UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06367
Gabelli Equity Series Funds, Inc.
(Exact name of registrant as specified in charter)
One Corporate Center
Rye, New York 10580-1422
(Address of principal executive offices) (Zip code)
Bruce N. Alpert
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
(Name and address of agent for service)
registrant's telephone number, including area code: 1-800-422-3554
Date of fiscal year end: September 30
Date of reporting period: September 30, 2008
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, 2008
TO OUR SHAREHOLDERS,
During the three months ended September 30, 2008, The Gabelli Small Cap
Growth Fund (the "Fund") declined 2.93%, while the Russell 2000 Index declined
1.11% and the Value Line Composite Index was down 4.32%. The Fund declined
11.65% year to date through September 30th, compared to declines for the Russell
2000 Index and Value Line Composite Index of 10.38% and 19.50%, respectively.
Enclosed are the investment portfolio and financial statements as of
September 30, 2008.
COMPARATIVE RESULTS
AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2008 (a)(b)
Since
Year to Inception
Quarter Date 1 Year 3 Year 5 Year 10 Year 15 Year (10/22/91)
------- ------- ------ ------ ------ ------- ------- ----------
GABELLI SMALL CAP GROWTH FUND
CLASS AAA ................. (2.93)% (11.65)% (13.98)% 4.53% 10.82% 11.20% 11.22% 13.45%
Russell 2000 Index ........... (1.11) (10.38) (14.48) 1.83 8.15 7.81 8.23 9.62
Value Line Composite Index ... (4.32) (19.50) (19.32) 0.51 7.54 9.28 10.31 11.19
Class A ...................... (2.99) (11.72) (14.04) 4.49 10.80 11.20 11.21 13.45
(8.57)(c) (16.79)(c) (18.99)(c) 2.45(c) 9.49(c) 10.54(c) 10.78(c) 13.06(c)
Class B ...................... (3.08) (12.13) (14.60) 3.76 10.04 10.82 10.96 13.22
(7.92)(d) (16.52)(d) (18.87)(d) 2.82(d) 9.77(d) 10.82 10.96 13.22
Class C ...................... (3.11) (12.13) (14.63) 3.75 10.04 10.81 10.96 13.22
(4.08)(e) (13.01)(e) (15.48)(e) 3.75 10.04 10.81 10.96 13.22
Class I ...................... (2.85) (11.50) (13.83) 4.59 10.85 11.22 11.23 13.47
IN THE CURRENT PROSPECTUS, THE EXPENSE RATIOS FOR CLASS AAA, A, B, C, AND I
SHARES ARE 1.44%, 1.44%, 2.18%, 2.18%, AND 1.18%, RESPECTIVELY. CLASS AAA AND I
SHARES DO NOT HAVE A SALES CHARGE.THE MAXIMUM SALES CHARGE FOR CLASS A, B, AND C
SHARES IS 5.75%, 5.00%, AND 1.00%, RESPECTIVELY.
(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 OF 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 ("NAV'S") PER SHARE 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 AND CLASS I
SHARES ON JANUARY 11, 2008. THE ACTUAL PERFORMANCE FOR THE CLASS B SHARES
AND CLASS C SHARES WOULD HAVE BEEN LOWER AND CLASS I SHARES WOULD HAVE BEEN
HIGHER DUE TO THE DIFFERENCES IN 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. YOU CANNOT INVEST
DIRECTLY IN AN 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 QUARTER, YEAR TO DATE, ONE YEAR,
THREE YEAR, AND FIVE YEAR PERIODS OF 5%, 5%, 5%, 3%, AND 2%, RESPECTIVELY,
OF THE FUND'S NAV PER SHARE 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 CHARGES FOR THE CLASS C
SHARES UPON REDEMPTION AT THE END OF THE QUARTER, YEAR TO DATE, AND ONE
YEAR PERIODS OF 1% OF THE FUND'S NAV PER SHARE AT THE TIME OF PURCHASE OR
SALE, WHICHEVER IS LOWER.
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 twelve months ended September 30, the Fund's Class AAA Shares
declined 13.98%, versus a decrease of 14.48% in the Russell 2000 Index.
Four of the Fund's top five contributing holdings during the fiscal year
ended September 30, 2008 benefited from continued global investment in water and
energy infrastructure. This included Gorman-Rupp Co. (1.1% of net assets as of
September 30, 2008), a pump company which rose 42%, Lufkin Industries (0.8%) a
manufacturer of oilfield pumping units, transmission equipment and truck
trailers which rose 44%, and Lindsay Corp. (0.2%), a maker of irrigation
equipment, which soared 66%. It was also another strong year for Flowserve Corp.
(1.2%), which provides pumps, valves and seals for industrial flow management.
The Fund also benefited from several announced acquisitions including, the
acquisition of Alpharma Inc. (2.1%) by rival King Pharmaceuticals, the
acquisition of Gehl Co. (0.2%) by French construction equipment manufacturer
Manitou BF, and the acquisition of Enodis plc (0.1%), a kitchen equipment maker
by Manitowoc.
A variety of factors, including the emerging global slowdown, negatively
impacted a number of holdings including aerospace equipment company Precision
Castparts (0.6%), Thomas & Betts (1.0%), Advanced Medical Optics (0.7%), and
Vimpel Communications (1.3%). Long-time holding Cablevision Systems (1.2%)
declined sharply as concerns rose that shareholders would reject the controlling
Dolan family's privatization offer, which they ultimately did. The Fund did
benefit from being traditionally underweight in financials as no companies from
that sector appeared among the Fund's bottom twenty detractors from performance.
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
(PERFORMANCE GRAPH)
Gabelli Small
Cap Growth Fund
(Class AAA) Russell 2000 Index S&P 500 Index
--------------- ------------------ -------------
10/22/1991 $10,000 $10,000 $10,000
9/30/1992 $13,186 $10,854 $11,174
9/30/1993 $17,228 $14,456 $12,623
9/30/1994 $17,999 $14,835 $13,088
9/30/1995 $21,504 $18,307 $16,976
9/30/1996 $23,871 $20,710 $20,426
9/30/1997 $33,950 $27,584 $28,684
9/30/1998 $29,356 $22,338 $31,288
9/30/1999 $35,005 $26,597 $39,983
9/30/2000 $42,356 $32,818 $45,289
9/30/2001 $39,192 $25,858 $33,238
9/30/2002 $39,736 $23,453 $26,434
9/30/2003 $50,775 $32,013 $32,876
9/30/2004 $61,641 $38,022 $37,433
9/30/2005 $74,330 $44,852 $41,580
9/30/2006 $80,927 $49,302 $46,062
9/30/2007 $98,690 $55,435 $54,358
9/30/2008 $84,893 $47,408 $42,421
* 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, 2008 through September 30, 2008
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, 2008.
Beginning Ending Annualized Expenses
Account Value Account Value Expense Paid During
04/01/08 09/30/08 Ratio Period*
------------- ------------- ---------- -----------
THE GABELLI SMALL CAP GROWTH FUND
ACTUAL FUND RETURN
Class AAA $1,000.00 $ 954.30 1.45% $ 7.08
Class A $1,000.00 $ 953.60 1.45% $ 7.08
Class B $1,000.00 $ 950.90 2.20% $10.73
Class C $1,000.00 $ 950.90 2.20% $10.73
Class I $1,000.00 $ 955.70 1.20% $ 5.87
HYPOTHETICAL 5% RETURN
Class AAA $1,000.00 $1,017.75 1.45% $ 7.31
Class A $1,000.00 $1,017.75 1.45% $ 7.31
Class B $1,000.00 $1,014.00 2.20% $11.08
Class C $1,000.00 $1,014.00 2.20% $11.08
Class I $1,000.00 $1,019.00 1.20% $ 6.06
* 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
366.
3
SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED)
The following table presents portfolio holdings as a percent of net assets as of
September 30, 2008:
THE GABELLI SMALL CAP GROWTH FUND
U.S. Government Obligations .......... 12.8%
Equipment and Supplies ............... 12.2%
Health Care .......................... 10.6%
Food and Beverage .................... 8.0%
Diversified Industrial ............... 7.0%
Energy and Utilities ................. 5.8%
Specialty Chemicals .................. 5.1%
Financial Services ................... 4.8%
Business Services .................... 4.1%
Automotive: Parts and Accessories .... 3.6%
Aviation: Parts and Services ......... 3.1%
Electronics .......................... 2.4%
Retail ............................... 2.4%
Consumer Products .................... 2.1%
Cable ................................ 1.9%
Hotels and Gaming .................... 1.9%
Entertainment ........................ 1.8%
Wireless Communications .............. 1.4%
Communications Equipment ............. 1.3%
Telecommunications ................... 1.1%
Publishing ........................... 1.1%
Manufactured Housing and
Recreational Vehicles ............. 1.0%
Environmental Services ............... 1.0%
Real Estate .......................... 0.9%
Consumer Services .................... 0.9%
Transportation ....................... 0.7%
Computer Software and Services ....... 0.7%
Broadcasting ......................... 0.6%
Educational Services ................. 0.6%
Metals and Mining .................... 0.5%
Closed-End Funds ..................... 0.4%
Aerospace ............................ 0.3%
Machinery ............................ 0.3%
Paper and Forest Products ............ 0.1%
Home Furnishings ..................... 0.1%
Building and Construction ............ 0.0%
Agriculture .......................... 0.0%
Automotive ........................... 0.0%
Other Assets and Liabilities (Net) ... (2.6)%
-----
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,
2008. 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 SEC'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, 2008
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
COMMON STOCKS -- 89.7%
AEROSPACE -- 0.3%
210,000 Herley Industries Inc.+ .................... $ 3,323,577 $ 3,591,000
3,000 Innovative Solutions & Support Inc. ........ 45,809 16,380
------------ --------------
3,369,386 3,607,380
------------ --------------
AGRICULTURE -- 0.0%
1,500 Cadiz Inc.+ ................................ 9,904 28,605
3,500 The Mosaic Co. ............................. 74,541 238,070
------------ --------------
84,445 266,675
------------ --------------
AUTOMOTIVE -- 0.0%
20,000 Oshkosh Corp. .............................. 330,716 263,200
------------ --------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.6%
3,816 ATC Technology Corp.+ ...................... 47,013 90,592
1,000 BERU AG .................................... 106,336 105,585
150,000 BorgWarner Inc.............................. 1,609,839 4,915,500
50,000 China Automotive Systems Inc.+ ............. 293,827 209,500
80,000 Dana Holding Corp.+ ........................ 602,358 387,200
240,900 Earl Scheib Inc.+ (a) ...................... 1,475,236 531,185
82,000 Lear Corp.+ ................................ 2,287,087 861,000
295,000 Midas Inc.+ ................................ 4,385,033 4,059,200
240,000 Modine Manufacturing Co. ................... 5,555,017 3,475,200
11,812 Monro Muffler Brake Inc. ................... 52,857 272,385
500,545 O'Reilly Automotive Inc.+ .................. 13,760,422 13,399,590
145,000 Proliance International Inc.+ .............. 773,989 108,750
10,000 Puradyn Filter Technologies Inc.+ .......... 5,190 3,200
96,300 SORL Auto Parts Inc.+ ...................... 656,841 340,902
75,375 Spartan Motors Inc. ........................ 365,562 239,693
305,000 Standard Motor Products Inc. ............... 3,629,973 1,897,100
40,000 Strattec Security Corp. .................... 1,437,000 1,056,800
59,000 Superior Industries International Inc. ..... 1,158,085 1,130,440
130,037 Tenneco Inc.+ .............................. 2,730,949 1,382,293
310,000 The Pep Boys - Manny, Moe & Jack ........... 3,879,614 1,915,800
27,000 Thor Industries Inc. ....................... 250,194 670,140
30,000 Wonder Auto Technology Inc.+ ............... 245,542 192,300
------------ --------------
45,307,964 37,244,355
------------ --------------
AVIATION: PARTS AND SERVICES -- 3.1%
25,000 AAR Corp.+ ................................. 302,990 414,750
10,000 Astronics Corp.+ ........................... 48,990 225,500
14,000 Barnes Group Inc. .......................... 119,438 283,080
150,000 Curtiss-Wright Corp. ....................... 2,799,277 6,817,500
7,500 Ducommun Inc. .............................. 80,125 179,100
30,000 Embraer-Empresa Brasileira de Aeronautica
SA, ADR ................................. 508,773 810,300
22,000 Gamesa Corp. Tecnologica SA ................ 134,728 743,936
300,000 GenCorp Inc.+ .............................. 3,082,950 2,022,000
450,000 Kaman Corp. ................................ 7,217,248 12,816,000
90,000 Moog Inc., Cl. A+ .......................... 732,784 3,859,200
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
500,000 The Fairchild Corp., Cl. A+ ................ $ 1,399,826 $ 1,300,000
80,200 Woodward Governor Co. ...................... 1,052,265 2,828,654
------------ --------------
17,479,394 32,300,020
------------ --------------
BROADCASTING -- 0.6%
170,000 Acme Communications Inc.+ .................. 1,004,921 161,500
87,500 Beasley Broadcast Group Inc., Cl. A ........ 688,856 147,875
2,000 Cogeco Inc. ................................ 39,014 58,633
295,000 Crown Media Holdings Inc., Cl. A+ .......... 1,848,397 1,483,850
3,333 CTN Media Group Inc.+ (b) .................. 16,800 3
2,000 Global Traffic Network Inc.+ ............... 11,904 18,540
2,433 Granite Broadcasting Corp.+ ................ 822,771 17,031
425,000 Gray Television Inc. ....................... 3,793,791 731,000
42,000 Gray Television Inc., Cl. A ................ 449,886 144,900
48,000 Hearst-Argyle Television Inc. .............. 425,523 1,071,840
120,000 Ideation Acquisition Corp.+ ................ 953,800 900,000
250 Liberty Media Corp. - Capital, Cl. A+ ...... 2,516 3,345
15,000 Nexstar Broadcasting Group Inc., Cl. A+ .... 131,677 33,300
270,000 Salem Communications Corp., Cl. A+ ......... 2,089,114 337,500
200,000 Sinclair Broadcast Group Inc., Cl. A ....... 2,184,852 1,008,000
406,000 Sirius XM Radio Inc.+ ...................... 1,340,317 231,420
20,000 Spanish Broadcasting System Inc., Cl. A+ ... 179,117 7,600
410,000 Young Broadcasting Inc., Cl. A+ ............ 825,612 21,525
------------ --------------
16,808,868 6,377,862
------------ --------------
BUILDING AND CONSTRUCTION -- 0.0%
25,000 Huttig Building Products Inc.+ ............. 90,165 52,250
25,000 Insituform Technologies Inc., Cl. A+ ....... 464,647 374,001
1,000 Universal Forest Products Inc. ............. 12,125 34,910
------------ --------------
566,937 461,161
------------ --------------
BUSINESS SERVICES -- 4.1%
25,000 ACCO Brands Corp.+ ......................... 306,537 188,500
270,000 AMICAS Inc.+ ............................... 1,115,416 648,000
36,000 Ascent Media Corp., Cl. A+ ................. 1,026,952 878,760
6,000 BB Holdings Ltd.+ .......................... 23,159 26,100
445,000 BPW Acquisition Corp.+ ..................... 4,444,372 4,053,950
5,000 BrandPartners Group Inc.+ .................. 4,850 250
30,000 Clear Channel Outdoor Holdings Inc.,
Cl. A+ .................................. 484,654 410,400
4,500 Cockleshell Ltd.+ .......................... 0 4,280
2,200 comScore Inc.+ ............................. 36,300 38,786
260,000 Diebold Inc ................................ 9,806,890 8,608,600
440,000 Edgewater Technology Inc.+ ................. 2,381,405 2,138,400
See accompanying notes to financial statements.
5
THE GABELLI SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
COMMON STOCKS (CONTINUED)
BUSINESS SERVICES (CONTINUED)
305,000 Furmanite Corp.+ ........................... $ 1,187,539 $ 3,153,700
119,931 GP Strategies Corp.+ ....................... 992,735 911,476
35,589 GSE Systems Inc.+ .......................... 138,667 249,123
500 GSI Commerce Inc.+ ......................... 8,649 7,740
2,400 Impellam Group plc+ ........................ 3,303 2,027
60,000 Interactive Data Corp. ..................... 534,171 1,513,200
340,000 Intermec Inc.+ ............................. 6,961,851 6,677,600
13,000 Landauer Inc. .............................. 234,859 945,750
4,000 MDC Partners Inc., Cl. A+ .................. 12,360 26,880
180,000 Nashua Corp.+ .............................. 1,732,579 1,445,400
70,000 R. H. Donnelley Corp.+ ..................... 508,588 139,300
1,000 Secure Computing Corp+ ..................... 5,589 5,480
816 Shellproof Ltd.+ ........................... 806 791
600 Shellshock Ltd.+ ........................... 327 661
65,000 Sohgo Security Services Co. Ltd. ........... 829,111 679,611
12,500 SP Acquisition Holdings Inc.+ .............. 125,000 118,750
17,800 Stamps.com Inc.+ ........................... 97,786 207,726
6,000 StarTek Inc.+ .............................. 82,087 38,520
15,000 The Brink's Co. ............................ 517,587 915,300
950,000 The Interpublic Group of
Companies Inc.+ ......................... 8,473,873 7,362,500
165,000 Trans-Lux Corp.+ (a) ....................... 1,231,470 448,800
24,050 TransAct Technologies Inc.+ ................ 120,372 191,438
140,000 ValueClick Inc.+ ........................... 2,899,391 1,432,200
------------ --------------
46,329,235 43,469,999
------------ --------------
CABLE -- 1.9%
230,000 Adelphia Communications
Corp., Cl. A+ (b) ....................... 29,650 0
230,000 Adelphia Communications
Corp., Cl. A, Escrow+ (b) ............... 0 0
230,000 Adelphia Recovery Trust+ ................... 0 460
500,000 Cablevision Systems Corp., Cl. A ........... 121,520 12,580,000
9,329 Liberty Global Inc., Cl. A+ ................ 249,972 282,669
9,329 Liberty Global Inc., Cl. C+ ................ 240,169 262,052
340,000 LIN TV Corp., Cl. A+ ....................... 5,129,963 1,754,400
20,000 Outdoor Channel Holdings Inc.+ ............. 172,352 176,000
200,000 The DIRECTV Group Inc.+ .................... 5,164,212 5,234,000
------------ --------------
11,107,838 20,289,581
------------ --------------
CLOSED-END FUNDS -- 0.4%
99,702 The Central Europe and
Russia Fund Inc. ........................ 2,860,058 3,059,854
36,700 The European Equity Fund Inc.+ 386,832 264,240
54,000 The New Germany Fund Inc. .................. 635,491 577,800
11,000 The Spain Fund Inc. ........................ 103,029 76,780
------------ --------------
3,985,410 3,978,674
------------ --------------
COMMUNICATIONS EQUIPMENT -- 1.3%
160,000 Communications Systems Inc. ................ 1,147,120 1,702,400
525,000 Sycamore Networks Inc.+ .................... 1,705,330 1,695,750
260,000 Thomas & Betts Corp.+ ...................... 4,799,936 10,158,200
------------ --------------
7,652,386 13,556,350
------------ --------------
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
COMPUTER SOFTWARE AND SERVICES -- 0.7%
30,000 Borland Software Corp.+ .................... $ 242,610 $ 45,900
97,500 FalconStor Software Inc.+ .................. 696,671 522,600
59,508 Global Sources Ltd.+ ....................... 834,258 599,246
25,000 Jupitermedia Corp.+ ........................ 78,050 29,000
55,000 Mentor Graphics Corp.+ ..................... 825,909 624,250
20,187 MKS Instruments Inc.+ ...................... 367,981 401,923
22,000 NCR Corp.+ ................................. 576,899 485,100
45,000 OpenTV Corp., Cl. A+ ....................... 235,263 63,450
6,000 Phoenix Technologies Ltd.+ ................. 41,368 47,940
215,000 Stamford Industrial Group Inc.+ ............ 156,830 301,000
800,000 StorageNetworks Inc., Escrow+ (b) .......... 0 24,000
295,000 Tyler Technologies Inc.+ ................... 1,164,997 4,475,150
------------ --------------
5,220,836 7,619,559
------------ --------------
CONSUMER PRODUCTS -- 2.1%
75,000 1-800-FLOWERS.COM Inc., Cl. A+ ............. 701,203 451,500
10,750 Adams Golf Inc.+ ........................... 98,198 48,697
10,250 Alberto-Culver Co. ......................... 256,067 279,210
17,000 Ashworth Inc.+ ............................. 73,345 57,120
33,500 Chofu Seisakusho Co. Ltd. .................. 484,644 652,014
35,000 Church & Dwight Co. Inc. ................... 337,711 2,173,150
170,000 Coachmen Industries Inc.+ .................. 934,408 280,500
29,500 Eastman Kodak Co. .......................... 420,841 453,710
6,000 Elizabeth Arden Inc.+ ...................... 82,125 117,780
95,071 Escada AG+ ................................. 2,587,464 1,101,508
2,000 Harley-Davidson Inc. ....................... 4,713 74,600
215,000 Hartmarx Corp.+ ............................ 1,051,001 402,050
300,000 Marine Products Corp. ...................... 273,738 2,490,000
28,000 National Presto Industries Inc. ............ 866,278 2,086,000
7,000 Revlon Inc., Cl. A+ ........................ 189,394 103,950
130,000 Sally Beauty Holdings Inc.+ ................ 983,888 1,118,000
700,000 Schiff Nutrition International Inc.+ ....... 1,877,976 4,781,000
3,070 Steven Madden Ltd.+ ........................ 37,266 76,075
30,000 Stewart Enterprises Inc., Cl. A ............ 197,988 235,800
121,000 Swedish Match AB ........................... 2,546,384 2,097,114
87,425 Syratech Corp.+ ............................ 17,426 1,749
16,000 The Scotts Miracle-Gro Co., Cl. A .......... 320,814 378,240
17,000 WD-40 Co. .................................. 470,278 610,810
68,000 Wolverine World Wide Inc. .................. 661,926 1,799,280
------------ --------------
15,475,076 21,869,857
------------ --------------
CONSUMER SERVICES -- 0.9%
34,500 Bowlin Travel Centers Inc.+ ................ 32,522 56,925
2,500 Collectors Universe Inc. ................... 8,720 23,250
5,000 eLong Inc., ADR+ ........................... 59,917 34,800
2,000 Expedia Inc.+ .............................. 19,829 30,220
20,000 IAC/InterActiveCorp.+ ...................... 221,743 346,000
200,000 Martha Stewart Living
Omnimedia Inc., Cl. A+ .................. 1,704,708 1,702,000
See accompanying notes to financial statements.
6
THE GABELLI SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
COMMON STOCKS (CONTINUED)
CONSUMER SERVICES (CONTINUED)
20,000 Response USA Inc.+ ......................... $ 16,500 $ 31
400,500 Rollins Inc. ............................... 2,284,661 7,601,490
10,000 TiVo Inc.+ ................................. 74,563 73,200
------------ --------------
4,423,163 9,867,916
------------ --------------
DIVERSIFIED INDUSTRIAL -- 6.9%
32,000 Acuity Brands Inc. ......................... 307,210 1,336,320
8,000 Albany International Corp., Cl. A .......... 276,646 218,640
102,000 Ampco-Pittsburgh Corp. ..................... 1,439,914 2,641,800
6,000 Anixter International Inc.+ ................ 57,120 357,060
312,000 Baldor Electric Co. ........................ 8,576,516 8,988,720
8,000 Brush Engineered Materials Inc.+ ........... 212,217 148,560
160,000 Crane Co. .................................. 3,662,789 4,753,600
100,000 Delta plc .................................. 212,289 189,784
3,000 ESCO Technologies Inc.+ .................... 49,914 144,510
2,000 Foster Wheeler Ltd.+ ....................... 3,908 72,220
12,000 Gardner Denver Inc.+ ....................... 103,046 416,640
152,000 Greif Inc., Cl. A .......................... 1,518,565 9,974,240
27,000 Greif Inc., Cl. B .......................... 1,009,904 1,408,860
730,931 Griffon Corp.+ ............................. 8,689,067 6,592,999
80,000 Hawk Corp., Cl. A+ ......................... 1,440,520 1,610,400
10,000 Insteel Industries Inc. .................... 4,250 135,900
182,000 Katy Industries Inc.+ ...................... 703,368 263,900
26,000 Lindsay Corp. .............................. 329,217 1,891,500
330,000 Magnetek Inc.+ ............................. 1,730,541 1,336,500
32,000 Matthews International Corp., Cl. A ........ 748,294 1,623,680
275,000 Myers Industries Inc. ...................... 2,507,046 3,467,750
569,703 National Patent Development Corp.+ ......... 1,173,651 1,224,861
107,000 Oil-Dri Corp. of America ................... 971,566 1,810,440
15,000 Olin Corp. ................................. 232,292 291,000
232,000 Park-Ohio Holdings Corp.+ .................. 1,415,786 4,150,480
86,000 Precision Castparts Corp. .................. 1,649,215 6,775,080
32,000 Roper Industries Inc. ...................... 620,029 1,822,720
33,000 Sonoco Products Co. ........................ 911,855 979,440
66,000 Standex International Corp. ................ 1,323,405 1,831,500
160,000 Tech/Ops Sevcon Inc. ....................... 1,109,262 688,000
170,000 Tredegar Corp. ............................. 2,552,879 3,024,300
1,296,375 WHX Corp.+ ................................. 2,676,203 1,814,925
------------ --------------
48,218,484 71,986,329
------------ --------------
EDUCATIONAL SERVICES -- 0.6%
40,000 Career Education Corp.+ .................... 641,566 654,000
150,000 Corinthian Colleges Inc.+ .................. 1,184,223 2,250,000
200,000 Universal Technical Institute Inc.+ ........ 3,527,227 3,412,000
------------ --------------
5,353,016 6,316,000
------------ --------------
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
ELECTRONICS -- 2.4%
51,000 Badger Meter Inc. .......................... $ 1,247,123 $ 2,394,450
100,000 Bel Fuse Inc., Cl. A ....................... 3,311,585 2,750,000
500,000 California Micro Devices Corp.+ ............ 2,379,962 1,495,000
260,000 CTS Corp. .................................. 2,835,974 3,322,800
207,000 Greatbatch Inc.+ ........................... 5,187,498 5,079,780
16,000 IMAX Corp.+ ................................ 137,281 94,720
240,000 KEMET Corp.+ ............................... 1,826,756 326,400
75,000 Methode Electronics Inc. ................... 710,862 670,500
236,000 Park Electrochemical Corp. ................. 5,701,339 5,720,640
130,000 Stoneridge Inc.+ ........................... 1,268,617 1,462,500
275,000 Trident Microsystems Inc.+ ................. 1,342,497 660,000
150,000 Zoran Corp.+ ............................... 1,820,015 1,224,000
------------ --------------
27,769,509 25,200,790
------------ --------------
ENERGY AND UTILITIES -- 5.8%
3,000 AGL Resources Inc. ......................... 51,525 94,140
95,000 Callon Petroleum Co.+ ...................... 939,533 1,712,850
50,000 CH Energy Group Inc. ....................... 1,975,707 2,178,500
12,000 Chesapeake Utilities Corp. ................. 236,752 398,520
50,000 CMS Energy Corp. ........................... 273,275 623,500
23,000 Connecticut Water Service Inc. ............. 464,832 665,850
4,000 Consolidated Water Co. Ltd. ................ 92,251 68,080
150,000 Covanta Holding Corp.+ ..................... 644,530 3,591,000
145,000 El Paso Electric Co.+ ...................... 1,886,797 3,045,000
20,000 EnergySouth Inc. ........................... 1,116,570 1,228,600
25,000 Environmental Power Corp.+ ................. 126,095 55,000
140,000 Florida Public Utilities Co. ............... 1,333,812 1,806,000
136,960 Great Plains Energy Inc. ................... 3,550,003 3,043,251
9,400 Maine & Maritimes Corp.+ ................... 374,536 309,730
43,000 Middlesex Water Co. ........................ 743,997 751,210
10,000 Nicor Inc. ................................. 221,002 443,500
22,000 Oceaneering International Inc.+ ............ 657,393 1,173,040
150,000 Pennichuck Corp. ........................... 3,471,792 3,450,000
2,000 PetroQuest Energy Inc.+ .................... 5,250 30,700
710,000 PNM Resources Inc. ......................... 8,619,527 7,270,400
20,000 Puget Energy Inc. .......................... 558,108 534,000
30,000 Rowan Companies Inc. ....................... 1,124,461 916,500
1,000,000 RPC Inc. ................................... 1,452,039 14,060,000
80,000 SJW Corp. .................................. 1,262,057 2,397,600
100,000 Southern Union Co. ......................... 2,007,063 2,065,000
110,000 Southwest Gas Corp. ........................ 2,061,384 3,328,600
30,000 Tesoro Corp. ............................... 328,834 494,700
4,000 Toreador Resources Corp.+ .................. 15,250 35,960
6,000 Union Drilling Inc.+ ....................... 83,892 63,540
10,000 Vestas Wind Systems A/S+ ................... 89,988 850,943
200,000 Westar Energy Inc. ......................... 3,538,764 4,608,000
------------ --------------
39,307,019 61,293,714
------------ --------------
ENTERTAINMENT -- 1.8%
125,000 Aruze Corp. ................................ 2,945,400 2,662,075
60,000 Canterbury Park Holding Corp. .............. 755,546 525,000
74,000 Carmike Cinemas Inc. ....................... 670,710 272,320
See accompanying notes to financial statements.
7
THE GABELLI SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
COMMON STOCKS (CONTINUED)
ENTERTAINMENT (CONTINUED)
6,048 Chestnut Hill Ventures+ (b) ................ $ 164,590 $ 170,239
10,000 Discovery Communications Inc., Cl. A+ ...... 253,076 142,500
10,000 Discovery Communications Inc., Cl. C+ ...... 176,676 141,600
210,000 Dover Motorsports Inc. ..................... 1,160,738 1,144,500
133,000 Fisher Communications Inc. ................. 6,669,678 5,240,200
16,000 International Speedway Corp., Cl. A ........ 515,479 622,560
2,500 International Speedway Corp., Cl. B ........ 45,000 96,500
1,000 Liberty Media Corp. - Entertainment,
Cl. A+ .................................. 13,208 24,970
185,000 Macrovision Solutions Corp.+ ............... 3,104,505 2,845,300
180,000 Six Flags Inc.+ ............................ 896,884 124,200
242,800 Take-Two Interactive Software Inc. ......... 5,707,436 3,981,920
140,000 Triple Crown Media Inc.+ ................... 829,794 2,380
50,000 World Wrestling Entertainment Inc., Cl. A .. 581,121 773,000
30,000 WPT Enterprises Inc.+ ...................... 203,513 17,100
------------ --------------
24,693,354 18,786,364
------------ --------------
ENVIRONMENTAL SERVICES -- 1.0%
200,000 Allied Waste Industries Inc.+ .............. 1,943,361 2,222,000
8,000 Basin Water Inc.+ .......................... 64,208 14,720
2,500 Renegy Holdings Inc.+ ...................... 16,031 5,250
262,500 Republic Services Inc. ..................... 2,490,315 7,869,750
------------ --------------
4,513,915 10,111,720
------------ --------------
EQUIPMENT AND SUPPLIES -- 12.2%
15,000 A.O. Smith Corp., Cl. A .................... 336,569 645,000
247,000 AMETEK Inc. ................................ 990,231 10,070,190
445,000 Baldwin Technology Co. Inc., Cl. A+ ........ 1,407,184 1,139,200
25,000 Belden Inc. ................................ 279,400 794,750
5,000 C&D Technologies Inc.+ ..................... 51,765 28,400
50,000 Capstone Turbine Corp.+ .................... 103,400 64,500
238,000 CIRCOR International Inc ................... 4,953,917 10,336,340
375,000 CLARCOR Inc. ............................... 2,302,013 14,231,250
205,000 Core Molding Technologies Inc.+ ............ 335,878 1,230,000
170,000 Crown Holdings Inc.+ ....................... 687,034 3,775,700
2,000 Danaher Corp. .............................. 34,106 138,800
65,000 Donaldson Co. Inc........................... 750,074 2,724,150
100,000 Enodis plc ................................. 460,625 559,131
90,000 Entegris Inc.+ ............................. 708,040 435,600
40,000 Fedders Corp.+ (b) ......................... 10,068 0
147,000 Flowserve Corp. ............................ 3,235,057 13,049,190
160,000 Franklin Electric Co. Inc. ................. 1,496,658 7,128,000
80,000 Gehl Co.+ .................................. 1,957,986 2,354,400
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
151,000 Gerber Scientific Inc.+ .................... $ 1,472,095 $ 1,380,140
84,000 Graco Inc. ................................. 928,834 2,991,240
655,000 GrafTech International Ltd.+ ............... 9,649,823 9,897,050
90,000 IDEX Corp. ................................. 556,738 2,791,800
27,000 Interpump Group SpA ........................ 106,042 175,608
1,200 Itron Inc.+ ................................ 83,560 106,236
4,000 Jarden Corp.+ .............................. 11,351 93,800
9,000 K-Tron International Inc.+ ................. 85,089 1,159,470
62,000 L.S. Starrett Co., Cl. A ................... 1,051,307 1,142,660
30,000 Littelfuse Inc.+ ........................... 611,444 891,900
102,000 Lufkin Industries Inc. ..................... 986,115 8,093,700
55,000 Maezawa Kyuso Industries Co. Ltd. .......... 359,609 773,118
50,000 Met-Pro Corp. .............................. 390,135 729,500
2,000 Middleby Corp.+ ............................ 37,310 108,620
21,500 Mueller Industries Inc. .................... 687,528 494,715
10,000 Plantronics Inc. ........................... 246,559 225,200
79,000 Robbins & Myers Inc. ....................... 914,089 2,443,470
110,000 SL Industries Inc.+ ........................ 1,343,821 1,457,500
5,000 Teleflex Inc. .............................. 76,167 317,450
180,000 Tennant Co. ................................ 4,093,798 6,166,800
313,000 The Gorman-Rupp Co. ........................ 5,994,816 11,806,360
33,000 The Greenbrier Cos. Inc. ................... 746,618 643,830
5,000 Valmont Industries Inc. .................... 40,625 413,450
60,000 Vicor Corp. ................................ 715,458 532,800
7,875 Watsco Inc., Cl. B ......................... 23,627 391,781
130,000 Watts Water Technologies Inc., Cl. A ....... 2,861,587 3,555,500
45,000 Wolverine Tube Inc.+ ....................... 49,500 16,200
------------ --------------
54,223,650 127,504,499
------------ --------------
FINANCIAL SERVICES -- 4.8%
10,200 Alleghany Corp.+ ........................... 1,791,693 3,723,000
25,287 Argo Group International Holdings Ltd.+ .... 844,293 931,826
100,000 Bank of Florida Corp.+ ..................... 1,294,226 824,000
110,000 BKF Capital Group Inc. ..................... 1,113,596 121,000
441,500 CNA Surety Corp.+ .......................... 5,176,159 7,373,050
21,000 Crazy Woman Creek Bancorp Inc. ............. 325,590 442,575
17,812 Deerfield Capital Corp. .................... 25,293 11,578
125,000 Discover Financial Services ................ 2,350,976 1,727,500
10,000 Duff & Phelps Corp., Cl. A+ ................ 158,736 210,300
37,000 Epoch Holding Corp. ........................ 63,098 390,350
3,000 Federal Agricultural
Mortgage Corp., Cl. C ................... 24,000 12,300
6,000 Fidelity Southern Corp. .................... 45,668 25,920
200,000 Flushing Financial Corp. ................... 3,171,622 3,500,000
80,000 Franklin Bank Corp.+ ....................... 1,192,821 39,200
2,000 KBW Inc.+ .................................. 40,585 65,880
60,000 LaBranche & Co. Inc.+ ...................... 557,086 270,000
1,000 LandAmerica Financial Group Inc. ........... 12,175 24,250
See accompanying notes to financial statements.
8
THE GABELLI SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
3,000 Leucadia National Corp. .................... $ 24,354 $ 136,320
75,000 MVC Capital Inc. ........................... 861,134 1,143,750
260,600 Nara Bancorp Inc. .......................... 3,197,267 2,918,720
3,000 NetBank Inc.+ (b) .......................... 6,056 15
135,000 NewAlliance Bancshares Inc. ................ 1,912,558 2,029,050
14,000 Och-Ziff Capital Management
Group LLC, Cl. A ........................ 292,060 163,660
10,000 PrivateBancorp Inc. ........................ 306,851 416,600
15,000 Seacoast Banking Corp. of Florida .......... 137,125 160,950
160,400 Sterling Bancorp ........................... 2,649,020 2,319,384
130,000 SWS Group Inc. ............................. 2,475,404 2,620,800
11,333 Tree.com Inc.+ ............................. 79,922 54,625
141,700 UnionBanCal Corp. .......................... 10,381,721 10,385,193
4,500 Value Line Inc. ............................ 183,817 150,705
100,000 Wachovia Corp. ............................. 321,730 350,000
150,000 Waddell & Reed Financial Inc., Cl. A ....... 4,642,735 3,712,500
125,000 Wilmington Trust Corp. ..................... 3,866,101 3,603,750
------------ --------------
49,525,472 49,858,751
------------ --------------
FOOD AND BEVERAGE -- 8.0%
25,000 Boston Beer Co. Inc., Cl. A+ ............... 388,684 1,187,250
25,000 Brown-Forman Corp., Cl. A .................. 697,122 1,775,000
220,000 Bull-Dog Sauce Co. Ltd. .................... 707,676 477,834
100 Compania Cervecerias Unidas SA, ADR ........ 2,455 3,223
450,000 CoolBrands International Inc.+ ............. 394,861 291,755
50,000 Corn Products International Inc. ........... 1,113,697 1,614,000
285,000 Davide Campari-Milano SpA .................. 2,841,371 2,288,971
155,000 Del Monte Foods Co. ........................ 1,477,477 1,209,000
85,000 Denny's Corp.+ ............................. 132,580 219,300
200,000 Dr. Pepper Snapple Group Inc.+ ............. 4,474,755 5,296,000
1,400,000 Dynasty Fine Wines Group Ltd. .............. 432,885 194,724
100 Embotelladora Andina SA, Cl. A, ADR ........ 1,295 1,309
25,000 Farmer Brothers Co. ........................ 389,323 621,750
300,000 Flowers Foods Inc. ......................... 1,755,612 8,808,000
500 Genesee Corp., Cl. A+ (b) .................. 0 0
21,500 Genesee Corp., Cl. B+ (b) .................. 15,393 0
660,000 Grupo Continental SAB de CV ................ 996,531 1,413,359
10,000 Hain Celestial Group Inc.+ ................. 184,774 275,300
145,000 ITO EN Ltd. ................................ 3,112,114 1,852,804
25,000 ITO EN Ltd., Preference .................... 531,595 257,628
25,000 J & J Snack Foods Corp. .................... 577,813 847,750
460,000 Kikkoman Corp. ............................. 4,532,650 6,150,345
140,000 Lifeway Foods Inc.+ ........................ 1,376,270 1,638,000
20,000 Meiji Seika Kaisha Ltd. .................... 87,470 89,888
40,000 MGP Ingredients Inc. ....................... 278,545 113,600
170,000 Morinaga Milk Industry Co. Ltd. ............ 695,789 479,526
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
50,000 Nathan's Famous Inc.+ ...................... $ 645,336 $ 795,500
122,850 Nissin Food Products Co. Ltd. .............. 4,244,502 4,343,153
4,000 Omni Nutraceuticals Inc.+ .................. 13,563 5
110,000 PepsiAmericas Inc. ......................... 2,536,097 2,279,200
55,000 Ralcorp Holdings Inc.+ ..................... 982,262 3,707,550
145,000 Rock Field Co. Ltd. ........................ 2,331,629 1,810,540
70,200 Smart Balance Inc.+ ........................ 628,920 460,512
16,000 The Cheesecake Factory Inc.+ ............... 133,322 233,920
150,000 The Great Atlantic &
Pacific Tea Co. Inc.+ ................... 2,395,644 1,623,000
66,000 The J.M. Smucker Co. ....................... 1,599,230 3,345,540
300,000 The Steak n Shake Co.+ ..................... 3,611,351 2,604,000
210,000 Tootsie Roll Industries Inc. ............... 4,834,746 6,071,100
2,000 Vina Concha Y Toro SA, ADR ................. 54,957 70,420
1,000 Willamette Valley Vineyards Inc.+ .......... 3,994 4,690
200,000 Wm. Wrigley Jr. Co. ........................ 15,903,062 15,880,000
115,000 YAKULT HONSHA Co. Ltd. ..................... 2,946,470 3,535,800
------------ --------------
70,063,822 83,871,246
------------ --------------
HEALTH CARE -- 10.6%
400,000 Advanced Medical Optics Inc.+ .............. 12,856,036 7,112,000
47,000 Align Technology Inc.+ ..................... 409,536 509,010
100,000 Allergan Inc. .............................. 1,964,408 5,150,000
600,000 Alpharma Inc., Cl. A+ ...................... 20,065,427 22,134,000
168,000 AngioDynamics Inc.+ ........................ 2,802,769 2,654,400
5,000 Anika Therapeutics Inc.+ ................... 64,475 36,150
230,000 Animal Health International Inc.+ .......... 2,645,611 1,895,200
1,000 Applied Biosystems Inc. .................... 34,231 34,250
15,000 Apria Healthcare Group Inc.+ ............... 298,440 273,600
67,000 ArthroCare Corp.+ .......................... 1,993,694 1,857,240
7,500 Bio-Rad Laboratories Inc., Cl. A+ .......... 296,935 743,400
27,000 BioLase Technology Inc.+ ................... 90,769 51,030
20,000 Bruker Corp.+ .............................. 174,056 266,600
50,000 Cepheid Inc.+ .............................. 725,090 691,500
157,800 Chemed Corp. ............................... 3,397,430 6,479,268
70,000 CONMED Corp.+ .............................. 1,833,347 2,240,000
182,000 Crucell NV, ADR+ ........................... 3,563,086 2,831,920
230,000 Cutera Inc.+ ............................... 3,924,695 2,440,300
120,000 Del Global Technologies Corp.+ ............. 350,477 156,000
105,000 DexCom Inc.+ ............................... 1,216,470 649,950
16,000 Edwards Lifesciences Corp.+ ................ 550,264 924,160
71,000 Exactech Inc.+ ............................. 1,057,940 1,579,040
42,000 Henry Schein Inc.+ ......................... 739,631 2,261,280
30,000 Heska Corp.+ ............................... 44,905 19,500
144,000 ICU Medical Inc.+ .......................... 3,964,650 4,379,040
15,000 IMS Health Inc. ............................ 412,500 283,650
2,000 Integra LifeSciences Holdings Corp.+ ....... 43,600 88,060
4,000 Invacare Corp. ............................. 92,551 96,560
30,000 Inverness Medical Innovations Inc.+ ........ 554,733 900,000
See accompanying notes to financial statements.
9
THE GABELLI SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
COMMON STOCKS (CONTINUED)
HEALTH CARE (CONTINUED)
50,000 Invitrogen Corp.+ .......................... $ 1,286,160 $ 1,890,000
10,000 K-V Pharmaceutical Co., Cl. A+ ............. 286,714 227,100
90,000 Matrixx Initiatives Inc.+ .................. 1,486,894 1,619,100
60,000 Mentor Corp. ............................... 1,861,905 1,431,600
75,000 Micrus Endovascular Corp.+ ................. 1,109,307 1,046,250
40,000 MWI Veterinary Supply Inc.+ ................ 972,736 1,571,600
18,000 Nabi Biopharmaceuticals+ ................... 117,875 83,880
10,000 NeuroMetrix Inc.+ .......................... 67,433 9,500
4,000 Nobel Biocare Holding AG ................... 61,643 131,863
220,000 Odyssey HealthCare Inc.+ ................... 2,407,381 2,233,000
70,000 Opko Health Inc.+ .......................... 206,125 122,500
80,000 Orthofix International NV+ ................. 2,663,370 1,490,400
2,000 OrthoLogic Corp.+ .......................... 6,750 1,760
34,000 Owens & Minor Inc. ......................... 675,103 1,649,000
227,900 Pain Therapeutics Inc.+ .................... 2,049,762 2,226,583
255,000 Palomar Medical Technologies Inc.+ ......... 4,556,547 3,432,300
120,000 Penwest Pharmaceuticals Co.+ ............... 1,183,523 247,200
30,000 PSS World Medical Inc.+ .................... 367,273 585,000
1,779 Qiagen NV+ ................................. 7,992 35,100
213,000 Quidel Corp.+ .............................. 1,838,819 3,495,330
120,000 RTI Biologics Inc.+ ........................ 1,178,032 1,122,000
8,000 Sirona Dental Systems Inc.+ ................ 95,126 186,240
140,000 Sonic Innovations Inc.+ .................... 646,692 355,600
2,200,000 Sorin SpA+ ................................. 6,528,934 2,265,567
1,100,000 SSL International plc ...................... 8,745,703 8,766,089
2,300 Straumann Holding AG ....................... 206,988 630,137
4,000 Stryker Corp. .............................. 156,026 249,200
34,000 Thoratec Corp.+ ............................ 415,768 892,500
30,000 United-Guardian Inc. ....................... 275,421 316,500
80,000 Vascular Solutions Inc.+ ................... 619,673 599,200
40,000 Vital Signs Inc. ........................... 2,955,554 2,956,000
1,000 Wright Medical Group Inc.+ ................. 16,460 30,440
10,000 Young Innovations Inc. ..................... 237,253 201,800
15,000 Zymogenetics Inc.+ ......................... 177,307 99,900
------------ --------------
111,636,005 110,937,347
------------ --------------
HOME FURNISHINGS -- 0.1%
12,000 Bassett Furniture Industries Inc. .......... 192,256 102,600
10,000 Bed Bath & Beyond Inc.+ .................... 196,815 314,100
17,000 La-Z-Boy Inc. .............................. 140,938 158,440
------------ --------------
530,009 575,140
------------ --------------
HOTELS AND GAMING -- 1.9%
25,000 Boyd Gaming Corp. .......................... 242,360 234,000
78,000 Churchill Downs Inc. ....................... 2,596,841 3,820,440
100,000 Dover Downs Gaming & Entertainment Inc. .... 666,063 778,000
170,000 Gaylord Entertainment Co.+ ................. 5,025,021 4,992,900
50,000 Home Inns & Hotels Management Inc., ADR+ ... 1,122,564 697,500
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
8,000 Interval Leisure Group Inc.+ ............... $ 70,769 $ 83,200
140,000 Lakes Entertainment Inc.+ .................. 717,933 921,200
27,000 Las Vegas Sands Corp.+ ..................... 1,598,712 974,970
35,000 Marcus Corp. ............................... 627,819 562,800
48,000 Orient-Express Hotels Ltd., Cl. A .......... 2,171,697 1,158,240
60,000 Penn National Gaming Inc.+ ................. 383,376 1,594,200
125,000 Pinnacle Entertainment Inc.+ ............... 1,680,650 945,000
105,000 Sonesta International Hotels Corp., Cl. A .. 2,923,151 2,184,000
16,000 Wynn Resorts Ltd. .......................... 56,084 1,306,240
20,000 Youbet.com Inc.+ ........................... 51,494 29,200
------------ --------------
19,934,534 20,281,890
------------ --------------
MACHINERY -- 0.3%
73,900 CNH Global NV .............................. 1,782,939 1,628,756
500 Nordson Corp. .............................. 24,068 24,555
35,049 Zebra Technologies Corp., Cl. A+ ........... 1,105,369 976,115
------------ --------------
2,912,376 2,629,426
------------ --------------
MANUFACTURED HOUSING AND RECREATIONAL
VEHICLES -- 1.0%
115,000 Cavalier Homes Inc.+ ....................... 237,439 193,200
62,000 Cavco Industries Inc.+ ..................... 1,270,749 2,241,300
600,000 Champion Enterprises Inc.+ ................. 4,686,478 3,330,000
17,000 Drew Industries Inc.+ ...................... 296,303 290,870
260,000 Fleetwood Enterprises Inc.+ ................ 2,618,425 265,200
90,000 Monaco Coach Corp. ......................... 1,160,240 175,500
16,100 Nobility Homes Inc. ........................ 305,817 260,820
145,000 Skyline Corp. .............................. 4,653,084 3,832,350
------------ --------------
15,228,535 10,589,240
------------ --------------
METALS AND MINING -- 0.5%
52,003 Barrick Gold Corp. ......................... 1,522,648 1,910,590
10,000 Inmet Mining Corp. ......................... 325,911 465,680
15,000 Ivanhoe Mines Ltd.+ ........................ 111,730 90,900
142,115 Kinross Gold Corp. ......................... 984,488 2,290,894
2,000 Northwest Pipe Co.+ ........................ 55,888 87,240
35,148 Stillwater Mining Co.+ ..................... 426,236 204,210
52,000 Uranium Resources Inc.+ .................... 287,137 87,880
22,350 Yamana Gold Inc., New York ................. 75,630 186,176
------------ --------------
3,789,668 5,323,570
------------ --------------
PAPER AND FOREST PRODUCTS -- 0.1%
18,000 Schweitzer-Mauduit
International Inc. ......................... 424,690 341,820
40,000 Wausau Paper Corp. ......................... 428,382 405,200
------------ --------------
853,072 747,020
------------ --------------
PUBLISHING -- 1.1%
5,000 AH Belo Corp., Cl. A ....................... 56,424 25,800
6,000 Belo Corp., Cl. A .......................... 76,878 35,760
170,000 II Sole 24 Ore ............................. 1,022,626 720,369
307,237 Independent News & Media plc ............... 431,671 501,731
12,000 John Wiley & Sons Inc., Cl. B .............. 46,500 481,560
See accompanying notes to financial statements.
10
THE GABELLI SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
COMMON STOCKS (CONTINUED)
PUBLISHING (CONTINUED)
440,000 Journal Communications Inc., Cl. A ......... $ 4,148,738 $ 2,147,200
150,000 Journal Register Co.+ ...................... 254,246 1,050
90,000 Lee Enterprises Inc. ....................... 906,879 315,000
110,000 Media General Inc., Cl. A .................. 2,823,230 1,367,300
23,000 Meredith Corp. ............................. 429,183 644,920
260,000 News Corp., Cl. A .......................... 765,310 3,117,400
75,000 PRIMEDIA Inc. .............................. 1,018,652 182,250
250,000 The E.W. Scripps Co., Cl. A ................ 2,062,613 1,767,500
------------ --------------
14,042,950 11,307,840
------------ --------------
REAL ESTATE -- 0.9%
10,700 Capital Properties Inc., Cl. A ............. 270,987 247,170
175,000 Griffin Land & Nurseries Inc. .............. 2,374,586 6,489,000
9,000 Gyrodyne Co. of America Inc.+ .............. 135,071 342,810
20,000 Malan Realty Investors Inc.+ (b) ........... 53,529 390
106,000 Morguard Corp. ............................. 1,344,892 2,788,818
------------ --------------
4,179,065 9,868,188
------------ --------------
RETAIL -- 2.4%
144,000 Aaron Rents Inc., Cl. A .................... 521,690 3,168,000
50,000 Big 5 Sporting Goods Corp. ................. 834,144 516,000
8,000 Casey's General Stores Inc. ................ 124,503 241,360
340,000 Coldwater Creek Inc.+ ...................... 2,106,588 1,968,600
30,000 Copart Inc.+ ............................... 895,434 1,140,000
4,000 Gander Mountain Co.+ ....................... 32,640 13,080
8,000 HSN Inc.+ .................................. 61,333 88,080
275,300 Ingles Markets Inc., Cl. A ................. 4,696,534 6,285,099
30,000 Movado Group Inc. .......................... 449,902 670,500
30,000 Pier 1 Imports Inc.+ ....................... 202,215 123,900
170,000 Rush Enterprises Inc., Cl. B+ .............. 2,079,044 2,135,200
285,000 The Bon-Ton Stores Inc. .................... 2,177,982 775,200
8,000 Ticketmaster+ .............................. 113,231 85,840
70,000 Tractor Supply Co.+ ........................ 2,555,661 2,943,500
9,000 Village Super Market Inc., Cl. A ........... 397,563 429,030
44,000 Weis Markets Inc. .......................... 1,323,449 1,584,440
168,000 Wendy's/Arby's Group Inc., Cl. A ........... 1,364,690 883,680
130,000 Winn-Dixie Stores Inc.+ .................... 1,956,585 1,807,000
------------ --------------
21,893,188 24,858,509
------------ --------------
SPECIALTY CHEMICALS -- 5.1%
60,000 A. Schulman Inc. ........................... 1,199,761 1,186,800
19,000 Airgas Inc. ................................ 121,732 943,350
78,000 Albemarle Corp. ............................ 1,104,309 2,405,520
35,000 Arch Chemicals Inc. ........................ 766,922 1,235,500
580,000 Chemtura Corp. ............................. 5,756,417 2,644,800
10,000 Cytec Industries Inc. ...................... 278,296 389,100
3,200 Dionex Corp.+ .............................. 96,000 203,360
260,000 Ferro Corp. ................................ 5,573,569 5,226,000
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
260,000 H.B. Fuller Co. ............................ $ 2,584,304 $ 5,426,200
130,000 Hawkins Inc. ............................... 1,892,645 2,277,600
537,400 Hercules Inc. .............................. 6,618,720 10,635,146
200,000 Huntsman Corp. ............................. 2,590,120 2,520,000
145,000 Material Sciences Corp.+ ................... 1,346,282 833,750
160,000 Omnova Solutions Inc.+ ..................... 970,604 318,400
60,000 Penford Corp. .............................. 687,437 1,061,400
10,000 Quaker Chemical Corp. ...................... 181,137 284,600
24,000 Rockwood Holdings Inc.+ .................... 863,377 615,840
260,000 Sensient Technologies Corp. ................ 5,254,578 7,313,800
450,000 Zep Inc. ................................... 6,196,193 7,938,000
------------ --------------
44,082,403 53,459,166
------------ --------------
TELECOMMUNICATIONS -- 1.1%
22,000 Atlantic Tele-Network Inc. ................. 88,379 616,000
599,000 Cincinnati Bell Inc.+ ...................... 2,302,146 1,850,910
6,795 Community Service Communications Inc.+ ..... 0 17,497
105 Consolidated Communications Holdings Inc. .. 2,001 1,583
52,000 D&E Communications Inc. .................... 647,663 392,600
708 Fairpoint Communications Inc. .............. 4,525 6,138
50,000 Frontier Communications Corp. .............. 674,800 575,000
90,000 HickoryTech Corp. .......................... 787,475 522,900
71,000 New Ulm Telecom Inc. ....................... 829,235 649,650
118,000 Rogers Communications Inc., Cl. B .......... 569,865 3,922,320
63,000 Shenandoah Telecommunications Co. .......... 373,895 1,390,410
37,584 Verizon Communications Inc. ................ 900,747 1,206,071
24,000 Windstream Corp. ........................... 25,072 262,560
53,000 Winstar Communications Inc.+ (b) ........... 133 53
------------ --------------
7,205,936 11,413,692
------------ --------------
TRANSPORTATION -- 0.7%
170,000 GATX Corp. ................................. 5,286,254 6,726,900
135,000 Grupo TMM SA, Cl. A, ADR+ .................. 889,274 120,150
2,000 Irish Continental Group plc+ ............... 17,409 48,682
50,000 Providence and Worcester Railroad Co. ...... 884,009 850,000
------------ --------------
7,076,946 7,745,732
------------ --------------
WIRELESS COMMUNICATIONS -- 1.4%
200,000 Centennial Communications Corp.+ ........... 1,534,660 1,248,000
120,000 Nextwave Wireless Inc.+ .................... 813,200 72,000
72,000 Price Communications Corp., Escrow+ (b) .... 0 0
682,000 Vimpel-Communications, ADR ................. 1,290,279 13,844,600
17 Xanadoo Co.+ ............................... 4,148 5,100
------------ --------------
3,642,287 15,169,700
------------ --------------
TOTAL COMMON STOCKS ........................ 758,816,869 941,008,462
------------ --------------
See accompanying notes to financial statements.
11
THE GABELLI SMALL CAP GROWTH FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- ------------ --------------
PREFERRED STOCKS -- 0.1%
BROADCASTING -- 0.0%
1,103 PTV Inc., 10.000% Pfd., Ser. A ............. $ 0 $ 717
------------ --------------
BUSINESS SERVICES -- 0.0%
24,317 Interep National Radio Sales Inc.,
4.000% Cv. Pfd.,
Ser. A (b)(c)(d)+ ....................... 2,163,146 0
------------ --------------
DIVERSIFIED INDUSTRIAL -- 0.1%
128 Foster Wheeler Ltd., Pfd., Ser. B+ (b) ..... 32,263 600,870
------------ --------------
TOTAL PREFERRED STOCKS ..................... 2,195,409 601,587
------------ --------------
RIGHTS -- 0.0%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.0%
800,000 Exide Technologies, expire 05/15/11
Escrow Rights+(b) ....................... 0 0
------------ --------------
WARRANTS -- 0.0%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.0%
1,213 Exide Technologies, expire 05/05/11+ ....... 2,247 1,577
4,531 Federal-Mogul Corp., expire 12/27/14+ ...... 87,687 2,266
------------ --------------
89,934 3,843
------------ --------------
BROADCASTING -- 0.0%
6,082 Granite Broadcasting Corp.,
Ser. A, expire 06/04/12+ ................ 0 669
3,430 Granite Broadcasting Corp.,
Ser. B, expire 06/04/12+ ................ 0 858
------------ --------------
0 1,527
------------ --------------
HEALTH CARE -- 0.0%
14,424 Del Global Technologies Corp.,
expire 03/28/09+ (b) .................... 24,809 0
------------ --------------
TELECOMMUNICATIONS -- 0.0%
86 Virgin Media Inc., expire 01/10/11+ ........ 124 3
------------ --------------
TOTAL WARRANTS ............................. 114,867 5,373
------------ --------------
PRINCIPAL MARKET
AMOUNT COST VALUE
- ----------- ------------ --------------
CORPORATE BONDS -- 0.0%
COMPUTER SOFTWARE AND SERVICES -- 0.0%
$ 300,000 Exodus Communications Inc.,
Sub. Deb. Cv.,
5.250%, 02/15/09+ (b) ................... $ 1,185 $ 0
------------ --------------
TELECOMMUNICATIONS -- 0.0%
400,000 Williams Communications
Group Inc., Escrow,
10.875%, 10/01/09+ (b) .................. 0 0
------------ --------------
TOTAL CORPORATE BONDS ...................... 1,185 0
------------ --------------
U.S. GOVERNMENT OBLIGATIONS -- 12.8%
U.S. TREASURY BILLS -- 8.7%
91,164,000 U.S. Treasury Bills,
0.152% to 1.957%++,
10/02/08 to 01/29/09 .................... 90,979,994 91,065,806
------------ --------------
U.S. TREASURY NOTES -- 4.1%
12,340,000 4.500%, 04/30/09 ........................ 12,576,615 12,543,425
30,150,000 4.750%, 12/31/08 ........................ 30,450,408 30,439,741
------------ --------------
43,027,023 42,983,166
------------ --------------
TOTAL U.S. GOVERNMENT OBLIGATIONS .......... 134,007,017 134,048,972
------------ --------------
TOTAL INVESTMENTS -- 102.6% ................ $895,135,347 1,075,664,394
============
OTHER ASSETS AND LIABILITIES
(NET) -- (2.6)% ......................... (26,746,073)
--------------
NET ASSETS -- 100.0% ....................... $1,048,918,321
==============
- ----------
(a) Security considered an affiliated holding because the Fund owns at least 5%
of its 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, 2008, the
market value of fair valued securities amounted to $795,570 or 0.08% of net
assets.
(c) 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, 2008, the market value of Rule 144A securities amounted to $0 or 0.00%
of net assets.
(d) Illiquid security.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR American Depositary Receipt
See accompanying notes to financial statements.
12
THE GABELLI SMALL CAP GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2008
ASSETS:
Investments, at value (cost $892,428,641) ..................... $1,074,684,409
Investments in affiliates, at value (cost $2,706,706) ......... 979,985
Cash .......................................................... 1,000,802
Foreign currency, at value (cost $8) .......................... 7
Receivable for investments sold ............................... 344,084
Receivable for Fund shares sold ............................... 2,339,749
Dividends and interest receivable ............................. 1,755,362
Prepaid expenses .............................................. 57,173
--------------
TOTAL ASSETS .................................................. 1,081,161,571
--------------
LIABILITIES:
Payable for investments purchased ............................. 27,771,394
Payable for Fund shares redeemed .............................. 2,893,801
Payable for investment advisory fees .......................... 899,416
Payable for distribution fees ................................. 238,809
Payable for accounting fees ................................... 7,501
Other accrued expenses ........................................ 432,329
--------------
TOTAL LIABILITIES ............................................. 32,243,250
--------------
NET ASSETS applicable to 37,228,258 shares outstanding ........ $1,048,918,321
==============
NET ASSETS CONSIST OF:
Paid-in capital, each class at $0.001 par value ............... $ 817,217,519
Accumulated net investment loss ............................... (7,203)
Accumulated net realized gain on investments,
swap contracts, futures contracts, and foreign
currency transactions ...................................... 51,179,001
Net unrealized appreciation on investments .................... 180,529,047
Net unrealized depreciation on foreign currency translations .. (43)
--------------
NET ASSETS .................................................... $1,048,918,321
==============
SHARES OF CAPITAL STOCK:
CLASS AAA:
Net Asset Value, offering, and redemption price
per share ($995,613,057 / 35,304,006 shares
outstanding; 150,000,000 shares authorized) ................ $ 28.20
==============
CLASS A:
Net Asset Value and redemption price per
share ($26,604,525 / 944,112 shares
outstanding; 50,000,000 shares authorized) ................. $ 28.18(a)
==============
Maximum offering price per share
(NAV / .9425, based on maximum sales
charge of 5.75% of the offering price) ..................... $ 29.90(a)
==============
CLASS B:
Net Asset Value and offering price per share
($60,887 / 2,247 shares outstanding;
50,000,000 shares authorized) .............................. $ 27.10(b)
==============
CLASS C:
Net Asset Value and offering price per share
($23,061,731 / 851,234 shares outstanding;
50,000,000 shares authorized) .............................. $ 27.09(b)
==============
CLASS I:
Net Asset Value, offering, and redemption price
per share ($3,578,121 / 126,659 shares
outstanding; 50,000,000 shares authorized) ................. $ 28.25
==============
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2008
INVESTMENT INCOME:
Dividends (net of foreign taxes of $133,346) .................. $ 11,542,713
Interest ...................................................... 3,306,804
--------------
TOTAL INVESTMENT INCOME ....................................... 14,849,517
--------------
EXPENSES:
Investment advisory fees ...................................... 10,406,481
Distribution fees - Class AAA ................................. 2,500,149
Distribution fees - Class A ................................... 54,087
Distribution fees - Class B ................................... 1,093
Distribution fees - Class C ................................... 167,912
Shareholder services fees ..................................... 1,100,976
Shareholder communications expenses ........................... 318,020
Custodian fees ................................................ 182,937
Registration expenses ......................................... 103,487
Legal and audit fees .......................................... 79,859
Accounting fees ............................................... 45,000
Directors' fees ............................................... 30,275
Interest expense .............................................. 828
Miscellaneous expenses ........................................ 77,235
--------------
TOTAL EXPENSES ................................................ 15,068,339
Less: Custodian fee credits ................................... (15,224)
--------------
NET EXPENSES .................................................. 15,053,115
--------------
NET INVESTMENT LOSS ........................................... (203,598)
--------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS, SWAP CONTRACTS, FUTURES
CONTRACTS, AND FOREIGN CURRENCY:
Net realized gain on investments .............................. 54,638,378
Capital gain distributions from investment companies .......... 832,573
Net realized gain on swap contracts ........................... 3,200
Net realized gain on futures contracts ........................ 497,300
Net realized loss on foreign currency transactions ............ (6,671)
--------------
Net realized gain on investments, swap contracts,
futures contracts, and foreign currency
transactions ............................................... 55,964,780
--------------
Net change in unrealized appreciation/
(depreciation) on investments .............................. (214,885,181)
Net change in unrealized appreciation/
(depreciation) on foreign currency translations ............ (703)
--------------
Net change in unrealized appreciation/
(depreciation) on investments and
foreign currency translations .............................. (214,885,884)
--------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS, SWAP CONTRACTS, FUTURES
CONTRACTS, AND FOREIGN CURRENCY ............................ (158,921,104)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. $ (159,124,702)
==============
- ----------
(a) Shareholder transactions may have been processed at a different net asset
value.
(b) Redemption price varies based on the length of time held.
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, 2008 SEPTEMBER 30, 2007
------------------ ------------------
OPERATIONS:
Net investment loss .................................................... $ (203,598) $ (340,454)
Net realized gain on investments, swap contracts, futures contracts, and
foreign currency transactions ....................................... 55,964,780 47,039,006
Net change in unrealized appreciation/(depreciation) on investments,
swap contracts, and foreign currency translations ................... (214,885,884) 111,347,803
-------------- --------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ........ (159,124,702) 158,046,355
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain on investments
Class AAA ........................................................... (46,323,563) (54,810,246)
Class A ............................................................. (797,001) (187,774)
Class B ............................................................. (5,830) (8,873)
Class C ............................................................. (551,222) (241,821)
-------------- --------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS .................................... (47,677,616) (55,248,714)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Class AAA ........................................................... 192,040,034 173,228,328
Class A ............................................................. 15,316,709 12,781,396
Class B ............................................................. (43,504) (1,610)
Class C ............................................................. 16,624,141 6,620,118
Class I ............................................................. 3,853,655 --
-------------- --------------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ............. 227,791,035 192,628,232
-------------- --------------
REDEMPTION FEES ........................................................ 6,835 13,640
-------------- --------------
NET INCREASE IN NET ASSETS ............................................. 20,995,552 295,439,513
NET ASSETS:
Beginning of period .................................................... 1,027,922,769 732,483,256
-------------- --------------
End of period (including undistributed net investment income
of $0 and $0, respectively) ......................................... $1,048,918,321 $1,027,922,769
============== ==============
See accompanying notes to financial statements.
14
THE GABELLI SMALL CAP GROWTH 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 Net Asset
Period Value, Investment Unrealized from Realized Value,
Ended Beginning Income Gain (Loss) on Investment Gain on Total Redemption End of Total
September 30 of Period (Loss)(a)(b) Investments Operations Investments Distributions Fees(a) Period Return+
- ------------ --------- ------------ -------------- ------------- ----------- ------------- ---------- --------- -------
CLASS AAA
2008 $34.37 $(0.00)(c) $(4.62) $(4.62) $(1.55) $(1.55) $0.00(c) $28.20 (13.98)%
2007 30.41 (0.01) 6.42 6.41 (2.45) (2.45) 0.00(c) 34.37 21.95
2006 29.97 (0.03) 2.53 2.50 (2.06) (2.06) 0.00(c) 30.41 8.88
2005 25.88 (0.01) 5.25 5.24 (1.15) (1.15) 0.00(c) 29.97 20.58
2004 21.48 (0.04) 4.61 4.57 (0.17) (0.17) -- 25.88 21.34
CLASS A
2008 $34.37 $(0.01) $(4.63) $(4.64) $(1.55) $(1.55) $0.00(c) $28.18 (14.04)%
2007 30.41 0.06 6.35 6.41 (2.45) (2.45) 0.00(c) 34.37 21.95
2006 29.98 (0.02) 2.51 2.49 (2.06) (2.06) 0.00(c) 30.41 8.84
2005 25.89 (0.01) 5.25 5.24 (1.15) (1.15) 0.00(c) 29.98 20.57
2004(d) 24.49 (0.06) 1.46 1.40 -- -- -- 25.89 5.72
CLASS B
2008 $33.32 $(0.23) $(4.44) $(4.67) $(1.55) $(1.55) $0.00(c) $27.10 (14.60)%
2007 29.77 (0.26) 6.26 6.00 (2.45) (2.45) 0.00(c) 33.32 20.99
2006 29.58 (0.25) 2.50 2.25 (2.06) (2.06) 0.00(c) 29.77 8.11
2005 25.74 (0.22) 5.21 4.99 (1.15) (1.15) 0.00(c) 29.58 19.69
2004(d) 24.49 (0.19) 1.44 1.25 -- -- -- 25.74 5.10
CLASS C
2008 $33.32 $(0.22) $(4.46) $(4.68) $(1.55) $(1.55) $0.00(c) $27.09 (14.63)%
2007 29.76 (0.22) 6.23 6.01 (2.45) (2.45) 0.00(c) 33.32 21.03
2006 29.58 (0.24) 2.48 2.24 (2.06) (2.06) 0.00(c) 29.76 8.08
2005 25.74 (0.23) 5.22 4.99 (1.15) (1.15) 0.00(c) 29.58 19.69
2004(d) 24.49 (0.20) 1.45 1.25 -- -- -- 25.74 5.10
CLASS I
2008(f) $30.06 $0.05 $(1.86) $(1.81) -- -- $0.00(c) $28.25 (6.02)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
-----------------------------------------------
Net
Period Net Assets Investment Portfolio
Ended End of Period Income Operating Turnover
September 30 (in 000's) (Loss)(b) Expenses Rate++
- ------------ ------------- ---------- --------- ---------
CLASS AAA
2008 $ 995,613 (0.01)% 1.43% 26%
2007 1,002,577 (0.04) 1.42 15
2006 727,521 (0.09) 1.44 6
2005 732,965 (0.03) 1.44 6
2004 620,334 (0.15) 1.42 10
CLASS A
2008 $ 26,604 (0.02)% 1.43% 26%
2007 15,485 0.19 1.42 15
2006 2,199 (0.08) 1.44 6
2005 1,515 (0.03) 1.48 6
2004(d) 58 (0.32)(e) 1.42(e) 10
CLASS B
2008 $ 61 (0.77)% 2.18% 26%
2007 126 (0.81) 2.17 15
2006 113 (0.85) 2.19 6
2005 138 (0.79) 2.20 6
2004(d) 55 (1.02)(e) 2.17(e) 10
CLASS C
2008 $ 23,062 (0.75)% 2.18% 26%
2007 9,735 (0.69) 2.17 15
2006 2,650 (0.83) 2.19 6
2005 1,499 (0.80) 2.23 6
2004(d) 24 (1.07)(e) 2.17(e) 10
CLASS I
2008(f) $ 3,578 0.22%(e) 1.18%(e) 26%
- ----------
+ 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.
++ Effective in 2008, a change in accounting policy was adopted with regard to
the calculation of the portfolio turnover rate to include cash due to
mergers. Had this policy been adopted retroactively, the portfolio turnover
rate for the fiscal year ended September 30, 2007 would have been 21%. The
portfolio turnover rate for the fiscal years ended September 2006, 2005,
and 2004 would have been as shown.
(a) Per share amounts have been calculated using the average shares outstanding
method.
(b) Due to capital share activity throughout the fiscal year, net investment
income per share and the ratio to average net assets are not necessarily
correlated among the different classes of shares.
(c) Amount represents less than $0.005 per share.
(d) From the commencement of offering Class A, Class B, and Class C Shares on
December 31, 2003.
(e) Annualized.
(f) From the commencement of offering Class I Shares on January 11, 2008
through September 30, 2008.
See accompanying notes to financial statements.
15
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.
Statement of Financial Accounting Standard No. 157, "Fair Value Measurements"
("SFAS 157") 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. As of September 30, 2008, the Fund does not
believe the adoption of SFAS 157 will impact the amounts reported in the
financial statements.
16
THE GABELLI SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In March 2008, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard No. 161, "Disclosures about
Derivative Instruments and Hedging Activities" ("SFAS 161") that is effective
for fiscal years beginning after November 15, 2008. SFAS 161 is intended to
improve financial reporting for derivative instruments by requiring enhanced
disclosure that enables investors to understand how and why an entity uses
derivatives, how derivatives are accounted for, and how derivative instruments
affect an entity's results of operations and financial position. Management is
currently evaluating the implications of SFAS 161 on the Fund's financial
statement disclosures.
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, 2008, there were no open repurchase agreements.
SWAP AGREEMENTS. The Fund may enter into equity and contract for difference swap
transactions. The use of swaps is a highly specialized activity that involves
investment techniques and risks different from those associated with ordinary
portfolio security transactions. In a swap, a set of future cash flows are
exchanged between two counterparties. One of these cash flow streams will
typically be based on a reference interest rate combined with the performance of
a notional value of shares of a stock. The other will be based on the
performance of the shares of a stock. There is no assurance that the swap
contract counterparties will be able to meet their obligations pursuant to the
swap contracts, or that, in the event of default, the Fund will succeed in
pursuing contractual remedies. The Fund thus assumes the risk that it may be
delayed in or prevented from obtaining payments owed to it pursuant to the swap
contracts. The creditworthiness of the swap contract counterparties is closely
monitored in order to minimize the risk. Depending on the general state of
short-term interest rates and the returns of the Fund's portfolio securities at
that point in time, such a default could negatively affect the Fund's ability to
make dividend payments. In addition, at the time a swap transaction reaches its
scheduled termination date, there is a risk that the Fund will not be able to
obtain a replacement transaction or that the terms of the replacement will not
be as favorable as on the expiring transaction. If this occurs, it could have a
negative impact on the Fund's ability to make dividend payments.
17
THE GABELLI SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The use of derivative instruments involves, to varying degrees, elements of
market and counterparty risk in excess of the amount recognized below. The
change in value of swaps, including the accrual of periodic amounts of interest
to be paid or received on swaps, is reported as unrealized appreciation or
depreciation. At September 30, 2008, there were no open swap 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 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, 2008, 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 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, 2008, 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.
18
THE GABELLI SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
In calculating the 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.
19
THE GABELLI SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CUSTODIAN FEE CREDITS AND INTEREST EXPENSE. 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." When cash balances are
overdrawn, the Fund is charged an overdraft fee equal to 2.00% above the federal
funds rate on outstanding balances. This amount, if any, would be shown as
"interest expense" in the Statement of Operations.
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, 2008, reclassifications were made to decrease accumulated
net investment loss by $267,258 and decrease accumulated net realized gain on
investments by $267,258.
The tax character of distributions paid during the fiscal years ended September
30, 2008 and September 30, 2007 was as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007
------------------ ------------------
DISTRIBUTIONS PAID FROM:
Ordinary income (inclusive of net
short-term capital gains) ..... $ 2,004,512 --
Net long-term capital gains ...... 45,673,104 $55,248,714
----------- -----------
Total distributions paid ......... $47,677,616 $55,248,714
=========== ===========
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, 2008, the components of accumulated earnings/losses on a tax
basis were as follows:
Undistributed ordinary income .......... $ 3,735,466
Undistributed long-term capital gains .. 50,617,863
Post-October currency losses ........... (7,203)
Net unrealized appreciation ............ 177,354,676
------------
Total accumulated earnings .......... $231,700,802
============
20
THE GABELLI SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 2008, the Fund deferred currency losses of $7,204.
At September 30, 2008, the difference between book and tax basis unrealized
appreciation is primarily due to deferral of losses on wash sales.
The following summarizes the tax cost of investments and the related unrealized
appreciation/depreciation at September 30, 2008:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
------------ ------------ ------------- --------------
Investments ................ $895,602,968 $299,117,089 $(120,035,648) $179,081,441
Investments in affiliates .. 2,706,706 -- (1,726,721) (1,726,721)
------------ ------------ ------------- ------------
$898,309,674 $299,117,089 $(121,762,369) $177,354,720
============ ============ ============= ============
The Fund has adopted FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48"). FIN 48 provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in the
financial statements. FIN 48 requires the evaluation of tax positions taken or
expected to be taken in the course of preparing the Trust's tax returns to
determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. Tax positions not deemed to meet the
"more-likely-than-not" threshold are recorded as a tax benefit or expense in the
current year. The adoption of FIN 48 did not result in the recording of any tax
benefit or expense in the current period.
As of and during the year ended September 30, 2008, the Fund did not have a
liability for any unrecognized tax benefits. The Fund recognizes interest and
penalties, if any, related to unrecognized tax benefits as income tax expense in
the statement of operations. During the period, the Fund did not incur any
interest or penalties. Each of the tax years in the three-year period ended
September 30, 2008, remains subject to examination by the Internal Revenue
Service and state tax authorities. Management's determination regarding FIN 48
may be subject to review and adjustment at a later date based on factors
including, but not limited to, an on-going analysis of tax laws, regulations and
interpretations thereof.
3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS. The Fund has 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 who is not considered to be an affiliated
person an annual retainer of $9,000 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 attended and the
Chairman of the Audit Committee and the Lead Director each receives an annual
fee of $1,000. Directors who are directors or employees of the Adviser or an
affiliated company receive no compensation or expense reimbursement from the
Fund.
21
THE GABELLI SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DISTRIBUTION PLAN. The Fund's Board has adopted a distribution plan (the
"Plan") for each class of shares, except for Class I 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, 2008, other than short-term securities and
U.S. Government obligations, aggregated $402,481,903 and $199,957,038,
respectively.
Purchases and proceeds from the sales of U.S. Government obligations for the
fiscal year ended September 30, 2008, other than short-term obligations,
aggregated $83,156,255 and $40,021,875, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the fiscal year ended September 30,
2008, the Fund paid brokerage commissions on security trades of $460,433 to
Gabelli & Company. Additionally, Gabelli & Company informed the Fund that it
received $48,058 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, 2008, 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 participates in an unsecured line of credit of up to
$75,000,000, and may borrow up to 10% of its net assets 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,
is shown as "interest expense" in the Statement of Operations. During the fiscal
year ended September 30, 2008, there were no borrowings under the line of
credit.
8. CAPITAL STOCK. The Fund currently offers five classes of shares - Class AAA
Shares, Class A Shares, Class B Shares, Class C Shares, and Class I 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 I Shares are offered to foundations, endowments,
institutions, and employee benefit plans. 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. Class I Shares were first issued on January 11, 2008.
The Fund imposes a redemption fee of 2.00% on all classes of shares that are
redeemed or exchanged on or before the seventh 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, 2008 and September 30,
2007 amounted to $6,835 and $13,640, respectively.
22
THE GABELLI SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The redemption fee does not apply to redemptions of shares where (i) the shares
were purchased through automatic reinvestment of distributions, (ii) the
redemption was initiated by the Fund, (iii) the shares were purchased through
programs that collect the redemption fee at the program level and remit them to
the Fund, or (iv) the shares were purchased through programs that the Adviser
determines to have appropriate anti-short-term trading policies in place or as
to which the Adviser has received assurances that look-through redemption fee
procedures or effective anti-short-term trading policies and procedures are in
place.
Transactions in shares of capital stock were as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
CLASS AAA CLASS AAA
-------------------------- --------------------------
Shares sold........................................ 11,404,075 $ 352,403,697 9,055,569 $ 300,679,400
Shares issued upon reinvestment of distributions... 1,383,508 44,189,239 1,662,686 51,559,994
Shares redeemed.................................... (6,655,573) (204,552,902) (5,467,632) (179,011,066)
---------- ------------- ---------- ------------
Net increase.................................... 6,132,010 $ 192,040,034 5,250,623 $ 173,228,328
========== ============= ========== =============
CLASS A CLASS A
-------------------------- --------------------------
Shares sold........................................ 653,236 $ 20,020,323 394,109 $ 13,318,089
Shares issued upon reinvestment of distributions... 23,669 756,001 5,751 178,354
Shares redeemed.................................... (183,365) (5,459,615) (21,600) (715,047)
---------- ------------- ---------- ------------
Net increase.................................... 493,540 $ 15,316,709 378,260 $ 12,781,396
========== ============= ========== =============
CLASS B CLASS B
-------------------------- --------------------------
Shares issued upon reinvestment of distributions... 189 $ 5,832 294 $ 8,873
Shares redeemed.................................... (1,716) (49,336) (326) (10,483)
---------- ------------- ---------- ------------
Net decrease.................................... (1,527) $ (43,504) (32) $ (1,610)
========== ============= ========== =============
CLASS C CLASS C
-------------------------- --------------------------
Shares sold........................................ 616,058 $ 18,243,833 214,901 $ 7,004,093
Shares issued upon reinvestment of distributions... 17,152 529,496 7,732 233,806
Shares redeemed.................................... (74,196) (2,149,188) (19,457) (617,781)
---------- ------------- ---------- ------------
Net increase.................................... 559,014 $ 16,624,141 203,176 $ 6,620,118
========== ============= ========== =============
CLASS I*
--------------------------
Shares sold........................................ 142,672 $ 4,323,018
Shares redeemed.................................... (16,013) (469,363)
---------- -------------
Net increase.................................... 126,659 $ 3,853,655
========== =============
- ----------
* From the commencement of offering Class I Shares on January 11, 2008.
23
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, 2008 is set forth below:
PERCENT
NET CHANGE VALUE AT OWNED
BEGINNING SHARES/PAR SHARES/PAR ENDING IN UNREALIZED SEPTEMBER 30, OF SHARES
SHARES/PAR PURCHASED SOLD SHARES/PAR DEPRECIATION 2008 OUTSTANDING
---------- ---------- ---------- ---------- ------------- ------------- -----------
Earl Scheib Inc. ... 240,900 -- -- 240,900 $(372,190) $531,185 6.01%
Trans-Lux Corp. .... 160,265 10,000 (5,265) 165,000 (404,518) 448,800 8.17
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. On April 24, 2008, the Adviser entered into an administrative
settlement with the SEC to resolve the SEC's inquiry regarding prior frequent
trading activity in shares of the GAMCO Global Growth Fund (the "Global Growth
Fund") by one investor who was banned from the Global Growth Fund in August
2002. In the settlement, the SEC found that the Adviser had violated Section
206(2) of the Investment Advisers Act, Section 17(d) of the 1940 Act and Rule
17d-1 thereunder, and had aided and abetted and caused violations of Section
12(d)(1)(B)(i) of the 1940 Act. Under the terms of the settlement, the Adviser,
while neither admitting nor denying the SEC's findings and allegations, agreed,
among other things, to pay the previously reserved total of $16 million
(including a $5 million penalty), of which at least $11 million will be
distributed to shareholders of the Global Growth Fund in accordance with a plan
to be developed by an independent distribution consultant and approved by the
independent directors of the Global Growth Fund and the staff of the SEC, and to
cease and desist from future violations of the above referenced federal
securities laws. The settlement will not have a material adverse impact on the
Adviser or its ability to fulfill its obligations under the Advisory Agreement.
On the same day, the SEC filed a civil action against the Executive Vice
President and Chief Operating Officer of the Adviser, alleging violations of
certain federal securities laws arising from the same matter. The officer is
also an officer of the Global Growth Fund and other funds in the Gabelli/GAMCO
fund complex. The officer denies the allegations and is continuing in his
positions with the Adviser and the funds. The Adviser currently expects that any
resolution of the action against the officer will not have a material adverse
impact on the Adviser or its ability to fulfill its obligations under the
Advisory Agreement.
In a separate matter, in August 2008, the Adviser, while neither admitting nor
denying the SEC's findings and allegations, made an offer to the staff of the
SEC to settle a previously disclosed matter concerning compliance with Section
19(a) and Rule 19a-1 of the 1940 Act by two closed-end funds managed by the
Adviser. These provisions require registered investment companies to provide
written statements to shareholders when a distribution is made in the nature of
a dividend from a source other than net investment income. While the two funds
sent annual statements and provided other materials containing this information,
the funds did not send the notices required by Rule 19a-1 to shareholders with
each distribution in 2002 and 2003. The Adviser believes that the funds have
been in compliance with Rule 19a-1 since that time. The Adviser believes that
the settlement would have no effect on the funds or any material adverse effect
on the Adviser or its ability to manage the funds. This offer of settlement is
subject to final agreement regarding the specific language of the SEC's
administrative order and other settlement documents and approval by the SEC.
24
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, 2008, 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, 2008, by correspondence with the Fund's
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, 2008, 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 19, 2008
25
THE GABELLI SMALL CAP GROWTH FUND
ADDITIONAL FUND INFORMATION (UNAUDITED)
The business and affairs of the Fund are managed under the direction of the
Corporation's Board of Directors. Information pertaining to the Directors and
officers of the Corporation is set forth below. The Corporation's Statement of
Additional Information includes additional information about the Corporation'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.
NAME, POSITION(S) TERM OF OFFICE NUMBER OF FUNDS
ADDRESS(1) AND LENGTH OF IN FUND COMPLEX PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AND AGE TIME SERVED(2) OVERSEEN BY DIRECTOR DURING PAST FIVE YEARS HELD BY DIRECTOR(3)
- ------------------------- -------------- -------------------- ------------------------------ ---------------------------------
INTERESTED DIRECTORS(4):
MARIO J. GABELLI Since 1991 26 Chairman and Chief Executive Director of Morgan Group
Director and Officer of GAMCO Investors, Holdings, Inc. (holding company);
Chief Investment Officer Inc. and Chief Investment Chairman of the Board of LICT
Age: 66 Officer-Value Portfolios of Corp. (multimedia and
Gabelli Funds, LLC and GAMCO communication services company)
Asset Management Inc.;
Director/Trustee or Chief
Investment Officer of other
registered investment
companies in the Gabelli/GAMCO
Funds complex; Chairman and
Chief Executive Officer of
GGCP, Inc.
JOHN D. GABELLI Since 1991 10 Senior Vice President of Director of GAMCO Investors, Inc.
Director Gabelli & Company, Inc. (asset management)
Age: 64
INDEPENDENT DIRECTORS(5):
ANTHONY J. COLAVITA Since 1991 37 Partner in the law firm of --
Director Anthony J. Colavita, P.C.
Age: 72
VINCENT D. ENRIGHT Since 1991 17 Former Senior Vice President Director of Echo Therapeutics,
Director and Chief Financial Officer of Inc. (therapeutics and
Age: 64 KeySpan Corporation (public diagnostics)
utility)
ROBERT J. MORRISSEY Since 1991 6 Partner in the law firm of --
Director Morrissey, Hawkins & Lynch
Age: 69
ANTHONY R. PUSTORINO Since 1991 14 Certified Public Accountant; Director of The LGL Group, Inc.
Director Professor Emeritus, Pace (diversified manufacturing)
Age: 83 University
ANTHONIE C. VAN EKRIS Since 1991 20 Chairman of BALMAC --
Director International, Inc.
Age: 74 (commodities and futures
trading)
SALVATORE J. ZIZZA Since 2001 28 Chairman of Zizza & Company, Director of Hollis-Eden
Director Ltd. (consulting) Pharmaceuticals (biotechnology);
Age: 62 Director of Earl Scheib, Inc.
(automotive services)
26
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 of
President and Secretary Gabelli Funds, LLC since 1988 and an officer of all of
Age: 56 the registered investment companies in the Gabelli/GAMCO
Funds complex; Director and President of Teton Advisors,
Inc. (formerly Gabelli Advisers, Inc.) since 1998
AGNES MULLADY Since 2006 Vice President of Gabelli Funds, LLC since 2007; Officer
Treasurer of all of the registered investment companies in the
Age: 50 Gabelli/GAMCO Funds complex; Senior Vice President of
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.
PETER D. GOLDSTEIN Since 2004 Director of Regulatory Affairs at GAMCO Investors, Inc.
Chief Compliance Officer since 2004; Chief Compliance Officer of all of the
Age: 55 registered investment companies in the Gabelli/GAMCO
Funds complex; Vice President of Goldman Sachs Asset
Management from 2000 through 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.
(5) Directors who are not interested persons are considered "Independent"
Directors.
2008 TAX NOTICE TO SHAREHOLDERS (Unaudited)
For the fiscal year ended September 30, 2008, the Fund paid to shareholders
ordinary income dividends (comprised of short-term capital gains) totaling
$0.065 per share for Class AAA, Class A, Class B, and Class C, respectively, and
long-term capital gains totaling $45,673,104. 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, 2008, 100% of the ordinary
income dividend qualifies for the dividends received deduction available to
corporations. The Fund designates 100% of the ordinary income distribution as
qualified dividend income pursuant to the Jobs and Growth Tax Relief
Reconciliation Act of 2003. The Fund designates 100% of the ordinary income
distribution as qualified short-term gain, pursuant to the American Jobs
Creation Act of 2004.
27
(GRAPHIC)
THE
GABELLI
SMALL CAP
GROWTH
FUND
ANNUAL REPORT
SEPTEMBER 30, 2008
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 per share available daily by calling
800-GABELLI after 6:00 P.M.
BOARD OF DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
GAMCO INVESTORS, INC.
Anthony J. Colavita
ATTORNEY-AT-LAW
ANTHONY J.COLAVITA, P.C.
Vincent D. Enright
FORMER SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
KEYSPAN CORP.
John D. Gabelli
SENIOR VICE PRESIDENT
GABELLI & COMPANY, INC.
Robert J. Morrissey
ATTORNEY-AT-LAW
MORRISSEY, HAWKINS & LYNCH
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT,
PROFESSOR EMERITUS
PACE UNIVERSITY
Anthonie C. van Ekris
CHAIRMAN
BALMAC INTERNATIONAL, INC.
Salvatore J. Zizza
CHAIRMAN
ZIZZA & CO., LTD.
OFFICERS
Bruce N. Alpert
PRESIDENT AND SECRETARY
Peter D. Goldstein
CHIEF COMPLIANCE OFFICER
Agnes Mullady
TREASURER
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
This report is submitted for the general information of the shareholders of The
Gabelli Small Cap Growth Fund. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
GAB443Q308SR
THE GABELLI EQUITY INCOME FUND
ANNUAL REPORT (a)
SEPTEMBER 30, 2008
TO OUR SHAREHOLDERS,
The Gabelli Equity Income Fund's (the "Fund") net asset value ("NAV") per
share declined 8.81% during the third quarter of 2008. Calendar year to date
through September 30th, the Fund declined 17.80% while the Standard & Poor's
("S&P") 500 Index was down 19.27% over the same period.
Enclosed are the investment portfolio and financial statements as of
September 30, 2008.
COMPARATIVE RESULTS
AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2008 (a)(b)
Since
Year to Inception
Quarter Date 1 Year 3 Year 5 Year 10 Year 15 Year (1/2/92)
------- ------- ------ ------ ------ ------- ------- ---------
GABELLI EQUITY INCOME FUND
CLASS AAA ........................ (8.81)% (17.80)% (18.95)% 2.14% 7.70% 7.52% 9.85% 10.37%
S&P 500 Index ....................... (8.36) (19.27) (21.96) 0.22 5.17 3.06 8.39 8.43
Nasdaq Composite Index .............. (8.77) (21.13) (22.57) (0.94) 3.20 2.13 6.96 7.89
Lipper Equity Income Fund Average ... (6.92) (17.48) (20.75) 0.79 6.15 4.59 7.77 8.48
Class A ............................. (8.78) (17.76) (18.92) 2.17 7.69 7.51 9.85 10.37
(14.03)(c) (22.49)(c) (23.58)(c) 0.17(c) 6.42(c) 6.88(c) 9.41(c) 9.98(c)
Class B ............................. (8.92) (18.27) (19.54) 1.39 6.94 7.14 9.59 10.14
(13.47)(d) (22.35)(d) (23.56)(d) 0.41(d) 6.63(d) 7.14 9.59 10.14
Class C ............................. (8.97) (18.28) (19.55) 1.39 6.96 7.15 9.60 10.14
(9.88)(e) (19.09)(e) (20.36)(e) 1.39 6.96 7.15 9.60 10.14
Class I ............................. (8.70) (17.61) (18.77) 2.22 7.75 7.54 9.87 10.39
IN THE CURRENT PROSPECTUS, THE EXPENSE RATIOS FOR CLASS AAA, A, B, C, AND I
SHARES ARE 1.43%, 1.43%, 2.18%, 2.18%, AND 1.18%, RESPECTIVELY. CLASS AAA AND I
SHARES DO NOT HAVE A SALES CHARGE. THE MAXIMUM SALES CHARGE FOR CLASS A, B, AND
C SHARES IS 5.75%, 5.00%, AND 1.00%, RESPECTIVELY.
(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 OF 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' NAV'S PER SHARE 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 AND CLASS I SHARES ON JANUARY 11, 2008.
THE ACTUAL PERFORMANCE FOR THE CLASS B SHARES AND CLASS C SHARES WOULD HAVE
BEEN LOWER AND CLASS I SHARES WOULD HAVE BEEN HIGHER DUE TO THE DIFFERENCES
IN 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 EQUITY INCOME FUND AVERAGE
REFLECTS THE AVERAGE PERFORMANCE OF MUTUAL FUNDS CLASSIFIED IN THIS
PARTICULAR CATEGORY. DIVIDENDS ARE CONSIDERED REINVESTED (EXCEPT FOR THE
NASDAQ COMPOSITE INDEX).YOU CANNOT INVEST DIRECTLY IN AN 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 QUARTER, YEAR TO DATE, ONE YEAR,
THREE YEAR, AND FIVE YEAR PERIODS OF 5%, 5%, 5%, 3%, AND 2%, RESPECTIVELY,
OF THE FUND'S NAV PER SHARE 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 CHARGES FOR THE CLASS C
SHARES UPON REDEMPTION AT THE END OF THE QUARTER, YEAR TO DATE, AND ONE
YEAR PERIODS OF 1% OF THE FUND'S NAV PER SHARE AT THE TIME OF PURCHASE OR
SALE, WHICHEVER IS LOWER.
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, 2008, the Fund's Class AAA Shares
declined 18.95% versus a decrease of 21.96% in the S&P 500 Index.
During the past year, all sectors of the S&P 500 declined significantly
with the exception of the transportation and consumer staples sectors which were
very close to break even. Consequently, the Fund's performance was affected by
the overall market decline. The worst performing sector was the financials
sector which decreased by over 39% due to the mortgage meltdown and the
financial crises that ensued, followed by telecommunications services (-33%) and
information technology (-23%) sectors, which usually thrive in the periods
immediately before and during a growing economy, clearly not present in the past
fiscal year.
Company specific, it was also another strong year for Flowserve Corp. (0.9%
of net assets as of September 30, 2008), which provides pumps, valves and seals
for industrial flow management. Other stocks, which we owned, which appreciated
in value over the full fiscal year were General Mills (1.2%), Wells Fargo
(1.5%), Johnson & Johnson (1.8%), and International Business Machines (1.7%).
The Fund also benefited from several announced acquisitions including, the
acquisition of Wm. Wrigley Jr. (4.0%), the chewing gum maker, by the privately
held chocolate giant Mars, Rohm & Haas (1.9%) acquisition by Dow Chemicals,
Anheuser-Busch (1.7%), the maker of Bud, by the maker of Stella, InBev, UST
(0.2%) by Altria (0.1%), and the technology deal of the year: the acquisition of
Electronic Data Systems (deal closed and shares stopped trading before September
30, 2008) by Hewlett-Packard, among others.
A variety of factors, including the emerging global slowdown and the
financial meltdown, negatively impacted a number of holdings including General
Electric (0.9%), Pfizer (1.3%), Citigroup (1.0%), Verizon (0.6%), Thomas & Betts
(0.3%), and Advanced Medical Optics (0.2%). Long-time holding Cablevision
Systems (0.4%) declined sharply as concerns rose that shareholders would reject
the controlling Dolan family's privatization offer, which they ultimately did.
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
(PERFORMANCE GRAPH)
Gabelli Equity
Income Fund Lipper Equity Income
(Class AAA) Fund Average S&P 500 Index
-------------- -------------------- -------------
1/2/1992 $10,000 $10,000 $10,000
9/30/1992 $10,582 $10,601 $10,242
9/30/1993 $12,752 $12,554 $11,570
9/30/1994 $13,173 $12,748 $11,996
9/30/1995 $15,708 $15,429 $15,560
9/30/1996 $18,323 $17,974 $18,722
9/30/1997 $24,549 $23,632 $26,291
9/30/1998 $25,281 $24,459 $28,679
9/30/1999 $30,291 $27,673 $36,648
9/30/2000 $32,839 $30,539 $41,512
9/30/2001 $32,694 $28,228 $30,465
9/30/2002 $28,908 $23,570 $24,229
9/30/2003 $36,017 $28,352 $30,134
9/30/2004 $42,187 $33,079 $34,310
9/30/2005 $48,975 $37,607 $38,513
9/30/2006 $54,484 $42,022 $42,665
9/30/2007 $64,395 $48,574 $49,824
9/30/2008 $52,192 $38,495 $38,883
Average Annual Total Return*
------------------------------------------
1 Year 5 Year 10 Year Life of Fund
------ ------ ------- -------------
Class AAA (18.95)% 7.70% 7.52% 10.37%
* 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, 2008 through September 30, 2008
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, 2008.
Beginning Ending Annualized Expenses
Account Value Account Value Expense Paid During
04/01/08 09/30/08 Ratio Period*
------------- ------------- ---------- -----------
THE GABELLI EQUITY INCOME FUND
ACTUAL FUND RETURN
Class AAA $1,000.00 $ 895.60 1.46% $ 6.92
Class A $1,000.00 $ 895.80 1.46% $ 6.92
Class B $1,000.00 $ 892.10 2.21% $10.45
Class C $1,000.00 $ 892.00 2.21% $10.45
Class I $1,000.00 $ 896.70 1.19% $ 5.64
HYPOTHETICAL 5% RETURN
Class AAA $1,000.00 $1,017.70 1.46% $ 7.36
Class A $1,000.00 $1,017.70 1.46% $ 7.36
Class B $1,000.00 $1,013.95 2.21% $11.13
Class C $1,000.00 $1,013.95 2.21% $11.13
Class I $1,000.00 $1,019.05 1.19% $ 6.01
* 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
366.
3
SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED)
The following table presents portfolio holdings as a percent of net assets as of
September 30, 2008:
THE GABELLI EQUITY INCOME FUND
Food and Beverage ..................... 17.2%
Financial Services .................... 11.1%
Health Care ........................... 9.3%
Consumer Products ..................... 7.5%
Energy and Utilities: Oil ............. 6.6%
Retail ................................ 5.5%
Telecommunications .................... 3.8%
Specialty Chemicals ................... 3.5%
Energy and Utilities: Integrated ...... 3.3%
Diversified Industrial ................ 3.0%
Aerospace ............................. 2.5%
Energy and Utilities: Services ........ 2.3%
Computer Hardware ..................... 2.0%
Electronics ........................... 1.8%
Equipment and Supplies ................ 1.7%
Metals and Mining ..................... 1.7%
U.S. Government Obligations ........... 1.5%
Automotive: Parts and Accessories ..... 1.5%
Entertainment ......................... 1.5%
Energy and Utilities: Electric ........ 1.5%
Hotels and Gaming ..................... 1.4%
Energy and Utilities: Natural Gas ..... 1.4%
Agriculture ........................... 1.4%
Machinery ............................. 1.2%
Communications Equipment .............. 1.2%
Computer Software and Services ........ 1.0%
Cable and Satellite ................... 0.9%
Automotive ............................ 0.7%
Business Services ..................... 0.6%
Environmental Services ................ 0.5%
Broadcasting .......................... 0.5%
Transportation ........................ 0.4%
Wireless Communications ............... 0.3%
Aviation: Parts and Services .......... 0.3%
Publishing ............................ 0.3%
Manufactured Housing .................. 0.1%
Consumer Services ..................... 0.1%
Energy and Utilities: Water ........... 0.0%
Real Estate ........................... 0.0%
Building and Construction ............. 0.0%
Other Assets and Liabilities (Net) .... (1.1)%
-----
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,
2008. 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 SEC'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, 2008
MARKET
SHARES COST VALUE
- ----------- -------------- --------------
COMMON STOCKS -- 98.5%
AEROSPACE -- 2.5%
140,000 Boeing Co. .................................... $ 9,260,922 $ 8,029,000
2,000 Lockheed Martin Corp. ......................... 47,350 219,340
3,500 Northrop Grumman Corp. ........................ 125,556 211,890
10,000 Raytheon Co. .................................. 279,250 535,100
350,000 Rockwell Automation Inc. ...................... 18,270,020 13,069,000
2,000 Rockwell Collins Inc. ......................... 15,843 96,180
1,260,000 Rolls-Royce Group plc+ ........................ 8,984,010 7,537,868
-------------- --------------
36,982,951 29,698,378
-------------- --------------
AGRICULTURE -- 1.4%
100,000 Archer-Daniels-Midland Co. .................... 2,873,352 2,191,000
131,000 Monsanto Co. .................................. 1,313,918 12,966,380
12,000 The Mosaic Co. ................................ 186,246 816,240
-------------- --------------
4,373,516 15,973,620
-------------- --------------
AUTOMOTIVE -- 0.7%
800,000 General Motors Corp. .......................... 17,950,341 7,560,000
6,000 Navistar International Corp.+ ................. 193,880 325,080
-------------- --------------
18,144,221 7,885,080
-------------- --------------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.4%
1,000 ArvinMeritor Inc. ............................. 10,487 13,040
3,000 BERU AG ....................................... 319,888 316,754
250,000 Genuine Parts Co. ............................. 8,986,399 10,052,500
6,000 Johnson Controls Inc. ......................... 50,425 181,980
50,000 Modine Manufacturing Co. ...................... 771,416 724,000
170,000 O'Reilly Automotive Inc.+ ..................... 4,859,031 4,550,900
140,000 The Pep Boys - Manny, Moe & Jack .............. 1,619,073 865,200
-------------- --------------
16,616,719 16,704,374
-------------- --------------
AVIATION: PARTS AND SERVICES -- 0.3%
5,000 Barnes Group Inc. ............................. 47,698 101,100
46,192 Curtiss-Wright Corp. .......................... 349,652 2,099,426
35,000 GenCorp Inc.+ ................................. 299,658 235,900
20,000 United Technologies Corp. ..................... 557,839 1,201,200
-------------- --------------
1,254,847 3,637,626
-------------- --------------
BROADCASTING -- 0.3%
165,000 CBS Corp., Cl. A .............................. 4,109,756 2,413,950
35,000 CBS Corp., Cl. B .............................. 814,440 510,300
132 Granite Broadcasting Corp.+ ................... 10,795 924
4,000 Societe Television Francaise 1 ................ 86,329 69,883
-------------- --------------
5,021,320 2,995,057
-------------- --------------
BUILDING AND CONSTRUCTION -- 0.0%
918 Colas SA ...................................... 318,206 201,621
-------------- --------------
BUSINESS SERVICES -- 0.6%
4,000 Automatic Data Processing Inc. ................ 114,127 171,000
150,000 Diebold Inc. .................................. 5,659,698 4,966,500
4,000 Landauer Inc. ................................. 134,546 291,000
7,500 MasterCard Inc., Cl. A ........................ 292,500 1,329,975
20,000 R. H. Donnelley Corp.+ ........................ 130,652 39,800
-------------- --------------
6,331,523 6,798,275
-------------- --------------
MARKET
SHARES COST VALUE
- ----------- -------------- --------------
CABLE AND SATELLITE -- 0.9%
190,000 Cablevision Systems Corp., Cl. A .............. $ 2,919,442 $ 4,780,400
80,000 DISH Network Corp., Cl. A+ .................... 2,181,380 1,680,000
16,000 EchoStar Corp., Cl. A+ ........................ 478,840 385,600
50,000 Scripps Networks Interactive Inc., Cl. A ...... 2,183,980 1,815,500
60,000 The DIRECTV Group Inc.+ ....................... 1,241,546 1,570,200
-------------- --------------
9,005,188 10,231,700
-------------- --------------
COMMUNICATIONS EQUIPMENT -- 0.8%
300,000 Corning Inc. .................................. 4,319,319 4,692,000
100,000 Motorola Inc. ................................. 830,109 714,000
100,000 Thomas & Betts Corp.+ ......................... 2,991,929 3,907,000
-------------- --------------
8,141,357 9,313,000
-------------- --------------
COMPUTER HARDWARE -- 2.0%
174,500 International Business Machines Corp. ......... 14,082,385 20,409,520
315,000 Xerox Corp. ................................... 4,516,747 3,631,950
-------------- --------------
18,599,132 24,041,470
-------------- --------------
COMPUTER SOFTWARE AND SERVICES -- 1.0%
2,000 EMC Corp.+ .................................... 19,360 23,920
115,000 Metavante Technologies Inc.+ .................. 2,593,203 2,214,900
230,000 Microsoft Corp. ............................... 6,600,683 6,138,700
154 Telecom Italia Media SpA+ ..................... 205 22
170,000 Yahoo! Inc.+ .................................. 5,202,473 2,941,000
-------------- --------------
14,415,924 11,318,542
-------------- --------------
CONSUMER PRODUCTS -- 7.5%
55,000 Altria Group Inc. ............................. 677,620 1,091,200
175,000 Avon Products Inc. ............................ 5,238,596 7,274,750
15,000 Clorox Co. .................................... 823,581 940,350
10,000 Colgate-Palmolive Co. ......................... 589,614 753,500
7,000 Compagnie Financiere Richemont SA, Cl. A ...... 410,810 304,483
600,000 Eastman Kodak Co. ............................. 8,720,896 9,228,000
63,000 Energizer Holdings Inc.+ ...................... 2,834,133 5,074,650
63,000 Fortune Brands Inc. ........................... 4,616,938 3,613,680
5,000 Hanesbrands Inc.+ ............................. 108,950 108,750
33,000 Harman International Industries Inc. .......... 1,187,446 1,124,310
145,000 Kimberly-Clark Corp. .......................... 9,758,803 9,401,800
7,000 National Presto Industries Inc. ............... 206,562 521,500
10,000 Pactiv Corp.+ ................................. 161,895 248,300
50,000 Philip Morris International Inc. .............. 1,501,172 2,405,000
215,000 Procter & Gamble Co. .......................... 12,169,226 14,983,350
100,000 Reckitt Benckiser Group plc ................... 3,154,703 4,819,727
1,300,000 Swedish Match AB .............................. 17,012,653 22,530,980
78,000 Unilever NV, ADR .............................. 1,542,066 2,196,480
35,000 UST Inc. ...................................... 2,033,769 2,328,900
-------------- --------------
72,749,433 88,949,710
-------------- --------------
See accompanying notes to financial statements.
5
THE GABELLI EQUITY INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- -------------- --------------
COMMON STOCKS (CONTINUED)
CONSUMER SERVICES -- 0.1%
67,500 Rollins Inc. .................................. $ 386,886 $ 1,281,150
-------------- --------------
DIVERSIFIED INDUSTRIAL -- 3.0%
5,000 3M Co. ........................................ 213,645 341,550
5,000 Acuity Brands Inc. ............................ 54,182 208,800
3,000 Alstom ........................................ 294,246 222,847
55,000 Baldor Electric Co. ........................... 1,853,207 1,584,550
110,000 Cooper Industries Ltd., Cl. A ................. 3,148,666 4,394,500
92,100 Crane Co. ..................................... 3,704,676 2,736,291
400,000 General Electric Co. .......................... 12,812,686 10,200,000
175,000 Honeywell International Inc. .................. 5,222,081 7,271,250
25,100 ITT Corp. ..................................... 1,246,573 1,395,811
425,003 National Patent Development Corp.+ ............ 1,047,558 913,757
6,000 Trinity Industries Inc. ....................... 82,100 154,380
135,650 Tyco International Ltd. ....................... 6,166,529 4,750,463
1,500 Walter Industries Inc. ........................ 33,844 71,175
1,037,100 WHX Corp.+ .................................... 1,988,580 1,451,940
-------------- --------------
37,868,573 35,697,314
-------------- --------------
ELECTRONICS -- 1.8%
600,000 Intel Corp. ................................... 12,298,251 11,238,000
340,000 LSI Corp.+ .................................... 3,105,578 1,822,400
180,000 Texas Instruments Inc. ........................ 3,980,219 3,870,000
5,000 Thermo Fisher Scientific Inc.+ ................ 127,325 275,000
130,750 Tyco Electronics Ltd. ......................... 4,363,702 3,616,545
-------------- --------------
23,875,075 20,821,945
-------------- --------------
ENERGY AND UTILITIES: ELECTRIC -- 1.5%
30,000 American Electric Power Co. Inc. .............. 932,060 1,110,900
14,000 DTE Energy Co. ................................ 606,560 561,680
85,000 El Paso Electric Co.+ ......................... 670,852 1,785,000
90,000 FPL Group Inc. ................................ 3,906,222 4,527,000
99,784 Great Plains Energy Inc. ...................... 2,475,161 2,217,201
60,000 Korea Electric Power Corp., ADR ............... 977,409 743,400
56,087 Mirant Corp.+ ................................. 936,815 1,025,831
1,200,000 Mirant Corp., Escrow+ (a) ..................... 0 0
150,000 Northeast Utilities ........................... 3,148,300 3,847,500
80,000 The AES Corp.+ ................................ 268,400 935,200
13,333 UIL Holdings Corp. ............................ 293,785 457,722
-------------- --------------
14,215,564 17,211,434
-------------- --------------
ENERGY AND UTILITIES: INTEGRATED -- 3.3%
42,000 Allegheny Energy Inc. ......................... 404,378 1,544,340
44,000 BP plc, ADR ................................... 1,030,211 2,207,480
46,000 CH Energy Group Inc. .......................... 1,881,549 2,004,220
65,000 Constellation Energy Group Inc. ............... 2,056,712 1,579,500
44,000 Dominion Resources Inc. ....................... 1,932,873 1,882,320
120,000 DPL Inc. ...................................... 3,161,330 2,976,000
200,000 Duke Energy Corp. ............................. 2,462,844 3,486,000
MARKET
SHARES COST VALUE
- ----------- -------------- --------------
400,000 El Paso Corp. ................................. $ 4,614,299 $ 5,104,000
29,000 ENI SpA ....................................... 304,221 759,365
6,269 Iberdrola SA, ADR ............................. 312,666 251,493
25,000 Integrys Energy Group Inc. .................... 1,192,522 1,248,500
80,000 NSTAR ......................................... 1,282,183 2,680,000
75,000 OGE Energy Corp. .............................. 2,043,450 2,316,000
100,000 PNM Resources Inc. ............................ 1,042,460 1,024,000
80,000 Progress Energy Inc. .......................... 3,424,284 3,450,400
15,000 Progress Energy Inc., CVO+ (a) ................ 7,800 4,950
7,200 Public Service Enterprise Group Inc. .......... 156,820 236,088
38,000 Suncor Energy Inc., New York .................. 992,342 1,601,320
21,000 Suncor Energy Inc., Toronto ................... 947,001 868,217
55,000 TECO Energy Inc. .............................. 740,886 865,150
140,000 Westar Energy Inc. ............................ 2,333,669 3,225,600
-------------- --------------
32,324,500 39,314,943
-------------- --------------
ENERGY AND UTILITIES: NATURAL GAS -- 1.4%
17,000 AGL Resources Inc. ............................ 328,041 533,460
40,000 Atmos Energy Corp. ............................ 1,012,558 1,064,800
65,000 National Fuel Gas Co. ......................... 2,418,195 2,741,700
70,000 ONEOK Inc. .................................... 1,559,551 2,408,000
24,000 Piedmont Natural Gas Co. Inc. ................. 394,017 767,040
110,000 Southern Union Co. ............................ 2,047,400 2,271,500
65,000 Southwest Gas Corp. ........................... 1,365,198 1,966,900
200,000 Spectra Energy Corp. .......................... 4,249,072 4,760,000
-------------- --------------
13,374,032 16,513,400
-------------- --------------
ENERGY AND UTILITIES: OIL -- 6.6%
140,000 Anadarko Petroleum Corp. ...................... 7,573,494 6,791,400
35,000 Canadian Oil Sands Trust. ..................... 1,062,358 1,274,700
192,000 Chevron Corp. ................................. 8,828,069 15,836,160
187,000 ConocoPhillips ................................ 5,471,173 13,697,750
20,000 Denbury Resources Inc.+ ....................... 340,653 380,800
49,000 Devon Energy Corp. ............................ 2,021,181 4,468,800
149,000 Exxon Mobil Corp. ............................. 4,735,083 11,571,340
30,000 Marathon Oil Corp. ............................ 1,359,189 1,196,100
30,000 Nexen Inc. .................................... 924,468 696,265
2,000 Niko Resources Ltd. ........................... 114,911 107,512
94,000 Occidental Petroleum Corp. .................... 3,654,851 6,622,300
50,000 OPTI Canada Inc.+ ............................. 1,074,568 519,145
9,700 PetroChina Co. Ltd., ADR ...................... 666,227 996,481
88,000 Petroleo Brasileiro SA, ADR ................... 4,512,539 3,867,600
30,000 Repsol YPF SA, ADR ............................ 631,290 889,800
120,000 Royal Dutch Shell plc, Cl. A, ADR ............. 5,536,435 7,081,200
25,000 StatoilHydro ASA, ADR ......................... 327,939 595,000
17,518 Total SA, ADR ................................. 290,563 1,062,992
170,000 UTS Energy Corp.+ ............................. 997,986 202,866
40,000 WesternZagros Resources Ltd.+ ................. 147,109 46,230
-------------- --------------
50,270,086 77,904,441
-------------- --------------
See accompanying notes to financial statements.
6
THE GABELLI EQUITY INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- -------------- --------------
COMMON STOCKS (CONTINUED)
ENERGY AND UTILITIES: SERVICES -- 2.3%
30,000 ABB Ltd., ADR ................................. $ 351,824 $ 582,000
52,000 Cameron International Corp.+ .................. 746,014 2,004,080
350,000 Halliburton Co. ............................... 10,802,922 11,336,500
40,000 Oceaneering International Inc.+ ............... 1,762,700 2,132,800
40,000 Schlumberger Ltd. ............................. 1,275,020 3,123,600
25,000 Transocean Inc.+ .............................. 2,148,203 2,746,000
175,000 Weatherford International Ltd.+ ............... 3,803,877 4,399,500
-------------- --------------
20,890,560 26,324,480
-------------- --------------
ENERGY AND UTILITIES: WATER -- 0.0%
26,000 Aqua America Inc. ............................. 261,350 462,280
40,000 Suez SA, Strips+ .............................. 0 563
-------------- --------------
261,350 462,843
-------------- --------------
ENTERTAINMENT -- 1.5%
60,000 Grupo Televisa SA, ADR ........................ 1,493,782 1,312,200
100,000 Rank Group plc+ ............................... 318,612 125,782
2,000 The Walt Disney Co. ........................... 48,366 61,380
280,000 Time Warner Inc. .............................. 4,338,490 3,670,800
260,000 Viacom Inc., Cl. A+ ........................... 10,910,554 6,463,600
185,000 Vivendi ....................................... 6,813,381 5,734,940
-------------- --------------
23,923,185 17,368,702
-------------- --------------
ENVIRONMENTAL SERVICES -- 0.5%
200,000 Waste Management Inc. ......................... 6,034,603 6,298,000
-------------- --------------
EQUIPMENT AND SUPPLIES -- 1.7%
12,000 A.O. Smith Corp. .............................. 253,183 470,280
10,000 Danaher Corp. ................................. 734,591 694,000
115,000 Flowserve Corp. ............................... 5,141,384 10,208,550
6,000 Ingersoll-Rand Co. Ltd., Cl. A ................ 120,853 187,020
1,500 Minerals Technologies Inc. .................... 37,937 89,040
40,000 Mueller Industries Inc. ....................... 1,650,585 920,400
7,609 Mueller Water Products Inc., Cl. B ............ 111,552 49,459
12,000 Parker Hannifin Corp. ......................... 459,607 636,000
100,000 Tenaris SA, ADR ............................... 4,514,368 3,729,000
1,000,000 Tomkins plc ................................... 4,862,592 2,733,431
-------------- --------------
17,886,652 19,717,180
-------------- --------------
FINANCIAL SERVICES -- 11.1%
6,324 Alleghany Corp.+ .............................. 1,036,283 2,308,260
220,000 American Express Co. .......................... 9,953,228 7,794,600
15,000 Ameriprise Financial Inc. ..................... 508,947 573,000
23,990 Argo Group International Holdings Ltd.+ ....... 741,793 884,032
25,000 Banco Popular Espanol SA ...................... 185,939 291,766
2,000 Banco Santander Chile SA, ADR ................. 29,250 85,580
18,000 Banco Santander SA, ADR ....................... 64,963 270,360
138,000 Bank of America Corp. ......................... 4,272,294 4,830,000
8,825 BNP Paribas ................................... 362,345 820,965
MARKET
SHARES COST VALUE
- ----------- -------------- --------------
600,000 Citigroup Inc. ................................ $ 26,817,883 $ 12,306,000
40,000 Commerzbank AG, ADR ........................... 855,073 607,372
34,000 Deutsche Bank AG .............................. 1,919,040 2,474,860
100,000 Discover Financial Services ................... 1,855,454 1,382,000
200,300 Federal National Mortgage Association ......... 192,571 306,459
29,000 Fidelity Southern Corp. ....................... 284,963 125,280
40,000 Freddie Mac ................................... 32,375 68,400
190,000 H&R Block Inc. ................................ 4,287,693 4,322,500
24,000 Huntington Bancshares Inc. .................... 380,604 191,760
50,000 Janus Capital Group Inc. ...................... 1,357,742 1,214,000
161,199 JPMorgan Chase & Co. .......................... 5,935,036 7,527,993
12,000 KeyCorp ....................................... 206,662 143,280
95,000 Legg Mason Inc. ............................... 5,620,713 3,615,700
31,000 Leucadia National Corp. ....................... 381,995 1,408,640
98,000 Loews Corp. ................................... 4,757,534 3,870,020
77,000 M&T Bank Corp. ................................ 6,429,185 6,872,250
2,000 Manulife Financial Corp. ...................... 24,694 73,380
424,000 Marsh & McLennan Companies Inc. ............... 12,903,452 13,466,240
135,000 Merrill Lynch & Co., Inc. ..................... 5,694,631 3,415,500
10,000 Moody's Corp. ................................. 171,765 340,000
55,000 Morgan Stanley ................................ 2,800,150 1,265,000
6,000 Northern Trust Corp. .......................... 60,300 433,200
45,000 PNC Financial Services Group Inc. ............. 1,905,739 3,361,500
40,000 Popular Inc. .................................. 738,913 331,600
500 Raiffeisen International Bank Holding AG ...... 28,874 35,174
145,000 SLM Corp.+ .................................... 3,534,953 1,789,300
500,000 Sovereign Bancorp Inc. ........................ 4,789,872 1,975,000
200,000 Sterling Bancorp .............................. 3,013,936 2,892,000
12,000 SunTrust Banks Inc. ........................... 251,737 539,880
50,000 T. Rowe Price Group Inc. ...................... 1,388,039 2,685,500
80,000 TD Ameritrade Holding Corp.+ .................. 1,479,382 1,296,000
1,000 The Allstate Corp. ............................ 33,300 46,120
100,509 The Bank of New York Mellon Corp. ............. 3,075,094 3,274,583
5,000 The Charles Schwab Corp. ...................... 77,500 130,000
2,000 The Dun & Bradstreet Corp. .................... 20,476 188,720
11,000 The Goldman Sachs Group Inc. .................. 1,581,630 1,408,000
50,000 The Phoenix Companies Inc. .................... 650,511 462,000
2,000 The Student Loan Corp. ........................ 210,503 186,000
36,000 The Travelers Companies Inc. .................. 1,428,424 1,627,200
40,000 Unitrin Inc. .................................. 1,156,156 997,600
150,000 Waddell & Reed Financial Inc., Cl. A .......... 3,634,564 3,712,500
480,000 Wells Fargo & Co. ............................. 14,735,177 18,014,400
95,000 Wilmington Trust Corp. ........................ 2,924,219 2,738,850
-------------- --------------
146,783,556 130,980,324
-------------- --------------
See accompanying notes to financial statements.
7
THE GABELLI EQUITY INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- -------------- --------------
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE -- 17.2%
300,000 Anheuser-Busch Companies Inc. ................. $ 16,466,054 $ 19,464,000
52,000 Brown-Forman Corp., Cl. A ..................... 3,213,594 3,692,000
99,200 Cadbury plc, ADR .............................. 4,047,997 4,061,248
90,000 Campbell Soup Co. ............................. 2,648,894 3,474,000
40,000 Coca-Cola Amatil Ltd., ADR .................... 246,844 520,608
10,000 Coca-Cola Femsa SAB de CV, ADR ................ 263,508 504,600
36,000 Constellation Brands Inc., Cl. A+ ............. 675,620 772,560
16,000 Corn Products International Inc. .............. 197,588 516,480
160,000 Dean Foods Co.+ ............................... 3,531,499 3,737,600
75,000 Del Monte Foods Co. ........................... 754,462 585,000
60,000 Diageo plc, ADR ............................... 2,617,330 4,131,600
80,000 Dr. Pepper Snapple Group Inc.+ ................ 1,783,182 2,118,400
132,000 Fomento Economico Mexicano SAB de CV, ADR ..... 2,840,258 5,034,480
210,000 General Mills Inc. ............................ 10,507,932 14,431,200
125,000 Groupe Danone ................................. 6,828,870 8,798,727
900,000 Grupo Bimbo SAB de CV, Cl. A .................. 2,841,250 5,661,775
100,000 H.J. Heinz Co. ................................ 3,517,498 4,997,000
105,000 Heineken NV ................................... 4,763,391 4,189,919
200,000 ITO EN Ltd. ................................... 4,311,208 2,555,592
30,000 ITO EN Ltd., Preference ....................... 697,890 309,153
5,000 Kellogg Co. ................................... 149,740 280,500
440,000 Kraft Foods Inc., Cl. A ....................... 13,435,708 14,410,000
15,000 Metro Inc., Cl. A ............................. 422,865 435,236
100,000 Nestle SA ..................................... 2,083,075 4,287,493
145,000 Nissin Food Products Co. Ltd. ................. 4,896,124 5,126,228
150,000 PepsiAmericas Inc. ............................ 3,445,659 3,108,000
12,000 PepsiCo Inc. .................................. 754,328 855,240
27,008 Pernod-Ricard SA .............................. 2,300,069 2,348,985
35,000 Remy Cointreau SA ............................. 2,060,746 1,634,874
50,000 Sapporo Holdings Ltd. ......................... 510,013 363,406
365,000 The Coca-Cola Co. ............................. 16,799,135 19,301,200
75,000 The Hershey Co. ............................... 3,190,083 2,965,500
55,600 Tootsie Roll Industries Inc. .................. 1,398,580 1,607,396
328,000 Tyson Foods Inc., Cl. A ....................... 5,313,279 3,916,320
1,000 Wimm-Bill-Dann Foods OJSC, ADR+ ............... 73,890 71,000
600,000 Wm. Wrigley Jr. Co. ........................... 46,811,999 47,640,000
750 Wm. Wrigley Jr. Co., Cl. B .................... 41,831 59,250
135,000 YAKULT HONSHA Co. Ltd. ........................ 3,659,573 4,150,722
-------------- --------------
180,101,566 202,117,292
-------------- --------------
HEALTH CARE -- 9.3%
15,000 Abbott Laboratories ........................... 584,062 863,700
155,000 Advanced Medical Optics Inc.+ ................. 4,586,384 2,755,900
MARKET
SHARES COST VALUE
- ----------- -------------- --------------
25,000 Aetna Inc. .................................... $ 890,584 $ 902,750
114,000 Baxter International Inc. ..................... 4,305,228 7,481,820
100,000 Becton Dickinson & Co. ........................ 6,601,932 8,026,000
260,000 Boston Scientific Corp.+ ...................... 3,744,288 3,190,200
72,000 Bristol-Myers Squibb Co. ...................... 1,764,132 1,501,200
57,000 Covidien Ltd. ................................. 2,284,331 3,064,320
140,000 Eli Lilly & Co. ............................... 7,861,239 6,164,200
11,276 GlaxoSmithKline plc, ADR ...................... 515,984 490,055
22,000 Henry Schein Inc.+ ............................ 566,365 1,184,480
105,000 Hospira Inc.+ ................................. 3,804,994 4,011,000
300,000 Johnson & Johnson ............................. 19,025,376 20,784,000
5,000 Laboratory Corp. of America Holdings+ ......... 369,051 347,500
35,000 Medco Health Solutions Inc.+ .................. 909,196 1,575,000
110,000 Merck & Co. Inc. .............................. 3,523,449 3,471,600
5,000 Nobel Biocare Holding AG ...................... 139,480 164,828
140,000 Novartis AG, ADR .............................. 7,727,317 7,397,600
30,000 Patterson Companies Inc.+ ..................... 1,080,112 912,300
840,000 Pfizer Inc. ................................... 22,236,809 15,489,600
150,000 Schering-Plough Corp. ......................... 2,759,763 2,770,500
60,000 St. Jude Medical Inc.+ ........................ 2,658,826 2,609,400
760,000 Tenet Healthcare Corp.+ ....................... 5,275,489 4,218,000
260,000 UnitedHealth Group Inc. ....................... 11,539,968 6,601,400
18,000 William Demant Holding A/S+ ................... 880,509 798,113
40,000 Zimmer Holdings Inc.+ ......................... 2,544,804 2,582,400
-------------- --------------
118,179,672 109,357,866
-------------- --------------
HOTELS AND GAMING -- 1.4%
110,000 International Game Technology ................. 2,738,470 1,889,800
529,411 Ladbrokes plc ................................. 7,677,932 1,755,354
96,000 Las Vegas Sands Corp.+ ........................ 6,044,609 3,466,560
306,000 MGM Mirage+ ................................... 16,885,690 8,721,000
40,000 Starwood Hotels & Resorts Worldwide Inc. ...... 1,100,856 1,125,600
-------------- --------------
34,447,557 16,958,314
-------------- --------------
MACHINERY -- 1.2%
6,000 Caterpillar Inc. .............................. 35,181 357,600
275,000 Deere & Co. ................................... 14,601,291 13,612,500
-------------- --------------
14,636,472 13,970,100
-------------- --------------
MANUFACTURED HOUSING -- 0.1%
250,000 Champion Enterprises Inc.+ .................... 1,828,625 1,387,500
-------------- --------------
METALS AND MINING -- 1.7%
200,000 Alcoa Inc. .................................... 6,667,814 4,516,000
7,000 Carpenter Technology Corp. .................... 300,309 179,550
27,000 Fording Canadian Coal Trust ................... 179,580 2,214,038
60,000 Freeport-McMoRan Copper & Gold Inc. ........... 1,769,462 3,411,000
195,000 Newmont Mining Corp. .......................... 7,983,095 7,558,200
40,000 Peabody Energy Corp. .......................... 1,610,267 1,800,000
-------------- --------------
18,510,527 19,678,788
-------------- --------------
See accompanying notes to financial statements.
8
THE GABELLI EQUITY INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- -------------- --------------
COMMON STOCKS (CONTINUED)
PUBLISHING -- 0.3%
5,000 Idearc Inc. ................................... $ 23,800 $ 6,250
40,000 Lee Enterprises Inc. .......................... 319,337 140,000
6,016 News Corp., Cl. B ............................. 70,881 73,095
60,000 PagesJaunes Groupe SA ......................... 1,664,637 822,716
406 Seat Pagine Gialle SpA+ ....................... 1,350 39
30,633 The E.W. Scripps Co., Cl. A ................... 293,839 216,575
35,000 The McGraw-Hill Companies Inc. ................ 1,280,632 1,106,350
22,000 The New York Times Co., Cl. A ................. 573,269 314,380
1,200 The Washington Post Co., Cl. B ................ 700,030 668,112
2,000 Value Line Inc. ............................... 84,436 66,980
-------------- --------------
5,012,211 3,414,497
-------------- --------------
REAL ESTATE -- 0.0%
7,000 Griffin Land & Nurseries Inc. ................. 137,444 259,560
-------------- --------------
RETAIL -- 5.2%
18,000 Copart Inc.+ .................................. 535,865 684,000
200,000 Costco Wholesale Corp. ........................ 10,357,003 12,986,000
335,000 CVS Caremark Corp. ............................ 12,535,302 11,276,100
36,500 Ingles Markets Inc., Cl. A .................... 846,958 833,295
3,100 Longs Drug Stores Corp. ....................... 220,844 234,484
185,000 Macy's Inc. ................................... 4,670,938 3,326,300
150,000 Safeway Inc. .................................. 3,114,997 3,558,000
500 Sears Holdings Corp.+ ......................... 40,732 46,750
100,000 SUPERVALU Inc. ................................ 2,935,535 2,170,000
180,000 The Great Atlantic & Pacific Tea Co. Inc.+ .... 4,222,332 1,947,600
70,000 The Home Depot Inc. ........................... 2,094,086 1,812,300
70,000 Tractor Supply Co.+ ........................... 2,592,074 2,943,500
225,000 Wal-Mart Stores Inc. .......................... 10,655,134 13,475,250
120,000 Walgreen Co. .................................. 4,460,071 3,715,200
10,000 Weis Markets Inc. ............................. 300,480 360,100
120,000 Whole Foods Market Inc. ....................... 4,285,222 2,403,600
-------------- --------------
63,867,573 61,772,479
-------------- --------------
SPECIALTY CHEMICALS -- 3.5%
44,000 Albemarle Corp. ............................... 576,219 1,356,960
437 Arkema, ADR ................................... 8,969 15,806
30,000 Ashland Inc. .................................. 1,880,605 877,200
210,000 Chemtura Corp. ................................ 1,963,900 957,600
75,000 E.I. du Pont de Nemours & Co. ................. 3,506,768 3,022,500
120,000 Ferro Corp. ................................... 2,375,006 2,412,000
2,000 FMC Corp. ..................................... 64,790 102,780
20,000 H.B. Fuller Co. ............................... 413,172 417,400
147,800 Hercules Inc. ................................. 2,103,967 2,924,962
70,000 International Flavors & Fragrances Inc. ....... 3,373,184 2,762,200
3,500 NewMarket Corp. ............................... 13,508 183,960
100,000 Omnova Solutions Inc.+ ........................ 667,863 199,000
4,000 Quaker Chemical Corp. ......................... 79,615 113,840
315,000 Rohm & Haas Co. ............................... 18,860,119 22,050,000
SHARES/ MARKET
UNITS COST VALUE
- ----------- -------------- --------------
50,000 Sensient Technologies Corp. ................... $ 1,035,110 $ 1,406,500
85,000 The Dow Chemical Co. .......................... 3,720,650 2,701,300
4,000 Zep Inc. ...................................... 17,026 70,560
-------------- --------------
40,660,471 41,574,568
-------------- --------------
TELECOMMUNICATIONS -- 3.7%
365,000 AT&T Inc. ..................................... 9,790,048 10,190,800
180,000 BCE Inc. ...................................... 4,907,738 6,247,800
4,495 Bell Aliant Regional Communications Income
Fund (a)(b) ................................ 117,429 112,330
200,000 BT Group plc .................................. 825,179 572,820
30,000 BT Group plc, ADR ............................. 1,006,938 870,300
140,000 Cable & Wireless plc .......................... 273,765 411,926
45,000 CenturyTel Inc. ............................... 1,481,395 1,649,250
350,000 Cincinnati Bell Inc.+ ......................... 1,886,497 1,081,500
335,000 Deutsche Telekom AG, ADR ...................... 5,919,077 5,102,050
5,360 FairPoint Communications Inc. ................. 49,106 46,471
15,000 France Telecom SA, ADR ........................ 436,434 420,150
140,000 Qwest Communications International Inc. ....... 582,200 452,200
330,000 Sprint Nextel Corp. ........................... 5,235,139 2,013,000
3,300 Telecom Italia SpA, ADR ....................... 31,072 49,236
8,195 Telefonica SA, ADR ............................ 80,699 585,861
144,500 Telephone & Data Systems Inc. ................. 5,307,372 5,165,875
12,000 TELUS Corp. ................................... 185,454 438,280
18,000 TELUS Corp., Non-Voting, ADR .................. 874,021 640,080
225,000 Verizon Communications Inc. ................... 8,241,287 7,220,250
5,000 Windstream Corp. .............................. 43,990 54,700
-------------- --------------
47,274,840 43,324,879
-------------- --------------
TRANSPORTATION -- 0.4%
5,000 Burlington Northern
Santa Fe Corp. ................................ 444,482 462,150
115,000 GATX Corp. .................................... 4,379,544 4,550,550
-------------- --------------
4,824,026 5,012,700
-------------- --------------
WIRELESS COMMUNICATIONS -- 0.3%
2,600 NTT DoCoMo Inc. ............................... 3,779,517 4,104,556
-------------- --------------
TOTAL COMMON STOCKS ........................... 1,133,309,460 1,160,577,708
-------------- --------------
CONVERTIBLE PREFERRED STOCKS -- 0.2%
COMMUNICATIONS EQUIPMENT -- 0.1%
1,100 Lucent Technologies Capital Trust I,
7.750% Cv. Pfd. ............................ 759,000 429,000
-------------- --------------
ENERGY AND UTILITIES: INTEGRATED -- 0.0%
300 El Paso Corp., 4.990% Cv. Pfd. (b) ............ 293,192 316,409
-------------- --------------
ENTERTAINMENT -- 0.0%
3,000 Metromedia International Group Inc.,
7.250% Cv. Pfd.+ ........................... 5,310 39,000
-------------- --------------
See accompanying notes to financial statements.
9
THE GABELLI EQUITY INCOME FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- ----------- -------------- --------------
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
TELECOMMUNICATIONS -- 0.1%
33,000 Cincinnati Bell Inc., 6.750% Cv. Pfd.,
Ser. B ..................................... $ 918,894 $ 1,140,150
-------------- --------------
TOTAL CONVERTIBLE PREFERRED STOCKS ............ 1,976,396 1,924,559
-------------- --------------
WARRANTS -- 0.0%
BROADCASTING -- 0.0%
330 Granite Broadcasting Corp., Ser. A, expire
06/04/12+ .................................. 0 36
330 Granite Broadcasting Corp., Ser. B, expire
06/04/12+ .................................. 0 83
-------------- --------------
TOTAL WARRANTS ............................... 0 119
-------------- --------------
PRINCIPAL
AMOUNT
- -----------
CORPORATE BONDS -- 0.9%
AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.1%
$ 800,000 Standard Motor Products Inc., Sub. Deb. Cv.,
6.750%, 07/15/09 ........................... 769,417 766,000
-------------- --------------
BROADCASTING -- 0.2%
350,000 Sinclair Broadcast Group Inc., Cv. (STEP),
4.875%, 07/15/18 ........................... 330,214 319,375
2,200,000 Sinclair Broadcast Group Inc., Sub. Deb. Cv.,
6.000%, 09/15/12 ........................... 1,914,071 1,883,750
200,000 Young Broadcasting Inc., Sub. Deb., 10.000%,
03/01/11 ................................... 155,904 30,000
-------------- --------------
2,400,189 2,233,125
-------------- --------------
BUSINESS SERVICES -- 0.0%
100,000 BBN Corp., Sub. Deb. Cv., 6.000%,
04/01/12+ (a) .............................. 97,499 0
-------------- --------------
COMMUNICATIONS EQUIPMENT -- 0.3%
4,000,000 Agere Systems Inc., Sub. Deb. Cv., 6.500%,
12/15/09 ................................... 3,967,745 4,060,000
-------------- --------------
RETAIL -- 0.3%
4,100,000 The Great Atlantic & Pacific Tea Co. Inc.,
Cv., 5.125%, 06/15/11 ...................... 4,076,140 2,987,875
-------------- --------------
PRINCIPAL MARKET
AMOUNT COST VALUE
- ----------- -------------- --------------
TELECOMMUNICATIONS -- 0.0%
$ 200,000 Williams Communications Group Inc., Escrow,
10.875%, 10/01/09+ (a) ..................... $ 0 $ 0
-------------- --------------
TOTAL CORPORATE BONDS ......................... 11,310,990 10,047,000
-------------- --------------
U.S. GOVERNMENT OBLIGATIONS -- 1.5%
U.S. TREASURY BILLS -- 1.0%
11,898,000 U.S. Treasury Bills, 1.484% to 1.797%++,
10/16/08 to 01/15/09 ....................... 11,863,928 11,882,871
-------------- --------------
U.S. TREASURY NOTES -- 0.5%
4,300,000 4.500%, 04/30/09 ........................... 4,382,374 4,370,885
1,850,000 4.750%, 12/31/08 ........................... 1,869,728 1,867,779
-------------- --------------
6,252,102 6,238,664
-------------- --------------
TOTAL U.S. GOVERNMENT OBLIGATIONS ............. 18,116,030 18,121,535
-------------- --------------
TOTAL INVESTMENTS -- 101.1% ................... $1,164,712,876 1,190,670,921
==============
OTHER ASSETS AND LIABILITIES (NET) -- (1.1)% .. (12,388,058)
--------------
NET ASSETS -- 100.0% .......................... $1,178,282,863
==============
- ----------
(a) 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, 2008, the
market value of fair valued securities amounted to $117,280 or 0.01% of net
assets.
(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, 2008, the market value of Rule 144A securities amounted to $428,739 or
0.04% of net assets.
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
ADR American Depositary Receipt
CVO Contingent Value Obligation
STEP Step coupon bond. The rate disclosed is that in effect at September 30,
2008.
See accompanying notes to financial statements.
10
THE GABELLI EQUITY INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2008
ASSETS:
Investments, at value (cost $1,164,712,876) ......... $1,190,670,921
Cash ................................................ 800
Receivable for investments sold ..................... 3,218,765
Receivable for Fund shares sold ..................... 3,499,654
Dividends and interest receivable ................... 2,063,983
Prepaid expenses .................................... 49,007
--------------
TOTAL ASSETS ........................................ 1,199,503,130
--------------
LIABILITIES:
Payable for investments purchased ................... 16,118,575
Payable for Fund shares redeemed .................... 3,234,601
Payable for investment advisory fees ................ 1,020,373
Payable for distribution fees ....................... 267,005
Payable for accounting fees ......................... 7,500
Unrealized depreciation on swap contracts ........... 30,877
Other accrued expenses .............................. 541,336
--------------
TOTAL LIABILITIES ................................... 21,220,267
--------------
NET ASSETS applicable to 65,504,519
shares outstanding ............................... $1,178,282,863
==============
NET ASSETS CONSIST OF:
Paid-in capital, each class at $0.001 par value ..... $1,170,062,133
Accumulated net investment income ................... 68,657
Accumulated distributions in excess of net
realized gain on investments, swap contracts,
and foreign currency transactions ................ (17,769,231)
Net unrealized appreciation on investments .......... 25,958,045
Net unrealized depreciation on swap contracts ....... (30,877)
Net unrealized depreciation on foreign
currency translations ............................ (5,864)
--------------
NET ASSETS .......................................... $1,178,282,863
==============
SHARES OF CAPITAL STOCK:
CLASS AAA:
Net Asset Value, offering, and redemption price per
share ($1,135,542,838 / 63,086,231 shares
outstanding; 150,000,000 shares authorized) ...... $ 18.00
==============
CLASS A:
Net Asset Value and redemption price per share
($22,978,541 / 1,280,346 shares outstanding;
50,000,000 shares authorized) .................... $ 17.95(a)
==============
Maximum offering price per share (NAV / .9425,
based on maximum sales charge of 5.75% of
the offering price) .............................. $ 19.05(a)
==============
CLASS B:
Net Asset Value and offering price per share
($252,191 / 14,548 shares outstanding;
50,000,000 shares authorized) .................... $ 17.34(b)
==============
CLASS C:
Net Asset Value and offering price per share
($18,547,337 / 1,070,065 shares outstanding;
50,000,000 shares authorized) .................... $ 17.33(b)
==============
CLASS I:
Net Asset Value, offering, and redemption price
per share ($961,956 / 53,329 shares outstanding;
50,000,000 shares authorized) .................... $ 18.04
==============
- ----------
(a) Shareholder transactions may have been processed at a different net asset
value.
(b) Redemption price varies based on the length of time held.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2008
INVESTMENT INCOME:
Dividends (net of foreign taxes of $579,453) ........ $ 26,275,560
Interest ............................................ 2,648,453
--------------
TOTAL INVESTMENT INCOME ............................. 28,924,013
--------------
EXPENSES:
Investment advisory fees ............................ 12,539,690
Distribution fees - Class AAA ....................... 3,035,251
Distribution fees - Class A ......................... 49,283
Distribution fees - Class B ......................... 3,264
Distribution fees - Class C ......................... 192,315
Shareholder services fees ........................... 1,319,607
Shareholder communications expenses ................. 382,191
Custodian fees ...................................... 223,199
Registration expenses ............................... 100,161
Legal and audit fees ................................ 91,469
Accounting fees ..................................... 45,000
Directors' fees ..................................... 36,581
Interest expense .................................... 250
Miscellaneous expenses .............................. 92,042
--------------
TOTAL EXPENSES ...................................... 18,110,303
Less: Custodian fee credits ......................... (10,842)
--------------
NET EXPENSES ........................................ 18,099,461
--------------
NET INVESTMENT INCOME ............................... 10,824,552
--------------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS, SWAP CONTRACTS, AND
FOREIGN CURRENCY:
Net realized loss on investments .................... (8,933,270)
Net realized loss on swap contracts ................. (278,646)
Net realized gain on foreign
currency transactions ............................ 14,715
--------------
Net realized loss on investments, swap contracts,
and foreign currency transactions ................ (9,197,201)
--------------
Net change in unrealized appreciation/
(depreciation) on investments .................... (265,150,188)
Net change in unrealized appreciation/
(depreciation) on swap contracts ................. (15,553)
Net change in unrealized appreciation/
(depreciation) on foreign currency translations (8,101)
--------------
Net change in unrealized appreciation/
(depreciation) on investments, swap contracts,
and foreign currency translations ................ (265,173,842)
--------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS, SWAP
CONTRACTS, AND FOREIGN CURRENCY ..................... (274,371,043)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ... $ (263,546,491)
==============
See accompanying notes to financial statements.
11
THE GABELLI EQUITY INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007
------------------ ------------------
OPERATIONS:
Net investment income ............................... $ 10,824,552 $ 10,235,599
Net realized gain/(loss) on investments, swap
contracts, and foreign currency transactions ..... (9,197,201) 25,662,276
Net change in unrealized appreciation/(depreciation)
on investments, swap contracts, and foreign
currency translations ............................ (265,173,842) 129,138,838
-------------- --------------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ....................................... (263,546,491) 165,036,713
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class AAA ........................................ (10,546,445) (10,622,391)
Class A .......................................... (176,682) (122,443)
Class B .......................................... (2,809) (3,257)
Class C .......................................... (173,060) (146,754)
Class I .......................................... (5,950) --
-------------- --------------
(10,904,946) (10,894,845)
-------------- --------------
Net realized gain on investments
Class AAA ........................................ (21,351,419) (25,511,616)
Class A .......................................... (316,681) (276,274)
Class B .......................................... (6,167) (11,191)
Class C .......................................... (328,750) (275,224)
-------------- --------------
(22,003,017) (26,074,305)
-------------- --------------
Return of capital
Class AAA ........................................ (9,231,544) --
Class A .......................................... (154,376) --
Class B .......................................... (2,462) --
Class C .......................................... (151,338) --
Class I .......................................... (5,126) --
-------------- --------------
(9,544,846) --
-------------- --------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ................. (42,452,809) (36,969,150)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Class AAA ........................................ 239,884,656 271,771,201
Class A .......................................... 12,798,114 5,538,183
Class B .......................................... (12,254) (51,212)
Class C .......................................... 6,182,277 7,800,453
Class I .......................................... 1,135,297 --
-------------- --------------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS ..................................... 259,988,090 285,058,625
-------------- --------------
REDEMPTION FEES ..................................... 7,092 10,314
-------------- --------------
NET INCREASE/(DECREASE) IN NET ASSETS ............... (46,004,118) 413,136,502
NET ASSETS:
Beginning of period ................................. 1,224,286,981 811,150,479
-------------- --------------
End of period (including undistributed net investment
income of $68,657 and $0, respectively) .......... $1,178,282,863 $1,224,286,981
============== ==============
See accompanying notes to financial statements.
12
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 Return
Ended Beginning Investment Gain (Loss) on Investment Investment Gain on of Total
September 30 of Period Income(a) Investments Operations Income Investments Capital Distribution
- ------------ --------- ---------- -------------- ---------- ---------- ----------- ------- ------------
CLASS AAA
2008 $22.98 $0.18 $(4.43) $(4.25) $(0.17) $(0.40) $(0.16) $(0.73)
2007 20.23 0.22 3.37 3.59 (0.39) (0.45) -- (0.84)
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)
CLASS A
2008 $22.91 $0.18 $(4.41) $(4.23) $(0.17) $(0.40) $(0.16) $(0.73)
2007 20.17 0.22 3.36 3.58 (0.39) (0.45) -- (0.84)
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
2008 $22.32 $0.02 $(4.27) $(4.25) $(0.17) $(0.40) $(0.16) $(0.73)
2007 19.82 0.06 3.28 3.34 (0.39) (0.45) -- (0.84)
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
2008 $22.31 $0.03 $(4.28) $(4.25) $(0.17) $(0.40) $(0.16) $(0.73)
2007 19.81 0.05 3.29 3.34 (0.39) (0.45) -- (0.84)
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)
CLASS I
2008(f) $21.42 $0.19 $(3.30) $(3.11) $(0.14) -- $(0.13) $(0.27)
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA
---------------------------------------------
Net
Net Asset 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
2008 $ 0.00(b) $18.00 (18.95)% $1,135,543 0.87% 1.43%(c) 22%
2007 0.00(b) 22.98 18.19 1,191,351 1.01 1.43(c) 12
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
CLASS A
2008 $ 0.00(b) $17.95 (18.92)% $ 22,979 0.88% 1.43%(c) 22%
2007 0.00(b) 22.91 18.20 15,313 1.00 1.43(c) 12
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
2008 $ 0.00(b) $17.34 (19.54)% $ 252 0.12% 2.18%(c) 22%
2007 0.00(b) 22.32 17.28 344 0.29 2.18(c) 12
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
2008 $ 0.00(b) $17.33 (19.55)% $ 18,547 0.13% 2.18%(c) 22%
2007 0.00(b) 22.31 17.29 17,279 0.24 2.18(c) 12
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
CLASS I
2008(f) $ 0.00(b) $18.04 (14.65)% $ 962 1.31%(e) 1.18%(c)(e) 22%
- ----------
+ 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.
++ Effective in 2008, a change in accounting policy was adopted with regard to
the calculation of the portfolio turnover rate to include cash due to
mergers. Had this policy been adopted retroactively, the portfolio turnover
rate for the fiscal years ended September 30, 2007, 2006, 2005, and 2004
would have been 20%, 34%, 26%, and 15%, respectively.
(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, respectively. For the fiscal years ended September
30, 2008 and 2007, the effect of the custodian fee credits was minimal.
(d) From the commencement of offering Class A, Class B, and Class C Shares on
December 31, 2003.
(e) Annualized.
(f) From the commencement of offering Class I Shares on January 11, 2008
through September 30, 2008.
See accompanying notes to financial statements.
13
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.
Statement of Financial Accounting Standard No. 157, "Fair Value Measurements"
("SFAS 157") 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
14
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. As of September 30, 2008, the Fund does not believe
the adoption of SFAS 157 will impact the amounts reported in the financial
statements.
In March 2008, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard No. 161, "Disclosures about
Derivative Instruments and Hedging Activities" ("SFAS 161") that is effective
for fiscal years beginning after November 15, 2008. SFAS 161 is intended to
improve financial reporting for derivative instruments by requiring enhanced
disclosure that enables investors to understand how and why an entity uses
derivatives, how derivatives are accounted for, and how derivative instruments
affect an entity's results of operations and financial position. Management is
currently evaluating the implications of SFAS 161 on the Fund's financial
statement disclosures.
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, 2008, there were no open repurchase agreements.
SWAP AGREEMENTS. The Fund may enter into equity and contract for difference swap
transactions. The use of swaps is a highly specialized activity that involves
investment techniques and risks different from those associated with ordinary
portfolio security transactions. In a swap, a set of future cash flows are
exchanged between two counterparties. One of these cash flow streams will
typically be based on a reference interest rate combined with the performance of
a notional value of shares of a stock. The other will be based on the
performance of the shares of a stock. There is no assurance that the swap
contract counterparties will be able to meet their obligations pursuant to the
swap contracts, or that, in the event of default, the Fund will succeed in
pursuing contractual remedies. The Fund thus assumes the risk that it may be
delayed in or prevented from obtaining payments owed to it pursuant to the swap
contracts. The creditworthiness of the swap contract counterparties is closely
monitored in order to minimize the risk. Depending on the general state of
short-term interest rates and the returns of the Fund's portfolio securities at
that point in time, such a default could negatively affect the Fund's ability to
make dividend payments. In addition, at the time a swap transaction reaches its
scheduled termination date, there is a risk that the Fund will not be able to
obtain a replacement transaction or that the terms of the replacement will not
be as favorable as on the expiring transaction. If this occurs, it could have a
negative impact on the Fund's ability to make dividend payments.
The use of derivative instruments involves, to varying degrees, elements of
market and counterparty risk in excess of the amount recognized below. The
change in value of swaps, including the accrual of periodic amounts of interest
to be paid or received on swaps, is reported as unrealized appreciation or
depreciation.
15
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Effective March 16, 2008, Bear, Stearns International Limited entered into a
Guaranty Agreement with JPMorgan Chase & Co., whereby JPMorgan Chase & Co.
unconditionally guaranties the due and punctual payment of certain liabilities
of Bear, Stearns International Limited, including the current liabilities of
Bear, Stearns International Limited to the Fund. As of September 30, 2008, the
Fund held contract for difference swaps with Bear, Stearns International Limited
which are covered by the JPMorgan Chase & Co. Guaranty Agreement as of the date
of the report. Details of the swaps at September 30, 2008 are as follows:
NET
NOTIONAL EQUITY SECURITY INTEREST RATE/ TERMINATION UNREALIZED
AMOUNT RECEIVED EQUITY SECURITY PAID DATE DEPRECIATION
------- --------------------- ------------------------ ----------- -------------
Market Value Overnight LIBOR plus
Appreciation on: 40 bps plus Market Value
Depreciation on:
$188,919 (140,000 Shares) Rank Group plc Rank Group plc 05/15/09 $(13,149)
137,140 (20,000 Shares) Rolls-Royce Group plc Rolls-Royce Group plc 02/17/09 (17,728)
--------
$(30,877)
========
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 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, 2008, 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,
2008.
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 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.
16
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, 2008, 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.
17
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 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 AND INTEREST EXPENSE. 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." When cash balances are
overdrawn, the Fund is charged an overdraft fee equal to 2.00% above the federal
funds rate on outstanding balances. This amount, if any, would be shown as
"interest expense" in the Statement of Operations.
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, 2008, reclassifications were made to decrease accumulated
distributions in excess of net investment income by $9,672,345 and increase
accumulated distributions in excess of net realized gain on investments by
$127,499, with an offsetting adjustment to additional paid-in capital.
The tax character of distributions paid during the fiscal years ended September
30, 2008 and September 30, 2007 was as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007
------------------ ------------------
DISTRIBUTIONS PAID FROM:
Ordinary income
(inclusive of short-term capital gains)... $11,894,382 $20,253,574
Net long-term capital gains.................. 21,013,581 16,715,576
Return of capital............................ 9,544,846 --
----------- -----------
Total distributions paid..................... $42,452,809 $36,969,150
=========== ===========
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 source of the distribution is determined after the end of the calendar
year. To the extent such distributions are made from current earnings and
profits, they are considered ordinary income or long-term capital gains. The
Fund's current distribution policy may restrict the Fund's ability to pay out
all of its net realized long-term capital gains as a Capital Gain Dividend. 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.
18
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 2008, the components of accumulated earnings/losses on a tax
basis were as follows:
Net unrealized appreciation........... $13,545,730
Post-October capital loss deferral.... (5,378,169)
Other temporary differences*.......... 53,169
-----------
Total accumulated earnings......... $ 8,220,730
===========
- ----------
* Other temporary differences are primarily due to return of capital
adjustments, mark to market adjustments on swaps, and basis adjustments to
hybrid income.
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, 2008, the Fund deferred capital losses of $5,378,169.
At September 30, 2008, the difference between book and tax basis unrealized
appreciation is primarily due to deferral of losses on wash sales and basis
adjustments on investments in partnerships.
The following summarizes the tax cost of investments and the related unrealized
appreciation/depreciation at September 30, 2008:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
-------------- ------------ -------------- --------------
Investments....... $1,177,088,450 $178,614,965 $(165,032,494) $13,582,471
Swap contracts.... -- -- (30,877) (30,877)
-------------- ------------ ------------- -----------
$1,177,088,450 $178,614,965 $(165,063,371) $13,551,594
============== ============ ============= ===========
The Fund has adopted FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48"). FIN 48 provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in the
financial statements. FIN 48 requires the evaluation of tax positions taken or
expected to be taken in the course of preparing the Trust's tax returns to
determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. Tax positions not deemed to meet the
"more-likely-than-not" threshold are recorded as a tax benefit or expense in the
current year. The adoption of FIN 48 did not result in the recording of any tax
benefit or expense in the current period.
As of and during the year ended September 30, 2008, the Fund did not have a
liability for any unrecognized tax benefits. The Fund recognizes interest and
penalties, if any, related to unrecognized tax benefits as income tax expense in
the statement of operations. During the period, the Fund did not incur any
interest or penalties. Each of the tax years in the three-year period ended
September 30, 2008, remains subject to examination by the Internal Revenue
Service and state tax authorities. Management's determination regarding FIN 48
may be subject to review and adjustment at a later date based on factors
including, but not limited to, an on-going analysis of tax laws, regulations and
interpretations thereof.
19
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS. The Fund has 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 who is not considered to be an affiliated
person an annual retainer of $9,000 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 attended and the
Chairman of the Audit Committee and the Lead Director each receives an annual
fee of $1,000. 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, except for Class I 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, 2008, other than short-term securities and
U.S. Government obligations, aggregated $505,561,671 and $255,378,848,
respectively.
Purchases and proceeds from the sales of U.S. Government obligations for the
fiscal year ended September 30, 2008, other than short-term obligations,
aggregated $9,181,279 and $2,887,000, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the fiscal year ended September 30,
2008, the Fund paid brokerage commissions on security trades of $551,673 to
Gabelli & Company. Additionally, Gabelli & Company informed the Fund that it
received $41,811 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, 2008, 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 participates in an unsecured line of credit of up to
$75,000,000, and may borrow up to 10% of its net assets 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,
is shown as "interest expense" in the Statement of Operations. During the fiscal
year ended September 30, 2008, there were no borrowings under the line of
credit.
8. CAPITAL STOCK. The Fund currently offers five classes of shares - Class AAA
Shares, Class A Shares, Class B Shares, Class C Shares, and Class I 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 I Shares are offered to foundations, endowments,
institutions, and employee benefit plans. 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
20
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. Class I Shares were
first issued on January 11, 2008.
The Fund imposes a redemption fee of 2.00% on all classes of shares that are
redeemed or exchanged on or before the seventh 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, 2008 and September 30,
2007, amounted to $7,092 and $10,314, respectively.
The redemption fee does not apply to redemptions of shares where (i) the shares
were purchased through automatic reinvestment of distributions, (ii) the
redemption was initiated by the Fund, (iii) the shares were purchased through
programs that collect the redemption fee at the program level and remit them to
the Fund, or (iv) the shares were purchased through programs that the Adviser
determines to have appropriate anti-short-term trading policies in place or as
to which the Adviser has received assurances that look-through redemption fee
procedures or effective anti-short-term trading policies and procedures are in
place.
Transactions in shares of capital stock were as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007
----------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ---------- ------------
CLASS AAA CLASS AAA
----------------------------- --------------------------
Shares sold........................................ 24,093,784 $ 504,580,779 20,047,350 $ 435,048,849
Shares issued upon reinvestment of distributions... 1,797,042 38,520,431 1,598,441 33,658,795
Shares redeemed.................................... (14,644,330) (303,216,554) (9,065,356) (196,936,443)
------------ ------------- ---------- -------------
Net increase.................................... 11,246,496 $ 239,884,656 12,580,435 $ 271,771,201
============ ============= ========== =============
CLASS A CLASS A
----------------------------- --------------------------
Shares sold........................................ 798,290 $ 16,578,039 337,809 $ 7,382,957
Shares issued upon reinvestment of distributions... 25,861 548,965 15,265 320,840
Shares redeemed.................................... (212,203) (4,328,890) (100,074) (2,165,614)
------------ -------------- ---------- -------------
Net increase.................................... 611,948 $ 12,798,114 253,000 $ 5,538,183
============ ============== ========== =============
CLASS B CLASS B
----------------------------- ---------------------------
Shares sold........................................ 9,738 $ 196,093 -- --
Shares issued upon reinvestment of distributions... 543 11,320 700 $ 14,330
Shares redeemed.................................... (11,132) (219,667) (3,076) (65,542)
------------ -------------- ---------- -------------
Net decrease.................................... (851) $ (12,254) (2,376) $ (51,212)
============ ============== ========== =============
CLASS C CLASS C
----------------------------- ---------------------------
Shares sold........................................ 472,038 $ 9,589,680 400,018 $ 8,488,767
Shares issued upon reinvestment of distributions... 29,534 611,310 18,848 388,816
Shares redeemed.................................... (205,866) (4,018,713) (50,547) (1,077,130)
------------ -------------- ---------- -------------
Net increase.................................... 295,706 $ 6,182,277 368,319 $ 7,800,453
============ ============== ========== =============
CLASS I*
-----------------------------
Shares sold........................................ 54,128 $ 1,152,550
Shares issued upon reinvestment of distributions... 550 11,076
Shares redeemed.................................... (1,349) (28,329)
------------ --------------
Net increase.................................... 53,329 $ 1,135,297
============ ==============
- ----------
* From the commencement of offering Class I Shares on January 11, 2008.
21
THE GABELLI EQUITY INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. On April 24, 2008, the Adviser entered into an administrative
settlement with the SEC to resolve the SEC's inquiry regarding prior frequent
trading activity in shares of the GAMCO Global Growth Fund (the "Global Growth
Fund") by one investor who was banned from the Global Growth Fund in August
2002. In the settlement, the SEC found that the Adviser had violated Section
206(2) of the Investment Advisers Act, Section 17(d) of the 1940 Act and Rule
17d-1 thereunder, and had aided and abetted and caused violations of Section
12(d)(1)(B)(i) of the 1940 Act. Under the terms of the settlement, the Adviser,
while neither admitting nor denying the SEC's findings and allegations, agreed,
among other things, to pay the previously reserved total of $16 million
(including a $5 million penalty), of which at least $11 million will be
distributed to shareholders of the Global Growth Fund in accordance with a plan
to be developed by an independent distribution consultant and approved by the
independent directors of the Global Growth Fund and the staff of the SEC, and to
cease and desist from future violations of the above referenced federal
securities laws. The settlement will not have a material adverse impact on the
Adviser or its ability to fulfill its obligations under the Advisory Agreement.
On the same day, the SEC filed a civil action against the Executive Vice
President and Chief Operating Officer of the Adviser, alleging violations of
certain federal securities laws arising from the same matter. The officer is
also an officer of the Global Growth Fund and other funds in the Gabelli/GAMCO
fund complex. The officer denies the allegations and is continuing in his
positions with the Adviser and the funds. The Adviser currently expects that any
resolution of the action against the officer will not have a material adverse
impact on the Adviser or its ability to fulfill its obligations under the
Advisory Agreement.
In a separate matter, in August 2008, the Adviser, while neither admitting nor
denying the SEC's findings and allegations, made an offer to the staff of the
SEC to settle a previously disclosed matter concerning compliance with Section
19(a) and Rule 19a-1 of the 1940 Act by two closed-end funds managed by the
Adviser. These provisions require registered investment companies to provide
written statements to shareholders when a distribution is made in the nature of
a dividend from a source other than net investment income. While the two funds
sent annual statements and provided other materials containing this information,
the funds did not send the notices required by Rule 19a-1 to shareholders with
each distribution in 2002 and 2003. The Adviser believes that the funds have
been in compliance with Rule 19a-1 since that time. The Adviser believes that
the settlement would have no effect on the funds or any material adverse effect
on the Adviser or its ability to manage the funds. This offer of settlement is
subject to final agreement regarding the specific language of the SEC's
administrative order and other settlement documents and approval by the SEC.
22
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, 2008, 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, 2008, by correspondence with the Fund's
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, 2008, 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 19, 2008
23
THE GABELLI EQUITY INCOME FUND
ADDITIONAL FUND INFORMATION (UNAUDITED)
The business and affairs of the Fund are managed under the direction of the
Corporation's Board of Directors. Information pertaining to the Directors and
officers of the Corporation is set forth below. The Corporation's Statement of
Additional Information includes additional information about the Corporation'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.
NUMBER
OF FUNDS IN
NAME, POSITION(S) TERM OF OFFICE FUND COMPLEX
ADDRESS(1) AND LENGTH OF OVERSEEN BY PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AND AGE TIME SERVED(2) DIRECTOR DURING PAST FIVE YEARS HELD BY DIRECTOR(3)
- ------------------------ -------------- ------------ ------------------------------------ ----------------------------------
INTERESTED DIRECTORS(4):
MARIO J. GABELLI Since 1991 26 Chairman and Chief Executive Officer Director of Morgan Group Holdings,
Director and of GAMCO Investors, Inc. and Chief Inc. (holding company); Chairman
Chief Investment Officer Investment Officer-Value Portfolios of the Board of LICT Corp.
Age: 66 of Gabelli Funds, LLC and GAMCO (multimedia and communication
Asset Management Inc.; services company)
Director/Trustee or Chief Investment
Officer of other registered
investment companies in the
Gabelli/GAMCO Funds complex;
Chairman and Chief Executive Officer
of GGCP, Inc.
JOHN D. GABELLI Since 1991 10 Senior Vice President of Gabelli & Director of GAMCO Investors, Inc.
Director Company, Inc. (asset management)
Age: 64
INDEPENDENT DIRECTORS(5):
ANTHONY J. COLAVITA Since 1991 37 Partner in the law firm of --
Director Anthony J. Colavita, P.C.
Age: 72
VINCENT D. ENRIGHT Since 1991 17 Former Senior Vice President and Director of Echo Therapeutics,
Director Chief Financial Officer of KeySpan Inc. (therapeutics and
Age: 64 Corporation (public utility) diagnostics)
ROBERT J. MORRISSEY Since 1991 6 Partner in the law firm of --
Director Morrissey, Hawkins & Lynch
Age: 69
ANTHONY R. PUSTORINO Since 1991 14 Certified Public Accountant; Director of The LGL Group, Inc.
Director Professor Emeritus, Pace University (diversified manufacturing)
Age: 83
ANTHONIE C. VAN EKRIS Since 1991 20 Chairman of BALMAC International, --
Director Inc. (commodities and futures
Age: 74 trading)
SALVATORE J. ZIZZA Since 2001 28 Chairman of Zizza & Company, Ltd. Director of Hollis-Eden
Director (consulting) Pharmaceuticals (biotechnology);
Age: 62 Director of Earl Scheib, Inc.
(automotive services)
24
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
President and Secretary Officer of Gabelli Funds, LLC since 1988 and an
Age: 56 officer of all of the registered investment
companies in the Gabelli/GAMCO Funds complex;
Director and President of Teton Advisors, Inc.
(formerly Gabelli Advisers, Inc.) since 1998
AGNES MULLADY Since 2006 Vice President of Gabelli Funds, LLC since 2007;
Treasurer Officer of all of the registered investment
Age: 50 companies in the Gabelli/GAMCO Funds complex;
Senior Vice President of 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.
PETER D. GOLDSTEIN Since 2004 Director of Regulatory Affairs at GAMCO Investors,
Chief Compliance Officer Inc. since 2004; Chief Compliance Officer of all of
Age: 55 the registered investment companies in the
Gabelli/GAMCO Funds complex; Vice President of
Goldman Sachs Asset Management from 2000 through
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.
5 Directors who are not interested persons are considered "Independent"
Directors.
2008 TAX NOTICE TO SHAREHOLDERS (Unaudited)
For the fiscal year ended September 30, 2008, the Fund paid to shareholders
ordinary income dividends (comprised of net investment income and short-term
capital gains) totaling $0.20, $0.20, $0.20, $0.20, and $0.14 per share for
Class AAA, Class A, Class B, Class C, and Class I, respectively, and long-term
capital gains totaling $21,013,581. 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, 2008, 100% of the ordinary income
dividend qualifies for the dividends received deduction available to
corporations. The Fund designates 100% of the ordinary income distribution as
qualified dividend income pursuant to the Jobs and Growth Tax Relief
Reconciliation Act of 2003. The Fund designates 9.54% of the ordinary income
distribution as qualified interest income, and 100% of the ordinary income
distribution as qualified short-term gain, pursuant to the American Jobs
Creation Act of 2004.
U.S. GOVERNMENT INCOME:
The percentage of the ordinary income dividend paid by the Fund during fiscal
year 2008 which was derived from U.S. Treasury securities was 4.63%. 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 2008. 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.
25
GABELLI/GAMCO 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 or Teton Advisors, 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
SHAREHOLDER?
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:
- - 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.
- - 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 website, www.sec.gov.
WHAT DO WE DO TO PROTECT YOUR PERSONAL INFORMATION?
We restrict access to non-public personal information about you to the people
who need to know that information in order to provide services to you or the
Fund and to ensure that we are complying with the laws governing the securities
business. We maintain physical, electronic, and procedural safeguards to keep
your personal information confidential.
GABELLI FAMILY OF FUNDS
VALUE
GABELLI ASSET FUND
Seeks to invest primarily in a diversified portfolio of common stocks selling at
significant discounts to their private market value. The Fund's primary
objective is growth of capital. (MULTICLASS)
PORTFOLIO MANAGER: MARIO J. GABELLI, CFA
GABELLI BLUE CHIP VALUE FUND
Seeks long term growth of capital through investment primarily in the common
stocks of established companies which are temporarily out of favor. The fund's
objective is to identify a catalyst or sequence of events that will return the
company to a higher value. (MULTICLASS)
PORTFOLIO MANAGER: BARBARA MARCIN, CFA
GAMCO 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 at the time of investment 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
GAMCO 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)
PORTFOLIO MANAGER: NICHOLAS F. GALLUCCIO
GABELLI WOODLAND SMALL CAP VALUE FUND
Seeks to invest primarily in the common stocks of smaller companies (market
capitalizations generally 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
GAMCO 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 average market 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
GAMCO 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
GAMCO 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)
PORTFOLIO MANAGER: BARBARA MARCIN, CFA
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
GABELLI SRI FUND
Seeks to invest in common and preferred stocks of companies that meet the Fund's
guidelines for social responsibility at the time of investment, looking to avoid
companies in tobacco, alcohol, and gaming, defense/weapons contractors, and
manufacturers of abortifacients. The Fund's primary objective is capital
appreciation. (MULTICLASS)
PORTFOLIO MANAGER: CHRISTOPHER C. DESMARAIS
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 worldwide 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
GABELLI ENTERPRISE MERGERS AND ACQUISITIONS FUND
Seeks to invest in securities believed to be likely acquisition targets within
12-18 months or in arbitrage transactions of publicly announced mergers or other
corporate reorganizations. The Fund's primary objective is capital appreciation.
(MULTICLASS)
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. (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
GAMCO 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)
CO-PORTFOLIO MANAGERS: JUDITH A. RANERI
RONALD S. EAKER
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.
(GRAPHIC)
THE
GABELLI
EQUITY
INCOME
FUND
ANNUAL REPORT
SEPTEMBER 30, 2008
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 per share available daily by calling
800-GABELLI after 6:00 P.M.
BOARD OF DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
GAMCO INVESTORS, INC.
Anthony J. Colavita
ATTORNEY-AT-LAW
ANTHONY J. COLAVITA, P.C.
Vincent D. Enright
FORMER SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
KEYSPAN CORP.
John D. Gabelli
SENIOR VICE PRESIDENT
GABELLI & COMPANY, INC.
Robert J. Morrissey
ATTORNEY-AT-LAW
MORRISSEY, HAWKINS & LYNCH
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT,
PROFESSOR EMERITUS
PACE UNIVERSITY
Anthonie C. van Ekris
CHAIRMAN
BALMAC INTERNATIONAL, INC.
Salvatore J. Zizza
CHAIRMAN
ZIZZA & CO., LTD.
OFFICERS
Bruce N. Alpert
PRESIDENT AND SECRETARY
Peter D. Goldstein
CHIEF COMPLIANCE OFFICER
Agnes Mullady
TREASURER
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
This report is submitted for the general information of the shareholders of The
Gabelli Equity Income Fund. It is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective prospectus.
GAB444Q308SR
THE GABELLI WOODLAND SMALL CAP VALUE FUND
ANNUAL REPORT (a)
SEPTEMBER 30, 2008
TO OUR SHAREHOLDERS,
The Gabelli Woodland Small Cap Value Fund (the "Fund") outperformed its
small cap benchmark, the Russell 2000 Index, as well as the other broad based
market indices for the twelve month period ended September 30, 2008. During this
period, the Fund's net asset value ("NAV") per share declined 13.20% versus
declines of 14.48% for the Russell 2000 Index, 21.96% for the Standard & Poor's
("S&P") 500 Index, and 19.32% for the Value Line Composite Index.
COMPARATIVE RESULTS
AVERAGE ANNUAL RETURNS THROUGH SEPTEMBER 30, 2008 (A)(B)
Since
Inception
Quarter 1 Year 3 Year 5 Year (12/31/02)
------- -------- ------ ------ ----------
GABELLI WOODLAND SMALL CAP VALUE FUND
CLASS AAA ........................ (0.85)% (13.20)% 1.45% 8.84% 8.71%
Russell 2000 Index .................. (1.11) (14.48) 1.83 8.15 11.83
S&P 500 Index ....................... (8.36) (21.96) 0.22 5.17 7.00
Value Line Composite Index .......... (4.32) (19.32) 0.51 7.54 11.25
Class A ............................. (0.85) (13.19) 1.51 8.92 8.76
(6.55)(c) (18.18)(c) (0.47)(c) 7.64(c) 7.64(c)
Class B ............................. (1.18) (14.04) 0.56 8.42 8.36
(6.12)(d) (18.34)(d) (0.44)(d) 8.13(d) 8.24(d)
Class C ............................. (1.12) (13.86) 0.69 8.06 7.97
(2.11)(e) (14.72)(e) 0.69 8.06 7.97
Class I ............................. (0.85) (13.11) 1.49 8.86 8.73
IN THE CURRENT PROSPECTUS, THE GROSS EXPENSE RATIOS FOR CLASS AAA, A, B, C, AND
I SHARES ARE 2.33%, 2.33%, 3.08%, 3.08%, AND 2.08%, RESPECTIVELY. THE NET
EXPENSE RATIOS AFTER CONTRACTUAL REIMBURSEMENTS BY THE ADVISER IN PLACE THROUGH
SEPTEMBER 30, 2009 ARE 2.00%, 2.00%, 2.75%, 2.75%, AND 1.75% RESPECTIVELY. CLASS
AAA AND I SHARES DO NOT HAVE A SALES CHARGE. THE MAXIMUM SALES CHARGE FOR CLASS
A, B, AND C SHARES IS 5.75%, 5.00%, AND 1.00%, RESPECTIVELY.
(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 OF 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' NAV'S PER SHARE ARE USED TO CALCULATE PERFORMANCE FOR
THE PERIODS PRIOR TO THE ISSUANCE OF CLASS I SHARES ON JANUARY 11, 2008.
THE ACTUAL PERFORMANCE OF CLASS I SHARES WOULD HAVE BEEN HIGHER DUE TO
LOWER EXPENSES ASSOCIATED WITH THIS CLASS OF SHARES. INVESTING IN SMALL
CAPITALIZATION SECURITIES INVOLVES SPECIAL CHALLENGES BECAUSE THESE
SECURITIES MAY TRADE LESS FREQUENTLY AND EXPERIENCE MORE ABRUPT PRICE
MOVEMENTS THAN LARGE CAPITALIZATION SECURITIES. 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. YOU CANNOT INVEST DIRECTLY IN AN 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 QUARTER, ONE YEAR, THREE YEAR,
FIVE YEAR AND SINCE INCEPTION PERIODS OF 5%, 5%, 3%, 2%, AND 1%,
RESPECTIVELY, OF THE FUND'S NAV PER SHARE 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 CHARGES FOR THE CLASS C
SHARES UPON REDEMPTION AT THE END OF THE QUARTER AND ONE YEAR PERIODS OF 1%
OF THE FUND'S NAV PER SHARE AT THE TIME OF PURCHASE OR SALE, WHICHEVER IS
LOWER.
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 Fund's Class AAA Shares declined 13.20% for the fiscal year ended
September 30, 2008 versus the Russell 2000, which was down 14.48%.
During the past year we had several investments that added to our overall
performance. Two of the more significant contributors were Collective Brands
(1.7% of net assets as of September 30, 2008) and Comstock Resources. Collective
Brands increased 75% over the past year and consists of two divisions - Payless
Shoe Source and Stride Rite. In 2006, under the leadership of new CEO Matthew E.
Rubel, Collective Brands underwent a restructuring that started to bear fruit
this past year. Rubel and his management team have taken a disciplined approach
to Collective Brands operations and finances and the company's performance has
improved immensely. Comstock Resources, up 84% during the year, is a Texas based
oil and gas producer with significant assets in Texas and Louisiana. When we
invested in Comstock several years ago, we identified an exploration and
production company that had terrific domestic low risk and long lived properties
that were unappreciated by the market. We believed that over time as the value
of the assets grew Wall Street would take notice. Given the dramatic
appreciation in the price of oil and gas in 2008 investors took note of
Comstock's production profile and reserves and the stock increased.
One of our weaker performing stocks during the year was Gaylord
Entertainment (1.3%), which declined 48%. Gaylord owns a wonderful collection of
convention oriented hotels in Nashville, TN; Orlando, FL; Dallas, TX, and
Washington, D.C. Gaylord stock has declined precipitously over the last year as
recession concerns have developed among investors. Longer term, we believe
Gaylord has a very unique strategy. It is the only lodging company that
exclusively focuses on the large group meetings segment. Convention customers
tend to rotate the location of their annual meetings and Gaylord intends to have
a presence in most major convention markets in order to capture this rotational
business. In addition, the economics of the business model are compelling as
Gaylord generates close to 80% of its occupancy from advanced group bookings
versus 20-50% for the peer group. Large groups typically book 2-4 years in
advance, which increases revenue visibility.
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
(PERFORMANCE GRAPH)
The Gabelli
Woodland
Small Cap
Value Fund
(Class AAA) Russell 2000 Index
---------------- ------------------
12/31/2002 $10,000 $10,000
9/30/2003 $10,580 $12,858
9/30/2004 $12,825 $15,271
9/30/2005 $15,476 $18,022
9/30/2006 $15,422 $19,800
9/30/2007 $18,616 $22,265
9/30/2008 $16,158 $19,041
Average Annual Total Return*
---------------------------------------
1 Year 3 Year 5 Year Life of Fund
------ ------ ------ ------------
Class AAA (13.20)% 1.45% 8.84% 8.71%
Russell 2000 (14.48) 1.83 8.15 11.83
* 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, 2008 through September 30, 2008
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, 2008.
Beginning Ending Annualized Expenses
Account Value Account Value Expense Paid During
04/01/08 09/30/08 Ratio Period*
------------- ------------- ---------- -----------
THE GABELLI WOODLAND SMALL CAP VALUE FUND
ACTUAL FUND RETURN
Class AAA $1,000.00 $1,004.30 2.01% $10.07
Class A $1,000.00 $1,004.30 2.01% $10.07
Class B $1,000.00 $ 998.90 2.76% $13.79
Class C $1,000.00 $1,000.00 2.76% $13.80
Class I $1,000.00 $1,005.40 1.76% $ 8.82
HYPOTHETICAL 5% RETURN
Class AAA $1,000.00 $1,014.95 2.01% $10.13
Class A $1,000.00 $1,014.95 2.01% $10.13
Class B $1,000.00 $1,011.20 2.76% $13.88
Class C $1,000.00 $1,011.20 2.76% $13.88
Class I $1,000.00 $1,016.20 1.76% $ 8.87
* 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
366.
3
SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED)
The following table presents portfolio holdings as a percent of net assets as of
September 30, 2008:
THE GABELLI WOODLAND SMALL CAP VALUE FUND
Diversified Industrial .................. 14.4%
Business Services ....................... 12.9%
Equipment and Supplies .................. 9.6%
Computer Software and Services .......... 9.3%
Consumer Products ....................... 9.0%
Specialty Chemicals ..................... 8.4%
Health Care ............................. 8.2%
Financial Services ...................... 5.4%
Retail .................................. 4.8%
Aerospace ............................... 4.6%
Energy and Utilities .................... 4.2%
U.S. Government Obligations ............. 1.7%
Aviation: Parts and Services ............ 1.4%
Entertainment ........................... 1.3%
Hotels and Gaming ....................... 1.3%
Automotive: Parts and Accessories ....... 1.2%
Food and Beverage ....................... 1.1%
Telecommunications ...................... 0.9%
Building and Construction ............... 0.8%
Machinery ............................... 0.7%
Other Assets and Liabilities (Net) ...... (1.2)%
-----
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,
2008. 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 SEC'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, 2008
MARKET
SHARES COST VALUE
- --------- ---------- ----------
COMMON STOCKS -- 99.5%
AEROSPACE -- 4.6%
8,100 Herley Industries Inc.+ ................ $ 120,057 $ 138,510
7,520 Kaman Corp. ............................ 204,173 214,170
---------- ----------
324,230 352,680
---------- ----------
AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.2%
6,490 Midas Inc.+ ............................ 122,392 89,302
---------- ----------
AVIATION: PARTS AND SERVICES -- 1.4%
5,080 Barnes Group Inc. ...................... 129,986 102,718
---------- ----------
BUILDING AND CONSTRUCTION -- 0.8%
2,000 NCI Building Systems Inc.+ ............. 77,729 63,500
---------- ----------
BUSINESS SERVICES -- 12.9%
358 Ascent Media Corp., Cl. A+ ............. 10,842 8,739
13,090 Deluxe Corp. ........................... 274,696 188,365
12,150 Edgewater Technology Inc.+ ............. 92,991 59,049
12,610 Federal Signal Corp. ................... 148,084 172,757
4,470 Imation Corp. .......................... 108,140 100,977
7,350 Intermec Inc.+ ......................... 178,882 144,354
11,000 MDC Partners Inc., Cl. A+ .............. 90,973 73,920
3,820 The Brink's Co. ........................ 148,066 233,096
---------- ----------
1,052,674 981,257
---------- ----------
COMPUTER SOFTWARE AND SERVICES -- 9.3%
4,300 eResearch Technology Inc.+ ............. 31,390 51,213
15,500 Furmanite Corp.+ ....................... 104,675 160,270
18,410 Lawson Software Inc.+ .................. 138,033 128,870
4,340 MTS Systems Corp. ...................... 152,438 182,714
24,500 Tier Technologies Inc., Cl. B+ ......... 234,414 182,035
---------- ----------
660,950 705,102
---------- ----------
CONSUMER PRODUCTS -- 9.0%
6,770 Alberto-Culver Co....................... 164,985 184,415
2,085 Church & Dwight Co. Inc. ............... 53,976 129,458
12,680 Kimball International Inc., Cl. B ...... 166,964 136,944
11,600 Sally Beauty Holdings Inc.+ ............ 102,151 99,760
4,680 Steinway Musical Instruments Inc.+ ..... 152,717 132,538
---------- ----------
640,793 683,115
---------- ----------
DIVERSIFIED INDUSTRIAL -- 14.4%
6,650 Columbus McKinnon Corp.+ ............... 161,231 156,741
24,657 Griffon Corp.+ ......................... 230,940 222,406
9,100 Hawk Corp., Cl. A+ ..................... 125,355 183,183
2,900 L.B. Foster Co., Cl. A+ ................ 97,560 88,218
9,920 LeCroy Corp.+ .......................... 93,530 76,285
29,440 Magnetek Inc.+ ......................... 144,666 119,232
6,700 OSI Systems Inc.+ ...................... 173,104 157,517
2,190 Texas Industries Inc. .................. 114,404 89,483
---------- ----------
1,140,790 1,093,065
---------- ----------
MARKET
SHARES COST VALUE
- --------- ---------- ----------
ENERGY AND UTILITIES -- 4.2%
2,879 ALLETE Inc. ............................ $ 82,984 $ 128,116
3,740 Mariner Energy Inc.+ ................... 69,649 76,670
3,170 PICO Holdings Inc.+ .................... 115,994 113,835
---------- ----------
268,627 318,621
---------- ----------
ENTERTAINMENT -- 1.3%
3,585 Discovery Communications Inc., Cl. A+ .. 57,543 51,086
3,585 Discovery Communications Inc.,
Cl. C+ .............................. 40,172 50,764
---------- ----------
97,715 101,850
---------- ----------
EQUIPMENT AND SUPPLIES -- 9.6%
13,600 C&D Technologies Inc.+ ................. 72,670 77,248
11,000 Gerber Scientific Inc.+ ................ 108,295 100,540
3,230 Powell Industries Inc.+ ................ 132,212 131,816
3,770 Tennant Co. ............................ 75,916 129,160
4,150 The Toro Co. ........................... 110,608 171,395
7,000 Thermadyne Holdings Corp.+ ............. 109,410 116,690
---------- ----------
609,111 726,849
---------- ----------
FINANCIAL SERVICES -- 5.4%
3,750 Hilb Rogal & Hobbs Co. ................. 152,955 175,275
1,430 HMN Financial Inc. .................... 50,068 17,703
14,700 NewAlliance Bancshares Inc. ............ 218,159 220,941
---------- ----------
421,182 413,919
---------- ----------
FOOD AND BEVERAGE -- 1.1%
3,900 PepsiAmericas Inc. ..................... 70,438 80,808
---------- ----------
HEALTH CARE -- 8.2%
14,000 Home Diagnostics Inc.+ ................. 110,522 135,520
5,210 K-V Pharmaceutical Co., Cl. A+ ......... 147,864 118,319
9,940 Rochester Medical Corp.+ ............... 118,098 131,804
2,116 SurModics Inc.+ ........................ 74,154 66,633
3,480 West Pharmaceutical Services Inc. ...... 143,094 169,894
---------- ----------
593,732 622,170
---------- ----------
HOTELS AND GAMING -- 1.3%
3,370 Gaylord Entertainment Co.+ ............. 102,054 98,977
---------- ----------
MACHINERY -- 0.7%
2,164 Key Technology Inc.+ ................... 53,126 51,287
---------- ----------
RETAIL -- 4.8%
7,200 Collective Brands Inc.+ ................ 75,240 131,832
13,000 Shutterfly Inc.+ ....................... 129,628 124,930
20,140 Wendy's/Arby's Group Inc., Cl. A ....... 234,310 105,936
---------- ----------
439,178 362,698
---------- ----------
See accompanying notes to financial statements.
5
THE GABELLI WOODLAND SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS (CONTINUED) -- SEPTEMBER 30, 2008
MARKET
SHARES COST VALUE
- --------- ---------- ----------
COMMON STOCKS (CONTINUED)
SPECIALTY CHEMICALS -- 8.4%
3,900 Arch Chemicals Inc. .................... $ 118,927 $ 137,670
8,340 Ferro Corp. ............................ 151,313 167,634
1,660 FMC Corp. .............................. 60,332 85,307
2,000 NewMarket Corp ......................... 123,302 105,120
8,200 Penford Corp. .......................... 116,995 145,058
---------- ----------
570,869 640,789
---------- ----------
TELECOMMUNICATIONS -- 0.9%
11,400 HickoryTech Corp ....................... 109,915 66,234
---------- ----------
TOTAL COMMON STOCKS .................... 7,485,491 7,554,941
---------- ----------
PRINCIPAL
AMOUNT
- ---------
U.S. GOVERNMENT OBLIGATIONS -- 1.7%
$ 132,000 U.S. Treasury Bill,
0.284%++, 11/06/08 .................. 131,963 131,918
---------- ----------
TOTAL INVESTMENTS -- 101.2% ............ $7,617,454 7,686,859
==========
OTHER ASSETS AND LIABILITIES
(NET) -- (1.2)% ...................... (91,241)
----------
NET ASSETS -- 100.0% ................... $7,595,618
==========
- ----------
+ Non-income producing security.
++ Represents annualized yield at date of purchase.
See accompanying notes to financial statements.
6
THE GABELLI WOODLAND SMALL CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2008
ASSETS:
Investments, at value (cost $7,617,454) ....... $ 7,686,859
Receivable for Fund shares sold ............... 2,049
Dividends receivable .......................... 5,782
Prepaid expenses .............................. 17,196
-----------
TOTAL ASSETS .................................. 7,711,886
-----------
LIABILITIES:
Payable to custodian .......................... 61,666
Payable for Fund shares redeemed .............. 1,500
Payable for investment advisory fees .......... 8,772
Payable for distribution fees ................. 1,729
Payable for legal and audit fees .............. 28,525
Payable for shareholder communications
expenses ................................... 10,465
Other accrued expenses ........................ 3,611
-----------
TOTAL LIABILITIES ............................. 116,268
-----------
NET ASSETS applicable to 817,641
shares outstanding ......................... $ 7,595,618
===========
NET ASSETS CONSIST OF:
Paid-in capital, each class at
$0.001 par value ........................... $ 7,225,701
Accumulated net realized gain on investments .. 300,512
Net unrealized appreciation on investments .... 69,405
-----------
NET ASSETS .................................... $ 7,595,618
===========
SHARES OF CAPITAL STOCK:
CLASS AAA:
Net Asset Value, offering, and redemption price
per share ($7,326,475 / 787,945
shares outstanding; 100,000,000
shares authorized) ......................... $ 9.30
===========
CLASS A:
Net Asset Value and redemption price per share
($51,095 / 5,455 shares outstanding;
50,000,000 shares authorized) .............. $ 9.37
===========
Maximum offering price per share (NAV / .9425,
based on maximum sales charge of 5.75% of
the offering price) ........................ $ 9.94
===========
CLASS B:
Net Asset Value and offering price per share
($158.69 / 17.25 shares outstanding;
50,000,000 shares authorized) .............. $ 9.20(a)
===========
CLASS C:
Net Asset Value and offering price per share
($145,798 / 16,484 shares outstanding;
50,000,000 shares authorized) .............. $ 8.84(a)
===========
CLASS I:
Net Asset Value, offering, and redemption
price per share ($72,091 / 7,740 shares
outstanding; 50,000,000 shares
authorized) ................................ $ 9.31
===========
- ----------
(a) Redemption price varies based on the length of time held.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2008
INVESTMENT INCOME:
Dividends ..................................... $ 86,390
Interest ...................................... 10,968
-----------
TOTAL INVESTMENT INCOME ....................... 97,358
-----------
EXPENSES:
Investment advisory fees ...................... 80,681
Distribution fees - Class AAA ................. 19,430
Distribution fees - Class A ................... 135
Distribution fees - Class B ................... 2
Distribution fees - Class C ................... 1,996
Registration expenses ......................... 30,844
Shareholder communications expenses ........... 21,986
Legal and audit fees .......................... 21,546
Shareholder services fees ..................... 12,159
Custodian fees ................................ 9,638
Interest expense .............................. 713
Directors' fees ............................... 262
Miscellaneous expenses ........................ 5,238
-----------
TOTAL EXPENSES BEFORE FEES WAIVED AND
EXPENSES REIMBURSED BY ADVISER ............. 204,630
-----------
LESS:
Fees waived and expenses reimbursed
by Adviser ................................. (41,151)
Custodian fee credits ......................... (132)
-----------
NET EXPENSES .................................. 163,347
-----------
NET INVESTMENT LOSS ........................... (65,989)
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS:
Net realized gain on investments .............. 369,935
Net change in unrealized appreciation/
(depreciation) on investments .............. (1,505,525)
-----------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS ............................. (1,135,590)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................ $(1,201,579)
===========
See accompanying notes to financial statements.
7
THE GABELLI WOODLAND SMALL CAP VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007
------------------ ------------------
OPERATIONS:
Net investment income/(loss) .......................................... $ (65,989) $ 34,514
Net realized gain on investments ...................................... 369,935 1,560,963
Net change in unrealized appreciation/(depreciation) on investments ... (1,505,525) 267,092
----------- -----------
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....... (1,201,579) 1,862,569
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class AAA .......................................................... -- (39,316)
Class A ............................................................ -- (73)
----------- -----------
-- (39,389)
----------- -----------
Net realized gain on investments
Class AAA .......................................................... (1,262,098) (2,044,419)
Class A ............................................................ (9,144) (10,469)
Class B ............................................................ (26) (37)
Class C ............................................................ (43,337) (99,535)
----------- -----------
(1,314,605) (2,154,460)
----------- -----------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS ................................... (1,314,605) (2,193,849)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Class AAA .......................................................... 703,505 214,548
Class A ............................................................ 3,296 (40,999)
Class B ............................................................ 27 36
Class C ............................................................ (69,071) (103,753)
Class I ............................................................ 73,953 --
----------- -----------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ............ 711,710 69,832
----------- -----------
REDEMPTION FEES ....................................................... 1 9
----------- -----------
NET DECREASE IN NET ASSETS ............................................ (1,804,473) (261,439)
NET ASSETS:
Beginning of period ................................................... 9,400,091 9,661,530
----------- -----------
End of period (including undistributed net investment income of
$0 and $0, respectively) ........................................... $ 7,595,618 $ 9,400,091
=========== ===========
See accompanying notes to financial statements.
8
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 Net Realized
Ended Beginning Income Gain (Loss) on Investment Investment Gain on Total Redemption
September 30 of Period (Loss)(a)(b) Investments Operations Income Investments Distributions Fees(a)
- ------------ --------- ------------ -------------- ---------- ---------- ----------- ------------- ----------
CLASS AAA
2008 $12.61 $(0.08) $(1.43) $(1.51) -- $(1.80) $(1.80) $0.00(e)
2007 13.35 0.05 2.44 2.49 $(0.06) (3.17) (3.23) 0.00(e)
2006 14.64 (0.12) 0.07 (0.05) -- (1.24) (1.24) 0.00(e)
2005 12.79 (0.11) 2.69 2.58 -- (0.73) (0.73) 0.00(e)
2004 10.58 (0.14) 2.38 2.24 -- (0.03) (0.03) --
CLASS A
2008 $12.69 $(0.08) $(1.44) $(1.52) -- $(1.80) $(1.80) $0.00(e)
2007 13.36 0.13 2.39 2.52 $(0.02) (3.17) (3.19) 0.00(e)
2006 14.65 (0.12) 0.07 (0.05) -- (1.24) (1.24) 0.00(e)
2005 12.79 (0.09) 2.68 2.59 -- (0.73) (0.73) 0.00(e)
2004 10.57 (0.14) 2.39 2.25 -- (0.03) (0.03) --
CLASS B
2008 $12.60 $(0.16) $(1.44) $(1.60) -- $(1.80) $(1.80) --
2007 13.37 (0.09) 2.49 2.40 -- (3.17) (3.17) $0.00(e)
2006 14.77 (0.25) 0.09 (0.16) -- (1.24) (1.24) 0.00(e)
2005 12.98 (0.21) 2.73 2.52 -- (0.73) (0.73) 0.00(e)
2004 10.59 0.02 2.40 2.42 -- (0.03) (0.03) --
CLASS C
2008 $12.16 $(0.15) $(1.37) $(1.52) -- $(1.80) $(1.80) $0.00(e)
2007 13.00 (0.03) 2.36 2.33 -- (3.17) (3.17) 0.00(e)
2006 14.39 (0.21) 0.06 (0.15) -- (1.24) (1.24) 0.00(e)
2005 12.66 (0.20) 2.66 2.46 -- (0.73) (0.73) 0.00(e)
2004 10.55 (0.23) 2.37 2.14 -- (0.03) (0.03) --
CLASS I
2008(g) $ 9.41 $(0.03) $(0.07) $(0.10) -- -- -- $0.00(e)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------
Net Asset Net Assets Net Expenses Expenses
Period Value, End of Investment Net of Before Portfolio
Ended End of Total Period Income Waivers/ Waivers/ Turnover
September 30 Period Return+ (in 000's) (Loss)(b) Reimbursements(c) Reimbursements(d) Rate++
- ------------ --------- ------- ---------- ---------- ----------------- ----------------- ---------
CLASS AAA
2008 $ 9.30 (13.20)% $ 7,327 (0.80)% 2.01%(f) 2.52% 58%
2007 12.61 20.71 9,040 0.38 2.01(f) 2.33 51
2006 13.35 (0.35) 9,137 (0.84) 2.01(f) 2.31 59
2005 14.64 20.67 11,839 (0.78) 2.01 2.99 35
2004 12.79 21.22 3,388 (1.14) 2.00 5.94 45
CLASS A
2008 $ 9.37 (13.19)% $ 51 (0.80)% 2.01%(f) 2.52% 58%
2007 12.69 20.94 65 1.00 2.01(f) 2.33 51
2006 13.36 (0.36) 100 (0.83) 2.01(f) 2.31 59
2005 14.65 20.76 108 (0.68) 2.01 3.17 35
2004 12.79 21.34 47 (1.16) 2.00 5.94 45
CLASS B
2008 $ 9.20 (14.04)% $ 0.2 (1.68)% 2.76%(f) 3.27% 58%
2007 12.60 19.73 0.1 (0.68) 2.76(f) 3.07 51
2006 13.37 (1.19) 0.1 (1.77) 2.76(f) 3.06 59
2005 14.77 19.86 0.1 (1.50) 2.75 3.87 35
2004 12.98 22.91 0.1 0.18 2.75 6.69 45
CLASS C
2008 $ 8.84 (13.86)% $ 146 (1.58)% 2.76%(f) 3.27% 58%
2007 12.16 19.84 295 (0.26) 2.76(f) 3.08 51
2006 13.00 (1.11) 425 (1.58) 2.76(f) 3.06 59
2005 14.39 19.91 189 (1.46) 2.76 3.87 35
2004 12.66 20.33 41 (1.88) 2.75 6.69 45
CLASS I
2008(g) $ 9.31 (1.06)% $ 72 (0.44)%(h) 1.76%(f)(h) 2.27%(h) 58%
- ----------
+ 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.
++ Effective in 2008, a change in accounting policy was adopted with regard to
the calculation of the portfolio turnover rate to include cash due to
mergers. Had this policy been adopted retroactively, the portfolio turnover
rate for the fiscal years ended September 30, 2007, 2006, 2005, and 2004
would have been as shown.
(a) Per share amounts have been calculated using the average shares outstanding
method.
(b) Due to capital share activity throughout the fiscal year, net investment
income per share and the ratio to average net assets are not necessarily
correlated among the different classes of shares.
(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,
2005 would have been 2.00% (Class AAA), 2.00% (Class A), 2.75% (Class B),
and 2.75% (Class C), respectively. For the fiscal years ended September 30,
2008, 2007, 2006, and 2004, the effect of the custodian fee credits was
minimal.
(d) 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.
(e) Amount represents less than $0.005 per share.
(f) The Fund incurred interest expense during fiscal years ended September 30,
2008, 2007, and 2006. If interest expense had not been incurred, the ratios
of operating expenses to average net assets would have been 2.00%, 2.00%,
and 2.00% (Class AAA), 2.00%, 2.00%, and 2.00% (Class A), 2.75%, 2.75%, and
2.75% (Class B), 2.75%, 2.75%, and 2.75% (Class C), and 1.75% (Class I),
respectively.
(g) From the commencement of offering Class I Shares on January 11, 2008
through September 30, 2008.
(h) Annualized.
See accompanying notes to financial statements.
9
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. 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 American Depositary
Receipts 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.
10
THE GABELLI WOODLAND SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Statement of Financial Accounting Standard No. 157, "Fair Value Measurements"
("SFAS 157") 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. As of September 30, 2008, the Fund does not
believe the adoption of SFAS 157 will impact the amounts reported in the
financial statements.
In March 2008, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard No. 161, "Disclosures about
Derivative Instruments and Hedging Activities" ("SFAS 161") that is effective
for fiscal years beginning after November 15, 2008. SFAS 161 is intended to
improve financial reporting for derivative instruments by requiring enhanced
disclosure that enables investors to understand how and why an entity uses
derivatives, how derivatives are accounted for, and how derivative instruments
affect an entity's results of operations and financial position. Management is
currently evaluating the implications of SFAS 161 on the Fund's financial
statement disclosures.
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, 2008, 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.
11
THE GABELLI WOODLAND SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are
accounted for on the trade date with realized gain or loss on investments
determined by using the identified cost method. Interest income (including
amortization of premium and accretion of discount) is recorded 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 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 AND INTEREST EXPENSE. 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." When cash balances are
overdrawn, the Fund is charged an overdraft fee equal to 2.00% above the federal
funds rate on outstanding balances. This amount, if any, would be shown as
"interest expense" in the Statement of Operations.
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, 2008, reclassifications were made to increase accumulated
net investment loss by $65,989 and decrease accumulated net realized gain on
investments by $13,654, with an offsetting adjustment to additional paid-in
capital.
The tax character of distributions paid during the fiscal years ended September
30, 2008 and September 30, 2007 was as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007
------------------ ------------------
DISTRIBUTIONS PAID FROM:
Ordinary income
(inclusive of short-term capital gains) .. $ 28,446 $ 320,582
Net long-term capital gains ................. 1,286,159 1,873,267
---------- ----------
Total distributions paid .................... $1,314,605 $2,193,849
========== ==========
12
THE GABELLI WOODLAND SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 2008, the components of accumulated earning/losses on tax
basis were as follows:
Undistributed long-term capital gains .. $313,534
Net unrealized appreciation ............ 56,383
--------
Total accumulated earnings .......... $369,917
========
At September, 30, 2008, the difference between book and tax basis unrealized
appreciation is primarily due to deferral of losses on wash sales.
The following summarizes the tax cost of investments and the related unrealized
appreciation/depreciation at September 30, 2008:
GROSS GROSS
UNREALIZED UNREALIZED NET UNREALIZED
COST APPRECIATION DEPRECIATION APPRECIATION
---------- ------------ ------------ --------------
Investments..... $7,630,476 $830,890 $(774,507) $56,383
The Fund has adopted FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48"). FIN 48 provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in the
financial statements. FIN 48 requires the evaluation of tax positions taken or
expected to be taken in the course of preparing the Trust's tax returns to
determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. Tax positions not deemed to meet the
"more-likely-than-not" threshold are recorded as a tax benefit or expense in the
current year. The adoption of FIN 48 did not result in the recording of any tax
benefit or expense in the current period.
As of and during the year ended September 30, 2008, the Fund did not have a
liability for any unrecognized tax benefits. The Fund recognizes interest and
penalties, if any, related to unrecognized tax benefits as income tax expense in
the statement of operations. During the period, the Fund did not incur any
interest or penalties. Each of the tax years in the three-year period ended
September 30, 2008, remains subject to examination by the Internal Revenue
Service and state tax authorities. Management's determination regarding FIN 48
may be subject to review and adjustment at a later date based on factors
including, but not limited to, an on-going analysis of tax laws, regulations and
interpretations thereof.
3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS. The Fund has 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 contractually 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%, 2.75%, and 1.75% of the value of the Fund's
average daily
13
THE GABELLI WOODLAND SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
net assets for Class AAA, Class A, Class B, Class C, and Class I Shares,
respectively, through September 30, 2009. For the fiscal year ended
September 30, 2008, the Adviser reimbursed the Fund in the amount of $41,151.
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, 2008, the cumulative amount which the Fund may
repay the Adviser is $71,738.
The Corporation pays each Director who is not considered to be an affiliated
person an annual retainer of $9,000 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 attended and the
Chairman of the Audit Committee and the Lead Director each receives an annual
fee of $1,000. 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, except for Class I 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, 2008, other than short-term securities and
U.S. Government obligations, aggregated $4,294,833 and $4,631,987, respectively.
Purchases and proceeds from the sales of U.S. Government obligations for the
fiscal year ended September 30, 2008, other than short-term obligations,
aggregated $178,559 and $177,625, respectively.
6. TRANSACTIONS WITH AFFILIATES. During the fiscal year ended September 30,
2008, Gabelli & Company informed the Fund that it received $224 from investors
representing commissions (sales charges and underwriting fees) on sales and
redemptions of Fund shares.
7. LINE OF CREDIT. The Fund participates in an unsecured line of credit of up to
$75,000,000, and may borrow up to 10% of its net assets 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,
is shown as "interest expense" in the Statement of Operations. During the fiscal
year ended September 30, 2008, there were no borrowings under the line of
credit.
8. CAPITAL STOCK. The Fund currently offers five classes of shares - Class AAA
Shares, Class A Shares, Class B Shares, Class C Shares, and Class I 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 I Shares are offered to foundations, endowments,
institutions, and employee benefit plans. 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. Class I Shares were first issued on January 11, 2008.
14
THE GABELLI WOODLAND SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Fund imposes a redemption fee of 2.00% on all classes of shares that are
redeemed or exchanged on or before the seventh 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, 2008 and September 30,
2007 amounted to $1 and $9, respectively.
The redemption fee does not apply to redemptions of shares where (i) the shares
were purchased through automatic reinvestment of distributions, (ii) the
redemption was initiated by the Fund, (iii) the shares were purchased through
programs that collect the redemption fee at the program level and remit them to
the Fund, or (iv) the shares were purchased through programs that the Adviser
determines to have appropriate anti-short-term trading policies in place or as
to which the Adviser has received assurances that look-through redemption fee
procedures or effective anti-short-term trading policies and procedures are in
place.
Transactions in shares of capital stock were as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -----------
CLASS AAA CLASS AAA
Shares sold ....................................... 66,401 $ 658,099 37,674 $ 483,712
Shares issued upon reinvestment of distributions .. 124,080 1,259,410 168,367 1,958,111
Shares redeemed ................................... (119,232) (1,214,004) (173,852) (2,227,275)
-------- ----------- -------- -----------
Net increase ................................... 71,249 $ 703,505 32,189 $ 214,548
======== =========== ======== ===========
CLASS A CLASS A
Shares sold ....................................... 343 $ 3,299 1,239 $ 16,152
Shares issued upon reinvestment of distributions .. 895 9,144 902 10,542
Shares redeemed ................................... (874) (9,147) (4,553) (67,693)
-------- ----------- -------- -----------
Net increase/(decrease) ........................ 364 $ 3,296 (2,412) $ (40,999)
======== =========== ======== ===========
CLASS B CLASS B
Shares issued upon reinvestment of distributions .. 2 $ 27 3 $ 36
-------- ----------- -------- -----------
Net increase ................................... 2 $ 27 3 $ 36
======== =========== ======== ===========
CLASS C CLASS C
Shares sold ....................................... 282 $ 3,502 810 $ 9,500
Shares issued upon reinvestment of distributions .. 4,463 43,337 8,824 99,535
Shares redeemed ................................... (12,531) (115,910) (18,030) (212,788)
-------- ----------- -------- -----------
Net decrease ................................... (7,786) $ (69,071) (8,396) $ (103,753)
======== =========== ======== ===========
CLASS I*
Shares sold ....................................... 8,531 $ 81,394
Shares redeemed ................................... (791) (7,441)
-------- -----------
Net increase ................................... 7,740 $ 73,953
======== ===========
- ----------
* From the commencement of offering Class I Shares on January 11, 2008.
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.
15
THE GABELLI WOODLAND SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. OTHER MATTERS. On April 24, 2008, the Adviser entered into an administrative
settlement with the SEC to resolve the SEC's inquiry regarding prior frequent
trading activity in shares of the GAMCO Global Growth Fund, (the "Global Growth
Fund") by one investor who was banned from the Global Growth Fund in August
2002. In the settlement, the SEC found that the Adviser had violated Section
206(2) of the Investment Advisers Act, Section 17(d) of the 1940 Act and Rule
17d-1 thereunder, and had aided and abetted and caused violations of Section
12(d)(1)(B)(i) of the 1940 Act. Under the terms of the settlement, the Adviser,
while neither admitting nor denying the SEC's findings and allegations, agreed,
among other things, to pay the previously reserved total of $16 million
(including a $5 million penalty), of which at least $11 million will be
distributed to shareholders of the Global Growth Fund in accordance with a plan
to be developed by an independent distribution consultant and approved by the
independent directors of the Global Growth Fund and the staff of the SEC, and to
cease and desist from future violations of the above referenced federal
securities laws. The settlement will not have a material adverse impact on the
Adviser or its ability to fulfill its obligations under the Advisory Agreement.
On the same day, the SEC filed a civil action against the Executive Vice
President and Chief Operating Officer of the Adviser, alleging violations of
certain federal securities laws arising from the same matter. The officer is
also an officer of the Global Growth Fund and other funds in the Gabelli/GAMCO
fund complex. The officer denies the allegations and is continuing in his
positions with the Adviser and the funds. The Adviser currently expects that any
resolution of the action against the officer will not have a material adverse
impact on the Adviser or its ability to fulfill its obligations under the
Advisory Agreement.
In a separate matter, in August 2008, the Adviser, while neither admitting nor
denying the SEC's findings and allegations, made an offer to the staff of the
SEC to settle a previously disclosed matter concerning compliance with Section
19(a) and Rule 19a-1 of the 1940 Act by two closed-end funds managed by the
Adviser. These provisions require registered investment companies to provide
written statements to shareholders when a distribution is made in the nature of
a dividend from a source other than net investment income. While the two funds
sent annual statements and provided other materials containing this information,
the funds did not send the notices required by Rule 19a-1 to shareholders with
each distribution in 2002 and 2003. The Adviser believes that the funds have
been in compliance with Rule 19a-1 since that time. The Adviser believes that
the settlement would have no effect on the funds or any material adverse effect
on the Adviser or its ability to manage the funds. This offer of settlement is
subject to final agreement regarding the specific language of the SEC's
administrative order and other settlement documents and approval by the SEC.
16
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,
2008, 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, 2008, by correspondence with the Fund's
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 Woodland Small Cap Value Fund, a series of Gabelli Equity Series Funds,
Inc., at September 30, 2008, 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 five years in the
period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
November 19, 2008
17
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
Corporation's Board of Directors. Information pertaining to the Directors and
officers of the Corporation is set forth below. The Corporation's Statement of
Additional Information includes additional information about the Corporation'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
OFFICE FUNDS IN
NAME, POSITION(S) AND LENGTH FUND COMPLEX
ADDRESS(1) OF TIME OVERSEEN PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIPS
AND AGE SERVED(2) BY DIRECTOR DURING PAST FIVE YEARS HELD BY DIRECTOR(3)
- ------------------------- ---------- ------------ ----------------------------------- --------------------------------------
INTERESTED DIRECTORS(4):
MARIO J. GABELLI Since 1991 26 Chairman and Chief Executive Director of Morgan Group Holdings,
Director and Officer of GAMCO Investors, Inc. Inc. (holding company); Chairman of
Chief Investment Officer and Chief Investment Officer-Value the Board of LICT Corp. (multimedia
Age: 66 Portfolios of Gabelli Funds, LLC and communication services company)
and GAMCO Asset Management Inc.;
Director/Trustee or Chief
Investment Officer of other
registered investment companies in
the Gabelli/ GAMCO Funds complex;
Chairman and Chief Executive
Officer of GGCP, Inc.
JOHN D. GABELLI Since 1991 10 Senior Vice President of Gabelli & Director of GAMCO Investors, Inc.
Director Company, Inc. (asset management)
Age: 64
INDEPENDENT DIRECTORS(5):
ANTHONY J. COLAVITA Since 1991 37 Partner in the law firm of Anthony --
Director J. Colavita, P.C.
Age: 72
VINCENT D. ENRIGHT Since 1991 17 Former Senior Vice President and Director of Echo Therapeutics, Inc.
Director Chief Financial Officer of KeySpan (therapeutics and diagnostics)
Age: 64 Corporation (public utility)
ROBERT J. MORRISSEY Since 1991 6 Partner in the law firm of --
Director Morrissey, Hawkins & Lynch
Age: 69
ANTHONY R. PUSTORINO Since 1991 14 Certified Public Accountant; Director of The LGL Group, Inc.
Director Professor Emeritus, Pace University (diversified manufacturing)
Age: 83
ANTHONIE C. VAN EKRIS Since 1991 20 Chairman of BALMAC International, --
Director Inc. (commodities and futures
Age: 74 trading)
SALVATORE J. ZIZZA Since 2001 28 Chairman of Zizza & Company, Ltd. Director of Hollis-Eden
Director (consulting) Pharmaceuticals (biotechnology);
Age: 62 Director of Earl Scheib, Inc.
(automotive services)
18
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 of
President and Secretary Gabelli Funds, LLC since 1988 and an officer of all of the
Age: 56 registered investment companies in the Gabelli/GAMCO Funds
complex; Director and President of Teton Advisors, Inc.
(formerly Gabelli Advisers, Inc.) since 1998
AGNES MULLADY Since 2006 Vice President of Gabelli Funds, LLC since 2007; Officer of
Treasurer all of the registered investment companies in the
Age: 50 Gabelli/GAMCO Funds complex; Senior Vice President of 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.
PETER D. GOLDSTEIN Since 2004 Director of Regulatory Affairs at GAMCO Investors, Inc.
Chief Compliance Officer since 2004; Chief Compliance Officer of all of the
Age: 55 registered investment companies in the Gabelli/GAMCO Funds
complex; Vice President of Goldman Sachs Asset Management
from 2000 through 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.
(5) Directors who are not interested persons are considered "Independent"
Directors.
2008 TAX NOTICE TO SHAREHOLDERS (Unaudited)
For the fiscal year ended September 30, 2008, the Fund paid to shareholders
ordinary income dividends (comprised of short-term capital gains) totaling $0.04
per share for Class AAA, Class A, Class B, and Class C, respectively, and
long-term capital gains totaling $1,286,159. 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, 2008, 40.30% of the
ordinary income dividend qualifies for the dividends received deduction
available to corporations. The Fund designates 60.84% of the ordinary income
distribution as qualified dividend income, pursuant to the Jobs and Growth Tax
Relief Reconciliation Act of 2003. The Fund designates 100% of the ordinary
income distribution as qualified short-term gain, pursuant to the American Jobs
Creation Act of 2004.
U.S. GOVERNMENT INCOME:
The percentage of the ordinary income dividend paid by the Fund during fiscal
year 2008 which was derived from U.S. Treasury securities was 0.94%. 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 Woodland Small Cap Value Fund did not meet this strict requirement
in 2008. 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.
19
(GRAPHIC)
THE
GABELLI
WOODLAND
SMALL CAP
VALUE
FUND
ANNUAL REPORT
SEPTEMBER 30, 2008
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 per share available daily by calling
800-GABELLI after 6:00 P.M.
BOARD OF DIRECTORS
Mario J. Gabelli, CFA
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
GAMCO INVESTORS, INC.
Anthony J. Colavita
ATTORNEY-AT-LAW
ANTHONY J. COLAVITA, P.C.
Vincent D. Enright
FORMER SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
KEYSPAN CORP.
John D. Gabelli
SENIOR VICE PRESIDENT
GABELLI & COMPANY, INC.
Robert J. Morrissey
ATTORNEY-AT-LAW
MORRISSEY, HAWKINS & LYNCH
Anthony R. Pustorino
CERTIFIED PUBLIC ACCOUNTANT,
PROFESSOR EMERITUS PACE UNIVERSITY
Anthonie C. van Ekris
CHAIRMAN
BALMAC INTERNATIONAL, INC.
Salvatore J. Zizza
CHAIRMAN
ZIZZA & CO., LTD.
OFFICERS AND PORTFOLIO MANAGER
Elizabeth M. Lilly, CFA
PORTFOLIO MANAGER
Peter D. Goldstein
CHIEF COMPLIANCE OFFICER
Bruce N. Alpert
PRESIDENT AND SECRETARY
Agnes Mullady
TREASURER
DISTRIBUTOR
Gabelli & Company, Inc.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
This report is submitted for the general information of the shareholders of The
Gabelli Woodland Small Cap Value Fund. It is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective prospectus.
GAB840Q308SR
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 $109,300 in 2007 and $109,300 in 2008.
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 in 2007 and $0 in 2008.
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 $0 in 2007 and $12,900
in 2008. 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 2008 and $0 for 2007.
(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 registered public accounting firm to the registrant
and (ii) all permissible non-audit services to be provided by the
independent registered public accounting firm 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 registered public accounting
firm's 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 $65,000 in 2007
and $63,800 in 2008.
(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. INVESTMENTS.
(a) 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.
(b) Not applicable.
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 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940,
as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective,
as of a date within 90 days of the filing date of the report that
includes the disclosure required by this paragraph, based on their
evaluation of these controls and procedures required by Rule
30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules
13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934,
as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Gabelli Equity Series Funds, Inc.
--------------------------------------------------------------------
By (Signature and Title)* /s/ Bruce N. Alpert
-------------------------------------------------------
Bruce N. Alpert, Principal Executive Officer
Date 12/1/08
----------------------------------------------------------------------------
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 12/1/08
----------------------------------------------------------------------------
By (Signature and Title)* /s/ Agnes Mullady
-------------------------------------------------------
Agnes Mullady,
Principal Financial Officer and Treasurer
Date 12/1/08
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.