6.4% 9,690 Franklin Bank Corp.+ ......... $ 160,165 $ 192,637 14,700 NewAlliance Bancshares Inc. .. 218,159 215,355 15,750 USI Holdings Corp.+ .......... 198,572 213,413 ---------- ---------- 576,896 621,405 ---------- ---------- FOOD AND BEVERAGE -- 7.7% 6,340 H.J. Heinz Co. ............... 243,060 265,836 4,620 PepsiAmericas Inc. ........... 72,529 98,591 11,700 Triarc Cos. Inc., Cl. A ...... 124,331 194,103 12,510 Triarc Cos. Inc., Cl. B ...... 124,405 189,151 ---------- ---------- 564,325 747,681 ---------- ---------- HEALTH CARE -- 11.8% 13,670 AnorMED Inc.+ ................ 93,188 172,926 11,592 Lifecore Biomedical Inc.+ .... 143,080 163,447 5,710 PolyMedica Corp. ............. 185,348 244,445 10,586 SurModics Inc.+ .............. 293,921 371,780 4,740 West Pharmaceutical Services Inc. ............... 121,221 186,140 ---------- ---------- 836,758 1,138,738 ---------- ---------- HOTELS AND GAMING -- 6.6% 6,060 Gaylord Entertainment Co.+ ... 152,302 265,731 11,450 Trump Entertainment Resorts Inc.+ ............... 216,501 194,192 4,370 Vail Resorts Inc.+ ........... 99,523 174,887 ---------- ---------- 468,326 634,810 ---------- ---------- MANUFACTURED HOUSING AND RECREATIONAL VEHICLES -- 1.2% 16,820 Champion Enterprises Inc.+ ... 178,909 116,058 ---------- ---------- PUBLISHING -- 1.9% 27,490 Sun-Times Media Group Inc., Cl. A ................. 250,375 180,884 ---------- ---------- RETAIL -- 4.2% 30,643 dELiA*s Inc.+ ................ 232,236 235,951 6,060 Zale Corp. ................... 169,741 168,104 ---------- ---------- 401,977 404,055 ---------- ---------- TOTAL COMMON STOCKS .......... 8,045,812 9,353,614 ---------- ---------- PRINCIPAL AMOUNT ------ U.S. GOVERNMENT OBLIGATIONS -- 3.4% $329,000 U.S. Treasury Bills, 4.843% to 5.082%++, 11/02/06 to 12/28/06 ........ 326,466 326,502 ---------- ---------- TOTAL INVESTMENTS -- 100.2% .. $8,372,278 9,680,116 ========== OTHER ASSETS AND LIABILITIES (NET) -- (0.2)% .......................... (18,586) ---------- NET ASSETS -- 100.0% ....................... $9,661,530 ========== - ---------------- + Non-income producing security. ++ Represents annualized yield at date of purchase. See accompanying notes to financial statements. 5 THE GABELLI WOODLAND SMALL CAP VALUE FUND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2006 ================================================================================ ASSETS: Investments, at value (cost $8,372,278) ................... $9,680,116 Cash ...................................................... 1,650 Receivable for investments sold ........................... 157,101 Dividends receivable ...................................... 6,403 Receivable for Fund shares sold ........................... 1,525 Prepaid expense ........................................... 327 ---------- TOTAL ASSETS .............................................. 9,847,122 ---------- LIABILITIES: Payable for investments purchased ......................... 118,506 Payable for legal and audit fees .......................... 33,645 Payable for investment advisory fees ...................... 14,020 Payable for shareholder communications expenses ........... 12,338 Payable for distribution fees ............................. 2,271 Other accrued expenses .................................... 4,812 ---------- TOTAL LIABILITIES ......................................... 185,592 ---------- NET ASSETS applicable to 724,688 shares outstanding ....... $9,661,530 ========== NET ASSETS CONSIST OF: Capital stock, each class at $0.001 par value ............. $ 725 Additional paid-in capital ................................ 6,495,759 Accumulated net realized gain on investments .............. 1,857,208 Net unrealized appreciation on investments ................ 1,307,838 ---------- NET ASSETS ................................................ $9,661,530 ========== SHARES OF CAPITAL STOCK: CLASS AAA: Net Asset Value, offering and redemption price per share ($9,136,430 / 684,507 shares outstanding; 100,000,000 shares authorized) ...................................... $13.35 ====== CLASS A: Net Asset Value and redemption price per share ($100,246 / 7,503 shares outstanding; 50,000,000 shares authorized) ........................... $13.36 ====== Maximum offering price per share (NAV / .9425, based on maximum sales charge of 5.75% of the offering price) ......................... $14.18 ====== CLASS B: Net Asset Value and offering price per share ($154 / 11.52 shares outstanding; 50,000,000 shares authorized) ........................... $13.37(a) ====== CLASS C: Net Asset Value and offering price per share ($424,700 / 32,666 shares outstanding; 50,000,000 shares authorized) ........................... $13.00(a) ====== - -------------------- (a) Redemption price varies based on the length of time held. STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2006 ================================================================================ INVESTMENT INCOME: Dividends ................................................. $ 107,124 Interest .................................................. 20,086 ----------- TOTAL INVESTMENT INCOME ................................... 127,210 ----------- EXPENSES: Investment advisory fees .................................. 108,766 Distribution fees -- Class AAA ............................ 26,053 Distribution fees -- Class A .............................. 255 Distribution fees -- Class B .............................. 1 Distribution fees -- Class C .............................. 3,502 Registration expenses ..................................... 31,550 Legal and audit fees ...................................... 26,591 Shareholder communications expenses ....................... 24,364 Shareholder services fees ................................. 15,411 Custodian fees ............................................ 8,327 Interest expense .......................................... 1,077 Directors' fees ........................................... 483 Miscellaneous expenses .................................... 7,334 ----------- TOTAL EXPENSES BEFORE FEES WAIVED AND EXPENSES REIMBURSED BY ADVISER ......................... 253,714 ----------- LESS: Fees waived and expenses reimbursed by Adviser ............................................ (32,506) Custodian fee credits ................................... (290) ----------- TOTAL NET EXPENSES ........................................ 220,918 ----------- NET INVESTMENT LOSS ....................................... (93,708) ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments .......................... 2,164,088 Net change in unrealized appreciation/ (depreciation) on investments .......................... (2,049,195) ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS .......................................... 114,893 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................ $ 21,185 =========== See accompanying notes to financial statements. 6 THE GABELLI WOODLAND SMALL CAP VALUE FUND STATEMENT OF CHANGES IN NET ASSETS ================================================================================ YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ------------------ ------------------ OPERATIONS: Net investment loss ................................ $ (93,708) $ (48,633) Net realized gain on investments ................... 2,164,088 837,195 Net change in unrealized appreciation/ (depreciation) on investments ................... (2,049,195) 284,720 ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 21,185 1,073,282 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Net realized gain on investments: Class AAA ........................................ (973,344) (216,521) Class A .......................................... (9,260) (3,450) Class B .......................................... (13) (7) Class C .......................................... (24,564) (2,367) ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS ................ (1,007,181) (222,345) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Class AAA ........................................ (1,759,221) 7,618,024 Class A .......................................... 2,012 50,032 Class B .......................................... 13 8 Class C .......................................... 268,884 140,546 ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ....................... (1,488,312) 7,808,610 ------------ ------------ REDEMPTION FEES .................................... 1 60 ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS .............. (2,474,307) 8,659,607 NET ASSETS: Beginning of period ................................ 12,135,837 3,476,230 ------------ ------------ End of period (including undistributed net investment income of $0 and $0, respectively) .... $ 9,661,530 $ 12,135,837 ============ ============ See accompanying notes to financial statements. 7 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS ================================================================================ 1. ORGANIZATION. The Gabelli Woodland Small Cap Value Fund (the "Fund") is a series of Gabelli Equity Series Funds, Inc. (the "Corporation"), which was organized on July 25, 1991 as a Maryland corporation. The Fund is a non-diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and one of three separately managed portfolios (collectively, the "Portfolios") of the Corporation. The Fund's primary objective is capital appreciation. Effective September 1, 2006, the Fund's Adviser currently characterizes small capitalization companies for the Fund as those with a total market value at the time of investment not greater than that of the largest company in the Russell 2000 Index or $3.0 billion, whichever is greater. The Fund commenced investment operations on December 31, 2002. 2. SIGNIFICANT ACCOUNTING POLICIES. The preparation of financial statements in accordance with United States ("U.S.") 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 or traded in the U.S. over-the-counter market for which market quotations are readily available are valued at the last quoted sale price or a market's official closing price 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. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or, if the Board of Directors (the "Board") so determines, by such other method as the Board shall determine in good faith to reflect its fair market value. 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"). Portfolio securities primarily traded on a foreign market are generally valued at the preceding closing values of such securities on the relevant market, but may be fair valued pursuant to procedures established by the Board if market conditions change significantly after the close of the foreign market but prior to the close of business on the day the securities are being valued. Debt instruments with remaining maturities of 60 days or less that are not credit impaired are valued at amortized cost, unless the Board determines such amount does not reflect the securities' fair value, in which case these securities will be fair valued as determined by the Board. Debt instruments having a maturity greater than 60 days for which market quotations are readily available are valued at the average of the latest bid and asked prices. If there were no asked prices quoted on such day, the security is valued using the closing bid price. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded. Securities and assets for which market quotations are not readily available are fair valued as determined by the Board. Fair valuation methodologies and procedures may include, but are not limited to: analysis and review of available financial and non-financial information about the company; comparisons to the valuation and changes in valuation of similar securities, including a comparison of foreign securities to the equivalent U.S. dollar value ADR securities at the close of the U.S. exchange; and evaluation of any other information that could be indicative of the value of the security. 8 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ 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. 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 102% of the dollar amount invested by the Fund in each agreement. The Fund will make payment for such securities only upon physical delivery or upon evidence of book entry transfer of the collateral to the account of the custodian. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to maintain the adequacy of the collateral. If the seller defaults and the value of the collateral 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. At September 30, 2006, there were no open repurchase agreements. FOREIGN SECURITIES. The Fund may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible revaluation of currencies, the ability to repatriate funds, less complete financial information about companies, and possible future adverse political and economic developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. issuers. FOREIGN TAXES. The Fund may be subject to foreign taxes on income, gains on investments, or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests. 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 on the accrual basis. Premiums and discounts on debt securities are amortized using the effective yield to maturity method. Dividend income is recorded on the ex-dividend date except for certain dividends which are recorded as soon as the Fund is informed of the dividend. DETERMINATION OF NET ASSET VALUE AND CALCULATION OF EXPENSES. Certain administrative expenses are common to, and allocated among, various affiliated funds. Such allocations are made on the basis of each Fund's average net assets or other criteria directly affecting the expenses as determined by the Adviser pursuant to procedures established by the Board. In calculating the net asset value ("NAV") per share of each class, investment income, realized and unrealized gains and losses, redemption fees, and expenses other than class specific expenses, are allocated daily to each class of shares based upon the proportion of net assets of each class at the beginning of each day. Distribution expenses are borne solely by the class incurring the expense. CUSTODIAN FEE CREDITS. When cash balances are maintained in the custody account, the Fund receives credits which are used to offset custodian fees. The gross expenses paid under the custody arrangement are included in custodian fees in the Statement of Operations with the corresponding expense offset, if any, shown as "custodian fee credits". 9 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ DISTRIBUTIONS TO SHAREHOLDERS. Distributions to shareholders are recorded on the ex-dividend date. Distributions to shareholders are based on income and capital gains as determined in accordance with Federal income tax regulations, which may differ from income and capital gains as determined under U.S. 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 characterizations of distributions made by the Fund. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, adjustments are made to the appropriate capital accounts in the period when the differences arise. These reclassifications have no impact on the NAV of the Fund. For the fiscal year ended September 30, 2006, reclassifications were made to decrease accumulated net investment loss by $93,708 and decrease accumulated net realized gain on investments by $77,229, with an offsetting adjustment to additional paid-in capital. The tax character of distributions paid during the fiscal years ended September 30, 2006 and September 30, 2005 was as follows: FISCAL YEAR ENDED FISCAL YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ------------------ ------------------ DISTRIBUTIONS PAID FROM: Ordinary income (inclusive of short-term capital gains) ..................... -- $188,894 Net long-term capital gains .......... $1,007,181 33,451 ---------- -------- Total distributions paid ............. $1,007,181 $222,345 ========== ======== 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 (the "Code"). It is the policy of the Fund to comply with the requirements of the Code applicable to regulated investment companies and to distribute substantially all of its net investment company taxable income and net capital gains. Therefore, no provision for Federal income taxes is required. As of September 30, 2006, the components of accumulated earnings/(losses) on a tax basis were as follows: Undistributed long-term capital gains ............... $1,873,031 Net unrealized appreciation ......................... 1,292,015 ---------- Total accumulated earnings ........................ $3,165,046 ========== At September 30, 2006, the difference between book and tax basis unrealized appreciation is primarily due to deferral of losses on wash sales. Under the current tax law, capital losses related to securities and foreign currency realized after October 31 and prior to the Fund's fiscal year end may be treated as occurring on the first day of the following year. For the fiscal year ended September 30, 2006, the Fund had no capital losses to defer. The following summarizes the tax cost of investments and the related unrealized appreciation/depreciation at September 30, 2006: GROSS GROSS NET UNREALIZED UNREALIZED UNREALIZED APPRECIATION/ COST APPRECIATION DEPRECIATION (DEPRECIATION) ---- ------------ ------------ ------------- Investments ... $8,388,101 $1,798,786 $(506,771) $1,292,015 10 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ NEW ACCOUNTING PRONOUNCEMENTS. In July 2006, the Financial Accounting Standards Board (the "FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" ("the Interpretation"). The Interpretation establishes for all entities, including pass-through entities such as the Fund, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. The Interpretation is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. Management has recently begun to evaluate the application of the Interpretation to the Fund, and is not in a position at this time to estimate the significance of its impact, if any, on the Fund's financial statements. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 157, Fair Value Measurements, which clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value, to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Adoption of SFAS 157 requires the use of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. At this time, management is in the process of reviewing the Standard against its current valuation policies to determine future applicability. 3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS. 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 its 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 affiliated persons of the Adviser. The Adviser has agreed to waive its fees and reimburse expenses of the Fund to the extent necessary to maintain the annualized total operating expenses (exclusive of brokerage fees, interest, taxes, and extraordinary expenses) at 2.00%, 2.00%, 2.75%, and 2.75% of the value of the Fund's average daily net assets for Class AAA, Class A, Class B, and Class C Shares, respectively. For the fiscal year ended September 30, 2006, the Adviser reimbursed the Fund in the amount of $32,506. The Fund is obliged to repay the Adviser for a period of two fiscal years following the fiscal year in which the Adviser reimbursed the Fund only to the extent that the operating expenses of the Fund fall below the applicable expense limitations. At September 30, 2006, the cumulative amount which the Fund may repay the Adviser is $93,704. The Corporation pays each Director that is not an affiliated person of the Adviser or its affiliates (as defined in the 1940 Act) an annual retainer of $6,000 plus $1,000 for each Board meeting attended and they are reimbursed for any out of pocket expenses incurred in attending meetings. All Board committee members receive $500 per meeting. Directors who are directors or employees of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Fund. 4. DISTRIBUTION PLAN. The Fund's Board has adopted a distribution plan (the "Plan") for each class of shares pursuant to Rule 12b-1 under the 1940 Act. Gabelli & Company, Inc. ("Gabelli & Company"), an affiliate of the Adviser, serves as distributor of the Fund. Under the Class AAA, Class A, Class B, and Class C Share Plans, payments are authorized to Gabelli & Company at annual rates of 0.25%, 0.25%, 1.00%, and 1.00%, respectively, of the average daily net assets of those classes, the annual limitations under each Plan. Such payments are accrued daily and paid monthly. 11 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ 5. PORTFOLIO SECURITIES. Purchases and proceeds from the sales of securities for the fiscal year ended September 30, 2006, other than short-term securities, aggregated $6,135,022 and $7,877,953, respectively. 