N-CSRS 1 equity_ncsrs308.txt THE GABELLI EQUITY SERIES, 3-31-08 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: March 31, 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 SEMI-ANNUAL REPORT (a) MARCH 31, 2008 TO OUR SHAREHOLDERS, For the six month period ended March 31, 2007, The Gabelli Small Cap Growth Fund's Class AAA Shares gave up 9.87%, outperforming the Russell 2000 Index decline of 14.02%, the Standard & Poor's 500 Index decline of 12.46%, and the Dow Jones Industrial Average decline of 10.64%. COMPARATIVE RESULTS --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH MARCH 31, 2008 (a)(b) ---------------------------------------------------- Since Inception Quarter 1 Year 3 Year 5 Year 10 Year 15 Year (10/22/91) ------- ------ ------ ------ ------- ------- ---------- GABELLI SMALL CAP GROWTH FUND CLASS AAA ....................... (7.42)% (4.71)% 8.50% 17.19% 9.07% 12.23% 14.22% Russell 2000 Index ................. (9.90) (13.00) 5.06 14.90 4.96 9.04 9.96 Value Line Composite Index ......... (8.67) (10.83) 5.72 15.94 7.68 11.28 12.04 Class A ............................ (7.42) (4.68) 8.49 17.18 9.07 12.23 14.22 (12.75)(c) (10.16)(c) 6.37(c) 15.81(c) 8.42(c) 11.79(c) 13.81(c) Class B ............................ (7.59) (5.42) 7.70 16.45 8.73 12.00 14.00 (12.21)(d) (10.15)(d) 6.83(d) 16.23(d) 8.73 12.00 14.00 Class C ............................ (7.59) (5.39) 7.69 16.45 8.72 11.99 14.00 (8.51)(e) (6.34)(e) 7.69 16.45 8.72 11.99 14.00 Class I ............................ (7.39) (4.68) 8.51 17.19 9.07 12.23 14.22
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 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, ONE YEAR, THREE YEAR, AND FIVE YEAR PERIODS OF 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 CHARGE 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. -------------------------------------------------------------------------------- THE GABELLI SMALL CAP GROWTH FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) For the Six Month Period from October 1, 2007 through March 31, 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. Beginning Ending Annualized Expenses Account Value Account Value Expense Paid During 10/01/07 03/31/08 Ratio Period* -------------------------------------------------------------------------------- THE GABELLI SMALL CAP GROWTH FUND -------------------------------------------------------------------------------- ACTUAL FUND RETURN Class AAA $1,000.00 $ 901.30 1.41% $ 6.70 Class A $1,000.00 $ 901.30 1.41% $ 6.70 Class B $1,000.00 $ 898.10 2.16% $10.25 Class C $1,000.00 $ 897.80 2.16% $10.25 Class I** $1,000.00 $ 901.70 1.16% $ 2.35 HYPOTHETICAL 5% RETURN Class AAA $1,000.00 $1,017.95 1.41% $ 7.11 Class A $1,000.00 $1,017.95 1.41% $ 7.11 Class B $1,000.00 $1,014.20 2.16% $10.88 Class C $1,000.00 $1,014.20 2.16% $10.88 Class I** $1,000.00 $1,008.19 1.16% $ 2.48 * 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. ** Class I Shares were first issued on January 11, 2008. Account values and expense ratios are calculated from January 11, 2008 through March 31, 2008. 2 SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED) The following table presents portfolio holdings as a percent of total net assets as of March 31, 2008: THE GABELLI SMALL CAP GROWTH FUND Equipment and Supplies ............................................... 12.4% U.S. Government Obligations .......................................... 10.9% Health Care .......................................................... 8.9% Diversified Industrial ............................................... 7.8% Energy and Utilities ................................................. 5.7% Food and Beverage .................................................... 5.3% Specialty Chemicals .................................................. 4.9% Financial Services ................................................... 4.3% Business Services .................................................... 4.0% Automotive: Parts and Accessories .................................... 3.2% Aviation: Parts and Services ......................................... 3.1% Electronics .......................................................... 2.7% Wireless Communications .............................................. 2.6% Retail ............................................................... 2.5% Hotels and Gaming .................................................... 2.2% Computer Software and Services ....................................... 2.0% Entertainment ........................................................ 2.0% Consumer Products .................................................... 1.8% Cable ................................................................ 1.6% Publishing ........................................................... 1.4% Communications Equipment ............................................. 1.2% Manufactured Housing and Recreational Vehicles ....................... 1.1% Broadcasting ......................................................... 1.1% Telecommunications ................................................... 1.1% Environmental Services ............................................... 1.0% Consumer Services .................................................... 1.0% Real Estate .......................................................... 0.9% Transportation ....................................................... 0.8% Metals and Mining .................................................... 0.8% Closed-End Funds ..................................................... 0.6% Educational Services ................................................. 0.3% Aerospace ............................................................ 0.2% Agriculture .......................................................... 0.1% Paper and Forest Products ............................................ 0.1% Building and Construction ............................................ 0.0% Home Furnishings ..................................................... 0.0% Automotive ........................................................... 0.0% Other Assets and Liabilities (Net) ................................... 0.4% ------ 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 DECEMBER 31, 2007. 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. 3 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS -- 88.4% AEROSPACE -- 0.2% 165,000 Herley Industries Inc.+ ......... $ 2,632,821 $ 1,706,100 3,000 Innovative Solutions & Support Inc.+ ................ 45,808 31,710 -------------- -------------- 2,678,629 1,737,810 -------------- -------------- AGRICULTURE -- 0.1% 1,200 Cadiz Inc.+ ..................... 4,500 18,456 9,000 The Mosaic Co.+ ................. 160,365 923,400 -------------- -------------- 164,865 941,856 -------------- -------------- AUTOMOTIVE -- 0.0% 6,000 Oshkosh Corp. ................... 89,796 217,680 -------------- -------------- AUTOMOTIVE: PARTS AND ACCESSORIES -- 3.2% 3,816 Aftermarket Technology Corp.+ ... 47,013 74,183 1,000 BERU AG ......................... 106,336 117,065 150,000 BorgWarner Inc. ................. 1,609,839 6,454,500 12,000 China Automotive Systems Inc.+ ................ 78,831 68,280 30,000 Dana Holding Corp.+ ............. 285,700 300,000 240,900 Earl Scheib Inc.+ (a) ........... 1,475,236 635,976 60,000 Lear Corp.+ ..................... 1,970,281 1,554,600 270,000 Midas Inc.+ ..................... 4,010,223 4,641,300 230,000 Modine Manufacturing Co. ........ 5,382,506 3,332,700 11,812 Monro Muffler Brake Inc. ........ 52,857 199,623 200,000 O'Reilly Automotive Inc.+ ....... 5,994,117 5,704,000 200,000 Proliance International Inc.+ ... 1,342,357 364,000 2,000 Puradyn Filter Technologies Inc.+ ........... 2,750 640 64,000 SORL Auto Parts Inc.+ ........... 472,135 324,480 75,375 Spartan Motors Inc. ............. 365,563 637,672 240,000 Standard Motor Products Inc. .... 3,125,763 1,468,800 27,000 Strattec Security Corp. ......... 1,058,830 1,142,910 45,000 Superior Industries International Inc. ........... 897,906 933,750 40,000 Tenneco Inc.+ ................... 939,826 1,117,600 220,000 The Pep Boys - Manny, Moe & Jack ............ 3,093,105 2,191,200 27,000 Thor Industries Inc. ............ 250,194 803,790 4,000 Wonder Auto Technology Inc.+ .... 32,796 32,920 -------------- -------------- 32,594,164 32,099,989 -------------- -------------- AVIATION: PARTS AND SERVICES -- 3.1% 25,000 AAR Corp.+ ...................... 302,990 681,750 10,000 Astronics Corp.+ ................ 48,990 193,200 14,000 Barnes Group Inc. ............... 119,438 321,300 122,000 Curtiss-Wright Corp. ............ 1,495,053 5,060,560 7,500 Ducommun Inc.+ .................. 80,125 207,525 30,000 Embraer-Empresa Brasileira de Aeronautica SA, ADR .......... 508,773 1,185,300 23,000 Gamesa Corp. Tecnologica SA ..... 140,752 1,049,399 280,000 GenCorp Inc.+ ................... 2,915,852 2,881,200 MARKET SHARES COST VALUE ------ -------------- -------------- 450,000 Kaman Corp. ..................... $ 7,217,248 $ 12,730,500 90,000 Moog Inc., Cl. A+ ............... 732,783 3,798,900 500,000 The Fairchild Corp., Cl. A+ ..... 1,399,826 1,140,000 80,200 Woodward Governor Co. ........... 1,052,265 2,142,944 -------------- -------------- 16,014,095 31,392,578 -------------- -------------- BROADCASTING -- 1.1% 128,000 Acme Communications Inc.+ ....... 946,329 258,560 85,800 Beasley Broadcast Group Inc., Cl. A ........................ 680,297 305,448 2,000 Cogeco Inc. ..................... 39,014 59,428 295,000 Crown Media Holdings Inc., Cl. A+ ....................... 1,848,397 1,525,150 3,333 CTN Media Group Inc.+ (b) ....... 16,800 4 2,000 Global Traffic Network Inc.+ .... 11,904 17,520 2,433 Granite Broadcasting Corp.+ ..... 822,771 41,361 425,000 Gray Television Inc. ............ 3,793,791 2,418,250 35,000 Gray Television Inc., Cl. A ..... 413,341 207,025 48,000 Hearst-Argyle Television Inc. ... 425,523 990,240 115,000 Ideation Acquisition Corp.+ ..... 916,125 839,500 250 Liberty Media Corp. - Capital, Cl. A+ .............. 2,516 3,935 17,000 Nexstar Broadcasting Group Inc., Cl. A+ ........... 153,927 100,300 225,000 Salem Communications Corp., Cl. A ........................ 1,999,858 902,250 200,000 Sinclair Broadcast Group Inc., Cl. A ........................ 2,184,852 1,782,000 200,000 Sirius Satellite Radio Inc.+ .... 981,915 572,000 50,000 Spanish Broadcasting System Inc., Cl. A+ .......... 448,766 88,500 35,000 XM Satellite Radio Holdings Inc., Cl. A+ ........ 302,980 406,700 550,000 Young Broadcasting Inc., Cl. A+ ....................... 2,780,092 418,000 -------------- -------------- 18,769,198 10,936,171 -------------- -------------- BUILDING AND CONSTRUCTION -- 0.0% 25,000 Huttig Building Products Inc.+ .. 90,165 58,000 25,000 Insituform Technologies Inc., Cl. A+ ....................... 464,645 345,750 1,000 Universal Forest Products Inc. .. 12,125 32,200 1 Vulcan Materials Co. ............ 1 1 -------------- -------------- 566,936 435,951 -------------- -------------- BUSINESS SERVICES -- 3.8% 5,000 ACCO Brands Corp.+ .............. 123,890 67,850 245,000 AMICAS Inc.+ .................... 1,054,108 551,250 6,000 BB Holdings Ltd.+ ............... 23,159 30,750 440,000 BPW Acquisition Corp.+ .......... 4,396,038 4,206,400 5,000 BrandPartners Group Inc.+ ....... 4,850 210 2,400 Carlisle Group Ltd.+ ............ 3,303 4,120 4,500 Cockleshell Ltd.+ ............... 0 5,225 See accompanying notes to financial statements. 4 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) BUSINESS SERVICES (CONTINUED) 2,500 comScore Inc.+ .................. $ 41,250 $ 50,150 200,000 Diebold Inc. .................... 7,424,413 7,510,000 430,000 Edgewater Technology Inc.+ ...... 2,324,540 2,266,100 4,100 GP Strategies Corp.+ ............ 33,938 38,950 22,589 GSE Systems Inc.+ ............... 31,625 183,874 500 GSI Commerce Inc.+ .............. 8,649 6,575 100,000 Industrial Distribution Group Inc.+ .................. 405,322 1,004,000 60,000 Interactive Data Corp. .......... 534,171 1,708,200 300,000 Intermec Inc.+ .................. 6,190,203 6,657,000 13,000 Landauer Inc. ................... 234,859 654,420 4,000 MDC Partners Inc., Cl. A+ ....... 12,360 29,080 170,000 Nashua Corp.+ ................... 1,640,781 1,868,300 30,000 R. H. Donnelley Corp.+ .......... 311,072 151,800 600 Shellshock Ltd.+ ................ 327 792 68,000 Sohgo Security Services Co. Ltd. ............ 864,949 948,234 12,500 SP Acquisition Holdings Inc.+ ... 125,000 122,250 18,000 Stamps.com Inc.+ ................ 98,885 184,680 5,000 StarTek Inc.+ ................... 73,657 46,050 55,000 The Brink's Co. ................. 1,420,728 3,694,900 400,000 The Interpublic Group of Companies Inc.+ .............. 3,473,211 3,364,000 170,000 Trans-Lux Corp.+ (a) ............ 1,270,779 595,000 25,050 TransAct Technologies Inc.+ ..... 125,082 122,996 100,000 ValueClick Inc.+ ................ 2,458,603 1,725,000 -------------- -------------- 34,709,752 37,798,156 -------------- -------------- CABLE -- 1.6% 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+ (b) .... 0 0 500,000 Cablevision Systems Corp., Cl. A+ ....................... 121,520 10,715,000 9,329 Liberty Global Inc., Cl. A+ ..... 249,972 317,932 9,329 Liberty Global Inc., Cl. C+ ..... 240,169 303,006 325,000 Lin TV Corp., Cl. A+ ............ 5,012,105 3,123,250 8,000 Outdoor Channel Holdings Inc.+ ............... 72,605 58,800 60,000 The DIRECTV Group Inc.+ ......... 1,465,253 1,487,400 -------------- -------------- 7,191,274 16,005,388 -------------- -------------- CLOSED-END FUNDS -- 0.6% 101,202 The Central Europe and Russia Fund Inc. ............. 2,879,202 4,800,011 36,700 The European Equity Fund Inc. ... 386,832 392,690 54,000 The New Germany Fund Inc. ....... 635,491 834,300 11,000 The Spain Fund Inc. ............. 103,029 133,540 -------------- -------------- 4,004,554 6,160,541 -------------- -------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMUNICATIONS EQUIPMENT -- 1.2% 150,000 Communications Systems Inc. ................. $ 1,040,821 $ 1,615,500 260,900 Sycamore Networks Inc.+ ......... 778,040 954,894 258,000 Thomas & Betts Corp.+ ........... 4,715,067 9,383,460 -------------- -------------- 6,533,928 11,953,854 -------------- -------------- COMPUTER SOFTWARE AND SERVICES -- 2.0% 500,000 BEA Systems Inc.+ ............... 9,543,500 9,575,000 70,000 Borland Software Corp.+ ......... 586,785 141,400 90,000 FalconStor Software Inc.+ ....... 636,867 684,900 300,000 Furmanite Corp.+ ................ 1,146,864 2,550,000 59,508 Global Sources Ltd.+ ............ 834,258 883,694 40,000 Jupitermedia Corp.+ ............. 295,800 83,600 2,000 Limelight Networks Inc.+ ........ 15,963 6,480 20,187 MKS Instruments Inc.+ ........... 367,981 432,002 10,000 NAVTEQ Corp.+ ................... 369,415 680,000 60,000 OpenTV Corp., Cl. A+ ............ 315,990 70,800 6,000 Phoenix Technologies Ltd.+ ...... 41,368 93,960 215,000 Stamford Industrial Group Inc.+ .................. 156,830 290,250 800,000 StorageNetworks Inc., Escrow+ (b) .................. 0 24,000 290,000 Tyler Technologies Inc.+ ........ 1,092,388 4,054,200 -------------- -------------- 15,404,009 19,570,286 -------------- -------------- CONSUMER PRODUCTS -- 1.8% 70,000 1-800-FLOWERS.COM Inc., Cl. A+ ....................... 658,180 595,700 6,750 Adams Golf Inc.+ ................ 71,200 56,025 5,250 Alberto-Culver Co. .............. 123,588 143,902 16,000 Ashworth Inc.+ .................. 69,906 45,760 33,500 Chofu Seisakusho Co. Ltd. ....... 484,644 671,815 36,000 Church & Dwight Co. Inc. ........ 344,519 1,952,640 45,000 Coachmen Industries Inc. ........ 503,207 134,100 6,000 Elizabeth Arden Inc.+ ........... 82,125 119,700 55,771 Escada AG+ ...................... 1,833,070 1,530,288 2,000 Harley-Davidson Inc. ............ 4,712 75,000 210,000 Hartmarx Corp.+ ................. 1,039,708 613,200 45,000 Lenox Group Inc.+ ............... 367,390 79,650 5,000 Levcor International Inc.+ ...... 7,650 1,450 300,000 Marine Products Corp. ........... 273,738 2,424,000 31,000 National Presto Industries Inc. ......................... 966,705 1,624,400 83,000 Revlon Inc., Cl. A+ ............. 253,933 81,340 110,250 Sally Beauty Holdings Inc.+ ..... 858,715 760,725 700,000 Schiff Nutrition International Inc. ........... 1,877,976 4,193,000 55,000 Spectrum Brands Inc.+ ........... 546,017 251,350 1,070 Steven Madden Ltd.+ ............. 4,726 18,329 14,000 Stewart Enterprises Inc., Cl. A ........................ 65,467 89,880 87,425 Syratech Corp.+ ................. 17,426 1,749 4,000 The Scotts Miracle-Gro Co., Cl. A ........................ 45,880 129,680 See accompanying notes to financial statements. 5 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) CONSUMER PRODUCTS (CONTINUED) 17,000 WD-40 Co. ....................... $ 470,278 $ 565,250 73,000 Wolverine World Wide Inc. ....... 710,597 2,117,730 -------------- -------------- 11,681,357 18,276,663 -------------- -------------- CONSUMER SERVICES -- 1.0% 34,000 Bowlin Travel Centers Inc.+ ..... 31,812 54,400 2,500 Collectors Universe Inc. ........ 8,720 25,975 10,000 eLong Inc., ADR+ ................ 113,711 83,200 2,000 Expedia Inc.+ ................... 19,829 43,780 40,000 IAC/InterActiveCorp+ ............ 471,794 830,400 210,000 Martha Stewart Living Omnimedia Inc., Cl. A+ ....... 1,819,834 1,560,300 20,000 Response USA Inc.+ .............. 16,500 31 400,500 Rollins Inc. .................... 2,284,661 7,084,845 10,000 TiVo Inc.+ ...................... 74,563 87,600 -------------- -------------- 4,841,424 9,770,531 -------------- -------------- DIVERSIFIED INDUSTRIAL -- 7.7% 42,000 Acuity Brands Inc. .............. 410,317 1,803,900 5,000 Albany International Corp., Cl. A ........................ 177,158 180,700 103,100 Ampco-Pittsburgh Corp. .......... 1,446,420 4,432,269 6,000 Anixter International Inc.+ ..... 57,120 384,240 312,000 Baldor Electric Co. ............. 8,576,516 8,736,000 151,000 Crane Co. ....................... 3,330,687 6,092,850 100,000 Delta plc ....................... 212,289 186,556 3,000 ESCO Technologies Inc.+ ......... 49,914 119,160 1,626 Foster Wheeler Ltd.+ ............ 3,194 92,064 12,000 Gardner Denver Inc.+ ............ 103,046 445,200 188,000 Greif Inc., Cl. A ............... 1,907,682 12,770,840 26,000 Greif Inc., Cl. B ............... 948,864 1,589,380 370,000 Griffon Corp.+ .................. 5,675,398 3,182,000 48,000 Hawk Corp., Cl. A+ .............. 768,610 840,960 10,000 Insteel Industries Inc. ......... 4,250 116,300 180,000 Katy Industries Inc.+ ........... 701,316 279,000 69,000 Lindsay Corp. ................... 742,781 7,070,430 325,000 Magnetek Inc.+ .................. 1,712,191 1,118,000 32,000 Matthews International Corp., Cl. A ........................ 748,294 1,544,000 270,000 Myers Industries Inc. ........... 2,441,846 3,545,100 150,000 National Patent Development Corp.+ ........... 135,611 360,000 101,000 Oil-Dri Corp. of America ........ 873,490 1,806,890 15,000 Olin Corp. ...................... 232,292 296,400 230,000 Park-Ohio Holdings Corp.+ ....... 1,384,871 3,613,300 86,000 Precision Castparts Corp. ....... 1,571,868 8,778,880 32,000 Roper Industries Inc. ........... 620,029 1,902,080 33,000 Sonoco Products Co. ............. 911,856 944,790 63,000 Standex International Corp. ..... 1,253,307 1,407,420 145,000 Tech/Ops Sevcon Inc. ............ 1,023,242 1,015,000 100,000 Tredegar Corp. .................. 1,493,541 1,821,000 73,048 WHX Corp.+ ...................... 1,038,747 191,751 -------------- -------------- 40,556,747 76,666,460 -------------- -------------- MARKET SHARES COST VALUE ------ -------------- -------------- EDUCATIONAL SERVICES -- 0.3% 30,000 Career Education Corp.+ ......... $ 453,735 $ 381,600 150,000 Corinthian Colleges Inc.+ ....... 1,184,223 1,084,500 1,000 School Specialty Inc.+ .......... 33,907 31,540 150,100 Universal Technical Institute Inc.+ .............. 2,878,683 1,760,673 -------------- -------------- 4,550,548 3,258,313 -------------- -------------- ELECTRONICS -- 2.7% 76,000 Badger Meter Inc. ............... 1,817,889 3,283,200 85,000 Bel Fuse Inc., Cl. A ............ 2,885,032 2,668,150 478,500 California Micro Devices Corp.+ ............... 2,312,047 1,406,790 220,000 CTS Corp. ....................... 2,392,912 2,354,000 45,000 Excel Technology Inc.+ .......... 1,202,663 1,213,200 220,000 Greatbatch Inc.+ ................ 5,801,037 4,050,200 16,000 IMAX Corp.+ ..................... 137,281 111,520 230,000 KEMET Corp.+ .................... 1,799,362 929,200 75,000 Methode Electronics Inc. ........ 710,862 876,750 224,800 Park Electrochemical Corp. ...... 5,434,085 5,811,080 120,000 Stoneridge Inc.+ ................ 1,127,216 1,614,000 150,000 Trident Microsystems Inc.+ ...... 798,820 772,500 150,000 Zoran Corp.+ .................... 1,820,015 2,049,000 -------------- -------------- 28,239,221 27,139,590 -------------- -------------- ENERGY AND UTILITIES -- 5.7% 3,000 AGL Resources Inc. .............. 51,525 102,960 1,300,000 Aquila Inc.+ .................... 4,798,721 4,173,000 95,000 Callon Petroleum Co.+ ........... 939,533 1,718,550 70,200 CH Energy Group Inc. ............ 2,828,896 2,730,780 12,000 Chesapeake Utilities Corp. ...... 236,752 355,680 65,000 CMS Energy Corp. ................ 363,722 880,100 23,000 Connecticut Water Service Inc. .. 464,832 544,410 3,500 Consolidated Water Co. Ltd. ..... 83,341 77,105 150,000 Covanta Holding Corp.+ .......... 644,530 4,125,000 145,000 El Paso Electric Co.+ ........... 1,886,797 3,098,650 12,500 EnergySouth Inc. ................ 702,377 652,375 20,000 Environmental Power Corp.+ ...... 110,000 83,000 132,000 Florida Public Utilities Co. .... 1,239,946 1,471,800 43,000 Middlesex Water Co. ............. 743,997 780,880 10,000 Nicor Inc. ...................... 221,002 335,100 20,000 Oceaneering International Inc.+ .......... 544,313 1,260,000 26,200 Pennichuck Corp. ................ 609,739 605,220 2,000 PetroQuest Energy Inc.+ ......... 5,250 34,680 200,000 PNM Resources Inc. .............. 2,480,622 2,494,000 30,000 Rowan Companies Inc. ............ 1,124,461 1,235,400 1,015,000 RPC Inc. ........................ 1,503,947 15,417,850 77,000 SJW Corp. ....................... 1,182,745 2,201,430 85,000 Southern Union Co. .............. 1,641,113 1,977,950 110,000 Southwest Gas Corp. ............. 2,061,384 3,075,600 20,000 Tesoro Corp. .................... 140,933 600,000 4,000 Toreador Resources Corp.+ ....... 15,250 31,120 See accompanying notes to financial statements. 6 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) ENERGY AND UTILITIES (CONTINUED) 6,000 Union Drilling Inc.+ ............ $ 83,892 $ 104,940 10,000 Vestas Wind Systems A/S+ ........ 89,988 1,092,434 10,000 W-H Energy Services Inc.+ ....... 212,864 688,500 195,000 Westar Energy Inc. .............. 3,421,319 4,440,150 -------------- -------------- 30,433,791 56,388,664 -------------- -------------- ENTERTAINMENT -- 2.0% 125,000 Aruze Corp. ..................... 2,945,400 3,862,360 42,500 Canterbury Park Holding Corp. ................ 594,314 401,625 45,000 Carmike Cinemas Inc. ............ 431,520 462,600 6,048 Chestnut Hill Ventures+ (b) ..... 164,590 170,238 20,000 Discovery Holding Co., Cl. A+ ... 477,503 424,400 201,000 Dover Motorsports Inc. .......... 1,104,623 1,236,150 108,000 Fisher Communications Inc.+ ..... 5,806,649 3,365,280 581,466 Gemstar-TV Guide International Inc.+ .......... 3,218,348 2,732,890 16,000 International Speedway Corp., Cl. A ........................ 515,479 659,200 2,500 International Speedway Corp., Cl. B ........................ 45,000 101,625 1,000 Liberty Media Corp. - Entertainment, Cl. A+ ........ 13,208 22,640 280,000 Six Flags Inc.+ ................. 1,414,739 459,200 178,600 Take-Two Interactive Software Inc.+ ............... 4,602,533 4,557,872 95,030 Triple Crown Media Inc.+ ........ 802,174 265,134 50,000 World Wrestling Entertainment Inc., Cl. A .... 581,121 930,500 30,000 WPT Enterprises Inc.+ ........... 203,513 43,500 -------------- -------------- 22,920,714 19,695,214 -------------- -------------- ENVIRONMENTAL SERVICES -- 1.0% 200,000 Allied Waste Industries Inc.+ ... 1,943,361 2,162,000 10,000 Basin Water Inc.+ ............... 84,528 57,400 2,500 Renegy Holdings Inc.+ ........... 16,031 10,750 262,500 Republic Services Inc. .......... 2,490,315 7,675,500 -------------- -------------- 4,534,235 9,905,650 -------------- -------------- EQUIPMENT AND SUPPLIES -- 12.4% 15,000 A.O. Smith Corp., Cl. A ......... 336,569 521,250 249,000 AMETEK Inc. ..................... 996,986 10,933,590 425,000 Baldwin Technology Co. Inc., Cl. A+ ....................... 1,353,684 1,092,250 25,000 Belden Inc. ..................... 279,400 883,000 5,000 C&D Technologies Inc.+ .......... 51,765 25,100 50,000 Capstone Turbine Corp.+ ......... 103,400 106,000 253,000 CIRCOR International Inc. ....... 5,138,983 11,701,250 400,000 CLARCOR Inc. .................... 2,448,277 14,220,000 200,000 Core Molding Technologies Inc.+ ........... 299,389 1,425,000 MARKET SHARES COST VALUE ------ -------------- -------------- 170,000 Crown Holdings Inc.+ ............ $ 687,034 $ 4,277,200 2,000 Danaher Corp. ................... 34,106 152,060 66,000 Donaldson Co. Inc. .............. 761,576 2,658,480 225,000 Enodis plc ...................... 756,230 621,812 90,000 Entegris Inc.+ .................. 708,040 647,100 40,000 Fedders Corp.+ .................. 10,068 360 174,000 Flowserve Corp. ................. 3,239,900 18,162,120 160,000 Franklin Electric Co. Inc. ...... 1,496,658 5,467,200 22,000 Gehl Co.+ ....................... 462,399 372,680 151,000 Gerber Scientific Inc.+ ......... 1,472,095 1,342,390 84,000 Graco Inc. ...................... 928,834 3,045,840 250,000 GrafTech International Ltd.+ .... 2,524,711 4,052,500 90,000 IDEX Corp. ...................... 556,738 2,762,100 30,000 Interpump Group SpA ............. 117,824 287,728 1,200 Itron Inc.+ ..................... 83,560 108,276 4,000 Jarden Corp.+ ................... 11,351 86,960 9,000 K-Tron International Inc.+ ...... 85,088 1,080,990 64,000 L.S. Starrett Co., Cl. A ........ 1,091,156 1,231,360 30,000 Littelfuse Inc.+ ................ 611,444 1,049,100 107,000 Lufkin Industries Inc. .......... 1,029,240 6,828,740 55,000 Maezawa Kyuso Industries Co. Ltd. .......... 359,609 1,045,596 35,554 Met-Pro Corp. ................... 192,459 398,916 2,000 Middleby Corp.+ ................. 37,310 124,780 20,800 Mueller Industries Inc. ......... 661,915 600,080 10,000 Plantronics Inc. ................ 246,559 193,100 88,000 Robbins & Myers Inc. ............ 967,454 2,873,200 95,000 SL Industries Inc.+ ............. 1,114,953 1,890,500 5,000 Teleflex Inc. ................... 76,167 238,550 180,000 Tennant Co. ..................... 4,093,798 7,165,800 318,750 The Gorman-Rupp Co. ............. 6,126,194 10,483,687 5,000 Valmont Industries Inc. ......... 40,625 439,450 60,000 Vicor Corp. ..................... 715,458 716,400 7,875 Watsco Inc., Cl. B .............. 23,627 326,813 90,000 Watts Water Technologies Inc., Cl. A ........................ 1,777,805 2,522,700 61,050 Wolverine Tube Inc.+ ............ 201,570 51,282 -------------- -------------- 44,312,008 124,213,290 -------------- -------------- FINANCIAL SERVICES -- 4.3% 10,200 Alleghany Corp.+ ................ 1,731,082 3,483,300 25,287 Argo Group International Holdings Ltd.+ ............... 844,293 898,194 100,000 Bank of Florida Corp.+ .......... 1,294,226 1,014,000 87,000 BKF Capital Group Inc.+ ......... 1,119,917 167,040 422,800 CNA Surety Corp.+ ............... 4,898,999 6,502,664 21,000 Crazy Woman Creek Bancorp Inc................... 325,590 407,400 17,813 Deerfield Capital Corp. ......... 25,294 25,116 10,000 Duff & Phelps Corp., Cl. A+ ..... 158,736 179,900 37,000 Epoch Holding Corp. ............. 63,098 443,260 See accompanying notes to financial statements. 7 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) FINANCIAL SERVICES (CONTINUED) 3,000 Federal Agricultural Mortgage Corp., Cl. C ........ $ 24,000 $ 78,300 175,000 Flushing Financial Corp. ........ 2,721,158 3,076,500 205,000 Franklin Bank Corp.+ ............ 4,073,434 621,150 2,000 KBW Inc.+ ....................... 40,585 44,100 70,000 LaBranche & Co. Inc.+ ........... 646,126 304,500 1,000 LandAmerica Financial Group Inc. ................... 12,175 39,470 3,000 Leucadia National Corp. ......... 24,354 135,660 75,000 MVC Capital Inc. ................ 861,134 1,143,000 225,000 Nara Bancorp Inc. ............... 2,756,543 2,922,750 3,000 NetBank Inc.+ ................... 6,056 54 135,000 NewAlliance Bancshares Inc. ..... 1,912,557 1,655,100 6,000 Och-Ziff Capital Management Group LLC, Cl. A ............. 145,218 126,000 10,000 PrivateBancorp Inc. ............. 306,851 314,700 145,320 Sterling Bancorp ................ 2,392,075 2,256,820 60,000 Sterling Financial Corp. ........ 1,000,493 1,047,000 125,000 SWS Group Inc. .................. 2,412,738 1,528,750 107,500 The Midland Co. ................. 822,713 6,979,975 4,500 Value Line Inc. ................. 183,817 206,550 150,000 Waddell & Reed Financial Inc., Cl. A ........................ 4,642,735 4,819,500 63,600 Wilmington Trust Corp. .......... 1,990,755 1,977,960 -------------- -------------- 37,436,752 42,398,713 -------------- -------------- FOOD AND BEVERAGE -- 5.3% 28,500 Boston Beer Co. Inc., Cl. A+ .... 446,357 1,354,890 25,000 Brown-Forman Corp., Cl. A ....... 697,122 1,731,000 200,000 Bull-Dog Sauce Co. Ltd. ......... 658,452 511,637 100 Compania Cervecerias Unidas SA, ADR ............... 2,455 3,534 200,000 CoolBrands International Inc.+ .. 201,970 163,671 34,000 Corn Products International Inc. ......................... 548,898 1,262,760 260,000 Davide Campari-Milano SpA ....... 2,616,561 2,522,379 155,000 Del Monte Foods Co. ............. 1,477,478 1,477,150 85,000 Denny's Corp.+ .................. 132,581 253,300 1,200,000 Dynasty Fine Wines Group Ltd. ... 403,579 260,580 100 Embotelladora Andina SA, Cl. A, ADR ................... 1,295 1,925 25,000 Farmer Brothers Co. ............. 389,323 578,500 330,000 Flowers Foods Inc. .............. 1,916,058 8,167,500 500 Genesee Corp., Cl. A+ (b) ....... 0 0 21,500 Genesee Corp., Cl. B+ (b) ....... 15,393 0 701,500 Grupo Continental SAB de CV+ .... 1,058,724 1,697,270 10,000 Hain Celestial Group Inc.+ ...... 184,774 295,000 140,000 ITO EN Ltd. ..................... 3,039,334 2,477,528 25,000 ITO EN Ltd., Preference ......... 531,595 282,404 25,000 J & J Snack Foods Corp. ......... 577,813 686,750 350,000 Kikkoman Corp. .................. 3,180,129 4,301,264 MARKET SHARES COST VALUE ------ -------------- -------------- 100,000 Lifeway Foods Inc.+ ............. $ 896,450 $ 1,068,000 20,000 Meiji Seika Kaisha Ltd. ......... 87,470 101,725 40,000 MGP Ingredients Inc. ............ 278,545 279,600 160,000 Morinaga Milk Industry Co. Ltd. ..................... 666,865 489,567 15,000 Nathan's Famous Inc.+ ........... 155,721 210,000 122,850 Nissin Food Products Co. Ltd. ... 4,244,502 4,141,011 20,000 NuCo2 Inc.+ ..................... 562,688 555,400 4,000 Omni Nutraceuticals Inc.+ ....... 13,563 3 80,000 PepsiAmericas Inc. .............. 1,798,266 2,042,400 56,000 Ralcorp Holdings Inc.+ .......... 999,311 3,256,400 140,000 Rock Field Co. Ltd. ............. 2,262,956 2,213,483 60,000 Smart Balance Inc.+ ............. 568,588 474,000 14,300 The Cheesecake Factory Inc.+ .... 106,751 311,597 66,000 The J.M. Smucker Co. ............ 1,599,230 3,340,260 85,190 Tootsie Roll Industries Inc. .... 1,712,813 2,146,788 49,000 Triarc Cos. Inc., Cl. A ......... 348,372 308,700 119,000 Triarc Cos. Inc., Cl. B ......... 1,016,318 822,290 2,000 Vina Concha Y Toro SA, ADR ...... 54,957 73,520 1,000 Willamette Valley Vineyards Inc.+ .............. 3,994 7,250 100,000 YAKULT HONSHA Co. Ltd. .......... 2,539,866 3,099,920 -------------- -------------- 37,997,117 52,970,956 -------------- -------------- HEALTH CARE -- 8.9% 375,000 Advanced Medical Optics Inc.+ ................. 12,458,208 7,612,500 47,000 Align Technology Inc.+ .......... 409,536 522,170 100,000 Allergan Inc. ................... 1,964,408 5,639,000 138,000 Alpharma Inc., Cl. A+ ........... 3,198,529 3,616,980 175,000 AngioDynamics Inc.+ ............. 2,960,164 2,023,000 5,000 Anika Therapeutics Inc.+ ........ 64,475 42,400 215,000 Animal Health International Inc.+ .......... 2,557,725 2,352,100 65,000 ArthroCare Corp.+ ............... 1,937,039 2,167,750 7,500 Bio-Rad Laboratories Inc., Cl. A+ ....................... 296,935 667,125 30,000 BioLase Technology Inc.+ ........ 102,764 92,700 9,000 Bruker Corp.+ ................... 34,729 138,510 112,000 Chemed Corp. .................... 1,802,990 4,726,400 74,400 CONMED Corp.+ ................... 1,963,103 1,907,616 190,000 Crucell NV, ADR+ ................ 3,746,685 2,927,900 215,000 Cutera Inc.+ .................... 3,762,183 2,896,050 100,000 Del Global Technologies Corp.+ .......... 306,703 235,000 100,000 DexCom Inc.+ .................... 1,179,570 414,000 90,000 Edwards Lifesciences Corp.+ ..... 3,180,397 4,009,500 68,000 Exactech Inc.+ .................. 982,431 1,712,920 42,000 Henry Schein Inc.+ .............. 739,631 2,410,800 100,000 ICU Medical Inc.+ ............... 2,851,239 2,877,000 15,000 IMS Health Inc. ................. 412,500 315,150 See accompanying notes to financial statements. 8 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) HEALTH CARE (CONTINUED) 2,000 Integra LifeSciences Holdings Corp.+ .............. $ 43,600 $ 86,940 3,000 Invacare Corp. .................. 73,652 66,840 30,000 Inverness Medical Innovations Inc.+ ............ 554,733 903,000 25,000 Invitrogen Corp.+ ............... 1,286,160 2,136,750 10,000 K-V Pharmaceutical Co., Cl. A+ ....................... 286,714 249,600 45,000 Mentor Corp. .................... 1,439,762 1,157,400 60,000 Micrus Endovascular Corp.+ ...... 943,894 741,600 40,000 MWI Veterinary Supply Inc.+ ..... 972,736 1,410,400 16,000 Nabi Biopharmaceuticals+ ........ 109,645 64,320 4,000 NeoPharm Inc.+ .................. 21,310 2,241 10,000 NeuroMetrix Inc.+ ............... 67,433 18,200 800 Nobel Biocare Holding AG ........ 61,643 186,084 200,000 Odyssey HealthCare Inc.+ ........ 2,203,256 1,800,000 50,000 Opko Health Inc.+ ............... 164,099 104,000 54,000 Orthofix International NV+ ...... 2,056,097 2,147,580 2,000 OrthoLogic Corp.+ ............... 6,750 1,700 35,000 Owens & Minor Inc. .............. 692,324 1,376,900 120,000 Pain Therapeutics Inc.+ ......... 1,086,242 1,014,000 220,000 Palomar Medical Technologies Inc.+ ........... 4,170,333 3,322,000 101,500 Penwest Pharmaceuticals Co.+ ......... 1,136,172 263,900 30,000 PSS World Medical Inc.+ ......... 367,273 499,800 1,779 Qiagen NV+ ...................... 7,992 37,003 205,000 Quidel Corp.+ ................... 1,712,623 3,292,300 120,000 RTI Biologics Inc.+ ............. 1,178,032 1,134,000 8,000 Sirona Dental Systems Inc.+ ..... 95,126 215,760 20,000 SNIA SpA+ ....................... 41,661 17,240 140,000 Sonic Innovations Inc.+ ......... 646,693 676,200 2,600,000 Sorin SpA+ ...................... 7,847,452 4,227,909 1,100,000 SSL International plc ........... 8,745,703 9,900,372 2,300 Straumann Holding AG ............ 206,988 656,580 4,200 Stryker Corp. ................... 162,570 273,210 40,000 Thoratec Corp.+ ................. 478,455 571,600 30,000 United-Guardian Inc. ............ 275,421 307,200 60,000 Vascular Solutions Inc.+ ........ 480,529 367,800 1,000 Wright Medical Group Inc.+ ...... 16,460 24,140 10,000 Young Innovations Inc. .......... 237,253 173,200 15,000 Zymogenetics Inc.+ .............. 177,307 147,000 -------------- -------------- 86,966,037 88,881,340 -------------- -------------- HOME FURNISHINGS -- 0.0% 12,000 Bassett Furniture Industries Inc. ......................... 192,256 148,080 4,000 Bed Bath & Beyond Inc.+ ......... 11,125 118,000 250 Foamex International Inc.+ ...... 8,062 408 18,000 La-Z-Boy Inc. ................... 160,438 150,120 -------------- -------------- 371,881 416,608 -------------- -------------- MARKET SHARES COST VALUE ------ -------------- -------------- HOTELS AND GAMING -- 2.2% 12,000 Boyd Gaming Corp. ............... $ 90,225 $ 240,000 78,000 Churchill Downs Inc. ............ 2,596,841 3,684,720 100,000 Dover Downs Gaming & Entertainment Inc. ........... 666,063 851,000 170,000 Gaylord Entertainment Co.+ ...... 5,025,021 5,149,300 28,000 Home Inns & Hotels Management Inc., ADR+ ........ 709,811 551,320 140,000 Lakes Entertainment Inc.+ ....... 717,933 618,800 10,000 Las Vegas Sands Corp.+ .......... 778,331 736,400 110,000 Magna Entertainment Corp., Cl. A+ ....................... 620,140 37,400 35,000 Marcus Corp. .................... 627,819 672,000 40,000 Orient-Express Hotels Ltd., Cl. A ........................ 1,854,955 1,726,400 52,000 Penn National Gaming Inc.+ ...... 134,938 2,273,960 125,000 Pinnacle Entertainment Inc.+ .......... 1,680,650 1,600,000 90,488 Sonesta International Hotels Corp., Cl. A .......... 2,573,461 2,239,578 16,000 Wynn Resorts Ltd. ............... 135,778 1,610,240 20,000 Youbet.com Inc.+ ................ 51,494 16,200 -------------- -------------- 18,263,460 22,007,318 -------------- -------------- MANUFACTURED HOUSING AND RECREATIONAL VEHICLES -- 1.1% 50,000 Cavalier Homes Inc.+ ............ 95,636 79,000 58,000 Cavco Industries Inc.+ .......... 1,127,032 2,032,320 340,000 Champion Enterprises Inc.+ ...... 3,532,538 3,410,200 17,000 Drew Industries Inc.+ ........... 296,303 415,820 210,000 Fleetwood Enterprises Inc.+ ..... 2,603,146 966,000 55,000 Monaco Coach Corp. .............. 1,196,024 521,400 13,400 Nobility Homes Inc. ............. 262,206 234,500 136,000 Skyline Corp. ................... 4,410,274 3,783,520 -------------- -------------- 13,523,159 11,442,760 -------------- -------------- METALS AND MINING -- 0.8% 52,003 Barrick Gold Corp. .............. 1,522,648 2,259,530 10,000 Inmet Mining Corp. .............. 325,911 730,674 15,000 Ivanhoe Mines Ltd.+ ............. 111,730 154,800 142,115 Kinross Gold Corp. .............. 984,488 3,142,163 2,000 Northwest Pipe Co.+ ............. 55,888 84,980 190,000 Royal Oak Mines Inc.+ (b) ....... 322,487 0 30,148 Stillwater Mining Co.+ .......... 389,561 466,389 52,000 Uranium Resources Inc.+ ......... 287,137 311,480 22,350 Yamana Gold Inc. ................ 75,630 326,757 -------------- -------------- 4,075,480 7,476,773 -------------- -------------- PAPER AND FOREST PRODUCTS -- 0.1% 18,000 Schweitzer-Mauduit International Inc. ........... 424,690 416,520 25,000 Wausau Paper Corp. .............. 303,338 206,500 -------------- -------------- 728,028 623,020 -------------- -------------- See accompanying notes to financial statements. 9 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) PUBLISHING -- 1.4% 2,500 AH Belo Corp., Cl. A+ ........... $ 36,780 $ 28,575 4,000 Belo Corp., Cl. A ............... 62,018 42,280 160,000 Il Sole 24 Ore+ ................. 968,808 1,009,141 307,237 Independent News & Media plc .... 431,671 1,008,909 12,000 John Wiley & Sons Inc., Cl. B ... 46,500 473,520 375,000 Journal Communications Inc., Cl. A ........................ 3,769,669 2,767,500 70,000 Journal Register Co. ............ 234,396 38,500 50,000 Lee Enterprises Inc. ............ 812,427 500,500 50,000 McClatchy Co., Cl. A ............ 1,525,655 535,000 110,000 Media General Inc., Cl. A ....... 2,830,961 1,542,200 23,000 Meredith Corp. .................. 429,183 879,750 260,000 News Corp., Cl. A ............... 765,310 4,875,000 80,333 PRIMEDIA Inc. ................... 1,280,186 590,447 -------------- -------------- 13,193,564 14,291,322 -------------- -------------- REAL ESTATE -- 0.9% 172,100 Griffin Land & Nurseries Inc. ... 2,278,599 5,935,729 9,000 Gyrodyne Co. of America Inc.+ ... 135,071 361,125 20,000 Malan Realty Investors Inc.+ (b) .................... 53,529 390 106,000 Morguard Corp. .................. 1,344,892 3,098,056 -------------- -------------- 3,812,091 9,395,300 -------------- -------------- RETAIL -- 2.5% 144,000 Aaron Rents Inc., Cl. A ......... 521,690 2,736,000 50,000 Big 5 Sporting Goods Corp. ...... 834,145 438,500 8,000 Casey's General Stores Inc. ..... 124,503 180,800 270,000 Coldwater Creek Inc.+ ........... 1,654,580 1,363,500 45,000 Copart Inc.+ .................... 1,358,442 1,744,200 364,700 CSK Auto Corp.+ ................. 3,833,863 3,395,357 4,000 Gander Mountain Co.+ ............ 32,640 24,320 250,000 Ingles Markets Inc., Cl. A ...... 4,113,943 6,147,500 35,000 Movado Group Inc. ............... 515,027 682,150 30,000 Pier 1 Imports Inc.+ ............ 202,215 188,400 22,000 Rush Enterprises Inc., Cl. B+ ... 332,286 322,960 250,000 The Bon-Ton Stores Inc. ......... 1,998,967 1,367,500 255,000 The Steak n Shake Co.+ .......... 3,297,198 2,006,850 45,000 Tractor Supply Co.+ ............. 1,815,959 1,778,400 6,000 Village Super Market Inc., Cl. A ........................ 272,152 309,000 44,000 Weis Markets Inc. ............... 1,323,449 1,516,680 25,000 Winn-Dixie Stores Inc.+ ......... 445,808 449,000 -------------- -------------- 22,676,867 24,651,117 -------------- -------------- SPECIALTY CHEMICALS -- 4.9% 60,000 A. Schulman Inc. ................ 1,199,761 1,231,800 24,000 Airgas Inc. ..................... 150,350 1,091,280 78,000 Albemarle Corp. ................. 1,104,310 2,848,560 MARKET SHARES COST VALUE ------ -------------- -------------- 35,000 Arch Chemicals Inc. ............. $ 766,922 $ 1,304,100 580,000 Chemtura Corp. .................. 5,756,417 4,257,200 10,000 Cytec Industries Inc. ........... 278,296 538,500 3,200 Dionex Corp.+ ................... 96,000 246,368 260,000 Ferro Corp. ..................... 5,609,101 3,863,600 236,000 H.B. Fuller Co. ................. 2,083,971 4,816,760 123,000 Hawkins Inc. .................... 1,787,715 1,869,600 450,000 Hercules Inc. ................... 4,892,305 8,230,500 145,000 Material Sciences Corp.+ ........ 1,346,282 1,125,200 160,000 Omnova Solutions Inc.+ .......... 970,604 638,400 50,000 Penford Corp. ................... 539,601 1,086,500 10,000 Quaker Chemical Corp. ........... 181,137 312,900 23,000 Rockwood Holdings Inc.+ ......... 853,750 753,710 265,000 Sensient Technologies Corp. ..... 5,389,956 7,814,850 450,000 Zep Inc. ........................ 6,196,193 7,299,000 -------------- -------------- 39,202,671 49,328,828 -------------- -------------- TELECOMMUNICATIONS -- 1.1% 23,000 Atlantic Tele-Network Inc. ...... 92,644 778,090 300,000 Cincinnati Bell Inc.+ ........... 1,006,471 1,278,000 30,000 Citizens Communications Co. ..... 440,400 314,700 6,795 Community Service Communications Inc.+ ......... 0 19,196 105 Consolidated Communications Holdings Inc. ................ 2,001 1,588 46,000 D&E Communications Inc. ......... 592,050 409,400 55,000 HickoryTech Corp. ............... 506,308 449,350 50,825 New Ulm Telecom Inc. ............ 625,883 546,369 118,000 Rogers Communications Inc., Cl. B ........................ 569,865 4,238,560 63,000 Shenandoah Telecommunications Co. ....... 373,895 934,920 37,584 Verizon Communications Inc. ..... 905,273 1,369,937 24,000 Windstream Corp. ................ 25,072 286,800 53,000 Winstar Communications Inc.+ (b) ..... 133 53 -------------- -------------- 5,139,995 10,626,963 -------------- -------------- TRANSPORTATION -- 0.8% 170,000 GATX Corp. ...................... 5,286,254 6,641,900 125,000 Grupo TMM SA, Cl. A, ADR+ ....... 875,461 250,000 2,000 Irish Continental Group plc+ .... 17,409 73,507 37,000 Providence and Worcester Railroad Co. ................. 636,416 712,250 -------------- -------------- 6,815,540 7,677,657 -------------- -------------- WIRELESS COMMUNICATIONS -- 2.6% 100,000 Centennial Communications Corp.+ ........ 726,670 591,000 100,000 Nextwave Wireless Inc.+ ......... 758,861 505,000 72,000 Price Communications Corp., Escrow+ (b) .................. 0 0 100,000 Rural Cellular Corp., Cl. A+ .... 2,361,364 4,423,000 See accompanying notes to financial statements. 10 THE GABELLI SMALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) WIRELESS COMMUNICATIONS (CONTINUED) 685,000 Vimpel-Communications, ADR ...... $ 1,162,023 $ 20,474,650 17 Xanadoo Co.+ .................... 4,148 7,480 -------------- -------------- 5,013,066 26,001,130 -------------- -------------- TOTAL COMMON STOCKS ............. 626,006,953 882,754,440 -------------- -------------- PREFERRED STOCKS -- 0.1% BROADCASTING -- 0.0% 1,103 PTV Inc., 10.000% Pfd., Ser. A .. 0 386 -------------- -------------- BUSINESS SERVICES -- 0.0% 24,317 Interep National Radio Sales Inc., 4.000% Cv. Pfd., Ser. A+ (b)(c)(d) ............ 2,163,146 48,635 -------------- -------------- DIVERSIFIED INDUSTRIAL -- 0.1% 142 Foster Wheeler Ltd., 0.000% Pfd., Ser. B+ (b) ............ 35,792 1,045,205 -------------- -------------- TOTAL PREFERRED STOCKS .......... 2,198,938 1,094,226 -------------- -------------- RIGHTS -- 0.0% AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.0% 800,000 Exide Technologies, expire 05/05/11 Escrow Rights+(b) ............ 0 0 -------------- -------------- WARRANTS -- 0.1% AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.0% 1,213 Exide Technologies, expire 05/05/11+ ............. 2,247 1,395 4,532 Federal-Mogul Corp., expire 12/27/14+ ............. 87,700 16,087 -------------- -------------- 89,947 17,482 -------------- -------------- BROADCASTING -- 0.0% 6,082 Granite Broadcasting Corp., Ser. A, expire 06/04/12+ ..... 0 1,825 3,430 Granite Broadcasting Corp., Ser. B, expire 06/04/12+ ..... 0 857 -------------- -------------- 0 2,682 -------------- -------------- BUSINESS SERVICES -- 0.1% 161,431 GP Strategies Corp., expire 08/14/08+ (b)(c) ...... 391,882 598,919 -------------- -------------- DIVERSIFIED INDUSTRIAL -- 0.0% 379,703 National Patent Development Corp., expire 08/14/08+ (b)(c) ...... 0 6,774 -------------- -------------- HEALTH CARE -- 0.0% 14,424 Del Global Technologies Corp., expire 03/28/09+ ............. 24,809 19,472 -------------- -------------- TELECOMMUNICATIONS -- 0.0% 86 Virgin Media Inc., expire 01/10/11+ ............. 124 8 -------------- -------------- TOTAL WARRANTS .................. 506,762 645,337 -------------- -------------- PRINCIPAL MARKET AMOUNT COST VALUE ------------ -------------- -------------- CORPORATE BONDS -- 0.1% BUSINESS SERVICES -- 0.1% $ 1,430,098 GP Strategies Corp., Sub. Deb., 6.000%, 08/14/08 (b)(c) ...... $ 1,269,293 $ 1,282,481 -------------- -------------- 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 ........... 1,270,478 1,282,481 -------------- -------------- U.S. GOVERNMENT OBLIGATIONS -- 10.9% 108,801,000 U.S. Treasury Bills, 0.446% to 2.181%++, 04/03/08 to 09/18/08 ......... 108,378,486 108,320,552 -------------- -------------- TOTAL INVESTMENTS -- 99.6% ......... $ 738,361,617 994,097,036 ============== OTHER ASSETS AND LIABILITIES (NET) -- 0.4% ...... 4,315,746 -------------- NET ASSETS -- 100.0% ............................ $ 998,412,782 ============== ---------- (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 March 31, 2008, the market value of fair valued securities amounted to $3,176,699 or 0.32% of total net assets. (c) At March 31, 2008, the Fund held investments in restricted and illiquid securities amounting to $1,936,809 or 0.19% of total net assets, which were valued under methods approved by the Board, as follows:
PRINCIPAL 03/31/08 AMOUNT/ CARRYING ACQUISITION ACQUISITION ACQUISITION VALUE SHARES ISSUER DATE COST PER UNIT ------------ ---------------------------------- ----------- ----------- --------- $ 1,430,098 GP Strategies Corp., Sub. Deb., Cv., 6.000%, 08/14/08 ......... 08/08/03 $ 974,565 $ 89.6778 161,431 GP Strategies Corp. warrants expire 08/14/08 ...... 08/08/03 391,882 3.7101 24,317 Interep National Radio Sales Inc., 4.000% Cv. Pfd., Ser. A ....... 05/03/02 2,163,146 2.0000 379,703 National Patent Development Corp. warrants expire 08/14/08 ...... 11/24/04 0.00 0.0178
(d) Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. This security may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2008, the market value of the Rule 144A security amounted to $48,635 or 0.00% of total net assets. + Non-income producing security. ++ Represents annualized yield at date of purchase. ADR American Depositary Receipt See accompanying notes to financial statements. 11 THE GABELLI SMALL CAP GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- ASSETS: Investments, at value (cost $735,615,602) .............. $ 992,866,060 Investments in affiliates, at value (cost $2,746,015) .. 1,230,976 Cash ................................................... 2,517 Foreign currency, at value (cost $27,041) .............. 25,976 Receivable for investments sold ........................ 4,006,628 Receivable for Fund shares sold ........................ 2,854,706 Dividends and interest receivable ...................... 922,828 Prepaid expenses ....................................... 80,598 --------------- TOTAL ASSETS ........................................... 1,001,990,289 --------------- LIABILITIES: Payable for investments purchased ...................... 1,415,892 Payable for Fund shares redeemed ....................... 831,872 Payable for investment advisory fees ................... 832,741 Payable for distribution fees .......................... 217,730 Payable for accounting fees ............................ 3,750 Unrealized depreciation on swap contracts .............. 1,119 Other accrued expenses ................................. 274,403 --------------- TOTAL LIABILITIES ...................................... 3,577,507 --------------- NET ASSETS applicable to 33,809,331 shares outstanding ......................................... $ 998,412,782 =============== NET ASSETS CONSIST OF: Paid-in capital, each class at $0.001 par value ........ $ 714,040,132 Accumulated net investment loss ........................ (193,456) Accumulated net realized gain on investments, swap contracts, and foreign currency transactions ......... 28,830,140 Net unrealized appreciation on investments ............. 255,735,419 Net unrealized depreciation on swap contracts .......... (1,119) Net unrealized appreciation on foreign currency translations ......................................... 1,666 --------------- NET ASSETS ............................................. $ 998,412,782 =============== SHARES OF CAPITAL STOCK: CLASS AAA: Net Asset Value, offering, and redemption price per share ($960,198,990 / 32,495,535 shares outstanding; 150,000,000 shares authorized) .......... $ 29.55 =============== CLASS A: Net Asset Value and redemption price per share ($20,319,749 / 687,598 shares outstanding; 50,000,000 shares authorized) ........................ $ 29.55 =============== Maximum offering price per share (NAV / .9425, based on maximum sales charge of 5.75% of the offering price) ............................................... $ 31.35 =============== CLASS B: Net Asset Value and offering price per share ($112,545 / 3,949 shares outstanding; 50,000,000 shares authorized) ................................... $ 28.50(a) =============== CLASS C: Net Asset Value and offering price per share ($16,327,131 / 573,052 shares outstanding; 50,000,000 shares authorized) ........................ $ 28.49(a) =============== CLASS I: Net Asset Value, offering, and redemption price per share ($1,454,367 / 49,197 shares outstanding; 50,000,000 shares authorized) ........................ $ 29.56 =============== STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends (net of foreign taxes of $27,167) ............ $ 4,872,980 Interest ............................................... 2,215,127 --------------- TOTAL INVESTMENT INCOME ................................ 7,088,107 --------------- EXPENSES: Investment advisory fees ............................... 5,074,333 Distribution fees - Class AAA .......................... 1,229,549 Distribution fees - Class A ............................ 22,442 Distribution fees - Class B ............................ 596 Distribution fees - Class C ............................ 62,802 Shareholder services fees .............................. 478,163 Shareholder communications expenses .................... 129,391 Custodian fees ......................................... 80,269 Registration expenses .................................. 38,915 Legal and audit fees ................................... 32,603 Accounting fees ........................................ 22,500 Directors' fees ........................................ 14,086 Miscellaneous expenses ................................. 35,958 --------------- TOTAL EXPENSES ......................................... 7,221,607 Less: Custodian fee credits ............................ (10,907) --------------- TOTAL NET EXPENSES ..................................... 7,210,700 --------------- NET INVESTMENT LOSS .................................... (122,593) --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, SWAP CONTRACTS, AND FOREIGN CURRENCY: Net realized gain on investments - unaffiliated ........ 32,503,069 Net realized loss on investments - affiliated .......... (719) Capital gain distributions from investment companies ... 817,783 Net realized gain on swap contracts .................... 3,986 Net realized gain on foreign currency transactions ..... 25,831 --------------- Net realized gain on investments, swap contracts, and foreign currency transactions .................... 33,349,950 --------------- Net change in unrealized appreciation/depreciation on investments ....................................... (139,678,809) Net change in unrealized appreciation/depreciation on swap contracts .................................... (1,119) Net change in unrealized appreciation/depreciation on foreign currency translations ..................... 1,006 --------------- Net change in unrealized appreciation/depreciation on investments, swap contracts, and foreign currency translations ................................ (139,678,922) --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, SWAP CONTRACTS, AND FOREIGN CURRENCY .... (106,328,972) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ... $ (106,451,565) =============== ---------- (a) Redemption price varies based on the length of time held. See accompanying notes to financial statements. 12 THE GABELLI SMALL CAP GROWTH FUND STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 2008 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2007 ---------------- ------------------ OPERATIONS: Net investment loss ................................................ $ (122,593) $ (340,454) Net realized gain on investments, swap contracts, and foreign currency transactions ............................................ 33,349,950 47,039,006 Net change in unrealized appreciation/depreciation on investments, swap contracts, and foreign currency translations ................ (139,678,922) 111,347,803 ---------------- ------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .... (106,451,565) 158,046,355 ---------------- ------------------ DISTRIBUTIONS TO SHAREHOLDERS: Net realized gain on investments Class AAA ........................................................ (46,324,791) (54,810,246) Class A .......................................................... (797,034) (187,774) Class B .......................................................... (5,830) (8,873) Class C .......................................................... (551,250) (241,821) ---------------- ------------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS ................................ (47,678,905) (55,248,714) ---------------- ------------------ CAPITAL SHARE TRANSACTIONS: Class AAA ........................................................ 107,110,053 173,228,328 Class A .......................................................... 7,523,989 12,781,396 Class B .......................................................... 5,444 (1,610) Class C .......................................................... 8,487,400 6,620,118 Class I .......................................................... 1,487,731 -- ---------------- ------------------ NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ......... 124,614,617 192,628,232 ---------------- ------------------ REDEMPTION FEES .................................................... 5,866 13,640 ---------------- ------------------ NET INCREASE (DECREASE) IN NET ASSETS .............................. (29,509,987) 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) ......................................... $ 998,412,782 $ 1,027,922,769 ================ ==================
See accompanying notes to financial statements. 13 THE GABELLI SMALL CAP GROWTH FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected data for a share of capital stock outstanding throughout each period:
INCOME/(LOSS) FROM INVESTMENT OPERATIONS DISTRIBUTIONS ------------------------------------------ --------------------------- Net Net Asset Net Realized and Total Net Period Value, Investment Unrealized from Realized Ended Beginning Income/ Gain/(Loss) on Investment Gain on Total September 30 of Period (Loss)(a)(b) Investments Operations Investments Distributions -------------- --------- ------------ -------------- ---------- ----------- ------------- CLASS AAA 2008(c) $ 34.37 $ (0.00)(d) $ (3.27) $ (3.27) $ (1.55) $ (1.55) 2007 30.41 (0.01) 6.42 6.41 (2.45) (2.45) 2006 29.97 (0.03) 2.53 2.50 (2.06) (2.06) 2005 25.88 (0.01) 5.25 5.24 (1.15) (1.15) 2004 21.48 (0.04) 4.61 4.57 (0.17) (0.17) 2003 17.04 (0.05) 4.74 4.69 (0.25) (0.25) CLASS A 2008(c) $ 34.37 $ (0.01) $ (3.26) $ (3.27) $ (1.55) $ (1.55) 2007 30.41 0.06 6.35 6.41 (2.45) (2.45) 2006 29.98 (0.02) 2.51 2.49 (2.06) (2.06) 2005 25.89 (0.01) 5.25 5.24 (1.15) (1.15) 2004(g) 24.49 (0.06) 1.46 1.40 -- -- CLASS B 2008(c) $ 33.32 $ (0.12) $ (3.15) $ (3.27) $ (1.55) $ (1.55) 2007 29.77 (0.26) 6.26 6.00 (2.45) (2.45) 2006 29.58 (0.25) 2.50 2.25 (2.06) (2.06) 2005 25.74 (0.22) 5.21 4.99 (1.15) (1.15) 2004(g) 24.49 (0.19) 1.44 1.25 -- -- CLASS C 2008(c) $ 33.32 $ (0.12) $ (3.16) $ (3.28) $ (1.55) $ (1.55) 2007 29.76 (0.22) 6.23 6.01 (2.45) (2.45) 2006 29.58 (0.24) 2.48 2.24 (2.06) (2.06) 2005 25.74 (0.23) 5.22 4.99 (1.15) (1.15) 2004(g) 24.49 (0.20) 1.45 1.25 -- -- CLASS I 2008(h) $ 30.06 $ (0.01) $ (0.49) $ (0.50) -- -- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA ------------------------------------------------------ Net Asset Net Assets Net Period Value, End of Investment Portfolio Ended Redemption End of Total Period Income/ Operating Turnover September 30 Fees(a) Period Return+ (in 000's) (Loss)(b) Expenses Rate++ --------------- ---------- ----------- ----------- ----------- ---------- -------------- ---------- CLASS AAA 2008(c) $ 0.00(d) $ 29.55 (9.87)% $ 960,199 (0.01)%(e) 1.41%(e)(f) 17% 2007 0.00(d) 34.37 21.95 1,002,577 (0.04) 1.42 15 2006 0.00(d) 30.41 8.88 727,521 (0.09) 1.44 6 2005 0.00(d) 29.97 20.58 732,965 (0.03) 1.44 6 2004 -- 25.88 21.34 620,334 (0.15) 1.42 10 2003 -- 21.48 27.84 540,397 (0.22) 1.45 4 CLASS A 2008(c) $ 0.00(d) $ 29.55 (9.87)% $ 20,320 (0.07)%(e) 1.42%(e)(f) 17% 2007 0.00(d) 34.37 21.95 15,485 0.19 1.42 15 2006 0.00(d) 30.41 8.84 2,199 (0.08) 1.44 6 2005 0.00(d) 29.98 20.57 1,515 (0.03) 1.48 6 2004(g) -- 25.89 5.72 58 (0.32)(e) 1.42(e) 10 CLASS B 2008(c) $ 0.00(d) $ 28.50 (10.19)% $ 113 (0.76)%(e) 2.16%(e)(f) 17% 2007 0.00(d) 33.32 20.99 126 (0.81) 2.17 15 2006 0.00(d) 29.77 8.11 113 (0.85) 2.19 6 2005 0.00(d) 29.58 19.69 138 (0.79) 2.20 6 2004(g) -- 25.74 5.10 55 (1.02)(e) 2.17(e) 10 CLASS C 2008(c) $ 0.00(d) $ 28.49 (10.22)% $ 16,327 (0.79)%(e) 2.17%(e)(f) 17% 2007 0.00(d) 33.32 21.03 9,735 (0.69) 2.17 15 2006 0.00(d) 29.76 8.08 2,650 (0.83) 2.19 6 2005 0.00(d) 29.58 19.69 1,499 (0.80) 2.23 6 2004(g) -- 25.74 5.10 24 (1.07)(e) 2.17(e) 10 CLASS I 2008(h) $ 0.00(d) $ 29.56 (9.83)% $ 1,454 (0.16)%(e) 1.17%(e)(f) 17%
---------- + 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 returns for the periods of less than one year are not annualized. ++ Effective in 2008, a change in accounting policy was adopted with regard to the calculation of the portfolio turnover rate. Had this policy been adopted retroactively, the portfolio turnover rate for the fiscal years ended September 30, 2007 and 2003 would have been 21% and 7%, respectively. The portfolio turnover rate for the fiscal years ended 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 period, net investment income per share and the ratio to average net assets are not necessarily correlated among the different classes of shares. (c) For the six months ended March 31, 2008, unaudited. (d) Amount represents less than $0.005 per share. (e) Annualized. (f) The ratio does not include a reduction of expenses for custodian fee credits on cash balances maintained with the custodian. Including such custodian fee credits, the expense ratio for the six months ended March 31, 2008 would have been 1.41% (Class AAA and Class A), 2.16% (Class B and Class C), and 1.16% (Class I), respectively. (g) From the commencement of offering Class A, Class B, and Class C Shares on December 31, 2003. (h) From the commencement of offering Class I Shares on January 11, 2008 through March 31, 2008. See accompanying notes to financial statements. 14 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- 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. In September 2006, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") 157, Fair Value Measurements, which clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in 15 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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 March 31, 2008, the adoption of SFAS 157 had no impact on the amounts reported in the financial statements. In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161") was issued and 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. The impact on the Fund's financial statement disclosures, if any, is currently being assessed. 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 March 31, 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. A swap is where 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. 16 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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. The Fund has entered into a contract for difference swap with Bear, Stearns International Limited. Details of the swap at March 31, 2008 are as follows:
NET NOTIONAL EQUITY SECURITY INTEREST RATE/ TERMINATION UNREALIZED AMOUNT RECEIVED EQUITY SECURITY PAID DATE DEPRECIATION ---------- ---------------- -------------------------------- ----------- ------------ Market Value Overnight LIBOR plus 40 bps plus Appreciation on: Market Value Depreciation on: $54,132 (10,000 Shares) Whatman plc Whatman plc 12/15/08 $ (1,119)
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 March 31, 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 March 31, 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 17 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date on investment securities transactions, foreign currency transactions, and the difference between the amounts of interest and dividends recorded on the books of the Fund and the amounts actually received. The portion of foreign currency gains and losses related to fluctuation in exchange rates between the initial trade date and subsequent sale trade date is included in realized gain/(loss) on investments. FOREIGN SECURITIES. The Fund may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible revaluation of currencies, the ability to repatriate funds, less complete financial information about companies, and possible future adverse political and economic developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. issuers. FOREIGN TAXES. The Fund may be subject to foreign taxes on income, gains on investments, or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in securities for which the markets are illiquid. Illiquid securities include securities the disposition of which is subject to substantial legal or contractual restrictions. The sale of illiquid securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. Securities freely saleable among qualified institutional investors under special rules adopted by the SEC may be treated as liquid if they satisfy liquidity standards established by the Board. The continued liquidity of such securities is not as well assured as that of publicly traded securities, and accordingly the Board will monitor their liquidity. SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions are accounted for on the trade date with realized gain or loss on investments determined by using the identified cost method. Interest income (including amortization of premium and accretion of discount) is recorded on the accrual basis. Premiums and discounts on debt securities are amortized using the effective yield to maturity method. Dividend income is recorded on the ex-dividend date except for certain dividends which are recorded as soon as the Fund is informed of the dividend. DETERMINATION OF NET ASSET VALUE AND CALCULATION OF EXPENSES. Certain administrative expenses are common to, and allocated among, various affiliated funds. Such allocations are made on the basis of each Fund's average net assets or other criteria directly affecting the expenses as determined by the Adviser pursuant to procedures established by the Board. 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 18 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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. The tax character of distributions paid during the fiscal year ended September 30, 2007: DISTRIBUTIONS PAID FROM: Net long-term capital gains .. $ 55,248,714 ------------ Total distributions paid ..... $ 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. The following summarizes the tax cost of investments and the related unrealized appreciation/(depreciation) at March 31, 2008:
GROSS GROSS NET UNREALIZED UNREALIZED UNREALIZED APPRECIATION/ COST APPRECIATION DEPRECIATION (DEPRECIATION) ------------- ------------- ------------- -------------- Investments ................ $ 738,665,289 $ 341,009,364 $ (86,808,593) $ 254,200,771 Investments in affiliates .. 2,746,015 -- (1,515,039) (1,515,039) Swap contracts ............. -- -- (1,119) (1,119) ------------- ------------- ------------- -------------- $ 741,411,304 $ 341,009,364 $ (88,324,751) $ 252,684,613 ============= ============= ============= ==============
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" (the "Interpretation") established a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether the Fund is taxable in a particular jurisdiction) and required certain expanded tax disclosures. For the six months ended March 31, 2008, the Fund did not have any liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expenses in the Statement of Operations. The Fund is not subject to examination by U.S. federal tax authorities for tax years before 2003 and by state tax authorities for tax years before 2002. 3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS. The Fund has entered into an investment advisory agreement (the "Advisory Agreement") with the Adviser which provides that the Fund will pay the Adviser a fee, computed daily and paid monthly, at the annual rate of 1.00% of the value of its average daily net assets. In accordance with the Advisory Agreement, the Adviser provides a continuous investment program 19 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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 $6,000 plus $1,000 for each Board meeting attended and they are reimbursed for any out of pocket expenses incurred in attending meetings. All Board committee members receive $500 per meeting attended. 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 six months ended March 31, 2008, other than short-term securities and U.S. Government obligations, aggregated $207,088,864 and $114,022,496, respectively. Purchases and proceeds from the sales of U.S. Government obligations for the six months ended March 31, 2008, other than short-term obligations, aggregated $40,068,750 and $40,021,875, respectively. 6. TRANSACTIONS WITH AFFILIATES. During the six months ended March 31, 2008, the Fund paid brokerage commissions on security trades of $222,882 to Gabelli & Company. Additionally, Gabelli & Company informed the Fund that it received $24,001 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 six months ended March 31, 2008, the Fund paid or accrued $22,500 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 six months ended March 31, 2008, there were no borrowings outstanding under the line of credit. 8. CAPITAL STOCK TRANSACTIONS. 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 20 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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 six months ended March 31, 2008 and the fiscal year ended September 30, 2007 amounted to $5,866 and $13,640, respectively. The redemption fee does not apply to redemptions of shares where (i) the shares were purchased through automatic reinvestment of dividends or other 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:
SIX MONTHS ENDED MARCH 31, 2008 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2007 ---------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT ----------- -------------- ----------- -------------- CLASS AAA CLASS AAA ---------------------------- ---------------------------- Shares sold ....................................... 5,610,384 $ 178,234,613 9,055,569 $ 300,679,400 Shares issued upon reinvestment of distributions .. 1,383,508 44,189,238 1,662,686 51,559,994 Shares redeemed ................................... (3,670,353) (115,313,798) (5,467,632) (179,011,066) ----------- -------------- ----------- -------------- Net increase ................................... 3,323,539 $ 107,110,053 5,250,623 $ 173,228,328 =========== ============== =========== ============== CLASS A CLASS A ---------------------------- ---------------------------- Shares sold ....................................... 268,057 $ 8,449,627 394,109 $ 13,318,089 Shares issued upon reinvestment of distributions .. 23,670 756,001 5,751 178,354 Shares redeemed ................................... (54,701) (1,681,639) (21,600) (715,047) ----------- -------------- ----------- -------------- Net increase ................................... 237,026 $ 7,523,989 378,260 $ 12,781,396 =========== ============== =========== ============== CLASS B CLASS B ---------------------------- ---------------------------- Shares issued upon reinvestment of distributions .. 189 $ 5,830 294 $ 8,873 Shares redeemed ................................... (14) (386) (326) (10,483) ----------- -------------- ----------- -------------- Net increase (decrease) ........................ 175 $ 5,444 (32) $ (1,610) =========== ============== =========== ============== CLASS C CLASS C ---------------------------- ---------------------------- Shares sold ....................................... 292,907 $ 8,815,710 214,901 $ 7,004,093 Shares issued upon reinvestment of distributions .. 17,152 529,496 7,732 233,806 Shares redeemed ................................... (29,227) (857,806) (19,457) (617,781) ----------- -------------- ----------- -------------- Net increase ................................... 280,832 $ 8,487,400 203,176 $ 6,620,118 =========== ============== =========== ============== CLASS I* ---------------------------- Shares sold ....................................... 50,133 $ 1,514,820 Shares redeemed ................................... (936) (27,089) ----------- -------------- Net increase ................................... 49,197 $ 1,487,731 =========== ==============
---------- * From the commencement of offering Class I Shares on January 11, 2008. 21 THE GABELLI SMALL CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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 six months ended March 31, 2008 is set forth below:
NET CHANGE PERCENT IN UNREALIZED VALUE AT OWNED BEGINNING SHARES SHARES ENDING APPRECIATION MARCH 31, OF SHARES SHARES/PAR PURCHASED SOLD SHARES (DEPRECIATION) 2008 OUTSTANDING ---------- --------- ------ -------- -------------- ---------- ----------- Earl Scheib Inc. ....... 240,900 -- -- 240,900 (267,399) $ 635,976 6.01% Trans-Lux Corp. ........ 160,265 10,000 (265) 170,000 (297,627) 595,000 8.42%
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. On a separate matter, in September 2005, the Adviser was informed by the staff of the SEC that the staff may recommend to the Commission that an administrative remedy and a monetary penalty be sought from the Adviser in connection with the actions of two of nine closed-end funds managed by the Adviser relating to Section 19(a) and Rule 19a-1 of the 1940 Act. These provisions require registered investment companies to provide written statements to shareholders when a dividend is made from a source other than net investment income. While the two closed-end funds sent annual statements and provided other materials containing this information, the funds did not send written statements to shareholders with each distribution in 2002 and 2003. The Adviser believes that all of the funds are now in compliance. The Adviser believes that these matters would have no effect on the Fund or any material adverse effect on the Adviser or its ability to manage the Fund. 22 THE GABELLI SMALL CAP GROWTH FUND BOARD CONSIDERATION AND RE-APPROVAL OF ADVISORY AGREEMENT (UNAUDITED) During the six months ended March 31, 2008, the Board of Directors of the Corporation approved the continuation of the Investment Advisory Agreement with the Adviser for the Fund on the basis of the recommendation by the Directors (the "independent directors") who are not "interested persons" of the Fund. The following paragraphs summarize the material information and factors considered by the independent directors as well as their conclusions relative to such factors. NATURE, EXTENT, AND QUALITY OF SERVICES. The Independent Board Members considered information regarding the portfolio manager, the depth of the analyst pool available to the Adviser and the portfolio manager, the scope of administrative, shareholder, and other services supervised or provided by the Adviser and the absence of significant service problems reported to the Board. The Independent Board Members noted the experience, length of service, and reputation of the portfolio manager. INVESTMENT PERFORMANCE. The Independent Board Members reviewed the short, medium, and long-term performance of the Fund against a peer group of small cap value and small cap core funds chosen by Lipper as being comparable. The Independent Board Members noted that the Fund's performance was above average for the ten year period, approximately average for the five year period and below average for the three and one year periods. PROFITABILITY. The Independent Board Members reviewed summary data regarding the profitability of the Fund to the Adviser both with an administrative overhead charge and without such a charge. The Independent Board Members also noted that a substantial portion of the Fund's portfolio transactions were executed by an affiliated broker and that the affiliated broker received distribution fees and minor amounts of sales commissions. ECONOMIES OF SCALE. The Independent Board Members discussed the major elements of the Adviser's cost structure and the relationship of those elements to potential economies of scale. SHARING OF ECONOMIES OF SCALE. The Independent Board Members noted that the investment management fee schedule for the Fund does not take into account any potential economies of scale that may develop. SERVICE AND COST COMPARISONS. The Independent Board Members compared the expense ratios of the investment management fee, other expenses, and total expenses of the Fund to similar expense ratios of the peer group of small cap value and small cap core funds and noted that the Adviser's management fee includes substantially all administrative services of the Fund as well as investment advisory services. The Independent Board Members noted that the Fund's expense ratios were at and the Fund's size was above average within this group. The Independent Board Members also noted that the management fee structure was the same as that in effect for most of the Gabelli funds. The Independent Board Members did not compare the management fee to the fee for other types of accounts managed by the Adviser. CONCLUSIONS. The Independent Board Members concluded that the Fund enjoyed highly experienced portfolio management services, good ancillary services, and a good performance record, particularly over the longer term, but that the fee structure of the Fund in relation to its peer group should be revisited if both the long-term and short-term performance record were not strong. The Independent Board Members also concluded that the Fund's expense ratios and the profitability to the Adviser of managing the Fund were reasonable in light of the Fund's performance and that economies of scale were not a significant factor in their thinking at this time. The Independent Board Members did not view the potential profitability of ancillary services as material to their decision. On the basis of the foregoing and without assigning particular weight to any single conclusion, the Independent Board Members determined to recommend continuation of the Investment Management Agreement to the full Board. 23 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 Robert J. Morrissey CHAIRMAN AND CHIEF ATTORNEY-AT-LAW EXECUTIVE OFFICER MORRISSEY, HAWKINS & LYNCH GAMCO INVESTORS, INC. Anthony R. Pustorino Anthony J. Colavita CERTIFIED PUBLIC ACCOUNTANT, ATTORNEY-AT-LAW PROFESSOR EMERITUS ANTHONY J. COLAVITA, P.C. PACE UNIVERSITY Vincent D. Enright Anthonie C. van Ekris FORMER SENIOR VICE PRESIDENT CHAIRMAN AND CHIEF FINANCIAL OFFICER BALMAC INTERNATIONAL, INC. KEYSPAN CORP. Salvatore J. Zizza John D. Gabelli CHAIRMAN SENIOR VICE PRESIDENT ZIZZA & CO., LTD. GABELLI & COMPANY, INC. OFFICERS Bruce N. Alpert Agnes Mullady PRESIDENT AND SECRETARY TREASURER Peter D. Goldstein CHIEF COMPLIANCE OFFICER DISTRIBUTOR Gabelli & Company, Inc. CUSTODIAN, TRANSFER AGENT, AND DIVIDEND AGENT State Street Bank and Trust Company LEGAL COUNSEL Skadden, Arps, Slate, Meagher & Flom LLP [GRAPHIC OMITTED] E P Gabelli Triangle P M MANAGEMENT S V CASH FLOW RESEARCH THE GABELLI SMALL CAP GROWTH FUND SEMI ANNUAL REPORT MARCH 31, 2008 -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- GAB443Q108SR THE GABELLI EQUITY INCOME FUND SEMI-ANNUAL REPORT (a) MARCH 31, 2008 TO OUR SHAREHOLDERS, For the six month period ended March 31, 2008, The Gabelli Equity Income Fund's Class AAA Shares surrendered 9.50% versus the Standard & Poor's ("S&P") 500 Index decline of 12.46%, the Nasdaq Composite Index decline of 15.64%, and the Lipper Equity Income Fund Average slide of 11.55%. COMPARATIVE RESULTS --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH MARCH 31, 2008 (a)(b) ---------------------------------------------------- Since Inception Quarter 1 Year 3 Year 5 Year 10 Year 15 Year (1/2/92) ------- ------ ------ ------ ------- ------- --------- GABELLI EQUITY INCOME FUND CLASS AAA .. (8.21)% (1.86)% 8.14% 13.70% 7.66% 11.24% 11.46% S&P 500 Index ......................... (9.44) (5.08) 5.84 11.32 3.50 9.45 9.48 Nasdaq Composite Index ................ (14.07) (5.89) 4.46 11.19 2.19 8.29 8.72 Lipper Equity Income Fund Average ..... (7.94) (5.75) 6.21 12.17 4.64 9.01 9.57 Class A ............................... (8.19) (1.81) 8.13 13.68 7.65 11.24 11.46 (13.47)(c) (7.46)(c) 6.01(c) 12.34(c) 7.02(c) 11.23(c) 11.05(c) Class B ............................... (8.38) (2.55) 7.35 12.98 7.32 10.79 11.25 (12.96)(d) (7.43)(d) 6.48(d) 12.73(d) 7.32 11.00 11.25 Class C ............................... (8.38) (2.55) 7.36 13.00 7.33 11.00 11.25 (9.30)(e) (3.53)(e) 7.36 13.00 7.33 11.01 11.25 Class I ............................... (8.12) (1.76) 8.18 13.72 7.67 11.25 11.47
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 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. 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, ONE YEAR, THREE YEAR, AND FIVE YEAR PERIODS OF 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 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. -------------------------------------------------------------------------------- THE GABELLI EQUITY INCOME FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) For the Six Month Period from October 1, 2007 through March 31, 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. Beginning Ending Annualized Expenses Account Value Account Value Expense Paid During 10/01/07 03/31/08 Ratio Period* ------------------------------------------------------------------------------- THE GABELLI EQUITY INCOME FUND ------------------------------------------------------------------------------- ACTUAL FUND RETURN Class AAA $1,000.00 $ 905.00 1.40% $ 6.67 Class A $1,000.00 $ 905.10 1.40% $ 6.67 Class B $1,000.00 $ 901.90 2.15% $10.22 Class C $1,000.00 $ 901.90 2.15% $10.22 Class I** $1,000.00 $ 905.90 1.15% $ 2.34 HYPOTHETICAL 5% RETURN Class AAA $1,000.00 $1,018.00 1.40% $ 7.06 Class A $1,000.00 $1,018.00 1.40% $ 7.06 Class B $1,000.00 $1,014.25 2.15% $10.83 Class C $1,000.00 $1,014.25 2.15% $10.83 Class I** $1,000.00 $1,008.20 1.15% $ 2.46 * 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. ** Class I Shares were first issued on January 11, 2008. Account values and expense ratios are calculated from January 11, 2008 through March 31, 2008. 2 SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED) The following table presents portfolio holdings as a percent of total net assets as of March 31, 2008: THE GABELLI EQUITY INCOME FUND Food and Beverage ..................................................... 11.8% Financial Services .................................................... 10.4% Health Care ........................................................... 8.9% Energy and Utilities: Oil ............................................. 7.5% U.S. Government Obligations ........................................... 7.1% Consumer Products ..................................................... 6.5% Retail ................................................................ 5.6% Energy and Utilities: Integrated ...................................... 3.8% Telecommunications .................................................... 3.4% Diversified Industrial ................................................ 3.2% Specialty Chemicals ................................................... 2.5% Aerospace ............................................................. 2.2% Entertainment ......................................................... 2.0% Equipment and Supplies ................................................ 2.0% Electronics ........................................................... 2.0% Computer Hardware ..................................................... 1.9% Metals and Mining ..................................................... 1.7% Hotels and Gaming ..................................................... 1.6% Agriculture ........................................................... 1.5% Energy and Utilities: Services ........................................ 1.5% Energy and Utilities: Electric ........................................ 1.5% Communications Equipment .............................................. 1.5% Energy and Utilities: Natural Gas ..................................... 1.4% Computer Software and Services ........................................ 1.3% Automotive: Parts and Accessories ..................................... 1.1% Business Services ..................................................... 0.9% Automotive ............................................................ 0.8% Broadcasting .......................................................... 0.6% Publishing ............................................................ 0.6% Machinery ............................................................. 0.6% Cable and Satellite ................................................... 0.6% Environmental Services ................................................ 0.6% Transportation ........................................................ 0.4% Wireless Communications ............................................... 0.3% Aviation: Parts and Services .......................................... 0.3% Manufactured Housing .................................................. 0.1% Consumer Services ..................................................... 0.1% Energy and Utilities: Water ........................................... 0.0% Building and Construction ............................................. 0.0% Real Estate ........................................................... 0.0% Other Assets and Liabilities (Net) .................................... 0.2% ------ 100.0% ====== THE FUND FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") FOR THE FIRST AND THIRD QUARTERS OF EACH FISCAL YEAR ON FORM N-Q, THE LAST OF WHICH WAS FILED FOR THE QUARTER ENDED DECEMBER 31, 2007. 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. 3 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS -- 91.3% AEROSPACE -- 2.2% 80,000 Boeing Co. ...................... $ 5,156,434 $ 5,949,600 2,000 Lockheed Martin Corp. ........... 47,350 198,600 3,500 Northrop Grumman Corp. .......... 125,556 272,335 10,000 Raytheon Co. .................... 279,250 646,100 160,000 Rockwell Automation Inc. ........ 9,998,916 9,187,200 2,000 Rockwell Collins Inc. ........... 15,843 114,300 1,260,000 Rolls-Royce Group plc+ .......... 8,984,010 10,077,600 112,896,000 Rolls-Royce Group plc, Cl. B .... 224,236 224,058 -------------- -------------- 24,831,595 26,669,793 -------------- -------------- AGRICULTURE -- 1.5% 40,000 Archer-Daniels-Midland Co. ...... 1,395,583 1,646,400 132,000 Monsanto Co. .................... 1,220,335 14,718,000 24,000 The Mosaic Co.+ ................. 366,985 2,462,400 -------------- -------------- 2,982,903 18,826,800 -------------- -------------- AUTOMOTIVE -- 0.8% 480,000 General Motors Corp. ............ 15,499,687 9,144,000 7,000 Navistar International Corp.+ ... 228,260 421,050 -------------- -------------- 15,727,947 9,565,050 -------------- -------------- AUTOMOTIVE: PARTS AND ACCESSORIES -- 1.0% 1,000 ArvinMeritor Inc. ............... 10,487 12,510 2,000 BERU AG ......................... 211,491 234,130 250,000 Genuine Parts Co. ............... 8,986,399 10,055,000 6,000 Johnson Controls Inc. ........... 50,425 202,800 45,000 Modine Manufacturing Co. ........ 693,569 652,050 10,000 Proliance International Inc.+ ... 27,051 18,200 82,000 The Pep Boys - Manny, Moe & Jack ............ 1,109,227 816,720 -------------- -------------- 11,088,649 11,991,410 -------------- -------------- AVIATION: PARTS AND SERVICES -- 0.3% 6,000 Barnes Group Inc. ............... 57,237 137,700 46,192 Curtiss-Wright Corp. ............ 349,652 1,916,044 35,000 GenCorp Inc.+ ................... 299,658 360,150 20,000 United Technologies Corp. ....... 557,839 1,376,400 -------------- -------------- 1,264,386 3,790,294 -------------- -------------- BROADCASTING -- 0.4% 160,000 CBS Corp., Cl. A ................ 4,125,633 3,536,000 25,000 CBS Corp., Cl. B ................ 651,930 552,000 40,000 Clear Channel Communications Inc. .......... 1,436,699 1,168,800 132 Granite Broadcasting Corp.+ ..... 10,795 2,244 2,000 Societe Television Francaise 1 .. 50,938 43,984 -------------- -------------- 6,275,995 5,303,028 -------------- -------------- BUILDING AND CONSTRUCTION -- 0.0% 918 Colas SA ........................ 318,206 325,831 -------------- -------------- MARKET SHARES COST VALUE ------ -------------- -------------- BUSINESS SERVICES -- 0.9% 4,000 Automatic Data Processing Inc. .............. $ 114,127 $ 169,560 100,000 ChoicePoint Inc.+ ............... 4,819,670 4,760,000 95,300 Diebold Inc. .................... 3,652,424 3,578,515 4,000 Landauer Inc. ................... 134,546 201,360 7,500 MasterCard Inc., Cl. A .......... 292,500 1,672,425 20,000 PHH Corp.+ ...................... 538,366 348,600 3,000 R. H. Donnelley Corp.+ .......... 33,450 15,180 -------------- -------------- 9,585,083 10,745,640 -------------- -------------- CABLE AND SATELLITE -- 0.6% 140,000 Cablevision Systems Corp., Cl. A+ ....................... 1,769,455 3,000,200 80,000 DISH Network Corp., Cl. A+ ...... 2,181,380 2,298,400 16,000 EchoStar Corp., Cl. A+ .......... 478,840 472,640 40,000 The DIRECTV Group Inc.+ ......... 705,262 991,600 -------------- -------------- 5,134,937 6,762,840 -------------- -------------- COMMUNICATIONS EQUIPMENT -- 0.8% 175,000 Corning Inc. .................... 2,000,662 4,207,000 100,000 Motorola Inc. ................... 830,109 930,000 90,000 Nortel Networks Corp.+ .......... 1,625,543 602,100 100,000 Thomas & Betts Corp.+ ........... 2,992,412 3,637,000 -------------- -------------- 7,448,726 9,376,100 -------------- -------------- COMPUTER HARDWARE -- 1.9% 176,000 International Business Machines Corp. ............... 14,186,415 20,264,640 200,000 Xerox Corp. ..................... 3,030,383 2,994,000 -------------- -------------- 17,216,798 23,258,640 -------------- -------------- COMPUTER SOFTWARE AND SERVICES -- 1.3% 300,000 BEA Systems Inc.+ ............... 5,725,500 5,745,000 2,000 EMC Corp.+ ...................... 19,360 28,680 70,000 Metavante Technologies Inc.+ .... 1,631,680 1,399,300 150,000 Microsoft Corp. ................. 4,412,630 4,257,000 154 Telecom Italia Media SpA+ ....... 205 34 170,000 Yahoo! Inc.+ .................... 5,202,473 4,918,100 -------------- -------------- 16,991,848 16,348,114 -------------- -------------- CONSUMER PRODUCTS -- 6.5% 55,000 Altria Group Inc. ............... 677,620 1,221,000 200,000 Avon Products Inc. .............. 6,048,261 7,908,000 15,000 Clorox Co. ...................... 823,581 849,600 35,000 Colgate-Palmolive Co. ........... 2,020,423 2,726,850 2,000 Compagnie Financiere Richemont SA, Cl. A .......... 130,051 112,174 50,000 Eastman Kodak Co. ............... 1,175,567 883,500 52,000 Energizer Holdings Inc.+ ........ 1,954,896 4,704,960 61,000 Fortune Brands Inc. ............. 4,566,009 4,239,500 5,000 Hanesbrands Inc.+ ............... 108,950 146,000 113,000 Kimberly-Clark Corp. ............ 7,873,946 7,294,150 See accompanying notes to financial statements. 4 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) CONSUMER PRODUCTS (CONTINUED) 7,000 National Presto Industries Inc. .............. $ 206,562 $ 366,800 10,000 Pactiv Corp.+ ................... 161,895 262,100 55,000 Philip Morris International Inc.+ .......... 1,581,113 2,781,900 220,000 Procter & Gamble Co. ............ 12,495,175 15,415,400 100,000 Reckitt Benckiser Group plc ..... 3,154,703 5,539,128 26,000 Rothmans Inc. ................... 237,941 661,873 940,500 Swedish Match AB ................ 9,972,140 20,497,783 78,000 Unilever NV, ADR ................ 1,542,066 2,630,940 10,000 UST Inc. ........................ 364,903 545,200 -------------- -------------- 55,095,802 78,786,858 -------------- -------------- CONSUMER SERVICES -- 0.1% 67,500 Rollins Inc. .................... 386,886 1,194,075 -------------- -------------- DIVERSIFIED INDUSTRIAL -- 3.2% 5,000 3M Co. .......................... 213,645 395,750 8,000 Acuity Brands Inc. .............. 89,386 343,600 1,000 Alstom .......................... 200,850 216,795 110,000 Cooper Industries Ltd., Cl. A ... 3,148,666 4,416,500 50,000 Crane Co. ....................... 2,304,586 2,017,500 380,000 General Electric Co. ............ 12,230,147 14,063,800 180,000 Honeywell International Inc. .... 5,361,035 10,155,600 25,100 ITT Corp. ....................... 1,246,573 1,300,431 6,000 Trinity Industries Inc. ......... 82,100 159,900 125,650 Tyco International Ltd. ......... 5,803,618 5,534,882 2,000 Walter Industries Inc. .......... 46,073 125,260 54,000 WHX Corp.+ ...................... 609,703 141,750 -------------- -------------- 31,336,382 38,871,768 -------------- -------------- ELECTRONICS -- 2.0% 600,000 Intel Corp. ..................... 12,298,251 12,708,000 330,000 LSI Corp.+ ...................... 3,043,428 1,633,500 180,000 Texas Instruments Inc. .......... 3,980,219 5,088,600 5,000 Thermo Fisher Scientific Inc.+ .. 127,325 284,200 118,750 Tyco Electronics Ltd. ........... 4,044,177 4,075,500 -------------- -------------- 23,493,400 23,789,800 -------------- -------------- ENERGY AND UTILITIES: ELECTRIC -- 1.5% 30,000 American Electric Power Co. Inc. ............... 932,060 1,248,900 14,000 DTE Energy Co. .................. 606,560 544,460 85,000 El Paso Electric Co.+ ........... 670,852 1,816,450 90,000 FPL Group Inc. .................. 3,906,222 5,646,600 45,000 Great Plains Energy Inc. ........ 1,055,160 1,109,250 60,000 Korea Electric Power Corp., ADR .......................... 977,409 902,400 56,086 Mirant Corp.+ (a) ............... 936,815 2,040,979 1,200,000 Mirant Corp., Escrow+ ........... 0 0 110,000 Northeast Utilities ............. 2,074,836 2,699,400 80,000 The AES Corp.+ .................. 268,400 1,333,600 13,333 UIL Holdings Corp. .............. 293,785 401,723 -------------- -------------- 11,722,099 17,743,762 -------------- -------------- MARKET SHARES COST VALUE ------ -------------- -------------- ENERGY AND UTILITIES: INTEGRATED -- 3.8% 42,000 Allegheny Energy Inc. ........... $ 404,378 $ 2,121,000 626,800 Aquila Inc.+ .................... 2,282,556 2,012,028 44,000 BP plc, ADR ..................... 1,030,211 2,668,600 44,000 CH Energy Group Inc. ............ 1,809,289 1,711,600 53,000 Constellation Energy Group Inc... 1,738,231 4,678,310 15,000 Dominion Resources Inc. ......... 621,531 612,600 120,000 DPL Inc. ........................ 3,161,330 3,076,800 200,000 Duke Energy Corp. ............... 2,462,844 3,570,000 250,000 El Paso Corp. ................... 2,705,219 4,160,000 150,000 Energy East Corp. ............... 3,071,332 3,618,000 29,000 ENI SpA ......................... 304,221 988,933 6,269 Iberdrola SA, ADR ............... 312,666 390,192 25,000 Integrys Energy Group Inc. ...... 1,192,521 1,166,000 80,000 NSTAR ........................... 1,282,183 2,434,400 75,000 OGE Energy Corp. ................ 2,043,450 2,337,750 80,000 Progress Energy Inc. ............ 3,424,284 3,336,000 15,000 Progress Energy Inc., CVO+ (a) ..................... 7,800 4,950 7,200 Public Service Enterprise Group Inc. ................... 156,820 289,368 20,000 Suncor Energy Inc., New York .... 1,043,936 1,927,000 10,000 Suncor Energy Inc., Toronto ..... 900,982 966,535 55,000 TECO Energy Inc. ................ 740,886 877,250 140,000 Westar Energy Inc. .............. 2,333,669 3,187,800 -------------- -------------- 33,030,339 46,135,116 -------------- -------------- ENERGY AND UTILITIES: NATURAL GAS -- 1.4% 18,000 AGL Resources Inc. .............. 348,154 617,760 45,000 Atmos Energy Corp. .............. 1,122,361 1,147,500 45,000 National Fuel Gas Co. ........... 1,395,226 2,124,450 70,000 ONEOK Inc. ...................... 1,559,551 3,124,100 24,000 Piedmont Natural Gas Co. Inc. ... 394,017 630,240 110,000 Southern Union Co. .............. 2,047,400 2,559,700 65,000 Southwest Gas Corp. ............. 1,365,198 1,817,400 200,000 Spectra Energy Corp. ............ 4,249,072 4,550,000 -------------- -------------- 12,480,979 16,571,150 -------------- -------------- ENERGY AND UTILITIES: OIL -- 7.5% 52,000 Anadarko Petroleum Corp. ........ 2,394,703 3,277,560 52,000 Cameron International Corp.+ .... 746,014 2,165,280 35,000 Canadian Oil Sands Trust ........ 1,062,358 1,415,071 192,000 Chevron Corp. ................... 8,828,069 16,389,120 187,000 ConocoPhillips .................. 5,471,173 14,251,270 20,000 Denbury Resources Inc.+ ......... 340,653 571,000 49,000 Devon Energy Corp. .............. 2,021,181 5,112,170 149,000 Exxon Mobil Corp. ............... 4,735,083 12,602,420 30,000 Nexen Inc. ...................... 924,468 890,253 2,000 Niko Resources Ltd. ............. 114,911 162,210 94,000 Occidental Petroleum Corp. ...... 3,654,851 6,877,980 40,000 Oceaneering International Inc.+ .......... 1,762,700 2,520,000 See accompanying notes to financial statements. 5 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) ENERGY AND UTILITIES: OIL (CONTINUED) 45,000 OPTI Canada Inc.+ ............... $ 998,980 $ 758,439 9,700 PetroChina Co. Ltd., ADR ........ 666,227 1,215,507 1,000 Petroleo Brasileiro SA, ADR ..... 109,393 102,110 30,000 Repsol YPF SA, ADR .............. 631,290 1,032,300 120,000 Royal Dutch Shell plc, Cl. A, ADR ................... 5,536,434 8,277,600 25,000 StatoilHydro ASA, ADR ........... 327,939 746,750 17,518 Total SA, ADR ................... 290,563 1,296,507 27,000 Transocean Inc.+ ................ 2,352,390 3,650,400 170,000 UTS Energy Corp.+ ............... 997,986 866,189 95,000 Weatherford International Ltd.+ .......... 4,138,872 6,884,650 40,000 WesternZagros Resources Ltd.+ .............. 147,109 95,085 -------------- -------------- 48,253,347 91,159,871 -------------- -------------- ENERGY AND UTILITIES: SERVICES -- 1.5% 30,000 ABB Ltd., ADR ................... 351,824 807,600 350,000 Halliburton Co. ................. 10,802,922 13,765,500 40,000 Schlumberger Ltd. ............... 1,275,020 3,480,000 -------------- -------------- 12,429,766 18,053,100 -------------- -------------- ENERGY AND UTILITIES: WATER -- 0.0% 25,000 Aqua America Inc. ............... 243,835 469,500 40,000 Suez SA, Strips+ ................ 0 631 -------------- -------------- 243,835 470,131 -------------- -------------- ENTERTAINMENT -- 2.0% 60,000 Grupo Televisa SA, ADR .......... 1,493,782 1,454,400 200,000 Rank Group plc .................. 1,020,671 350,289 25,000 The Walt Disney Co. ............. 604,578 784,500 310,000 Time Warner Inc. ................ 4,846,642 4,346,200 260,000 Viacom Inc., Cl. A+ ............. 10,910,554 10,303,800 185,000 Vivendi ......................... 6,813,381 7,228,730 -------------- -------------- 25,689,608 24,467,919 -------------- -------------- ENVIRONMENTAL SERVICES -- 0.6% 200,000 Waste Management Inc. ........... 6,034,603 6,712,000 -------------- -------------- EQUIPMENT AND SUPPLIES -- 2.0% 12,000 A.O. Smith Corp. ................ 253,183 394,440 10,000 Danaher Corp. ................... 734,591 760,300 115,000 Flowserve Corp. ................. 5,141,384 12,003,700 6,000 Ingersoll-Rand Co. Ltd., Cl. A .. 120,853 267,480 1,500 Minerals Technologies Inc. ...... 37,937 94,200 40,000 Mueller Industries Inc. ......... 1,650,585 1,154,000 7,609 Mueller Water Products Inc., Cl. B ........................ 111,552 59,959 12,000 Parker Hannifin Corp. ........... 459,607 831,240 100,000 Tenaris SA, ADR ................. 4,514,368 4,985,000 1,000,000 Tomkins plc ..................... 4,862,592 3,547,542 -------------- -------------- 17,886,652 24,097,861 -------------- -------------- MARKET SHARES COST VALUE ------ -------------- -------------- FINANCIAL SERVICES -- 10.4% 6,324 Alleghany Corp.+ ................ $ 1,036,283 $ 2,159,646 220,000 American Express Co. ............ 9,953,228 9,618,400 190,000 American International Group Inc. ................... 12,100,166 8,217,500 45,000 Ameriprise Financial Inc. ....... 1,843,914 2,333,250 23,990 Argo Group International Holdings Ltd.+ ............... 741,793 852,125 25,000 Banco Popular Espanol SA ........ 185,939 453,892 2,000 Banco Santander Chile SA, ADR .......................... 29,250 104,520 18,000 Banco Santander SA, ADR ......... 64,963 358,920 138,000 Bank of America Corp. ........... 4,272,294 5,231,580 8,825 BNP Paribas ..................... 362,345 890,149 590,000 Citigroup Inc. .................. 27,136,120 12,637,800 40,000 Commerzbank AG, ADR ............. 855,073 1,263,844 34,000 Deutsche Bank AG ................ 1,919,041 3,843,700 70,000 Discover Financial Services ..... 1,333,774 1,145,900 160,000 Federal National Mortgage Association .................. 5,726,720 4,211,200 20,000 Fidelity Southern Corp. ......... 229,670 168,200 75,000 Freddie Mac ..................... 2,826,187 1,899,000 185,000 H&R Block Inc. .................. 4,179,158 3,840,600 25,000 Huntington Bancshares Inc. ...... 407,250 268,750 30,000 Janus Capital Group Inc. ........ 846,728 698,100 110,080 JPMorgan Chase & Co. ............ 3,774,995 4,727,936 5,000 KeyCorp ......................... 118,570 109,750 38,000 Legg Mason Inc. ................. 3,179,578 2,127,240 30,000 Leucadia National Corp. ......... 329,356 1,356,600 90,000 Loews Corp. ..................... 4,421,111 3,619,800 13,000 M&T Bank Corp. .................. 1,128,525 1,046,240 2,000 Manulife Financial Corp. ........ 24,694 75,960 426,000 Marsh & McLennan Companies Inc. ............... 12,969,097 10,373,100 76,000 Merrill Lynch & Co. Inc. ........ 4,438,021 3,096,240 10,000 Moody's Corp. ................... 171,766 348,300 48,000 Morgan Stanley .................. 2,631,592 2,193,600 3,000 Municipal Mortgage & Equity, LLC .................. 60,488 15,450 6,000 Northern Trust Corp. ............ 60,300 398,820 45,000 PNC Financial Services Group Inc. ................... 1,905,739 2,950,650 55,000 Popular Inc. .................... 1,112,791 641,300 500 Raiffeisen International Bank Holding AG .............. 28,874 68,163 130,000 SLM Corp.+ ...................... 3,381,107 1,995,500 135,000 Sovereign Bancorp Inc. .......... 2,682,873 1,258,200 150,000 Sterling Bancorp ................ 2,161,997 2,329,500 12,000 SunTrust Banks Inc. ............. 251,737 661,680 50,000 T. Rowe Price Group Inc. ........ 1,388,039 2,500,000 1,000 The Allstate Corp. .............. 33,300 48,060 See accompanying notes to financial statements. 6 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) FINANCIAL SERVICES (CONTINUED) 96,509 The Bank of New York Mellon Corp. ................. $ 2,951,848 $ 4,027,321 120,000 The Bear Stearns Companies Inc. ............... 1,930,741 1,258,800 5,000 The Charles Schwab Corp. ........ 77,500 94,150 2,000 The Dun & Bradstreet Corp. ...... 20,476 162,760 10,000 The Goldman Sachs Group Inc. ................... 1,973,608 1,653,900 50,000 The Phoenix Companies Inc. ...... 650,511 610,500 2,000 The Student Loan Corp. .......... 210,503 197,800 36,000 The Travelers Companies Inc. .... 1,428,424 1,722,600 40,000 Unitrin Inc. .................... 1,156,156 1,413,600 34,000 Wachovia Corp. .................. 1,438,282 918,000 120,000 Waddell & Reed Financial Inc., Cl. A ........................ 2,632,714 3,855,600 240,000 Wells Fargo & Co. ............... 7,461,435 6,984,000 55,000 Wilmington Trust Corp. .......... 1,712,407 1,710,500 -------------- -------------- 145,949,051 126,748,696 -------------- -------------- FOOD AND BEVERAGE -- 11.8% 170,000 Anheuser-Busch Companies Inc. ............... 7,888,949 8,066,500 50,000 Brown-Forman Corp., Cl. A ....... 3,068,834 3,462,000 155,000 Cadbury Schweppes plc, ADR ...... 5,701,404 6,854,100 90,000 Campbell Soup Co. ............... 2,648,894 3,055,500 40,000 Coca-Cola Amatil Ltd., ADR ...... 246,845 620,740 15,000 Coca-Cola Femsa SAB de CV, ADR .......................... 388,903 844,950 95,000 Constellation Brands Inc., Cl. A+ ....................... 2,110,323 1,678,650 16,000 Corn Products International Inc. ........... 197,588 594,240 75,000 Del Monte Foods Co. ............. 754,461 714,750 60,000 Diageo plc, ADR ................. 2,617,330 4,879,200 145,000 Fomento Economico Mexicano SAB de CV, ADR ............... 3,025,539 6,058,100 210,000 General Mills Inc. .............. 10,507,932 12,574,800 130,000 Groupe Danone ................... 7,099,747 11,624,698 980,000 Grupo Bimbo SAB de CV, Cl. A .... 3,043,113 5,893,214 105,000 H.J. Heinz Co. .................. 3,702,553 4,931,850 100,000 Heineken NV ..................... 4,539,926 5,808,244 160,000 ITO EN Ltd. ..................... 3,749,452 2,831,461 35,000 ITO EN Ltd., Preference ......... 808,031 395,365 5,000 Kellogg Co. ..................... 149,740 262,800 500,000 Kraft Foods Inc., Cl. A ......... 15,272,342 15,505,000 10,000 Nestle SA ....................... 2,083,075 4,996,979 150,000 Nissin Food Products Co. Ltd. ... 5,070,962 5,056,180 10,000 PepsiAmericas Inc. .............. 266,589 255,300 25,000 PepsiCo Inc. .................... 1,573,601 1,805,000 24,008 Pernod-Ricard SA ................ 2,033,447 2,469,745 MARKET SHARES COST VALUE ------ -------------- -------------- 15,000 Remy Cointreau SA ............... $ 1,060,116 $ 1,008,825 50,000 Sapporo Holdings Ltd. ........... 510,013 408,808 365,000 The Coca-Cola Co. ............... 16,799,135 22,217,550 70,000 The Hershey Co. ................. 3,017,148 2,636,900 51,565 Tootsie Roll Industries Inc. .... 1,298,584 1,299,435 100 Wimm-Bill-Dann Foods OJSC, ADR .................... 8,304 10,248 10,000 Wm. Wrigley Jr. Co. ............. 475,992 628,400 750 Wm. Wrigley Jr. Co., Cl. B ...... 41,832 46,650 135,000 YAKULT HONSHA Co. Ltd. .......... 3,659,573 4,184,892 -------------- -------------- 115,420,277 143,681,074 -------------- -------------- HEALTH CARE -- 8.9% 16,000 Abbott Laboratories ............. 618,814 882,400 125,000 Advanced Medical Optics Inc.+ ... 4,003,513 2,537,500 25,000 Aetna Inc. ...................... 890,584 1,052,250 112,000 Baxter International Inc. ....... 4,185,106 6,475,840 100,000 Becton Dickinson & Co. .......... 6,601,932 8,585,000 260,000 Boston Scientific Corp.+ ........ 3,744,288 3,346,200 72,000 Bristol-Myers Squibb Co. ........ 1,764,502 1,533,600 60,000 Covidien Ltd. ................... 2,400,946 2,655,000 140,000 Eli Lilly & Co. ................. 7,861,239 7,222,600 11,276 GlaxoSmithKline plc, ADR ........ 515,984 478,440 22,000 Henry Schein Inc.+ .............. 566,365 1,262,800 105,000 Hospira Inc.+ ................... 3,804,994 4,490,850 200,000 Johnson & Johnson ............... 12,432,566 12,974,000 4,000 Laboratory Corp. of America Holdings+ .................... 293,687 294,720 60,000 Medco Health Solutions Inc.+ .... 1,573,865 2,627,400 110,000 Merck & Co. Inc. ................ 3,523,449 4,174,500 1,000 Nobel Biocare Holding AG ........ 139,480 232,605 140,000 Novartis AG, ADR ................ 7,727,317 7,172,200 30,000 Patterson Companies Inc.+ ....... 1,080,112 1,089,000 850,000 Pfizer Inc. ..................... 22,555,122 17,790,500 150,000 Schering-Plough Corp. ........... 2,759,763 2,161,500 100,000 St. Jude Medical Inc.+ .......... 4,411,409 4,319,000 500,000 Tenet Healthcare Corp.+ ......... 3,843,283 2,830,000 220,000 UnitedHealth Group Inc. ......... 11,197,983 7,559,200 20,000 William Demant Holding A/S+ ..... 983,839 1,598,425 44,000 Zimmer Holdings Inc.+ ........... 2,802,455 3,425,840 -------------- -------------- 112,282,597 108,771,370 -------------- -------------- HOTELS AND GAMING -- 1.6% 30,000 International Game Technology ................... 1,074,204 1,206,300 529,411 Ladbrokes plc ................... 7,677,933 3,270,272 45,000 Las Vegas Sands Corp.+ .......... 3,804,470 3,313,800 171,035 MGM Mirage+ ..................... 13,136,601 10,051,727 40,000 Starwood Hotels & Resorts Worldwide Inc. ............... 1,100,856 2,070,000 -------------- -------------- 26,794,064 19,912,099 -------------- -------------- See accompanying notes to financial statements. 7 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) MACHINERY -- 0.6% 55,000 Baldor Electric Co. ............. $ 1,853,207 $ 1,540,000 6,000 Caterpillar Inc. ................ 35,181 469,740 62,000 Deere & Co. ..................... 752,487 4,987,280 -------------- -------------- 2,640,875 6,997,020 -------------- -------------- MANUFACTURED HOUSING -- 0.1% 140,000 Champion Enterprises Inc.+ ...... 1,407,727 1,404,200 -------------- -------------- METALS AND MINING -- 1.7% 100,000 Alcoa Inc. ...................... 3,169,536 3,606,000 5,000 Carpenter Technology Corp. ...... 240,642 279,850 27,000 Fording Canadian Coal Trust ..... 179,580 1,413,590 50,000 Freeport-McMoRan Copper & Gold Inc. .................. 1,000,213 4,811,000 195,000 Newmont Mining Corp. ............ 7,983,095 8,833,500 3,000 Patriot Coal Corp.+ ............. 69,951 140,910 30,000 Peabody Energy Corp. ............ 1,095,901 1,530,000 -------------- -------------- 13,738,918 20,614,850 -------------- -------------- PUBLISHING -- 0.6% 10,000 Idearc Inc. ..................... 167,232 36,400 30,000 Lee Enterprises Inc. ............ 513,623 300,300 10,000 McClatchy Co., Cl. A ............ 267,269 107,000 6,016 News Corp., Cl. B ............... 70,881 114,545 90,000 PagesJaunes Groupe SA ........... 2,496,955 1,602,753 406 Seat Pagine Gialle SpA .......... 1,350 70 65,000 The E.W. Scripps Co., Cl. A ..... 3,091,527 2,730,650 34,000 The McGraw-Hill Companies Inc. ............... 1,239,272 1,256,300 22,000 The New York Times Co., Cl. A ........................ 600,828 415,360 1,200 The Washington Post Co., Cl. B ........................ 700,030 793,800 2,000 Value Line Inc. ................. 84,436 91,800 -------------- -------------- 9,233,403 7,448,978 -------------- -------------- REAL ESTATE -- 0.0% 7,000 Griffin Land & Nurseries Inc. ... 137,444 241,430 -------------- -------------- RETAIL -- 5.3% 40,000 Copart Inc.+ .................... 1,212,543 1,550,400 200,000 Costco Wholesale Corp. .......... 10,357,002 12,994,000 330,000 CVS Caremark Corp. .............. 12,367,408 13,368,300 30,000 Ingles Markets Inc., Cl. A ...... 684,263 737,700 85,000 Macy's Inc. ..................... 2,102,473 1,960,100 15,000 Metro Inc., Cl. A ............... 422,865 355,108 150,000 Safeway Inc. .................... 3,114,997 4,402,500 500 Sears Holdings Corp.+ ........... 40,733 51,045 100,000 SUPERVALU Inc. .................. 2,935,535 2,998,000 120,000 The Great Atlantic & Pacific Tea Co. Inc.+ ........ 3,730,562 3,146,400 55,000 The Home Depot Inc. ............. 1,655,855 1,538,350 45,000 Tractor Supply Co.+ ............. 2,021,475 1,778,400 SHARES/ MARKET UNITS COST VALUE --------- -------------- -------------- 250,000 Wal-Mart Stores Inc. ............ $ 11,938,144 $ 13,170,000 85,000 Walgreen Co. .................... 3,233,974 3,237,650 10,000 Weis Markets Inc. ............... 300,480 344,700 90,000 Whole Foods Market Inc. ......... 3,794,953 2,967,300 -------------- -------------- 59,913,262 64,599,953 -------------- -------------- SPECIALTY CHEMICALS -- 2.5% 44,000 Albemarle Corp. ................. 576,219 1,606,880 437 Arkema, ADR+ .................... 8,969 24,526 34,000 Ashland Inc. .................... 2,146,264 1,608,200 210,000 Chemtura Corp. .................. 1,963,900 1,541,400 80,000 E.I. du Pont de Nemours & Co. ................ 3,753,842 3,740,800 120,000 Ferro Corp. ..................... 2,375,006 1,783,200 2,000 FMC Corp. ....................... 64,790 110,980 100,000 Hercules Inc. ................... 1,164,286 1,829,000 70,000 International Flavors & Fragrances Inc. .............. 3,373,184 3,083,500 3,500 NewMarket Corp. ................. 13,508 264,075 100,000 Omnova Solutions Inc.+ .......... 667,863 399,000 4,000 Quaker Chemical Corp. ........... 79,615 125,160 180,000 Rohm & Haas Co. ................. 8,895,257 9,734,400 55,000 Sensient Technologies Corp. ..... 1,148,680 1,621,950 90,000 The Dow Chemical Co. ............ 3,950,210 3,316,500 2,542 Tronox Inc., Cl. B .............. 22,513 9,914 4,000 Zep Inc. ........................ 17,026 64,880 -------------- -------------- 30,221,132 30,864,365 -------------- -------------- TELECOMMUNICATIONS -- 3.3% 300,000 AT&T Inc. ....................... 7,261,766 11,490,000 200,000 BCE Inc. ........................ 5,385,194 6,746,000 4,495 Bell Aliant Regional Communications Income Fund (a)(b) ........... 117,429 134,805 200,000 BT Group plc .................... 825,179 862,326 30,000 BT Group plc, ADR ............... 1,006,938 1,293,000 140,000 Cable & Wireless plc ............ 273,765 413,718 10,000 CenturyTel Inc. ................. 359,546 332,400 350,000 Cincinnati Bell Inc.+ ........... 1,886,496 1,491,000 271,100 Deutsche Telekom AG, ADR ........ 4,934,018 4,494,838 10,000 Embarq Corp. .................... 462,900 401,000 15,000 France Telecom SA, ADR .......... 436,434 503,700 140,000 Qwest Communications International Inc. ........... 582,200 634,200 300,000 Sprint Nextel Corp. ............. 4,989,890 2,007,000 3,300 Telecom Italia SpA, ADR ......... 31,072 68,937 8,195 Telefonica SA, ADR .............. 80,699 708,949 12,000 TELUS Corp. ..................... 185,454 522,578 17,000 TELUS Corp., Non-Voting, ADR .......................... 838,127 711,450 210,000 Verizon Communications Inc. ..... 7,702,532 7,654,500 5,000 Windstream Corp. ................ 43,990 59,750 -------------- -------------- 37,403,629 40,530,151 -------------- -------------- See accompanying notes to financial statements. 8 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS (CONTINUED) TRANSPORTATION -- 0.4% 5,000 Burlington Northern Santa Fe Corp. ............... $ 444,482 $ 461,100 115,000 GATX Corp. ...................... 4,379,544 4,493,050 -------------- -------------- 4,824,026 4,954,150 -------------- -------------- WIRELESS COMMUNICATIONS -- 0.3% 2,600 NTT DoCoMo Inc. ................. 3,779,517 3,938,604 -------------- -------------- TOTAL COMMON STOCKS ............. 960,696,693 1,111,723,891 -------------- -------------- CONVERTIBLE PREFERRED STOCKS -- 0.2% COMMUNICATIONS EQUIPMENT -- 0.1% 1,100 Lucent Technologies Capital Trust I, 7.750% Cv. Pfd. .............. 759,000 770,000 -------------- -------------- ENERGY AND UTILITIES: INTEGRATED -- 0.0% 300 El Paso Corp., 4.990% Cv. Pfd. (b) .......... 293,192 408,693 -------------- -------------- ENTERTAINMENT -- 0.0% 3,000 Metromedia International Group Inc., 7.250% Cv. Pfd.+ ............. 5,310 102,750 -------------- -------------- TELECOMMUNICATIONS -- 0.1% 33,000 Cincinnati Bell Inc., 6.750% Cv. Pfd., Ser. B ...... 918,894 1,399,200 -------------- -------------- TOTAL CONVERTIBLE PREFERRED STOCKS ............. 1,976,396 2,680,643 -------------- -------------- WARRANTS -- 0.0% BROADCASTING -- 0.0% 330 Granite Broadcasting Corp., Ser. A, expire 06/04/12+ ..... 0 99 330 Granite Broadcasting Corp., Ser. B, expire 06/04/12+ ..... 0 82 -------------- -------------- 0 181 -------------- -------------- DIVERSIFIED INDUSTRIAL -- 0.0% 379,703 National Patent Development Corp., expire 08/14/08+ (a)(c) ...... 0 6,774 -------------- -------------- TOTAL WARRANTS .................. 0 6,955 -------------- -------------- PRINCIPAL AMOUNT ------------ CORPORATE BONDS -- 1.2% AUTOMOTIVE: PARTS AND ACCESSORIES -- 0.1% $ 800,000 Standard Motor Products Inc., Sub. Deb. Cv., 6.750%, 07/15/09 ............. 751,685 766,000 -------------- -------------- BROADCASTING -- 0.2% 350,000 Sinclair Broadcast Group Inc., Cv. (STEP), 4.875%, 07/15/18 ............. 326,170 320,250 PRINCIPAL MARKET AMOUNT COST VALUE ------------ -------------- -------------- $ 2,200,000 Sinclair Broadcast Group Inc., Sub. Deb. Cv., 6.000%, 09/15/12 ............. $ 1,893,897 $ 1,963,500 200,000 Young Broadcasting Inc., Sub. Deb., 10.000%, 03/01/11 ............ 149,332 126,500 -------------- -------------- 2,369,399 2,410,250 -------------- -------------- BUSINESS SERVICES -- 0.0% 100,000 BBN Corp., Sub. Deb. Cv., 6.000%, 04/01/12+ (a) ........ 97,499 0 470,162 GP Strategies Corp., Sub. Deb., 6.000%, 08/14/08 (a)(c) ...... 417,447 421,631 -------------- -------------- 514,946 421,631 -------------- -------------- COMMUNICATIONS EQUIPMENT -- 0.6% 4,000,000 Agere Systems Inc., Sub. Deb. Cv., 6.500%, 12/15/09 ............. 3,956,315 4,060,000 2,625,000 Nortel Networks Corp., Cv., 4.250%, 09/01/08 ............. 2,599,828 2,605,312 -------------- -------------- 6,556,143 6,665,312 -------------- -------------- RETAIL -- 0.3% 4,000,000 The Great Atlantic & Pacific Tea Co. Inc., Cv., 5.125%, 06/15/11 ............. 4,000,000 3,970,000 -------------- -------------- TELECOMMUNICATIONS -- 0.0% 200,000 Williams Communications Group Inc., Escrow, 10.875%, 10/01/09+ (a) ....... 0 0 -------------- -------------- TOTAL CORPORATE BONDS ........... 14,192,173 14,233,193 -------------- -------------- U.S. GOVERNMENT OBLIGATIONS -- 7.1% U.S. TREASURY BILLS -- 6.9% 84,381,000 U.S. Treasury Bills, 1.017% to 2.181%++, 04/03/08 to 09/18/08 ......... 84,130,680 84,136,776 -------------- -------------- U.S. TREASURY NOTES -- 0.2% 2,887,000 U.S. Treasury Note, 5.125%, 06/30/08 ............. 2,908,427 2,914,519 -------------- -------------- TOTAL U.S. GOVERNMENT OBLIGATIONS .................. 87,039,107 87,051,295 -------------- -------------- TOTAL INVESTMENTS -- 99.8% ......... $1,063,904,369 1,215,695,977 ============== OTHER ASSETS AND LIABILITIES (NET) -- 0.2% ...... 1,861,987 -------------- NET ASSETS -- 100.0% ............................ $1,217,557,964 ============== See accompanying notes to financial statements. 9 THE GABELLI EQUITY INCOME FUND SCHEDULE OF INVESTMENTS (CONTINUED) -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- ---------- (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 March 31, 2008, the market value of fair valued securities amounted to $568,160 or 0.05% of total net assets. (b) Securities 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 March 31, 2008, the market value of Rule 144A securities amounted to $543,498 or 0.04% of total net assets. (c) At March 31, 2008, the Fund held investments in restricted and illiquid securities amounting to $428,405 or 0.04% of total net assets, which were valued under methods approved by the Board, as follows:
PRINCIPAL 03/31/08 AMOUNT/ CARRYING ACQUISITION ACQUISITION ACQUISITION VALUE SHARES ISSUER DATE COST PER UNIT ----------- ------------------------------- ----------- ----------- -------- $ 470,162 GP Strategies Corp., Sub. Deb., 6.00%, 08/14/08 ............ 08/08/03 $ 320,860 $89.6778 379,703 National Patent Development Corp., Warrants, expire 08/14/08 ............ 11/24/04 0.00 0.0178
+ 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 March 31, 2008. See accompanying notes to financial statements. 10 THE GABELLI EQUITY INCOME FUND STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- ASSETS: Investments, at value (cost $1,063,904,369) ............ $ 1,215,695,977 Cash ................................................... 986 Receivable for investments sold ........................ 2,491,889 Receivable for Fund shares sold ........................ 5,377,539 Dividends and interest receivable ...................... 2,141,860 Prepaid expenses ....................................... 87,212 --------------- TOTAL ASSETS ........................................... 1,225,795,463 --------------- LIABILITIES: Payable for investments purchased ...................... 5,097,279 Payable for Fund shares redeemed ....................... 1,553,537 Payable for investment advisory fees ................... 1,023,035 Payable for distribution fees .......................... 267,668 Payable for accounting fees ............................ 3,750 Unrealized depreciation on swap contracts .............. 23,439 Other accrued expenses ................................. 268,791 --------------- TOTAL LIABILITIES ...................................... 8,237,499 --------------- NET ASSETS applicable to 60,061,863 shares outstanding ................................... $ 1,217,557,964 =============== NET ASSETS CONSIST OF: Paid-in capital, each class at $0.001 par value ........ $ 1,067,060,443 Accumulated distributions in excess of net investment income .................................... (4,684,775) Accumulated net realized gain on investments, swap contracts, and foreign currency transactions ................................ 3,413,876 Net unrealized appreciation on investments ............. 151,791,608 Net unrealized depreciation on swap contracts .......... (23,439) Net unrealized appreciation on foreign currency translations ................................ 251 --------------- NET ASSETS ............................................. $ 1,217,557,964 =============== SHARES OF CAPITAL STOCK: CLASS AAA: Net Asset Value, offering, and redemption price per share ($1,179,367,734 / 58,144,043 shares outstanding; 150,000,000 shares authorized) .......... $ 20.28 =============== CLASS A: Net Asset Value and redemption price per share ($18,748,310 / 927,347 shares outstanding; 50,000,000 shares authorized) ........................ $ 20.22 =============== Maximum offering price per share (NAV /.9425, based on maximum sales charge of 5.75% of the offering price) ............................... $ 21.45 =============== CLASS B: Net Asset Value and offering price per share ($313,091 / 15,961.63 shares outstanding; 50,000,000 shares authorized) ........................ $ 19.62(a) =============== CLASS C: Net Asset Value and offering price per share ($18,571,542 / 947,055 shares outstanding; 50,000,000 shares authorized) ........................ $ 19.61(a) =============== CLASS I: Net Asset Value, offering, and redemption price per share ($557,287/ 27,456 shares outstanding; 50,000,000 shares authorized) ........... $ 20.30 =============== STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends (net of foreign taxes of $154,319) ........... $ 11,272,825 Interest ............................................... 1,682,120 --------------- Total Investment Income ................................ 12,954,945 --------------- EXPENSES: Investment advisory fees ............................... 6,143,421 Distribution fees - Class AAA .......................... 1,490,284 Distribution fees - Class A ............................ 22,007 Distribution fees - Class B ............................ 1,650 Distribution fees - Class C ............................ 91,467 Shareholder services fees .............................. 544,457 Shareholder communications expenses .................... 155,220 Custodian fees ......................................... 90,282 Legal and audit fees ................................... 32,447 Registration expenses .................................. 31,237 Accounting fees ........................................ 22,500 Directors' fees ........................................ 16,832 Interest expense ....................................... 14 Miscellaneous expenses ................................. 40,823 --------------- TOTAL EXPENSES ......................................... 8,682,641 Less: Custodian fee credits ............................ (7,371) --------------- NET EXPENSES ........................................... 8,675,270 --------------- NET INVESTMENT INCOME .................................. 4,279,675 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, SWAP CONTRACTS, AND FOREIGN CURRENCY: Net realized gain on investments ....................... 11,985,359 Net realized loss on swap contracts .................... (174,863) Net realized gain on foreign currency transactions ......................................... 48,423 --------------- Net realized gain on investments, swap contracts, and foreign currency transactions .................... 11,858,919 --------------- Net change in unrealized appreciation/ depreciation on investments .......................... (139,316,625) Net change in unrealized appreciation/ depreciation on swap contracts ....................... (8,115) Net change in unrealized appreciation/ depreciation on foreign currency translations ........ (1,986) --------------- Net change in unrealized appreciation/ depreciation on investments, swap contracts, and foreign currency translations .................... (139,326,726) --------------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS, SWAP CONTRACTS, AND FOREIGN CURRENCY ..................................... (127,467,807) --------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................................... $ (123,188,132) =============== ---------- (a) Redemption price varies based on the length of time held. See accompanying notes to financial statements. 11 THE GABELLI EQUITY INCOME FUND STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 2008 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2007 ---------------- ------------------ OPERATIONS: Net investment income ................................................... $ 4,279,675 $ 10,235,599 Net realized gain on investments, swap contracts, and foreign currency transactions .......................................................... 11,858,919 25,662,276 Net change in unrealized appreciation/depreciation on investments, swap contracts, and foreign currency translations ..................... (139,326,726) 129,138,838 ---------------- ------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ........ (123,188,132) 165,036,713 ---------------- ------------------ DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class AAA ............................................................. (8,568,519) (10,622,391) Class A ............................................................... (129,528) (122,443) Class B ............................................................... (2,367) (3,257) Class C ............................................................... (134,377) (146,754) Class I ............................................................... (2,413) -- ---------------- ------------------ (8,837,204) (10,894,845) ---------------- ------------------ Net realized gain on investments Class AAA ............................................................. (21,496,322) (25,511,616) Class A ............................................................... (318,823) (276,274) Class B ............................................................... (6,209) (11,191) Class C ............................................................... (330,973) (275,224) ---------------- ------------------ (22,152,327) (26,074,305) ---------------- ------------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS ..................................... (30,989,531) (36,969,150) ---------------- ------------------ CAPITAL SHARE TRANSACTIONS: Class AAA ............................................................. 137,502,923 271,771,201 Class A ............................................................... 5,668,001 5,538,183 Class B ............................................................... 11,732 (51,212) Class C ............................................................... 3,668,906 7,800,453 Class I ............................................................... 591,247 -- ---------------- ------------------ NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS. ............. 147,442,809 285,058,625 ---------------- ------------------ REDEMPTION FEES ......................................................... 5,837 10,314 ---------------- ------------------ NET INCREASE (DECREASE) IN NET ASSETS ................................... (6,729,017) 413,136,502 NET ASSETS: Beginning of period ..................................................... 1,224,286,981 811,150,479 ---------------- ------------------ End of period (including undistributed net investment income of $0 and $0, respectively) .............................................. $ 1,217,557,964 $ 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 Net Realized and Total Net Period Value, Investment Unrealized from Net Realized Ended Beginning Income/ Gain/(Loss) on Investment Investment Gain on Total September 30 of Period (Loss)(a) Investments Operations Income Investments Distributions ------------ --------- ---------- -------------- ---------- ---------- ----------- ------------- CLASS AAA 2008(c) $ 22.98 $ 0.08 $ (2.22) $ (2.14) $ (0.16) $ (0.40) $ (0.56) 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) 2003 11.93 0.28 2.64 2.92 (0.25) -- (0.25) CLASS A 2008(c) $ 22.91 $ 0.08 $ (2.21) $ (2.13) $ (0.16) $ (0.40) $ (0.56) 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(f) 16.40 0.16 0.43 0.59 (0.20) (0.07) (0.27) CLASS B 2008(c) $ 22.32 $(0.00)(d) $ (2.15) $ (2.15) $ (0.15) $ (0.40) $ (0.55) 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(f) 16.40 0.07 0.42 0.49 (0.20) (0.07) (0.27) CLASS C 2008(c) $ 22.31 $(0.00)(d) $ (2.15) $ (2.15) $ (0.15) $ (0.40) $ (0.55) 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(f) 16.40 0.08 0.43 0.51 (0.20) (0.07) (0.27) CLASS I 2008(g) $ 21.42 $ 0.05 $ (1.08) $ (1.03) $ (0.09) -- $ (0.09) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA -------------------------------------------------- Net Asset Net Assets Net Period Value, End of Investment Portfolio Ended Redemption End of Total Period Income/ Operating Turnover September 30 Fees(a) Period Return+ (in 000's) (Loss) Expenses(b) Rate++ ------------ ---------- --------- ------- ----------- ---------- ----------- --------- CLASS AAA 2008(c) $ 0.00(d) $ 20.28 (9.50)% $ 1,179,368 0.71%(e) 1.40%(e) 12% 2007 0.00(d) 22.98 18.19 1,191,351 1.01 1.43 12 2006 0.00(d) 20.23 11.25 794,375 1.98 1.46 14 2005 0.00(d) 18.72 16.09 580,081 1.33 1.46 11 2004 -- 16.73 17.13 355,321 1.42 1.49 12 2003 -- 14.60 24.59 261,777 2.09 1.49 27 CLASS A 2008(c) $ 0.00(d) $ 20.22 (9.49)% $ 18,748 0.72%(e) 1.40%(e) 12% 2007 0.00(d) 22.91 18.20 15,313 1.00 1.43 12 2006 0.00(d) 20.17 11.29 8,379 2.02 1.46 14 2005 0.00(d) 18.66 15.99 3,644 1.08 1.50 11 2004(f) -- 16.72 3.62 124 1.33(e) 1.49(e) 12 CLASS B 2008(c) $ 0.00(d) $ 19.62 (9.81)% $ 313 (0.05)%(e) 2.15%(e) 12% 2007 0.00(d) 22.32 17.28 344 0.29 2.18 12 2006 0.00(d) 19.82 10.46 352 1.91 2.21 14 2005 0.00(d) 18.48 15.28 32 0.20 2.22 11 2004(f) -- 16.62 3.00 1 0.56(e) 2.24(e) 12 CLASS C 2008(c) $ 0.00(d) $ 19.61 (9.81)% $ 18,572 (0.03)%(e) 2.15%(e) 12% 2007 0.00(d) 22.31 17.29 17,279 0.24 2.18 12 2006 0.00(d) 19.81 10.46 8,044 1.26 2.21 14 2005 0.00(d) 18.47 15.24 3,374 0.37 2.24 11 2004(f) -- 16.64 3.13 79 0.62(e) 2.24(e) 12 CLASS I 2008(g) $ 0.00(d) $ 20.30 (9.41)% $ 557 1.21%(e) 1.15%(e) 12%
---------- + Total return represents aggregate total return of a hypothetical $1,000 investment at the beginning of the period and sold at the end of the period including reinvestment of distributions and does not reflect applicable sales charges. Total return for a period of less than one year is not annualized. ++ Effective in 2008, a change in accounting policy was adopted with regard to the calculation of the portfolio turnover rate. Had this policy been adopted retroactively, the portfolio turnover rate for the fiscal years ended September 30, 2007, 2006, 2005, 2004, and 2003 would have been 20%, 34%, 26%, 15%, and 34%, respectively. (a) Per share amounts have been calculated using the average shares outstanding method. (b) 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. Custodian fee credits for the six months ended March 31, 2008, and fiscal year ended September 30, 2007 were minimal. (c) For the six months ended March 31, 2008, unaudited. (d) Amount represents less than $0.005 per share. (e) Annualized. (f) From the commencement of offering Class A, Class B, and Class C Shares on December 31, 2003. (g) From the commencement of offering Class I Shares on January 11, 2008 through March 31, 2008. See accompanying notes to financial statements. 13 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- 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. 14 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- In September 2006, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") 157, Fair Value Measurements, which clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Adoption of SFAS 157 requires the use of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. As of March 31, 2008, the adoption of SFAS 157 had no impact on the amounts reported in the financial statements. In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161") was issued and 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. The impact on the Fund's financial statement disclosures, if any, is currently being assessed. 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 March 31, 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. A swap is where 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 15 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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. The Fund has entered into contract for difference swaps with Bear, Stearns International Limited. Details of the swaps at March 31, 2008 are as follows:
NET NOTIONAL EQUITY SECURITY INTEREST RATE/ TERMINATION UNREALIZED AMOUNT RECEIVED EQUITY SECURITY PAID DATE DEPRECIATION ------------------------ --------------------- -------------------------------- ----------- ------------ Market Value Overnight LIBOR plus 40 bps plus Appreciation on: Market Value Depreciation on: $258,986 (140,000 shares) Rank Group plc Rank Group plc 05/15/08 $(14,146) 169,018 (20,000 shares) Rolls-Royce Group plc Rolls-Royce Group plc 12/15/08 (9,293) -------- $(23,439) ========
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 March 31, 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 March 31, 2008. 16 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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 March 31, 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 17 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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. 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. The tax character of distributions paid during the fiscal year ended September 30, 2007 was as follows: DISTRIBUTIONS PAID FROM: Ordinary income (inclusive of short-term capital gains)..... $ 20,253,574 Net long-term capital gains .................. 16,715,576 ------------ Total distributions paid ..................... $ 36,969,150 ============ 18 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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. 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. The following summarizes the tax cost of investments and the related unrealized appreciation/(depreciation) at March 31, 2008:
GROSS GROSS NET UNREALIZED UNREALIZED UNREALIZED APPRECIATION/ COST APPRECIATION DEPRECIATION (DEPRECIATION) --------------- ------------- ------------- -------------- Investments ....... $ 1,072,987,279 $ 239,646,101 $ (96,937,403) $ 142,708,698 Swap contracts .... -- -- (23,439) (23,439) ------------- ------------- -------------- $ 239,646,101 $ (96,960,842) $ 142,685,259 ============= ============= ==============
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" (the "Interpretation") established a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether the Fund is taxable in a particular jurisdiction) and required certain expanded tax disclosures. For the six months ended March 31, 2008, the Fund did not have any liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expenses in the Statement of Operations. The Fund is not subject to examination by U.S. federal tax authorities for tax years before 2003 and by state tax authorities for tax years before 2002. 3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS. The Fund has entered into an investment advisory agreement (the "Advisory Agreement") with the Adviser which provides that the Fund will pay the Adviser a fee, computed daily and paid monthly, at the annual rate of 1.00% of the value of its average daily net assets. In accordance with the Advisory Agreement, the Adviser provides a continuous investment program for the Fund's portfolio, oversees the administration of all aspects of the Fund's business and affairs, and pays the compensation of all Officers and Directors of the Fund who are affiliated persons of the Adviser. The Corporation pays each Director who is not considered to be an affiliated person an annual retainer of $6,000 plus $1,000 for each Board meeting attended and they are reimbursed for any out of pocket expenses incurred in attending meetings. All Board committee members receive $500 per meeting attended. Directors who are directors or employees of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Fund. 19 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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 six months ended March 31, 2008, other than short-term securities and U.S. Government obligations, aggregated $205,808,868 and $142,715,024, respectively. Purchases of U.S. Government obligations for the six months ended March 31, 2008, other than short-term obligations, aggregated $2,921,283. 6. TRANSACTIONS WITH AFFILIATES. During the six months ended March 31, 2008, the Fund paid brokerage commissions on security trades of $204,017 to Gabelli & Company. Additionally, Gabelli & Company informed the Fund that it received $21,058 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 six months ended March 31, 2008, the Fund paid or accrued $22,500 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 six months ended March 31, 2008, there were no borrowings under the line of credit. 8. CAPITAL STOCK TRANSACTIONS. 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 six months ended March 31, 2008 and the fiscal year ended September 30, 2007 amounted to $5,837 and $10,314, respectively. 20 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- The redemption fee does not apply to redemptions of shares where (i) the shares were purchased through automatic reinvestment of dividends or other 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:
SIX MONTHS ENDED MARCH 31, 2008 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2007 ----------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT ------------- ------------- ------------- ------------- CLASS AAA CLASS AAA ----------------------------- ----------------------------- Shares sold ....................................... 12,287,889 $ 265,451,063 20,047,350 $ 435,048,849 Shares issued upon reinvestment of distributions .. 1,282,785 28,229,344 1,598,441 33,658,795 Shares redeemed ................................... (7,266,366) (156,177,484) (9,065,356) (196,936,443) ------------- ------------- ------------- ------------- Net increase ................................... 6,304,308 $ 137,502,923 12,580,435 $ 271,771,201 ============= ============= ============= ============= CLASS A CLASS A ----------------------------- ----------------------------- Shares sold ....................................... 326,546 $ 7,095,587 337,809 $ 7,382,957 Shares issued upon reinvestment of distributions .. 17,134 375,504 15,265 320,840 Shares redeemed ................................... (84,731) (1,803,090) (100,074) (2,165,614) ------------- ------------- ------------- ------------- Net increase ................................... 258,949 $ 5,668,001 253,000 $ 5,538,183 ============= ============= ============= ============= CLASS B CLASS B ----------------------------- ----------------------------- Shares sold ....................................... 224 $ 4,456 -- -- Shares issued upon reinvestment of distributions .. 402 8,576 700 $ 14,330 Shares redeemed ................................... (63) (1,300) (3,076) (65,542) ------------- ------------- ------------- ------------- Net increase (decrease) ........................ 563 $ 11,732 (2,376) $ (51,212) ============= ============= ============= ============= CLASS C CLASS C ----------------------------- ----------------------------- Shares sold ....................................... 225,338 $ 4,722,734 400,018 $ 8,488,767 Shares issued upon reinvestment of distributions .. 20,510 437,094 18,848 388,816 Shares redeemed ................................... (73,152) (1,490,922) (50,547) (1,077,130) ------------- ------------- ------------- ------------- Net increase ................................... 172,696 $ 3,668,906 368,319 $ 7,800,453 ============= ============= ============= ============= CLASS I* ----------------------------- Shares sold ....................................... 27,802 $ 598,528 Shares issued upon reinvestment of distributions .. 116 2,414 Shares redeemed ................................... (462) (9,695) ------------- ------------- Net increase ................................... 27,456 $ 591,247 ============= =============
---------- * From the commencement of offering Class I Shares on January 11, 2008. 21 THE GABELLI EQUITY INCOME FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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. On a separate matter, in September 2005, the Adviser was informed by the staff of the SEC that the staff may recommend to the Commission that an administrative remedy and a monetary penalty be sought from the Adviser in connection with the actions of two of nine closed-end funds managed by the Adviser relating to Section 19(a) and Rule 19a-1 of the 1940 Act. These provisions require registered investment companies to provide written statements to shareholders when a dividend is made from a source other than net investment income. While the two closed-end funds sent annual statements and provided other materials containing this information, the funds did not send written statements to shareholders with each distribution in 2002 and 2003. The Adviser believes that all of the funds are now in compliance. The Adviser believes that these matters would have no effect on the Fund or any material adverse effect on the Adviser or its ability to manage the Fund. 22 THE GABELLI EQUITY INCOME FUND BOARD CONSIDERATION AND RE-APPROVAL OF ADVISORY AGREEMENT (UNAUDITED) During the six months ended March 31, 2008, the Board of Directors of the Corporation approved the continuation of the Investment Advisory Agreement with the Adviser for the Fund on the basis of the recommendation by the Directors (the "independent directors") who are not "interested persons" of the Fund. The following paragraphs summarize the material information and factors considered by the independent directors as well as their conclusions relative to such factors. NATURE, EXTENT, AND QUALITY OF SERVICES. The Independent Board Members considered information regarding the portfolio manager, the depth of the analyst pool available to the Adviser and the portfolio manager, the scope of administrative, shareholder, and other services supervised or provided by the Adviser and the absence of significant service problems reported to the Board. The Independent Board Members noted the experience, length of service, and reputation of the portfolio manager. INVESTMENT PERFORMANCE. The Independent Board Members reviewed the short, medium, and long-term performance of the Fund against a peer group of equity income funds. The Independent Board Members noted that the Fund's performance was in the top one-third of the funds in its category for all relevant periods. PROFITABILITY. The Independent Board Members reviewed summary data regarding the profitability of the Fund to the Adviser both with an administrative overhead charge and without such a charge. The Independent Board Members also noted that a substantial portion of the Fund's portfolio transactions were executed by an affiliated broker, that the affiliated broker received distribution fees and minor amounts of sales commissions, and that the Adviser received a moderate level of soft dollar research benefits through the Fund's portfolio brokerage. ECONOMIES OF SCALE. The Independent Board Members discussed the major elements of the Adviser's cost structure and the relationship of those elements to potential economies of scale. SHARING OF ECONOMIES OF SCALE. The Independent Board Members noted that the investment management fee schedule for the Fund does not take into account any potential economies of scale that may develop. SERVICE AND COST COMPARISONS. The Independent Board Members compared the expense ratios of the investment management fee, other expenses, and total expenses of the Fund to similar expense ratios of the peer group of equity income funds and noted that the Adviser's management fee includes substantially all administrative services of the Fund as well as investment advisory services. The Independent Board Members noted that the Fund's expense ratios and the Fund's size were above average within this group. The Independent Board Members also noted that the management fee structure was the same as that in effect for most of the Gabelli funds. The Independent Board Members did not compare the management fee to the fee for other types of accounts managed by the Adviser. CONCLUSIONS. The Independent Board Members concluded that the Fund enjoyed highly experienced portfolio management services, good ancillary services, and an excellent performance record. The Independent Board Members also concluded that the Fund's expense ratios and the profitability to the Adviser of managing the Fund were reasonable, particularly in light of the Fund's performance, and that economies of scale were not a significant factor in their thinking at this time. The Independent Board Members did not view the potential profitability of ancillary services as material to their decision. On the basis of the foregoing and without assigning particular weight to any single conclusion, the Independent Board Members determined to recommend continuation of the Investment Management Agreement to the full Board. 23 Gabelli Equity Series Funds, Inc. THE GABELLI EQUITY INCOME FUND One Corporate Center Rye, New York 10580-1422 800-GABELLI 800-422-3554 FAX: 914-921-5118 WEBSITE: WWW.GABELLI.COM E-MAIL: INFO@GABELLI.COM Net Asset Value per share available daily by calling 800-GABELLI after 6:00 P.M. BOARD OF DIRECTORS Mario J. Gabelli, CFA Robert J. Morrissey CHAIRMAN AND CHIEF ATTORNEY-AT-LAW EXECUTIVE OFFICER MORRISSEY, HAWKINS & LYNCH GAMCO INVESTORS, INC. Anthony R. Pustorino Anthony J. Colavita CERTIFIED PUBLIC ACCOUNTANT, ATTORNEY-AT-LAW PROFESSOR EMERITUS ANTHONY J. COLAVITA, P.C. PACE UNIVERSITY Vincent D. Enright Anthonie C. van Ekris FORMER SENIOR VICE PRESIDENT CHAIRMAN AND CHIEF FINANCIAL OFFICER BALMAC INTERNATIONAL, INC. KEYSPAN CORP. Salvatore J. Zizza John D. Gabelli CHAIRMAN SENIOR VICE PRESIDENT ZIZZA & CO., LTD. GABELLI & COMPANY, INC. OFFICERS Bruce N. Alpert Agnes Mullady PRESIDENT AND SECRETARY TREASURER Peter D. Goldstein CHIEF COMPLIANCE OFFICER DISTRIBUTOR Gabelli & Company, Inc. CUSTODIAN, TRANSFER AGENT, AND DIVIDEND AGENT State Street Bank and Trust Company LEGAL COUNSEL Skadden, Arps, Slate, Meagher & Flom LLP [GRAPHIC OMITTED] E P Gabelli Triangle P M MANAGEMENT S V CASH FLOW RESEARCH THE GABELLI EQUITY INCOME FUND SEMI ANNUAL REPORT MARCH 31, 2008 -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- GAB444Q108SR THE GABELLI WOODLAND SMALL CAP VALUE FUND SEMI-ANNUAL REPORT (a) MARCH 31, 2008 TO OUR SHAREHOLDERS, The Gabelli Woodland Small Cap Value Fund, for the six months ended March 31, 2008, declined 13.57% versus declines of 14.02% for the Russell 2000 Index, 12.46% for the S&P 500 Index, and 13.30% for the Value Line Composite Index. COMPARATIVE RESULTS --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH MARCH 31, 2008 (a)(b) ---------------------------------------------------- Since Inception Quarter 1 Year 3 Year 5 Year (12/31/02) ------- ------ ------ ------ ---------- GABELLI WOODLAND SMALL CAP VALUE FUND CLASS AAA ............................ (9.30)% (7.95)% 3.92% 11.83% 9.49% Russell 2000 Index ...................... (9.90) (13.00) 5.06 14.90 13.15 S&P 500 Index ........................... (9.44) (5.08) 5.84 11.32 10.08 Value Line Composite Index .............. (8.67) (10.83) 5.72 15.94 13.94 Class A ................................. (9.33) (7.97) 4.04 11.89 9.54 (14.54)(c) (13.26)(c) 2.01(c) 10.57(c) 8.31(c) Class B ................................. (9.53) (8.81) 2.80 11.54 9.22 (14.05)(d) (13.37)(d) 1.85(d) 11.28(d) 9.09(d) Class C ................................. (9.52) (8.59) 3.22 11.06 8.77 (10.42)(e) (9.51)(e) 3.22 11.06 8.77 Class I ................................. (9.30) (7.95) 3.92 11.83 9.49
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, 2008 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 LESS THAN ONE YEAR ARE NOT ANNUALIZED. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA PRESENTED. VISIT WWW.GABELLI.COM FOR PERFORMANCE INFORMATION AS OF THE MOST RECENT MONTH END. INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES, AND EXPENSES OF THE FUND BEFORE INVESTING. THE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THIS AND OTHER MATTERS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. THE CLASS AAA SHARES' NET ASSET VALUES ARE USED TO CALCULATE PERFORMANCE FOR THE PERIODS PRIOR TO THE ISSUANCE OF CLASS 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 NET ASSET VALUE ("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. -------------------------------------------------------------------------------- THE GABELLI WOODLAND SMALL CAP VALUE FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) For the Six Month Period from October 1, 2007 through March 31, 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. Beginning Ending Annualized Expenses Account Value Account Value Expense Paid During 10/01/07 03/31/08 Ratio Period* -------------------------------------------------------------------------------- THE GABELLI WOODLAND SMALL CAP VALUE FUND -------------------------------------------------------------------------------- ACTUAL FUND RETURN Class AAA $1,000.00 $ 864.30 2.01% $ 9.37 Class A $1,000.00 $ 864.40 2.01% $ 9.37 Class B $1,000.00 $ 860.50 2.76% $12.84 Class C $1,000.00 $ 861.40 2.76% $12.84 Class I** $1,000.00 $ 864.30 1.76% $ 3.50 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 $1,006.91 1.76% $ 3.77 * 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. ** Class I Shares were first issued on January 11, 2008. Account values and expense ratios are calculated from January 11, 2008 through March 31, 2008. 2 SUMMARY OF PORTFOLIO HOLDINGS (UNAUDITED) The following table presents portfolio holdings as a percent of total net assets as of March 31, 2008: THE GABELLI WOODLAND SMALL CAP VALUE FUND Diversified Industrial ............................................... 15.0% Business Services .................................................... 13.1% Consumer Products .................................................... 8.8% Equipment and Supplies ............................................... 7.6% Computer Software and Services ....................................... 7.3% Specialty Chemicals .................................................. 6.6% Financial Services ................................................... 6.0% Health Care .......................................................... 5.8% U.S. Government Obligations .......................................... 5.7% Energy and Utilities ................................................. 5.6% Food and Beverage .................................................... 4.6% Hotels and Gaming .................................................... 3.8% Aerospace ............................................................ 3.3% Automotive: Parts and Accessories .................................... 2.4% Entertainment ........................................................ 2.0% Telecommunications ................................................... 1.3% Communications Equipment ............................................. 1.0% Real Estate Investment Trusts ........................................ 0.0% Other Assets and Liabilities (Net) ................................... 0.1% ----- 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 DECEMBER 31, 2007. 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. 3 THE GABELLI WOODLAND SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS -- MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- MARKET SHARES COST VALUE ------ -------------- -------------- COMMON STOCKS -- 94.2% AEROSPACE -- 3.3% 1,465 Alliant Techsystems Inc.+ ....... $ 100,915 $ 151,672 3,370 Kaman Corp. ..................... 96,990 95,337 -------------- -------------- 197,905 247,009 -------------- -------------- AUTOMOTIVE: PARTS AND ACCESSORIES -- 2.4% 6,490 Midas Inc.+ ..................... 122,392 111,563 10,830 Noble International Ltd. ........ 212,771 67,688 -------------- -------------- 335,163 179,251 -------------- -------------- BUSINESS SERVICES -- 13.1% 8,090 Deluxe Corp. .................... 195,190 155,409 12,150 Edgewater Technology Inc.+ ...... 92,991 64,030 12,610 Federal Signal Corp. ............ 148,084 176,036 8,470 Imation Corp. ................... 271,461 192,608 7,350 Intermec Inc.+ .................. 178,882 163,096 3,320 The Brink's Co. ................. 115,092 223,038 -------------- -------------- 1,001,700 974,217 -------------- -------------- COMMUNICATIONS EQUIPMENT -- 1.0% 8,540 Radyne Corp.+ ................... 78,769 72,761 -------------- -------------- COMPUTER SOFTWARE AND SERVICES -- 7.3% 7,300 eResearch Technology Inc.+ ...... 53,381 90,666 11,500 Furmanite Corp.+ ................ 70,489 97,750 24,410 Lawson Software Inc.+ ........... 184,137 183,808 21,530 Tier Technologies Inc., Cl. B+ .. 209,466 171,594 -------------- -------------- 517,473 543,818 -------------- -------------- CONSUMER PRODUCTS -- 8.8% 7,770 Alberto-Culver Co. .............. 185,737 212,976 2,085 Church & Dwight Co. Inc. ........ 53,976 113,090 11,180 Kimball International Inc., Cl. B ......................... 149,008 119,850 11,600 Sally Beauty Holdings Inc.+ ..... 102,151 80,040 4,680 Steinway Musical Instruments Inc.+ ......................... 152,717 133,473 -------------- -------------- 643,589 659,429 -------------- -------------- DIVERSIFIED INDUSTRIAL -- 15.0% 2,880 Barnes Group Inc. ............... 77,491 66,096 6,150 Columbus McKinnon Corp.+ ........ 149,602 190,527 14,910 Griffon Corp.+ .................. 165,850 128,226 9,100 Hawk Corp., Cl. A+ .............. 125,355 159,432 7,920 LeCroy Corp.+ ................... 75,284 68,587 29,440 Magnetek Inc.+ .................. 144,666 101,274 5,600 OSI Systems Inc.+ ............... 150,311 128,912 2,020 Pentair Inc. .................... 74,321 64,438 3,500 Texas Industries Inc. ........... 156,835 210,385 -------------- -------------- 1,119,715 1,117,877 -------------- -------------- ENERGY AND UTILITIES -- 5.6% 2,879 ALLETE Inc. ..................... 82,984 111,187 3,710 Comstock Resources Inc.+ ........ 103,496 149,513 5,740 Mariner Energy Inc.+ ............ 106,895 155,037 -------------- -------------- 293,375 415,737 -------------- -------------- ENTERTAINMENT -- 2.0% 7,170 Discovery Holding Co., Cl. A+ ... 108,572 152,147 -------------- -------------- MARKET SHARES COST VALUE ------ -------------- -------------- EQUIPMENT AND SUPPLIES -- 7.6% 23,600 C&D Technologies Inc.+ .......... $ 128,303 $ 118,472 2,230 Powell Industries Inc.+ ......... 88,982 87,795 4,770 Tennant Co. ..................... 96,287 189,894 4,150 The Toro Co. .................... 110,608 171,768 -------------- -------------- 424,180 567,929 -------------- -------------- FINANCIAL SERVICES -- 6.0% 15,880 Franklin Bank Corp.+ ............ 169,728 48,116 4,950 Hilb Rogal & Hobbs Co. .......... 212,773 155,777 2,830 HMN Financial Inc. .............. 98,886 65,316 14,700 NewAlliance Bancshares Inc. ..... 218,159 180,222 -------------- -------------- 699,546 449,431 -------------- -------------- FOOD AND BEVERAGE -- 4.6% 14,320 Del Monte Foods Co. ............. 171,229 136,470 3,100 PepsiAmericas Inc. .............. 50,889 79,143 15,260 Triarc Cos. Inc., Cl. A ......... 177,782 96,138 4,880 Triarc Cos. Inc., Cl. B ......... 56,528 33,721 -------------- -------------- 456,428 345,472 -------------- -------------- HEALTH CARE -- 5.8% 5,210 K-V Pharmaceutical Co., Cl. A+ .. 147,865 130,042 3,616 SurModics Inc.+ ................. 125,588 151,438 3,480 West Pharmaceutical Services Inc. .......................... 143,094 153,920 -------------- -------------- 416,547 435,400 -------------- -------------- HOTELS AND GAMING -- 3.8% 5,370 Gaylord Entertainment Co.+ ...... 144,011 162,657 6,460 Marcus Corp. .................... 152,320 124,032 -------------- -------------- 296,331 286,689 -------------- -------------- REAL ESTATE INVESTMENT TRUSTS -- 0.0% 2,135 Deerfield Capital Corp. ......... 3,032 3,011 -------------- -------------- SPECIALTY CHEMICALS -- 6.6% 5,100 Arch Chemicals Inc. ............. 148,969 190,026 2,560 FMC Corp. ....................... 93,043 142,054 4,200 H.B. Fuller Co. ................. 117,601 85,722 1,010 NewMarket Corp. ................. 53,833 76,205 -------------- -------------- 413,446 494,007 -------------- -------------- TELECOMMUNICATIONS -- 1.3% 11,400 HickoryTech Corp. ............... 109,915 93,138 -------------- -------------- TOTAL COMMON STOCKS ............. 7,115,686 7,037,323 -------------- -------------- PRINCIPAL AMOUNT ------------ U.S. GOVERNMENT OBLIGATIONS -- 5.7% $ 423,000 U.S. Treasury Bills, 1.261% to 2.161%++, 05/08/08 to 06/26/08 ...................... 421,904 421,891 -------------- -------------- TOTAL INVESTMENTS -- 99.9% ...... $ 7,537,590 7,459,214 ============== OTHER ASSETS AND LIABILITIES (NET) -- 0.1% ...... 10,080 -------------- NET ASSETS -- 100.0% ............................ $ 7,469,294 ============== ---------- + Non-income producing security. ++ Represents annualized yield at date of purchase. See accompanying notes to financial statements. 4 THE GABELLI WOODLAND SMALL CAP VALUE FUND STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- ASSETS: Investments, at value (cost $7,537,590) ................... $ 7,459,214 Cash ...................................................... 77,936 Receivable for investments sold ........................... 54,530 Receivable for Fund shares sold ........................... 400 Dividends receivable ...................................... 4,333 Prepaid expenses .......................................... 26,266 ------------ TOTAL ASSETS .............................................. 7,622,679 ------------ LIABILITIES: Payable for investments purchased ......................... 96,990 Payable for Fund shares redeemed .......................... 2,516 Payable for investment advisory fees ...................... 1,402 Payable for distribution fees ............................. 1,659 Payable for legal and audit fees .......................... 29,379 Payable for shareholder communications expenses ................................ 16,602 Other accrued expenses .................................... 4,837 ------------ TOTAL LIABILITIES ......................................... 153,385 ------------ NET ASSETS applicable to 807,272 shares outstanding ..................................... $ 7,469,294 ============ NET ASSETS CONSIST OF: Paid-in capital, each class at $0.001 par value ........... $ 7,169,820 Accumulated net investment loss ........................... (33,029) Accumulated net realized gain on investments .............. 410,879 Net unrealized depreciation on investments ................ (78,376) ------------ NET ASSETS ................................................ $ 7,469,294 ============ SHARES OF CAPITAL STOCK: CLASS AAA: Net Asset Value, offering and redemption price per share ($7,199,147 / 777,306 shares outstanding; 100,000,000 shares authorized) ............ $ 9.26 ============ CLASS A: Net Asset Value and redemption price per share ($50,890 / 5,455 shares outstanding; 50,000,000 shares authorized) .......................... $ 9.33 ============ Maximum offering price per share (NAV /9425, based on maximum sales charge of 5.75% of the offering price) .................................... $ 9.90 ============ CLASS B: Net Asset Value and offering price per share ($158.71 / 17.25 shares outstanding; 50,000,000 shares authorized) .......................... $ 9.20(a) ============ CLASS C: Net Asset Value and offering price per share ($163,768 / 18,521 shares outstanding; 50,000,000 shares authorized) .......................... $ 8.84(a) ============ CLASS I: Net Asset Value, offering and redemption price per share ($55,330 / 5,973 shares outstanding; 50,000,000 shares authorized) .......................... $ 9.26 ============ STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2008 (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends ................................................. $ 44,275 Interest .................................................. 7,059 ------------ TOTAL INVESTMENT INCOME ................................... 51,334 ------------ EXPENSES: Investment advisory fees .................................. 41,627 Distribution fees - Class AAA ............................. 10,004 Distribution fees - Class A ............................... 69 Distribution fees - Class B ............................... 1 Distribution fees - Class C ............................... 1,224 Legal and audit fees ...................................... 15,430 Shareholder communications expenses ....................... 11,968 Registration expenses ..................................... 11,835 Shareholder services fees ................................. 6,372 Custodian fees ............................................ 4,483 Interest expense .......................................... 218 Directors' fees ........................................... 126 Miscellaneous expenses .................................... 3,446 ------------ TOTAL EXPENSES BEFORE FEES WAIVED AND EXPENSES REIMBURSED BY ADVISER ......................... 106,803 LESS: Fees waived and expenses reimbursed by Adviser .......................................... (22,308) Custodian fee credits .................................. (132) ------------ NET EXPENSES .............................................. 84,363 ------------ NET INVESTMENT LOSS ....................................... (33,029) ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments .......................... 466,648 Net change in unrealized appreciation/depreciation on investments ......................................... (1,653,306) ------------ NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS ......................................... (1,186,658) ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................ $ (1,219,687) ============ ---------- (a) Redemption price varies based on length of time held. See accompanying notes to financial statements. 5 THE GABELLI WOODLAND SMALL CAP VALUE FUND STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 2008 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2007 ---------------- ------------------ OPERATIONS: Net investment income (loss) ...................................... $ (33,029) $ 34,514 Net realized gain on investments .................................. 466,648 1,560,963 Net change in unrealized appreciation/depreciation on investments ..................................................... (1,653,306) 267,092 ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ... (1,219,687) 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 ...................................................... 594,290 214,548 Class A ........................................................ 3,295 (40,999) Class B ........................................................ 26 36 Class C ........................................................ (50,598) (103,753) Class I ........................................................ 56,480 -- ------------- ------------ NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS ........ 603,493 69,832 ------------- ------------ REDEMPTION FEES ................................................... 2 9 ------------- ------------ NET DECREASE IN NET ASSETS ........................................ (1,930,797) (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) ....................................... $ 7,469,294 $ 9,400,091 ============= ============
See accompanying notes to financial statements. 6 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 September 30 of Period (Loss)(a)(b) Investments Operations Income Investments Distributions ------------- --------- ------------ -------------- ---------- ---------- ----------- ------------- CLASS AAA 2008(e) $ 12.61 $ (0.04) $ (1.51) $ (1.55) -- $ (1.80) $ (1.80) 2007 13.35 0.05 2.44 2.49 $ (0.06) (3.17) (3.23) 2006 14.64 (0.12) 0.07 (0.05) -- (1.24) (1.24) 2005 12.79 (0.11) 2.69 2.58 -- (0.73) (0.73) 2004 10.58 (0.14) 2.38 2.24 -- (0.03) (0.03) 2003(i) 10.00 (0.07) 0.65 0.58 -- -- -- CLASS A 2008(e) $ 12.69 $ (0.04) $ (1.52) $ (1.56) -- $ (1.80) $ (1.80) 2007 13.36 0.13 2.39 2.52 $ (0.02) (3.17) (3.19) 2006 14.65 (0.12) 0.07 (0.05) -- (1.24) (1.24) 2005 12.79 (0.09) 2.68 2.59 -- (0.73) (0.73) 2004 10.57 (0.14) 2.39 2.25 -- (0.03) (0.03) 2003(i) 10.00 (0.07) 0.64 0.57 -- -- -- CLASS B 2008(e) $ 12.60 $ (0.08) $ (1.52) $ (1.60) -- $ (1.80) $ (1.80) 2007 13.37 (0.09) 2.49 2.40 -- (3.17) (3.17) 2006 14.77 (0.25) 0.09 (0.16) -- (1.24) (1.24) 2005 12.98 (0.21) 2.73 2.52 -- (0.73) (0.73) 2004 10.59 0.02 2.40 2.42 -- (0.03) (0.03) 2003(i) 10.00 (0.12) 0.71 0.59 -- -- -- CLASS C 2008(e) $ 12.16 $ (0.08) $ (1.44) $ (1.52) -- $ (1.80) $ (1.80) 2007 13.00 (0.03) 2.36 2.33 -- (3.17) (3.17) 2006 14.39 (0.21) 0.06 (0.15) -- (1.24) (1.24) 2005 12.66 (0.20) 2.66 2.46 -- (0.73) (0.73) 2004 10.55 (0.23) 2.37 2.14 -- (0.03) (0.03) 2003(i) 10.00 (0.11) 0.66 0.55 -- -- -- CLASS I 2008(j) $ 9.41 $ (0.00)(f) $ (0.15) $ (0.15) -- -- -- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA -------------------------------------------------------------- Expenses Expenses Net Asset Net Assets Net Net of Before Period Value, End of Investment Waivers/ Waivers/ Portfolio Ended Redemption End of Total Period Income/ Reimburse- Reimburse- Turnover September 30 Fees(a) Period Return+ (in 000's) (Loss)(b) ments(c) ments(d) Rate++ ------------- ---------- --------- -------- ---------- ---------- ----------- ---------- --------- CLASS AAA 2008(e) $ 0.00(f) $ 9.26 (13.57)% $ 7,199 (0.77)%(g) 2.01%(g)(h) 2.54%(g) 23% 2007 0.00(f) 12.61 20.71 9,040 0.38 2.01 2.33 51 2006 0.00(f) 13.35 (0.35) 9,137 (0.84) 2.01 2.31 59 2005 0.00(f) 14.64 20.67 11,839 (0.78) 2.01(h) 2.99 35 2004 -- 12.79 21.22 3,388 (1.14) 2.00 5.94 45 2003(i) -- 10.58 5.80 2,323 (0.97)(g) 2.00(g) 15.05(g) 39 CLASS A 2008(e) $ 0.00(f) $ 9.33 (13.56)% $ 51 (0.77)%(g) 2.01%(g)(h) 2.54%(g) 23% 2007 0.00(f) 12.69 20.94 65 1.00 2.01 2.33 51 2006 0.00(f) 13.36 (0.36) 100 (0.83) 2.01 2.31 59 2005 0.00(f) 14.65 20.76 108 (0.68) 2.01(h) 3.17 35 2004 -- 12.79 21.34 47 (1.16) 2.00 5.94 45 2003(i) -- 10.57 5.70 3 (0.97)(g) 2.00(g) 15.05(g) 39 CLASS B 2008(e) $ 0.00(f) $ 9.20 (13.95)% $ 0.1 (1.66)%(g) 2.76%(g)(h) 3.28%(g) 23% 2007 0.00(f) 12.60 19.73 0.1 (0.68) 2.76 3.07 51 2006 0.00(f) 13.37 (1.19) 0.1 (1.77) 2.76 3.06 59 2005 0.00(f) 14.77 19.86 0.1 (1.50) 2.75(h) 3.87 35 2004 -- 12.98 22.91 0.1 0.18 2.75 6.69 45 2003(i) -- 10.59 5.90 0.1 (1.72)(g) 2.75(g) 15.80(g) 39 CLASS C 2008(e) $ 0.00(f) $ 8.84 (13.86)% $ 164 (1.58)%(g) 2.76%(g)(h) 3.29%(g) 23% 2007 0.00(f) 12.16 19.84 295 (0.26) 2.76 3.08 51 2006 0.00(f) 13.00 (1.11) 425 (1.58) 2.76 3.06 59 2005 0.00(f) 14.39 19.91 189 (1.46) 2.76(h) 3.87 35 2004 -- 12.66 20.33 41 (1.88) 2.75 6.69 45 2003(i) -- 10.55 5.50 118 (1.72)(g) 2.75(g) 15.80(g) 39 CLASS I 2008(j) $ 0.00(f) $ 9.26 (13.57)% $ 55 (0.08)%(g) 1.76%(g) 2.31%(g) 23%
---------- + 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. Had this policy been adopted retroactively, the portfolio turnover rate for the fiscal years ended September 30, 2007, 2006, 2005, 2004, and 2003 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 period, net investment income per share and the ratio to average net assets are not necessarily correlated among the different classes of shares. (c) The Fund incurred interest expense during six months ended March 31, 2008 and the fiscal year ended September 30, 2007. If interest expense had not been incurred, the ratios of operating expenses to average net assets would have been 2.00% and 2.00% (Class AAA), 2.00% and 2.00% (Class A), 2.75% and 2.75% (Class B), 2.75% and 2.75% (Class C), and 1.20% (Class I), respectively. (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) For the six months ended March 31, 2008, unaudited. (f) Amount represents less than $0.005 per share. (g) Annualized. (h) 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 six months ended March 31, 2008 and the fiscal year ended September 30, 2005 would have been 2.00% and 2.00% (Class AAA), 2.00% and 2.00% (Class A), 2.75% and 2.75% (Class B), 2.75% and 2.75% (Class C), and 1.20% (Class I), respectively. Custodian fee credits for the fiscal year ended September 30, 2007 were minimal. (i) From the commencement of investment operations on December 31, 2002 through September 30, 2003. (j) From the commencement of offering Class I Shares on January 11, 2008 through March 31, 2008. See accompanying notes to financial statements. 7 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- 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. 8 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- In September 2006, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") 157, Fair Value Measurements, which clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Adoption of SFAS 157 requires the use of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. As of March 31, 2008, the adoption of SFAS 157 had no impact on the amounts reported in the financial statements. In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161") was issued and 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. The impact on the Fund's financial statement disclosures, if any, is currently being assessed. 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 March 31, 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. 9 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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. The tax character of distributions paid during the fiscal year ended September 30, 2007 was as follows: DISTRIBUTIONS PAID FROM: Ordinary income (inclusive of short-term capital gains) .... $ 320,582 Net long-term capital gains .................. 1,873,267 ----------- Total distributions paid ..................... $ 2,193,849 =========== 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. 10 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- The following summarizes the tax cost of investments and the related unrealized appreciation/(depreciation) at March 31, 2008: GROSS GROSS NET UNREALIZED UNREALIZED UNREALIZED COST APPRECIATION DEPRECIATION DEPRECIATION ---------- ------------ ------------- ------------ Investments ... $7,539,272 $982,825 $(1,062,883) $(80,058) FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" (the "Interpretation") established a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether the Fund is taxable in a particular jurisdiction) and required certain expanded tax disclosures. For the six months ended March 31, 2008, the Fund did not have any 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. The Fund is not subject to examination by U.S. federal tax authorities for tax years before 2003 and by state tax authorities for tax years before 2002. 3. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS. The Fund has entered into an investment advisory agreement (the "Advisory Agreement") with the Adviser which provides that the Fund will pay the Adviser a fee, computed daily and paid monthly, at the annual rate of 1.00% of the value of its average daily net assets. In accordance with the Advisory Agreement, the Adviser provides a continuous investment program for the Fund's portfolio, oversees the administration of all aspects of the Fund's business and affairs, and pays the compensation of all Officers and Directors of the Fund who are affiliated persons of the Adviser. The Adviser has 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 net assets for Class AAA, Class A, Class B, Class C, and Class I Shares, respectively, through September 30, 2008. For the six months ended March 31, 2008, the Adviser reimbursed the Fund in the amount of $22,308. 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 March 31, 2008, the cumulative amount which the Fund may repay the Adviser is $85,401. The Corporation pays each Director who is not considered to be an affiliated person an annual retainer of $6,000 plus $1,000 for each Board meeting attended and they are reimbursed for any out of pocket expenses incurred in attending meetings. All Board committee members receive $500 per meeting attended. 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. 11 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 5. PORTFOLIO SECURITIES. Purchases and proceeds from the sales of securities for the six months ended March 31, 2008, other than short-term securities and U.S. Government obligations, aggregated $1,822,602 and $2,369,809, respectively. 6. TRANSACTIONS WITH AFFILIATES. During the six months ended March 31, 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 six months ended March 31, 2008, there were no borrowings under the line of credit. 8. CAPITAL STOCK TRANSACTIONS. 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 six months ended March 31, 2008 and the fiscal year ended September 30, 2007 amounted to $2 and $9, respectively. The redemption fee does not apply to redemptions of shares where (i) the shares were purchased through automatic reinvestment of dividends or other 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. 12 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- Transactions in shares of capital stock were as follows:
SIX MONTHS ENDED MARCH 31, 2008 YEAR ENDED (UNAUDITED) SEPTEMBER 30, 2007 ----------------------- ------------------------ SHARES AMOUNT SHARES AMOUNT -------- ------------ --------- ------------ CLASS AAA CLASS AAA ----------------------- ------------------------ Shares sold ............................................... 22,008 $ 225,270 37,674 $ 483,712 Shares issued upon reinvestment of distributions .......... 124,080 1,259,410 168,367 1,958,111 Shares redeemed ........................................... (85,478) (890,390) (173,852) (2,227,275) -------- ------------ --------- ------------ Net increase ........................................... 60,610 $ 594,290 32,189 $ 214,548 ======== ============ ========= ============ CLASS A CLASS A ----------------------- ------------------------ Shares sold ............................................... 343 $ 3,298 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 $ 3,295 (2,412) $ (40,999) ======== ============ ========= ============ CLASS B CLASS B ----------------------- ------------------------ Shares issued upon reinvestment of distributions .......... 3 $ 26 3 $ 36 -------- ------------ --------- ------------ Net increase ........................................... 3 $ 26 3 $ 36 ======== ============ ========= ============ CLASS C CLASS C ----------------------- ------------------------ Shares sold ............................................... 282 $ 3,500 810 $ 9,500 Shares issued upon reinvestment of distributions .......... 4,463 43,337 8,824 99,535 Shares redeemed ........................................... (10,494) (97,435) (18,030) (212,788) -------- ------------ --------- ------------ Net decrease ........................................... (5,749) $ (50,598) (8,396) $ (103,753) ======== ============ ========= ============ CLASS I* ----------------------- Shares sold ............................................... 6,764 $ 63,920 Shares redeemed ........................................... (791) (7,440) -------- ------------ Net increase ........................................... 5,973 $ 56,480 ======== ============
---------- * 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. 13 THE GABELLI WOODLAND SMALL CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) -------------------------------------------------------------------------------- 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. On a separate matter, in September 2005, the Adviser was informed by the staff of the SEC that the staff may recommend to the Commission that an administrative remedy and a monetary penalty be sought from the Adviser in connection with the actions of two of nine closed-end funds managed by the Adviser relating to Section 19(a) and Rule 19a-1 of the 1940 Act. These provisions require registered investment companies to provide written statements to shareholders when a dividend is made from a source other than net investment income. While the two closed-end funds sent annual statements and provided other materials containing this information, the funds did not send written statements to shareholders with each distribution in 2002 and 2003. The Adviser believes that all of the funds are now in compliance. The Adviser believes that these matters would have no effect on the Fund or any material adverse effect on the Adviser or its ability to manage the Fund. 14 THE GABELLI WOODLAND SMALL CAP VALUE FUND BOARD CONSIDERATION AND RE-APPROVAL OF ADVISORY AGREEMENT (UNAUDITED) During the six months ended March 31, 2008, the Board of Directors of the Corporation approved the continuation of the Investment Advisory Agreement with the Adviser for the Fund on the basis of the recommendation by the Directors (the "independent directors") who are not "interested persons" of the Fund. The following paragraphs summarize the material information and factors considered by the independent directors as well as their conclusions relative to such factors. NATURE, EXTENT AND QUALITY OF SERVICES. The Independent Board Members considered information regarding the portfolio manager, the depth of the analyst pool available to the Adviser and the portfolio manager, the scope of administrative, shareholder, and other services supervised or provided by the Adviser and the absence of significant service problems reported to the Board. The Independent Board Members noted the experience, length of service, and reputation of the portfolio manager. INVESTMENT PERFORMANCE. The Independent Board Members reviewed the performance of the Fund over various periods against a peer group of small cap value and core funds. The Independent Board Members noted that the Fund's performance was at or near the top one-third for the one and three year periods and considerably below average for the five year period. The Independent Board Members also noted that the Fund's performance had improved relative to its peers over time. PROFITABILITY. The Independent Board Members reviewed summary data regarding the lack of profitability of the Fund to the Adviser both with an administrative overhead charge and without such a charge. The Independent Board Members also noted that an affiliated broker of the Adviser received distribution fees and minor amounts of sales commissions and that the Adviser received a moderate level of soft dollar research benefits through the Fund's portfolio brokerage. ECONOMIES OF SCALE. The Independent Board Members discussed the major elements of the Adviser's cost structure and the relationship of those elements to potential economies of scale. The Independent Board Members agreed that economies of scale were not an issue for this small and slow growing Fund that has been unprofitable to the Adviser. SHARING OF ECONOMIES OF SCALE. The Independent Board Members noted that the investment management fee schedule for the Fund does not take into account any potential economies of scale that may develop or any losses or diminished profitability to the Adviser in prior years. SERVICE AND COST COMPARISONS. The Independent Board Members compared the expense ratios of the investment management fee, other expenses, and total expenses of the Fund to similar expense ratios of the peer group of small cap value and core funds and noted that the Adviser's management fee includes substantially all administrative services of the Fund as well as investment advisory services. The Independent Board Members noted that the Fund's expense ratios after waivers were above and the Fund's size was far below average within this group and that the Adviser had been waiving substantial portions of its fees in order to make the Fund a more attractive investment. The Independent Board Members also noted that the management fee structure before waivers was the same as that in effect for most of the Gabelli funds. The Independent Board Members did not compare the management fee to the fee for other types of accounts managed by the Adviser. CONCLUSIONS. The Independent Board Members concluded that the Fund enjoyed highly experienced portfolio management services, good ancillary services, and an improving performance record during its limited life. The Independent Board Members also concluded that the Fund's expense ratios were reasonable in light of the lack of profitability to the Adviser of managing the Fund, and that economies of scale were not a factor in their thinking at this time. The Independent Board Members did not view the potential profitability of ancillary services as material to their decision. On the basis of the foregoing and without assigning particular weight to any single conclusion, the Independent Board Members determined to recommend continuation of the Investment Management Agreement to the full Board. 15 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 Robert J. Morrissey CHAIRMAN AND CHIEF ATTORNEY-AT-LAW EXECUTIVE OFFICER MORRISSEY, HAWKINS & LYNCH GAMCO INVESTORS, INC. Anthony R. Pustorino Anthony J. Colavita CERTIFIED PUBLIC ACCOUNTANT, ATTORNEY-AT-LAW PROFESSOR EMERITUS ANTHONY J. COLAVITA, P.C. PACE UNIVERSITY Vincent D. Enright Anthonie C. van Ekris FORMER SENIOR VICE PRESIDENT CHAIRMAN AND CHIEF FINANCIAL OFFICER BALMAC INTERNATIONAL, INC. KEYSPAN CORP. Salvatore J. Zizza John D. Gabelli CHAIRMAN SENIOR VICE PRESIDENT ZIZZA & CO., LTD. GABELLI & COMPANY, INC. OFFICERS AND PORTFOLIO MANAGER Elizabeth M. Lilly, CFA Bruce N. Alpert PORTFOLIO MANAGER PRESIDENT AND SECRETARY Peter D. Goldstein Agnes Mullady CHIEF COMPLIANCE OFFICER 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 [GRAPHIC OMITTED] E P Gabelli Triangle P M MANAGEMENT S V CASH FLOW RESEARCH THE GABELLI WOODLAND SMALL CAP VALUE FUND SEMI ANNUAL REPORT MARCH 31, 2008 -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- GAB840Q108SR ITEM 2. CODE OF ETHICS. Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. 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) Not applicable. (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 5/27/08 ---------------------------------------------------------------------------- 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 5/27/08 ---------------------------------------------------------------------------- By (Signature and Title)* /s/ Agnes Mullady ------------------------------------------------------- Agnes Mullady, Principal Financial Officer and Treasurer Date 5/27/08 ---------------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature.