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
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Gabelli Equity Series Funds, Inc.
-------------------------------------------------
(Exact name of registrant as specified in charter)
One Corporate Center
Rye, New York 10580-1422
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(Address of principal executive offices) (Zip code)
Bruce N. Alpert
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
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(Name and address of agent for service)
registrant's telephone number, including area code: 1-800-422-3554
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Date of fiscal year end: September 30
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Date of reporting period: September 30, 2006
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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
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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.
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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.
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17
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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.
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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
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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.
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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.
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By (Signature and Title)* /s/ Bruce N. Alpert
-------------------------------------------------------
Bruce N. Alpert, Principal Executive Officer
Date 11/27/06
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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
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By (Signature and Title)* /s/ Agnes Mullady
-------------------------------------------------------
Agnes Mullady,
Principal Financial Officer and Treasurer
Date 11/27/06
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* Print the name and title of each signing officer under his or her signature.