6. TRANSACTIONS WITH AFFILIATES. During the fiscal year ended September 30, 2006, the Fund paid brokerage commissions of $258 to Gabelli & Company. Additionally, Gabelli & Company informed the Fund that it received $765 from investors representing commissions (sales charges and underwriting fees) on sales and redemptions of Fund shares. 7. LINE OF CREDIT. The Fund has access to an unsecured line of credit of up to $25,000,000 from the custodian for temporary borrowing purposes. Borrowings under this arrangement bear interest at 0.75% above the Federal Funds rate on outstanding balances. This amount is shown as "interest expense" in the Statement of Operations. At September 30, 2006, there were no borrowings outstanding from the line of credit. The average daily amount of borrowings outstanding from the line of credit within the fiscal year ended September 30, 2006 was $16,000 with a weighted average interest rate of 5.05%. The maximum amount borrowed at any time during the fiscal year ended September 30, 2006 was $597,000. 8. REORGANIZATION. On June 30, 2005, the Fund acquired all of the net assets of the FMI Woodland Small Capitalization Value Fund pursuant to a Plan of Reorganization approved by the FMI Woodland Small Capitalization Value Fund on June 28, 2005. The acquisition was accomplished by a tax-free exchange of 507,152 Class AAA Shares of the Fund valued at $7,153,355 for the net assets of the FMI Woodland Small Capitalization Value Fund on June 29, 2005. FMI Woodland Small Capitalization Value Fund's net assets of $7,153,355, including $2,609,903 of unrealized appreciation, were combined with those of the Fund on June 30, 2005. The net assets of the Fund immediately before the acquisition were $4,888,669. 9. CAPITAL STOCK TRANSACTIONS. The Fund currently offers four classes of shares - -- Class AAA Shares, Class A Shares, Class B Shares, and Class C Shares. Class AAA Shares are offered only to investors who acquire them directly from Gabelli & Company, or through selected broker/dealers, or the transfer agent without a sales charge. Class A Shares are subject to a maximum front-end sales charge of 5.75%. Class B Shares are subject to a contingent deferred sales charge ("CDSC") upon redemption within six years of purchase and automatically convert to Class A Shares approximately eight years after the original purchase. The applicable CDSC is equal to a declining percentage of the lesser of the NAV per share at the date of the original purchase or at the date of redemption, based on the length of time held. Class C Shares are subject to a 1.00% CDSC for one year after purchase. Class B Shares are available only through exchange of Class B Shares of other funds distributed by Gabelli & Company. The Board has approved Class I Shares which have not been offered publicly. Effective June 15, 2005, the Fund imposed a redemption fee of 2.00% on Class AAA Shares, Class A Shares, Class B Shares, and Class C Shares that are redeemed or exchanged on or before the seventh day after the date of a purchase. (Prior to June 15, 2005, the Fund imposed a redemption fee on shares that were redeemed or exchanged on or before the sixtieth day after the date of a purchase.) The redemption fee is deducted from the proceeds otherwise payable to the redeeming shareholders and is retained by the Fund. The redemption fees retained by the Fund during the fiscal years ended September 30, 2006 and September 30, 2005 amounted to $1 and $60, respectively. The redemption fee does not apply to shares purchased through programs that the Adviser determined to have appropriate short-term trading policies in place. Additionally, certain recordkeepers for qualified and non-qualified retirement plans that could not collect the redemption fee at the participant level due to systems limitations have received an extension to implement such systems. 12 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) ================================================================================ Transactions in shares of capital stock were as follows: YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ------------------------ ----------------------- SHARES AMOUNT SHARES AMOUNT -------- ----------- -------- ----------- CLASS AAA CLASS AAA ------------------------ ----------------------- Shares sold ............................................... 75,819 $ 1,059,134 171,431 $ 2,401,287 Shares issued in connection with reorganization of FMI Woodland Small Capitalization Value Fund ............ -- -- 507,152 7,153,355 Shares issued upon reinvestment of distributions .......... 69,511 930,753 15,770 212,423 Shares redeemed ........................................... (269,630) (3,749,108) (150,391) (2,149,041) -------- ----------- -------- ----------- Net increase (decrease) ................................. (124,300) $(1,759,221) 543,962 $ 7,618,024 ======== =========== ======== =========== CLASS A CLASS A ------------------------ ----------------------- Shares sold ............................................... 1,276 $ 17,788 3,409 $ 46,582 Shares issued upon reinvestment of distributions .......... 691 9,260 256 3,450 Shares redeemed ........................................... (1,812) (25,036) -- -- -------- ----------- -------- ----------- Net increase ............................................ 155 $ 2,012 3,665 $ 50,032 ======== =========== ======== =========== CLASS B CLASS B ------------------------ ----------------------- Shares sold ............................................... -- -- -- -- Shares issued upon reinvestment of distributions .......... 1 $ 13 0* $ 8 Shares redeemed ........................................... -- -- -- -- -------- ----------- -------- ----------- Net increase ............................................ 1 $ 13 0* $ 8 ======== =========== ======== =========== CLASS C CLASS C ------------------------ ----------------------- Shares sold ............................................... 18,046 $ 249,342 9,708 $ 138,179 Shares issued upon reinvestment of distributions .......... 1,872 24,565 178 2,367 Shares redeemed ........................................... (378) (5,023) -- -- -------- ----------- -------- ----------- Net increase ............................................ 19,540 $ 268,884 9,886 $ 140,546 ======== =========== ======== =========== - ------------ * Share rounded to less than 1.0 shares. 10. INDEMNIFICATIONS. The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 11. OTHER MATTERS. The Adviser and/or affiliates have received subpoenas from the Attorney General of the State of New York and the SEC requesting information on mutual fund trading practices involving certain funds managed by the Adviser. GAMCO Investors, Inc. ("GAMCO"), the Adviser's parent company, is responding to these requests for documents and testimony. In June 2006, GAMCO began discussions with the SEC regarding a possible resolution of their inquiry. Since these discussions are ongoing, it cannot be determined at this time whether they will ultimately result in a settlement of this matter. On a separate matter, in September 2005, the Adviser was informed by the staff of the SEC that the staff may recommend to the Commission that an administrative remedy and a monetary penalty be sought from the Adviser in connection with the actions of two of seven closed-end funds managed by the Adviser relating to Section 19(a) and Rule 19a-1 of the 1940 Act. These provisions require registered investment companies to provide written statements to shareholders when a dividend is made from a source other than net investment income. While the two closed-end funds sent annual statements and provided other materials containing this information, the funds did not send written statements to shareholders with each distribution in 2002 and 2003. The Adviser believes that all of the funds are now in compliance. The Adviser believes that these matters would have no effect on the Fund or any material adverse effect on the Adviser or its ability to manage the Fund. 13 THE GABELLI WOODLAND SMALL CAP VALUE FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of capital stock outstanding throughout each period: INCOME FROM INVESTMENT OPERATIONS DISTRIBUTIONS ------------------------------------ --------------------------- Net Net Asset Net Realized and Total Net Period Value, Investment Unrealized from Realized Ended Beginning Income/ Gain on Investment Gain on Total September 30 of Period (Loss)(a) Investments Operations Investments Distributions - ------------ --------- --------- ----------- ---------- ----------- ------------- CLASS AAA 2006 $14.64 $(0.12) $0.07 $(0.05) $(1.24) $(1.24) 2005 12.79 (0.11) 2.69 2.58 (0.73) (0.73) 2004 10.58 (0.14) 2.38 2.24 (0.03) (0.03) 2003(f) 10.00 (0.07) 0.65 0.58 -- -- CLASS A 2006 $14.65 $(0.12) $0.07 $(0.05) $(1.24) $(1.24) 2005 12.79 (0.09) 2.68 2.59 (0.73) (0.73) 2004 10.57 (0.14) 2.39 2.25 (0.03) (0.03) 2003(f) 10.00 (0.07) 0.64 0.57 -- -- CLASS B 2006 $14.77 $(0.25) $0.09 $(0.16) $(1.24) $(1.24) 2005 12.98 (0.21) 2.73 2.52 (0.73) (0.73) 2004 10.59 0.02 2.40 2.42 (0.03) (0.03) 2003(f) 10.00 (0.12) 0.71 0.59 -- -- CLASS C 2006 $14.39 $(0.21) $0.06 $(0.15) $(1.24) $(1.24) 2005 12.66 (0.20) 2.66 2.46 (0.73) (0.73) 2004 10.55 (0.23) 2.37 2.14 (0.03) (0.03) 2003(f) 10.00 (0.11) 0.66 0.55 -- -- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA --------------------------------------------------------------- Expenses Expenses Net Asset Net Assets Net of Before Period Value, End of Net Waivers/ Waivers/ Portfolio Ended Redemption End of Total Period Investment Reimburse- Reimburse- Turnover September 30 Fees(a) Period Return+ (in 000's) Income/(Loss) ments(b) ments(c) Rate - ------------ ----------- -------- ------- ---------- ------------- ---------- ---------- -------- CLASS AAA 2006 $0.00(d) $13.35 (0.35)% $ 9,137 (0.84)% 2.01% 2.31% 59% 2005 0.00(d) 14.64 20.67 11,839 (0.78) 2.01(e) 2.99 35 2004 -- 12.79 21.22 3,388 (1.14) 2.00 5.94 45 2003(f) -- 10.58 5.80 2,323 (0.97)(g) 2.00(g) 15.05(g) 39 CLASS A 2006 $0.00(d) $13.36 (0.36)% $ 100 (0.83)% 2.01% 2.31% 59% 2005 0.00(d) 14.65 20.76 108 (0.68) 2.01(e) 3.17 35 2004 -- 12.79 21.34 47 (1.16) 2.00 5.94 45 2003(f) -- 10.57 5.70 3 (0.97)(g) 2.00(g) 15.05(g) 39 CLASS B 2006 $0.00(d) $13.37 (1.19)% $ 0.1 (1.77)% 2.76% 3.06% 59% 2005 0.00(d) 14.77 19.86 0.1 (1.50) 2.75(e) 3.87 35 2004 -- 12.98 22.91 0.1 0.18 2.75 6.69 45 2003(f) -- 10.59 5.90 0.1 (1.72)(g) 2.75(g) 15.80(g) 39 CLASS C 2006 $0.00(d) $13.00 (1.11)% $ 425 (1.58)% 2.76% 3.06% 59% 2005 0.00(d) 14.39 19.91 189 (1.46) 2.76(e) 3.87 35 2004 -- 12.66 20.33 41 (1.88) 2.75 6.69 45 2003(f) -- 10.55 5.50 118 (1.72)(g) 2.75(g) 15.80(g) 39 - ---------------------- + 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 distributions and does not reflect applicable sales charges. Total return for a period of less than one year is not annualized. (a) Per share amounts have been calculated using the average shares outstanding method. (b) The Fund incurred interest expense during the fiscal year ended September 30, 2006. If interest expense had not been incurred, the ratios of operating expenses to average net assets would have been 2.00%, 2.00%, 2.75%, and 2.75% for Class AAA, Class A, Class B, and Class C, respectively. (c) During the period, expenses were voluntarily reduced and/or reimbursed. If such fee reductions and/or reimbursements had not occurred, the ratio would have been as shown. (d) Amount represents less than $0.005 per share. (e) The ratios do not include a reduction of expenses for custodian fee credits on cash balances maintained with the custodian. Including such custodian fee credits, the expense ratios for the fiscal year ended September 30, 2005 would have been 2.00%, 2.00%, 2.75%, and 2.75% for Class AAA, Class A, Class B, and Class C, respectively. Custodian fee credits for the fiscal year ended September 30, 2006 were minimal. (f) From commencement of investment operations on December 31, 2002 through September 30, 2003. (g) Annualized. See accompanying notes to financial statements. 14 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ================================================================================ To the Shareholders and Board of Directors of The Gabelli Woodland Small Cap Value Fund We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Gabelli Woodland Small Cap Value Fund (the "Fund"), a series of Gabelli Equity Series Funds, Inc., as of September 30, 2006, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2006, by correspondence with the custodian and brokers. 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 Woodland Small Cap Value Fund, a series of Gabelli Equity Series Funds, Inc., at September 30, 2006, 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 periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania November 7, 2006 15 THE GABELLI WOODLAND SMALL CAP VALUE FUND ADDITIONAL FUND INFORMATION (UNAUDITED) ================================================================================ The business and affairs of the Fund are managed under the direction of the Fund's Board of Directors. Information pertaining to the Directors and officers of the Fund is set forth below. The Fund's Statement of Additional Information includes additional information about The Gabelli Woodland Small Cap Value Fund's Directors and is available, without charge, upon request, by calling 800-GABELLI (800-422-3554) or by writing to The Gabelli Woodland Small Cap Value Fund at One Corporate Center, Rye, NY 10580-1422. TERM OF NUMBER OF NAME, POSITION(S) OFFICE AND FUNDS IN FUND ADDRESS 1 LENGTH OF COMPLEX OVERSEEN PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS AND AGE TIME SERVED 2 BY DIRECTOR DURING PAST FIVE YEARS HELD BY DIRECTOR 3 - ----------------- ------------- ---------------- ---------------------- ------------------ INTERESTED DIRECTORS 4: - ---------------------- MARIO J. GABELLI Since 1991 23 Chairman of the Board and Chief Executive Director of Morgan Group Director and Officer of GAMCO Investors, Inc. and Holdings, Inc. Chief Investment Officer Chief Investment Officer-Value Portfolios (holding company) Age: 64 of Gabelli Funds, LLC and GAMCO Asset Management Inc.; Chairman and Chief Executive Officer of Lynch Interactive Corporation (multimedia and services) JOHN D. GABELLI Since 1991 10 Senior Vice President of Gabelli & Director of GAMCO Director Company, Inc. Investors, Inc. Age: 62 NON-INTERESTED DIRECTORS: - ------------------------ ANTHONY J. COLAVITA Since 1991 33 Partner in the law firm of -- Director Anthony J. Colavita, P.C. Age: 70 VINCENT D. ENRIGHT Since 1991 13 Former Senior Vice President and Chief Director of Aphton Director Financial Officer of KeySpan Energy Corporation Age: 62 Corporation (utility holding company) (biopharmaceutical company) ROBERT J. MORRISSEY Since 1991 6 Partner in the law firm of Morrissey, -- Director Hawkins & Lynch Age: 67 ANTHONY R. PUSTORINO Since 1991 14 Certified Public Accountant; Professor Director of Lynch Corporation Director Emeritus, Pace University (diversified manufacturing) Age: 81 ANTHONIE C. VAN EKRIS Since 1991 17 Chairman of BALMAC International, Inc. -- Director (commodities and futures trading) Age: 72 SALVATORE J. ZIZZA Since 2001 24 Chairman, Hallmark Electrical Supplies Corp. Director of Hollis-Eden Director Pharmaceuticals Age: 60 (biotechnology); Director of Earl Scheib, Inc. (automotive services) 16 THE GABELLI WOODLAND SMALL CAP VALUE FUND ADDITIONAL FUND INFORMATION (UNAUDITED) (CONTINUED) ================================================================================ NAME, POSITION(S) TERM OF OFFICE ADDRESS 1 AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED 2 DURING PAST FIVE YEARS - ----------------- --------------- ----------------------- OFFICERS: - -------- BRUCE N. ALPERT Since 1991 Executive Vice President and Chief Operating Officer President of Gabelli Funds, LLC since 1988; Director and Age: 54 President of Gabelli Advisers, Inc. since 1998; Officer of all of the registered investment companies in the Gabelli Funds complex JAMES E. MCKEE Since 1995 Vice President, General Counsel and Secretary of Secretary Investors, Inc. since 1999 and GAMCO Asset Age: 43 Management Inc. since 1993; Secretary of all of the registered investment companies in the Gabelli Funds complex AGNES MULLADY Since 2006 Treasurer of all of the registered investment companies Treasurer in the Gabelli Funds complex; Senior Vice President of Age: 48 U.S. Trust Company, N.A. and Treasurer and Chief Financial Officer of Excelsior Funds from 2004 through 2005; Chief Financial Officer of AMIC Distribution Partners from 2002 through 2004; Controller of Reserve Management Corporation and Reserve Partners, Inc. and Treasurer of Reserve Funds from 2000 through 2002 PETER D. GOLDSTEIN Since 2004 Director of Regulatory Affairs for GAMCO Investors, Inc. Chief Compliance Officer since 2004; Chief Compliance Officer of all of the registered Age: 53 investment companies in the Gabelli Funds complex; Vice President of Goldman Sachs Asset Management from 2000-2004 - ------------------ 1 Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted. 2 Each Director will hold office for an indefinite term until the earliest of (i) the next meeting of shareholders, if any, called for the purpose of considering the election or re-election of such Director and until the election and qualification of his or her successor, if any, elected at such meeting, or (ii) the date a Director resigns or retires, or a Director is removed by the Board of Directors or shareholders, in accordance with the Corporation's By-Laws and Articles of Incorporation. Each officer will hold office for an indefinite term until the date he or she resigns or retires or until his or her successor is elected and qualified. 3 This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934 (i.e. public companies) or other investment companies registered under the 1940 Act. 4 "Interested person" of the Fund as defined in the Investment Company Act of 1940. Messrs. Gabelli are each considered an "interested person" because of their affiliation with Gabelli Funds, LLC which acts as the Fund's investment adviser. Mario J. Gabelli and John D. Gabelli are brothers. - -------------------------------------------------------------------------------- 2006 TAX NOTICE TO SHAREHOLDERS (Unaudited) For the fiscal year ended September 30, 2006, the Fund paid to Class AAA, Class A, Class B, and Class C shareholders, on December 20, 2005 long-term capital gains totaling $1.242 per share. An estimate of qualified dividend income of $107,124 was received by the Fund through September 30, 2006 that qualifies for a reduced tax rate pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003. - -------------------------------------------------------------------------------- 17 - -------------------------------------------------------------------------------- GABELLI FUNDS AND YOUR PERSONAL PRIVACY ================================================================================ WHO ARE WE? The Gabelli/GAMCO Funds are investment companies registered with the Securities and Exchange Commission under the Investment Company Act of 1940. We are managed by Gabelli Funds, LLC and Gabelli Advisers, Inc., which are affiliated with GAMCO Investors, Inc. GAMCO Investors, Inc. is a publicly held company that has subsidiaries that provide investment advisory or brokerage services for a variety of clients. WHAT KIND OF NON-PUBLIC INFORMATION DO WE COLLECT ABOUT YOU IF YOU BECOME A GABELLI CUSTOMER? If you apply to open an account directly with us, you will be giving us some non-public information about yourself. The non-public information we collect about you is: o INFORMATION YOU GIVE US ON YOUR APPLICATION FORM. This could include your name, address, telephone number, social security number, bank account number, and other information. o INFORMATION ABOUT YOUR TRANSACTIONS WITH US, ANY TRANSACTIONS WITH OUR AFFILIATES, AND TRANSACTIONS WITH THE ENTITIES WE HIRE TO PROVIDE SERVICES TO YOU. This would include information about the shares that you buy or redeem. If we hire someone else to provide services--like a transfer agent--we will also have information about the transactions that you conduct through them. WHAT INFORMATION DO WE DISCLOSE AND TO WHOM DO WE DISCLOSE IT? We do not disclose any non-public personal information about our customers or former customers to anyone other than our affiliates, our service providers who need to know such information, and as otherwise permitted by law. If you want to find out what the law permits, you can read the privacy rules adopted by the Securities and Exchange Commission. They are in volume 17 of the Code of Federal Regulations, Part 248. The Commission often posts information about its regulations on its web site, www.sec.gov. WHAT DO WE DO TO PROTECT YOUR PERSONAL INFORMATION? We restrict access to non-public personal information about you to the people who need to know that information in order to provide services to you or the Fund and to ensure that we are complying with the laws governing the securities business. We maintain physical, electronic, and procedural safeguards to keep your personal information confidential. - -------------------------------------------------------------------------------- GABELLI FAMILY OF FUNDS VALUE _______________________________________ GABELLI ASSET FUND Seeks to invest primarily in a diversified portfolio of common stocks selling at significant discounts to their private market value. The Fund's primary objective is growth of capital. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA GABELLI BLUE CHIP VALUE FUND Seeks long term growth of capital through investment primarily in the common stocks of established companies which are temporarily out of favor. The fund's objective is to identify a catalyst or sequence of events that will return the company to a higher value. (MULTICLASS) PORTFOLIO MANAGER: BARBARA MARCIN, CFA WESTWOOD EQUITY FUND Seeks to invest primarily in the common stock of well-seasoned companies that have recently reported positive earnings surprises and are trading below Westwood's proprietary growth rate estimates. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: SUSAN M. BYRNE FOCUSED VALUE _______________________________ GABELLI VALUE FUND Seeks to invest in securities of companies believed to be undervalued. The Fund's primary objective is long-term capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA SMALL CAP VALUE _____________________________ GABELLI SMALL CAP FUND Seeks to invest primarily in common stock of smaller companies (market capitalizations of $2 billion or less) believed to have rapid revenue and earnings growth potential. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA WESTWOOD SMALLCAP EQUITY FUND Seeks to invest primarily in smaller capitalization equity securities - market caps of $2.5 billion or less. The Fund's primary objective is long-term capital appreciation. (MULTICLASS) TEAM MANAGED GABELLI WOODLAND SMALL CAP VALUE FUND Seeks to invest primarily in the common stocks of smaller companies (market capitalizations less than $3.0 billion) believed to be undervalued with shareholder oriented management teams that are employing strategies to grow the company's value. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: ELIZABETH M. LILLY, CFA GROWTH ______________________________________ GAMCO GROWTH FUND Seeks to invest primarily in large cap stocks believed to have favorable, yet undervalued, prospects for earnings growth. The Fund's primary objective is capital appreciation. (MULTICLASS) PORTFOLIO MANAGER: HOWARD F. WARD, CFA GAMCO INTERNATIONAL GROWTH FUND Seeks to invest in the equity securities of foreign issuers with long-term capital appreciation potential. The Fund offers investors global diversification. (MULTICLASS) PORTFOLIO MANAGER: CAESAR BRYAN AGGRESSIVE GROWTH ___________________________ GAMCO GLOBAL GROWTH FUND Seeks capital appreciation through a disciplined investment program focusing on the globalization and interactivity of the world's marketplace. The Fund invests in companies at the forefront of accelerated growth. The Fund's primary objective is capital appreciation. (MULTICLASS) TEAM MANAGED MICRO-CAP ___________________________________ WESTWOOD MIGHTY MITES(SM) FUND Seeks to invest in micro-cap companies that have market capitalizations of $300 million or less. The Fund's primary objective is long-term capital appreciation. (MULTICLASS) TEAM MANAGED EQUITY INCOME _______________________________ GABELLI EQUITY INCOME FUND Seeks to invest primarily in equity securities with above market average yields. The Fund pays monthly dividends and seeks a high level of total return with an emphasis on income. (MULTICLASS) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA WESTWOOD BALANCED FUND Seeks to invest in a balanced and diversified portfolio of stocks and bonds. The Fund's primary objective is both capital appreciation and current income. (MULTICLASS) CO-PORTFOLIO MANAGERS: SUSAN M. BYRNE MARK FREEMAN, CFA WESTWOOD INCOME FUND Seeks to provide a high level of current income as well as long-term capital appreciation by investing in income producing equity and fixed income securities. (MULTICLASS) TEAM MANAGED SPECIALTY EQUITY ____________________________ GAMCO GLOBAL CONVERTIBLE SECURITIES FUND Seeks to invest principally in bonds and preferred stocks which are convertible into common stock of foreign and domestic companies. The Fund's primary objective is total return through a combination of current income and capital appreciation. (MULTICLASS) TEAM MANAGED GAMCO GLOBAL OPPORTUNITY FUND Seeks to invest in common stock of companies which have rapid growth in revenues and earnings and potential for above average capital appreciation or are undervalued. The Fund's primary objective is capital appreciation. (MULTICLASS) TEAM MANAGED SECTOR ______________________________________ GAMCO GLOBAL TELECOMMUNICATIONS FUND Seeks to invest in telecommunications companies throughout the world - targeting undervalued companies with strong earnings and cash flow dynamics. The Fund's primary objective is capital appreciation. (MULTICLASS) TEAM MANAGED GAMCO GOLD FUND Seeks to invest in a global portfolio of equity securities of gold mining and related companies. The Fund's objective is long-term capital appreciation. Investment in gold stocks is considered speculative and is affected by a variety of world-wide economic, financial, and political factors. (MULTICLASS) PORTFOLIO MANAGER: CAESAR BRYAN GABELLI UTILITIES FUND Seeks to provide a high level of total return through a combination of capital appreciation and current income. (MULTICLASS) TEAM MANAGED MERGER AND ARBITRAGE ________________________ GABELLI ABC FUND Seeks to invest in securities with attractive opportunities for appreciation or investment income. The Fund's primary objective is total return in various market conditions without excessive risk of capital loss. (NO-LOAD) PORTFOLIO MANAGER: MARIO J. GABELLI, CFA CONTRARIAN___________________________________ GAMCO MATHERS FUND Seeks long-term capital appreciation in various market conditions without excessive risk of capital loss. (CLASS AAA-NO-LOAD) PORTFOLIO MANAGER: HENRY VAN DER EB, CFA COMSTOCK CAPITAL VALUE FUND Seeks capital appreciation and current income. The Fund may use either long or short positions to achieve its objective. (MULTICLASS) PORTFOLIO MANAGER: MARTIN WEINER, CFA COMSTOCK STRATEGY FUND The Fund emphasizes investments in debt securities, which maximize total return in light of credit risk, interest rate risk, and the risk associated with the length of maturity of debt instruments. (MULTICLASS) PORTFOLIO MANAGER: MARTIN WEINER, CFA FIXED INCOME ________________________________ WESTWOOD INTERMEDIATE BOND FUND Seeks to invest in a diversified portfolio of bonds with various maturities. The Fund's primary objective is total return. (MULTICLASS) PORTFOLIO MANAGER: MARK FREEMAN, CFA CASH MANAGEMENT-MONEY MARKET ________________ GABELLI U.S. TREASURY MONEY MARKET FUND Seeks to invest exclusively in short-term U.S. Treasury securities. The Fund's primary objective is to provide high current income consistent with the preservation of principal and liquidity. (NO-LOAD) PORTFOLIO MANAGER: JUDITH A. RANERI AN INVESTMENT IN THE ABOVE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. THE FUNDS MAY INVEST IN FOREIGN SECURITIES WHICH INVOLVE RISKS NOT ORDINARILY ASSOCIATED WITH INVESTMENTS IN DOMESTIC ISSUES, INCLUDING CURRENCY FLUCTUATION, ECONOMIC, AND POLITICAL RISKS. TO RECEIVE A PROSPECTUS, CALL 800-GABELLI (422-3554). INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES, AND EXPENSES OF THE FUND BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. Gabelli Equity Series Funds, Inc. THE GABELLI WOODLAND SMALL CAP VALUE FUND One Corporate Center Rye, New York 10580-1422 800-GABELLI 800-422-3554 FAX: 914-921-5118 WEBSITE: WWW.GABELLI.COM E-MAIL: INFO@GABELLI.COM Net Asset Value available daily by calling 800-GABELLI after 6:00 P.M. BOARD OF DIRECTORS Mario J. Gabelli, CFA Robert J. Morrissey CHAIRMAN AND CHIEF ATTORNEY-AT-LAW EXECUTIVE OFFICER MORRISSEY, HAWKINS & LYNCH GAMCO INVESTORS, INC. Anthony J. Colavita Anthony R. Pustorino ATTORNEY-AT-LAW CERTIFIED PUBLIC ACCOUNTANT, ANTHONY J. COLAVITA, P.C. PROFESSOR EMERITUS PACE UNIVERSITY Vincent D. Enright Anthonie C. van Ekris FORMER SENIOR VICE PRESIDENT CHAIRMAN AND CHIEF FINANCIAL OFFICER BALMAC INTERNATIONAL, INC. KEYSPAN ENERGY CORP. John D. Gabelli Salvatore J. Zizza SENIOR VICE PRESIDENT CHAIRMAN GABELLI & COMPANY, INC. HALLMARK ELECTRICAL SUPPLIES CORP. OFFICERS AND PORTFOLIO MANAGER Elizabeth M. Lilly, CFA Bruce N. Alpert PORTFOLIO MANAGER PRESIDENT James E. McKee Peter D. Goldstein SECRETARY CHIEF COMPLIANCE OFFICER Agnes Mullady TREASURER DISTRIBUTOR Gabelli & Company, Inc. CUSTODIAN, TRANSFER AGENT, AND DIVIDEND AGENT State Street Bank and Trust Company LEGAL COUNSEL Skadden, Arps, Slate, Meagher & Flom LLP - -------------------------------------------------------------------------------- This report is submitted for the general information of the shareholders of The Gabelli Woodland Small Cap Value Fund. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. - -------------------------------------------------------------------------------- GAB840Q306SR [GRAPHIC OMITTED] E P Gabelli Triangle P M MANAGEMENT S V CASH FLOW RESEARCH THE GABELLI WOODLAND SMALL CAP VALUE FUND ANNUAL REPORT SEPTEMBER 30, 2006 ITEM 2. CODE OF ETHICS. (a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (c) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. (d) The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item's instructions. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. As of the end of the period covered by the report, the registrant's board of directors has determined that Anthony R. Pustorino is qualified to serve as an audit committee financial expert serving on its audit committee and that he is "independent." ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. AUDIT FEES (a) The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $102,400 for 2006 and $97,800 for 2005. AUDIT-RELATED FEES (b) The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item are $0 for 2006 and $0 for 2005. TAX FEES (c) The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $11,700 for 2006 and $10,800 for 2005. Tax fees represent tax compliance services provided in connection with the review of the Registrant's tax returns. ALL OTHER FEES (d) The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $0 for 2006 and $0 for 2005. (e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. Pre-Approval Policies and Procedures. The Audit Committee ("Committee") of the registrant is responsible for pre-approving (i) all audit and permissible non-audit services to be provided by the independent auditors to the registrant and (ii) all permissible non-audit services to be provided by the independent auditors to the Adviser, Gabelli Funds, LLC, and any affiliate of Gabelli Funds, LLC ("Gabelli") that provides services to the registrant (a "Covered Services Provider") if the independent auditors' engagement related directly to the operations and financial reporting of the registrant. The Committee may delegate its responsibility to pre-approve any such audit and permissible non-audit services to the Chairperson of the Committee, and the Chairperson must report to the Committee, at its next regularly scheduled meeting after the Chairperson's pre-approval of such services, his or her decision(s). The Committee may also establish detailed pre-approval policies and procedures for pre-approval of such services in accordance with applicable laws, including the delegation of some or all of the Committee's pre-approval responsibilities to the other persons (other than Gabelli or the registrant's officers). Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the permissible non-audit services were not recognized by the registrant at the time of the engagement to be non-audit services; and (ii) such services are promptly brought to the attention of the Committee and approved by the Committee or Chairperson prior to the completion of the audit. (e)(2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows: (b) Not applicable (c) 100% (d) Not applicable (f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was zero percent (0%). (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $149,750 for 2006 and $10,800 for 2005. (h) The registrant's audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101), or this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. (a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. (a)(3) Not applicable. (b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (registrant) Gabelli Equity Series Funds, Inc. -------------------------------------------------------------------- By (Signature and Title)* /s/ Bruce N. Alpert ------------------------------------------------------- Bruce N. Alpert, Principal Executive Officer Date 11/27/06 ---------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ Bruce N. Alpert ------------------------------------------------------- Bruce N. Alpert, Principal Executive Officer Date 11/27/06 ---------------------------------------------------------------------------- By (Signature and Title)* /s/ Agnes Mullady ------------------------------------------------------- Agnes Mullady, Principal Financial Officer and Treasurer Date 11/27/06 ---------------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature.